disparagement of a non-market participant doesn't provide Lanham Act standing

PharmacyChecker.com v. National Ass’n of Bds. of Pharm., No. 19-CV-7577 (KMK), 2022 WL 4368036 (S.D.N.Y. Sept. 20, 2022)

Plaintiff PCC sued NABP, a nonprofit whose membership consists of state/similar political unit boards of pharmacy (some other pharmacy associations/partnerships are also separate defendants), alleging violations of the Sherman Act and false advertising under the Lanham Act. NABP counterclaimed for violations of the Lanham Act and NY/DC false advertising laws. The court granted a motion to dismiss the counterclaims.

PCC “operates a website that is purportedly designed to allow U.S. consumers to search for and purchase drugs from PCC’s ‘accredited’ foreign pharmacies, which PCC claims are more affordable than drugs purchased from U.S. pharmacies.” NABP alleged that “PCC is engaged in the business of misleading consumers about the safety, legality, and pricing of unlawfully imported drugs from foreign ‘pharmacy’ affiliates that are subject to PCC’s ‘verification program’ ” and that “PCC directly and indirectly profits from misleading consumers and facilitating consumer purchases of these drugs from PCC’s affiliate suppliers.” Along with misleading consumers about the safety and legality of imported drugs, PCC allegedly disparaged NABP.

PCC repeatedly claimed that while the FDA has not legalized personal importation of foreign drugs, no consumer has ever been prosecuted for personal importation. NABP alleged that these statements encouraged consumers to “break the law by purchasing foreign pharmaceuticals via PCC’s website and the links PCC provides to its affiliate[ ] foreign drug suppliers.” NABP also alleged that PCC misled consumers by obfuscating the fact that “[e]ven a brand-name drug sold under the same name in multiple jurisdictions may differ,” including because “the drugs may use different inactive ingredients, different release mechanisms, or be manufactured in different facilities.” [Pause to note that TM claims would be much easier if material differences are alleged, but that would likely have to be case by case. Also would require arguing that different inactive ingredients/release mechanisms/place of manufacture are material, which might be a stretch, though I can imagine allergens might make a difference.]

NABP also alleged that PCC “hides that the ‘pharmacy’ websites it links to are not pharmacies at all” but actually intermediaries that merely dispense prescriptions from unidentified, third-party pharmacies. Also, many of the “pharmacies” listed on PCC’s website and “verified” or “accredited” by PCC allegedly use a misleading name or logo to deceive consumers into believing that the “pharmacy” is Canadian or Canada-based, when in reality, the “pharmacy” dispenses drugs from a number of other countries, such as India, Mauritius, and Turkey. Likewise, PCC allegedly affirmatively represents that all of the “pharmacies” listed on PCC’s website are “safe, trustworthy, and operating in compliance with Canadian or other regulatory requirements,” when this is often not the case, and endorses similar misrepresentations made by these “pharmacies” themselves via PCC’s accreditation process in which PCC guarantees that the marketing claims made by these “pharmacies” are “truthful and not misleading.”

Further, despite promising consumers that it is helping consumers find the lowest price for their prescription drugs, PCC allegedly steers consumers away from cheaper, generic drugs dispensed by U.S. pharmacies and toward more expensive and illegal foreign drug importation.

Disparagement: NABP alleged that “PCC has, through its PharmacyChecker.com and blog sites, maliciously and specifically attacked NABP” in an effort to “falsely undermine NABP’s reputation” via claims such as that “NABP bears responsibility for the opioid crisis or that NABP is responsible for pharmacy errors.” NABP alleged that PCC used such “false claims to drive consumers away from safe domestic pharmacies and towards riskier foreign pharmacies that PCC ‘verifies.’ ”

All this allegedly harmed NABP by forcing it to “divert resources from its core mission as a non-profit to respond to false, misleading, and scurrilous attacks from PCC,” to “respond to claims from consumers who have been misled by PCC, some of whom have reached out directly to NABP,” and “to devote a significant amount of staff and contractor time—dozens of in-person hours—and other resources to determining whether PCC itself violated NABP policies—and possibly state or federal law relating to the sale and dispensing of prescription drugs.”  

Under Lexmark, NABP failed to allege a cognizable Lanham Act injury. Injury to NABP couldn’t be presumed because NABP specifically alleged that PCC and NABP are not competitors, nor did it allege that PCC made any statements directly comparing a specific service of PCC’s to a specific service of NABP’s. Fundamentally, NABP failed to allege that it was a market participant, “which fatally undermines any claim of injury proximately caused by PCC’s conduct.” “NABP does not allege that it markets a particular product or service or that it is a participant in the market for pharmacy accreditation or verification such that PCC could have plausibly caused NABP to suffer any ‘injury to a commercial interest in reputation or sales.’” As a result, NABP couldn’t allege that PCC’s “deception of consumers cause[d] them to withhold trade” from NABP, as required to allege injury under the Lanham Act.

The counterclaim allegations could potentially state a claim for injury on behalf of a “safe domestic pharmacy,” but not behalf of NABP, which is not itself a pharmacy. Even if it alleged that it received a cut of domestic pharmacy sales, that wouldn’t be required direct injury.

What about the disparagement campaign? “[A]n allegation of ‘reputational harm’ on its own is not sufficient to state a claim for injury under the Lanham Act; rather, ‘a plaintiff must allege an injury to a commercial interest in reputation or sales.’” There were no allegations that reputational injury caused consumers to “withhold trade” from NABP.

Alleged diversion of resources from its mission was relevant to Article III standing, but not Lanham Act standing.

NY GBL §§ 349 and 350:  Same problem. Under those laws, a plaintiff may not recover for an “indirect” or “derivative” injury; that is, “when the loss arises solely as a result of injuries sustained by another party.”  Its resource diversion allegations were “ultimately dependent on an alleged injury to consumers.” Also, as a non-market participant, “the only purpose of expending resources to counter PCC’s attacks on NABP’s integrity and credibility is to protect NABP’s reputation with consumers and other industry actors so that NABP can better protect consumers from harm in the future.”

D.C. Consumer Protection Procedures Act Claim: Covers only “consumer goods and services that are purchased or received in the District of Columbia.” NABP failed to allege a sufficient nexus between PCC’s alleged conduct and the District of Columbia. NABP is organized under the laws of Kentucky with its principal place of business in Illinois, and PCC is a limited liability company organized under the laws of New York and with its principal place of business in New York. It wasn’t enough that there were consumers in DC and also the board of pharmacy of DC was a NABP member. “NABP’s bare allegations that one of its member-organizations is located in the District of Columbia and that it has brought this Action on behalf of consumers who reside in the District of Columbia, who may have accessed PCC’s website, are textbook ‘naked assertions devoid of further factual enhancement.’” Thus, even though DC allows nonprofits to represent consumers, NABP didn’t sufficiently allege that a consumer within the District of Columbia actually “purchased or received” a good or service from PCC, as required by the law.