Disgruntled customers are a fact of life, even for the best-run businesses. And Philip Smith was definitely disgruntled.
Smith ran a small business in Greenville, S.C., supplying parts and service for a variety of Apple products. He hired a local company, Bidzirk, to sell a lot of computer inventory on eBay and deliver some items he had already sold.
However, Smith wasn't happy with Bidzirk's performance and in late 2005 posted a four-part article on his Web site titled "Special Report: You Gotta Be Berserk to Use an eBay Listing Company! The Whole Story." The article detailed his problems with Bidzirk, as illustrative of the shortcomings of eBay listing companies.
According to Smith's article, Bidzirk listed items on eBay "slowly, not at all, or with really overdone descriptions that focused too much on technical detail and pictorial content and not enough value to the buyer and what the bidder could actually do with the items."
The company supposedly failed to watermark its online pictures of Smith's merchandise, and so "some people were selling identical [merchandise] with the pictures Bidzirk was taking." Bidzirk supposedly sold the merchandise at prices that were "far lower than average eBay auctions," thus generating far less revenue than Smith had expected. And after the merchandise was sold, Bidzirk was "slow" to pay Smith his share, the article stated.
Bidzirk was unhappy with the article and took legal action. Because Smith's online article used Bidzirk's name and logo without authorization, the company sued Smith in January 2006 for, among other things, trademark infringement.
According to Eric Goldman, who teaches IP law at Santa Clara University School of Law, using trademark law to suppress online criticism is not always successful because courts are becoming less friendly to such lawsuits.
In addition, attempts to suppress online criticism can actually backfire
by calling unwanted attention to the critic's site. When dealing with online gripes, "businesses have to tread very carefully," warns Steven Wadyka Jr., a trademark litigator in the Washington, D.C., office of Greenberg Traurig.
When a company sues an online critic for trademark infringement, it must prove that the Web site the defendant is using is somehow connected with the sale of goods or services. Under federal law, infringement occurs only if a defendant uses the mark in
commerce. "The traditional test is whether a defendant is trying to do some commercial business on the Web site, but some courts have been more aggressive in finding a use in commerce," says Robert Zelnick, an IP attorney in the Washington, D.C., office of McDermott Will & Emery.
Just linking to a commercial Web site may suffice. A plaintiff also must prove that the defendant used the mark in a way that is likely to confuse at least a small percentage of the plaintiff's potential consumers into wondering, for example, whether or not the plaintiff has endorsed or sponsored the comments on the defendant's Web site.
Thus, a disgruntled consumer's site must clearly indicate, up front, that it is separate from the company on the receiving end of the criticism. "If it isn't immediately clear that this isn't the brand owner's site, then some courts will say the ... confusion is enough to sustain a claim [of infringement]," Zelnick says.
Fair Use Defense
Even if a plaintiff manages to prove confusion and use in commerce, it's not home free. A defendant can claim it was making "nominative fair use" of the mark. "It is almost impossible to complain about a consumer brand unless one uses the brand name, and the law has [a fair use] exception for this," Zelnick says.
But not all courts accept this argument. The 6th Circuit, for instance, rejected it in 2003. "As a result, defendants cannot universally rely on its availability, especially given the unsettled nature of Internet jurisdiction," Goldman writes.
Defendants also can assert that they are merely exercising their constitutional right to free speech--an argument that the courts have been increasingly receptive to in recent years.
"These days it is difficult to sue an online griper for trademark infringement if the griper is [just] expressing complaints about products or services," Wadyka says.
However, a trademark owner doesn't need to win an infringement suit to be successful.
Simply threatening a lawsuit will, in the vast majority of cases, convince disgruntled customers to remove critical statements from their Web sites. "People are afraid of losing their house in a legal proceeding, so the dominant response is to accede to the demands made of them," Zelnick says. "Very few of these cases hit a judge's desk. The vast majority of law is being made outside judicial scrutiny."
However, threatening to sue a disgruntled consumer can easily backfire, with the consumer posting the cease-and-desist letter online and generating negative publicity for the company.
"The last thing you want is somebody posting something about your company going after an online site," says Susan Progoff, an IP attorney in Ropes & Gray's New York office. "You don't want to take action against a consumer site and have it blow up into a big news story about the company trying to prevent people from finding out about problems with its products."
Bidzirk learned this the hard way. Before the lawsuit, Smith says, "No one cared about my Web site, now people do. The average number of visitors was 500 per day before the suit; now the average is 8,000 to 12,000 visitors per day."
Moreover, information on Smith's dispute with Bidzirk has spread to other Web sites. "Before this whole thing, Google had maybe 50 entries for Bidzirk; now the number has gone as high as 2,500," Smith says.
As if all that weren't bad enough, Bidzirk lost its suit against Smith. A South Carolina federal district court ruled in October 2007 that Smith's use of Bidzirk's marks was protected by fair use. At the end of the day, Bidzirk may have been better off just keeping silent.
"It's something most companies have learned to live with," Progoff says. "[But] when somebody crosses the line and makes it looks like ... [an online] post was authorized by the company, then the trademark lawyers come in."