Thursday, August 23, 2007

Pretending to be a consumer doesn't cause harm to the consuming public

NetQuote, Inc. v. Byrd, 2007 WL 2350089 (D. Colo.)

Previous coverage here. The parties compete to offer leads to insurance companies. NetQuote alleged that defendant MostChoice hired defendant Byrd to pretend to be hundreds of different individuals interested in insurance quotes, submitting inquiries to NetQuote’s website that were passed on to NetQuote’s clients even though they couldn’t lead to an insurance purchase. As a result, clients complained about the bad information and some stopped doing business with NetQuote. Then, MostChoice advertised itself as having better accuracy and reliability than NetQuote – pretty much defining “adding insult to injury.” The defendants admitted that Byrd submitted at least 394 false profiles, and also admitted that MostChoice promoted itself as “better than NetQuote,” but denied disparaging NetQuote as having bad information.

The court rejected NetQuote’s Colorado common law unfair competition claims, holding that unfair competition is really just common law trademark infringement in Colorado. Without confusion over source, there’s no cause of action. At most, there was deception about the quality or bona fides of the leads submitted to NetQuote, but that’s not analogous to traditional trademark, trade secret, or related claims. MostChoice didn’t attempt to have NetQuote’s tortious interference with business relations claims dismissed, and that’s the better description of the alleged conduct.

The Lanham Act analysis was different. NetQuote challenged MostChoice’s superiority claims, alleging that the targeted consumers understood them to mean that NetQuote’s leads “contain bad or false information whereas MostChoice's leads do not.” An ad on MostChoice’s website, for example, was headlined, “Better Than Leads,” and claimed that “All leads are ... customer requested. All leads have asked for a quote.”

MostChoice argued that this was mere puffing. While simple superiority claims are puffing, the court found that the “bulk” of MostChoice’s statements were factual and therefore falsifiable. The ads could fairly be read to imply that NetQuote’s leads were of poor quality – and the ads certainly didn’t disclose that the reason for this poor quality was MostChoice’s submission of false leads.

NetQuote’s Colorado Consumer Protection Act claims, however, failed because the conduct at issue didn’t have a significant impact on the “public,” as required by state law. The law aims to protect the general consuming public, which is in a relatively bad bargaining position, not large and sophisticated organizations with substantial resources engaged in personalized negotiations. So the harm to NetQuote’s relations with insurance companies didn’t count.

NetQuote also alleged that MostChoice’s acts harmed the individuals using its website to obtain insurance quotes. According to NetQuote, the false submissions included real people who had no interest in insurance quotes, and some of those “were greatly upset by the intrusion into their privacy from the contacts of NetQuote’s brokers.” But the court found that this wasn’t the consumer-related impact required by state law. The misrepresentations here were directed at insurance companies, not at the market generally. Likewise, the alleged consumer harm from the competitive impact of MostChoice’s deception – that consumers have a smaller pool of insurance agents and brokers competing for their business – was not a direct enough effect to count.

Ingenious legal arguments, but ultimately unsurprising conclusion, particularly on the last point. The argument that MostChoice’s deception harmed consumers by invading their privacy is interesting, and accepting it probably wouldn’t have led to a huge expansion of the scope of the law given the unusual facts here, but (at least for this plaintiff) the Lanham Act provides a remedy for the harm anyway. I wonder what claims, if any, the aggrieved consumers could make against MostChoice?

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