ThermoLife International LLC v. American Fitness Wholesalers LLC

          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 ...