Wednesday, November 30, 2011

Defamation/dilution suit against critic survives motion to dismiss

Doctor's Data, Inc. v. Barrett, 2011 WL 5903508 (N.D. Ill.)

Doctor’s Data sued Barrett and his organizations the National Council Against Health Fraud, Inc., and Quackwatch, Inc. for defamation, violation of the Lanham Act, and violation of several state laws. Doctor’s Data alleged that it’s a lab that analyzes samples for health care practitioners, including practitioners of alternative medicine.

Barrett is a retired doctor who lives in North Carolina. DD alleged that Barrett used his websites to disseminate false and misleading claims about DD and other labs. One of Barrett’s articles stated that Doctor's Data defrauds patients by processing urine tests that are misleading and are then “used to persuade patients they are toxic when they are not.” Another stated that a patient sued Doctor's Data alleging that he was incorrectly diagnosed “and the test used to diagnose [the patient]—Doctor's Data's urine toxic metals test—is a fraud.”

Barrett argued that he should be protected by Illinois’s SLAPP statute, which immunizes acts undertaken “in furtherance of the constitutional rights to petition, speech, association, and participation in government ... regardless of intent or purpose, except when not genuinely aimed at procuring favorable government action, result, or outcome.” The court disagreed. It applied Illinois choice of law rules; Illinois follows depecage, which cuts claims up into component parts. North Carolina has no anti-SLAPP statute.

Under depecage, whether a statement is defamatory is distinct from the issue of whether that statement is privileged. The parties agreed that Illinois law generally governs the torts, but the question was whether Barrett was restricted to defenses recognized in North Carolina. Though place of injury is generally a central factor in determining the choice of law, this is less important in the anti-SLAPP context. The law was designed to encourage the exercise of free speech, and thus the place where the allegedly tortious speech took place and the domicile of the speaker are central to the choice of law analysis. (I admit I’m not feeling the “and thus” there.)

A state has a strong interest in having its own anti-SLAPP law applied to the speech of its own citizens, at least when the speech came from within the state's borders. However, Barrett didn’t adequately explain why Illinois would have a significant interest in having its law applied to non-Illinois speakers. (Because it also doesn’t want Illinois citizens to squelch the speech of others?) By contrast, North Carolina had a significant interest in determining how much protection to give North Carolina speakers. No anti-SLAPP protection for Barrett; and anyway the court wouldn’t dismiss the state law claims at this stage even if it applied, because DD would be entitled to limited discovery on whether the law protected Barrett’s statements, specifically whether they were genuinely aimed at procuring government action.

DD, somewhat vaguely, claimed violations of the Lanham Act from false representations that confused and deceived the public. Barrett argued that DD failed to allege commercial competition. The court agreed that the Seventh Circuit has a blanket rule that false advertising claims under the Lanham Act can only be brought in cases of discernible competitive injury; DD failed to allege (and pretty obviously couldn’t allege) that Barrett was a competitor.

DD also alleged dilution under federal and state law. The court construed the allegation that Barrett's statements “caused and are likely to continue to cause confusion to the public and to health care practitioners as to whether to employ Doctor's Data for samples and testing analysis, or to employ a laboratory approved by [Barrett]” as relating to the dilution claim, which should give some indication of what I think are the obvious problems with the dilution claim. DD “does not allege that Barrett is in the business of testing medical samples; rather, it claims that Barrett is telling practitioners not to use Doctor's Data, and this is the manner in which Doctor's Data and its trademark are being harmed.” In other words, dilution through criticism, just about the most unconstitutional application of a dilution claim I can imagine. It’s not the mark that’s being allegedly harmed!

Perhaps because of the vagueness of the “Lanham Act” claim, Barrett apparently didn’t make any TDRA-specific arguments about dilution. (Indeed, it’s not even clear from the opinion that DD alleged that its mark was famous, as required by federal law.) The court found that DD had alleged that Doctor’s Data “is a registered and active trade name and trademark” and that Barrett’s use “damages Doctor's Data's name and business, and misrepresents the nature of Doctor's Data's services to the public.” Barrett argued that his use was not commercial, but in the nature of reporting. The court found that allegations that Barrett “solicits donations and contributions,” has ads on his site, and gets referral fees from advertisers were sufficient to allege use in commerce, which of course isn’t the real question.

DD alleged that posting articles about “shady” labs and “quack” physicians who defraud patients in association with the DD mark “diluted the quality” of the mark. The court found this sufficient to survive a motion to dismiss. Questions: (1) How could Doctor’s Data have possibly pled fame under Iqbal and Twombly? Sub-question: would you worry about fees if you claimed federal fame on behalf of this client, especially if you're in the Seventh Circuit? (2) Did anyone draw the court's attention to the exclusions in the federal dilution statute for criticism and commentary? Dilution is not and should not be a doctrine about being nasty to a party that happens to be known by its trademark. We have defamation for that. Dilution is about associating an existing mark with an unrelated product or service, even if there’s no confusion. Talking about DD—even talking smack about DD—cannot dilute, and even in the absence of an anti-SLAPP law it should be obvious that the First Amendment protects such activity if it’s not defamatory.

Anyway, the court then turned to the state law ICFA/IUDTPA claims. The Seventh Circuit has assumed that these are the same as Lanham Act false advertising claims, and district courts have applied that to standing in cases brought by non-consumers. So those went too.

DD’s claims for defamation per se survived at this stage of the litigation; Barrett’s defenses of truth, opinion, etc., as well as his statute of limitations defense, had to wait. “Barrett must await discovery and obtain or offer hard evidence before challenging the defamation claim based on those defenses.” (Technically, won’t DD have to offer hard evidence as to falsity?) The defamation per quod claims (where extrinsic facts are required to explain the defamatory meaning) failed because DD didn’t plead special damages with particularity. Claims that Barrett’s statements had and would cause damage to its business, or that DD’s reputation had been harmed, were insufficient; DD failed to allege actual lost customers or other harm of a pecuniary nature.

DD also alleged interference with contracts with existing and prospective clients. Though Barrett argued that DD didn’t point to any valid contracts, for purposes of a motion to dismiss DD only had to allege facts allowing the reasonable inference that Barrett interfered with an existing contract. DD did so by alleging that Barrett posted information on his websites for the purpose of inducing physicians who “[r]ely on Doctor's Data and its services in their medical practices and in the treatment of their patients” to halt referrals to Doctor's Data and employ other labs instead. “Viewing this allegation in the light most favorable to Doctor's Data, it is plausible that Doctor's Data has, or had, valid agreements (whether oral or written) with physicians who use its testing services.” The tortious interference with prospective business relationships claim also survived at this stage, even though Barrett argued that he couldn’t be held liable for disseminating truthful information: that’s for a later day.

Thus, the related conspiracy claim also survived with respect to tortious interference (and defamation). I note that the conspiracy allegations make the anti-SLAPP defense sound somewhat more plausible had it applied, given the alleged connection to lawsuits: DD alleged that Barrett conspired with David J. Wilzig, an attorney “who is well known for filing lawsuits promoting Barrett's causes.” DD alleged that “Barrett and Wilzig work together to intentionally harm Doctor's Data's reputation and business by disseminating defamatory information on the internet and inducing Doctor's Data's clients to file frivolous lawsuits against Doctor's Data.”

DD’s common-law fraud claim failed because DD wasn’t fraudulently induced to do anything by the alleged misstatements. Third-party reliance on fraudulent statements may be actionable, but only when the defendant’s statement was made for the purpose of inducing the plaintiff to act, which wasn’t the case here.

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