alleged misrepresentation of partnership/approval suffices for false advertising claim

Faire Wholesale, Inc. v. Tundra, Inc., 2023 WL 8586681, No. 23-cv-02538-JSC (N.D. Cal. Dec. 8, 2023)

When does TM logic creep into false advertising cases? Faire operates an online marketplace connecting wholesalers with retailers. Faire sued Tundra, which makes a comparison tool. Faire sued, challenging Tundra’s unauthorized use of Faire’s users’ login credentials to gain access to Faire’s non-public information. The court denied Tundra’s motion to compel arbitration; the remaining statutory claims weren’t intricately intertwined with, nor dependent on, Faire’s service terms. Tundra—a nonsignatory to the service terms, and thus the arbitration agreement—couuldn’t force Faire to arbitrate those claims.

Tundra’s motion to dismiss was granted with leave to amend on the CFAA and California Comprehensive Computer Data Access and Fraud Act claims, and the California UCL claim to the extent it relies on the two former claims. The rest of the UCL claim and the Lanham Act claim survived because Faire plausibly pled that Tundra made misrepresentations likely to deceive the public into believing Tundra had partnered with Faire and was permitted to access Faire’s computers.

To list a product or search the catalog of products for sale on Faire’s platform, users must create an account with a username and password. Only users who have logged into password-protected accounts may access inventory, pricing, and contact information related to the goods available for sale on Faire’s platform. Faire’s service terms prohibit users from disclosing their passwords to third parties. Faire makes a commission on successful transactions on its platform, but Faire also provides wholesalers with a personalized link they can use to invite retailers to order directly from their shop on Faire’s platform; using that link results in 0% commission to Faire. Tundra’s comparison tool encourages its users to disclose their Faire login credentials and offers to pay the retailers up to 10% “cash back” on every purchase they make from a Faire wholesaler. Tundra solicits sellers on Faire’s platform to provide their Faire Direct links to retailers registered with Tundra by “promising to promote their brands to new retailers and give them greater exposure” to Tundra retailers. Tundra charges sellers who participate in the Faire Direct program a fee of 15% “that replaces the marketplace commission for new retailers to a marketplace and their reorders.” It then pays a percentage of this fee as “cash back” to the retailers and pockets the rest. This allegedly diverts commissions properly owed to Faire to Tundra. Tundra allegedly uses the information it scrapes from Faire’s platform, including contact information, to market its product.

UCL fraudulent claims: These were predicated on 1) Tundra’s misrepresentations it was an authorized user when logging into Faire’s platform and 2) Tundra’s misrepresentations Faire was aware of and approved Tundra’s practices. Reliance was required; Faire adequately alleged its own reliance on 1), and that its customers relied on 2), which was enough given that the parties competed.

The screen seeking a consumer’s login credentials plausibly supported an inference the public would falsely believe Tundra was partnering with Faire and had Faire’s permission to obtain the consumer’s Faire login credentials. (Would a clear disclaimer have solved the problem? Does it matter that there seem to be 10 other marketplaces involved?)

The Lanham Act claim also survived, for similar reasons. The screenshot was “commercial advertising or promotion.” And Faire alleged that Tundra repeatedly falsely advertised via phone and email solicitations that Faire was aware of and approved Tundra’s scheme: on December 15, 2022, Tundra’s employee allegedly told Brand A Faire approved of Tundra’s scheme and “it was above board.” The allegation that hundreds of brands have been targeted by Tundra’s false advertising “supports an inference Tundra’s misrepresentations have the tendency to deceive a substantial segment of Faire’s audience.”

On materiality, it sufficed to allege that brands pay for its services and Tundra’s false advertising influences brands to purchase Tundra’s services instead of Faire’s services. “Again, the screenshot of Tundra’s website is alone sufficient.” This seems wrong; in other cases, including one I just blogged, courts require a link between the falsity and the purchase decision. It wasn’t false that Tundra offered this service related to Faire; what was the allegation that Faire’s approval of the scheme mattered?