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.
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