Antitrust Law Daily Wrap Up, ADVERTISING—NDCal: Software Manufacturer Denied Injunction of Competitor’s Advertisements, (Jan 24, 2013)

By Jody Coultas, J.D.

Veripic, Inc. was denied a preliminary injunction against competitor Foray Technologies, LLC that allegedly misled the public about the capabilities of the companies’ software products by the federal district court in San Francisco (Kwan Software Engineering, Inc. v. Foray Technologies, LLC, Illston, S.).

Both companies sell evidence-related software to law enforcement agencies. Foray allegedly misled the public about certain industry standards and the capabilities of Foray’s own software, and by implication the capabilities of Veripic’s software in violation of the Lanham Act and California Unfair Competition Law. Veripic sought to enjoin Foray from (1) using the name “Authenticated Digital Asset Management System” or “ADAMS” or any other name that states or implies that Foray’s software authenticates digital assets; (2) stating that Foray’s software authenticates digital assets; (3) representing that SWGIT guidelines endorse the use of hash functions as the best way to authenticate digital assets and that Foray’s software complies with SWGIT guidelines; and (4) stating that Foray’s software is the only software that complies with the SWGIT “requirement” contained in the workflow described in SWGIT Section 13.

In order to obtain a preliminary injunction, Veripic needed to establish that there was a likelihood of success on the merits, that there was a likelihood of irreparable harm in the absence of injunctive relief, that the balances of equity tipped in his favor, and that in injunction was in the public interest.

Veripic was unlikely to succeed on a claim of false advertising under the Lanham Act, according to the court. To state a Lanham Act false advertising claim, Veripic needed to show that Foray made a false statement about its own product or another’s product in a commercial advertisement that deceived or had a tendency to deceive a substantial segment of its audience, that the deception was material, and that Veripic lost sales or goodwill because of the statements. Each of the three statements at issue centered on the meaning of the term “authenticity” as it is understood by law enforcement customers. Veripic would be unable to prove that any statements made by Foray were literally false, and failed to present any evidence that the statements misled, confused, or deceived consumers. Foray was able to show that each of the statements at issue was literally true. The term authenticity was ambiguous as used in Foray’s statements and understood in the market to have multiple meanings. Therefore, the use of “authenticity” in Foray’s advertising was far from being literally false, according to the court.

The court found that Veripic would not suffer irreparable harm absent an injunction. Veripic argued that it would lose prospective customers and business goodwill. However, there was no evidence of actual losses. The losses at issue were merely speculative.

Veripic was also unable to show that the balance of hardships tipped in its favor or that an injunction would benefit the public interest, according to the court. The scope of relief went far beyond preserving the status quo and such drastic relief was not supported by the balance of hardships. The level of sophistication of the customers in the relevant market negated Veripic’s argument that allowing law enforcement officials rely on erroneous statements about the software used may have crucial legal implications.

The case is No. C 12-03762 SI.

Attorneys: Dhaivat H. Shah (George Grellas & Associates) for Kwan Software Engineering, Inc. Chip Cox (Greenan, Peffer, Sallander & Lally, LLP) for Foray Technologies, LLC.

Companies: Kwan Software Engineering, Inc.; Foray Technologies, LLC

Cases: Advertising StateUnfairTradePractices CaliforniaNews