Vitamins Online, Inc. v. HeartWise, Inc.

Citations: 207 F. Supp. 3d 1233; 2016 U.S. Dist. LEXIS 127522; 2016 WL 5106990Docket: Case No. 2:13-CV-982-DAK

Court: District Court, D. Utah; September 19, 2016; Federal District Court

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Dale A. Kimball, United States District Judge, presided over a case involving a Motion for Partial Summary Judgment filed by Defendant HeartWise, Inc., operating as NatureWise. A hearing on the motion occurred on August 29, 2016, with representation from both parties. The court reviewed submitted materials and subsequently rendered a Memorandum Decision and Order.

Plaintiff Vitamins Online, Inc., a Utah-based manufacturer of dietary supplements sold online under the NutriGold brand, competes with NatureWise, which also sells dietary supplements, including Garcinia Cambogia and green coffee extract products. Vitamins Online launched its products on Amazon before 2010, during a period of low consumer demand. Following endorsements by Dr. Mehmet Oz on his television show in 2011 and 2012, demand for these supplements surged, prompting increased competition from companies like NatureWise.

NatureWise employed a strategy to manipulate Amazon's review system by having employees vote on the helpfulness of product reviews, thereby boosting positive reviews' visibility. They also incentivized customers to post favorable reviews through free products and gift cards, affecting their products' search rankings on Amazon. 

In October 2013, Vitamins Online filed a complaint against NatureWise for unfair competition under the Lanham Act, alleging manipulation of the Amazon review system. Both parties brought motions for summary judgment, which the court denied, specifically denying NatureWise's motion concerning the Amazon Review Claims without prejudice, allowing Vitamins Online to conduct further discovery. After this discovery, NatureWise submitted a renewed motion for summary judgment, arguing that its actions did not constitute false or misleading advertising under the Lanham Act.

Summary judgment is warranted when there is no genuine issue of material fact, allowing the moving party to be entitled to judgment as a matter of law. The moving party bears the initial burden to demonstrate the absence of evidence supporting the nonmoving party's case, after which the nonmoving party must present specific facts indicating a genuine issue for trial. Courts must interpret evidence favorably towards the nonmoving party; however, mere conclusory statements do not suffice to establish a genuine issue. 

In the context of a Lanham Act claim, NatureWise contends its actions do not constitute false advertising, asserting it made no misleading statements and that any alleged misleading statements did not reach a sufficient audience to qualify as commercial advertising. The court will first assess the statute's language to determine the actionability of NatureWise's conduct before reviewing relevant case law. Statutory interpretation begins with the statute's unambiguous terms and considers the entire law's provisions and legislative purpose, assuming ordinary meanings of words unless legislative intent suggests otherwise. The Lanham Act, as initially enacted, addresses false designations of origin and descriptions in commerce, allowing for civil action by those harmed by such misrepresentations.

Section 43(a) of the Lanham Act aims to ease the burden on plaintiffs in trademark infringement cases and establish a federal law for unfair competition and trade practices. The legislative history is limited, but courts acknowledge that the Act intentionally omitted the willfulness and intent requirements present in the 1920 Act, addressing the challenges posed by Erie v. Tompkins to the uniformity of federal common law in interstate commerce. Initially, courts were cautious in applying the Lanham Act beyond existing trademark law and were hesitant to interpret it as encompassing practices outside trademark regulations, particularly those already addressed by other legislation. 

However, interpretations began to evolve, starting with L’Aiglon Apparel, Inc. v. Lana Lobell, Inc., leading to a broader understanding of Section 43(a) as creating a new federal statutory tort. Courts recognized that the section establishes two distinct causes of action: "false designation of origin" and "false description or representation." Subsequent cases further clarified these causes, with courts distinguishing between "product infringement" and "false advertising." The understanding of Section 43(a) continues to develop, indicating the judiciary has not yet fully explored the range of its coverage.

The original Section 43(a) of the Lanham Act required a "false description or representation" for false advertising claims, interpreted by courts to necessitate "false statements of fact." In 1988, the Trademark Law Revision Act (TLRA) amended this section to codify judicial interpretations and extend its coverage, allowing claims related to false advertising about another's goods or services, including trade libel and product disparagement. The TLRA also expanded the scope to include "commercial activities" beyond just "goods or services." Structural amendments divided prohibited conduct from its unlawful effects, clearly delineating causes of action for product infringement/false association and false advertising into separate subsections. The revised Section 43(a) articulates that any person using misleading representations in commerce that cause confusion or misrepresentation in advertising may be liable in civil actions. This new structure broadens the range of actionable false advertising claims, reducing the necessity for factual misrepresentations.

Section 43(a)(1) of the Lanham Act outlines conduct related to product infringement and false advertising. It allows for actions associated with either cause of action to apply to both unlawful effect subsections. Specifically, while the statute distinguishes between "false or misleading description of fact" for false advertising and "word, term, name, symbol, or device" for product infringement, it permits false advertising claims to also arise from the latter as long as they misrepresent goods or services in commercial advertising.

In the case involving NatureWise, the term "device" is particularly relevant and is interpreted in its ordinary sense as a mechanism intended for a specific purpose. Vitamins Online alleges that NatureWise engaged in practices, such as offering free products for positive reviews and manipulating review visibility, which violate the Lanham Act. NatureWise does not contest these actions but argues they do not constitute false advertising since no explicit statement was made in commerce. However, the court clarifies that the statute does not require a direct statement; any conduct specified in the Act suffices.

The court concludes that NatureWise's actions can be classified as using a "device" in commerce under Section 43(a)(1). Offering free products for positive reviews is seen as a mechanism to enhance review ratings, while the voting manipulation is also viewed as a tactic to influence review visibility. NatureWise's argument that Vitamins Online cannot identify a specific impacted review does not undermine the claims, as the evidence of their conduct is sufficient.

The court finds sufficient evidence to establish a genuine issue of material fact regarding NatureWise's practices of encouraging positive reviews and voting on review helpfulness on its Amazon product pages. NatureWise's actions fall under Section 43(a)(1) of the Lanham Act, which addresses false advertising, provided these actions lead to unlawful effects as described in the Act. To be actionable, the conduct must misrepresent goods or services in commercial advertising or promotion.

The Tenth Circuit's four-part test for identifying commercial advertising or promotion requires that the conduct be: 1) commercial speech; 2) by a competitor; 3) aimed at influencing consumer purchases; and 4) sufficiently disseminated to the relevant purchasing public. NatureWise contends that it does not meet this test, arguing it was not the source of the disputed statements and that Vitamins Online has not proven the statements were viewed by enough of the relevant public.

The court clarifies that a defendant does not need to directly make a statement to be implicated under the Lanham Act, only to use statements or conduct as specified. Additionally, while NatureWise claims Vitamins Online must show that the statements reached a significant number of potential customers, the court asserts that the standard requires only that the information be sufficiently disseminated to the relevant purchasing public. Previous cases cited by NatureWise indicate that for actionable claims, dissemination must reach a significant portion of potential customers, particularly when not using traditional advertising methods.

Defendant distributed a false reference list solely to the contractor and architect involved in the Larned project, without any intent for broader public engagement. The legal standard for public dissemination does not necessitate a formal advertising campaign but requires some level of outreach. In this case, customer reviews and statistics regarding their helpfulness were accessible on Amazon product pages, which served as the sole sales point for NatureWise’s products. Thus, the court determined this information qualifies as commercial advertising under the Lanham Act, meeting the requisite criteria for public dissemination.

While the Lanham Act mandates that a defendant's actions must misrepresent their goods or services to substantiate a false advertising claim, it does not specify what constitutes "misrepresentation." The court interpreted "misrepresent" as providing a misleading representation with intent to deceive. Although NatureWise's practice of offering free products for positive reviews was recognized as a marketing tactic, there was insufficient evidence to prove these reviews were not genuine. Vitamins Online did not demonstrate that the reviews incentivized by free products were false or misleading, failing to establish a violation of Section 43(a) of the Lanham Act.

In contrast, NatureWise's manipulation of review visibility through block voting on helpfulness ratings could misrepresent the nature and quality of its products. This practice aimed to enhance positive reviews' visibility while diminishing negative ones, affecting the perceived credibility of the feedback on the product pages labeled "Customer Reviews." The default sorting mechanism prioritized reviews based on their helpfulness ratings, potentially skewing consumer perception.

The placement of reviews on NatureWise's product page implies that actual customers authored and rated these reviews, with the most helpful reviews appearing first. NatureWise contends that Vitamins Online must demonstrate that this information misled customers. However, the court finds that it is evident, favoring Vitamins Online, that NatureWise's online practices could likely deceive customers. Unlike the General Steel case, the misleading representations here are relevant to customers' purchasing decisions, as customers rely on reviews when assessing products. NatureWise's employees allegedly used Amazon's voting system to artificially enhance the perceived helpfulness of reviews, potentially misleading customers about the product's reception. Consequently, the court concludes that Vitamins Online has provided enough evidence to raise a genuine issue of material fact regarding whether NatureWise misrepresented the nature of its goods or commercial activities.

Regarding the Lanham Act, the court finds its terms clear and does not need to delve deeply into related case law. However, an analysis is warranted since no court has applied the Lanham Act as extensively as indicated in this case. The Tenth Circuit requires four elements for a false advertising claim under Section 43(a): (1) material false or misleading representations in commercial advertising; (2) made in commerce; (3) likely to cause confusion or mistake about the product's origin, association, or characteristics; and (4) cause injury to the plaintiff. For an omission to be actionable, it must relate to an affirmative statement that is rendered false or misleading by that omission. Thus, the plaintiff must demonstrate the existence of a false or misleading statement, whether by assertion or omission.

The Tenth Circuit's test for false advertising under the Lanham Act requires a false statement of fact to establish a claim, similar to prior tests before the TLRA amendments. Claims must differentiate between statements of fact, which are actionable, and expressions of opinion, which are not. A statement can be considered "literally false" if it is conveyed explicitly or by necessary implication. NatureWise contends that its lack of affirmative statements makes Vitamins Online’s Amazon Review Claims unviable, arguing that none of the statements in question are false or misleading as required by the Tenth Circuit's standards. The court, however, finds that Vitamins Online has presented sufficient material issues regarding the implications of statements made about customer votes on review helpfulness. The court noted that the statements on Amazon’s product pages imply that the votes come from actual customers, while evidence suggests some votes may have originated from the manufacturer’s employees, creating a genuine issue of material fact regarding the truthfulness of the implied representation.

Defendants are accused of artificially inflating Amazon product ratings by hiring biased professional reviewers, misleading consumers into relying on these inflated reviews. The court acknowledges that while Congress may not have anticipated such deceptive practices when drafting Section 43(a) of the Lanham Act, the provision's broad language is adequate to encompass these novel false advertising methods. It warns online retailers to avoid manipulating customer reviews, emphasizing that while Section 43(a) broadly addresses false advertising, it should not be interpreted as a comprehensive federal law on unfair competition. The court also clarifies that certain unfair competition claims, like trade secret violations and contractual disputes, fall outside the scope of the Act. Consequently, NatureWise’s Motion for Partial Summary Judgment is partially granted; it is granted for Vitamins Online’s claim regarding fraudulent practices involving free products for positive reviews, but denied for claims related to the manipulation of review helpfulness.