Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Tex.: Benefit plan provider’s mass mailings, emails violate Lanham Act, (Feb 13, 2015)

By Greg Hammond, J.D.

A number of mass mailings and emails that an employee benefit plan provider sent to various customers violated the Lanham Act and Texas unfair competition law and infringed on a competitor’s copyrights, the federal district court in Austin declared. The provider was therefore enjoined from continuing to make false statements and from infringing on the competitor’s copyrights (Fringe Insurance Benefits, Inc. v. Beneco, Inc., February 11, 2015, Austin, A.).

Background. Fringe Insurance Benefits, Inc. (FIBI) and Beneco, Inc. are competing providers of employee benefit plans that specialize in providing fringe-benefit services to government contractors who must comply with prevailing wage laws. In June 2012, Beneco began sending mass mailings and emails to customers that FIBI claims violated the Lanham Act by falsely advertising (1) that Beneco’s plan was approved by the Department of Labor and endorsed by various construction associations; (2) that—historically—its plan is typically 50 percent less in cost than FIBI’s plan; (3) that customers could save thousands of dollars; (4) that FIBI’s internal fees and expenses are “3 times higher” than Beneco’s, which FIBI hides from consumers; (5) that FIBI was under investigation by the Federal Department of Labor; and (6) that FIBI’s plans do not have an independent third party trustee, forcing customers to take on the fiduciary liability for their investment selection.

In addition to brining Lanham Act false advertising claims against Beneco, FIBI asserted that Beneco violated Texas’ unfair competition law and infringed on FIBI’s copyrights by publishing articles that lifted directly from FIBI’s published works.

Lanham Act violations. The court first determined that Beneco’s Department of Labor “approval” and trade association “endorsement” claims were literally false and violated the Lanham Act. Beneco’s plan was not approved or endorsed by the Department of Labor in any way. Although Beneco’s plan may have been endorsed by particular chapters of two trade associations, it was not endorsed by the national groups.

Beneco’s claim that its plan costs 50 percent less than FIBI’s, although misleading, did not violate the Lanham Act because FIBI failed to demonstrate that the advertisement tended to deceive consumers. Nevertheless, specific cost comparisons between FIBI and Beneco’s plans were found rife with errors, and were thus literally false and violated the Lanham Act. FIBI failed to meet its burden of demonstrating that a statement that FIBI’s internal fees are “3 times higher” than Beneco’s was literally false. However, the claim that FIBI hides its fees from consumers was literally false and violated the Lanham Act, as FIBI discloses all of its fees in its written agreements with customers.

In addition, the statement that FIBI was under investigation by the Department of Labor was not literally false or misleading, as the court found that FIBI’s affiliate, Plan Benefit Services, was sued by the Department of Labor. Lastly, Beneco’s claims that FIBI’s plan lacks third-party trustee protection was deemed literally false and in violation of the Lanham Act, because FIBI’s plans include third party trustees and do not force customers to take on such liability.

Beneco’s violations of the Lanham Act constituted an independent tort for the purposes of Texas unfair competition law. The court therefore concluded that Beneco committed unfair competition under Texas law.

Copyright infringement. During trial, defendant J. Zane Smith admitted to copying and reprinting FIBI’s article, “ARRA Offers Great Opportunity & Potential Challenges for Electrical Contractors,” on behalf of Beneco. As FIBI was the author of the original text, the court found that both Smith and Beneco violated FIBI’s copyright in the article, which was originally published by Independent Electrical Contractors in 2010.

Injunctive relief. As a result of Beneco’s actions and the likelihood of future irreparable injury, the court enjoined Beneco and Smith from distributing commercial material that: (1) suggests that Beneco or its products are approved by the Department of Labor; (2) suggests that Beneco or its products are endorsed by trade associations, unless they actually received endorsements from the national organizations; (3) include inaccurate or incomplete customer-specific comparisons between costs, fees, or expenses of FIBI and Beneco products; (4) states or suggests that FIBI hides its costs, fees, or expenses; or (5) suggests that FIBI does not have a third party independent trustee or that FIBI customers are forced to take on fiduciary liability.

Smith and Beneco were additionally enjoined from infringing on FIBI’s copyrights to publications, articles, literature, or marketing material. Finally, Beneco was required to post the court’s memorandum opinion and order to its website and corporate home page for a period of 30 days.

The case number is A-13-CV-034-AWA.

Attorneys: David A. King (Graves Dougherty Hearon & Moody, PC) for Fringe Insurance Benefits, Inc. Greg Alan Waldrop (Locke Lord LLP) for Beneco, Inc.

Companies: Fringe Insurance Benefits, Inc.; Beneco, Inc.

Cases: Advertising StateUnfairTradePractices TexasNews