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Enzymotec Ltd v. Nbty

June 29, 2011

ENZYMOTEC LTD., PLAINTIFF,
v.
NBTY, INC., DEFENDANT.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

The plaintiff Enzymotec Ltd. ("Enzymotec") commenced this action against defendant NBTY, Inc. ("NBTY") alleging, among other things, that NBTY violated 15 U.S.C. 1125(a) (the

"Lanham Act") by misrepresenting the character, nature, and quality of certain NBTY products. In an order dated December 7, 2010, the Court granted NBTY's motion for partial summary judgment dismissing the Lanham Act claim, finding that Enzymotec lacked standing to assert the claim. Presently before the Court is a motion for reconsideration by Enzymotec pursuant to Local Rule 6.3. For the reasons set forth below, Enzymotec's motion for reconsideration is denied.

I. BACKGROUND

The relevant facts in this case are set forth in detail in the Court's previous decision in this matter. See Enzymotec Ltd. v. NBTY, Inc., 754 F. Supp. 2d 527 (E.D.N.Y. 2010) ("Enzymotec I"). Familiarity with that decision is assumed, and the Court here only briefly outlines the pertinent background in this case and the Court's holding in Enzymotec I.

The plaintiff, Enyzmotec Ltd., is a privately-owned Israeli company that produces, among other things, phosphatidylserine ("PS"), as well as soft-gel capsules containing PS, which it sells to wholesalers, distributors, and retailers. The defendant, NBTY, Inc., is a manufacturer, marketer, and distributor of nutritional supplements, including a product called Neuro-PS and its in-store brand formulations (collectively "Neuro-PS"), which contains as a principal ingredient PS-20 (material containing twenty percent PS by weight). On July 1, 2008, Enzymotec brought an action against NBTY alleging, among other things, that NBTY violated the Lanham Act by misrepresenting the character, nature, and quality of its product because the label on Neuro-PS stated that it contained 100 milligrams of PS-20 when NBTY knew it contained a lower quantity of PS-20 .

In Enzymotec I, the Court granted NBTY partial summary judgment and dismissed the Lanham Act claim on the ground that Enzymotec lacked standing. In its motion for summary judgment, NBTY argued that Enzymotec lacked standing to assert a claim against them for mislabeling under the Lanham Act because Enzymotec could not meet the two-pronged standing requirement, namely: "(1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising." Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 113 (2d Cir. 2010). With regard to the first prong of the test, the Court found that Enzymotec had a "reasonable interest to be protected" because of its status as "a commercial actor with a pecuniary interest potentially affected by the false advertising." Enzymotec I, 754 F. Supp. 2d at 542. However, the Court ultimately held that Enzymotec had failed to raise an issue of fact with respect to the reasonable basis requirement.

"The 'reasonable basis' prong embodies a requirement that the plaintiff show both likely injury and a causal nexus to the false advertising." Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d 690, 694 (2d Cir.1994). In addition, "[a] reasonable basis to believe the likelihood of injury for purposes of Lanham Act standing also requires that the injury not be speculative" and "[i]n order to show an injury is not speculative, a plaintiff must provide evidence of a causal connection between the alleged mislabeling and the potential injury." Enzymotec I, 754 F. Supp. 2d at 547. Enzymotec asserted that it was injured by NBTY's alleged mislabeling because, had NBTY recalled the mislabeled products and discontinued selling additional mislabeled products, it would have resulted in a void in the market. Based on its market share and the alleged supply agreement with NBTY, Enzymotec argued that it would have experienced an increase in sales to meet the demand created by the void in the market. The Court referred to this theory of damages based on injury resulting from loss of increased sales revenue as the "recall theory" of damages.

Ultimately, the Court held that Enzymotec lacked standing because the purported causal link between the mislabeling and its alleged injury-a void in the marketplace caused by the mislabeling-was too "hypothetical." Specifically, the Court stated:

However, the Court ultimately finds that the recall theory is unsustainable because Enzymotec has offered no evidence to support the causal connection between its "reasonable interest" and the potential injury, namely that a recall should have occurred. To establish the causal connection Enzymotec needed to show the recall was more than "hypothetical," meaning that NBTY had either represented that it would recall the mislabeled products, or that a recall was required by a rule or regulation. Enzymotec only states that it "thought" a recall would have been NBTY's proper course of action once it learned that its product has less than 20% PS, and that once that recall occurred, the result would have been a substantial void in the market that would likely have been filled, at least in part, by Enzymotec. (Opp. Br. at 14.) In addition, the factual allegations in the complaint that mention a potential recall also indicate Enzymotec's expectation of a recall as opposed to alleging an agreement by NBTY to recall the product. (PAC ¶¶ 61, 110.)

In fact, the evidence provided by Enzymotec indicates that NBTY never agreed to a recall, and never stated that it would recall non-conforming products. Enzymotec discussed the recall, not NBTY. For example, in a May 2, 2006 letter from Enzymotec's counsel Michael C. Foley to NBTY's CEO and President Harvey Kamil, Foley stated that "[i]f NBTY really acquired Enzymotec's knowledge and know how in order to ascertain a problem with its current supplies of PS20, it would have taken steps to recall its product once it determined they did not conform." (Horowitz Decl., Ex. H at 2.) Furthermore, Enzymotec does not allege that NBTY agreed to recall non-conforming PS-20, but rather that NBTY had agreed that "it would stop purchasing from Lipogen and switch to Enzymotec as its exclusive supplier of PS-20." (Katz Decl. ¶ 6.) Moreover, Enzymotec does not cite any rule or regulation that would have required NBTY to recall the products rather than take some other action to cure the alleged problem.

Id. at 548--49. Enzymotec now moves pursuant to Local Rule 6.3 for reconsideration.

II. DISCUSSION

Enzymotec contends that reconsideration is proper because the Court "overlooked" its argument in opposition to summary judgment that NBTY "continued to sell its mislabeled product in clear violation of the law". (Pl.'s Br. at 1.) Enzymotec identifies the "law" that NBTY was allegedly violating as the Dietary Supplement Health and Education Act ("DSHEA"), which is part of the Federal Food Drug and Cosmetic Act ("FDCA"). The FDCA governs the regulation of food-including certain dietary supplements-drugs, cosmetics, and tobacco products. 21 U.S.C. §301 et seq.; see also 21 U.S.C. § 321(ff) (defining the dietary supplements subject to the regulations). In particular, the FDCA prohibits the "manufacture . . . of any food, drug, device, tobacco product, or cosmetic that is adulterated or misbranded." 21 U.S.C. § 331(g). A nutritional supplement is considered "misbranded" under the DSHEA when it "fails to have the identity and strength that the supplement is represented to ...


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