Trex Co. v. CPG Int'l LLC

TREX COMPANY, INC. Plaintiff, v. CPG INTERNATIONAL LLC d/b/a AZEK BUILDING PRODUCTS, Defendant.

Civil Action No. 5:17-cv-00005

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA HARRISONBURG DIVISION

August 1, 2017

By: Elizabeth K. Dillon United States District Judge

MEMORANDUM OPINION

Plaintiff Trex Company, Inc. (Trex), filed a verified complaint on February 1, 2017, seeking damages and injunctive relief against the defendant, AZEK.¹ Trex asserts that AZEK, who competes with Trex in the wood-alternative decking industry, has engaged in an advertising campaign that includes numerous statements of false advertising in violation of the Lanham Act, 15 U.S.C. § 1051 et seq.

Pending before the court and addressed in this memorandum opinion are two related motions. The first is Trex's motion for a preliminary injunction (Dkt. No. 13), in which Trex asks the court to: enjoin AZEK from publishing the false statements identified in the verified complaint and/or any other false or misleading commercial statements; require AZEK to remove those statements from certain websites, Facebook, and other locations; require AZEK to publish various corrective statements and to send retraction letters to all known recipients of those statements; and to destroy immediately all advertising and promotional materials that contain the statements and/or any other false or misleading commercial statements.

The second motion is AZEK's motion to dismiss (Dkt. No. 23), which is based on its contention that all of the challenged statements are mere "puffery" and are not actionable under the Lanham Act. Both motions have been fully briefed, and the court received evidence and heard argument over the course of a two-day hearing. The court will address the motion to dismiss first because a dismissal of all claims would effectively moot the motion for preliminary injunction. For the reasons set forth below, the motion to dismiss will be granted in part and denied in part, and the motion for preliminary injunction will be denied.

I. BACKGROUND

The materials that the court can consider when ruling on the motions differs for the two motions. When ruling on the motion to dismiss, the court is limited to a consideration of the allegations of the complaint and any documents attached thereto or incorporated by reference. Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015) (citing E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011)). The court treats the factual allegations in the complaint as true and construes them in the light most favorable to the plaintiff. Coleman v. Md. Court of Appeals, 626 F.3d 187, 189 (4th Cir. 2010); Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999).

For purposes of the motion for preliminary injunction, the court can consider a broader range of documents and information, including the testimony offered at the preliminary injunction hearing and the declarations and affidavits submitted by the parties. The Fourth Circuit, following the lead of seven other circuits, has stated that a district court ruling on a preliminary injunction "may look to, and indeed in appropriate circumstances rely on, hearsay or other inadmissible evidence when deciding whether a preliminary injunction is warranted." G.G. ex. rel. Grimm v. Gloucester Cty. Sch. Bd., 822 F.3d 709, 725-26 (4th Cir. 2016), vacated andremanded on other grounds, 137 S. Ct. 1239 (2017). Additionally, "[i]n granting or refusing an interlocutory injunction," the court is required to find the facts specially and state its conclusions of law separately. Fed. R. Civ. P. 52(a)(2).

Much of the testimony offered over the course of the hearing focused on elements of the plaintiff's Lanham Act claim. The court does not reach these issues at this time based on its rulings herein. These include issues of whether the allegedly false statements had the tendency to deceive, were material, and whether they were likely to cause injury to Trex. Accordingly, it is not necessary to discuss that testimony in any detail. Instead, the court will make findings of fact only insofar as they are necessary to the court's legal analysis.

A. The Wood-Alternative Decking Industry

Because it is important for purposes of both motions to understand the business context in which this case arises, the court begins with a brief overview of the industry in which AZEK and Trex compete: the wood-alternative decking industry. The industry focuses on providing an alternative to natural wood decking for consumers and those who build or install decks. Trex "pioneered the very first wood-alternative decking products," beginning in 1992. (Pl.'s Mem. Supp. Mot. Prelim. Inj. 3, Dkt. No. 14.) Although a number of other companies have begun offering competing products, including AZEK, Trex still has the largest market share and the largest amount of gross sales of any company in the wood-alternative decking industry. According to a report on the industry prepared by an independent market research firm, Trex is the best-selling decking and railing brand, outselling second-place AZEK/TimberTech by a substantial margin. (Id. at 4.) Indeed, AZEK has conceded, for purposes of the pending motions, that Trex has a greater market share and higher gross sales than AZEK. There are a number of other companies that compete in the same marketplace, although Trex and AZEK arethe two largest. According to one of Trex's witnesses, four or five manufacturers comprise at least 85% of the market, but there are also a number of smaller competitors.

AZEK sells its product under both the AZEK and TimberTech brands.² The AZEK brand consists entirely of PVC decking products, which generally are more expensive than wood composite decking. Timber Tech is the division of AZEK that sells the capped composite decking, which competes directly with Trex's capped composite decking. According to at least one witness, PVC and capped composites make up the entirety of the wood-alternative decking industry, also known as the "premium decking" industry.

The parties spent considerable time at the hearing eliciting testimony concerning the companies' respective distribution chains. This was done primarily to augment each side's arguments concerning who makes the purchasing decisions about which brand of alternative wood decking to use—consumers or contractors—and to highlight the target audience for the various advertisements. Both companies sell their products in similar ways. Notably, neither sells directly to consumers or homeowners, and it is not possible to order products from their websites. Instead, they typically sell to distributors or wholesalers, who then sell to lumber yards. The lumber yards, in turn, sell primarily to contractors and home builders. Both companies also attempt to sell directly to big-box stores like Lowe's and Home Depot, although currently Trex is the only brand of wood-alternative decking products stocked on the shelves at both Home Depot and Lowe's. The big box stores then sell to contractors and do-it-yourselfers.

Relevant to certain of the elements of a Lanham Act false advertising claim, it is Trex's factual position that advertising targeted to consumers is very important and greatly affects sales. It has submitted an affidavit from one of its salespeople explaining how important consumerchoice is to the decision, and several of its witnesses testified about this. AZEK disputes this and points instead to certain reports, as well as testimony from its own witnesses, suggesting that consumers do not really have that much impact on which brand is used for their deck and that the decision is more often influenced or made by industry professionals. The court need not resolve this factual dispute at this time.

The court also heard a significant amount of testimony comparing the Trex and TimberTech products. They are very similar, but do differ slightly in some respects. For example, TimberTech's composite capped product is capped on four sides, whereas Trex's is only capped on three.³ TimberTech also offers a longer warranty against staining and fading (30 years versus Trex's 25 years) and a lifetime warranty on manufacturing defects, which Trex does not offer. AZEK also presented a lot of detailed testimony about testing by a third party that it hired, in which its products performed significantly better than Trex products, as to both fading and as to the rate of water absorption.

B. The Allegedly False Statements

Having provided that background, the court next turns to the categories of statements identified by Trex as being actionable under the Lanham Act. Trex challenges all of these categories because it believes they falsely state or suggest that AZEK is the market leader in sales. It claims that AZEK began this extensive advertising campaign, which primarily targets consumers, as an attempt to build up AZEK's brand while tearing down Trex's. It argues that the messages are intended to convey "a single unambiguous, and verifiably false message: AZEK, through its AZEK and TimberTech brands, is the market-leader in sales and the topchoice of consumers." (Pl.'s Reply Supp. Mot. Prelim. Inj. 1, Dkt. No. 48.) There are four categories of challenged statements.

First, there are the so-called "#1" statements, which include the statements that AZEK is "the #1 in Premium Decking" and "Number One in Premium Decking." These statements have been published in a number of places, including an advertisement in the LBM Journal and on AZEK's website.⁴ (Compl. ¶¶ 27-32 & Exs. A & B, Dkt. No. 1.) The pages on which these statements appear do not reference sales volume or market share. Instead, the paragraphs below the statements reference "the best high-performance building materials available," AZEK's "commitment to technology and materials science innovation," and "our dedication to inspiring design and style." (Id. at Ex. B.) In smaller font, there is a paragraph...