mere direct competition doesn't plausibly plead false advertising standing

Allbirds, Inc. v. Giesswein Walkwaren AG, 2020 WL 6826487, No. 19-cv-05638-BLF (N.D. Cal. Jun. 4, 2020)

Allbirds sued Giesswein for trademark and related claims, and Giesswein counterclaimed for false advertising under state and federal law; the counterclaims are at issue here.

Giesswein sells footwear made from the wool of Merino sheep, including footwear referred to as “‘runners’ or sneakers,” “wool runners,” and “merino runners.” Allbirds also offers footwear products made of wool and referred to as “wool runners.” Giesswein alleged that “[o]ne of Allbirds’ central advertising messages for its footwear products is that the products are ‘natural’ or made of ‘natural materials,’ ” but Allbirds products allegedly contain synthetic polyamides and therefore the “natural” advertising is materially false or misleading.

Allbirds argued that Giesswein lacked Article III standing because it only plead generalized harm, e.g., “Giesswein has suffered and is likely to continue to suffer significant monetary damages and discernible competitive injury by the direct diversion of sales from Giesswein”; “Giesswein has suffered, and continues to suffer, injury in fact and has lost money, property, and/or goodwill”; and “Giesswein has and will continue to suffer damages, including lost sales, revenue, market share, and asset value.” Giesswein alleged that that parties were “direct competitors,” but that wasn’t conclusive of harm, and there were no allegations that customers chose Allbirds products over Giesswein products because of the alleged false or misleading advertising. The court agreed.

A party may prove its injury (1) by using lost sales data, that is “actual market experience and probable market behavior,” or (2) “by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.” “Evidence of direct competition is strong proof that plaintiffs have a stake in the outcome of the suit, so their injury isn’t conjectural or hypothetical.” But here there were no lost sales data, and Giesswein provided only one link in the chain of inferences: direct competition. Standing alone, that wasn’t enough.

Giesswein didn’t allege facts indicating that “the material of shoes is an important factor for consumers in deciding which shoes to buy such that Allbirds captures a larger share of the ‘all-natural’ shoe market because of its alleged false or misleading advertising.” Motion to dismiss granted with leave to amend (though the court suggested that the California UCL and FAL claims would require Giesswein to show that it relied on the alleged misrepresentation to its detriment, which would be hard to do even if it can plead Lanham Act standing).

former customer lacks Lanham Act standing against platform

Gaby’s Bags, LLC v. Mercari, Inc., No. C 20-00734 WHA, 2020 WL 5944431 (N.D. Cal. Oct. 7, 2020)

Mercari promoted its web platform, Mercari.com, for commerce in miscellaneous goods as a venue where “anyone can sell.” Gaby’s opened a Mercari account in reliance on these claims and began selling handbags on Mercari’s platform. It generated nearly $400,000 over a two-year period until Mercari terminated its account for violating its terms of service, which barred “business accounts.”

Gaby’s sued, relevantly for violation of the Lanham Act claim. Although the terms of service were not “so clear cut as to allow judgment on the pleadings,” the court denied a motion to dismiss, but here granted summary judgment on standing grounds.

Gaby’s failed to show that it fell within the zone of interests for Lanham Act false advertising and also failed to show proximate cause. It sustained its complained-of harm as a consumer, not as a competitor. The statement that “anyone can sell” “related to the type of platform Mercari provided, not any other products (e.g., handbags) available on Mercari.”

Separately, Gaby’s failed to show how Mercari’s statement that “anyone can sell” deceived consumers to withhold trade from Gaby’s.

 

"wasabi peas" can be made with horseradish without injuring consumers given widespread use

Yothers v. JFC Int’l, Inc., No. 20-cv-01657-RS, 2020 WL 5015262 (N.D. Cal. May 14, 2020)

Defendants sell “wasabi peas,” which, “allegedly like 95–99% of ‘wasabi’ products sold in North America, contains not Wasabia japonica but Amoracia rusticana, more commonly known as horseradish.” Plaintiffs alleged that they wouldn’t have bought the product if they’d known it didn’t contain wasabi. Wasabi allegedly “is the most expensive crop in the world to grow because it is very difficult to cultivate.” While fresh wasabi can cost as much as $113 a pound, horseradish has a similar taste but costs only about $6 a pound. Thus, plaintiffs alleged, “95–99% of the wasabi products sold in North America substitute horseradish and green dye for authentic wasabi.” Defendants’ product is labeled as “wasabi coated green peas,” but the ingredients list includes not wasabi but horseradish and green food coloring.

The court found that plaintiffs failed to show statutory standing. They couldn’t show they paid a premium when the product they bought was not, apparently, priced differently from other similar products. “Importantly, plaintiffs have not alleged why they selected defendants’ product, as compared to other products which are labelled and priced almost identically,” but instead alleged that almost all other products on the market had the same defect (and didn’t specify whether they knew that at the time of purchase).  “Unless that fact has recently become known to them, ‘wasabi coated’ must have implied ‘horseradish coated’ to plaintiffs at the time of purchase.” Plus, they alleged they reviewed the “labelling, packaging, and marketing materials” before purchasing, and the package as a whole clearly discloses that the product contains not wasabi but horseradish. Williams v. Gerber Product Co., 552 F.3d 934 (9th Cir. 2008), which held that reasonable consumers don’t have to “look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box,” was inapposite because that was about a Rule 12(b)(6) motion, not a jurisdictional motion under Rule 12(b)(1). “The analysis in the present case involves not what a ‘reasonable consumer’ would do, but what [plaintiffs] actually did do.” Further, plaintiffs alleged that they wouldn’t have bought this product “on the same terms” if they’d known the truth, but they didn’t allege whether they would have bought another competing horseradish product instead or a more expensive wasabi product. “Whether plaintiffs would have spent the same amount of, more, or less money had they known about the substitution determines whether they suffered an economic injury.”

another advertiser's Google click fraud suit is revived

Singh v. Google LLC, 2020 WL 5202081, --- Fed.Appx. ----, 2020 WL 5202081 (9th Cir. Sept. 1, 2020)

The court of appeals reverses the dismissal of Singh’s California FAL/UCL claims against Google for allegedly charging for fraudulent clicks despite its promises. While the district court found that Singh lacked statutory standing, the economic injury requirement “demands no more than the corresponding requirement under Article III of the U.S. Constitution.” It was sufficient for Singh to allege that he purchased some number of clicks from Google via its AdWords program; that Google misrepresented the general efficacy of its fraudulent click filters; and that he would not have purchased clicks but for his reliance on the allegedly erroneous fraud filter rate. Indeed, Singh alleged that he hired a company to analyze some of his ad campaigns, which showed that Google’s filters caught fewer fraudulent clicks than advertised, and that numerous studies prior to 2016 on third-party ad campaigns found that Google’s filters did not catch as many fraudulent clicks as Google advertised. “At the pleading stage these allegations together are sufficient to draw the reasonable inference that Singh’s ad campaigns prior to 2016 similarly suffered higher-than-advertised rates of fraudulent clicks not caught by Google’s filters, and that he accordingly paid for more fraudulent clicks than Google advertised he would.”

Google also argued that its AdWords Agreement expressly precluded Singh’s claims, but the court of appeals agreed with the district court that a reasonable jury could find that Singh was reasonable in relying on Google’s extra-contractual statements about the general effectiveness of its click filter system, notwithstanding the “no guarantee” provision in the AdWords Agreement.

 

Lack of competitive injury dooms false advertising claim against unauthorized image use by strip club

Geiger v. Creative Impact Inc., No. CV-18-01443-PHX-JAT, 2020 WL 4583625 (D. Ariz. Aug. 10, 2020)

The court rejects a motion to reconsider its ruling rejecting Lanham Act false advertising claims based the unauthorized use of plaintiffs’ images by a strip club. Plaintiffs alleged that the unauthorized use falsely implied that they were strippers at the strip club or that they were otherwise affiliated with or promoted the strip club. They argued that the court erred by, effectively, holding that the claims couldn’t proceed because plaintiffs weren’t in the strip club business, in defiance of Lexmark.

“There is no doubt that the Supreme Court expressly rejected any requirement that a plaintiff show direct competition to prevail on a false advertising claim.” However, summary judgment for defendant on this claim was still appropriate because plaintiffs couldn’t show competitive injury. The parties don’t vie for the same dollars from the same consumers, and plaintiffs didn’t offer any evidence that showed that their ability to compete with anyone in the marketplace was harmed/that defendant’s alleged deception caused consumers to withhold trade from them. [It’s a bit unclear whether the court (wrongly) treated vying for the same dollars from the same consumers as a predicate; at times it seems to treat that as a requirement, instead of as a common way that competitive harm can be shown, though the latter view resolves the tension it sees between Lexmark’s holding and prior Ninth Circuit references to “competitive” harm.] Lexmark held that “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” Plaintiffs didn’t establish the existence of an issue of material fact on competitive injury or proximate cause.

The court elaborated a bit: Although direct competition isn’t required, market overlap is still relevant; it was important that the parties in Lexmark were both in the printer-related-products market because on the facts pleaded, a lost sale for plaintiff was likely to mean a sale for defendant. Here, with no evidence of competition for consumers between plaintiffs and defendant, and no other evidence of damage to plaintiffs’ ability to compete in the marketplace (such as evidence of damaged reputation or lost modeling jobs or other business opportunities), there was no cognizable competitive injury. Plaintiffs argued that their evidence that strippers at defendant’s strip club are concerned about being publicly associated with a strip club was evidence of harm, but that created only “metaphysical doubt,” not a genuine factual dispute, even with a damages expert estimating the “embarrassment factor” for each of the models to calculate how much they would have charged for use of their images. The expert didn’t tie those calculations to “any concrete effect on their business reputations.”

The court also cites a case I missed: Adweek LLC v. Carnyx Grp. Ltd., No. 1:18-CV-09923-GHW, 2019 WL 8405297 (S.D.N.Y. June 3, 2019) (dismissing false advertising claim based on false representation that plaintiff endorsed defendants’ business—despite allegations that false representation gave defendants’ services an increased “salable character” as a result of false representation and caused damage to plaintiff’s brand—as there were no allegations that any deception had an effect on plaintiff’s consumers).

Even if plaintiffs had shown injury to a commercial interest in sales or business reputation, they failed to raise a material factual issue over whether such injury “flow[s] directly from the deception wrought by the defendant’s advertising” such that the “deception of consumers causes them to withhold trade from” plaintiffs. That plaintiffs license their images for a living and that they were concerned about embarrassment/reputational damage from being associated with a strip club were not enough to create a triable issue on whether they lost trade from consumers. (Notably, this is the kind of argument that courts routinely think creates a triable issue on trademark harm.)

selling w/in another distributor's exclusive territory isn't plausibly false advertising of authorization

Northern Bottling Co. v. Henry’s Foods, Inc., No. 1:19-cv-021, 2020 WL 4208526 (D.N.D. Jul. 22, 2020) 

Northern is a PepsiCo bottler/distributor; it has some Exclusive Bottling Appointments that appoint Northern as PepsiCo’s “exclusive bottler, to bottle and distribute” a specific PepsiCo soft drink, such as Pepsi-Cola or Mountain Dew, in a designated geographic territory. “PepsiCo produces the concentrate—the flavor base for the beverages—and sells it to independent bottlers. The independent bottlers, such as Northern, manufacture, sell, and deliver the finished soft drinks to retailers in their geographic territory, who, in turn, sell the products directly to the consuming public. The EBAs provide that PepsiCo is the owner of the beverage trademarks and Northern does not have ‘any right or interest’ in the trademarks.” 

Henry’s sells food and beverages, including Pepsi products, to retail sales outlets, including gas and convenience stores. It is allegedly a “third-party transshipper” of PepsiCo products, to wit, someone who sells in a bottler’s exclusive territory other than the licensed bottler itself. Henry’s allegedly transshipped PepsiCo products to six gas stations or convenience stores located within the geographic territory established in the Northern-PepsiCo EBAs. 

Henry’s allegedly implicitly (but never explicitly) misrepresented that: Henry’s was licensed or authorized to manufacture, sell, and distribute PepsiCo products; Henry’s’ sales were conducted in association with, or with the approval of, PepsiCo and/or Northern; Henry’s’ products were of the same quality or freshness as Northern’s; Henry’s’ “pricing was legitimate”; and Henry’s’ “poor customer service” was caused or condoned by Northern. It allegedly made these implicit representations by: “calling on [Northern’s] exclusive customer base,” selling PepsiCo brand soft drinks to Northern’s customers, “using and handling” PepsiCo trademarks, and listing PepsiCo soft drinks for sale in promotional brochures. 

Northern sued for tortious interference with business expectancy, violation of the Lanham Act, and declaratory relief. The court dismissed the complaint. 

Tortious interference: requires “an independently tortious or otherwise unlawful act of interference by the interferer.” Northern alleged: (1) deceit, (2) false advertising, and (3) the consumer sales fraud prevention statute. Rule 9(b) applied.

Under North Dakota law, deceit means that “[o]ne who willfully deceives another with intent to induce that person to alter that person’s position to that person’s injury or risk is liable for any damage which that person thereby suffers.” Northern didn’t plead fraud with the requisite specificity, failing to identify by name a single gas station or convenience store that Henry’s allegedly deceived or any dates. It also didn’t allege any express representation. Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587 (5th Cir. 1993), held that a seller’s offering to sell products and stocking shelves with those products did not amount to a misleading representation that the seller was “authorized” to sell those products. Scott Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477 (5th Cir. 2004), held that a mere truthful reference to selling a marked product didn’t suggest affiliation. 

Here, it wasn’t enough to allege that Henry’s misrepresented itself as authorized by calling on Northern’s “exclusive customer base.” Thus, even if there had been more detail, the court was skeptical that Henry’s’ alleged actions—“offering to sell, displaying the product for sale in a brochure, and selling PepsiCo soft drinks—absent more, amount to a misleading representation.”  Northern didn’t plead any other potential deceit—misrepresentations that Henry’s was authorized and that its pricing was “legitimate”—with the requisite specificity. Northern didn’t explain what “legitimate” pricing even was. Alleged misrepresentations that Henry’s products had the “high-caliber characteristics, quality controls, and freshness associated with Northern’s products” were also not specifically identified. 

False advertising/consumer fraud under state law: Same problems. 

Lanham Act: Statutory standing was an issue: did Northern have any interest in asserting harm when PepsiCo owns the relevant trademarks? Under Lexmark, the answer was yes: Northern alleged “an injury to a commercial interest in reputation or sales” and proximate causation in that customers switched. 

The court also considered in detail the split over applying Rule 9(b) to the Lanham Act claim, since some courts hold that proof of fraud or mistake isn’t required for §43(a)(1)(B) false advertising liability. But this court disagreed, based on other Eighth Circuit cases, the language of the statute, and the allegations here. Given that holding, the same flaws doomed the federal claim.

Just stocking a falsely advertised product isn't enough for contributory liability

In re Outlaw Laboratory, LLP, 2020 WL 2797425, No. 18-CV-0840-GPC (S.D. Cal. May 29, 2020) 

Plaintiff makes male enhancement products, allegedly in compliance with the DHSEA. It sued 51 convenience and liquor stores in the San Diego, California area; 23 of those defendants have been terminated, 20 are actively litigating, and eight haven’t appeared/answered. The defendants allegedly sold falsely advertised male enhancement products containing undisclosed pharmaceuticals; some of the accused products contain hidden ingredients including sildenafil, the consumption of which can cause “life-threatening hypotension” and greatly “increase[s] the risk of heart attack,” among other effects. 

The court applied issue preclusion to Outlaw’s argument for direct liability for the retailers under the Lanham Act, based on past litigation. Outlaw’s only allegations about the stores were that they sold the products, not that they advertised or marketed them beyond placing them on their shelves. Failing to disclose the bad ingredients was not itself actionable under the Lanham Act. 

Contributory liability under the Lanham Act is a cognizable theory, but wasn’t plausibly pled here. After all, courts accept contributory liability in §43(a)(1)(A) cases, and such claims arise from clauses that are “subpart[s] of a single statutory provision,” “share the same introductory clause,” “were motivated by a unitary purpose” to prohibit unfair competition, and are rooted in tort law (which, of course, permits contributory liability). POM Wonderful even recognized that, of these two provisions, false advertising is “the broader remedy.” 

The leading case, from the Eleventh Circuit, requires a showing that (1) there was direct false advertising, and (2) “the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.” Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248, 1277 (11th Cir. 2015). In other words, the plaintiff “must allege that the defendant...intended to participate in or actually knew about the false advertising” and “that the defendant actively and materially furthered the unlawful conduct—either by inducing it, causing it, or in some other way working to bring it about.” (Note that “material participation” in the initial description looked like it did not require knowledge, but apparently not.) Outlaw didn’t properly allege the required elements with specificity. 

Among other things, the complaint lacked allegations that the stores “actively and materially furthered the unlawful conduct.” For example, there were no allegations that they “controlled,” “monitored,” or even “encouraged” the false advertising. There was no reference to “a clear contractual power” to stop the false advertising, or any extensive communications with the unknown third parties who supplied the products “regarding the false advertising.” Even allegations of knowledge were unspecific, as if general FDA announcements put the stores on notice. 

Outlaw’s allegations also failed if the court applied the standard of ADT Sec. Servs., Inc. v. Sec. One Int’l, Inc., No. 11-CV-05149-YGR, 2012 WL 4068632, at *3 (N.D. Cal. Sept. 14, 2012): contributory liability can arise if the defendant “(1) intentionally induced the primary Lanham Act violation; or (2) continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied.” Since we don’t know who the primary violator is, we can’t tell that they were “induced” by the stores. 

California’s FAL: also failed. Outlaw lacked standing because it didn’t rely on the misrepresentations. The majority approach requires the plaintiff to have lost money or property in reliance on the misrepresentations, not merely because other people relied on the misrepresentations, as was alleged here. Also, as with the Lanham Act claims, the stores weren’t personally responsible for the false advertising, and “[a] defendant’s liability must be based on his personal ‘participation in the unlawful practices’ and ‘unbridled control’ over the practices that are found to violate section 17200 or 17500.” (Citing Emery v. Visa International Service Ass’n, 95 Cal. App. 4th 952, 960 (2002).) And there’s no vicarious liability under California consumer protection laws. Nor is there a duty to investigate and disclose the falsity on the packaging. 

Also, “remedies for individuals under the FAL are limited to restitution and injunctive relief.”  There was nothing to restore to Outlaw; an injunction was permissible, but only if the claims had been properly alleged. 

UCL fraudulent/unlawful: Again, putting a falsely advertised product on a shelf is not itself “fraudulent” in the absence of acts to adopt and further the false advertising. (Citing Dorfman v. Nutramax Labs., Inc., No. 13-CV0873-WQH, 2013 WL 5353043, at *14 (S.D. Cal. Sept. 23, 2013) (finding retailer defendant could be liable under the UCL where the defendant sold the products in their stores, entered into sales agreements with the manufacturer, provided pictures of the deceptive packaging, and made statements on their website with misleading labeling).) And again Outlaw lacked standing. 

Unlawful: Outlaw alleged that it was unlawful to sell pharmaceuticals without a prescription, but didn’t identify any particular section of any statute that was violated, so it still failed to state a claim.

"Belgium 1926" label on chocolate plausibly indicates current Belgian origin

Hesse v. Godiva Chocolatier, Inc., 2020 WL 2793014 No. 19-cv-972 (AJN) (S.D.N.Y. May 29, 2020) 

The forgiving plausibility standard allows consumer protection claims about Godiva’s use of “Belgium 1926” on its American-made chocolates to continue. The court points out that, although “founded in Belgium in 1926 but not still there” might be a plausible interpretation, “founded in Belgium in 1926 and still there” is at least as plausible if not more so. Other moments of note: (1) injunctive standing lacking because plaintiffs now know the truth and future desire to buy properly labeled chocolate isn’t concrete enough; (2) Godiva raises a First Amendment defense to this garden-variety consumer protection claim. Expect more of this even though the court disposes it in a footnote as putting the cart before the horse: if this is misleading commercial speech, it’s not protected by the First Amendment.

 

example of challenged packaging

Godiva puts “Belgium 1926” “prominently ... on the front packaging of all the Godiva chocolates.” Amended Complaint, and “across its entire marketing campaign, such as on its Godiva storefronts, supermarket display stands, and print and social media advertising,” but made all its chocolates in Reading, Pennsylvania during the relevant time period. Plaintiffs alleged that “Belgium is widely understood and recognized as producing among the highest quality chocolates in the world” and that American chocolate differs in taste from that produced in Belgium, due “to the use of different butters, creams, and alcohol.” 

Article III standing for injunctive relief: the court reasoned that plaintiffs’ injury was “hypothetical—if they choose to purchase Godiva’s products in the future, then they may be harmed.” But isn’t the injury the ongoing lack of ability to rely on the label? That doesn’t require a choice to buy Godiva; it’s about interference with the decisional environment. But anyway, plaintiffs know the truth so they couldn’t be harmed by the continued representation of Belgian origin. (Again, the 9th Circuit pointed out that products can change, so that doesn’t necessarily mean that they never face Godiva-related choices again.)

New York General Business Law the usual California statutory claims survived. The reasonable consumer applied to all these claims. Godiva claimed that its statement was “unambiguous and historically accurate message” about the founding, but “an equally, if not more, plausible inference is that the phrase represents both the provenance of the company—Belgium, in 1926—and a representation that its chocolates continue to be manufactured there.” Godiva relied on a trademark registration, several pages on Godiva’s website, and a CBS News article stating that Godiva’s chocolates are manufactured in Pennsylvania. “Godiva asks the Court to draw an inference in its favor: that because these documents were public record, reasonable consumers were aware of where its manufacturing occurs. That inference is couched in assumptions—that everything in the public record is universal knowledge and that, even if this information was widely disseminated, Godiva’s label could not lead a reasonable consumer astray, to name a few.” Not on a motion to dismiss! 

This is especially true because reasonableness takes the entire context of product labeling into account. Part of the “mosaic” was that “some of Godiva’s packaging and social-media advertising describe its chocolates as Belgian. The front packaging of one of its boxes, for example, contains the phrase “ASSORTED BELGIAN CHOCOLATE CARAMELS,” and its social-media advertising states “Delicious Belgian chocolates brought to you ...” Those facts bolstered the conclusion that a reasonable consumer could conclude that its chocolates are manufactured in Belgium. The court distinguished other cases “where the label in question expressly disclaims its actual origin—which is not the case here.” Though disclosures aren’t always curative, “the absence of a disclosure counsels strongly against Godiva’s argument.”  Fundamentally, “it is reasonable that a consumer would view a label touting the location and year of a company’s founding as representing the products’ continued place of production,” even if reasonable consumers would not think that individual chocolates were produced in 1926. 

Most of the warranty claims also survived, but common-law fraud, intentional misrepresentation, and negligent misrepresentation did not.

Reasonable restaurant consumers wouldn't think "krab mix" had real crab in it

Kang v. P.F. Chang’s China Bistro, Inc., No. CV 19-02252 PA (SPx), 2020 WL 2027596 (C.D. Cal. Jan. 9, 2020)

Kang alleged that P.F. Chang’s “employed a classic bait and switch tactic whereby it falsely labeled and advertised food products containing crab on their menu, when in fact, no crab meat was present in the product” by selling “food items containing ‘krab mix’ on their menu, including but not limited to [Defendant’s] Kung Pao Dragon Roll, Shrimp Tempura Roll, and/or California Roll.” He brought the usual California claims and a couple of others. The court dismissed all the claims.

Without representative plaintiffs from other states, Kang had no Article III standing to bring claims based on alleged violations of consumer fraud and deceptive trade practices laws of states other than California.

As for the California claims, this one could be resolved on a motion to dismiss. Reasonable consumers would not interpret “krab mix” to contain actual crab meat; it didn’t need to be labeled “imitation crab” or otherwise explained. (Citing McKinnis v. Kellog USA, 07-cv-02611, 2007 WL 4766060, at *4 (C.D. Cal. Sept. 19, 2007) (granting motion to dismiss without leave to amend on plaintiff’s UCL, FAL, and CLRA claims, finding no reasonable consumer would be misled by the word “Froot” in “Froot Loops” into believing the product contained “Fruit”); Pelayo v. Nestle USA, Inc., 989 F. Supp. 2d 973, 979 (C.D. Cal. 2013) (granting motion to dismiss on plaintiffs’ CLRA and UCL claims finding no reasonable consumer would be misled by the use of the words “All Natural” on a pasta product’s package into believing the product contained only natural ingredients, where pasta contained two artificial ingredients).)  In addition, “a reasonable consumer understands that cheaper sushi rolls, such as a California Roll, contain imitation as opposed to real crab.”  (Citing Werbel v. Pepsico, Inc., 2010 WL 2673860, at * (N.D. Cal. July 2, 2010) (holding, as a matter of law, that no reasonable consumer would be led to believe that “Cap’n Crunch’s Crunch Berries” cereal contained real fruit berries despite the use of the word berries in the product).)

Additionally, other dishes on P.F. Chang’s menu are labeled “crab,” where they contain actual crab. A reasonable consumer would recognize the contrast.

No Lanham Act causation in another timeshare exit case

Westgate Resorts, Ltd. v. Reed Hein & Assoc., LLC, 2020 WL 674108, No: 6:18-cv-1088-Orl-31DCI (M.D. Fla. Feb. 11, 2020)

Yay, another time share exit opinion. As relevant here, the court rejected the timeshare company’s Lanham Act claim because the allegedly false advertising didn’t proximately cause the asserted harm (people stopping paying their timeshare obligations). The identified false advertising statements included that timeshare owners can exit their contracts for any reason; that defendant TET has a 100 percent success rate; and that TET provides a money back guarantee. But none of the identified statements “direct (or can reasonably be construed to direct) timeshare owners to stop making payments.” Westgate didn’t argue that the ads harmed its reputation, and it didn’t show proximate cause for the harm it did allege.

Judge Alsup seems to think cosmetic mask claims are false

Miller v. Peter Thomas Roth, LLC, 2020 WL 363045, No. C 19-00698 WHA (N.D. Cal. Jan. 22, 2020)

OK, he doesn’t say so outright, but wait for the bit about the in-court demonstration he expects.

Defendants PTR Labs sell “specialty skincare products,” here the Rose Stem Cell and Water Drench product lines. PTR Labs advertised the Rose Stem Cell line with the “buzzwords” “bio repair,” “reparative,” “rejuvenates,” and “regenerates,” and the Water Drench Products as “containing hyaluronic acid which attracts and retains one thousand times its weight in water from moisture in the atmosphere.” Plaintiffs sued for false advertising under the UCL, among other things. Class certification was denied as moot without prejudice because the court could resolve a liability determination and potentially enter a statewide injunction against PTR Labs’ challenged ads without certifying a class. The court would revisit whether there was a need for a class to distribute restitution if plaintiffs succeed individually on the merits.

Here, the court denied defendants’ motion for summary judgment, finding issues of fact on deceptiveness to a reasonable consumer. For the Rose Stem Cell Products, the labels “rose stem cells,” “cutting edge bio-technology,” “bio-repair,” and at times “regenerates” and “rejuvenates” could cause the reasonable consumer to “believe that the Rose Stem Cell Mask is capable of repairing skin.” While “[s]ome reasonable consumers might interpret this as mere puffery, … others could sensibly conclude that rose stem cells actually repair human skin.”  For the Water Drench ad, a reasonable consumer could believe that hyaluronic acid actually can attract and retain one thousand times its weight in water, despite the use of “up to” to soften the claim. The court noted that “the plain focus of the ad was one thousand times its weight in water. … Subtle qualifications do not overcome the thrust of the ad.” Since the plaintiffs offered reasonable interpretations of the ad claims, the court turned to evidence of falsity.

Plaintiffs’ expert, an organic chemist with experience in human embryonic stem cell research, offered a “helpful declaration” that created a genuine question as to falsity. For the Rose Stem Cell product, he explained, among other things, that “[a] plant cell cannot become a human cell” and that “[a]ny cell (animal or plant, stem cell or not) in a topically applied cosmetic cannot affect cells in the skin, because the barrier function of the skin prevents those cells from penetrating to the level of living cells.” The jury would simply be asked to resolve whether the divergence between consumers’ reasonable interpretations of the ads and the truth was deceptive. It was unnecessary for the falsity expert to discuss the specific ad language at issue.

As to the “up to one thousand times its weight in water” claim, the expert explained that the claim is “incredible on its face,” citing “[p]ublished data from actual studies by real chemists establish[ing] that hyaluronic acid binds a small amount of water, equivalent to about half the weight of the hyaluronic acid.” As the court commented:

Our jury will look forward to an in-court demonstration in which a certain amount of hyaluronic acid is placed in a beaker, one thousand times that weight in water is placed in another beaker, and the contents are combined, all watching to see if all the water will be absorbed. Both parties’ experts would be well advised to prepare for such a demonstration. [Query whether visual inspection could actually disclose this, but still!]

However, plaintiffs didn’t submit evidence as to whether hyaluronic acid draws in atmospheric vapor and provides long lasting moisturizing benefits, so the court did grant summary judgment as to those statements.

On standing, the Rose Stem Cell plaintiff couldn’t remember when she saw the ad for the product, but she testified that she did rely on it when she made a later purchase. That was ok. “When a manufacturer promotes a lie about its products, those who were misled by the lie may well continue to rely on the lie even after the manufacturer has withdrawn the lie from circulation. Admittedly, [the plaintiff] will have to explain away a lot of memory snafus at trial. Our jury may possibly think she is the liar. But all of that goes to the weight, not admissibility, of her evidence.”

another timeshare exit company can be sued under state law, but not Lanham Act

Orange Lake Country Club, Inc. v. Reed Hein & Assoc., LLC, 2019 WL 7423517, No: 6:17-cv-1542-Orl-78DCI (M.D. Fla. Oct. 4, 2019)

Another timeshare case, this one kicking out Lanham Act claims but not FDUTPA deceptive practices claims on proximate cause. Defendant TET

allegedly puts out false and misleading advertisements, leading owners to believe that it can relieve them of their timeshares. Those owners then contact TET, which induces them to, inter alia, stop paying on their timeshare contracts and hire TET. Once hired, TET outsources the owners’ cases to “vendor attorneys” like Defendant Mitchell Reed Sussman (“Sussman”), who allegedly engage in fruitless “negotiation” with timeshare companies before employing one of his three deceptive and unlawful methods to “exit” owners from their timeshare contracts. As a result, Plaintiffs claim that the owners who contractually agreed to pay them have defaulted on their obligations, causing harm to Plaintiffs.

The advertising allegedly “create[s] the impression that TET can legally and permanently get owners out of the timeshare contracts for any reason.” It used to claim a “100% success rate,” eventually changed to “highest success rate in the industry.” It also “guarantee[d]” exit, and advertised a “100% money back guarantee,” which deposition testimony indicated was not true. The ads described TET’s process as finding illegal tactics in the underlying timeshare sale and using them to get an exit. Dave Ramsey also served as a paid endorser. Sales reps allegedly advised owners to cease all communication with their timeshare developers, and (at least until 2016 and allegedly later) advised owners to stop making payments under their timeshare agreements. 

Over 95% of TET’s cases went to outside vendors. When accounts went to attorneys, TET allegedly prohibited account coordinators from disclosing the attorney’s contact information to the client, and the attorneys were prohibited from communicating directly with TET clients. [This can’t be ok under Florida’s ethical rules for lawyers, can it? But then again given what Florida lawyers did with foreclosures, why would anyone have noticed?]  TET allegedly requires account coordinators to report that the case is proceeding according to a predetermined timeline, even if untrue, to deceive customers into thinking things are going well.

Defendant Sussman, a vendor attorney, allegedly also treated these cases the same regardless of circumstance, accusing developers of fraud and instructing them not to contact the owners. When a developer thus sends billing statements to Sussman, he throws them away. Sussman employs allegedly ineffective methods to exit the timeshare; Orange Lake rejects his cancellation methods, but Sussman continues to use them and tells owners they’re no longer “responsible for future fees in connection” with the timeshares, leaving them in foreclosure without their knowledge.  “In 2014, TET’s general counsel vocally opposed Sussman’s methods, but Sussman ran amok until April 2016, when TET supposedly terminated its relationship with him. Even then, TET still had approximately 6,000 open files with Sussman, 700 of which remained open as of September 2018.”

One Orange Lake owner hired TET, which told her to stop payment. The rep assured her that TET had an attorney that would “fix” any issues that arose from cessation. She discovered who was working on her case and left a voicemail, but only got a brief letter claiming he was representing her; all he did was send a C&D to Orange Lake. Ultimately, Orange Lake “voluntarily” accepted a deed in lieu of foreclosure [ed. note: which actually sounds like a relatively good result, but the anxiety and possible credit damage have to be factored in, though the court’s summary doesn’t make clear whether she could have instead afforded to pay forever].  The client demanded a refund from TET, while TET refused and claimed that it helped, even though a month after her release, TET claimed to still be working on an “exit” and claimed Orange Lake was delaying the process.

Other Orange Lake owners who started out current on payments and became delinquent due to TET’s instructions paid late fees to Orange Lake and also paid TET for ineffective services; one hired a different attorney who communicated with Orange Lake, at which point Orange Lake accepted a deed in lieu of foreclosure. TET allegedly took credit for that exit and denied her a refund. Other Orange Lake owners also had frustrating relationships with TET, though interestingly Orange Lake did release some of them (allegedly outside the TET connection). In one case, TET allegedly abandoned clients when they received a foreclosure notice (they ended up with a deed in lieu of foreclosure).

Lanham Act: The damages suffered by Orange Lake—nonpayment of fees—were not proximately caused by the ads. Orange Lake did not allege that its reputation was affected by the ads. The ads accused “Plaintiffs and all timeshare companies generally [the ads don’t seem to have named Orange Lake, so that’s a stretch] of engaging in deceitful, manipulative, or otherwise imprudent behavior,” and Orange Lake’s expert testified that TET’s website “reflect negatively on the timeshare industry and make Website viewers less likely to purchase a timeshare.” This could create a question of fact on reputational harm, but Orange Lake’s complaint didn’t rely on reputational harm, but only on loss of sales.  Because none of the advertisements directed owners to cease paying timeshare obligations, Orange Lake couldn’t show proximate cause. The but-for causation—if not for the ads, clients wouldn’t have hired TET and been instructed not to pay—was too remote. Summary judgment for defendants.

Tortious interference did survive; although predisposition to breach is a defense and the owners wanted to exit their relationships, there was evidence that at least some owners were not predisposed to do so via breach (stopping payment of fees).

FDUTPA: Requires “(1) a deceptive act or unfair trade practice; (2) causation; and (3) actual damages.” Orange Lake argued that TET violated FDUTPA by (1) soliciting Orange Lake owners through false and misleading advertising; and (2) fraudulently inducing Orange Lake owners into retaining TET based on TET’s advertised 100 percent guarantees of exiting timeshares when TET cannot actually fulfill the guarantee.  TET argued that some of its statements were accurate, and others mere opinion/puffery. A reasonable jury could find some of the statements false or misleading. “For example, the evidence reflects that TET’s ‘100% money back guarantee’ is riddled with non-apparent conditions and not honored in many cases. TET tacitly admits this by stating that it has procured exists for half of its 28,000 customers but issued only 800 refunds.” There was also evidence from deposed clients that they were deceived. “TET’s failure to deliver on its advertised promises is sufficient evidence of consumer deception to create a genuine issue of material fact.”

statutory Lanham Act standing exists when advertiser is advertising but not yet selling

CareDx, Inc. v. Natera, Inc., 2019 WL 7037799, No. 19-662-CFC-CJB (D. Del. Dec. 20, 2019) (magistrate)

A nicely reasoned opinion about impending competition as sufficient to find likely harm from false advertising.

CareDx makes AlloSure, a patented kidney transplant surveillance diagnostic test that allegedly detects active kidney rejection in kidney transplant patients using cell-free DNA detection.  CareDx’s clinical trial allegedly demonstrated that AlloSure “markedly outperformed” the current standard of care for detecting kidney transplant rejection (serum creatinine testing). Natera allegedly developed a competing cell-free DNA kidney transplant rejection test, Prospera. It had allegedly “begun significant marketing efforts,” such as by making the test available for use in clinical trials and marketing it to major clinical centers and sponsoring a clinical study. The study allegedly involved “retrospectively select[ing] samples that had been collected for unrelated purposes by a single clinical center and archived.” The results were published in the December 23, 2018 issue of the Journal of Clinical Medicine.

Natera made statements comparing the parties’ studies’ results, e.g. “compares favorably against competition,” particularly in sensitivity, citing the CareDX study. CareDx alleged that because the two studies did not involve “head-to-head clinical trials comparing the two [companies’] products[,]” and because the Natera Study suffers from “substantial material flaws[,]” Natera’s statements comparing Prospera’s performance to AlloSure’s performance were “literally false and entirely misleading.”

Natera argued that since its product hadn’t yet launched, it couldn’t proximately cause harm. First, proximate harm is a 12(b)(6) issue and not a subject matter jurisdiction issue, per Lexmark. Natera argued that since it had never sold a competing product, it was impossible for consumers to have been deceived and to have withheld business from CareDx.

Under these circumstances, CareDx pled proximate cause. Past harm due to lost sales is not required; the language of the law protects any person “who believes that he or she is or is likely to be damaged” by the defendant’s false advertising. In a footnote, the court elaborated: the statutory language “aligns with how ‘unfair competition’ claims were historically viewed, as being concerned ‘with injuries to business reputation and present and future sales’” (citing Lexmark).  It is not required to allege that “the defendant’s statements have already caused consumers to buy defendant’s product instead of the plaintiff’s product,” even if that is the ordinary path.  Thus, “if a plaintiff pleads facts plausibly indicating that a defendant’s statements about the plaintiff’s product will likely cause the plaintiff economic harm in the future (or that it has or will otherwise cause the plaintiff reputational harm), that could well satisfy the proximate cause requirement, even if there has been no sales yet lost to the defendant’s product.”

Par Sterile Prods., LLC v. Fresenius Kabi USA LLC, No. 14 C 3349, 2015 WL 1263041 (N.D. Ill. Mar. 17, 2015), reached the same conclusion where it was the plaintiff’s product that was FDA-approved and ready for market but not yet being sold and the defendant’s that was already marketed, allegedly misrepresenting that it was FDA-approved. In Par, the plaintiff’s product was a “concrete competing product to compare with” the defendant’s product, and the same was true here. Although proximate causation is usually thought of in past tense, it can be—and, according to the language of the Lanham Act, must be—considered in the future as well. What are required are allegations showing that the likelihood of harm is concrete and imminent. It sufficed to allege that Prospera was mid-launch, that Natera was actively advertising and seeking Medicare coverage for Prospera, and that Natera had begun significant marketing efforts for Prospera, including by making it available for use in clinical trials and marketing it to major clinical centers for such use.”  According to the complaint, “Prospera is not some speculative, who-knows-if-it-will-ever-be-developed product,” contrasted to other cases in which alleged harm was “remote, speculative and ill-defined.”

Natera also challenged the sufficiency of the falsity allegations. CareDx didn’t allege that the study data were falsely reported, and Natera argued that scientific disagreement wasn’t enough for a false advertising claim. CareDx argued that the challenged statements were establishment claims, and that it successfully alleged that “the tests referred to in the advertisement were not sufficiently reliable to permit one to conclude with reasonable certainty that they established the proposition for which they were cited.”  “Critically, the Complaint also includes detailed allegations as to why CareDx believes the Natera Study to be flawed and unreliable,” including use of unrepresentative samples, inclusion of “suspicious” results, improperly mixed population sets and violations of well-known criteria for the diagnosis of kidney rejections. The complaint also alleged how its own study was robust and reliable. Taken together, this was sufficient to plausibly allege falsity.

Natera implausibly argued that there was no express comparison of “Prospera” and “AlloSure,” but only of study results not naming “AlloSure.”  [Someone in this process had a misconception about whether you can avoid a problem by not naming the product you’re very clearly talking about: you can’t.]  The challenged statements expressly compared the assays directly tied to each product.  It was thus likely that the audience would link them to the parties’ respective tests [indeed, on these alleged facts, no reasonable person could fail to make the link].

Natera relied on ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013) and Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242 (11th Cir. 2002), to argue that a false advertising claim cannot be premised on matters about which there is legitimate ongoing “scientific disagreement.”  But whatever the merits of ONY, CareDx wasn’t challenging the Natera’s study publication itself, as ONY did, but rather challenging statements made in Natera’s press releases and other advertising materials that compared the results of the studies (which, among other things, meant that full disclosure of the data and its limitations wasn’t present). “Advertisements are not immune from Lanham Act protection just because their claims may have some relation to areas of scientific debate” (citing Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d 230 (5th Cir. 2014)). Likewise, in the J&J case, the plaintiff didn’t contest the reliability of the surveys cited in the challenged ad, whereas unreliability was CareDx’s entire claim.

Deception and materiality: also sufficiently alleged.  The complaint alleged that “Natera’s false and misleading statements likely have (and, unless stopped, will continue to) deceive healthcare providers, insurance companies, patients, and the general public about the capabilities and accuracy of AlloSure…. Natera’s false and misleading statements are material and will affect the purchasing and investment decisions of healthcare providers, patients, and insurance companies.”  CareDx also argued that, since it alleged literal falsity, it was entitled to a presumption of deception.

Natera responded that literal falsity was a misnomer since CareDx didn’t allege that Natera “misstated the published findings” of its study. While “the line between literal falsity and misleading statements can seem a fine one,” courts in establishment claim cases have repeatedly held that “when a defendant makes comparative statements based on testing that is flawed and unreliable, those statements … are appropriately viewed as literally false statements.” At this stage, the court would not reject a literal falsity claim.

Materiality: Natera again tried to argue that, with no sales, there could be no materiality, but that doesn’t make sense. “Indeed, courts generally do not require that a plaintiff demonstrate an actual effect on purchasing decisions; rather, a ‘likely’ effect on consumer choice is sufficient.” It was plausible that the allegedly false claims would affect future purchasing decisions, since correctly detecting kidney rejection is the reason consumers would use one of the tests.

Delaware common law unfair competition claims require “a reasonable expectancy of entering a valid business relationship, with which the defendant wrongly interferes, and thereby defeats the plaintiff’s legitimate expectancy and causes him harm.” This was also sufficiently pled.

Delaware Unfair or Deceptive Trade Practices Act: This was insufficiently pled, not only because CareDx didn’t specifically identify the relevant statutory subsections, but also because the allegations of that count were too bare-bones. E.g., it alleged that Natera made “false and misleading statements [that] represent that Prospera has uses or benefits that it does not have.” But it wasn’t clear what those “uses or benefits” were or what “statements” CareDx meant.  [Sounds like the count tracked the language of some statutory subsections but didn’t hook them back up to the allegations above, which probably would fit.] Dismissed with leave to amend.

general allegations of harm to Legalforce from TM scammer sufficed for Lexmark standing

Legalforce RAPC Worldwide P.C. v. Glotrade, No. 19-CV-01538-LHK, 2019 WL 6036618 (N.D. Cal. Nov. 14, 2019)

Legalforce “offers services including trademark preparation and prosecution, patent preparation and prosecution, copyright registration and counseling, international trademark and patent filings, and corporate formation and stock and equity structuring.” Mailer companies allegedly “use publicly available trademark filer information to send targeted ‘solicitations’ to...trademark applicants.” The “ ‘solicitations’ are constructed to [deceptively] make the trademark applicant believe that an official U.S. government agency or the [United States Patent & Trademark Office (“USPTO”) ] itself is sending a letter to them, raising fear among the unsuspecting public that they must pay large amounts of money or forfeit trademark rights.” These “Mailer Defendants” provide no real services and “result in no value to trademark owners.”

Defendant is allegedly one such “Mailer Defendant,” listing a Washington, D.C. address for its business, but actually located in Hungary. It allegedly sends out unsolicited offers and directs recipients to pay a $980 registration fee to have the recipients’ trademark (worthlessly) listed in its publication. The unsolicited offer is “deliberately constructed to deceive recipients into thinking the unsolicited offer is a bill so the recipient will send a check as a payment for something they think is already owed to protect a trademark.” Legalforce allegedly “has received over 40 unsolicited offers from [Defendant] in the past year, directed to both RACP’s clients and to individuals employed by RAPC.” It alleged that “significant business” was deceptively diverted, and that its business reputation was harmed because it “received inquiries from its clients confused about the unsolicited actions by the Mailer Defendants and worried that [Plaintiff’s] services to the clients were somehow deficient.” Legalforce alleged that it spent “valuable time and expenses to investigate the facts to appropriately advise its clients.”

Legalforce sued for violation of the Lanham Act, California’s UCL and FAL, and intentional interference with prospective economic advantage. Although the court found no personal jurisdiction over the defendant, it did find Article III standing/Lexmark standing. The defendant conflated the two.

Under Lexmark, “allegations of lost sales and damage to...business reputation” are sufficient to “give [a plaintiff] standing under Article III to press [a] false-advertising claim.” Legalforce’s allegations, while “admittedly general,” sufficiently alleged damage to its business reputation caused by the alleged false advertising.

ThermoLife continues mixed record in pleading competitive injury from other supplements

ThermoLife International LLC v. Compound Solutions Inc., No. CV-19-01473-PHX-SMM, 2019 WL 5448804 (D. Ariz. Jul. 30, 2019)

ThermoLife develops “amino acid nitrates used in dietary supplements to increase vasodilation,” and alleged that vasodilators are “included in nearly every pre-workout product on the market.” ThermoLife has over 16 patents that protect its use of amino acid nitrates, and one involves Creatine Nitrate for use in dietary supplements to promote vasodilation. Compound Solutions sells a patented green tea extract called VASO6 as a vasodilator. It allegedly falsely marked and advertised VASO6 as patented, because the patent with which VASO6 is marked is not being practiced, according to independent testing.

The court dismissed the complaint: the false patent marking claim didn’t properly allege competitive injury, and the false advertising claims failed Lexmark.  Specifically, ThermoLife didn’t identify any specific licensees of ThermoLife’s patents or allege that it “actually manufactures, markets or sells any dietary supplements or any ingredients” that compete with VASO6. Allegations that VASO6 is “in direct competition with ThermoLife’s patented ingredients and products that license ThermoLife’s patented ingredients,” that “numerous ThermoLife customers and potential customers have been fooled by Compound Solutions’ lies, having included VASO6 in their products and/or inquired with ThermoLife about VASO6 and how this ingredient compares to ThermoLife’s nitrates,” and that Compound Solutions’ false advertising “is likely to discourage or deter persons and companies from commercializing competing products or pursing research and development...which injures ThermoLife and the public by stifling competition and increasing the costs of goods” were no more than conclusory, showing again that Twiqbal is what you make it. 

Although ThermoLife alleged that the products had “at least one” similar purpose, ThermoLife failed to allege decreased sales due to competition with VASO6, or harm to its reputation, or harm to sales of specific nitrates, and failed to identify any licenses to a specific manufacturer who sells a competing product. “Generally alleging that ThermoLife and Compound Solutions are in the same industry is insufficient. To support a cognizable legal claim, ThermoLife must identify products that use Creatine Nitrate or identify sublicensees who use Creatine Nitrate in their products that compete with VASO6.”

For the same reasons, the state law claims were insufficiently pleaded. Although the shorthand is that Lanham Act and state law claims require the same elements, I think that’s potentially misleading, especially when it comes to doctrine from Lexmark, which relied very much on principles about federal statutory interpretation and applied them to a statute, the Lanham Act, that is worded very differently from the average state consumer protection law.  With that caveat, the court is certainly on solid precedential ground to say this (because so many federal courts before it have not been interested in doing a separate state law analysis, before or after Lexmark):  “Under Arizona law, an unfair competition claim requires a plaintiff to ‘either show that it was engaged in competitive business with [the defendant] ... or that [the defendant’s] actions were likely to produce public confusion.’ In the Ninth Circuit, common law unfair competition claims are ‘substantially congruent’ to Lanham Act claims and thus share the same analysis.”

ingredient supplier has standing against disparagement of products/false claims about competing product

ThermoLife Int’l LLC v. Vital Pharms. Inc., No. 19-cv-61380-BLOOM/Valle, 2019 WL 4954622 (S.D. Fla. Oct. 8, 2019)

ThermoLife licenses/sells a patented creatine nitrate used in dietary supplements, which is allegedly included in many top-selling dietary supplements. VPX allegedly attacked ThermoLife’s creatine nitrate in its own advertising, including with false and misleading statements about VPX’s own “Super Creatine,” because products including ThermoLife’s creatine nitrate compete directly with VPX’s products.

The court found that Thermolife was within the zone of interests protected by the Lanham Act: it alleged that its business, reputation, goodwill, sales and profits were harmed “when consumers are misled to purchase a falsely advertised product that competes with products containing creatine nitrate sourced from Thermolife. These are the type of commercial interests the Lanham Act seeks to protect.”  And disparagement means that direct competition isn’t required for proximate cause: it was plausible that disparagement of creatine nitrate would affect sales of competing products containing creatine nitrate sourced from Thermolife. (though here the court didn’t distinguish the disparaging parts from the allegedly false self-promotion about VPX’s own product; I support the result but would have appreciated more clarity that it’s not just disparagement that can create proximate cause).

VPX next argued that the complaint didn’t satisfy FRCP 9(b)’s heightened pleading standard. Since there was no controlling precedent, the court declined “to expand Rule 9(b) absent instruction from the Eleventh Circuit or persuasive guidance from its sister districts.”

Nor were the alleged misstatements clearly opinions or nonactionable puffery: VPX allegedly advertised that creatine nitrate was “minimally effective,” “useless,” “can be dangerous,” and “that there is ZERO scientific evidence it can increase performance.” VPX also allegedly falsely and misleadingly compared the solubility of “Super Creatine” to creatine nitrate; blurred the concepts of dissolution rate and solubility; and claimed that “Super Creatine is the world’s only water-stable creatine,” that it is “much more bioavailable than regular creatine,” that it can “beef up your muscles and your brain,” that it can cross the blood brain barrier “twenty times more efficiently than regular creatine,” and that it helps with “all forms of dementia, including Alzheimer’s, Parkinson’s, Huntington’s, and other forms of dementia.” Those were actionable. VPX’s analysis of why its statements were true went to denials of the alleged facts and weren’t a basis for dismissal.

Lexmark is super-clear: business customers can't sue for Lanham Act false advertising

Jiaherb, Inc. v. MTC Indus., Inc., 2019 WL 4785784, Civil No. 18-15532 (KSH) (CLW) (D.N.J. Sept. 30, 2019)

Brief but very clear statement: after Lexmark, business customers can’t bring Lanham Act claims. Jiaherb makes herbal extracts and other natural products, including saw palmetto oil and powder. MTC is a nutritional ingredient supplier and distributor of saw palmetto extract, from whom Jiaherb purchased all of its saw palmetto extract, totaling thousands of kilograms.  Apparently, saw palmetto has limited availability and to enhance profit, harvesters may dilute their product by adding vegetable oils that contain some of the same components and are thus hard to detect. Jiaherb alleged that this happened, and MTC misrepresented its saw palmetto products as unadulterated, comprehensively tested and certified according to various industry standards. Although Jiaherb did test, one of Jiaherb’s customers performed a more sophisticated Nuclear Magnetic Resonance examination and concluded that the MTC product did in fact contain coconut oil. This customer thus cancelled two purchase orders, representing over $200,000 in lost profits.

Jiaherb’s injury didn’t “stem from MTC’s false advertising or conduct by MTC which unfairly diminished Jiaherb’s competitive position in the marketplace. Rather, Jiaherb is harmed as a consumer of MTC’s product; Jiaherb’s lost profits and goodwill stem from its purchase of a product which it cannot sell. The injury of a consumer-entity that was misled into purchasing a ‘disappointing product’ is precisely the type that the Lexmark Court excluded from Lanham Act relief.”

Claims based under the UCC/state law remained; the court retained subject matter jurisdiction because of the diversity of the parties and the amount in controversy (Jiaherb was seeking a refund of over $400,000 it paid).

false patent marking and implicit claims of Nobel connection in a supplement case

ThermoLife Int’l, L.L.C. v. NeoGenis Labs, Inc., 2019 WL 4193968, No. 18-cv-2980-HRH (D. Ariz. Sept. 4, 2019) 

ThermoLife allegedly holds a number of patents related to dietary supplement/food ingredients, including those related to “the use of amino acids in combination with nitrates to increase performance.” It allegedly “licenses the use of its patented technology...to many of the largest dietary supplement companies” and “supplies the raw materials necessary to practice its patented inventions.”

NeoGenis “sells nitric oxide test strips and dietary supplements[,]” and was allegedly “a dominant force in the beet supplementation market.” NeoGenis products allegedly competed with products that use TL’s raw materials and products produced with its patented nitrate technology. TL doesn’t currently market oxide testing strips, though it’s trying to get into that market.

NG allegedly falsely advertised “that it has developed a ‘patent pending’ method to determine ‘if you are N-O [nitric-oxide] deficient’ and/or ‘if you’re getting enough dietary nitrate through the foods that you eat’: HumanN’s nitric oxide Indicator Strips.” But the patent, while applied for in 2013, was allegedly rejected in its entirety. In addition, NG allegedly falsely advertised that its strips “can determine whether an individual is nitric oxide deficient[.]” A one time saliva test allegedly can’t do that.  NG also allegedly engaged in false patent marking because the listed six (later three) patents weren’t practiced in the marked products (the patents allegedly required a nitrite salt not present in the products, and anyway they failed to include a sufficient quantity of nitrites of any sort to practice the listed patents). Similarly, NG allegedly falsely claimed that its “licensed patents protect ‘patented Nitric Oxide technology’” and that its research was “Nobel-Prize winning.”  Finally, NG allegedly falsely claimed that its products were foods or dietary supplements.

After dismissal for want of standing, TL filed an amended complaint.

False marking: “Title 35 section 292(a) prohibits, in part, ‘mark[ing] upon...in connection with any unpatented article, the word ‘patent’ or any word or number importing that the same is patented, for the purpose of deceiving the public.’ … Section 292(b) provides a private right of action to enforce § 292(a) to any ‘person who has suffered a competitive injury as a result of a violation of this section.’ ”

A “competitive injury” is “ ‘[a] wrongful economic loss caused by a commercial rival, such as the loss of sales due to unfair competition,’ ” but someone who’s attempted to enter the market (in intent and action) can have standing.  

TL alleged that, since at least October 2018, it had been working with someone on testing/monitoring nitric oxide over “several face-to-face meeting[s] and numerous phone conferences” and that “when the deal is reached, [it] will be in...direct competition with HumanN’s Nitric Oxide Test Strip[s].” This was too late, since TL sued in September 2018 and standing is measured at the time suit is filed and not later. [Is this correct where the issue is statutory “standing,” a la Lexmark, rather than Article III standing?]

As for the beet supplements, TL alleged that NG was still showing pictures of these products on the internet that list six patents on the products’ labels even though defendant removed three of the patents from the actual product labels, and also that that these products do not practice the three patents which are still listed on the products’ actual labels. As for the internet claims, NG argued that the claim wasn’t plausible because, when a product carries both proper and false patent markings, a plaintiff must show specifically that the falsely marked patents caused it harm, and that it definitely practiced one patent, the ‘999. However, it was still plausible injury “because a consumer might be more likely to purchase a product that lists several patents as opposed to a product that lists only one patent.”

As for the other patents: TL argued that some relevant patents required a ‘nitrite salt’ to practice the patented inventions, and alleged that the accused products didn’t contain a nitrite salt.  NG offered a Certificate of Analysis showing that the product being tested, “NEO Dry Blend BC Flavor w/ Vit C[,]” contained sodium nitrite, which it said was a nitrite salt. But even if the court took judicial notice of the certificate, it wasn’t clear that product was used in the accused products. Also, TL alleged that, regardless, it did lab tests on two of the products in two separate months and found insufficient nitrites to practice the patent. NG made a bunch of arguments about the proper chemicals and their measurement that weren’t appropriate for a motion to dismiss.  (But as for a product as to which TL didn’t allege tests, just alleged that the product didn’t practice the patents, that was too conclusory to be plausible yet.)

NG next argued that the complaint flunked Rule 9(b) because it wasn’t plausible that NG, a sophisticated business, would license patent rights from the University of Texas, presumably paying some royalties therefor, without even bothering to practice the patents. The court disagreed.

Lanham Act false advertising: There was the same problem with the N-O Indicator Strips. TL was not a competitor; a potential competitor didn’t have Lexmark standing.

Specific claims: it was plausible that claims that NG’s products use “patented Nitric Oxide technology” constituted false advertising, see above. NG argued that it never claimed it had won the Nobel Prize, just referred to the prize awarded to 1998 for discoveries concerning nitric oxide as a signaling molecule in the cardiovascular system, more than ten years before NG’s predecessor company was founded. You can see why this might be an implicit falsity claim—defendant allegedly used this website text:

[o]ur research on Nitric Oxide first began with the discovery of its unique impact on cardiovascular health. Its immense importance as a biological signaling molecule resulted in the awarding of the Nobel Prize in 1998. Realizing that the discovery of Nitric Oxide had immense potential, it didn’t take long for our interest in N-O to become our passion.

TL also alleged that NG asserted a connection to “Nobel Prize-winning research” and advertised that “the discovery of Nitric Oxide, the first gas to be identified as such, won the Nobel Prize in 1998. This discovery is what HumanN is built on.” This was sufficient to allege a false implication of connection to Nobel Prize winning research.

TL alleged that NG falsely advertised that it was “the only company that can practice ‘patented N-O platform technology.’ ” But the only alleged example didn’t say that; it said “ ‘there is not any product out there, despite dozens if not hundreds of...nitric oxide products on the market, food or supplement, that do[es] what our technology does.’ ” That’s not the same thing (and seems like puffery), so the claim was dismissed.

TL’s claim that defendant falsely advertised its products as foods or dietary supplements failed insofar as it was just alleging misbranding in violation of the FDCA, which doesn’t provide a private cause of action. It would be possible to plead a plausible claim that defendant was falsely advertising that its products were foods or dietary supplements, as those terms are defined by the FDA, but the allegations here were too conclusory.

State law claims fared exactly the same.

Supplement ingredient supplier lacks Article III standing against supplement seller

ThermoLife International LLC v. American Fitness Wholesalers LLC, 2019 WL 3840988, No. CV-18-04189-PHX-JAT (D. Ariz. Aug. 15, 2019)

Courts really, really like to call the Lexmark issue “standing.” Here, though, the court goes further by finding the noncompetitor plaintiff—who makes ingredients that are added to third party supplements—not to have Article III standing against the defendant supplement seller for its Lanham Act false advertising claim.

ThermoLife holds supplement-related patents and licenses them for use in supplements as well as selling ingredients.  Allegedly, “[w]ith few exceptions, anytime an amino acid is combined with nitrate(s) and sold and marketed to consumers[,] the product relies on [Plaintiff’s] patented technology.” Its patented creatine nitrate is an ingredient in the (alleged) world’s top-selling pre-workout product: Cellucor’s C4.  

Defendant sells supplements to consumers online. It advertises “C4” and other, non-ThermoLife-licensed creatine nitrate products, including APS Nutrition’s product, which is advertised as “a vastly superior patented creatine [nitrate].” ThermoLife alleged that defendant was falsely advertising as supplements ingredients that have been deemed to be “drugs” by the FDA, without disclosure. Defendant also allegedly falsely labeled products on its website as “patented.”

The court found that ThermoLife failed to plead injury in fact.  It alleged that it had a unique interest in the dietary supplement market and its business was tied to the general popularity of sports nutrition supplements. Thus, it was allegedly harmed “when consumers are misled into purchasing any falsely advertised product that competes with any product that contains ingredients that are sourced from [Plaintiff] and/or products that are licensed by [Plaintiff].”

The court cited Ninth Circuit precedent stating that direct competition is a strong indicator of injury in fact in a false advertising case.  A plaintiff can also “allege that it can provide witness testimony or survey material to show that false advertising would influence consumer choice and, therefore, ‘establish an injury by creating a chain of inferences’ that online advertising harmed a plaintiff’s businesses.”

The allegations here weren’t sufficient. The parties were at different points in the supply chain. The “attenuated link between one product sold by Defendant that contains creatine nitrate sourced from Plaintiff—Cellucor’s C4— and another product sold by Defendant that is not sourced from Plaintiff—APS Nutrition’s creatine nitrate product—does not put Plaintiff and Defendant in direct competition.”  Nor were there specific factual allegations of lost sales data, of specific licenses or ingredients for which sales decreased as a result of the advertising, or of testimony or surveys “that could demonstrate Defendant’s alleged false advertising influenced customer choices.”  [One would think that harm to plaintiff, not influence on consumer choices, would be the key thing here.]  The fact that defendant sells C4 (and calls it “top-selling”) as well as a competing product undercut any inference of diversion. Thus, ThermoLife failed to allege a “sufficiently concrete and particularized injury.”  [Is it just me, or is the court confusing traceability to the defendant’s conduct with the concreteness of the injury?]

In the alternative, the court found the complaint insufficiently pled under 12(b)(6) for basically the same reasons.  Under Lexmark, ThermoLife needed to allege a commercial or competitive injury; this is generally presumed when the parties compete, but couldn’t be presumed here.  And a plaintiff can’t plead a claim for damages just by pleading harm to the overall market in which it competes. Moreover, to allege a plausible commercial injury, a “plaintiff must allege some factual support for its allegations.” It wasn’t enough to plead “damage to its business, reputation and good will and … lost sales and profits that [Plaintiff] would otherwise have made.” ThermoLife didn’t allege “any facts to show that the use of its licensed technology or sales of patented creatine nitrate decreased, when the decrease occurred, where sales were diverted to, or how it correlated with Defendant’s false advertising.” [Call me when a court says any of these things in response to the same words being used to plead trademark infringement.] Nor did ThermoLife allege that companies who use its patented ingredients and licensed technology suffered a loss of sales.

The same defects doomed the false patent marking claim.

Arizona common law unfair competition: that too.

The court declined to award defendant its attorneys’ fees. “[T]he Court could conceive of a situation in which Plaintiff subjectively believed—even if erroneously so—that its Lanham Act claim was not wholly frivolous. … Plaintiff’s arguments do not rise to the high-level of frivolity required to award fees against it.”  [That sounds a bit pre-Octane Fitness, but the court properly cited Octane Fitness so it’s probably ok.]

Timeshare wars: no Lanham Act standing for property owner

Wyndham Vacation Ownership v. Reed Hein & Assoc., LLC, 2019 WL 2232241, No. 18-cv-02171-GAP-DCI (M.D. Fla. May 23, 2019)

Somebody seriously needs to write a story about the litigation war going on between timeshare companies and firms that sue timeshare companies. Wyndham is a timeshare company, and Reed Hein is “a timeshare exit company” directed and controlled by non-lawyer defendants, Reed, Hein, and Paranteau. Wyndham alleged that defendants ran false and misleading advertising, purporting to have “safe,” “legitimate,” or “guaranteed” means of “exiting” Wyndham owners from their timeshare contracts. “After successfully luring Wyndham Owners into paying exorbitant fees for its services, [defendant] TET instructs them to stop making payments on their timeshare contracts, which they do,” but TET doesn’t disclose the adverse consequence of breach. TET then would hire the lawyer defendants “to engage in fruitless negotiations with Wyndham for a fixed fee.” The lawyers allegedly would send boilerplate demand letters to Wyndham, demanding that it stop communicating with their client, but never work with any Wyndham entity to legitimately terminate a timeshare contract. Instead, they allegedly used “deceptive and unlawful” strategies such as having the owner execute a quitclaim on the timeshare interest without Wyndham’s knowledge or consent. Afterwards, or after the timeshare contracts are foreclosed on, TET and the lawyer defendants allegedly falsely tell their clients that they successfully cancelled or transferred their timeshare contracts.

Wyndham sued for false advertising in violation of the Lanham Act, contributory false advertising in violation of the Lanham Act, tortious interference with contractual relations, violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), and civil conspiracy to commit tortious interference.

Lanham Act standing: Not present.  The injury alleged came because owners stopped making payments on their timeshare contracts, but that injury didn’t flow directly from TET’s advertising. None of the ads allegedly included instructions to stop paying, and the complaint alleged that the instructions occurred after TET solicited owners. The injury was too remote. This also got rid of contributory false advertising.

Tortious interference: Defendants argued that, as counsel for Wyndham owners, they were agents with privilege to interfere, but this was an affirmative defense that didn’t clearly appear on the face of the complaint. To the contrary, the complaint alleged that defendants weren’t agents. Likewise, the complaint didn’t indicate that the owners were predisposed to commit a breach; rather, they were allegedly deceived into doing so.

FDUTPA: Same problem as the Lanham Act claim. [There was no analysis of the relevant statutory language, even though it is not limited to “commercial advertising or promotion” and otherwise is worded quite differently; FDUTPA is an FTCA-analogue rather than a Lanham Act analogue and on its face looks to cover far more commercial conduct than advertising, which affects whether the covered conduct is the cause of the harm.  Courts don’t like to do two analyses of the same basic claim, but I think they probably should in this situation.]