LegalZoom.com Inc v. Rocket Lawyer Incorporated

Filing 181

MEMORANDUM of CONTENTIONS of FACT and LAW filed by defendant/counterclaimant Rocket Lawyer Incorporated. (Jones, Michael)

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Forrest A. Hainline III (SBN 64166)
[e-mail]
Hong-An Vu (SBN 266268)
[e-mail]
GOODWIN PROCTER LLP
Three Embarcadero Center
24th Floor
San Francisco, California 94111
Tel.: [phone]
Fax.: [phone]
Michael T. Jones (SBN 290660)
[e-mail]
GOODWIN PROCTER LLP
135 Commonwealth Drive
Menlo Park, California 94025-1105
Tel.: [phone]
Fax.: [phone]
Brian W. Cook (Pro Hac Vice)
[e-mail]
GOODWIN PROCTER LLP
53 State Street
Boston, MA 02109-2802
Tel.: [phone]
Fax.: [phone]
Attorneys for Defendant
ROCKET LAWYER INCORPORATED

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
LEGALZOOM.COM, INC., a Delaware Case No. 2:12-cv-09942-GAF-AGR
corporation,
ROCKET LAWYER
Plaintiff,
INCORPORATED'S
MEMORANDUM OF
v.
CONTENTIONS OF FACT AND
LAW
ROCKET LAWYER
INCORPORATED, a Delaware
PTC:
November 10, 2014
corporation,
1:30 p.m.
Trial:
December 9, 2014
Defendant.
Judge:
Judge Gary A. Feess
Courtroom: 740
255 East Temple Street
Los Angeles, CA 90012
Action Filed: November 20, 2012

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TABLE OF CONTENTS

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Page

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I. 

Claims and Defenses ...................................................................................... 1 
A.  Summary LegalZoom’s Claims ............................................................ 1 
B.  Elements of LegalZoom’s Claims ........................................................ 1 
C.  Rocket Lawyer’s Key Evidence in Opposition to LegalZoom’s
Claims ................................................................................................... 2 
D.  Summary of Rocket Lawyer’s Counterclaims and Affirmative
Defenses .............................................................................................. 16 
E. 
Elements of Rocket Lawyer’s Counterclaims and Affirmative
Defenses .............................................................................................. 17 
F. 
Rocket Lawyer’s Key Evidence in Support of its Counterclaims
and Affirmative Defenses ................................................................... 22 
G.  Anticipated Evidentiary Issues ........................................................... 32 
H.  Anticipated Issues of Law ................................................................... 33 

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II. 

Bifurcation of Issues .................................................................................... 33 

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III.  Jury Trial ..................................................................................................... 33 

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IV. 

Attorneys’ Fees ............................................................................................ 33 

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V. 

Abandonment of Issues ............................................................................... 35 

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Pursuant to Local Rule 16-4, Rocket Lawyer Incorporated (“Rocket Lawyer”)

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hereby submits its Memorandum of Contentions of Fact and Law.

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I.

CLAIMS AND DEFENSES
Summary LegalZoom’s Claims

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A.

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Claim 1: Rocket Lawyer violated the Lanham Act, 15 U.S.C. § 1125(a).

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Claim 2: Rocket Lawyer violated the California False Advertising Law

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(“FAL”), Cal. Bus. & Prof. Code § 17500.
Claim 3: Rocket Lawyer violated the California Unfair Competition Law
(“UCL”), Cal. Bus. & Prof. Code § 17200 et seq.
B.

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Elements of LegalZoom’s Claims
1.

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(1)

Elements Required to Establish LegalZoom’s Claim for
Violation of the Lanham Act

Rocket Lawyer made a false or misleading statement of fact about its

own product or another’s product in commercial advertising;
(2)

the statement actually deceived or has the tendency to deceive a

substantial segment of its audience;

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(3)

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decision;

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(4)

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the deception is material, in that it is likely to influence the purchasing

Rocket Lawyer caused its false or misleading statement to enter

interstate commerce; and
(5)

LegalZoom has been or is likely to be injured as a result of the false or

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misleading statement, either by direct diversion of sales from itself to Rocket

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Lawyer or by a lessening of the goodwill associated with its products.

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Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.

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1997); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (9th Cir.

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2008); 15 U.S.C. § 1125(a)(1)(B).

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2.

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Elements Required to Establish LegalZoom’s Claim for
Violation of the FAL

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(1)

Rocket Lawyer made or disseminated a statement,

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(2)

in connection with the sale or disposition of goods or services,

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(3)

which was untrue or misleading,

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(4)

and which is known, or which by the exercise of reasonable care should

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be known, to be untrue or misleading.

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See California Business and Professions Code § 17500.

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3.

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Elements Required to Establish LegalZoom’s Claim for
Violation of the UCL

LegalZoom’s UCL claim is predicated entirely on its Lanham Act and FAL
claims. As such, the element of LegalZoom’s UCL claim is:
(1) Rocket Lawyer violated the Lanham Act or the FAL.

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See Rice v. Fox Broad. Co., 330 F.3d 1170, 1181-82 (9th Cir. 2003) (granting

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summary judgment to defendants on UCL claim based strictly on grant of summary

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judgment on Lanham Act false advertising claim).

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C.

Rocket Lawyer’s Key Evidence in Opposition to LegalZoom’s
Claims

All of LegalZoom’s causes of actions are based on the same facts and

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advertisements, and as such, the evidence in opposition to each cause of action is the

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same. However, LegalZoom must prove each of the three causes of action with

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respect to each of the four advertisements at issue:

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 Free Business Formation Ads: Advertising free business entity formation

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on search engines results (“Free incorporation” or “Free LLC”) with state

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fee disclosures made multiple times on RocketLawyer.com before the

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point of purchase;

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 Free Trial Offers: Advertising a free trial on RocketLawyer.com without
adequately disclosing the terms of the free trial
 Free Help Ads: advertising “free help from local attorneys” on
RocketLawyer.com; and

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 Free Legal Review Ads: advertising “free legal review” on

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RocketLawyer.com (collectively, the “RLI Free Ads”).

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As explained more fully below, Rocket Lawyer intends to rely on its

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scientifically conducted survey testing Rocket Lawyer’s business formation and free

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trial ads/offerings in the context of the consumer journey, the ads themselves,

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screenshots of Rocket Lawyer’s website and advertisements, customer complaint

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and call data, financial and conversion data, communications relating to the

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performance of Rocket Lawyer’s free ads, testimony relating to working with

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Google regarding its free advertisements, and facts already determined by the Court,

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to demonstrate that LegalZoom cannot prove its claims.

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1.

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The evidence produced in this case and testimony from fact and expert
witnesses will show:
a.

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Key Evidence in Opposition to LegalZoom’s Claim for
Violation of the Lanham Act

Rocket Lawyer’s advertising statements are not false
or misleading

This Court has already held that LegalZoom must prove that the RLI Free

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Ads are literally false “in context [with reference to RocketLawyer.com] … instead

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[of] improperly focus[ing] on the word ‘free’ divorced from the advertisements and

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services as a whole.” Order at 9. The Court further acknowledged that Rocket

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Lawyer does not charge Pro Plan free trial members service fees for business

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formation and discloses state fees on its website such that “when viewed in this

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context, [Rocket Lawyer’s] advertisements are not false, but rather are a truthful

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promotion of its free trial that could potentially distinguish its services from other

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customers by allowing customers to incorporate without paying any processing and

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filing fees.”
In discovery, LegalZoom has made no attempt to refute the Court’s factual

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findings or analyze Rocket Lawyer’s advertisements in context. LegalZoom has

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continued to ignore that Rocket Lawyer discloses state fees several times in the

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consumer journey before consumers can make a purchasing decision. It ignores that

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Rocket Lawyer discloses the terms and limitations on its free trial and On Call

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services on the pages immediately before consumers must make a purchasing

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decision. Indeed, LegalZoom conducted a survey where respondents were required

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to respond to RL’s Free Ads without consideration of or reference to any context

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and divorced from Rocket Lawyer’s services as a whole. Thus, LegalZoom cannot

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meet its burden of demonstrating that the RL Free Ads are literally false in context.
In addition, the evidence demonstrates that Rocket Lawyer’ s challenged

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advertising is not misleading.

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(1)

Free Business Formation Ads

The Wind Survey demonstrates that consumers have not been misled. In the

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Wind Survey, a test group of 104 actual and potential consumers of legal services

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viewed a Free Business Formation Ad that disclosed state fees, and a control group

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of 103 similar consumers viewed an ad that did not disclose state fees.

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Control:

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Test:

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Each stimulus placed its respective ad in context. The test and control ads

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were placed in the same place, in the same position among other ads that appear in a

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real search for “incorporation.” Respondents then followed the typical path

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consumers follow on RocketLawyer.com (the “consumer journey”). The Wind

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Survey was designed to determine (i) whether more consumers in the control group

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were drawn to Rocket Lawyer’s website than in the test group, and (ii) whether

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consumers in the test group than those in the control group were more likely to

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understood that they must pay state fees. The answer to both of these questions is

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no.
After viewing the search engine results and ads, respondents were asked to

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choose an advertised company to explore further. Respondents in the control

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group did not choose Rocket Lawyer more than in the test group: the Wind

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Survey established that there is no statistically significant difference between the

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test and control groups with respect to choosing Rocket Lawyer or LegalZoom

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among the many competitors in the market at the search engine stage. In fact,

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slightly more respondents chose LegalZoom in the control group (where the Rocket

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Lawyer advertisement did not disclose state fees in its text).1

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In addition, test respondents did not exhibit any better understanding that they

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must pay state fees even if Rocket Lawyer’s services were free than in the

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control group: the test and control groups were equally likely to understand the

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state fees issue at the decision-making point. Nearly 70% of all test subjects

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understood that they were required to pay state fees regardless of whether they were

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in the test or control group.

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Note that although the Wind Survey analyzed whether there was any difference
between the test and control groups in their decision to choose Rocket Lawyer or
LegalZoom, many respondents chose other competitors whose ads appeared on the
search engine results, as would occur in the real world.

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Furthermore, there was no significant difference between the test and control

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respondents in deciding to do business with Rocket Lawyer. Thus, adding state fee

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disclosures to the ad copy itself would not affect consumers’ selection of Rocket

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Lawyer. Moreover, respondents’ in the Wind Survey also identified the

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advertisement as the least important factor in their decision making.

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LegalZoom’s survey, or the “Isaacson Survey,” does not contradict the Wind
Survey results because it tested the wrong issues:
i.

It did not test whether consumers were diverted from LegalZoom to Rocket

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Lawyer. Instead of allowing respondents choose Rocket Lawyer or

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LegalZoom in the context of a search engine result page, the Isaacson

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Survey’s stimuli failed to replicate market conditions and merely focused

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respondents solely on an isolated Rocket Lawyer advertisement, blurring out

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all other ads and circling Rocket Lawyer’s.

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ii.

It did not provide any context. As mentioned above, the Isaacson Survey did

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not allow respondents to view the competitor ads that any real world

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consumer would encounter. It also did not provide respondents with access to

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the information and disclosures on RocketLawyer.com regarding state fees,

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which every consumer must view before making a purchasing decision,

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contrary to this Court’s instruction. See Order at 7-8.

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iii.

It did not test respondents’ understanding. The Isaacson survey was an open

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book test where respondents had access to the advertisements at all times and

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could merely copy the advertisements in response to open ended questions.

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Thus, it was basically a reading test (i.e., a basic parroting exercise) that did

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not test consumers’ comprehension and perceptions of the advertisements.

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iv.

It did not test LegalZoom’s allegations in the FAC. The Isaacson Survey

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stimuli entirely removed “free” from the control ad instead of testing “free”

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with additional disclosure of state fees.

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Thus, the Isaacson Survey provides LegalZoom with no evidence relevant to

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the key issues in this litigation. Therefore, further disclosure of state fees in Rocket

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Lawyer’s Free Business Formation Ads would not have affected consumer

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understanding or decision to provide Rocket Lawyer with business, and would have

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had no effect on LegalZoom.

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In addition, Rocket Lawyer’s ad and business formation data confirm that

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whether Rocket Lawyer disclosed state fees or not in its search engine ads, has no

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effect on consumers’ decision to do business with Rocket Lawyer. Internal Rocket

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Lawyer testing demonstrates that adding “plus state fees” or similar language

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actually leads to better performance for the ad. This is supported by evidence that

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Rocket Lawyer chose to disclose the state fees a vast majority of the time. In

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addition, the number of businesses formed did not significantly change after Rocket

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Lawyer began to disclose state fees in all of its free business formation ads.

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(2)

Free Trial Offers

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LegalZoom only challenges the format of Rocket Lawyer’s free trial

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disclosures on its website and not their substance. FAC ¶¶ 14, 20. Thus, Rocket

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Lawyer conducted a survey where one group received the disclosures as Rocket

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Lawyer has disclosed them (control group) and a second group received the

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disclosures as LegalZoom displays its own free trial information (test group), to

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determine if either the test or control group better understood the nature of a free

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trial.2
They did not. The Wind Survey results demonstrate that there is no significant

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difference in consumer understanding of the free trial between the test and control

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groups. Indeed, 66.3% of the control respondents knew that the free trial had a time

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limit compared to 67.3% in the test group. 52 of 70 test respondents understood that

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they would be charged after the free trial period ended compared to 54 of 67 control

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respondents. There was also no significant difference in respondents’ decision to do

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business with Rocket Lawyer between the test and control groups (compare 41.7%

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test with 38.3% control).

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Revising Rocket Lawyer’s free trial disclosure format, even to directly

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conform with LegalZoom’s own practices, would not affect consumer understanding

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or decision making.
LegalZoom has no evidence sufficient to dispute this evidence because it did

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not test the Free Trial Ads in the Isaacson Survey. Dr. Isaacson’s expert report

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disclosed on October 28, 2014, analyzing four reports of a former consultant of

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Rocket Lawyer, cannot cure his failure to test Rocket Lawyer’s free trial disclosures.

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He relies on hearsay and conjecture, does not conduct any consumer research on his

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own, and attempts to find support for his conclusions even though (i) the studies

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tested different versions of Rocket Lawyer’s website from what he tested; (iii) the

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The test stimuli mirrored LegalZoom’s formatting for its free trial offer and
disclosures on LegalZoom.com.

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studies were not even designed to test the issues in this litigation; and (iii) Rocket

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Lawyer has made many of the changes suggested by the studies. Rocket Lawyer

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reserves the right to raise additional issues regarding this recently disclosed expert

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report.

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To the extent they are even admissible, as the studies reflect multiple layers of

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hearsay (to which Dr. Isaacson’s report adds another), they reflect that consumers

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understand the terms of Rocket Lawyer’s free offers. They may not like the offers,

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but they are not deceived and in fact, many of the respondents would walk away,

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demonstrating that they have not been harmed.

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(3)

Free Help and Free Legal Review Ads

Rocket Lawyer does not advertise “free help from local attorneys” or “free

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legal review” on Google or Bing. Instead, consumers typically encounter

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information relating to Free Legal Review at the end of the consumer journey that

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results from searching for and completing a form. On the same screen as the Free

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Trial Offer, Rocket Lawyer disclosed that free document review was available

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immediately in the annual plan, after 90 days for the monthly plan, and not included

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in the free trial.

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No additional disclosures were provided for “free help from local attorneys”

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because all Rocket Lawyer registered users, whether on a free trial or a paid legal

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plan, can contact an attorney for a free consultation at any time.

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Despite knowledge that free help from local attorneys is available to all

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registered users, the Isaacson Survey tested “limitations” on Free Help Ads instead

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of Free Legal Review. LegalZoom designed the Isaacson Survey stimuli to test

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whether consumers understood when they could get “free help from a local

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attorney.” But the limitations that LegalZoom tested do not apply to help from local

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attorneys, and thus, LegalZoom’s survey does not test Rocket Lawyer’s actual

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practices. In addition, LegalZoom’s survey reveals that a high majority of both test

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and control respondents understood that they were required to be on some kind of

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Rocket Lawyer plan to receive free help from local attorneys.
Furthermore, LegalZoom chose not to test Free Legal Review Ads in the

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Isaacson Survey, and therefore, has no evidence to suggest that Rocket Lawyer’s

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disclosures are inadequate. Dr. Isaacson’s October 27, 2014 report continues to

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ignore that free help from local attorneys was available to members on a free trial

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plan, which does not require payment of any fees before receiving the survice.
b.
Rocket Lawyer’s advertising statements have not
actually deceived and have no tendency to deceive a
substantial segment of its audience;

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The Wind Survey data demonstrates that no substantial portion of consumers

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were misled or are likely to be misled by the Rocket Lawyer advertisements.

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Consumers surveyed were equally likely to understand the state fee issues regardless

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of whether they were shown a Free Business Formation Ad that disclosed state fees

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or an ad that did not. Likewise, consumers surveyed regarding Rocket Lawyer’s free

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trial terms demonstrated the same understanding of the terms whether they were

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displayed using Rocket Lawyer’s formatting or LegalZoom’s. Thus, the population

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of deceived consumers is zero.3

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For the Free Business Formation Ads, even if LegalZoom could demonstrate some
confusion, this confusion cannot meet the requirement that the confusion affect a
substantial portion of the target audience. Based on Rocket Lawyer’s conversion
data, even if all of all Free Business Formation ads did not disclose state fees were
misleading, no more than 3% of consumers who encountered these ads would have
been misled into providing Rocket Lawyer with business. Even in the best case
scenario for LegalZoom, the amount of confusion is not sufficient to support a
Lanham Act claim. William H. Morris, 66 F.3d at 258 (stating that less than 3% is
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The fundamentally flawed Isaacson survey data cannot prove whether the RLI

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Free Ads are misleading or deceptive. First, it tested the RL Free Ads out of context

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without reference to the information on RocketLawyer.com. See Order at 9.

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Second, LegalZoom’s survey allowed consumers access to the stimuli at all

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times, which demonstrates that the experiment was a reading test that did not

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accurately gauge consumers’ understanding of the ads.

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Third, the Isaacson Survey failed to test the allegations at issue in this case
and is thus irrelevant.
 LegalZoom did not test Rocket Lawyer’s Free Trial Offers or disclosure and

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has no evidence to support substantial confusion regarding this service.

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 Regarding the Business Formation Ads, LegalZoom tested whether Rocket

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Lawyer’s use of the word “free” had an impact on consumers by designing a

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control ad that removed “free” entirely and replacing it with “No Service

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Fees.” But the issue as alleged is whether Rocket Lawyer should have

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disclosed state fees with its use of “free” in its advertisements; there is no

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allegation that Rocket Lawyer should not have used the word “free” at all.

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LegalZoom should have tested consumer reaction to ads that said “Free

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Incorporation – Pay only state fees” or similar language instead of removing

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the word “free” entirely.4

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 Regarding the Free Help and Free Legal Review Ads, LegalZoom tested

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limitations on the Free Help Ads that do not exist and did not test the Free

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Legal Review Ads at all.

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Because LegalZoom is unable to refute the Wind Survey evidence, it cannot

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“[s]uch a small percentage” that it “does not constitute proof that a significant
portion of recipients were deceived”).
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LegalZoom’s failure to test the allegations at issue demonstrates how biased and
leading this survey is. By removing “free” entirely from the control stimuli,
LegalZoom made it far less likely that a consumer would actually type “free” when
answering an open ended question about what they saw from the ad, especially
where the ad was available at all times.

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meet its burden on this issue.
Rocket Lawyers’ complaint and call volume data also demonstrate that

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consumer concerns about Rocket Lawyer’s is a small portion of Rocket Lawyer’s

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business. The vast majority of Rocket Lawyer’s customers have not paid anything to

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Rocket Lawyer for services, understand the terms of the free offers, know how to

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get their free documents, understand the free trial, and know how to cancel their

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plans before the free trial is over.

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c.

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Any deception is not material, in that it is not likely to
influence any purchasing decision

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LegalZoom admits that its allegations do not relate to the “purchasing

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process” – and thus, it admits the absence of materiality. LegalZoom’s continued

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disregard of the context of the advertisements is reflected in its survey. In the Free

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Help experiment, LegalZoom merely showed respondents one or two pages of

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RocketLawyer.com, where no purchasing decision could be made. LegalZoom

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therefore did not test the effect of the RL Free Ads on consumers’ purchasing

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decision because neither stimuli brought respondents to the point where a

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purchasing decision could be made. In fact, LegalZoom removed all decision

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making from its survey respondents. Thus, LegalZoom has no reliable evidence

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relating to whether the statements in Rocket Lawyer’s advertisements were material

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to consumers’ decisions to provide business to Rocket Lawyer.

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The Wind Survey, on the other hand, exposed respondents to stimuli from the

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search engine result page where the ad first appears to the point where a purchasing

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decision would be made in the typical consumer journey. The results demonstrate

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that the purchasing decisions of consumers are not affected by either the fee

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disclosure or the manner in which the trial terms are displayed. Consumer behavior

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changed little as a result of LegalZoom’s proposed revisions to the advertisements –

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except that slightly more consumers chose to make purchases from Rocket Lawyer

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when state fees were disclosed up front. Indeed, the Wind Survey found that there is

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a portion of the relevant population that is skeptical about free offers and that such

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ads decrease the likelihood that these consumers would chose to explore Rocket

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Lawyer and/or actually provide business to Rocket Lawyer. Additionally, for both

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experiments conducted in the Wind Survey, respondents identified the

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advertisements as the least important factor in their decision to do business with

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Rocket Lawyer. Rather, other customers’ reviews and price of the service provider

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were among the top factors affecting purchasing decisions in both experiments.

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In the context of the information provided on RocketLawyer.com, statements
made in the RLI Free Ads are not material to consumers’ purchasing decisions.
LegalZoom cannot dispute this fact.

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d.

LegalZoom has not been and is not likely to be injured

First, the Wind Survey demonstrates that disclosure of state fees in Rocket

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Lawyer’s Free Business Formation Ads would not affect consumers’ choice to

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explore Rocket Lawyer or LegalZoom at the search engine phase. In both the test

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and control groups, respondents chose Rocket Lawyer approximately 35% of the

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time among the numerous competitors in the market and chose LegalZoom

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approximately 64% of the time among the same competitors. Thus, the Free

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Business Formation Ads did not cause any diversion of consumers from

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LegalZoom. LegalZoom cannot refute this evidence because, among other things, it

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did not test diversion at all. Respondents in the Isaacson Survey were not given any

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opportunity to choose which online legal services company to explore. Instead, they

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were improperly directed to focus on Rocket Lawyer in the instructions and the way

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the stimuli were designed.

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Second, LegalZoom has no evidence that consumers of online legal services

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would have purchased LegalZoom’s services had Rocket Lawyer not published the

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RLI Free Ads. LegalZoom conducted no testing on whether consumers would have

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purchased services from LegalZoom had they not chosen to do business with Rocket

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Lawyer. Thus, the undisputed facts show no causal link between Rocket Lawyer’s

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advertisements and LegalZoom’s business.
Third, the Wind Survey demonstrates that there is no population of consumers

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confused by the RLI Free Ads that would lead to harm to LegalZoom. In Rocket

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Lawyer’s survey, there is no significant difference between the test and control

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groups with respect to those who: (i) chose Rocket Lawyer after seeing just the

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search engine advertisements, (ii) recalled the free offer, (iii) perceived the free offer

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as valuable (iv) exhibited or demonstrated some confusion as to the free offer, and

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(v) accepted the free trial or bought other products from Rocket Lawyer. In fact,

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there were slightly more confused respondents who would have given Rocket

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Lawyer business in the test groups that viewed the ads as LegalZoom demands. In

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the contol groups—those who viewed Rocket Lawyer’s ads as they were

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published—less than 5% of respondents exhibited some confusion about Rocket

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Lawyer’s services. This demonstrates that of those who actually provided Rocket

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Lawyer with business, a vast majority understood the limitations on Rocket

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Lawyer’s services as advertised, and there would have been no difference had

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Rocket Lawyer changed its ads to address LegalZoom’s allegations. The statements

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in the RLI Free Ads had no effect on consumers or LegalZoom.
Fourth, the intrawebsite ads—its Free Trial Offer, Free Help From Local

18
19

Attorneys, and Free Legal Review—could not have caused any diversion of

20

business from LegalZoom. The allegations relevant here apply only to a consumer

21

who is already on RocketLawyer.com, because these ads only appear within the

22

Rocket Lawyer website—after a consumer has already chosen to explore

23

RocketLawyer.com. See FAC, Ex. C at 38.5 LegalZoom’s lack of injury/damages is

24

reflected in the October 6, 2014 Goedde report, which only opines on damages

25

relating to search engine marketing, and the fact that LegalZoom has refused to

26

produce a witness to testify about damages.

27

5

28

To the extent that some of these services were advertised on search engine
advertising, Rocket Lawyer has gained zero conversions from any search engine ads
for these services it has published on LegalZoom keywords, if any.
ACTIVE/78938716.10

14

1

Fifth, LegalZoom cannot point to any evidence demonstrating a loss of

2

goodwill caused by the RLI Free Ads. The Wind Survey demonstrates that after

3

reviewing Rocket Lawyer’s advertisements and websites, most consumers continue

4

to search for other online legal services providers. There is no significant difference

5

between the test and control groups with respect to this decision. Thus, regardless of

6

how Rocket Lawyer advertises, after many consumers explore RocketLawyer.com,

7

LegalZoom and other competitors in the market have another opportunity to secure

8

the consumers’ business. Indeed, only about 5.5% of all respondents stated that they

9

were not going to buy online legal services at all – meaning that 94.5% of all

10

respondents were open to using online legal services after their experience with

11

RocketLawyer.com.

12

Finally, LegalZoom’s own evidence suggests that Rocket Lawyer and

13

LegalZoom cater to different markets. Their internal communications and

14

testimony from Dorian Quispe confirm that consumers who are looking for “free”

15

are not likely to visit LegalZoom, which does not offer many free services or

16

products. Consumers looking for free services were more likely to visit other free

17

websites. In fact, one of LegalZoom’s own freemium websites, Lightwavelaw, at

18

one point was more likely to get a visit from a Rocket Lawyer visitor.

19
20
21
22
23
24

There is no evidence that the RLI Free Ads caused LegalZoom to suffer any
harm. Therefore, LegalZoom cannot meet its burden on this issue.
2.

Key Evidence in Opposition to LegalZoom’s Claim for
Violation of the FAL

The evidence produced in this case and testimony from fact and expert
witnesses will show:

25

Rocket Lawyer Made No Advertising Statement That
Was Untrue or Misleading

26

Rocket Lawyer’s advertising is not false or misleading. See supra § I.C.1.a.

a.

27
28

ACTIVE/78938716.10

15

1

b.

2
3

No Statement Could Reasonably Have Been Known to
be Misleading

Consumers were not misled by Rocket Lawyer’s advertising. See supra

4

§ I.C.1.b. Accordingly, Rocket Lawyer could not reasonably have expected any of

5

its ads to mislead customers.

6

3.

7
8

Key Evidence in Opposition to LegalZoom’s Claim for
Violation of the UCL

Rocket Lawyer has not violated the Lanham Act or the FAL. See supra

9

§§ I.C.1-I.C.2.

10

D.

11

Summary of Rocket Lawyer’s Counterclaims and Affirmative
Defenses
1.

12

Rocket Lawyer’s Counterclaims

13

Counterclaim 1: Rocket Lawyer has not violated the Lanham Act.

14

Counterclaim 2: Rocket Lawyer has not violated the FAL.

15

Counterclaim 3: Rocket Lawyer has not violated the UCL.

16

Counterclaim 4: LegalZoom has violated the Lanham Act, 15 U.S.C. §

17
18
19
20
21
22
23
24
25
26
27
28

1125(a).
Counterclaim 5: LegalZoom has violated the FAL, Cal. Bus. & Prof.
Code § 17500.
Counterclaim 6: LegalZoom has violated the UCL, Cal. Bus. & Prof.
Code § 17200 et seq.
2.

Rocket Lawyer’s Affirmative Defenses

Affirmative Defense 1: LegalZoom’s claims are barred, in whole or in part,
for want of equity or by the doctrine of unclean hands.
Affirmative Defense 2: LegalZoom’s claims are barred, in whole or in part,
by laches, waiver, and/or estoppel.
Affirmative Defense 3: Any injury sustained by LegalZoom was caused in
whole or in part by acts or omissions of persons over whom Rocket Lawyer neither

ACTIVE/78938716.10

16

1

exercised nor had any right of control, for whom Rocket Lawyer is and was not

2

responsible, and whose conduct Rocket Lawyer had no duty or reason to anticipate

3

or control.

4

Affirmative Defense 4: Rocket Lawyer’s practices have not caused any

5

likelihood of confusion; any likelihood of confusion is caused by LegalZoom.

6

E.

7

Elements of Rocket Lawyer’s Counterclaims and Affirmative
Defenses
1.

8
9
10
11
12
13
14
15
16
17
18
19

(1)

Elements Required to Establish Rocket Lawyer’s
Counterclaim for Declaratory Relief that It Did Not Violate
the Lanham Act

Rocket Lawyer did not make a false or misleading statement of fact

about its own product or another’s product in commercial advertising; OR
(2)

the statement did not actually deceived and has no tendency to deceive

a substantial segment of its audience; OR
(3)

any deception is not material, in that it is not likely to influence the

purchasing decision;
(4)

Rocket Lawyer did not cause a false or misleading statement to enter

interstate commerce; OR
(5)

LegalZoom has not been and is not likely to be injured as a result of

any false or misleading statement.

20
21

See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.

22

1997); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (9th Cir.

23

2008); 15 U.S.C. § 1125(a)(1)(B).

24

2.

25
26
27
28

Elements Required to Establish Rocket Lawyer’s
Counterclaim for Declaratory Relief that It Did Not Violate
the FAL

Any statement made or disseminated by Rocket Lawyer was either:
(1)

not made in connection with the sale or disposition of goods or

ACTIVE/78938716.10

17

1

services,

2

(3)

not untrue or misleading, or

3

(4)

was neither known, nor by the exercise of reasonable care should have

4

been known, to be untrue or misleading.

5
6

See California Business and Professions Code § 17500.

7

3.

8
9
10
11
12
13
14

(1)

17
18
19
20
21
22
23
24
25
26
27

Rocket Lawyer has not violated the Lanham Act or the FAL.

See Rice v. Fox Broad. Co., 330 F.3d 1170, 1181-82 (9th Cir. 2003) (granting
summary judgment to defendants on UCL claim based strictly on grant of summary
judgment on Lanham Act false advertising claim).
4.

15
16

Elements Required to Establish Rocket Lawyer’s
Counterclaim for Declaratory Relief that It Did Not Violate
the UCL

(1)

Elements Required to Establish Rocket Lawyer’s
Counterclaim that LegalZoom Violated the Lanham Act

LegalZoom made a false or misleading statement of fact about its own

product or another’s product in commercial advertising;
(2)

the statement actually deceived or has the tendency to deceive a

substantial segment of its audience;
(3)

the deception is material, in that it is likely to influence the purchasing

decision;
(4)

LegalZoom caused its false or misleading statement to enter interstate

commerce; and
(5)

Rocket Lawyer has been or is likely to be injured as a result of the false

or misleading statement, either by direct diversion of sales from itself to LegalZoom
or by a lessening of the goodwill associated with its products.

28

ACTIVE/78938716.10

18

1

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.

2

1997); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (9th Cir.

3

2008); 15 U.S.C. § 1125(a)(1)(B).

4

5.

5

Elements Required to Establish Rocket Lawyer’s
Counterclaim that LegalZoom Violated the FAL

6

(1)

LegalZoom made or disseminated a statement,

7

(2)

in connection with the sale or disposition of goods or services,

8

(3)

which was untrue or misleading,

9

(4)

and which is known, or which by the exercise of reasonable care should

10

be known, to be untrue or misleading.

11
12

See California Business and Professions Code § 17500.

13

6.

14
15

Elements Required to Establish Rocket Lawyer’s
Counterclaim That LegalZoom Violated the UCL

(1) LegalZoom’s conduct with respect to LegalSpring.com was:

16

a. unfair;

17

b. fraudulent; or

18

c. unlawful based on violation of the Lanham Act or FAL.

19
20

Cal. Bus. & Prof. Code § 17200 et seq.; Kerr Corp. v. Tri Dental, Inc., No.

21

SACV 12–0891 DOC (CWx), 2013 WL 990532, at *4 (C.D. Cal. Mar. 11, 2013)

22

(granting default judgment for UCL claim where liability under Lanham Act

23

shown).

24
7.

25

Elements Required to Establish Rocket Lawyer’s Affirmative
Defense 1 of Unclean Hands

26

(1)

LegalZoom engaged in inequitable conduct; and

27

(2)

LegalZoom’s inequitable conduct related directly to the subject matter

28

of its claims against Rocket Lawyer.

ACTIVE/78938716.10

19

BAJI § 10:3 Special Instruction 4; Brother Records, Inc. v Jardine, 318 F.3d

1
2

900, 909 (9th Cir. 2003); Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d

3

829, 841 (9th Cir. 2002); Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1097 (9th Cir.

4

1985); Pfizer, Inc. v. Int'l Rectifier Corp., 685 F.2d 357, 359 (9th Cir. 1982)

5

8.

6
7

Elements Required to Establish Rocket Lawyer’s Affirmative
Defense 2 of Laches, Waiver, and/or Estoppel
a.

Laches:

8

(1)

LegalZoom unreasonably and inexcusably delayed in bringing suit, and

9

(2)

Either:

10

(a)

that the delay caused prejudice to Rocket Lawyer, or

11

(b)

LegalZoom acquiesced in the conduct about which it complains.

Johnson v. City of Loma Linda, 24 Cal. 4th 61, 68 (2000) (affirming finding

12
13

that plaintiffs claim was barred by laches); Conti v. Board of Civil Service Comm’rs,

14

1 Cal. 3d 351, 359 (1969) (“The defense of laches requires unreasonable delay plus

15

either acquiescence in the act about which plaintiff complains or prejudice to the

16

defendant resulting from the delay.”).

17

b.

Waiver

18

(1)

LegalZoom possessed the right to bring claims against Rocket Lawyer;

19

(2)

LegalZoom possessed actual or constructive knowledge of this right;

(3)

LegalZoom either

20
21

and

22

(a)

expressly released and discharged the right to such claims, or

23

(b)

engaged in conduct so inconsistent with any intent to bring such

24

claims as to induce Rocket Lawyer’s reasonable belief that the right had been

25

relinquished.

26
27
28

See Gaunt v. Prudential Ins. Co. of America, 255 Cal. App. 2d 18, 23 (1967);
In re Marriage of Paboojian, 189 Cal. App. 3d 1434, 1437 (1987); Rubin v. Los

ACTIVE/78938716.10

20

1

Angeles Federal Saving & Loan Assn., 159 Cal. App. 3d 292, 298 (1984).

2

c.

Estoppel

3

(1)

LegalZoom knew the facts relevant to its claims;

4

(2)

LegalZoom acted in such a way that Rocket Lawyer had a right to

5
6
7
8

believe LegalZoom would not bring those claims;
(3)

Rocket Lawyer did not know that LegalZoom planned to bring its

claims; and
(4)

Rocket Lawyer relied on LegalZoom’s conduct to its detriment.

9
10
11

See City of Long Beach v. Mansell, 476 P.2d 423, 443 (Cal. 1970); Driscoll v.
City of Los Angeles, 431 P.2d 245, 250 (Cal. 1967).

12

9.

13

Elements Required to Establish Rocket Lawyer’s Affirmative
Defense 3 of Lack of Harm

14

(1)

LegalZoom has failed to demonstrate any actual injury; or

15

(2)

LegalZoom has failed to demonstrate that any injury suffered resulted

16
17

from Rocket Lawyer’s advertisements.
See Harper House, Inc. v. Thomas Nelson, Inc., 889 F.3d 197, 210 (9th Cir.

18

1989) (“in a suit for damages under section 43(a), however, actual evidence of some

19

injury resulting from the deception is an essential element of the plaintiff’s case.”);

20

see also Southland, 108 F.3d at 1146 (reversing summary judgment granted to

21

defendant for lack of causation and injury, allowing for possible jury finding of

22

actual injury and causation); Hansen Beverage Co. v. Vital Pharmaceutical, Inc.,

23

2010 WL 3069690, at *6-7 (S.D. Cal. Aug. 3, 2010) (citing Harper House, Inc. v.

24

Thomas Nelson, Inc., 889 F.2d 197, 209 (9th Cir. 1989) (“when advertising does not

25

directly compare defendant’s and plaintiff’s products, when numerous competitors

26

participate in a market, or when the products are aimed at different market

27

segments, injury to a particular competitor may be a small fraction of the

28

defendant’s sales, profits, or advertising expenses.”).

ACTIVE/78938716.10

21

1
2

10.

3
4

Elements Required to Establish Rocket Lawyer’s Affirmative
Defense 4 of No Likelihood of Confusion

LegalZoom’s claims are barred, in whole or in part, because LegalZoom

5

cannot demonstrate that (1) that any statement made by Rocket Lawyer in

6

advertising actually deceived or has the tendency to deceive a substantial segment of

7

its audience.

8
9
10
11
12
13
14
15

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.
1997); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (9th Cir.
2008); 15 U.S.C. § 1125(a)(1)(B).
F.

Rocket Lawyer’s Key Evidence in Support of its Counterclaims
and Affirmative Defenses
1.
Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Nonviolation of the Lanham Act

See supra § I.C.1.
2.

16
17
18

See supra § I.C.2.
3.

19
20
21

Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Nonviolation of the UCL

See supra § I.C.3.
4.

22
23

Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Nonviolation of the FAL

Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Violation of the Lanham Act

The evidence produced in this case and testimony from fact and expert

24

witnesses will show:

25

a.

26
27
28

LegalZoom Made a False or Misleading Statement of
Fact About Its Product(s)

LegalZoom has falsified its reputation on LegalSpring.com by manipulating
the balance of positive and negative reviews. The site contains more than mere

ACTIVE/78938716.10

22

1

opinion and puffery. The consumer reviews as a whole represent an assertion about

2

consumer satisfaction with LegalZoom’s products. These reviews also support

3

LegalZoom’s four star rating on LegalSpring.com, a recognizable metric

4

corresponding with quality. This likewise has been falsified: the overall consumer

5

opinion of LegalZoom as represented on LegalSpring.com is untrue, and thus is

6

false. LegalZoom’s removal of negative reviews and addition of positive reviews

7

affects caused its star rating to increase on LegalSpring.com. This rating was higher

8

than LegalZoom’s rating on other review websites where it did not exercise the

9

same level of control. In addition, each consumer review contains a statement of

10

fact regarding the date and time it is posted. These have been directly altered,

11

specifically to push negative reviews further down and for the appearance of

12

realism. The dates listed for at least some of the consumer reviews on

13

LegalSpring.com are untrue, and thus are literally false. LegalZoom contends that it

14

received permission from its customers to use their exit interview comments for

15

marketing purposes. However, LegalZoom has not produced evidence to support

16

this contention. Furthermore, the star rating provided by LegalZoom consumers are

17

on a scale of 1-10, not 1-5 like displayed on LegalSpring, further demonstrating

18

falsity.

19

LegalZoom’s operation of LegalSpring.com and its control over

20

LegalSpring.com’s search engine marketing (its Google Ad words account) is also

21

false and misleading. LegalSpring.com was created by LegalZoom’s then

22

employee, Travis Giggy, for the purpose of demonstrating to LegalZoom the

23

benefits of an affiliate program in driving traffic to LegalZoom. It held itself out as

24

a neutral review website for consumers to rely on. For years, no disclaimer with

25

respect to LegalZoom’s relationship with LegalSpring.com was disclosed. In April

26

2012, LegalZoom requested that a disclaimer be placed on LegalSpring.com

27

disclosing that companies listed on the site are affiliated with LegalSpring.com and

28

that reviews may be added or removed by these companies. However, this

ACTIVE/78938716.10

23

1

disclaimer is misleading because at that time, LegalZoom was controlling

2

LegalSpring.com’s advertising as a brand defense website and Mr. Giggy had not

3

been actively managing LegalSpring.com for years, except to comply with

4

LegalZoom’s requests for changes on the website.6
b.
LegalZoom’s False Statement Actually Deceived or
Has the Tendency to Deceive a Substantial Segment of
Its Audience
(1)
LegalZoom Intended to Deceive Consumers

5
6
7
8
9
10

LegalZoom’s instructions to manipulate its star rating and balance of positive
and negative customer reviews could only have been done with knowledge of their
falsity and intent to deceive.
 Travis Giggy, the creator and one-time operator of LegalSpring.com, while

11

still an employee of LegalZoom, expressly intended that consumers rely on

12

LegalSpring as a resource in deciding which online legal services company to

13

use.

14

 LegalSpring’s own FAQ states that LegalSpring was created to answer for

15

consumers, “who is the best incorporator.”

16

 And yet, the evidence demonstrates that LegalZoom had the ability to remove

17

negative reviews and monitor other competitors’ performance and conversion

18

rates using LegalSpring.com.

19

 In a January 2009 email chain that forwarded an article about the importance

20

of customer reviews to consumers, LegalZoom expressed its preference that

21

negative reviews about its products and services “disappear” and be replaced

22

with “good, descriptive reviews,” a preference that was subsequently put into

23

action. LegalZoom also referenced how bad reviews would negatively affect

24

the commissions LegalSpring would earn from LegalZoom.

25

 In October 2011, employees at LegalZoom recognized “the importance of

26
27
28

6

Mr. Giggy testified that after the mid 2000s, he continued to respond to requests
for other companies, but that the requests for edits to the website were primarily
from LegalZoom.

ACTIVE/78938716.10

24

1

correcting [LegalZoom’s] reputation within review sites” which led

2

LegalZoom to direct Giggy to manipulate the number of positive and negative

3

reviews to ensure that LegalZoom would have a four star rating.

4

 LegalZoom also stated that it wanted to use LegalSpring in search engine

5

marketing to ensure that consumers searching for legal services would see

6

LegalSpring and potentially, the positive rating and reviews of LegalZoom.

7

 LegalZoom also discussed with Mr. Giggy leaving some negative reviews on

8

LegalSpring to maintain an image of impartiality/credibility, further

9

demonstrating intent that consumers would rely on and trust the reputation of

10

LegalZoom advertised on LegalSpring.com

11

These communications evidence LegalZoom’s manipulation of its reviews

12

with full knowledge of the importance of customer reviews and review websites to

13

consumers and a company’s ability to compete. Thus, LegalZoom’s knowing

14

manipulation of the balance of positive and negative reviews on LegalSpring and

15

acting to place LegalSpring on search engine results demonstrates an intent to

16

deceive consumers.

17

In addition, there is no dispute that over the course of their relationship,

18

LegalZoom has paid LegalSpring commissions for the clicks to LegalZoom.com

19

from LegalSpring. More, LegalZoom controlled the likelihood that LegalSpring

20

would appear in search engine advertising to further promulgate it’s false and/or

21

misleading rating and reputation on LegalSpring.com. Indeed, LegalZoom had

22

access to LegalSpring.com’s Google Adwords account and paid for its search engine

23

advertising. Thus, like the governing cases, LegalZoom has expended funds to

24

publish false advertising in an effort to steer potential customers toward its website,

25

further warranting application of the presumption that consumers have been misled,

26

and by extension, Rocket Lawyer has been harmed.

27
28

(2)

LegalZoom Actually Deceived Consumers

Although deception may be presumed if the Court finds that LegalZoom

ACTIVE/78938716.10

25

1

intended to deceive consumers, the evidence also demonstrates that consumers have

2

relied on these misleading reviews. At LegalSpring.com, consumers viewing the

3

reviews can indicate whether they are “helpful” or not. The three reviews added at

4

LegalZoom’s instruction in January 2009 indicate that a majority of consumers who

5

responded found those reviews helpful. LegalSpring.com, as LegalZoom knows, is

6

“the highest review site in google and bing[.]” Most of the other reviews posted on

7

LegalSpring.com demonstrate that a majority of consumers who have read the

8

reviews found them to be helpful. In addition, LegalZoom has paid LegalSpring for

9

orders originating from LegalSpring.com, demonstrating that consumers have seen

10

LegalZoom’s reviews on LegalSpring.com and have decided to make a purchasing

11

decision in favor of LegalZoom.

12
13
14
15
16
17
18
19
20
21
22
23

c.

Consumers place a high value on reviews posted by other consumers. In
addition, there is no dispute that LegalZoom benefits from its reputation as it has
found that the number of negative reviews directly affects its conversion rates from
LegalSpring.com. Thus LegalZoom knew that consumers value review sites like
LegalSpring.com, and misled consumers about the timing and overall mix of
reviews posted by other consumers and its star rating to obtain more business. The
importance of other customers’ reviews of an online legal services provide is also
supported by the survey conducted by Rocket Lawyer’s expert, as customer reviews
were among the top factors affecting consumers’ decision to do business with a
company.
d.

24
25
26
27
28

LegalZoom’s Deception is Material

Rocket Lawyer Has Been or is Likely to be Injured as a
Result of the False or Misleading Statement

Rocket Lawyer’s Chief Financial Offer and fact witness on its damages on the
counterclaims testified that LegalZoom bidding on popular search terms/keywords
impacts Rocket Lawyer’s costs for search engine marketing. Based on the

ACTIVE/78938716.10

26

1

testimony of LegalZoom’s witnesses for the periods of time in which LegalZoom

2

was bidding on keywords with multiple companies, including LegalSpring.com,

3

which had the manipulated reviews of LegalZoom, Rocket Lawyer’s expert will be

4

able to calculate how much such practice increased costs for Rocket Lawyer.

5

5.

6

Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Violation of the FAL
a.

7
8

LegalZoom Made or Disseminated an Untrue or
Misleading Statement in Connection with the Sale or
Disposition of its Services

11

See supra § I.F.4.a.
b.
LegalZoom Should have Known by the Exercise of
Reasonable Care that its False Statement was Untrue
or Misleading

12

See supra § I.F.4.b.

9
10

13

6.

14

LegalZoom has violated the Lanham Act and the UCL. See supra §§ I.F.4-

15
16

Key Evidence in Support of Rocket Lawyer’s Counterclaim
for Violation of the UCL

I.F.5.

17

7.

18
19

Key Evidence in Support of Rocket Lawyer’s Affirmative
Defense of Unclean Hands
a.

LegalZoom Engaged in Inequitable Conduct

20

LegalZoom has also advertised the price of its business formation services

21

without disclosing that consumers would have to pay state fees. LegalZoom also

22

offers a free trial that automatically charges users’ credit cards that LegalZoom

23

requires be provided, and enrolls them in a paying plan, if such users do not cancel.

24

Indeed, LegalZoom requires that consumers make a prior purchase and provide their

25

credit cards to be charged before they have they have the opportunity to enroll in the

26

free trial.

27
28

ACTIVE/78938716.10

27

1

b.

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

LegalZoom’s Inequitable Conduct Relates Directly to
the Subject Matter of its Claims Against Rocket
Lawyer.

The conduct identified in Section I.F.8.a is the same conduct complained of
by LegalZoom. Although Rocket Lawyer maintains that such conduct is not
inequitable, should the jury find otherwise, LegalZoom has engaged in the same
conduct and cannot recover in this action. LegalZoom essentially complains that
Rocket Lawyer has advertised in some of its ads the price of incorporation without
disclosing state fees. LegalZoom has done the same.
LegalZoom also takes a credit card so that it can charge their free trial
members at the end of the free trial if such members do not cancel. LegalZoom’s
conduct is actually worse and squarely violates the definition of “free” as provided
by the FTC. LegalZoom’s free trial offered is contingent upon a prior or
contemporaneous purchase.
In addition, LegalZoom’s conduct in discovery relating to this unclean hands
defense has been inequitable. LegalZoom has refused to search for documents
relating relating to its own business formation and advertisements for free services.
It has refused to produce such documents. LegalZoom also refused to provide an
witnesses to testify on its business formation and free advertisements. Such conduct
is inequitable in light of this defense and bars LegalZoom’s recovery even if it were
to prevail.

21
22

Key Evidence in Support of Rocket Lawyer’s Affirmative
Defense of Laches, Waiver, and/or Estoppel

23

a.

8.

24
25
26
27

Laches: LegalZoom Unreasonably and Inexcusably
Delayed in Bringing Suit, Causing Prejudice to Rocket
Lawyer

LegalZoom raised the issues relating to Rocket Lawyer’s free business
formation ads in November to December 2011 with both Rocket Lawyer and
Google. LegalZoom filed his lawsuit in November 2012 after not raising this issue

28

ACTIVE/78938716.10

28

1

again with Rocket Lawyer, or based on what has been produced, with Google.

2

LegalZoom’s silence conveyed to Rocket Lawyer that LegalZoom was no longer

3

interested in bringing suit, especially after Rocket Lawyer worked with Google

4

regarding a potential Google policy violation and was allowed to continue to publish

5

ads for free business formation without disclosing state fees. Rocket Lawyer

6

continued to publish some of its ads without referencing state fees because it

7

believed that LegalZoom no longer viewed the advertisements as false or

8

misleading. LegalZoom’s silence has also led to its damages, if any.

9

In addition, internal LegalZoom communications demonstrate that during this

10

interim period, LegalZoom was increasing its expenses in advertising in preparation

11

for suing Rocket Lawyer months later.

12

Finally, LegalZoom also advertised business formation services without

13

disclosing state fees, further demonstrating that it no longer viewed such omission

14

as actionable.

15
b.

16
17
18

Waiver: LegalZoom Engaged in Conduct so
Inconsistent With Any Intent to Bring its Claims as to
Induce Rocket Lawyer’s Reasonable Belief that the
Right had been Relinquished

See supra Sec. I.F.8.a.

19
c.

20
21
22

Estoppel
(1)
LegalZoom Knew the Facts Relevant to Its
Claims

See supra Sec. I.F.8.a.

23

(2)

24
25

LegalZoom acted in such a way that Rocket
Lawyer had a right to believe LegalZoom would
not bring those claims

See supra Sec. I.F.8.a.

26
(3)

27
28

Rocket Lawyer did not know that LegalZoom
planned to bring its claims; and

See supra Sec. I.F.8.a.

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1
(4)

2
3

See supra Sec. I.F.8.a.

4

9.

5

Key Evidence in Support of Rocket Lawyer’s Affirmative
Defense of Lack of Harm
a.

6
7

Rocket Lawyer relied on LegalZoom’s conduct
to its detriment

LegalZoom has Failed to Demonstrate Any Actual
Injury

In discovery, LegalZoom referred Rocket Lawyer to its expert for evidence

8

regarding injury. LegalZoom’s expert witness on damages has only provided an

9

opinion regarding business formation and search engine ads placed on LegalZoom’s

10

keywords, but on ads viewed on Rocket Lawyer’s website – free trial, free legal

11

review, and free help from local attorneys. As such, regarding these three ads,

12

LegalZoom has no damages. LegalZoom’s expert damages based on Rocket

13

Lawyer bidding on search engine ads cannot lead to injury or damages because such

14

conduct is legal. Even if LegalZoom could prove its claims regarding Rocket

15

Lawyer’s business formation ads, its damages are speculative at best. The Wind

16

survey demonstrates that Rocket Lawyer would have gained the same amount of

17

business whether it disclosed state fees or not. In addition, LegalZoom’s expert has

18

not properly identified the market and has relied on assumptions undermined by

19

LegalZoom’s witnesses and Securities Exchange filings. Mr. Goedde removed from

20

the market sole practitioners and LegalShield, even though LegalZoom’s S-1 filing

21

identifies both as key competitors. LegalZoom does not have credible evidence of

22

injury.

23
b.

24
25
26
27
28

LegalZoom has Failed to Demonstrate That Any
Injury Suffered Results From Rocket Lawyer’s
Advertisements

See supra Sec. I.C.1.d. LegalZoom has no evidence that Rocket Lawyer
diverted customers away from LegalZoom. In fact, LegalZoom’s witness, Dorian
Quispe, and its documents demonstrate that customers looking for free products or

ACTIVE/78938716.10

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1

services are different from those willing to pay for a service. In essence, Rocket

2

Lawyer and LegalZoom target different markets. Based on metrics tracked by

3

LegalZoom, consumers who have chosen to explore Rocket Lawyer are not likely to

4

visit LegalZoom. Instead, these customers are more likely to visit other websites

5

with free offerings. In addition, LegalZoom did not test diversion in its consumer

6

survey, choosing instead, to direct respondents to Rocket Lawyer’s ads. Rocket

7

Lawyer’s expert, Professor Wind, tested whether consumers were drawn more often

8

to Rocket Lawyer’s search engine ad for business formation when state fees were

9

not disclosed. The results demonstrate that there is no difference Regarding Rocket

10

Lawyer’s intrawebsite ads – free trial, free legal review, free help from local

11

attorneys – LegalZoom has no evidence that individuals who saw these ads because

12

they already chose Rocket Lawyer would have given business to LegalZoom.

13

Furthermore, there are many competitors in this market. LegalZoom’s harm,

14

if any, was caused by any number of other competitors, many of whom also

15

advertise free services in the manner that LegalZoom claims is misleading. These

16

competitors, especially sole practitioners and prepaid legal companies like

17

LegalShield, are responsible for any loss of business suffered by LegalZoom.

18

Finally, LegalZoom’s documents demonstrate that it engaged in practices that would

19

increase its costs. Thus, losses suffered by LegalZoom were its fault, and not

20

Rocket Lawyer’s.

21

10.

22

Key Evidence in Support of Rocket Lawyer’s Affirmative
Defense of No Likelihood of Confusion

23

As this Court has already held, LegalZoom must prove that the RLI Free Ads

24

are literally false “in context [with reference to RocketLawyer.com] … instead [of]

25

improperly focus[ing] on the word ‘free’ divorced from the advertisements and

26

services as a whole.” Order at 9. The Court further acknowledged that Rocket

27

Lawyer does not charge Pro Plan free trial members service fees for business

28

formation and discloses state fees on its website such that “when viewed in this

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1

context, [Rocket Lawyer’s] advertisements are not false, but rather are a truthful

2

promotion of its free trial that could potentially distinguish its services from other

3

customers by allowing customers to incorporate without paying any processing and

4

filing fees.”

5

In discovery, LegalZoom has made no attempt to refute the Court’s findings

6

or analyze Rocket Lawyer’s advertisements in context. LegalZoom has continued to

7

ignore that Rocket Lawyer discloses state fees several times in the consumer journey

8

before consumers can make a purchasing decision. It ignores that Rocket Lawyer

9

discloses the terms and limitations on its free trial and On Call services on the pages

10

immediately before consumers must make a purchasing decision. Indeed,

11

LegalZoom conducted a survey where respondents were required to respond to RL’s

12

Free Ads without consideration of or reference to any context and divorced from

13

Rocket Lawyer’s services as a whole. Thus, LegalZoom cannot meet its burden of

14

demonstrating that the RL Free Ads are literally false in context.

15

The Wind Survey of over 400 members of the target audience demonstrates

16

that if Rocket Lawyer changed its advertising to address LegalZoom’s allegations,

17

there would not have been a statistically significant difference in (i) consumers

18

decision to explore Rocket Lawyer or LegalZoom; (ii) consumer’s perception and

19

understanding of Rocket Lawyer’s ads; or (iii) services or in their decision to do

20

business with Rocket Lawyer.
Anticipated Evidentiary Issues

21

G.

22

Rocket Lawyer anticipates filing the following motions in limine:

23

 Motion to exclude LegalZooms’ experts under Daubert

24

 Motion to exclude evidence based on LegalZoom’s discovery abuses

25

 Motion to limit LegalZoom’s damages evidence to the extent its damages

26
27
28

expert testimony is admissible
 Motion to exclude usability studies
Rocket Lawyer has also lodged objections to certain exhibits proposed by

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1

LegalZoom in the Joint Exhibit List.
Anticipated Issues of Law

2

H.

3

There are no other issues of law other than what has been provided in this

4

memorandum.

5

II.

Rocket Lawyer does not believe that bifurcation is necessary.

6
7

BIFURCATION OF ISSUES

III.

JURY TRIAL
All issues other than resolution of the equitable claims and defenses and

8
9

application of equitable remedies are for the jury to decide. As such, the nonjury

10

issues are: each parties’ Business and Professions Code section 17200 claims and

11

each parties’ request for restitution and injunctive relief. Rocket Lawyer and

12

LegalZoom have each timely requested jury trials in their pleadings, and in the Rule

13

26 Case Management Report.

14

IV.

15

ATTORNEYS’ FEES
Rocket Lawyer has requested attorneys’ fees under the Lanham Act. The

16

Court has discretion to award reasonable attorneys’ fees and costs to the prevailing

17

party in exceptional cases. 15 U.S.C. § 1117(a). The Court may award Rocket

18

Lawyer attorneys’ fees whether it successfully defeats LegalZoom’s claims or

19

succeeds on its counterclaims. See Gracie v. Gracie, 217 F.3d 1060 (9th Cir. 2000)

20

(stating that the same standard of “exceptional circumstances” will be applied to

21

both prevailing defendants and prevailing plaintiffs); Cairns v. Franklin Mint Co.,

22

115 F. Supp. 2d 1185 (C.D. Cal. 2000) aff’d 292 F.3d 1139 (9th Cir. 2002).

23

LegalZoom’s conduct in this lawsuit, especially in discovery, warrants an

24

award of attorneys’ fees to Rocket Lawyer should it prevail in defending itself

25

against LegalZoom’s claims:

26
27
28

 LegalZoom’s 30(b)(6) witness on document retention could not recall
whether LegalZoom had issued a litigation hold.
 LegalZoom has produced only about 2,100 documents over the life of this

ACTIVE/78938716.10

33

1

case.

2

 LegalZoom has refused to produce documents relied upon by its experts.

3

 LegalZoom refused to produce documents responsive to Rocket Lawyer’s

4
5

requests that were identified by LegalZoom’s witnesses.
 LegalZoom refused to produce documents relating to Rocket Lawyer’s

6

unclean hands defense by refusing to produce documents or a witness on

7

LegalZoom’s business formation ads or ads containing the word “free.”

8

 LegalZoom withheld documents if they did not consider to be “relevant and

9

responsive” to Rocket Lawyer’s requests for production, even though Rule 26

10

allows Rocket Lawyer to receive documents reasonably calculated to lead to

11

admissible evidence.

12

 LegalZoom conducted a consumer survey that ignored the court’s instruction

13

to test the ads at issue in context, causing Rocket Lawyer to have to respond

14

to this expert opinion

15

LegalZoom’s conduct in advertising and in this lawsuit, especially in

16

discovery, warrants an award of attorneys’ fees to Rocket Lawyer should it prevail

17

on the counterclaims. LegalZoom misrepresented that it did not have control over

18

content on LegalSpring.com and only withdrew these misrepresentations after

19

Rocket Lawyer had to oppose its motion for summary judgment and serve a Rule 11

20

Motion. In actuality, LegalZoom exercised significant control over

21

LegalSpring.com by, for example, requesting that its moderate remove negative

22

reviews and add positive reviews so that LegalZoom’s star rating and overall

23

reputation would be more positive than it is on other review websites and

24

LegalZoom controlled LegalSpring’s search engine marketing. LegalZoom’s

25

manipulation of its reputation on LegalSpring.com was done with knowledge that

26

consumers rely on review websites in making purchasing decisions.

27
28

Rocket Lawyer also seeks attorneys’ fees for its FAL and UCL claims under
California Code of Civil Procedure section 1021.5, which allows the Court to award

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1

attorneys’ fees in an action to enforce “an important right affecting the public

2

interest.” Rocket Lawyer’s action to get an injunction against LegalZoom’s false

3

and/or misleading advertising through LegalSpring would confer a benefit to the

4

public, especially in light of recent activity from government entities and agencies to

5

sanction the publishing of false and/or misleading customer reviews.

6

V.

7

ABANDONMENT OF ISSUES
Rocket Lawyer has abandoned its affirmative defenses relating to

8

LegalZoom’s inability to state a claim and inability to prove punitive damages, no

9

damages for UCL claim, and lack of standing. The parties have stipulated that

10

neither party shall be able to claim punitive damages and that LegalZoom is no

11

longer pursing damages for its UCL claim. Failure to state a claim and lack of

12

standing are not applicable at this stage.

13
14

Dated: October 28, 2014

Respectfully submitted,

15
By: /s/ Michael T. Jones
Forrest A. Hainline III
[e-mail]
Hong-An Vu (SBN 266268)
[e-mail]
Michael T. Jones (SBN 290660)
[e-mail]
Brian W. Cook (Pro Hac Vice)
[e-mail]
GOODWIN PROCTER LLP
Three Embarcadero Center
24th Floor
San Francisco, California 94111
Tel.: [phone]
Fax.: [phone]

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22
23

Attorneys for Defendant
ROCKET LAWYER INCORPORATED

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ACTIVE/78938716.10

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