Vbs Distribution, Inc. v. Nutrivita Laboratories, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 30, 2020
• Docket: 18-56317
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION APR 30 2020 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

VBS DISTRIBUTION, INC., AKA VBS No. 18-56317 Home Shopping, a California corporation; VBS TELEVISION, a California D.C. No. corporation, 8:16-cv-01553-CJC-DFM

Plaintiffs-Appellants, MEMORANDUM* v.

NUTRIVITA LABORATORIES, INC., a California corporation; NUTRIVITA, INC., a California corporation; US DOCTORS CLINICAL, INC., a California corporation; ROBINSON PHARMA, INC., a California corporation; KVLA, INC., a California corporation; TUONG NGUYEN, an individual domiciled in California; TRAM HO, an individual domiciled in California; JENNY DO, AKA Ngoc Nu, an individual domiciled in California,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Cormac J. Carney, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Argued and Submitted February 12, 2020 Pasadena, California

Before: BYBEE, COLLINS, and BRESS, Circuit Judges.

Appellants VBS Distribution, Inc. and VBS Television (collectively, VBS)

appeal the district court’s grant of summary judgment to Appellees on VBS’s

claims for false advertising, trade dress infringement, misappropriation of trade

secrets, breach of fiduciary duty, and civil conspiracy. Because the parties are

familiar with the facts, we will not recite them here. We affirm in part, reverse in

part, and remand for further proceedings.

1. The district court granted summary judgment to the Supplement Defendants

on VBS’s false advertising claim because it found “no evidence [that VBS]

suffered any economic or reputational injury” from the “100% tu duoc thao thien

nhien” (translated as “100% natural herbal”) statement. The Supplement

Defendants allegedly made this statement about their own Arthro-7 diet

supplement product in a 2013 newspaper advertisement.1

1 The district court treated VBS’s false advertising claim as based solely on this 2013 advertisement. In its reply brief, VBS asserted that the Supplement Defendants also made the “100% tu duoc thao thien nhien” statement in brochures and on the Arthro-7 box. Because VBS did not raise this issue until its reply brief, it is waived. See, e.g., United States v. Kama, 394 F.3d 1236, 1238 (9th Cir. 2005). But even if we were to consider the assertions in VBS’s reply brief, the result (continued...) 2 When a party seeks damages for an allegedly false advertisement under the

Lanham Act, “actual evidence of some injury resulting from the deception is an

essential element of the plaintiff’s case.” Harper House, Inc. v. Thomas Nelson,

Inc., 889 F.2d 197, 210 (9th Cir. 1989) (emphasis in original). Summary judgment

is thus proper when the plaintiff “fail[s] to present any evidence of injury resulting

from defendants’ deception.” Id. Later decisions have not altered this

requirement. Most recently, in TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d

820 (9th Cir. 2011), we held that the plaintiffs could not prevail under the Lanham

Act because they “didn’t produce any proof of past injury or causation.” Id. at 831

(emphasis in original). Nor did our discussion of the damages issue in

TrafficSchool.com turn on the phase of the proceedings.

In this case, and to demonstrate injury, VBS came forward with a declaration

from its CEO stating that

These false Advertisements have deprived us from being able to fairly compete in the marketplace, and have diverted sales away from us. When customers see the two similar products they will be persuaded by the content on the packaging, such as the false claims made in the Advertisements. The false claims cause consumers to believe their

1 (...continued) would be the same because VBS has not brought forward evidence sufficient to create a genuine dispute of material fact that the allegedly false statement caused injury to VBS. 3 product is superior to ours, and that causes consumers to purchase their product over ours.

This declaration is the only evidence of injury that VBS references in its opening

brief in claiming that “[t]his is all that VBS had to show in order to survive

summary judgment on the likelihood of injury element of its false-advertising

claim.”

VBS is not correct. The CEO’s declaration does not create a genuine dispute

of material fact that the “100% tu duoc thao thien nhien” statement injured VBS.

“A conclusory, self-serving affidavit, lacking detailed facts and any supporting

evidence, is insufficient to create a genuine issue of material fact.” FTC v. Publ’g

Clearing House, Inc., 104 F.3d 1168, 1171 (9th Cir. 1997), as amended (Apr. 11,

1997). Here, the CEO’s declaration is not specific to the “100% tu duoc thao thien

nhien” statement, but refers collectively to various allegedly false statements, most

of which are no longer at issue in this case. The CEO’s declaration is also entirely

conclusory in nature.

VBS’s evidence, which the dissent acknowledges is “sparse” and “thin,”

falls well short of the quantum of evidence this court has described as “adequate

. . . for a reasonable jury to conclude that Plaintiffs suffered actual injury as a result

of Defendants’ advertisements.” Southland Sod Farms v. Stover Seed Co., 108

4 F.3d 1134, 1146 (9th Cir. 1997) (plaintiff came forward with testimony from

consumer survey and economics expert); see also Lindy Pen Co. v. Bic Pen Corp.,

982 F.2d 1400, 1411 (9th Cir. 1993) (plaintiff came forward with “credible proof

of the fact of damage” based on evidence of a wholesale distributor switching

products), abrogated on other grounds by SunEarth, Inc. v. Sun Earth Solar Power

Co., 839 F.3d 1179 (9th Cir 2016) (en banc). The dissent’s contrary approach

would enable every Lanham Act plaintiff to survive summary judgment, which is

not correct.

Accordingly, we affirm the grant of summary judgment to the Supplement

Defendants on VBS’s false advertising claim.2

2. When granting summary judgment to the Show Defendants on the trade

dress infringement claims, the district court found that VBS “ma[d]e no showing

that the alleged trade dress has nonfunctional features or a nonfunctional

arrangement.” “Trade dress refers generally to the total image, design, and

appearance of a product and may include features such as size, shape, color, color

combinations, texture or graphics.” Clicks Billiards, Inc. v. Sixshooters, Inc., 251

2 In its reply brief, VBS argues that the district court erred because proof of past injury is not required to obtain an injunction under the Lanham Act, and VBS’s complaint seeks injunctive relief. But VBS failed to challenge the district court’s denial of injunctive relief in its opening brief, and so waived this issue on appeal. See Kama, 394 F.3d at 1238. 5 F.3d 1252, 1257 (9th Cir. 2001) (internal quotation marks omitted). In a trade

dress infringement case, a court must “focus not on the individual elements, but

rather on the overall visual impression that the combination and arrangement of

those elements create.” Id. at 1259.

VBS presented no evidence to raise a disputed issue of fact as to whether its

alleged trade dress is nonfunctional. VBS submitted two declarations—one from a

vendor and another from VBS’s CEO—that assert that VBS’s television show has

a distinctive and nonfunctional “look and feel.” But these conclusory statements

do not describe how the combination of the elements of VBS’s claimed trade dress

creates a distinct visual impression. The same is true of the three still images of

VBS’s television show that VBS submitted. These images do nothing to

demonstrate how the show’s format or VBS’s lighting technique combine in a

nonfunctional way. To the contrary, the testimony of VBS’s CEO suggests that the

selection and arrangement of the elements of VBS’s alleged trade dress were

driven by functionality concerns. In light of VBS’s lack of proof of

nonfunctionality, we affirm the grant of summary judgment to the Show

Defendants on the trade dress infringement claims.

3. The district court granted summary judgment to the Show Defendants on the

misappropriation of trade secrets claims after concluding that VBS provided “no

6 evidence that [its] customer lists were kept confidential,” particularly because VBS

admitted that it shared the identity of its customers with its vendors. To succeed on

this element of its claims, VBS must show merely that it took “reasonable

measures to keep [the relevant] information secret.” 18 U.S.C. § 1839(3)(A); see

also Cal. Civ. Code § 3426.1(d)(2) (requiring that the information be “the subject

of efforts that are reasonable under the circumstances to maintain its secrecy”).

VBS’s evidence was sufficient to create a disputed issue of fact as to

whether it took reasonable measures to ensure the secrecy of its customer lists.

Multiple declarations from VBS employees confirmed that VBS’s customer lists

are stored on computers that are password-protected. VBS requires its employees

to sign confidentiality agreements, and its employment agreements with Appellee

Tram Ho obligated her to keep VBS’s “customer lists” confidential. All these

measures indicate that VBS reasonably maintained the secrecy of the customer

lists. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 521 (9th Cir. 1993)

(noting that a requirement that “employees . . . sign confidentiality agreements”

can satisfy a party’s burden to take reasonable measures to “insure the secrecy” of

the relevant information).

VBS’s misappropriation claims do not fail at summary judgment merely

because VBS provided the identities of its customers to its vendors. Providing

7 alleged trade secrets to third parties does not undermine a trade-secret claim, so

long as the information was “provided on an understanding of confidentiality.”

United States v. Nosal, 844 F.3d 1024, 1043 (9th Cir. 2016); see also United States

v. Chung, 659 F.3d 815, 825–26 (9th Cir. 2011) (noting that “oral and written

understandings of confidentiality” can qualify as “reasonable measures” to keep

information confidential). VBS’s CEO testified that he orally reviews VBS’s

“policy” and “guidelines” with all of VBS’s vendors, including the obligation to

maintain the confidentiality of VBS’s customer information. One vendor’s

declaration confirmed this obligation existed, even though no confidentiality

provision appears in the written agreement between that vendor and VBS.

In short, VBS presented sufficient evidence of its reasonable measures to

keep its customer lists secret. Accordingly, we reverse the grant of summary

judgment to the Show Defendants on the misappropriation claims with respect to

the customer lists only. Because the district court did not address the other

elements of VBS’s misappropriation claims, neither do we. Upon remand, the

district court may determine whether summary judgment for the Show Defendants

is appropriate based on the other elements of VBS’s misappropriation claims. See

Millennium Labs., Inc. v. Ameritox, Ltd., 817 F.3d 1123, 1126 n.1 (9th Cir. 2016).

8 4. The district court sua sponte converted the Show Defendants’ motion for

judgment on the pleadings to a motion for summary judgment on VBS’s breach of

fiduciary duty and civil conspiracy claims, and then granted summary judgment to

the Show Defendants. When a district court converts a motion for judgment on the

pleadings to a motion for summary judgment, the court typically must afford the

non-moving party “10 days notice and an opportunity to present new evidence.”

Cunningham v. Rothery (In re Rothery), 143 F.3d 546, 549 (9th Cir. 1998)

(addressing conversion of a motion to dismiss); see also Fed. R. Civ. P. 12(d)

(noting that, when a district court converts a motion for judgment on the pleadings

to a motion for summary judgment, “[a]ll parties must be given a reasonable

opportunity to present all the material that is pertinent to the motion”). But no

notice is required if the non-moving party previously “had a full and fair

opportunity to ventilate the issues involved in the motion.” United States v.

Grayson, 879 F.2d 620, 625 (9th Cir. 1989) (internal quotation marks omitted).

VBS was given no notice before the district court converted the motion and

granted summary judgment to the Show Defendants. Nor did VBS have a

sufficient opportunity to “ventilate the issues” raised by its breach of fiduciary duty

and civil conspiracy claims. Prior to the district court’s summary-judgment order,

the only judicial ruling on these claims was the district court’s prior order granting

9 a motion to dismiss those claims with leave to amend. Because a district court is

limited to the pleadings when resolving a motion for judgment on the pleadings,

VBS had no reason to present evidence beyond its complaint to support these

claims. As a result, the lack of notice prejudiced VBS. Thus, we reverse the grant

of summary judgment to the Show Defendants on the breach of fiduciary duty and

civil conspiracy claims. Because we reverse the district court based on a

procedural defect, we do not address the merits of these claims.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Each party shall bear its own costs.

10 FILED VBS Distribution, Inc. v. Nutrivita Labs., Inc., No. 18-56317 APR 30 2020 BYBEE, J., concurring in part and dissenting in part: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

I concur in the majority’s conclusions regarding VBS’s trade dress

infringement claims, the misappropriation claims, and the district court’s

conversion of the motion for judgment on the pleadings to a motion for summary

judgment. But I disagree with the majority’s decision to affirm the district court’s

grant of summary judgment to the Supplement Defendants on VBS’s false

advertising claim. Accordingly, I respectfully dissent from that portion of the

memorandum disposition.

A plaintiff’s burden at the summary-judgment stage to demonstrate injury

caused by a false advertisement is quite lenient. As we explained in Southland Sod

Farms v. Stover Seed Co., 108 F.3d 1134 (9th Cir. 1997), “an inability to show

actual damages does not alone preclude a recovery under” the Lanham Act. Id. at

1146 (internal quotation marks omitted). Indeed, a false advertising claim can be

successful and damages may be awarded “even without a showing of actual

consumer confusion.” Id. All the Lanham Act requires is evidence tending to

show that the false advertisement “likely” caused injury. See 15 U.S.C.

§ 1125(a)(1)(A). This lenient standard “allows the district court in its discretion to

fashion relief, including monetary relief, based on the totality of the

circumstances.” Southland Sod Farms, 108 F.3d at 1146; see also 15 U.S.C. § 1117(a) (“[S]ubject to the principles of equity,” a successful “plaintiff shall be

entitled . . . to recover (1) defendant’s profits, (2) any damages sustained by the

plaintiff, and (3) the costs of the action.”).

Although VBS’s evidence of injury is sparse, I believe it is sufficient to

survive summary judgment. The district court found that a jury could reasonably

conclude that the “100% tu duoc thao thien nhien” statement is false. Assuming

that finding is correct (and the Supplement Defendants do not argue otherwise), a

jury could also reasonably conclude that the false advertisement harmed VBS’s

sales of JN-7 Best. VBS’s evidence shows that, where JN-7 Best is sold, Arthro-7

is sometimes the only competing product and is displayed alongside JN-7 Best on

the same shelf.1 In his declaration, VBS’s CEO described VBS’s target consumers

as Vietnamese individuals who “value vegetarianism,” so the advertisement that

Arthro-7 is entirely herbal could reasonably affect those consumers’ purchasing

decisions. Because the false statement appeared on multiple Arthro-7

advertisements, including a well-circulated Vietnamese newspaper, it is reasonably

1 VBS’s evidence at summary judgment includes its third amended complaint. Ordinarily, a complaint’s allegations are not evidence at the summary- judgment stage. See Moran v. Selig, 447 F.3d 748, 759 (9th Cir. 2006). But where, as here, the complaint is verified, the complaint “serve[s] as an affidavit for purposes of summary judgment if it is based on personal knowledge and if it sets forth the requisite facts with specificity.” Id. n.16. 2 likely that the false statement induced some consumers to purchase Arthro-7 rather

than JN-7 Best. Indeed, VBS’s CEO stated that the Supplement Defendants’ “false

[a]dvertisements have deprived us from being able to fairly compete in the

marketplace, and have diverted sales away from us.” In short, although VBS’s

evidence of injury is thin, I believe it is sufficient to create a disputed issue as to

whether the false advertisement injured VBS, rendering the grant of summary

judgment improper.

In reaching the opposite conclusion, the majority relies on Harper House,

Inc. v. Thomas Nelson, Inc., 889 F.2d 197 (9th Cir. 1989), which held that “actual

evidence of some injury resulting from the deception is an essential element of the

plaintiff’s case.” Id. at 210 (emphasis omitted). The majority cites

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir. 2011), for the same

proposition. But the plaintiffs in those cases “failed to present any evidence of

injury.” Harper House, 889 F.2d at 210; see also TrafficSchool.com, 653 F.3d at

831 (denying plaintiffs an award of profits because they “didn’t produce any proof

of past injury or causation”).

That is not the case here. VBS has presented evidence of “some injury.”

Harper House, 889 F.2d at 210. Although VBS’s evidence does not specify the

amount of damages, that level of detail is not required to survive summary

3 judgment. See Southland Sod Farms, 108 F.3d at 1146 (noting that a plaintiff need

not “show actual damages” to succeed on a Lanham Act claim); Lindy Pen Co. v.

Bic Pen Corp., 982 F.2d 1400, 1410–11 (9th Cir. 1993) (same), abrogated on other

grounds by SunEarth, Inc. v. Sun Earth Solar Power Co., 839 F.3d 1179 (9th Cir.

2016) (en banc) (per curiam). I acknowledge that the evidence of injury VBS has

produced may be weaker than the evidence presented by the plaintiffs in Southland

Sod Farms and Lindy Pen. See Southland Sod Farms, 108 F.3d at 1146 (plaintiff

submitted testimony from a consumer survey expert and a market analysis expert);

Lindy Pen, 982 F.2d at 1411 (plaintiff’s evidence demonstrated that “at least one

wholesale distributor engaged in switching its product”). At trial, VBS may well

lose if it is unable to provide anything stronger. But at this stage of the

proceedings, we are not permitted to “weigh the evidence.” Southland Sod Farms,

108 F.3d at 1138. Because VBS has presented some evidence of injury, the

Supplement Defendants’ summary-judgment motion should have been denied.2

2 Contrary to the majority’s suggestion, my approach does not “enable every Lanham Act plaintiff to survive summary judgment.” Maj. Mem. Disp. at 5. A plaintiff must demonstrate a genuine dispute of material fact relating to all five elements of a false advertising claim to defeat a summary-judgment motion. See Southland Sod Farms, 108 F.3d at 1139. Although our precedents have applied a more lenient standard to the element of injury, no such leniency has been applied to the other four elements. Thus, my approach is relevant only when, as here, the plaintiff has already demonstrated a genuine dispute as to those other elements. 4 I respectfully dissent.