when is a publisher sufficiently beholden to a manufacturer to engage in commercial speech?

Ariix, LLC v. NutriSearch Corp., No. 19-55343 (9th Cir. Jan. 22, 2021)

Over a dissent, the court reverses the district court’s dismissal of a false advertising claim against a purportedly independent supplement guide that allegedly is linked, behind the scenes, with one producer, motivating its praise of that producer and refusal to praise others. On the facts alleged, the supplement’s relevant statements constitute commercial speech; there’s a remand to determine whether the statements are designed to encourage the purchase of relevant products as required by a remaining element of the “commercial advertising or promotion” test. There is no First Amendment protection for “a publisher of supposedly independent product reviews if it has secretly rigged the ratings to favor one company in exchange for compensation.” 

“NutriSearch publishes a widely used nutritional supplement guide.” It is allegedly “a trusted name among sales representatives in the direct marketing supplement industry.” It rates supplements comparatively; companies that get a five-star rating can get NutriSearch Medals of Achievement, which require compliance with the FDA’s pharmaceutical good manufacturing practices (GMP) and certification from an approved laboratory that its label claims are true. The medals are allegedly “described as a binary determination: either a company obtains [GMP] certification and laboratory verification of the label claims, or it does not.” In the sixth edition, Usana Health Science was the only company that obtained the highest ranking, the platinum medal.

NutriSearch allegedly “portrays itself as an independent company that presents only objective data and scientific analyses to the public,” claiming “it relies on scientific criteria to mathematically calculate the ratings.” The guide’s author, the former CEO, appeared on the Dr. Oz Show promoting the Guide as an evidence-based book that does not have any “particular bias.” The inside of every edition of the Guide through the fifth edition stated:

This guide is intended to assist in sorting through the maze of nutritional supplements available in the marketplace today. It is not a product endorsement and does not make any health claim. It simply documents recent findings in the scientific literature.

This guide was not commissioned by any public sector or private sector interest, or by any company whose products may be represented herein. The research, development, and findings are the sole creative effort of the author and NutriSearch Corporation, neither of whom is associated with any manufacturer or product represented in this guide. (emphasis added).

NutriSearch removed the second paragraph from the sixth edition, published after Ariix filed this lawsuit.

However, NutriSearch allegedly rigged its ratings to favor Usana under a hidden financial arrangement. The author/ex-CEO, MacWilliam, worked as a Usana sales representative and served on its scientific advisory board until another company exposed this affiliation. He allegedly told former Usana executives, “I should not be on the board or a representative anymore because it looks like I’m biased. I am going to create more of a third-party appearance, but I’d like you to use me for speaking and support me.” Usana allegedly agreed in exchange for the number one rating in the Guide, and uses it in marketing pitches.

Usana allegedly pays hundreds of thousands of dollars annually in speaking and promotion fees to NutriSearch and MacWilliam in exchange for being rated the top supplement company in the Guide, accounting for more than 90% of his income. In addition, NutriSearch allegedly “promotes certain scientific claims to dovetail with Usana’s marketing campaign, or emphasizes certain ingredients that Usana has added to its products to ensure that Usana attains the top ranking in the Guide.”

In 2008, Usana allegedly withdrew its support for NutriSearch after other companies obtained a medal certification in the Guide, causing NutriSearch and MacWilliam to suffer financially. Usana allegedly suggested that Usana would recommence providing fees and speaking engagements if Usana obtained a number one ranking in some way. NutriSearch released a new “Editor’s Choice” award and gave it to Usana, and MacWilliam then asked for and received a nationwide tour from Usana.

Ariix alleged it was wrongly denied a medal certification in the Guide, including through the use of metrics that exempted Usana from the same standards. NutriSearch initially rated one Ariix product 3.5 stars, “but after public criticism and incontrovertible evidence of quality, NutriSearch revised the rating to 5 stars.” When Ariix tried to get MacWilliam as a speaker, he allegedly admitted that “[t]hey [Usana] will cut me off the second I do this [speak for Ariix].”

Were the challenged statements commercial advertising or promotion? This is “(1) commercial speech, … (3) for the purpose of influencing consumers to buy defendant’s goods or services, and (4) that is sufficiently disseminated to the relevant purchasing public.” The omitted (2), everyone here agrees, is a competition requirement that was abrogated by Lexmark; one satisfies Lexmark by having a relevant commercial interest and showing proximate cause.

The complaint plausibly alleged that the Guide was commercial speech by plausibly alleging “that the Guide is essentially a sham marketing ploy intended to boost Usana products.” Under Bolger, “speech that does not propose a commercial transaction on its face can still be commercial speech.” Although the question was close, the majority agreed with Ariix.

Although the Guide lacked “the traditional form of an advertisement” and didn’t provide price or availability information,

this fact alone does not tell us much, especially given today’s sophisticated and subtle marketing campaigns. For example, companies now pay so-called “influencers” to issue posts on social media touting their products or services. While such social media posts may not have the indicia of a traditional advertisement, there can be little doubt that these paid posts are in fact advertisements. [citing FTC alert; footnote about how much Kim Kardashian West is paid per Instagram post according to publicly filed litigation documents]

The Guide also referred to specific products, though that is far from dispositive.

The Bolger test also asks “whether the speaker acted primarily out of economic motivation, not simply whether the speaker had any economic motivation.” Obviously, “not all types of economic motivation support commercial speech. A simple profit motive to sell copies of a publication or to obtain an incidental economic benefit, without more, does not make something commercial speech.” But at the same time, “economic motivation is not limited simply to the expectation of a direct commercial transaction with consumers.” Indirect benefits can also count, such as “benefits to employee compensation, improvements to a brand’s image, general exposure of a product, and protection of licensees’ interests.” The key is whether “the economic benefit was the primary purpose for speaking.”

FWIW, I think this point could be helpfully sharpened: the key is whether the hoped-for economic benefit involves people buying some product other than the speech itself. If you write a song with the intention of creating an earworm that will have a zillion plays on Spotify, that is not a commercial speech motivation: you want people to buy the speech itself. If you write a song with the intention of promoting a beer brand, and you are paid based on the beer company’s hope of success, then the results are commercial speech (though there may well be no regulable factual statements in the song). [My formulation has to do a bit of finessing when there are potentially falsifiable statements made about the speech itself—“this album costs $9.99” is commercial speech; that specific statement about the noncommercial speech on the album is separable from the content of the album, though the titles of the songs on the album aren’t—but I believe that it addresses the key distinction.]

Footnote: Not any economic benefit will suffice; “speech that is mainly motivated out of economic benefit can still be fully protected, such as in labor cases…. Rather, the question is context-specific and requires determining whether the speaker’s purpose primarily turns on the economic benefit that the speaker receives from the speech.” [Again, I think we can usefully distinguish “unions will increase employee pay” from “hire me to do this job because I have a JD” here, but reasonable minds might disagree.]

Anyway, Ariix “plausibly alleged that NutriSearch and MacWilliam published the Guide mainly with the economic goal of furthering their own self-interests beyond simply benefiting from sales of the publication,” given the facts alleged above. [Emphasis added because this gets at how I would phrase the distinction.]

The court noted that it wasn’t relying only on alleged payments. “Many of Ariix’s allegations raise significant doubts about whether the Guide is an objective compilation of product reviews and suggest that the Guide is instead a sham marketing scheme intended to benefit Usana,” such as the allegedly false disclaimer in the first five editions.

The district court noted that the factual allegations do not show that the defendants should be treated as a single entity subject to the same conflicts of interest. But showing that the defendants are so closely related as to constitute a single entity is not required to plausibly allege that the Guide was published primarily for economic benefit. We are not asking whether MacWilliam’s actions influence NutriSearch or vice versa, but whether allegations involving either defendant reveal the primary purpose of the Guide.

…. Usana even uses MacWilliam as part of its image advertising; the complaint includes an image of MacWilliam that states that “I have full confidence that USANA will once again stand out as an industry leader and will continue to receive an elite standing in the new Comparative Guide.” That NutriSearch and MacWilliam chose such a strongly worded yet false disclaimer — disclaiming any association with all manufacturers in the Guide despite having obvious ties to Usana — raises substantial questions about the Guide’s true purpose, if the allegations in the complaint are true.

The court cautioned that its decision was “narrow.” Consumers face so many choices that they often seek out independent reviews. “But when someone falsely claims to be independent, rigs the ratings in exchange for compensation, and then profits from that perceived objectivity, that speaker has drowned the public trust for economic gain. Society has little interest in protecting such conduct under the mantle of the First Amendment.” Ultimately, the majority embraced “a common-sense distinction between protected speech and commercial speech — in this case, legitimate product reviews versus paid product promotion …. Simply put, paid promotion is commercial speech.”

This wasn’t just an allegation of bias and inaccuracy—and here comes a line defendants may well quote: “A mere failure to disclose bias or financial interest would not necessarily make speech commercial.”

Here, though, we face allegations that the defendants conceived the Guide to juice sales of Usana products, actively misled the public about their supposed independence, and fiddled with their own ratings criteria to boost a favored company that lavishes them with hundreds of thousands of dollars in compensation. Put another way, it is more paid promotion than product review, according to the complaint. It is not controversial to conclude that “liability can arise under the Lanham Act if websites purporting to offer reviews are in reality stealth operations intended to disparage a competitor’s product while posing as a neutral third party.”

Nor was this speech “inextricably intertwined” with fully protected speech. The Guide also “describes the benefits and science of nutritional supplements.” But the commercial, specifically, the allegedly rigged ratings “are not so connected to this informational section to lose their commercial character. On the contrary, they seem easily separable.” The Guide even allegedly comes in two parts, informational and ratings; the first could easily be published separately. “[T]he Guide does not gain full First Amendment protection simply because it includes a distinct summary of scientific ideas as a prelude to its supposed product reviews.”

But was the Guide “intended to influence consumers to buy the defendants’ goods,” as required by a remaining factor of the “commercial advertising or promotion” test? The advertising was allegedly intended to help Usana’s goods, not NutriSearch’s product. The parties didn’t brief the issue and the district court didn’t rule on it, so the court of appeals remanded. Though the dissent made good points on this element, the district court should address it. “In considering this question, though, it may be useful to determine whether the defendants and Usana had an agency relationship; for example, it might be the case that the defendants were acting as agents of Usana and therefore had a vested interest in the goods that Usana sold, which might be enough to satisfy this element.” [Also, the false claims of neutrality might well be helping sell the Guide, too.]

Final element: was the Guide allegedly sufficiently disseminated to the relevant purchasing public? Sure. Ariix alleged that the “professional edition [of the Guide] is specifically designed for and marketed to tens of thousands of Usana sales representatives, who are told that referring prospective customers to the guide is one of the most effective ways to sell Usana products.” The district court mistakenly looked at whether statements within the Guide were sufficiently disseminated.

The district court also found that Ariix didn’t sufficiently allege misrepresentations; the court of appeals disagreed. The comparative five-star ratings were non-actionable statements of opinion; even though the Guide purported to rely on scientific and objective criteria, “there is an inherently subjective element in deciding which scientific and objective criteria to consider.” However, the disclaimer of independence was a factual, falsifiable statement. And the failure to award Ariix a medal certification presents specific and measurable statements about Ariix, given that it was allegedly based on two falsifiable criteria: compliance with the FDA’s pharmaceutical good manufacturing practices and certification of product labels’ claims from an approved laboratory. “By not awarding Ariix a medal certification — despite Ariix being eligible for such an award — the Guide falsely implies to consumers that Ariix did not comply with the FDA’s GMPs or that it did not obtain the appropriate laboratory certification.”

The district court wrongly found that compliance with the GMPs wasn’t a statement of fact because consumers would merely “conclude that perhaps a manufacturer did not follow practices that the FDA considered good.” But whether Ariix followed those practices was itself a question of fact.

Judge Collins dissented.

First, he would not give any weight to allegations that defendants falsely advertised the Guide itself, rather than Usana’s products. But “advertisements that accurately reprint[] false claims contained in the advertised works [are] protected from tort liability to the same degree as the underlying works.” Anyway, Ariix didn’t plausibly plead that its injuries were proximately caused by the advertising of the Guide, as opposed to the product reviews contained in the Guide. [FWIW, I disagree: Independence is what makes such claims more credible; consumers may discount claims made by a party with an economic interest, which is why disclosure is so important to the FTC. Proximate cause is an issue of legal causation, not a matter of counting steps in the chain.]

Rather than stretching the Lanham Act in ways that threaten the First Amendment, the dissent would have relied on the remaining prongs of the “commercial advertising or promotion” test. The dissent agreed with everyone else that Lexmark abrogated the “competition” requirement in older versions of the test. “Given that (1) a competitors-only limitation similarly lacks any textual grounding in the phrase ‘commercial advertising or promotion,’ (2) Gordon & Breach derived this atextual limitation from its review of pre-Lexmark caselaw; and (3) Lexmark’s emphatic rejection of a competitors-only limitation would be wholly undone by continued adherence to this aspect of Gordon & Breach, the conclusion is inescapable that Lexmark precludes limiting ‘commercial advertising or promotion’ only to the commercial advertising and promotion of a direct competitor.”

Lexmark left the sufficient dissemination requirement intact; this was adequately pleaded.

What about “for the purpose of influencing consumers to buy defendant’s goods or services”? This too

flows from the statutory language and remains valid after Lexmark. By referring to representations that a “person” makes “in commercial advertising or promotion,” the Lanham Act clearly refers to commercial speech promoting sales of goods that may fairly be said to be those of that “person,” i.e., the defendant. We do not normally think of third-party product reviews or endorsements as being that person’s “commercial advertising”—at least when they are not done on behalf of the product’s manufacturer or seller.

That last qualification seems to be at issue here; also it’s interesting that the dissent doesn’t discuss the nearby statutory language making clear that statements in commercial advertising or promotion are actionable if they “misrepresent[] the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities” (emphasis added). Even if, as the dissent says, independent reviews are fully protected speech, that’s not the situation alleged here, and the concerns governing the lesser protection for deceptive commercial speech are clearly implicated.

The dissent recognized that the statute extends beyond advertising by manufacturers and distributors themselves. “[W]hen an entity acts as an agent of a manufacturer in making a product review, then that entity acts on behalf of the manufacturer and is in that sense advertising its own product. ‘[P]aid publicists’ speech’ about their payor’s products is commercial speech.” Likewise “there may be other endorsers who have such a direct financial stake in specific sales of a product—such as a cut of each sale—that it may likewise be fair to say that they are thereby advertising their own product.” But being cautious here avoids difficult constitutional questions. [It is notable that those difficult questions have generally involved regulation of truthful speech, like information about contraceptives; where the speech is deceptive, there is less reason to be concerned for the free flow of information.] The dissent thought that the majority created “a substantial amount of uncertainty as to the scope of First Amendment protection for product reviews, a result that I find doubtful and disquieting.”

The dissent would thus have concluded that Ariix failed to plausibly plead that the statements promoted NutriChoice’s own products. The complaint didn’t allege “Usana’s advance direction and control in preparing the content of the Guide,” which might have sufficed. The dissent wanted Usana to have changed or put “specific content” in the Guide—a standard that would likely free many influencers from regulation. It wasn’t enough to allege that “Defendants produced biased reviews in the craven hope that Usana would then act in ways that were economically favorable to Defendants.” [That really seems like a misdescription of the allegations—it might be a fair characterization if the parties had never before interacted and the first contact was when MacWilliam reached out to say “look how well I rated you!”]

The dissent thought that the allegations merely showed “that Usana liked favorable reviews and that Usana promoted the Guide and its author when the reviews were distinctly superlative and did not do so when they were not…. That Defendants wrote obsequious reviews in the hope that Usana would be pleased and buy more Guides or give MacWilliam speaking engagements does not make them Usana’s agents in writing those reviews.” Sure, MacWilliam was Usana’s agent when he did paid speaking tours expressly promoting Usana’s products, but the complaint didn’t rest on that theory. [Surely it is relevant to what MacWilliam was doing with the Guide, though.]

Nor was there anything else justifying the conclusion that  Usana’s products were in any relevant sense NutriChoice’s products, such as an entitlement to a cut of each sale, or other links to profit if consumers chose particular supplements.