Tuesday, March 08, 2011

Appraisers Have Standing to Sue Software Developer for False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Real estate appraisers had standing to sue the software developer FNC, Inc. under the Lanham Act for falsely advertising that appraisal-report data submitted for FNC's AppraisalPort was accessible only by client lending institutions, when FNC allegedly used the data to build its National Collateral Database, which lending institutions consulted instead of commissioning new appraisals, the U.S. Court of Appeals in New Orleans has ruled.

The case fell just within the outer limits of the zone of interests protected by the Lanham Act, the court held, applying a five-factor test for determining prudential standing.

Nature of Injury

The nature of the injury weighed in favor of standing because the alleged false advertising about AppraisalPort injured the appraisers' interest in generating new business as competitors of the National Collateral Database. Deterioration of competitive position was precisely the kind of injury the Lanham Act was intended to redress, the court said.

Directness of Injury

The relatively indirect relationship between the alleged misconduct and injuries weighed against prudential standing. The appraisers were injured by the allegedly false advertising about AppraisalPort because FNC allegedly made the decision to misappropriate the data it received from the appraisers, the court noted.

Proximity to Injurious Conduct

The proximity of the appraisers to the allegedly injurious conduct weighed in favor of standing. No identifiable class of persons could be more immediate to the misappropriation of work product than the persons to whom the work product rightfully belonged, according to the court.

Speculativeness of Damages

That the damages claim was not speculative weighed in favor of standing, the court determined. The appraisers alleged that they suffered damages in the form of lost business and profits as a result of lenders' use of the National Collateral Database and that FNC earned substantial profits on the database that it would not have been able to earn in the absence of the misrepresentations it made in its advertisements for AppraisalPort.

Risk of Duplicative Damages

Finally, there was little risk that allowing the suit to proceed would subject FNC to a risk of duplicative damages or require a complex process of damages apportionment, according to the court. To the extent there was a risk that difficulties might arise with allocating damages between the members of the alleged class of appraisers, those difficulties were to be addressed in deciding the request for class certification.

Because FNC’s allegedly false advertisements were not, of their own force, injurious to the plaintiffs’ commercial interests, the plaintiffs’ injury was less direct than was typical under Sec. 43(a), the court observed. Critically, however, there was no participant in the market who was more directly injured by FNC’s anti-competitive conduct.

Each additional step in the asserted chain of causation involved a wrongful act by FNC, the court found. FNC’s alleged decision to couple its false advertisements with other forms of anti-competitive conduct did not make the false advertising any less unfair as a method of competition, the court concluded.

The February 24 opinion in Harold H. Huggins Realty, Inc. v. Torres will be reported at CCH Advertising Law Guide ¶64,185.

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