A.P. Deauville, LLC v. Arion Perfume & Beauty, Inc.

Filing 54

ORDER by Judge Charles R. Breyer granting in part and denying in part 47 Motion to Dismiss. (crblc1, COURT STAFF) (Filed on 12/12/2014)

1
2
3
4
5
6
7
IN THE UNITED STATES DISTRICT COURT

8

FOR THE NORTHERN DISTRICT OF CALIFORNIA

9
United States District Court
For the Northern District of California

10
11

A.P. DEAUVILLE,LLC,
Plaintiff,

12

ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS COUNTERCLAIMS

v.

13
14

No. C14-03343 CRB

ARION PERFUME AND BEAUTY, INC.,
Defendant.

15

/

16
17

A.P. Deauville, LLC (“Plaintiff”) brought federal and state law claims for false

18

advertising and unfair competition against Arion Perfume & Beauty, Inc. (“Arion”) and Does

19

1 through 10 (collectively, “Defendants”). Defendants filed counterclaims against Plaintiff.

20

See SAA (dkt. 38) at 10-22. The Court today held a hearing on Plaintiff’s motion to dismiss

21

Defendants’ counterclaims. See generally MTD (dkt. 47). As explained below, the Court

22

GRANTS IN PART and DENIES IN PART Plaintiff’s motion to dismiss.

23

I.

BACKGROUND

24

Plaintiff “produces, markets, and sells Power Stick brand deodorant, antiperspirant,

25

body spray, and body wash[,] which it sells exclusively at value-priced retailers.” Compl.

26

(dkt. 1) ¶ 9. Defendants sell “European American Design (“EAD”) men’s deodorant,

27

deodorant spray, and body wash products[,] . . . which compete with Plaintiff’s [products].”

28

Id. ¶¶ 11-13. Plaintiff claims that the EAD product labels “contain false and misleading

1

statements or otherwise fail to meet the requirements for product labeling in the United

2

States,” that consumers are “likely to be misled and deceived[,]” and that Defendants’ false

3

and misleading labeling “is damaging to the reputation, goodwill, and sales of Plaintiff . . . .”

4

Id. ¶¶ 13, 29-30.

5

Defendants assert in their counterclaims that Plaintiff’s Power Stick products also
contain false or misleading statements, and that Plaintiff’s Power Stick Cool Blast product

7

does not comply with numerous Food & Drug Administration (“FDA”) regulations.1 SAA at

8

11-17. Significantly, Defendants claim that Plaintiff’s Power Stick product labels are

9

misleading because the statement “Made in the U.S.A. of U.S. and/or imported ingredients”

10
United States District Court
For the Northern District of California

6

is ambiguous. Id. at 11. Defendants assert that consumers will believe that the Power Stick

11

products contain domestic ingredients when, because of the “and/or” language, there is no

12

guarantee that any ingredients are domestic.2 Id. Because the Federal Trade Commission

13

(“FTC”) only requires language that clarifies the origin of a product’s ingredients if the

14

product is not all, or virtually all, comprised of domestic parts, Defendants contend that

15

Plaintiff’s use of qualifying language gives rise to an inference that the Power Stick products

16

contain more than a de minimis amount of foreign content. Id. at 11-14. Plaintiff also

17

advertises online using statements such as “Why we are made in America[,]” without

18

clarifying whether the product ingredients are domestic or foreign. Id. at 11-13. Defendants

19

maintain that because Plaintiff’s use of qualifying language on the Power Stick product

20

labels gives rise to an inference that the products contain more than a de minimis amount of

21

foreign content, Plaintiff’s unqualified statements violate FTC guidelines and fail to

22

adequately prevent consumer deception. Id.

23
24

On July 23, 2014, Plaintiff brought suit against Defendants, alleging violations of the
Lanham Act and California Business and Professions Code sections 17200 and 17500. See

25
26
27
28

1

The alleged FDA violations include failure to list the Power Stick Cool Blast product with the FDA, failure to
adequately provide a Statement of Identity on the display panel, and various other format and content requirement failures
including using too small a font, incorrect placement of warnings, and improper punctuation. SAA at 14-17.
2

The SAA also claims that Plaintiff’s U.S. origin statement is “false or misleading,” but there is no serious
argument that Plaintiff’s products are not manufactured domestically. See SAA 10-18; see generally Opp’n.

2

1

generally Compl. On August 29, 2014, Defendants filed an answer, see generally Answer

2

(dkt. 12), which Defendants amended on September 19, 2014 to include counterclaims

3

against Plaintiff, see generally FAA (dkt. 29). On October 10, 2014, Plaintiff filed a motion

4

to dismiss Defendants’ counterclaims. See generally MTD FAA (dkt. 34). On October 24,

5

2014, Defendants amended their counterclaims. See SAA at 10-22. Plaintiff now moves to

6

dismiss Defendants’ amended counterclaims. See generally MTD.

7

II.

A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the

8
9

LEGAL STANDARD

complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003) (citing Fed. R.

United States District Court
For the Northern District of California

10

Civ. P. 12(b)(6)). Dismissal is proper if a complaint fails to state a claim upon which relief

11

can be granted. Fed. R. Civ. P. 12(b)(6). To survive dismissal, a complaint must contain

12

factual allegations sufficient to “state a claim to relief that is plausible on its face.” Ashcroft

13

v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

14

(2007)). When determining plausibility, allegations pertaining to material facts are accepted

15

as true for purposes of the motion and construed in the light most favorable to the non-

16

moving party. Wyler-Summit P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir.

17

1998). If dismissal is ordered, the plaintiff should be granted leave to amend unless it is clear

18

that the claims could not be saved by amendment. Swartz v. KPMG LLP, 476 F.3d 756, 760

19

(9th Cir. 2007).

20

III.

21

DISCUSSION
Plaintiff moves to dismiss Defendants’ counterclaims, which allege false advertising

22

in violation of the Lanham Act § 43(a) and California Business and Professions Code,

23

§ 17500 et seq., and unfair competition in violation of California Business and Professions

24

Code § 17200 et seq. See generally MTD; SAA. Specifically, Defendants argue that: (1) the

25

statement “Made in the U.S.A. of U.S. and/or imported ingredients” on all of Plaintiff’s

26

Power Stick products is misleading; (2) Plaintiff’s use of unqualified statements of U.S.

27

origin in its advertising is misleading; and (3) Plaintiff’s Power Stick Cool Blast product

28

violates numerous FDA labeling requirements. See SAA at 10-21.
3

1

As explained below, Defendants fail to state a claim for false advertising and so the

2

Court will GRANT Plaintiff’s motion to dismiss the first two causes of action with prejudice.

3

Because Defendants’ third cause of action, specifically as it relates to Power Stick Cool

4

Blast’s alleged labeling violations, states a plausible claim, the Court will DENY Plaintiff’s

5

motion to dismiss Defendants’ unfair competition claim.

6

A.

U.S. Origin Claims

7

Plaintiff moves to dismiss Defendants’ first and second causes of action, which allege

8

that Plaintiff’s U.S. origin statements are misleading. See generally MTD; SAA at 19-20.

9

Plaintiff argues that Defendants do not have any factual basis for their claims. MTD at 7-8;

United States District Court
For the Northern District of California

10

Reply (dkt. 51) at 4-6. Defendants argue that they state a claim based on Plaintiff’s use of

11

“and/or” language and its use of both unqualified and qualified statements of U.S. origin.

12

Opp’n (dkt. 50) at 4-6.

13

The parties primarily dispute whether Defendants have adequately stated a false

14

advertising claim under Lanham Act § 43(a), Defendants’ first cause of action.3 See

15

generally SAA; MTD; Opp’n. Plaintiff argues that, because its products contain no more

16

than a de minimis amount of foreign content, both its unqualified and qualified statements of

17

U.S. origin comply with the FTC’s guidelines and are not misleading to consumers. MTD at

18

7-8; Reply at 4-6.4 Plaintiff goes on to argue that whether Plaintiff complies with the FTC

19

guidelines is not provably false and that, without any other factual basis supporting

20

Defendants’ claim, Defendants cannot maintain a private right of action requiring Plaintiff to

21

substantiate its statements. Id. Defendants argue that Plaintiff’s products contain more than

22

a de minimis amount of foreign content, that whether Plaintiff complies with the FTC

23

guidelines is provably false, and that Defendants are therefore entitled to a private right of

24

action. Opp’n at 4-6.

25
26
27
28

3

Defendants also argue that, because they have established a plausible claim under the Lanham Act, they are entitled
to relief under Cal. Bus. & Prof. Code § 17500, Defendants’ second cause of action. Opp’n at 11 (citing J.K. Harris & Co.,
LLC v. Kassel, 253 F. Supp. 2d 1120, 1130 n.9 (N.D. Cal. 2003)).
4

Plaintiff also argued at the motion hearing that the counterclaim failed under Iqbal because it amounts to a mere
statement of falsity without any factual basis alleged.

4

1.

1
2

Federal Trade Commission Policy On U.S. Origin Statements

To succeed on a false advertising claim under the Lanham Act, Defendants must

3

prove the following: (1) there is a false statement of fact; (2) the statement actually deceived

4

or has the tendency to deceive consumers; (3) the deception is likely to influence the

5

purchasing decision; (4) Plaintiff caused its false statement to enter interstate commerce; and

6

(5) Defendants have been or are likely to be injured as a result of the false statement.

7

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997) (citation

8

omitted).5 Primarily at issue here are the elements of falsity and deception.

9

The FTC has authority under Section 5 of the FTC Act, 15 U.S.C. § 45, to regulate

United States District Court
For the Northern District of California

10

claims of U.S. origin in advertising. See generally 62 Fed. Reg. 63756 (Dec. 2, 1997). The

11

FTC recognizes two types of U.S. origin statements: unqualified and qualified. Id. An

12

unqualified statement claims only that the product is of U.S. origin, while a qualified

13

statement goes on to explain the source of the ingredients.6 Id. The FTC distinguishes

14

between statement types because consumers expect that products labeled with unqualified

15

statements of U.S. origin contain a high amount of U.S. content. Id. at *63763.

16

Accordingly, the FTC permits unqualified statements of U.S. origin only when “all or

17

virtually all” of the ingredients are domestic; that is, the product must contain no more than a

18

de minimis amount of foreign content. Id. at *63756.

19

To satisfy the FTC standard for unqualified statements, the FTC policy requires that

20

the final assembly of the product take place in the United States. Id. at *63768. But the FTC

21

also considers other factors, including “the portion of the product’s total manufacturing costs

22

that are attributable to U.S. parts and processing” and “how far removed from the finished

23
24
25
26
27
28

5

Defendants rely on the FTC’s analysis of U.S. origin claims in order to establish the element of consumer
deception required for Lanham Act claims. See SAA at 13. Defendants argue that reliance on the FTC’s analysis of such
statements is appropriate because the FTC has conducted significant research concerning consumers’ understanding of U.S.
origin statements in furtherance of its mission to protect consumers from misleading statements. Id.; Opp’n at 3; see 62 Fed.
Reg. 63756. Plaintiff does not disagree with Defendants. See MTD at 1, 6-8. Plaintiff argues that only the FTC may
determine whether Plaintiff’s U.S. origin statements comply with the FTC’s guidelines and whether consumers are deceived
as a result. Id.
6

Examples of qualified statements include “Made in USA of U.S. and imported parts” and “Manufactured in U.S.
with Indonesian materials.” Id. (emphasis added).

5

1

product the foreign content is.” Id. at *63768-69. “[T]here is no single ‘bright line’ to

2

establish when a product is or is not ‘all or virtually all’ made in the United States[.]” Id.

3
4

2.

Plaintiff’s U.S. Origin Statements

It is undisputed that Plaintiff’s Power Stick product labels contain a qualified U.S.

5

origin statement (“of U.S. and/or imported ingredients”) and that Plaintiff advertises using

6

unqualified statements (“manufactured in the USA”). SAA at 10-12; see generally MTD.

7

Plaintiff’s principal argument is that its use of both unqualified and qualified statement types

8

is not misleading because the Power Stick products contain no more than a de minimis

9

amount of foreign content and the statements comply with FTC requirements. MTD at 6-8;

United States District Court
For the Northern District of California

10

Reply at 2-3; see generally 62 Fed. Reg. 63756. Plaintiff goes on to argue that whether

11

Plaintiff’s statements are in compliance with the FTC guidelines is a matter that can only be

12

determined by the FTC and that, without any other factual basis supporting Defendants’

13

claim of false advertising, Defendants cannot maintain a private right of action. MTD at 6-8;

14

Reply at 4-6. The Court, Plaintiff argues, should not allow Defendants “to step into the shoes

15

of the government and act to enforce the FTC Act . . . .” See id. (citing, e.g., Bronson v.

16

Johnson & Johnson, Inc., No. 12-4184, 2013 WL 5731817 CRB (N.D. Cal. Oct. 22, 2013)

17

(private plaintiffs cannot seek to enforce FTC policy and cannot require defendants to

18

substantiate their claims without providing additional factual support demonstrating that the

19

claim is provably false)).

20

Defendants do not question whether Plaintiff’s products are manufactured

21

domestically. See generally SAA. Rather, Defendants claim that, because manufacturers are

22

only required by the FTC to qualify their U.S. origin claims when their products contain

23

more than a de minimis amount of foreign content, Plaintiff’s use of both unqualified and

24

qualified statements creates an inference that Plaintiff’s products contain more than a de

25

minimis amount of foreign content, which would require sufficient qualification in order to

26

avoid consumer confusion. SAA at 10-12; Opp’n at 4-6; see 62 Fed. Reg. 63763.

27

Defendants go on to argue that Plaintiff’s unqualified statement is therefore misleading,

28

according to the FTC’s policy, and, additionally, that Plaintiff’s qualified statement is not
6

1

sufficiently clear because of the use of “and/or” language.7 Id. Defendants argue that they

2

are entitled to a private right of action because their claim is not a substantiation claim, but a

3

provable falsehood. Opp’n at 5. Defendants argue that whether the Power Stick products

4

contain sufficient foreign content to be misleading to consumers is “straight forward.” Id.;

5

see, e.g., Bronson, 2013 WL 5731817. The Court disagrees.

6

FTC policy states that “there is no single ‘bright line’ to establish when a product is or

7

is not ‘all or virtually all’ made in the United States . . . .” 62 Fed. Reg. *63768-69. Even if

8

Plaintiff was forced to provide all available information regarding its Power Stick

9

ingredients, neither the parties nor the Court would be in a position to determine whether

United States District Court
For the Northern District of California

10

there was sufficient foreign content to satisfy the FTC’s standard. See generally id. at

11

*63756; see also Honeywell Int’l Inc. v. ICM Controls Corp., No. 11-569, 2014 WL

12

4248434 JNE/TNL, at *12 (D. Minn. Aug. 27, 2014) (discussing the subjective nature of the

13

FTC policy regarding U.S. origin statements). Whether Plaintiff is in compliance with FTC

14

policy, and whether consumers are deceived as a result, is therefore not provably false. See,

15

e.g., Bronson, 2013 WL 5731817, at *4 (claims relying on a lack of supporting evidence are

16

construed as substantiation claims and are insufficient).

17

While Plaintiff’s U.S. origin statements could be misleading to consumers if the

18

products indeed contain more than a de minimis amount of foreign content, the false

19

advertising standard requires that Defendants’ counterclaims contain some evidence

20

suggesting that confusion can actually be proven. SAA at 10-12; Opp’n at 5; see, e.g.,

21

Bronson, 2013 WL 5731817 (granting the defendants’ motion to dismiss because the

22

plaintiffs’ claim, which failed to cite any authority contradicting the defendants’ advertising

23

statements, was a substantiation claim and therefore insufficient). Defendants suggest that

24

Plaintiff’s U.S. origin statements are misleading when examined in the context of the FTC’s

25
26
27
28

7

While Plaintiff’s use of both statement types and use of “and/or” language could be confusing to consumers,
Defendants raise both arguments solely in the context of the FTC’s policy. See Opp’n at 4-10 Both arguments rely on
Plaintiff’s products being ineligible for an unqualified statement of U.S. origin, according to FTC policy, because they contain
more than de minimis foreign content. See generally 62 Fed. Reg. 63756. The FTC would likely not consider Plaintiff’s use
of an unqualified statement, and use of an ambiguous qualified statement, a danger to consumers if the Power Stick products
contain “all or virtually all” domestic ingredients. Id.

7

1

policy on U.S. origin statements, but whether Plaintiff’s statements comply with FTC policy

2

cannot be proven in this Court. See generally 62 Fed. Reg. *63756; see also Honeywell Int’l

3

Inc., 2014 WL 4248434 JNE/TNL, at *12. The Court does not wish to become the

4

handmaiden of the FTC, nor does it imagine that the FTC would welcome the help. Because

5

Defendants do not suggest an alternative avenue by which they might plausibly prove that

6

Plaintiff’s U.S. origin statements mislead consumers, Defendants fail to adequately allege

7

falsity or a likelihood of deception, and therefore fail to state a provable, false advertising

8

claim. Id.; Ashcroft, 556 U.S. at 678 (quotation omitted).

9

Accordingly, the Court GRANTS Plaintiff’s motion to dismiss Defendants’ first cause

United States District Court
For the Northern District of California

10

of action. Because Defendants make the identical argument to support their second cause of

11

action, the Court GRANTS Plaintiff’s motion to dismiss Defendants’ second cause of action.

12

Defendants have amended their counterclaims once before. See generally FAA; SAA.

13

Moreover, Defendants did not represent at the motion hearing that they could amend their

14

counterclaims to address this issue. Accordingly the Court’s dismissal is with prejudice.

15

B.

FDA Violations

16

Plaintiff next moves to dismiss Defendants’ third cause of action, which alleges unfair

17

competition. SAA at 20-21; see Cal. Bus. & Prof. Code § 17200. Plaintiff claims that: (1)

18

Defendants lack standing because they failed to adequately claim any injury tied to the

19

alleged labeling violations; (2) Defendants cannot claim competitive harm because their

20

products also violate FDA labeling requirements; and (3) Defendants do not sell

21

antiperspirants and, so, could not be harmed by any alleged antiperspirant labeling violation.

22

MTD at 11-13. Defendants argue that: (1) they sufficiently allege injury; (2) the Court

23

cannot assume that Defendants also violated FDA requirements; and (3) Plaintiff’s Power

24

Stick Cool Blast product is labeled as both an antiperspirant and a deodorant and whether

25

Plaintiff’s product competes with Defendants’ products is a matter of fact. Opp’n at 13-15.

26

For the reasons stated below, the Court agrees with Defendants that they have stated a

27

plausible claim.

28

A party can bring a claim under California’s Unfair Competition Law (“UCL”) if it
8

1

can establish injury in fact. AngioScore, Inc. v. TriReme Med., LLC, No. 12-3393, 2014

2

WL 4438082, at *7 (N.D. Cal. Sept. 9, 2014) (citing Cal. Bus. & Prof. Code § 17204). At

3

the pleading stage, general allegations of injury resulting from the defendant’s conduct are

4

sufficient. Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1104 (9th Cir. 2013) (citing Kwikset

5

Corp. v. Superior Court, 51 Cal. 4th 310, 327 (2011)).

6

Defendants claim that Plaintiff’s Power Stick Cool Blast violates numerous FDA

7

requirements for over-the-counter (“OTC”) drugs, in violation of the UCL.8 SAA at 14-18,

8

20-21. Defendants allege that Plaintiff is able to charge less than Defendants for similar

9

products by “skirting labeling requirements[,]” thus retaining greater profit. Id. at 18.

United States District Court
For the Northern District of California

10

Defendants allege that because of its increased profit, Plaintiff is able to do more marketing

11

and advertising. Id. Defendants allege that in so doing, Plaintiff unfairly gains market

12

power, diverts customers away from Defendants, and injures Defendants’ relationships with

13

existing or potential customers.9 Id.

14

Plaintiff’s first argument is that Defendants’ alleged injury is too “far removed from

15

any actual product competition[,]” “lack[s] any factual support[,]” and is “insufficient to

16

confer standing.” MTD at 11-13; Reply at 8. As support, Plaintiff cites McCabe v. Floyd

17

Rose Guitars, No. 10-581, 2012 WL 1409627 JLS, at *9 n.4 (S.D. Cal. Apr. 23, 2012), which

18

requires claimants to allege a “plausible chain of injury.” Reply at 8. McCabe is not

19

analogous.

20

In McCabe, the plaintiff argued that consumers would have purchased licenses from

21

him had the defendant not fraudulently induced consumers to purchase defendant’s license.

22

2012 WL 1409627, at *9 n.4. The court observed that there was no connection between the

23

plaintiff’s patent and the defendant’s patent and that, even assuming that the defendant’s

24

patent was invalid, consumers would be more likely to purchase licenses from the prior art

25
26
27
28

8

Defendants also argue that Plaintiff’s alleged false advertising violates the UCL. SAA at 20-21. Because the
Court is dismissing Defendants’ false advertisement claims, it analyzes Plaintiff’s third cause of action solely in the context
of the Power Stick Cool Blast’s alleged FDA labeling violations.
9

Defendants’ alleged injuries are nearly identical to Plaintiff’s alleged injuries for the UCL violation alleged in the
Complaint. Compare Compl. ¶¶ 38-58 with SAA at 17-21.

9

1

patent holders than from the plaintiff. Id. The plaintiff thus failed to allege a “plausible

2

chain of injury.” Id.
Here, unlike in McCabe, Defendants have alleged a “plausible chain of injury.”

3
4

Defendants allege that their products compete directly with Plaintiff’s Power Stick Cool

5

Blast product, that Plaintiff’s product labeling violates numerous FDA regulations, that

6

Plaintiff avoided costs by “skirting” the FDA requirements, and that Plaintiff was able to

7

both divert market share away from Defendants and to damage Defendants’ goodwill with

8

existing and potential customers. See SAA at 8; see also AngioScore, Inc. v. TriReme Med.,

9

LLC, No. 12-3393, 2014 WL 4438082 YGR, at *7 (N.D. Cal. Sept. 9, 2014) (“Loss of

United States District Court
For the Northern District of California

10

business to a competitor as a result of unfair competition is a paradigmatic, and indeed the

11

original, variety of loss contemplated by the UCL.”) (citation omitted). These general

12

allegations of economic injury resulting from Plaintiff’s conduct are sufficient at the pleading

13

stage. Hinojos, 718 F.3d at 1104 (citations omitted).
Plaintiff’s second argument, which is essentially an unclean hands argument, and

14
15

Plaintiff’s third argument, which is that the parties’ products do not actually compete, both

16

require that the Court make assumptions in favor of the moving party. MTD at 11-13.

17

Plaintiff’s arguments would require the Court to assume as true Plaintiff’s assertion that

18

Defendants’ products violate FDA labelling requirements, see generally Compl., and assume

19

as false Defendants’ factual allegation that the parties’ products compete, see SAA at 18.

20

This is improper. For the purposes of this motion, the Court must accept as true Defendants’

21

factual allegations and construe the facts in the light most favorable to Defendants, the non-

22

moving party. See Wyler-Summit P’ship, 135 F.3d at 661. Because Defendants have

23

standing and because the Court must not make assumptions in favor of the moving party, the

24

Court DENIES Plaintiff’s motion to dismiss Defendants’ third cause of action.

25

IV.

26

CONCLUSION
For the foregoing reasons, the Court GRANTS Plaintiff’s motion to dismiss

27

Defendants’ first and second causes of action for false advertising, with prejudice, and

28

DENIES Plaintiff’s motion to dismiss Defendants’ third cause of action for unfair
10

1
2
3

competition.
IT IS SO ORDERED.
Dated: December 12, 2014
CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

4
5
6
7
8
9
United States District Court
For the Northern District of California

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
11