Reminder that materiality is a matter of likely effect, not certainty

E-Imagedata Corp. v. Digital Check Corp., No. 15-CV-658,
2018 WL 1411226 (E.D. Wis. Mar. 21, 2018)
The parties compete in the market for hardware/software
systems used to view microform on a screen and convert it into digital files. [Microform!  Good to know some things are still around.] The systems cost thousands of dollars and are sold to institutions like
libraries, universities, and businesses. Each party uses resellers who compete
directly for many sales through a process that often includes bidding,
in-person product demonstrations, and hands-on customer testing.Plaintiff
e-Image sells the ScanPro and defendant ST Imaging sells the ViewScan, allegedly
falsely advertising its optical zoom capabilities and camera megapixel
capabilities, as well as its UL certification; “UL did not certify any of the
ViewScan devices until December 2015—when it certified the ViewScan III—but
brochures for all 3 devices, published months and years earlier, indicate UL
certification.”  e-Image also alleged
that ST Imaging falsely or deceptively equated its ViewScan devices with
e-Image’s competing ScanPro devices.
e-Image also asserted claims arising out of a failed bid
protest that it lodged with the GAO after the National Park Service awarded a
contract for “one camera microfilm scanner” to an ST Imaging reseller. e-Image
argued that ST Imaging’s product did not meet the terms of the government’s
solicitation, which required that the scanner’s “camera have a ‘minimum 25
megapixels.’ ” The GAO rejected e-Image’s proposed interpretation as
unachievable by any commercially available product. The GAO made two relevant published
findings: (1) e-Image “knew that the ordinary convention in the industry was to
represent camera megapixels in terms of the camera sensor itself” and, thus,
(2) the “camera sensor resolution” for the ScanPro 3000 is “6.6 megapixels,”
not “26 megapixel[s],” as e-Image continues to assert. ST Imaging then emailed its
authorized resellers: “If you are in a bid and your prospect says that the
competition has a 26 megapixel camera, please use [the GAO’s decision] to show
that they only use a 6.6 megapixel image sensor.” e-Image alleged that ST
Imaging attacked its reputation by claiming that e-Image lies about its own
products’ specifications.
Materiality: e-Image was not required to “prove that a
specific commercial statement by ST Imaging actually affected a specific
purchasing decision by a specific customer.” Courts “generally only require a
likely, as opposed to an actual, effect on consumer choice.” A reasonable jury
could find materiality, given record evidence that institutions looking to
purchase microform systems commonly set requirements for bids, including
minimum requirements for a scanner’s “optical zoom lens” and “camera
megapixels,” and that the proposed product be certified as meeting applicable
product safety standards, like UL’s. ST Imaging’s resellers represented
compliance with these standards, at least in part, by submitting prefabricated
marketing materials from ST Imaging. This raised a genuine dispute on
materiality.
Injury: the only customers deposed testified that price was “a
significant, and perhaps the dominant, factor in many of the purchasing
decisions at issue here,” while ease of use also mattered. But “a reasonable
jury could find that ST Imaging was able to adopt lower prices by falsely
claiming that its products were certified by UL and had capabilities that they
lacked without incurring the usual costs of certification or product
development. Similarly, a reasonable jury could find that by deceptively
equating its products with e-Image’s products, ST Imaging was able, in many
cases, to mislead potential customers into making purchasing decisions based on
price alone.”  
e-Image sought partial summary judgment on liability for
literally false representations, such as ST Imaging’s claims that its ViewScan
devices were certified by UL. But materiality and injury could also be found
against e-Image.  “[T]he record suggests
that a substantial majority of the parties’ customers make their purchasing
decisions after in-person product demonstrations that typically last one to two
hours, which may mitigate or eliminate whatever influence ST Imaging’s
promotional statements might otherwise have on customers’ purchasing decisions.”  [I wonder if the court will let e-Image make
a bait and switch argument, which would be consistent with the reasoning above:
if ST Imaging only got in the door by falsely representing that its products
met the bid standards, then its ultimate persuasiveness—especially if the
initial falsehoods were never corrected—probably shouldn’t break the causal
chain.]

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