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.]

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