Monday, August 27, 2012

"revolutionary, new" claims could be false if competitor had patent

Mycone Dental Supply Co., Inc. v. Creative Nail Design, Inc., 2012 WL 3599368 (D.N.J.)

Mycone, aka Keystone, sued defendants CND and some others (distributors) for patent infringement, false advertising, and various state law claims.

Keystone alleged that it invented “a substantially acid-free nail coating that forms a strong protective bond with the fingernail in a toxicologically and dermatologically safe manner,” which is patented and promoted as GEL POLISH in three varieties: base, color, and top coats.  CND’s sales of SHELLAC nail polish products allegedly infringed Keystone’s patent.  Further, Keystone alleged, CND’s marketing falsely claimed that CND created and owned the substantially acid-free fingernail coating technology with claims including “revolutionary, new hybrid color service for nails,” “breakthrough, patent-pending UV3 technology,” “[a] true innovation in chip-free, extended wear color,” and “game-changing product.”  This also allegedly violated the New Jersey Fair Trade Act’s prohibition on “appropriating for [a defendant’s] own use a name, brand, trade-mark, reputation or goodwill of any maker in whose product such ... corporation deals.”

*cough*Dastar*cough* (as subsequently interpreted by lower courts, anyway)

Rather than addressing the Dastar issue, however, the parties fought about the pleading standard.  Some district courts in the Third Circuit have applied an intermediate pleading standard for false advertising claims.  This court thought that this “heightened” or “intermediate” standard might be identical to the Iqbal/Twombly standard.  But in any event, Keystone satisfied the standard.

CND argued that Keystone didn’t plead why CND’s statements were false.  Even if it were infringing Keystone’s patent, that wouldn’t prevent it from being true that CND independently developed Shellac, or that Shellac was unique, or that CND filed patent applications for its system.  The court considered these all to be possible defenses, but not something Keystone needed to disprove at this stage. “The Court assumes, as it must at this procedural posture, that Keystone's patent is valid and enforceable, that Keystone created and patented these unique nail technologies and, therefore, that any statement that CND created or brought them to the market is false.”  Keystone also didn’t need to include precise allegations of date, time or place.  It provided sufficient specificity about whether this was commercial advertising by attaching examples of the statements to the complaint and, at oral argument, offering statements from CND's marketing brochures, website, and Facebook page.

The parties agreed that the New Jersey state law claims tracked the Lanham Act claims (though the court noted in a footnote that it wasn’t entirely clear that this should be true of claims “revolv[ing] around patent infringement and false advertising,” without allegations of trademark infringement).

However, Keystone didn’t properly allege false advertising against the distributors.  Though it alleged that they advertised that they were dealers for CND, there were no allegations that they made false statements.  Keystone argued that the distributors engaged in “misappropriation” and use of the patented invention, but that wasn’t sufficiently detailed to make out a facially plausible claim.

The unjust enrichment claims were also dismissed because the parties didn’t have a direct relationship, as required in New Jersey.

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