Friday, March 15, 2019

plaintiff suing for noncomparative false advertising fails to establish irreparable harm

True Organic Products, Inc. v. California Organic Fertilizers, Inc., 2019 WL 1023888, No. 18-CV-1278 AWI EG (E.D. Cal. Mar. 4, 2019)

If trademark owners have cause to bemoan eBay’s application to Lanham Act claims, false advertising plaintiffs have even more, as this case demonstrates. Plaintiff True sells organic fertilizers, and is one of the largest and most sought-after manufacturers of organic fertilizers on the West Coast. Defendant COFI directly competes with True for sales of organic liquid fertilizer containing at least 4% nitrogen.

COFI sells Phytamin Clear, whose label states that it contains 4% nitrogen, which is composed of 3% nitrate nitrogen and 1% ammoniacal nitrogen. Phytamin Clear’s label also reads: “Derived from mined seabird guano.” The Material Safety Data Sheet repeats the guano claim. “Phytamin Clear is appealing to growers because of its high nitrate nitrogen levels and because the clear liquid can be easily applied through irrigation systems.”

True’s most directly competing products don’t have nitrate nitrogen, to which plants more quickly than they do to the organic nitrogen in most organic fertilizers. True “controls over 50% of the market” for organic liquid fertilizers containing at least 4% nitrogen and there are only four other companies competing with it.

Based on True’s experience with seabird guano products, it thought the nitrate nitrogen content of Phytamin Clear wasn’t consistent with seabird guano. It raised concerns with the California Department of Food and Agriculture, but nothing happened.  True thinks COFI’s source uses sodium nitrate to nitrogenate the guano; sodium nitrate is approved for use in organic farming in the United States, but not in Canada.  Many organic users in the U.S. allegedly export to Canada and thus must comply with Canadian rules. True allegedly obtained five samples of what it alleged was Phytamin Clear that came from at least four different batches and compared them to other products and materials, including the accepted reference sample for Chilean sodium nitrate and fossilized seabird guano.  (COFI argued that there were substantial questions about the authenticity and/or purity about the samples because of chain of custody issues—for example, the lot numbers on the containers allegedly didn’t indicate a direct sale to the farms from which the samples were obtained and the containers weren’t labeled the way COFI labels its containers.) The test results were reviewed by a professor of soil biogeochemistry, who concluded that Phytamin Clear is not solely derived from mined seabird guano or a fossilized seabird guano extract, but the ingredients were consistent with a product made from Chilean sodium nitrate.

True alleged literal falsity.  The only issue the court resolved was irreparable harm. True argued (1) sales diversion and (2) lessened goodwill for True through the implication that the nutrient content of Phytamin Clear can be achieved through the use of seabird guano, when True can’t offer similar products because it’s impossible. “Further, the general goodwill associated with organic fertilizer products is lessened by misleading advertising that cause farmers to distrust organic fertilizers.”

“[B]ecause of the difficulty of valuing goodwill, a loss of or damage to goodwill can constitute an irreparable harm for purposes of a preliminary injunction.” Nonetheless, “concrete evidence” of harm to goodwill is still required, and it wasn’t present here. There was no likely confusion between the companies and no comparative references on COFI’s label.  The idea that COFI could damage True’s goodwill, or the credibility of organic fertilizers generally, was “counterintuitive and contrary to the concept of ‘goodwill,’” which refers to the reputation of an individual business entity. “[A]ny negative ramifications to goodwill due to a false label would fall on COFI alone.” [I’m not sure about this—although it might not happen here, the idea that a bad actor can taint the reputation of an entire industry is not ridiculous; that’s part of what gets us the famous market for lemons.]  There was no evidence of damage to True’s goodwill, and its market share suggested to the contrary even though Phytamin Clear has been on the market since 2010.

As for threatened lost sales/prospective customers, they could also support finding irreparable harm. But there wasn’t evidence that this had actually happened.  The fact that the parties competed directly was insufficient with four other companies on the market. Anyway, “lost profits due to lost sales generally constitutes the type of harm that is fully compensable through money damages and therefore does not support injunctive relief.” Trademark cases were of no assistance to the claim here.

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