Thursday, August 02, 2012

What exactly must a false advertising plaintiff plead?

Kimberly-Clark Worldwide, Inc. v. Cardinal Health 200, LLC, 2012 WL 3063974 (D. Del.)
This opinion essentially dealt with Cardinal’s false advertising (and related causes of action) counterclaims in what appears to be initially a patent dispute.  The state law unfair competition/consumer protection counterclaims didn’t allege any particular location where the claims arose or violation of a particular state's law.
Kimberly-Clark argued that the Lanham Act counterclaim failed to state a claim because its allegedly false statements that Cardinal infringed its patents were protected by litigation immunity; Cardinal argued that it had properly pled that the litigation was a sham.  Cardinal alleged noninfringement “fairly specifically,” including concrete differences between its product and the patent that were supported by plaintiffs’ statements to the Patent Office.  This provided a foundation for the allegation that “no objectively reasonable basis exists” for concluding that Cardinal’s product infringed, that plaintiffs “had no subjective good faith belief of infringement, and that plaintiffs brought this litigation in bad faith.  “Whether or not the litigation is a sham is closely connected to the issue of whether there is actual infringement, and therefore is best left for determination on summary judgment or at trial.”  Also, whether there actually was a sham litigation doctrine applicable to Lanham Act claims needed further development.
Kimberly-Clark then argued that the challenged statements about Cardinal’s infringement weren’t literally false.  There was no dispute that there was some factual truth in the letter about differences between the parties’ products, but the question was whether the statements as presented, with context, emphasis, and footnotes, were false or misleading. The court found that this was an issue of fact that couldn’t be decided on the pleadings.
Next, Kimberly-Clark argued that Lanham Act claims couldn’t properly rely on alleged oral statements to customers, because the allegations lacked sufficient specificity and were not sufficiently disseminated to constitute commercial advertising or promotion.  While Cardinal didn’t dispute that isolated oral statements wouldn’t provide a Lanham Act cause of action, it argued that the fact that the alleged statements mirrored the statements in the letter supported an inference that there was a general campaign.  The court agreed with Cardinal, which pled the circumstances surrounding the letter and then alleged “representatives of Kimberly–Clark made further false and misleading statements,” providing two oral statements as examples. Read favorably, these allegations supported the inference of a campaign.
Then Kimberly-Clark argued that Cardinal failed to allege that customers were actually misled.  Cardinal did generally allege that customers were likely or actually misled, and alleged that it suffered harm.  Moreover, literal falsity makes it unnecessary to prove that customers were actually misled.  The court concluded that Cardinal hadn’t alleged actual misleadingness (rendering the pleading standard somewhat unclear—since it suffices to show likely misleadingness, even if that has to be shown on summary judgment or at trial by a survey, why isn’t alleging likely misleadingness enough?—but found that, since Cardinal had alleged literal falsity, it had stated a complete Lanham Act claim.
On the state law counterclaims, Cardinal erred by citing multiple states’ deceptive trade practices statutes without sufficient detail.  Cardinal noted that choice of law had not been resolved, and that choice of law was a legal issue.  The court didn’t think that was enough to justify Cardinal’s pleading:
If Defendant asserted that every state had the same deceptive trade practices statute and interpreted it the same way, maybe the Defendant could plead the counterclaim the way it did. In the absence of such an assertion, Plaintiffs cannot meaningfully argue that the claims are legally insufficient, and the Court cannot meaningfully review the allegations. For example, Delaware's deceptive trade practices statute has twelve subsections. The counterclaim appears to more-or-less track two of them. I think the Defendant's counterclaim ought to assert, at a minimum, a violation of a particular state's deceptive trade practices act, including allegations of which subsection is violated. If, down the road, discovery (or further reflection) suggests that a different state's law is applicable, the issue can be dealt with then.
Motion to dismiss granted, without prejudice.
Likewise, Cardinal’s pleadings on tortious interference and common-law unfair competition were insufficient.  Post-Twombly, Cardinal needed to identify a valid business relationship or expectancy and explain how Kimberly-Clark’s statement allegedly interfered with it.

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