Thursday, March 21, 2019

failure to show damages from literal falsity still allowed injunctive relief

Nutrition Distribution LLC v. IronMag Labs, LLC, No. CV 15-8233-R, 2018 WL 6264986 (C.D. Cal. Nov. 16, 2018(

“This is a false advertising case between two competitors in the business of selling fitness supplements.” IronMag allegedly unlawfully marketed its products as “dietary supplements” and as having no side effects.” The accused products allegedly contain Ostarine, a type of Selective Androgen Receptor Modulator (SARM), deemed dangerous to human health by the FDA. ND sought an injunction and damages under the Lanham Act, California’s UCL, and California’s FAL.

The court granted summary judgment in IronMag’s favor on the money damages claims.  This was a noncomparative false advertising case, meaninig that actual evidence of some injury was essential to recover damages.  ND had no evidence of damages, and it also couldn’t recover profits without proof of harm, again because this wasn’t a comparative advertising or disparagement case, and it wasn’t a misappropriation case involving noncompeting goods (where disgorgement also might be appropriate to deter). “Rather, the parties are two of many competitors in an industry comprised of a broad range of products, and Plaintiff has provided no basis to infer that any profits made by Defendants would have otherwise gone to Plaintiff partially or in full…. The Lanham Act requires that damages awards be compensatory and not designed to punish. Because Plaintiff has offered no proof of actual injury, the Court has ‘no way to determine with any degree of certainty what award would be compensatory.’”

Nor was this an exceptional case for purposes of a fee award.

However, injunctive relief remained possible. It was literally false to claim that products with Ostarine have “basically non-existent” side effects.  No further evidence of a tendency to deceive was required; IronMag didn’t rebut the presumption of deception from literal falsity.  “Even without this presumption, common sense requires a finding that statements denying the existence of negative health effects in a fitness product have a tendency to deceive a substantial segment of interested consumers.”

Common sense also showed materiality.  [There is a lurking contradiction—not a split—in courts about this: some say that additional evidence is required, but I think the court here is right.  Often the content of the literal falsity itself can provide all the information required to find materiality.] “It can naturally be assumed that consumers of fitness supplements take into account the existence and extent of negative side effects when deciding whether to buy them and in comparing different products.”

Even without showing past injury, there was a likelihood of future injury if IronMag could keep selling Ostarine products with deceptive advertising. As the Ninth Circuit has said, “competitors vie for the same dollars from the same consumer group, and a misleading ad can upset their relative competitive positions.”  The injury was irreparable because of the presumption of deception.  “Monetary damages have not been awarded here and in any case would be inadequate to protect the public in the absence of an injunction due to the possibility of Defendants selling products in the future which may pose a risk to public health and safety.” An injunction would issue.

The result was the same under state law.  Monetary relief is allowed under the FAL “to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” This “allows awards of restitution, but not awards of non-restitutionary disgorgement,” which was all ND was seeking here.

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