Hy Cite Corporation v. Badbusinessbureau.com [1]

Hy Cite Corporation, a company that sells dinnerware and cookware under the trademarked name "Royal Prestige," sued Xcentric Ventures, LLC and Edward Magedson in Arizona federal [2] court for defamation, RICO violations, and other torts over reports published on the Ripoff Report [3] website, which provides a forum in which consumers may accuse companies and individuals of various "rip-off" and "bad business" practices.

Ripoff Report hosted 35 "rip-off" reports concerning Royal Prestige, which complained about Hy Cite's sales tactics, misleading promotional offers, the quality of its dinnerware and cookware, and its refusal to abide by the terms of its sale contracts.  The complaint alleged that these reports contained false, misleading, and defamatory statements.  The complaint further alleged that Ripoff Report itself partially created and/or developed this content by creating its own editorial comments and titles, producing original content contained in the rip-off reports, and soliciting individuals to submit reports in return for compensation. 

Hy Cite also alleged that Xcentric and Magedson violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) by engaging in threatened extortion and wire fraud.  Specifically, Hy Cite claimed that Xcentric and Magedson created and solicited defamatory content and then offered to alter the content to portray the company in a good light in return for $50,000 and a $1,500 monthly retainer.  

Xcentric and Magedson moved to dismiss the complaint, arguing that section 230 of the Communications Decency Act [4] (CDA 230) immunized it from liability for publishing the statements of its users, and that Hy Cite failed to state a viable RICO, Lanham Act, or common law unfair competition claim. 

The district court granted in part and denied in part the motion to dismiss.  The court held that CDA 230 did not justify dismissal because Hy Cite had alleged that Xcentric and Magedson personally created defamatory content in editorial comments, titles, and in the rip-off reports themselves.  Slip op. at 8 [5].  The court also indicated that Hy Cite's allegation that Ripoff Report solicited individuals to submit reports in return for compensation could support a finding that the website was responsible for the creation and development of information.  Id [5]. (As Eric Goldman points out [6], this last conclusion is at odds with other case law.)

The district court treated Hy Cite's RICO claims as if they were outside of the protection of CDA 230 and held that Hy Cite adequately stated a claim based on the predicate acts of threatened extortion and wire fraud. Here, the court relied on Hy Cite's allegations that defendants created and solicited false and defamatory complaints against businesses and used these complaint to extort money from businesses through its mediation program. See id. at 10-12 [5].

Finally, the district court dismissed Hy Cite's Lanham Act claims for false advertising, unfair competition, and disparagement, holding that the criticism of Hy Cite's business appearing on Ripoff Report was not competitive injury actionable under the Lanham Act.  Id. at 13-15 [5]. The court concluded, however, that Hy Cite's state law unfair competition claim survived because common law unfair competition is broader than the Lanham Act in imposing liability for a false and misleading misrepresentation that is likely to cause commercial harm.  Id. at 15 [5].

The parties later settled the case.  The terms of the settlement are not public.