literal falsity still needs to be material, and court wants a survey or other direct evidence thereof

LivePerson, Inc. v. [24]7.AI, Inc., 2018 WL 5849025, No.
17-cv-01268-JST (N.D. Cal. Oct. 26, 2018)
LivePerson “provides online chat engagement services through
a digital platform that it sells to website operators.” That is, it helps
websites provide real-time text-based communications with website users
directly on the website. Its platform tries to identify when initiating a chat
with a particular user is most likely to produce a positive outcome, such as a
sale, using rules based on variables such as the user’s navigation history.
[24]7 provides customer service agents to businesses,
including customer service agents that participate in the type of online chats
initiated through LivePerson’s chat platform. In 2006-2007, the parties agreed
to market and provide services to mutual customers; at the time, [24]7 didn’t
have its own chat platform, while LivePerson offered a chat platform, but did
not have digital chat agents to staff that platform.  After the direct contractual relationship
ended, the two companies continued to provide their services to mutual
customers.
Then (curse your sudden but inevitable betrayal!) [24]7
introduced its own digital chat platform. It touted its platform, claiming that
it was the “first smart chat” platform. Three mutual customers switched to
using [24]7’s chat platform. Through these arrangements, [24]7 gained access to
the rules and data developed for the customers, which LivePerson claimed as
trade secrets in this action; the court denied summary judgment on the theory
that LivePerson used improper means. I’ll focus on the false advertising
claims.
The challenged statements touted [24]7 Assist as “the
industry’s first smart chat that uses prediction and real-time decisioning with
big data to drive customer experience,” “the first predictive, real-time
customer assistance solution for chat,” and the “world’s first smart chat
platform powered by prediction in real-time.”  The court declined to grant summary judgment
on puffery, but did on materiality.
This wasn’t puffery because the implication of [24]7’s
“first” claims was that LivePerson’s competing platform lacks some element of
smart or predictive technology, or at the very least, had a less reliable
version. Identifying whether the products possess certain technological
features was specific enough to avoid puffery. Even if “smart” and “predictive”
were vague in the abstract, in context,  [24]7’s statements introduced particular
features as “smart” or “predictive.” “A reasonable consumer could understand
[24]7’s ‘first’ statements as implying that other products available at the
time lacked these features.” That’s falsifiable.
However, materiality wasn’t so easy. The court declined to
presume materiality on the theory that [24]7’s statements were literally false;
materiality is a separate requirement.
LivePerson offered a declaration from its Vice President stating
that the claim of being “first” to develop a product is likely to influence
purchasing decisions because “older technology that has been in the market
longer is viewed as having had more time for refinement and development based
on data collected over the years.” But “untested, generalized assumptions that
a statement is likely to influence purchasing decisions” weren’t sufficient to
demonstrate materiality.  In the
continuing game of telephone courts have played with the relationship between
falsity and materiality, we now hear that materiality “is ‘typically’ proven
through consumer surveys,” which provide direct evidence of a statement’s
impact. [Voiceover: materiality is not typically proven through consumer
surveys. That’s not to say the rule can’t change–it may be changing through this process of doctrinal accretion–but materiality is quite often a matter of common sense where a claim is central to performance or related to health or safety, and that treatment makes plenty of sense.]
Here, there was no evidence of consumer reaction, and
evidence that they didn’t simply take [24]7’s statements at face value in
making purchasing decisions. The parties entering into multi-year contracts
between companies; for example, Sears conducted an extensive head-to-head test before
switching.

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