Overview
Last week, Judge Liman granted in part plaintiff ChromaDex's motion for summary judgment on part of defendant Elysium's counterclaim for false advertising under the Lanham Act. The case arose from a dispute between the two competitors over the sale of nutritional products claiming to improve cellular health and cellular aging. Elysium argued that statements made by a blogger regarding ChromaDex's product were false, and should be attributable to ChromaDex under the Lanham Act, because the blogger was a ChromaDex shareholder who was paid by ChromaDex for referring customers. ChromaDex argued that it was not liable for statements that appeared on a third-party blog, regardless of whether they were false, material, or caused injury, because the statements did not constitute “advertising or promotion,” as required under the Lanham Act.
Judge Liman agreed with ChromaDex, finding that Elysium had not presented evidence that ChromaDex had an agency relationship with Shelly Albaum, the blogger. Furthermore, Judge Liman found that Elysium had not presented evidence that ChromaDex controlled the content of Albaum's blog. Elysium cited to an email between a ChromaDex executive (Jaksch) and Albaum regarding whether the executive wanted Albaum to post a certain article. Judge Liman concluded:
That evidence does not establish that ChromaDex had a relationship with Albaum or with [his blog] where it was able to exercise direction or control over Albaum’s communications. That Albaum was a shareholder of ChromaDex gave him an independent economic incentive to tout its products no different than the economic incentive that any investor, whether an activist institutional investor or a retail investor, might have to promote the products of a company in which it has a financial interest. That interest does not give the company whose shares are owned the ability to exercise direction and control over its shareholder nor does it make the company responsible for every one of the shareholder’s statements. Likewise, the fact that ChromaDex might reward Albaum or any other third party for steering business ChromaDex’s way does not establish that ChromaDex has the ability to exercise any control or direction over the statements that Albaum might make. A whole industry exists of social media influencers, who create their own content touting products and receive commission on sales of those products that stem from their advertising. A claim might lie directly against such persons whether under federal law or the state law of trade defamation if they make a false and misleading statement. But in the absence of evidence that an influencer is making the statement on behalf of the defendant or at the defendant’s direction or under its control rather than simply for its own benefit, the company cannot be held liable on a principal– agent theory. See In re Fyre Festival Litigation, 399 F. Supp. 3d 203, 213 (S.D.N.Y. 2019) (holding that “[c]ertain allegations reference statements made by online influencers who are not defendants . . . cannot form the basis of a fraud claim” against the defendants because they are not “attributable to defendants”). The emails reflect that Albaum believed he had the authority to make his own independent decisions whether to post or not, even if he might—based on the exercise of his own discretion—choose to follow a request of Jaksch. They do not reflect that Jaksch made such a request as to any communication or that Albaum honored it. To the extent the emails show ChromaDex communicating with a shareholder who—in turn—was communicating with the public, companies not infrequently communicate with shareholders and other third parties who might write about the company or its products. Both the company and its shareholder have an interest in getting the communication right. Cf. Elkind v. Liggett & Myers, Inc., 635 F.2d 156,163 (2d Cir. 1980) (affirming lower court’s finding that defendant did not “place its imprimatur, expressly or impliedly,” on projections even though it “did examine and comment on a number of reports” and “made suggestions as to factual and descriptive matters in a number of the reports it reviewed”), superseded on other grounds as stated in Acticon AG v. China North East Petroleum Holdings Ltd., 692 F.3d 34 (2d Cir. 2012). But that the fact that the company might communicate with a person who later writes about the company or its product does not make the company liable under the Lanham Act. To so penalize the company or its executive officers based solely on a company’s executives private communications with the company’s shareholder would strain both the Lanham Act and the First Amendment."
