Pegasystems, Inc. v. Appian Corp.

• Decision Date: 05 December 2019
• Docket Number: Civil Action No. 19-11461-PBS
• Citation: 424 F.Supp.3d 214
• Parties: PEGASYSTEMS, INC., Plaintiff, v. APPIAN CORPORATION and Business Process Management, Inc., Defendants.
• Court: U.S. District Court — District of Massachusetts

424 F.Supp.3d 214

PEGASYSTEMS, INC., Plaintiff,

v.APPIAN CORPORATION and Business Process Management, Inc., Defendants.

Civil Action No. 19-11461-PBS

United States District Court, D. Massachusetts.

Filed December 5, 2019

August T. Horvath, Foley Hoag LLP, New York, NY, David A. Kluft, Kristopher N. Austin, Foley Hoag LLP, Boston, MA, for Plaintiff.

Adeel A. Mangi, Isaac J. Weingram, Jonah M. Knobler, Terra Hittson, Patterson, Belknap, Webb & Tyler LLP, New York, NY, Timothy H. Madden, Donnelly, Conroy & Gelhaar, LLP, David Michael Magee, Donovan Hatem, LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (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, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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...