Antitrust Law Daily Wrap Up, ADVERTISING—D. Md.: Lanham Act, antitrust counterclaims against payment processor dismissed, (Dec 31, 2014)

By Jody Coultas, J.D.

First Data Merchant Services Corporation was granted dismissal of SecurityMetrics, Inc.’s Lanham Act and antitrust counterclaims by the federal district court in Baltimore, in light of SecurityMetrics’ failure to show the falsity of alleged statements or harm to competition (First Data Merchant Services Corporation v. SecurityMetrics, Inc., December 30, 2014, Bennett, R.).

First Data Corporation is a global payment processor that processes credit and debit card transactions for merchants and independent sales organizations (ISOs). SecurityMetrics provided security standard compliance services to some merchants for whom First Data provides processing services. Under an agreement between First Data and SecurityMetrics, First Data promoted SecurityMetrics to its merchants as its preferred vendor for compliance validation services, and SecurityMetrics developed a protocol for reporting validation of compliance.

In June 2012, First Data allegedly began offering a service called PCI Rapid Comply that competed with SecurityMetrics’ services. First Data would purportedly count fees for PCI Rapid Comply in calculating the billing minimums it imposed on ISOs, but not fees paid to other compliance vendors. SecurityMetrics alleged that First Data represented that merchants who used compliance vendors other than PCI Rapid Comply would have to pay for those services in addition to the cost of PCI Rapid Comply.

In the wake of a settlement between the parties, First Data filed suit again, alleging post-settlement misconduct by SecurityMetrics. SecurityMetrics responded with a range of counterclaims.

In November 2013, the court found that First Data sufficiently alleged Sherman Act tying and attempted monopolization, but not monopolization, as well as Maryland tying and predatory pricing, claims against SecurityMetrics. Since the initiation of this lawsuit, First Data has apparently decided to wind down its PCI Rapid Comply service.

Lanham Act claims. First Data’s Lanham Act claims were based on various representations by SecurityMetrics that allegedly constituted false endorsement, false advertising, and/or trademark infringement. The parties submitted proposed draft orders and ultimately came to agreement on a Consent Order. Therefore, SecurityMetrics’ motion for partial summary judgment was moot with respect to those claims.

Lanham Act counterclaims. First Data was entitled to summary judgment on the false advertising claim, according to the court. SecurityMetrics’ false advertising counterclaim addressed two statements made as part of First Data’s promotional materials on its website regarding fees. First Data countered that the statements were literally true and SecurityMetrics failed to show the statements were likely to mislead a consumers. The parties agreed that First Data charged its merchants the standard fee, but provided a refund in the amount of the third-party vendor’s security compliance fee in some cases. Merchants were charged the full fee regardless of whether the merchant used a third-party vendor. The statements on their face and in light of the evidence in this case were not false. A reasonable jury could only conclude that the statements are misleading rather than literally false, and such misleading statements require extrinsic evidence of confusion or deception. No such proof was available in this case.

The court also held that First Data was entitled to summary judgment on SecurityMetrics’ false endorsement claim. A claim of false endorsement arises when the name, symbol, or other identifying likeliness is “used in such a way as to deceive the public into believing that [the plaintiff] endorsed, sponsored, or approved of the defendant’s product.” SecurityMetrics based its false endorsement claim on First Data’s use of the name “PCI Rapid Comply” and First Data’s statement that “Claims that certain services offered by FDMS are not ‘approved’ by the PCI Security Council or that FDMS is selling PCI compliance products it is not authorized to sell are not true.” The court had already excluded SecurityMetrics’ proffered survey evidence regarding consumer perceptions of the name “PCI Rapid Comply.” The statement at issue was ambiguous and could not be considered literally false. SecurityMetrics failed to introduce any extrinsic evidence to support its claim.

Antitrust counterclaims. First Data was granted summary judgment of SecurityMetrics’ various antitrust counterclaims by the court. A loss of profits may only be recovered as antitrust damages where the loss stems from a competition-reducing aspect or effect of the defendant’s behavior. First Data argued that SecurityMetrics could not prove that First Data had any adverse effect on the availability, prices, quantity, quality, or competitive landscape of PCI reporting/validation services or otherwise caused any harm to competition. SecurityMetrics’ assertion that it lost over 280,000 merchant customers and that approximately 210,000 of those merchants no longer appear to have a PCI validation and compliance vendor due to First Data assessing Non-receipt of PCI Validation Fees was speculative and unsupported by expert testimony. Also lacking support was SecurityMetrics’ argument that price competition was impaired by First Data.

The case is No. RDB-12-2568.

Attorneys: Charles Neilson Curlett, Jr (Levin and Curlett LLC) for First Data Merchant Services Corp., and First Data Corp. Charles James Veverka (Maschoff Brennan), and J. Stephen Simms (Simms Showers LLP) for SecurityMetrics, Inc.

Companies: First Data Merchant Services Corporation; SecurityMetrics, Inc.

Cases: Advertising Antitrust MarylandNews