Failure to show harm dooms many claims based on negative press release

Synygy, Inc. v. ZS Associates, Inc., — F.Supp.3d —-,
2015 WL 5818510, No. 10-4274 (E.D. Pa. July 30, 2015)
 
Wow, this
one’s been going on for a while
. 
Note that evidence of damages is key to the traditional,
non-commercial-speech bounded torts, but not to the Lanham Act false
advertising claim.
 
Synygy and ZS compete in the marketplace for incentive
compensation or “IC” services. In 2007, Synygy sued ZS, and in 2009 it amended
the complaint, adding, among other things, a theory of copyright infringement.  Synygy also issued a press release.  The CEO, in an email to marketing staff, explained
that “[t]he goal … is to get our prospects and clients to have pity on us and
to believe that we are right and ZS is wrong.” The press release was titled “Synygy
Files Suit Against ZS Associates for Copyright Infringement and
Misappropriation of Intellectual Property,” and it went on in that vein. A
quote from the CEO said, “The lawsuit we filed today contends that ZS knowingly
copied our software and other confidential information with the intent to use
our intellectual property in direct competition with us. Our position is that
ZS continues to use our software and other confidential information, causing us
to lose substantial revenue, profit, and company valuation, while they profit
from its use.” The Synygy press release was republished on websites such as Reuters,
Yahoo Finance and Intellectual Property Today.
 
ZS issued its own press release saying that Syzygy’s
allegations had no merit.  The press
release cost ZS $5100 from a PR firm.  ZS
argued that it had to reassure a client about its software, creating “a certain
amount of discomfort with the client that we had to resolve.”  ZS “had to include language in its contract
that specified that in the event that the Javelin software became unavailable
that [ZS] would still have other systems as backup systems available.”  ZS’s revenue from work for this client
increased after this event.  Likewise, ZS
had to reassure another “concerned” client and direct it to ZS’s press release.  However, ZS did enter into contracts with
that client.
 
ZS argued that the press release was defamatory,
commercially disparaging, and in violation of the Lanham Act. An expert
witness, Dr. Richard Gering, concluded that “ZS suffered economic damages in
the form of internal costs of ZS’ personnel and fees paid to [the PR firm]” of
$76,753, for damage control.
 
Defmation: Although the court previously found that “there
is sufficient evidence of copying to require that Synygy’s copyright claim with
respect to the incentive compensation report scorecards be submitted to a
jury,” that didn’t mean that it was true
that, as accused in the press release, ZS “knowingly and improperly copied and
misappropriated components of Synygy’s sales compensation software and other
intellectual property.”
 
However, ZS didn’t show damages.  Starting with defamation per se: “Statements
by a defendant imputing to the plaintiff … conduct incompatible with the
plaintiff’s business constitute slander per se.” With such statements,
Pennsylvania law holds that “only general damages, i.e., proof that one’s
reputation was actually affected by defamation or that one suffered personal
humiliation, or both, must be proven; special damages, i.e., out-of-pocket
expenses borne by the plaintiff due to the defamation, need not be proven.”  Pennsylvania ordinarily doesn’t allow presumed
damages even in cases of defamation per se, unless actual malice is shown.  (The court noted that it didn’t think that
corporations should be eligible to claim defamation per se.  Synygy, Inc. v. Scott–Levin, Inc., 51
F.Supp.2d 570, 581 (E.D. Pa.1999) (“A corporation … cannot be embarrassed or
humiliated. A corporation’s analogue to humiliation would be damage to
reputation—an injury that should translate into a pecuniary loss. If a
corporation cannot point to loss of revenues or profits, for what are we
compensating it? Should the law allow corporations to avoid showing special
harm by taking advantage of an exception so clearly created to protect
individuals? The rule of defamation per se as it applies to corporations has
outrun its reason.”), aff’d sub nom. Synygy, Inc. v. Scott–Levin, 229 F.3d 1139
(3d Cir. 2000)).
 
Actual malice requires at least reckless disregard for the
truth, meaning that Synygy either “in fact entertained serious doubts as to
truth of” the Synygy press release, or had a “high degree of awareness of …
probable falsity.” “[O]bjective circumstantial evidence” may be sufficient to
show actual malice. There was insufficient evidence of actual malice here.  The CEO testified that he didn’t know how
long it had taken to write the software macros, despite having been quoted in
the Synygy press release as saying that Synygy’s software was the result of
“many years” of investment in product development.  Though he didn’t have personal knowledge of
the development time, that wasn’t evidence that he knew that his statement that
ZS continued to use misappropriated software was false or entertained serious
doubts as to its truth.  At most, his
testimony could show negligence.  Nor did
emails showing a desire to portray Synygy as a victim show malice—personal spite,
ill will, and intention to injure are not “actual malice,” a term of art.  The CEO wrote that the “goal is to get our
prospects and clients to have pity on us and to believe that we are right and
ZS is wrong”; that his “goal [was] to create a public battle and put all
companies on notice that ZS cannot be trusted”; and that “I want Synygy to be
perceived in the press as the ‘good guy’ which has been wronged by the ‘bad
guy.’ I would want our current clients to empathize with us and our former
clients to be concerned that they might be dragged into the legal mess.”  Given the record, these emails were just as
plausibly expressing the CEO’s firmly held belief that ZS had in fact wronged
Synygy.
 
Given the unavailability of presumed damages, there wasn’t
enough evidence of general damages, defined as “proof that one’s reputation was
actually affected by the slander, or that [the plaintiff] suffered personal
humiliation, or both.”  Such damage must
be measured by the perception of others, not that of the plaintiff itself,
because reputation “is the estimation in which one’s character is held by his
neighbors or associates.”  Although ZS
presented evidence that the Synygy press release prompted inquiries from
customers, it didn’t provide testimony from any employee of those customers, or
from any third party who “altered its opinion of ZS as a result of the Synygy
press release.”  Even assuming that ZS
employees’ testimony was not hearsay, that wasn’t enough.  Although the testimony showed that the Synygy
press release prompted “many more discussions” between ZS and identified
customers, ultimately relations continued and grew.  ZS didn’t identify any cancelled sales or
sales process from the press release.  No
reasonable jury could conclude that the Synygy press release had the requisite
reputational effect.
 
Even if ZS could show general damages through this evidence,
it wouldn’t suffice to show special damages, which are dollar-denominated
losses.  ZS couldn’t satisfy its burden
by relying solely on evidence of remediation costs, as its expert
calculated.  Such costs might be
recoverable once liability for defamation was established, but couldn’t be used
to establish defamation. “[S]pecial harm must result from the conduct of a
person other than the defamer or the one defamed and must be legally caused by
the defamation.” If ZS’s own expenditures were enough, any internal response to
an allegedly defamatory publication would satisfy the standard.
 
This conclusion also defeated the cause of action for commercial
disparagement, which requires “pecuniary loss.” Mitigation costs aren’t
sufficient, “because unless other pecuniary loss was occasioned by the [press
release]], the ‘rehabilitation’ was not reasonably necessary.”
 
As for the Lanham Act claim, it was possible that the press
release was literally false.  If ZS
proved literal falsity at trial, it would be entitled to a presumption of
actual deception presumption and appropriate injunctive relief.  But monetary damages require proof of actual
deception, even in literal falsity cases; individualized loss of sales need not
be shown, but some customer reliance must be. 
That usually requires a consumer survey, which wasn’t present here.  Nor was any other appropriate evidence.  ZS’s principal testified that the director of
sales operations of a pharma company showed him a copy of the Syzygy press
release and asked for assurances that ZS could provide the relevant work in the
event the accused software became unavailable. 
But this was inadmissible hearsay [not state of mind evidence?].  In any event, that wasn’t evidence of a
tendency to cause a substantial portion
of consumers to believe that ZS copied the software.  (Not clear to me that substantial portion is
the right measure once we’ve established literal falsity and are just looking
for damages—if some number of consumers are affected, wouldn’t that be enough,
especially in a smaller market?  But that
doesn’t matter here, since it seems that the assurances were duly provided.)

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