Monday, August 19, 2019

Supplement ingredient supplier lacks Article III standing against supplement seller

ThermoLife International LLC v. American Fitness Wholesalers LLC, 2019 WL 3840988, No. CV-18-04189-PHX-JAT (D. Ariz. Aug. 15, 2019)

Courts really, really like to call the Lexmark issue “standing.” Here, though, the court goes further by finding the noncompetitor plaintiff—who makes ingredients that are added to third party supplements—not to have Article III standing against the defendant supplement seller for its Lanham Act false advertising claim.

ThermoLife holds supplement-related patents and licenses them for use in supplements as well as selling ingredients.  Allegedly, “[w]ith few exceptions, anytime an amino acid is combined with nitrate(s) and sold and marketed to consumers[,] the product relies on [Plaintiff’s] patented technology.” Its patented creatine nitrate is an ingredient in the (alleged) world’s top-selling pre-workout product: Cellucor’s C4.  

Defendant sells supplements to consumers online. It advertises “C4” and other, non-ThermoLife-licensed creatine nitrate products, including APS Nutrition’s product, which is advertised as “a vastly superior patented creatine [nitrate].” ThermoLife alleged that defendant was falsely advertising as supplements ingredients that have been deemed to be “drugs” by the FDA, without disclosure. Defendant also allegedly falsely labeled products on its website as “patented.”

The court found that ThermoLife failed to plead injury in fact.  It alleged that it had a unique interest in the dietary supplement market and its business was tied to the general popularity of sports nutrition supplements. Thus, it was allegedly harmed “when consumers are misled into purchasing any falsely advertised product that competes with any product that contains ingredients that are sourced from [Plaintiff] and/or products that are licensed by [Plaintiff].”

The court cited Ninth Circuit precedent stating that direct competition is a strong indicator of injury in fact in a false advertising case.  A plaintiff can also “allege that it can provide witness testimony or survey material to show that false advertising would influence consumer choice and, therefore, ‘establish an injury by creating a chain of inferences’ that online advertising harmed a plaintiff’s businesses.”

The allegations here weren’t sufficient. The parties were at different points in the supply chain. The “attenuated link between one product sold by Defendant that contains creatine nitrate sourced from Plaintiff—Cellucor’s C4— and another product sold by Defendant that is not sourced from Plaintiff—APS Nutrition’s creatine nitrate product—does not put Plaintiff and Defendant in direct competition.”  Nor were there specific factual allegations of lost sales data, of specific licenses or ingredients for which sales decreased as a result of the advertising, or of testimony or surveys “that could demonstrate Defendant’s alleged false advertising influenced customer choices.”  [One would think that harm to plaintiff, not influence on consumer choices, would be the key thing here.]  The fact that defendant sells C4 (and calls it “top-selling”) as well as a competing product undercut any inference of diversion. Thus, ThermoLife failed to allege a “sufficiently concrete and particularized injury.”  [Is it just me, or is the court confusing traceability to the defendant’s conduct with the concreteness of the injury?]

In the alternative, the court found the complaint insufficiently pled under 12(b)(6) for basically the same reasons.  Under Lexmark, ThermoLife needed to allege a commercial or competitive injury; this is generally presumed when the parties compete, but couldn’t be presumed here.  And a plaintiff can’t plead a claim for damages just by pleading harm to the overall market in which it competes. Moreover, to allege a plausible commercial injury, a “plaintiff must allege some factual support for its allegations.” It wasn’t enough to plead “damage to its business, reputation and good will and … lost sales and profits that [Plaintiff] would otherwise have made.” ThermoLife didn’t allege “any facts to show that the use of its licensed technology or sales of patented creatine nitrate decreased, when the decrease occurred, where sales were diverted to, or how it correlated with Defendant’s false advertising.” [Call me when a court says any of these things in response to the same words being used to plead trademark infringement.] Nor did ThermoLife allege that companies who use its patented ingredients and licensed technology suffered a loss of sales.

The same defects doomed the false patent marking claim.

Arizona common law unfair competition: that too.

The court declined to award defendant its attorneys’ fees. “[T]he Court could conceive of a situation in which Plaintiff subjectively believed—even if erroneously so—that its Lanham Act claim was not wholly frivolous. … Plaintiff’s arguments do not rise to the high-level of frivolity required to award fees against it.”  [That sounds a bit pre-Octane Fitness, but the court properly cited Octane Fitness so it’s probably ok.]

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