Saw Palmetto Extract Manufacturer Denied Punitive Damages for Receiving Adulterated Material from Supplier

Dietary supplement extract manufacturer Jiaherb (Pine Brook, NJ) sued one of its ingredient suppliers, claiming that the company led Jiaherb to unknowingly purchase a product labeled to contain saw palmetto extract which was diluted with vegetable oils, misrepresenting the saw palmetto extract as unadulterated. The complaint alleged injuries to Jiaherb’s “business, reputation, and good will” as well as lost profits due to cancelled orders, and included claims under the Lanham Act*, the Universal Commercial Code (UCC), and state law theories of liability.¹

The judge dismissed Jiaherb’s Lanham Act claim based on a previous case in which the court decided that “[e]ven a business misled by a supplier into purchasing an inferior product is, like consumers generally, not under the Act’s aegis.”¹ Applying the same reasoning, the judge explained that, since Jiaherb characterized its role as that of a consumer of MTC’s products, its alleged injury was merely that of a “consumer-entity that was misled into purchasing a ‘disappointing product,'” which is a type of situation excluded from Lanham Act relief.

Comment: This case shows that companies should pay extra attention to the wording of contractual provisions to ensure that a harmed party has full access to as much legal recourse as possible. As the Court explained in this case, without proper standing (enough reason to be tried in court) a potential legal course of action (i.e., Lanham Act violation) against an ingredient supplier for selling allegedly intentionally adulterated product is not available to a buyer/manufacturer. In essence, “standing” requires a relationship beyond a general ‘consumer’ and more towards 'potential competitors.'

Since the Court in this case allows the plaintiff (Jiaherb) to re-plead to establish proper standing, other legal causes of action remain viable. Finally, the ruling highlights the importance of robust ingredient specifications, proper testing and the value of BAPP’s proposed contract and Standard Operating Practice (SOP) templates. These SOP templates expressly protect the buyer against fraud, such as economically adulterated extracts, which cannot be lawfully remediated, and are contractually defined by BAPP as “irreparably defective”. 

* The Lanham Act (also known as the Trademark Act of 1946) is the federal statute that governs trademarks, service marks, and unfair competition. 

Reference

1. Anonymous. District court judge finds that herbal extract manufacturer fails to capture the essence of a Lanham Act claim. The National Law Review [online]. 2019. Available at: https://www.natlawreview.com/article/district-court-judge-finds-herbal-extract-manufacturer-fails-to-capture-essence. Accessed November 1, 2019.