Causation in a competitive market

It’s causation day at 43(b)og!

IDT Telecom, Inc. v. Voice Distributors, Inc., 2008 WL 1800102 (Mass. Super.)

Plaintiffs sell PINs for prepaid calling cards and provides related services and distribute the cards. Defendants are competitors. Plaintiffs alleged that defendants falsely advertise an inflated number of minutes on their cards, causing diversion of business.

Under Massachusetts state consumer protection law (art. 93A), loss of market share isn’t recoverable, since the law only covers “loss of money or property.” Lost profits must be proximately caused by the defendant’s false advertising and must be proven to a degree of reasonable certainty.

The big problem is causation. Plaintiffs represent only part of the market for truthfully advertised calling cards and they can’t show that defendants’ customers would have bought from them instead. Even if there’s false advertising, there may still be no standing. In highly concentrated markets—the court said “two-firm”— this problem of proof can be overcome by presumption. But here direct evidence of causation is required, which could include testimony by lost customers as to why they decided not to buy plaintiff’s products.

The court ruled that the “economic loss doctrine” didn’t bar claims for damages caused by false advertising—otherwise there’d be very little left of the tort—and the competitive status of the parties generally put plaintiffs within the scope of 93A. But more discovery was necessary on proximate causation.