Allegedly false certification for competitor brings trade secret, deceptive practices claims

Duro Corp. v. Canadian Standards Assoc., 2017 WL 6326862,
No. 17 CV 1127 (N.D. Ohio Dec. 11, 2017)
Duro, a distributor of high end gas ranges, sued the CSA, a
nonprofit consumer product safety testing organization, for misappropriation of
trade secrets, violation of the Ohio Deceptive Trade Practices Act, and Lanham
Act violations.  The CSA issues a
“Certificate of Compliance” to tested products that meet the requisite
standards.  Duro Ranges have been
CSA-certified, as Duro highlights in its advertising, allegedly contributing to
its success and profitability. A non-party, Hyxion, manufactures Duro Ranges in
China.  Hyxion allegedly used designs it
acquired for the manufacture of Duro Ranges to begin manufacturing its own
brand of “knock off” ranges which are virtually identical in design to Duro
Ranges, but which use cheaper parts.  The
Hyxion “knock offs” have also been certified by CSA, and this certification
allegedly harmed Duro’s sales.
The main allegation of the complaint is that CSA’s certification
of the Hyxion ranges was improper, and wrongly based on the belief that the Hyxion
ranges were identical to Duro’s even though Hyxion used different parts. As a
result, CSA allegedly used the Duro Range drawings and test results to certify
corresponding Hyxion ranges instead of independently testing the Hyxion ranges.
The CSA website which advertises its certification of the ranges refers to the
Hyxion ranges as having the trade name “Hyxion/Duro” despite the lack of
affiliation.
On the state law trade secret claim, CSA argued that, because
Duro provided the Duro Range drawings to its manufacturer, Hyxion, it did not
take reasonable steps to maintain their secrecy, and also that the test results
didn’t belong to Duro, and therefore cannot be Duro’s trade secrets.  The court found the complaint sufficiently
alleged trade secret misappropriation for the design drawings, which were to be
treated as confidential under the parties’ agreement. “Disclosure of
proprietary information, as necessary, to parties essential to the manufacturing
and marketing of a product does not strip that information of its trade secret
status if reasonable steps are taken to ensure the confidentiality of the
information,” as was alleged here.  However,
the test results couldn’t be trade secrets; they weren’t identified as
confidential in the parties’ agreement, and they were independently developed
by CSA.  The federal trade secret claim
failed because there was no alleged misappropriation on or after May 11, 2016,
that law’s effective date. Hyxion’s continuing use of the CSA certification might
be relevant to damages, but there was no allegation that the design drawings
themselves were appropriated beyond the initial misuse.
The Ohio Deceptive Trade Practices Act covers, among other
things, “(1) passing off good or services as those of another (2) causing the
likelihood of confusion or misunderstanding as to affiliation, connection , or
association with, or certification by another; (3) representing that good or
services have sponsorship, approval, characteristics…status, affiliation, or
connection that they do not have; (4) representing that goods are of a certain
standard, quality, or grade…if they are of another.”  Duro argued that two statements/practices were
deceptive: (1) CSA’s ads for its own services, specifically the statement that
its certification mark should offer “peace of mind to retailers, regulators,
consumers and end users the word over by indicating that your products have
been independently tested and have met the required standards for safety &
performance,” and, (2) CSA’s certification of the Hyxion products.
The first statement wasn’t adequately alleged to be false;
indeed, Duro’s claims relied on the “peace of mind” idea being true and therefore increasing sales.  Thus, Duro couldn’t claim any damage from CSA’s
ad.  Indeed, if Duro truly believed that
CSA’s independent testing claims were actually false, Duro itself “could
potentially be at risk of violating of the ODTPA.”
However, CSA’s certification of Hyxion was plausibly alleged
to violate the ODTPA through false certification. The complaint alleged that
CSA materially represented, through its certification, that Hyxion’s products
met certain safety standards, even though CSA had not properly tested the
products. Further, the complaint alleged that CSA listed Hyxion’s products as
having a trade name of “Hyxion/Duro” on its website, which could have caused
consumer confusion over whether Hyxion was affiliated or associated with Duro.  The court also noted that “[i]t is difficult
to imagine how Duro would be able to prove deception, or causation of damages
if it cannot eventually prove that CSA would not have certified the Hyxion
products but for the alleged misuse of Duro’s information,” which is an
interesting point—the falsehoods alleged are related to, but not necessarily
determinative of, the ultimate harm-causing behavior, the certification itself.
The court also dismissed the Lanham Act claims, because they
weren’t alleged to be in “commercial advertising or promotion.” Duro
sufficiently pled that the statement of certification was commercial speech
that is disseminated to a substantial portion of the plaintiff and/or
defendant’s existing customer or client base. However, the complaint failed
sufficiently to allege that the statement was made for the purpose of influencing
customers to buy CSA’s goods or services, as the Sixth Circuit test requires.  An out-of-circuit case allowed a claim to
proceed where a statement was made to support affiliates and thus directly
increase the defendant’s own profits, but “[n]o such economic incentive exists
for CSA’s certification of the Hyxion ranges under the alleged facts of this
case.”

from Blogger http://ift.tt/2ASEOE8

Advertisements
This entry was posted in Uncategorized and tagged , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s