Flange wars: material misrepresentations aren’t enough without causation

Boltex Manufacturing Co. v. Ulma Piping USA Corp., No. 17-CV-1400,
2019 WL 2723253 (S.D. Tex. Jun. 28, 2019)
More flanges! Boltex alleged that defendants misrepresented
that they “normalized” their flanges. Normalization is a heat treatment process
that makes steel more durable; it’s more expensive than not normalizing the
flanges, and Boltex charges more for normalized than non-normalized flanges. ASTM
has a published set of standards and specifications applicable to carbon steel
flanges to ensure uniformity in the industry; some consumers only buy industry
standard-normalized flanges. “[C]ustomers cannot simply look at a flange to
determine whether it has been normalized,” but must rely on sellers.
Defendants allegedly misrepresent the normalization-status
of their flanges “in the catalogs, brochures, price lists and websites of
third-party distributors of Ulma flanges,” “in the MTRs [mill test reports,
described as a “birth certificate” for a flange] that accompany each flange,”
and by stamping A105N on each flange where N stands for normalized and A105 represents
the relevant ASTM standard.
Ignoring Justice Scalia’s instruction not to call the issue
in Lexmark “prudential standing,” the court found that plaintiffs did
have standing for purposes of avoiding summary judgment. Article III: There was
deposition testimony that “Ulma’s purported misrepresentations directly affect
the market in which the Plaintiffs participate and that customers compare Ulma
and Boltex prices,” and that had Ulma not advertised their flanges as
normalized, “a portion of [the market] definitely would have come to Boltex.” They
also provided a damages model as evidence of their purported losses.
Lanham Act “prudential” standing: Defendants argued that
because Boltex is a domestic manufacturer and Ulma is a foreign manufacturer,
the two companies weren’t competitors because customers usually choose either a
foreign or domestic brand of flange and stick to it. Plaintiffs’ evidence was
otherwise, creating a genuine fact issue. As competitors, they’d be within the Lanham
Act zone of interests. There was also evidence supporting proximate cause; losing
sales to a product of supposedly equivalent quality sold at a lower price is a
classic Lanham Act harm story.
For similar reasons, there was a genuine issue of material
fact on falsity. Defendants argued that their flanges were “normalized” via either
the ASTM approved method or their own “proprietary method,” but whether that
method counted as normalization was disputed, including by testimony from
defendants’ own representatives. Defendants also argued that representations
that appear on third-party websites or in third-party catalogs constitute
commercial speech that couldn’t be attributed to them. However, there was evidence,
including the inscriptions on flanges, that at a minimum supported a claim of
contributory false advertising.
Defendants argued that the inscriptions on flanges and
statements in MTRs weren’t commercial advertising or promotion because they
were only provided to a customer after purchase. However, “the stamping and
inclusion of MTRs confirm the assumption that consumers make when purchasing
the flanges, namely that the flanges are of the quality and specifications that
they purport to be.” There was evidence that “customers depend on the MTRs as
an accurate reflection of what they purchased,” and that an MTR is a “birth
certificate for a flange.”
As for deceptiveness, this is presumed for literal falsity. In
addition, plaintiffs provided evidence that customers sought reassurance from
Ulma that their flanges were in fact normalized in accordance with ASTM after
the filing of this suit. A reasonable juror could use this to conclude that customers
associated the “A105N” stamp with the ASTM normalization process specifically,
rather than including Ulma’s proprietary method.
Materiality: similarly, there was evidence that ASTM-compliant
normalization is an important standard upon which customers rely, and that
consumers might have decided differently had they known the truth.
There was also “very thin” evidence of injury. Plaintiffs
emphasized that Ulma specifically lists Boltex’s prices when responding to
Requests for Quotes (RFQs). There was evidence that at least one of defendants’
customers actually compared the parties’ prices.
Prior proceedings before the ITC didn’t matter because the
ITC had dealt with a claim that defendants were selling their flanges at an
unacceptably low price; the Lanham Act claim wasn’t actually litigated nor were
plaintiffs’ positions contradictory in a way calling for the application of
judicial estoppel.
Boltex Manufacturing Co. v. Ulma Piping USA Corp., No.
17-CV-1400, 2019 WL 2723272 (S.D. Tex. Jun. 28, 2019)
Flanges, it turns out, are formed from rough steel forgings.
Plaintiff “Weldbend buys forgings from domestic and foreign suppliers and
manufactures the forgings into flanges in its Illinois facility. Boltex makes
most of its own forgings domestically and performs its heat treating in one of
its two plants located in Houston. In its second Houston plant, Boltex
machines, finishes, and warehouses its flanges. Defendants produce their
flanges in Spain.” Defendants allege that plaintiffs falsely advertise/falsely
designate the origin of their flanges by falsely stamping/advertising flanges as
“Made in the USA” or “American Made” when at least some of the steel in the
flanges is internationally sourced. Weldbend’s packaging allegedly contains
pictures of Uncle Sam and the American flag and that its social media accounts
display representations such as, “This product [sic] Made in the USA with USA
Steel.” In addition, Weldbend allegedly falsely advertises that its goods are
made with “unquestionable traceablility.” Here, the court kicked out the false
advertising claims except for “traceability,” on which it sought more briefing.
Initially, the court declined to rely on the FTC’s Enforcement
Policy Statement on U.S. Origin Claims to define made in the USA. FTC standards
don’t control in Lanham Act cases, which require showing falsity or
misleadingness, not just a violation of the guidelines (although the guidelines
indicate what the FTC considers false or misleading). The falsity had two
aspects: (1) misrepresentation that flanges are “Made in the USA” when they are
in fact made with imported steel and (2) implying that all of their flanges are
“Made in the USA,” when in fact some are made using imported steel. The court
found no evidence of literal falsity on (2); instead, while Boltex uses some
internationally sourced steel, it didn’t mark those as “Made in the USA” and
there was no evidence of an overall Boltex advertising scheme to the contrary. However,
there was a genuine issue of material fact on falsity for Weldbend, which
claimed that its “American Made line uses only top-quality steel from US mills,
forged into fittings and flanges at Weldbend’s own plant in Argo, Illinois.” In
this context, Weldbend defined “American Made,” removing potential ambiguity. There
was testimony from a Weldbend executive that “American Made” flanges may use
steel from either a US or an offshore mill, creating a fact issue on falsity.
In addition, Weldbend admitted that it didn’t do any of its own forging.
Misleadingness: Defendants argued that there was a fact
issue “as to whether [Plaintiffs’] use of unqualified and express U.S. origin
claims, American iconography, and other statements leave a false and misleading
impression that all of their products are manufactured in the U.S. with
U.S.-sourced steel.” They provided deposition testimony from distributors who
ordered plaintiffs’ flanges, one of whom who interpreted “Made in the USA” and
similar statements as meaning “steel coming from the US” and two who didn’t. This
wasn’t enough for misleadingness; “the Court must look for signs that consumers
assume something incorrect about the product based on the language or imagery
in the advertisement.” Anyway, the deponents were asked different questions and
provided similar answers when they were asked similar questions.
The court also rejected screenshots of third-party social
media posts that “juxtapose Weldbend and Boltex’s names with American imagery”
and slogans such as “Buy American not dumped from China!” or “American Made
Matters” as evidence of misleadingness; defendants didn’t explain who the poster
was in relation to plaintiffs.
Finally, there was additional evidence about Weldbend
individually that did demonstrate a fact issue as to whether consumers were
confused by Weldbend’s use of the terms “Domestic” and “USA.” A distributor
requested a quote for flanges and specified that “[r]aw material is required to
be domestic.” A Weldbend customer service representative responded that
“[e]verything [ ] quoted is U.S.A.” The distributor then sought to clarify
whether “USA mean[t] the raw material as well,” to which Purpura responded
“U.S.A. means it is melted and manufactured in the U.S.A.—Domestic means material
from another country, manufactured here.” In a different email exchange, Weldbend
informed a customer that he could not “guarantee that all material will be
Melted and Manufactured in the USA” but that “[a]ll items which are not
Domestic are noted as Import.” These representations seemed to conflict—both
appear to define “Domestic” in different terms. Combined with evidence that Weldbend
internally defined “American Made” as including flanges made in the US with imported
steel but advertised the opposite, a reasonable fact-finder could find it
misleading to call products made from non-U.S. sourced steel “American Made,”
“Made in America,” or “Domestic” without clearly defining or qualifying those
terms for consumers.
Materiality as to Weldbend: literal falsity would mean
materiality, and at least one buyer insisted that the flanges sold to him be
made in America with U.S. sourced steel.
Nonetheless, there was no direct evidence of injury. A
damages model wasn’t enough. There was no evidence that plaintiffs’ profits
resulted from the allegedly false advertising. And on this record, the
customers misled by Weldbend’s “American Made” designation wouldn’t have
accepted flanges produced by Ulma—a foreign flange manufacturer—as substitutes.
One series of emails, for example, involved a bid that included a line stating
that the “starting material [was] non-China.” The other party responded to the
quote, stating: “I am concerned about the comment [regarding “non-China”
material]. The starting material for these fittings and flanges MUST [sic] be
from the USA not just non-China,” per her customer’s request; she did not “want
to lose a customer over something like this.” There was no evidence in the
record that this subset of customers would buy Ulma’s flanges as a substitute,
even if the parties generally compete in the market for normalized flanges. Summary
judgment granted (with the exception of “traceability”: plaintiffs didn’t
adequately move for sj on this issue, which required more briefing).

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