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.

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