IP Law Daily Communications Decency Act does not bar software provider’s false advertising, business practices claims
Friday, September 13, 2019

Communications Decency Act does not bar software provider’s false advertising, business practices claims

By Thomas G. Wolfe, J.D.

In litigation between two software providers that both filter unwanted content for Internet users, the "otherwise objectionable" clause of CDA Section 230 does not pertain to software that the competing provider finds objectionable for anticompetitive reasons.

Addressing Enigma Software Group USA, LLC’s federal and state claims against Malwarebytes, Inc., the U.S. Court of Appeals in San Francisco has ruled that the Communications Decency Act (CDA) provision immunizing software providers from liability for their actions to help online users block unwanted material that is of "a violent or sexual nature or is otherwise objectionable" did not bar Enigma’s claims under the Lanham Act as well as New York’s General Business Law and common law. In reversing the dismissal of Enigma’s claims by the federal district court in San Jose, California, and remanding the matter, the majority of a three-judge panel for the Ninth Circuit determined that the "otherwise objectionable" phrase of Section 230 of the CDA "does not include software that the provider finds objectionable for anticompetitive reasons." In connection with Enigma’s Lanham Act claim, the appellate panel determined that the Section 230 safe harbor’s exception for intellectual property claims did not impede the federal false advertising claim because Section 230 pertains only to trademarks and other forms of intellectual property. Similarly, in allowing Enigma’s claims to advance under New York law for Malwarebytes’ alleged deceptive business practices and tortious interference with Enigma’s business and contractual relations, the panel determined that Enigma’s allegations of Malwarebytes’ "anticompetitive animus" were sufficient to withstand dismissal (Enigma Software Group USA, LLC v. Malwarebytes, Inc., September 12, 2019, Schroeder, M.).

Both plaintiff Enigma, a Florida limited liability company, and defendant Malwarebytes, headquartered in California, are competing providers of software that assists Internet users to filter unwanted content from their computers. While both companies are competitors in the development of computer security products, Enigma markets anti-malware software known as "SpyHunter," and Malwarebytes markets "Malwarebytes Anti-Malware" (MBAM).

In its complaint, Enigma alleges that, in October 2016, Malwarebytes revised MBAM’s threat detection criteria to identify SpyHunter and other Enigma products as threats to consumers. Enigma alleges that MBAM quarantined Enigma’s SpyHunter and earlier version of the product, preventing consumers from launching the products. Moreover, Enigma contends that, during this same time period, Malwarebytes purchased an anti-adware product (AdwCleaner), which began identifying Enigma products as "Potentially Unwanted Programs."

According to Enigma, Malwarebytes’ actions disrupted or disabled Enigma’s products on consumers’ computers, so as to give Malwarebytes an unfair competitive advantage. Enigma alleges that it suffered immediate harm in the form of lost sales and revenue, and irreparable harm to its business reputation.

Against this backdrop, Enigma filed its claims against Malwarebytes in the federal district court in New York City, alleging violations of the Lanham Act and New York state law. After successfully transferring venue to the federal trial court in San Jose, California in May of 2017, Malwarebytes then asked the court to dismiss Enigma’s claims. The lower court agreed with Malwarebytes that Enigma’s claims were barred by Section 230 of the CDA, and Enigma appealed the decision to the Ninth Circuit.

Nature, scope of CDA. The CDA was enacted "primarily to protect minors from harmful online viewing." Section 230 of the CDA is a "Good Samaritan" provision that, among other things, immunizes computer-software providers from liability for actions taken to help users block certain types of unwanted, online material. More specifically, 47 U.S.C. §230(c)(2) immunizes the providers from liability for giving Internet users the technical means to restrict access to material that "the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable" (emphasis added).

Interpreting the Zango decision. The appellate panel noted that an earlier Ninth Circuit decision (Zango, Inc. v. Kaspersky Lab, Inc., 568 F.3d 1169 (2009)), reviewing Section 230 of the CDA, "establishes a subjective standard" under which Internet users and software providers "decide what online material is objectionable."

On appeal, Enigma argued that the lower court misinterpreted the Ninth Circuit’s Zango decision as somehow bestowing online service providers with "unlimited discretion to block online content" even in situations where that "sweeping immunity encompasses anticompetitive conduct." Ultimately, the federal appellate panel agreed with Enigma.

The appellate panel majority stressed that the Zango decision did not directly address or consider "whether there were limitations on a provider’s discretion to declare online content ‘objectionable’." In addition, the panel observed that federal district courts nationwide "have grappled with the issues" and "have reached differing results."

Distinguishing the Zango case, the panel pointed out that, unlike the parties in Zango, the Enigma and Malwarebytes litigants are competitors. While the Zango decision held that CDA Section 230 immunity applies to "filtering-software providers," the ruling did not address the scope and extent of that immunity. Rejecting Malwarebytes’ argument that it had broad immunity under Section 230 of the CDA "regardless of any anticompetitive motives," the panel determined that stance was contrary to the CDA’s history and purpose as established by Congress.

Disposition of state, federal claims. "Because we hold that § 230 does not provide immunity for blocking a competitor’s program for anticompetitive reasons, and because Enigma has specifically alleged that the blocking here was anticompetitive," Enigma’s New York statutory and common-law claims survive the motion to dismiss, the panel ruled.

Turning to the federal false advertising claims under the Lanham Act, the panel determined that the intellectual property exception contained in Section 230(e)(2) of the CDA "encompasses claims pertaining to an established intellectual property right under federal law, like those inherent in a patent, copyright, or trademark." Accordingly, the panel held that this exception "does not apply to false advertising claims brought under § 1125(a) of the Lanham Act, unless the claim itself involves intellectual property."

Asserting that "Zango did not define an unlimited scope of immunity" under Section 230 of the CDA, and that immunity "does not extend to anticompetitive conduct," the panel ruled that the federal Lanham Act claim, based on allegations of anticompetitive conduct, survived the motion to dismiss.

Dissent. In his dissenting opinion, Judge Johnnie Rawlinson maintained that the CDA’s broad statutory language did not permit the Ninth Circuit panel to create a judicial exception for anticompetitive conduct. Rather, it was up to Congress to remedy any perceived defect in the statute.

The case is No. 17-17351.

Attorneys: Edward Patrick Sangster (K&L Gates LLP) and Terry Budd (Budd Law PLLC) for Enigma Software Group USA, LLC. Tyler Griffin Newby (Fenwick & West LLP) for Malwarebytes, Inc.

Companies: Enigma Software Group USA, LLC; Malwarebytes Inc.

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