LegalZoom.com Inc v. Rocket Lawyer Incorporated

Filing 44

MINUTES (IN CHAMBERS): ORDER RE: PLAINTIFFS MOTION FOR SUMMARY JUDGMENT by Judge Gary A. Feess: Plaintiff has failed to prove that no genuine issues of material fact exist as to whether Defendant violated the Lanham Act and California Business and Professions Code. Accordingly, Plaintiffs motion for summary judgment is DENIED. The hearing presently scheduled for October 21, 2013, is hereby VACATED. (PLEASE REVIEW DOCUMENT FOR FULL AND COMPLETE DETAILS) RE: denying 31 Motion for Summary Judgment. (lw)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Title

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

Present: The Honorable

Date

October 17, 2013

GARY ALLEN FEESS

Stephen Montes Kerr
Deputy Clerk

None
Court Reporter / Recorder

N/A
Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

None

None

Proceedings:

(In Chambers)

ORDER RE: PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
I.
INTRODUCTION
Plaintiff LegalZoom.com, Inc. (“Plaintiff” or “LegalZoom”) and Defendant Rocket
Lawyer Incorporated (“Defendant” or “Rocket Lawyer”) are competitors in the rising industry of
online legal products. (Docket No. 31 [Plaintiff’s Motion for Summary Judgment (“Mem.”)] at
1.) Both offer incorporation and business formation services and other online legal products
through their websites. (Id.) In the present lawsuit, LegalZoom contends that Rocket Lawyer
competes unfairly by falsely advertising its products and services as “free” when in fact they
come at a price. (Docket No. 14 [First Amended Complaint (“FAC”)].) The allegedly false and
misleading offer of “free” services draws consumers to Defendant’s business to the detriment of
Plaintiff’s business. Through its operative complaint, LegalZoom contends that Defendant’s
actions violate the Lanham Act and the California Unfair Competition Law.
LegalZoom now moves for summary judgment, contending that the undisputed facts
regarding Rocket Lawyer’s advertising practices entitles LegalZoom to judgment as a matter of
law on its § 43(a) Lanham Act and California Business and Professions Code §§ 17200 and
17500 claims. Defendant opposes with evidence that its advertisements are not false because it
in fact offers a free trial, various free legal documents, free legal help to its registered users, and
its website clearly and repeatedly discloses any additional costs consumers may have to pay
before they complete their purchases. (See Docket No. 37 [Defendant’s Opposition to Plaintiff’s
Motion for Summary Judgment (“Opp.”)].)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

For the reasons detailed below, the Court concludes that Plaintiff has failed to carry its
burden and that genuine issues of material fact remain as to whether Defendant committed these
statutory violations. Accordingly, Plaintiff’s motion for summary judgment is DENIED.
II.
BACKGROUND
The following facts are undisputed or without substantial controversy.
Plaintiff and Defendant are both providers of online legal products and compete with one
another in the online legal products industry. (Docket No. 37-2 [Defendant’s Statement of
Material Facts (“SMF”)] ¶¶ 1-2.) Both offer incorporation and formation services and other
online legal products. (Id. ¶ 3.)
Defendant advertises several free services online. (Id. ¶¶ 5-6.) Specifically, Defendant’s
online advertisements include the following: 1) “Incorporate for Free. . . Pay No Fees ($0);” 2)
“Free. . .LLCs;” 3) “Free help from local attorneys” and “Free legal review;” 4) “Zoom Charges
$99. Rocket Lawyer is Fast, Easy, & Free. Incorporate Your Business Today;” and 5) “Free”
trials of Defendant’s “Basic Legal Plan” and “Pro Legal Plan.” (Id. ¶¶ 6, 10, 17; Mem. at 1.)
Each advertisement either contains a link to Defendant’s website or is published directly on
Defendant’s website. (SMF ¶ 68.)
Defendant offers two types of subscription plans—a Pro Legal Plan with access to all of
Defendant’s functionality, and a Basic Legal Plan, which excludes the functionality related to
forming or running a business. (Id. ¶ 36.) Defendant also offers free trials of both plans for
seven days at no cost, provided that the consumer cancels the plan by the end of the seventh day.
(Id. ¶ 37.) If a consumer chooses not to cancel the trial plan by the end of the seventh day, the
trial converts to a paid version of the plan on the eighth day. (Id. ¶ 38.) Defendant’s website
contains explanations of the terms of the paid plans and the free trials. (Id. ¶ 41-45.) The
explanatory pages for both plans contain information regarding the free trial and conversion to
subscription plans, including a toll free phone number a user could call to cancel the free trial
plan. (Id. ¶ 44.) The toll free number appears at the top of the registration pages. (Id.)
Defendant also has a Frequently Asked Questions section on its website devoted to questions
about the free trial including details about the different ways a customer can cancel any plan.
(Id. ¶ 45.)
All members enrolled in a free trial or paid Pro Legal Plan receive free incorporation
services, meaning that Defendant does not charge a fee for its services in assisting in the filing
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UNITED STATES DISTRICT COURT
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CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

and processing of incorporation or entity formation papers. (Id. ¶ 47.) Members enrolled in
Defendant’s free trial or paid Pro Legal Plan who require incorporation services pay only the
state-mandated filing fees, which Defendant discloses at various stages of its incorporation
interview prior to requiring any payment information. (Id. ¶ 48.) The state fees are also
disclosed on the incorporation and entity formation page of Defendant’s website, and at other
points prior to the customer inserting any credit card information. (Id. ¶ 69.) Plaintiff adamantly
disputes the adequacy and conspicuousness of these disclosures. (See Mem.; Docket No. 42
[Plaintiff’s Reply (“Reply”)].)
Defendant’s subscription plans include access to Defendant’s “On Call” attorneys who
can provide legal advice or live consultations, answer written questions, and review legal
documents. (Id. ¶ 50.) Outside of the On Call program, registered users, whether on a free trial
or a paid legal plan, can contact an attorney for a free consultation. (Id. ¶ 51.) Plaintiff argues
that after it filed its original complaint, Defendant changed its On Call program to allow
customers enrolled in a free trial to have access to one free legal consultation as opposed to
reserving that service for paying members. (Mem. at 3-4) However, Defendant maintains that
Plaintiff’s complaint did not prompt it to change the terms of the program. (See SMF ¶¶ 51, 67.)
As a result of these advertisements offering various free services, Plaintiff contacted
Defendant several times by email and phone explaining that it believed Defendant was engaged
in false advertising and unfair competition. (Id. ¶¶ 21-27.) Plaintiff asked Defendant to take
down its advertisements relating to free trials and free services because it believed that
Defendant did not properly disclose that state fees still had to be paid or that customers enrolled
in a free trial would be charged if they failed to cancel the plan after a week. (Id.; see also
Mem.) Defendant did not remove these advertisements because it believed that they properly
promoted the free trials and services and that its website adequately disclosed the terms and
prices of the different services. (Id. ¶¶ 41-48; 59; 68-71; 76; see also Opp.)
This lawsuit followed.
///

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

III.
DISCUSSION
A. SUMMARY JUDGMENT STANDARD
Summary judgment is proper where “the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to a judgment as a matter of law.” Fed. R. Civ. P.
56(a). Thus, when addressing a motion for summary judgment, the Court must decide whether
there exist “any genuine factual issues that properly can be resolved only by a finder of fact
because they may reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 250 (1986).
The moving party has the burden of demonstrating the absence of a genuine issue of fact
for trial, which it can meet by presenting evidence establishing the absence of a genuine issue or
by “pointing out to the district court . . . that there is an absence of evidence” supporting a fact
for which the non-moving party bears the burden of proof. Celotex Corp. v. Catrett, 477 U.S.
317, 325 (1986). Where the moving party bears the burden of persuasion at trial, it will meet its
burden of persuasion on summary judgment only if it can show “that the evidence is so powerful
that no reasonable jury would be free to disbelieve it.” Shakur v. Schriro, 514 F.3d 878, 890
(9th Cir. 2008) (internal quotation marks omitted); see also S. Cal. Gas Co. v. City of Santa Ana,
336 F.3d 885, 888 (9th Cir. 2003) (“As the party with the burden of persuasion at trial, the
[moving party] must establish beyond controversy every essential element of its . . . claim.”
(internal quotation marks omitted)). In other words, the moving party “must come forward with
evidence which would entitle it to a directed verdict if the evidence went uncontroverted at
trial.” Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006) (internal quotation
marks omitted). However, “the moving party need not disprove the other party’s case.” Id.
(citing Celotex, 477 U.S. at 325).
Once the moving party has carried its burden, the burden shifts to the non-moving party
to set forth specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at
324; Fed. R. Civ. P. 56(e)(2). To defeat summary judgment, the non-moving party must put
forth “affirmative evidence” that shows “that there is a genuine issue for trial.” Anderson, 477
U.S. at 256–57. This evidence must be admissible. See Fed. R. Civ. P. 56(c), (e). The
non-moving party cannot prevail by “simply show[ing] that there is some metaphysical doubt as
to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986). Rather, the non-moving party must show that evidence in the record could lead a
rational trier of fact to find in its favor. Id. at 587. In reviewing the record, the Court must
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

believe the non-moving party’s evidence, and must draw all justifiable inferences in its favor.
Anderson, 477 U.S. at 255.
B. APPLICATION
1. PLAINTIFF’S CLAIM UNDER THE LANHAM ACT – STANDING
As a threshold issue, Defendant argues that Plaintiff does not have standing to bring a
false advertising claim under § 43(a) of the Lanham Act because “[a]llegations of harm are
insufficient to meet the burden for standing; [Plaintiff] must provide specific facts demonstrating
its harm.” (Opp. at 24.) However, a plaintiff has standing to bring a false advertising claim
under the Lanham Act if the plaintiff is in direct competition with defendant and has properly
alleged a discernibly competitive injury stemming from the defendant’s allegedly false
advertising. See Barrus v. Sylvania, 55 F.3d 468, 470 (9th Cir. 1995) (for standing purposes, the
alleged injury must be “competitive, i.e., harmful to the plaintiff’s ability to compete with
defendant”) (inner quotation and citation omitted); Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1109
(9th Cir. 1991) (stating that “a discernibly competitive injury must be alleged” and that standing
exists where false advertisements “theoretically draw[]. . .[customers] away from” competitor).
In Waits, the Ninth Circuit reconciled conflicting jurisprudence concerning standing
requirements under the Lanham Act and concluded that if a defendant wrongfully misrepresents
a quality of its product, a competitor plaintiff would have standing because the misrepresentation
theoretically draws customers away from the plaintiff’s competing products. 978 F.2d at 1109.
Here, it is undisputed that Plaintiff and Defendant are both providers of online legal
products and compete with one another in the online legal products industry. (SMF ¶¶ 1-2.)
Plaintiff alleges that Defendant misrepresents the nature of its products by advertising them as
“free” when they are actually not. (FAC.) Plaintiff claims that these false advertisements have
caused Plaintiff to suffer a discernibly competitive injury because they have diverted or are
likely to divert business away from Plaintiff. (Id.) This alleged injury is sufficient to meet the
“competitive injury” requirement for standing in false advertising cases under the Lanham Act.
See Coastal Abstract Serv. Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 1999)
(standing exists where advertisement had potential of diverting business away from competitor);
Waits, 978 F.2d at 1109 (standing exists where false advertisements “theoretically draw[]
[customers] away from” the plaintiff). Thus, the Court concludes that Plaintiff has standing to
bring this Lanham Act claim against Defendant.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated
2. THE ELEMENTS

In the Ninth Circuit, a Lanham Act § 43(a) false advertising claim includes the following
elements:
(1) a 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 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) the defendant caused its false statement to enter interstate commerce; and
(5) the plaintiff has been or is likely to be injured as a result of the false statement, either
by direct diversion of sales from itself to defendant or by a lessening of the goodwill
associated with its products.
Southland Sod Farms v. Stover Seed Co. (“Southland Sod”), 108 F.3d 1134, 1139 (9th Cir.
1997) (internal footnote omitted) (citation omitted); see also Jarrow Formulas, Inc. v. Nutrition
Now, Inc., 304 F.3d 829, 835 (9th Cir. 2002) (citing Southland Sod ). “To demonstrate falsity
within the meaning of the Lanham Act, a plaintiff may show that the statement was literally
false, either on its face or by necessary implication, or that the statement was literally true but
likely to mislead or confuse consumers.” Id. (citing Castrol Inc. v. Pennzoil Co., 987 F.2d 939,
943, 946 (3d Cir. 1993)).
a. Genuine Issues of Material Fact Exist as to Whether Defendant’s
Advertisements are “Literally False”
Plaintiff argues that Defendant’s advertisements are literally false as a matter of law
because, contrary to the proclamations of its online advertisements, Defendant’s customers
cannot access its services and products for “free.” (Mem. at 8.) This amounts to an argument
that no rational jury could conclude that the advertisements were not literally false. That is an
extraordinarily high hurdle to clear at this stage of the proceedings and flies in the face of Ninth
Circuit precedent.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

In the Ninth Circuit, literal falsity is a question of fact, and summary judgment should not
be granted where a reasonable jury could conclude a statement is not false. See Southland Sod,
108 F.3d at 1144–45 (overturning grant of summary judgment where a reasonable jury could
determine advertisements were false based on conflicting testimony); see also eMove Inc. v.
SMD Software Inc., 2012 WL 1379063, at *4 (D. Ariz. Apr. 20, 2012) (“Whether a statement is
literally false is a question of fact.”). Moreover, to determine whether an advertising claim is
literally false, the advertisement “must always be analyzed in its full context.” Southland Sod,
108 F.3d at 1139; see also Freeman v. Time, Inc., 68 F.3d 285, 289 (9th Cir. 1995) (holding that
no reasonable consumer would be misled by advertisement at issue when taken in context of
whole document that contained clear and readable disclosures in smaller print below the
promotion).
Although Defendant’s advertisements do not enumerate all of the terms of its offer in its
short online advertisements, a jury could reasonably conclude that the advertisements, when
considered in context, are not literally false within the meaning of § 43(a). In Southland Sod, the
district court had granted defendant’s motion for summary judgment on the plaintiff’s § 43(a)
claim because, among other things, plaintiff had failed to show a genuine issue of material fact
on the issue of falsity regarding certain bar charts used in advertisements. The circuit disagreed.
Because the bar chart advertisements at issue there expressly stated that the charts represented
findings from a particular location and limited time-frame, the reviewing court concluded that a
reasonable jury could find that the charts actually represented more general, broad findings and
thus contained literally false statements when its representations were “read as a whole.” 108
F.3d at 1144. See also Castagnola v. Hewlett-Packard Co., 2012 WL 2159385, at *9-10 (N.D.
Cal. June 13, 2012) (in false advertising case, district court concluded that statements on the
webpage should not be viewed in isolation and that references to “offer details” were sufficient
to give notice of nature and terms of the program at issue).
As in Castagnola, all of Defendant’s online advertisements either contain a link to
Defendant’s website or are published on Defendant’s website, and consumers can access the
advertised offers only by visiting this website. (SMF ¶ 68.) Upon visiting Defendant’s website,
a consumer is presented with details of its services and disclosures about the terms of the free
trial and the fact that state incorporation fees must be paid even though Defendant’s processing
and filing incorporation services are free. (Docket No. 38 [Declaration of Hong-An Vu in
Support of Defendant’s Opp.], Exs. 5-11; see also Opp. at 13-16.) Defendant’s website also
provides a link to its On Call Terms of Service which explains that registered users, including
members and those enrolled in a free trial, have access to free legal help and consultations. (Vu
Decl., Exs. 12-13; Opp. at 14.) A reasonable jury could conclude that, when viewed in the
context of Defendant’s website included in the advertisements, the details of the advertised free
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UNITED STATES DISTRICT COURT
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Case No.

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Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

services and the terms of the free trial are sufficiently disclosed to consumers and thus not
literally false. Defendant notifies customers enrolling in the free trial that their credit cards will
be charged if they do not cancel the subscription after seven days by displaying the terms of the
free trial at the top of the registration page. (Vu Decl., Exs. 5-6.) A reasonable jury could
conclude that the terms are clear and readable and sufficiently put customers on notice that,
similar to other free trials offered by different service providers, they must affirmatively opt out
within a certain time frame to avoid charges. See Castagnola, 2012 WL 2159385, at *10
(concluding that disclosures placed on the same page and in close proximity to the box in which
consumers could enter their email and zip code were sufficient and readable, even though the
offer details appeared in a smaller font than the promotion).
Plaintiff argues that this “negative option” requirement of the trial membership
undermines Defendant’s claim that the trial is “free.” (Mem. at 9.) Plaintiff cites for support
Spiegel, Inc. v. Federal Trade Commission, 494 F.2d 59, 63 (7th Cir. 1974), where a free trial
program was held to be not truly free because it was conditioned on the customer meeting
certain credit criteria and because the terms of these conditions were not clearly stated. By
contrast, Defendant’s free trial program is not conditioned on any criteria or purchases, and a
jury could find that the terms of the trial are stated in a clear, readable manner on the registration
page. The fact that a customer will be charged if she fails to cancel her membership after seven
days does not negate the fact that the trial period itself is unconditionally free.
Moreover, a jury could also reasonably conclude that Defendant’s advertisement stating,
“Zoom Charges $99, We’re Free,” is not literally false when considered in context. Both
Plaintiff and Defendant require customers to pay the state incorporation fees on top of their
companies’ processing and filing fees. (See SMF ¶ 72; Opp. at 14.) When viewed in this
context, a jury could conclude that the comparison pertains only to the discrepancies between the
two companies’ processing and filing fees. If anything, the comparison to Plaintiff’s price
provides more context for understanding that Defendant’s advertisements do not purport to
conceal the attendant state incorporation fees. Both companies’ processing and filing fees (or
lack thereof) are distinct from the state fees that every person who incorporates a business must
pay. (See Opp. at 14.) It is true that a customer can save the $99 charged by Plaintiff for its
processing and filing fee by enrolling in the free trial offered by Defendant. And this
comparison is further explained on Defendant’s website through a chart that presents a
side-by-side comparison of the various prices associated with incorporation, including
processing fees and state fees, that are charged by both Defendant and a “Competitor.” (Vu
Decl., Ex. 9.) A jury could reasonably conclude that Defendant’s advertisement is not literally
false because it truthfully promotes the free processing and filing fees included in its free trial.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated

In its reply, Plaintiff states that Defendant “uses ‘free’ in its advertisements to lure
unsuspecting customers to its website and away from its competitors, and only once the
deception is complete are customers provided with the possibility of learning about the filing
fees, buried in the pages of [Defendant’s] website.” (Reply at 6.) This is, however, argument
which is presented without evidentiary support. Moreover, Plaintiff also fails to provide
evidence that certain fees are “buried” in Defendant’s website or revealed only after the
“deception is complete.” In fact, Defendant discloses the state fees and the terms of the trial
period well before a purchase is complete. (See Vu Decl., Exs. 5-11.) Defendant also makes its
customers click a button acknowledging that they have read and agree to the terms of service
before they commit to the trial period. (Id., Exs. 5-6.) Whether customers are “lured” to
Defendant’s website by its “free” advertisements and whether Defendant provides adequate
disclosures are questions of fact that cannot be resolved at the summary judgment stage.
Plaintiff’s arguments in support of its false advertising claim fail to consider Defendant’s
advertisements in context and instead improperly focus on the word “free” divorced from the
advertisements and services as a whole. Plaintiff’s statement, quoting Castrol, that the “test for
literal falsity is simple: if a defendant’s claim is untrue, it must be deemed literally false” is
misplaced because it does not acknowledge the fact that the word “free,” when read in context,
could refer to a particular service offered by the company. (Mem. at 8 (citing Castrol, 987 F.2d
at 944).) Additionally, Castrol is distinguishable from the instant action. In Castrol, the plaintiff
brought a false advertising claim against the defendant alleging that its advertisements asserting
that its product, motor oil, “outperformed” other leading motor oils was literally false. 987 F.2d
at 941. The plaintiff put forth affirmative evidence of tests demonstrating that the defendant’s
motor oil was in fact inferior to the plaintiff’s motor oil, proving that defendant’s claims of
superiority were contrary to fact and therefore literally false. Id. at 944. Here, by contrast,
Plaintiff makes only conclusory statements that Defendant’s advertisements are false because
customers still must pay the state incorporation fees and enroll in a “negative option” plan to
obtain the free trial. (Mem. at 8-9.) However, a reasonable jury could conclude that when
considered as a whole, Defendant’s advertisements represent only the free processing and filing
fees that a customer can obtain with a free trial, and do not deceptively conceal the state
incorporation fees. When viewed in this context, Defendant’s advertisements are not false, but
rather are a truthful promotion of its free trial that could potentially distinguish its services from
other companies by allowing customers to incorporate without paying any processing and filing
fees.
Therefore, because a reasonable jury could conclude that Defendant’s advertisements are
truthful, Plaintiff has failed to prove that no genuine issues of material fact exist as to whether
Defendant’s advertisements are literally false.
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UNITED STATES DISTRICT COURT
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Case No.

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LegalZoom.com Inc. v. Rocket Lawyer Incorporated
b. Plaintiff has Failed to Provide Sufficient Evidence Demonstrating that
Defendant’s Advertisements are Likely to Mislead or Confuse Consumers as a
Matter of Law

Although an advertisement that is not “literally false” can still be actionable under the
Lanham Act if the plaintiff can show that the advertisement is likely to mislead or confuse
consumers, Plaintiff here has failed to do so. See Southland, 108 F.3d at 1140. Where a
statement is not literally false but is misleading in context, a plaintiff must provide proof that the
“advertising actually conveyed the implied message and thereby deceived a significant portion
of the recipients.” William H. Morris Co. v. Group W, Inc., 66 F.3d 255, 258 (9th Cir. 1995)
(per curiam). Therefore, unless an advertisement is literally false, a party seeking relief under §
43(a) of the Lanham Act bears the ultimate burden of proving actual deception by using reliable
consumer surveys or market research. See Walker & Zanger, Inc. v. Paragon Indus., Inc., 549 F.
Supp. 2d 1168, 1182 (N.D. Cal. 2007) (“But if an advertisement is not false on its face . . .
plaintiff must produce evidence, usually in the form of market research or consumer surveys,
showing exactly what message ordinary consumers perceived.”); see also Johnson & Johnson *
Merck Consumer Pharm. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 297 (2d Cir. 1992)
(“It is not for the judge to determine, based solely upon his or her intuitive reaction, whether the
advertisement is deceptive.”).
Here, Plaintiff has failed to carry its burden of proving that Defendant’s advertisements
actually deceive consumers. Plaintiff provides no evidentiary support of consumer deception in
its initial motion for summary judgment, but rather relies only on the conclusory statement that
Defendant’s advertisements are “likely to deceive their intended audience. . .because they are
likely to cause confusion or mistake as to the actual cost” of Defendant’s services. (Mem. at 11.)
In its reply, Plaintiff provides several anecdotal customer statements posted on the online review
site “www.sitejabber.com,” in which some customers complained about Defendant’s charges.
(Reply at 12; Docket No. 42-2 [Supplemental Declaration of Mary Ann T. Nguyen] ¶ 3, Ex. B.)
However, a handful of customer statements on one online review site is not sufficient to
demonstrate that a “significant portion” of customers were deceived and is not necessarily a
reliable consumer survey or market research. See William H. Morris Co., 66 F.3d at 258;
Smithkline Beecham, 960 F.2d at 298; Walker & Zanger, Inc., 549 F. Supp. 2d at 1182.
Because Plaintiff has failed to prove actual consumer deception or that Defendant’s
advertisements are literally false, the Court cannot grant summary judgment on this first element
of Plaintiff’s Lanham Act claim. Because there are genuine issues of fact as to at least two of
the elements of the Lanham Act claim, Plaintiff’s motion for summary judgment on that claim is
DENIED.
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UNITED STATES DISTRICT COURT
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Case No.

CV 12-9942 GAF (AGRx)

Date

Title

October 17, 2013

LegalZoom.com Inc. v. Rocket Lawyer Incorporated
2. PLAINTIFF’S CLAIMS UNDER CALIFORNIA BUSINESS AND PROFESSIONS CODE

Similar to the Lanham Act, California Business and Professions Code § 17500 (“FAL”)
makes it unlawful for any person to “induce the public to enter into any obligation” based on a
statement that is known, or reasonably should be known, to be “untrue or misleading.” Cal. Bus.
& Prof. Code § 17500. To prevail on its FAL claim, Plaintiff must show that “members of the
public are likely to be deceived” under a reasonable consumer test. Davis v. HSBC Bank Nev.,
N.A., 691 F.3d 1152, 1162 (9th Cir. 2012); see also Freeman, 68 F.3d at 289. Plaintiff brings its
California Business and Professions Code § 17200 (“UCL”) unfair competition claim on the
same false advertising grounds as its Lanham Act and FAL claims. (FAC ¶¶ 34-40.) Thus, this
claim is entirely derivative of the other causes of action.
In the Ninth Circuit, claims of unfair competition and false advertising under state
statutory and common law are “substantially congruent” to claims made under the Lanham Act.
Cleary v. News Corp., 30 F.3d 1255, 1262-63 (9th Cir. 1994). Because Plaintiff has failed to
prove that Defendant’s advertisements are false and misleading as a matter of law in the context
of its Lanham Act claim, so too the Court must find that Plaintiff has failed to dispose of all
genuine issues of material fact in regard to its FAL and UCL claims. Accordingly, for the
reasons discussed above, Plaintiff’s motion for summary judgment is DENIED with respect to
the FAL and UCL claims.
IV.
CONCLUSION
For the foregoing reasons, Plaintiff has failed to prove that no genuine issues of material
fact exist as to whether Defendant violated the Lanham Act and California Business and
Professions Code. Accordingly, Plaintiff’s motion for summary judgment is DENIED. The
hearing presently scheduled for October 21, 2013, is hereby VACATED.
IT IS SO ORDERED.

CV-90 (06/04)

CIVIL MINUTES - GENERAL

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