Wednesday, September 16, 2020

consumer disillusionment with D isn't evidence that deception injured P

3B Medical, Inc. v. SoClean, Inc., No. 19 Civ. 3545 (KPF), 2020 WL 5440440 (S.D.N.Y. Sept. 8, 2020)

3B makes devices that automatically sanitize continuous positive airway pressure (“CPAP”) machines using UV-C light. It sued SoClean, which makes similar devices but use ozone as a sanitizing agent, for violating the Lanahm Act, but failed to sufficiently plead injury. SoClean has 90% of the market for CPAP machine cleaners, while 3B holds only 5%; the other 3 competitors also use ozone. The devices are sold as an alternative to handwashing CPAP equipment.

The complaint alleges that ozone is a toxic gas that can have a variety of serious health consequences to humans when inhaled, and that defendant’s devices produce ozone at concentrations well above the limits allowed by the FDA. Defendant’s marketing materials allegedly obscure SoClean’s use of ozone as a sanitizing agent and mislead consumers about the health risks:

• statements that its devices use “activated oxygen,” instead of ozone;

• statements that its devices do not use “chemicals” or “harsh chemicals”;

• the terms “safe” and “healthy”;

• statements that its devices use the same sanitizing process as that used in hospitals;

• statements that the charcoal filter cartridges that accompany its devices are able to convert “activated oxygen” into “regular oxygen”; and

• statements that its devices are closed-loop systems, out of which no “activated oxygen” escapes.

Consumers have allegedly reported adverse experiences with SoClean’s devices due to the devices’ use of ozone, and chose 3B’s product specifically because it does not use ozone. 3B alleged that more consumers would learn of, and purchase, its products if not for SoClean’s false advertising.

Under Lexmark, “a plaintiff in a false-advertising case must demonstrate injury by way of lost sales or damage to business reputation.” Injury can be presumed from false comparative statements. But where the allegedly misleading advertisement “tout[s] the benefits of the products advertised but ma[kes] no direct reference to any competitor’s products[,] ... some indication of actual injury and causation” is necessary “to ensure that a plaintiff’s injury [is] not speculative.” This is because “injury in such cases accrues equally to all competitors; none is more likely to suffer from the offending broadcasts than any other.”

Although a plaintiff doesn’t need to name specific lost customers, “some indication of actual injury” is needed to survive a motion to dismiss. The allegations of injury here were merely conclusory and speculative. The only specific statements from customers recommended the 3B product because it doesn’t use ozone, which doesn’t show injury to 3B. E.g., “I owned a So Clean cleaner and because of the ozone I developed a rash around my nose and chin that would itch. I contacted So Clean and they told me to use wipes and I did but the problem persisted. I also read that the ozone itself was very bad for respiratory conditions such as COPD of which I have. Do the research. I would no[t] recommend the So Clean device for these reasons. I decided to try [3B’s] Lumin. No Ozone.”  [Compare the hypothetical: “I bought the SoClean product because they promised me it was safe and sealed so that no ozone would reach me. I’m so bummed!”]  “At most, the statements could be said to support § 1125(a)’s causation requirement, but that requirement is distinct from the need to show actual injury.”

What about a presumption of injury from the fact that 3B was the only non-ozone product in the market? That wasn’t enough without implicit reference to 3B’s products, and the market wasn’t a two-player market, including other ozone users and handwashers. The Second Circuit has suggested, without deciding, that the presumption might be applicable where the parties “are direct competitors in a sparsely populated market,” but the court wasn’t going to extend that here, where SoClean was the original market creator, and thus wasn’t inherently diverting consumers from the plaintiff’s preestablished market, and where there were alternatives. Given the other market players, there was no reason to presume that the alleged misrepresentations were “targeted at diverting consumers away from the Lumin or its associated devices. Indeed, to allow the presumption in this context would incentivize any upstart competitor in a market to claim, without proof, that a dominant player’s long-time marketing statements are causing injury.”

NY state claims failed for the same reason.

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