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WickFire, LLC v. Woodruff

United States District Court, W.D. Texas, Austin Division

March 24, 2017

WICKFIRE, LLC, Plaintiff,
v.
LAURA WOODRUFF, WREI, INC., JOSH WEST, and TRIMAX MEDIA, LLC, Defendants.

          ORDER

          SAM SPARKS UNITED STATES DISTRICT JUDGE

         BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Plaintiff Wickfire, LLC's Motion for Entry of Final Judgment [#363], Defendants TriMax Media, LLC, WREI, Inc., Josh West, and Laura Woodruffs Response [#367] in opposition, and Wickfire's Reply [#369] in support, as well as Defendants' Motion for Judgment as a Matter of Law [#364], Wickfire's Response [#368] in opposition, and Defendants' Reply [#370] in support.[1] Having reviewed the documents, the governing law, and the file as a whole, the Court now enters the following opinion and orders.

         Background

         Plaintiff Wickfire and Defendant TriMax are both advertisers competing in the pay-for-performance search engine marketing business. As recounted in the Court's Order of March 25, 2016, merchants in the search engine marketing business partner with advertisers like Wickfire and TriMax, often through agencies (known as affiliate networks) who manage the merchants' advertising needs. See Order of Mar. 25, 2016 [#198]. Those advertisers then generate ad campaigns and pay search engines a fee to place their ads alongside certain search terms. The advertisers earn money only to the extent their ads are effective in driving customer traffic.

         A Google AdWords auction is the platform through which an advertiser pays Google to place their ads alongside search terms. Advertisers like Wickfire and TriMax bid on keywords associated with search terms, so when a customer enters the search terms, the advertiser's ad appears. A new auction is conducted instantly each time a search query is entered. Each advertiser must specify the highest cost-per-click price it is willing to pay, and Google considers that price ceiling in determining which ad will be the winning ad. In addition to specifying the maximum cost-per-click it is willing to pay, an advertiser must submit a "budget" identifying the maximum amount it is willing to pay Google to display an ad. When this budget is exhausted, the advertiser's ad campaign is "paused, " meaning the ad no longer appears alongside the selected search terms.

         In this case, each party claims the other fraudulently interfered with its business. Wickfire has sued TriMax Media, LLC, Laura Woodruff, TriMax's owner and CEO, WREI, Inc., and Josh West, TriMax's Director of Business Development and WREI's CEO (collectively, Defendants), alleging Defendants (1) placed fraudulent advertisements on Google AdWords that falsely designated Wickfire as their origin in violation of the Lanham Act, and (2) engaged in "click fraud"[2] and placed fraudulent advertisements to intentionally interfere with Wickfire's current and prospective contractual and business relationships, and they did so as part of a conspiracy to harm Wickfire. Wickfire contends these fraudulent ads misidentified Wickfire as the source of the ad by (1) including a tracking identifier uniquely assigned to Wickfire[3] and directly linking to a merchant's website, or (2) linking to Wickfire's website TheCoupon.co, which contains individual webpages for each merchant. Such fraudulent advertisements, Wickfire argues, violated trademark laws and therefore breached the terms of its contracts with merchants and affiliate networks.

         TriMax, for its part, has counterclaimed against Wickfire and brought third-party claims against Chet Hall and Jon Brown, co-founders of Wickfire (collectively, Counter-Defendants), alleging Counter-Defendants employed a computer program called WebCrawler to manipulate the Google AdWords auction. According to TriMax, this forced TriMax to pay higher costs for a winning ad and prevented TriMax from promoting its merchants, all in violation of Texas laws prohibiting intentional interference with existing and prospective business relationships.[4] TriMax also alleges Counter-Defendants engaged in "click fraud" and disparaged TriMax throughout the industry. Both TriMax and Woodruff sued Counter-Defendants for defamation.

         A jury trial was held from January 30, 2017, to February 2, 2017. The jury returned a unanimous verdict in favor of Wickfire, finding Defendants TriMax, Laura Woodruff, WREI, and Josh West (1) misrepresented Wickfire as the source of advertisements by placing advertisements containing identifying information distinctive of Wickfire in a manner that was likely to cause confusion; (2) intentionally interfered with Wickfire's existing contracts; (3) tortiously interfered with Wickfire's prospective business relationships; (4) were part of a conspiracy that damaged Wickfire; and (5) acted with malice or gross negligence. The jury awarded Wickfire $2, 318, 000.00 in compensatory damages as a result of Defendants' intentional interference with Wickfire's existing contracts and prospective business relationships. The jury attributed 95% of the responsibility to Laura Woodruff and 5% of the responsibility to Josh West.

         The jury also found Counter-Defendants intentionally interfered with TriMax and Laura Woodruffs existing contracts, but concluded they had a colorable right to do so. The jury further found Counter-Defendants were not liable for TriMax's remaining counterclaims of intentional interference with prospective business relationships, business disparagement, and defamation. As a result, the jury unanimously found TriMax and Laura Woodruff should take nothing on their counterclaims and third-party claims.

         Defendants promptly filed their renewed motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b) or, in the alternative, a new trial under Federal Rule of Civil Procedure 59, arguing the evidence presented at trial was legally insufficient to support the jury's verdict. See Renewed Mot. J. Matter Law [#364]. Wickfire cross-moved for entry of judgment. See Mot. Entry J. [#363]. These motions have been fully briefed and are now ripe for the Court's consideration.

         Analysis

         I. Renewed Rule 50(b) Motion

         A. Legal Standard

         When ruling on a Rule 50(b) motion for judgment as a matter of law, "[a] jury verdict must stand unless there is a lack of substantial evidence, in the light most favorable to the successful party, to support the verdict." Am. Home Assurance Co. v. United Space All., LLC, 378 F.3d 482, 487 (5th Cir. 2004). Accordingly, the question for this Court "is whether the state of proof is such that reasonable and impartial minds could reach the conclusion the jury expressed in its verdict." Id. (internal quotation marks omitted); see also Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000) ("Thus, although the court should review the record as a whole, it must disregard all evidence favorable to the moving party that the jury is not required to believe.").

         Generally, a renewed Rule 50(b) motion is filed after a judgment is entered. See Fed. R. Civ. P. 50(b). However, the motion is still timely even if it is filed before the judgment is entered, because Rule 50(b) sets only the outer filing limits. See Gaia Technologies Inc. v. Recycled Prods. Corp., 175 F.3d 365, 374 (5th Cir. 1999) ("Although Rule 50(b) permits a party to renew its motion as late as ten days after the judgment is entered, it does not proscribe filing a renewed motion before judgment is entered.").

         B. Application

         Defendants argue they are entitled to judgment as a matter of law on Wickfire's claims of intentional interference with existing contracts, tortious interference with prospective business relationships, civil conspiracy, and false designation in violation of the Lanham Act. As explained below, the Court denies Defendants' renewed motion for judgment as a matter of law on each ground.

         i. Intentional Interference with Wickfire's Existing Contracts

         To prove a claim for intentional interference with existing contracts under Texas law, a plaintiff must establish (1) the existence of a contract; (2) intentional interference; (3) the interference was a proximate cause of the plaintiffs damages; and (4) actual damages. See Powell Indus. Inc. v. Allen, 985 S.W.2d 455, 456 (Tex. 1998). Defendants contend the evidence presented at trial was insufficient to support the jury's finding of the existence of a contract and its award of damages.

         As to Defendants' challenge to the existence of a contract, the Court finds Wickfire offered evidence regarding its merchant and affiliate network contracts and their corresponding terms and conditions. Afternoon of Jan. 30, 2017 Tr. at 45:25-46:24; Pl's Exs. [#361-6] Ex. 122 (Commission Junction Contract); id. [#361-7] Ex. 126 (Rakuten Marketing LLC Contract) at 15-53; id. [#361-8] Ex. 127 (Sharesale.com, Inc. Contract) at 1-6. Each affiliate contract contains a specific provision which prohibited advertisers from infringing on merchant trademarks. For instance, Section 8.7 of Wickfire's Rakuten Marketing LLC contract provides, "You may not use any name, trademark, service mark, domain name, or other Intellectual Property Rights of any third party ... in any way or for any purpose that infringes or violates any Intellectual Property Rights or other rights of such third party[.]" Rakuten Marketing LLC Contract at 28. Wickfire's contracts with other major affiliate networks include similar provisions. See, e.g., Commission Junction Contract at 6; Pl's Exs. [#361-7] Ex. 125 (eBay Enterprise, Inc. Contract) at 1-14; Sharesale.com, Inc. Contract at 5. Wickfire identified dozens of merchants covered by its major affiliate contracts. Pl's Exs. [#361-4] Ex. 104 (Merchant Violation Notices) at 587-91. Moreover, Hall testified that an affiliate contract may cover hundreds or thousands of individual merchant relationships. Afternoon of Jan. 30, 2017 Tr. at 46:21-24. Notwithstanding Defendants' assertions to the contrary, Wickfire presented evidence of the specific contracts and particular provisions that support an inference Defendants intentionally interfered with existing contracts.

         Similarly, there is sufficient evidence in the record to support the jury's finding that Defendants' conduct proximately caused Wickfire damage in the amount of $1, 984, 000.00.[5] Wickfire based its lost profits analysis on its inability to produce direct advertising campaigns as it had historically done under its existing contractual relationships with affiliate networks. At trial, Hall testified its affiliate contracts serve as "the lifeblood" of Wickfire's advertising business. Afternoon of Jan. 30, 2017 Tr. at 46:24. Jared Jordan, Wickfire's damages expert, testified, "there's no doubt based on the historical information and what's happening in the market that [but for the impersonating ads] Wickfire's ... net advertising campaigns would have continued to grow" in accordance with the damages claimed. Afternoon of Jan. 31, 2017 Tr. at 91:3-6. The jury heard evidence that the only reason it was unable to generate this established trajectory of businesses was because of the time and resources Wickfire had to redirect toward combatting Defendants' impersonating ads. According to Hall, had Wickfire not focused on defending against the impersonating ads, it risked losing "a third of [its] business overnight" from just one of its affiliate networks. Afternoon of Jan. 30, 2017 Tr. at 46:21-23. Jordan further testified that once the impersonating ads began, Wickfire "started losing campaigns at a rate of average of about seven per month." Afternoon of Jan. 31, 2017 Tr. at 91:7-12.

         Contrary to Defendants' representation, Wickfire was not required to enumerate its lost profits for each individual merchant contract. See Homoki v. Conversion Servs., Inc., 717 F.3d 388, 399-400 (5th Cir. 2013). In Homoki, a credit card processing software company sued its competitor for intentional interference with existing contracts. Id. at 394. The software company did not sell its products to merchants directly, but rather contracted with intermediary companies that connected the software company to merchants. Id. at 393-94. The Fifth Circuit concluded the software company produced sufficient evidence to support its lost profits analysis, which was based entirely on the business the software company would have generated from the underlying merchants via its contract with an intermediary company. Id. at 399-400. Notably, the Fifth Circuit did not require the software company to breakdown its lost profits analysis for each individual merchant contract. See id.

         Like the software company in Homoki, Wickfire's intentional interference claim is premised on a company's interference with its intermediate, or affiliate, contracts. As in Homoki, Wickfire could establish its damages by basing its lost profits analysis on the business it would have generated from the underlying merchants. It was not required to enumerate its lost profits for each individual merchant contract.

         Moreover, Wickfire's proposed damages were not conjured from thin air, but based on "objective facts, figures, [and] data from which the amount of lost profits can be ascertained." ERI Consulting Eng'rs, Inc. v. Swinnea,318 S.W.3d 867, 876 (Tex. 2010). In establishing Wickfire's damages, Jordan relied on the same factors the founder of the software company in Homoki considered in calculating his damages: the company history, duration of merchant contracts in the industry, and the rate of increase in sales based on historical growth trends. 717 F.3d at 399-400. Wickfire was not required to produce tax records or other financial records to establish its lost profits. Swinnea, 318 S.W.3d at 876 (quoting Holt Atherton Indus., Inc. v. Heine,935 S.W.2d ...


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