No contributory liability for athlete union's endorsement of supplement

DNA Sports Performance Lab, Inc. v. Major League Baseball, 2020 WL 4430793, No. C 20-00546 WHA (N.D. Cal. Aug. 1, 2020) 

Courts seem to perceive people affiliated with TM/(c) infringers as more blameworthy than people affiliated with false advertisers. One could argue that this reflects underlying reality, but it remains the case that, for example, vicarious liability is broader in copyright than in many other situations. Similarly, contributory liability claims against retailers for false advertising fail when the retailers would be treated as direct infringers of a similar TM claim. Anyway, here the court finds that an endorsement isn't sufficient participation in allegedly false advertising about the underlying supplement, without more involvement.

Plaintiffs sell health supplements “extracted from the shed tissue of elk antlers,” which contain a “naturally occurring, bio-identical form of IGF-1,” a performance-enhancing substance. They sued MLB and the MLB Players Association, which banned both natural and synthetic IGF-1 under their Joint Drug Prevention and Treatment Program, for false advertising and unfair competition. The court dismissed the claims and heavily suggested that sanctions would be imposed if they tried and failed to successfully amend the complaint. 

There is a lot of litigation before this; the court gives a limited history: In February 2014, plaintiffs sued MLB and several of its employees in Florida state court, challenging its investigation into “the illegal sale of performance-enhancing drugs to players” as unfair and discriminatory. This case was dismissed for failure to prosecute. A later suit against the Office of the Commissioner of Baseball and several league employees alleging tortious interference with prospective economic advantage, based on the investigation, was voluntarily dismissed. Then, DNA Sports sued MLB, the Office of the Commissioner of Baseball, and several league employees for hacking plaintiffs’ social media accounts, tortious interference with economic advantage, and defamation of plaintiff/DNA Sports owner Nix, again in the course of the investigation. Defendants removed to federal district court based on the hacking claim, which plaintiffs voluntarily dismissed. The New York state court then dismissed the complaint as res judicata, barred by statute of limitations, and for failure to state a claim. The state court then denied DNA Sports’ motion to reargue the dismissal as frivolous and imposed sanctions. 

DNA Sports also sued ESPN, the Associated Press, and USA Today in federal court in Florida, alleging that they defamed plaintiffs by publishing or republishing a statement from the league that DNA Sports’ July 2016 tortious interference lawsuit “admits Nix and his company used bioidentical insulin-like growth factor (IGF-1), which is derived from elk antlers and is on baseball’s list of banned substances.” The defamation theory was that the statement didn’t differentiate between natural and synthetic IGF-1, giving readers the impression that DNA Sports had engaged in illegal or legal-but-banned drug sales. The court held that the statement at issue was substantially correct and the omission did not render the report untrue, thus it was not defamatory; the decision was affirmed on appeal by the Eleventh Circuit. 

Apparently related to that last suit, in July 2018, DNA Sports and its new counsel contacted the players union seeking a sworn statement corroborating an alleged July 2016 phone call between DNA Sports’ counsel and the union’s in-house counsel, who had allegedly informed plaintiffs that deer antler “was not and has never been banned in baseball and that no animal products are banned.” But the union reaffirmed the position eventually accepted by the Eleventh Circuit: the Joint Drug Prevention and Treatment Program banned both natural and other sources of IGF-1 as a performance enhancing substance. 

After the Eleventh Circuit ruled, DNA Sports and their lawyer contacted the union requesting their “factual position [on] the presence of IGF-1” in a union-licensed product, Klean Athlete. The union refused to provide their “factual position with respect to the presence of IGF-1 in the accused products.” The suit hear concerns the union’s former licensing agreement with Klean Athlete and the league’s licensing agreement with Gatorade “Recover” whey protein bars, Muscle Milk protein shakes, and Eyepromise nutritional supplements. 

Lanham Act claim: Plaintiffs alleged that the union misrepresented Klean Athlete as free from banned substances by endorsing the product. By allowing Klean Athlete to use its logo and announce a partnership in Klean Athlete’s promotional press release, the union allegedly necessarily implied that the product was free of any substances banned by the league, which was false because Klean Athlete allegedly contained animal protein and, thus, IGF-1. 

First, plaintiffs didn’t pick the right defendant: “typically those who made the allegedly false or misleading statement at issue.” While contributory liability is theoretically possible, it requires that (1) a third party engaged in false advertising that injured the plaintiff; and (2) the named defendant contributed to this false advertising by knowingly inducing or causing the conduct or materially participating in it. But the complaint didn’t allege any facts about the union’s specific licensing agreement with Klean Athlete; “the union neither made the accused statement nor conducted Klean Athlete’s product testing.” There were no facts pled about the union’s knowledge or material participation in the falsity. 

“Second, the complaint alleges no economic or reputational harm.” Though lost sales and damage to business reputation would count, “these typical injuries still require sufficiently detailed allegations.” Allegations of “lost revenue and market share, reduced asset value[,] increased advertising costs, [and] damage to its business, reputation, and goodwill” have been deemed conclusory without a relevant timeframe or facts to defendant’s causation. “So too here.” Although it was plausible that Klean Athlete’s press release constituted commercial advertising, the complaint didn’t explain how that press release caused sales diversion or lost contracts. 

Third, the April 2016 press release was outside California’s three-year statute of limitations for fraud, which the Ninth Circuit borrows for §43(a)(1)(B) claims. 

State false advertising under the FAL, California Business and Professions Code § 17500: likewise failed to identify the union’s participation in the alleged false advertising. Under state law, liability requires a defendant’s personal “participation in the unlawful practices” and “unbridled control” over the practices violating § 17500; vicarious liability isn’t enough. The Ninth Circuit dismissed a false advertising claim against a defendant who allowed violating merchants to use the defendant’s logo because “there is no duty to investigate the truth of statements made by others.” Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788 (9th Cir. 2007). Plaintiffs didn’t allege any facts relating to how the union knew or should have known Klean Athlete products contained banned substances (if it did), or how the union exerted control over Klean Athlete’s “certified for sport” determination. 

Unfair competition: same, plus there were no available remedies. Unfair competition claims under § 17200 are limited to restitution and injunctive relief, which requires ongoing injury. DNA Sports never conducted business with the union, so there was no restitution possible. And injunctive relief was unvailable because the union’s licensing agreement with Klean Athlete was over and would likely not be repeated. 

Before ruling on the union’s motion for sanctions, the court offered plaintiffs an opportunity to amend, though “their better course might be to walk away.” If they did, they needed to address not only the problems identified by the opinion, but the union’s other criticisms.