Cogent Solutions Group, LLC v. Hyalogic, LLC, 2012 WL
1083513 (E.D. Ky.)
Cogent Solutions Group and Hyalogic compete in the joint
supplement market. Hyaluronic acid ("HA") is a key component in their
respective products. In 2011, CSG sued Hyalogic and another company for
misleading ads, primarily focusing on the defendants' use of a
"Competitive Analysis Chart" comparing the competing products. The
parties settled shortly thereafter, and defendants agreed to remove all copies
of the chart from circulation. They also
agreed to refrain from making "false or misleading statements about the other
[p]arty's products," and Hyalogic agreed not to say that Cogent’s product
Baxyl contained preservatives that break down hyaluronan, a key ingredient.
CSG argued that Hyalogic breached the settlement based on a
YouTube video of a speech given by Dr. Karen Brown at a trade show, and based
on Hyalogic’s alleged failure to timely remove the chart from circulation. The court found that CSG failed to prove
breach.
The liquidated damages provision of the settlement agreement
listed statements that, if proven by clear and convincing evidence to have been
knowingly used by Hyalogic in print for sales or marketing purposes, would
result in damages. The statements
included claims that Baxyl was not bio-available, couldn’t be absorbed
sublingually, or might have a pro-inflammatory effect, along with claims that
the human body can only absorb 3 mg or HA or that the joints only need 3 mg of
HA.
First, CSG couldn’t show by clear and convincing evidence
that Hyalogic was responsible for the YouTube video. Hyalogic argued that it was posted by an
unrelated Malaysian company. CSG
responded that Hyalogic’s website had contact information for many
international partners, including Malaysian ones. That was only enough for a weak inference,
not clear and convincing evidence, especially when Hyalogic’s affidavit
specifically stated that the only relationship between the companies was that
the Malaysian company sold Hyalogic’s products.
Second, CSG couldn’t show that a verbal statement in a
YouTube video was “in print.” Settlement
drafters, grab your track changes: “noticeably absent from the plain language
of this clause is the term ‘Internet,’” which was especially important because,
in another part of the settlement agreement, Hyalogic agreed to make changes on
the chart on any future use "in print or on the Internet." By inference, internet uses weren’t covered by
the liquidated damages provisions.
Third, CSG couldn’t show that the statement was used for
sales or marketing purposes after the date specified by the agreement, May 17,
2011. The videos were originally put on
Hyalogic’s website in June 2010, and were unchanged after the settlement. Thus, the YouTube video was “in the public domain”
prior to the key date, according to the court.
(I don’t get why this is a separate reason than the rationale that
Hyalogic was not responsible for the Malaysian company’s use.)
CSG separately alleged breach of a separate prohibition on
false or misleading statements about CSG’s products. The court again found no breach. The YouTube statement that Hyalogic’s product
is “more than 6 times that of the competition” wasn’t enough: Hyalogic presented
a sworn statement that there were at least 13 other liquid HA supplements on
the market competing directly with the parties’. Thus, the YouTube statement didn’t contain
the necessary reference to the “other Party’s products”—a reference to “the
competition” wasn’t enough. Likewise,
references to “others” who “use preservatives and fillers that break down HA in
their product” were insufficient.
Nor did CSG show that Hyalogic failed to make its best
efforts to remove the chart attacking CSG from circulation. It didn’t show a single instance of Hyalogic
using the chart post-settlement.
Finally, CSG argued that Dr. Brown’s statements in the
YouTube video were false and misleading, such as "you only need ... 3
milligrams." Even assuming falsity,
it wasn’t an explicit reference to CSG’s product, given the other products on
the market. CSG argued that the
reference was targeted, because she spoke about "competitors" that
"use citric acid and/or potassium sorbate as preservatives," and two
out of the three products that contain trace amounts of these preservatives are
made by CSG. But Hyalogic’s sworn
statement said that there were 9 such non-CSG products, and there still wasn’t
a specific reference to Baxyl.
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