Antitrust Law Daily Wrap Up, ADVERTISING—S.D.N.Y.: Website’s disparagement of anti-malware product constituted commercial advertising, (Jul 11, 2016)

By Linda O’Brien, J.D., LL.M.

A developer of computer security products pleaded sufficient facts to pursue Lanham Act false advertising claims against the operator of a computer technology advice website over statements made regarding the effectiveness of the developer’s leading anti-malware program, the federal district court in New York City has held (Enigma Software Group USA, LLC v. Bleeping Computer LLC, July 8, 2016, Engelmayer, P.).

Enigma Software Group USA develops and markets computer security products, including SpyHunter, its leading anti-malware program. Bleeping Computer operates a website, which offers information, advice, and resources about computer technology and security. Bleeping receives commissions through its affiliate program from designated software companies for promoting their products on its website.

In January 2016, ESG filed suit against Bleeping, bringing, in part, claims for false advertising in violation of the Lanham Act. ESG alleged that Bleeping employed a pattern of making inaccurate, misleading, and disparaging statements about ESG and SpyHunter while simultaneously recommending competing anti-spyware product Malwarebytes, from which it earned a commission. Bleeping moved to dismiss the complaint.

Commercial advertising. The court first determined that the challenged statements constituted "commercial advertising or promotion" with the scope of the Lanham Act. In rejecting Bleeping’s argument that the statements were not commercial speech, the court noted that a Bleeping staff member criticized SpyHunter in several posts on the Bleeping website, encouraged consumers to replace it with a "trustworthy alternative," and promoted Malwarebytes as that alternative. Those posts clearly constituted advertisements for Bleeping’s affiliated products, according to the court, and Bleeping had an economic incentive to engage in that promotion.

Additionally, the challenged statements were disseminated sufficiently to the relevant purchasing public, according to the court. Bleeping’s posts were on a public Internet forum where they were viewed by millions of visitors to Bleeping’s website and Bleeping’s recommendations were reposted to other anti-malware related websites. Thus, the complaint adequately pleaded that the statements were disseminated to the relevant consumer market.

False advertising. ESG adequately pleaded that the false statements misrepresented the quality of the SpyHunter product and caused injury by diverting sales to a competitor, the court next determined. Specifically, ESG’s complaint alleged that Bleeping made false statements about ESG and SpyHunter, the statements about SpyHunter’s ineffectiveness implicated the inherent qualities of the product, the statements posted on the Internet website were in interstate commerce, and ESG suffered a direct diversion of sales and loss of goodwill due to the statements. Bleeping acknowledged its ability to influence consumers. After Bleeping disparaged ESG and SpyHunter, evidence showed that at least one consumer heeded Bleeping’s advice in a response. Thus, the allegations were sufficient to demonstrate that ESG’s business was injured as a result of Bleeping’s misrepresentations, the court concluded.

The case is No. 1:16-cv-00057-PAE.

Attorneys: Christopher M. Verdini (K&L Gates, LLP) for Enigma Software Group USA, LLC. Gregory William Herbert (Greenberg Traurig, P.A.) and Marc John Randazza (Randazza Legal Group, PLLC) for Bleeping Computer LLC.

Companies: Enigma Software Group USA, LLC; Bleeping Computer LLC

Cases: Advertising NewYorkNews