Anonymous defamatory posts are “advertising or promotion” under Lanham Act

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I
LLC, 2016 WL 815205, No. 8-cv-0442 (S.D.N.Y. Feb. 29, 2016)
 
R&J sued Assara and a number of related people eight
years ago.  The parties compete to offer
laser hair removal services. Tayar, Shuman, and Jay Shuman were involved in
Assara in various capacities.
 
Starting in 2006, negative posts about R&J appeared on the
internet consumer forums HairTell.com, Yelp.com, CitySearch.com, and
consumerbeware.com from anonymous users who claimed to have used the
plaintiff’s laser hair removal services. The posts came from Shuman, Tayar, and
Assara employees.  One, for example, said
that the poster, claiming to be a “27 year old female” with “light complexion”
and “black hair,” had heard “a horror story” about R&J—that he had heard
from a former Romeo & Juliette technician that the plaintiff had
over-applied EMLA cream to a client, who then “suffered a heart attack” and
came “very close” to dying. There was no evidence of such an incident or that the
true poster had heard that it occurred. 
Others described R&J’s staff as unprofessional and rude; the service
as expensive; and claimed that a test performed by R&J “burned” skin.  And so on. 
Some of the posts promoted Assara instead.  Tayar even wrote that “criticisms” of R&J
had been “blown out of proportion”: “Assara Laser is a good place, but so is
Romeo.”  At the same time, he damned with
faint praise, describing the plaintiff as “not that bad” while noting the
plaintiff’s “staff turnover” and long waiting time.
 
R&J started off the case with claims for trademark
infringement (based on keyword buys) and federal dilution, which have blessedly
dropped out of the case, leaving only false advertising/disparagement-related
claims, and only claims for injunctive relief and attorneys’ fees.  Defendant Will Shuman, appearing pro se and
on behalf of the other defendants, informed the Court that Assara was no longer
in business. In support of their motion to dismiss for mootness, the defendants
submitted a two page “Covenant Not to Compete and Covenant Not to Disparage
Agreement.” The Covenant provided that the signatories—the individual
defendants—“shall not, for a period of 10 years, compete in the business and
industry of laser hair removal … and … shall not publish, in any commercial
context, any statements online regarding the quality or characteristics of the
business or services of” the plaintiff.
 
Unfair competition under §43(a)(1)(B) and New York law: The
court granted summary judgment against Assara and Shuman, but not against
Tayar, Jay Shuman, or Dr. Tayar (Tayar’s father, an investor).  The court addressed whether pseudonymous
comments on internet forums constituted commercial advertising and promotion,
and held that they were. “In pursuit of their commercial interests, the
defendants repeatedly posted disparaging comments to public fora used by
consumers to select laser hair removal services. By anonymously disparaging the
plaintiff’s business and simultaneously promoting Assara, the defendants acted
in pursuit of their economic interests.”
 
Assara, through its employees and officers, and Shuman made
literally false statements by describing experiences that hadn’t occurred, or a
“horror story” he hadn’t heard and that hadn’t happened. “Most of these posts
concerned essential characteristics of the plaintiff’s business, for instance,
physical reactions to its treatments or rudeness by its staff.”  Literal falsity created a presumption of
harm.  However, the court denied summary
judgment as to Tayar, who was actually treated at R&J and whose postings
principally said that service was slow and that the R&J employees were
rude, which were largely matters of opinion. 
There was also no evidence that Dr. Tayar or Jay Shuman made any of the
challenged statements.
 
The New York common law unfair competition claim was
resolved in the same way; it required bad faith in addition to the Lanham Act
evidence, but that was shown because Assara and Shuman deliberately posted
false statements.
 
Defamation: The bare accusation that a product does not
conform to its advertised quality does not, without more, defame the owner of
the product, but disparaging the integrity and professionalism of the competitor’s
business is actionable as per se defamation, not requiring a showing of special
damages.  The evidence showed that Assara
and Shuman defamed R&J by claiming that its staff were unprofessional,
intrusive, and dishonest, even causing physical injuries. The fact that the
statements were purely fictitious showed actual malice.  Defendants argued that they were merely
making statements of opinion, but the statements described fictitious
treatments for fictitious clients.  That
the clients didn’t exist and the treatment didn’t occur was readily
falsifiable, making the statements at issue factual, not opinion.
 
Product disparagement: This requires proof of special damages,
unless the statements at issue “impeach[ ] the integrity or business methods of
the [entity] itself.”   This too had been
shown.
 
Injunctive relief under §43(a): A permanent injunction
against Assara and Shuman was warranted. 
“Because comments posted on the internet will have a lasting impact on a
business’s reputation, and because that impact will be impossible to measure,
monetary damages are inadequate to compensate the plaintiff for the unlawful
activities of the three defendants.” 
Defendants would suffer no hardship from an injunction, given that they
already pledged through the covenant that they would not further disparage R&J.
An injunction would provide “greater peace of mind” to R&J and better
protect its investment in its business. 
The public interest also favored fair competition and the accurate
description of business services.
 
An injunction was warranted even though the internet
postings at issue ended in 2009. 
Defendants denied their responsibility for many years, forcing R&J
to engage in expensive and time-consuming third party discovery to pin the
blame on them.  Only in 2012 did
defendants begin to acknowledge authorship of at least some of the defamatory
statements; because of this litigation strategy and the long pendency of the litigation,
“there is no reliable inference to be drawn as to when the defendants
altogether ceased the improper activities at issue here or the likelihood of
their recurrence.”  Given these unique
facts, the time gap didn’t preclude an injunction.
 
Defendants argued that there was no need for an injunction
since Assara went out of business in 2015 and both Tayar and Shulman signed the
covenant.  The court disagreed.  “This has been lengthy and hard fought
litigation. Without the issuance of an injunction, reinforced by the contempt
powers associated with an injunction, there will be inadequate protection
against the recurrence of the defendants’ sharp business practices and the need
for renewed litigation.”  Plus, R&J
showed that Assara was still registered as an active entity with the New York
Department of State, and Assara’s website was still live; there was also no
impediment to Shuman opening another laser hair removal business, named Assara
or something else.
 
Thus, Assara and Shuman would be enjoined from publishing
false statements about R&J on internet forums. The court left the specifics
for another order, which is sad because I wanted to know if they’d be required
to delete/request deletion of the existing defamatory comments.
 
Defendants argued unclean hands because R&J’s owner engaged
in “astroturfing” in praise of his business. Even assuming that to be true,
R&J’s astroturfing wasn’t related to the defendants’ defamatory posts. No
one testified that defendants’ posts were prompted or justified by R&J’s
glowing descriptions of its own business.  And false accusations that R&J physically
injured its clients “represent serious misconduct.”
 
Laches also didn’t apply; R&J had been seeking an
injunction since it filed its 2012 motion for summary judgment, and anyway,
defendants didn’t show how they’d been prejudiced.  Nor was the case moot, despite a declaration
from Shuman stating that Assara ceased operations, that each of the defendants
except Shuman had left New York, and that Assara “will never re-open.”  Nonetheless, defendants didn’t show that it
was “absolutely clear” that their wrongful conduct would not recur. The covenant
had “significant authenticity and execution issues.” Further, “the defendants’
misrepresentations during this litigation counsel against reliance on the
representations they offer today.” Moreover, as recently as November 24, 2015,
Shuman wrote to the supplier that he and Tayar were “discussing selling” an old
laser and “purchasing or leasing a later model.” “Given the malicious nature of
the internet postings, as well as the deceit involved in litigating this case,
a simple promise by the defendants to cease their disparagement is not enough
to moot this matter.”

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