The U.S. District Court for the Western District of Virginia denied the a software company competitor’s motion to dismiss in AvePoint, Inc. v. Power Tools, Inc., a case which explores the limits of what is permissible when competing for business online.
In its complaint, plaintiffs AvePoint, Inc. and AvePoint Public Section, Inc. (“AvePoint”) asserted nine claims, including for defamation, breach of contract, trademark infringement, false association or false endorsement, false designation of source or origin, false advertising, unfair competition and violations of the Virginia Computer Crimes Act, against defendants Power Tools, Inc. d/b/a Axceler (“Axceler”) and its Regional Vice President of Sales Michael Burns (“Burns”).
AvePoint alleged that Axceler and Burns had “engaged in a campaign of making false, defamatory, and deceptive claims and statements” regarding competitor AvePoint’s software products and services both via online social networking services and in direct communications with customers and prospective customers. These statements allegedly include asserting on Twitter and other social media sites that AvePoint is a Chinese company instead of an American company, that Axceler’s software is “Microsoft recommended” over that of AvePoint and that AvePoint’s software is maintained in India.
Perhaps most strangely, Axceler and Burns were alleged to have created an account on LinkedIn for a fictitious AvePoint employee named “Jim Chung,” using AvePoint’s registered trademark. The profile identified the fictional Chung as a “Software Engineer at AvePoint” based in “Xinjiang, China.” The Chung profile suggested that Chung can be contacted regarding business deals with AvePoint. AvePoint alleged that Burns and AvePoint used the profile to field customer inquiries and divert business to Axceler. AvePoint also presented evidence suggesting that Burns and others at AvePoint publicized the Chung LinkedIn profile by posting several tweets about Jim Chung.
Per AvePoint’s amended complaint, Axceler’s deceptive practices reached “new heights (or lows)” in late 2012, when it requested a trial download of an AvePoint software product using a fictitious email account, allegedly in violation of AvePoint’s website terms and services under “false pretenses so that it could examine AvePoint’s software for competitive, commercial purposes.” The email account in question ostensibly belonged to a “Jill Wagner.” However, AvePoint alleged that the associated IP address was not listed to any individual with that name, but rather to Defendant “POWER-TOOLS-INC-DBA-Axceler,” that the email address had been created using Fake Mail Generator (presumably software that automatically creates fake email addresses).
The court denied the defendants’ motions to dismiss with respect to all nine counts, focusing in particular on Axceler’s behavior in connection with the fraudulent Jim Chung LinkedIn profile.
With respect to AvePoint’s defamation claim, while the court noted that while “Americans no longer cling to the old notion that …Asian-produced and maintained goods are inferior” to those made in the U.S., it also accepted that origin of goods may be particularly important to federal government customers (who are required under the 1933 Buy American Act to give preference to domestic end products). Indeed, Axceler’s own representatives tweeted messages that products being manufactured in the U.S. is an important selling point. The court also stated that it was unable to declare as a matter of law that statements regarding Microsoft recommending Axceler over AvePoint and suggesting that companies were “dumping” out of three year agreements to sign with Axceler were not defamatory.
Breach of Contract
In analyzing AvePoint’s breach of contract claim arising from Axceler’s downloading of AvePoint’s software for competitive and commercial purposes, the court first generally discussed so-called “browsewrap” agreements, which have held to be enforceable in instances where a website user has “actual or constructive knowledge of a site’s terms and conditions prior to using the site.” The AvePoint Terms and Conditions granted solely a “personal” license to use the software and to “…download materials and information on this Site solely for personal and noncommercial use.”
The court noted that here, Axceler “went to the trouble” to create a fictitious email account in order to download the trial software, which suggests that it was aware that the Terms and Conditions prohibited users from downloading material for commercial use. Additionally, the court noted that Axceler has a similar browsewrap agreement on its own site that restricts the use of downloaded software and, thus, it should have known that use of AvePoint’s website is subject to similar terms and conditions.
In evaluating AvePoint’s trademark infringement claim, the court rejected Axceler’s assertion that AvePoint’s complaint was insufficient to show that Axceler used the AvePoint mark in commerce, that it used the mark in connection with the sale, offering for sale, distribution or advertising of goods or services, or that it used the mark in a manner engendering a likelihood of confusion. The court rejected arguments that the use was merely in the nature of parody or to promote opposing behaviorsand ideas, noting that Axceler and AvePoint are direct competitors and that Axceler had used the fake Jim Chung LinkedIn profile to “profit from AvePoint’s goodwill and divert business to Axceler.”
In reaching this conclusion, the court noted that AvePoint’s allegations present a LinkedIn profile as more than “the equivalent of a static paper resume designed to market an individual’s talents to potential employers.” The court also stated that AvePoint’s allegations were sufficient to suggest that Axceler used the fake Jim Chung profile with a “specific intent to cause confusion as to AvePoint’s affiliation with Jim Chung and the commercial services offered through the fake Jim Chung account.” The court also found it relevant that actual confusion had resulted.
The court also declined to dismiss AvePoint’s other Lanham act claims for false association or false endorsement, false designation of source or origin and false advertising on a similar theory. For instance, under its analysis of the false association claim, the court noted that the Jim Chung profile “promoted services through the account in a manner likely to cause confusion as to whether such services were offered in connection with, or on behalf of, AvePoint.” While Axceler argued that the Jim Chung LinkedIn profile “does not contain any statements telling viewers that AvePoint sponsored, approved, or endorsed [it],” the court stated that the Axceler had not cited to any case law supporting the proposition that expressed statements of approval or sponsorship are required to state a claim for false association or endorsement, pointing out that merely suggesting association in the trademark holder’s network is enough, and that the defendant does not even need to mention the trademark owner by name.
State Law Claims
The court declined to dismiss AvePoint’s state law claims. Most notably, the court stated that AvePoint’s allegation that Axceler violated the terms and conditions of its website were sufficient to sustain a claim under the Virginia Computer Crimes Act. Similar interpretations of computer crimes statutes have been criticized recently for arguably creating too much liability for relatively insignificant infractions.
This is the latest in a line of cases examining the legitimacy of practices used by eager businesses to steal a march on their competition in the digital age (see our discussion of the Rosetta Stone case here). Specifically, it is perhaps the first case to examine what has become known as “catfishing” in a business context. In an age where paid advertising has arguably become less effective in comparison with user-generated reviews and social media recommendations, it can be tempting for companies to create (or engage third parties services to create) false profiles and personas to bolster their products and services and perhaps negative remark on those of competitors (for further context, see this Reuters piece on the New York Attorney Generals crackdown on fake reviews in September 2013).
While it is early in proceedings here and defendant Axceler may win summary judgment on some or all of these issues, this case suggests that fraudulent and misleading online profiles can open companies up to liability in a number of ways, including for trademark infringement. Accordingly, businesses should be careful that their overzealous online marketing activities do not unnecessarily expose them to such liability or make them subject to embarrassing allegations.
Additionally, companies should note that the fictional Jim Chung LinkedIn profile was, allegedly, created by a senior Axceler executive, presumably in an attempt to boost his sales performance (the executive in question also left a “smoking gun” by mentioning the fictional profile in Twitter posts). To minimize the chances of becoming a defendant like Axceler, companies need to be vigilant of such behaviors at all levels of their organization and should institute a training program that explains the dangers of unethical behavior on social media and highlights best practices for employees in the digital age.
Finally, businesses should note that even apparently benign online activities, such as using a contrived email address to download a trial version of a competitor’s software, can open companies up to liability for breach of contract pursuant to a “clickwrap” or “browsewrap” agreement. Again, companies need to ensure that they offer adequate training to employees and institute a suitably protective policy with respect to the use of work computers by employees.