LegalZoom.com Inc v. Rocket Lawyer Incorporated

Filing 28

NOTICE OF MOTION AND MOTION for Summary Judgment filed by Plaintiff LegalZoom.com Inc. Motion set for hearing on 9/30/2013 at 09:30 AM before Judge Gary A. Feess. (Attachments: # 1 Separate Statement, # 2 Exhibit A - L, # 3 Proposed Order)(Heather, Fred)

PATRICIA L. GLASER -State Bar No. 55668
pglaser gl~as~~~erweil.com
a FRED .HEATHER -State Bar No. 110650
flleather laserweil.com
T. NGUYEN -State Bar No. 269099
3 MARY
mnguyen laserweil.com
IL FINK JACOBS
4 GLASER
HOWARD AVCHEN & SHAPIRO LLP
s 10250 Constellation Boulevard, 19th Floor
Los Angeles, California 90067
6 Telephone: [phone]
Facsimile: 310 556-2920
Attorneys for Plaintiff
s LegalZoom.com,Inc.
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CENTRAL DISTRICT OF CALIFORNIA

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UNITED STATES DISTRICT COURT

WESTERN DIVISION

i2 LEGALZOOM.COM,INC., a Delaware
corporation,

CASE NO.: CV 12-9942-GAF(AGRx)

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Hon. Gary A. Feess
Courtroom: 740

Plaintiff,
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ROCKET LAWYER INCORPORATED,
a Delaware corporation,
Defendants.

PLAINTIFF LEGALZOOM.COM,
INC.'S NOTICE OF MOTION AND
MOTION FOR SUMMARY
JUDGMENT; MEMORANDUM OF
POINTS AND AUTHORITIES•
DECLARATION OF MARY A~iN T.
NGUYEN
September 30, 2013
Date:
Time:
9:30 a.m.
Courtroom: 740
SEPARATE STATEMENT OF
ISPUTED MATERIAL FACTS;
PROPOSED ORDER FILED
ONCURRE TLY HEREWITH]
Complaint Filed: November 20, 2012

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PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT

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i TO THE DEFENDANT AND ITS ATTORNEYS OF RECORD:
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PLEASE TAKE NOTICE THAT on September 30, 2013 at 9:30 a.m. in

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Courtroom 740 ofthe above-referenced Court, located at 312 North Spring Street,

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Los Angeles, California 90012, Plaintiff LegalZoom.com,Inc.("LegalZoom") will

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and hereby does move for summary judgment on its claims. Specifically, LegalZoom

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moves this Court to enter summary judgment declaring that Defendant Rocket
Lawyer Incorporated ("Rocket Lawyer") is liable for False Advertising pursuant to

g the Lanham Act, 15 U.S.C. § 1125(a), False Advertising pursuant to California
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Business and Professions Code section 17500, and Unfair Competition pursuant to

io California Business and Professions Code section 17200 et seq. as a matter of law,
ii ~ leaving only the amount of LegalZoom's damages to be determined at trial.
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This Motion is made pursuant to Rule 56 ofthe Federal Rules of Civil

i3 Procedure and is based upon this Notice of Motion,the accompanying Memorandum
ofPoints and Authorities, the Declaration of Mary Ann T. Nguyen,the Separate

is Statement of Undisputed Material Facts, all papers and pleadings in the Court's file,
i6 and upon such oral argument as may be made at the hearing on this Motion.
i~
is ~ DATED: August 23,2013

Respectfully submitted,

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GLASER WEIL FINK JACOBS
HOWARD AVCHEN & SHAPIRO LLP

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By: /s/ Fred Heather
PATRICIA L. GLASER
FRED D. HEATHER
MARY ANN T. NGUYEN
Attorneys for Plaintiff
LegalZoom.com,Inc.

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PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT
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TABLE OF CONTENTS
Page
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1NTRODUCTION ...........................................................................................1
STATEMENT OF MATERIAL FACTS NOT IN DISPUTE........................1
A. The Parties And The Products ..............................................................1
Rocket Lawyer's Online Advertisements .............................................2
B.
1.
"Free" corporations and LLCs....................................................2
2.
"Free help from local attorneys" and "Free legal review".........3
"Free trial" ..................................................................................4
3.
LegalZoom's Prior Efforts To Resolve Matters Outside Of Court ......5
C.
III. ARGUMENT ..................................................................................................6
A. Legal Standard For Summary Judgment ..............................................6
B.
Rocket Lawyer's Advertisements Constitute False Advertising
Under The Lanham Act.........................................................................7
1.
Rocket Lawyer's Advertisements are False Commercial
Advertisements ...........................................................................8
Rocket Lawyers advertisements are literally false...........8
a.
b.
Rocket Lawyers advertisements are commercial
advertisements..................................................................9
9
Commercial speech.
i~
9
ii~ Parties in commercial competition.
10
iii) Purpose of influencing customers.
Dissemination sufficiently to the relevant
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purchasing public.
2.
Rocket Lawyer's Advertisements Are Presumed to Have
Deceived and Have the Tendency to Deceive a Substantial
Segment of its Audience ...........................................................10
Rocket Lawyer's Advertisements are Materially Deceptive
3.
in that it They Are Likely to Influence Purchasing Decisions.11
4.
Rocket Lawyer Caused its False Advertisements to Enter
Interstate Commerce .................................................................12
5.
Rocket Lawyer's False Advertising Caused Actual Injury to
LegalZoom................................................................................13
Rocket Lawyer's Advertising Constitutes False Advertising Under
C.
Cal. Bus. &Prof. Code § 17500 .........................................................13
D. Rocket Lawyer's False Advertising Constitutes Unfair
Competition Under Cal. Bus. &Prof. Code § 17200 .........................15
IV. CONCLUSION .............................................................................................18

I
.
II.

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PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY JiJDGMENT
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TABLE OF AUTHORITIES
Page
2

4

FEDERAL CASES
Allsup,Inc. v. Advantage 2000 Consultants Inc.,
428 F.3d 1135 (8th Cir. 2005)................................................................................... 8
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242(1986)...................................................................................................6
Castrollnc. v. Pennzoil Co.,
....................................................................................... 8
987 F.2d 939(3d Cir. 1993)
.
Celotex Corp v. Catrett,
477 U.S. 317(1986)................................................................................................... 6

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ii Cincinnati v. Discovery Network,
507 U.S. 410(1993)................................................................................................... 9
i2
Coastal Abstract Serv. Inc. v. First Am. Title Ins. Co.,
13
173 F.3d 725 (9th Cir. 1999)..................................................................................... 9
is Coca-Cola Co. v. Tro~ picana Products, Inc.,
....................................................................................... 7
690 F.2d 312(2d Cir. 1982)
15

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Certain Teed Corp. v. Seattle Roo Brokers,
2010 WL 2640083, *5(W.D. ash. June 28, 2010).............................................. 10

16
17

is
19

Del Webb Cmtys., Inc. v. Partin ton,
2009 WL 3053709, *11, *16(D. Nev. Sept. 18, 2009)........................................... 13
Fleener v. Trinity Broadcasting Network,
203 F. Sup. 2d 1142(C.D. Cal. 2001)....................................................................... 6
Gordon &Breach Science Publishers, Ltd. v. American Institute ofPhysics,
859 F. Supp. 1521 (S.D.N.Y. 1994)........................................................................ 12

Zo Green v. Sun Life Assur. Co.,
383 F. Supp. 2d 1224(C.D. Cal. 2005)..................................................................... 6
21

22
23
24

2s
26

a~
as

Harper House, Inc. v. Thomas Nelson, Inc.,
889 F.2d 197(9th Cir. 1989)................................................................................... 13
Healthport Corp. v. Tanita Corp. ofAmerica,
563 F. Supp. 2d at 1179 ........................................................................................... 12
In re Samuel Stores,
................................................................................................ 12
27 F.T.C. 882(1938)
J.K. Harris & Co., LLC v. Kassel,
253 F. Supp. 2d 1120(N.D. Cal. 2003)................................................................... 14
Maier Brewing Co. v. Fleischmann Distilling Corp.,
390 F.2d 117(9th Cir. 1968)..................................................................................... 7
PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT

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i
2

Matsushita Elec. Industrial Co. v. Zenith Radio Corp.,
475 U.S. 574(1986)...................................................................................................6
Monsanto Chemical Co. v. Perfect Fit Products Mfg. Co.,
.......................................................................................7
349 F.2d 389(2d Cir. 1965)

3
4

Oxycal Lab. v. Jeffers,
909 F. Supp. 719(S.D. Cal. 1995)............................................................................. 9

s Playboy Enterprises, Inc. v. Baccarat Clothing Co.,
692 F.2d 1272(9th Cir. 1982)................................................................................... 7
6

Pom Wonderful LLC v. Coca Cola Co.,
727 F. Supp. 2d 849(C.D. Cal. 2010)..................................................................... 11
s Pom Wonderful LLC v. Coca-Cola Co.,
679 F.3d 1170(9th Cir. 2012)................................................................................. 11
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POM Wonderful LLC v. Purely Juice, Inc.,
.................................................. 12
2008 WI., 4222045, *11 (C.D. Cal. July 17, 2008)

ii Rice v. Fox Broadcasting Co.,
330 F.3d 1170(9th Cir. 2003)................................................................................. 10
i2
Southland Sod Farms v. Stover Seed Co.,
13
108 F.3d 1134(9th Cir. 1997)................................................................... 7, 8, 11, 13
is Spiegel, Inc. v. Fed. Trade Comm'n,
494 F.2d 59(7th Cir. 1974)....................................................................................... 9
is
Summit Tech. v. High-line Med. Instruments. Co.,
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933 F. Supp. 918(C.D. Cal. 1996).......................................................................... 10
17

is
19

The William H. Morris Co. v. Group W, Inc.,
66 F.3d 255 (9th Cir.1995)...................................................................................... 11
Thermal Design, Inc. v. Guardian Bldg. Products, Inc.,
................................................... 10
2009 WL 1181327, *2(E.D. Wis. Apr. 29, 2009)

20 Triton Energy Corp. v. SquaYe D. Co.,
68 F.3d 1216 (9th Cir. 1995).....................................................................................6
21
22
23

United Indus. Cor . v. Clorox Co.,
140 F.3d 1175 ~th Cir. 1998)................................................................................. 11
United States Sutcliffe,
505 F.3d 944(9th Cir. 2007)................................................................................... 12

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25
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United States v. Trotter,
478 F.3d 918(8th Cir. 2007)................................................................................... 12
Western States Wholesale, Inc. v. S nthetic Inds., Inc.,
206 F.R. D. 271 (C.D. Cal. 2002~............................................................................ 11

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Zs ~ STATE CASES
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PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT

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Brockey v. Moore,
107 Cal. App. 4th 86(2003)
r~ Cel-Tech Communications, Inc. v. Los Angeles Cellular, Tel. Co.,
20 Ca1.4th 163(1999)

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17

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4

Colgan v. Leatherman Tool Group,Inc.,
135 Ca1.App.4th 663(2006)

s Committee on Children's Television v. General Foods Corp.,
35 Ca1.3d 197(1983)

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17

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Federal Trade Commission v. Willms,
2011 WL 4103542, *4(W.D. Wash. Sept. 13, 2011)

s Kasky v. Nike, Inc.,
27 Cal.4th 939(2002)

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14

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People v. E. W.A.P., Inc.,
106 Cal.App.3d 315(1980)

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ii People v. Servantes,
8b Ca1.App.4th 1081 (2001)

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STATE STATUTES
California Business &Professions Code § 17600

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California Business and Professions Code § 17200
California Business and Professions Code § 17500

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FEDERAL RULES
15 United States Code § 1125(a)(1)(B)

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16 Code of Federal Regulations § 251.1

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8, 17

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Federal Rules of Civil Procedure § 56(a)

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Federal Rules of Civil Procedure § 56(c)

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Federal Rules of Civil Procedure § 56(e)

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PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND MOTION FOR SUMMARY NDGMENT

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MEMORANDUM OF POINTS AND AUTHORITIES

21 I.

INTRODUCTION

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This is a straightforward case about false advertising by an online company that

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purports to provide "free" online legal products. Defendant Rocket Lawyer

s Incorporated ("Rocket Lawyer")tells consumers that they can "incorporate for free...
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pay no fees ($0)," and get "free... LLCs,""free help from local attorneys," "free legal
review," and "free" trials of Rocket Lawyer's "Basic Legal Plan" and "Pro Legal

s Plan." However, as demonstrated below, each ofthese online advertising claims is
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literally false.

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Given Rocket Lawyer's use of false factual statements in its online

ii advertisements, Rocket Lawyer has engaged in false advertising and unfair
competition in violation ofthe Lanham Act and California Professions and Business
Code, and an award of summary judgment on these claims for LegalZoom is
appropriate.
II.

STATEMENT OF MATERIAL FACTS NOT IN DISPUTE
A.

The Parties And The Products

LegalZoom and Rocket Lawyer are both providers of online legal products.
is (LegalZoom's Separate Statement of Undisputed Material Facts "SS," ¶ 1, Rocket
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Lawyer's Answer to Amended Complaint and Amended Counterclaims ("Rocket

Zo Lawyer's Answer and Amended Counterclaims"), ECF No. 17, 12:2-3 ("Rocket
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Lawyer and LegalZoom compete with one another... in the legal services.

Za industry....").) LegalZoom and Rocket Lawyer compete with one another in the
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online legal products industry. (SS,¶ 2, id.) LegalZoom and Rocket Lawyer both

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offer incorporation and formation services and other online legal products. (SS,¶ 3,

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id. at 13:1-2.) On its website, Rocket Lawyer touts to provide affordable legal

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services to individuals, families and business owners. (SS,¶ 4, Declaration of Mary

a~ Ann T. Nguyen("Nguyen Decl."), ¶ 3, Exhibit A, a true and correct copy of Rocket
Zs Lawyer's "About Us" webpage.)
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MEMORANDUM OF POINTS AND AUTHORITIES
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B.
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Rocket Lawyer's Online Advertisements
1.

"Free" corporations and LLCs

At least in 2011,2012 and 2013, Rocket Lawyer advertised "free"
incorporation and "free" limited liability companies(EEGs). (SS,¶ 5, Nguyen Decl.,

s ¶ 4, Exhibit B,true and correct copies of screen grabs of Rocket Lawyer's
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advertisements.) For example, Rocket Lawyer has advertised "Incorporate for Free...
Pay No Fees $0,""Incorporate Your Business at Rocket Lawyer Free,""Form Your

s LLC Free at Rocket Lawyer" and "Free... LLCs." (SS,¶ 6, Nguyen Decl., ¶ 4,
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Exhibit B,true and correct copies of screen grabs of Rocket Lawyer's

to advertisements.) However, Rocket Lawyer's customers cannot incorporate or form
ii an LLC for "free" through Rocket Lawyer's services. Indeed, customers seeking to
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i2 incorporate or form an LLC through Rocket Lawyer's services are nonetheless
i3 required to pay the state fees associated with incorporation and formation. (SS,¶ 7,
is Nguyen Decl., ¶¶ 2, 5, Exhibit C,true and correct copies of screen grabs of state
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filing options through Rocket Lawyer's services on Rocket Lawyer's website.) Even

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more, customers who access the Rocket Lawyer link to the "Incorporate for Free...

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Pay No Fees $0,""Incorporate Your Business at Rocket Lawyer Free,""Form Your

is LLC Free at Rocket Lawyer" or "Free... LLCs" do not discover that they must
i9 actually pay the state filing fees until after they have accessed the Rocket Lawyer
Zo website, completed a "company setup" and filled out information relating to the
ai "company details." (SS,¶ 8, Nguyen Decl., ¶ 6, Exhibit D,true and correct copies of
as screen grabs of Rocket Lawyer's "interview" for "company set up" and "company
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details" prior to "state filing option.") Rocket Lawyer subsequently changed the

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language ofthese advertisements after LegalZoom filed its original Complaint.' (SS,

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1 Nonetheless, liability for false advertising under the Lanham Act may not be avoided by removing
false statements from later advertising. Skydrive Arizona, Inc. v. Quattrocchi, 2009 WL 6597892,
25(D. Ariz. Feb. 2, 2009). In Skydrive Arizona v. Quattrocchi, the defendants argued that they had
27
removed the claimed objectionable language from their websites, but the court nevertheless held that
"those statements are indeed relevant to establish false advertising," and reasoned that the court had
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come across no authority providing that removal of false statements from later advertising could

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MEMORANDUM OF POINTS AND AUTHORITIES

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¶ 9, Rocket Lawyer's Answer and Amended Counterclaims, ECF No. 17, 2:26-3:1
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("Rocket Lawyer admits that it has produced new advertisements regarding its

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business and a variety of services it offers since the service ofthe original

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complaint....").)

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2.

"Free help from local attorneys" and "Free legal review"

At least in 2012, Rocket Lawyer advertised "Free help from local attorneys"
and "Free legal review." (SS,¶ 10, Nguyen Decl., ¶ 7, Exhibit E,true and correct

s copies of screen grabs of Rocket Lawyer's advertisements.) However, Rocket
9

Lawyer's customers could not access "help from local attorneys" or "legal review"

io for free. Customers could access the "free help from local attorneys" and the "free
ii legal review" only if they were "Eligible Members" who had either(a)purchased
three consecutive months of Rocket Lawyer's monthly Legal Plan, or(b)purchased a
Rocket Lawyer annual Legal Plan. (SS,¶ 11, Nguyen Decl., ¶ 8, Exhibit F, a true
and correct copy Rocket Lawyer's On Call Terms of Services, dated July 2012, as
printed on November 27, 2012). This paid membership requirement for access to the
purported "free help from local attorneys" and "free legal review" was not disclosed
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i~ in close proximity to the advertisements on Rocket Lawyer's website. (SS,¶ 12,
is Nguyen Decl., ¶ 9,see http://www.rocketlawyer.com/on-call-terms-of -service.rl.)
19

Indeed, this requirement was only disclosed in Rocket Lawyer's "On Call Terms of

Zo Service," which was accessible to customers on a separate link found at
ai http://www.rocketlawyer.com/on-call-terms-of -service.rl. (SS,¶ 13, Nguyen Decl.,¶
a2 9,see http://www.rocketlawyer.com/on-call-terms-of -service.rl.) Rocket Lawyer
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subsequently changed the language of its "On Call Terms of Service," to provide that

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"Customers who enter into a one week (seven(7) calendar days)free trial are eligible

is to receive one(1)free legal matter consultation..." after LegalZoom filed its original
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Complaint. (SS,¶ 14, Nguyen Decl., ¶ 10, Exhibit G,a true and correct copy of

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shield a party from liability. Id.
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MEMORANDUM OF POINTS AND AUTHORITIES

807872

i Rocket Lawyer's On Call Terms of Service, dated November 2012, as printed on
a November 27, 2012.) This access during a "free trial" was not available before
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LegalZoom's filing ofthe original Complaint. (SS,¶ 15, Nguyen Decl.,¶ 10,

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Exhibits F and G.) In any event, even with Rocket Lawyer's recent change, access

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to the advertised "free help from local attorneys" and the "free legal review" was still

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conditioned upon customers actively enrolling in Rocket Lawyer's trial membership
and negative option program and providing Rocket Lawyer with their credit card

s information. (SS,¶ 16, Nguyen Decl., ¶ 11, Exhibit G.) As provided in Federal
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Trade Commission v. Willms, 2011 WL 4103542, *4(W.D. Wash. Sept. 13, 2011), a

io "free" offer subject to enrollment in a negative option program is not "free" and
ii violates the Federal Trade Commission Act.
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is trials of its "Basic Legal Plan" and "Pro Legal Plan." (SS,¶ 17, Nguyen Decl.,¶ 12,

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3.

"Free trial"

At least in 2012 and 2013, Rocket Lawyer advertised on its website "free"

is Exhibit H,a true and correct copy of Rocket Lawyer advertisement("Try it Free").)
i6 However, Rocket Lawyer's customers cannot "try" Rocket Lawyer's "Basic Legal

~~ Plan" or "Pro Legal Plan" for "free." Customers who sign up for aone-week free
is trial membership under the "Basic Legal Plan" or "Pro Legal Plan" must first provide
t9 Rocket Lawyer with their credit card information and enroll in Rocket Lawyer's
Zo "negative option" program — i.e., a program in which customers are automatically
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enrolled and billed and must contact Rocket Lawyer to opt out of. (SS,¶ 18, Nguyen

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Decl., ¶ 13, Exhibit I, a true and correct copy of Rocket Lawyer's "free" trial

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enrollment page after the outset ofthe offer.) As stated above, a "free" offer subject

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to enrollment in a negative option program is not "free." See FTC v. Willms, 2011

Zs WL 4103542, *4. A disclosure of Rocket Lawyer's negative option is found in
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standard font only upon the customer being directed to enroll in the "free trial." (SS,

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¶ 19, Nguyen Decl., ¶ 13,see Exhibit I.) However, no further acknowledgement

as regarding the negative option is provided. (SS,¶ 20, Nguyen Decl., ¶ 13, see Exhibit
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MEMORANDUM OF POINTS AND AUTHORITIES

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i I.)
LegalZoom's Prior Efforts To Resolve Matters Outside Of Court

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C.

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In an attempt to resolve this matter amicably outside the courts, on October 13,

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2011, LegalZoom's Chairman, Brian Liu, contacted Rocket Lawyer's CEO,Dan Nye,

s stating that there were "important issues that [LegalZoom's] legal department has
6

brought up regarding [Rocket Lawyer's] advertising." (SS,¶ 21, Nguyen Decl., ¶ 14,
Exhibit J, a true and correct copy ofthe email exchange between Brian Liu and Dan

s Nye, dated October 13, 2011.) Mr. Nye responded by stating that Mr. Liu should
9

discuss this issue with Charley Moore, Rocket Lawyer's founder and Chairman, and

io copied Mr. Moore on the email exchange. (SS,¶ 22, Nguyen Decl.,¶ 14, Exhibit J.)
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On October 14, 2011, Mr. Liu had a telephone conversation with Mr. Moore,

is stating that LegalZoom took issue with Rocket Lawyer's ads, which promised "Set up
i3 a Free LLC... Totally Free," and "100% Free," since state filing fees must always be
is paid when setting up an LLC through Rocket Lawyer. (SS,¶ 23, Nguyen Decl., ¶ 15,

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Exhibit K,a true and correct copy ofthe email from Brian Liu to Charley Moore,

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dated October 14, 2011.) Mr. Liu also implored Mr. Moore to read and follow the

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Federal Trade Commission's guidelines regarding the use of the word "free" in

is advertising, which requires, among other things, that "all terms, conditions and
~9 obligations upon which receipt and retention ofthe "Free" item are contingent should
Zo be set forth clearly and conspicuously at the outset ofthe offer so as to leave no
ai reasonable probability that the terms ofthe offer might be misunderstood." (SS,¶ 24,
22

Nguyen Decl., ¶ 15, Exhibit K (emphasis added.) Mr. Liu requested that Rocket

23

Lawyer immediately take down these and other misleading advertisements. (SS,¶ 25,

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Nguyen Decl., ¶ 15, Exhibit K.)

as
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One month later, the misleading Rocket Lawyer advertising still had not been
changed or removed. (SS,¶ 26, Nguyen Decl., ¶ 16, Exhibit L.) Beginning

2~ November 15, 2011, in a series of emails, Mr. Liu repeatedly requested that Rocket
Zs Lawyer discontinue its false advertising and unfair competition practices to no avail.
MEMORANDUM OF POINTS AND AUTHORITIES

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i (SS,¶ 27, Nguyen Decl., ¶ 16, Exhibit L.)
a

Thus, LegalZoom respectfully requests that this Court hold that Rocket

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Lawyer's advertisements constitute false advertising under the Lanham Act and false

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~ adverting and unfair competition under California law as a matter of law.

s ~ III.

ARGUMENT

6

A.

Leal Standard For Summary Judgment

Summary judgment shall be granted "if the movant shows that there is no
s genuine dispute as to any material fact and the movant is entitled to judgment as a
9

matter of law." Fed. R. Civ. P. 56(a); see also Green v. Sun Life AssuY. Co., 383 F.

io Supp. 2d 1224, 1226(C.D. Cal. 2005). A "genuine issue" exits if"a reasonable jury
it ~ could return a verdict for the nonmoving party" and a fact is material if it "might
12

affect the outcome ofthe suit under the governing law." Anderson v. Liberty Lobby,

13

Inc., 477 U.S. 242,248(1986). The Court shall determine, if practicable, what

14

material facts exist without substantial controversy. Fleener v. Trinity Broadcasting

15

Network, 203 F. Sup. 2d 1142, 1147(C.D. Cal. 2001).
The initial burden is on the moving party to establish the absence of any
genuine issues of material fact and, thereby, establishing entitlement to judgment as a
matter of law. Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317,
323(1986); Anderson,477 U.S. at 250. After the moving party has sustained its
initial burden, the nonmoving party must come forth with enough evidence to

21

demonstrate the existence of a "genuine issue" of material fact for trial. Anderson,

as 477 U.S. at 256; Fed. R. Civ. P. 56(e). The nonmoving party's burden is such that it
23

must do more than simply show there is some metaphysical doubt as to the material

24

facts. Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574(1986);

2s see also Triton Energy Corp. v. Square D. Co.,68 F.3d 1216, 1221 (9th Cir. 1995)
26

(providing that "[t]he mere existence of a scintilla of evidence in support ofthe

2~

nonmoving party's position is not sufficient" to prevent summary judgment).

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MEMORANDUM OF POINTS AND AUTHORITIES

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B.

Under The Lanham Act

2

"The purpose ofthe [Lanham] Act is to insure truthfulness in advertising and to

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4

Rocket Lawyer's Advertisements Constitute False Advertising

eliminate misrepresentations with reference to the inherent quality or characteristics

s of another's product." Coca-Cola Co. v. Tropicana Products, Inc.,690 F.2d 312, 318
6

(2d Cir. 1982). The Lanham Act is designed and should be enforced to protect the
public from deception by deterring deceivers. Monsanto Chemical Co. v. Perfect Fit

s Products Mfg. Co., 349 F.2d 389, 395-96(2d Cir. 1965), cent. denied, 383 U.S. 942
9

(1966). The Ninth Circuit too has stressed that the trial court's primary function

io should center on making violations ofthe Lanham Act unprofitable. Maier Brewing
Co. v. Fleischmann Distilling Corp., 390 F.2d 117(9th Cir. 1968);Playboy
Enterprises, Inc. v. Baccarat Clothing Co.,692 F.2d 1272, 1274 (9th Cir. 1982).
,
To establish a false advertising claim under the Lanham Act2 a plaintiff must
show:(1)false statement of fact by the defendant in a commercial advertisement
about its own or another's product;(2)the statement actually deceived or has the
16

tendency to deceive a substantial segment of its audience;(3)the deception is

i~ material, in that it is likely to influence the purchasing decision;(4)the defendant
is caused its false statement to enter interstate commerce; and(5)the plaintiff has been
19

or is likely to be injured as a result ofthe false statement, either by direct diversion of

ao sales from itselfto defendant or by a lessening ofthe goodwill associated with its
ai products. Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139(9th Cir.
as 1997).
23

2 Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a) provides in pertinent part:
Any person who, on or in connection with any goods or services, or any container for goods,
(a)
uses in commerce any... false or misleading representation of fact, which—
25

24

(A)

...

26

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities,
27 or geographic origin of his or her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be
28 damaged by such act. 15 U.S.C. § 1125(a)(1988).
MEMORANDUM OF POINTS AND AUTHORITIES

so7s7z

i

LegalZoom can show by undisputed facts that Rocket Lawyer has engaged in

a each element of a Lanham Act false advertising claim, and therefore is entitled to
3

summary judgment on this claim, as a matter of law.
1.

4

Rocket Lawyer's Advertisements are False Commercial

s

Advertisements

6

a.

Rocket Lawyers advertisements are literally false.

Whether a statement is literally false is a determination to be made as a matter
s of law. Allsup, Inc. v. Advantage 2000 Consultants Inc., 428 F.3d 1135, 1138 (8th
9

Cir. 2005). Therefore this determination is appropriate for summary judgment.
To demonstrate falsity within the meaning ofthe Lanham Act, a plaintiff may

io

ii show that the statement was literally false, either on its face or by necessary
~,

12

implication, or that the statement was literally true, but likely to mislead or confuse

~. L
~, ~

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~~
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i3 consumers. Southland Sod Farms v. Stover Seed Co., 108 F.3d at 1139. The test for

~,
~;
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~~

i6 C.F.R. § 251.1 (2009)("FTC Guide Concerning The Use ofthe Word `Free' And

is literal falsity is simple: "if a defendant's claim is untrue, it must be deemed literally
is false." Castrollnc. v. Pennzoil Co.,987 F.2d 939,944(3d Cir. 1993); see also 16

t~ Similar Representations")(false advertising occurs where the "free" offer is not
is accompanied by a sufficient disclaimer making clear that the offer is not actually
19

ao

free).
As stated above, Rocket Lawyer's advertisements — "incorporate for free... pay

21

no fees ($0),""form your LLC free at Rocket Lawyer,""free help from local

22

attorneys," "free legal review," and "free" trials of Rocket Lawyer's "Basic Legal

23

Plan" and "Pro Legal Plan" —are literally false. Rocket Lawyer customers cannot

24

incorporate, form an LLC, get help from local attorneys, get legal review or get trials

Zs of Rocket Lawyer's plans for "free." Rather, Rocket Lawyer customers seeking to
26

incorporate or form an LLC for "free" through Rocket Lawyer's services are

2~

nonetheless required to pay the state fees associated with incorporation or formation,

Zs customers could access Rocket Lawyer's "free help from local attorneys" and the
s
MEMORANDUM OF POINTS AND AUTHORITIES
so7872

i "free legal review" only if they were paid members of Rocket Lawyer's "Basic Legal
a ~ Plan" or "Pro Legal Plan," and customers who signed up for cone-week free trial
3

membership under Rocket Lawyer's "Basic Legal Plan" or "Pro Legal Plan" were

4

required to enroll in Rocket Lawyer's "negative option" program. See Spiegel, Inc. v.

s Fed. Trade Comm'n,494 F.2d 59(7th Cir. 1974)("free trial" offers conditioned on
6

customer's meeting retailer's credit criteria were not truly free). Accordingly, Rocket
Lawyer's advertisements are literally false as a matter of law.

s

b.

9
io

Rocket Lawyers advertisements are commercial
advertisements.

Commercial advertisements, for purposes of the Lanham Act are:(i)

ii commercial speech;(ii) by a defendant who is in commercial competition with
y
.~
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i2 plaintiff;(iii) for the purpose of influencing consumers to buy defendant's goods or
13

services; and (iv) must be disseminated sufficiently to the relevant purchasing public

is to constitute "advertising" or "promotion" within that industry. Coastal Abstract Serv.
W

~~ >
~3
Q
~~

is Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999), citing 15 U.S.C. §
i6 1125(a)(1)(B).
i~
is
19 j

(i)

Commercial speech.

The Supreme Court has recognized that "expression related solely to the
economic interests ofthe speaker and its audience" will be considered commercial

Zo ', speech. Oxycal Lab. v. Jeffers, 909 F. Supp. 719, 724(S.D. Cal. 1995)(citing
21

Cincinnati v. Discovery Network, 507 U.S. 410,422(1993)). Rocket Lawyer's

as advertisements to customers and potential customers regarding the cost of Rocket
23

Lawyer's products are purely economic in nature and therefore constitute commercial

24

speech.

Zs
26
2~

(ii)

Parties in commercial competition.

Commercial competitors, for purposes ofthe Lanham Act, are "persons
~ endeavoring to do the same thing and each offering to perform the act, furnish the

2g ~ merchandise, or render the service better or cheaper than his rival." Summit Tech. v.
MEMORANDUM OF POINTS AND AUTHORITIES
807872

i High-line Med. Instruments. Co., 933 F. Supp. 918,939(C.D. Cal. 1996). Since both
2

LegalZoom and Rocket Lawyer are providers of online legal products, they are in

3

commercial competition with each other.
(iii) Purpose of influencing customers.

4

s
6

To be considered a statement made "for the purpose of influencing consumers
to buy the defendant's goods and services," the statement must propose a commercial
transaction. If it does not, it is not advertising and cannot be the subject of a Lanham

s Act "false advertising" claim. See, e.g., Rice v. Fox Broadcasting Co., 330 F.3d 1170,
9

1180-81 (9th Cir. 2003). Because Rocket Lawyer directs its advertisements to

io individuals, families and business owners looking for affordable legal services and
ii products, the purpose of its false advertisements concerning the costs of Rocket
,~, ~
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i2 Lawyer's products is to influence customers to purchase Rocket Lawyer's products.
(iv) Dissemination sufficiently to the relevant

i3

purchasing public.

is

is

Advertisements on the Internet have been found to be disseminated sufficiently

i6 to the relevant purchasing public for purposes ofthe Lanham Act. See Healthport,
17

563 F. Supp. 2d at 1179; see also Certain Teed Corp. v. Seattle RoofBrokers, 2010

is WL 2640083, *5(W.D. Wash. June 28, 2010)(providing that statements on websites
19

draw interstate audience and come within the ambit ofthe Lanham Act); Thermal

20 Design, Inc. v. Guardian Bldg. Products, Inc., 2009 WL 1181327, *2(E.D. Wis. Apr.
21

29,2009)(marketing materials, including those on the Internet, meet the commercial

22

advertising requirement because they are "disseminated sufficiently to the relevant

23

purchasing public.") Since Rocket Lawyer's advertisements were on the Internet, the

24

advertisements are disseminated sufficiently to the relevant purchasing public.

25

2.

Rocket Lawyer's Advertisements Are Presumed to Have

26

Deceived and Have the Tendency to Deceive a Substantial

a~

Segment of its Audience

is

Rocket Lawyer's advertisements are likely to deceive their intended audience,
io
MEMORANDUM OF POINTS AND AUTHORITIES

ao7sn

the users of online legal help, because they are likely to cause confusion or mistake as
~a to the actual cost ofthe purportedly "free" Rocket Lawyer services. In any event, if
3

an advertisement is literally false, or if a defendant intentionally misleads customers,

4

a presumption arises that customers were in fact deceived and the burden shifts to the

s defendant to prove otherwise. Pom Wonderful LLC v. Coca Cola Co., 727 F. Supp.
6

2d 849, 869(C.D. Cal. 2010)(affd in part, vacated in part, remanded sub nom.Pom
Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170(9th Cir. 2012))("if[the defendant

a has] intentionally misled consumers,[the court will presume that] consumers were in
9

fact deceived and [the defendant] would have the burden of demonstrating

io otherwise"); Southland Sod Farms v. Stover Seed Co., 108 F.3d at 1146; see also The
ii
~,
.~
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w

is Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180(8th Cir. 1998)("If a plaintiff proves
13

~~
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William H. Morris Co. v. Group W, Inc., 66 F.3d 255,258 (9th Cir.1995); United

that a challenged claim is literally false, a court may grant relief without considering

is whether the buying public was actually misled; actual consumer confusion need not
is be proved"); Western States Wholesale, Inc. v. Synthetic Inds., Inc., 206 F.R. D. 271,

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-~,
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("When a plaintiff shows that the defendant's false advertising
i6 275 (C.D. Cal. 2002)

~o
t~ ~

i~ was intentional, the plaintiff is entitled to a presumption that customers were
is deceived."). Since Rocket Lawyer's advertisements are literally false and Rocket
19

Lawyer was made aware ofthe literal falsity of its advertisements, but nonetheless

Zo intentionally continued to use such false advertisements to confuse and deceive
21

customers into believing that its products and services were somehow "free," it can be

a2 presumed that customers were in fact confused and deceived. Given such legal
23

presumption in LegalZoom's favor, LegalZoom is entitled to summary judgment on

24

this element.

Zs
26
2~

3.

Rocket Lawyer's Advertisements are Materially Deceptive in
that it Thev Are Likely to Influence Purchasing Decisions

Whether for online legal products or other consumer products, use ofthe word

Zs "free" is a highly effective tactic used by retailers to lure customers to their stores and
ii
MEMORANDUM OF POINTS AND AUTHORITIES

so~872

i websites. In re Samuel Stores, 27 F.T.C. 882(1938). Rocket Lawyer's use ofthe
2

term "free" in its advertising is no different. Rocket Lawyer's advertisements are

3

likely to cause confusion or mistake as to the true costs of Rocket Lawyer products

4

and services. Given that Rocket Lawyer's products and services are directed towards

5

economical individuals and small to medium sized businesses, cost is a key factor in

6

such customers' purchasing decisions. In any event, where defendant's advertising
claims are literally false, such false statements are presumed to be material. See POM

s

Wonderful LLC v. Purely Juice, Inc., 2008 WL 4222045, *11 (C.D. Cal. July 17,
2008) affd, 362 F. App'x 577(9th Cir. 2009)(actually false claims are presumed
material). Accordingly, Rocket Lawyer's advertisements are materially deceptive.
4.

Rocket Lawyer Caused its False Advertisements to Enter
Interstate Commerce

An advertisement enters into interstate commerce for purposes ofthe Lanham
Act where the advertisement is widely disseminated to the purchasing public. See
Gordon &Breach Science Publishers, Ltd. v. American Institute ofPhysics, 859 F.
Supp. 1521, 1535-36(S.D.N.Y. 1994)("[w]hile the advertising need not be made in a
`classic advertising campaign,' but may consist instead of more informal types of
`promotion,' the representations... must be disseminated sufficiently to the relevant
19

Zo

purchasing public....")(emphasis added).
"As both a means to engage in commerce and the method by which

ai transactions occur, `the Internet is an instrumentality and channel of interstate
i2

commerce." United States Sutcliffe, 505 F.3d 944,953(9th Cir. 2007)(quoting

23

United States v. TrotteY, 478 F.3d 918,921 (8th Cir. 2007)); see also Healthport

24

Corp. v. Tanita Corp. ofAmerica, 563 F. Supp. 2d at 1179, 1180-81 (providing that

25

statements on the Internet constitute advertisements in interstate commerce for

26

purposes ofthe Lanham Act). Therefore, to prove that a defendant promoted false

a~ statements in interstate commerce, the plaintiff can show that a defendant made false
as statements on the Internet. Del Webb Cmtys., Inc. v. Partington, 2009 WL 3053709,
is
MEMORANDUM OF POINTS AND AUTHORITIES

so7s72

*11, *16(D. Nev. Sept. 18, 2009).
By placing its false advertisements on the Internet(via search engines such as
Google, Yahoo and Bing as well as on its own and other websites), Rocket Lawyer
clearly caused its false advertisements to enter interstate commerce.
5.

Rocket Lawyer's False Advertising Caused Actual Iniury to
Le~alZoom

It is well established that "a competitor need not prove injury when suing to
enjoin conduct that violates section 43(a)" of the Lanham Act. Harper House, Inc. v.
Thomas Nelson, Inc., 889 F.2d 197, 210(9th Cir. 1989); see also Southland Sod
io Farms v. Stover Seed Co., 108 F.3d at 1146. Indeed,"an inability to show actual
ii damages does not alone preclude recovery" and the district court may "award the
,~ ~
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"
~~
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is plaintiff any just monetary award so long as it constitutes `compensation' for the
13

plaintiff losses or the defendant's unjust enrichment and is not simply a `penalty for
s

is the defendant's conduct."' Southland Sod Farms v. Stover Seed Co., 108 F.3d at

~' V
15

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1146 (citations omitted).
Given that LegalZoom and Rocket Lawyer are direct competitors for online
legal products and Rocket Lawyer's advertisements are literally false, injury to

is LegalZoom is presumed and LegalZoom is injured by Rocket Lawyer's false
19

Zo
21

Za

advertising as a matter of law.3
C.

Rocket Lawyer's Advertising Constitutes False Advertising Under
Cal. Bus. &Prof. Code § 17500

Because the evidence shows that LegalZoom is entitled to summary judgment

23
24

3 In any event, direct diversion of sales from a plaintiff to a defendant constitutes actual injury under
the Lanham Act. Southland Sod, 108 F.3d at 1139. LegalZoom has lost business and continues to
lose business caused by Rocket Lawyer's false and misleading advertisements and unfair
26 competition practices as a result of at least one customer being diverted to the Rocket Lawyer
website and/or refusing to do business with LegalZoom due to the fact that the Rocket Lawyer
27 advertisements falsely state that Rocket Lawyer offers "free" incorporation," "free" LLCs,"free
help from local attorneys," "free legal review," and "free" trials of Rocket Lawyer's "Basic Legal
28 Plan" and "Pro Legal Plan," in an amount to be determined at trial.

25

13
MEMORANDUM OF POINTS AND AUTHORITIES

so7sn

i on its false advertising claim under the Lanham Act, summary judgment should
2

likewise be granted on LegalZoom's false advertising claim under California's false

3

advertising law, Cal. Bus. &Prof. Code § 17500 et seq. See, e.g., J.K. Harris & Co.,

4

LLC v. Kassel, 253 F. Supp. 2d 1120, 1130, n.9(N.D. Cal. 2003). California's false

5

advertising law, Cal. Bus. &Prof. Code § 17500 et seq., makes advertising products

6

or services by "untrue or misleading" statements unlawful. See Brockey v. Moore, 107
Cal. App. 4th 86,98(2003), citing Cal. Bus. &Prof. Code § 17500."Section 17500

s has been broadly construed to proscribe `not only advertising which is false, but also
9

advertising which[,] although true, is either actually misleading or which has a

io capacity, likelihood or tendency to deceive or confuse the public."' Colgan v.
ii Leatherman Tool Group, Inc., 135 Ca1.App.4th 663,679(2006), quoting Kasky v.
~,; ~
~= ~
o '~
~~

iz Nike, Inc., 27 Cal.4th 939, 951 (2002). A claim for false or misleading advertising in
i3 violation of Cal. Bus. &Prof. Code Section 17500 requires proof that:(a) defendant
is intentionally or negligently disseminated an untrue or misleading statement with an

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a~

16

disseminated to the public in any state; and(3)the statement deceived and harmed the

~' ~
~~

17

plaintiff.

is intent to dispose of goods or services;(b)the statement was made in California and

is
19

Rocket Lawyer, acting directly or indirectly with the intent to induce members
ofthe public to engage Rocket Lawyer's services and purchase Rocket Lawyer's

Zo products, made or caused to be made, false and misleading statements in the state of
21

California via the Internet that Rocket Lawyer offered "free" incorporation,"free"

22

LLCs,"free help from local attorneys," "free legal review" and "free" trials of Rocket

23

Lawyer's Basic Legal Plan" and "Pro Legal Plan." As stated above, these

24

advertisements are false because customers seeking to "incorporate for free" for form

as ~ an LLC for "free" through Rocket Lawyer's services are nonetheless required to pay
26

the state fees associated with incorporation or formation, customers can access Rocket

a~ Lawyer's "free help from local attorneys" and the "free legal review" only if they are
as paid members of Rocket Lawyer's "Basic Legal Plan" or "Pro Legal Plan," and
14
MEMORANDUM OF POINTS AND AUTHORITIES

so7s72

customers who sign up for aone-week free trial membership under Rocket Lawyer's
"Basic Legal Plan" or "Pro Legal Plan" must nonetheless enroll in Rocket Lawyer's
negative option program. Rocket Lawyer was made fully aware that its
advertisements were false and misleading and so acted in violation of Section 17500
ofthe California Business &Professions Code. Rocket Lawyer's advertising further
violates Section 17509 and Section 17600 et seq.4 in that the advertisements require,
as a condition ofthe "free" services, the payment of state fees, the purchase of paid
membership and/or the enrollment in a trial membership plan subject to a negative
9 option without adequate disclosure to customers. For these reasons, Rocket Lawyer's
io advertising constitutes false advertising under California Business &Professions
ii Code Section 17500, et seq.
~, ~'
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mac:

i2
13

D.

Rocket Lawyer's False Advertising Constitutes Unfair Competition
Under Cal. Bus. &Prof. Code & 17200

California's unfair competition law prohibits "any unlawful, unfair or

_ ~

is

~~,~
a te,

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is fraudulent business practice and unfair, deceptive, untrue or misleading advertising.

a~ g s

16

e

Cal. Bus. &Prof. § 17200. "An unlawful business practice within the meaning of

i~ [California's unfair competition law] is one that is forbidden by law, whether civil or
is criminal, federal, state, or municipal, statutory, regulatory, or court-made." People v.
19
20
21
22
23
24
25
26
27
28

4Under California's Negative Option Law (the "California Negative Option Rule"). Cal. Bus. &
Prof. Code § 17600 et seq., an offer which includes an automatic renewal provision must include a
clear and conspicuous disclosure that:(1)the subscription will continue until the customer
terminates the contract;(2)the cancellation policy of the offer;(3)the amount of the recurring
charges that the customer's credit card will be charged, and if the amount will change, and if so, the
amount that the charge will be changed by, if known;(4)the duration ofthe automatic renewal term
or that the subscription is continuous; and (5)if there is any minimum purchase requirement. The
statute spells out the requirements of"clear and conspicuous" and provides that to qualify as "clear
~ and conspicuous, a disclosure must be in larger type than the surrounding text, or in contrasting
type, font or color to the surrounding text of the same size, or set off from the surrounding text of
the same size by symbols or other marks, in a manner that clearly calls attention to the language."
In addition, the statute requires that the customer be provided with an acknowledgement that
includes the automatic renewal or continuous service offer terms, cancellation policy and
information regarding how to cancel in a manner that is capable of being retained by the customer.
As discussed above, Rocket Lawyer's negative option disclosure appears in standard font only upon
the customer being directed to enroll in the "free trial." Accordingly, the disclosure is not clearly
and conspicuously disclosed.
MEMORANDUM OF POINTS AND AUTHORITIES

so7a7z

Servantes, 86 Ca1.App.4th 1081, 1087(2001). Rocket Lawyer's false and misleading
2

advertising practices have violated numerous aspects of California's unfair

3

competition law.

4

First, an "unlawful" business act or practice is an act or practice that is

s undertaken pursuant to business activity and also forbidden by law. See People v.
6

E. W.A.P., Inc., 106 Cal.App.3d 315,319(1980). The "unlawful" act can be any act
or practice forbidden by civil, criminal, federal, state, municipal, statutory, regulatory

a or court-made law. Id. As explained above, Rocket Lawyer's false and misleading
9 advertising violates the Lanham Act and the California false and misleading
io advertising law and,thus, constitutes "unlawful" conduct under California's unfair
ii competition law.
~"
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i2

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14

u

Rocket Lawyer's use ofthe term "free" in the aforementioned advertisements

i3 not only violates the Lanham Act, but also violates Section 251.1 ofthe Federal Trade
Commission (the "FTC")Guides concerning the use ofthe word "free," which

~~Q

is requires, among other things, that "all terms, conditions and obligations upon which

~~~
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~~

i6 receipt and retention ofthe "free" item are contingent should be set forth clearly and
i~ conspicuously at the outset ofthe offer so as to leave no reasonable probability that
is the terms ofthe offer might be misunderstood." (Emphasis added. Consistent with
19

the clear language ofthe "Free" Guide,the FTC has repeatedly taken enforcement

Zo ~ actions against false "free" claims with automatic renewals that are not adequately
21

disclosed at the outset of an advertisement, but are hidden in footnotes and fine print.

as See, e.g., In the Matter ofProdigy Servs. Corp., 125 F.T.C. 430,434(Mar. 16, 1998)
23

(Prodigy liable for advertising "free" Internet service but failing to disclose at the

24

outset that customers would be charged if they did not cancel during the trial period);

25
26

5 See Waul v. Circuit City Stores, Inc., WL 1535825, *7(Cal. App.July 9, 2004)
a~ (providing that the guide is an advisory,guide.suggesting a procedure that will prevent
the use ofthe term free" from being misleading when there are terms and conditions
as that must be fulfilled before a customer can receive the "free" product or service.)
16
MEMORANDUM OF POINTS AND AUTHORITIES
ao7s72

i In the Matter ofAmerica Online, Inc., 125 F.T.C. 403,406(Mar. 16, 1998)(same re.
2

AOL). Stated differently, all ofthe terms, conditions and obligations should appear in

3

close proximity with the offer of"free" merchandise or service. 16 C.F.R. § 251.1

4

(1998). For example, disclosure ofthe terms ofthe offer set forth in a footnote of an

5

advertisement to which reference is made by an asterisk or other symbol placed next

6

to the offer, is not regarded as making disclosure at the outset. Id. As indicated
above, the terms, conditions and obligations upon which receipt of Rocket Lawyer's

s purportedly "free" services and products are contingent are not conspicuously and
9 clearly set forth at the outset ofthe offer.
Second, in cases between competitors, an act or practice is "unfair" when it

io

ii "threatens an incipient violation of an antitrust law, or violates the policy or spirit of
i2 one ofthose laws because its effects are comparable to or the same as a violation of
o'-~

i3 the law or otherwise significantly threatens or harms competition. Cel-Tech

~~
~~
.~ _r~
'~. ~

is Communications, Inc. v. Los Angeles Cellular, Tel. Co., 20 Cal.4th 163, 187(1999).

~~-,~

15

~ L

~; ~

i6 standard —Rocket Lawyer's false and misleading advertisements aim to deceive

`~ o
~~~

As explained above, Rocket Lawyer's false and misleading advertising has met this

17

customers in an attempt to gain a competitive advantage for Rocket Lawyer over

is LegalZoom.
Third, a business act or practice is "fraudulent" if members ofthe public are

19

20 likely to be deceived." See Committee on Children's Television v. General Foods
ai Corp., 35 Ca1.3d 197,211 (1983). Rocket Lawyer's advertisements deceive and/or
as attempt to deceive customers as to the cost of Rocket Lawyer's services and products.
23

As explained above, such advertisements are false and misleading, and the public

24

likely will be deceived by such advertisements.

25

~~~

26

~~~

27

~~~

28

~~~
17
MEMORANDUM OF POINTS AND AUTHORITIES

8o78n

i IV.

CONCLUSION

a

Rocket Lawyer's false advertising constitutes false advertising under the

3

Lanham Act and false advertising and unfair competition under California law.

4

LegalZoom, as Rocket Lawyer's direct competitor, has suffered damages as a result

s of Rocket Lawyer's false advertising. Therefore, LegalZoom respectfully requests
6

that this Court grant LegalZoom summary judgment on the liability element of its
false advertising and unfair competition claims, leaving only computation of damages

s to be determined at trial.
9

io DATED: August 23, 2013

Respectfully submitted,

ii

GLASER WEIL FINK JACOBS
HOWARD AVCHEN & SHAPIRO LLP

12
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15
16

By: /s/ Fred Heather
PATRICIA L. GLASER
FRED D. HEATHER
MARY ANN T. NGUYEN
Attorneys for Plaintiff
LegalZoom.com,Inc.

17
18
19
20
21
22
23
24
25
26
27
28
18
MEMORANDUM OF POINTS AND AUTHORITIES

so7sn

i

DECLARATION OF MARY ANN T. NGUYEN

a

I, MARY ANN T. NGUYEN,declare and state as follows:

3

1.

I am an attorney at law duly licensed to practice before all courts ofthe

4

State of California and am an Associate ofthe law firm of Glaser Weil Fink Jacobs

5

Howard Avchen &Shapiro LLP, attorneys of record herein for Plaintiff

6

LegalZoom.com,Inc.("LegalZoom"). I make this declaration in support ofPlaintiff
LegalZoom's Motion for Summary Judgment. The facts set forth herein are true of
my own personal knowledge, and if called upon to testify thereto, I could and would
competently do so under oath.
2.

The following is a list of corporation and limited liability company

(LLC)filing fees by state. As shown below, every state has a filing fee for
corporation and LLC filings. Accordingly, Rocket Lawyer's advertisements
regarding "free" incorporation or LLC formation are false since state filing fees must
always be paid when setting up a corporation or LLC.
15
16

i~

Corp Filing
State Name

LLC Filing

Fee

Fee

is
i9

Alabama

$100

$100

ao

Alaska

$250

$250

Arkansas

$45

$45

Arizona

$60

$50

California

$100

$70

26

Colorado

$50

$50

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Connecticut

$250

$120

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Delaware

$89

$90

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23
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DECLARATION OF MARY ANN T. NGUYEN

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Florida

$35

$100

2

Georgia

$100

$100

3

Hawaii

$75

$75

4

Idaho

$100

$100

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Illinois

$175

$500

6

Indiana

$90

$90

Iowa

$20

$50

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Kansas

$90

$165

9

Kentucky

$506

$40

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Louisiana

$75

$100

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Maine

$145

$175

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Maryland

$120'

$100

13

Massachusetts

$275

$500

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Michigan

$60

$50

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Minnesota

$135

$135

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Missouri

$50

$50

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Mississippi

$50

$50

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Montana

$70

$70

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Nebraska

$60

$100

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Nevada

$75

$75

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New Hampshire

$100

$100

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New Jersey

$125

$125

23

New Mexico

$100

$50

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New York

$125

$200

25

North Carolina

$125

$125

26
27

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DECLARATION OF MARY ANN T. NGUYEN

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North Dakota

$100

$125

2

Ohio

$125

$125

3

Oklahoma

$50

$100

4

Oregon

$100

$100

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Pennsylvania

$125

$125

6

Rhode Island

$230

$150

South Carolina

$110

$110

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South Dakota

$150

$150

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Tennessee

$100

$300

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$300

$300

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Utah

$70

$70

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Vermont

$125

$120

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$75

$100

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Washington

$180

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$220

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West Virginia

$50

$100

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$100

$130

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$100

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3.

On Rocket Lawyer's "About Us" webpage, Rocket Lawyer touts to

ao provide affordable legal services to individuals, families and business owners. A true
21

and correct copy of Rocket Lawyer's "About Us" webpage is attached thereto as

22

Exhibit A.

23
24

4.

At least in 2011, 2012 and 2013, Rocket Lawyer advertised "free"

incorporation and "free" limited liability companies(EEGs). For example, Rocket

Zs Lawyer has advertised "Incorporate for Free... Pay No Fees $0,""Incorporate Your
26

Business at Rocket Lawyer Free,""Form Your LLC Free at Rocket Lawyer" and

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"Free... LLCs." A true and correct copy of Rocket Lawyer's advertisements

as containing these claims is attached hereto as Exhibit B.
21
DECLARATION OF MARY ANN T. NGUYEN
807872

i

5.

Rocket Lawyer's customers are required to pay the state fees associated

2

with incorporation and formation. A true and correct copy of Rocket Lawyer's state

3

filing options showing the state fee requirement through Rocket Lawyer's services is

4

attached hereto as Exhibit C.

s
6

6.

Rocket Lawyer customers who access the Rocket Lawyer link to the

"Incorporate for Free... Pay No Fees $0,""Incorporate Your Business at Rocket
Lawyer Free,""Form Your LLC Free at Rocket Lawyer" or "Free... LLCs" do not

a discover that they must actually pay the state filing fees until after they have accessed
v the Rocket Lawyer website, completed a "company setup" and filled out information
io relating to the "company details." Indeed,the state filing fees do not appear until
ii after a customer has accessed the Rocket Lawyer website, completed a "company
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is setup" and filled out information relating to the "company details." A true and
i3 correct copy of Rocket Lawyer's "Interview" for "Company Set-Up" and "Company
is Details" is attached hereto as Exhibit D.

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7.

At least in 2012, Rocket Lawyer advertised "Free help from local

i6 ' attorneys" and "Free legal review." A true and correct copy of Rocker Lawyer's
17 ~',

is
19

~ advertisements containing these claims is attached hereto as Exhibit E.
8.

As provided by Rocket Lawyer's On Call Terms of Service, Rocket

Lawyer's customers could access "help from local attorneys" or "legal review" for

zo free only if they were "Eligible Members" who had either(a)purchased three
21

consecutive months of Rocket Lawyer's monthly Legal Plan, or(b)purchased a

22

Rocket Lawyer annual Legal Plan. A true and correct copy of Rocket Lawyer's On

23

Call Terms of Service, dated July 2012, as printed on November 27, 2012, stating this

24

requirement, is attached hereto as Exhibit F.

Zs
26

9.

The paid-membership requirement for access to Rocket Lawyer's

purported "free help from local attorneys" and "free legal review" was not disclosed

a~ in close proximity to the advertisements on Rocket Lawyer's website. Indeed, the
as paid-membership requirement was only disclosed in Rocket Lawyer's"On Call
Za
DECLARATION OF MARY ANN T. NGUYEN

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i Terms of Service," which was accessible to customers on a separate link. See
2
3
4

http://www.rocketlawyer.com/on-call-terms-of -service.rl.
10.

Rocket Lawyer subsequently changed the language of its "On Call

Terms of Service" to provide that "Customers who enter into a one week(seven(7)

s calendar days)free trial are eligible to receive one(1)free legal matter
6

consultation..." after LegalZoom filed its original Complaint. The access to "free
help from local attorneys" and "free legal review" during a "free trial" was not

g available before LegalZoom's filing ofthe original Complaint. True and correct
9

copies of Rocket Lawyer's On Call Terms of Service, dated July 2012, as printed on

io November 27, 2012 and Rocket Lawyer's On Call Terms of Service, dated November
it 2012, as printed on November 29, 2012, showing Rocket Lawyer's On Call Terms of
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Service before service ofthe Complaint and Rocket Lawyer's On Call Terms of

i3 Service after service ofthe Complaint, are attached hereto as Exhibits F and G,
is respectively.

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11.

As shown in Rocket Lawyer's On Call Terms of Service, dated

16

November 2012, as printed on November 29,2012, access to the advertised "free help

17

from local attorneys" and the "free legal review" was still conditioned upon

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is customers actively enrolling in Rocket Lawyer's trial membership and providing
19

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Rocket Lawyer with their credit card information. See Exhibit G.
12.

At least in 2012 and 2013, Rocket Lawyer advertised on its website

ai ~"free" trials of its "Basic Legal Plan" and "Pro Legal Plan." A true and correct copy
as ~ of Rocket Lawyer's advertisements containing these claims is attached hereto as
23
24

Exhibit H.
13.

However, as shown in Rocket Lawyer's "Free" Trial Enrollment Page,

25

customers who sign up for aone-week free trial membership under the "Basic Legal

26

Plan" or "Pro Legal Plan" must first provide Rocket Lawyer with their credit card

2~

information and enroll in Rocket Lawyer's "negative option" program — i.e., a

Zs program in which customers are automatically enrolled and billed and must contact
23
DECLARATION OF MARY ANN T. NGUYEN

8o7sn

i Rocket Lawyer to opt out of. No further acknowledgement regarding the negative
a option is provided. A true and correct copy of Rocket Lawyer's "Free" Trial
3
4

Enrollment Page is attached hereto as Exhibit I.
14.

On October 13, 2011, LegalZoom's Chairman, Brian Liu, contacted

5

Rocket Lawyer's CEO,Dan Nye, stating that there were "important issues that

6

[LegalZoom's] legal department has brought up regarding [Rocket Lawyer's]
advertising." Dan Nye responded by stating that Liu should discuss this issue with

s Charley Moore,Rocket Lawyer's founder and Chairman, and copied Moore on the
9

email exchange. A true and correct copy of this email exchange is attached hereto as

io Exhibit J.
ii
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12

15.

On October 14, Brian Liu had a telephone conversation with Charley

Moore, stating that LegalZoom took issue with Rocket Lawyer's ads, which promised

i3 "Set up a Free LLC... Totally Free," and "100% Free," since state filing fees must

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is always be paid when setting up an LLC through Rocket Lawyer. Brian Liu also

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16 regarding the use of the word "free" in advertising, which requires, among other

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asked Charley Moore to read and follow the Federal Trade Commission's guidelines

things, that "all terms, conditions and obligations upon which receipt and retention of

is the "Free" item are contingent should be set forth clearly and conspicuously at the
19

outset ofthe offer so as to leave no reasonable probability that the terms of the offer

Zo might be misunderstood." This conversation was memorialized in an email from
21

Brian Liu to Charley Moore, dated October 14, 2011. A true and correct copy ofthis

as email is attached hereto as Exhibit K.
23
24

16.

In November 2011, Rocket Lawyer's advertising regarding "free" trials

and services still had not been changed or removed; as a result, beginning November

Zs 15, 2011, in a series of emails, Brian Liu repeatedly requested that Rocket Lawyer
26

discontinue its false advertising and unfair competition practices. A true and correct

2~

copy of this email is attached hereto as Exhibit L.

Zs

I declare under penalty of perjury pursuant to the laws ofthe State of California
24
DECLARATION OF MARY ANN T. NGUYEN

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i that the foregoing facts are true and correct.
2

Executed on August 23, 2013 at Los Angeles, California.

i~
41

/s/ Mary Ann T. Nguyen
MARY ANN T. NGUYEN

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6
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8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

DECLARATION OF MARY ANN T. NGUYEN

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1

CERTIFICATE OF SERVICE

2

STATE OF CALIFORNIA,COUNTY OF LOS ANGELES

3

I am employed in the County of Los Angeles, State of California; I am over the
4

age of 18 and not a party to the within action; my business address is 10250
s'
Constellation Boulevard, 19th Floor, Los Angeles, California 90067.
6

On August 23, 2013, I electronically filed the following documents)using the
CM/ECF system.
s
PLAINTIFF LEGALZOOM.COM,INC.'S NOTICE OF MOTION AND
9

MOTION FOR SUMMARY JUDGMENT; MEMORANDUM OF
io
POINTS AND AUTHORITIES; DECLARATION OF MARY ANN T.
ii
NGUYEN
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Participants in the case who are registered CM/ECF users will be served by the

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CM/ECF system.
I declare that I am employed in the office of a member ofthe bar ofthis court at
whose direction the service was made. I declare under penalty of perjury that the

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above is true and correct.
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Executed on August 23, 2013 at Los Angeles, California.
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Zo

/s/ Fred Heather
Heather
Fred

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PROOF OF SERVICE

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