Monday, September 09, 2019

ex-employees with new company trigger false advertising dispute (and submarine patent invalidity argument)

AlterG, Inc. v. Boost Treadmills LLC, 2019 WL 4221599, No. 18-cv-07568-EMC (N.D. Cal. Sept. 5, 2019)

The wildest allegation here involves former AlterG employees (who founded defendant Boost), one of whom allegedly got a journalist to write an article disclosing a machine, which article was published more than a year before AlterG filed for a relevant patent, thus creating an invalidity problem, all allegedly in breach of his duty to AlterG/so defendants could claim invalidity if AlterG came after them. Submarine invalidity instead of submarine patents? I won’t otherwise discuss the patent infringement/breach of contract/trade secret parts of the case, but they exist.

AlterG is a medical device company that is the “leading provider of impact reduction treadmills,” also known as “Anti-Gravity Treadmills,” that are used for orthopedic rehabilitation and training. It allegedly devoted substantial resources to develop “a lower cost, bare bones AlterG machine” but ultimately decided not to “immediately commercialize” or sell any products from this project.  You won’t be surprised that two of the former employees worked on this project.

AlterG alleged that defendants falsely claimed superiority to AlterG products “at a fraction of the cost,” and otherwise denigrated AlterG, for example claiming that AlterG was going out of business and was in poor financial health and thus consumers wouldn’t be able to get AlterG treadmills any more.

For deception/harm, it was sufficient to allege that, by falsely representing the capabilities of the Boost One treadmill relative to AlterG products, defendants succeeded in selling “over 20 [Boost] units to date to customers considering an AlterG unit.” The “where” was on defendant’s website and on another website that was allegedly an “affiliate and sales partner” of Boost, from which it could be reasonably inferred that Boost is responsible for the statements about Boost products on the website.  However, the “who” was still problematic. AlterG alleged that “Defendants, either individually or collectively” made the statements, but that wasn’t enough.  However, recognizing that there’s no need to plead the identity of the people acting for the corporation if the statements on the websites were made by “Boost” in the sense that agency law requires, the court granted AlterG leave to amend the claim “by specifying that only Boost was responsible for the false advertising.”

Trade libel was sufficiently pled because it detailed an instance: “[I]n or around May 2018, sales representatives of the Boost One treadmill falsely told the University of Tennessee that Woodway would stop selling treadmill [sic] to AlterG.” It was enough to allege that AlterG lost two sales to that client “at least in part” due to the misrepresentation; trade libel doesn’t require the misrepresentation to be the sole cause of the harm.

California UCL “unlawful” claims survived because of the survival of the predicate trade secret misappropriation and breach of fiduciary claims.

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