Bad 230 ruling for LivingSocial

Faegin v. LivingSocial, Inc., 2015 WL 1198654, No. 14cv00418 (S.D. Cal. Mar. 16, 2015)
After losing its attempt to mandate arbitration, LivingSocial gets a terrible §230 ruling in this trademark infringement etc. case involving vouchers it sold.
The plaintiffs were joint owners of A.T. Your Service Cleaning and Janitorial. LivingSocial is a “‘strategic business marketing partner, creating online promotions,’ in other words, a marketplace that partners with vendors to advertise and offer deals and discounts to potential customers.” The other defendants owned At Your Service Housekeeping, a competing service also operating in San Diego County. From March through April 2012, plaintiffs partnered with LivingSocial to advertise A.T. Your Service in San Diego County.  Then in May to July 2012, the At Your Service defendants partnered with LivingSocial to do the same thing.  They allegedly failed almost uniformly to honor vouchers bought on LivingSocial’s website, and consumers were confused about the two services, at least in part because the vouchers failed to contain a phone number for At Your Service, and consumers searched for the phone numbers online and found A.T. Your Service. This allegedly led to “unwarranted negative reviews of Plaintiffs’ services on popular review websites such as Yelp, Google+, Facebook, etc.”
The complaint asserted trademark infringement, false advertising, and unfair business practices (as well as a fraud claim against the non-LivingSocial defendants).  LivingSocial moved to dismiss all claims against it.
LivingSocial claimed CDA immunity, reasoning that it wasn’t alleged to have played any role in the codefendants’ adoption and use of the name.  Since none of the claims would exist without the name, LivingSocial reasoned, that ended the CDA analysis.  Under Roommates, “so long as a third party willingly provides the essential published content, the interactive service provider receives full immunity regardless of the specific editing or selection process.” The complaint alleged that the codefendants partnered to sell vouchers, and that “[t]he vouchers sold by defendant LivingSocial failed to contain a phone number for At Your Service [Housekeeping], causing customers to search for the phone number online and to confuse and associate Plaintiffs with At Your Service.” Because of the prior partnership, the complaint further alleged, LivingSocial knew about the resulting “dilution,” and profited from the vouchers; it also “permitted 30 days to pass without providing the services ordered.”
Eric Goldman is going to hate this:
Based on the allegations of the FAC, the Court cannot conclude that Defendant LivingSocial is entitled to immunity as an “interactive computer service” that is not an “information content provider.” The FAC alleges that Defendant LivingSocial advertises and sells the allegedly misleading vouchers. From this allegation, the Court is able to draw the “reasonable inference” that Defendant LivingSocial was “‘responsible, in whole or in part’ for creating or developing” the content made available on LivingSocial’s website.
I’m not as militant as Eric is on this point, but this strikes me as entirely wrong.  Amazon advertises and sells lots of books. It is not reasonable to infer that it was responsible in whole or in part for creating and developing the content therein.  We know, under Roommates, that providing guidelines for content is not enough to make a defendant a content provider, if the actual content provider can still choose between legal and illegal content.  How then could it possibly be reasonable to infer that it is more likely than not, per Twiqbal, that LivingSocial bore responsibility for creating or developing the unlawful content from the allegation of advertising and sale of vouchers for third-party services?  The court even quoted the right standard: selection or editing rules don’t strip a provider of §230 immunity.  It seems much more plausible that LivingSocial applied selection or editing rules than that it wrote the unlawful content (or that it barredthe other provider from including its telephone number, triggering the resulting confusion).
LivingSocial then argued that §1114(2)(B) of the Lanham Act required that federal claims against it be dismissed to the extent they sought anything but injunctive relief, since it provided advertising services for the codefendants’ company and was therefore entitled to the publisher’s safe harbor. Moreover, any request for injunctive relief was moot because “LivingSocial stopped running co-Defendants’ advertisement in July 2013 and the co-Defendants’ website and business is defunct.”
Plaintiffs argued that LivingSocial wasn’t an innocent infringer and therefore couldn’t qualify for a safe harbor: it was aware of A.T. Your Service Cleaning and Janitorial’s existence through the parties own business relationship beginning in early 2012. Under §1114(2)(B):
Where the infringement or violation complained of is contained in or is part of paid advertising matter in a newspaper, magazine, or other similar periodical or in an electronic communication …, the remedies of the owner of the right infringed or person bringing the action under section 1125(a) of this title as against the publisher or distributor of such newspaper, magazine, or other similar periodical or electronic communication shall be limited to an injunction against the presentation of such advertising matter in future issues of such newspapers, magazines, or other similar periodicals or in future transmissions of such electronic communications. The limitations of this subparagraph shall apply only to innocent infringers and innocent violators.
Because the complaint alleged knowing infringement based on the prior relationship, LivingSocial wasn’t entitled to safe harbor protection.
Similarly, the claim for willful trademark dilution under state law survived, even though LivingSocial argued that the complaint only alleged that LivingSocial “knew or should have known that the business names were similar and that its advertisements would cause dilution of the famous mark,” a “threadbare recital” of the elements.  Given the prior relationship, the court found that the allegations were sufficient to infer willful infringement.  Comment: I don’t get how knowledge or constructive knowledge became willful intent to dilute—what’s the motive on LivingSocial’s part that justifies that further inference, as opposed to indifference?  Also, the court’s failure to distinguish infringement from dilution hampers it here: intent to infringe (confuse consumers) is different from intent to dilute (whatever that is).
Although the court called dilution “infringement,” it correctly recognized that plaintiffs hadn’t plausibly pled federal fame. Plaintiffs argued that any such determination was premature, because they alleged that they’d advertised A.T. Your Service on numerous websites and that the service had been recognized on consumer review websites such as Yelp, Google +, and Facebook.  The complaint further alleged that the advertising partnership with LivingSocial helped make A.T. Your Service’s mark famous and distinguished. But federal fame requires that the plaintiff be a “household name,” and the complaint failed to allege facts demonstrating that A.T. Your Service was “widely recognized by the general consuming public of the United States.”
The UCL claim survived because of the other alleged legal violations.
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