How Not To Market Your Business Online (Even If It Works): Claims Against Fake Review Sites And Stolen Obituary Photos Survive Motion To Dismiss

by Foley Hoag LLP - Trademark, Copyright & Unfair Competition
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1Despite celebrity endorsements from the likes of Dennis Miller and Alan Thicke, all that glitters isn’t gold when it comes to the marketing of precious metal investments. In March 2014, American Bullion, Inc., which is in the business of encouraging individuals to convert their retirement savings to gold and silver, brought suit against its competitor, Regal Assets, LLC, in the Central District of California, alleging a host of unsavory internet marketing practices.  Last month, the Court ruled that American Bullion had indeed stated valid claims for, among other things, false advertising and trade libel.  A motion for a preliminary injunction is now pending.

American Bullion’s Allegations

According to American Bullion’s complaint, Regal operates on a performance-based affiliate marketing program. Affiliates (i.e., individuals and companies with their own websites) promote Regal’s products and are compensated through commissions based on the number of clients they refer.  American Bullion alleges that Regal’s unscrupulous use of this model has led to a number of illegal internet marketing practices, including:

  • Websites representing themselves as independent affiliate entities, which are in fact operated solely by Regal, and which “recommend” Regal but warn potential customers against American Bullion.
  • Websites owned by independent affiliates, but the contents of which are actually written by Regal.  This includes fake reviews with false assertions that American Bullion was the defendant in a “Ponzi like scheme” lawsuit, and that falsely identify the owner of American Bullion as a man charged with fraud by the US Commodity Futures Trading Commission in 2010.
  • Affiliate websites which fail to disclose the compensation they receive from Regal.
  • Misleading links from affiliates which divert traffic from American Bullion.  For example, a now-defunct blog called “silvergoldweekly.com” instructed users to “Click here to visit American Bullion,” but the hyperlink instead directed the reader to Regal’s website.

False Advertising and Trade Libel Claims Survive

On July 15, 2014, Judge Dean D. Pregerson (who, in an arresting typo, signed his order under the name “Dead D. Pregerson”) denied Regal’s motion to dismiss.  As to American Bullion’s false advertising counts (under Section 43 of the Lanham Act and California state law), Regal had argued that American Bullion failed to state a claim because the alleged false statements did “not appear to be for the purpose of influencing consumers to buy Defendant’s products, [but] rather to refrain from contracting with Plaintiff.”  The Court brushed aside this argument as contrary to the scope of the Lanham Act’s false advertising protections, which prohibit false statements about one’s own product as well as false statements about the products of a competitor.

American Bullion also brought claims for trade libel and for defamation, two reputational torts which differ from each other in that the former concerns disparagement of the quality of specific goods or services, while the latter concerns harm to one’s business reputation more generally.  Regal argued that any false statements about American Bullion’s involvement in fraud lawsuits was protected by a “litigation privilege,” which under California law bars liability arising from statements made by litigants in the context of judicial or quasi-judicial proceedings. The Court held, not surprisingly, that this exception did not apply here because neither the Plaintiff nor the Defendant were actually parties to any of the litigations mentioned on the affiliate blogs (i.e., you don’t get the protection of the privilege just because you are talking about any old lawsuit).

Why Your Deceased Loved One May Be Recommending Gold

2Shortly after the Court’s ruling, American Bullion brought a motion for a preliminary injunction, which asserted even more “dirty tricks” by Regal. This includes the fabrication of affiliate bloggers from whole cloth using fake names and stock photographs. It also includes a shocking assertion, not alleged in the complaint but described in the motion, that Regent “hijacked” photographs from online obituaries to lend an air of authenticity to the fake social media accounts it created for its fictional affiliates.

Regal filed its opposition on August 4, 2014, which in sum disclaims responsibility for any rogue activity by its affiliates.  The motion is currently pending.

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.

© Foley Hoag LLP - Trademark, Copyright & Unfair Competition | Attorney Advertising

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