SUMMARY ORDER
3B Medical, Inc. appeals from the September 9, 2020 judgment of the United States District Court for the Southern District of New York (Failla, J.) dismissing its false advertising claim, brought under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and New York state law claims of unfair competition, brought under Sections 349 and 350 of the New York General Business Law, for failure to plausibly allege injury. We assume the parties’ familiarity with the underlying facts, procedural history, and specification of issues for review.
“We review a district courts grant of a motion to dismiss the complaint on the pleadings de novo and construe the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiffs favor.” Palin v. N.Y. Times Co., 940 F.3d 804, 809 (2d Cir. 2019) (alteration and internal quotation marks omitted). 3B and SoClean, Inc. are competitors that develop 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 alleges that SoClean falsely advertises and misrepresents SoCleans own devices because SoClean fails 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. SoClean nevertheless markets the devices as “safe,” “healthy,” and free of “harsh chemicals.” Appx at 10, 26-27. SoClean markets ozone as “activated oxygen” and represents that its devices use the same sanitizing process as hospitals. Appx at 23-25. However, hospitals do not use ozone sanitizers in spaces occupied by patients. 3Bs competing devices do not use ozone. Other competing products use ozone, but the majority of CPAP users handwash their machines. 3B alleges that without SoCleans false advertisements, “more consumers would investigate alternatives to ozone-sanitizers and discover” and “purchase” 3Bs devices. Appx at 38.
Section 1125(a)(1) provides that persons who “in commercial advertising or promotion, misrepresent[ ] the nature, characteristics, [or] qualities ․ of his or her or another persons goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.” 15 U.S.C. § 1125(a)(1). To state a false advertising claim, a plaintiff must plead “that the challenged message is (1) either literally or impliedly false, (2) material, (3) placed in interstate commerce, and (4) the cause of actual or likely injury to the plaintiff.” Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmBH, 843 F.3d 48, 65 (2d Cir. 2016). Only the injury element is disputed on appeal. The injury must be “economic or reputational injury flowing directly from the deception wrought” and such injury “occurs when deception of consumers causes them to withhold trade from the plaintiff.” Lexmark Intl, Inc. v. Static Control Components, Inc., 572 U.S. 118, 133, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014).
The district court erred when it concluded that 3Bs 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 is an allegation that “SoCleans false advertising causes consumers to purchase SoCleans products when they would otherwise purchase 3Bs products,” Appx at 38, i.e., that customers withhold trade from 3B due to SoCleans false advertising, see, e.g., Lexmark, 572 U.S. at 133, 134 S.Ct. 1377; Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 255 (2d Cir. 2014) (characterizing “direct diversion of sales” as injury under Lanham Act).
Though 3Bs complaint referenced three other competitors in the market and that many customers handwash their CPAP machines, neither the existence of the competitors nor the possibility of handwashing renders 3Bs lost sales injury speculative. The competitors’ products also use ozone, and customers who have chosen to buy sanitizing devices, which cost hundreds of dollars, have shown that handwashing is not a close substitute. In light of these particular market dynamics, 3B plausibly alleges that SoCleans false advertisements have caused it to lose sales. Although 3B does not specifically allege that its sales have declined due to SoCleans false advertisements, this is because 3B entered the market for automatic CPAP sanitizers only after SoClean began its advertising campaign, making such a before-and-after comparison impossible. The absence of such allegations in these circumstances does not make 3Bs claim of injury implausible, and 3Bs citation to specific customer reviews is sufficient to plausibly allege injury here.
3B will eventually need to prove its injury due to SoCleans false advertisements. But it need not do so at this phase of the litigation. In other words, “[a]lthough we conclude that [3B] has alleged an adequate basis to proceed under § 1125(a), it cannot obtain relief without evidence of injury proximately caused by [SoCleans] alleged misrepresentations.” Lexmark, 572 U.S. at 140, 134 S.Ct. 1377.
We have considered the remainder of SoCleans arguments and find them to be without merit. Accordingly, the judgment of the district court hereby is REVERSED and the case REMANDED for further proceedings consistent with this order.