Wednesday, July 06, 2022

how detailed must pleading be to link falsity with lost sales?

Becton, Dickinson & Co. v. Medline Indus., Inc., 2022 WL 2383722, No. 21-12929 (D.N.J. Apr. 28, 2022)

BD and its subsidiary (BD) sell urologic devices and supplies, including catheter trays, which compete with Medline’s. Medline used to distribute certain BD products, with provisions intended to protect BD from “potential usurpation of BD’s business,” including requirements that Medline not substitute competitive products as an alternative to BD products. The parties are involved in related patent litigation. BD alleged that Medline made false and misleading statements that BD had to change its original design as a result of the patent litigation, that the original was found to infringe one or more of Medline’s patents, that the original was discontinued, and that the reverted design would negatively impact BD’s ability to supply sufficient inventory. Medline also allegedly made “unfounded allegations” that its system was safer and reduced the risk of catheter-induced urinary tract infections (ugh)/that BD’s new design was more likely to cause UTIs.

The court grouped the Lanham Act false advertising and New Jersey statutory and common law unfair competition claims together.

The allegations were sufficient to state a Lanham Act claim. BD alleged that the statements were part of a national “coordinated sale strategy to discredit [BD] and undermine [BD’s] sales” and they lost customers thereby. [A typo in the opinion says they “lost costumers,” which is super charming and now I want a case where that actually happened.]

Medline argued that the complaint didn’t sufficiently link the lost customers to the alleged falsehoods, as opposed to the competition. In particular, the specific customers to which Medline sales reps allegedly made false and/or misleading statements weren’t the same customers that BD allege that they lost. However, at this stage, given that the parties compete directly, the sales reps allegedly made these statements to encourage a switch, and BD alleged that customers did switch, that was enough to survive a motion to dismiss. [Practical considerations—a customer you lost will often not tell you why, even if they truly knew the answer which they might not—support this conclusion.]

Medline also argued that its statements weren’t false, but determining that would require examining documents outside the pleadings, including documents related to a recall, which wasn’t appropriate at this stage.

Trade libel:  A plaintiff must plead and prove special damages with particularity, requiring it to “allege either the loss of particular customers by name, or a general diminution in its business, and extrinsic facts showing that such special damages were the natural and direct result of the false publication.” BD pled that “Medline successfully converted” one named customer in June 2021, on information and belief because of the claims of the increased risk of UTIs associated with BD’s product. This sufficed, given that BD supported its allegation with “specific examples of misleading or false statements that Defendant’s sales representative made to other customers in emails and presentations.” Tortious interference with prospective economic advantage survived for basically the same reasons.

Breach of contract survived, though not the duplicative count for breach of the implied covenant of good faith and fair dealing.

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