Friday, September 21, 2007

Battle of the real estate web forms

ConsulNet Computing, Inc. v. Moore, 2007 WL 2702446 (E.D. Pa.)

The parties compete to create websites for real estate agents. Plaintiff alleged that Moore posed as a real estate agent to get a ConsulNet website, copied it, and then used the copy to start a competing business, Dynamic Investment Group (DIG). Plaintiff’s websites for realtors are similar to one another, but partially individualized based on things like geographic location. By agreement with Craig Proctor, a Canadian realtor who gives seminars on how to succeed in real estate, ConsulNet’s websites use content created by Proctor. The sites urge visitors to submit contact information in return for access to Proctor’s materials, such as house-selling tips.

Scott Irvin, who was entering the real estate business, asked defendants to create a website for him, providing as an example of the type of site he wanted, and Moore signed up for a ConsulNet website in his own name, though he says he told a ConsulNet employee he was acting on behalf of Irwin; his contract provided that he had only a limited, nontransferable license to use the website for personal use. After Moore’s company entered the business of creating real estate websites, a number of ConsulNet clients left for DIG or added DIG websites to their ConsulNet websites.

Plaintiff sued for breach of contract (Pennsylvania and Canada law), intentional interference with contractual relations (Pennsylvania), and copyright infringement (U.S. and Canada). Defendants counterclaimed for false advertising. The court refused to dismiss plaintiff’s contract and copyright claims. Though defendants argued that the similarities between the sites were conceptual and systemic, not expressive – as evidenced by numerous places in the record where both expert and lay witnesses noted the common concept or system behind the websites -- this is a classic jury issue. A jury could find similarity in the expressive “look and feel” of the sites. (For example, a DIG webpage was headed “Don’t sign another lease until you have read this special report!” while a ConsulNet page was headed “Don’t Pay Another Cent in Rent to Your Landlord Before You Read This FREE Special Report.” The text underneath is also pretty similar.)

Defendants’ false advertising counterclaims were based on three statements: “(1) that ConsulNet’s websites obtain a 10.5% response rate, i.e., that 10.5% of visitors submit identifying information to the website; (2) that ConsulNet’s websites, once established, are ‘worry-free’ and ‘automatic’; and (3) that ConsulNet websites make it ‘possible to triple your real estate sales while working no more that a standard 40-hour week.’”

From a consumer protection perspective, the relevant ad materials are a little distressing. ConsulNet advertised that its “top performing” “branded” websites had a 10.5% response rate, and its “unbranded” 30.5%, as compared to the industry average of 0.5%-2%. (Later in the same materials, it dropped the “top performing” modifier, which is what caused the controversy.) “Branded” sites are those that obviously belong to and promote particular realtors, while “unbranded” “appear to be simply informational websites for potential buyers and sellers” – DIG stated that “The only difference [between the two kinds of websites] is that on the unbranded site we’ve removed anything that made it look like a typical real estate agent site.” This suggests that neither party is behaving all that honorably towards the consuming public, since the unbranded sites are more than simply informational.

In any event, ConsulNet argued that it was making truthful statements about its “top performing sites.” The court agreed that, in context, the 10.5% claim was a reference back to “top performing.”

ConsulNet also argued that statement (2) was mere puffery. ConsulNet advertised: “You don’t need to know anything about computers or the Internet! We take care of everything ... site maintenance .... Once it’s online, you don’t need to worry about the site. You simply follow-up on the HOT prospects that are automatically generated for you.” DIG submitted affidavits from former ConsulNet clients attesting that they had, in fact, worried. The court determined, however, that claims to alleviate “worry” were not objectively measurable, but merely vague puffery.

Statement (3) is measurable, but DIG didn’t submit sufficient evidence of falsity, just two affidavits from ConsulNet clients who weren’t able to triple their businesses. DIG needed evidence of the results “generally achieved” by ConsulNet’s thousands of clients. (Actually, some of the court’s language suggested that DIG would need to show that tripling sales wasn’t even “possible,” though that may be going too far; the FTC takes the position that, absent really clear disclaimers, representations of success are generally understood to reflect average or typical results.)

DIG had a separate Lanham Act counterclaim based on disparagement because one of the individual counterclaim defendants allegedly told Richard Wall – a former ConsulNet client who’d switched to DIG – that he’d “better come back before [he was] dumped.” Wall interpreted this comment to mean that ConsulNet was going to put DIG out of business. The court ruled that such a stray remark could not constitute “commercial advertising or promotion” within the meaning of the Lanham Act.

1 comment:

Anonymous said...

On May 1, 2008, in the United States District Court for the Eastern District of Pennsylvania, located in Philadelphia, a federal jury returned a unanimous verdict in ConsulNet’s favor on all of its claims against Mr. Moore and Dynamic Investment Group, Inc.

Specifically, the jury found that Moore breached his contract with ConsulNet by improperly using ConsulNet’s proprietary materials, that DIG's Web Agent Solutions websites infringe upon ConsulNet’s copyrights both under United States and Canadian law, and finally that Moore and his company intentionally and improperly interfered with ConsulNet’s contractual relations with its clients. On the last claim, the jury also found that both Moore’s and DIG’s conduct was “outrageous.” This finding entitles ConsulNet to punitive damages against the defendants. The court shortly will be determining damages and injunctive relief against Moore and DIG.