More Relief for Unfairly Targeted Manufacturer

CHICAGO (CN) - The 7th Circuit skewered an embattled manufacturer of wastewater-treatment equipment that lobbed unfounded fraud claims against a competitor.

Aviation and Power Group and Neuros Co. operate a joint venture manufacturing high-speed turbo blowers. The blowers maintain dissolved oxygen levels in water-treatment plants necessary for aerobic bacteria to break down organic waste.

The two companies, referred to jointly as "Neuros" in court documents, were the first to offer such blowers to North American water-treatment facilities in 2006.

Two years later, a lesser-known manufacturer named KTurbo lost out to Neuros in a bidding contest for a Utah-based plant.

KTurbo CEO HeonSeok Lee then prepared a set of PowerPoint slides accusing Neuros of fraud by representing that its blowers would achieve "total efficiency."

In addition to presenting the slideshow to several engineering firms that advise wastewater-treatment plants on blower purchases, Lee also published the content on KTurbo's website and had sales representatives distribute the information.

Vowing to "break" and "terminate" his competitor, Lee alleged that the statistics Neuros released about its "wire power" implied grossly exaggerated efficiency claims.

U.S. District Judge John Darrah ruled that KTurbo had defamed Neuros by creating and distributing the false slideshow, ordering a $60,000 judgment.

Lee falsely calculated that Neuros was overstating efficiency by 15 percent to 26 percent, according to that ruling. Even KTurbo's own expert witness would not support such a high calculation.

The 7th Circuit said Monday that KTurbo's strategy was "all to no avail."

"KTurbo was like a gnat that buzzes annoyingly around a person's head but never manages to land and bite," Judge Richard Posner wrote for a three-member panel.

The court rejected KTurbo's claims that it had a "qualified privilege" over the content of the slideshow.

"This privilege is available in cases in which the public had an 'interest' in the making of the statements that turned out to be false," Posner wrote.

"This is pretty vague, but we needn't worry about that in this case, since the privilege, whatever its precise boundaries, is forfeited if the statement is made with knowledge of its falsity or with reckless disregard for the truth," he added.

Because Neuros and other sources had warned KTurbo about the false accusations, the company's conduct was "not only disreputable but reprehensible," the ruling states.

Neuros also persuaded the court that it may have a case under the Lanham Act and its Illinois counterpart, though Darrah had dismissed such claims.

Though no additional damages would be recoverable under the Lanham Act, which limits punitive awards to three times that of compensatory damages ($10,000 in this case), it would allow Neuros to recover attorneys' fees.

"The District Court was troubled by the fact that 'there is no evidence that the statements at issue were presented to any members of the general public,'" Posner wrote. "Well of course not; members of the general public do not buy high-speed turbo blowers. ... There is no basis for limiting the Lanham Act to advertising or promotion directed to the general public."

"The Lanham Act claim should not have been dismissed; nor the parallel claim under the Illinois Uniform Deceptive Trade Practices Act ... a statute generally thought indistinguishable from the Lanham Act except of course in its geographical scope," he added.

The court also summarily rejected KTurbo's claims that the standing $60,000 award was excessive. Though Neuros lost no business from the claims, general damages are available in cases of defamation.

"[KTurbo] should consider itself fortunate that Neuros hasn't challenged the adequacy of the punitive-damages award," Posner wrote.

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