Investment bank loses fight to keep criticism off website

A federal judge rejected an investment firm’s claim that remarks posted online critical of their business and in particular their telemarketing calls were not only defamatory but were also trademark dilutions. The judge ruled that the remarks were protected by the First Amendment and that the firm could not hold the website operators, 800Notes and WhoCallsMe, responsible for comments posted by the public on its sites. -db

Consumer Law & Policy Blog
May 10, 2010
By Paul Alan Levy

It’s an old story, sad to say.
Bank waltzes into court, represented by a big firm, decrying damage to its interests and demanding immediate relief, but giving no notice to the other side, and walks out with TRO issued by a credulous local judge, no questions asked. Happily, a recent case involving an investment bank that got a TRO against a message board host, in violation of section 230 immunity, has a happier ending, because the bank ended up before a federal judge who understood the technical details better than the bank’s own lawyers.
Houlihan Smith Faces Online Criticism

This case involves Houlihan Smith & Co., a Chicago-based investment bank that apparently drums up new business by cold-calling companies to offer its services. As a telemarketer, it has earned its share of criticisms on 800Notes and Whocallsme, a pair of message boards that present themselves as reverse look-up telephone directories whose contents are supplied by its users. According to the run of comments on 800Notes and whocallsme, Houlihan’s telemarketing calls are taken by the executive secretaries or administrative assistants of the target companies who screen calls for the chief executives, and the callers manage to offend a goodly number of them.

Some of the comments go beyond a discussion of the callers’ manners and discuss Houlihan’s business model, including such hyperbolic terms as “scam,” “lying,” and “ripping off.” A few posters have even asserted that some Houlihan staff have criminal records. Houlihan Smith itself, as well as Duane Morris, one of its law firms, have participated in the debate on the message board. One Houlihan poster used the pseudonym “Gordon Gecko, Investment Banker” in criticizing the critics.

Houlihan Smith Secures a State-Court TRO Taking Down All Criticism

Then on April 16, 2010, with no notice to 800Notes, Houlihan, represented by a Duane Morris lawyer named Richard Darke, filed a 39-page verified complaint in Cook County Circuit Court, and asked for a TRO. Two supporting affidavits averred that criticisms were false because no complaints about Houlihan had ever been made to regulatory authorities, because Houlihan is a good company not a scammer, and because no Houlihan staffer has ever lied to anybody or been convicted of any crimes. Houlihan created the appearance of an emergency by focusing on an April 6 message and swearing that it had only learned about that message on April 9.

Houlihan admitted that, as the host of a message board, Forte would ordinarily be immune from suit under the Telecommunications Act of 1996, 47 U.S.C. § 230. As we have often discussed on this blog, section 230 provides a key protection for online speech by preventing those who are unhappy about being criticized from putting the hosts of online speech in the position ofbeing sued if they guess wrong about whether claims of defamation are baseless. But the new way to try to escape section 230, especially trendy among commercial litigators and other lawyers with limited knowledge of intellectual property law, is to include a count under the trademark laws.

Using this ploy, Houlihan claimed that its own name is trademarked, and that by using its name in their false posts, the posters had “tarnished” its trademark in violation of the Illinois anti-dilution statute. It also said that by using the names of Houlihan employees who were criticized in the comments, the posters violated their rights of publicity. And, Houlihan triumphantly concluded, both dilution and the right of publicity are intellectual property claims, ergo Forte was on the hook for allowing the criticisms to remain on her web site. Houlihan also noted that, the results of searches for “Houlihan Smith scam” or “Houlihan Smith fraud” produced Google search snippets for 800Notes that included the terms “Houlihan Smith” and “fraud”; this meant, Houlihan argued, that Forte was placing its name and the critical words in the title tags and description meta tags of the pages abut Houlihan Smith’s telemarketing calls; Houlihan said that these tags were Forte’s own content, and could be sued for trademark tarnishment for those tags.

In Cook County court, Houlihan was able to bamboozle the judge, Mary Katharine Rochford, who accepted its assertions at face value and issued a TRO of breathtaking scope. Judge Rochford accepted whatever excuses Houlihan’s lawyers offered for not giving Forte enough notice to be able to come to court to defend herself, and ordered Forte to take down “all statements of a factual nature” about Houlihan and to block any future postings by those who had submitted the “defamatory” comments”; Judge Rochford also authorized the immediate issuance of subpoenas to identify all of the anonymous defamers.

800Notes Removes to Federal Court

Representing Forte, Public Citizen promptly removed the case to federal court and opposed conversion of the TRO into a preliminary injunction. Our brief argued that the TRO was an impermissible and vastly overbroad prior restraint, that as a resident of North Carolina Forte could not be sued in Chicago, and that trademark and right of publicity claims were bogus for a variety of reasons. We also attached the HTML code from Forte’s sites and pointed out that only Houlihan’s phone number, but not its name or any of the other content claimed by Houlihan, could be found in the title or meta tags.

The Federal Judge Sees Through Houlihan Smith’s False Technical Claims

The motion for a preliminary injunction was heard by Judge Virginia Kendall, and from the outset of the hearing it was apparent that Houlihan was going to face a skeptical bench because, unlike the state court judge, she could actually read the code. She explained that, in her role as a federal prosecutor, she had handled child pornography cases and hence had become familiar with HTML tags. She examined the HTML code of Forte’s web pages and easily determined that neither Houlihan’s name, nor its staff’s names, nor any of the derogatory words used by the message board commenters had been placed in the hidden code. And she made short work of the claim that the presence of Houlihan’s name and the derogatory words in the search snippets showed that Forte must be manipulating the tags because, as she explained to Houlihan’s lawyers during their oral argument, Google searches the text of web pages and often includes fragments of that text — fragments that are relevant to the search string — in the search results.

Houlihan Smith Loses Its Injunction Because Its Claims Are About Defamation, Not Trademark Law

The encouraging signs from oral argument were confirmed when Judge Kendall denied the motion for a preliminary injunction. In her oral opinion — which will be supplemented by a written opinion that is still to come — she first rejected Houlihan’s contention that its dilution, right of publicity and misappropriation claims were “intellectual property claims” outside the scope of section 230’s protection. Instead, she reasoned, it was apparent from reviewing the papers and the arguments that the gist of Houlihan’s claims were based on injury to its reputation (and its staff’s reputation), and as such they were really defamation claims, not intellectual property claims. Changing the label on a defamation claim is not enough to evade section 230 immunity.

Turning to the trademark claims themselves, Judge Kendall drew from the Lanham Act’s definition of blurring by tarnishment to hold that a tarnishment claim under Illinois law must show the use of a tarnishing mark that injures the reputation of the mark, not just the overall reputation of the trademark’s owner. Because, as she had previously ruled, Houlihan’s claims were based entirely on injury to its own reputation, there was no likelihood of success on the merits of the tarnishment claims. Moreover, Judge Kendall decided that the use of Houlihan’s mark to identify it as the subject of the posters’ criticism was protected by Justice Holmes’ opinion in Prestonettes v. Coty that a trademark may always be used to “tell the truth” about the identity of the goods and services at issue. Although Prestonettes involved the resale of the trademark holder’s own goods, the use of a trademark to identify the trademark owner as the topic of conversation was comparable, regardless of whether the things being said about Houlihan were true or false. Finally, Judge Kendall also ruled that there was no likelihood of success on Houlihan’s trademark and right of publicity claims for another independent reason — non-commercial use. The fact that Forte’s web pages carry advertisements does not make the posters’ use of its trademarked name in their comments commercial.

Judge Kendall therefore denied Houlihan’s motion for a preliminary injunction for failure to show a likelihood of success on the merits. She also noted that Forte had raised serious questions about whether she was subject to personal jurisdiction in Illinois, because she had not intentionally directed her web site at Houlihan or at Illinois. Rather, it was her users who had placed Houlihan’s phone number on her site and then commented about Houlihan and its use of the phone number in marketing calls. However, she decided not to rule on that basis.

Paul Alan Levy is the Public Citizen lawyer who represented 800Notes in the Houlihan Smith lawsuit.
Copyright 2010 Public Citizen