ARIIX, LLC v. Nutrisearch Corp.
| Decision Date | 22 January 2021 |
| Docket Number | No. 19-55343,19-55343 |
| Parties | ARIIX, LLC, Plaintiff-Appellant, v. NUTRISEARCH CORPORATION; Lyle MacWilliam, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
This case addresses whether the First Amendment shields a publisher of supposedly independent product reviews if it has secretly rigged the ratings to favor one company in exchange for compensation. We rule that this speech qualifies as commercial speech only, and that a non-favored company may potentially sue the publisher for misrepresentation under the Lanham Act. We reverse the district court's dismissal of the complaint, and remand for further proceedings.
guide.
NutriSearch Corporation regularly self-publishes the NutriSearch Comparative Guide to Nutritional Supplements
(the "Guide"), a book that compares and reviews nutritional supplements sold in the direct marketing industry. Written by Lyle MacWilliam, the Guide has become a trusted name among sales representatives in the direct marketing supplement industry.
The Guide has two types of ratings. First, it comparatively rates supplement products using a five-star rating system based on 18 criteria. Second, companies whose products receive five stars can obtain another certification from NutriSearch. These certifications are called NutriSearch Medals of Achievement. To obtain a medal certification, a company must verify compliance with the FDA's pharmaceutical good manufacturing practices ("GMP") and obtain certification from an approved laboratory that its label claims are true. The complaint alleges that the medal certifications are "described as a binary determination: either a company obtains [GMP] certification and laboratory verification of the label claims, or it does not." In the sixth edition of the Guide, Usana Health Science, Inc. was the only company that obtained the highest ranking, the platinum medal.
NutriSearch portrays itself as an independent company that presents only objective data and scientific analyses to the public. For example, NutriSearch claims on its website that it relies on scientific criteria to mathematically calculate the ratings. Further, MacWilliam, the author of the Guide and the former CEO of NutriSearch, has appeared on the Dr. Oz Show promoting the Guide as an evidence-based book that does not have any "particular bias." Most relevant to this appeal, the inside of every edition of the Guide through the fifth edition had the following disclaimer:
This guide is intended to assist in sorting through the maze of nutritional supplements
available in the marketplace today. It is not a product endorsement and does not make any health claim. It simply documents recent findings in the scientific literature.
This guide was not commissioned by any public sector or private sector interest, or by any company whose products may be represented herein. The research, development, and findings are the sole creative effort of the author and NutriSearch Corporation, neither of whom is associated with any manufacturer or product represented in this guide . (emphasis added).
NutriSearch removed the second paragraph from the sixth edition of the Guide, which was published months after Ariix filed this lawsuit.
NutriSearch's claims of neutrality are false, according to Ariix, LLC, a nutritional supplement
company that competes fiercely with Usana.1 Despite assertions of being a neutral third-party reviewer, NutriSearch allegedly has a secret — and mutually lucrative — relationship with Usana.
MacWilliam — who worked as a Usana sales representative and served on its scientific advisory board — at first conceived the Guide to boost sales of Usana products, according to Ariix. MacWilliam remained a Usana sales representative and advisory board member until another company exposed this affiliation. When this happened, MacWilliam allegedly told former Usana executives, Usana agreed to this arrangement in exchange for the number one rating in the Guide. Usana also encourages its sales representatives to buy the Guide and to refer to it in marketing pitches to customers.
Now, Usana annually pays hundreds of thousands of dollars in speaking and promotion fees to NutriSearch and MacWilliam in exchange for being rated the top supplement company in the Guide. Usana's payments to MacWilliam allegedly account for more than 90% of his income.
The complaint alleges additional examples of NutriSearch and MacWilliam colluding with Usana to tweak the Guide's ratings criteria to benefit Usana. NutriSearch promotes certain scientific claims to dovetail with Usana's marketing campaign, or emphasizes certain ingredients that Usana has added to its products to ensure that Usana attains the top ranking in the Guide.
In 2008, Usana withdrew its support for NutriSearch after other companies obtained a medal certification in the Guide. That caused NutriSearch's sales and MacWilliam's speaking engagements to drop. A Usana executive suggested that Usana would recommence providing fees and speaking engagements if Usana obtained a number one ranking in some way.
NutriSearch then released a new "Editor's Choice" award and gave it to Usana. Afterwards, MacWilliam approached Usana and, according to a former Usana executive, stated that "I would like to do a tour for Usana" and that "Usana is number one Editor's Choice, and I'll travel from city to city so my wife and I can go on a summer-long vacation and basically I want you to pay for it." Usana paid MacWilliam $90,000 for that tour.
Ariix considers itself Usana's fiercest competitor in both sales and recruitment of independent sales representatives. Because of this rivalry, Ariix asserts that NutriSearch has improperly thwarted Ariix from obtaining the top medal certification in the Guide.
Ariix first applied for a medal certification in 2014. The application was denied because NutriSearch decided to stop accepting reports and certifications from ISO-17025-certified laboratories.2 Even though prior medal recipients used ISO-17205-certified labs, NutriSearch applied this new restriction only on a future basis, exempting the previous recipients (including Usana) from the new requirement.
In response, Ariix sought to obtain a new analysis of its formulation by using new protocols and procedures that followed NutriSearch's new guidelines. When Ariix submitted its new results, NutriSearch stated that "we can insert your NutriSearch GOLD Medal of Achievement into future printings of the existing guide once current stock has been depleted." NutriSearch released a new edition of the Guide, the sixth edition, but it did not include Ariix's medal certification. NutriSearch then stopped responding to Ariix's inquiries.
Ariix also alleges that Usana in 2011 misappropriated Ariix's confidential information and draft marketing materials about its debut product and gave them to NutriSearch with the instruction "to run a new printing for the express purpose of thwarting Ariix's entry to the market." At first, NutriSearch rated this product 3.5 stars, but after public criticism and incontrovertible evidence of quality, NutriSearch revised the rating to 5 stars.
Finally, Ariix points to its failed attempts to engage MacWilliam as a speaker. Ariix offered MacWilliam an opportunity to speak at one of Ariix's conventions, but in September 2014, MacWilliam declined, explaining he was not taking any more speaking engagements. MacWilliam, however, continued to take speaking engagements with Usana. When confronted with this apparent favoritism, MacWilliam admitted that "[t]hey [Usana] will cut me off the second I do this [speak for Ariix]."
Ariix filed a complaint in district court against NutriSearch and MacWilliam, alleging a false advertising claim under Section 43(a) of the Lanham Act. See 15 U.S.C. § 1125(a)(1)(B). In response, the defendants moved to dismiss for failure to state a claim.
The district court granted the defendants' motion to dismiss the complaint. The district court interpreted the complaint as based on two sets of alleged misrepresentations: (1) NutriSearch misrepresented Ariix and its products as not being top quality and not worthy of a medal certification, and (2) NutriSearch misrepresented itself as objective and neutral, when it is in fact a "shill" for Usana. In deciding the motion, the court held that the Lanham Act does not apply to consumer product reviews, even if they are biased, inaccurate, or tainted by favoritism. It then reviewed the definition of "commercial advertising or promotion" in § 1125(a)(1)(B) and found that the Guide did not meet this definition because it was not commercial speech and because its statements of neutrality were not sufficiently disseminated. It also found that the statements in the Guide were unactionable statements of opinion rather than actionable statements of fact.
Ariix filed an amended complaint. The amended complaint had more allegations about the relationship among NutriSearch, MacWilliam, and Usana as well as more details on the type of statements used to market the Guide. Again, the defendants moved to dismiss for failure to state a claim.
The district court granted the motion and dismissed the action with prejudice. The court noted that it incorporated much of the earlier order and affirmed its conclusion that the Guide as a whole and any statements in the Guide are not commercial advertising within the scope of the Lanham Act. It also rejected the...
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