IP Law Daily, TRADEMARK—D. N.J.: Freedom Funding Group successful on Lanham Act, ACPA claims against former employees who established The Freedom FundingGroup, (Aug 29, 2022)

By Robert Margolis, J.D.

Court also denied Freedom’s motion as to claims under the Computer Fraud and Abuse Act, for failure to identify a loss protected by the statute.

Former employees of The Freedom Funding Group, Inc., who established a competing company The Freedom FundingGroup, LLC, using their former employer’s service mark and confidential client and business information they misappropriated, violated the Lanham Act, the Anti-Cybersquatting Protection Act, and New Jersey state law, the federal district court in Trenton, New Jersey has held. The court granted summary judgment for Freedom on several of its claims and enjoined the defendants from further use of Freedom’s mark, confidential information, and a spoofing website used to trick consumers. The court denied Freedom’s motion on its claim under the Computer Fraud and Abuse Act, finding that liquidating funds from a Freedom bank account through the bank’s server is not the type of loss protected by the statute. (Freedom Funding Group, Inc. v. Freedom FundingGroup, LLC, August 25, 2022, Quraishi, Z.).

Freedom is a broker and syndicated lender, licensed to conduct business across the country since 2017. It provides loans to high-risk customers and loan consolidation services. Critical to Freedom’s business is its access to the Automated Clearinghouse Network in the United States (“ACH”), which is necessary for Freedom to receive approval and funding for the loans it provides from banks and other financial partners. Freedom owns and has continuously used since September 2017 a service mark of a white eagle in a solid blue circle, followed by the words “freedom” in black typing and “Funding” in blue typing (the “White Eagle Mark”). The White Eagle Mark is not federally registered, however.

From 2017 to October 2020, the individual defendants were sales representatives and loan originators who previously had been affiliated with Freedom, at different times as employees (President and Vice President) and independent contractors. Prior to terminating their employment, the individual defendants had unlimited access to Freedom’s customer lists, sensitive financial information, confidential information, and passwords for entry into Freedom’s secure networks and the ACH system. The day after they terminated their relationship with Freedom, they founded a New Jersey Limited Liability Company they called “The Freedom FundingGroup, LLC.” Freedom claims that the defendants then used Freedom’s confidential and propriety documents to attempt to transfer Freedom’s ACH account to their newly formed company.

They also used confidential information to contact financial partners in an attempt to move those relationships to the new company. The defendants also used confidential information to attempt to trick Freedom’s customers to apply for loans with their new company, successfully deceiving at least five such clients. They sent loan applications that were an exact replica of Freedom’s loan application, including using the White Eagle Mark (only the credentials and contact information was different).

Defendants also used confidential login information to obtain control of some of Freedom’s financial accounts and withdraw or transfer funds to themselves. Finally, the defendants also established a website, www.thefreedomfundinggroup.com on which they used Freedom’s White Eagle Mark, and otherwise mimicked the look of Freedom’s website, www.freedomfundinggroup.org.

CFAA. The court denied Freedom’s summary judgment motion on its claims that the defendants violated the Consumer Fraud and Abuse Act (“CFAA”). Freedom contended that defendants intentionally and without authorization accessed Freedom’s computer server storing confidential and proprietary information, as well as the server of the financial institution where Freedom held the accounts from which defendants transferred funds. Freedom claimed that defendants’ unauthorized access to obtain confidential information and money from Freedom caused losses in both (1) the money transferred out of the accounts, and (2) the use of confidential information to mislead financial partners and clients into doing business with them rather than Freedom. The court denied the motion as to the claim concerning the use of confidential information, because it found that Freedom did not brief that claim in the argument section of its brief.

The court also found that no “loss” as defined under the CFAA occurred when the defendants transferred money out of Freedom’s account, and thus denied the motion as to that CFAA claim as well. The CFAA defines loss as “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.” 18 U.S.C. § 1030(e)(11). Thus, under Third Circuit law, CFAA loss must relate to the impairment or damage to a computer or computer system, which is not the type of loss that Freedom was claiming.

Lanham Act claims. Freedom brought claims under the Lanham Act and New Jersey’s trademark infringement statute, as well as common law infringement and unfair competition, contending that the defendants used their White Eagle Mark with the intent to deceive the public, causing harm to Freedom’s name, reputation, and goodwill. The court granted Freedom’s motion as to all claims.

The court first found that the White Eagle Mark is valid and legally protectible. Since it is not a registered mark, the White Eagle Mark had to be either inherently distinctive or have acquired secondary meaning. The court agreed with Freedom that the mark was inherently distinctive as an arbitrary mark, because there is nothing connecting the image of a stylized white eagle to loan origination or mortgages. The court also found that Freedom owns and continuously used the mark since 2017.

Because there was evidence that the defendants appropriated the entire White Eagle Mark, Freedom showed their use of the mark was likely to cause consumer confusion, the court held. It noted that defendants registered a website (with a similar domain name) that included the White Eagle Mark. The parties provide the same loan services, through the same channels of trade, and both advertise on the internet, all supporting the likelihood of consumer confusion.

ACPA. The court granted Freedom’s summary judgment motion as to its claim under the Anti-cybersquatting Consumer Protection Act (“ACPA”), finding that defendants’ registration of the domain www.thefreedomfundinggroup.com was a bad faith effort to spoof Freedom’s www.freedomfundinggroup.org website. As noted above, defendants’ website attempted to mimic Freedom’s, including using the White Eagle Mark, and was done by former Freedom employees as part of a scheme to divert clients and other business contacts.

Trade secrets. The court also granted Freedom’s motion as to its trade secret misappropriation claim under New Jersey law. Freedom’s customer lists included confidential information about contacts and loan amounts they requested, and defendants used that information to solicit Freedom’s customers.

The case is No. 3:20-cv-18404-ZNQ-DEA.

Attorneys: Walter M. Luers (Cohn Lifland Pearlman Herrmann & Knopf LLP) for Freedom Funding Group, Inc.

Companies: Freedom Funding Group, Inc.; The Freedom Funding Group, L.L.C.; Plaza Funding Group, L.L.C.

Cases: Trademark NewJerseyNews