Novex's false advertising lawsuit against ChromaDex appears to be "Home of the Whopper," so it is only fitting that ChromaDex's counsel, SIdley & Austin, flame-broils Novex's motion to dismiss ChromaDex's counterclaims. You can read the brief here:
When someone from Elysium brought this lawsuit to our attention, we laughed at and mocked Novex's legal arguments, because they seemed so desperate to scuttle their own lawsuit to get themselves off the hook.
We have been awaiting with some anticipation Sidley's opposition brief, because Novex seemed to be presenting such a large target, and we were not disappointed.
Before we get to the details, though, a few larger points:
First, Cooley has been doing first-rate, world-class work for ChromaDex, but Sidley's brief in this matter appears to be perfection itself -- every single word, phrase, and sentence is meticulously crafted, crystal-clear, and compelling.
On the other hand, Cooley has had to contend with the vicious, mindless snapping of the shark from Jaws, piloted by Darth Sacca on behalf of Skadden and Baker Hostetler, whereas Sidley merely needs to thumb-squoosh a nuisance or shakedown lawsuit copying allegations from a different complaint.
It's still a beautiful thing to see.
So let's catch up with the story.
Elysium, represented by one of the largest firms in the world, sued ChromaDex for false advertising in New York.
Then Novex, represented by a small law firm in Utah, sued ChromaDex for false advertising in Utah, echoing some of the allegations from Elysium's New York case.
ChromaDex (represented by Sidley) answered Novex's complaint in Utah and asserted its OWN counterclaims for false advertising. Essentially ChromaDex said, "Our marketing claims are true, but there IS a false advertiser in this lawsuit after all, and it's you."
Novex then moved to dismiss ChromaDex's counterclaims for several reasons, including because the two products don't compete after all. That made us laugh, because it seemed a transparent attempt to get the lawsuit dismissed and send everybody home.
Not so fast, says ChromaDex.
I can't improve on Sidley's account, so read this:
ChromaDex is a leading health and wellness company. NIAGEN, ChromaDex’s flagship product, is helping improve the way people age by increasing a key cellular resource, nicotinamide adenine dinucleotide (NAD). ChromaDex has five robust, published peer reviewed human clinical trials proving that NIAGEN is effective, and dozens of studies showing that NIAGEN is safe. ChromaDex has received two New Dietary Ingredient (NDI) approvals from the U.S. Food and Drug Administration (“FDA”) and has successfully filed a dossier with FDA establishing that NIAGEN, as a new ingredient, is “generally recognized as safe” (GRAS). That is the gold standard, far exceeding all legal and regulatory requirements for a dietary supplement.
Novex sells Oxydrene. It makes outlandish claims for this product, including that it is “proprietary” and a “new compound” that “maximizes” “blood oxygenation, muscle recovery and athletic performance” and even that it can make people “run faster,” “cut” time off races, and enable “peak aerobic activity.” But in reality, Oxydrene contains nothing more than small amounts of commodity household ingredients that provide none of the health benefits claimed. The valid, publicly available scientific research on these well-known ingredients shows that each of Novex’s claims is false.
Novex brought baseless claims against ChromaDex for false advertising under the Lanham Act. The premise of its lawsuit was that Oxydrene and NIAGEN compete in the marketplace. ChromaDex had never heard of Novex before. But after reviewing Novex’s product and advertising claims (and Novex’s allegation of competition), ChromaDex brought counterclaims under the Lanham Act and California state law. (emphasis added)
I highlight ChromaDex's claim that it had never heard of Novex before, because that seems consistent with my understanding that this was a shakedown suit, rather than a serious competitor complaint. [A Shakedown Lawsuit is one where the plaintiff's motivation is to settle quickly for less than the defendant's cost of litigating the suit.]
But to remove some doubt, Sidley drops this footnote:
This is plainly part of its business strategy. On behalf of Novex and its sister companies, this team of lawyers have brought many Lanham Act false advertising lawsuits against other supplement manufacturers in the past few years. See e.g., Fiber Research Int’l, LLC v. Nutrigold Inc., 2:16-cv-01251 (D. Utah), complaint filed Feb. 12, 2016; Fiber Research Int’l, LLC v. North South Science, LLC, 2:16-cv-02727 (D. Nev.), complaint filed Nov. 29, 2016; Novex Biotech, LLC v. Performix LLC, 2:19-cv-00021 (D. Utah), complaint filed Jan. 15, 2019; Novex Biotech, LLC v. Herbal Research, Inc., 0:17-cv-61863 (S.D. Fl.), complaint filed Sept. 25, 2017; Sanmedica Int’l, LLC v. Quantum Wellness Botanical Inst., LLC, 2:16-cv-00191 (D. Utah), complaint filed March 9, 2016; Sanmedica Int’l, LLC v. LA Nutrition, Inc. 3:17-cv-000965 (M.D. Tenn.), complaint filed June 21, 2017.
Novex's primary argument against ChromaDex's counterclaims is that ChromaDex said in its answer that the two products do not compete, and therefore ChromaDex should be prevented from asserting a counterclaim that requires competition as one element of the claim.
However, as Sidley explains,
"The Federal Rules of Civil Procedure expressly permit both “alternative” pleading (pleading claims that contradict a defense) and also “hypothetical” pleading (pleading claims based upon facts that the other party intends to prove)...Counterclaims may be asserted in an alternative or hypothetical manner and need not be consistent with the defenses and denials raised in the answer...
That is exactly what ChromaDex did here. While ChromaDex does not believe at this time that the two products compete, Novex has alleged that they do and has brought this lawsuit on that basis...If discovery reveals that the products do not compete then both the complaint and the counterclaim would be unmeritorious. If discovery reveals that the products do compete, as Novex affirmatively alleges, then the case could continue to other elements.
It is ironic (and suggests bad faith) that Novex criticizes ChromaDex for this inconsistent hypothetical pleading because that is precisely what Novex is doing in its motion. Novex repeatedly alleged that the products compete. But it now wants the Court to dismiss ChromaDex’s claims on the grounds that the products do not compete. If Novex were right about this argument, then its claim would have to be dismissed too..."
That argument is a slam dunk.
Sidley also dispenses with Novex's claims that ChromaDex failed to allege false claims, or claims that were not permissible lies ("puffery"):
ChromaDex has sufficiently alleged that Novex’s statement that Oxydrene is “new, proprietary, and revolutionary” is false, misleading, and actionable. Novex appears to concede that Oxydrene is neither “new,” nor “proprietary,” nor “revolutionary” as it prominently and repeatedly touts in its advertising. Instead it claims that (1) ChromaDex has failed to adequately allege falsity, because even though Oxydrene is made up of old, common ingredients, the combination is allegedly new, and (2) even if ChromaDex had adequately alleged falsity, those claims are mere “puffery.” These arguments should be rejected.
ChromaDex has pled that Novex’s claims are misleading, even if they were technically true...For example, ChromaDex plainly alleges that “[w]hile Novex claims that ‘CrenulinRCC2’ is ‘revolutionary’ ‘new’ and ‘proprietary,’ it is in reality comprised entirely of garden variety commodity ingredients that have been on the market for years. There is nothing new, revolutionary, or proprietary about it.” ChromaDex further alleges that consumers are misled and deceived as a result of these claims: “[t]he name ‘Crenulin-RCC2’ is nothing more than a scientific-sounding list of letters and numbers that deceives and misleads consumers into thinking the product contains some special ingredient or process, not just ginkgo biloba extract and rhodiola rosea.”
If Novex wishes to argue that reasonable consumers would understand its claims to be only about a formula and not the ingredients, it can make that argument after discovery. However, ChromaDex has alleged to the contrary, and that plausible allegation must be accepted as true at this stage.
As for puffery,
Both the substance and the context of Novex’s claims show they are not mere puffery. As to the language itself, courts have regularly found claims that a product is “new” or “proprietary” are not puffery.
The Federal Trade Commission, the federal agency charged with consumer protection in advertising, has reached the same conclusion...Plainly the FTC does not consider “new” to be unactionable puffery....
Novex's claims are not “exaggerated” and are not “generalized.” They are specific factual statements subject to (dis)confirmation. A product like this is either proprietary or not and it is either new or not.
Oops, Sidley's not done:
Finally, none of the cases relied on by Novex stands for the proposition that Novex’s claims are puffery...
And then there is the matter of the clinical trial that Novex claims exists but so far has not been found:
ChromaDex plausibly pleads that Novex’s claim that it possesses a clinical trial on Oxydrene is false...First, Novex makes no mention of this purported study on the “science” section of its website (even though it does discuss studies for other products the company sells). Second, ChromaDex, aided by its team of PhD credentialed scientists, conducted a literature search for Crenulin-RCC2 or the blend of ingredients listed on the supplement facts for the product and found “no studies at all, let alone scientific studies that back its sweeping claims of efficacy.” And finally, consumer watchdogs have likewise sought to find this study, and they too have reported that the study does not exist.
ChromaDex has pled detailed factual bases for its belief that no clinical trial exists, and if it does, it would only be “peculiarly” within Novex’s possession. ChromaDex’s pleading therefore satisfies Rule 9(b) too.
Oops, then comes another footnote:
Also worth noting, clinicaltrials.gov where human clinical trials are registered, shows no studies registered for Novex, Oxydrene, or Crenulin-RCC2.
And it goes on for more pages like this.
The direct upshot here is that ChromaDex has properly pled its claims, and the motion to dismiss should be denied.
I suggested last time that there was a chance that the Court would simply declare that both sides have no assented to the proposition that the products don't compete, and dismiss the matter on that basis.
But Judge Parrish should not dismiss it for that reason. Novex has alleged that the two products compete, and whether they do is a question of fact, so it improperly short-circuits the process to resolve that issue on a Motion to Dismiss, even if the writing is on the wall, and even if Novex is suffering from plaintiff's remorse.
So I predict that Judge Parrish will find Sidley's arguments convincing, and will deny Novex's motion to dismiss.
Then Novex will have to think hard about the strength of the allegations in the ChromaDex's counterclaim, and think hard about whether it will be able to prove its own allegations not only that ChromaDex has done something illegal (a task that I don't even think Baker Hostetler will be able to accomplish in New York), but also that Novex was significantly harmed by it.
If the calculus looks bad, then Novex will want to settle, but I don't see why ChromaDex would settle for less than the cost of its attorney fees -- and these are pricey attorneys! -- which cost will be increasing each day that Novex does not settle.
Quite a fix, and hopefully a lesson to any aspiring copycat litigants.