Wednesday, July 05, 2017

a few misrepresentations aren't commercial advertising or promotion

Solmetex, LLC v. Dental Recycling, Inc., No. 17-cv-860, 2017 WL 2840282 (S.D.N.Y. Jun. 26, 2017)

The parties compete in the market for devices for removing particulate from dental office wastewater. (Did I mention how much I love learning about market niches I never even considered? This job is the best job.) The court here dismisses defendant DR’s amended counterclaims against Solmetex.  In 2009, DR entered into an exclusive marketing contract and licensing agreement with the Michigan Dental Association and its subsidiary; MDA agreed to promote DR’s product to its members. Solmetex, upon learning of a 2017 promotion, allegedly made two kinds of misrepresentations about DR’s product to MDA and another third party.  Solmetex allegedly told representatives from MDA that DR’s product hadn’t been tested by a relevant organization, wasn’t compliant with safety standards, and couldn’t replace Solmetex’s product, and repeated these statements in a C&D to MDA.  DR alleged that these statements were false, but MDA nonetheless terminated its marketing and licensing agreements with DR as a result.  Solmetex also allegedly contacted an unknown representative of the dental distributor Henry Schein and stated that DR’s devices “were not approved by the EPA ..., and infringed a patent.” In reality, the relevant EPA rule had been put “on hold” by the Trump administration, and Solmetex had no patents on its devices, but DR lost at least one sale as a result.

Solmetex sued DR for allegedly unlawfully marketing its device as equivalent to Solmetex’s product, which among other things produced counterclaims and then amended counterclaims.  The court found that DR didn’t sufficiently allege “commercial advertising or promotion” for its Lanham Act claim—it didn’t plausibly allege that Solmetex’s isolated misrepresentations were disseminated to the wider purchasing public. Though DR alleged that Solmetex requested that MDA disseminate the alleged misrepresentations to its members, it didn’t allege that this actually happened.  So too with similar allegations about Schein.  Although DR could plead based on information and belief, “such allegations must be accompanied by a statement of the facts upon which the belief is founded.” DR’s sole factual support for alleging that the statements were widely disseminated is that a single representative from Schein told a single member of the purchasing public that DR’s product was not EPA-approved and had infringed upon a patent. Even assuming that Solmetex was plausibly the source of Schein’s misrepresentation, this allegation didn’t support the inference that Solmetex conducted “a wide-reaching false advertising campaign disseminated to the wider purchasing public,” as required.

The common law unfair competition counterclaim also failed.  In New York, that’s misappropriation.  Product disparagement generally involves no misappropriation and therefore must be plead as a claim for trade libel, which it was not here.  Alleged violations of Delaware and Massachusetts consumer protection statutes also failed. Delaware’s Deceptive Trade Practices Act required a “pattern [ ] of deceptive conduct,” not alleged here; two instances of deceptive conduct weren’t enough.  Massachusetts Gen. Laws c. 93A requires that the conduct “(1) fall within at least the penumbra of some common-law, statutory, or other established concept of unfairness, (2) it must be unethical or unscrupulous, and (3) it must cause substantial injury to a consumer or another businessman.” But DR didn’t get past the first element because it hadn’t successfully alleged another wrong.

Tortious interference: DR alleged that Solmetex’s false representations caused MDA to terminate its marketing and licensing agreements with DR, but didn’t allege that MDA breached a contract by doing so. DR also failed to plead that Solmetex acted solely out of malice, or used dishonest, unfair, or improper means, as required for a tortious interference claim. While misrepresentations can constitute dishonest, unfair, or improper means, they must rise to the level of an independent tort to do so.

Trade libel/slander: disparaging DR’s product allowed only a claim for trade libel, not slander.  The trade libel claim failed on the merits.  Trade libel requires both malice and special damages.  Special damages requires the victim to name the individuals “who ceased to be customers, or who refused to purchase,” and itemize “the exact damages.” The counterclaims itemized damages only with regard to one lost sale as a result of misrepresentations by Schein. Assuming that Solmetex was the source of these false statements, DR didn’t plead allegations that the unnamed Solmetex representative knew the statements were false, entertained serious doubts as to the statements’ truth, or spoke solely out of spite or ill will, as required for malice. DR admitted that the representation that its device was not EPA-approved was true (albeit misleading), and didn’t allege that Solmetex’s employees were generally familiar with the company’s patents (or lack thereof). (An interesting variation on corporate knowledge or the lack thereof, since a corporation can only act through its agents; if the right hand doesn’t know what the left hand has patented, then apparently there can’t be malice.)

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