Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: False advertising claims could proceed without first litigating copyright, computer fraud, (Jan 7, 2014)

By Edward L. Puzzo, J.D.

Oracle could maintain a false advertising claim without first having to litigate its copyright infringement and computer fraud claims against the same defendants in order to establish the deceptive element under the Lanham Act, the federal district court in San Jose, California has ruled (Oracle America, Inc. v. TERiX Computer Company, Inc., January 3, 2014, Grewal, P.).

Oracle supplies enterprise hardware and software systems, as well as related technical support and consulting services for those systems. Oracle customers have the option to purchase an annual contract for technical support services to be performed by Oracle for the enterprise hardware systems. As part of that support, Oracle makes available to customers updates for the Solaris software that ships with and runs the hardware systems. Oracle delivers its technical support services over the Internet.

TERiX and Maintech also offer support services related to Oracle’s Solaris-based hardware systems. Although neither company had any independent right to access, download, copy, or distribute Solaris updates, they told their customers that they could lawfully provide that access and support and/or that the customers were entitled to obtain Solaris updates even without an active support contract with Oracle by virtue of their licenses to use the Solaris operating system in conjunction with their purchase of Oracle hardware. TERiX and Maintech allegedly obtained access credentials to Oracle’s secure support website under false pretenses or directed others with access credentials to download Oracle’s intellectual property unlawfully.

Lanham Act false advertising. Oracle alleged that the defendants, on their websites and to potential customers, falsely represented that customers could legally obtain Solaris Updates for their Oracle computer products without a support agreement with Oracle, and that they could provide legal copies of Solaris Updates for their Oracle computer products if those customers canceled their support contracts with Oracle. Oracle sought relief for false advertising under Section 1125(a)(1)(B) of the Lanham Act.

A false advertising claim under § 1125(a)(1)(B), the court explained, requires Oracle to prove that: defendants made false product statements in their advertising, which had a tendency to deceive a substantial portion of their audience; that the deception was material in influencing the purchasing decision; that defendants caused its falsely advertised goods to enter interstate commerce; and that Oracle has been or is likely to be injured as the result, either by direct diversion of sales from itself to defendant, or by lessening of the good will which its products enjoy with the buying public.

Defendant Maintech argued that its statements were opinions regarding the legal right to engage in future conduct, statements which were not actionable false advertising under the Lanham Act. Maintech further stated that its statements referring to UNIX platforms, patch management, and software distribution did not make specific references to Oracle, Solaris or any of Oracle’s protected intellectual property.

Oracle countered that Maintech’s statements were deceptive even if not literally false. The Lanham Act, Oracle claimed, did not require statements to be false on their face to be actionable; statements that were literally true but likely to mislead were sufficient under the Act.

Maintech further argued that Oracle must first litigate its infringement and computer fraud claims to conclusion, turning its opinion of illegality into a fact, before it can bring a related Lanham Act claim. Oracle responded that it had identified and quoted specific statements by Maintech and explained in detail why its implication that it can provide Oracle or Sun services was misleading.

The court ruled for Oracle on this issue and declined to dismiss its Lanham Act claim. Without binding precedent requiring it, the court found, there was no reason to require that Oracle litigate its underlying causes-of-action before bringing a Lanham Act false advertising claim.

California Unfair Competition Law. The defendants sought to dismiss Oracle’s claims under the California Unfair Competition Law because of insufficiency in its allegations, in that it allegedly failed to plead either a business practice which was forbidden by law or deceptive advertising. The court ruled that the defects cited in Oracle’s allegations could be cured. Rather than dismiss the claim, the court gave Oracle fourteen days to amend its complaint.

The case is No. 5:13-cv-03385-PSG.

Attorneys: Geoffrey M. Howard (Bingham McCutchen LLP) for Oracle America, Inc. Andrew Winter Olsson (Robinson & Wood, Inc.) for Terix Computer Co., Inc. Valerie Margo Wagner (GCA Law Partners LLP) for Maintech Inc.

Companies: Oracle America, Inc.; Terix Computer Co., Inc.; Maintech Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews