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.”
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