Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Ill.: False advertising claims against fuel dispensing filter maker sufficiently pleaded, (May 11, 2015)

By Edward L. Puzzo, J.D.

Statements that fuel dispensing filters used in gasoline pumps and other equipment will return to full flow after detecting water contamination could be subject to Lanham Act false advertising claims brought by a competitor, the federal district court in Chicago has ruled. The claims were sufficiently plausible at the pleading stage to survive a motion to dismiss (Champion Laboratories, Inc. v. Central Illinois Manufacturing Co., May 8, 2015, Blakey, J.).

Plaintiff Champion Laboratories and defendant Central Illinois Manufacturing were competitors in the manufacture and sales of fuel dispensing filters used in gasoline pumps and other fuel dispensing equipment. Together they had over half of the market share for fuel filters in the country. Champion is primarily known for its PetroClear filters, which use cellulose as the filtering material, whereas Central Illinois is primarily known for its Cim-Tek filters, which use microglass as the filtering material.

On the basis of advertising that Central Illinois placed in the PEI Journal, a publication of trade association Petroleum Equipment Institute, Champion brought Lanham Act and the Illinois Deceptive Trade Practices Act claims against Central Illinois.

To state a false advertising claim under the Lanham Act, the court explained, the plaintiff must show that the defendant: (1) made a false or misleading statement; (2) that actually deceives or is likely to deceive a substantial segment of the advertisement’s audience; (3) on a subject material to the decision to purchase the goods; (4) touting goods entering interstate commerce; and (5) that results in actual or probable injury to the plaintiff. It is well settled in this Circuit, the court continued, that the truth or falsity of a statement must be looked at in context, making it an issue of fact and not law.

Central Illinois moved to dismiss plaintiff’s claims under Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiff had not established the first element: that its advertising statements were false or misleading. The court disagreed.

“Return to full flow” ad. One of plaintiff’s claims was based on Central Illinois’ statement in its advertising that its filters reduce the flow of fuel when water contamination is detected in ethanol-blended fuels and “will not return to full flow as with competitor’s filters.” Plaintiff viewed this a false statement directed at it, but defendant argued it had not made an explicit reference to plaintiff or its product.

The court noted that, examined in context, an advertisement can be false even without explicitly naming the plaintiff. Drawing all inferences in plaintiff’s favor, as it must on a motion to dismiss, the court stated that it could not conclude that defendant was not referring to plaintiff’s product or at least that consumers would not understand the ad that way. Given their joint market share, many consumers were effectively choosing between either plaintiff’s product or defendant’s product. When defendant’s ad referred to “competitor’s” product, it was reasonable to assume that customers would infer that defendant was referring to plaintiff’s product in its ad. This view was further bolstered by the ad’s reference to “competitor’s” product instead of “competitors’,” further suggesting the likelihood that the ad was referring to the filter sold by plaintiff, its primary competitor, rather than one of the other competitors with much smaller market shares. Thus plaintiff’s claims that defendant’s ads were false and misleading were pleaded sufficiently and should not be dismissed, the court ruled.

Tests challenged. Another Central Illinois advertising claim challenged by Champion was that defendant’s filter caught significantly more particulate matter than competing filters, based upon a “nozzle-snap” test and another test. Plaintiff argued that the tests cited were not industry accepted nor did they correctly validate the filters’ performance. The defendant argued that plaintiff’s challenge to the validity of these tests were not pleaded with sufficient specificity, but the court disagreed, finding that the claims were enough to state a viable claim.

White paper claim. Defendant also issued a “white paper,” claiming that customers would save 20% to 60% in costs by buying its microglass filter as opposed to a cellulose filter of the type made by plaintiff. Defendant pointed out that the paper referred to its own cellulose filter as the basis for the comparison and it did not refer specifically to plaintiff’s cellulose filter. Nevertheless, the court ruled, plaintiff’s claim based on defendant’s white paper could proceed on the basis that is was misleading even if not literally false.

The case is Civil Action No. 14 CV 9754.

Attorneys: Brian W. Lewis (Barnes & Thornburg LLP) for Champion Laboratories, Inc. Lorna K. Geiler (Meyer Capel, a Professional Corp.) for Central Illinois Manufacturing Co.

Companies: Champion Laboratories, Inc.; Central Illinois Manufacturing Co.

Cases: Advertising StateUnfairTradePractices IllinoisNews