When does healthy competition become defamation? A future ruling in a New York lawsuit may help better define the answer.
Broadspring, Inc and Congoo, LLC are “competitors in the online marketing and advertising business.” Fierce competitors, apparently, because in a lawsuit the former insists the latter is in the business of lie-spreading and client-poaching for personal profit. So, Broadspring is suing Congoo for defamation, unfair competition and tortious interference.
Is Broadspring operating outside the legal lines or is Congoo bending the truth? If Congoo’s knowledge crypt is lined with a zephyr of truth, is the company automatically off the hook, or is it still considered defamation? The answers to these questions are the main screws on which Broadspring, Inc. and Congoo, LLC turns.
But the facts of the case aren’t black and white.
Timeline and Facts of the Case
Let’s first take a look at the cold-hard facts of the case.
- On March 2, 3013, a user named “Recruiterman” created an online marketing “lens” (a.k.a., web-page) on popular content site, Squidoo. Included on the lens were reviews of Internet advertising companies including Congoo subsidiaries Adblade and Adiant, in addition to Broadspring, Inc. While the lens author was complimentary of Adblade and Adiant, his admiration was absent in the Broadspring review. It read: “most of [Broadspring’s] distribution seems to come through media buys at DSPs and other exchanges. All of their display units take users to howlifeworks.com where they embed links to advertise pages for offers like ‘make your computer faster.’” The review also indicated that Broadspring made it “tough to cancel credit card subscriptions.”
- Sometime between March 2 and 7, 2013, the Squidoo lens in question was updated to read: “Downside: A simple Google search shows that Broadspring was formerly Mindset Interactive, a notorious spyware company. Mindset was eventually shut down by the FTC in 2005 and Sanford Wallace, their founder, known as “Spamford Wallace” was banned from online activity for 5 years. In Nov 2006, Broadspring’s shareholders then launched a notorious ringtones company, New Motion dba Atrinsic. Atrinsic has $17mm in financing (from various unknown investors), became public through a shady reverse-merger. They settled 3 years ago with 6 million users scammed: http://www. ftc. gov/o s/ caselist/04 2314 2/wallacefinal judgment. Pdf”
- On March 7, 2013, a representative from Geology.com contacted Broadspring with news that the rock-focused website was cutting ties in whole because of an email, purportedly sent by Congoo, linking to the unflattering Squidoo lens. “I really like the looks of your ads, the controls of your website, and the pay was very good…but I am hesitant to run the ads after seeing the above,” explained the Geology.com representative.
- On March 11, 2013, Squidoo “locked” the online marketing lens in question, but according to Broadspring, the damage was already done.
- On March 12, 2013, Broadspring lawyers contacted Congoo’s counsel for reaction about the allegedly defamatory statements posted on Squidoo and via email. Broadspring’s attorneys requested that Congoo preserve and “ESI” (electronically stored information) connected with the situation. According to Broadspring, at this point, the Congoo lawyer said he needed a few days to review the situation. Broadspring asked once again about ESI, but did not get a response.
- On March 18, 2013, another Broadspring client, Tech Media Network, sent an email regarding “concerning information” and referenced the FTC judgment against Wallace linked in the Squidoo article. It was also on this day that Broadspring lawyers expected a formal response from the Congoo attorneys about the ESI material. Much to the former’s chagrin, the Congoo brass simply sent back a vague, 10-word email, which didn’t address any of the aforementioned Broadspring concerns.
- It’s important to note that Broadspring says it has evidence linking the “defamatory” Squidoo updates to an IP address “very close” to Broadspring’s New Jersey office. As such, the plaintiffs are arguing a connection between Congoo and the updates in question.
Broadspring is adamant that Congoo’s accusations are as reliable as Herodotus. With the likes of Yahoo!, MSN and CNBC on their client roster, Broadspring questions Congoo’s characterization of its business as one that primarily deals with subscription offerors. Moreover, Broadspring insists it follows all applicable FTC regulations and doesn’t engage in any business “shadiness.” The plaintiff also highlights its toll-free contact phone numbers, displayed online, as evidence that they do not make it difficult for people to cancel subscriptions.
Also amongst Broadspring’s list of denials:
- The company strongly avers that Sanford Wallace has nothing to do with Broadspring. Specifically, “Sanford Wallace was not a ‘founder’ of either Broadspring or Mindset. In fact, he has never held any equity in either of these entities nor has he ever served as an officer, director or employee of either entity.”
- Broadspring attest that Atrinsic is not a “notorious ringtones company” and that the merger was done on the up-and-up, with full disclosure to the SEC.
In addition to defending their own position, Broadspring used the protective umbrella of their lawsuit to throw some punches Congoo’s way. “Misleadingly laudatory” was how Broadspring’s lawyers described Adblade’s section of the Squidoo lens in question. Broadspring also seized the lawsuit opportunity to allege that a “substantial portion” of Adblade’s revenue comes from “continuity credit card offers” and that the defendant “falsely asserts that Adblade is very selective about the publishers with which it works.” (#marketinglitigation)
Cited Civil Charges
In their claim, Broadspring’s lawyers cited violations of Section 43 of the Lanham Act, defamation per se and tortious interference. To recompense for said violations, Broadspring suggests damages, injunctive relief and attorney’s fees. The Plaintiff also wants a jury trial.
The 1946 Lanham Act is the backbone of United States intellectual property law. It’s also the statute that helps guard against false advertising. In this case, Lawyers for the plaintiffs argue that Congoo’s statements about Wallace’s link to Broadspring constitute false advertising.
Defamation Per Se
Defamation per se is loosely defined as ‘defamation in it of itself,’ meaning the plaintiff does not have to prove special damages. For example, calling someone a criminal is considered defamation per se because the damage done is evident.
If one party interferes with another party’s business relationships, tortious interference charges can be brought. In this instance, Broadspring claims that Congoo’s solicitation of geology.com qualifies as tortious interference.
Broadspring v. Congoo is worthy of examination because it demonstrates how companies compete in today’s aggressive digital marketplace – where hungry entrepreneurs thrive on boundary pushing and use litigation in creative ways. Moreover, it’s a case that relies on exactitude and creating legal loopholes via verbiage.
What do I mean by that?
Well, let’s take Wallace Sampson. Part of Broadspring’s argument turns on whether or not he is materially connected to the business. If he is, it could be reasoned that no false statement of fact exists, thereby rendering the defamation lawsuit moot. If Wallace Sampson is not materially tied to Broadspring, the plaintiff has a much stronger case.
So now let’s look at how the lawsuit is worded. Sampson is described as never having been a director, officer, or employee of Broadspring. But is he a consultant? And if Sampson is somehow profiting from Broadspring, just not as a director, officer or employee, does Congoo have the legal right to highlight this fact? Furthermore, again, if Wallace is working with Broadspring in a freelance capacity, is he violating an FTC edict by acting as a consultant to an advertising company?
The Path To Victory
Since this case is a civil one, and Broadspring is bringing suit, it is responsible for providing the preponderance of evidence. Congoo simply has to present an argument that blocks Broadspring from satisfying the “balance of probabilities” standard for winning a civil proceeding. So, the question becomes, “what does Broadspring have to do to win the case?” Let’s take a minute to break it down.
Fundamental Elements of Defamation Under United States Law
While exact standards differentiate from jurisdiction to jurisdiction, slander and libel law is built on four basic elements:
- A false statement of fact;
- Material harm inflicted on the plaintiff;
- Communication to more than one person in private; and
- Intent to evoke a bad outcome for the plaintiff or “reckless disregard for the truth.”
So, in order for Broadspring to win this suit, the company must prove:
- Congoo’s accusations are false;
- Broadspring lost clients and money as a result of the widely distributed false statement; and
- Congoo purposefully lied with the goal of harming Broadspring’s business.
Arguably the most important part of a defamation case is proving speciousness. In order to do so, the plaintiffs must include precise examples of provably false statements. In this instance, Broadspring identifies the following three declarations as bold-faced lies:
- The Plaintiff was “shut down by the FTC;”
- Broadspring was “founded by [a notorious spammer who] was banned from online activity for 5 years.”
- Broadspring executive “entered into a settlement with the FTC because ‘6 million users [were] scammed.’”
Point two may prove to be the most complicated. In their response to the lawsuit, Congoo maintains that it did not promote any false statements of fact. Now, that could mean one of two things: a) nobody from Congoo played a role in creating the Squidoo lens in question or b) Congoo thinks it has sufficient proof that Wallace Sampson is involved with Broadspring in some profit-earning manner.
We’ll be keeping an eye on this case. The outcome could very well have a profound effect on Internet trade libel law. Moreover, the ruling in this case could further define ongoing rules of conduct for people who’ve lost a case against the Federal Trade Commission.
In the meantime, if you need a defamation or online marketing compliance lawyer, get in touch with Kelly Warner. We’re a full-service legal practice with attorneys who focus on cyber libel and Internet advertising law.