Monday, November 21, 2016

When Lexmark raises the standard: competitor fails to show harm causation from literal falsity

Snac Lite, LLC v. Nuts ‘N More, LLC, 2016 WL 6778268, No. 14-cv-01695 (N.D. Ala. Nov. 16, 2016)

Snac Lite sued NNM for misrepresenting the protein content of its specialty nut butters.  The court granted summary judgment, despite past literally false advertising, because of Snac Lite’s inability to show harm causation.  While Lexmark appears expansive, it can have contractionary effects at the summary judgment stage.

Snac Lite sells four types of peanut butters and almond butters with added pea protein, flax seed, and other nutrients, marketing them as more healthy alternatives to traditional, non-fortified nut butters; it also adds sugar. Its products sell at higher retail prices than many mass market peanut butters.  Snac Lite sells its products at grocery stores such as Walmart, Publix, Giant Eagle, Shop Rite, Kroger, and HEB, as well as GNC, Vitamin Shoppe, and other “mom and pop health food stores.”  In 2012, Snac Lite recalled all its products due to salmonella contamination at one of its manufacturers’ facilities. Snac Lite didn’t resume selling its products for several months after the recall while it looked for a new manufacturer.

NNM also sells enhanced high protein peanut and almond butters, using added whey protein, fiber, organic flax, and the sweetener xylitol, derived from birch; it has more flavors than Snac Lite (e.g., cinnamon). NNM also promotes its products as enhanced alternatives to traditional nut butters, and its nut butters sell for even more per jar.  NNM’s “brand personality” is fitness-oriented, and its products are sold at fitness and supplement shows, GNC stores, Whole Foods stores, and through online retailers. Unlike Snac Lite, NNM often uses social media websites and touts its products by highlighting its “celebrity” customers.  In March 2013, NNM appeared on the network television show Shark Tank, pitching to prospective investors. As part of their pitch, NNM’s representatives touted its nut butters as containing 14 grams of protein per serving. NNM ultimately obtained capital from two of the investors on the show, and appeared in two of the show’s follow-up episodes.

Snac Lite had 21 of NNM’s products independently tested and found a protein content less than eighty percent of the amount of protein claimed in NNM’s labels and advertising. Until 2014, NNM’s products featured the claim “14 grams of protein” on their nutrition labels and elsewhere on the products, displays, and in advertising.  In 2014, NNM reformulated the products and changed its labeling and advertising to reflect the “new” protein content, 12 grams.

Snac Lite tried to show damages with two experts; neither sufficed.  One, Dr. Robicheaux, spoke to employees at two GNC stores in Birmingham, Alabama and reviewed email messages sent to a representative of NNM. He conducted internet research to determine the benefits of a high protein diet, and to learn more about NNM’s target customers.  He concluded that the determinant attribute for potential buyers of high protein nut butters is protein content, and that misrepresentation of protein content was thus likely to materially deceive potential customers, leading to a significant diversion of sales from other high protein nut butter sellers.

The court excluded Dr. Robicheaux’s proffered opinion because it was unreliable and not supported by a reliable methodology.  He didn’t speak to any customers, conduct customer surveys, conduct focus groups, or interview any authorized representative of NMM’s distributors or retailers. He didn’t analyze NMM’s marketing strategy, either.  While survey or market research isn’t required to show causation, there needed to be something to show the impact of false advertising on  Snac Lite’s sales.  That is, causation requires the expert to show “both that consumers chose Defendant’s products over Plaintiff’s products, and that consumers’ choices were connected to Defendant’s false advertising.” 

He also failed to account for additional variables that might have affected the parties’ sales positions. Experts don’t need to exclude every possible alternative cause, but “in order to provide reliable testimony an expert must take into account most relevant factors as to causation.”  NMM’s appearance on Shark Tank was an important factor that needed to be taken into account, as was the salmonella recall.  Given the recall, Dr. Robicheaux’s assumption that all of Snac Lite’s sales losses since 2012 were attributable to NMM’s alleged false advertising was unlikely.

Similar problems attended the testimony of another witness, a CPA, who simply calculated all of Snac Lite’s sales declines following 2012, and then reduced that amount by sales of any product Snac Lite’s representative admitted were not directly affected by NMM’s presence in the nut butter market. He didn’t interview any of NMM’s customers and admitted that he couldn’t otherwise determine why a particular customer would choose to buy less from Snac Lite. “Notably, in a Lanham Act false advertising case, there is a heightened risk associated with causation testimony that ignores the competitive market as a whole.”

NMM thus received summary judgment on the key issue of causation. Courts may presume causation where a defendant engages in deceptive comparative advertising, but that wasn’t alleged here.  Courts can presume deception from literal falsity, but even then the plaintiff must prove harm causation, “here, that consumers chose Defendant’s products rather than those of Plaintiff.”

There was a genuine issue of material fact as to whether the parties were direct competitors, even though they had different nutritional profiles and were sold in different flavors through different marketing efforts and strategies.  Direct competition isn’t required under Lexmark, and the differences between the parties were not “so vast that they are vying for different consumers and markets, and therefore no action of Defendant could have harmed Plaintiff.”  They both sell premium nut butter products, which are distinguishable from traditional nut butters, and their products were “available at stores that sell products intended to promote healthy living.”

Nonetheless, there wasn’t sufficient evidence of harm causation.  Snac Lite sought lost profits, requiring it to establish actual lost sales as a result of the false advertising, which it couldn’t do.  Along with comparative advertising, courts can presume causation in “two-player market” cases and trademark infringement cases, but this case involved none of those situations.  Snac Lite needed to connect its losses to the false advertising, and it couldn’t, while NMM presented evidence of other causes; Snac Lite even experienced losses with respect to certain retail customers who never stocked NMM’s products.

Similarly, though Snac Lite sought disgorgement of NMM’s products, it would only be entitled to that remedy if it established a violation of the Lanham Act, and that requires causation.  Indeed, the court doubted whether Snac Lite had standing under Lexmark.  At the summary judgment stage, mere allegations weren’t sufficient, though disputed facts had to be construed in the light most favorable to the plaintiff. Under Lexmark, a plaintiff must “ordinarily show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising” in order to have standing. Without “intending to conflate” causation and proximate causation, the court held that, at a minimum, some evidence of proximate causation is required at the summary judgment stage.  Pre-Lexmark caselaw suggesting that causation need not be established for disgorgement was no longer good law.

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