You can download the full decision here.

Red-Points-Defamation-Case-NY.pdf

In an interesting case from New York Federal court, a judge denied a motion to dismiss by Defendant Red Points (an anti-piracy protection company) for submitting a take down alleging the sale of counterfeit products by the seller on an Amazon website. Instead of taking down the product, the Seller sued Red Points for what they allege is a defamatory accusation about their business as the counterfeiting was denied. This is a very interesting approach to take a look at.

"Plaintiff Unlimited Cellular, Inc. (“Plaintiff”) brings this action against Red Points Solutions SL (“RP Solutions”) and Red Points Inc. (“RP Inc.” and collectively with Red Points Solutions, “Red Points” and the “Defendants”), asserting claims for Defamation, Tortious Interference with Prospective Business Relations, False Advertising under 15 U.S.C. § 1125(a) (the “Lanham Act”), violations of New York's Deceptive Acts and Practices statute (N.Y General Business Law § 349 (“GBL § 349”)), and Aiding and Abetting Common Law Unfair Competition. (ECF No. 28 (“TAC”).) Presently before the Court is Defendants' Motion to Dismiss Plaintiff's Third Amended Complaint, which is brought pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief may be granted (the “Motion”). (ECF No. 31.) For the following reasons, Defendants' Motion is GRANTED IN PART and DENIED IN PART."

Red Points is an IP anti-piracy protection company. Their website boasts over 1,200 customers. They claim to monitor internet activity for their clients, including but not limited to scanning internet sites such as:

• Cyberlockers
• Crawl/Linking sites
• Apps
• Social media sites (ex. YouTube)
• Ebay auctions
• Amazon online sellers
• Internet advertisements
• Fake accounts
• P2p platforms (torrent sites?)

Their site says they protect content such as the following from copycats, infringers and grey market sellers:

• Video games
• Publishers content
• Media Content (TV and Video on demand ("VOD")
• Live streaming events
• Press
• Software products and apps
• e-Learning and information products

Their website lists clients such as:

• Keepcup
• Beauty Blender
• Parlux
• Lekua
• Stojo
• Secto Design
• Foreo
• Hugo BOss
• 100%
• Hyperice
• Catan Studio
• Toon Boon
• Crehana
• Filmin
• Chapmion Petfoods
• Les Nereides Paris
• Target
• FILA
• Electrolux
• Puma
• Chime
• Jacaranda Finance
• Keen
• GolTV
• Nero
• Paris Films
• Yousician
• Monthly
• Mastermind
• Downtown Films

and others.

Here are some clips from the ruling on the DMCA defamation claim:

"Red Points provides brand protection services through their automated software platform, which searches the internet for intellectual property infringements for their clients, reporting violations to the e-commerce website on which they are found (these violation reports are termed “VeRo reports”). (Id. ¶¶ 18-19.) Plaintiff lawfully operates as a non-authorized reseller on ecommerce website eBay.com (“eBay”) (Id. ¶ 11.) eBay responds to such reported infringements by automatically removing the reported listing without warning to the seller, and reinstatement of the listing requires the trademark owner to retract the report. (Id. ¶ 13.) The reporting party is not required to submit any proof that the reported infringement is valid before removing the reported listing."

"When Red Points submits reports of intellectual property rights infringement to eBay, they certify that they have a good faith basis for the reports and that the reports are accurate. Red Points submits the reports of infringement without requiring their clients to confirm that the product listed is a counterfeit. (E-commerce websites may suspend or terminate entire accounts based on alleged infringements, but they will not honor removal requests where the product is authentic."

The decision also discussed:

"On November 2nd and 5th of 2021 Red Points reported two of Plaintiff's listings on eBay as infringing on the intellectual property rights of two of Red Points' clients. At the time of the November 2, 2021 report (the “November 2nd Report”), Red Points reported to eBay that Plaintiff's inventory of “Hyperdrive USB-C Hub Adapter for IPAD Pro, Macbook Pro/Air, Power 9-in-1” (“USB Hub”) was counterfeit, resulting in the removal of the listing. No verification of counterfeit status was requested from Red Points' client before submitting the report. That same day, Plaintiff sent an email to Red Points' client Sanho Corporation's Red Points email address confirming authenticity of the product and asking why the listing was reported. Defendants responded two days later with their form response. (Id.) Red Points refused to withdraw the report regarding the USB Hub despite the verifiable authenticity of the product listed by Plaintiff. At the time of the November 5, 2021 report (the “November 5th Report”), Red Points reported to eBay that Plaintiff's inventory of “OYO Fitness Full Body Portable Equipment Training Set” (“Training Set”) was counterfeit, resulting in the removal of the listing."

As to the motion to dismiss the court held:

I. Defendants' Motion to Dismiss Plaintiff's Claim for Defamation is Denied To state a claim for Defamation under New York law, a plaintiff must allege:

(i) a false statement of fact of and concerning the plaintiff,

(ii) published to a third party without authorization or privilege,

(iii) made with the applicable level of fault (“negligence or actual malice depending on the status of the [defamed] party”) on the part of the publisher,

(iv) that either caused special harm or constitutes defamation per se. Electra v. 59 Murray Enters., 987 F.3d 233, 259 (2d Cir. 2021); see Sleepy's LLC v. Select Comfort Wholesale Corp., 909 F.3d 519, 528 (2d Cir. 2018) (quoting Albert v. Loksen, 239 F.3d 256, 265–66 (2d Cir. 2001)).

A plaintiff must plead the defamatory statements with some particularity. N.Y. C.P.L.R. 3016(a) (“In an action for libel or slander, the particular words complained of shall be set forth in the complaint, but their application to the plaintiff may be stated generally.” (emphasis added)).

Under Federal Rule of Civil Procedure 8's liberal pleading standards, this requires a plaintiff to “identify the allegedly defamatory statements, the person who made the statements, the time when the statements were made, and the third parties to whom the statements were published.” Neal v. Asta Funding, Inc., 13-CV-2176 (VB), 2014 WL 3887760, at *3 (S.D.N.Y. June 17, 2014).

First, Plaintiff adequately pleads a false statement of fact made by Red Points “of and concerning” Plaintiff. "The 'of and concerning' element in defamation actions requires that the allegedly defamatory comment refer to the plaintiff." Sparrow Fund Mgmt. LP v. MiMedx Grp., Inc., 18-CV-4921 (PGG) (KHP), 2019 WL 1434719, at *9 (S.D.N.Y. Mar. 31, 2019) (quoting Brady v. Ottaway Newspapers, Inc., 84 A.D.2d 226, 228 (2d Dept. 1981). Red Points submits these VeRo reports directly to eBay on behalf of their clients, and as a matter of policy, the reported listings are removed by eBay. (TAC ¶¶ 13, 27.) Because the listings are connected with the user accounts, as demonstrated by eBay's policy to suspend or terminate an account based on alleged intellectual property rights violations, the VeRo reports are “of and concerning” Plaintiff. (TAC ¶ 16.)

Second, Plaintiff adequately pleads that Red Points published the statement to a third party without their authorization or privilege. “‘[P]ublic exposure' is not required to state a defamation claim; publication to a third party, in this case eBay, is sufficient.” Eminah Properties LLC v. Energizer Holdings, Inc., 531 F. Supp. 3d 593, 607 (E.D.N.Y. 2021). Defendants allegedly submitted the VeRo reports to eBay without attempting to verify the authenticity of the product. (TAC ¶ 28) Because Plaintiff asserts that the reported listings at issue were authentic products, it is assumed for purposes of this motion that Defendants did not contact Plaintiff for authorization to submit these VeRo reports. (TAC ¶¶ 41, 45.)

Third, Plaintiff need only plead negligence since the statements at issue were only made to eBay and “publications directed only to a limited, private audience are matters of purely private concern.” A&E Prods. Group L.P. v. Accessory Corp., No. 00-CV-7271 (LMM), 2001 U.S. Dist. LEXIS 20245, at *20 (S.D.N.Y. Dec. 7, 2001) (quoting Huggins v. Moore. 94 N.Y.2D 296 (1999)) (internal quotations omitted). In applying the negligence standard, the question becomes “whether the defendants failed to exercise ordinary care in … publishing false statements which defamed [plaintiff], considering the foreseeable danger of injury from the publication and the reasonableness of defendants' conduct in proportion to that danger.” Lee v. City of Rochester, 174 Misc. 2d 763, 786 aff'd, 254 A.D.2d 790, 677 N.Y.S.2d 848 (1998) (quoting Gaeta v. New York News, Inc., 115 Misc. 2d 483,485, aff'd, 95 A.D.2d 315 (1983), rev'd on other grounds, 62 N.Y.2d 340 (1984) (internal quotation marks omitted) (alteration in original).

As a matter of course, when eBay receives a report through its VeRo program the reported listing is removed and the only way to have the listing reinstated is for the complaining party to withdraw the report. (TAC ¶¶ 13, 15.) Because Plaintiff alleges that Defendants failed to take steps to confirm that Plaintiff's listings were counterfeit prior to submitting the VeRo reports, and failed to retract at least one report upon receipt of proof of authentication (i.e., the November 2nd Report), Plaintiff has met their burden at this stage. (TAC ¶¶ 40, 44, 47); see Sweeney v. Prisoners' Legal Servs. of New York, Inc., 84 N.Y.2d 786, 647 N.E.2d 101 (1995) (“failure to investigate […] was, at most, negligent”); Biro v. Conde Nast, 963 F. Supp. 2d 255, 281 (S.D.N.Y. 2013), aff'd, 807 F.3d 541 (2d Cir. 2015), and aff'd, 622 F. App'x 67 (2d Cir. 2015) (finding refusal to retract a statement once proof of its falsity is received to be a permissible factor for consideration in a finding of the heightened standard of actual malice).

Fourth, Plaintiff is not required to plead special harm because Plaintiff has adequately pled a claim for defamation per se. “Defamation per se has been defined both as statements that cast doubt on a particular quality at the very heart of a profession and statements that impugn the basic integrity of a business.” Kforce, Inc. v. Alden Pers., Inc., 288 F. Supp. 2d 513, 516 (S.D.N.Y. 2003) (emphasis in original). "A statement that tends to injure another in his or her trade, business or profession is defamatory per se." Biro v. Conde Nast, 883 F. Supp. 2d 441, 456 (S.D.N.Y. 2012) (citation omitted). "New York law has long recognized that '[w]hen statements fall within' established categories of per se defamation, 'the law presumes that damages will result, and they need not be alleged or proven.'" Zherka v. Amicone, 634 F.3d 642, 645 (2d Cir. 2011) (footnote omitted) (quoting Liberman v. Gelstein, 80 N.Y.2d 429, 435 (1992)).

To plead defamation per se, Plaintiff must allege that the statements

“(i) charg[e] plaintiff with a serious crime;

(ii) that tend to injure [plaintiff] in his or her trade, business or profession;

(iii) [charge] plaintiff [with] a loathsome disease;

or

(iv) imput[e] unchastity to a woman." Liberman, 80 N.Y.2d at 435.

"Allegations of Red Points' submission of a false VeRo report to eBay are sufficient for showing injury to Plaintiffs' business reputation. See Eminah Properties. LLC, 531 F.Supp. 3d at 608 (finding defamation per se where a false VeRo report was made, reasoning that such report imputed to plaintiff dishonesty and misconduct in business); Beauty Beauty USA, Inc. v. Chin Hong Luo, No. 11-CV-5349, 2011 WL 4952658, at *1 (S.D.N.Y. Oct. 13, 2011) (“Accusations that plaintiff sold ‘counterfeit goods,' whether made orally or in writing, would be defamatory per se” (emphasis in original))."

Red Points' software automatically reports detected intellectual property infringements to e-commerce websites without requiring their clients to confirm that the listing is of a counterfeit product. When Red Points submits these reports to eBay, they certify that they have done so on a good faith basis. Because the VeRo reports do not need to be substantiated with proof of infringement (Id.), it is reasonable to conclude that even if these reports are statements of opinion, eBay relies on them with the presumption that facts exist which justify the opinion but are unknown to them, and they are thus actionable as mixed opinions."

Accordingly, Defendant's Motion to Dismiss Plaintiff's claim for Defamation is denied."

This decision validates what I have been saying for many years:

BEFORE YOU ISSUE A DMCA TAKEDOWN NOTICE YOU NEED TO VALIDATE THE FACTS AND ENUMERATE THEM AND ALSO CONSIDER FAIR USE RIGHTS THAT MIGHT EXIST IN SOME CASES BEFORE YOU SEND THE TAKEDOWN NOTICE, FAILURE TO DO SO CAN PUT THE AGGRESSOR ON THE DEFENSIVE

- Steve Vondran, Esq. -

Since 2004 our boutique IP law firm has helped clients with intellectual property legal issues (dispute resolution and litigation) involving infringement, copycats, counterfeit, grey market goods, DMCA takedowns, and other related internet law legal matters involving business disputes. Call us to discuss your case at (877) 276-5084 or email us through our contact form for more information. We have handled several hundred federal court IP litigation matters including in the California federal courts, Arizona, Texas and New York where we have been admitted.