Friday, October 04, 2019

Lexmark is super-clear: business customers can't sue for Lanham Act false advertising

Jiaherb, Inc. v. MTC Indus., Inc., 2019 WL 4785784, Civil No. 18-15532 (KSH) (CLW) (D.N.J. Sept. 30, 2019)

Brief but very clear statement: after Lexmark, business customers can’t bring Lanham Act claims. Jiaherb makes herbal extracts and other natural products, including saw palmetto oil and powder. MTC is a nutritional ingredient supplier and distributor of saw palmetto extract, from whom Jiaherb purchased all of its saw palmetto extract, totaling thousands of kilograms.  Apparently, saw palmetto has limited availability and to enhance profit, harvesters may dilute their product by adding vegetable oils that contain some of the same components and are thus hard to detect. Jiaherb alleged that this happened, and MTC misrepresented its saw palmetto products as unadulterated, comprehensively tested and certified according to various industry standards. Although Jiaherb did test, one of Jiaherb’s customers performed a more sophisticated Nuclear Magnetic Resonance examination and concluded that the MTC product did in fact contain coconut oil. This customer thus cancelled two purchase orders, representing over $200,000 in lost profits.

Jiaherb’s injury didn’t “stem from MTC’s false advertising or conduct by MTC which unfairly diminished Jiaherb’s competitive position in the marketplace. Rather, Jiaherb is harmed as a consumer of MTC’s product; Jiaherb’s lost profits and goodwill stem from its purchase of a product which it cannot sell. The injury of a consumer-entity that was misled into purchasing a ‘disappointing product’ is precisely the type that the Lexmark Court excluded from Lanham Act relief.”

Claims based under the UCC/state law remained; the court retained subject matter jurisdiction because of the diversity of the parties and the amount in controversy (Jiaherb was seeking a refund of over $400,000 it paid).

No comments: