Thursday, November 12, 2020

misbehavior in Amazon reviews + false ingredient claims = $9.5 million award

Vitamins Online, Inc. v. HeartWise, Inc. 2020 WL 6581050, No. 13-cv-00982-DAK (D. Utah Nov. 10, 2020)

This is a long-running supplement false advertising case involving both ingredient and “review” claims; here the district court resolves a number of issues, finding a fair amount of falsity. The plaintiff sells NutriGold supplements and the defendant sells NatureWise supplements.

I’m skipping a lot of detail on the ingredient specifics but will say a bit more about the review claims.

I should also note that, due to HeartWise’s failure to preserve evidence, the court drew a number of adverse inferences about failure to meet label claims.

The court found that, on Amazon, the number of positive reviews and even slight differences in star ratings are important to consumers, and good reviews improve search results and sales; it relied in part on VO’s survey expert and on “very extensive and consistent literature that online reviews are an important part of almost all online purchasing decisions.”

NatureWise’s First Green Coffee product page began receiving product reviews before the product even launched, including reviews stating that customers had been taking it for weeks/months, and losing pounds per week. Several of the reviews had red flags—they were from unverified purchasers, appeared within 14 minutes of one another, and gave the product 5 stars. Fourteen five-star unverified reviews appeared within 25 minutes of one another and had “a similar pattern of including an exclamation point in the title of the review.” Other NatureWise products followed the same general pattern.

VO’s statistics and computer science expert authored a joint report with its statistics and review manipulation expert; they were both credible. Based on this testimony, the court found that NatureWise’s unverified reviews had higher ratings than its verified reviews; the products had higher ratings than a random sample of similar products; the unverified reviews were significantly higher; there were an unusually high number of new reviewers; NatureWise reviewers had written more prior reviews than the typical reviewers; new NatureWise reviewers gave significantly higher ratings than customers who had previously written reviews on Amazon; NatureWise reviewers had significantly higher similarities compared to other reviewers; and there were periods in which the NatureWise products had an unusually large ratio of unverified reviewers and an unusually large ratio of reviewers that were highly positive.

NatureWise also manipulated reviews by (1) block voting on the helpfulness of reviews and (2) offering free products in exchange for reviews. Employees, at its direction, upvoted good reviews and downvoted bad reviews. NatureWise’s principal testified that this was only defense to attacks by unknown third parties, but he directed employes to downvote bad reviews without mentioning purported attacks or distinguishing between “attacking” reviews and legitimate reviews. “NatureWise management knew that their block voting was interfering with Amazon reviews, and they were worried about customers finding out,” and also worried about Amazon finding out, since they knew that this violated Amazon’s policy.

As for products in exchange for reviews: “On several occasions, NatureWise denied having offered free product in exchange for a review, even though that was not true.” It also asked customers “to review other products so that their reviews of NatureWise products would have more credibility and so Amazon would not think NatureWise reviews were fake.” The products-for-review scheme was also a violation of Amazon policies, and the court found that it deceived consumers because review independence is material to them. The court further found that review manipulation benefited NatureWise financially.

Since the parties’ products competed directly, and since for at least some part of 2012-end of 2013 they were the two major players in the Amazon marketplace for garcinia cambogia and green coffee products, with only “minimal” alternatives, this all hurt VO. NutriGold took the “#1 Amazon top seller” slots for both. By 2014, however, “the markets for green coffee and garcinia cambogia on Amazon were inundated with competitors such that Vitamins Online and NatureWise were no longer the two major players in the relevant marketplace.”

Falsity/ingredients: Based on the adverse inference mentioned above, the court found that certain claims were literally false and VO was entitled to a presumption of deception, wich was unrebutted. As for the products in general, NatureWise “failed to keep the necessary documentation to keep track of the Green Coffees and the Garcinias that it was selling.” At least as to certain lots, a number of claims about ingredients, ingredient amounts, vegetarian status, lack of fillers/binders/artificial ingredients, and clinical proof were literally false. “For much of 2012 and 2013, NatureWise’s claims … that (1) each ingredient it used was verified for purity through in-house testing; (2) it had implemented a strict set of FDA compliant manufacturing procedures; and (3) its facilities were regularly inspected by FDA officials were literally false because NatureWise did not know who was making those products.”

Even if these claims had been only implicitly and not explicitly false, VO would be entitled to a presumption of deception because the court found that defendants acted with the intent to deceive consumers.

Review claims: the court found that the practice of block voting was “the use of a device in connection with the commercial advertising or promotion of its products.” And as a result, the number of “helpful” votes on certain reviews were “artificially inflated and literally false.” NatureWise’s representations that it did not offer free products in exchange for reviews were also literally false. Even if this was only implicit falsity, again, there’d still be a presumption of deception because of the intent to deceive.

NatureWise failed to rebut these presumptions of deception.

Materiality: The court quoted the Second Circuit’s statement that, “in many cases the evidence and the findings by [a] court that a plaintiff has been injured or is likely to suffer injury will satisfy the materiality standard—especially where the defendant and plaintiff are competitors in the same market and the falsity of the defendant’s advertising is likely to lead consumers to prefer the defendant’s product over the plaintiff’s.” The court concluded that both ingredient and review claims were material, and also the court presumed materiality from literal falsity. Plus, because Vitamins Online and NatureWise were direct competitors in a sparsely populated market, the court presumed injury to VO. (Previously the court had declined to rely on this rationale, but the evidence at trial showed that the market was in fact sparsely populated during a key period.)

Injury: A “heightened level of ... proof of causation and specific injury” is required when the plaintiff is seeking money damages. And the standard of proof required when a plaintiff is seeking disgorgement, as VO was, is “somewhere between the standards for money damages and injunctive relief.”

For the years 2012 and 2013, VO was entitled to a presumption of injury because of the sparsely populated market, but only of economic injury and not of reputational injury. As to the remaining years, VO failed to show economic or reputational injury proximately caused by NatureWise’s misrepresentations once the market was flooded with competitors. At that point, “a sale for NatureWise could have meant a lost sale for any of the other Amazon competitors.”

The Utah common law unfair competition claim went the same way.

Applying Romag Fasteners, Inc. v. Fossil, Inc., 140 S. Ct. 1492 (2020), the court noted that willfulness is still “a highly important consideration in determining whether an award of profits is appropriate.” Other equitable considerations may include, among other things, “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) plaintiff’s laches; and (5) plaintiff’s unclean hands.”

Here, disgorgement of NatureWise’s profits from 2012 and 2013 was an appropriate remedy, given the clear benefit NatureWise received: it “quickly rose to the top of Amazon sales rankings and made millions of dollars in a matter of months despite having no previous experience in the industry.” And, even though VO wasn’t seeking actual damages, those are difficult to calculate accurately in a false advertising case. VO didn’t delay, and NatureWise’s actions were willful. Indeed, “as a result of testing, NatureWise had knowledge that certain lots of the Products did not match their label claims. Yet, even with that knowledge, NatureWise continued selling those products and never issued any recalls.” NatureWise’s discovery improprieties additionally favored disgorgement.

NatureWise’s sales from the period were over $9.5 million, and it didn’t provide reliable evidence of cost or other deductions, so the court awarded the entire amount plus prejudgment interest. The award was the same (not doubled) for the Utah common law claim.

The court declined to enhance the damages/profits awarded. The disgorgement was adequate compensation, and enhanced profits would constitute a penalty.

The court also declined to grant VO a permanent injunction, since the disgorgement was adequate compensation. And VO’s requested relief that NatureWise be compelled to remove all its product reviews on Amazon would be against the public interest because “legitimate reviews of actual consumers would also be removed.” [What about compelling NatureWise to remove/request removal of all paid-for reviews and employee helpfulness votes? Would Amazon do that?]

The court also awarded attorneys’ fees and costs “in light of NatureWise’s actions in willfully deceiving consumers, failing to produce pertinent evidence, and abusing the discovery process” and in order to deter NatureWise from further willful conduct.

No comments: