Monday, December 07, 2020

failure to disclose influencer payment/review connections is misleading

EIS, Inc. v. Wow Tech Int’l GMBH, 2020 WL 7027528, No. 19-1227-LPS (D. Del. Nov. 30, 2020)

The parties make vibrators. EIS sued defendants for violations of the Lanham Act, Delaware common law on unfair competition, the Delaware Deceptive Trade Practices Act, Delaware tortious interference laws, the Colorado Consumer Protection Act, and patent-related claims.  

Defendants argued that the state and federal false advertising claims were preempted by patent law. One of the defendants allegedly told one of EIC’s customers that the customer was infringing its patent rights by distributing and/or re-selling EIC’s product. “[T]o avoid preemption, bad faith must be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort claim.” “In general, a threshold showing of incorrectness or falsity, or disregard for either, is required in order to find bad faith in the communication of information about the existence or pendency of patent rights.” However, EIC sufficiently alleged bad faith: Taking the allegations of the complaint as true, the defendant’s first US patent didn’t issue until after it contacted the customer. “That Defendants made a representation about patent rights when it knew no such patent rights existed in the United States is sufficient (if proven) to establish bad faith under Federal Circuit law.” Even if it had (as it argued) a German patent when it contacted the customer, and even if that product infringed the German patent, a German patent is unenforceable in the US.

Lanham Act commercial advertising or promotion: The statements forming the basis for the claim were (1) Instagram posts by the owner of a sex toy boutique about EIS’s products and (2) negative Amazon reviews of EIS’s products from an account displaying defendants’ We-Vibe logo. Defendants argued that, even if (as the complaint alleged) they paid the owner to post “false and misleading reviews,” that didn’t constitute commercial speech, and likewise the reviews didn’t propose commercial transactions. Although some courts have gotten this wrong, the court correctly held that the complaint sufficiently pled commerciality. The shop owner was allegedly “an industry insider and Instagram influencer” with nearly 70,000 subscribers, and her Instagram story referred to the parties’ competing products with an economic motivation. Likewise, as to the reviews specifically targeting EIS’s products, defendants, as competitors, had an economic motivation for deterring customers from purchasing competing products. It didn’t matter that there was no explicit reference in the reviews to defendants or their products. Anyway, the complaint alleged that “any potential purchaser of Plaintiff’s products who read the reviews could have clicked on the username of the reviewer and found the link to Defendants’ website on the associated account page. Hence, even without an explicit reference to Defendants, the review could lead the potential purchaser to Defendants’ website, where the purchaser could purchase competing products.”

EIC also sufficiently alleged falsity. It alleged that the Instagram influencer was being paid to share her story, but didn’t disclose her financial relationships with defendants. “That she did not disclose her financial relationship makes her story at least misleading, and establishes falsity for purposes of a Lanham Act claim, even if [she] actually held the beliefs she expressed.” Likewise, the complaint sufficiently alleged that the reviews were posted by defendants, and not by (as they purported to be) bona fide purchasers.

Similar reasoning also sustained the Delaware Deceptive Trade Practices Act and common law unfair competition claim.

Tortious interference with business relations also survived because plaintiffs didn’t need to identify a specific lost customer. The complaint alleged that defendants knew of EIC’s ongoing business relationships with its distributors and retailers; demanded that retailers stop selling its products; and threatened to raise prices or cease sales if retailers did not give in to that demand; EIC also alleged damages.

However, the Colorado CPA claim based on alleged misrepresentations about patent rights was dismissed with leave to amend for failure to satisfy Rule 9(b); the who/what/when of the misrepresentations weren’t sufficiently identified.

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