Another development in the case between rivals Rocket Lawyer, the online legal services startup, and LegalZoom, which is suing Rocket Lawyer over claims of false advertising and other Federal Trade Commission violations. The court has denied LegalZoom’s motion for a summary judgment in the case and ordered it to trial. Judge Gary Allen Feess, of the U.S. District Court for the Central District of California, says that LegalZoom “has failed to carry its burden” for a motion for summary judgment in trying to prove that a consumer would be misled by Rocket Lawyer’s ads — specifically those offering services claimed as free.
Judge Feess writes: “…a reasonable jury could conclude that when considered as a whole, Defendant’s advertisements represent only the free processing and filing fees that a customer can obtain with a free trial, and do not deceptively conceal the state incorporation fees. When viewed in this context, Defendant’s advertisements are not false, but rather are a truthful promotion of its free trial that could potentially distinguish its services from other companies by allowing customers to incorporate without paying any processing and filing fees.”
This does not mean that LegalZoom has lost the case; just that it will have to go to full trial to be decided.
We’ve embedded the full ruling below.
The case goes back about a year, to November 2012, when LegalZoom first filed its complaint, which covered a number of claimed violations of FTC regulations, including trademark infringement and unfair competition.
Today’s ruling focuses specifically on the advertising and the “free” claims made by Rocket Lawyer, with reference not just to how they are not really free claims but to how they potentially put LegalZoom into a negative light, with statements like “Zoom Charges $99, We’re Free.” The Judge deemed that the jury will be able to decide whether Rocket Lawyer is transparent in what it is offering to users. For example, as in the above statement:
“It is true that a customer can save the $99 charged by Plaintiff for its processing and filing fee by enrolling in the free trial offered by Defendant. And this comparison is further explained on Defendant’s website through a chart that presents a side-by-side comparison of the various prices associated with incorporation, including processing fees and state fees, that are charged by both Defendant and a ‘Competitor.'”
“LegalZoom’s motion was unsupported legally and factually,” noted Forrest Hainline, counsel for Rocket Lawyer. “LegalZoom’s lawsuit attempts to misuse competition laws to protect its uncompetitive market position.”
LegalZoom has also provided us with a statement from Chas Rampenthal, its general counsel:
“The overall goals of our lawsuit have already been achieved – Rocket Lawyer has removed their deceptive statements regarding ‘free filings’ from all their online advertising. We continue our lawsuit to protect consumers and obtain a ruling that prevents Rocket Lawyer from reverting back to their false and misleading advertising in the future. The Court’s ruling this week was simply a procedural decision. While it would have been nice to end the case early and it was worth taking a shot, we did not expect to win at this stage. The judge has ordered that this case proceed to trial and we look forward to asking a jury whether they believe Rocket Lawyer’s ads that stated “Incorporate for Free … Pay No Fees ($0)” meant customers could incorporate for free and would pay no fees.”
LegalZoom has been around since 1999 and has itself been a disruptive force in the market by offering users online legal services for a fraction of the price that it might cost to get the same paperwork done by a physical lawyer. Services include legal help with starting businesses but also personal work, such as filing for a divorce online. It has raised $66 million in funding and has filed for a $120 million IPO.
Rocket Lawyer has been around since 2008. While LegalZoom charges for forms, Rocket Lawyer has gone after disrupting that model by making forms free and charging for legal and advisory services around getting them completed. It has raised just over $53 million.
“Our mission is to make the law affordable and simple enough for everyone to to benefit from the protections of our legal system,” noted Charley Moore, Founder of Rocket Lawyer, in a statement. “We are willing and able to continue to fight for access to low-cost legal services, even when a bigger competitor like LegalZoom comes along to try to maintain the status quo. We applaud the decision of the court today as it validates our commitment to delivering the legal services people need in a way they can both afford and understand.”
Note: We have updated the story with more clarification on the case; specifically that this is not the end and that the case is still going to trial. The date has not yet been set.
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