Wednesday, April 08, 2015

former founder's overclaiming not enough for likely success on false association

Infogroup, Inc. v. DatabaseLLC, --- F.Supp.3d ----, 2015 WL 1499066, No. 8:14–CV–49 (D. Neb. Mar. 30, 2015)
The parties compete in the market for databases about consumers and businesses.  Individual defendants are all former employees of Infogroup, including Vinod Gupta, the founder of Infogroup and a former officer and shareholder. “Gupta founded DatabaseUSA after leaving Infogroup, and there is no love lost between them.”  Infogroup’s claims generally covered: (1) DatabaseUSA’s alleged acquisition of information from Infogroup’s proprietary database, (2) alleged false advertising regarding the extent to which DatabaseUSA’s information is “verified,” and (3) alleged false representations suggesting to potential customers that there is a corporate relationship between DatabaseUSA’s products and Infogroup.
Infogroup puts false “seed data” into its listings with fake combinations of name, address, and telephone number. In June 2013, Infogroup found its November 2011 seed data in DatabaseUSA’s products, and sued on the theory that the individual defendants had provided DatabaseUSA with misappropriated data.  However, some of Infogroup’s data is available through search services such as Google; its business database is available through a reference service provided to libraries; and it sells data sets to customers, though licensed customers are prohibited by licensing agreements from providing that data to DatabaseUSA. Moreover, third parties have been able to “scrape” database information from publicly-accessible sources and bundle it for resale; information from at least some of Infogroup’s seed files has turned up in other competitors’ data and on public search engines.  Infogroup also cast doubt on whether any of the individual defendants could’ve gotten the data at issue—three of the five were terminated before the November 2011 seed data was inserte, while another wasn’t hired by DatabaseUSA until after the June 2013 audit that discovered the seed data. None of them “(with the presumable exception of Gupta, who was out the door by 2008)” had the necessary access to Infogroup’s database to have “perpetrated a heist.”  None of that was conclusive proof of lack of involvement—there might have been further shenanigans, carried out by a traitor working with DatabaseUSA while employed by Infogroup or a person who exceeded authorized access. But there wasn’t evidence of any of that. “[I]t is certain that information from Infogroup’s proprietary database ended up in DatabaseUSA’s hands, and it is wholly uncertain how that happened.”
Separately, Infogroup argued that DatabaseUSA falsely represented its database entries as “verified” and “Triple-Verified.”  Infogroup uses “verified” when an Infogroup employee has confirmed that the information is accurate and current, while DatabaseUSA’s definition of “verified” was far less clear.  DatabaseUSA promotes its “verification process” as involving “original sources,” telephone verification, and Internet research. DatabaseUSA displayed some of Infogroup’s seed files as “verified” records. Infogroup’s argument was simple: “how could DatabaseUSA have ‘verified’ a fictitious entry?” Infogroup identified other inaccuracies in supposedly-“verified” entries in DatabaseUSA’s data.
However, DatabaseUSA argued that even the seed files contained some real information, such as a fictional business at a real address with a working phone number. Moreover, even “verified” listings will sometimes be incorrect because of day-to-day changes.  DatabaseUSA presented evidence of the process it used to verify the accuracy of its listings.
The final category of claims involved allegations that DatabaseUSA was making misleading statements about its relationship with Infogroup.  For example, a DatabaseUSA press release said that an employee had “spent eight years at InfoGroup, a similar reference company that shares the same Founder, Vin Gupta.”  There were multiple other references to Gupta as founder of Infogroup. DatabaseUSA also used AdWords and related programs to display ads when consumers searched for Infogroup marks.  One DatabaseUSA site posted a letter from Bill Clinton to Gupta, sent in 1998 and addressed to Gupta as the “Chairman and Chief Executive Officer” of infoUSA. DatabaseUSA ads described DatabaseUSA as “Serving the Database Industry Since 1972” or “Creators of the Finest Databases Since 1972,” while in fact Infogroup was founded in 1972; DatabaseUSA was founded in 2009.  In addition, a 60 Minutes segment excerpted on a DatabaseUSA site and in ads showed Gupta, then CEO of infoUSA, describing the detailed data that infoUSA had compiled.  The clips played by DatabaseUSA didn’t identify the company, but its ads made repeated claims to the effect that its databases are “so good, they were featured on ‘60 Minutes.’”
As evidence of consumer confusion, Infogroup pointed to several incidents: one ad sent to an Infogroup customer caused the recipient to contact Infogroup asking if Infogroup and DatabaseUSA were the same company. Two consumers called Infogroup asking about an advertising special that was being offered by, a DatabaseUSA site.  A customer question posted at’s customer support portal asked, “You are not part of Sales Genie are you?” An agent replied, “Yes, that is correct. Vin Gupta was the founder of InfoUSA (Sales Genie), but sold it and is not the CEO of which is a separate company.”  An Infogroup customer sent an email to an Infogroup account executive asking for a copy of a particular invoice, but when the account executive replied that no such invoice existed, the customer replied, “You are info free correct?” In a telephone call from a consumer to Infogroup, the consumer said that he had been told (by whom is unclear) that “the Database USA company was the one that has been around forever.” Another customer had been exchanging emails with a DatabaseUSA sales manager for several months regarding a purchase. When an email wasn’t replied to for a couple of days, the customer emailed an Infogroup employee he had apparently also been in contact with to ask about it, implying that he believed the two worked for the same company, though the DatabaseUSA sales manager promptly replied to the second email and explained that the two worked at separate companies.
First, the court found that Infogroup hadn’t shown likely success on the merits sufficient to get a preliminary injunction, due in part to Infogroup’s failure to show harm, much less irreparable harm.  As for the trade secret claim, Infogroup didn’t want DatabaseUSA to scrub its database of the existing seed files, but to refrain from obtaining its data going forward using webscraping. It wasn’t clear to the court that the identified conduct actually violated the Nebraska Trade Secrets Act, in that it wasn’t clear that the information at issue was a trade secret or that this conduct constituted misappropriation.
Second, on the false advertising claim, the court ran through the usual rules, pausing to note that it thought that materiality could not be presumed from literal falsity. “There is a difference between whether a consumer is likely to be deceived by a falsehood, and whether that deception makes a difference to the consumer. … [T]here is good reason to presume that a literally false statement has a tendency to deceive. That does not mean the deception made a difference, so there is no basis to also relieve the plaintiff of the materiality element of its prima facie case.”
First, the court found that “verified” wasn’t shown to be literally false, since DatabaseUSA produced substantially uncontested evidence that it did have a verification process.  Infogroup’s theory that DatabaseUSA’s process wasn’t good enough to warrant use of “verified,” or that DatabaseUSA described records as “verified” that haven’t been through its verification process, but the context indicated that there was no implication of perfect accuracy. One representative ad touted its “95% Accurate, Triple–Verified Database....” Thus, Infogroup’s limited evidence of inaccuracy didn’t do enough to prove that DatabaseUSA’s data wasn’t generally “verified.”
At worst, DatabaseUSA’s claims were puffery. “Whether a database entry is ‘verified’ is not (as the parties’ disagreements here demonstrate) a specific, measurable attribute.” Plus, the parties primarily marketed to other sales professionals, who were unlikely to be confused.  “No reasonable buyer of such services would expect verification to be foolproof.”
And even if the “verified” claim was misleading, there was no evidence that anyone was misled. There was no consumer reaction evidence or evidence of intentional deception.  Furthermore, Infogroup didn’t show injury from the “verified” claim.  Under Lexmark, this might even deprive it of standing. Without harm, there could of course be no irreparable harm.
Infogroup’s final claim for a preliminary injunction rested on its allegations that DatabaseUSA falsely described the relationship between the companies.  The court first analyzed this as a false association claim.  “[T]he degree of similarity is not a relevant criterion, because only Infogroup’s marks are at issue—Infogroup’s theory is that DatabaseUSA is using Infogroup’s marks in a manner that could confuse the public.” Thus, the facts didn’t fit neatly into the multifactor test; courts evaluating similar situations have used nominative fair use.  The court mistakenly treated the Ninth Circuit’s New Kids test as being restated by the Third Circuit’s Century 21 test: “In other words, the defendant’s conduct or language must reflect the true and accurate relationship between plaintiff and defendant’s products or services.” Though the Eighth Circuit hasn’t formally adopted the test, “the broad parameters of the doctrine are consistent.”
Here, Gupta’s identification as being the founder of Infogroup and its associated entities was accurate. He was entitled to accurately describe his experience in the industry. Likewise, he was entitled to display the genuine letter from President Clinton, clearly dated 1998.  “The obvious purpose of publicizing it is to suggest that Gupta is an important person, not that he is still associated with Infogroup. It happened, and Gupta is entitled to say so.”
The court cautioned that “some of Gupta’s descriptions come very close to the line,” but they were sufficiently accurate to avoid a preliminary injunction, especially what Infogroup sought: a ban on any marketing materials “to the effect that Gupta founded InfoUSA, or any Infogroup company.”  Gupta should “strongly consider avoiding the word ‘proprietor,’ as opposed to ‘founder,’ and may want to think about confining himself to relatively unambiguous phrases such as ‘founder and former CEO.’ The fact that Infogroup’s motion for preliminary injunction is denied does not mean this case is over.”
Infogroup also failed to show sufficient actual confusion.  Its confusion evidence was “anecdotal at best,” and the best evidence of confusion tied to any of Gupta’s representations was the letter that led an Infogroup customer to call Infogroup and ask about the mailing. But the precise nature of the customer’s inquiry wasn’t reflected in the record, and the fact that the customer called to ask “indicates a distinction in the mind of the questioner, rather than confusion.”  
The court found the other evidence “to be de minimis and to show inattentiveness on the part of the caller or sender rather than actual confusion.” The businesses were similar, “and the prefixes ‘info-’ and ‘data-’ have similar connotations and can only be conjoined in so many ways.” The court somewhat acidly concluded:
To be candid, it would be surprising if someone hadn’t confused them at some point, particularly when at least some customers apparently use both businesses. Ask enough people and you could probably find someone who thought and were somehow associated.
As for the keyword ads, nope.  “Although the use of such targeted advertising can be misused, it is generally understood that such tactics can be deployed consistently with the Lanham Act.” The ads at issue didn’t use Infogroup’s marks, and were either separated from search results or plainly labeled as sponsored ads.  Eric Goldman will be pleased to note that the court is quite brisk and matter-of-fact in dealing with this argument, supporting the idea that this kind of liability has been mostly put to rest.
As for the “60 Minutes” references and the “since 1972” claim, they didn’t make direct reference to Infogroup and thus couldn’t support a false association claim.  They could maybe be false ads, but Infogroup didn’t ask for an injunction on that ground. “That said, there’s an argument to be made that they’re misleading, so DatabaseUSA would be well advised to knock it off.”  (Yep, except I’d say “literally false” rather than “misleading.”)
Infogroup argued that implying a connection between the parties also constitued false advertising.  (Why anyone would subject themselves to the more stringent standards courts have made up for §43(a)(1)(B) over the relaxed requirements for §43(a)(1)(A) if they had a choice is a mystery to me.)  “But, although the factors are phrased differently, the Court’s reasoning with respect to Infogroup’s false association theory is equally dispositive of its false advertising theory.” Lack of likely confusion translates to lack of a tendency to deceive, and without evidence of confusion there was also no persuasive evidence of injury.
The court then rejected Infogroup’s motion to dismiss two of DatabaseUSA’s counterclaims, tortious interference and unjust enrichment. Infogroup argued that DatabaseUSA failed to identify any prospective customers who reviewed Infogroup’s allegedly false statements and declined to do business with DatabaseUSA.  DatabaseUSA did plead that agents of Infogroup left false reviews on DatabaseUSA’s Web sites for the purpose of harming its reputation. Many courts wouldn’t find that enough without identifying particular lost consumers who were reasonably likely to transact with DatabaseUSA, but this court did find the allegations sufficient because the case is at the pleading stage.
Likewise, Nebraska’s concept of unjust enrichment was flexible enough to cover situations in which the defendant’s wrongful gain wasn’t previously possessed by the plaintiff. Under the Restatement (Third), followed by Nebraska, “[a] person who obtains a benefit by conscious interference with a claimant’s legally protected interests (or in consequence of such interference by another) is liable in restitution as necessary to prevent unjust enrichment” and thus DatabaseUSA adequately stated a claim under Nebraska law.
Final note: The parties submitted a lot of their stuff under seal, and the court relied on it. Given the strong presumption of public access, the court determined to provisionally restrict access and then lift it on April 3 in the absence of a persuasive objection; none apparently having been received, the opinion was then released.

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