Friday, March 04, 2016

Anonymous defamatory posts are "advertising or promotion" under Lanham Act

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2016 WL 815205, No. 8-cv-0442 (S.D.N.Y. Feb. 29, 2016)
R&J sued Assara and a number of related people eight years ago.  The parties compete to offer laser hair removal services. Tayar, Shuman, and Jay Shuman were involved in Assara in various capacities.
Starting in 2006, negative posts about R&J appeared on the internet consumer forums,,, and from anonymous users who claimed to have used the plaintiff’s laser hair removal services. The posts came from Shuman, Tayar, and Assara employees.  One, for example, said that the poster, claiming to be a “27 year old female” with “light complexion” and “black hair,” had heard “a horror story” about R&J—that he had heard from a former Romeo & Juliette technician that the plaintiff had over-applied EMLA cream to a client, who then “suffered a heart attack” and came “very close” to dying. There was no evidence of such an incident or that the true poster had heard that it occurred.  Others described R&J’s staff as unprofessional and rude; the service as expensive; and claimed that a test performed by R&J “burned” skin.  And so on.  Some of the posts promoted Assara instead.  Tayar even wrote that “criticisms” of R&J had been “blown out of proportion”: “Assara Laser is a good place, but so is Romeo.”  At the same time, he damned with faint praise, describing the plaintiff as “not that bad” while noting the plaintiff’s “staff turnover” and long waiting time.
R&J started off the case with claims for trademark infringement (based on keyword buys) and federal dilution, which have blessedly dropped out of the case, leaving only false advertising/disparagement-related claims, and only claims for injunctive relief and attorneys’ fees.  Defendant Will Shuman, appearing pro se and on behalf of the other defendants, informed the Court that Assara was no longer in business. In support of their motion to dismiss for mootness, the defendants submitted a two page “Covenant Not to Compete and Covenant Not to Disparage Agreement.” The Covenant provided that the signatories—the individual defendants—“shall not, for a period of 10 years, compete in the business and industry of laser hair removal ... and ... shall not publish, in any commercial context, any statements online regarding the quality or characteristics of the business or services of” the plaintiff.
Unfair competition under §43(a)(1)(B) and New York law: The court granted summary judgment against Assara and Shuman, but not against Tayar, Jay Shuman, or Dr. Tayar (Tayar’s father, an investor).  The court addressed whether pseudonymous comments on internet forums constituted commercial advertising and promotion, and held that they were. “In pursuit of their commercial interests, the defendants repeatedly posted disparaging comments to public fora used by consumers to select laser hair removal services. By anonymously disparaging the plaintiff’s business and simultaneously promoting Assara, the defendants acted in pursuit of their economic interests.”
Assara, through its employees and officers, and Shuman made literally false statements by describing experiences that hadn’t occurred, or a “horror story” he hadn’t heard and that hadn’t happened. “Most of these posts concerned essential characteristics of the plaintiff’s business, for instance, physical reactions to its treatments or rudeness by its staff.”  Literal falsity created a presumption of harm.  However, the court denied summary judgment as to Tayar, who was actually treated at R&J and whose postings principally said that service was slow and that the R&J employees were rude, which were largely matters of opinion.  There was also no evidence that Dr. Tayar or Jay Shuman made any of the challenged statements.
The New York common law unfair competition claim was resolved in the same way; it required bad faith in addition to the Lanham Act evidence, but that was shown because Assara and Shuman deliberately posted false statements.
Defamation: The bare accusation that a product does not conform to its advertised quality does not, without more, defame the owner of the product, but disparaging the integrity and professionalism of the competitor’s business is actionable as per se defamation, not requiring a showing of special damages.  The evidence showed that Assara and Shuman defamed R&J by claiming that its staff were unprofessional, intrusive, and dishonest, even causing physical injuries. The fact that the statements were purely fictitious showed actual malice.  Defendants argued that they were merely making statements of opinion, but the statements described fictitious treatments for fictitious clients.  That the clients didn’t exist and the treatment didn’t occur was readily falsifiable, making the statements at issue factual, not opinion.
Product disparagement: This requires proof of special damages, unless the statements at issue “impeach[ ] the integrity or business methods of the [entity] itself.”   This too had been shown.
Injunctive relief under §43(a): A permanent injunction against Assara and Shuman was warranted.  “Because comments posted on the internet will have a lasting impact on a business’s reputation, and because that impact will be impossible to measure, monetary damages are inadequate to compensate the plaintiff for the unlawful activities of the three defendants.”  Defendants would suffer no hardship from an injunction, given that they already pledged through the covenant that they would not further disparage R&J. An injunction would provide “greater peace of mind” to R&J and better protect its investment in its business.  The public interest also favored fair competition and the accurate description of business services.
An injunction was warranted even though the internet postings at issue ended in 2009.  Defendants denied their responsibility for many years, forcing R&J to engage in expensive and time-consuming third party discovery to pin the blame on them.  Only in 2012 did defendants begin to acknowledge authorship of at least some of the defamatory statements; because of this litigation strategy and the long pendency of the litigation, “there is no reliable inference to be drawn as to when the defendants altogether ceased the improper activities at issue here or the likelihood of their recurrence.”  Given these unique facts, the time gap didn’t preclude an injunction.
Defendants argued that there was no need for an injunction since Assara went out of business in 2015 and both Tayar and Shulman signed the covenant.  The court disagreed.  “This has been lengthy and hard fought litigation. Without the issuance of an injunction, reinforced by the contempt powers associated with an injunction, there will be inadequate protection against the recurrence of the defendants’ sharp business practices and the need for renewed litigation.”  Plus, R&J showed that Assara was still registered as an active entity with the New York Department of State, and Assara’s website was still live; there was also no impediment to Shuman opening another laser hair removal business, named Assara or something else.
Thus, Assara and Shuman would be enjoined from publishing false statements about R&J on internet forums. The court left the specifics for another order, which is sad because I wanted to know if they’d be required to delete/request deletion of the existing defamatory comments.
Defendants argued unclean hands because R&J’s owner engaged in “astroturfing” in praise of his business. Even assuming that to be true, R&J’s astroturfing wasn’t related to the defendants’ defamatory posts. No one testified that defendants’ posts were prompted or justified by R&J’s glowing descriptions of its own business.  And false accusations that R&J physically injured its clients “represent serious misconduct.”
Laches also didn’t apply; R&J had been seeking an injunction since it filed its 2012 motion for summary judgment, and anyway, defendants didn’t show how they’d been prejudiced.  Nor was the case moot, despite a declaration from Shuman stating that Assara ceased operations, that each of the defendants except Shuman had left New York, and that Assara “will never re-open.”  Nonetheless, defendants didn’t show that it was “absolutely clear” that their wrongful conduct would not recur. The covenant had “significant authenticity and execution issues.” Further, “the defendants’ misrepresentations during this litigation counsel against reliance on the representations they offer today.” Moreover, as recently as November 24, 2015, Shuman wrote to the supplier that he and Tayar were “discussing selling” an old laser and “purchasing or leasing a later model.” “Given the malicious nature of the internet postings, as well as the deceit involved in litigating this case, a simple promise by the defendants to cease their disparagement is not enough to moot this matter.”

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