Monday, October 28, 2019

Creating a Facebook page for a rival and leaving fake reviews for them is a bad idea

We often tell students that one risk of bringing a false advertising claim, as a competitor, is that there might be counterclaims if you don't have your own house in order. Here, the plaintiff fails to give enough specifics of the alleged false advertising, while the defendant shows evidence of a fake review/complaint scheme. Practice tip: don't leave fake reviews or hire anyone to leave fake reviews. The FTC is also not a fan of the practice.  Whether or not the defendant did the things it was accused of doing, this is not the way to fight back.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5395569, No. 4:17CV303 (E.D. Tex. Jul. 25, 2019) (magistrate) (not clear to me if there was further motion practice on these points; everyone was very focused on the trade secrets part of the case)

There is a lot of stuff going on in this case that I will ignore, including trade secret claims. StoneCoat makes and sells spray-on stone facing, which will probably make the McMansion Hell writer sad; ProCal competes with it. StoneCoat alleged Lanham Act violations and ProCal counterclaimed likewise. The counterclaims included allegations that StoneCoat falsely claimed that its founder invented “Spray on Limestone” with a patent or patent pending on the formula and/or process; that StoneCoat created a fake PROCAL STONE Facebook page containing false or misleading information about ProCal and directing customers to StoneCoat’s website; and StoneCoat directed employees and/or representatives to submit fake complaints/reviews about ProCal to the Better Business Bureau, and Google Business (under the name Don Henley, no less)  and post fake positive reviews about StoneCoat.

The court found that the evidence sufficiently tied StoneCoat to the allegedly fake customer reviews. First, the founder admitted creating the fake ProCal Facebook page, though he denied allegations about the content/his motives.  Second, there was evidence that StoneCoat employees were posting positive Google reviews about StoneCoat during the same period without disclosing their connection to StoneCoat. Third, one Jason France, who owns a company that handles online business marketing, posted the fake review and the fake BBB reviews under the pseudonym “Don Henley.” (Both the BBB and Google were apparently subpoenaed for their records.) Although this was disputed, StoneCoat’s founder allegedly shows up in cell phone records having a 130 minute call with France two days before the fake reviews were posted. Fourth, one BBB complaint was submitted using the name and e-mail address of a person working at StoneCoat, and the founder had access to that person’s laptop. There was a genuine issue of material fact on whether he submitted or directed the submission of the Google/Ripoff Report/BBB Dallas complaints.  [This case looks like it could be a good practical demonstration of how this kind of tracking can actually be done, with sufficient effort.]

ProCal alleged both false designation of origin and false advertising.  StoneCoat argued that there was no evidence of infringement or injury, including no evidence that anyone saw the Facebook page.  Given the confusion factors, there was sufficient evidence of confusion, although I think the court erred in considering the BBB/Rip Off Report fake reviews here—no one could have been confused about affiliation with ProCal after reading those reviews; the problem was false advertising, not trademark infringement.

The court found the Facebook page to be “confusing on its face.” Although it purported to be the Facebook page for ProCal, in the “About” section, it states “Stonecoat is the one and only original” and then provides a link to StoneCoat’s website. “The fake Facebook page does not provide any contact information for ProCal and could leave the impression that ProCal is no longer in business or was bought out by StoneCoat.”

The alleged fake reviews were also likely to lead to consumer confusion [about what, is the key question]. “There is evidence indicating they falsely claim that ProCal was fired for doing a poor job and that StoneCoat replaced ProCal and did a better job for less money.” And there was evidence of actual confusion: the manager of construction services of ProCal Stone Design declared personal knowledge of at least eight lost sales caused by the “fake reviews wherein the customer requested a bid from ProCal, specifically brought up the fake reviews, and then chose StoneCoat to do the work.”

Unsurprisingly, because those are mostly false advertising harms, the false advertising claim was also valid. The additional allegedly false statements relate to StoneCoat’s claims about invention, patenting, trade secrets, etc. That should pose a Dastar problem but that argument wasn’t addressed here.

StoneCoat’s founder testified in other litigation that it would be false for him to say to the public that he had acquired a patent on a formula or a process because he did not have one at that time, but the website did claim to have a patent. ProCal also argued that the fake reviews were literally false because there were no such customers.  This was enough to create a genuine issue of material fact on literal falsity.

But StoneCoat also argued that no harm had been shown. It is possible to show liability for false advertising without being able to show tangible harm as a result.  ProCal was seeking disgorgement but hadn’t yet gotten StoneCoat’s financial information; for now, the court thought ProCal’s claims shouldn’t be kicked out for failure to show harm, especially since injunctive relief or disgorgement were possible remedies.

Lanham Act trademark dilution via disparagement (statutorily excluded) and the fake Facebook page (probably not diminishment in distinctiveness because it’s confusing): laughably, the court found that there was a genuine issue on fame (and on everything else), although understandably it didn’t recite any evidence ProCal might’ve submitted about fame.  A victory for the idea of throwing every possible claim in the hopper, I guess, but I disapprove.  When you’ve got really good claims (the false advertising here) it is unnecessary and dangerous—to your credibility, to the overall system that now has this nonsense in Westlaw—to add really unfounded claims.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5391178, No. 4:17CV303 (E.D. Tex. Aug. 12, 2019) (magistrate; later adopted by district judge as to these claims)

Meanwhile, StoneCoat has some claims of its own, including that ProCal falsely advertised that it “invented” sprayed limestone and had been in the sprayed vertical limestone business for “over 17 years,” while in fact ProCal wasn’t opened for business until January 2016.  But StoneCoat didn’t submit any ads for review. StoneCoat’s founder said that he relied on “television ads made by Defendants, YouTube advertisements, websites and printed advertisements” as well as videos on the ProCal website in identifying false claims. But this affidavit wasn’t enough to carry StoneCoat’s burden at the summary judgment stage. “Importantly, Plaintiffs have not submitted a specific advertisement (or more informal type of promotion) for the Court’s review. Thus, there is no evidence from which the Court could apply the relevant criteria” for whether there was a false statement in interstate commerce in commercial advertising or promotion.

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