3B Medical, Inc. v. SoClean, Inc.
Filing
65
OPINION AND ORDER re: 46 MOTION to Dismiss Amended Complaint, dtd 10/25/19 filed by SoClean, Inc. For the reasons stated in this Opinion, Defendant's motion to dismiss is GRANTED. The Clerk of Court is directed to terminate all pending motions, adjourn all remaining dates, and close this case. (Signed by Judge Katherine Polk Failla on 9/8/2020) (rro) Transmission to Orders and Judgments Clerk for processing.
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
3B MEDICAL, INC.,
Plaintiff,
-v.-
19 Civ. 3545 (KPF)
OPINION AND ORDER
SOCLEAN, INC.,
Defendant.
KATHERINE POLK FAILLA, District Judge:
Plaintiff 3B Medical, Inc. manufactures a suite of devices that
automatically sanitize continuous positive airway pressure (“CPAP”) machines
using UV-C light. Plaintiff brings this action against Defendant SoClean, Inc.,
a competitor that manufactures similar devices, albeit with the distinction that
Defendant’s devices use ozone as a sanitizing agent. Plaintiff alleges that
Defendant has relied on false and misleading representations to consumers
relating to Defendant’s devices’ use of ozone and the safety of said use, in
violation of the Lanham Act, 15 U.S.C. § 1125(a), as well as various state-law
claims. Defendant, in turn, has filed the instant motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiff has failed to state
a claim upon which relief may be granted. For the reasons set forth below, the
Court finds that Plaintiff has indeed failed to state a claim because of
deficiencies in pleading injury, and therefore grants Defendant’s motion to
dismiss.
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BACKGROUND 1
A.
Factual Background
1.
The Parties
Plaintiff is a Florida corporation with its principal place of business in
Winter Haven, Florida. (Compl. ¶ 6). Since 2018 (see Galgay Decl., Ex. 1), 2
Plaintiff has produced and sold the Lumin and the Lumin Bullet, both of which
are designed for individuals who suffer from sleep apnea (Compl. ¶ 12).
Specifically, the Lumin and the Lumin Bullet use a UV-C light source to
sanitize and disinfect CPAP equipment. (Id. at ¶¶ 22-23). Defendant — a
Delaware corporation with its principal place of business in Peterborough, New
Hampshire — offers competing products. (Id. at ¶¶ 7, 11). Unlike Plaintiff’s
devices, Defendant’s SoClean devices use ozone gas to clean CPAP equipment.
(Id. at ¶ 25). Defendant’s devices have been on the market since at least 2012.
(Id. at ¶ 2). Defendant commands 90% of the market for CPAP machine
cleaners, while Plaintiff holds only 5%. (Id. at ¶¶ 159-60). The other 5% is
controlled by three other competitors — Sleep8, VirtuClean, and Respify — all
1
The Court draws the facts for this Opinion from the Amended Complaint (the
“Complaint” or “Compl.” (Dkt. #42)), which is the operative pleading in this action, as
well as certain exhibits to the Declaration of Clancy Galgay in Support of Defendant
SoClean’s Motion to Dismiss (“Galgay Decl., Ex. [ ]” (Dkt. #47)).
For ease of reference, the Court refers to Defendant’s opening brief as “Def. Br.” (Dkt.
#48); Plaintiff’s opposition brief as “Pl. Opp.” (Dkt. #53); and Defendant’s reply brief as
“Def. Reply” (Dkt. #54). The Court does not reference Plaintiff’s sur-reply (Dkt. #62), as
it does not contain briefing relevant to the dispositive issue in this Opinion.
2
The Court finds it proper to take judicial notice of Plaintiff’s own press release and its
announcement of the Lumin’s entry into the market. (Galgay Decl., Ex. 1). Plaintiff
does not dispute the timing of its entry into the market, and Plaintiff’s own press
release is a source whose accuracy as to the date of Lumin’s entry into the market
cannot reasonably be questioned. See Fed. R. Evid. 201(b).
2
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of which use ozone as well. (Id. at ¶¶ 161-62). Both parties’ devices are offered
to consumers as an alternative to handwashing their CPAP equipment. (Id. at
¶ 22).
2.
The Alleged Misrepresentations
All of Defendant’s devices use ozone as the primary sanitizing agent.
(Compl. ¶ 25). Ozone is a toxic gas that can have a variety of serious health
consequences to humans when inhaled. (Id. at ¶¶ 33, 47-56). Defendant’s
devices produce ozone at concentrations well above the limits allowed by the
Food and Drug Administration (the “FDA”). (Id. at ¶¶ 37-38, 87-90, 97).
Plaintiff alleges that Defendant’s marketing materials contain a host of
misrepresentations that are designed both to obscure Defendant’s use of ozone
as a sanitizing agent and to mislead consumers about the health risks posed
by Defendant’s use of ozone. (See Compl. ¶ 3). Plaintiff points in particular to
six different misrepresentations that have appeared in various SoClean
marketing materials since at least 2012. (Id. at ¶¶ 101-45, 148). Those
misrepresentations include the following:
•
Defendant’s marketing materials represent that its
devices use “activated oxygen,” instead of ozone (id. at
¶ 108);
•
Defendant’s marketing materials represent that its
devices do not use “chemicals” or “harsh chemicals” (id.
at ¶ 118);
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•
Defendant markets its devices as “safe” and “healthy”
(id. at ¶ 122);
•
Defendant represents that its devices use the same
sanitizing process as that used in hospitals (id. at
¶ 128);
•
Defendant represents that the charcoal filter cartridges
that accompany its devices are able to convert
“activated oxygen” into “regular oxygen” (id. at ¶ 139);
and
•
Defendant represents that its devices are closed-loop
systems, out of which no “activated oxygen” escapes (id.
at ¶ 144).
Plaintiff alleges that consumers have reported adverse experiences with
Defendant’s devices due to the devices’ use of ozone. (Compl. ¶ 156).
Moreover, some consumers have reported that they decided to purchase the
Lumin specifically because it does not use ozone. (Id. at ¶ 169). Based on the
above, Plaintiff alleges that more consumers would learn of, and purchase, its
products if not for Defendant’s false advertising. (Id. at ¶¶ 170-72).
B.
Procedural Background
Plaintiff initiated this action with the filing of a complaint on April 22,
2019. (Dkt. #1). On June 12, 2019, Defendant filed a letter with the Court
requesting a conference to discuss an anticipated motion to dismiss. (Dkt.
#20). Plaintiff responded on June 17, 2019 (Dkt. #22), and the Court set a pre4
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motion conference for August 27, 2019 (Dkt. #23). At the August 27, 2019
conference, the Court permitted Plaintiff to file an amended complaint and
scheduled briefing for Defendant’s motion to dismiss. (Minute Entry for
August 27, 2019).
On September 16, 2019, Plaintiff filed the Complaint, alleging violations
of the Lanham Act, 15 U.S.C. § 1125(a); New York General Business Law
(“GBL”) Sections 349 and 350; and a common-law claim for unfair competition.
(Dkt. #42). Defendant filed its motion to dismiss, along with an accompanying
memorandum and declaration, on October 25, 2019. (Dkt. #46-48).
Defendant also requested that the Court schedule oral argument on the
motion, and the Court indicated that it would schedule oral argument if it
believed it to be necessary. (Dkt. #49-50). On December 2, 2019, Plaintiff filed
its opposition brief. (Dkt. #53). On December 16, 2019, Defendant filed its
reply brief. (Dkt. #54).
On the same day that Plaintiff filed its opposition brief, it informed the
Court that it believed one of Defendant’s exhibits — specifically, a user manual
for a SoClean device — to have been falsified. (Dkt. #51). On January 14,
2020, Plaintiff filed a letter requesting a conference to discuss an anticipated
motion for sanctions in regards to the allegedly falsified exhibit. (Dkt. #55).
Defendant responded to Plaintiff’s letter on January 17, 2020 (Dkt. #56), and
the Court in turn scheduled a pre-motion conference for February 18, 2020
(Dkt. #57). At the February 18, 2020 conference, the Court expressed its belief
that a motion for sanctions would not be successful. (Dkt. #63). However, the
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Court permitted Plaintiff to file a sur-reply so that it could address the ways in
which it believed Defendant’s conduct had affected the briefing for the motion
to dismiss. (Id.). On March 3, 2020, Plaintiff filed its sur-reply, closing the
briefing for the instant motion. (Dkt. #62). The motion being fully briefed, and
the Court finding that it can decide the motion on the papers, the Court now
proceeds to the substance of this Opinion.
DISCUSSION
The Court Grants Defendant’s Motion to Dismiss
A.
Motions to Dismiss Under Fed. R. Civ. P. 12(b)(6)
When considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court must “draw all reasonable inferences in Plaintiff’s
favor, assume all well-pleaded factual allegations to be true, and determine
whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life
Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks
omitted); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to state a claim to relief that is plausible on its face.” (internal
quotation marks omitted)). A plaintiff is entitled to relief if he alleges “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007); see also In re Elevator Antitrust Litig., 502
F.3d 47, 50 (2d Cir. 2007) (“While Twombly does not require heightened fact
pleading of specifics, it does require enough facts to nudge plaintiff’s claims
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across the line from conceivable to plausible.” (internal quotation marks
omitted) (citing Twombly, 550 U.S. at 570)).
That said, a court is not bound to accept “conclusory allegations or legal
conclusions masquerading as factual conclusions.” Rolon v. Henneman, 517
F.3d 140, 149 (2d Cir. 2008) (internal quotation marks omitted) (quoting Smith
v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002)); see also
Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (“[A]lthough a court must accept
as true all of the allegations contained in a complaint, that tenet is inapplicable
to legal conclusions, and threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” (internal
quotation marks omitted) (quoting Iqbal, 556 U.S. at 678)). Moreover, “[w]here
a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability,
it ‘stops short of the line between possibility and plausibility of entitlement to
relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
B.
The Complaint Must Be Dismissed for Failure to Allege Injury
Section 43(a) of the Lanham Act, under which Plaintiff brings its primary
claim, provides:
Any person who … uses in commerce any … false or
misleading description of fact, or false or misleading
representation of fact, which … in commercial
advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of his or
her or another person’s goods, services, or commercial
activities … shall be liable in a civil action by any person
who believes that he or she is or is likely to be damaged
by such act.
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15 U.S.C. § 1125(a)(1). In order to survive a motion to dismiss on a Lanham
Act false advertising claim, a plaintiff must adequately allege that the
challenged misrepresentations are (i) “either literally or impliedly false”;
(ii) “material”; (iii) “placed in interstate commerce”; and (iv) “the cause of actual
or likely injury to the plaintiff.” See Church & Dwight Co., Inc. v. SPD Swiss
Precision Diagnostics, GmbH, 843 F.3d 48, 65 (2d Cir. 2016) (citing Merck
Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 255-56 (2d Cir. 2014)). Defendant
argues that none of the alleged misrepresentations in the Complaint is
actionable, and therefore the Complaint should be dismissed. (See Def. Br. 1318). While the Court may quibble as to the relevant strength of Defendant’s
arguments with respect to each of the alleged misrepresentations, the Court
need not address that part of Defendant’s motion because it finds that Plaintiff
has failed to plausibly allege injury.
“[A] plaintiff suing under § 1125(a) ordinarily must show economic or
reputational injury flowing directly from the deception wrought by the
defendant’s advertising.” Lexmark Int’l, Inc. v. Static Control Components, Inc.,
572 U.S. 118, 133 (2014). Therefore, “a plaintiff in a false-advertising case
must demonstrate injury by way of lost sales or damage to business
reputation.” Dependable Sales & Serv., Inc. v. TrueCar, Inc., 394 F. Supp. 3d
368, 374 (S.D.N.Y. 2019). However, “[u]nder Second Circuit authority, the
threshold required to show injury differs based on the nature of the
advertisements and the parties’ roles as competitors.” Dependable Sales &
Servs., Inc. v. TrueCar, Inc., 377 F. Supp. 3d 337, 346 (S.D.N.Y. 2019).
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In cases where the challenged advertisement makes a misleading or false
comparison to a specific, competing product, “injury may be presumed,” Merck,
760 F.3d at 259, because such a comparison “necessarily diminishes that
product’s value in the minds of the consumer,” McNeilab, Inc. v. Am. Home
Prods. Corp., 848 F.2d 34, 38 (2d Cir. 1988). Therefore, there is no “concern of
awarding damages for merely speculative injury.” Merck, 760 F.3d at 259. By
contrast, 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.” McNeilab, 848 F.2d at 38.
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.” Id.
Defendant argues that Plaintiff has failed to plausibly allege any actual
injury (see Def. Reply 2-3), and the Court agrees. While it may be that a
plaintiff does not need to name specific lost customers in its complaint (see Pl.
Opp. 16), the Second Circuit has been clear that “some indication of actual
injury” is needed for a Lanham Act claim to survive a motion to dismiss, see
McNeilab, 848 F.2d at 38. And while Plaintiff has alleged that, in the absence
of Defendant’s misrepresentations, “more consumers would purchase the
Lumin” (Compl. ¶ 171), and that it has been “injured … in terms of declining
sales, lost profits, loss of goodwill, and other injuries” (id. at ¶ 185), these
allegations are entirely conclusory. See Davis v. Avvo, Inc., 345 F. Supp. 3d
534, 544 (S.D.N.Y. 2018) (characterizing allegations that the defendant’s
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“deceptive and misleading endorsements … caused Plaintiff … to lose fees and
suffer reputational damage,” and that the defendant’s “conduct ha[d] caused
them many million dollars in lost legal business,” as conclusory).
Indeed, completely absent from the Complaint is any allegation of injury
that is not speculative in nature. At best, the Complaint provides statements
from consumers indicating that they recommend using or prefer using the
Lumin because it does not utilize ozone. (See Compl. ¶ 169). 3 These
statements, however, do not indicate in any way that Plaintiff has been injured
by Defendant’s alleged misrepresentations. If anything, these statements
indicate that Plaintiff has not been injured, since they are from consumers who
have, in fact, purchased Plaintiff’s devices. 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. See McNeilab, 848 F.2d at 38
(explaining that plaintiffs must show “some indication of actual injury and
causation” (emphasis added)).
Plaintiff’s allegations, therefore, fail to meet the Second Circuit’s
standards for § 1125(a) actions, see Merck, 760 F.3d at 259, and the Supreme
Court’s general plausibility standards, see Twombly, 550 U.S. at 570. And
insofar as Plaintiff believes that Lexmark established a more relaxed pleading
3
The following is a representative example: “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 Lumin. No Ozone.” (Compl. ¶ 169).
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standard for § 1125(a) actions than that articulated by the Second Circuit (see
Pl. Opp. 16), Plaintiff is incorrect. The “zone of interests” analysis in Lexmark
identifies who is a proper plaintiff under § 1125(a) — it says nothing about
what a plaintiff must do to meet the pleading threshold required by § 1125(a),
Iqbal, and Twombly. See Lexmark, 572 U.S. at 129.
If the Court were to take Plaintiff at its word, the Court’s finding that
Plaintiff has failed to plead actual injury would end the inquiry. This is
because Plaintiff has expressly advised the Court that its Complaint “is not
relying on any … presumption [of injury].” (Pl. Opp. 19). However, the Court
believes it proper to address Defendant’s argument that the presumption of
injury should not apply in this case. (See Def. Br. 11).
As the Court has already noted, the presumption of injury typically only
applies in cases where the defendant’s advertisement makes a misleading or
false comparison to the plaintiff’s product. See Merck, 760 F.3d at 259. And
while the Second Circuit “has expressly disfavored presumptions of harm in
cases where the products are not obviously in competition or where the
defendant’s advertisements make no direct reference to any competitor’s
products,” Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d 690, 696 (2d Cir.
1994), the Second Circuit has applied or permitted the presumption in certain
discrete instances where there is a non-comparative advertisement.
Specifically, those two instances are Time Warner Cable, Inc. v. DIRECTV,
Inc., 497 F.3d 144 (2d Cir. 2007), and Merck. In the former case, the Second
Circuit held that the presumption was appropriate because the defendant’s
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advertisement explicitly disparaged cable television, and plaintiff was the only
cable provider in the area. See Time Warner, 497 F.3d at 162. Thus, even
though the plaintiff was not identified by name, “consumers in the markets
covered … would undoubtedly understand [the] derogatory statement … as
referring to TWC.” Id. In Merck, the Second Circuit established the limited
holding that where “a plaintiff has met its burden of proving deliberate
deception in the context of a two-player market, it is appropriate to utilize a
presumption of injury.” 760 F.3d at 260-61.
Neither Time Warner nor Merck applies to the instant action. Unlike Time
Warner, Defendant’s advertisements and other marketing materials do not
implicitly reference or denigrate Plaintiff’s products. And unlike Merck, the
parties are not operating in a two-player market. Indeed, the Complaint
acknowledges both that there are at least three other market participants (see
Compl. ¶ 161), and that there are individuals who choose to handwash their
CPAP equipment instead of investing in the parties’ devices (see id. at ¶ 22).
Therefore, it would seem that the presumption of injury is inapplicable here.
Plaintiff, however, points the Court to Church & Dwight (see Pl. Opp. 20), in
which the Second Circuit, in a footnote that cited to Merck, indicated that the
presumption might be applicable where the parties “are direct competitors in a
sparsely populated market,” 843 F.3d at 72 n.12. This footnote, of course, is
dicta. Given that the Second Circuit did not, in fact, rely on the presumption of
injury in finding that the plaintiff had demonstrated injury in Church & Dwight,
and given that the Second Circuit “has expressly disfavored presumptions of
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harm” except in certain limited circumstances, Ortho Pharm. Corp., 32 F.3d at
696, the Court does not believe it appropriate to extend the presumption to a
situation that has not been recognized by the Second Circuit.
The Court also believes that there are sounds reasons counseling against
application of the presumption in this case. In Merck, the Second Circuit held
application of the presumption appropriate in a situation where the plaintiff
had created the market for its product and then the defendant entered with a
competing, falsely labeled product that cost significantly less than the
plaintiff’s original product. See 760 F.3d at 260-61. In such a scenario, it
makes perfect sense to apply the presumption of injury, since the falsely
labeled product was clearly targeted at diverting consumers away from the
plaintiff’s product. Here, on the other hand, Defendant is the original entrant
into the market, while Plaintiff is the upstart competitor who is seeking to gain
market share at Defendant’s expense. Moreover, there are at least three other
players in the market — none of which is affiliated with Defendant 4 — and
some portion of CPAP users who choose to use no device and handwash their
equipment instead. Given that topography, there is no basis upon which the
Court can presume, as the Second Circuit could in Merck, that Plaintiff’s
misrepresentations are 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,
4
This situation is contrasted with the marketplace in Church & Dwight, where the other
players in the market were manufactured by a co-owner of the defendant. See 843 F.3d
48, 72 n.12 (2d Cir. 2016).
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that a dominant player’s long-time marketing statements are causing injury.
The Court does not believe this to be a proper use of the presumption, and
therefore declines to apply it here.
In the absence of any presumption of injury or an allegation of actual
injury, Plaintiff’s Lanham Act claim cannot survive. And as Plaintiff itself
notes, its state-law claims are largely derivative of its Lanham Act claim. (See
Pl. Opp. 20-21). Therefore, Plaintiff’s failure to allege injury is likewise fatal to
its state-law claims. See Lugones v. Pete & Gerry’s Organic, LLC, 440 F. Supp.
3d 226, 239-40 (S.D.N.Y. 2020) (noting that an element for GBL §§ 349 and
350 claims is that a plaintiff must have “suffered injury as a result of the
allegedly deceptive act or practice”); Chanel, Inc. v. RealReal, Inc., — F. Supp.
3d —, No. 18 Civ. 10626 (VSB), 2020 WL 1503422, at *14 (S.D.N.Y. Mar. 30,
2020) (“The same standards that govern a Lanham Act claim apply to a claim of
unfair competition under New York common law, ‘except common law requires
a showing of bad faith or intent.’” (quoting BBK Tobacco & Foods, LLP v. Galaxy
VI Corp., 408 F. Supp. 3d 508, 522 (S.D.N.Y. 2019))). Plaintiff’s Complaint is
dismissed, and the Court does not reach Defendant’s arguments regarding
whether or not the alleged misrepresentations are actionable.
CONCLUSION
For the reasons stated in this Opinion, Defendant’s motion to dismiss is
GRANTED. The Clerk of Court is directed to terminate all pending motions,
adjourn all remaining dates, and close this case.
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