Tuesday, March 27, 2018

Supplement review guide not disguised advertising despite cozy relationship with one manufacturer

Ariix, LLC v. Nutrisearch Corp., No. 17CV320, 2018 WL 1456928 (S.D. Cal. Mar. 23, 2018)

Ariix competes with Usana Health Sciences in the nutritional supplement market.  NutriSearch publishes the NutriSearch Comparative Guide to Nutritional Supplements, “a guide to nutritional products that is relied on by consumers and professionals.” The Guide’s Gold Medal of Achievement has gone to four different companies:

Ariix made a vigorous effort to qualify for the Gold Medal, but was denied. According to the complaint, NutriSearch admitted Ariix had met the standard, but refused to award the company the Gold Medal because it was reworking its criteria for the distinction. The existing Gold Medal holders, including Usana, were “grandfathered” in during this period.

The allegedly false representations were (1) that Ariix or its products are not as good as Usana or its products and (2) that NutriSearch claims to be objective and neutral but is actually a shill for Usana.

However, “the legislative history of the Lanham Act suggests Congress’ intent to avoid trying to regulate consumer reports or consumer protection groups that review products,” and the benefit of the doubt must go to “protecting rather than stifling speech” about “matters of public concern.” “The Court therefore holds that the Lanham Act doesn’t apply to reviews of consumer products, even if they are alleged to be biased, inaccurate, or tainted by favoritism.”

But not every soi-disant “review” is actually a review.  “Caselaw is replete with examples of people and entities positioning themselves as reviewers who were actually engaged in some form of commercial product promotion.” Nor did the court’s holding apply to other statutes, such as the FTC Act, which have their own requirements. [Though given the First Amendment reasoning, it’s not clear why.]  But an actual consumer product review “falls outside the scope of the Lanham Act’s false advertising provision.”

The court referred to, but didn’t exactly rely on, the Lanham Act’s “commercial advertising or promotion” requirement.  The Ninth Circuit has adopted the Gordon & Breach test: 1) commercial speech; 2) by a defendant who is in commercial competition with plaintiff; 3) for the purpose of influencing consumers to buy defendant’s goods or services, 4)  disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.  As the court noted, Lexmark requires tweaks to 3), such as construing this element to require that the statements be made for the purpose of influencing consumers to buy particular goods or services—whether those are the defendant’s goods and services or someone else’s. But 1) and 4) remain good law.
But the first and fourth elements were not implicated by Lexmark’s holding.

Books and articles can sometimes be commercial speech, but if their main purpose was not the proposal of a commercial transaction, that’s not going to be commercial speech, even if parts promote sale of a product by the author. “Where the general purpose of a book is not the promotion of a commercial transaction, the book may nevertheless contain commercial speech”; the question then is whether the  commercial and non-commercial components are inextricably intertwined. Companies are not allowed to “mask” the commercial nature of a publication “merely by adding informational content.”

The court found that, based on the allegations of the complaint, the Guide was noncommercial speech, with any arguably commercial elements inextricably intertwined with the Guide’s “overriding noncommercial purpose.” “NutriSearch itself does not sell any of the nutritional products reviewed in the Guide, and does not have an ownership interest in the companies that produce them…. [T]here is no allegation that NutriSearch solicits or accepts paid advertising or that it was paid in any direct fashion for promoting Usana’s or any other company’s products or disparaging Ariix’s.”  However, in case Ariix could allege additional facts showing that at least some of the allegedly false or misleading commercial statements were separable from the noncommercial ones, the Court continued.

Statements about NutriSearch’s neutrality applied to the entire Guide as a whole:

This guide was not commissioned by any public sector or private sector interest, or by any company whose products may be represented herein. The research, development, and findings are the sole creative effort of the author and NutriSearch Corporation, neither of whom is associated with any manufacturer or product represented in this guide.

These statements were arguably commercial speech only insofar as they encouraged people to buy the Guide. There was no allegation that the statements appeared anywhere other than inside the Guide itself, and thus they weren’t sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the publishing or bookselling industry. Moreover, the court didn’t think they were commercial speech. Furthermore, the Guide’s statements touting its neutrality and reliability could only plausibly be connected with any harm to Ariix in connection with statements about Usana and Ariix, so Ariix’s claim could only succeed if the other statements were actionable.

The complaint didn’t plead facts plausibly suggesting that the statements about Usana and Ariix were commercial speech, or even that they were false or misleading. The sheer numbers of companies reviewed suggested that the Guide was mainly in the business of reviewing a large number of different products, rather than promoting the purchase of a particular product or even one company’s products. The complaint plausibly suggested that the Guide was biased, but not that it was commercial advertising or promotion.

The alleged ties between the Guide and Usana were that the author and NutriSearch’s current CEO were former Usana employees, and that the author originally conceived the Guide as a way to promote Usana’s products. “Given that the Guide is now on its fifth edition, facts surrounding its genesis years ago are not particularly suggestive of any current financial arrangement with Usana.”  Favorability to Usana didn’t mean they were being paid to advertise Usana.

The complaint alleged that Usana compensated NutriSearch indirectly, because it heavily promotes the Guide and “encourage[es] its representatives and consumers” to buy it. “In some circumstances, this might plausibly point to some kind of quid pro quo, but here it does not. It is entirely normal for a company whose products have been favorably reviewed in a particular publication to seek to publicize that fact as widely as possible.”  In addition, the complaint alleged that the author accepted paid speaking engagements for Usana, but has at least once declined to speak at an Ariix convention.  This could suggest some economic motive, but there were no factual allegations suggesting that the speaking fees were under-the-table payments for advertising, and so this suggested at most an indirect economic motive.  In fact, the author’s decision to decline an opportunity to speak with Ariix indicated that he gave up money, which was inconsistent with using speaking fees as payment for advertising; Ariix implied that some kind of exclusivity arrangement existed, but didn’t adequately allege such an agreement.

The court cautioned that unpaid advertising could be commercial speech or constitute commercial advertising or promotion. But without plausible allegations of payment or of some other kind of quid pro quo, these were noncommercial product reviews.  “[A]ny alleged economic motive is too indirect to transform what would otherwise be noncommercial product reviews into commercial speech or disguised commercial advertising. Even if the Guide is biased or its evaluations unfair, or Defendants’ objectivity is tainted by the alleged economic relationships with Usana, there are no plausible allegations that Defendants are engaged in commercial speech.”

Finally, some of the challenged claims were opinion, not fact.  The complaint alleged that the Guide’s ratings system was objective, but said almost nothing specific about NutriSearch’s ratings process or criteria for the Gold Medal award.  “[T]he Guide’s role appears to be that of an evaluator that awards ratings up to five ‘stars.’” Although the plaintiff might not need to allege the exact way ratings were arrived at, without at least some allegations, it wasn’t plausible that the decisions about how rating criteria were selected and weighed were objective, making the ratings just opinion.

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