Albion sued defendant AMT for false advertising. The court found the claim barred by laches. The case began in late 2007; Albion alleged that AMT and other defendants falsely advertised that their products were “chelates,” which are marketed as nutritional supplements that are designed to provided minerals in a form that can be more readily absorbed by the human body than minerals in their natural state.
“In the early 1990s, several significant employees at Albion [including Albion’s president] became aware that AMT was purporting to sell chelates.” In September 1992, an Albion employee raised questions about the rat studies referenced in AMT’s marketing materials. In August 1993, another employee attended an industry association meeting discussing the definition of chelates; the meeting was attended by representatives of several of Albion’s competitors who purported to sell chelates, including AMT’s owner. In several instances, Albion made statements that it was the only manufacturer of chelates that was selling authentic, nutritionally viable chelates for human consumption. In 1989, for example, Albion’s president wrote:
[T]o my knowledge only one company is building amino acid chelates that can be absorbed by the body intact. The other products … are no better absorbed than nonchelated minerals…. Albion Laboratories is the only company in the industry with patents guaranteeing that, if the mineral is chelated, it will result in greater absorption of that mineral. If you look closely at labels, you will see that no other company even claims that its chelates are absorbed except Albion. These companies don't make these claims because of possible patent infringements or lack of research proof that their products are truly better than inorganic mineral salts.
Albion repeated similar claims in 1993 and 1994. In 1995, Albion stated that its competitors “cannot prove chelation because they do not have a chelate. If they did have a metal amino acid chelate, they would be infringing any one of Albion's 50 patents and patents pending.”
In 2001, Albion’s president sent an email to an Albion customer, claiming that AMT products weren’t “true chelates, but admixtures.” In 2003, Albion tested samples of AMT’s products, which Albion alleged showed that they weren’t chelated.
The first element of laches is unreasonable delay, which has no fixed time limits but can borrow analogous state statutes of limitation as guidance; here, the court determined that, would be Utah’s three-year period from discovery for fraud. The Tenth Circuit hasn’t adopted a presumption of laches when the analagous statute has run, but the court here believed that it would and applied a presumption—but noted that even without the presumption it would have found that Albion unreasonably delayed.
Albion argued that the limitations period didn’t begin until Albion could prove its claim. That wasn’t the law, which looked to when a reasonable plaintiff knew or should have known. A plaintiff has a duty to investigate when it becomes aware of facts that would lead it to discover a claim on reasonable investigation. Given Albion’s own claims, which were based on purported testing of competitors’ products that revealed they were selling “simple mixtures of proteins and mineral salts” instead of chelates, and on patents that supposedly excluded anyone else from making chelates, it should have been on notice of a potential false advertising claim against competing chelate manufacturers generally. Its broad public claims were the same claims it made against AMT specifically. “If Albion believed that all competing chelate manufacturers in the market were falsely advertising their products as chelates, then surely it had knowledge of enough facts to conduct a reasonable investigation of AMT's chelates.”
Even were the general statements insufficient, the customer email from October 2001 was specific to AMT. That Albion didn’t test the products until 2003 was of no matter. “Albion is not permitted to make claims against AMT in the marketplace to deter potential customers of AMT from buying their products, and then later claim it was unaware whether the statements made about the propriety of AMT's chelates were true or not.”
Albion could rebut the presumption of laches by showing that its delay was resonable in light of the circumstances. It argued that AMT’s secretive practices made its delay reasonable—it was very difficult to obtain testable samples because the products aren’t for sale to the general public, and AMT’s customers weren’t willing to help. Albion’s CEO stated that the company tried to obtain samples since at least 1996, and couldn’t do so until 2003. But the court found that this declaration was conclusory and self-serving.
Even if the court started counting at 2003, Albion didn’t justify the four-year delay between the time it obtained testable samples and the time it filed its claim. Albion argued that this delay was justified because there weren’t validated testing methods until 2004 or later, which would have made proof in court too difficult. Again, the court found that its evidence was a conclusory, self-serving declaration. Albion’s own documents discussing verification mention a variety of tests and claimed that several university researchers provided unequivocal proof of chelation; Albion didn’t explain why those same confirming proofs couldn’t have been used on AMT products. The real problem, the court thought, was that there wasn’t a recognized standard definition of a chelate at the time.
Anyway, even if Albion didn’t have a validated test, that wouldn’t make its delay reasonable, given that since the early 1990s it had claimed, including in submissions to the PTO, that it could test competitors’ products and show they weren’t true chelates. (Query: assume Iqbal/Twombly applied—without access to samples, could Albion sufficiently allege falsity and get discovery to do the tests?) Albion clearly believed that its competitors didn’t sell chelated products, even without validated methods, so it shouldn’t have sat on its rights. Furthermore, the court found that the lack of validated methods was at least in part Albion’s fault. Albion sought validation from an industry organization after it tested the 2003 samples, but the testing method it sought to have validated was developed in 1995—by Albion. Albion’s own failure to seek validation couldn’t make its delay reasonable.
The court found that AMT also showed evidentiary and economic prejudice. Evidentiary: documents, including documents that might have shed light on Albion’s possible “undue influence” on what ultimately became the industry standard, had been destroyed because of the passage of time, and two possibly relevant witnesses had died. Albion argued that it wasn’t going to rely on that industry standard, but rather on proof of the physical nature of the parties’ products. But industry standards are relevant to an assessment of literal falsity. To prevail, the court thought, Albion “must provide evidence that there is consensus within the industry and the scientific community as to what the definition of a chelate is” (emphasis added), and the industry organization’s process in reaching its definition would be relevant. (I’m not sure this entirely works. If Albion is really going to argue for a definition of chelate that doesn’t depend on this particular industry organization’s standard, then isn’t it AMT that would want to introduce evidence that the industry standard differed?)
AMT also showed economic prejudice because of its continued investment in its chelate products during the period of delay. Albion argued that its delay wasn’t the cause of AMT’s investment, and that AMT failed to show it would have to abandon its investment if Albion prevailed. But AMT only need to show general reliance, not specific reliance on a particular plaintiff’s silence, which would be an almost insurmountable burden to laches. Plaintiffs shouldn’t be able to avoid laches by keeping their claims secret from defendants. AMT showed that it generally relied on a litigation-free environment when it invested in developing its chelated product lien, and provided the sworn statement of its president that, had AMT known of Albion's claims in 1996, it would not have invested to develop its chelate business and would have developed other business avenues. (This was apparently not self-serving and conclusory.)
There’s an exception to laches for public health issues. But Albion failed to show that labeling AMT’s products chelates posed a serious threat to public safety. Its evidence was only that the European Food Safety Authority stated that it did not have enough information to assess the safety of certain types of chelates, which wasn’t enough and didn’t focus on the use of the label “chelates” anyway.
Likewise, Albion failed to show that AMT had unclean hands, which would also have avoided the equitable defense of laches. Unclean hands has to involve inequitable conduct related to the claim at issue. For false advertising claims, knowing falsity of a claim isn’t enough to constitute unclean hands—fraudulent intent must be shown. (The court did not explain the difference between knowing falsity and fraudulent intent.) The evidence on which Albion relied was the same as the basis for its false advertising claim—e.g., that AMT made claims about “the superior quality of AMT Zinc Chelate” that were based on studies of different, Albion products. But the study investigator stated that the chelates used in his studies, though made using a technique similar to that used to make Albion chelates, were not Albion chelates. The court determined that the substantive differences between AMT’s product and the product actually studied might create a question of falsity, it wasn’t on its face evidence of an intent to defraud. AMT argued that its product was substantially the same as the product used in the studies, and Albion didn’t show that AMT knew this to be false.
Albion argued that AMT had unclean hands because it sold products as chelates that it admitted were not “official” or “true” chelates. But that didn’t show that AMT “had the intent to commit fraud when it labeled these products chelates…. To the contrary, the evidence shows that AMT informed its customers that the products did not meet the technical definition of a chelate.” (Interesting question about what the customers then did with it and whether their labeling was false or misleading.)
In light of the controversy over the proper definition of a chelate during the years at issue in the lawsuit, the court was convinced that there was sufficient disagreement in the industry that no reasonable jury could find that AMT acted with fraudulent intent.