Jury awards software company $1.7M for misleading ad claim

A jury awarded $1.7 million in damages to a Raleigh software company recently after finding that a competitor had engaged in misleading advertising in comparing its products to theirs.

EMove and Web Team Associates, subsidiaries of U-Haul International, and SMD Software and SiteLink Software all make business operation management software used by self-storage facilities. SMD/SiteLink alleged that EMove and Web Team handed out brochures at trade shows comparing their company to SMD/SiteLink that contained false and misleading statements in violation of the Lanham Act and North Carolina General Statute 75-1.1. SMD/SiteLink also claimed tortious product disparagement, a tort that requires the false or misleading statements to be made with malice. The jury found no malice so that claim failed.

To prevail under 75-1.1, SMD/SiteLink had only to prove that they suffered injury as a result of the false or misleading statements. 75-1.1 claims look a lot like Lanham Act claims, but Lanham Act claims require additional elements. Under the Lanham Act, SMD and SiteLink had to prove that the statements were literally false or made with an intent to deceive or if the statements were only misleading, they had to prove that a substantial segment of consumers were deceived by them. The jury found that EMove and Web Team did not make false statements, and although the jury did find the statements were misleading, it did not find that a substantial segment of consumers were deceived. Therefore, the Lanham claim failed.

Blogger Matt Sawchak, a partner at Ellis & Winters, who was not involved in the case, pointed out in an entry on his “What’s Fair?” blog that the decision offers lessons for plaintiffs involved in any false-advertising case.

Section 75-1.1 can create liability for false or misleading advertisements even when the Lanham Act would not, he wrote, so any plaintiff with a foothold in North Carolina should consider a 75-1.1 claim. He advised defendants in a case like SMD to try to import the elements of a false-advertising claim under the Lanham Act into the analysis of section 75-1.1.

“To maximize their chance of recovering treble damages, false-advertising plaintiffs should distinguish harm caused by North-Carolina-based conduct from harm caused by out-of-state conduct,” Sawchak writes.

The jury did find that EMove and Web Team made misleading statements that caused SMD and SiteLink injury satisfying the requirements necessary for the 75-1.1 claim.

75-1.1 requires that the court automatically treble damages awarded by the jury, but the court did not, saying that trebling damages would apply a North Carolina law to a multistate advertising campaign, which, according to the court, would burden interstate commerce and violate due process.

During the trial, the plaintiffs offered expert testimony on monetary damages from Nick Didow, a professor at UNC’s Kenan-Flagler Business School since 1979. Didow based his conclusions on market research, which he analyzed to determine the amount of revenues that SMD/SiteLink would have had if Emove and Web Team had not engaged in misleading comparative advertising. Didow compared that figure to SMD/SiteLink’s actual revenues.

Chris Thomas, an attorney for SMD/SiteLink, praised the judge and the court team.

“They were thoughtful in their decision-making process without much guidance from the Fourth Circuit,” he said.

Attorneys for EMove and Web Team did not return calls for comment.

Follow Laurie Landsittel on Twitter @NCLWLandsittel

VERDICT REPORT

Type of action:  False and misleading advertising under Lanham Act, tortious product disparagement and false and misleading advertising under North Carolina law

Injuries alleged:  Monetary and reputational

Name of case: SMD Software, Inc. and SiteLink Software, LLC v. EMove, Inc., et al 

Case Number: 5:08-cv-00403   

Court: United States District Court for the Eastern District of North Carolina

Judge: Louise Wood Flanagan

Attorneys for plaintiffs: Lew Starling of Daughtry Woodard Lawrence & Starling, Raleigh; Catharine Arrowood and Chris Thomas of Parker Poe Adams & Bernstein, Raleigh

Attorneys for defendants: Christopher Page, Patrick Aul and Walter Brock, Jr. of Young Moore & Henderson, Raleigh

Amount of verdict: $1.7 million

Date of verdict: May 23