Ninth Circuit Holds that Allegations that NutriSearch Secretly Rigged its Ratings to Favor Usana are Sufficient to Satisfy Commercial Speech Element of Lanham Act Claim for False Advertising
The Ninth Circuit issued an order January 22, 2021, agreeing with an argument by Bona Law attorneys Aaron Gott, Luke Hasskamp, and Jarod Bona that bogus, paid promotions posing as independent product reviews are not exempt from liability for false advertising under the Lanham Act. The court reversed a district court order dismissing Ariix, LLC’s false advertising claim against the author and publisher of the NutriSearch Guide to Nutritional Supplements because of a so-called Consumer Reports exception to the Lanham Act.
Ariix, which sells nutritional supplements, filed a first amended complaint in the U.S. District Court for the Southern District of California alleging that the NutriSearch guide falsely inflated ratings and accolades for Ariix’ chief competitor, Usana Health Sciences, as well as falsely deflated ratings to Ariix, in exchange for money and business opportunities over many years. Ariix’ complaint further alleged that NutriSearch and the guide’s author, Lyle MacWilliam, received hundreds of thousands of dollars in quid pro quo payments and benefits from Usana. Despite this, the guide claimed the opposite: that NutriSearch was a neutral evaluator applying objective scientific criteria and specifically disclaimed any affiliation with any of the companies whose products it reviewed.
NutriSearch and MacWilliam moved to dismiss the first amended complaint on First Amendment grounds and argued that the Lanham Act did not apply to product reviews. The district court agreed and dismissed the complaint, holding that there was a Consumer Reports exception to the Lanham Act, that the quid pro quo payments by Usana to the defendants did not overcome that exception, and that in any case, ratings are inherently subjective and are not actionable under the Lanham Act.
The Ninth Circuit reversed, deciding that Ariix plausibly alleged that the guide was “more like a sophisticated marketing sham rather than a product review guide,” and thus was commercial speech that could be subject to liability under the Lanham Act. The court explained that modern consumers “navigate the seemingly unending stream of advertisements” and limitless product choices by depending on “independent reviews for candid and accurate assessments.” But “when someone falsely claims to be independent, rigs the ratings in exchange for compensation, and then profits from that perceived objectivity, that speaker has drowned the public trust for economic gain.”
Thus, “liability can arise under the Lanham Act if [those] purporting to offer reviews are in reality stealth operations intended to disparage a competitor’s product while posing as a neutral third party.”
The Ninth Circuit highlighted the following allegations as supporting their conclusion that “Ariix has alleged enough to make it plausible that NutriSearch and MacWilliam published the Guide mainly to reap the financial benefits of a hidden marketing arrangement with Usana rather than to inform consumers about nutritional supplements”:
- “To begin with, MacWilliam who worked for Usana, concocted the Guide to ratchet up sales for Usana products, according to the complaint.”
- “Ariix alleges a specific conversation in which Usana agreed to pay MacWilliam’s speaking fees if NutriSearch gave Usana the ‘number one rating.’ Since then, MacWilliam and NutriSearch allegedly received hundreds of thousands of dollars annually in speaking and other fees from Usana.”
- “Ariix also alleges an incident in which Usana threatened to pull its support for NutriSearch when other companies obtained a medal certification making them appear equal to Usana. In response, NutriSearch created a new ‘Editor’s Choice’ award to give to Usana, the only company to receive this award. MacWilliam then used this award as a reason to persuade Usana to pay him for a ‘summer-long vacation’ in which he promoted Usana.”
In addition, the court held that it does not rely only on the allegations of payments: “Many of Ariix’s allegations raise significant doubts about whether the Guide is an objective compilation of product reviews and suggest that the Guide is instead a sham marketing scheme intended to benefit Usana.”
The court also reversed the district court’s holding that the complaint did not plausibly allege that the NutriSearch guide contained actionable false or misleading statements. Though the court agreed with the district court that ratings themselves are “opinions or puffery,” the disclaimer of independence and the failure to award Ariix with certifications based on specific, binary criteria were measurable and capable of being falsified, and therefore actionable for false advertising.
The court remanded the case to the district court for further proceedings consistent with its opinion.
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