Thursday, December 17, 2020

fake "independent" review sites support claims against underlying advertiser & website operator

Beyond 79, LLC v. Express Gold Cash, Inc., 2020 WL 7352545, No. 19-cv-06181 EAW (W.D.N.Y. Dec. 15, 2020)

Previous discussion. Beyond 79, which buys precious metal etc. online under names including SellYourGold.com, sued a bunch of defendants for false advertising and related claims; some of the defendants allegedly ran “review” websites with undisclosed connections to competitors.

Defendant-competitors EGC and JSG allegedly “have a practice of setting up purportedly independent websites for the dual purposes of falsely establishing their own credibility and legitimacy and directing consumers who visit those websites to their own sites.” EGC allegedly retained the services of defendants Londes and Osidius to make these sites.

For example, one site allegedly held itself out as an independent review site, but “[r]ather than post actual consumer reviews,” it posted “highly suspect negative reviews about SellYourGold.com,” along with “false and misleading information about SellYourGold.com that cast it in a negative light and false and misleading information about EGC and JSG that cast them in a positive light,”  including specific claims about plaintiff’s length in business, BBB rating, and insurance coverage. It “displayed a ‘star rating’ for each company it listed,” which it allegedly falsely claimed was based on reviews by actual customers. It also allegedly removed positive customer reviews about SellYourGold.com. When Beyond 79 sent a C&D to Londes, it shortly thereafter “received a similar letter from counsel to EGC alleging Lanham Act violations.”  EGC allegedly purchased Google AdWords for terms similar to ‘sell your gold’ on Google which read ‘SellYourGold Reviews & Scams – Consumer Reviews: 1.2/5 Stars’ and used a URL of ‘www.toponlinegoldbuyers.com/SellYourGold/Scams.’ ”

Similarly, another site “purported to be a review site started by a disgruntled jewelry industry professional who was disappointed by his interaction with online gold buyers.” But this person allegedly doesn’t exist and “his” photo was a stock photo. The html allegedly contained hidden links to EGC but no other companies, and referred to “Google Code for ExpressCashGold.com Remarketing List” Top10CashForGold.com allegedly made “false claims and statements about EGC without revealing any connection to EGC,” such as claims that EGC’s “price is...always the best on the net” and ranking EGC as its top online gold buyer and JSG as second. 

Two other sites “purport to be...independent aggregators of local storefront precious metal buyers.” But they allegedly “display[ ] EGC banner advertisings, include[ ] reference to EGC in all search results for local stores, and even include[ ] EGC’s phone number as a resource to obtain more information on the price of gold....” All search results “include text recommending that customers sell online, and list[ ] EGC as the only online gold buyer,” claim that EGC “has been ranked as a top online gold buyer in several independently executed tests,” and “highly recommend [that consumers] talk to [EGC] before selling [their] gold jewelry elsewhere.”

 Since “at least September 2014,” EGC displayed graphics and text on its website claiming that it is “Independently Ranked # 1,” expressly identified as being based on reviews from two of these sites.

The court refused to dismiss some of the claims against Londes and Osidius; the allegations against them were specific enough to identify their particular roles. The court analogized to cases allowing Lanham Act claims against advertising and PR agencies; those cases have uniformly “held that advertising agencies may be liable under the Lanham Act.” Londes and Osidius, like the advertising agencies at issue in those cases, allegedly “knowingly participated in the creation, development, and propagation of the false advertising campaign,” and could accordingly be held liable as joint tortfeasors.

Lanham Act: The alleged falsehoods weren’t puffery. The complaint sufficiently alleged that defendants falsely represented the websites at issue as independent review sites when they were in actuality associated with EGC. Said very simply: “In other words, it is not the statement that EGC is ‘the best online precious metal buyer’—which is the kind of the statement that has been found to be puffery—that is alleged to be false; it is the representation that this conclusion was reached in an independent manner. … [T]he alleged deception is not the high ratings given to EGC and JSG, but instead the false representation that those ratings were derived independently or from real customer reviews, when in actuality they were formulated and published by EGC itself, acting through Londes and Osidius.”

As for injury, at this stage, the allegation that the deceptive websites created and maintained by Londes and Osidius diverted customers who otherwise would have used the plaintiff’s services was sufficient.

GBL §§349-350 claims, however, failed because there were no plausible allegations of consumer harm; mere consumer deception wasn’t enough under these provisions. The plaintiff didn’t allege, for example, that consumers who chose defendants got less for their gold than they would have gotten selling to plaintiff. A FDUTPA claim failed for the same reason, though Florida doesn’t limit claims to “consumers.”

Unfair competition: Plaintiff clarified that it was seeking damages for product disparagement, which requires special damages; these were not sufficiently pled. Plaintiff claimed damage “in an amount to be determined at trial not less than $6 million.” But the New York Court of Appeals has long made it clear that “round figures, with no attempt at itemization,” are insufficient to allege special damages.

Unjust enrichment: Not plausible because plaintiff didn’t identify any benefit they received at its expense; the fact that they were compensated for their work wasn’t enough.

Statute of limitations arguments were premature because the Lanham Act has no statute of limitations, only a presumption of laches after the coordinate state statute has run. Here that’s 6 years; but, “[b]ecause laches is an affirmative defense, a defendant asserting laches bears the ultimate burden of persuasion, even where a presumption of laches may apply.” Since the defendants didn’t argue that the complaint on its face established laches, the court wasn’t going to dismiss it on that ground.

Other defendants got rid of the same claims as were kicked out above; the complaint also didn’t plausibly allege JSG’s participation in the deception. There were no details about its role. “Significantly, EGC alone is alleged to have retained Londes and Osidius, and the websites at issue are alleged only to have made minor references to JSG” (such as ranking it second and containing ads for JSG).

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