Tuesday, May 22, 2012

What is the limitations/laches period for Lanham Act false advertising claims?

The court doesn't fully resolve the issue here, but provides a nice overview of the 9th Circuit case law at least.

ThermoLife Intern., LLC v. Gaspari Nutrition, Inc., 2012 WL 1752977 (D. Ariz.)

The parties compete to market dietary supplements.  ThermoLife alleged that Gaspari falsely marketed Novedex XT, Halodrol Liquigels, Halodrol MT, and SuperPump 250 products—as safe, natural, containing certain ingredients (Halodrol: 95% 3,4–divanillytetrahydrofuran; SuperPump: terkesterone), compliant with the federal Dietary Supplement Health and Education Act of 1994 (DSHEA), and legal.  In 2010, however, the FDA stated that Novedex XT and Halodrol products were not DSHEA compliant.  ThermoLife also alleged that the products contained unsafe materials that were not naturally occurring.  It also alleged that, according to its tests, commercial production of 95% 3,4–divanillytetrahydrofuran was cost prohibitive, and that therefore Halodrol could not actually contain that concentration.  Further, ThermoLife alleged that its tests of SuperPump didn’t detect any turkesterone, and that if there was in fact any in the product it couldn’t be enough to be an effective dose.  It claimed to have an exclusive distribution agreement with the only company known to produce turkesterone for use in dietary supplements.

ThermoLife also alleged that Gaspari improperly prevented it from attending and exhibiting at the 2009 Mr. Olympia Weekend Expo bodybuilding competition and trade show by contacting American Media, Inc., the organizer of the event, and threatening to pull its advertising if ThermoLife was allowed to exhibit at the event, causing ThermoLife lost business opportunities and unrecoupable preparatory costs.

Gaspari began with, sigh, a standing argument that ThermoLife didn’t sufficiently allege direct competition or anything beyond speculative injury.  To the contrary, ThermoLife specifically alleged that it sold directly competing products.  Gaspari attempted to narrowly define the universe of “competitive” products to “only products which are effectively identical and advertised as such is unavailing. Plaintiff's allegations that both Plaintiff and Defendant sold dietary supplements containing similar ingredients, serving similar purposes, and targeting a specific audience (here, competitive and amateur bodybuilders) is sufficient to allege direct competition and justify the presumption of competitive injury at the motion to dismiss stage.”  The allegations raised a presumption of injury through sales diversion and loss of goodwill to Gaspari sufficient to confer standing.

Gaspari then argued that the claims were barred by the statute of limitations, borrowed from the one-year period under the Arizona Consumer Fraud Act.  Ninth Circuit precedent suggests but does not mandate that the proper analysis is laches instead of an absolute bar, but the court didn’t need to resolve that because the court agreed that Arizona’s 3-year fraud limitations period was instead the proper period.  Though ThermoLife alleged false statements as far back as 2007, the pleadings didn’t disclose that it discovered then that the statements were false. It was plausible to infer that ThermoLife discovered the falsity when recalls of Gaspari’s products began in 2009 and 2010, and ThermoLife conducted its independent tests in 2009, all of which fell within the 3-year period (the suit was filed in 2011).  Thus the complaint couldn’t be dismissed as time-barred.

On tortious interference, Gaspari argued that ThermoLife failed to allege any specific party with which it expected to do business or any specific damages (though Gaspari didn’t move to dismiss the claim of tortious interference with ThermoLife’s relationship with American Media, Inc.).  The court agreed: the only assertions that ThermoLife would have earned business at the Expo were conclusory; the mere hope of business is insufficient.

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