Friday, July 28, 2017

When state consumer protection is narrower than federal

Natreon, Inc. v. Ixoreal Biomed, Inc., 2017 WL 3131975, No. 16-4735 (D.N.J. Jul. 21, 2017)

Natron sued defendant/counterclaimant/third-party plaintiff SKP and defendant Ixoreal, alleging false advertising and unfair competition in connection with an extract used in holistic and alternative medicines: KSM-66, which is derived from the root of the ashwagandha plant. SKP filed three counterclaims, alleging that Natreon also engaged in false advertising and unfair competition in selling its competing product. SKP also filed a complaint against third-party defendant NutraGenesis. Natreon successfully moved to dismiss SKP’s Counterclaim for violation of the New Jersey Consumer Fraud Act.

SKP’s counterclaims alleged a number of false statements about Natreon’s product, patent protection, and production processes.  In addition, SKP alleged that Natreon tried to recruit SKP into engaging in price collusion and engaged in unfair competition by threatening meritless litigation on several occasions.  SKP also alleged that both Natreon and NutraGenesis engaged in deceptive acts in an attempt to obtain confidential information, by posing as prospective customers.

Natreon successfully argued that SKP didn’t allege that it suffered a consumer-like injury, as required for an NJCFA violation.  While neither “the statute nor the New Jersey Supreme Court has explained with any precision who constitutes a consumer,” the Third Circuit has advised that “the entire thrust of the [statute] is pointed to products and services sold to consumers in the popular sense.” Thus, the NJCFA has only been applied to business entities “who purchase goods and services for use in their business operations,” as, for example, desk chairs.  The alleged wrongdoing here wasn’t consumer-oriented and the harm was not consumer-like.

The court also struck SKP’s affirmative defense of failure to mitigate damages, which wasn’t a recognized defense to a Lanham Act claim or the coordinate common-law claims.

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