No contributory liability for athlete union’s endorsement of supplement

DNA Sports Performance Lab, Inc. v. Major League Baseball, 2020
WL 4430793, No. C 20-00546 WHA (N.D. Cal. Aug. 1, 2020) 

Courts seem to perceive people affiliated with TM/(c) infringers as more blameworthy than people affiliated with false advertisers. One could argue that this reflects underlying reality, but it remains the case that, for example, vicarious liability is broader in copyright than in many other situations. Similarly, contributory liability claims against retailers for false advertising fail when the retailers would be treated as direct infringers of a similar TM claim. Anyway, here the court finds that an endorsement isn’t sufficient participation in allegedly false advertising about the underlying supplement, without more involvement.

Plaintiffs sell health supplements “extracted from the shed
tissue of elk antlers,” which contain a “naturally occurring, bio-identical
form of IGF-1,” a performance-enhancing substance. They sued MLB and the MLB
Players Association, which banned both natural and synthetic IGF-1 under their
Joint Drug Prevention and Treatment Program, for false advertising and unfair
competition. The court dismissed the claims and heavily suggested that
sanctions would be imposed if they tried and failed to successfully amend the
complaint. 

There is a lot of litigation before this; the court gives a
limited history: In February 2014, plaintiffs sued MLB and several of its
employees in Florida state court, challenging its investigation into “the
illegal sale of performance-enhancing drugs to players” as unfair and
discriminatory. This case was dismissed for failure to prosecute. A later suit
against the Office of the Commissioner of Baseball and several league employees
alleging tortious interference with prospective economic advantage, based on
the investigation, was voluntarily dismissed. Then, DNA Sports sued MLB, the
Office of the Commissioner of Baseball, and several league employees for
hacking plaintiffs’ social media accounts, tortious interference with economic
advantage, and defamation of plaintiff/DNA Sports owner Nix, again in the
course of the investigation. Defendants removed to federal district court based
on the hacking claim, which plaintiffs voluntarily dismissed. The New York
state court then dismissed the complaint as res judicata, barred by statute of
limitations, and for failure to state a claim. The state court then denied DNA
Sports’ motion to reargue the dismissal as frivolous and imposed sanctions. 

DNA Sports also sued ESPN, the Associated Press, and USA
Today in federal court in Florida, alleging that they defamed plaintiffs by
publishing or republishing a statement from the league that DNA Sports’ July
2016 tortious interference lawsuit “admits Nix and his company used
bioidentical insulin-like growth factor (IGF-1), which is derived from elk
antlers and is on baseball’s list of banned substances.” The defamation theory
was that the statement didn’t differentiate between natural and synthetic
IGF-1, giving readers the impression that DNA Sports had engaged in illegal or
legal-but-banned drug sales. The court held that the statement at issue was
substantially correct and the omission did not render the report untrue, thus
it was not defamatory; the decision was affirmed on appeal by the Eleventh
Circuit. 

Apparently related to that last suit, in July 2018, DNA
Sports and its new counsel contacted the players union seeking a sworn
statement corroborating an alleged July 2016 phone call between DNA Sports’
counsel and the union’s in-house counsel, who had allegedly informed plaintiffs
that deer antler “was not and has never been banned in baseball and that no
animal products are banned.” But the union reaffirmed the position eventually accepted
by the Eleventh Circuit: the Joint Drug Prevention and Treatment Program banned
both natural and other sources of IGF-1 as a performance enhancing substance. 

After the Eleventh Circuit ruled, DNA Sports and their lawyer
contacted the union requesting their “factual position [on] the presence of
IGF-1” in a union-licensed product, Klean Athlete. The union refused to provide
their “factual position with respect to the presence of IGF-1 in the accused
products.” The suit hear concerns the union’s former licensing agreement with
Klean Athlete and the league’s licensing agreement with Gatorade “Recover” whey
protein bars, Muscle Milk protein shakes, and Eyepromise nutritional
supplements. 

Lanham Act claim: Plaintiffs alleged that the union
misrepresented Klean Athlete as free from banned substances by endorsing the
product. By allowing Klean Athlete to use its logo and announce a partnership
in Klean Athlete’s promotional press release, the union allegedly necessarily implied
that the product was free of any substances banned by the league, which was
false because Klean Athlete allegedly contained animal protein and, thus,
IGF-1. 

First, plaintiffs didn’t pick the right defendant: “typically
those who made the allegedly false or misleading statement at issue.” While
contributory liability is theoretically possible, it requires that (1) a third
party engaged in false advertising that injured the plaintiff; and (2) the
named defendant contributed to this false advertising by knowingly inducing or
causing the conduct or materially participating in it. But the complaint didn’t
allege any facts about the union’s specific licensing agreement with Klean
Athlete; “the union neither made the accused statement nor conducted Klean
Athlete’s product testing.” There were no facts pled about the union’s
knowledge or material participation in the falsity. 

“Second, the complaint alleges no economic or reputational
harm.” Though lost sales and damage to business reputation would count, “these
typical injuries still require sufficiently detailed allegations.” Allegations
of “lost revenue and market share, reduced asset value[,] increased advertising
costs, [and] damage to its business, reputation, and goodwill” have been deemed
conclusory without a relevant timeframe or facts to defendant’s causation. “So
too here.” Although it was plausible that Klean Athlete’s press release
constituted commercial advertising, the complaint didn’t explain how that press
release caused sales diversion or lost contracts. 

Third, the April 2016 press release was outside California’s
three-year statute of limitations for fraud, which the Ninth Circuit borrows
for §43(a)(1)(B) claims. 

State false advertising under the FAL, California Business
and Professions Code § 17500: likewise failed to identify the union’s
participation in the alleged false advertising. Under state law, liability
requires a defendant’s personal “participation in the unlawful practices” and
“unbridled control” over the practices violating § 17500; vicarious liability
isn’t enough. The Ninth Circuit dismissed a false advertising claim against a
defendant who allowed violating merchants to use the defendant’s logo because
“there is no duty to investigate the truth of statements made by others.”
Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788 (9th Cir. 2007). Plaintiffs
didn’t allege any facts relating to how the union knew or should have known
Klean Athlete products contained banned substances (if it did), or how the
union exerted control over Klean Athlete’s “certified for sport” determination. 

Unfair competition: same, plus there were no available
remedies. Unfair competition claims under § 17200 are limited to restitution
and injunctive relief, which requires ongoing injury. DNA Sports never
conducted business with the union, so there was no restitution possible. And injunctive
relief was unvailable because the union’s licensing agreement with Klean
Athlete was over and would likely not be repeated. 

Before ruling on the union’s motion for sanctions, the court
offered plaintiffs an opportunity to amend, though “their better course might
be to walk away.” If they did, they needed to address not only the problems
identified by the opinion, but the union’s other criticisms.

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