Friday, December 31, 2010

Failure to dislose EPA-related troubles may make statement of success with FDA misleading

Harrison Research Laboratories, Inc. v. HCRAmerica, LLC, 2010 WL 5343197 (D.N.J.)

Harrison Research Laboratories sued Harrison Clinical Research Group GmbH and HCRAmerica for infringement of plaintiff’s registered marks HARRISON RESEARCH LABORATORIES, INC. and HRL for clinical research tests and testing of consumer products. Plaintiff moved to strike a portion of defendants’ counterclaims as impertinent and immaterial. Though defendants argued that they aren’t competitors, in the alternative, they argued that, if their services compete with plaintiff’s, they’re likely to be injured by plaintiff’s false and misleading ads.

Specifically, defendants alleged that plaintiff claimed to have passed “numerous” FDA audits, but in fact, plaintiff had been subject to very few FDA audits, and one audit by the EPA in the 1990s that resulted in plaintiff’s plea of guilty to felony obstruction of an EPA audit, with a $104,000 fine. In addition, plaintiff’s president pled guilty to testing pesticides (DEET) on subjects without informed consent. EPA press release.

Moreover, defendants alleged that plaintiff claims to perform “the full range of human testing" and that "Phase III tests are performed on such drugs as anti-fungals, acne products and other topically applied pharmaceuticals," while in fact it performs only a limited range of tests and has not conducted a Phase III test in a number of years.

Plaintiff moved to strike the EPA audit-related allegations and exhibits since the allegations were not relevant to the truth or falsity of the statement that "HRL passed numerous USA FDA audits." Defendants argued that plaintiff’s "grossly exaggerated claim … creates a very misleading portrait of its qualifications to prospective study sponsors," and that the facts relating to the EPA audit and convictions were relevant because prior wrongdoings are important to a study sponsor's decision whether to hire a company like plaintiff to participate in clinical trials for products that are subject to FDA pre-market approval, which defendants argued are the exact services it provides.

Courts have broad discretion in resolving motions to strike “redundant, immaterial, impertinent, or scandalous matter” under Rule 12(f), though such motions are viewed with disfavor unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties or confuse the issues.

The court determined that the allegations relating to the EPA audit/convictions supported defendants’ claims that plaintiff’s FDA audit statement was misleading to potential study sponsors because it omitted “potentially relevant and important information.” At this early stage in the litigation, the court couldn’t say that the EPA audit/convictions had no possible relation to defendants’ false advertising claims. A third party could assume based on the FDA audit statement that plaintiff also successfully passed other types of audits. Moreover, if potential clients found it relevant and important that plaintiff passed numerous audits by one federal agency, as the fact that plaintiff touted this statement indicated, then those clients might also find it relevant and important that plaintiff had been subject to criminal proceedings in connection with another federal agency’s audit. Thus, a third party might assume that if plaintiff disclosed its success with FDA audits, it also would have disclosed its EPA history, and that its silence meant that it hadn’t been subject to EPA proceedings. (In a footnote, the court noted that courts have interpreted New Jersey unfair competition law to be coextensive with the Lanham Act for both TM and false advertising, though many states have far more developed law about deceptive failure to disclose than Lanham Act precedent does, in part because many state laws make specific reference to deceptive omissions, often with an intent requirement lacking for affirmative misstatements.)

In addition, the court thought that the allegations were unlikely to cause plaintiff any prejudice, since pleadings aren’t read to the jury.

Finally, striking the allegations wouldn’t save time or expenses litigating issues that will not affect the outcome of this litigation since the facts recited in the allegations regarding the EPA audit and subsequent conviction were not in dispute. Although evidence of the conviction for impeachment and/or other purposes in connection with the trademark infringement claims might eventually be subject to motions in limine, that wasn’t sufficient to justify a motion to strike, especially given their potential relevance to the false advertising claims.

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