press release in supplement battle could be false advertising

ThermoLife Int’l LLC v. NeoGenis Labs Inc., 2020 WL 6395442,
No. CV-18-02980-PHX-DWL (D. Ariz. Nov. 2, 2020)

Plaintiff/counterdefendant ThermoLife and defendant/counterplaintiff
HumanN both hold patents related to the use of nitrate technology for
supplements. ThermoLife alleged that HumanN engaged in false advertising and
false marking by, among other things, marking three of its nitrate-related
products with inapplicable patent numbers. HumanN’s counterclaims were based in
part on a previous, unsuccessful lawsuit that ThermoLife filed against HumanN,
in part on a press release that ThermoLife’s principal Kramer issued after this
lawsuit was filed, and in part on ThermoLife’s alleged interference with
HumanN’s business relationship with Amazon.com.

This decision deals with ThermoLife’s motion to dismiss the
counterclaims.

The prior litigation was stayed when the PTO instituted
proceedings to reexamine the ThermoLife patent asserted in the suit. During
reexamination, Kramer allegedly sent a letter to HumanN to “open a dialogue for
possible resolution” of the litigation. He “threatened to bring a false
advertising suit” and another infringement suit based on two additional patents
if “HumanN did not…negotiate a deal.” Kramer and ThermoLife allegedly “promise[d]
to stifle competition for HumanN if HumanN agree[d] to a sub-license, and
alternatively threatened to drive HumanN out of business entirely if it [did]
not.” ThermoLife voluntarily dismissed the infringement suit, but allegedly
continued to demand that HumanN pay licensing fees despite HumanN’s contention
that it didn’t practice the patent.

ThermoLife also told Amazon that HumanN’s products infringed
another of ThermoLife’s patents, as a result of which Amazon took down some of
HumanN’s product listings. This allegedly caused HumanN to expend “significant
efforts to restore its product pages,” rendered HumanN “unable to sell three of
its top selling products on Amazon” for one month, and diminished HumanN’s
seller ranking.

ThermoLife ultimately sued again, and issued a press release
entitled “ThermoLife Serves HumanN A Beet Down For Selling Falsely Advertised
And Misbranded Products Including SuperBeets, BeetElite, And Neo40.”  

The Sherman Act attempted monopolization counterclaim was
dismissed because of failure to sufficiently define the relevant market, albeit
with leave to amend.

Lanham Act false advertising: This was based on the “Beet
Down” press release, which disclosed that ThermoLife had filed this action and
described ThermoLife’s basis for doing so.

ThermoLife argued that because the press release simply
repeated the allegations contained in its complaint in this action, while
prefacing each set of allegations with the phrase “has alleged,” the press
release was truthful. Not so. The headline was not qualified and affirmatively
stated that HumanN “sell[s] falsely advertised and misbranded products.” “Resolving
all reasonable inferences in favor of the non-movant, this is a statement of
fact.” Also, a quotation from Kramer included an assertion that “HumanN relies
on false representation after false representation to deceive consumers into
purchasing HumanN’s products.” This was also plausibly a statement of fact
rather than a statement of opinion.

Arizona’s state-law litigation privilege also didn’t bar
HumanN’s Lanham Act claim. And the press release wasn’t protected by Noerr-Pennington
immunity. It accused HumanN of falsely marking HumanN’s products with patents
the products do not practice; it didn’t mention ThermoLife’s patents except for
in Kramer’s quote, “ThermoLife holds the patents for the technology in HumanN’s
products, not HumanN.” But that seemed to be about ThermoLife’s earlier
contention that “contrary to HumanN’s false advertising, none of [the] patents
that HumanN licenses and falsely marks on its products protect ‘patented Nitric
Oxide technology.’ ” ThermoLife couldn’t claim Noerr-Pennington immunity
for asserting its patent rights “in a press release about a lawsuit that has
nothing to do with enforcement of its patents.”

The substantive analysis was the same for Arizona unfair
competition and trade libel claims, but the court had to analyze Arizona’s
litigation privilege. At this stage, ThermoLife hadn’t shown that it was
entitled to a qualified privilege. Although the general rule is that “[a]nyone
may describe what transpired at a public proceeding so long as the publisher
provides a fair and accurate rendition…[o]ne exception to this wide application
is the speaker who by design uses the privilege to republish defamation he
previously made during the public proceeding.” This was because “[t]he
privilege does not sanction self-serving re-publication.” That was exactly the
scenario alleged here. Arizona also holds that a speaker can forfeit its
entitlement to the qualified privilege via “abuse of that privilege,” such as by
“excessive publication…to an unprivileged recipient not reasonably necessary
to protect the interest upon which the privilege is grounded.” Given the posture,
it was vital that “whether the occasion for the privilege was abused is a
question of fact for the jury.”

Tortious interference with relations with Amazon: Federal
patent law preempts state tort law where the state tort is based on “conduct
that is protected or governed by federal patent law.” Thus, “patentees do not
violate the rules of fair competition by making accurate representations, and
are allowed to make representations that turn out to be inaccurate provided
they make them in good faith.” HumanN didn’t sufficiently allege that
plaintiffs acted in bad faith when they told Amazon that HumanN’s products
infringed. “HumanN has not identified any authority suggesting that a judicial
determination of infringement is a prerequisite to notifying a potential
infringer (or a third party) of infringement.” And, while HumanN alleged
specific facts suggesting that ThermoLife was aware that HumanN’s product
didn’t infringe the initially asserted patent yet chose to file suit anyway, it
didn’t provide any comparable allegations concerning the report to Amazon,
which involved different patents.

Arizona also has a Patent Troll Prevention Act (PTPA), which
prohibits “an assertion of patent infringement in bad faith.” The statute expressly
exempts civil actions “that include[ ] a demand or assertion of patent
infringement.” But HumanN sufficiently alleged that ThermoLife “threaten[ed]
HumanN with sham litigation, even after [ThermoLife] dismissed its sham
infringement suit.” As for bad faith, ThermoLife argued that the challenged
communications contained “a detailed infringement analysis” and that there is
“no dispute” that it provided information set out in the PTPA as relevant to
the bad faith analysis: the patent number, contact information of the patent
owner or assignee, infringement facts, and an explanation of standing. But on a
motion to dismiss HumanN plausibly alleged bad faith. HumanN alleged that
ThermoLife’s infringement analysis was unsupported, contradictory, and without
merit and that, after ThermoLife dismissed its infringement suit, ThermoLife still
“insisted” that HumanN grant a $1 per unit licensing fee and pay $1 million in
“back damages” within 10 days. Those could plausibly show bad faith, and providing
the information listed in the statute isn’t automatically sufficient to defeat
a PTPA claim. The statute made clear that the factors are “nonexclusive”—a
court may consider “[a]ny other factor that the court determines to be
relevant.”

The court found it unnecessary to resolve whether federal
law preempted the PTPA because ThermoLife raised the issue only in passing in a
footnote.

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