Monday, April 07, 2014

What does Lexmark mean for the "commercial advertising or promotion" test?

Goodman v. Does 1–10, No. 4:13–CV–139, 2014 WL 1310310 (E.D.N.C. Mar. 28, 2014)

The first post-Lexmark opinion I’ve seen, and a thoughtful one at that. The complaint alleged various defamation and unfair competition claims based on postings on a website,, run by defendant Lagoy.  Goodman, a licensed auto mechanic who owns a number of auto repair businesses in North Carolina, “has been the target of an extraordinarily aggressive smear campaign on the localdirtbags website,” which is “apparently devoted to ruining Goodman’s personal and business reputation.”  Accusations include overcharging customers and criminality. Many of the statements about Goodman are made in the site’s blog posts, though users can also post comments. Lagoy admitted that she created the site and authored many of the blog posts; Goodman alleged that Lagoy posted most of the comments under various pseudonyms and that any positive comments are immediately deleted.

Was this “commercial advertising or promotion”? The Fourth Circuit hasn’t explicitly ruled, but several cases within the circuit have used the Gordon & Breach four-part test: (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant’s goods or services (4) disseminated sufficiently to the relevant purchasing public.  “[C]onsumer or editorial comment” that might be disparaging isn’t covered, according to the legislative history.

The court suggested that concerns for protecting free speech drove the “intricate body” of prudential standing law, now eliminated “[i]n one fell swoop” by Lexmark. Because the Supreme Court expressed no opinion on “commercial advertising or promotion,” the court here stuck with the standard test, though it noted below that part (2) probably has to be modified to comport with Lexmark.

Here, Goodman failed sufficiently to allege that the posts constituted commercial speech or that they were made by a defendant in competition with Goodman. The only factual allegation relevant to commerciality was that the website operator put the defamatory content up “in order to drive traffic to the blog, and increase the monetary value of the blog, in a collective effort to promote and sell the blog to a third party.” That’s plainly insufficient to make it commercial speech.  “As can be seen from even a cursory review of the comments and articles discussed above, the statements do not propose a commercial transaction in any traditional sense of that phrase and the court cannot reasonably infer that the statements relate solely to the speaker and his audience’s economic interests.”  While the content might be defamatory, it’s not plausibly commercial speech.

The complaint also failed to allege that any defamatory statements came from Goodman’s competitors, who would have an economic interest in disparaging Goodman’s businesses.  A pure competition requirement was “somewhat in question” after the Lexmark, which held that direct competition isn’t required for standing; “unfair competition” isn’t limited to actions between competitors.  But that doesn’t mean that a lawsuit like this one is ok under the Lanham Act, since the complaint failed to allege “any reasonable commercial interest in the content of the postings.”  Lexmark doesn’t eliminate the commerciality requirement.  The court couldn’t reasonably infer that the posts reflected commercial competitors’ statements; on their face, they purported to be consumer reviews by parties with no commercial interest in the postings themselves.  “Goodman essentially concedes as much by alleging that the Defendants’ commercial interest in this case is in driving traffic to the website, not diverting business from Goodman to his competitors.”

The issue was complicated because Goodman didn’t know the identities of the defendants.  It was possible—though not plausible—that some of the postings were from commercial competitors. None of the statements alleged outright encouraged readers to take business to a specific competitor.  “Although in general a commercial advertisement under the Lanham Act does not need to contain a business solicitation, the fact that no competitor solicitations occur in any of the numerous postings on the website cuts against any potential inference that these postings come from competitors.”

The court dismissed the Lanham Act claim with prejudice:

Allowing leave to amend on the remote possibility that discovery will reveal that Goodman’s competitors are responsible for the postings would allow a plaintiff to maintain a false advertising claim against virtually any website that allows users to post negative online reviews. Mindful of the limited jurisdiction of the federal courts, the court is concerned about setting a precedent where a plaintiff can manufacture federal jurisdiction on the questionable allegations presented by these particular facts.

The court specified, however, that if it were presented with a case in which a plaintiff had a good faith belief that anonymous posters were competitors (citing NTP Marble as an example), it would be open to allowing that claim to proceed. Also, “nothing in this ruling precludes Goodman from later asserting a Lanham Act claim, should he become aware of facts which cause him to have a good faith belief that the anonymous posters were competitors.” But under the circumstances, the court declined to exercise supplemental jurisdiction over the state law claims.

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