consumer disillusionment with D isn’t evidence that deception injured P

3B Medical, Inc. v. SoClean, Inc., No. 19 Civ. 3545 (KPF), 2020
WL 5440440 (S.D.N.Y. Sept. 8, 2020)

3B makes devices that automatically sanitize continuous
positive airway pressure (“CPAP”) machines using UV-C light. It sued SoClean,
which makes similar devices but use ozone as a sanitizing agent, for violating
the Lanahm Act, but failed to sufficiently plead injury. SoClean has 90% of the
market for CPAP machine cleaners, while 3B holds only 5%; the other 3
competitors also use ozone. The devices are sold as an alternative to
handwashing CPAP equipment.

The complaint alleges that ozone is a toxic gas that can
have a variety of serious health consequences to humans when inhaled, and that
defendant’s devices produce ozone at concentrations well above the limits
allowed by the FDA. Defendant’s marketing materials allegedly obscure SoClean’s
use of ozone as a sanitizing agent and mislead consumers about the health risks:

• statements that its devices use “activated oxygen,”
instead of ozone;

• statements that its devices do not use “chemicals” or
“harsh chemicals”;

• the terms “safe” and “healthy”;

• statements that its devices use the same sanitizing
process as that used in hospitals;

• statements that the charcoal filter cartridges that
accompany its devices are able to convert “activated oxygen” into “regular
oxygen”; and

• statements that its devices are closed-loop systems, out
of which no “activated oxygen” escapes.

Consumers have allegedly reported adverse experiences with SoClean’s
devices due to the devices’ use of ozone, and chose 3B’s product specifically
because it does not use ozone. 3B alleged that more consumers would learn of,
and purchase, its products if not for SoClean’s false advertising.

Under Lexmark, “a plaintiff in a false-advertising
case must demonstrate injury by way of lost sales or damage to business
reputation.” Injury can be presumed from false comparative statements. But where
the allegedly misleading advertisement “tout[s] the benefits of the products
advertised but ma[kes] no direct reference to any competitor’s products[,] …
some indication of actual injury and causation” is necessary “to ensure that a
plaintiff’s injury [is] not speculative.” This is because “injury in such cases
accrues equally to all competitors; none is more likely to suffer from the
offending broadcasts than any other.”

Although a plaintiff doesn’t need to name specific lost
customers, “some indication of actual injury” is needed to survive a motion to
dismiss. The allegations of injury here were merely conclusory and speculative.
The only specific statements from customers recommended the 3B product because
it doesn’t use ozone, which doesn’t show injury to 3B. E.g., “I owned a So
Clean cleaner and because of the ozone I developed a rash around my nose and
chin that would itch. I contacted So Clean and they told me to use wipes and I
did but the problem persisted. I also read that the ozone itself was very bad
for respiratory conditions such as COPD of which I have. Do the research. I
would no[t] recommend the So Clean device for these reasons. I decided to try [3B’s]
Lumin. No Ozone.”  [Compare the
hypothetical: “I bought the SoClean product because they promised me it was
safe and sealed so that no ozone would reach me. I’m so bummed!”]  “At most, the statements could be said to
support § 1125(a)’s causation requirement, but that requirement is distinct
from the need to show actual injury.”

What about a presumption of injury from the fact that 3B was
the only non-ozone product in the market? That wasn’t enough without implicit
reference to 3B’s products, and the market wasn’t a two-player market,
including other ozone users and handwashers. The Second Circuit has suggested,
without deciding, that the presumption might be applicable where the parties
“are direct competitors in a sparsely populated market,” but the court wasn’t
going to extend that here, where SoClean was the original market creator, and
thus wasn’t inherently diverting consumers from the plaintiff’s preestablished
market, and where there were alternatives. Given the other market players,
there was no reason to presume that the alleged misrepresentations were “targeted
at diverting consumers away from the Lumin or its associated devices. Indeed,
to allow the presumption in this context would incentivize any upstart
competitor in a market to claim, without proof, that a dominant player’s
long-time marketing statements are causing injury.”

NY state claims failed for the same reason.

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