statutory Lanham Act standing exists when advertiser is advertising but not yet selling

CareDx, Inc. v. Natera, Inc., 2019 WL 7037799, No. 19-662-CFC-CJB (D. Del. Dec. 20, 2019) (magistrate)

A nicely reasoned opinion about impending competition as sufficient to find likely harm from false advertising.

CareDx makes AlloSure, a patented kidney transplant surveillance diagnostic test that allegedly detects active kidney rejection in kidney transplant patients using cell-free DNA detection.  CareDx’s clinical trial allegedly demonstrated that AlloSure “markedly outperformed” the current standard of care for detecting kidney transplant rejection (serum creatinine testing). Natera allegedly developed a competing cell-free DNA kidney transplant rejection test, Prospera. It had allegedly “begun significant marketing efforts,” such as by making the test available for use in clinical trials and marketing it to major clinical centers and sponsoring a clinical study. The study allegedly involved “retrospectively select[ing] samples that had been collected for unrelated purposes by a single clinical center and archived.” The results were published in the December 23, 2018 issue of the Journal of Clinical Medicine.

Natera made statements comparing the parties’ studies’ results, e.g. “compares favorably against competition,” particularly in sensitivity, citing the CareDX study. CareDx alleged that because the two studies did not involve “head-to-head clinical trials comparing the two [companies’] products[,]” and because the Natera Study suffers from “substantial material flaws[,]” Natera’s statements comparing Prospera’s performance to AlloSure’s performance were “literally false and entirely misleading.”

Natera argued that since its product hadn’t yet launched, it couldn’t proximately cause harm. First, proximate harm is a 12(b)(6) issue and not a subject matter jurisdiction issue, per Lexmark. Natera argued that since it had never sold a competing product, it was impossible for consumers to have been deceived and to have withheld business from CareDx.

Under these circumstances, CareDx pled proximate cause. Past harm due to lost sales is not required; the language of the law protects any person “who believes that he or she is or is likely to be damaged” by the defendant’s false advertising. In a footnote, the court elaborated: the statutory language “aligns with how ‘unfair competition’ claims were historically viewed, as being concerned ‘with injuries to business reputation and present and future sales’” (citing Lexmark).  It is not required to allege that “the defendant’s statements have already caused consumers to buy defendant’s product instead of the plaintiff’s product,” even if that is the ordinary path.  Thus, “if a plaintiff pleads facts plausibly indicating that a defendant’s statements about the plaintiff’s product will likely cause the plaintiff economic harm in the future (or that it has or will otherwise cause the plaintiff reputational harm), that could well satisfy the proximate cause requirement, even if there has been no sales yet lost to the defendant’s product.”

Par Sterile Prods., LLC v. Fresenius Kabi USA LLC, No. 14 C 3349, 2015 WL 1263041 (N.D. Ill. Mar. 17, 2015), reached the same conclusion where it was the plaintiff’s product that was FDA-approved and ready for market but not yet being sold and the defendant’s that was already marketed, allegedly misrepresenting that it was FDA-approved. In Par, the plaintiff’s product was a “concrete competing product to compare with” the defendant’s product, and the same was true here. Although proximate causation is usually thought of in past tense, it can be—and, according to the language of the Lanham Act, must be—considered in the future as well. What are required are allegations showing that the likelihood of harm is concrete and imminent. It sufficed to allege that Prospera was mid-launch, that Natera was actively advertising and seeking Medicare coverage for Prospera, and that Natera had begun significant marketing efforts for Prospera, including by making it available for use in clinical trials and marketing it to major clinical centers for such use.”  According to the complaint, “Prospera is not some speculative, who-knows-if-it-will-ever-be-developed product,” contrasted to other cases in which alleged harm was “remote, speculative and ill-defined.”

Natera also challenged the sufficiency of the falsity allegations. CareDx didn’t allege that the study data were falsely reported, and Natera argued that scientific disagreement wasn’t enough for a false advertising claim. CareDx argued that the challenged statements were establishment claims, and that it successfully alleged that “the tests referred to in the advertisement were not sufficiently reliable to permit one to conclude with reasonable certainty that they established the proposition for which they were cited.”  “Critically, the Complaint also includes detailed allegations as to why CareDx believes the Natera Study to be flawed and unreliable,” including use of unrepresentative samples, inclusion of “suspicious” results, improperly mixed population sets and violations of well-known criteria for the diagnosis of kidney rejections. The complaint also alleged how its own study was robust and reliable. Taken together, this was sufficient to plausibly allege falsity.

Natera implausibly argued that there was no express comparison of “Prospera” and “AlloSure,” but only of study results not naming “AlloSure.”  [Someone in this process had a misconception about whether you can avoid a problem by not naming the product you’re very clearly talking about: you can’t.]  The challenged statements expressly compared the assays directly tied to each product.  It was thus likely that the audience would link them to the parties’ respective tests [indeed, on these alleged facts, no reasonable person could fail to make the link].

Natera relied on ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013) and Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242 (11th Cir. 2002), to argue that a false advertising claim cannot be premised on matters about which there is legitimate ongoing “scientific disagreement.”  But whatever the merits of ONY, CareDx wasn’t challenging the Natera’s study publication itself, as ONY did, but rather challenging statements made in Natera’s press releases and other advertising materials that compared the results of the studies (which, among other things, meant that full disclosure of the data and its limitations wasn’t present). “Advertisements are not immune from Lanham Act protection just because their claims may have some relation to areas of scientific debate” (citing Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d 230 (5th Cir. 2014)). Likewise, in the J&J case, the plaintiff didn’t contest the reliability of the surveys cited in the challenged ad, whereas unreliability was CareDx’s entire claim.

Deception and materiality: also sufficiently alleged.  The complaint alleged that “Natera’s false and misleading statements likely have (and, unless stopped, will continue to) deceive healthcare providers, insurance companies, patients, and the general public about the capabilities and accuracy of AlloSure…. Natera’s false and misleading statements are material and will affect the purchasing and investment decisions of healthcare providers, patients, and insurance companies.”  CareDx also argued that, since it alleged literal falsity, it was entitled to a presumption of deception.

Natera responded that literal falsity was a misnomer since CareDx didn’t allege that Natera “misstated the published findings” of its study. While “the line between literal falsity and misleading statements can seem a fine one,” courts in establishment claim cases have repeatedly held that “when a defendant makes comparative statements based on testing that is flawed and unreliable, those statements … are appropriately viewed as literally false statements.” At this stage, the court would not reject a literal falsity claim.

Materiality: Natera again tried to argue that, with no sales, there could be no materiality, but that doesn’t make sense. “Indeed, courts generally do not require that a plaintiff demonstrate an actual effect on purchasing decisions; rather, a ‘likely’ effect on consumer choice is sufficient.” It was plausible that the allegedly false claims would affect future purchasing decisions, since correctly detecting kidney rejection is the reason consumers would use one of the tests.

Delaware common law unfair competition claims require “a reasonable expectancy of entering a valid business relationship, with which the defendant wrongly interferes, and thereby defeats the plaintiff’s legitimate expectancy and causes him harm.” This was also sufficiently pled.

Delaware Unfair or Deceptive Trade Practices Act: This was insufficiently pled, not only because CareDx didn’t specifically identify the relevant statutory subsections, but also because the allegations of that count were too bare-bones. E.g., it alleged that Natera made “false and misleading statements [that] represent that Prospera has uses or benefits that it does not have.” But it wasn’t clear what those “uses or benefits” were or what “statements” CareDx meant.  [Sounds like the count tracked the language of some statutory subsections but didn’t hook them back up to the allegations above, which probably would fit.] Dismissed with leave to amend.