Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Insufficient facts pleaded in Internet provider’s claims of false advertising, unfair competition, (Dec 22, 2014)

By Edward L. Puzzo, J.D.

An Internet service provider’s claims against a former employee who established a competing firm were insufficient to support claims of false advertising, false designation of origin, and unfair competition, the federal district court in San Jose, California has ruled (Webpass, Inc. v. Banth, December 18, 2014, Lloyd, H.).

Webpass, a provider of high-speed Internet service to consumers in residential and commercial buildings, brought claims against its former employee Aftab Banth and the firm he established, SquarePlanet, alleging unfair competition, false advertising, and false designation of origin in violation of the Lanham Act and violations of the California Unfair Competition Law. The defendants moved to dismiss, and the court granted the motion, with leave to amend.

False advertising. To state a claim for false advertising, the court explained, a plaintiff must allege: (1) the defendant made a false statement of fact in a commercial advertisement about its own or another’s product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products. Here, Webpass failed to allege any false statement or implication made by the defendants regarding the services of either Webpass or SquarePlanet.

Reverse passing off. Webpass also alleged that defendants engaged in reverse passing off conduct, including misrepresenting the origin of services sold by SquarePlanet, and misbranding Webpass’ technology as its own. The court explained that a reverse passing off claim is typically made where the defendant removes the name or trademark from a plaintiff’s product without authorization, then sells that product under a different name or trademark chosen by the defendant. Here, the allegations involve SquarePlanet allegedly providing its own internet services using Webpass’ technology. These allegations, the court stated, do not support a reverse passing off theory.

False designation of origin. To state a claim for false designation of origin, including infringement of an unregistered trademark, a plaintiff must allege: (1) defendant’s use of a designation or false designation of origin, (2) in interstate commerce, (3) in connection with goods and services, (4) where the designation is likely to cause confusion, mistake or deception as to the affiliation, connection, or association of defendant with another person, or as to the origin, sponsorship or approval of defendant’s goods, services, or commercial activities by another person, and (5) that plaintiff has been or is likely to be damaged by these acts.

Webpass alleged false designation of origin, but did not allege any facts establishing a likelihood of confusion or deception amongst consumers as to the source of either Webpass’ or SquarePlanet’s services. Webpass also failed to allege ownership of a protectable trademark or other designation or SquarePlanet’s use thereof. Instead, Webpass alleged SquarePlanet’s use of its trade secrets in the form of proprietary and confidential business information. However, stated the court, proprietary and confidential business information is not a trademark, service mark, trade name of other designation protectable under the Lanham Act.

Trade secrets and unfair competition. Webpass failed to allege any facts establishing that that the information and methods alleged to constitute its trade secrets derive independent economic value from not being generally known to the public. Thus it cannot state a claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (CUTSA), ruled the court. Further, since CUTSA preempts common law misappropriation of trade secrets claims, and Webpass’ unfair competition and intentional inference with prospective economic advantage claims are based on the same nucleus of facts as its misappropriation of trade secrets claim, those claims too are preempted, the court ruled.

The case is Civil Action No. 5:14-cv-02291-HRL.

Attorneys: Jeffrey S. Kravitz and James E. Doroshow (Fox Rothschild LLC) for Webpass, Inc. Otto O. Lee (Intellectual Property Law Group LLP) and Bonnie J. Wolf for Aftab Banth.

Companies: Webpass, Inc.; SquarePlanet LLC.

Cases: Advertising StateUnfairTradePractices CaliforniaNews