Synygy, Inc. v. ZS Associates, Inc.

Citations: 110 F. Supp. 3d 602; 2015 U.S. Dist. LEXIS 99362; 2015 WL 5818510Docket: CIVIL ACTION No. 07-3536, CIVIL ACTION No. 10-4274

Court: District Court, E.D. Pennsylvania; July 30, 2015; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

A summary judgment motion has been filed by Synygy, Inc., with responses from ZS Associates, Inc. and ZS Associates International, Inc. The court will grant Synygy's motion in part and deny it in part. Synygy and ZS are competitors in incentive compensation services. In 2007, Synygy initiated a lawsuit against ZS Associates, which was later amended in 2009 to include additional counts and defendants, introducing a copyright infringement claim. Prior to the amendment, Synygy's CEO, Mark Stiffler, instructed marketing staff to prepare a press release to sway public opinion regarding the lawsuit. On August 6, 2009, Synygy publicly announced the lawsuit alleging copyright infringement, misappropriation of intellectual property, and theft of trade secrets. The lawsuit claims ZS improperly copied Synygy’s software and hired former employees to access confidential information. Synygy seeks judgments for copyright infringement, injunctive relief against the use of its intellectual property, damages for lost revenue and company valuation, and punitive damages for willful infringement. Stiffler emphasized Synygy's significant investment in developing its software and the competitive harm caused by ZS's alleged misconduct.

Synygy is recognized as the leading provider of sales performance management (SPM) software and services, offering solutions in sales compensation, sales communications, sales goals, and sales processes. The company is based in Chester, Pennsylvania, and has been operational for 18 years, with a presence in Europe and Asia. A press release from Synygy was widely circulated, including on major platforms like Reuters and Yahoo Finance. On August 8, 2009, ZS Associates issued a press release refuting Synygy's claims, which accused ZS Associates and its affiliate of misappropriating aspects of Synygy's software. ZS Associates asserted that Synygy's allegations were unfounded and stated its commitment to defending its reputation through legal means. 

At the time of the Synygy press release, ZS Associates was competing for a contract with a client whose identity is redacted. An employee from ZS, Samrat Shenbaga, noted that the press release prompted discussions about backup plans with the client and raised concerns about ZS's software capabilities. Despite initial discomfort, ZS managed to secure a contract with the client within a few months, which included provisions to ensure uninterrupted service in case of software availability issues. This contract was successfully renewed for an additional three years in 2012.

ZS's revenue from IC administration services increased by 20% from 2009 to July 2013, partly due to new divisions in their pharmaceutical unit. In August 2007, ZS engaged in a sales process for IC administration services in Germany, Italy, and Spain. Following a Synygy press release, a representative from [redacted text] expressed concerns to ZS principal Stephen Redden, requesting additional information to alleviate these concerns. Redden provided a link to ZS's press release in response, but had no further contact regarding the issue and could not recall the name of another individual who raised concerns. Despite [redacted text]’s worries, ZS secured contracts for IC administration services in Germany and Italy in 2009, though Redden noted no contract was established for Spain and was unaware if the press release influenced that decision. On November 20, 2009, ZS's managing principal, Daniel B. Peterson, requested Synygy to remove the defamatory press release from their website, asserting it caused harm to ZS. Subsequently, on August 20, 2010, ZS and ZSAI filed a lawsuit against Synygy for defamation, commercial disparagement, and violations of the Lanham Act. ZS engaged expert Dr. Richard Gering, who concluded that ZS suffered economic damages totaling $76,753 due to the press release's impact on their personnel and costs incurred responding to it. ZS is now seeking summary judgment on its claims against Synygy.

Summary judgment is granted when a party fails to demonstrate an essential element of their case, which they must prove at trial. The moving party must show that there is no genuine dispute over material facts, thereby entitling them to judgment as a matter of law. If the moving party meets this burden, the opposing party must present evidence to show a genuine dispute exists. A genuine dispute is defined as one where reasonable evidence could lead a jury to favor the nonmoving party, and material facts are those that could influence the case's outcome under applicable law.

To prove that a fact is genuinely disputed, a party must cite specific evidence from the record or show that opposing evidence does not resolve the dispute. The nonmovant must provide more than minimal evidence to counter a summary judgment motion and cannot rely on mere assertions or suspicions. All doubts and credibility issues should be resolved in favor of the nonmovant.

In this case, Synygy argues for summary judgment, asserting there is no evidence showing that ZS suffered business losses due to a press release dated August 6, 2009. Synygy claims ZS's revenues have increased significantly since then and that ZS continues to have contracts and clients. In response, ZS argues that a reasonable jury could find it was harmed by the press release and cites a client's request for assurances and incurred expenses for damage control as evidence of harm. ZS also claims defamation, alleging the press release falsely accused it of software theft with the intent to sway clients against ZS.

Synygy seeks summary judgment on ZS' defamation claims, arguing that the statements in its press release are true and that ZS has not demonstrated any damages. Under Pennsylvania law, the plaintiff must prove several elements for defamation, including the defamatory nature of the communication, its publication, and resulting harm. Conversely, the defendant must establish the truth of the statement and the privileged nature of its publication. Synygy asserts that the press release's claim that ZS knowingly copied Synygy's intellectual property is true. ZS disputes this, claiming significant factual issues remain regarding the truth of the press release. 

The court acknowledges that there are unresolved material facts concerning whether ZS knowingly and improperly copied Synygy's software, which prevents granting summary judgment based solely on the truth defense. Additionally, Synygy argues that ZS has not shown any damages resulting from the press release, a position the court agrees with, leading to the conclusion that ZS has not met its burden to prove damages. As a result, the court grants summary judgment in favor of Synygy regarding ZS' defamation claims.

ZS asserts that statements in Synygy’s press release, if proven false, could be classified as defamation per se, which would imply significant harm to ZS’s business reputation. Synygy, while not admitting to any defamatory nature of the press release, opts to analyze it under the slander per se framework for the summary judgment motion, given its potential implications for business misconduct. According to established legal principles, slander per se occurs when statements negatively affect a plaintiff’s business or professional conduct.

A statement qualifies as defamation per se if it imputes conduct or characteristics that could damage the plaintiff's lawful business operations. In Pennsylvania, if defamation is proven to be per se, plaintiffs only need to demonstrate general damages, such as reputational harm or humiliation, without needing to prove specific financial losses. Conversely, if the statements are not deemed defamation per se, ZS would need to provide evidence of special damages.

The document further examines the availability of presumed damages for ZS, which would allow recovery without proving actual harm. Generally, Pennsylvania law requires proof of general damages, even in defamation per se cases, and does not recognize presumed damages. ZS contends that an exception exists for cases involving "actual malice." However, Synygy refutes this claim, arguing that presumed damages are not recoverable under Pennsylvania law. Ultimately, the analysis concludes that ZS has failed to provide sufficient evidence of either general or special damages to support its defamation claim.

The Superior Court of Pennsylvania in *Joseph v. Scranton Times, L.P.* established that presumed damages are available upon a showing of actual malice in defamation cases, emphasizing Pennsylvania's strong protection of reputational interests, which aligns with First Amendment principles. In *Company Wrench v. Highway Equip. Co.*, the court granted a new trial on presumed damages, indicating that jury instructions must allow for consideration of actual malice related to defamatory statements. Conversely, *Synygy, Inc. v. Scott-Levin, Inc.* raised concerns about whether corporate defendants can face defamation per se claims.

The main issue is whether ZS can invoke presumed damages to counter Synygy's summary judgment motion, necessitating a determination of material questions regarding the existence of actual malice. Actual malice, defined as deliberate or reckless falsification, requires evidence that the defendant acted with reckless disregard for the truth. This can be established through objective circumstantial evidence, which may counteract claims of good faith from the defendant. However, mere ill will does not meet the actual malice standard.

ZS contends it can rely on presumed damages, citing evidence that a reasonable jury could interpret as indicating Synygy acted recklessly in disseminating defamatory information. ZS points to CEO Mark Stiffler's testimony, where he acknowledged uncertainty about the development timeline of software mentioned in a press release, contradicting claims of extensive investment. However, Stiffler did not explicitly deny that the development process took years, which undermines ZS's argument for presumed damages based on actual malice.

Stiffler's testimony indicated a lack of personal knowledge regarding ZS's use of Synygy's software, which does not substantiate claims of actual malice against Synygy based on a press release stating otherwise. Discrepancies between Stiffler's statements and his testimony suggest negligence but fall short of the recklessness needed for actual malice. Evidence of personal spite or ill will is insufficient to infer actual malice. Stiffler's emails conveyed intentions to portray Synygy favorably and ZS negatively, aiming to garner sympathy and alert clients. However, these emails do not conclusively establish that Synygy had serious doubts about the truth of its press release statements; they could reflect a genuine belief in ZS's wrongdoing rather than malice.

ZS is unable to rely on presumed damages for its defamation claims and must demonstrate actual general damages—evidence showing its reputation was harmed or personal humiliation suffered. While ZS argues that sufficient evidence exists for a jury to find general damages, Synygy counters that there is no evidence identifying individuals or entities whose opinions of ZS were negatively impacted by the press release. Thus, ZS faces challenges in substantiating its defamation claims.

ZS has failed to provide sufficient evidence to establish that the Synygy press release harmed its reputation. Reputation must be assessed based on the perceptions of others rather than the plaintiff's own views, requiring specific evidence of general damages. ZS's claims of inquiries from other companies post-release lack corroborating testimony from those entities or any third parties who altered their opinion of ZS due to the release. The testimony from ZS employees does not fulfill the evidentiary requirements and is largely considered inadmissible hearsay. Notably, employee Shenbaga's statements indicate that the press release led to increased discussions with clients, ultimately resulting in ZS maintaining a strong relationship with them and continuing to provide services. Similarly, Redden's testimony confirms ongoing contracts with clients in Germany and Italy, and he noted that no clients had canceled contracts due to the press release. Therefore, no reasonable jury could determine that the press release had a negative reputational effect. Additionally, even if ZS could establish some reputational harm, its defamation claim fails because it has not demonstrated special damages, which are necessary unless the defamation is considered per se defamatory, as outlined in Pennsylvania law.

Special harm in defamation cases requires evidence of specific monetary or out-of-pocket losses resulting from the defamatory act, as established in Synygy, Inc. v. Scott-Levin, Inc. ZS asserts it has met this burden by documenting $71,652 in expenses incurred to mitigate damages from Synygy's press release. ZS references Comdyne I, Inc. v. Corbin, which allows for the recovery of remediation costs post-liability but does not support the argument that such costs alone can establish special harm or defamation liability. The court emphasizes that special harm must be caused by the defamation and not merely by the plaintiff's own expenditures to address perceived reputational damage. ZS's reliance on internal costs to prove special damages is insufficient, as it has not provided direct evidence linking the press release to lost clients or opportunities. Consequently, ZS fails to prove special harm, and summary judgment is granted in favor of Synygy on the defamation claim. Additionally, Synygy's motion for summary judgment on ZS’s claim for commercial disparagement is also supported, as ZS has not demonstrated the necessary pecuniary loss, underscoring that general reputational damage does not suffice for recovery in such cases.

Under Pennsylvania law, a disparaging statement about another's business is actionable if it meets four criteria: 1) the statement must be false; 2) the publisher intends to cause or should recognize that publication will cause pecuniary loss; 3) actual pecuniary loss must result; and 4) the publisher knows the statement is false or acts with reckless disregard for its truth. A plaintiff must demonstrate actual pecuniary loss, which can be shown through a general decrease in sales or specific lost sales. In a motion to dismiss, a plaintiff must allege evidence of an established business, sales figures before and after the publication, and demonstrate that the loss was a natural consequence of the disparaging statement. On summary judgment, a plaintiff needs to present evidence linking the disparaging statement to a decrease in sales. In this case, ZS failed to meet its burden as the expert's analysis focused only on internal efforts and costs related to responding to the press release, without establishing a direct causal connection to any sales decline. Commercial disparagement requires stringent proof of special damages, and rehabilitation costs alone do not suffice unless directly linked to pecuniary loss.

Rehabilitation claims based on pecuniary loss cannot be established solely through rehabilitation expenditures, as it would allow plaintiffs to claim financial harm without demonstrating direct damage from disparaging statements. ZS failed to provide evidence linking reduced sales to the Synygy press release or showing a general decline in sales of IC services. Testimony indicated that ZS signed contracts and saw revenue increases shortly after the release, undermining claims of diminished sales. Summary judgment was granted in favor of Synygy regarding ZS's commercial disparagement claim due to insufficient evidence of sales impact from the press release.

In contrast, a Lanham Act claim requires proof of false or misleading statements about products or services, actual deception, materiality, interstate commerce, and likelihood of injury. ZS must demonstrate that Synygy's claims were literally false to prevail without needing to prove actual deception. Synygy argued that its allegations regarding ZS's software misappropriation were true, asserting that ZS's claim under the Lanham Act fails. ZS countered that sufficient evidence exists for a jury to find the statements in the press release to be literally false.

A 'literally false' message can be either explicitly stated or implied such that the audience perceives the claim as clearly as if it were directly expressed. For a message to be considered literally false, it must be unambiguous. The complexity of a message's components affects the likelihood of a finding of literal falsity. In the case of Synygy, material issues of fact remain regarding whether ZS has established that statements in a Synygy press release are literally false. If ZS proves literal falsity, it will invoke a presumption of actual deception, entitling it to injunctive relief. However, for ZS to seek both monetary damages and injunctive relief under the Lanham Act, it must meet distinct standards of proof for each remedy. Specifically, while injunctive relief can be granted upon a finding of literal falsity without considering public deception, monetary damages require proof of actual consumer deception. ZS must demonstrate consumer reliance on the false advertising, rather than just hypothetical consumer reactions. Without a finding of literal falsity, a Lanham Act violation can still be established by showing the misleading nature of commercial speech and actual consumer understanding of that speech.

Misleading statements in legal contexts necessitate extrinsic evidence demonstrating consumer confusion or deception. In the case Nellcor Puritan Bennett LLC v. Cas Med. Sys. Inc., the court ruled that a plaintiff must demonstrate actual consumer deception to recover damages under the Lanham Act for false advertising that is literally true but misleading. Although quantifying sales loss is not required for the cause of action, establishing customer reliance is essential. Synygy contends that even if its press release is misleading, summary judgment should favor it due to ZS's failure to demonstrate that the release confused or deceived consumers. The court noted that the effectiveness of such claims often hinges on consumer surveys, which are critical in proving deception. ZS did not present any consumer survey evidence to substantiate its claims. Even assuming surveys were not strictly necessary, the evidence provided by ZS did not convincingly show consumer deception or that the press release misled a significant portion of the audience. The court highlighted that without comprehensive consumer surveys or market research, some expert testimony or similar evidence is required. ZS argued it had provided sufficient evidence of deception, citing anecdotal claims that at least one customer was misled by Synygy's statements regarding stolen software. However, the court found this insufficient, as ZS relied on inadmissible hearsay from its own principal without direct testimony from the alleged deceived customer or other clients to support its claim that the press release had a tendency to mislead readers.

Shenbaga's account of his conversation, although potentially admissible as non-hearsay, fails to establish a genuine issue of material fact regarding whether the Synygy press release misled consumers into believing that ZS copied Synygy's products. The comparison to Novartis Consumer Health illustrates that merely fifteen percent of survey respondents being misled suffices to demonstrate actual deception, while the plaintiff's claims in College-Source, Inc. v. AcademyOne, Inc. were dismissed due to insufficient evidence of consumer deception. The current case lacks similar evidence that the Synygy press release misled its audience. Consequently, ZS has not provided adequate proof of consumer deception necessary for a monetary damages claim under the Lanham Act; however, ZS may pursue injunctive relief at trial if it can prove the press release was literally false. Additionally, the document notes the consolidation of two related cases and discusses procedural matters concerning the parties’ motions and expert reports. A reference to a client’s reaction to the Synygy press release is included, but ZS did not address this in its response to Synygy's motion for summary judgment.

The decision to allow substitution of ZS and Novo’s damages expert does not alter the conclusions regarding the scope of the new expert’s testimony, which is limited to the subjects and theories outlined in Gering's expert report, specifically focused on ZS’s remediation costs. The court references Synygy Inc. v. Scott-Levin, expressing doubts about applying defamation per se to corporations, noting that they cannot experience humiliation in the same way individuals do; rather, any injury to a corporation translates to reputational damage that must be reflected in pecuniary loss, such as loss of revenues or profits. The court questions whether the exception for defamation per se should apply to corporations lacking evidence of special harm. 

Additionally, the Supreme Court's decision in Harte-Hanks is discussed, where actual malice was inferred based on the newspaper’s motives and evidence of unreliable witnesses. The excerpt also notes a previous ruling in Brooks Power Sys. Inc. v. Ziff Commc’ns, Inc., which found hearsay inadmissible regarding claims of pecuniary loss due to disparaging statements. ZS argues that the Third Circuit in Comdyne allows recovery of damage-control costs under New Jersey law, but Judge Shapiro in Brooks rejects this, asserting that under Pennsylvania law, rehabilitation costs cannot be recovered unless direct pecuniary losses from commercial disparagement are established. 

ZS requests compensatory and consequential damages for losses including business relations, growth opportunities, company valuation, and reputation. While Lanham Act damages may include remediation costs, ZS cannot claim them without sufficient evidence of consumer deception, which the court does not address due to the lack of evidence presented.