United States District Court, D. Arizona
ORDER
JAMES
A. TEILBORG SENIOR UNITED STATES DISTRICT JUDGE
Pending
before the Court is Defendant American Fitness Wholesalers
LLC's (“Defendant”) Motion to Dismiss (Doc.
16) pursuant to Federal Rules of Civil Procedure
(“Rules”) 12(b)(1), 12(b)(6), and 9(b). (Doc.
16). The Court now rules on Defendant's motion.
I.
BACKGROUND
The
Complaint (Doc. 1) asserts the following causes of action:
(i) False and Deceptive Advertising in violation of the
Lanham Act; (ii) Unfair Competition; (iii) False Patent
Marking; and (iv) Civil Conspiracy. (Doc. 1 at 56-64).
A.
Facts
The
following facts are either undisputed or recounted in the
light most favorable to the non-moving party. See Wyler
Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d
658, 661 (9th Cir. 1998). Plaintiff ThermoLife International,
LLC (“Plaintiff”) is an Arizona-based company
founded in 1998. (Doc. 1 at 5). Plaintiff “currently
holds 23 separate and distinct patents that protect its
innovative development and use of ingredients in Dietary
Supplements and food products.” (Id.).
Plaintiff “both licenses its patented technology for
use in Dietary Supplements, specifically Sports Nutrition
Supplements, and sells ingredients . . . for use in Dietary
Supplements.” (Doc. 19 at 5). “With 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.” (Doc. 1 at 5).
Plaintiff also licenses and sells its patented creatine
nitrate, which is an ingredient in the world's
top-selling pre-workout product: Cellucor's C4.
(Id. at 6).
Defendant,
which conducts business as A1Supplements, sells dietary
supplements to consumers over the internet. (Id. at
7). Defendant places advertisements for each
specific product it sells on its website. (Id. at
7-8). Defendant lists “C4, ” which includes
creatine nitrate sourced and licensed from Plaintiff, as its
top selling pre-workout product. (Id. at 8). On its
website, Defendant also sells creatine nitrate products that
have no licensing connection with Plaintiff, including APS
Nutrition's creatine nitrate product, which is advertised
as “a vastly superior patented creatine
[nitrate].” (Id. at 8-9).
Plaintiff
alleges that Defendant is unfairly competing in the dietary
supplement market through false advertising of products
labeled as dietary supplements that contain ingredients the
U.S. Food and Drug Administration (“FDA”) labels
as “drugs.” (Id. at 8). Plaintiff
alleges that 142 products advertised on Defendant's
website contain such ingredients without any disclosure of
the nature of the ingredients as “drugs.” (Doc.
19 at 7). Every page of Defendant's website contains the
disclaimer, “FDA: these statements have not been
evaluated by the Food and Drug Administration. This product
is not intended to diagnose, treat, cure, or prevent any
disease.” (Doc. 1 at 8). Plaintiff also alleges that
Defendant falsely labels products on its website as
“patented” when no patent applies to the product.
(Id. at 6).
II.
DISCUSSION
Defendant
filed the pending Motion to Dismiss (Doc. 16) pursuant to
Rule 12(b)(1) for lack of standing, and 12(b)(6) for failure
to state a claim upon which relief can be granted. (Doc. 16
at 2-3). Defendant also argues that Plaintiff's claims
sounding in fraud are subject to and fail to meet the
heightened pleading requirements of Rule 9(b). (Id.
at 2). Because the issue of standing presents a
“threshold question of justiciability, ” the
Court will address the parties' Rule 12(b)(1) standing
arguments first. See U.S. ex rel. Kelly v. Boeing
Co., 9 F.3d 743, 747 (9th Cir. 1993).
A.
Article III Standing
Defendant
argues that Plaintiff does not have standing under Rule
12(b)(1) to bring its claims. (Doc. 16 at 6).
“In
essence the question of standing is whether the litigant is
entitled to have the court decide the merits of the dispute
or of particular issues.” Warth v. Seldin, 422
U.S. 490, 498 (1975). In resolving the issue of standing,
courts are bound by a constitutionally imposed jurisdictional
restraint in Article III of the United States Constitution,
which limits the “judicial power” of the United
States to the resolution of “cases” and
“controversies.” See Valley Forge Christian
Coll. v. Ams. United for Separation of Church and State,
Inc., 454 U.S. 464, 470-71 (1982). Under Rule 12(b)(1),
a litigant may seek dismissal of an action for lack of
standing because “Article III standing is a species of
subject matter jurisdiction.” Carijano v.
Occidental Petroleum Corp., 643 F.3d 1216, 1227 (9th
Cir. 2011) (citation omitted). To survive a defendant's
motion to dismiss, the plaintiff has the burden of proving
jurisdiction. Tosco v. Cmtys. for a Better
Env't, 236 F.3d 495, 499 (9th Cir. 2000). To
demonstrate Article III standing, a plaintiff must show:
“(1) an injury-in-fact, (2) causation, and (3) a
likelihood that the injury will be redressed by a decision in
the plaintiff's favor.” Human Life of Wash. v.
Brumsickle, 624 F.3d 990, 1000 (9th Cir. 2010)
(quotations omitted). This set of requirements makes up the
“irreducible constitutional minimum of standing.”
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992).
1.
False Advertising
Plaintiff
has the burden of proving standing for “each
claim” and “for each form of relief
sought.” Daimler Chrysler Corp. v. Cuno, 547
U.S. 332, 352 (2006). All of Plaintiff's claims are
premised on allegations that Defendant falsely advertises
products on its website; either by labeling products as
dietary supplements when the products contain ingredients
that the FDA has labeled “drugs, ” or by falsely
labeling “creatine nitrate” products sold on its
website as patented. (Doc. 1 at 3). Plaintiff alleges in
Count I that Defendant's false advertising violates the
Lanham Act. (Id. at 59-60). Plaintiff alleges in
Count II that, through Defendant's false advertising,
Defendant unfairly competed in the dietary supplement market.
(Id. at 61). Plaintiff alleges in Count III that
Defendant violated the false marking statute by falsely
advertising products as “patented.” (Id.
at 61-62). Finally, Plaintiff alleges in Count IV that
Defendant acted in concert with other distributors to engage
in false advertising, thus creating a civil conspiracy.
(Id. at 63). Because the parties focus their
standing arguments on whether Plaintiff sufficiently pleads
an injury-in-fact from Defendant's alleged false
advertising, the Court will do likewise.
a.
Injury-in-Fact
Defendant
asserts that “Plaintiff provides no facts to establish
the nature, contours or extent of any injury, when the injury
occurred and whether it is ongoing or isolated.” (Doc.
16 at 5). To support its standing argument, Plaintiff claims
that it has a unique interest in the dietary supplement
market and its business is tied to the general popularity of
sports nutrition supplements. (Doc. 19 at 5). Plaintiff
argues that it is 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].” (Doc. 1 at 6). As a result, Plaintiff
alleges it “suffered, and will continue to suffer
damage to its business, reputation and good will and has lost
sales and profits that [Plaintiff] would otherwise have
made.” (Id. at 60).
i.
Legal Standard
An
injury-in-fact is “an invasion of a legally protected
interest which is (a) concrete and particularized, and (b)
actual and imminent, not conjectural or hypothetical.”
Lujan, 504 U.S. at 559-60 (citations and quotations
omitted). An injury is particularized if it “affect[s]
the plaintiff in a personal and individual way, ” while
an injury is concrete if it is “real, and not
abstract.” Spokeo, Inc. v. Robins, 136 S.Ct.
1540, 1549 (2016) (citations omitted). Determining
“injury” for the purpose of assessing Article III
standing is a fact- specific inquiry. Lujan, 504
U.S. at 606.
Plaintiff
“must satisfy the injury-in-fact requirement by
alleging that [it] suffered some threatened or actual injury
resulting from the putatively illegal action.”
Scott v. Pasadena Unified Sch. Dist., 306, F.3d 646,
656 (9th Cir. 2002) (internal quotation marks and citation
omitted). Plaintiff may not “rely on a bare legal
conclusion to assert injury-in-fact, or engage in an
‘ingenious academic exercise in the conceivable' to
explain how defendants' actions caused his injury.”
Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th Cir.
2011) (citing Chapman v. Pier 1 Imports (U.S.) Inc.,
631 F.3d 939, 954-55 (9th Cir. 2011) (en banc) (holding that
a plaintiff, who did not allege which barriers existed at a
store and how the specific barriers impacted his disability,
could not establish an injury-in-fact due to a lack of
specificity)).
“In
a false advertising suit, a plaintiff establishes an Article
III injury if some consumers who bought the defendant's
product under a mistaken belief fostered by the defendant
would have otherwise bought the plaintiff's
product.” TrafficSchool.com v. Edriver Inc.,
653 F.3d 820, 825 (9th Cir. 2011) (internal quotation marks
omitted). An indication that Plaintiff and Defendant
are in “direct competition is strong proof that
plaintiffs have a stake in the outcome of the suit, so their
injury isn't ‘conjectural' or
‘hypothetical.'” Id. at 826 (noting
that the plaintiffs “compete with defendants for
referral revenue” and thus “[s]ales gained by one
are thus likely to come at the other's expense”
(citation omitted)); see also Halicki Films LLC v.
Sanderson Sales and Marketing, 547 F.3d 1213, 1229 (9th
Cir. 2008) (finding an injury-in-fact where plaintiff
submitted two expert reports estimating damages in excess of
$7 million dollars); All. Labs, LLC v. Stratus Pharm.,
Inc., No. CV-12-00927-JWS, 2013 WL 273309, at *3 (D.
Ariz. Jan. 24, 2013) (concluding there was an injury-in-fact
“because [plaintiff] and [defendant] are competitors,
and [plaintiff] alleges that it has suffered direct injury
because of [defendant's] trademark infringement and
competitive practices with the result being loss of sales and
customers”).
In the
absence of data about lost sales, a plaintiff may 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. TrafficSchool.com, 653
F.3d at 825; see also Stahl Law Firm v. Judicate W.,
No. CV-13-1668-TEH, 2013 WL 6200245, at *5 (N.D. Cal. Nov.
27, 2013) (finding no injury-in-fact where the plaintiff only
alleged that it and defendant “compete for legal
services, ” and that the defendant's false and
misleading advertising “harmed [p]laintiff's
ability to compete”); Obesity Research Inst., LLC
v. Fiber Research Int'l, LLC, 310 F.Supp.3d 1089,
1112 (S.D. Cal. 2018) (noting ...