Antitrust Law Daily Wrap Up, ADVERTISING—7thCir: Accusing Competitor of Fraud in Presentations to Customers’ Consulting Engineers Could Be Basis for Lanham Act False Ad Claim, (Oct 16, 2012)

By William Zale, J.D.

Turbo blower manufacturer KTurbo could have engaged in commercial advertising or promotion under the Lanham Act when its CEO made presentations to water treatment facilities’ consulting engineers accusing a competitor, Neuros, of fraud in representing the efficiency of its products, the U.S. Court of Appeals in Chicago has ruled (Neuros Co., Ltd. v. KTurbo, Inc., October 15, 2012, Posner, R.). The court held that Neuros’s false advertising claims under the Lanham Act and Illinois Uniform Deceptive Trade Practices Act should not have been dismissed.

A bench trial resulted in a judgment in favor of Neuros on its claim of defamation and an award of $10,000 in general damages and $50,000 in punitive damages (which the appellate court said was “too small” given the outrageousness of the conduct, although Neuros did not seek more on appeal). The trial court rejected all other claims.

Attorney’s Fees, Injunctive Relief

On appeal, the court observed that the dismissal of the Lanham Act claim might seem academic given the absence of provable injury, for there was no contention that general damages may be awarded for violating the Lanham Act, and the Act limits punitive damages to threefold the actual damages, 15 U.S.C. § 1117(a). But the Act permits the award of attorneys’ fees to the prevailing party in “exceptional cases.” If the trial court erred in ruling that the Lanham Act was inapplicable, the case had to be remanded for consideration of whether to award attorneys’ fees and injunctive relief, according to the court.

The court pointed out that KTurbo persisted in its false representations to the engineering community concerning Neuros’s blowers even after the suit was filed and compelling evidence was presented that the representations were false. This weighed in favor of an award of attorneys’ fees by indicating that this part of KTurbo’s defense was objectively unreasonable: KTurbo persisted in denying that the slide show and related marketing activities were deceptive long after it was evident that the denial was frivolous, the court noted.

Commercial Advertising or Promotion

The Lanham Act is limited to misrepresentations “in commercial advertising or promotion,” under 15 U.S.C. § 1125(a)(1)(B). Seventh Circuit precedent did not hold that “advertising or promotion” is always limited to published or broadcast materials—an interpretation that would put the court at odds with all seven other federal courts of appeals to have considered the issue, the court said.

A classic advertising campaign is not the only form of marketing embraced by the statutory term “commercial advertising or promotion.” If “advertising or promotion” just meant “advertising,” then “promotion” would do no work in the statute, the court explained.

KTurbo’s negative ads reached fewer customers than a conventional campaign of advertising or promotion would have done, but that was because there are fewer customers for high-speed turbo blowers in waste water treatment plants than there are for dog collars. Road shows are a common method of promotion, the court observed.

The trial court was troubled by the fact that “there is no evidence that the statements at issue were presented to any members of the general public.” However, members of the general public do not buy high-speed turbo blowers or advise waste water treatment plants on their purchase, the court noted. The Lanham Act claim and the parallel claim under the Illinois Uniform Deceptive Trade Practices Act should not have been dismissed, the court concluded.

The case numbers are 11-2260 and 11-2375.

Joshua D. Yount (Mayer Brown LLP) for Neuros Co., Ltd. Constance Susan Martin (Schwabe, Williamson & Wyatt) for KTurbo, Inc.

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