Broadspring, Inc. v. Congoo, LLC, 2014 WL 7392905, No. 13–CV–1866 (S.D.N.Y. Dec. 29, 2014)
As part of resolving various evidentiary issues before trial between these online advertising service competitors, the court gave guidance on some more general false advertising principles. Broadspring’s defamation claim against Congoo, the court ruled, was not to be treated as a matter of public concern in this context. Congoo argued that the statements at issue related to matters of public concern because they implicated consumer protection. Courts applying California law in the defamation and anti-SLAPP context have repeatedly held that “statements warning consumers of fraudulent or deceptive business practices constitute a widespread public interest, so long as they are provided in the context of information helpful to consumers.”
But in circumstances like these—speech by a competitor about another competitor—other California courts have held that statements affecting consumers shouldn’t be treated as matters of public concern. Standard false advertising/trade libel suits between competitors shouldn’t be treated as SLAPP suits. The court found those cases persuasive, “at least where the company about whom the statements are made is not otherwise a public figure,” as the court had already found here. “The statements at issue here were said by a competitor of Broadspring’s, not only in public postings, but also in private e-mails; and Defendants’ primary motivation was not to protect consumers, but rather to improve Congoo’s bottom line.” Though they might have a tangential effect on consumers, the statements were primarily concerned with the speaker’s private commercial interest, not the public interest.
The defendants also sought to exclude evidence of Congoo’s gross revenues and profits from publishers other than those who Broadspring could prove saw the allegedly false advertising. This was admissible in light of Broadspring’s demand for punitive damages. But it could also matter for ordinary damages. The court discussed Burndy Corp. v. Teledyne Indus., Inc., 748 F.2d 767 (2d Cir. 1984), and Davis v. Gap, Inc., 246 F.3d 152 (2d Cir. 2001). Burndy involved false advertising; the court refused an accounting of profits, finding that “[u]njust enrichment warranting an accounting [of profits] exists when the defendant’s sales were attributable to its infringing use of plaintiff’s trademark, and the burden of proving this connection is on the plaintiff.” But that was a matter of causation, as there was no evidence that any of the defendant’s sales would otherwise have gone to the plaintiff. Where Congoo’s allegedly false statements specifically targeted Broadspring, causation wasn’t an issue.
Davis found that copyright infringement in an ad didn’t entitle the plaintiff to seek recovery from the parent company’s entire revenues. Because the ad only infringed with respect to Gap stores and eyewear, the plaintiff had the burden of showing the gross revenues of those stores, and perhaps just eyewear/accessories for those stores. “Davis stands for the proposition that a plaintiff is entitled to recover the profits earned only from an infringing or falsely advertised product, not from other products that happen to be manufactured or sold by the same defendants, let alone other divisions of the defendants’ business.” (NB: For some reason, IP lawyers have decided that the name of this case is On Davis, perhaps because they don’t realize that “On” is plaintiff’s first name. I believe the proper short form is Davis, so I’ll use that.)
Here, Broadspring wasn’t seeking to recover profits Congoo earned from selling unrelated products or services, and its gross revenue and profit evidence was limited to Congoo’s online advertising business. “[W]hile some of that gross revenue may well have been earned from customers that were not exposed to Congoo’s allegedly false statements, the [Davis] decision appears to place the burden on Defendants to prove that—not on Plaintiff to prove the opposite.” It’s not the plaintiff’s burden in the first instance to prove that particular customers saw the ads at issue. The non-Second Circuit case apparently requiring this, Nat’l Prods., Inc. v. Gamber–Johnson LLC, 734 F. Supp. 2d 1160 (W.D.Wash. 2010), so ruled at least in part based on “equitable considerations,” and the weight of authority was that the burden of apportionment is on the defendant.
Broadspring’s entitlement to profits, if any, would be profits attributable to the false advertising. But Broadspring’s initial burden was merely to present evidence of gross revenues and profits for Congoo’s online advertising business, at which point the burden would shift to Congoo to show whether and to what extent ‘“the infringement had no relationship’ to those earnings.” And any profit award would ultimately be subject to the principles of equity to ensure than any award was compensation, and not a penalty. Even if Congoo couldn’t apportion profits, then, Broadspring wouldn’t necessarily be entitled to all Congoo’s online ad profits during the relevant period.
The court also denied Congoo’s motion to preclude the jury from considering implied falsity, even though Broadspring didn’t have a consumer survey. No survey is needed in cases of intentional deception and egregious conduct, which was one of Broadspring’s theories. Plus, a survey isn’t an absolute requirement in an implicit falsity case. The plaintiff’s burden is simply to show that a substantial number of consumers were in fact confused, using available evidence, which can include deposition testimony, particularly where “the number of potential direct consumers is arguably fairly small.”