incentivized reviews/targeted upvoting can be false advertising, court reiterates

Vitamins Online, Inc. v. HeartWise, Inc., No. 13-CV-982 (D.
Utah Sept. 24, 2019)
Supplement industry behavior is wild.  
Vitamins Online sells dietary supplements online, including
on Amazon, using the name NutriGold. HeartWise, aka NatureWise, competes with
NutriGold, including on Amazon, with products that contain an extract of
garcinia cambogia and green coffee. NatureWise had its employees upvote
positive reviews on its product pages and downvote negative reviews, increasing
the likelihood that potential customers would see positive reviews of its
products first and negative reviews last. “NatureWise also encouraged customers
to post or repost their positive reviews on Amazon by offering them free
products or gifts cards.  NatureWise
would review and, in some cases, make minor edits to the reviews before asking
the customers to post them on Amazon.” Such reviews could affect NatureWise’s
placement in results. Vitamins Online sued NatureWise for false advertising
based on: (1) manipulating Amazon’s customer review system and (2) falsely
advertising and misrepresenting the content and characteristics of its green
coffee and garcinia cambogia products.
NatureWise counterclaimed, alleging among other things that
VO’s principal bought over one thousand bottles of one of its garcinia cambogia
products and then resold those bottles with an insert that was entitled “AS IS”:
The insert cautioned purchasers to
read it before opening the bottle or else the purchaser would unable to return
it for a refund. The insert then explained that the product did “not contain
inside the bottle what is claimed on the outside label,” that a third-party
laboratory had tested and concluded that the label did not entirely match the
content of the bottle, and that NatureWise’s online product reviews were not
genuine. The insert also claimed that the manufacturer was being sued for its
scams and purported fraudulent practices.
Review claims: Rather than taking the relatively more simple
path of saying that manipulating reviews can imply false facts and thus constitute
a false or misleading representation of fact, the court instead (and
ahistorically) seized on the word “device” in §43(a) to say that review
manipulation could be a misleading “device.” 
(As Graeme Dinwoodie has extensively documented, “device” to the Lanham
Act’s drafters meant essentially “badge/logo.” I think the court’s holding is
right but its statutory construction is both unnecessary and overelaborate.)
Could review manipulation be falsifiable instead of
puffery?  The court pointed to a “well-established
exception [to the rule that only factual claims are actionable:] that an
opinion by a speaker who lacks a good faith belief in the truth of the
statement is actionable.” And an intent to deceive can be presumed to have
succeeded even for implied claims.  There
was a genuine factual issue about whether NatureWise acted with the intent to
deceive consumers. The evidence showed that NatureWise discussed contracting
with individuals in the Philippines “to use a rotating IP service and multiple
accounts to reduce the effect” of their competitor’s attempts to lower their
market share, which could be effective because the conduct was “not connected
to NatureWise.” A NatureWise employee expressed that he was “wary of tipping
our hand to our customers that we have anything to do with interfering with
reviews.” In response, NatureWise’s principal stated that his “only concern”
was that Amazon would investigate the positive changes in NatureWise’s product
reviews and realize that the accounts voting up NatureWise’s products may not
belong to real people. He also expressed the importance of having more
third-party sellers so that it would be impossible for Amazon to know which
company was behind the up and down voting of reviews.
Second, even without a presumption of deception, Vitamins
Online produced a survey that supported its claims. It showed that that a
majority of consumers: read reviews when shopping for weight loss products; rely
upon those reviews; and believe that product reviews are genuine and done by
real customers. A review’s number of stars and its helpfulness rating play
influential roles in a consumer’s purchasing decision.
NatureWise argued that these were all just opinions. But
there was extrinsic evidence that the reviews mattered, and also some of the
reviews might not have been from “real people,” making them literally false.
Injury: this wasn’t a comparative advertising case where
injury could be presumed even though there was some evidence of NatureWise
targeting VO and even though the parties’ products could appear against each
other on Amazon. “[I]t would be unjust and improper for the court to apply a
presumption of injury based on a third party’s conduct instead of the
defendant’s. The comparison captions found on Vitamins Online’s and
NatureWise’s Amazon product pages are a function of Amazon’s website—not a
result of NatureWise’s conduct.” VO argued that a presumption of injury was
appropriate because the parties dominated the market: one of its witnesses
found 17 market participants on Amazon for the products at issue, but approximately
92% of the reviews appear on Vitamins Online’s and NatureWise’s product pages. That
wasn’t enough to show market domination.
Although this issue is presently before the Supreme Court,
the Tenth Circuit presently holds that either actual damages or willfulness must
be shown for disgorgement; VO thus argued that it didn’t need to show actual damages
to establish injury. But that conflates injury with entitlement to disgorgement,
which only matters once liability has already been established.  That leaves the puzzling question: what is
the burden for showing injury when the plaintiff seeks disgorgement? “Bearing
in mind that there is a higher burden for seeking money damages and a lower
burden for seeking injunctive relief, the court concludes that the standard for
disgorgement is somewhere between the two.”
VO introduced evidence that sales plummeted after NatureWise
entered the Amazon market, and argued that its survey showed injury.  There were genuine issues of material fact,
but VO wasn’t entitled to summary judgment on injury. Outside a two-player
market and in the absence of comparative advertising, the parties weren’t
necessarily taking each other’s sales; this was better left for the finder of
fact (though how the finder of fact is supposed to sort that out is a bit of a
Inredient claims: VO argued that NatureWise made various
false statements about its ingredients/efficacy/etc. Some of the products no longer
had existing samples to test; the court concluded that NatureWise had destroyed
those products; that VO was prejudiced by that destruction; and that NatureWise
acted in bad faith. VO was thus entitled to an adverse inference instruction
that this product subset bore all of the allegedly false ingredient claims and
that they were false.

NatureWise sought summary judgment on certain challenged statements.
“100% Pure” and “Sourced, Formulated, . . . and Guaranteed
to be the Highest Quality Available”: “Particularly in the context of health
supplements, a claim that something is ‘100% Pure’ is a measurable statement of
fact…. It seems likely that a reasonable consumer viewing such a phrase would
expect exactly what the phrase suggests—an unadulterated product consisting
purely of the listed ingredients.”  The “sourced
etc.” claim was a closer call. In context, however, it immediately followed
NatureWise’s label claim that its garcinia cambogia consisted of “Vegetarian
Capsules and Absolutely Nothing Else! ZERO Fillers, ZERO Binders, and ZERO
Artificial Ingredients.” And there were genuine issues of material fact about
whether NatureWise’s products had fillers, binders, and artificial ingredients.
So too with other challenged claims: “For each remaining
statement, NatureWise employs an exercise of identifying specific words within
each statement that it claims can be interpreted or defined, by dictionary or
otherwise, in multiple ways thus rendering the entire statement ambiguous.” The
court found that this ignored the requirement of considering the ad context.
Combined with the other label statements, “the alleged ambiguities dissipate.”
Moreover, “NatureWise’s exercise of suggesting that several
of its own statements are ambiguous seemingly cuts against what a corporation
would want when promoting and advertising its health supplement products. That
a company deliberately markets its products in an ambiguous and
difficult-to-understand manner is anomalous to say the least ….”
The court also found that NatureWise wasn’t entitled to
summary judgment on VO’s request for disgorgement.  NatureWise argued that VO didn’t show what
sales were attributable to false advertising. But “[t]he language of the Lanham
Act is clear: ‘In assessing profits the plaintiff shall be required to prove
defendant’s sales only; defendant must prove all elements of cost or deduction
claimed.’” “To require Vitamins Online to not only distinguish all sales based
on false advertising from all sales based on legitimate conduct, but also
require it to apportion its sales among all the various categories and subsets
of its claims, would be to violate the plain terms of the statute.”  VO had provided evidence of NatureWise’s
sales, as well as some evidence of willfulness, as discussed above, and evidence
that NatureWise “discussed stealing the design of Vitamins Online’s labels.”
NatureWise relied on Retractable Techs., Inc. v. Becton
Dickinson & Co., 842 F.3d 883, 901 (5th Cir. 2016), but even that case
accepted the district court’s finding that some of the defendant’s profits were
attributable to its false advertising. The appropriate rule: “a plaintiff need
only demonstrate that the defendant has benefitted from the alleged false
advertising (which Vitamins Online has done), then the defendant has the burden
to reduce its profits by the elements of cost and deduction, which will result
in the plaintiff recovering only those profits attributable to the false
advertising.”  That’s a pretty generous
reading of Becton Dickinson, but ok. 
NatureWise argued that disgorgement would result in a penalty instead of
compensation, but the defendant “has the power to ensure that the plaintiff
does not recover any profits that are not attributable to the false advertising”
by meeting its burden; the alternative gives a windfall to the wrongdoer. And the
court in its equitable discretion can further protect against bad outcomes.  False advertising cases should be treated no differently
than trademark infringement cases for purposes of disgorgement.
By contrast, NatureWise wasn’t entitled to disgorgement on
the counterclaims because it neglected to produce evidence of VO’s sales. It
also failed to show that it could get injunctive relief. On irreparable injury,
although its sales of garcinia cambogia fell after VO sent out the “AS IS”
flyer, “NatureWise returned to the top sales ranking on Amazon for garcinia
cambogia within only a few months.”  Money
damages might well have been sufficient, but for NatureWise’s choice to
withdraw its claim for actual damages. Without evidence relating to the only
remaining remedies it sought, the counterclaims were dismissed.
The court also struck VO’s jury demand because the only
remedies left in the case, disgorgement and injunctive relief, were equitable
in nature. VO argued that disgorgement was a surrogate for damages and thereby
a legal remedy, but that’s not what the cases say. But even if damages and profits
are related, they have distinct purposes and natures; disgorgement focuses on
unjust enrichment/deterrence, while damages redress an injury.
Some courts have held that “an accounting of profits can act
as a proxy for a legal claim in some circumstances.” The idea is that, “because
proving actual damages is difficult, trademark law creates an alternative form
of relief—profits as a proxy for damages— which is governed by a less
challenging evidentiary regime.”  Under
this theory, a plaintiff may be entitled to a jury trial if “1) the case
involves similar products, 2) there is no adequate remedy at law and 3) the
products compete directly.” The court was unpersuaded.  Anyway, even under this theory, the market
would have to be such that a loss for one party was almost automatically a gain
for the other, and the market here wasn’t a two-player market.

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