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From Antitrust Law Daily, December 30, 2013

Denial of injunction against software manufacturer’s advertising upheld

By Jody Coultas, J.D.

Kwan Software Engineering, Inc. was properly denied an injunction against Foray Technologies’ advertising claims that Foray produced the only software that complied with industry guidelines, the U.S. Court of Appeals in San Francisco has held (Kwan Software Engineering, Inc. v. Foray Technologies, LLC, December 27, 2013, Per Curiam).

Kwan Software, doing business as VeriPic, Inc., and Foray both sell evidence-related software to law enforcement agencies. Foray allegedly misled the public about certain industry standards, the capabilities of its own software, and by implication the capabilities of VeriPic’s software, in violation of the Lanham Act and California Unfair Competition Law.

Specifically, the accused advertising stated that “Foray’s ADAMS software is the only software that complies with the SWGIT ‘requirement’ contained in the workflow described in Section 13, Best Practices for Maintaining the Integrity of Digital Images and Digital Video of the SWGIT Guidelines”; “its ADAMS software complied with SWGIT guidelines that state that the use of a hash function is the best way to authenticate digital assets”; and “ADAMS software ‘authenticates’ digital assets.” According to VeriPic, Foray misled consumers in naming its software “Authenticated Digital Asset Management System.”

VeriPic sought to enjoin Foray from (1) using the name “Authenticated Digital Asset Management System” or “ADAMS” or any other name that states or implies that Foray’s software authenticates digital assets; (2) stating that Foray’s software authenticates digital assets; (3) representing that SWGIT guidelines endorse the use of hash functions as the best way to authenticate digital assets and that Foray’s software complies with SWGIT guidelines; and (4) claiming that Foray’s software is the only software that complies with the SWGIT “requirement” contained in the workflow described in SWGIT Section 13.

After the district court denied its motion for an injunction, VeriPic appealed. The district court had found that VeriPic failed to prove a likelihood of success on the false advertising claims and would not suffer irreparable harm absent an injunction.

The district court did not abuse its discretion in determining that VeriPic failed to prove a likelihood of success on its false advertising claims, according to the court. VeriPic failed to make a threshold showing of literal falsity. Given the context and sophisticated nature of the consumer market, Foray’s first statement was likely not misleading. The other two statements regarding “authenticity” were both ambiguous. VeriPic’s could not show a singular definition of “authenticity.” The district court also properly held that irreparable harm was unlikely. Veri Pic offered only speculative evidence of the loss of prospective customers, business goodwill, and market share.

The case is D.C. No. 3:12-cv-03762-SI.

Attorneys: George Grellas (Grellas Shah LLP) for Kwan Software Engineering, Inc. Chip Cox (Greenan Peffer Sallander & Lally LLP) for Foray Technologies, LLC.

Companies: Kwan Software Engineering, Inc.; Foray Technologies, LLC

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