Antitrust Law Daily Wrap Up, ADVERTISING—EDNY: Cable Installer Fails to State Deceptive Practices, Unfair Competition, and False Advertising Claims Against Cable System Operator , (May 9, 2013)

By Tobias J. Gillett, J.D., LL.M.

A cable television installation and maintenance company failed to state New York deceptive practices, New York unfair competition, and Lanham Act false advertising claims against a cable system operator over the operator’s release of a statement indicating it was suspending its relationship with the company following the arrest of an employee for burglary, the operator’s solicitation of the company’s employees following the termination of its relationship with the company, and the operator’s alleged requirement that the company’s employees had to display the operator’s service mark without mention of the company, the federal district court in Long Island, New York has ruled (Nationwide CATV Auditing Services, Inc. v. Cablevision Systems Corp., May 7, 2013, Feuerstein, S.).

According to the complaint, Cablevision Systems Corporation operates cable television systems, and Nationwide CATV Auditing Services, Inc. provides installation and maintenance services on behalf of cable providers, formerly including Cablevision. In January 2012, a Nationwide employee was arrested while in a van with Cablevision signs on its doors, and was charged with various burglaries.

Following the arrest, Cablevision publicly announced that it was "immediately suspending work with the Nationwide subcontracting company, which provides a limited amount of work, only in Suffolk County, NY, pending a complete and thorough investigation." Nationwide alleged that it provided Cablevision with confidential information regarding its employees to assist Cablevision, and that Cablevision’s review did not disclose that Nationwide had committed any wrongdoing. Nonetheless, Cablevision terminated Nationwide’s contract based on its alleged failure to perform adequate background checks or to provide certifications required under the agreement between Nationwide and Cablevision.

Cablevision allegedly then used Nationwide’s confidential information to contact Nationwide’s employees to induce them to leave Nationwide and work for Cablevision or a competitor of Nationwide. Nationwide claimed Cablevision informed the employees that Nationwide was "no more," and that they would have to accept employment with Nationwide’s competitor in order to perform work for Cablevision.

Nationwide filed suit against Cablevision, asserting claims for unfair and deceptive trade practices under New York law, unfair competition under New York law, and violation of the Lanham Act. Cablevision filed a motion to dismiss.

Unfair and deceptive trade practices. The court explained that New York General Business Law §§349 and 350 prohibit "[d]eceptive acts or practices" and "[f]alse advertising" "in the conduct of any business." To state a claim under either section, "a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice."

Here, Nationwide alleged that Cablevision had misled consumers through its statement following the arrests by failing to disclose that "(1) Nationwide was Cablevision's top-performing contractor; (2) Cablevision had specifically authorized Nationwide to permit [the arrested employee] to perform [Contract] Work even after [the employee] had been accused of stealing from a Cablevision customer; (3) Cablevision's own background check of [the employee] even after his arrest was benign; and (4) some of the alleged burglaries occurred in homes serviced by Cablevision employees." Cablevision thus implied that it had protected consumers from burglaries by terminating Nationwide, when the termination in fact did nothing to protect consumers, according to Nationwide.

The court found that Cablevision’s alleged omissions could not support a deceptive practices claim. Cablevision had not claimed that it was providing "all relevant information concerning the burglaries," and Nationwide could have publicized the information it knew if it would have "mitigate[d] the damage to its reputation." Even if the statement had been misleading, Nationwide had failed to allege that the statement had harmed consumers or the public interest. Nationwide’s allegation that the statement falsely implied that Cablevision had "eliminated the risk of burglaries by cable technicians bearing its marks and logos" did not show an injury to consumers, because allegations of consumer confusion are generally not sufficient consumer harm to state a claim under the New York deceptive practices law, according to the court.

Unfair competition. The court also concluded that Nationwide failed to state an unfair competition claim under New York common law. Nationwide alleged that Cablevision engaged in unfair competition by using Nationwide’s information to contact its employees and telling them they had to work for Nationwide’s competitor, and by requiring Nationwide employees to "wear uniforms and badges and to affix magnetic signs to their vehicles prominently featuring Cablevision’s ‘Optimum’ service mark, with no reference to" Nationwide.

Cablevision’s solicitation of Nationwide’s employees did not constitute unfair competition because "the mere inducement of an at-will employee to join a competitor is not actionable, unless dishonest means are employed, or the solicitation is part of a scheme designed solely to produce damage." Cablevision’s solicitations did not appear designed "solely to produce damage." Moreover, Cablevision did not employ "dishonest means," because its statement that the employees would have to work for Nationwide’s competitor in order to work for Cablevision was not false in light of its termination of Nationwide. Further, provisions in the agreement addressing confidentiality did not include the identities of employees, and Nationwide did not provide any other reasons to consider the information confidential.

Nationwide also did not state a claim over Cablevision’s required use of its Optimum service mark. The agreement between Cablevision and Nationwide stated that "[a]ll Contractor vehicles must also have Contractor’s name and address prominently displayed." Nationwide could not "complain of confusion caused by its failure to prominently display its name on its vehicles."

Moreover, Nationwide did not show how alleged consumer confusion caused by the requirement that Nationwide employees had to wear badges and uniforms displaying the Optimum mark without mention of Nationwide had caused Nationwide’s alleged injuries. Nationwide’s "conclusory allegation" that Cablevision’s actions had caused it to "sustain economic losses" was "insufficient to survive a motion to dismiss." The court also noted that the parties’ agreement provided that Nationwide employees would wear uniforms and badges approved by Cablevision, and the court could not see how conduct permitted by the contract could constitute "fraud or deception, or an abuse of a fiduciary or confidential relationship."

Lanham Act. Finally, the court concluded that Nationwide had not stated a claim under the Lanham Act regarding Cablevision’s statement following the burglary arrest. The court explained that, in order to demonstrate the falsity of a challenged statement, a plaintiff must show that (1) "the challenged statement is literally false," or (2) "the challenged advertisement, while not literally false, is nevertheless likely to mislead or confuse consumers."

The court observed that it had previously concluded that "the statement was not literally false and was not otherwise likely to materially mislead or confuse consumers." Moreover, Nationwide did not adequately allege that the statement would likely affect consumers’ purchasing decisions or cause harm to consumers.

In addition, the statement did not constitute "commercial advertising or promotion" for purposes of the Lanham Act, in the court’s view. The court explained that Second Circuit law required the representation to be "(1) commercial speech, (2) for the purpose of influencing consumers to buy defendant’s goods or services, and (3) disseminated sufficiently to the relevant purchasing public," with the "touchstone" being whether "the contested representations are part of an organized campaign to penetrate the relevant market."

Here, although Nationwide alleged that the statement was "disseminated sufficiently to the relevant purchasing public," it did not demonstrate that the Lanham Act applied. The statement constituted, "at most, an isolated disparaging statement," and "was not part of an organized campaign to penetrate the relevant market."

The case is No. 12-CV-3648 (SJF)(ETB).

Attorneys: Stephen Ellis (Ellis Boxer & Blake) for Nationwide CATV Auditing Services, Inc. David Dunn (Hogan Lovells US LLP) for Cablevision Systems Corp.

Companies: Nationwide CATV Auditing Services, Inc.; Cablevision Systems Corp.; CSC Holdings, Inc.; CSC Holdings, LLC

Cases: Advertising StateUnfairTradePractices NewYorkNews