Enigma Software Grp. USA, LLC v. Bleeping Computer LLC

194 F.Supp.3d 263

ENIGMA SOFTWARE GROUP USA, LLC, Plaintiff,

v.BLEEPING COMPUTER LLC, Defendant.

16 Civ. 57 (PAE)

United States District Court, S.D. New York.

Signed July 8, 2016

Christopher M. Verdini, Terry Budd, K&L Gates, LLP, Pittsburgh, PA, Eric Randolph Ian Cottle, Eric A. Prager, K&L Gates LLP, New York, NY, for Plaintiff.

Gregory William Herbert, Greenberg Traurig, P.A., Orlando, FL, Marc John Randazza, Randazza Legal Group, PLLC, Las Vegas, NV, John Joseph Elliott, Greenberg Traurig, LLP, New York, NY, for Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge

This lawsuit by a computer software company seeks redress for critical statements about it and its flagship product that were posted on a computer support website. Plaintiff Enigma Software Group USA, LLC ("ESG") develops and markets computer security products, including SpyHunter, its leading anti-malware program. Defendant Bleeping Computer LLC ("Bleeping") owns and operates http://www.bleepingcomputer.com, a computer support website. ESG alleges that Bleeping has perpetrated a "smear campaign" against ESG, which has entailed publishing false, defamatory statements about ESG and SpyHunter in order to divert sales from ESG to its competitors, from whom Bleeping receives commissions. ESG brings claims against Bleeping for defamation and trade libel, in violation of New York law, and false advertising, in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B).

Bleeping now moves to dismiss the Second Amended Complaint ("SAC") under Federal Rule of Civil Procedure 12(b)(6) on various grounds. For the reasons that follow, that motion is granted in part and denied in part.

I. Background

A. Factual Background¹

ESG is a Florida limited liability company that develops and markets computer security products. SAC ¶¶ 16, 21. It specializes in anti-malware products, i.e. , those that protect against "malicious software," such as "viruses and spyware that can steal personal information, send spam, and commit fraud." Id. ¶¶ 21-23.² SpyHunter, an "adaptive malware detection and removal tool," is ESG's flagship anti-malware product. Id. ¶¶ 24-26. Consumers can download a free scanning version of SpyHunter through a link on ESG's website. Id. ¶ 27. The scanner detects whether a computer has malware or other security threats. Id. Through ESG's website, consumers can also buy a license to the full version of SpyHunter. Id. ¶ 28. That version includes the scanner, as well as tools to remove malware and other security protection tools. Id.

Bleeping operates a website, http://www.bleepingcomputer.com, which offers information, advice, and resources about computer technology and security. See id. ¶¶ 2-3, 32-34. Anti-malware software is a focus of Bleeping's coverage. Id. ¶ 5. Bleeping generates profits through its "Affiliate" program, under which it receives commissions from designated "Affiliate" software companies for promoting their products on its website. Id. ¶¶ 7-8, 43. Under that program, Bleeping posts "Affiliate Links" throughout its website which redirect users to third-party webpages where they can buy Affiliate products. Id. ¶¶ 8, 35-36. Bleeping earns a commission whenever a user clicks on an Affiliate link and buys an Affiliate product. Id. ¶ 37.

The Bleeping website includes a "Forums" section where Bleeping offers advice and answers users' questions about topics related to computer security and technology. Id. ¶¶ 34, 41. Bleeping manages the Forums through a hierarchy of "member groups," comprised of "staff members" who are appointed to "generate and control [the] content" posted therein. Id. ¶¶ 45, 54, 60. The third-highest "member group" is made up of "Advisors," whom Bleeping holds out as experts who "can be trusted to give correct and understandable answers to [users'] questions." Id. ¶¶ 50-51. Above Advisors 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. Id. ¶¶ 48-49. Finally, Lawrence Abrams, Bleeping's owner, occupies the highest member group as the overall "Admin" of the Forums. Id. ¶ 47. Abrams has the "final say when appointing all other staff positions." Id.

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]." Id. ¶ 53.³ Because Bleeping touts its staff as experts who can be "trust[ed] to provide correct, unbiased and truthful advice," id. ¶¶ 3, 32, the SAC alleges, users rely on their advice when making purchasing decisions regarding anti-malware products, id. ¶¶ 4, 6, 79. However, the SAC alleges, Bleeping's staff members "do not[, in fact,] provide such unbiased advice." Id. ¶ 33. Rather, "[u]nder the guise of giving ‘correct and understandable answers,’ [they] purposely push[ ] users away from anti-malware products for which [Bleeping] does not receive commissions and toward specific anti-malware products for which it receives sales commissions." Id. ¶ 7; see also id. ¶ 33.

Bleeping does not receive commissions from ESG on sales of SpyHunter or any of its other products. Id. ¶ 11. But, it does have an Affiliate arrangement with Malwarebytes, a direct competitor of ESG. Id. ¶ 10; see also id. ¶ 44 ("Bleeping functions as a sales arm of Malwarebytes."). On that basis, the SAC alleges, "Bleeping has a direct financial interest in driving traffic and sales to Malwarebytes and ... away from ESG." Id. ¶ 12. "To further that interest," it alleges, Bleeping "has adopted and employed a pattern of making [, in its Forums posts,] false, inaccurate, misleading and disparaging statements about ESG and [SpyHunter] ... while simultaneously recommending ... Malwarebytes[' anti-spyware product, Malwarebytes Anti-Malware]." Id. ¶ 13; see also id. ¶¶ 75-78. "To make it easy for users to replace SpyHunter[ ] with [Malwarebytes Anti-Malware] and to earn its [commission]," the SAC alleges, Bleeping includes in such posts Affiliate Links through which users can purchase Malwarebytes Anti-Malware. Id. ¶ 91. Additionally, the SAC alleges, Bleeping routinely removes links posted by users that endorse ESG's products. Id. ¶ 92.

The SAC alleges that Quietman7, a Bleeping Advisor and one of only three Global Moderators, is a chief spokesperson for Bleeping's "smear campaign" against ESG. See id. ¶¶ 65-76. In that role, the SAC alleges, whenever a forum member mentions or inquires about ESG or SpyHunter, Quietman7 responds by making false, disparaging statements about ESG and SpyHunter and/or directing users to past posts containing such statements. See id. ¶¶ 86-88. The SAC identifies 13 such posts published on various dates between December 10, 2013 and October 31, 2015. See id. ¶¶ 80, 86-88; id. , Exs. 6-11. In them, the SAC alleges, Quietman7 made false and misleading statements that "impugn the integrity of ESG and the quality and efficacy of SpyHunter." Id. ¶ 110. Concretely, the SAC alleges, Quietman7 stated, directly or by implication, that: (1) ESG engages in aggressive and deceptive advertising; (2) SpyHunter is a "dubious" and "ineffective" program that generates false positives; and (3) SpyHunter is a "rogue" product that is properly classified as malware, rather than the anti -malware product it purports to be. See id. ¶¶ 103, 117; id. , Ex. 7, at 2, 4; id. , Ex. 8, at 3; id. , Ex. 10, at 3, 10, 13-14; id. , Ex. 11, at 5. In the same posts, the SAC alleges, 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. Id. ¶ 89.⁴

The SAC alleges that Bleeping has considerable influence over its users, who heed its advice when making purchasing decisions. Id. ¶ 90; see also, e.g. , id. , Ex. 10, at 11 (user response to Quietman7's 6/1/2015 post: "K, thanks .... I'm convinced. Will buy a more trustworthy product when [SpyHunter] expires."). Accordingly, the SAC alleges, as a result of Bleeping's conduct, ESG has suffered significant monetary and reputational injury, including direct diversion of sales and a lessening of goodwill associated with its products. Id. ¶¶ 107, 115, 123, 127.

B. Procedural History

On January 5, 2016, ESG filed the original Complaint. Dkt. 1. On January 8, 2016, ESG filed the First Amended Complaint ("FAC"). Dkt. 6. On February 26, 2016, Bleeping filed a motion to dismiss the FAC. Dkt. 16.

On March 18, 2016, ESG filed the SAC. Dkt. 25. It brings claims for (1) libel; (2) libel per se ; (3) trade libel/commercial disparagement; and (4) false advertising, in violation of § 43(a) of the Lanham Act. SAC ¶¶ 101-27. It seeks (1) declaratory relief; (2) an injunction barring Bleeping from publishing actionable statements about ESG and directing it to publicly retract the offending statements; (3) damages; and (4) attorneys' fees and costs. Id. at 22-23.

On April 8, 2016, Bleeping filed a motion to dismiss the SAC, Dkt. 28, along with a memorandum of law, Dkt. 32 ("Def. Br"), and an affidavit by its counsel, Dkt. 29, in support. On April 22, 2016, ESG filed a brief in opposition, Dkt. 32 ("Pl. Br."), along with a declaration by ESG's counsel, Dkt. 31 ("Prager Decl."), and attached exhibits. On April 29, 2016, Bleeping replied. Dkt. 35 ("Def. Reply Br."). On June 6, 2016, the Court heard argument. See Tr.

II. Applicable Legal Standards

To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d...