AvePoint, Inc. v. Power Tools, Inc., 2013 WL 5963034, No. 7:13CV00035 (W.D. Va. Nov. 7, 2013)
AvePoint sued Power Tools (aka Axceler) and Burns (Axceler’s regional VP of sales for Western North America) for defamation, breach of contract, trademark infringement, false advertising, and violations of the Virginia Computer Crimes Act. The parties compete to provide software for Microsoft SharePoint products. The most interesting part of the case: Axceler allegedly created an account on LinkedIn pretending to be an AvePoint employee, deceiving even other AvePoint employees into believing that “Jim Chung” was a colleague, and the court holds that this could be trademark infringement. Burns allegedly publicized Jim Chung’s profile, including by tweeting “# Axceler and Jim Chung are gonna rock Vegas” and “Just ran into jim chung from avePoint Good guy.” In response, Christian Buckley, Axceler’s Director of Product Evangelism (ed.: really?), tweeted: “@MICHAELBURNS Free Jimmy! # Axceler.”
Axceler also allegedly made up an email account to obtain a copy of the most recent version of one of AvePoint’s products, claiming to be Jill Wagner from “Kohl\ ’s Food Stores.” This allegedly violated AvePoint’s website terms and conditions, which allowed use of material from AvePoint’s website “solely for personal and noncommercial use” (I don’t understand how this covers the trial copy of the software, since that wasn’t on the site).
The court refused to dismiss the claims, starting with the defamation claim. The following claims were allegedly defamatory: (1) AvePoint was a Chinese company; (2) its software wasn’t developed, supported, or maintained in the United States; (3) its software was maintained in India; (4) Axceler’s product was Microsoft recommended over AvePoint; (5) AvePoint customers are “dumping out of 3 year deals in year 2 to buy Axceler’s Controlpoint”; and (6) Axceler uses its maintenance revenue to improve its customers’ existing product whereas AvePoint uses its maintenance revenue to develop new products to which its customers have no access. These statements were made via Twitter (e.g., referring to AvePoint as the “Red Dragon” and “MADEINCHINA”) and in conversations.
Axceler argued that the first three statements weren’t defamatory as a matter of law. The court didn’t agree. While most Americans may no longer cling to ideas that Asian goods are inferior or that buying them is unpatriotic, AvePoint specifically alleged that these claims had a significant impact on customers’ willingness to buy, especially with federal government customers who are required to give domestic preferences. Axceler’s tweets even said so: “Is where your #SharePoint products developed important to you? Government Answer; Absolutely! @Axceler #ControlPoint #MADEINTHEUSA”; “Ouch … Another #Federal Deployment Finds Out Where the Competition is Developed. #SharePoint #RedDragon #Governance #FDCCI @Axceler.”
The Microsoft-recommended statement, Axceler argued, wasn’t necessarily harmful, since both products could be good. But on a motion to dismiss, it could still be defamatory per se. The next, a tweet that “the Evil Avenue’s customers are dumping out of 3 year deals in year 2 to buy Axceler’s ControlPoint,” was also potentially defamatory and not just opinion. (The case law on this is thin, but you can mark this court down as one that doesn’t discount for Twitter posting, as some courts have done for blog postings which they’ve considered almost inherently hyperbolic and nonfactual.) Finally, the claim that AvePoint uses maintenance revenue to develop new products instead of improving existing products was also potentially defamatory, since it implies misuse of revenue from customers and allegedly caused AvePoint to lose a sale.
The court also refused to dismiss the breach of contract claim based on AvePoint’s browsewrap. At this stage, AvePoint alleged an enforceable contract; though it was just a link at the bottom of the website, AvePoint plausibly alleged that Axceler had actual or constructive knowledge of the terms and conditions, given that Axceler “went to the trouble of creating a fictitious profile and email account in order to download the software,” and that it had a similar browsewrap agreement on its own site.
Next, the court found that it was plausibly trademark infringement (and false endorsement/false association/false designation of origin) to create a fictitious AvePoint representative on LinkedIn. The allegations, if true, showed use in commerce, since LinkedIn is allegedly an instrumentality of interstate commerce used for advertising and promotion. (In a footnote, the court declined to rule on whether “use in commerce” must be the same kind of use sufficient to register a mark, but said that this would qualify anyway.) And this was use in connection with sale/advertising of goods or services, that is, commercial use.
Allegedly, “defendants set up the fictitious LinkedIn account to fortify Axceler’s position in the marketplace and reap competitive, commercial benefits.” The profile encouraged users to contact Jim Chung regarding “business deals” with AvePoint, “new ventures” with AvePoint, and “consulting offers” related to AvePoint products and services. But contacts would unwittingly be directed to AvePoint’s primary competitor. AvePoint alleged that defendants diverted business and profited from AvePoint’s goodwill by fielding customer inquiries through this account. This wasn’t merely a parody website or a site promoting “opposing behaviors or ideas” (PETA, largely superseded by Lamparello), but rather an alleged masquerade by a direct competitor.
Defendants argued that Jim Chung’s profile was “best described as a resume for Chung, listing his experience, education and groups/associations,” and allegations to the contrary about business purposes “def[y] the very organization of LinkedIn.” But that didn’t help at the motion to dismiss stage.
AvePoint also sufficiently alleged likely confusion; it alleged both an intent to confuse and resulting actual confusion among actual AvePoint employees and current and potential customers. (Technically, the first category—AvePoint employees—isn’t subject to the kind of confusion the Lanham Act targets since they aren’t the relevant consumers. Still, I see the relevance, even though the harm alleged, albeit “insidious,” isn’t Lanham Act harm but rather trade secret harm: “those employees unwittingly enabled Axceler to access other AvePoint customer and employee contacts—including those customer contacts associated with legitimate AvePoint employees’ profiles—and other competitive business information.”) Defendants argued that the LinkedIn users were merely confused about whether they knew Jim Chung, but that wasn’t enough at this stage.
Although it accepted that basis for false designation of origin, the court didn’t agree that misrepresenting AvePoint as a Chinese company could be a false designation of origin under §43(a)(1)(A), which speaks to the origin of the defendant’s owngoods or services; that’s a §43(a)(1)(B) false advertising claim. As you might expect, though, the false advertising claim also survived. AvePoint plausibly alleged at least some conduct amounting to commercial advertising or promotion under Gordon & Breach: the messages on Twitter. Though these posts didn’t mention AvePoint by name, that wasn’t required: statements about the “Red Dragon” and “SinkingREDShip” could be fairly understood to refer to AvePoint and its products and services. They were also plausibly “advertising,” since AvePoint alleged that Twitter was “a commonly-used means of advertising in the software industry,” and that the messages “were published and republished to hundreds of customers, potential customers, and other members of the Microsoft SharePoint community.” Axceler allegedly used certain hashtags to link the messages to the US Army Twitter community and other federal customers. Thus, Axceler allegedly misrepresented the geographic origin and quality of AvePoint’s products and services. (Similar state law claims also survived; Virginia state law requires “non-oral” ads causing “actual injury.”)
In addition, in a decision that ought to worry people who worry about the CFAA, AvePoint stated a claim under the Virginia Computer Crimes Act by allegedly obtaining a trial copy of AvePoint’s program for competitive purposes. The VCCA provides that “[a]ny person who uses a computer or computer network, without authority and … [o]btains property or services by false pretenses … is guilty of the crime of computer fraud.”