ThermoLife International LLC v. Sparta Nutrition LLC

          ORDER

          Honorable Susan M. Brnovich United States District Judge

         Pending before the Court is Defendant Sparta Nutrition LLC's Motion to Dismiss under Federal Rules of Civil Procedure (“Rules”) 12(b)(1) and 12(b)(6) and the primary jurisdiction doctrine. (Doc. 16, “Mot.” or “Motion”.) Plaintiff ThermoLife International LLC responded and Defendant replied. (Doc. 19, “Resp.”; Doc. 20, “Repl.”) The Court heard oral argument on January 10, 2020. (Doc. 31.) Having considered the pleadings, oral argument, and relevant law, the Court grants Defendant's Motion to Dismiss with leave to amend as explained below.^[1]

         I.REQUEST FOR JUDICIAL NOTICE

         Defendant requests judicial notice under Federal Rule of Evidence 201 of current labels and website advertising printouts for two of its products (see Docs. 17, 17-1), and the former labels for those products (see Docs. 21, 21-1). Plaintiff objects to the Court taking judicial notice of the current labels and website advertising because they are disputed and “not public records or other record of undisputed accuracy.” (Resp. at 6.) Plaintiff does not object to the Court judicially noticing the former labels.

         Courts may “consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice- without converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (emphasis added); see Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) (explaining Rule 201 and incorporation-by-reference doctrine). Rule 201 permits courts to judicially notice a fact “not subject to reasonable dispute because it (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Ev. 201(b).

         The Court agrees with Plaintiff that judicial notice of the current labels and website advertising is premature at this stage. However, the Court will judicially notice the former labels because Plaintiff does not object to Defendant's request. (See Docs. 21, 21-1.)

         II. BACKGROUND^[2]

         Plaintiff, a self-proclaimed “world leader in the use and development of nitrate technology in dietary supplements, ^[3]” is an Arizona LLC founded in 1998 with “at least 16 patents with more than 450 claims related [to] amino acid nitrate compounds, compositions, and their uses in dietary supplements and food products.” (Doc. 1, “Compl.” ¶¶ 1, 11, 19.) “With few exceptions, anytime an amino acid is combined with nitrate(s) and sold and marketed to consumers in a dietary supplement, that product relies on [Plaintiff's] patented technology.” (Id. ¶ 23.) More specifically, “[Plaintiff] licenses and sells its patented creatine nitrate for use in dietary supplement products.” (Id. ¶ 26.) Because of “the popularity of [Plaintiff's] nitrates in the dietary supplement market, [its] business is tied to the performance of products that rely on [its] patented ingredients and technologies.” (Id. ¶ 30.)

         Defendant is a Florida LLC founded in 2016 that advertises and sells dietary supplements to consumers and wholesalers through its website. (Id. ¶¶ 12, 33.) Although Plaintiff “licenses and sells its patented creatine nitrate for use in dietary supplement products, ” (id. ¶ 26), and Defendant sells actual dietary supplements, (id. ¶¶ 12, 33), the Complaint alleges that “[Defendant] competes directly with [Plaintiff] and the licensees of [its] patented ingredients and technology in the dietary supplement market.” (Id. ¶ 33.)

         In claiming “an identifiable economic interest in the dietary supplement market, ” (id. ¶ 32), Plaintiff brings three claims against Defendant based on the “intentional false advertising” or false marking of products on its website, (id. ¶ 38). The three claims are: (1) false advertising under the Lanham Act; (2) common law unfair competition for false advertising; and (3) false patent marking under 35 U.S.C. § 292. (Id. ¶¶ 111-134.) The Complaint alleges Plaintiff is “harmed when consumers are misled into purchasing any falsely advertised product that competes with any product that contains ingredients that are sourced from [it] and/or technology that is licensed from [it].” (Id. ¶ 31.)

         III. LEGAL STANDARDS

         Under Federal Rule of Civil Procedure 12(b)(1), a party may move to dismiss for lack of subject-matter jurisdiction. See Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1227 (9th Cir. 2011) (“Article III standing is a species of subject matter jurisdiction.” Id.). “Federal courts are courts of limited jurisdiction” and may only hear cases as authorized by the Constitution or Congress. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Because our jurisdiction is limited, a cause of action presumably lies outside of it, and the burden of establishing jurisdiction is on the party asserting it. Id. “A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may attack either the allegations of the complaint as insufficient to confer upon the court subject matter jurisdiction, or the existence of subject matter jurisdiction in fact.” Renteria v. United States, 452 F.Supp.2d 910, 919 (D. Ariz. 2006) (citation omitted). “With a 12(b)(1) motion, a court may weigh the evidence to determine whether it has jurisdiction.” Autery v. United States, 424 F.3d 944, 956 (9th Cir. 2005).

         A party may also move to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). When evaluating a complaint under Rule 12(b)(6), well-pled factual allegations are presumed true and construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, a complaint must meet Rule 8(a)(2)'s minimum requirements. Rule 8(a)(2) requires a “short and plain statement of the claim showing that the pleader is entitled to relief, ” so that the defendant has “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint setting forth a cognizable legal theory survives a motion to dismiss if it contains sufficient factual matter stating a claim to relief that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). Facial plausibility only exists if the pleader sets forth “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Plausibility does not equal “probability, ” but requires “more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are ‘merely consistent' with a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         IV. DISCUSSION

         Defendant moves to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6) for failure to state a claim. (Mot. at 2.) Defendant also moves to dismiss, or in the alternative to stay this proceeding, under the primary jurisdiction doctrine. (Id.) “Because the issue of standing presents a ‘threshold question of justiciability,' the Court will address the parties' Rule 12(b)(1) standing arguments first.” ThermoLife Int'l LLC v. Am. Fitness Wholesalers LLC, No. CV-18-04189-PHX-JAT, 2019 WL 3840988, at *1 (D. Ariz. Aug. 15, 2019) (citing United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 747 (9th Cir. 1993)); see Traffic School.com, Inc. v. Edriver Inc., 653 F.3d 820, 825 (2011) (“[T]he district court should have undertaken an independent analysis of Article III standing before determining standing under the Lanham Act.”). Only if injury in fact is alleged will the Court address the other arguments. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 341 (2006) (“If a dispute is not a proper case or controversy, the courts have no business deciding it, or expounding the law in the course of doing so.”).

         A. Article III Standing

         “We have ‘an obligation to assure ourselves' of litigants' standing under Article III.” Id. at 340 (citing Friends of Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180 (2000)). Article III “endows the federal courts with the ‘judicial Power of the United States.'” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (quoting Art. III, § 1). “The judicial Power of the United States” only extends to “Cases” and “Controversies.” Art. III, §§ 1-2. Undoubtedly, “[n]o principal is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies.” Raines v. Byrd, 521 U.S. 811 (1997) (quotations and citation omitted).

         “One element of the case-or-controversy requirement . . . is that plaintiffs must establish that they have standing to sue.” Clapper v. Amnesty Int'l USA, 568 U.S. 398, 408 (2013) (quotations omitted) (citing Raines, 521 U.S. at 818); DaimlerChrysler, 547 U.S. at 342 (2006); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Article III standing exists to “prevent the judicial process from being used to usurp the powers of the political branches.” Clapper, 568 U.S. at 408 (citation omitted); see Spokeo, 136 S.Ct. at 1547 (“Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy . . . [that] developed in our case law to ensure that federal courts do not exceed their authority as it has been traditionally understood.”).

         Plaintiff bears the responsibility of establishing standing, Lujan, 504 U.S. at 560-61, and must do so for each claim brought as well as the type of relief sought. Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009); see DaimlerChrysler, 547 U.S. at 352. To establish standing, “[P]laintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision. Spokeo, 136 S.Ct. at 1547; see Lujan, 504 U.S. at 560 (“[T]he irreducible constitutional minimum of standing contains [these] three elements.”). “[A]t the pleading stage, the plaintiff must ‘clearly . . . allege facts demonstrating' each element [of standing].” Spokeo, 136 S.Ct. at 1547. Here, both parties' primarily dispute whether the Complaint alleges injury in fact.

         1. Injury in Fact

         A plaintiff does not “automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” Id. at 1549; see Id. at 1543 (“Article III standing requires a concrete injury even in the context of a statutory violation.”). Rather, a “plaintiff must have suffered . . . an invasion of a legally protected interest which is (a) concrete and particularized and (b) ‘actual or imminent, not ‘conjectural' or ‘hypothetical.'” Lujan, 504 U.S. at 560. “At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we ‘presum[e] that general allegations embrace those specific facts that are necessary to support the claim.” Id. at 561 (quotations and citation omitted).

         Defendant argues the Complaint fails to identify an “actual injury to ThermoLife, such as lost sales, lost ability to license its technology, or damage its reputation.” (Repl. at 6; see Mot. at 10 (“ThermoLife has not alleged any concrete injury, competitive or otherwise, proximately caused by the alleged false marking or advertising.”).) Defendant further argues Plaintiff's “generalized interest in the dietary supplement industry as a whole . . . has not adequately alleged an economic or reputational injury flowing directly from [Defendant's] alleged conduct.” (Repl. at 6.)

         Although Plaintiff omits any targeted discussion of Article III standing in its brief, ^[4] (see Resp. at 1-3), it claims the Complaint alleges a “competitive injury” because Defendant's false advertising and marking misleads customers into purchasing its products instead of ones containing ingredients sourced from Plaintiff, (id. at 2). This allegedly “causes ThermoLife to lose licensing fees and sales” from Defendant's competitors. (Id. at 2.) Plaintiff further claims it does not need to allege “specific lost sales or deals, ” (id. at 10), or “that customers were misled, ” (id. at 11).

         The Court agrees with Plaintiff that the Complaint adequately alleges Article III injury in fact at this stage. Spokeo, 136 S.Ct. at 1547. Aside from conclusory allegations that Plaintiff suffered “competitive” or “commercial” injuries by Defendant's conduct, ^[5] it also alleges Plaintiff is “harmed when consumers are misled into purchasing falsely advertised product that competes with any product that contains ingredients sourced from [it] and/or technology that is licensed from [it].” (Compl. ¶ 31.) Because of Defendant's false advertising and marking, the Complaint alleges “ThermoLife has suffered, and will continue to suffer damage to its business, reputation and good will and has lost sales and profits that ThermoLife would otherwise have made, ” (id. ¶ 118), and that “[e]ach false marking by [Defendant] . . . is likely to discourage or deter persons and companies from commercializing competing products or pursuing research and development of competing products and or related products, which injures ThermoLife and the public by stifling competition and increasing the costs of goods, ” (id. ¶ 133). At the motion to dismiss stage, these allegations sufficiently allege injury in fact. See Lujan, 504 U.S. at 561.

         Accordingly, the Complaint adequately alleges Plaintiff suffered an injury in fact caused by Defendant's false advertising and marking of the products sold on its website. Neither party argues whether Plaintiff lacks standing under the causation and redressability prongs, and the Court is satisfied that they do. See Lexmark, 572 U.S. at 125 (“Lexmark does not deny that Static Control's allegations of lost sales and damage to its business reputation give it standing under Article III to press its false advertising ...