Online Trade Libel Lawsuit: Broadspring v. Congoo

online trade libel lawsuits
What happens if terrible reviews of your company land online? Worse yet, what happens if there is a sliver of truth to the terrible review. Is it still defamation?

Accusations of lie-spreading and client-poaching was at the heart of an online trade libel lawsuit between two marketing companies.

Broadspring Inc and Congoo LLC are “competitors in the online marketing” business. Apparently fierce competitors, because the former sued the latter for defamation, unfair competition, and tortious interference.

Did Broadspring operate outside legal lines or did Congoo bend the truth? The answers to these questions are the main screws on which Broadspring v. Congoo turns.

Timeline and Facts of this Online Trade Libel Case

Let’s first look at the cold-hard facts of the case.

  • On March 2, 2013, a user named “Recruiterman” created an online marketing “lens” (i.e., webpage) on Squidoo featuring reviews of Internet advertising companies, including Congoo subsidiaries Adblade and Adiant, in addition to Broadspring. Though the lens complimented Adblade and Adiant, it blasted Broadspring, reading: “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 said Broadspring made it “tough to cancel credit card subscriptions.”
  • Sometime between March 2 and 7, 2013, someone updated the Squidoo lens in question 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 one of Broadspring’s clients, Geology.com, called and canceled. When asked why, the Geology.com rep referenced an email painting Broadspring in a negative light. The rep went on to explain: “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.”
  • 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 for a reaction about the allegedly defamatory statements. Broadspring’s attorneys requested that Congoo preserve and “ESI” (electronically stored information) connected with the situation. According to Broadspring, at this point, Congoo asked for a few days to review the situation. Broadspring also asked, again, about ESI, but didn’t 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. 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, Congoo brass allegedly sent back a vague, 10-word email, which didn’t address any of the aforementioned 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.

Broadspring’s Side of the Story

Broadspring said Congoo’s accusations are reliable as Herodotus. With the likes of Yahoo!, MSN and CNBC on their client roster, Broadspring questioned Congoo’s characterization that Broadspring mainly deals in subscription offers. Moreover, Broadspring insisted it followed all applicable FTC regulations and doesn’t engage in any business “shadiness.” The plaintiff also highlighted its toll-free number, displayed online, as proof that people could call anytime and cancel.

Plus:

  1. The company swore that Sanford Wallace had 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.”
  2. Broadspring argued that Atrinsic was 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 the lawsuit to throw some punches, describing the Squidoo lens praising Adblade as “misleadingly laudatory.” Broadspring also alleged 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.”

Cited Civil Charges

Broadspring’s lawyers cited Lanham Act violations, defamation per se, and tortious interference. In recompense, Broadspring suggests damages, injunctive relief and attorney’s fees.

Lanham Act

The 1946 Lanham Act is the backbone of United States intellectual property law and guards against false advertising. In this case, the plaintiffs argued that Congoo’s statements about Wallace’s constitute false advertising.

Defamation Per Se

Defamation per se is loosely defined as ‘defamation in it of itself,’ meaning the plaintiff doesn’t have to prove actual material loss. For example, calling someone a criminal is considered defamation per se because the reputational damage is evident.

Tortious Interference

Tortious interference is when one business interferes with another business’ contract(s). In this instance, Broadspring claims that Congoo’s solicitation of geology.com qualifies as tortious interference.

Precise Language Matters In This Online Trade Libel Lawsuit

Broadspring v. Congoo is worthy of examination because it explores what can happen when entrepreneurs, who thrive on boundary pushing, crash into each other. Moreover, it’s a case that relies on verbal exactitude and creating legal loopholes.

What do we mean by that?

Well, consider Wallace Sampson. Part of Broadspring’s argument turns on whether or not Sampson is materially connected to the business. If he is, it could be reasoned that no false statement of fact exists, thereby rendering the defamation claim moot. If Sampson is not materially tied to Broadspring, however, 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, if Wallace works 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?

Broadspring brought the case, so it bared the burden of proof. Congoo simply had to present counter arguments that satisfied the “balance of probabilities” standard.

Fundamental Elements of Defamation Under United States Law

While exact standards vary between jurisdictions, slander and libel law is built on three basic elements:

  1. A false statement of fact;
  2. Material harm inflicted on the plaintiff; and
  3. Intent to harm or “reckless disregard for the truth.”

So, for Broadspring to win, the company must prove that:

  1. Congoo’s accusations are false;
  2. Broadspring lost clients and money as a result of the widely distributed false statement; and
  3. Congoo purposefully lied with the goal of harming Broadspring’s business.

We’ll be keeping an eye on this case. The outcome could profoundly effect online trade libel law.

In the meantime, if you need a defamation or online marketing compliance lawyer, get in touch with Kelly Warner.

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