Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Lack of particularity dooms Lanham Act claims, (Jan 27, 2016)

By Greg Hammond, J.D.

An electronic payment processor failed to state fraud-based false advertising and unfair competition counterclaims against its competitor with sufficient particularity, the federal district court in Oakland California, has concluded. The claims were consequently dismissed with leave to amend (Heartland Payment Systems, Inc. v. Mercury Payment Systems, LLC, January 26, 2016, Wilken, C.).

Mercury Payment Systems, LLC and Heartland Payment Systems, Inc. are competing electronic payment processors. Heartland filed suit against Mercury in 2014, alleging that Mercury deceived merchants by representing that it would pass interchange fees “at cost” and that the fee is a “mark-up on a per transaction basis in addition to other fees, such as monthly flat rate fees.” Conversely, Mercury filed a number of counterclaims that Heartland now seeks to dismiss, including false advertising under the Lanham Act and California’s False Advertising Law (FAL) and unfair competition under California’s Unfair Competition Law (UCL).

Particularity of Lanham Act claims. Mercury claimed that Heartland falsely advertises its “Interchange-Plus” pricing model, its “Fair and Upfront” pricing guarantee, and its data security system. The court, however, determined that these claims were not pleaded with the particularity required by Federal Rule of Civil Procedure 9(b).

In particular, the court concluded that, other than the alleged statements of two anonymous merchants, Mercury provided no facts to support an allegation that Heartland’s customers who process less than $50,000 a year are not receiving “interchange-plus” pricing. With regard to the pricing guarantee, the court determined that Mercury did not state any facts to support its allegation that the MasterCard and Visa settlement fees are not disclosed to customers, or any facts to support the conclusion that telling businesses how much they will be charged also implies that Heartland will share money that is returned to it by the card network. Lastly, allegations that Heartland’s website necessarily implies that its system is “totally secure” failed because nowhere in Heartland’s statement did the phrase “totally secure” appear and Mercury did not plead any facts that could support a conclusion that Heartland does not provide the “most secure credit card processing methods backed by the most comprehensive merchant warranty…in the industry.”

Mercury’s UCL and FAL claims were also rejected for failure to plead with requisite particularity. The court determined that Mercury’s UCL and FAL claims relied on the same allegations it used for its Lanham Act claims.

The case is No. C 14-0437 CW.

Attorneys: Frank A. Cialone (Shartsis Friese LLP) for Heartland Payment Systems, Inc. Joseph A. Castrodale (Benesch Friedlander Coplan & Aronoff LLP) and David P. Enzminger (Winston & Strawn LLP) for Mercury Payments Systems LLC.

Companies: Heartland Payment Systems, Inc.; Mercury Payment Systems, LLC

Cases: Advertising StateUnfairTradePractices CaliforniaNews