<em> Medical Marijuana Inc. v. Horn's </em> Effect on Anticounterfeiting and 43(a) False Advertising

This blog explores the impact of SCOTUS’ recent decision in Medical Marijuana Inc. v. Horn on the application of Civil RICO to anticounterfeiting and false advertising.

Attribution

Person in Welding Mask by Pixabay on Pexels

On April 2nd, 2025, Justice Barrett delivered SCOTUS’ opinion in Medical Marijuana, Inc. v. Horn, ruling that if a plaintiff in a Civil RICO case is able to demonstrate that a personal injury caused by the racketeering activity of the enterprise subsequently caused a business injury, the plaintiff could receive RICO treble damages. See Medical Marijuana v. Horn, 2025 U.S. LEXIS 1369 (U.S., Apr. 2, 2025). Douglas Horn, a truck driver, suffered from back pain after a serious crash, and upon the advice of his doctor sought the use of Medical Marijuana Inc.’s CBD-only product. See id. CBD is a non-addictive and non-impeditive byproduct of marijuana that provides the pain-relieving effects without the addictive and impairing effects of THC (the compound that gives marijuana its addictive psychoactive qualities). Medical Marijuana advertised their product Horn’s wife bought, “Dixie X,” as “CBD-rich” and “0% THC” when, in fact, Medical Marijuana knew, from testing, Dixie X contained THC. See id, at *2. Horn ordered Dixie X relying on Medical Marijuana’s false-advertising and subsequently began using the product. When Horn submitted his urine sample for testing, a routine procedure in the trucking industry, THC was detected in his system, and he was terminated. See id. Horn subsequently sent Dixie X to a testing facility which confirmed the presence of THC. Horn then filed a Civil RICO claim against Medical Marijuana alleging fraudulent inducement, wire fraud, and a New York State false advertising claim. See Horn v. Medical Marijuana, Inc., 383 F. Supp. 3d 114 (W.D.N.Y. 2019).

While the false advertising claim failed at the district court level since the transaction took place outside of New York, Medical Marijuana was found responsible for the fraudulent inducement due to the false advertising, and wire fraud stemming from the fraudulent inducement. On appeal, the 2nd Circuit ruled that simply because RICO mandates that there be a “business harm” proximately caused by the racketeering activity, that did not mean that a personal injury (what essentially amounted to a battery caused by Horn’s unknowing ingestion of THC) that subsequently caused a business harm (his termination) precluded a plaintiff from recovering the treble damages set forth by statute. 18 U.S.C. §§ 1961-68. The Supreme Court affirmed the 2nd Circuit’s decision, opening the door for RICO defendants to be liable for business damages sustained from personal injury they may have caused in their racketeering. See Medical Marijuana.

Civil RICO provides plaintiffs treble damages and attorney’s fees where they have suffered a business harm that was proximately caused by a pattern of racketeering or illegal activity (typically two or more offenses) of an enterprise or business. See H. J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 255 (1989); Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992); Boyle v. United States, 556 U.S. 938, 941 (2009). The sorts of racketeering behavior can be criminal or civil in nature but must be related to each other or constitute some sort of pattern. Section 43(a) of the Lanham Act provides a federal cause of action to those injured by false or misleading statements of products in interstate commerce. See 15 U.S.C. §1125. 43(a) False Advertising can apply to the false use of certification or standard marks (trademarks issued by bodies that regulate testing standards for consumer and manufacturing products).

The new decision in Medical Marijuana is widely applicable across legal fields – toxic torts, personal injury, employment law, etc. However, the decision opens a major avenue for individuals harmed by counterfeit goods to increase their damages against those companies who manufactured the illicit or improper goods. Additionally, it may provide workers injured by those counterfeits or falsely advertised products that subsequently caused a significant workplace injury that caused them to not be able to conduct their business, an avenue in federal court to extract damages from an entity other than their employer (who may or may not be liable for negligence in state court).

Take for example, Joe, an imaginary worker in an industrial fabricating workshop in Michigan: The owner of the workshop purchases steel sheets manufactured in China because it is advertised as bearing an “ISO,” “UL,” “CE,” or other certification mark that ensures the quality and safety of the steel and the product. However, as is often the case, the Chinese company has falsely labeled its products as having met the standards of the marks it bears - adding cheap boron to its steel alloy that, while cutting down on costs, makes the steel significantly more prone to cracking. See Angus Grigg, Boron-Infused Steel from China Draws Scrutiny, Austl. Fin. Rev. (Oct. 29, 2014); Kai Wang, et al., Cracking Behavior of Al-Si Coating on Hot Stamping Boron Steel Sheet, 81 Procedia Eng. 1713 (2014); Iñaki Heras-Saizarbitoria, Faking ISO 9001 in China: An Exploratory Study, 62 Bus. Horizons 55 (2019). While welding the steel sheets together, the inferior steel cracks under the heat, causing one of the large sheets to fall on Joe, severing his arm.

Manufacturing is a dangerous and serious business, and while Joe can recover, the loss of his arm means he can no longer get a job in the field he has dedicated his professional life to. While it is generally accepted across federal courts that violations of the Lanham Act cannot be used as predicate actions to form a RICO claim, this does not mean that the fraud that occurs from trademark infringement or false advertising cannot form the basis of that cause of action. See 18 U.S.C. § 1961(1); See also Tentandtable.com, LLC v. Mohammed Aljibouri, 2025 U.S. Dist. LEXIS 61207, at *38 n. 20 (W.D.N.Y. Mar. 31, 2025) (citing Vivera Pharms., Inc. v. Blaine Labs., Inc., 2022 WL 22893464, at *5 (C.D. Cal. Aug. 8, 2022)); Bauder v. Ralston Purina Co., 1989 U.S. Dist. LEXIS 14091, at *3-4 (E.D. Pa. Nov. 21, 1989); see e.g. Ray V. Hartwell, Developments in Private Consumer Protection Litigation: The RICO False Advertising Cases, 60 Antitrust L.J. 147 (1991). As such, Joe could choose wire/mail fraud and fraudulent inducement, as did Horn, stemming from 43(a) false advertising of the certification marks, and even, if the certifying body files suit, trademark infringement, as the predicate actions. Additionally, the Chinese company would almost certainly be considered an enterprise under Boyle. See Boyle, at 941. Joe’s business injuries were proximately caused by the wire and mail fraud and fraudulent inducement of his employer by the Chinese steel company that caused him a personal injury giving him recourse under Medical Marijuana.

Before Medical Marijuana, Joe probably would only be able to seek damages for his arm from his employer due to their negligence, and most likely could not have recovered much in the way of damages stemming from his loss of business beyond, perhaps, lost wages. But in cases involving false advertising, negligence is hard to prove; Joe’s employer was tricked too (reducing the chance that they would be found negligent), and while they may ultimately be found liable for negligence, Joe would have to pay large swaths of his savings to get a likely minor payout in state court. Medical Marijuana, however, provides Joe a path to take his claims to Federal court, receive treble damages, and have the loss to his business, rather than just his injury, be considered when calculating those damages. The court’s decision also provides Joe greater recourse outside of suing his employer as Joe’s employer was certainly harmed “in his business” by the false advertising and fraud stemming from it: Joe need not see his employer as an enemy in court, being able to jointly file with them as plaintiff. Compagnie De Reassurance D'Ile de France v. New England Reinsurance Corp., 57 F.3d 56, 91 (1st Cir. 1995) (quoting 18 U.S.C. § 1964(c)). Additionally, Joe may not even need to go to trial to extract a hefty sum from the Chinese company as the threat of Civil RICO charges could push the company to settle at a much higher number.

Joe however may still face issues with his Civil RICO claims. Many Civil RICO claims are thrown out at the motion to dismiss level, citing a failure to state a claim due to insufficient evidence of fraud. See Edward T. Kang, From Mobsters to Fraudsters: Clearing the Bar for Civil RICO Claims, Legal Intelligencer (Jan. 23, 2023). Because of this, Civil RICO has been characterized as “the litigation equivalent of a thermonuclear device,” – plaintiffs should only bring them where they truly can establish patterns of racketeering. See Miranda v. Ponce Federal Bank, 948 F.2d 41, 44 (1st Cir. 1991). Because Civil RICO holds such a high bar to pass motions to dismiss, and cases involving wire and mail fraud require some circuits to implement high scrutiny to the plaintiff’s evidence, Medical Marijuana’s most effective application may be its use as a negotiation tactic. See Crawford v. Franklin Credit Mgmt., 758 F.3d 473, 489 (2d Cir. 2014) (citing Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 20 (1st Cir. 2000)); see also BWP Media USA, Inc. v. Hollywood Fan Sites, LLC, 69 F. Supp. 3d 342, 362 (S.D.N.Y. 2014). Additionally, the Chinese company may attempt to further attenuate Joe’s economic injuries from their racketeering behavior by arguing that, because Joe was not the one to be himself defrauded or induced, he cannot bring suit. This notion, however, is dealt away with as the court only necessitates the activities be the “proximate” cause of the business injury. Additionally, Douglas Horn was not the person directly defrauded or induced – in-fact it was his wife who made the purchase. See Horn, at 122.

Civil RICO is often characterized as giving what should be state claims, a foray into federal court - clogging dockets with unnecessary suits. See Kang. The decision in Medical Marijuana will certainly add more fuel to those critiques. However, while Civil RICO is often critiqued as being overly broad and too widely applicable, a notion mentioned by the court, the remedy lies in the hands of the legislature, not the judiciary. See Medical Marijuana, at *4. Nevertheless, SCOTUS has recognized Civil RICO as “not merely to compensate victims but to turn them into prosecutors, ‘private attorneys general,’ dedicated to eliminating racketeering activity.” Rotella v. Wood, 528 U.S. 549, 557 (2000). Medical Marijuana does just that in the realm of anti-consumer behaviors, counterfeiting, and false advertising both on the domestic and international markets and under the Lanham Act. By opening Civil RICO up to business damages incurred from personal injury, Medical Marijuana gives US consumers ammunition to squash these activities as individuals rather than relying on the legal actions of major corporations or class actions allowing plaintiffs like our hypothetical Joe, and the very real-life Douglas Horn to tackle anti-consumer behaviors as, now, consumers themselves can bring the fight against counterfeiting and false advertising from the boardroom to the kitchen table.