Pegasystems Inc. v. Appian Corporation

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

___________________________________

)

PEGASYSTEMS, INC., )

)

Plaintiff, )

) Civil Action

v. ) No. 19-11461-PBS

)

APPIAN CORPORATION and BUSINESS )

PROCESS MANAGEMENT, INC., )

)

Defendants. )

______________________________ )

MEMORANDUM AND ORDER

December 5, 2019

Saris, C.J.

INTRODUCTION

In May 2019, defendant Business Process Management, Inc.

(“BPM.com”) published a “white paper” titled “Market Report:

Analysis of Process Automation Investments and Total Cost of

Ownership (TCO): Appian, IBM, and Pega” (the “Report”). Co-

defendant Appian Corporation (“Appian”) highlighted on its

website the results of the Report, which were more favorable to

Appian than to plaintiff Pegasystems, Inc. (“Pegasystems” or

“Pega”). Though not publicly disclosed, Appian commissioned

BPM.com to publish the Report.

In the present suit, Pegasystems alleges Defendants made

false and misleading claims, in violation of the Lanham Act, 15

U.S.C. § 1125(a)(1)(b); Mass. Gen. Laws ch. 93A; common law

unfair competition and false advertising; and common law

commercial disparagement. Appian and BPM.com brought motions to

dismiss all counts under Federal Rule of Civil Procedure

12(b)(6) for failure to state a claim upon which relief can be

granted.

After hearing, the Court DENIES the motions to dismiss

[Dkt. Nos. 15, 18] as to Counts I, II, and IV and ALLOWS the

motions as to Count III.

FACTUAL BACKGROUND

The following facts come from the first amended complaint

and must be taken as true at this stage. See Newman v. Lehman

Bros. Holdings Inc., 901 F.3d 19, 25 (1st Cir. 2018).

I. Parties

Pegasystems is a publicly held software company

incorporated and headquartered in Massachusetts. Pegasystems

develops and licenses, among other products, “business process

management” software. Business process management software helps

businesses to create custom applications that can automate and

improve their business processes.

Appian also develops business process management software

and is a major competitor of Pegasystems. Appian is a publicly

held company incorporated in Delaware and headquartered in

Virginia.

Business Process Management, Inc. operates the website

BPM.com. It is headquartered in Massachusetts. BPM.com holds

itself out as “the leading destination for research, white

papers and community forums on BPM and process automation.” Dkt.

55-1 at 3.

II. The BPM.com Report

BPM.com published the Report in May 2019. The Report was

commissioned by Appian. This commission is not disclosed

anywhere in the Report or any public communications about it.

The Report’s stated purpose is to “understand how automation

software is being used to improve and automate mission-critical

processes” and to “identify the differences in both success

rates and ownership costs.” Dkt. No. 55-1 at 3. The Report

focuses on the “Top 3 vendors adopted: Appian, IBM, and Pega.”

The Report provides its methodology on the first page.

BPM.com sent out an online survey and received 500 responses.

BPM.com “eliminated any non-compliant entries, such as those

from organizations deemed too small or from firms engaged in the

sale, development, or specific services involved with this type

of software.” Id. BPM.com also conducted follow up interviews to

ensure that the surveyed customers were “verified end user

organizations.” After this process, BPM.com was left with 104

“verified projects.” Of those respondents, 17% used Appian and

10% used Pega.

The Report found that “Organizations that run on Pega have

spent the most — approximately 2.5 times more than the average,

at $46 million. . . . Appian customers have reported the lowest

total upfront costs on average, at $4 million.” Id. at 7. The

Report also found “those using IBM or Pega cited requiring an

average of 4-6 times more outside consultants than those using

Appian” and “Appian customers report on average 3 times faster

application delivery compared to the overall market, and notably

3-5 times faster than what IBM or Pega customers have reported.”

Id. at 8-9. The Report concluded “Appian was distinguished as

the clear leader” based on its low total cost of ownership

combined with faster time to market. Id. at 11.

III. Appian’s Distribution of the Report

Appian created a page on its own website allowing visitors

to request a copy of the Report by inputting their contact

information. The page is reached from Appian’s homepage by

clicking the link for “Analyst Reports” under the “Resources”

tab. From there, users can access over thirty reports, most

categorized as “Analyst Reports.” The BPM.com Report is

categorized as a “Whitepaper.” Appian summarizes the Report’s

findings as follows:

Through approximately 500 responses, BPM.com found that on

average:



Appian customers build complete enterprise solutions 5

times faster



Appian customers use 79% fewer resources



Appian has more than 2x customers who’ve reached ROI

in 2 years

Dkt. No. 55-2 at 2.

Appian also created a second page on its website, titled

“Appian vs Pega: Discover Why Enterprises Choose Appian.” Dkt.

No. 55-3 at 2. It features large graphics reading: “5x FASTER To

Build an App”; “79% FEWER Resources Used”; and “2x MORE

Customers Reach ROI in 2 Years.” A red box with smaller

hyperlinked text says, “READ THE 2019 BPM.COM REPORT.”

MOTION TO DISMISS STANDARD

I. Rule 12(b)(6)

In analyzing whether a complaint states a claim under Rule

12(b)(6), the Court sets aside conclusory statements and

examines only the pleader’s factual allegations. See Ashcroft v.

Iqbal, 556 U.S. 662, 679 (2009). “To survive a motion to

dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible

on its face.’” Id. at 678 (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007)). “A claim has facial plausibility when

the plaintiff pleads factual content that allows the court to

draw the reasonable inference that the defendant is liable for

the misconduct alleged.” Id.

II. Rule 9(b)

Defendants argue Pegasystems must also meet the “heightened

pleading standard” of Federal Rule of Civil Procedure 9(b)

because its complaint “alleg[es] fraud.” See Dumont v. Reily

Foods Co., 934 F.3d 35, 37 (1st Cir. 2019). Under Rule 9(b), a

plaintiff must state with particularity “the who, what, where,

and when of the allegedly [false or misleading] representation.”

Kaufman v. CVS Caremark Corp., 836 F.3d 88, 91 (1st Cir. 2016)

(quoting Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d

23, 29 (1st Cir. 2004)).

The First Circuit has not addressed whether Rule 9(b) can

apply to a Lanham Act false advertising claim. See MMM

Healthcare, Inc. v. MCS Health Mgmt. Options, 818 F. Supp. 2d

439, 448 (D.P.R. 2011). It has assumed without deciding that

Rule 9(b) applies in false advertising cases involving New

York’s deceptive practices law, see Kaufman, 836 F.3d at 91, and

Mass. Gen. Laws ch. 93A, see Dumont, 934 F.3d at 38-39.

The Court need not decide Rule 9(b)’s reach here. Even if

Rule 9(b) applies, the particularity requirement is met. In

Kaufman, the First Circuit held that Rule 9(b) was met where the

plaintiff alleged that a product label for Vitamin E

misleadingly stated it would support heart health. 836 F.3d at

91. It wrote, “CVS is the ‘who’; the heart health statements are

the ‘what’; the label is the ‘where’; and the occasion on which

Kaufman purchased the product is the ‘when.’” Id.

Similarly, here, Pegasystems has pleaded the “who” (Appian

and BPM.com), “what” (survey results and associated statements),

“where” (in the Report and the web pages promoting it), and

“when” (continuously) of the allegedly fraudulent statements.

The Court’s further analysis examines only whether Pegasystems

has failed to state a plausible claim under Rule 12(b)(6).

DISCUSSION

I. Count I: Lanham Act False Advertising, 15 U.S.C.

§ 1125(a)(1)(B)

A. Legal Standards

The Lanham Act prohibits “commercial advertising or

promotion” that “misrepresents the nature, characteristics, [or]

qualities” of a product. 15 U.S.C. § 1125(a)(1)(B). To prevail

on a claim brought under that section, a plaintiff must prove:

(1) the defendant made a false or misleading description

of fact or representation of fact in a commercial

advertisement about [its] own or another’s product; (2)

the misrepresentation is material, in that it is likely

to influence the purchasing decision; (3) the

misrepresentation actually deceives or has the tendency

to deceive a substantial segment of its audience; (4)

the defendant placed the false or misleading statement

in interstate commerce; and (5) the plaintiff has been

or is likely to be injured as a result of the

misrepresentation, either by direct diversion of sales

or by a lessening of goodwill associated with its

products.

Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d

302, 310–11 (1st Cir. 2002).

A defendant can be liable under the Lanham Act both for

claims that are “literally false” and those that are “true . . .

[yet] misleading.” Clorox Co. P.R. v. Proctor & Gamble

Commercial Co., 228 F.3d 24, 33 (1st Cir. 2000). A literally

false claim can be made “either explicitly or by necessary

implication.” Id. at 35. A claim is “conveyed by necessary

implication when, considering the advertisement in its entirety,

the audience would recognize the claim as readily as if it had

been explicitly stated.” Id. “Commercial claims that are

implicit, attenuated, or merely suggestive usually cannot fairly

be characterized as literally false,” though such claims may

still be misleading. Id. (citation omitted).

This distinction matters because if a challenged claim is

“literally false,” the third element of consumer deception is

presumed. Id. Consumer deception is also presumed if a statement

is merely misleading, but “there is evidence that defendants

intentionally deceived the consuming public.” Cashmere, 284 F.3d

at 311 n.8. Otherwise, the plaintiff must “show how consumers

have actually reacted to the challenged advertisement rather

than merely demonstrating how they could have reacted.” Clorox,

228 F.3d at 33.

B. Analysis

The second (materiality) and fourth (placement in

interstate commerce) elements of Pegasystems’ claim are not

contested at this stage. The Court therefore considers only the

first, third, and fifth elements.

1. False or misleading representation in commercial

advertisement

For liability to attach under the Lanham Act’s false

advertising provision, the allegedly false or misleading

representation must be made “in commercial advertising or

promotion.” Podiatrist Ass’n, Inc. v. La Cruz Azul De P.R.,

Inc., 332 F.3d 6, 19 (1st Cir. 2003) (quoting 15 U.S.C.

§ 1125(a)(1)(3)). To so qualify, a “representation must (a)

constitute commercial speech (b) made with the intent of

influencing potential customers to purchase the speaker’s goods

or services . . . and [c] disseminated to the consuming public

in such a way as to constitute ‘advertising’ or ‘promotion.’”

RainSoft v. MacFarland, 350 F. Supp. 3d 49, 61-62 (D.R.I. 2018)

(alterations in original) (quoting Podiatrist Ass’n, 332 F.3d at

19).

Defendants do not contest the first two prongs of the test

for “commercial advertising and promotion.”1 On the third prong,

1 BPM.com incorporated by reference Appian’s arguments in support

of its motion to dismiss, with one exception not relevant to

this section. While there may be unique defenses available to

Appian argues that Pegasystems failed to plead sufficient

dissemination. The Court disagrees. “To constitute advertising

or promotion, commercial speech must at a bare minimum target a

class or category of purchasers or potential purchasers, not

merely particular individuals.” Podiatrist Ass’n, 332 F.3d at

19. When Appian posted the Report’s findings on its website, it

“target[ed] a class . . . of purchasers.” See id. Appian’s

representations meet the test for “commercial advertising or

promotion.”

Pegasystems argues BPM.com’s and Appian’s representations

are false or misleading in at least two ways: first, because

they omit the material relationship between Appian and BPM.com –

particularly Appian’s commission of the Report – while

presenting the Report as a neutral “white paper”; and second,

because the Report’s results are presented as market averages

but do not reflect Pegasystems’ actual performance in the

marketplace. Appian responds that it made no false or misleading

statements because the Report discloses its methodology and does

not claim to offer “generally applicable” comparisons between

Pegasystems and Appian.

Pegasystems has plausibly pleaded that the omission of the

relationship between Appian and BPM.com renders the

BPM.com on this claim, they were not presented at this stage and

were not considered by this Court.

representations in the Report and on Appian’s website false or

misleading. An omission is actionable under the Lanham Act if it

“renders an affirmative statement false or misleading.” Lokai

Holdings LLC v. Twin Tiger USA LLC, 306 F. Supp. 3d 629, 639-40

(S.D.N.Y. 2018). False statements under the Lanham Act include

those “conveyed by necessary implication when, considering the

advertisement in its entirety, the audience would recognize the

claim as readily as if it had been explicitly stated.” Clorox,

228 F.3d at 35. While Defendants did not state that the Report

was independently developed, “the audience would recognize the

claim as readily as if it had been explicitly stated.” See id.

Appian identifies BPM.com as the Report’s author and then

describes BPM.com as “a leading market research group.” Dkt. No.

55-2 at 2. Within the Report, BPM.com states its purpose was to

“understand how automation software is being used.” Dkt. No. 55-

1 at 2. Nowhere in the Report or Appian’s statements promoting

it would a reader learn that Appian was involved in the Report’s

production — they would likely be left with the opposite

impression. The allegation that the Report and website, when

viewed in their entirety, are at the very least misleading is

plausible because their description conveys neutrality.

Additionally, Pegasystems has plausibly pleaded that Appian

made a literally false statement on its website when it wrote

that BPM.com reached the Report’s results “Through approximately

500 responses.” Dkt. No. 55-2 at 2. The Report discloses that of

those 500 responses, only 104 were verified and analyzed and, of

those, only 27% of respondents used either Pegasystems or

Appian. The number of responses yielding the comparisons between

the two competitors falls far short of five hundred. While the

Report openly acknowledges these figures, Appian’s

representation on its website about the Report’s sample size is

literally false.

2. Consumer deception

Unless consumer deception is presumed, Pegasystems will

need to show that “a substantial segment of [the Report’s]

audience” was actually deceived. Cashmere, 284 F.3d at 311. “An

advertisement's propensity to deceive the viewing public is most

often proven by consumer survey data.” Clorox, 228 F.3d at 36.

But a plaintiff does not need to “identify the particular

consumer survey that will be used to support its allegations to

survive a motion to dismiss.” Id. at 37 n.11.

Even if Pegasystems must show actual confusion, it has put

forth sufficient evidence to plausibly state a claim. In its

first amended complaint, Pegasystems alleges that “[c]ustomers

have informed Pegasystems that Appian has distributed or drawn

their attention to the Report. These customers have been

confused or deceived by the false and misleading conclusions of

the Report[.]” Dkt. No. 55 ¶ 63. At least some consumers have

allegedly been misled by the Report and Appian’s representations

about it. This allegation satisfies Iqbal’s plausibility

requirement as to consumer deception.

3. Injury

Finally, Pegasystems must plausibly plead injury “either by

direct diversion of sales or by a lessening of goodwill

associated with its products.” See Cashmere, 284 F.3d at 311.

Whereas a plaintiff seeking injunctive relief can show only a

likelihood of consumer confusion, a plaintiff who seeks monetary

damages “must show actual harm to its business.” Id.

Pegasystems alleges that Defendants’ statements have been

disseminated to “major customers for which Appian and

Pegasystems compete,” representing “prospective revenue streams

in the millions of dollars.” Dkt. No. 55 ¶ 42. The Court can

reasonably infer that an explicit unfavorable comparison between

Appian and Pegasystems is likely to divert those customers from

Pegasystems to Appian, injuring Pegasystems. See MMM Healthcare,

818 F. Supp. 2d at 451 (holding plaintiffs “sufficiently

satisf[ied] the plausibility standard of the Rule 12(b)(6)”

where “it [was] reasonable to conclude that false information

provided to clients . . . could potentially entail the clients

to disenroll from the MMM program”).

Pegasystems has plausibly pleaded the contested elements of

its Lanham Act false advertising claim.

II. Count II: Mass. Gen. Laws ch. 93A §§ 2, 11

“To establish a false advertising claim under Chapter 93A,

a plaintiff must prove all of the elements of a false

advertising claim under Section 43(a) of the Lanham Act.” Empire

Today, LLC v. Nat’l Floors Direct, Inc., 788 F. Supp. 2d 7, 26

(D. Mass. 2011). As a result, “[f]alse advertising claims under

the Lanham Act and Chapter 93A rise and fall together.” Spruce

Envtl. Techs., Inc. v. Festa Radon Techs., Co., 248 F. Supp. 3d

316, 321 (D. Mass. 2017). Defendants nonetheless argue

separately that Pegasystems cannot state a claim under Chapter

93A even if it states a Lanham Act claim.

Appian argues that the Court should dismiss Count II

because the challenged conduct did not occur “primarily and

substantially” in Massachusetts. See Mass. Gen. Laws ch. 93A,

§ 11 (“No action shall be brought or maintained under this

section unless . . . the unfair or deceptive act or practice

occurred primarily and substantially within the commonwealth [of

Massachusetts].”)

“To defeat a [Chapter 93A] claim, the defendant bears the

burden of demonstrating that the relevant conduct took place

elsewhere.” HipSaver Co. v. J.T. Posey Co., 490 F. Supp. 2d 55,

71 (D. Mass. 2007). Informed by “the purpose and scope of

Chapter 93A,” courts must determine “the center of gravity of

the circumstances that give rise to the claim.” Kenda Corp. v.

Pot O'Gold Money Leagues, Inc., 329 F.3d 216, 235 (1st Cir.

2003) (quoting Kuwaiti Danish Comput. Co. v. Dig. Equip. Corp.,

781 N.E.2d 787,799 (Mass. 2003)). “[A]t the pleading stage a

[ch. 93A,] § 11 claim may survive a motion to dismiss based on a

‘primarily and substantially’ challenge upon a showing that the

plaintiff is located in Massachusetts and that the injury

occurred in Massachusetts.” Jofran Sales, Inc. v. Watkins &

Shepard Trucking, Inc., 216 F. Supp. 3d 206, 216 (D. Mass. 2016)

Appian argues, though, that “where the relevant deceptive

conduct involves communications between a defendant and third

parties, courts have said that the ‘center of gravity’ lies in

the state in which the communications occurred (i.e., were

‘published’).” HipSaver, 490 F. Supp. 2d at 71. In HipSaver, the

Court denied summary judgment where the defendant distributed

false advertising materials to health care facilities in

Massachusetts through physical brochures and catalogs. Id. at

72. Appian argues its statements were “published” when Appian

posted them on its website, which was “presumably . . . in

Virginia.” Dkt. No. 17 at 18.

Because a “primarily and substantially” challenge involves

a fact-based inquiry, motions to dismiss a § 11 claim are

generally denied. See, e.g., iLab Sols. LLC v. Idea Elan, LLC,

No. 14-CV-14267-ADB, 2015 WL 1505698, at *3 (D. Mass. Apr. 1,

2015). Here, the complaint alleges the plaintiff is based in

Massachusetts, the injury occurred in Massachusetts, one of the

defendants is in Massachusetts and another has an office here,

and the document at issue was created here. These allegations

suffice to survive a “primarily and substantially” challenge.

BPM.com argues in its reply that Pegasystems cannot state a

claim against it under Chapter 93A because there is no business

relationship between BPM.com and Pegasystems. See John Boyd Co.

v. Bos. Gas Co., 775 F. Supp. 435, 440 (D. Mass. 1991) (noting

the Supreme Judicial Court “has stressed the existence of some

contractual or business relationship between the parties as a

precursor to liability under Chapter 93A”). This argument was

absent from BPM.com’s opening brief and is waived without

prejudice at this stage. See Fin. Res. Network, Inc. v. Brown &

Brown, Inc., 754 F. Supp. 2d 128, 139 (D. Mass. 2010)

(collecting cases declining to consider argument raised for

first time in reply brief).

III. Common Law Claims

Pegasystems also brings two common law claims, citing

Massachusetts law. Appian cites both Massachusetts and Virginia

law in its motion to dismiss, but does not undertake a choice-

of-law analysis. The Court will apply Massachusetts law. The

torts alleged occurred in Massachusetts and no other

jurisdiction is “more concerned and more involved.” See Cohen v.

McDonnell Douglas Corp., 450 N.E.2d 581, 585 (Mass. 1983)

A. Count III: False Advertising and Unfair Competition

Common law false advertising and unfair competition are

separate torts under Massachusetts law, but the facts alleged do

not state a claim under either analysis.

Under Massachusetts law, “[m]isleading advertising is not a

common law tort except to the extent that it amounts to fraud.”

Thornton v. Harvard Univ., 2 F. Supp. 2d 89, 95 (D. Mass. 1998).

“To prevail on a claim of fraudulent misrepresentation under

Massachusetts law, the plaintiff must show that the defendant

‘made a false representation of a material fact with knowledge

of its falsity for the purpose of inducing the plaintiff to act

thereon, and that the plaintiff reasonably relied upon the

representation as true and acted upon it to his damage.’” Eureka

Broadband Corp. v. Wentworth Leasing Corp., 400 F.3d 62, 68 (1st

Cir. 2005) (emphasis added) (quoting Russell v. Cooley Dickinson

Hosp., Inc., 772 N.E.2d 1054, 1066 (Mass. 2002)). Pegasystems is

not the appropriate plaintiff to bring this claim. Pegasystems

did not rely on BPM.com’s or Appian’s alleged misrepresentations

- consumers were the intended audience, not competitors.

As to unfair competition, “[i]t is settled in Massachusetts

that ‘the gravamen of an unfair competition claim is the

likelihood of consumer confusion as to the source of the goods

or services.’” Open Software Found., Inc. v. U.S. Fid. & Guar.

Co., 307 F.3d 11, 17 (1st Cir. 2002) (quoting Datacomm

Interface, Inc. v. Computerworld, Inc., 489 N.E.2d 185, 191

(Mass. 1986)). Pegasystems has not alleged consumers will be

confused about the source of Pegasystems’ or Appian’s products.

B. Count IV: Commercial Disparagement or Injurious Falsehood

Under Massachusetts law, a plaintiff alleging commercial

disparagement must prove a defendant:

(1) published a false statement to a person other than

the plaintiff; (2) “of and concerning” the plaintiff’s

products or services; (3) with knowledge of the

statement’s falsity or with reckless disregard of its

truth or falsity; (4) where pecuniary harm to the

plaintiff’s interests was intended or foreseeable; and

(5) such publication resulted in special damages in the

form of pecuniary loss.

HipSaver, Inc. v. Kiel, 984 N.E.2d 755, 763 (Mass. 2013) (citing

Restatement (Second) of Torts § 651).

Though sharing common elements with a Lanham Act false

advertising claim, commercial disparagement differs in several

respects. Commercial disparagement imposes liability only for

false statements, while the Lanham Act also encompasses

misleading statements. A Lanham Act claim has no knowledge

requirement, while a commercial disparagement claim requires

“actual malice,” meaning the defendant either has knowledge of a

statement’s falsity or acts with reckless disregard of its truth

or falsity. See Kiel, 984 N.E.2d at 767. On the other hand,

commercial disparagement does not require that the false

statement be made in advertising, as the Lanham Act does.

Several elements of commercial disparagement are met easily

here. The allegedly false statements were “of and concerning”

Pegasystems’ products, as Pegasystems was explicitly and

repeatedly named. Pecuniary harm was foreseeable, as the

statements sought to persuade potential consumers to “choose

Appian” over Pegasystems. Pegasystems has also sufficiently

pleaded pecuniary loss in the form of diversion of sales.

Finally, Pegasystems’ claim survives the motions to dismiss

on the elements of falsity and actual malice. A representation

in a study is not false simply because the study’s “design . . .

was flawed.” Kiel, 984 N.E.2d at 761. In Kiel, the author of a

medical journal article was not liable for commercial

disparagement where the “article plainly acknowledged possible

flaws and limitations with the methodology that was used” and

the plaintiff did not allege that the author “inaccurately

interpreted or reported the collected data.” Id. at 764-65.

Unlike the plaintiff in Kiel, Pegasystems alleges BPM.com

“manipulated its selection of responses and projects in order to

create a sample favorable to Appian and detrimental to

Pegasystems.” Dkt. No. 55 ¶ 24. Taking this allegation as true,

the Court can draw the reasonable inference that the Report’s

unfavorable statements about Pegasystems were based on skewed or

inaccurate data and so were false. Under this theory, the actual

malice requirement would be satisfied, as both BPM.com and

Appian would be aware of the statements’ falsity.

ORDER

Appian’s motion to dismiss [Dkt. No. 15] is ALLOWED as to

Count III and DENIED as to Counts I, II, and IV. BPM.com’s

motion to dismiss [Dkt. No. 18] is ALLOWED as to Count III and

DENIED as to Counts I, II, and IV.

SO ORDERED.

/s/ PATTI B. SARIS

Hon. Patti B. Saris

Chief United States District Judge