Wednesday, February 09, 2022

seller's online arbitrage exposes it to (c) and false advertising claims

Kevorkian v. The Sports Mall LLC, 2021 WL 6804246, No. CV 21-2747-DMG (MRWx) (C.D. Cal. Nov. 30, 2021)

This interesting dispute suggests that sellers might have some paths to challenge online arbitrage—where a seller relies on a buyer’s use of one platform instead of searching for cheaper versions of the same product elsewhere, and thus lists items that it plans to order from those cheaper sources if anyone in fact buys on the platform. This is easier when there’s a potential copyright claim (which is not subject to §113(c), which very few people remember).

The case is captioned “Kevorkian” in Westlaw but plaintiff’s last name is apparently Krikor. Anyway, Krikor owns online eBay stores that sell sports memorabilia and collectibles. She publishes photos of her products on eBay, and has registered some copyrights in the photos.

Sports Mall operates its own website.

In August 2020, Krikor discovered that Sports Mall had posted at least six of her photographs on its website and advertised the depicted items for sale on its site…. Sports Mall listed the products for sale on its site at a higher price than Krikor did on her site. Whenever Krikor raised the price of items sold on her site, Sports Mall correspondingly increased the price of the same items on its site. Sports Mall also included the serial numbers for the items belonging to Krikor in its listing.

Although Sports Mall initially removed allegedly infringing content, it allegedly reposted two of the images as well as three new Krikor images; didn’t comply with demands to remove those; and continued to add Krikor’s product photos.

Sports Mall’s FAQ includes:  “Why can I, when searching, find the same item for a lower price on Ebay?” The response:

You might find the same item or one very similar for various reasons. Most of our leading competitors buy their collectibles in bulk and resell them on their site. deals directly with the athletes at signings along with their agents and our highly reputable vendors, therefore our products are 100% authentic. We would never sacrifice the quality or authenticity of your collectibles for a lower price. Anyone can sell their items on eBay, so unless you personally know the vendor you should be cautious when purchasing.

This alleged chutzpah triggered the false advertising element of the case. “[T]he gravamen of the FAC appears to be that Sports Mall advertises Krikor’s products on its own site for a higher price, with the intent of buying the product from her and passing it on to its customer whenever the customer completes the purchase on its site.” [I’m not sure that’s the gravamen so much as the underlying situation, because that conduct alone doesn’t seem capable of triggering legal liability—it’s the nature and quality of the associated advertising that is the problem. If Sports Mall didn’t use the pictures and didn’t say what it said, I find it hard to see what the claim would be—though see the court’s discussion of implied “in stock” representations. I’ve encountered arbitrageurs on eBay who do similar things—I had a problem with one who advertised the large size of a puzzle and bought me the small size, which is fraud of a different kind.]

Copyright: Sustained as to specific images whose registration was alleged; dismissed as to unnamed and unregistered images. Query: are there actual damages? How would they be assessed?

False advertising under the Lanham Act: The court identified two theories. (1) The listings on Sports Mall’s site of items that belonged to and were being sold by Krikor allegedly falsely implied that Sports Mall had the items in stock; (2) Sports Mall’s response to the “frequently asked question” regarding eBay sellers was disparaging.

Although (1) didn’t come from a specific written statement, “false advertising is not limited to statements made through words. It can be comprised of ‘any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact.’” Whether Sports Mall owned or possessed the items was itself a falsifiable statement of fact. It was plausible that the advertising falsely implied that Sports Mall owned or possessed the items it offered, though this would require proof of consumer reception of that message. This was a question of fact that couldn’t be resolved on a motion to dismiss. So was materiality: “It is also plausible that a consumer’s decision to buy the unique item from Sports Mall may change if he or she knew that Sports Mall first had to purchase it from a non-exclusive third-party seller.” Question: does state and federal law about advertising items with intent not to sell them, “rain check” provisions, etc. bear on this question? That is, assuming Sports Mall complies with those general rules, is there anything wrong with Sports Mall’s assumption that it could buy from an unrelated entity?

(2): Sports Mall argued that its FAQ was not false and was puffery. While none of the particular, individual statements were literally false on their face—Krikor didn’t allege that Sports Mall’s items weren’t “100% authentic” or that no eBay items were inauthentic, nor that buyers didn’t need to use caution on eBay. But misleadingness was still possible, given the context of the question posed: “Why can I, when searching, find the same item for a lower price on eBay?” “Based on the allegations in the FAC, the accurate answer should be something to the effect of, ‘because we buy some of our items from eBay and resell them here,’” but Sports Mall instead suggested that customers should be wary of eBay. In context, this misleadingly implied that “eBay sellers of ‘the same’ merchandise are inauthentic, when in fact, those are the very sellers from which Sports Mall sources at least some of its ‘100% authentic’ products.” For the same reason, this wasn’t puffery: The “authenticity” of an autographed collectible item that is “the same” as the one that Sports Mall advertises was “a quantifiable, specific characterization.” Sports Mall might be right that consumers would understand that there were also unrelated, inauthentic items on eBay—which Sports Mall presumably purports to exclude from its arbitrage program—but that’s a fact question.

State law unfair competition claims survived copyright preemption because the false advertising claim did.

No comments: