allegations about fake reviews can support false advertising claim

American Bullion, Inc. v. Regal Assets, LLC, 2014 WL 3516252, No. CV 14–01873 (C.D. Cal. July 15, 2014)

The parties compete to sell gold and other precious metals as retirement investments.  Plaintiff (ABI) advertises online using third-party affiliates, who get paid for referrals.  ABI alleged that defendants created and operated such affiliate websites.  (I believe, based on this description, that ABI may be alleging that defendants were involved in some competing endeavor that paid affiliates via the same affiliate arrangement as ABI uses, but it's not very clear.)  These sites allegedly purport to contain independent consumer reviews, but falsely advertised for Regal and disparaged ABI.  ABI allged that the websites weren’t independent, but that Regal didn’t publicly disclose its connections thereto.  Reviews on the websites praised Regal and gave ABI negative reviews. Some reviews were allegedly false, others allegedly plagiarized.  Some sites claimed that ABI was a defendant in a fraud suit, was found guilty, and was sued by the Commodities Futures Trading Commission.  ABI alleged that this was false, and that a business with a similar name, American Bullion Exchange, was in fact the party found guilty in that action.  In addition, many of the websites allegedly used ABI’s name in a bait and switch: they urged customers to “click here to visit American Bullion,” but customers were linked to Regal’s website upon clicking. (Were those the same sites that disparaged ABI as a fraudster, or different ones?)

Defendants argued that the Lanham Act claim had to fail because ABI didn’t allege trademark ownership, and because the alleged statements were just designed to influence consumers to refrain from buying from ABI, not to induce purchases from Regal.  First, although I must say that the bait and switch allegations would seem to support a traditional trademark claim, the court noted that ABI wasn’t bringing a trademark claim; it didn’t need to own a mark to prevail on a false advertising claim.  Second, as to the disparagement-not-promotion argument, so what?  (Certainly after Lexmark, that’s good enough.)  Also, the complaint clearly alleged that Regal disseminated ostensibly independent reviews promoting its own services.

Regal argued that the litigation privilege protected certain alleged conduct.  This was meritless, since neither side was a party to the fraud claims brought by the CFTC against American Bullion Exchange, and Regal didn’t identify any other relevant proceeding.

Unsurprisingly, trade libel, defamation, and state law unfair competition claims also survived. The court was also forgiving with respect to intentional interference claims—though defendants argued that the complaint failed to identify specific economic relationships with a third party, as is usually required, the complaint did allege that ABI lost several customers to Regal who cited Regal’s “review sites” as their reason for switching.  That was enough.