Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—E.D. Pa.: Preliminary injunction imposed in alleged computer tech support scheme, (Nov 13, 2015)

By Edward L. Puzzo, J.D.

The federal district court in Philadelphia has issued a preliminary injunction against inter-related corporate entities that allegedly engaged in deceptive practices to sell $18 million in unnecessary computer repair services to the consumers (Federal Trade Commission v. Click4Support, LLC, November 10, 2015, Dalzell, S.).

The FTC and the states of Pennsylvania and Connecticut alleged that Click4Support, Innovazion, iSource USA, and Spanning Source—and their owners Bruce Bartolotta, George Saab, Chetan Patel, and Niraj Patel—operated a common business enterprise that acted in violation of the FTC Act, the Telemarketing Act, and state unfair trade practices laws in Pennsylvania and Connecticut. Specifically, the enterprise, while engaging in remote access technical support for computer users, is accused of (1) falsely representing to consumers that they were affiliated with well-known technology companies such as Google, Apple, Microsoft, Comcast and Dell, (2) falsely telling consumers that normal error messages on their computers were evidence of viruses or other security or performance issues on their computers, and (3) selling consumers nearly $18 million in unnecessary repair services to remedy the non-existent problems.

The court had previously granted a temporary restraining order (TRO) against the defendants on October 27, 2015, and now considered whether to further grant a preliminary injunction against them. For preliminary injunctions brought by the FTC, the court explained, the FTC must show that it is likely to succeed on the merits in the matter and that the balance of the equities weighed in favor of granting injunctive relief.

Likelihood of success on the merits. To prove unfair or deceptive acts or practices in or affecting commerce, the FTC must demonstrate (1) there was a representation; (2) the representation was likely to mislead consumers acting reasonably under the circumstances; and (3) the representation was material. Here the defendants were shown to have made representations to consumers regarding both their non-existent affiliations with widely known tech companies and the existence of problems in their computers. These representations were material in causing consumers to pay for repairs that in many cases did not increase the performance of the consumers' computers and, in fact, actually damaged some consumers' computers.

The court concluded that plaintiffs had produced sufficient evidence demonstrating that defendants used "unfair or deceptive acts or practices" in violation of the FTCA, and had therefore shown that they were likely to succeed on the merits in this case. The court further found that the named corporate entities were interrelated, with common ownership and comingling of funds, and therefore the entities and individual defendants were jointly and severally liable for each other’s unlawful acts.

Balance of the equities. In balancing the equities, the court noted that terms of the TRO have crippled the defendants’ business operations and frozen their personal and corporate bank accounts, and they therefore had a significant private interest in avoiding the granting of a preliminary injunction.

On the other side of the scale, the pubic equities were significant, the court continued. The defendants did not have a legitimate interest in being permitted to continue to operate an unlawful enterprise. The evidence strongly suggested that the defendants took millions of dollars from consumers by deceptive practices. The court found that, with regard to the corporate defendants, the public equities in this case were weighty, and when compared to the insignificant private interests of the corporate defendants, the balance of the equities in this matter favor injunctive relief.

The individual defendants, whose bank accounts had been frozen by the TRO, have been unable to pay their living expenses. As to the individual defendants, the court continued, the public equities did not outweigh the private equities. The court therefore amended the conditions of the TRO to lift the asset freeze on the personal bank accounts for the individual defendants.

The court concluded that the plaintiffs adequately demonstrated that they were likely to succeed on the merits in this case and that the balance of the equities favored granting injunctive relief. The court therefore granted the preliminary injunction under the same terms as the TRO, with the exception of lifting the asset freeze on the individual defendants.

The case is Civil Action No. 2:15-cv-05777-SD.

Attorneys: Fil Maria Debanate, U. S. Federal Trade Commission for Federal Trade Commission. Sandra G. Arenas, Attorney General's Office for State of Connecticut, Office of Attorney General. John Abel, Office of Attorney General for Commonwealth of Pennsylvania, Office of Attorney General. Austin J. McGuigan (Rome McGuigan PC) for Click4Support, LLC. Larry M. Keller (Sidkoff Pincus & Green PC) for iSource USA LLC, Spanning Source LLC and George Saab.

Companies: Click4Support, LLC; iSource USA LLC; Innovazion Inc.; Spanning Source LLC

Cases: ConsumerProtection StateUnfairTradePractices FederalTradeCommissionNews PennsylvaniaNews ConnecticutNews