IP Law Daily, COPYRIGHT—D. Ariz.: Lender adequately pleaded knowing misrepresentation in DMCA takedown notice, (May 2, 2024)

By Matthew Hersh, J.D.

The company that sent the takedown notice plausibly knew the allegation was false because it designed the website that was allegedly purloined.

A company that allegedly designed a website for one of its clients and then brought a false DMCA takedown notice against a competitor of that client could plausibly have down so with knowledge of the falsity, the federal court for Phoenix has held. But the court, in allowing the claim for misrepresentation under the DMCA to move forward against the company as well as its lender client, set aside allegations of tortious interference and unfair competition under California law because they alleged only speculative economic harm (Source Capital Funding Inc. v. Barrett Financial Group, LLC, April 29, 2024, Lanza, D.).

The lawsuit arose as a dispute between Source Capital Funding, a California-based money lender, and an Arizona competitor named Barrett Financial Group. In late 2022, the California lender came to believe, the Arizona lender had its digital marketing firm serve fraudulent takedown notices under the Digital Millennium Control Act that led Google to de-list the company from its search platform. The California lender sued the Arizona lender (along with the digital marketing firm and one of the Arizona company’s principals) under a provision of the DMCA that creates a cause of action for victims of false takedown notices. The company also brought California law claims of tortious interference with business interests and unfair competition.

The trial court dismissed the claims in 2023 on the grounds that they were not stated with sufficient detail. That California lender then filed an amended complaint, which prompted another motion to dismiss by the Arizona lender. This opinion followed.

DMCA misrepresentation claim. The court found that the misrepresentation claim, at least in this second iteration, was sufficiently specific to go forward. Section 512(f) of the Copyright Act (17 U.S.C. § 512(f)) provides a cause of action against anyone who “knowingly materially misrepresents” that material is infringing in a takedown notice. To state a claim for misrepresentation under § 512(f), the court noted, a plaintiff “must allege [1] that the defendant knowingly and materially misrepresented that copyright infringement has occurred, [2] that service providers relied on such misrepresentations, and [3] that the plaintiff has been injured as a result.” The California company met this standard, the court found.

There was little question that prongs 2 and 3 were satisfied at this stage of the proceedings, the court found. The California company specifically alleged that the takedown notices caused Google to delist and deindex several of its most important websites, resulting in economic harm. The Arizona company tendered two “Google Transparency Reports” suggesting that in fact Google did not delist the websites in response to the takedown notices, the court acknowledged, but that was a matter for resolution at a later stage of the case. Nor did it matter that the transparency reports were documents in the public record, the court noted. “A court may take judicial notice of matters of public record,” the court reasoned, but it cannot take judicial notice of “disputed facts” contained in such public records. Thus, the pleading would stand.

The California company also adequately pleaded that there was a knowing misrepresentation, the court found. There was no dispute that the takedown notices were false, the court noted—the California company did not, contrary to the notices, have any infringing content on its website. The question was whether the false statements in the notices were made with the requisite mindset. Under the DMCA, the court noted, there is no liability for making a mistake in a takedown notice, even if the copyright owner acted unreasonably in making the mistake. “Rather, there must be a demonstration of some actual knowledge of misrepresentation on the part of the copyright owner,” the court found. But that standard was easily met here, the court noted, because the digital marketing firm that sent the notices about the California company’s website had also designed the Arizona company’s website. It was therefore “plausible” that the company knew, contrary to its representations in the DMCA notices, the court found, that the California company did not copy website content from the Arizona company.

The only thing left to decide was whether the lender itself, as well as its principal, could be held liable for the digital company’s notice. There was little question that the lender could be liable, the court found. The amended complaint expressly alleged that the lender directed the marketing agency to submit the notices and “communicated [its] bad faith plan to use those notices to harm [the California lender] when providing that direction,” the court observed. That was clearly enough to state a claim against the lender. But there was no claim stated against the lender’s principal, the court noted, as the complaint alleged only that the principal acted “in his capacity as an employee” of the lender. That was not enough to bring a claim against him personally, the court concluded.

Tortious interference. The court found that the California company’s tortious interference claim was not adequately pleaded. The claim was not based on the DMCA notices themselves but rather on unrelated forms of misconduct—namely, that the Arizona lender’s website falsely described itself on its website as a member of AAPL and the Arizona Commercial Mortgage Lenders Association and an “Accredited Business” with the Better Business Bureau. As such, there was no risk that the claim would be preempted by the DMCA. But the claim still failed on other grounds, the court found.

The central problem with the claim, the court noted, was that the amended complaint still did not support “a plausible inference” as to how the Arizona company’s conduct, apart from the DMCA notices, interfered with the California company’s existing economic relationships. The California lender merely alleged that, “on information and belief,” it had failed negotiations with its customers and other customers did not use it for their lending needs. “Such allegations are too vague and conclusory to support a plausible inference that [the California lender] lost future business from its existing customer relationships” because of the false website descriptions, the court found.

Unfair competition. The court also dismissed the unfair competition claim. The claim was brought California’s Unfair Competition Law. This claim, too, failed because of inadequate allegations of economic injury. The California company alleged, just as in its tortious interference claim, that it had failed negotiations with its customers and other customers did not use it for their lending needs. This allegation, too, the court found, was “too vague and conclusory to plausibly establish harm and causation.”

The Case is No. 2:23-cv-02113-DWL.

Attorneys: Andrew Jonathan Mase (Ryan Firm APC) for Source Capital Funding Inc. Roger Alan Wright (Wright Law Firm PLC) for Barrett Financial Group LLC.

Companies: Source Capital Funding Inc.; Barrett Financial Group LLC

Cases: Copyright TechnologyInternet ArizonaNews