Creating Fake Customer Reviews Site Could Be False Advertising and Trade Libel

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As evidenced by the success and robust market capitalization of the consumer review site Yelp, Internet users are increasingly turning to "regular people" as a lodestar for whether to purchase goods or services. This is intuitively unsurprising, as the man on the street who decides to proffer his opinions without compensation is perceived to be more credible than a company showering encomiums on its business, presumably to increase profits. As the consumer review sites proliferate, and more users adhere to the recommendations therein, incentive grows to manipulate reviews, even at the expense of violating relevant laws.

A recent case in the Central District of California epitomizes both why a company will fabricate reviews, and which law is correspondingly violated. In American Bullion, Inc. v. Regal Assets, LLC, No. CV 14-01873 DDP (C.D. Cal. July 15, 2014) American Bullion, Inc. (American Bullion) sued a competitor Regal Assets, LLC (Regal Assets) alleging that the latter created misleading marketing websites as a means of disparaging American Bullion and promoting its business. As background, American Bullion and Regal Assets compete in the market to convince holders of individual retirement accounts (IRA) to add gold and other precious metals to the account. To market its services, American Bullion utilizes third-party affiliates that receive compensation for referred business. American Bullion alleged that Regal Assets and its individual officers have created and operated such affiliate sites. These sites purport to contain independent consumer reviews and do not evince any affiliation with Regal Assets.

The sites featured highly unfavorable, often false contentions about the history and business practices of American Bullion. For example, a number of the sites alleged that American Bullion had been found guilty of fraud by the Commodities Futures Trading Commission. In fact, the party found guilty in that action was American Bullion Exchange, a separate company. Likewise, the sites uniformly included negative reviews of American Bullion. Finally, Regal Assets created a site that urged users to "click here to visit American Bullion," but are then linked to the Regal Assets' website.

American Bullion brought causes of action for false advertising under the Lanham Act (15 U.S.C. 1125(a)) and a variety of state law causes of action, including defamation and trade libel. On a motion to dismiss, the court held that these claims were adequately pled. As it did not assert a trademark claim, to prove a false advertising claim under the Lanham Act, American Bullion must show: (1) "a false statement in a commercial advertisement about its own or another's product; (2) … the statement has actually deceived or has a tendency to deceive; (3) the deception is material …;" (4) causation; and (5) injury. See Southland Sod Farms v. Stover Seed, Co., 108 F.3d 1134, 1139 (9th Cir. 1997) (emphasis in original) (internal quotations omitted). After conceding all material aspects of the false advertising claim, including that the fraud conviction and enforcement action pertained not to American Bullion, Regal Assets raised an issue of litigation privilege, though this was summarily dismissed by the court as Regal Assets could not "identify any other judicial or quasi-judicial proceeding that might be possibly be relevant." As such, American Bullion had adequately pled the false advertising claim under both the Lanham Act and California common law. See also iYogi Holding Pvt. Ltd. v. Secure Remote Support Inc., 2011 WL 6291793, at *14 (N.D. Cal. Oct. 25, 2011) (stating the test for false advertising under California common law).

Trade libel is in essence the publication of comments that impugn the quality of another's property, the proponent of which should recognize would cause pecuniary loss to the owner. It requires intentional publication of such comments. See Mann v. Quality Old Time Serv., Inc. 120 Cal. App. 4th 90, 104 (Cal. Ct. App. 2004). American Bullion based its defamation and trade libel claims on the statements on the websites of Regal Assets asserting that "American Bullion [is] a Ponzi like scheme" and that its owner was "found guilty of fraud and later sued by the U.S. Commodities and Futures Trade Commission." Regal Assets responded with a defense premised on a mistake because the names "American Bullion" and "American Bullion Exchange" were so similar. Unfortunately for Regal Assets, the statements regarding the purported past criminality were immediately preceded by a heading reading "American Bullion, Inc."

It is difficult to imagine that cases involving fraudulent "consumer reviews" will cease any time in the immediate future. Even though the court in American Bullion did not dismiss the plaintiff's claims, there is a powerful incentive to impersonate "regular people" when extolling or vilifying a product. When corporations or the marketers hired to represent them promote their products, they are predisposed towards a positive spin, even if it contradicts other facts. On the other hand, the average customers are bereft of such a predilection, thereby rendering their reviews more "authentic." That authenticity can sometimes be the dispositive fact to whether a customer purchases a company's product, or declines to purchase a competitor's product, and therefore companies are likely to continue to emulate the tactics of Regal Assets.

Topics:  Corporate Counsel, False Advertising, Lanham Act, Online Reviews, Trade Libel, Yelp

Published In: Business Torts Updates, Civil Procedure Updates, Communications & Media Updates, Finance & Banking Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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