Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Tex.: Lanham Act and state unfair competition claims by oilfield equipment developer survive dismissal motion, (Feb 21, 2014)

By Edward L. Puzzo, J.D.

An oil drilling equipment developer’s claims of deceptive advertising and unfair competition against a competitor met the necessary requirements to sustain claims under the Lanham Act and Texas unfair competition laws, the federal district court in Houston has ruled (Tercel Oilfield Products USA v. Alaskan Energy Resources, February 19, 2014, Atlas, N.).

Tercel Oilfield Products USA (Tercel), developer of oil drilling equipment, entered into a non-disclosure agreement (NDA) with Alaskan Energy Resources (AER) in 2010. Under the NDA, AER was to protect the secrecy of confidential information and was prohibited from reverse-engineering anything provided to them by Tercel. Tercel and AER also entered into an agency agreement in 2011, whereby AER was to become a sales representative for Tercel for certain drill bit products in a defined market, consisting of both exclusive and non-exclusive territories.

Tercel alleged that, after gaining access to Tercel’s confidential information and trade secrets including Tercel’s “GunDRILL” reamer product pursuant to the NDA, AES developed its own “Challenger” reamer product using Tercel’s confidential information. Tercel further claimed that AES advertised its “Challenger” reamer deceptively. These acts by AES constituted violations of the Lanham Act and unfair competition under Texas law, according to Tercel. AES moved to dismiss.

Lanham Act and unfair competition requirements. Courts in the Fifth Circuit generally analyze Lanham Act deceptive advertising claims and a Texas unfair competition claims together, the court noted.

A claim for deceptive advertising under the Lanham Act requires allegations (1) that the defendant made false or misleading statements of fact about a product marketed in interstate commerce; (2) that the statements deceived or had the capacity to deceive a substantial segment of potential consumers and were likely to influence consumers’ purchasing decisions; and (3) that the plaintiff has been or is likely to be injured as a result of the statement. The court further explained that an unfair competition claim in Texas “is the umbrella for all statutory and nonstatutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters.”

Deceptive advertising claims. According to Tercel, AER allegedly used an image of Tercel’s “GunDRILL” reamer in its advertising, misidentified as AES’ own “Challenger” reamer product, and attributed successful track record statistics about Tercel’s “GunDRILL” reamer to AES’ product. These allegations—together with allegations of materiality, an interstate commerce nexus, and resulting damages—adequately stated claims of deceptive advertising under the Lanham Act and unfair competition under Texas law, the court stated. Therefore, the court ruled, AES’ motion to dismiss these claims was denied.

The case is Civil Action No. H-13-3139.

Attorneys: Peter Elton Mims (Vinson & Elkins) for Tercel Oilfield Products USA LLC. Emil Thomas Bayko (Hogan Lovells US LLP) for Alaskan Energy Resources, Inc.

Companies: Tercel Oilfield Products USA, LLC; Alaskan Energy Resources, Inc.

Cases: TexasNews Advertising StateUnfairTradePractices