Tuesday, July 26, 2011

False advertising claim for false development/exclusivity survives

Trident Prods. & Servs., LLC v. Canadian Soiless Wholesale, Ltd, 2011 WL 2938483 (E.D. Va.)

Trident sued for breach of contract, unjust enrichment, violation of Virginia’s trade secrets act, and false advertising under the Lanham Act. The court denied a motion to dismiss the false advertising and unjust enrichment counts. Trident alleged that it develops and sells soil additives designed to assist plants in the uptake of nutrients. One such confidentially formulated strain, EPG, allegedly is particularly effective at promoting root growth. In 1999, defendants began buying EPG from Trident, repackaging it in smaller containers under the name Voodoo Juice. In 2005, Trident disclosed its method of formulating EPG, and defendants agreed to keep it confidential and refrain from reformulating or manufacturing the additive or otherwise circumventing the supply agreement.

In 2007, defendants allegedly stopped ordering EPG because they began to produce their own soil additive using Trident’s proprietary information, still under the name Voodoo Juice. Further, Trident alleged that defendants published the confidential identity of the beneficial bacterial strains on their website, and falsely claimed that their employees discovered and developed the exclusive strains for Voodoo Juice.

Defendants argued that the Lanham Act claims were subject to Rule 9(b)’s heightened pleading standards. Though they cited some district courts (I think wrongly) agreeing with this argument, there’s no circuit precedent, and the court found that it didn’t need to resolve the issue because this complaint satisfied either pleading standard.

The complaint identifies the following statements:

• "Advanced Nutrients' scientists have devised formulas like Piranha, Tarantula, Voodoo Juice, Sensi Zym and other products that help hydroponics growers bring the benefits of live soil into the hydroponics root zone environment."

• "Advanced Nutrients [sic] scientists worked a long time to find new and more powerful strains of beneficial microbes that would make your roots bigger and more efficient."

• "Voodoo also gives your plants five exclusive strains of Bacillus microbes. When I say exclusive I mean no other product has them for you. Why? Because we specially bred these strains to help roots provide maximum support for larger harvests."

• "We're the only company that uses these highly effective strains because our scientists breed them just for us."

• "Voodoo Juice took 2 PhDs to create and formulate."

Defendants wanted the court to evaluate each statement individually for whether it satisfied each element of the false advertising test, but they were all from defendants’ website and related to the same thing, so should be considered together. It was “clear” that these allegations stated a false advertising claim: Trident alleged that the website statements were false or misleading; they’re material because “it is plainly evident that the alleged statements are aimed at promoting Voodoo Juice as an exclusive product, which demonstrates that the statements are likely to influence the purchasing decision and cause injury to Plaintiff.”

Comment: Defendants might have done better to argue the post-Dastar precedents that say that no false advertising claim can lie for a false designation of the origin of a product’s formula. I think those precedents are wrong because of exactly what the court says—in certain circumstances, claims of exclusivity can be material—but it’s an easily available argument.

The court refused to dismiss the unjust enrichment count because, though the trade secret statute would control if there were in fact a trade secret at issue, it was premature to decide the issue at the pleading stage.

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