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United States District Court, Southern District of New York

February 22, 1990


The opinion of the court was delivered by: Stewart, District Judge:


Plaintiff Princeton Graphics Operating, L.P. ("Princeton") brought this action against defendant NEC Home Electronics (U.S.A.), Inc. ("NECHE"), alleging false advertising claims in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).*fn1 By Stipulated Order dated May 24, 1988, the action was bifurcated between liability and relief for both discovery and trial purposes.*fn2 A non-jury trial was held as to liability between August 15, 1989 and August 30, 1989. After considering the evidence, we find for the plaintiff. The following constitutes our findings of fact and conclusions of law as mandated by Rule 52 of the Federal Rules of Civil Procedure.

Factual Findings

Plaintiff and defendant are competitors in the color video computer monitor field. The background to the instant action is the introduction of the PS/2 computer in the spring of 1987 and defendant's advertising claims with respect to PS/2 compatibility of its product, the MultiSync monitor (the "MultiSync").

In late 1986, rumors began circulating in the trade that the International Business Machines Corporation ("IBM"), the pacesetter and leader in the personal computer for business use arena, would introduce a new personal computer line, the PS/2. It was also rumored that the PS/2 would utilize a new "video standard," later known as "VGA" (for "Video Graphics Array"), that would utilize a 70Hz. "vertical frequency" which was higher than any then existing video standard.*fn3 Any new video standard introduced by IBM would have an obvious effect on computer monitor manufacturers since to obtain images in a particular IBM video standard one needed a monitor capable of displaying such images in that standard.*fn4 Therefore, we find that in the spring of 1987, a monitor's PS/2 compatibility was a major market issue in the computer trade. See Trial Transcript at 605-06; Trial Transcript at 937.

In early April of 1987, IBM introduced its new PS/2 computer. The PS/2 generated video signals in three VGA modes: a 400 line mode with a vertical frequency of 70Hz. and a horizontal frequency of 31.5 KHz which was used to display text; a 480 line mode used to display graphics with a vertical frequency of 31.5 KHz. and a vertical frequency of 60Hz.; and a 350 line mode with a horizontal frequency of 31.5 KHz. and a vertical frequency of 70Hz.

Defendant shortly thereafter obtained a few PS/2 computers for testing with its monitor, the MultiSync. It found that a 9-pin to 15-pin adapter cable was necessary to allow the MultiSync to connect with the PS/2. It is undisputed by the parties and we so find that although when connected by the adapter cable the MultiSync displayed images generated by the PS/2, manual adjustments were required under certain conditions. When the program switched between the 60Hz. and 70Hz. modes the picture displayed would vertically roll. This required the user to utilize the vertical hold knob on the monitor to stabilize the image each time the modes switched or locate a setting on the vertical hold knob which would simultaneously accommodate both modes. The second manual adjustment required that the user manipulate the MultiSync's vertical sizing control to compensate for a distorted image which could result if there was switching between the various VGA modes.*fn5

It is also undisputed, and we so find, that NECHE in mid-April 1987 issued a press release and other correspondence claiming that after "extensive testing" the MultiSync had been determined to be "fully compatible" with the PS/2 with the addition of an adapter cable. In July of 1987 NECHE placed a full page ad in the Wall Street Journal which asserted that the MultiSync was "compatible" with the PS/2 when used with the cable adapter. We find and it is undisputed by the parties that this advertising was aimed at relatively sophisticated and knowledgeable consumers such as distributors, wholesalers, retailers, retail chains, and corporate purchasing personnel (the "retail channel"). See, e.g., Defendant's Pretrial Memorandum at 12; Post Trial Memorandum of Plaintiff Princeton Graphics Operating, L.P. ("Pltf's Brief") at 3. These advertising claims were made despite the possibility that the above-discussed manual adjustments to the MultiSync might be necessary when it was connected by the adapter cable to the PS/2.*fn6 It is these claims which form the basis for the present action.*fn7

At trial plaintiff argued that NECHE's claims of the MultiSync's compatibility with the PS/2 were false as the term was commonly understood within the "retail channel" and such claims were made by defendant intentionally and willfully. Further, plaintiff charged that NECHE's claim of the MultiSync's PS/2 compatibility was false because the MultiSync with the cable adapter exceeded Federal Communication Commission ("FCC") radiation requirements and thus was not legally qualified for sale in the U.S. market.

Defendant countered that plaintiff had failed to prove that its definition of compatibility was uniformly accepted within the "retail channel" and that the MultiSync was in fact compatible with the PS/2. In addition, defendant contended that plaintiff had no standing to bring the Lanham Act action, and that plaintiff had no valid FCC regulation claim since the MultiSync did not violate FCC regulations and even if it did, the violation would not create a Lanham Act claim.

Defendant argues that the term "compatible" in the computer trade had a broad meaning. It is defendant's view that "compatible" essentially is understood to mean "works with" or the ability of one device "to function with" another. To support its expansive definition, defendant introduced into evidence numerous articles and dictionary definitions as well as expert testimony.

Plaintiff argues that within the "retail channel," the term "compatible" was commonly understood to mean that when there is an established standard known throughout the industry, a computer product claimed to be "compatible" with it must perform at or beyond the standard's requirements. In support of its definition, plaintiff offered expert testimony.

We find that within the "retail channel," the term "compatible" does not have the broad and flexible meaning as suggested by defendant when, as here, there is a possibility that a more precise definition may be applied.*fn8 Indeed, if there was one over-arching impression left on this court after the testimony given in this case it was that the computer industry is concerned with and depends upon accuracy. Thus, the testimony confirms our view that in an industry which depends upon accuracy, a lack of precision in the use of common terms, particularly in circumstances where those terms have the potential to be specific, would be an anomaly.

Moreover, we find that even if the "retail channel" had the broad and flexible definition of "compatibility" as pressed by defendant, the MultiSync under certain conditions, although not in all, would be unable to "work with" the PS/2 making it incompatible with the PS/2 even under defendant's definition.

Plaintiff's witness Bernard Lechner, an electrical engineer and display systems consultant, testified that products were compatible when one product met the specific performance requirements of the standard set forth by the other product to which it was being compared — in this case whether the MultiSync met the performance requirements of the IBM VGA standard. Trial Transcript at 175. This narrow approach was echoed by plaintiff's other expert witness Paul Spindel, an engineer and computer consultant, who defined an IBM compatible monitor as one which when connected to an IBM computer "does everything that IBM intends a monitor to do." Trial Transcript at 375. We find both definitions consistent with each other since they are practical equivalents. Although defendant presented articles which it contended illustrated that the term "compatible" was a flexible one, this evidence was contradicted by defendant's own expert witnesses when asked about their definitions of "compatibility" as applied to products other than the MultiSync and PS/2.

Defendant's expert witness, Richard Atanus, the principal engineer responsible for the MultiSync, testified that while he considered the MultiSync compatible with the VGA standard, he also considered the MultiSync incompatible with another IBM standard, the Monochrome Display Adapter standard ("MDA"). It was Atanus' view that the MultiSync was incompatible with the MDA standard since on some MultiSync monitors the background was not "dark enough" to see text which might be "highlighted." Trial Transcript at 791. Thus, defendant's own expert witness testified that it was his belief that the MultiSync was incompatible with MDA merely because there was difficulty in distinguishing between highlighted and non-highlighted text. Atanus expressed this view notwithstanding the fact that the MultiSync's ability when connected by an adapter to display a serviceable image in MDA was consistent with defendant's broad definition of "compatible,"

Further, defendant's expert witness Steven Gibson, founder and president of his own software publishing company and author of a weekly column in a computer trade publication, testified that in relation to a software product of his company, his definition of "fully compatible" software was the ability of a software product to "automatically recognize . . . different data encoding technologies and alter its behavior as required." Trial Transcript at 861 (emphasis added).

Thus, we find that although defendant's experts on the one hand testified that within the industry the definition of "compatible" meant merely the ability of one device to "work with" another device, their own definitions of "compatible" as applied to other situations and products belied that expansive definition. Indeed, their definitions were more closely akin to the narrow definition advanced by plaintiff's experts.*fn9 Moreover, it is significant that in a confidential memorandum written by Neil Strauss, at the time a product manager for defendant, to various employees and executives of defendant, Mr. Strauss articulated that one of the "key differences" between the new MultiSync II monitor, which did not require any manual adjustment when in VGA mode, and the MultiSync was that the MultiSync II offered "Full VGA compatibility."*fn10 Plaintiff's Exhibit 44.

We therefore find that in light of the evidence the definition of "compatible" as understood in the "retail channel" of sophisticated users has a clear and definite meaning — i.e., when a clearly defined standard, like IBM's VGA standard, exists and is widely accepted within the industry, a "compatible" product must meet that standard or at least perform in a manner equivalent to the standard's requirements.*fn11

We turn next to our findings in regard to the actual performance of the MultiSync with regard to the PS/2. Before the court plaintiff demonstrated the tendency of the MultiSync's picture to roll when the PS/2 computer switched from mode to mode.

Defendant countered that no screen rolling occurs when the user sets the vertical control knob to a position which will compensate for both modes. Given the evidence presented at trial we believe that most if not every MultiSync monitor had this capability. However, defendant did not produce any evidence at trial that users of the MultiSync, even sophisticated users, were advised by defendant that they had to locate an area on the vertical hold knob to stop the screen rolling, or even that such an area existed.*fn12 Indeed, testimony at trial indicated that even defendant's support staff were instructed as to the use of the vertical control knob to stop the rolling. Trial Transcript at 906. Therefore, we find that even assuming the vertical control knob on every MultiSync monitor had the capability of preventing screen rolling when the computer switched modes, there would have been some users who would have been forced to manually adjust the screen every time the modes switched because they were unaware of the full capabilities of the vertical control knob. Further, it was shown by plaintiff at trial that even if the vertical control knob were set to control the rolling, images became distorted when the computer switched modes, sometimes causing text to go off the screen.

In opposition, defendant demonstrated at trial that with certain software programs which switch modes when going from text to graphics the MultiSync was able to perform without major distortion or rolling observable by this court.*fn13 Moreover, defendant asserts that it has received no complaints about the MultiSync's performance with the PS/2.

It is our view that defendant's demonstration was probative of the fact that the MultiSync "works with" the PS/2 under certain conditions and with particular software programs. Indeed, defendant's demonstration illustrated the MultiSync's impressive capabilities.

However, defendant concedes that prior to the demonstration the MultiSync was manually adjusted to assure that the 480-line picture fit on the screen and that the vertical hold knob was set so as to prevent rolling. Defendant's Post-trial Brief ("Deft's Brief") at 62. This concession greatly lessens the probative value of the demonstration since it was precisely the necessity to make manual adjustments to use the MultiSync with the PS/2 which was at issue. Thus, even if we were to conclude that the necessity to manually adjust the MultiSync by itself did not compromise defendant's claims of compatibility, we still find that the instructions to MultiSync users in the MultiSync's user's manual are inadequate to alert consumers as to how to use the manual controls to make the appropriate adjustments.

Accordingly, as noted earlier, we find it highly likely that some MultiSync users would be at the very least forced to manually adjust for screen rolling and/or manually adjust the size of the image every time their PS/2 switched modes in VGA. We believe this time-consuming and distracting problem would place the MultiSync's performance even beyond the defendant's broad definition of compatibility since it severely compromised the MultiSync's ability to "work with" the PS/2.

Further, we are not persuaded by defendant's assertion that it has received no customer complaints about the MultiSync's compatibility with the PS/2. At trial the evidence clearly showed that defendant stopped keeping records of inquiries, complaints, and requests over the phone from June 18, 1987 until February of 1988.*fn14 Trial Transcript at 898. The evidence at trial also indicated that the telephone records which were available prior to February 18, 1987 indicated inquiries about the MultiSync and compatibility but that the precise nature of the inquiry and the person receiving the call were unavailable. Trial Transcript at 897. Given this record, defendant's claims regarding the lack of customer complaints are unpersuasive and unsupported.

Conclusions of Law

As a threshold matter we must decide whether plaintiff has standing to bring this Lanham Act claim. Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), confers standing upon "any person . . . who believes that he is or is likely to be damaged" by the use of another party's false advertising claims. The statute is intended to be broadly construed.*fn15 See PPX Enterprises, Inc. v. Audiofidelity, Inc., 746 F.2d 120, 124 (2d Cir. 1984). To establish standing a commercial party must show it has a "reasonable interest to be protected" against the allegedly false advertising claims. Id. at 125 (quoting Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 190 (2d Cir. 1980)). To show a likelihood of injury, plaintiff must make a "logical causal connection between the alleged false advertising and its own sales position." Johnson & Johnson, 631 F.2d at 190.

Defendant asserts that plaintiff has no standing to bring this Lanham Act action since plaintiff in April of 1987 had no monitor that would work with the PS/2 and that plaintiff produced no evidence at trial that anyone was deterred from buying a Princeton monitor because of NECHE's allegedly false advertising claims of the MultiSync's compatibility with the PS/2.

It is undisputed that defendant and plaintiff were competitors in the computer monitor market during the relevant time of this action. Further, evidence produced at trial which showed that after the introduction of the PS/2 and before defendant's claim of MultiSync compatibility with the PS/2, both plaintiff's and defendant's sales of monitors dropped. Defendant's Exhibit 67; Plaintiff's Exhibit 187. After defendant's claim of MultiSync's compatibility with the PS/2, a claim that plaintiff could not and did not make in regard to its own monitors, MultiSync sales rose back to previous levels. However, testimony revealed that plaintiff's monitor sales, while slightly rising in June and July, continued to be depressed overall. Trial Transcript at 1009.

Plaintiff further contends that defendant's advertising of MultiSync's PS/2 compatibility in the spring of 1987 directly affected potential purchasers of plaintiff's own PS/2 compatible UltraSync monitor which would become available in the summer of 1987. It is our view that this showing provides a reasonable basis for plaintiff's belief that defendant's claims of compatibility had a logical causal connection to plaintiff's sales position. As the Second Circuit has stated:

  The statute demands only proof providing a
  reasonable basis for the belief that the plaintiff
  is likely to be damaged as a result of the false
  advertising. The correct standard is whether it is
  likely that [defendant's] advertising has caused or
  will cause a loss of [plaintiff's] sales, not
  whether [plaintiff] has come forward with specific
  evidence that [defendant's] ads actually resulted
  in some definite loss of sales.

Johnson & Johnson, 631 F.2d at 190 (emphasis original).

We believe that plaintiff has a presented a reasonable basis for its belief it was likely that defendant's advertising caused it damage. First, it is logical to conclude that had consumers been faced with two monitor products in the spring and summer of 1987, neither of which claimed PS/2 compatibility, some might have chosen plaintiff's. It is also reasonable to assume that had there been no compatibility claim on the part of defendant in the spring of 1987, some consumers would have waited until the summer of 1987 to buy plaintiff's PS/2 compatible UltraSync. Accordingly, we conclude that plaintiff has standing to bring this action.*fn16

The Second Circuit has described two alternative bases for recovery in Lanham Act false advertising actions. They are:

  When a merchandising statement or representation
  is literally or explicitly false, the court may
  grant relief without reference to the
  advertisement's impact on the buying public.
  [citations omitted]. When the challenged
  advertisement is implicitly rather than explicitly
  false, its tendency to violate the Lanham Act by
  misleading, confusing or deceiving should be
  tested by public reaction.

Johnson & Johnson v. GAC International, Inc., 862 F.2d 975, 977 (2d Cir. 1988) (quoting Coca-Cola Co. v. Tropicana Products, Inc., 690 F.2d 312, 317 (2d Cir. 1982)); see also PPX Enterprises v. Audio Fidelity Enterprises, 818 F.2d 266, 272 (2d Cir. 1987) (if statement is literally false, relief can be granted on court's own findings in cases involving claims for both injunctive relief or damages). Plaintiff brings its Lanham Act claim under the former basis. See, e.g., Pltf's Brief at 1.

In our Memorandum Decision in which we denied, inter alia, defendant's motion for summary judgment, we stated that plaintiff had to establish: (1) that a common meaning of "compatible" existed within the trade; (2) what the common definition was; and (3) that in light to the common definition, defendant's claims of MultiSync compatibility with the IBM PS/2 computer were literally false. Princeton Graphics Operating, L.P. v. NEC Home Electronics (U.S.A.) Inc., No. 87 Civ. 7257 (CES), slip op. at 17 (S.D.N.Y. March 13, 1989) (the "March 13th Decision"). According to the March 13th Decision literal falsity was to be determined in the context of the audience to whom the advertising was being conveyed. March 13th Decision at 14-16 (citing Plough, Inc. v. Johnson & Johnson Baby Products Co., 532 F. Supp. 714, 717 (D.Del. 1982) ("Context can often be important in discerning [whether] the message conveyed [is literally false] and this is particularly true where as here, the target of the advertising is not the consuming public but a more well informed and sophisticated audience. . . .")).

Given our earlier findings of fact: (1) that the defendant's advertising proclaiming the MultiSync's compatibility with the PS/2 was directed at a specific target of sophisticated consumers in the trade (the "retail channel"); (2) that within that target group "compatibility" has a common and well-defined definition; and (3) that the performance of the MultiSync did not come within the parameters of that definition, we conclude that plaintiff has established that defendant's advertising claims were literally false.

Further, in view of our factual finding that these false claims were made at a time when a monitor's PS/2 compatibility was a major market issue, we also conclude that defendant's false claims were about a "material" characteristic of the MultiSync which would lead consumers to believe the MultiSync was competitively superior. See Vidal Sassoon, Inc. v. Bristol-Myers Co., 661 F.2d 272, 278 (2d Cir. 1981) (misrepresentations made with regard to an "inherent characteristic" of product include those claims which falsely depict a product as being competitively superior). Accordingly, we conclude that defendant's claims of the MultiSync's compatibility with the PS/2 were in violation of section 43(a) of the Lanham Act.*fn17

GBL § 350-d

As a threshold matter, with regard to plaintiff's GBL § 350-d claim (renumbered in 1989 to GBL § 350-e) we must decide whether plaintiff, by not addressing this pendent claim in its pre-trial and post-trial briefing or at trial, has waived it. Plaintiff argues that this claim remains in the case because the standards for finding liability under GBL § 350 are substantially the same as under section 43(a) of the Lanham Act. February 2, 1990 Letter of Daniel Ebenstein at 2. Defendant argues that since the only claim briefed by the parties was the Lanham Act claim and because standing under GBL § 350 was not briefed by the parties, plaintiff failed to preserve the state claim. February 14, 1990 Letter of Stephen Hartman. Moreover, defendant asserts that plaintiff has no standing to bring a claim pursuant to GBL § 350.

We conclude that the claim pursuant to GBL § 350 survives despite plaintiff's failure to raise it at trial or address it in its briefing. It is our view that defendant suffered no prejudice by plaintiff's failure to brief this claim or address this claim at trial since the same operative facts establish a violation of both section 43(a) of the Lanham Act and GBL § 350. See Grant Airmass, 645 F. Supp. 1507, 1509 (S.D.N.Y. 1986); cf. Procter & Gamble Co. v. Chesebrough-Pond's Inc., 588 F. Supp. 1082, 1083 n. 4 (S.D.N.Y.), aff'd, 747 F.2d 114 (2d Cir. 1984). Indeed, any prejudice by plaintiff's failure to raise the state claim would inure to plaintiff since it has the burden of persuasion.

Moreover, it is our view that plaintiff's standing to bring this claim is determined in this instance as a matter of law. Accordingly, since defendant has addressed the standing issue as a matter of law in correspondence to the court, defendant has not been prejudiced by its inability to address the section 350-d claim at trial.*fn18 Cf. McFadden v. Sanchez, 710 F.2d 907, 911 (2d Cir.) (late modification of pre-trial order should not be allowed if seriously prejudicial to a party), cert. denied, 464 U.S. 961, 104 S.Ct. 394, 78 L.Ed.2d 337 (1983).

GBL § 350-d permits "any person" who has been injured by false advertising to bring an action, inter alia, to recover actual damages or fifty dollars, whichever is greater. The Practice Commentaries to GBL §§ 349-50 state that:

  If the principal injury is to consumers and
  incidentally to a competitor, competitor standing
  serves the purposes of the statute. If competitive
  injury is the principal issue, use of GBL §§
  349-350 may be misplaced because its purpose is to
  protect consumers, not competitors as such.

R. Givens, Practice Commentaries on General Business Law §§ 349, 350 at 572 (McKinney 1988).

Indeed, some courts have asserted that only a consumer may bring an action under this section. See H.L. Hayden Co. of New York v. Siemens Medical Systems, 672 F. Supp. 724, 749 (S.D.N.Y.), aff'd on different grounds, 879 F.2d 1005 (2d Cir. 1989); cf. Morris v. Gilbert, 649 F. Supp. 1491, 1497 (E.D.N Y 1986) (GBL § 349 inapplicable to sale of securities since legislature probably did not intend consumer protection laws to extend that far). However, other courts have held that a competitor alleging false comparative advertising has standing to bring a claim pursuant to GBL §§ 349-350 as well as section 43(a) of the Lanham Act. See Construction Technology v. Lockformer Co., Inc., 704 F. Supp. 1212, 1222-23 (S.D.N.Y. 1989) (false comparative advertising affects public at large); Grant Airmass Corp. v. Gaymar Industries, Inc., 645 F. Supp. at 1509.

We agree with Judge Mukasey's reasoning in Construction Technology, supra, that while the purpose of the statute is to protect consumers, it does not disable a competitor from bringing an action pursuant to the statute if the nature of the claim asserted directly affects the interests of consumers. Construction Technology, 704 F. Supp. at 1222; cf. Azby Brokerage, Inc. v. Allstate Insurance Co., 681 F. Supp. 1084, 1089 (S.D.N.Y. 1988) (harm to public interest is within scope of GBL § 349). It is our view that plaintiff's false advertising claims directly affect the interests of consumers and thus serves the purpose of the statute. As such, we hold plaintiff has standing to pursue its GBL § 350-d claim. Moreover, because the standards for a violation under section 350-d are substantially the same as under section 43(a), we find for plaintiff on the state claim as well.


For the above reasons, we find that defendant NEC Home Electronics (U.S.A.), Inc. violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) and section 350-d (now section 350-e) of the New York General Business Law. In this liability phase of the action we hold for plaintiff.


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