Enigma Software Gp. USA LLC v. Bleeping Computer LLC, 16 CV 57 (S.D.N.Y. Jul. 8, 2016)
Eric Goldman probably won’t like this decision holding that a volunteer moderator may be treated as the ISP’s agent when the ISP gives enough status to him or her; I’m less bothered by the §230 ruling (except for the legal error, which the court may have a chance to correct later).
SpyHunter, an “adaptive malware detection and removal tool,” is plaintiff ESG’s flagship anti-malware product. Consumers can download a free scanning version of SpyHunter through a link on ESG’s website. Consumers can also buy a license to the full version of SpyHunter. That version includes the scanner, as well as tools to remove malware and other security protection tools.
Bleeping operates a website that offers information, advice, and resources about computer technology and security, and one of its focuses is anti-malware software. Bleeping gets commissions from designated “Affiliate” software companies for promoting their products on its website. In the Bleeping forums, “staff members” “generate and control [the] content” posted. Bleeping has “Advisors,” whom Bleeping holds out as experts who “can be trusted to give correct and understandable answers to [users’] questions.” Above Advisors in the hierarchy are “Global Moderators,” who enjoy “special powers” to enforce rules governing the Forums, e.g., by “closing” discussions, editing the content of users’ posts, and suspending the posting privileges of users who violate the rules. Lawrence Abrams, Bleeping’s owner, is the overall “Admin” of the Forums.
Whenever an Advisor, Global Moderator, or Admin posts in Bleeping’s Forums, “Bleeping clearly identifies that the post has been made by [a Bleeping staff member]. Because Bleeping touts its staff as experts who can be “trust[ed] to provide correct, unbiased and truthful advice,” users allegedly rely on their advice when making purchasing decisions regarding anti-malware products. But Bleeping instead allegedly directs users to affiliates in order to promote its own financial interest, and also made false claims about ESG and SpyHunter Bleeping also allegedly routinely removes links posted by users that endorse ESG’s products.
ESG allged that Quietman7, a Bleeping Advisor and one of only three Global Moderators, was a chief spokesperson for Bleeping’s “smear campaign” against ESG. In particular, Quietman7 accused ESG of deceptive advertising; labeled SpyHunter a “dubious” and “ineffective” program that generates false positives; and claimed that SpyHunter was a “rogue” product that was properly classified as malware. Quietman7 advised users to remove SpyHunter and replace it with a more “trustworthy” alternative—“invariably an Affiliate product, such as Malwarebytes Anti-Malware, for which he supplied an Affiliate Link.” Users were allegedly influenced by this, saying things like “I’m convinced. Will buy a more trustworthy product when [SpyHunter] expires.”
First, the court held that, because §230 excludes IP claims, the Lanham Act false advertising claim wasn’t subject to §230. The court cited two cases: Gucci Am., Inc. v. Hall & Assocs., 135 F. Supp. 2d 409, 413 (S.D.N.Y. 2001) (as you can probably guess from the plaintiff, this is a trademark infringement case); see also Ford Motor Co. v. GreatDomains.com, Inc., No. 00 Civ, 71544 (DT), 2001 WL 1176319, at *1 (E.D. Mich. Sept. 25, 2001) (same). “On the basis of the statutory text, the Court, therefore, holds that the CDA does not bar ESG’s Lanham Act claim.” [Aaaagh! Ahem, let me try again. False advertising is not IP, even if trademark infringement is; §43(a), like 2/3 of Gaul, is divided into two parts. Or, in other words, it's not plausible to define the interest ESG is trying to protect as an interest in its intellectual property, rather than one in its reputation.]
Second, the court held that ESG sufficiently alleged that Bleeping was the provider of the problematic content because, on the facts pled, Quietman7 was acting as Bleeping’s agent when he posted them. Under New York law, an express agency is created through (1) “the principal’s manifestation of intent to grant authority to the agent,” (2) “agreement by the agent,” and (3) the principal’s “control over key aspects of the undertaking.” Implied agency can also occur where the principal’s conduct, “reasonably interpreted, causes [ ] third [parties] to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.”
Bleeping publicly designated Quietman7 as a “Global Moderator” and “Advisor”—the second and third highest “staff member” positions within the Bleeping member group hierarchy. Quietman7 since signed his posts as “Bleepin’ Janitor” and “The BC Staff.” Bleeping staff members are allegedly directed to promote affiliates’ products and discourage use of non-affiliates’ products, and are allegedly promoted as reliable sources of information. They’re authorized to enforce forum rules and suspend posting privileges for rule violations. This was enough to support the conclusion that Quietman was acting as Bleeping’s agent, at least its implied agent, when he posted the challenged content.
Interestingly, the court cited two copyright cases in support of its finding of a plausible claim. Court’s parentheticals: Capitol Records, LLC v. Vimeo, LLC, 972 F. Supp. 2d 500, 518–19 (S.D.N.Y. 2013) (triable issue of fact existed as to whether employee-uploaders were acting as website’s agents, where uploaders served as “editorial voice” for website and website posted “staff badge” next to uploaders’ names on their posts); Columbia Pictures Indus., Inc. v. Fung, No. 06 Civ. 5578 (SVW), 2009 WL 6355911, at *13 n.21 (C.D. Cal. Dec. 21, 2009) (websites liable for moderators’ infringements, despite lack of evidence of actual authority, where “websites’ act of designating them as ‘moderators’ and providing them with specific forum-related powers [could] lead a ‘third party reasonably [to] believe[ ] the [moderators] ha[d] authority to act on behalf of the [website]”) (internal quotation marks and citation omitted). Although other cases find that “moderator” status, without more, does not render a website operator liable for a moderator’s conduct (as these cases apparently do), ESG’s claim of agency wasn’t just about Quietman7’s designation as a “moderator.” He was designated a “staff member,” had special authority as an Advisor and Global Moderator, and was held out as an expert. Bleeping’s cases involved either moderators who had limited powers or didn’t themselves author the offending posts.
Nor did Quietman7’s volunteer status prevent him from being an agent. “New York courts have repeatedly held volunteers to be agents where the common law requirements for agency were met.”
After that, the court held that the claims weren’t time-barred; some posts occurred within the 1-year statute of limitations for defamation, and there was also an issue about republication because Quietman7 included links to older posts, with additional commentary, in new posts. And courts in the Second Circuit generally borrow the six-year fraud statute of limitations for Lanham Act claims.
Then, the court found that ESG stated a claim for defamation. Of possible interest, the court found that various statements about the allegedly scammy nature of ESG’s product were potentially falsifiable factual statements:
Viewed holistically, the “overall thrust” of Quietman7’s thematically similar and mutually reinforcing statements is that ESG is engaged in a deliberate and fraudulent scam in which it is peddling a product which is the precise opposite of what it purports to be: The challenged statements “reasonably imply” that ESG has intentionally designed SpyHunter, in its “free scanner” mode, to generate false positives so as to induce customers to buy a license for the full version to eliminate ostensible malware.… Such allegations … could reasonably be understood as assertions of objectively verifiable facts.
In isolation, words used in Quietman7’s posts such as “scam,” “rogue,” “dubious,” and “ineffective” “would likely be too imprecise to be capable of being proven true or false.” But, in context, they became more concrete and reasonably precise. Nor did the statement that SpyHunter was “previously listed as a rogue product” avoid a claim that SpyHunter was a rogue product. The context made a clear implication that the underlying practices that gave rise to that earlier classification persisted, because Quietman7’s said that “some users have reported [ESG] still engage[s] in deceptive advertising.” And his statement that SpyHunter was not currently targeted for removal by other security programs was followed by an allegation that “security vendors which have tried [to target it] in the past have received threats of legal action for attempting to do so or agreed to legal settlements as a result of litigation brought forth by Enigma Software.” “High rate of false positives” could also be verified or falsified by comparing SpyHunter’s rate with those of competing products. “That an accusation is ‘somewhat . . . vague and difficult to prove’ does not mean that it is not objectively verifiable.”
Moreover, the forum pages made the alleged statements more plausibly “anchored in fact.” Bleeping allegedly held out the pages as tightlyregulated by its member groups, and assured users that its “expert” staff members “can be trusted to give correct and understandable answers to [Bleeping’s] members’ questions.” Quietman7 himself allegedly wrote: “Folks come to Bleeping Computer for advice, recommendations and other assistance. We provide that based on our experience and expertise so they can make an informed decision.” “The manner of Quietman7’s written presentation—one using footnotes and citations—conveyed further that his advice was based on an ‘investigation’ of verifiable facts.”
Thus, the court distinguished these cases from others involving online forums that were presumed to be places for exaggerated and nonfactual speech.
On the allegations of the complaint, the court declined to find that ESG was a limited-purpose public figure, and considered allegations about its reputation for litigiousness irrelevant because Bleeding didn’t identify a public controversy related to the litigation.
The alleged statements, if false, would constitute libel per se because they imputed “some form of fraud or misconduct or a general unfitness, incapacity, or inability to perform one’s duties.” However, ESG didn’t state a claim for trade libel or commercial disparagement; the claim was duplicative of the defamation per se claim, and also failed to allege special damages.
Finally, ESG stated a claim under the Lanham Act. The key issue here was “commercial advertising or promotion,” and the key question was whether the statements at issue were “part of an organized campaign to penetrate the relevant market.”
Commercial speech: Quietman7’s posts were commercial speech. “In nearly all of them, Quietman7, after lambasting ESG’s SpyHunter, recommends that the reader ‘remove [that] program and replace it with a trustworthy alternative,’ such as Malwarebytes Anti-Malware and other Affiliate products.” By promoting affiliate products, these posts were unmistakably ads, and went even further by providing purchase links. Bleeping had an economic incentive to do this.
Further, the complaint sufficiently alleged that Quietman7’s posts were part of “an organized campaign by Bleeping to penetrate the market for anti-malware products” by repeating or linking to negative reviews of SpyHunter “any time a new forum topic mention[ed] or inquir[ed] about ESG,” not to mention removing pro-ESG posts by users. “Reactive disparagement” could be sufficient if it reached enough potential consumers. Given that Bleeping advertises itself as a “premier destination” for computer users seeking information about computer technology and recommendations regarding malware removal, and that the posts could be viewed by the “[more than] 3.5 million unique visitors [that visit Bleeping’s website each] month,” that was enough.
No competition between the parties was required after Lexmark, and anyway, if it were required, the court held that the affiliate relationship with ESG’s competitors sufficed.
As for injury, the complaint alleged that Bleeping’s members often didn’t know the basics underlying computer issues, and relied on Bleeping’s representations, a fact that Bleeping touted. “After disparaging ESG and SpyHunter4, Quietman7 trumpeted that ‘[s]ince we [Bleeping] do not recommend this program [SpyHunter], I doubt that any of our members use it.’”