Thursday, July 12, 2018

Unclean (but collagen rich) hands in a false advertising case

Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC, 2018 WL 3361142, No. 16-cv-02810-BEN-BGS (C.D. Cal. Jul. 10, 2018)

A rare unclean hands victory in a false advertising case.  Certified alleged that Avicenna, its competitor in the market for collagen products used as ingredients in other products, falsely advertised its products as “patented” or processed using “patented formulas and production methods” while Avicenna never held any relevant patents.

To prevail on a defense of unclean hands, a defendant must demonstrate by clear and convincing evidence: (1) “that the plaintiff’s conduct is inequitable;” and (2) “that the conduct relates to the subject matter of [the plaintiff’s] claims.” Even in such cases, unclean hands isn’t automatically a defense; the plaintiff’s wrongdoing must be balanced against the defendant’s, considering the substance of the plaintiff’s rights.

In the Ninth Circuit, “only a showing of wrongfulness, willfulness, bad faith, or gross negligence, proved by clear and convincing evidence, will establish sufficient culpability for invocation of the doctrine of unclean hands.”  Here, Avicenna established that Certified falsely claimed patent protection for its competing product, over a year before the PTO granted any Certified patent.  Certified argued that its product was covered by a different patent, but Certified wasn’t an owner, assignee, or licensee of that patent at that time or since, perhaps because of a permanent injunction against a Certified principal enjoining him from transferring, enforcing, or otherwise affecting the title to that patent.  Certified’s only other evidence that the statements weren’t false or misleading was a false statement that the principal was the assignee of a patent that was a continuation of the enjoined patent.  Thus, the court found that Certified knowingly made statements about the patented nature of its product—either because it knew the later patent hadn’t been issued, or because it knew it had no right to manufacture, distribute, offer for sale, or sell any goods under the continuation patent.  Avicenni showed Certified’s wrongfulness, willfulness, and bad faith in engaging in inequitable conduct with clear and convincing evidence. [I’m not sure courts would find that claiming patent protection when the patent was pending always meets this standard, though it would usually have to be knowing.]

Did this inequitable conduct relate to Avicenna’s false advertising claim? Unclean hands should only be applied “where some unconscionable act of one coming for relief has immediate and necessary relation to the equity that he seeks in respect of the matter in litigation,” which means that the plaintiff dirtied its hands “in acquiring the right” presently asserted or “the manner of dirtying renders inequitable the assertion of such rights against the defendants.” Even though the statements were now years old, there was still an immediate and necessary relationship to the equitable remedies sought, because they were about the patented status of the directly competing products.

Summary judgment on Lanham Act claims granted; coordinate state-law claims dismissed for want of supplemental jurisdiction.

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