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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