Amid TrueCar's Battles, a Quieter Settlement

For Santa Monica-based TrueCar and its founder, the barrage of complaints lodged against them the past couple of months is a bit of déjà vu.

The growing Web referral company for auto sales grabbed headlines last month when, prompted by the Colorado Automobile Dealers Association, the state's Department of Revenue . Soon after, several other automobile associations, including some in Ohio, Kansas and Wisconsin, issued warnings to their members about TrueCar's marketing and sales practices.

A federal suit seeking to bar TrueCar from some similar practices has seemingly attracted less attention.

In December 2009, it came under attack for alleged service mark infringement, false advertising and unfair competition by its main rival (and one of the biggest in the online automotive research business), Edmunds.com.

Edmunds, also based in Santa Monica, sued, contending that TrueCar had copied its registered trademark, "True Cost to Own," an online automotive pricing tool.

The use by TrueCar—which acts like a broker between dealerships and customers—of “TrueCost,” was confusingly similar to that of Edmunds, the suit said. Plus, CEO Scott Painter hadn't even founded TrueCar when Edmunds began using the trademark in 2002, and it announced "with fanfare" the use of "True Cost" only after it hired two Edmunds executives, it contended.

"TrueCar could have chosen from a plethora of similar, but non-infringing names, for this supposed 'new' tool.... Those names, however, would not allow TrueCar to capitalize on Edmunds' intellectual property," Edmunds wrote in its court filing.

In May 2010, one month after a confidential settlement was reached, TrueCar posted on its website that it had decided to change its brand names of "TrueCost" and "TrueAdvantage" to "Dealer Cost" and "Average Paid."

No mention, however, was made of Edmunds' infringement claims.

"TrueCar discovered through testing that consumers were wary of a trademarked brand name versus a simple name for a simple concept. And because our mission is transparency, it made no sense to obscure a simple concept," it wrote.

Years before that, Painter was sued by his former employer, Vehicle Information Network, which sought to keep him from using multiple Internet domain names that incorporated "800 Car Search."

According to the Los Angeles Times—which in 2001 published a lengthy profile on Painter, the former CEO of CarsDirect and UC Berkeley dropout, describing him as a burgeoning entreprenuer with a spotty track record—the case was settled when VIN paid out $5,000 and Painter agreed to give up the names.

Six years after its founding, TrueCar now claims auto dealer partners in 47 states and the District of Columbia. It uses data from dealerships, dealer management system providers and other aggregators to find sale prices for vehicles in or near a customer's zip code, and then compares them.

A TrueCar spokesman disputed the idea that the company might appear to be developing a history of advertising violations. 

"We are simply in the process of answering inquiries from some regulators, working promptly and constructively with them, and making changes to address any issues," said spokesman Chintan Talati.

Aside from raising concerns about how TrueCar markets itself, automobile associations have flagged it and other Internet shopping sites for lowering the prices of new cars, ultimately spoiling dealerships' revenues.

TrueCar is changing the way vehicles are sold, according to a Wisconsin Automobile & Truck Dealers Association bulletin.

"At the website, consumers will view dealers' invoice pricing information and decide online which dealer is making the biggest concessions based on the invoice information. Naturally, (in TrueCar theory) the lowest margin dealer will get the sale, and the sale information will be entered into the TrueCar database, thereby driving down the average sale price, giving the appearance that non participating dealers are gauging consumers."

The complaints have not stopped customers from frequenting the TrueCar website.

Since June 2011, monthly visits have reportedly grown six-fold, to 3.4 million unique visitors, and the sales it has facilitated reportedly quadrupled to 30,000 in December.

Spokesman Talati said TrueCar is working with state regulators to ensure that its business model conforms to applicable laws and regulations.

"A lot of the noise being generated right now about TrueCar was incited by a small—but vocal—group with a vested interest in the status quo," he said. "There has been so much growth in consumer demand for transparency and value in the car buying process; it’s not surprising that some entrenched industry players are uncomfortable."

According to Telati, the company is working to address the issues raised by regulators, and emphasized that no agency has mandated dealerships cease using its service.

"Over the last year, TrueCar has been in discussions with regulators in several states, working to ensure that TrueCar's unique business model conforms to each state's different regulatory requirements," he said.

Additionally, a deal with Yahoo to become the search engine’s exclusive destination for car shoppers hasn’t been thrown off track in the wake of recent allegations. The three-year deal “will give TrueCar and its dealers an even bigger platform to promote the value of transparent, up-front pricing,” Telati said.