A manufacturer of high-speed
turbo blowers used by waste water treatment plants not only defamed its
competitor but also violated the Lanham Act, the Seventh Circuit found.
The appellate court found that
the PowerPoint presentation by KTurbo, Inc. contained false accusations, the
company was warned repeatedly that its accusations were false, the company
ignored the warnings, and it refused to investigate the truth of the
accusations. “Its conduct was not only
disreputable but reprehensible,” Judge Richard Posner wrote.
KTurbo lost a bidding contest to
supply high-speed turbo blowers to a waste water treatment plant in Utah to
Neuros Co., Ltd. Disappointed by losing
the bidding contest, KTurbo’s chief executive officer HeonSeok Lee prepared a
series of PowerPoint slides and related tables that accused Neuros of fraud in
its representations during the bidding process.
KTurbo then used the slides in presentations to a number of engineering
firms that advise waste water treatment plants on which turbo blowers to buy.
In a bench trial, the lower court
awarded Neuros $10,000 in actual damages for per se defamation. The court also awarded punitive damages of
$50,000. Neuros did not appeal the
amount of the damages, but that did not stop Judge Posner from observing that the
“punitive damages award of $50,000 was too small, and though Neuros is not
seeking more, we cannot forebear to note that the conduct of KTurbo was
outrageous. It is a substantial company
and should have been ordered to pay substantial punitive damages.”
Neuros did appeal the finding by
the trial court that the PowerPoint presentations to engineers were insufficient
to sustain Lanham Act and Illinois Uniform Deceptive Trade Practices Act causes
of action because there was no evidence that the statements were made to the
general public. “Well of course not,”
Posner wrote, “members of the general public do not buy high-speed turbo
blowers or advise waste water treatment plants on the purchase of such blowers.
There is no basis for limiting the Lanham Act to advertising or promotion
directed to the general public, and
the case law does not do that.”
The Lanham Act permits the award
of attorneys’ fees to the prevailing party, so by finding that the Act applies,
the trial court on remand can consider awarding attorneys’ fees.
“Without meaning to prejudge the
determination on remand, we point out that KTurbo persisted in its false
representations to the engineering community concerning Neuros’s blowers even
after the suit was filed and compelling evidence was presented that the
representations were false,” Posner wrote.
“This weighs in favor of an award of attorneys’ fees by indicating that
this part of KTurbo’s defense . . . was objectively unreasonable: KTurbo persisted in denying that the slide
show and related marketing activities were deceptive long after it was evident
that the denial was frivolous.”
Neuros Co., Ltd and Aviation and Power Group, Inc. v. KTurbo, Inc.,
7th Circuit No. 11-2260, 11-2375, issued October 15, 2012.