• by Wendy Davis  @wendyndavis, September 12, 2019

A divided federal appellate panel has revived a lawsuit by security company Enigma Software against rival security company Malwarebytes, which allegedly blocked Enigma's software.

The 2-1 decision, issued Thursday by the 9th Circuit Court of Appeals, allows Enigma to proceed with claims that Malwarebytes acted anti-competitively, and engaged in false advertising, by flagging Enigma's SpyHunter and RegHunter as “potentially unwanted programs.”

The ruling reversed a decision issued in 2017 by U.S. District Court Judge Edware Davila in the Northern District of California, who dismissed Enigma's lawsuit on the grounds that Section 230 of the Communications Decency Act immunizes companies for efforts to restrict objectionable material.

The legal battle dates to 2016, when Enigma alleged that its programs were wrongly tagged as “threats” and blocked by Malwarebytes. The complaint alleged that Malwarebytes was “unilaterally disrupting” Enigma's relationship with customers who downloaded SpyHunter or RegHunter “to protect their computers from cyberattacks, viruses, hackers, and other threats.”

Malwarebytes countered that Enigma “uses deceptive scare tactics” to “trick” consumers into purchasing subscriptions. Malwarebytes contended in court papers that Enigma warns people who use its free scanner that “standard files like web browser cookies are 'infections' and 'spyware'” in order to “trick them into entering costly subscription plans.”

Malwarebytes also argued it was protected by the “good samaritan” provisions of Section 230 of the Communications Decency Act, which protect computer services from liability for restricting objectionable material.

Davila sided with Malwarebytes, ruling that the company is entitled to immunity for blocking Enigma's programs.

On Thursday, two judges of the 9th Circuit reversed that decision and ruled that Malwarebytes wasn't entitled to immunity because it was a “direct competitor” with Enigma.

“Section 230 does not provide immunity for blocking a competitor’s program for anticompetitive reasons,” Circuit Judge Mary Schroeder wrote in an opinion joined by Judge Robert Lasnik. They sent the case back to the trial court for further hearings.

Ten years ago, the same appellate court sided against adware company Zango in a similar battle with spyware removal vendor Kaspersky Lab. In that matter, Zango alleged that Kaspersky was interfering with Zango's relationships with its customers by deleting its ad-serving software. The 9th Circuit upheld a trial judge's dismissal of Zango's complaint on the grounds that Section 230 of the Communications Decency Act shielded Kaspersky from liability.

Schroeder and Lasnik said Thursday that Enigma's lawsuit against Malwarebytes differed from Zango's case against Kaspersky because Enigma and Malwarebytes are “direct competitors.”

Circuit Judge Johnnie Rawlinson dissented from Thursay's ruling.