Judge Tentatively Rules For Vision In Maxava False Advertising Suit

March 12, 2012 Alex Woodie

As the false advertising lawsuit brought by Maxava against Vision Solutions slogs into its third year, the Federal judge overseeing the case has issued a tentative ruling on a preliminary matter. Judge George Wu in December rejected Maxava’s summary judgment motion, and stated he remained open to Vision’s summary judgment arguments. The jury trial originally scheduled to begin last November was delayed, and there’s no trial date currently on the docket.

IBM i high availability software maker Maximum Availability (as the company was then called) filed a civil lawsuit against its larger rival Vision Solutions in December 2009, alleging that advertising materials used by Vision to peddle its various products contain false information that has done damage to Maximum Availability’s business. Eventually, Maxava widened the lawsuit to include allegations of trade libel, interfering with prospective economic advantage, anti-competitive, monopolistic behavior in violation of the Sherman Act, and Lanham Act violations. It also added Vision’s business partner, the reseller Sirius Computer Solutions, to the lawsuit.

In October, the three parties in the case filed motions for summary judgments with the court, which is the U.S. District Court Central District of California Western Division, based in Los Angeles. While Judge Wu has not yet formally ruled on the motions, he did issue a tentative ruling in a December 12 filing.

In his tentative ruling, Judge Wu stated that he would deny Maxava’s motion for summary judgment. As for Vision’s motion, Judge Wu stated that he would “request further argument at the hearing,” but that he would be inclined to deny the motions as they stood. A formal ruling is still expected from Judge Wu.

Judge Wu’s tentative ruling raises some issues for Maxava’s case, which hinges on whether it can prove that its business was damaged by documents written by Vision marketing and sales personnel, and distributed to Vision’s partners and business prospects were false and damaged its business.

In particular, Maxava says the following statements made by Vision about Maxava’s products and business were false: that 80 customers have replaced *noMAX with Vision’s software; that Maxava has a limited support staff in New Zealand and an immature partner network; that Maxava doesn’t offer 24/7 global support; that *noMAX takes more than 30 minutes to manage every day; that *noMax requires custom coding; that *noMax is built for small and midsize businesses, and not enterprises; that *noMax takes more than 30 days to install; that more than half of *noMax customers don’t know if they are ready for a role swap; and that more than 80 percent of customers have never done a role swap test.

While Vision admits to writing and distributing the documents, it says they didn’t have a big impact on its competitor. In particular, Vision says Maxava: can’t identify any customer or sale that it lost because of the alleged false representations; can’t prove that the claims in the documents are false; can’t prove that any “reasonable” consumer would be swayed by its alleged false statements; can’t prove that Vision’s salespeople were “deceptive” or malicious; and can’t prove that their actions were material.

Judge Wu sided with Vision’s arguments on several of these claims. To prove a Lanham Act violation, the burden is on the plaintiff to prove that the misrepresentations in commercial advertising or promotion denigrate “the nature, characters, qualities, or geographic origin” of the plaintiff’s products or services. Judge Wu says the number of customers who may have switched from Maxava to Vision does not meet this requirement. Further, Maxava needs other proof than the deposition of Maxava president Allan Campbell, who says that Maxava hasn’t lost 80 customers in total, let alone to Vision (a statement that Vision claims Campbell later contradicted during his deposition).

As for the things that Vision said about Maxava’s support network, Judge Wu offered a split decision. The Vision claim–“Maxava has a limited number of support staff in New Zealand and an immature partner network, so support is inconsistent and limited”–is just “puffery” and “opinion” and is not actionable as a matter of law, Judge Wu wrote. However, Judge Wu appears to side with Maxava when he says that Vision’s claim that Maxava offers “little or no 24×7 support (only available in New Zealand)” is “problematic.” (Judge Wu also rejected Vision’s attorney’s argument that the term support is “ambiguous.”)

Judge Wu says Maxava hasn’t met the burden of disproving Vision’s statement that “*noMax takes 30+ minutes per day to manage.” Vision brought in a technical expert, who testified that at the time (2006 to 2008), *noMAX may have taken more than 30 minutes per day to manage. In his declaration, Maxava’s Campbell said the product requires five to 10 minutes per day to manage.

The judge also sided with Vision on the matter of Vision’s statements that “*noMAX requires custom coding” and “*noMAX can take more than 30 days to install because of required custom coding and testing.” Vision’s technical expert testified that *noMAX could require customizations for journal management and exit programs. Absent evidence that *noMAX never takes more than 30 days to install, Maxava can’t meet the rigorous standard for proving falsity. (The de rigueur is perhaps higher than first appears, as Vision’s lawyers claimed–and Judge Wu agreed–that Vision’s claim about the length of time to install also referred to required training.)

As for the claim that *noMAX is built for small and midsize businesses but not the enterprise, Judge Wu appeared swayed by the Vision technical expert, who said *noMAX does not have a capability that may be required by enterprise, and sided with Vision in dismissing this item as the basis for a Lanham Act claim.

Maxava’s objection to Vision’s claim about *noMAX customers and role swaps also failed to meet the Lanham Act requirement–namely, that the claim denigrates “the nature, characters, qualities, or geographic origin” of the plaintiff’s products or services–according to Judge Wu. Maxava did present to the court an expert installer who testified that he always trains *noMAX customers to perform role swaps and tests the role swap process. However, Maxava can’t prove that these activities are performed at more than 50 percent of customer sites.

Judge Wu also rejected Maxava’s arguments that the companies mentioned in the so-called “competitive replacement slides” that Vision created were never Maxava customers. According to court filings, Vision’s slides claimed that six companies–American Fiber and Yarns, Gill Industries, KOA Kampgrounds, Newsweek, Nor Cal Beverage Group, and Tradex Insurance–replaced *noMAX with Vision’s HA software (Vision subsequently admitted that it erred in adding American Fiber and Yarns to that list). Judge Wu sides with Vision’s contention that Maxava failed to identify these statements in interrogatories or deposition, and is therefore “precluded from basing any of its claims on the supposed falsity” of the slides.

Judge Wu also sided with Vision on the matter of whether the original documents that were allegedly defamatory (not the replacements slides) constitute “commercial advertising or promotion,” which is another Lanham Act requirement. According to the judge, such advertising must be “disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.”

At this point, the facts only support that Vision disseminated the documents to six customers, which appears to be insufficient for a Lanham Act claim. Maxava also claims that Vision spread the documents “virally” among its employees and partner network. (Dynamix Group Inc., Agilisys, Healthcare Management Systems, Lavender and Wyatt Systems, Pinnacle Business Systems, CCS Computer Solutions, and Sirius Computer Solutions are the only resellers that have been proved to have received the documents). However, Judge Wu rejects Maxava’s argument, and says it hasn’t proven its viral dissemination theory.

Judge Wu also gave a preliminary ruling on whether Vision’s alleged misrepresentations were deceptive. Vision argued that none of the six customers (including Roger Cleveland Golf, Silverleaf Resorts, Hyundai Information Services of North America, Kingston Technologies, Panda Restaurant Group, and Bradley Corp) were deceived. And in fact, four of those customers–Panda, Kingston, HISNA, and Bradley–all went on to buy *noMAX licenses from Maxava. Further, representatives from Panda, Silverleaf, HISNA, and Bradley have testified that they didn’t rely on Vision’s documents. Maxava placed greater weight on that actions Cleveland Golf, but Judge Wu sides with Vision in saying that Maxava’s reliance is “misplaced.”

“There is no evidence in this case that any of the alleged misrepresentations made by Vision had any impact on any customer’s or potential customer’s purchasing decision,” Judge Wu wrote. “The main problem for Maximum is not an inability to prove damages, but, rather, that it is much closer than it supposed to being thrown out on summary judgment on the question of whether it can demonstrate false advertising or unfair competition.”

In other lawsuit news, the court granted the motion by Vision employee Bill Hammond to dismiss the claims against him based on lack of personal jurisdiction. Previously, claims had also been dismissed for Vision’s Chris “CT” Thomas. The claims remain against Vision and Sirius as well as Vision employee Eva Succi.