in a Lanham Act (false advertising) case, presumptions cannot substitute for Article III injury

TocMail, Inc. v. Microsoft Corp., — F.4th —-, 2023 WL
3070085, No. 22-10223 (11th Cir. Apr. 25 2023)

Previous district
court opinion
allowing Lanham Act false advertising claims to proceed
against Microsoft; applying the Article III analysis that doesn’t (yet?) get applied to
trademark claims, the court of appeals concludes there’s no standing and thus
no jurisdiction over the appeal.

TocMail “offers a product geared towards a specific type of
threat called Internet Protocol (IP) evasion. TocMail launched its IP-evasion
product, got a patent, and then sued Microsoft for false advertising—all within
two months.” It alleged that Microsoft misled the public into believing that
Microsoft’s product offered protection from IP evasion. But at summary judgment
it failed to show any injury.

Microsoft’s Safe Links, part of its larger product,
evaluated links as users clicked on them; the parties disputed whether it
protected users from IP evasion, which occurs when a link sends visitors to
different websites depending on the visitor’s IP address, thus attempting to send
a security program to one (safe) website and the real user to another
(malicious) website. Microsoft’s ads included statements like:

Sophisticated attackers will plan
to ensure links pass through the first round of security filters. They do this
by making the links benign, only to weaponize them after the message is
delivered, altering the destination of the links to a malicious site. With Safe
Links, we are able to protect users right at the point of click by checking the
link for reputation and triggering detonation if necessary.

As a new market entrant,

TocMail hasn’t done much to market
its product. In bringing its product to market, TocMail has issued two press
releases, sent some emails to potential investors, and spent a few thousand
dollars on digital advertising. That’s essentially it. TocMail hasn’t made any sales.
TocMail admits that, although over 33,000 people have visited its website, it
has not made a single sale and has zero revenue. There’s no evidence that
TocMail has achieved any reputation in the marketplace.

It nonetheless estimated, based on Microsoft’s sales, “more
than $43 billion in lost profits.”

While the harm theory might have survived a motion to
dismiss, TocMail didn’t offer any expert testimony on damages causation,
relying instead on the presumption of injury that some courts have held arises
in a two-player market. According to TocMail, “TocMail and Microsoft are the
only cybersecurity vendors that promote their cloud-based, time-of-click
services as effective protection against IP evasion.” Given Microsoft’s dominance,
TocMail argued, consumers would believe Microsoft over a startup. And TocMail pointed
to evidence that one of Microsoft’s customers, Bosch, raised concerns about IP
evasion and asked Microsoft if it would need to add a third-party solution for
additional protection. Microsoft responded that Bosch “should be covered for
email-based threats” with “the full suite of [Advanced Threat Protection] and
the right best practices.” At the same time, Microsoft said that it “of course
encourage[s] customers to take a multi-tiered approach to security.” And it
noted that it was “exploring new ideas” to prevent IP evasion.

The district court granted summary judgment for Microsoft on
failure to show falsity or misleadingness, but the court of appeals had to do
Article III first.

TocMail failed to show injury in fact. It didn’t offer
testimony from any witness saying that he or she would have purchased TocMail’s
product if not for Microsoft’s advertising, any expert testimony calculating
TocMail’s lost sales from consumers who went with Microsoft (its expert instead
calculated lost profits by assuming that TocMail would have sold to everyone
who paid for Microsoft’s product), or a survey showing that consumers had any
interest in buying TocMail’s product. When it sued, it had done minimal
advertising, and hasn’t made a single sale. Any harm was pure speculation. There
was no evidence that the website visitors who declined to buy the product had
even seen Microsoft’s advertising or bought Microsoft’s product. As to the
customer who asked about IP evasion, TocMail didn’t depose anyone from that
customer or provide other evidence that it would have bought from TocMail. The Supreme
Court has indicated its “reluctance to endorse standing theories that rest on
speculation about the decisions of independent actors.” [Ed. note: Like trademark
claims do?]

TocMail’s claim was too hypothetical and uncertain, given that
it assumed: “(1) that consumers read Microsoft’s advertising, (2) that
consumers understand IP evasion, (3) that consumers are concerned about IP
evasion, (4) that consumers would be willing to buy computer security programs
from a company without any reputation, (5) that consumers would pay the price
TocMail is charging, and so on.”

“All TocMail needed was some evidence that it suffered an
injury: some testimony, some survey, some report. But TocMail has none.” What about
presuming injury from being in a two-player market? Well, that presumption has
been applied to the merits, not standing. “While it may make sense to presume
injury in assessing the merits, presuming an injury in fact for purposes of
standing would raise serious constitutional questions.” [Ed. note: Cf. the TMA’s
presumption of irreparable injury.] “A legal presumption would seem to fall
short of showing (through specific facts) a concrete and actual injury.”

Moreover, a presumption of injury from a two-player market “is
based on an assumption about how third parties will behave. But this
presumption collides head on with the Supreme Court’s ‘reluctance to endorse
standing theories that rest on speculation about the decisions of independent
actors.’ … In short, we can’t presume an injury in fact.”

The court here agreed with Hutchinson v. Pfeil, 211 F.3d 515
(10th Cir. 2000), which held that a presumption of injury alone cannot serve to
prove standing. The cases that use the presumption of injury “merely support
the proposition that when a plaintiff with an otherwise sufficient interest to
have standing shows that its interest has been subjected to patently false
representations, harm sufficient to sustain a claim and justify equitable
relief may be presumed” (also citing Ortho Pharm. Corp. v. Cosprophar, Inc., 32
F.3d 690, 697 (2d Cir. 1994) (“Because consumer behavior is unpredictable, and
because of the general rule in our [c]ircuit against making presumptions of
injury … favorable to the plaintiff, we affirm the district court’s decision
dismissing [the plaintiff’s] Lanham Act claims for lack of standing.”)). “The
presumption cannot be used to show Article III standing.”

Is INTA worried yet? 

from Blogger

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