In a case originally based on a false advertising claim under § 43(a) of the Lanham Act, the US Court of Appeals for the Ninth Circuit affirmed in part, reversed in part and remanded the district court’s dismissal of the claim. The Ninth Circuit concluded that the defendant’s description of a competitor’s software product was plausibly alleged as an element of false advertising. Enigma Software Group USA, LLC v. Malwarebytes, Inc., Case No. 21-16466 (9th Cir. June 2, 2023) (Clifton, Bumatay, Baker, JJ.) (Baker, J., concurring) (Bumatay, J., dissenting).
Enigma is a security software company whose products detect and remove malicious software such as viruses, spyware, adware and ransomware. Malwarebytes is a direct competitor of Enigma and sells products aimed at detecting and removing malware and other potentially threatening programs on users’ computers. Enigma originally brought this action in the US District Court for the Southern District of New York, but the case was moved to the Northern District of California on a motion to transfer filed by Malwarebytes. The California court ruled that Enigma’s claims were barred by § 230 of the Communications Decency Act, a ruling that the Ninth Circuit reversed, holding that § 230 did not apply to “blocking and filtering decisions that [we]re driven by anticompetitive animus.” The Ninth Circuit remanded the case.
On remand, Enigma asserted four causes of action:
- False advertising in violation of the Lanham Act
- Violation of New York General Business Law (NYGBL) § 349, which prohibits deceptive and unlawful business practices
- Tortious interference with contractual relations
- Tortious interference with business relations.
On Malwarebytes’s motion to dismiss for failure to state a claim, the district court found that (for the Lanham Act claim) Enigma’s allegation that Malwarebytes’s designations were “just [nonactionable] subjective opinions” rather than “verifiably false.” On appeal, Enigma argued that designations of its products as malicious, threats and potentially unwanted programs were factually false and misrepresented the very purpose of the software.
To state a claim for false advertising under § 43(a) of the Lanham Act, Enigma had to plausibly allege the following:
- Malwarebytes made a false statement of fact in a commercial advertisement.
- The statement deceived or had the tendency to deceive a substantial segment of its audience.
- The deception was material, in that it was likely to influence the purchasing decision.
- The false statement entered interstate commerce.
- Enigma was or was likely to be injured as a result.
To show falsity, Enigma had to allege 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.
The Ninth Circuit found that, taken as true at the motions stage, Enigma’s allegations were sufficient to state a Lanham Act claim because Malwarebytes’s designations employed terminology that was substantively meaningful and verifiable in the cybersecurity context. While terms such as “malicious” and “threatening” are adjectives subject to numerous interpretations, the Court found that in the context of software competitors, a [...]