When Lexmark raises the standard: competitor fails to show harm causation from literal falsity

Snac Lite, LLC v. Nuts ‘N More, LLC, 2016 WL 6778268, No. 14-cv-01695
(N.D. Ala. Nov. 16, 2016)
Snac Lite sued NNM for misrepresenting the protein content
of its specialty nut butters.  The court
granted summary judgment, despite past literally false advertising, because of
Snac Lite’s inability to show harm causation. 
While Lexmark appears expansive,
it can have contractionary effects at the summary judgment stage.
Snac Lite sells four types of peanut butters and almond
butters with added pea protein, flax seed, and other nutrients, marketing them
as more healthy alternatives to traditional, non-fortified nut butters; it also
adds sugar. Its products sell at higher retail prices than many mass market
peanut butters.  Snac Lite sells its
products at grocery stores such as Walmart, Publix, Giant Eagle, Shop Rite,
Kroger, and HEB, as well as GNC, Vitamin Shoppe, and other “mom and pop health
food stores.”  In 2012, Snac Lite
recalled all its products due to salmonella contamination at one of its
manufacturers’ facilities. Snac Lite didn’t resume selling its products for
several months after the recall while it looked for a new manufacturer.
NNM also sells enhanced high protein peanut and almond
butters, using added whey protein, fiber, organic flax, and the sweetener
xylitol, derived from birch; it has more flavors than Snac Lite (e.g.,
cinnamon). NNM also promotes its products as enhanced alternatives to
traditional nut butters, and its nut butters sell for even more per jar.  NNM’s “brand personality” is
fitness-oriented, and its products are sold at fitness and supplement shows,
GNC stores, Whole Foods stores, and through online retailers. Unlike Snac Lite,
NNM often uses social media websites and touts its products by highlighting its
“celebrity” customers.  In March 2013, NNM
appeared on the network television show Shark
Tank
, pitching to prospective investors. As part of their pitch, NNM’s
representatives touted its nut butters as containing 14 grams of protein per
serving. NNM ultimately obtained capital from two of the investors on the show,
and appeared in two of the show’s follow-up episodes.
Snac Lite had 21 of NNM’s products independently tested and
found a protein content less than eighty percent of the amount of protein
claimed in NNM’s labels and advertising. Until 2014, NNM’s products featured
the claim “14 grams of protein” on their nutrition labels and elsewhere on the
products, displays, and in advertising. 
In 2014, NNM reformulated the products and changed its labeling and
advertising to reflect the “new” protein content, 12 grams.
Snac Lite tried to show damages with two experts; neither
sufficed.  One, Dr. Robicheaux, spoke to
employees at two GNC stores in Birmingham, Alabama and reviewed email messages
sent to a representative of NNM. He conducted internet research to determine
the benefits of a high protein diet, and to learn more about NNM’s target
customers.  He concluded that the
determinant attribute for potential buyers of high protein nut butters is
protein content, and that misrepresentation of protein content was thus likely
to materially deceive potential customers, leading to a significant diversion
of sales from other high protein nut butter sellers.
The court excluded Dr. Robicheaux’s proffered opinion
because it was unreliable and not supported by a reliable methodology.  He didn’t speak to any customers, conduct
customer surveys, conduct focus groups, or interview any authorized
representative of NMM’s distributors or retailers. He didn’t analyze NMM’s
marketing strategy, either.  While survey
or market research isn’t required to show causation, there needed to be
something to show the impact of false advertising on  Snac Lite’s sales.  That is, causation requires the expert to
show “both that consumers chose Defendant’s products over Plaintiff’s products,
and that consumers’ choices were connected to Defendant’s false
advertising.” 
He also failed to account for additional variables that might
have affected the parties’ sales positions. Experts don’t need to exclude every
possible alternative cause, but “in order to provide reliable testimony an
expert must take into account most relevant factors as to causation.”  NMM’s appearance on Shark Tank was an important factor that needed to be taken into
account, as was the salmonella recall. 
Given the recall, Dr. Robicheaux’s assumption that all of Snac Lite’s sales
losses since 2012 were attributable to NMM’s alleged false advertising was
unlikely.
Similar problems attended the testimony of another witness,
a CPA, who simply calculated all of Snac Lite’s sales declines following 2012,
and then reduced that amount by sales of any product Snac Lite’s representative
admitted were not directly affected by NMM’s presence in the nut butter market.
He didn’t interview any of NMM’s customers and admitted that he couldn’t
otherwise determine why a particular customer would choose to buy less from Snac
Lite. “Notably, in a Lanham Act false advertising case, there is a heightened
risk associated with causation testimony that ignores the competitive market as
a whole.”
NMM thus received summary judgment on the key issue of
causation. Courts may presume causation where a defendant engages in deceptive
comparative advertising, but that wasn’t alleged here.  Courts can presume deception from literal
falsity, but even then the plaintiff must prove harm causation, “here, that
consumers chose Defendant’s products rather than those of Plaintiff.”
There was a genuine issue of material fact as to whether the
parties were direct competitors, even though they had different nutritional
profiles and were sold in different flavors through different marketing efforts
and strategies.  Direct competition isn’t
required under Lexmark, and the
differences between the parties were not “so vast that they are vying for
different consumers and markets, and therefore no action of Defendant could
have harmed Plaintiff.”  They both sell
premium nut butter products, which are distinguishable from traditional nut
butters, and their products were “available at stores that sell products
intended to promote healthy living.”
Nonetheless, there wasn’t sufficient evidence of harm
causation.  Snac Lite sought lost
profits, requiring it to establish actual lost sales as a result of the false
advertising, which it couldn’t do.  Along
with comparative advertising, courts can presume causation in “two-player
market” cases and trademark infringement cases, but this case involved none of
those situations.  Snac Lite needed to
connect its losses to the false advertising, and it couldn’t, while NMM
presented evidence of other causes; Snac Lite even experienced losses with
respect to certain retail customers who never stocked NMM’s products.

Similarly, though Snac Lite sought disgorgement of NMM’s
products, it would only be entitled to that remedy if it established a
violation of the Lanham Act, and that requires causation.  Indeed, the court doubted whether Snac Lite
had standing under Lexmark.  At the summary judgment stage, mere
allegations weren’t sufficient, though disputed facts had to be construed in
the light most favorable to the plaintiff. Under Lexmark, a plaintiff must “ordinarily show economic or reputational
injury flowing directly from the deception wrought by the defendant’s
advertising” in order to have standing. Without “intending to conflate”
causation and proximate causation, the court held that, at a minimum, some
evidence of proximate causation is required at the summary judgment stage.  Pre-Lexmark
caselaw suggesting that causation need not be established for disgorgement was
no longer good law.

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