Opinion
No. CIV. S 98-208 FCD GGH
November 20, 2000
MEMORANDUM AND ORDER
This antitrust action is before the court on defendant Riso, Inc.'s ("Riso") motion to dismiss, or alternatively, for summary judgment, and plaintiff Western Duplicating, Inc.'s ("Western") cross-motion for partial summary judgment.
Defendant RPSI Enterprises dba Riso Products of Sacramento ("RPSI") joins in Riso's motion.
TIMING OF RISO'S MOTION FOR SUMMARY JUDGMENT
As a preliminary matter, Western contends that Riso's motion for summary judgment is premature since Riso has "stonewalled" discovery. According to Western, (1) Riso supports its motion for summary judgment with documents Western requested, and Riso refused to produce, and (2) on the date Western filed its opposition, Riso had produced very few documents. As a result, Western contends that its ability to respond to Riso's motion is greatly impaired.
Generally, summary judgment is not appropriate when the nonmoving party has not had an adequate opportunity to conduct any discovery. "Rule 56(f) motions should be granted 'almost as a matter of course' unless 'the nonmoving party has not diligently pursued discovery of evidence.'"Wichita Falls Office Assocs. v. Banc One Corp., 978 F.2d 915, 919 n. 4 (5th Cir. 1992) (quoting International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1267 (5th Cir. 1991)). "Summary judgment is especially inappropriate where the material sought is also the subject of outstanding discovery requests." Visa Int'l Serv. Ass'n v. Bankcard Holders of Am., 784 F.2d 1472, 1475 (9th Cir. 1986).
The court has reviewed the file and notes that Western has been diligent in its pursuit of discovery. Only limited discovery was permitted prior to November 2, 1999. Riso filed the instant motion just two months later on January 14, 2000. Since that time, Western and Riso have continued to do battle over the production of documents. In October 2000, however, Riso produced 85 boxes of documents in response to Western's numerous requests. According to the magistrate judge's October 31, 2000 order on Western's motion regarding production of records and other topics, that production was just the beginning.
The court does not accept Western's accusation that Riso "stonewalled" discovery. According to the magistrate judge's order, Western propounded some 400 separate requests for production. Order, filed Oct. 31, 2000, at 4.
Given the present state of discovery, and the need to proceed with caution in summarily adjudicating a complex antitrust action such as this, the court finds Riso's motion for summary judgment premature, and denies the same without prejudice. The court likewise denies Western's motion for partial summary judgment without prejudice. The parties' may re-Tile their respective mctions after the close of discovery.
The parties' respective objections to evidence are also denied without prejudice.
BACKGROUND
The facts set forth herein are drawn from Western's Second Amended Complaint ("SAC"). Riso Kagaku Corporation ("RKC") is one of three manufactures of digital duplicators in the world. SAC ¶ 15. Its digital duplicators are known as "Risographs." RKC also manufacturers parts and supplies, including ink and masters, for use in Risographs, and markets these products in the United States through its wholly-owned subsidiary Riso. Id. ¶ 1. Riso, in turn, markets the machines, parts, and supplies to end users primarily through a network of 240 authorized Riso dealers, including defendant RPSI. Id. ¶¶ 7, 8. Riso also sells a relatively small amount of product directly to end-users through 18 branch offices. In addition to marketing Riso products, Riso dealers also provide service, warranty and repair services to Risograph owners. Riso and its dealers enjoy a 65-75% share of the digital duplicator market in the United States, and a 90% share of the aftermarket for Risograph supplies. Id. ¶¶ 24, 30, 122.
RKC was dismissed as a defendant in this action for lack of personal jurisdiction on July 23, 1999.
Western sells ink and masters for use in digital duplicators, including Risographs. Id. ¶ 11. Western sells ink and masters directly to owners of digital duplicators, as well as indirectly through distributors and dealers throughout the United States. Id. Western began competing with Riso and its dealers for sales of inks and masters sometime after January 30, 1994. Id.
According to Western, Riso and its dealers unlawfully conspired to exclude it from the aftermarket for ink and masters. Id. ¶¶ 13, 14. As detailed below, Western contends that Riso uses its market power in the digital duplicator market to prohibit its dealers from selling non-Riso supplies. Id. ¶ 40. Western further contends that Riso and its dealers leverage their market power in the maintenance, service and repair aftermarket to eliminate competition in the supplies aftermarket.Id. ¶¶ 14, 28, 30.
Following the entry of high quality competitive inks and masters in late 1993 and 1994, Riso amended its dealer agreement in April 1994 to prohibit its dealers from offering competitive (non-Riso) inks and masters for use in Risographs, thereby conditioning its dealers' ability to purchase Risographs upon those dealers not offering competitive supplies.Id. ¶ 34. The amended dealer agreement ("dealer agreement") likewise prohibits terminated dealers from selling non-Riso products, thereby conditioning terminated dealers' ability to purchase spare parts necessary for service upon terminated dealers not offering competitive supplies. The dealer agreement further prohibits Riso dealers from selling Riso products to anyone but end-users, and provides that the warranty given to dealers does not cover the cost of repairs or adjustments caused by parts, supplies, repairs or maintenance services not authorized by Riso. Id. Western contends that these restrictions threatened Riso dealers' revenue streams because competitors could offer ink and masters at prices significantly below Riso prices. According to Western, these restrictions provided Riso dealers with an incentive to restrain trade and restrict competition in the sale of ink and masters.
Western argues that once Riso provided its dealers with the incentive, beginning in October 1994 and lasting to the present, Riso and its dealers combined and conspired to eliminate competition from "supply pirates" such as Western. Id. ¶¶ 35, 52. Specifically, Western alleges that Riso dealers agreed to use "service threats" to coerce customers to use Riso ink and masters and to spread fear, uncertainty and doubt (known as "FUD marketing") in the minds of consumers in order to discourage them from purchasing competitive ink and masters. Id. ¶ 53. Among other things, Western contends that Riso produced "warnings" concerning the use of non-Riso supplies and distributed them to its dealers to pass-on to end-users. Id. 86-89. These warnings state that use of non-Riso supplies may, among other things, harm the Risograph, and damage caused by the use of non-Riso supplies is not covered under the warranty. Id. Western further alleges that some Riso dealers, including RPSI, tell Risograph owners that use of non-Riso supplies will void their warranties. Id. ¶¶ 72-74.
Western contends that these efforts have been, and continue to be, successful because Riso and its dealers have monopoly power over the service, maintenance and repair of Risographs. Id. ¶ 55. According to Western, this monopoly power exists because Riso only sells spare parts to its dealers and terminated dealers and prohibits them from selling the parts to anyone but an end-users. Thus, because of these restrictions, there are no independent service organizations for Risographs, and because there are no service options for most customers, "service threats" and FUD marketing succeed in eliminating competition for sales of ink and masters for use in Risographs. Id. ¶ 55.
As a result of this conduct, Western alleges that it has been excluded from selling competitive ink and masters for Risographs.
ALLEGED VIOLATIONS
Based on the above policies and practices, Western alleges the following antitrust violations against Riso and RPSI: (I) monopolization, attempting monopolization, and conspiracy to monopolize the aftermarket for sales of ink and masters in violation of § 2 of the Sherman Act; (2) illegal tying of Risographs to dealer's agreement not to sell competitive ink and masters in violation of §§ 1 and 3 of the Sherman Act; (3) illegal tying of spare parts and service manuals to terminated dealer's agreement not to sell competitive ink and masters in violation of §§ 1. and 3; and (4) illegal group boycott in violation of § 1.
In addition to violating antitrust laws, Western contends that Riso and RPSI made misleading and false representations concerning non-Riso products in violation of the Lanham Act, the California Cartwright Act, Cal. Bus. Prof. Code § 16600, and the California Unfair Business Practices Act, Cal. Bus. Prof. Code § 17200, and intentionally interfered with Western's contractual relations and prospective economic advantage. Finally, Western contends that Riso violated Massachusetts Protection Act, Mass. Gen. Laws ch. 93A.
STANDARD
A complaint will not be dismissed under Fed.R.Civ.P. 12(b)(6) "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his [or her] claim that would entitle him [or her] to relief." Yamaguchi v. Department of the Air Force, 109 F.3d 1475, 1480 (9th Cir. 1997) (quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir. 1996)) "All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party." Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).
ANALYSIS
1. Market Power In Western's Proposed Product Markets
In order to prevail on its conspiracy, monopolization, attempted monopolization claims, and tying claims, Western must show, among other things, that Riso possesses market power in the relevant product markets. Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1444 (9th Cir. 1995) (market power required for conspiracy to restrain trade); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481 (1992) (hereinafter "Kodak I") (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (market power required for monopolization); Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997) (hereinafter "Kodak II") (market power required for attempted monopolization); Datagate, Inv. v. Hewlett-Packard Co., 60 F.3d 1421, 1423-24 (9th Cir. 1995) (market power in tying product required for tying claim). Monopoly power, commonly referred to as market power, is "the power to control prices or exclude competition." Grinnell Corp., 384 U.S. at 571 (quoting United States v. E.I. du Pont de Nemours Co., 351 U.S. 377, 391 (1956)). A plaintiff may demonstrate market power either directly or circumstantially. Direct evidence is "evidence of restricted output and supracompetitive prices."Rebel Oil, 51 F.3d at 1434. "To demonstrate monopoly power by circumstantial evidence, 'a plaintiff must: (1) define the relevant market, (2) show that the defendant owns a dominant share of that market, and (3) show that here are significant barriers to entry and show that existing competitors lack the capacity to increase their output in the short run.'" Kodak II, 125 F.3d at 1202 (quoting Rebel Oil, 51 F.3d at 1434).
A tying arrangement is a device used by a competitor with market power in one market (for the 'tying' product) to extend its market power into an entirely distinct market (for the 'tied' product)." Id. at 1423.
Western claims that the relevant geographic market is the United States, and the relevant product markets are: (1) the market for high speed digital duplicators ("original equipment market"); (2) the market for warranty and maintenance service for Risographs ("warranty and service aftermarket"); and (3) the market for ink and masters ("supplies aftermarket"). SAC ¶ 14. Riso assumes, for purposes of its motion to dismiss only, that Western's definitions of the relevant product markets and Riso's share of the same, are correct.
A. Market Power In The Digital Duplicator Market
Riso contends that dismissal is proper because Western admits in its SAC that at least nine competitors have entered the "digital duplicator market." While Western does allege that competitors entered the digital duplicator market after Riso, it also alleges that, despite the increasing demand, the number of competitors is decreasing, and there have been no new manufacturers of digital duplicators since 1990. Id. ¶ 25. In other words, no competitor has entered the market in the past decade. Western's allegations do not preclude a finding of market power in the digital duplicator market as a matter of law.
Riso further contends that dismissal is proper because Western alleges that competitors have expanded. Riso bases its contention on Western's allegations that (1) Ricoh and Duplo entered the market after Riso, and (2) "[a]t present, only Ricoh and its dealer networks exist as a substantial competitor to RISO and its dealers in the original equipment market." Id. ¶ 26. According to Riso, the only inference to be drawn from these allegations is that Ricoh and Duplo have increased their market share by expanding their output and sales.
As set forth above, Western alleges that Ricoh and Duplo entered the market prior to 1990. Assuming, as Riso apparently does, that their respective market shares were zero upon entry, their output has expanded. However, the expansion of output at some unknown point during the past decade does not defeat Western's current claim of market power. Indeed, expansion may have contracted over the past several years. Accordingly, Western's allegations do not preclude a finding of market power in the digital duplicator market as a matter of law.
B. Market Power In The Aftermarket For Supplies
Riso contends that dismissal is proper because Western admits in its SAC that (1) competitors have entered the supplies aftermarket, and (2) existing competitors do not lack capacity to expand. The latest date on which a competitor is alleged to have entered the supplies aftermarket is "early 1994." Id. ¶¶ 32-33. Competitors entering the market before the alleged predatory conduct is said to have begun, does not establish the absence of entry barriers. See Rebel Oil, 51 F.3d at 1434.
Moreover, Riso's motion is directed solely at Western's circumstantial proof of market power in the aftermarket for supplies. However, Western has alleged direct proof of market power in this market. See id. Western alleges that Riso restricts output via its dealer agreement and that it charges supracompetitive prices for its ink and masters. SAC ¶¶ 34, 111. Thus, Western has adequately alleged market power in the supplies aftermarket.
Although it is not altogether clear, Riso also appears to contend that Western's claim that Riso monopolizes or attempts to monopolize the aftermarket for warranty and maintenance Service is defeated by Western's allegations concerning entry barriers in the supplies aftermarket. As set forth above, Western's allegations do not defeat its claim that Riso has market power in the supplies aftermarket.
2. Contract, Combination or Conspiracy To Restrain Trade
Section 1 of the Sherman Act reads in relevant part:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony . . . .15 U.S.C. § 1. To establish a claim under Section 1, Western must: (1) demonstrate the existence of a conspiracy; (2) that the conspiracy unreasonably restrained trade under either a per se rule of illegality or under a rule of reason analysis; and (3) that the restraint on trade affected interstate commerce. See Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991).
The conspiracy element of Section 1 limits the "application of the Sherman Act to concerted conduct by more than one person or single entity." Oltz v. St. Peter's Cmty. Hosp., 861 F.2d 1440, 1449 (9th Cir. 1988). To survive a motion to dismiss, a plaintiff must "allege the essential element of conspiracy" between two or more parties. See Smilecare Dental Group v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 786 (9th Cir. 1996). Section 1 does not proscribe purely unilateral activity by a single entity. United States v. Colgate, 250 U.S. 300, 307 (1919).
Riso moves to dismiss Western's claims brought pursuant to Section 1 on the ground that Western cannot rely on the restrictions contained in the Riso dealer agreement to support its conspiracy allegations because the dealer agreement was unilaterally amended by Riso to contain those claims.
"[A] contract between a buyer and a seller satisfies the concerted action element of section 1 of the Sherman Act where the seller coerces a buyer's acquiescence in a tying arrangement imposed by the seller."Systemcare, Inc. v. Wang Laboratories Corp., 117 F.3d 1137, 1142 (10th Cir. 1997). As the court reasoned in Systemcare, "[t]he essence of section l's contract, combination, or conspiracy requirement in the tying context is the agreement, however reluctant, of a buyer to purchase from a seller a tied product or service along with a tying product or service. To hold otherwise would be to read the words 'contract' and 'combination' out of section 1." Id. at 1142-43. As the Supreme Court noted in Perma Life Mufflers, Inc. v. International Parts Corp.:
Tying arrangements also include agreements in which the seller agrees to sell one product only on the condition that the buyer agrees not to purchase that product from any other supplier. Image Technical Servs. v. Eastman Kodak Co., 903 F.2d 612, 615 (9th Cir. 1990).
A plaintiff can clearly charge a combination between Midas and himself as of the day he unwillingly complied with the restrictive franchise agreements, or between Midas and other franchise dealers, whose acquiescence in Midas' firmly enforced restraints was induced by the communicated danger of termination.392 U.S. 134, 142 (1968) (citations and quotation marks omitted),overruled on other grounds, Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984); see also Will v. Comprehensive Accounting Corp., 776 F.2d 665, 669-70 (7th Cir. 1985).
Western alleges, among other things, that Riso violated Section 1 of the Sherman Act by illegally tying (1) the sale of Risographs to its dealer's agreement not to sell competitive ink and masters, and (2) the sale of spare parts and service manuals to its terminated dealer's agreement not to sell competitive ink and masters. SUF ¶¶ 40, 45. According to Western, Riso coerces its dealers to acquiesce in the agreement under threat of losing their dealerships and its terminated dealers under threat of losing their access to spare parts, and thus, the substantial revenues they derive from servicing their installed equipment base. Id. ¶¶ 40, 45, 51. Western's allegations are sufficient to allege a conspiracy under Section 1.
Moreover, Western does not limit its conspiracy allegations to the restrictions contained in the dealer agreement. Western also alleges that Riso and its dealers conspired at the October 1994 Dealer Advisory Council Meeting to eliminate competition from "supply pirates" such as Western. Pursuant to that conspiracy, Riso dealers allegedly agreed to use service threats to coerce customers to use Riso inks and masters and to spread fear, uncertainty and doubt in the minds of consumers to prevent them from purchasing non-Riso inks and masters. Id. ¶ 31-36. Western's allegations concerning the agreements entered into at the Dealer Advisory Council Meeting are sufficient to allege the existence of a conspiracy to restrain trade. Accordingly, Riso's motion to dismiss Western's Section 1 claim is denied.
3. Restrictions In The Dealer Agreement
A. Exclusive Dealing Arrangements
Riso alternatively moves to dismiss Counts 1 and 3 on the ground that the challenged restraints are not anticompetitive. According to Riso, the challenged restraints are essentially exclusive dealer arrangements. While it is true that exclusive distribution agreements, standing alone, do not violate the antitrust laws, see A.H. Cox Co. v. Star Machinery Co., 653 F.2d 1302, 1306-07 (9th Cir. 1981), Western contends that the challenged provisions are not merely exclusive dealing agreements, but illegal ties. Western also contends that the restrictions are part of a scheme to restrain trade in the aftermarket for supplies, and thus, constitute illegal exclusive dealing arrangements.
Tying and exclusive dealing are two distinct claims. See Ron Tonkin Gran Turismo, Inc. v. Fiat Distribs., Inc., 637 F.2d 1376, 1388 (9th Cir. 1981).
An exclusive dealing contract involves a commitment by a buyer to deal only with a particular seller, and is unlawful only if it violates the rule of reason. Morgan, Strand. Wheeler Biggs v. Radiology, Ltd., 924 F.2d 1484, 1488-90 (9th Cir. 1991) "Only those arrangements whose 'probable' effect is to 'foreclose competition in a substantial share of the line of commerce affected' violate Section 3." Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997) (quoting Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961)). In assessing market foreclosure, the court must consider whether competitors can reach the ultimate consumers of the product by employing existing or potential alternative channels of distribution. Id. at 1163. If so, the arrangements may not actually foreclose competition. Moreover, exclusive dealing arrangements imposed on dealers rather than end users "are generally less cause for anticompetitive concern." Id. at 1162-63. Relying on Omega, Riso argues that dismissal of Counts 1 and 3 is proper because alternative channels of distribution exist and the challenged restrictions apply only to distributors, not end-users.
Riso's argument fails to consider the additional alleged restraints not present in Omega and their impact on Western's ability to sell to ultimate consumers. Even assuming Western can reach ultimate consumers (Risograph owners), Western alleges that the vast majority refuse to purchase its supplies for fear of damaging their Risographs or invalidating their warranties. Western contends that their refusal is the result of Riso's and its dealers conspiracy to restrain trade in the supplies aftermarket through the use of service threats and FUD marketing. Riso's argument also fails to consider Western's allegation that "[b]ecause RISO dealers control the servicing of Risographs, selling through Riso dealers is a competitive necessity." These factors were present in in Omega. Accordingly, Riso's motion to dismiss Counts 1 and 3 is denied.
Western's allegation that it sells an undisclosed amount of ink and masters does not defeat its claims.
B. Non-Price Vertical Restraints
Riso contends that the types of restraints contained in its dealer agreement are routinely upheld because they have no negative impact on competition. Riso asks the court to review the challenged restrictions in a vacuum, and to ignore the remaining allegations contained in the Western's second amended complaint. As set forth above, Western contends that the challenged restrictions motivate Riso dealers and terminated dealers to engage in additional conduct aimed at eliminating competition in the supplies aftermarket, including the use of service threats and FUD marketing. According to Western, it is this entire scheme that damages competition. Accordingly, Riso's motion to dismiss Western's claims on the ground that Western cannot establish that it has been harmed by any of Riso's dealer restraints is denied.
C. Warranties
To the extent that Western contends that Riso unlawfully ties its warranty to the use of Riso parts, supplies and Riso-authorized service, Riso moves to dismiss on the ground that there is no tie.
Tying arrangements exist where the buyer is coerced into buying the tied product, or at least agrees that he will not purchase that product from any other supplier. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958).
[T]he essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated.Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984).
Western alleges, among other things, that the maintenance agreements used by Riso's branch offices provide that customer's will incur additional charges for "service made necessary by the use of materials other than those approved by Riso, Inc. for use in the Equipment." SAC ¶ 82. Western also alleges that employees of Riso's branch offices have "falsely represented that use of [Western] supplies caused damage to Risographs and necessitated repairs and threatened to bill customers for any repairs if they continued to use [Western] supplies." Id. ¶ 83.
According to Western, such representations cause the Riso maintenance agreements to operate as de facto tying arrangements. Id. A reasonable jury could conclude that the maintenance agreement coupled with the alleged disparagement and threats "forced" customers to purchase only Riso supplies. Accordingly, Riso's motion to dismiss plaintiff's tying claims insofar as they involve Riso's warranty is denied.
3. Lanham Act
Western claims that Riso violated the Lanhan Act by making "false or misleading representations of the nature, characteristics, or qualities of plaintiffs' [sic] services and products." Id. ¶ 137. Western identifies three allegedly false or misleading statements in its second amended complaint. First, Western contends that Riso distributes a "WARNING" to its dealers for distribution to Risograph owners which states that use of generic supplies may (1) damage the "Riso Drum," (2) contaminate the "Ink Drum Unit" or adjacent areas which house electronic circuitry, (3) cause premature failure of the "Thermal Head" and related components, (4) cause premature failure of the "Inking System," (5) create a toxic environment, (6) result in fire, (7) result in termination of the 7 year/10 million copy warranty, (8) increase service contract pricing, (9) result in termination of any full coverage maintenance agreement, (10) result in "High User Hourly Service Rates," and (11) result in a "Complete Ink Drum Cleanout Charge." Id. ¶ 87. Second, Western contends that Riso distributes warning stickers to its dealers for placement inside Risographs that warn that use of non-Riso ink may result fire. Id. ¶ 88. Finally, Western alleges that Riso recently distributed a warning sticker which reads:
WARNING
Be sure your masters and ink cartridges carry the original RISO logo. Use of non-RISO manufactured inks or masters may result in lower print quality, higher cost per copy, significant increase in set off and may cause serious damage to the ink cylinder and the Risograph.
Use of non-RISO manufactured inks or masters may cause repair or service problems not covered by your warranty or service agreement. Please consult your authorized RISO representative for further information.Id. ¶ 89. Western alleges that the above claims are false and/or misleading, id. ¶¶ 86-87, 137 and that it has lost sales as a result, id. ¶¶ 90, 138.
In order to state a claim under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), a plaintiff must allege: "(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products." Southland Sod Farms v. Sever Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997).
Riso moves to dismiss Western's Lanham Act claim on the grounds that the statements relied on by Western are not specific enough and are true. Riso contends that the alleged misrepresentations lack specificity because (1) they do not claim that use of non-Riso products will always lead to poor results or cause damage, and (2) do not refer to any supplier, including Western, by name. Rather, according to Riso, they merely "state that certain unnamed non-Riso supplies may present difficulties for the Risograph user and/or damage the machine."
The Lanham Act does not reach claims of general superiority. See Cook, Perkiss and Liehe, Inc. v. Northern Cal. Collection Serv. Inc., 911 F.2d 242, 246 (9th Cir. 1990). Where an advertisement quantifies the superiority, however, a claim may lie, Id. The issue in Cook was whether an advertisement which implied that a collection agency offers the same collection services as lawyers at lower or more competitive prices was mere puffery, and thus, not actionable under the Lanham Act. Id. at 245. Although the court held that the advertisement was "merely general in nature," and therefore nonactionable puffery, the court noted that "misdescriptions of specific or absolute characteristics of a product are actionable." Id. (quoting Stiffel Co. v. Westwood Lighting Group, 658 F. Supp. 1103, 1115 (D. N.J. 1987)). "[A]dvertising statements placed in an ad knowing or intending that they are of the type that will affect the consumer's judgment, are not puffery, but rather constitute actionable representations within the meaning of the Lanham Act." U-Haul Int'l, Inc. v. Jartran, 522 F. Supp. 1238, 1253 (D. Ariz. 1981), aff'd, 681 F.2d 1159 (1982).
The alleged misrepresenations at issue here far exceed general statements of superiority. To the contrary, the various warnings allegedly produced by Riso warn of specific consequences which may result from using non-Riso products, including fire, severe equipment damage, exposure to toxic substances, and termination of the 7 year/10 million copy warranty.
The court rejects Riso's assertion that its use of the term "may" alone shields it from liability as a matter of law. In Gillette Co. v. Norelco Consumer Prods. Co., 946 F. Supp. 115, 137 (D. Mass. 1996), relied on by Riso, the court held that the defendant's representation that any product that provided a shave closer than its own "Could be Too Close For Comfort," was not actionable because it was not objectively capable of proof or disproof. Id. at 137. The court observed that the plaintiff's failure to offer any standards by which to measure the truth of the statement was understandable, "because the conditional 'could' is denotative of only a possibility; and things that are possible can occur, but they may not." Id. Riso argues that, like the plaintiff inGillette, Western complains of statements that suggest a possibility. Riso is correct, none of the warnings state that use of non-Riso products will cause an untoward result. However, unlike the vague possibility suggested in Gillette that a shave could be "too close," Riso warns of no less than 11 specific occurrences of damages which may result from use of non-Riso products, including fire, severe equipment damage, exposure to toxic substances, and termination of the 7 year/b million copy warranty. This is not the type of vague puffery at issue in Gillette and the other cases relied on by Riso.
Likewise, a plaintiff need not be specifically named in the allegedly disparaging statement where the group named is small enough that the statement can reasonably be understood to apply to each class member or the circumstances of the publication reasonably suggest that a particular member of the group named was targeted. See Auvil v. CBS "60 Minutes", 800 F. Supp. 928, 936 (E.D. Wash. 1992); Alvord-Polk, Inc. v. F. Schumacher Co., 37 F.3d 996, 1015 (3d Cir. 1993). Western alleges that Riso dealers have made disparaging remarks to customers knowing that the customers use Western supplies. SAC ¶ 153. Under these circumstances, the statements could reasonably be understood to apply to Western's products. Although these particular statements were allegedly made by Riso dealers, Western alleges that Riso conspired with its dealers to restrain competition in the supplies aftermarket and discussed with its dealers the use of threats and FUD marketing, including the use of the subject warnings. Id. ¶¶ 53-54. Moreover, Western alleges that Riso produced the aforementioned warnings and provided them to their dealers for distribution to end-users, and that the dealers distributed the warnings to end-users. Id. ¶ 87, 89.
Finally, although Western alleges that the statements were false, id. ¶¶ 86-87, 137, such an allegation not necessarily required. "The Lanham Act encompasses more than blatant falsehoods. It embraces innuendo, indirect intimations, and ambiguous suggestions evidenced by the consuming public's misapprehension of the hard facts underlying an advertisement." William Morris Co. v. Group W, Inc., 66 F.3d 255, 257-58 (9th Cir, 1995) (per curium) (quoting Vidal Sassoon, Inc. v. Bristol-Myers Co., 661 F.2d 272, 277 (2d Cir. 1981) (internal quotations omitted)). Western has stated a claim for relief under the Lanham Act, and Riso's motion to dismiss the same is denied.
4. Intentional Interference With Contractual Relations And A Prospective Economic Advantage
In order to state a claim for intentional interference with contractual relations or prospective economic advantage, Western must allege, among other things, a valid contract or economic relationship between itself and a third party, and Riso's knowledge of the same. See Pacific Gas Electric Co. v. Bear Stearns Co., 50 Cal.3d 1118, 1126 (1990); Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 42 Cal.App.4th 507, 521-522 (1996). Riso moves to dismiss Western's intentional interference Claims on the ground that Western failed to allege that Riso was aware of any relationship or contract between Western and a third party.
In its second amended complaint, Western alleges that: (1) it has been successful in obtaining some orders for ink and masters from school districts in the Bay Area; (2) upon learning of Western's success, two Riso dealers, including defendant RPSI, engaged in threats and product disparagement toward those school districts;" (3) at the time the dealers did so, they knew that Western was the source of those districts' ink and masters and intended their threats and false statements be understood to refer to Western's products; and (4) the threats and disparagement undertaken the dealers were carried out in conspiracy with and with the assistance of Riso, specifically in connection with the contracts between Western and Stockton Unified School District and the Modesto City Schools. SAC ¶¶ 152-55. Western's allegation that Riso "specifically aid[ed] and assist[ed] [RPSI] in its interference with the contract between plaintiff and the Stockton Unified School District and the Modesto City Schools," is fairly construed as alleging that Riso was aware of those contractual relationships at the time of its alleged acts. Accordingly, Riso's motion to dismiss plaintiff's intentional interference claims is denied.
5. Massachusetts Protection Act
Riso moves to dismiss Western's Massachusett's Protection Act claim on the ground Western failed to alleged that the complained of conduct occurred primarily and substantially in Massachusetts. Riso's motion is denied because Western did so allege. Id. ¶ 159.
6. Injunctive Relief
Since the filing of the instant action, Western has ceased operations. In a letter to the court dated November 2, 2000, Western's counsel states:
In light of Western Duplicating Inc. having sold its digital duplicator supplies business . . ., absent some completely unforeseen turn of events, [Western] will not be seeking an injunction to halt what it contends are RISO's ongoing restraints of trade.
Based on this representation, Western's claims for injunctive relief are dismissed without prejudice.
CONCLUSION
1. Riso's motion to dismiss is GRANTED WITHOUT PREJUDICE as to Western's claims for injunctive relief and is DENIED in all other respects.
2. Riso's motion for summary judgment is DENIED WITHOUT PREJUDICE.
3. Western's motion for partial summary judgment is DENIED WITHOUT PREJUDICE.
4. The parties' respective evidentiary motions are DENIED WITHOUT PREJUDICE.
5. NO points and authorities submitted in this action shall exceed 40 pages. No accompanying pleadings, including declarations, statements of fact and responses thereto, shall exceed 20 pages.
IT IS SO ORDERED.