Target of TM takedown notices has Lanham Act standing to challenge automated notice provider's ads claiming accuracy

Unlimited Cellular, INC. v. Red Points Solutions SL, 2023 WL 4029824, No. 21-cv-10638 (NSR) (S.D.N.Y. Jun. 14, 2023)

Unlimited, an “online non-authorized reseller of consumer products,” sued Red Points for defamation, tortious interference, and false advertising under state and federal law. “Red Points provides brand protection services through their automated software platform, which searches the internet for intellectual property infringements for their clients, reporting violations to the e-commerce website on which they are found.” According to the complaint, eBay responds to reported infringements by automatically removing the reported listing; reinstatement requires the trademark owner to retract the report. Red Points’ reports to eBay certify a good faith basis for the reports, but Red Points submits reports without requiring their clients to confirm that the product listed is a counterfeit. The complaint alleged that ecommerce sites will not honor removal requests where the product is authentic.

When an accused seller writes to the email address provided by Red Points, Unlimited alleged, an automated form response is sent which demands proof that the accused items are authentic. Further, Red Points allegedly has no mechanism in place to ensure prompt retraction of erroneous reports even when the rights owner agrees to retract the report.

As you might expect from these preliminaries, Red Points reported two of Unlimited’s listings on eBay as infringing and counterfeit. Allegedly, Unlimited responded the same day confirming authenticity, Red Points replied two days later with its form response and refused to withdraw its report regarding one product.

The court refused to dismiss the defamation claim. Unlimited adequately pled a false statement of fact “of and concerning” Unlimited. Private publication to a third party is sufficient, and only required negligence since “publications directed only to a limited, private audience are matters of purely private concern.” Unlimited sufficiently pled negligence by pleading that Red Points failed to take steps to confirm that the listings were counterfeit before filing the reports and failed to retract at least one report after proof of authentication. No pleading of special harm was required because the accusation constituted defamation per se. The common interest privilege was not a basis for granting a motion to dismiss; and the statements were not mere opinion—or, if they were opinion, they implied defamatory facts: “Because the VeRo reports do not need to be substantiated with proof of infringement, it is reasonable to conclude that even if these reports are statements of opinion, eBay relies on them with the presumption that facts exist which justify the opinion but are unknown to them, and they are thus actionable as mixed opinions.”

However, tortious interference failed because causing a delisting is not “harm to the underlying business relationship with the platform,” which apparently remained intact.

Lanham Act false advertising:  Unlimited sufficiently pled standing. Of note, the court thought that it sufficiently pled proximate cause from false advertising of the capabilities of Red Points’ detection software:

Plaintiff claims that although Defendants’ advertisements indicate that their services reliably detect counterfeit products and automatically remove these products from e-commerce platforms, the product listings that Defendants’ software flags and removes are often authentic because their software does not reliably distinguish between authentic and counterfeit products. There is, then, no break in continuity between this purported deceptive advertising and the removal of Plaintiff’s product listings from eBay— these listings were removed precisely because Defendants’ advertisements that their services reliably identify counterfeit products allegedly misled their customers into using their software to remove Plaintiff’s authentic listings. Plaintiff’s alleged injury thereby “flowed directly from the deception wrought by the defendant’s adverting.”

Proximate cause is a legal concept, not a factual one. (How should we think about the fact that defendant’s clients might well think that removing the occasional legitimately resold product is no big deal and also protects their market share?) For similar reasons, falsity was sufficiently pled: if the software can’t reliably distinguish between authentic and counterfeit listings, the ads were at least misleading. And Red Points’ ads for its own product were commercial advertising or promotion. The claims were material because they went to the “fundamental quality” of the software. (Same question as above.)

The GBL § 349 claim failed, however, for remoteness: the injury relied on the alleged deception of Red Points’ consumers regarding the ability of their software to differentiate between authentic and counterfeit products. “Unless and until consumers are misled by Defendants’ conduct, there is no injury to Plaintiff.”