detailed examination of harm story dooms FedEx’s false advertising claim

Ah, how I wish courts would apply the same scrutiny to trademark harm stories.

FedEx Ground Package System, Inc. v. Route Consultant, Inc.,
2023 WL 2466624, No. 3:22-cv-00656 (M.D. Tenn. Mar. 10, 2023)

FedEx uses around 4500 independent contractors (ISPs) to pick
up and deliver packages. As alleged,

Each ISP’s contract grants it a
certain service area, or “route,” and the ISP is permitted to sell its route to
another entity if they can agree on terms. The result is that FedEx routes are,
as a practical matter, intangible commodities traded on a competitive market
and subject to price fluctuation based on the actual or perceived value of each
individual route.

Route Consultant is a consultancy business that serves ISPs,
as well as another type of FedEx contractor—transportation service providers or
TSPs, who provide long-distance transportation services as opposed to actual package
delivery, which is done by ISPs. Together they are known as CSPs, contracted
service providers.

Route Consultant allegedly holds itself out as offering CSPs
(and aspiring CSPs) advice and information regarding “acquisition strategy,
business valuations, operations, efficiency, post-close support, [and]
compliance review.” It also “maintains an exclusive portfolio of routes and
runs for sale across the United States.” It does not perform any ISP work on
its own behalf, but the company’s founder and president founded and operates
four other companies that were FedEx ISPs.

Its products/services include a 12-week course on
acquisition strategy that costs about $15,000, a program called “FedEx Routes
for Sale 101,” and other consultancy and support services. It allegedly promotes
FedEx routes as under-the-radar, but promising, investment assets, “like buying
Apple at $1 a share.” Its principal, Patton, allegedly promoted the business “by
creating a fictionalized crisis between [FedEx] and its ISPs and TSPs as an
advertisement for the purported need for Route Consultant’s consultancy and
other services.” He allegedly “exaggerated and misrepresented the purported
financial hardships of the ISPs and TSPs in the current economic conditions” as
well as FedEx’s purportedly bullying response. FedEx posited that Route
Consultant’s aim was to encourage CSPs to renegotiate their deals (profiting
Route Consultant), or at least to raise Route Consultant’s profile and foster
the sense that its services were necessary. FedEx also alleged that the videos
could have “drive[n] attendance” for an annual conference put on by Route

The challenged materials were: (1) a publicly posted “Letter
of Assurance” from Route Consultant to FedEx, highlighting the hardships faced
by FedEx contractors and “demanding certain across-the-board modifications to
[FedEx’s] agreements with ISPs and TSPs”; (2) “various videos” posted to Route
Consultant’s YouTube channel making similar points; and (3) a press release
reiterating those points.

In the letter, Patton claimed that FedEx, “knowingly or
unknowingly, has placed the financial viability of CSPs in their Ground network
at enormous risk.” He stated that “[n]ot a single day passes without my phone
ringing with the story of yet another contractor who is financially collapsing
under the weight of these dramatic cost changes that have gone unaddressed by
FedEx Ground in 2022.” Although FedEx took steps to support its CSPs during the
height of the COVID-19 pandemic, it purportedly made “no financial adjustment
in any capacity” to the even greater challenges associated with 2022 cost
conditions. The letter also mentioned Route Consultant’s upcoming “Contractor
Expo + Party.” The videos and press release were of similar tenor.

FedEx sent a C&D telling Patton to shut up (demands
included “cease all advocacy on behalf of any service providers other than [his
own] ISPs”) and sent a letter to CSPs addressing Route Consultant’s
allegations. Obviously, the dispute didn’t end there.

The allegedly false statements made various claims about the
precarity of CSPs/FedEx’s responsibility therefor, such as, after referencing
the economic changes over the past 12 months, “there has been no financial
adjustment in any capacity”; the “average FedEx Ground business run by a CSP
currently operates on profit margins below 0%”; since the Q4 of 2020, the
industry has seen “a 15% pullback on the value of routes”; “the current CSP
financial model is collapsing”; claiming “soaring levels of CSP default rates
as evidence of the current financial stress within the network”; and “Almost
all of the other contractors that had renegotiation requests were also denied.”
Patton also allegedly overstated the size of his businesses by stating, “I have
about 225 routes, 275 trucks on the road across 10 different states.”

For falsity, FedEx pled that (1) its CSPs “earn average
annual revenue of approximately $2.3 million dollars, a figure that has doubled
over the last four years,” (2) “ISPs have requested mid-contract renegotiations
for only about 10% of their agreements in 2022,” (3) FedEx “has consented to
approximately 40% of renegotiation requests since July 1, 2022, and (5) “over
90% of those renegotiations led to agreement on new terms that resulted in
higher contractual payments to the ISPs.” FedEx also points to a report by a
business analyst based on data “for 100 ISP businesses … for sale on Route
Consultant’s own website,” which concluded that those businesses “generated an
operating margin of 16.0%.”

The press picked up on Route Consultant’s agitations and
began reporting on “tension” and a “burgeoning feud” between FedEx and its CSPs.
“Some of the coverage suggested that, if the situation continued to
deteriorate, it could lead to a slowing of deliveries—a possibility with
obvious, serious reputational stakes for FedEx. At least one financial analyst
cited Route Consultant’s statements as evidence of ‘structural problems’ with
FedEx’s ‘broken and inefficient’ model.”

FedEx brought Lanham Act and Tennessee Consumer Protection
Act claims.

Was this “commercial advertising or promotion”? Plausibly.
It didn’t have to directly/literally propose a transaction to be commercial
speech, as long as it was sufficiently relevant to a real or proposed transaction.
The court didn’t resolve what it saw as the difficulty of evaluating Route
Consultant’s argument that its speech was not commercial “because it consisted
almost entirely of broad, public-facing commentary about business conditions
and practices involving FedEx and its CSPs—not any transaction or proposed
transaction involving Route Consultant,” versus FedEx’s point that “Route
Consultant—like any consultancy business—feeds off the perception of
rectifiable (or avoidable) corporate dysfunction. Hyping up that
dysfunction—while simultaneously reminding individuals that your services as a
consultant are available—is a plausible promotional strategy.” While further
factfinding could change the outcome, the accused communications were plausibly
commercial speech. “The fact that some aspects of Route Direct’s critique could
have been delivered noncommercially … provides no ground for dismissing claims
based on the more ambiguous communications that actually did occur.”

However, falsity proved a harder barrier. Some of Patton’s
statements, such as those making quantitative claims, were falsifiable. But others
were much more subjective—too much so to be falsifiable: “the current CSP
financial model is collapsing due to substantial increases in the cost of fuel,
labor, and vehicles over the past 12 months.” Since the latter half of the sentence
was not pled to be false, there was “no clear division between a company or
business model that is ‘collapsing’ under cost increases and one that is merely
struggling with them, particularly given that that assessment is at least as
much a prediction about the future as a claim about the present.” A “melodramatic”
claim is not actionable when a speaker uses a “loose, hyperbolic term” to
“convey[ ] an inherently subjective concept.” So too with claims based on “soaring
levels of CSP default rates as evidence of the current financial stress within
the network” and claims that CSPs are in “financial distress.”

Another set of statements claimed that FedEx made no
“adjustments” to “address[ ]” the financial challenges facing CSPs. FedEx argued
falsity because CSPs, as a group, were not struggling, and FedEx did, in fact,
grant some renegotiation requests, “meaning that it is technically untrue that
the company did absolutely nothing.” But in context, it was “clear that the
statements at issue were not intended to suggest that FedEx never granted a
renegotiation request or never improved the terms pursuant to which an
individual, struggling CSP did business. Rather, the statements made were about
FedEx’s failure to adjust its overall model and approach and its failure to
adequately remedy the headwinds facing CSPs as a class in the manner that it
had during the height of the pandemic.” The complaint did not plausibly plead
falsity there, given that “FedEx’s consistent position has been that there was
no need for any such large-scale adjustment in the first place.”

Thus, it was unlikely that any substantial portion of the
intended audience, which was sophisticated, would have been deceived; the court
noted that Patton’s own statements acknowledged that FedEx did not have a 100%
denial rate for requested renegotiations. And even if one read the statements
to be “technically, albeit trivially, false,” it was not plausible that such
technical errors were capable of harming FedEx. FedEx’s allegations of harm
were “not based on some technical distinction between FedEx’s having done no
adjustment versus its having done a little bit of adjustment in a few select
instances. Rather, any harm to FedEx appears to have been from the general
impression that its contractors were struggling so severely that it posed a
risk to FedEx’s operations. That premise did not depend on FedEx’s having done
literally nothing—merely that it did not do enough.”

The quantitative assertions could be falsified, but the
complaint didn’t plead facts to do so. One challenged statement, for example, was
about average profit margins, but FedEx pled evidence regarding average
revenues. The only information that FedEx has pleaded about margins was based
on a sample of 100 ISPs, not on the “average” CSP. While people might believe either
side, FedEx “conspicuously failed to allege that Route Consultant’s numbers were
actually false or, in any sufficiently explained way, even misleading.”

For “[a]lmost all of the … contractors that [made]
renegotiation requests were … denied,” FedEx pled that it “has consented to
approximately 40% of renegotiation requests since July 1, 2022.” But the
relevant dates didn’t match; the letter at issue was released in July
2022. At most, FedEx pled that a statement that was made at one chronological
point would have been false or misleading if it had been made later and with a
different time limitation.

FedEx did allege that the statement about the size of Patton’s
own routes was literally false.

“[I]t is at least conceivable that a falsehood about
Patton’s businesses could harm FedEx by lending Patton’s, and by extension
Route Consultant’s, critique more credence than it deserved.” But it was
explicitly an estimate, and FedEx didn’t plead just how overstated those
numbers were. “Given the comparatively attenuated importance of this fact to
FedEx’s theory of harm, the overstatement would have to have been quite
substantial to have made any plausible difference in the course of events.”

Claims dismissed.

from Blogger

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