Monday, September 23, 2019

scientific debates can ordinarily be resolved in false advertising cases

Pax Water Technologies, Inc. v. Medora Corp., 2019 WL 4390567, No. LA CV18-09143 JAK (AGRx) (C.D. Cal. Aug. 5, 2019)

The parties compete in the market for water treatment technologies for municipalities, public water agencies and districts, and private parties.  Using chlorine to disinfect water causes a reaction with organic matter in the water, resulting the formation of THMs [trihalomethanes], which is itself a public safety and health risk. The parties compete to sell systems to remove THMs from drinking water.

Pax challenged two Medora documents: a “THM Removal Systems Comparison Table” and a White Paper, “Misrepresentations by PWT of the 2012 Camarillo, CA Potable Tank Mixing Study.” Camarillo conducted a head to head text comparing Pax’s tripod vortex mixer with Medora’s mixer; a mixer is one component of a THM removal system. After the test was completed, Camarillo continued to use Pax’s tripod mixer, but discontinued the use of Medora’s mixer, and Pax talked up the results.  Medora then wrote to Pax stating that Pax falsely represented the results of the comparison and provided a competing interpretation of the results. Pax disagreed.

The White Paper stated that “[a] truthful analysis would conclude that” (i) Medora’s mixer outperformed Pax’s mixer; and (ii) Pax’s mixer performed “so poorly that its mixing data would have been the same even if the mixer had not been turned on during the study.” The White Paper also includes “a summary of the study, a comparison of the data generated based on use of the competing products, and an analysis of the results in support of these conclusions.” Pax alleged that the analysis was based on false scientific premises about what the chlorine concentration in the test tank should’ve been.  The White Paper listed the size and cost of the competing products, as well as the method for installing them and claimed that “most customers have figured out that the GS-12 is a much better value than the [Pax] mixer” based on features including its price, design, installation, performance, reliability, modeling, and customer data.  Pax alleged that Medora’s mixer cost $15,000, not $7800 as stated in the White Paper, and that the White Paper falsely claimed that the Pax mixer is “[n]ormally deployed with divers” and is “tied down,” whereas the mechanical attachment of the device “is not recommended by Plaintiffs, is not required to keep the tripod mixers from moving within the tank, and is not common.”

As for the comparison table, it didn’t include Pax’s name but Pax alleged that, “based on the products’ characteristics,” “[a]ny person familiar with THM removal systems would recognize that” the products described in the latter two columns of the table are both “manufactured and sold by Plaintiffs, which are the sole source of” products of these types that met the identified product standards.  It made several allegedly false representations and comparisons.

Both the documents were on Medora’s website and were allegedly provided to actual or potential customers, and their claims were allegedly verbally repeated.

Medora argued that its claims were protected under ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013), as “non-actionable scientific conclusions.” The court here pointed out that ONY limited its holding to scientific conclusions that had been “presented in publications directed to the relevant scientific community” through “peer-reviewed academic journals.” Following Eastman Chemical Co. v. Plastipure, Inc., 775 F.3d 230 (5th Cir. 2014), the court declined to extend ONY to the use of “snippets” of a study that were included in “statements made in commercial advertisements and directed at customers.” As Eastman noted, “Advertisements do not become immune from Lanham Act scrutiny simply because their claims are open to scientific or public debate. Otherwise, the Lanham Act would hardly ever be enforceable -- ‘many, if not most, products may be tied to public concerns with the environment, energy, economic policy, or individual health and safety.’ ”

In a nice formulation, the court here explained, “The scientific nature of a conclusion does not mean that it is not actionable per se. Instead, the question is whether a scientific conclusion was stated within a commercial advertisement.” At that point, the fact/opinion distinction became dispositive, and that is typically an issue not suited for resolution on a motion to dismiss.  “To be sure, to prevail on their claim, Plaintiffs may need to prove that the conclusions stated in the White Paper are contrary to the ‘well accepted science of water chemistry.’ However, such a determination can be made through the normal processes of civil litigation.” Separately, factual statements about the parties’ products, e.g., cost and whether they needed to be tied down, aren’t like those in ONY. 

Commercial advertising or promotion: Obligatory note that Gordon & Breach probably doesn’t survive Lexmark untouched, but the key prongs here are whether the claims were (1) commercial speech and (4) disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry.

The complaint adequately alleged that White Paper was commercial speech. Its language could reasonably support an inference that it proposed a commercial transaction. Its introduction claimed that Medora’s product “outperformed” Pax’s competing product during the head-to-head comparison; it included information on the comparative price and features of the competing products; it summarized its contents as showing that Pax’s communications improperly discredited Medora’s product; and it stated that it was a response to Pax’s “marketing documents.” It then encourages readers to conclude -- as “most customers” have -- that Medora’s product “is a much better value” than Pax’s, citing specific features and providing Medora’s logos, phone number and website address. The complaint further alleged that the White Paper was in fact used to persuade actual or potential customers to purchase Medora’s product, by posting the White Paper on its website and by stating its contents and/or providing copies of it when Medora’s agents and employees met “with actual or potential customers of the parties’ products.”

This was plausibly advertising because it was “speech about a product or service by a person who is offering that product or service at a price, directed to persons who may want, and be willing to pay for, that product or service.” Kasky v. Nike, Inc., 27 Cal. 4th 939 (2002). It was plausibly directed toward potential customers. Its title, “Misrepresentations by [Plaintiffs] of the 2012 Camarillo, CA Potable Tank Mixing Study,” made it part of the parties’ commercial dispute. It referred to two specific products, and Medora had an economic motivation to persuade readers to buy its product instead of Pax’s.

The parties disputed whether allegations of sufficient dissemination to the relevant consumers had to meet the heightened pleading standards of FRCP 9(b). Assuming without deciding that they did, it was enough to plead that the White Paper had been accessible on Medora’s public website since at least May 2018; that, through this posting, it “reached a significant number of actual or potential customers of the parties’ products”; and that Medora provided copies of the White Paper to actual or potential customers of the parties’ products and/or has made the false and misleading statements and claims to them that are contained in the White Paper. Given that the market was allegedly specialized and limited, this was enough. “[I]nformation about the particular employees of Defendant who disseminated the White Paper, and the names of the potential customers to which it was provided, are ‘peculiarly within the opposing party’s knowledge’ and therefore can be alleged based upon information and belief.”

Medora then argued that there weren’t enough allegations of harm from the comparison table, because it didn’t contain any “direct reference” to Pax’s product. Even assuming that Pax needed to allege actual injury, it was enough to allege that “Medora’s actions have caused harm and damage to Plaintiffs and have resulted in a corresponding improper financial benefit and gain to Medora,” given the allegations of a limited market for the products and the importance of every single customer.

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