Monday, November 18, 2019

Pot site's negative report on CBD from hops wasn't commercial speech

Peak Health Center v. Dorfman, 2019 WL 5893188, No. 19-cv-04145-VKD (N.D. Cal. Nov. 12, 2019)

Peak allegedly sells plant-based pharmaceuticals and supplements, including an exclusive strain of Humulus yunnanensis, a hops plant, as a source of cannabidiol (CBD). This source of CBD is potentially valuable given the constraints on hemp and cannabis, the typical sources. At the time of the relevant events, Dorfman was the editor-in-chief and a writer for PotNetwork, which distributes cannabis and hemp products, including CBD, and also publishes industry news on its website.

In 2019, Dorfman contacted a Peak principal to ask questions for an article he was writing; his attitude was allegedly disdainful. Peak allegedly provided documents proving that Peak’s CBD came from the hops plants, documents showing lab results supporting its claims, and patent filings for related inventions.  Dorfman published an article titled “A PotNetwork News investigative report: Bomi Joseph’s ‘hops-derived’ CBD was a world-changing cannabis alternative fought over by Isodiol and Medical Marijuana, Inc. But he lied about his discovery—and his identity.” The article asserts that Peak’s hops variant does not exist, that the alleged discoverer’s research publications about Humulus kriya and CBD were plagiarized from others’ legitimate peer-reviewed publications, that he is a convicted felon who served prison time for defrauding various banks of $20 million in the early 2000s, and that he pled guilty in January 2019 to using a false name on a passport application. It allegedly defamed him by stating that  “This time around [Mr. Joseph] may very well have stolen from little old ladies, or the sick and injured—from anyone who purchased ImmunAg or Real Scientific Humulus Oil or one of its derivatives in hopes of curing some pain.” So too for quoting Dr. Volker Christoffel, one of the people whose work Mr. Joseph allegedly plagiarized, e.g., “ ‘The whole story with CBD from hop is insane,’ Dr. Christoffel told PotNetwork via email. ‘By the phylogenetic relatedness it MIGHT be possible, that some hop varieties may have genes and express i.e., form cannabinoids—the biochemical pathways are not so different and there is a theoretical possibility I would not exclude a priori. BUT these are definitively only traces.’ ” This was allegedly reckless because Christoffel never performed or reviewed chemical analysis of Peak’s CBD. And the article failed to disclose that Christoffel was a managing director of a competing cannabis pharmaco, not an independent expert.

Peak sued Dorfman for (1) trade libel; (2) intentional interference with prospective economic advantage; (3) negligent interference with prospective economic advantage; (4) unfair competition under the Lanham Act; and (5) unfair competition under California Business and Professions Code § 17200 et seq.  It alleged harm to its reputation and lost business opportunities worth at least $10 million.

Trade libel, intentional and negligent interference with prospective economic advantage: These all require pleading special damages. A plaintiff must “identify particular customers and transactions of which it was deprived.” Peak did not.

Lanham Act: No false association claim, obviously, and this wasn’t false advertising because the article wasn’t “commercial advertising or promotion” because it wasn’t commercial speech. On its face, the article didn’t look like an ad; it purported to be an “investigative report.”  It didn’t have anything that plausibly promoted PotNetwork’s own products, or anyone else’s.  Allegations of a competitive relationship between Peak and PotHealth weren’t sufficient.  I am nervous about this result but see why the court here reached it; query whether allegations that the news reported on defendant’s site was consistently biased against competitors and thus worked as a disguised ad for defendant would have changed anything.

First Amendment standards: The general tenor of the article was fact-like: it described itself as an “investigative report” “based on an in-depth review of Mr. Joseph’s research, a trove of confidential documents, and interviews with people familiar with the events....” There was, however, figurative or hyperbolic language throughout the article. Defendant described one of Mr. Joseph’s purported collaborators, Donish Cushing, as “a ghost,” because he does not appear in social media or Internet searches, and because “it’s hard to find anyone who has met the man.” The Christoffel quotes also included colorful language: “This is total bullshit”; “The whole story with CBD from hop is insane”; etc.  Use of “figurative and hyperbolic language” weighed in favor of First Amendment protection. 

Some of the statements in the article were susceptible of factual proof: specifically, whether the CBD in Peak Health’s products comes from a hops plant, or specifically a hops plant called Humulus kriya. Dorfman argued that his statements were protected opinion based on fully disclosed facts, but it was the truth of those facts that was at issue. “Dorfman disclosed the facts on which he based his assertion that Peak Health’s hops-derived CBD is a sham: Mr. Joseph’s history of plagiarism, attempts to assert new identities, criminal fraud record, and purchases of large quantities of CBD despite allegedly possessing the ability to produce that CBD from hops, as well as statements from scientists concluding that hops-derived CBD is unsubstantiated and not credible.” Nonetheless, his conclusion about the lack of hops-derived CBD wasn’t a statement of subjective opinion or interpretation; it was “an assertion of fact based on other asserted facts.”

In addition, the complaint flunked Rule 9(b) because it failed to allege why the challenged statements were false.  With respect to the Christoffel statements, Peak alleged only that the statements were unreliable because he didn’t test Peak’s products himself and because he’s involved with a competing business, but Peak didn’t plead facts from which it could be inferred that the CBD in its products came from a specific hops plant. At most, it alleged that its public relations agency provided “proof” of its CBD-related claims to Dorfman, but the complaint didn’t explain why the statements were false.

Peak could, in theory, amend its complaint to remedy these deficiencies as to the falsifiable statements, including the failure to plead special damages and the failure to plead commercial advertising/promotion.

Anti-SLAPP motion: the Ninth Circuit has cautioned against the application of procedural state laws if such application “would result in a direct collision with a Federal Rule of Civil Procedure.” Thus, “granting a defendant’s anti-SLAPP motion to strike a plaintiff’s initial complaint without granting the plaintiff leave to amend would directly collide with Fed. R. Civ. P. 15(a)’s policy favoring liberal amendment.” Dorfman could renew his motion if Peak included amended state law claims in its second amended complaint (or, apparently, if the time for pleadings passed or he otherwise prevailed).

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