Volunteer moderator plausibly alleged to be agent of ISP for 230 purposes

Enigma Software Gp. USA LLC v. Bleeping Computer LLC, 16 CV
57 (S.D.N.Y. Jul. 8, 2016)
Eric Goldman probably won’t like this decision holding that
a volunteer moderator may be treated as the ISP’s agent when the ISP gives
enough status to him or her; I’m less bothered by the §230 ruling (except for
the legal error, which the court may have a chance to correct later).
SpyHunter, an “adaptive malware detection and removal tool,”
is plaintiff ESG’s flagship anti-malware product. Consumers can download a free
scanning version of SpyHunter through a link on ESG’s website. Consumers can
also buy a license to the full version of SpyHunter. That version includes the
scanner, as well as tools to remove malware and other security protection
Bleeping operates a website that offers information, advice,
and resources about computer technology and security, and one of its focuses is
anti-malware software. Bleeping gets commissions from designated “Affiliate”
software companies for promoting their products on its website.  In the Bleeping forums, “staff members” “generate
and control [the] content” posted. Bleeping has “Advisors,” whom Bleeping holds
out as experts who “can be trusted to give correct and understandable answers
to [users’] questions.” Above Advisors in the hierarchy are “Global
Moderators,” who enjoy “special powers” to enforce rules governing the Forums,
e.g., by “closing” discussions, editing the content of users’ posts, and
suspending the posting privileges of users who violate the rules. Lawrence
Abrams, Bleeping’s owner, is the overall “Admin” of the Forums.
Whenever an Advisor, Global Moderator, or Admin posts in
Bleeping’s Forums, “Bleeping clearly identifies that the post has been made by
[a Bleeping staff member]. Because Bleeping touts its staff as experts who can
be “trust[ed] to provide correct, unbiased and truthful advice,” users
allegedly rely on their advice when making purchasing decisions regarding
anti-malware products. But Bleeping instead allegedly directs users to
affiliates in order to promote its own financial interest, and also made false
claims about ESG and SpyHunter  Bleeping also
allegedly routinely removes links posted by users that endorse ESG’s products.
ESG allged that Quietman7, a Bleeping Advisor and one of only
three Global Moderators, was a chief spokesperson for Bleeping’s “smear
campaign” against ESG. In particular, Quietman7 accused ESG of deceptive
advertising; labeled SpyHunter a “dubious” and “ineffective” program that
generates false positives; and claimed that SpyHunter was a “rogue” product
that was properly classified as malware. Quietman7 advised users to remove
SpyHunter and replace it with a more “trustworthy” alternative—“invariably an
Affiliate product, such as Malwarebytes Anti-Malware, for which he supplied an
Affiliate Link.”  Users were allegedly
influenced by this, saying things like “I’m convinced. Will buy a more
trustworthy product when [SpyHunter] expires.”
First, the court held that, because §230 excludes IP claims,
the Lanham Act false advertising claim wasn’t subject to §230.  The court cited two cases: Gucci Am., Inc. v.
Hall & Assocs., 135 F. Supp. 2d 409, 413 (S.D.N.Y. 2001) (as you can
probably guess from the plaintiff, this is a trademark infringement case); see
also Ford Motor Co. v. GreatDomains.com, Inc., No. 00 Civ, 71544 (DT), 2001 WL
1176319, at *1 (E.D. Mich. Sept. 25, 2001) (same). “On the basis of the
statutory text, the Court, therefore, holds that the CDA does not bar ESG’s
Lanham Act claim.” [Aaaagh!  Ahem, let me
try again.  False advertising is not IP,
even if trademark infringement is; §43(a), like 2/3 of Gaul, is divided into
two parts. Or, in other words, it’s not plausible to define the interest ESG is trying to protect as an interest in its intellectual property, rather than one in its reputation.]
Second, the court held that ESG sufficiently alleged that
Bleeping was the provider of the problematic content because, on the facts
pled, Quietman7 was acting as Bleeping’s agent when he posted them. Under New
York law, an express agency is created through (1) “the principal’s
manifestation of intent to grant authority to the agent,” (2) “agreement by the
agent,” and (3) the principal’s “control over key aspects of the undertaking.”  Implied agency can also occur where the
principal’s conduct, “reasonably interpreted, causes [ ] third [parties] to
believe that the principal consents to have the act done on his behalf by the
person purporting to act for him.”
Bleeping publicly designated Quietman7 as a “Global
Moderator” and “Advisor”—the second and third highest “staff member” positions
within the Bleeping member group hierarchy. Quietman7 since signed his posts as
“Bleepin’ Janitor” and “The BC Staff.” Bleeping staff members are allegedly
directed to promote affiliates’ products and discourage use of non-affiliates’
products, and are allegedly promoted as reliable sources of information.
They’re authorized to enforce forum rules and suspend posting privileges for
rule violations. This was enough to support the conclusion that Quietman was
acting as Bleeping’s agent, at least its implied agent, when he posted the
challenged content. 
Interestingly, the court cited two copyright cases in
support of its finding of a plausible claim. 
Court’s parentheticals: Capitol Records, LLC v. Vimeo, LLC, 972 F. Supp.
2d 500, 518–19 (S.D.N.Y. 2013) (triable issue of fact existed as to
whether  employee-uploaders were acting as
website’s agents, where uploaders served as “editorial voice” for website and
website posted “staff badge” next to uploaders’ names on their posts); Columbia
Pictures Indus., Inc. v. Fung, No. 06 Civ. 5578 (SVW), 2009 WL 6355911, at *13
n.21 (C.D. Cal. Dec. 21, 2009) (websites liable for moderators’ infringements,
despite lack of evidence of actual authority, where “websites’ act of
designating them as ‘moderators’ and providing them with specific forum-related
powers [could] lead[] a ‘third party reasonably [to] believe[ ] the
[moderators] ha[d] authority to act on behalf of the [website]”) (internal
quotation marks and citation omitted). 
Although other cases find that “moderator” status, without more, does
not render a website operator liable for a moderator’s conduct (as these cases
apparently do), ESG’s claim of agency wasn’t just about Quietman7’s designation
as a “moderator.” He was designated a “staff member,” had special authority as
an Advisor and Global Moderator, and was held out as an expert. Bleeping’s cases
involved either moderators who had limited powers or didn’t themselves author
the offending posts.
Nor did Quietman7’s volunteer status prevent him from being
an agent. “New York courts have repeatedly held volunteers to be agents where the
common law requirements for agency were met.”
After that, the court held that the claims weren’t
time-barred; some posts occurred within the 1-year statute of limitations for
defamation, and there was also an issue about republication because Quietman7
included links to older posts, with additional commentary, in new posts. And
courts in the Second Circuit generally borrow the six-year fraud statute of
limitations for Lanham Act claims.
Then, the court found that ESG stated a claim for
defamation. Of possible interest, the court found that various statements about
the allegedly scammy nature of ESG’s product were potentially falsifiable
factual statements:
Viewed holistically, the “overall
thrust” of Quietman7’s thematically similar and mutually reinforcing statements
is that ESG is engaged in a deliberate and fraudulent scam in which it is
peddling a product which is the precise opposite of what it purports to be: The
challenged statements “reasonably imply” that ESG has intentionally designed SpyHunter,
in its “free scanner” mode, to generate false positives so as to induce
customers to buy a license for the full version to eliminate ostensible
malware.… Such allegations … could reasonably be understood as assertions of
objectively verifiable facts.
In isolation, words used in Quietman7’s posts such as
“scam,” “rogue,” “dubious,” and “ineffective” “would likely be too imprecise to
be capable of being proven true or false.” But, in context, they became more
concrete and reasonably precise.  Nor did
the statement that SpyHunter was “previously listed as a rogue product” avoid a
claim that SpyHunter was a rogue product. 
The context made a clear implication that the underlying practices that gave
rise to that earlier classification persisted, because Quietman7’s said that
“some users have reported [ESG] still engage[s] in deceptive advertising.” And
his statement that SpyHunter was not currently targeted for removal by other
security programs was followed by an allegation that “security vendors which
have tried [to target it] in the past have received threats of legal action for
attempting to do so or agreed to legal settlements as a result of litigation
brought forth by Enigma Software.” “High rate of false positives” could also be
verified or falsified by comparing SpyHunter’s rate with those  of competing products. “That an accusation is
‘somewhat . . . vague and difficult to prove’ does  not mean that it is not objectively
Moreover, the forum pages made the alleged statements more plausibly
“anchored in fact.”  Bleeping allegedly
held out the pages as tightlyregulated by its member groups, and assured users
that its “expert” staff members “can be trusted to give correct and
understandable answers to [Bleeping’s] members’ questions.” Quietman7 himself
allegedly wrote: “Folks come to Bleeping Computer for advice, recommendations
and other assistance. We provide that  based
on our experience and expertise so they can make an informed decision.”  “The manner of Quietman7’s written  presentation—one using footnotes and
citations—conveyed further that his advice was based on  an ‘investigation’ of verifiable facts.”
Thus, the court distinguished these cases from others
involving online forums that were presumed to be places for exaggerated and
nonfactual speech.
On the allegations of the complaint, the court declined to
find that ESG was a limited-purpose public figure, and considered allegations
about its reputation for litigiousness irrelevant because Bleeding didn’t
identify a public controversy related to the litigation.
The alleged statements, if false, would constitute libel per
se because they imputed “some form of  fraud
or misconduct or a general unfitness, incapacity, or inability to perform one’s
duties.”  However, ESG didn’t state a
claim for trade libel or commercial disparagement; the claim was duplicative of
the defamation per se claim, and also failed to allege special damages.
Finally, ESG stated a claim under the Lanham Act.  The key issue here was “commercial  advertising or promotion,” and the key
question was whether the statements at issue were “part of an organized
campaign to penetrate the relevant market.”
Commercial speech: Quietman7’s posts were commercial speech.
 “In nearly all of them, Quietman7, after
lambasting ESG’s SpyHunter, recommends that the  reader ‘remove [that] program and replace it with
a trustworthy alternative,’ such as  Malwarebytes
Anti-Malware and other Affiliate products.” 
By promoting affiliate products, these posts were unmistakably ads, and
went even further by providing purchase links. 
Bleeping had an economic incentive to do this.
Further, the complaint sufficiently alleged that Quietman7’s
posts were part of “an organized campaign by Bleeping to penetrate the market
for anti-malware products” by repeating or linking to negative reviews of
SpyHunter “any time a new forum topic mention[ed] or inquir[ed] about ESG,” not
to mention removing pro-ESG posts by users.  “Reactive disparagement” could be sufficient
if it reached enough potential consumers. 
Given that Bleeping advertises itself as a “premier destination” for
computer users seeking information about computer technology and
recommendations regarding malware removal, and that the posts could be viewed by
the “[more than] 3.5 million unique visitors [that visit Bleeping’s website
each] month,” that was enough.
No competition between the parties was required after Lexmark, and anyway, if it were
required, the court held that the affiliate relationship with ESG’s competitors

As for injury, the complaint alleged that Bleeping’s members often didn’t know
the basics underlying computer issues, and relied on Bleeping’s
representations, a fact that Bleeping touted. 
“After disparaging ESG and SpyHunter4, Quietman7 trumpeted that ‘[s]ince
we [Bleeping] do not recommend this program [SpyHunter], I doubt that  any of our members use it.’” 

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