literal falsity of claim that website doesn't allow checkout in under a minute supports preliminary injunction

Novation Solutions, Inc. (o/a DealMaker) v. Issuance Inc., 2023 WL 6373871, No. 2:23-cv-00696-WLH-KSx (C.D. Cal. Aug. 16, 2023)

DealMaker is a financial technology company that provides its users with the ability to raise capital by conducting investment offerings via its online platform. Issuance is a competitor: a financial technology company with a retail capital raising and investment processing platform. Defendant Marble is Issuance’s co-founder and chief executive officer.

DealMaker alleged that defendants stole its trade secrets and also alleged violation of state and federal false advertising law. Shortly after DealMaker first sued, Marble allegedly “embarked on a marketing campaign that included disparaging remarks about DealMaker” and its products, claiming falsely that:

These statements were allegedly made at an event in Miami whose recording was uploaded to YouTube, as well as in a slide deck that was uploaded to Deal Night’s website in accordance with Issuance’s marketing agreement with Deal Night. The slide deck had disclaimer language that the information on the slides was not complete, and that the slides contained forward-looking statements.

challenged representations in slide form

For purposes of a preliminary injunction motion, the court first considered literal falsity.

Challenged claim: DealMaker’s customers do not retain ownership over their own data.  DealMaker argued that the lack of any mention of the transfer of ownership of confidential data in its TOS indicates that clients own their own data, while defendants argued that the absence of any affirmative discussion was itself evidence of lack of client ownership, whereas Issuance’s own terms promised that the customer “owns and shall remain the sole owner” of its information. Defendants pointed to DealMaker’s TOS provision that it could “use” client’s data for DealMaker’s marketing purposes, and anecdotal evidence from a prior DealMaker customer indicating that DealMaker “exploited and misused the customer’s investor list for the purpose of contacting its investors to market other companies’ securities offerings listed through DealMaker. DealMaker noted that Issuance’s own terms include a provision that allows Issuance to license its data.

This wasn’t literal falsity, given the silence of the DealMaker TOS.

Challenged claim: DealMaker offers the same products and services as [Issuance] at higher prices (8-10% as compared to 4-5%) and DealMaker’s fees are charged as a percentage of capital raised. DealMaker argued that its offers weren’t the same as Issuance’s so one-to-one comparisons were false, and that its fees don’t depend on a percentage of capital raised. Defendants offered examples of contracts that, they argued, had a fee structure of 8-10%.  DealMaker said those were contracts with DealMaker Securities LLC, a registered broker dealer, which is a separate legal entity and not a party to this lawsuit, and that its fees may be higher because it offers additional services to its clients that Issuance does not. This was not enough for literal falsity, since the slides didn’t claim that the parties offered the same products. Also, a potentially reasonable reading of the statement was that in the aggregate, DealMaker’s fees equate to 8-10% of the capital it raises, rather than being explicitly a statement that its fees were based on a percentage of what was raised. Ultimately, DealMaker didn’t show that was false at this stage.

Challenged claim: DealMaker’s platform does not offer “checkout in under one minute” to its customers, while Issuance’s platform does: This was likely explicitly false. The slide clearly compared the parties’ platforms. DealMaker’s evidence showed that checkout on its platform in less than a minute was possible. This was a specific and measurable advertisement claim of product superiority based on product testing and not puffery.

Challenged claim: DealMaker’s publicly disclosed “street” valuation is $200 million.

Marble explained that he arrived at the $200 million valuation by multiplying DealMaker’s $20 million estimated revenue for 2022 by a multiplier of ten. DealMaker argued that as a private company, it does not have a public valuation and thus this number is fabricated and false. Defendants responded that the slide proposed a “street estimate,” which is an industry term for an unofficial estimate and not a “publicly disclosed valuation” as suggested by DealMaker.

“Street estimate” was sufficiently ambiguous that it was susceptible to defendants’ interpretation.

Deception would be presumed for literally false statements. Also, the statement was “published and promoted on an investor industry website, presented at a forum focused on connecting potential investors and company founders, and was directed at an audience of potential investors attending industry events where potential clients in this industry are the most susceptible to being deceived by the false statements.” This also took care of materiality.

Injury can be “generally presumed” when the parties “are direct competitors and defendant’s misrepresentations has a tendency to mislead consumers.” This presumption was not rebutted.

In addition, irreparable harm was presumed from likely success under the TMA. The other factors also favored a preliminary injunction for the “under a minute” statement.