Consumer Law

competitor plausibly alleged injury by alleging consumers changed behavior upon discovering the truth

competitor plausibly alleged injury by alleging consumers changed behavior upon discovering the truth

3B
Medical, Inc. v. SoClean, Inc., — Fed.Appx. —-, 2021 WL 2025153, No. 20-3477-cv
(2d Cir. May 21, 2021)

The
parties compete in the market for 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 alleged that SoClean falsely
advertised by failing 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, but marketing the devices as
“safe,” “healthy,” and free of “harsh chemicals.” SoClean markets uses
“activated oxygen” for “ozone” and represents that its devices use the same
sanitizing process as hospitals. But “hospitals do not use ozone sanitizers in
spaces occupied by patients.” 3B’s competing devices, uniquely in the market,
don’t use ozone, but the majority of CPAP users handwash their machines. Without
SoClean’s false advertisements, 3B alleged, “more consumers would investigate
alternatives to ozone-sanitizers and discover” and “purchase” 3B’s devices.

The
district court reversibly erred when it found that the complaint failed to
plausibly allege injury. “3B specifically alleged, based on customer reviews,
that when customers discovered the harmful effects of ozone and the use of
ozone by SoClean and all other competitors, they decided to purchase a 3B
device.” This amounted to an allegation that SoClean’s advertising caused
consumers to buy its products when they would otherwise buy 3B’s, that is, to
withhold trade from 3B.

Neither
the existence of the competitors nor the possibility of handwashing rendered
3B’s lost sales injury speculative. 3B was the non-ozone competitor, and the
fact that some consumers were willing to buy devices that cost hundreds of
dollars showed that handwashing was “not a close substitute.” 3B didn’t allege
a sales decline, but that’s because it entered the market only after SoClean’s
ads, so no such comparison was possible. In “these circumstances,” 3B’s
citation to specific customer reviews was sufficient to plausibly allege
injury. However, it would eventually need to prove its injury with evidence.
(Can it get disgorgement instead?)

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