A pox on both their steel buildings: unusual copyright and false advertising rulings

General Steel Domestic Sales, LLC v. Chumley, — F. Supp. 3d
–, No. 13-cv-00769, 2015 WL 5353080 (D. Colo. Sept. 15, 2015)
 
A bizarre copyright fair use ruling mars this iteration of
this long-running, bitter dispute between the parties, who compete to sell prefabricated
steel buildings, while its discussion of naked SEO raises a lot of questions,
not least for SEO companies.
 
General Steel briefly employed Chumley, who then founded defendant
Atlantic Building Systems.  After Chumley
lost generalsteelscam.com to a UDRP, he registered steelbuildingcomplaints.com,
which General alleged contained defamatory content.  Chumley promoted the site through SEO,
creating “hundreds or thousands of placeholder websites that consist primarily
of links containing variations on the name ‘General Steel,’ all of which link
back to steelbuildingcomplaints.com or to web pages belonging to Armstrong.” The
prominent place of the site in search results for “General Steel” allegedly
discouraged potential General customers. Likewise, Chumley allegedly purchased ads
that displayed when a user searched for “General Steel” or its variants.
 
Chumley also allegedly began calling General’s customers, posing
an investigator with the Colorado Attorney General’s Office and inviting the
customers to file complaints against General. And he allegedly sent letters to
General’s customers from the “Consumer Advocacy Alliance – General Steel
Investigation Unit,” a fictitious entity, to the same effect.
 
General sued for false advertising, violation of ACPA,
libel, unjust enrichment, civil conspiracy, and misappropriation of trade
secrets.
 
Armstrong counterclaimed for false advertising based on
various factual claims General Steel made about itself and copyright
infringement based on General’s uses of Armstrong’s logo, including a modified
version that replaces the phrase “Armstrong Steel” with the phrase “Fraudulent
Steel.” General also allegedly used ads showing Armstrong’s logo and reading
“buy an Armstrong Steel building!” that, when clicked, redirected to General’s
website.  Why the latter conduct isn’t
straight-up trademark infringement, obviating any need to fool around with
copyright, is unclear to me.
 
General sought summary judgment on Armstrong’s
counterclaims.  As to false advertising,
Armstrong challenged various claims by General: statements that General was a
“manufacturer” of steel buildings, that it has been in existence for more than
50 years, that it supplied steel to the U.S. military during World War II, that
it had a “history of 100% customer satisfaction” and “zero unresolved customer
issues,” and that it made false statements about Armstrong.
 
The allegedly false blog posts and pay-per-click ads containing
most of these statements were not created by General itself, but by a SEO
company called JEMSU, whose employees or contractors wrote the text with
backlinks to General’s website, trying to appear to be legitimate, independent
sources of content about General.  The
undisputed false statements include statements that General manufactures steel,
steel buildings, and products like automobile rims (in fact, General
manufactures nothing and only serves as a seller of others’ products); that it
has a storied history dating back more than 50 years (when, in fact, that
history belongs to a different entity with a similar name); and so on.  General argued that it couldn’t be
responsible for what JEMSU, an independent contractor, did, but the court found
a genuine issue of material fact about whether JEMSU was General’s agent.
 
General argued that, beyond giving JEMSU instructions about
not identifying General as a “manufacturer” in the written content, it deferred
entirely to JEMSU’s expertise and exercised no control over how JEMSU proceeded
to perform the work.  But there was
evidence both of the ability to exercise control and of its actual exercise.  JEMSU’s principal stated in deposition that,
if asked by General, JEMSU “could … have put prohibitions on what [JEMSU] could
publish about them.” JEMSU currently submits the content it intends to post on
General’s behalf to General for approval prior to posting, and General could
have but didn’t request such review earlier. After Armstrong filed its
counterclaims, General requested that JEMSU remove certain content it had
posted on General’s behalf, and JEMSU did so. After General discovered that a
JEMSU employee had written false content about General manufacturing “steel
rims” for vehicles, General “told [JEMSU] that they needed to evaluate
everything that [the JEMSU employee] had written” and rewrite it if necessary.  General hired JEMSU to achieve one goal:
raising General’s search engine profile, arguably making it like a master who
hires a full-time cook (who is the master’s agent despite having
moment-to-moment autonomy).
 
There was also a genuine dispute of fact about whether
General granted JEMSU the authority to publish the false content.  General argued that it told JEMSU that it
could write anything that was truthful, but not refer to General as a
manufacturer of buildings.  One of
JEMSU’s founders testified that he remembered thus, but that General never
informed them that JEMSU should not refer to General as a manufacturer, or
otherwise placed any limitations on the content JEMSU would create.  A jury could find that General simply told
JEMSU to “have at it,” which means that JEMSU’s posting of false information
could be within the scope of the authority delegated to it.
 
General then argued that the false statements weren’t
“advertising” because the content was never intended to be read by humans.  Thus, it failed to meet the “for purposes of
influencing consumers to buy” and “disseminated sufficiently to the relevant
purchasing public” elements of the classic Gordon
& Breach
test for “commercial advertising or promotion.”  (Query: if the content was only meant to
affect search engines’ algorithms, and if it worked—something not at all
discussed by the court—then doesn’t this mean that search engines are deeply
failing in their mission?)
 
The court disagreed. 
JEMSU’s content wasn’t arbitrary or utterly irrelevant to General’s
operations – “for example, it does not consist of links to General’s website
embedded in randomly-generated sentences, paragraphs from ‘Moby Dick,’ or even
portions of generic, neutrally-phrased encyclopedia articles about the history
and manufacture of steel.”  With some
humorous exceptions, JEMSU created materials that were intended to appear to be
“legitimate news articles, reports, or testimonials about General and that
frequently contained praise for General.” 
(Making a separate falsehood, and one also violating FTC guidelines,
that these articles represented independent assessments of General’s goods and
services.)  E.g.:
 
“General steel has you covered”: “I
wish I still had a picture of the fifty year old grain silo that general steel
[linked] built for my grand daddy back when he was running the family farm. You
could put that picture up to a picture of a grain silo built today and I tell
ya, you’d be hard pressed to find a difference between the two…Most people
don’t believe me but I tell them that general steel just knows their stuff and
sometimes that is all you need to have a quality product that lasts and
lasts….”
 
Other posts claimed to be from a CEO of an auto
manufacturing company; a purchaser of wheel rims; a captain of a US Navy ship
(this article appeared on “Everyday Mommy,” a website whose tagline is “Being a
mom is a choice, and a full-time job!”); a writer offering advice to small
airports that needed hangars; etc.  The
articles were designed to promote General and create positive associations
between it and quality products.  “The
ultimate purpose of the testimonials was to influence the algorithms to reflect
the quantity and quality of favorable comments for the benefit of the ultimate
consumer,” and that was promotion. 
(Compare the function of press releases.)
 
And then the court makes a weird swerve, asking whether the
promotion “reached the ultimate consumer.” 
Most ads are unread; most commercial mail is tossed out; people mute or
skip TV commercials or go to the bathroom while they’re on; there’s even good
evidence that our eyes skip over banner ads so well that most of us don’t even
process their existence.  Dissemination
is easily measured; reception not so much—very few plaintiffs would be able to
produce evidence one way or another about that. 
And there’s really no reason to try to figure out how many people read
advertising that attempted to reach lots of them; it’s the attempt that makes
it advertising.  But the court was swayed
by the argument that General “never intended any human being to read the
material JEMSU posted,” only search engine algorithms.  (Again, I’d point out that this constitutes a
separate act of false advertising, and that would have also reached any
consumers who searched for General Steel. 
In addition, to the extent that the strategy succeeded, snippets would
also show up in search results, containing the words of praise for General
Steel.)  The record didn’t show that
there was more than an “incidental” amount of traffic to the JEMSU pages. 
 
In Sports Unlimited, Inc. v. Lankford Enterprises, Inc., 275
F.3d 996 (10th Cir. 2002), dissemination of a document to between
two and seven individuals all associated with the same project was
insufficient, as a matter of law, to constitute “advertising or promotion in
the industry” under the Act, particularly when there was evidence that the
plaintiff bid for as many as 150 jobs per year. A plaintiff must show “some
level of public dissemination of the information.”  Though I’d read “dissemination” to focus on
the defendant’s efforts, the court found that Sports Unlimited meant that “a dissemination of information must
reach some numerically-significant quantity of actual or potential customers of
the parties’ products.”  The record
didn’t show how many actual or potential customers saw the JEMSU pages.  “It is possible that the visitors reached the
pages as a result of an internet search for information on steel buildings, but
it is just as plausible that that they had no interest in steel buildings and
arrived at the pages due to a coincidental search — say, for information about
navy battleships or the whereabouts of a high school classmate with the same
name as a JEMSU article’s ostensible author – or due to a typographical error.”
 
Armstrong argued that literal falsity meant that it didn’t
need to show any actual deception, which was true but not relevant to whether
JEMSU’s posts were “advertising.”  Thus,
General won summary judgment.
 
What about the pay-per-click ads?  One ad read “The #1 Steel Building Manufacturer!
Call Toll Free: [phone number].” It was undisputed that General was not a
“steel building manufacturer.”  Again,
the record suggested that General reviewed this ad text and could be held
responsible for it.  This part of the
false advertising claim proceeded.
 
Armstrong also challenged statements made directly by
General: (i) a graphic reading “Awarded Best in the Industry 2007 –present,”
when, in fact, no such award exists; (ii) a statement that General has a
“customer service track record of zero unresolved customer issues since the
company was established”; and (iii) a statement that “No other steel building
company can compete with our company’s history of 100% customer satisfaction.” In
fact, General has been the subject of numerous complaints to the Better
Business Bureau and has been sued by customers some 20 times.

General argued that these statements were all puffery or unfalsifiable.  The court agreed as to “Awarded Best in the
Industry,” “as no reasonable consumer would rely on such an assertion without
first inquiring further into the nature and credibility of the entity granting
the award.” (Citing Hackett v. Feeney, 2011 WL 4007531 (D. Nev. 2011) (a boast
that a particular theatrical performance was “Voted #1 Best Show in Vegas,”
when no such “vote” ever occurred, was mere puffery)). But “zero unresolved
customer issues” and “[a] history of 100% customer satisfaction” were specific,
measurable claims that could be evaluated as true or false. Their truth could
be verified or falsified by finding out whether there were examples to the
contrary.  (But this wasn’t too
exaggerated to be believable?)
 
General argued that one could read the words various ways to
make them true: that General considered customer complaints “resolved” even if
the customer did not, or that a customer could be “satisfied” in some respects
even if infuriated in others. That wordplay “does violence to the ordinary
meanings of those terms as they would be understood by reasonable consumers.”
At least, those claims meant that every customer was on balance satisfied with
their transactions, and that any customer encountering a problem with General’s
performance was ultimately able to reach a mutually-acceptable resolution of the
issue.  Given the evidence of falsity,
General couldn’t win summary judgment on this ground.  (Intriguingly, the court didn’t require any
evidence about how many potential customers visited General’s website.)
 
General then argued that Armstrong couldn’t show
damages.  A presumption of injury and
causation is only appropriate when a defendant’s false advertising directly
compares the parties’ products. 
Armstrong might be only one of many competitors; they couldn’t all seek
the same money damages, but a presumption of injury for each one would allow
that.  Without any other evidence,
Armstrong wasn’t entitled to money damages.
 
Copyright infringement: Armstrong alleged that General
infringed its copyright in two ways. 
First, General’s website had an “e-brochure” warning of unsavory
techniques by competitors.  On the left
side, a column read “IS THIS THE OTHER STEEL COMPANY?” and showed an image of a
laptop computer displaying a shield logo with the words “FRAUDULENT STEEL” above
a yellow four-pointed star on an orange background.
 

Second, at least one JEMSU-created blog had an ad, “Buy an
Armstrong Steel Building!,” accompanied by the actual Armstrong “shield” logo,
a photograph of a building, and box reading “click here for more information.” The
ad led to General’s website, not to Armstrong’s.
 
General argued that its use “FRAUDULENT STEEL” was fair use,
but the court denied it summary judgment on that ground.  First, General used most of the elements of
Armstrong’s mark – “the shape, color, and graphical elements are essentially
identical between Armstrong logo and General’s version of it, as is the use of
the word ‘steel.’”  This reasoning is
silly, because “fraudulent” changes the overall impression so much that the
similarities only evoke the original; also, this reasoning shows the danger of
giving copyright in small works.
 
Second, the purpose of General’s use was not to comment or
criticize the mark itself, but rather to criticize Armstrong, which isn’t fair.
This reasoning is much worse; it is certainly transformative to use a symbol of
an entity to criticize that entity.  Prince v. Cariou and Green Day, among others, don’t even
require the transformative content to comment on the original; commenting on
the entity that has chosen this image as its logo is far more clearly within
the scope of transformative fair use. 
See, e.g., Katz v. Chevaldina, (11th Cir. Sept. 17, 2015) (use of unflattering
photo to criticize subject of photo was fair use). The obviously censorial
motive here, having nothing to do with copyright’s intended incentive function,
makes the manipulated logo a no-brainer fair use.  And, of course, this is what comes of using
copyright to do trademark’s job—trademark parody doctrine easily understands
that mocking a signifier can mock the signified.
 
It’s notable that the court says nothing more about the
other factors, such as the nature of the work (a commercial logo, with little
need of copyright’s incentive function) and the effect of the use on the market
for the copyrighted work (zero).
 
The allegedly deceptive use of the unmodified logo is more
troubling, though the harm, again, is really trademark harm, and so the stated
reason for denying summary judgment is badly wrong.
 
General argued that it lacked sufficient control over JEMSU,
but—without diving into the copyright-specific twists that secondary liability
has taken—the court denied summary judgment on the basis of the reasons given
above. 
 
Armstrong then moved for summary judgment on General’s
claims against it.  False advertising:
the steelbuildingcomplaints.com site contained statements that allegedly harmed
General, such as false statements that the website is “by consumers for
consumers” and that much of the negative content came from actual General
customers and false or misleading statements about General’s customer
relations. 
 
General also alleged that letters sent under the name
of the “Consumer Advocacy Alliance” contained false statements about the
sender’s identity and about General’s involvement in a trial. Likewise, Armstrong
sales employees allegedly made telephone calls to General’s customers, falsely
claiming to be calling from a governmental agency.
 
First, the court found that a reasonable factfinder could
determine that Chumley was the author of much of the website’s content, and
thus “by consumers, for consumers” was false. 
However, the rest of the allegations were messy, based in part on General’s
references to a different website (generalsteelscam.com).  For example, the website at issue here
reported that “General Steel employees [have stated] that they too are growing
tired of the lies. Daily sales meetings have been referred to as ‘daily
indoctrination.’”  General’s affidavit
stated that this was “false and outrageous,” but the court thought that
General’s witness on this point was “in no apparent position” to so claim
unless he had personal knowledge of every communication by every General
employee.  General’s affidavit also said
that the statement that there have been “dozens and dozens of lawsuits
involving transactions with General Steel” was false, but didn’t specify how
the witness knew this or the actual number of lawsuits that were filed by
customers.  However, there was enough
evidence that at least some of the listed statements were literally or
implicitly false to deny the summary judgment motion.  To deal with the problem, the court stated
that the parties would have to identify all their false advertising claims with
“pinpoint-precise” specification, usually verbatim, before trial.
 
Armstrong then argued that the site didn’t constitute
“advertising or promotion” but was merely a noncommercial gripe site.  As a direct competitor, however, Armstrong
had a strong commercial interest in diverting customers from General, and so it
was engaged in commercial advertising. 
 
Armstrong also argued that General couldn’t show actual or
likely deception, but putative former General customers claiming that General
was a “scam” etc. would clearly be likely to affect purchasing decisions.
 
Armstrong then argued that the false advertising claim was
barred by res judicata; an earlier suit found Armstrong liable for false
advertising.  In that case, General put
on some evidence at trial concerning generalsteelscam.com and the judge made
some findings about it.  He found, inter
alia, that Chumley denied operating the site but admitted to “submitting large
amounts of content to it,” and that the evidence at trial “did not establish
that [the site’s content] was false.” However, the false advertising contained
on the site at issue here wasn’t part of the same transaction, event, or
occurrence litigated in the earlier case. 
That earlier case “focused on Armstrong boasting of false
accomplishments on its own website and falsely appropriating General’s name in
pay-per-click advertisements; those claims had no necessary connection to
Armstrong making websites that falsely disparaged General.”  Plus, the site at issue here was begun only
months before the trial of the earlier case, long after the deadline for
amending pleadings and adding claims. Evidence about this website was offered
for the collateral purpose of showing Chumley’s intent to harm General. Thus,
res judicata didn’t apply.
 
ACPA: Was generalsteelscam.com “confusingly similar” to
General’s trademark in GENERAL STEEL? UDRP cases sometimes say that the answer
is still yes if the registrant adds a disparaging term, but federal courts
generally say no.  Summary judgment for
Armstrong.
 
Libel: The court had already rejected Armstrong’s arguments
that General couldn’t show falsity and that the CDA protected it, so summary
judgment was denied.  The court dealt
with the other claims quickly, kicking out the civil conspiracy and trade
secrets claims for lack of sufficient evidence.

from Blogger http://ift.tt/1OpK4lu

Advertisements
This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s