Court Opinion

ID: 4688994
Source: CourtListenerOpinion
Date Created: 2021-05-21 15:00:51.621334+00
Date Added: 2024-06-11T08:04:51.640615
License: Public Domain

20-3477-cv
3B Medical, Inc. v. SoClean, Inc.

                                UNITED STATES COURT OF APPEALS
                                    FOR THE SECOND CIRCUIT

                                           SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

        At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York on the
21st day of May, two thousand twenty one.

Present:          GUIDO CALABRESI,
                  ROSEMARY S. POOLER,
                  MICHAEL H. PARK,
                             Circuit Judges.

_____________________________________________________

3B MEDICAL, INC.,

                                    Plaintiff-Appellant,

                           v.                                                  20-3477-cv

SOCLEAN, INC.,

                        Defendant-Appellee.
_____________________________________________________

Appearing for Appellant:            Daniel Kotchen, Kotchen & Low LLP, Washington, D.C.

Appearing for Appellee:             Scott A. Rader, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
                                    P.C. (Katharine K. Foote, on the brief), New York, N.Y.

         Appeal from the United States District Court for the Southern District of New York
(Failla, J.).
     ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of said District Court be and it hereby is REVERSED and
REMANDED.

        3B Medical, Inc. appeals from the September 9, 2020 judgment of the United States
District Court for the Southern District of New York (Failla, J.) dismissing its false advertising
claim, brought under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and New York state
law claims of unfair competition, brought under Sections 349 and 350 of the New York General
Business Law, for failure to plausibly allege injury. We assume the parties’ familiarity with the
underlying facts, procedural history, and specification of issues for review.

        “We review a district court’s grant of a motion to dismiss the complaint on the pleadings
de novo and construe the complaint liberally, accepting all factual allegations in the complaint as
true, and drawing all reasonable inferences in the plaintiff’s favor.” Palin v. N.Y. Times Co., 940
F.3d 804, 809 (2d Cir. 2019) (alteration and internal quotation marks omitted). 3B and SoClean,
Inc. are competitors that develop medical devices that sanitize continuous positive airway
pressure machines (“CPAPs”), which treat sleep apnea and respiratory conditions. SoClean
controls approximately ninety percent of the market while 3B controls about five percent. Three
competitors control the remaining five percent of the market.

        3B alleges that SoClean falsely advertises and misrepresents SoClean’s own devices
because SoClean fails to disclose that its sanitizing devices emit ozone, a toxic gas that can cause
side effects including skin irritation, difficulty breathing, and damage to the respiratory system.
SoClean nevertheless markets the devices as “safe,” “healthy,” and free of “harsh chemicals.”
App’x at 10, 26-27. SoClean markets ozone as “activated oxygen” and represents that its devices
use the same sanitizing process as hospitals. App’x at 23-25. However, hospitals do not use
ozone sanitizers in spaces occupied by patients. 3B’s competing devices do not use ozone. Other
competing products use ozone, but the majority of CPAP users handwash their machines. 3B
alleges that without SoClean’s false advertisements, “more consumers would investigate
alternatives to ozone-sanitizers and discover” and “purchase” 3B’s devices. App’x at 38.

         Section 1125(a)(1) provides that persons who “in commercial advertising or promotion,
misrepresent[] the nature, characteristics, [or] qualities . . . 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.” 15 U.S.C. § 1125(a)(1). To
state a false advertising claim, a plaintiff must plead “that the challenged message is (1) either
literally or impliedly false, (2) material, (3) placed in interstate commerce, and (4) the cause of
actual or likely injury to the plaintiff.” Church & Dwight Co. v. SPD Swiss Precision
Diagnostics, GmBH, 843 F.3d 48, 65 (2d Cir. 2016). Only the injury element is disputed on
appeal. The injury must be “economic or reputational injury flowing directly from the deception
wrought” and such injury “occurs when deception of consumers causes them to withhold trade
from the plaintiff.” Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118,
133 (2014).

        The district court erred when it concluded that 3B’s complaint failed to plausibly allege
injury. 3B specifically alleged, based on customer reviews, that when customers discovered the

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harmful effects of ozone and the use of ozone by SoClean and all other competitors, they decided
to purchase a 3B device. This is an allegation that “SoClean’s false advertising causes consumers
to purchase SoClean’s products when they would otherwise purchase 3B’s products,” App’x at
38, i.e., that customers withhold trade from 3B due to SoClean’s false advertising, see, e.g.,
Lexmark, 572 U.S. at 133; Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 255 (2d Cir. 2014)
(characterizing “direct diversion of sales” as injury under Lanham Act).

        Though 3B’s complaint referenced three other competitors in the market and that many
customers handwash their CPAP machines, neither the existence of the competitors nor the
possibility of handwashing renders 3B’s lost sales injury speculative. The competitors’ products
also use ozone, and customers who have chosen to buy sanitizing devices, which cost hundreds
of dollars, have shown that handwashing is not a close substitute. In light of these particular
market dynamics, 3B plausibly alleges that SoClean’s false advertisements have caused it to lose
sales. Although 3B does not specifically allege that its sales have declined due to SoClean’s false
advertisements, this is because 3B entered the market for automatic CPAP sanitizers only after
SoClean began its advertising campaign, making such a before-and-after comparison impossible.
The absence of such allegations in these circumstances does not make 3B’s claim of injury
implausible, and 3B’s citation to specific customer reviews is sufficient to plausibly allege injury
here.

        3B will eventually need to prove its injury due to SoClean’s false advertisements. But it
need not do so at this phase of the litigation. In other words, “[a]lthough we conclude that [3B]
has alleged an adequate basis to proceed under § 1125(a), it cannot obtain relief without evidence
of injury proximately caused by [SoClean’s] alleged misrepresentations.” Lexmark, 572 U.S. at
140.

        We have considered the remainder of SoClean’s arguments and find them to be without
merit. Accordingly, the judgment of the district court hereby is REVERSED and the case
REMANDED for further proceedings consistent with this order.

                                                      FOR THE COURT:
                                                      Catherine O’Hagan Wolfe, Clerk

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