United States of America, Ex. Rel. et al v. Factor Nutrition Labs, LLC et al

Filing 38

ORDER by Judge Claudia Wilken Granting DEFENDANT FACTOR NUTRITION LABS, LLCS 34 Motion to Dismiss (ndr, COURT STAFF) (Filed on 12/7/2010)

United States of America, Ex. Rel. et al v. Factor Nutrition Labs, LLC et al

Doc. 38

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Amended Complaint (1AC). Factor Nutrition owns, manufactures, advertises and distributes the FOCUSfactor brand of memory supplements. To In this qui tam action, Plaintiff Randy Carver, on behalf of himself and the United States, charges Defendant Factor Nutrition Labs, LLC, with false patent marking. dismiss Plaintiff's action. motion. Factor Nutrition moves to v. FACTOR NUTRITION LABS, LLC; VITAL BASICS, INC.; and WALGREEN CO., Defendants. / UNITED STATES OF AMERICA, ex rel., RANDY CARVER, Plaintiff, No. 10-02529 CW ORDER GRANTING DEFENDANT FACTOR NUTRITION LABS, LLC'S MOTION TO DISMISS (Docket No. 34) IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

Plaintiff opposes Factor Nutrition's

The United States has not intervened or otherwise appeared The motion was taken under submission on the

in this action. papers.

Having considered the papers submitted by the parties, the

Court GRANTS Factor Nutrition's motion. BACKGROUND The following allegations are contained in Plaintiff's First

advertise the products, Factor Nutrition enlists "a great number of

Dockets.Justia.com

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affiliate marketers to drive internet traffic" to Factor Nutrition's FOCUSfactor website. 1AC ¶ 18. On their websites, the

affiliates, using similar language, claim that FOCUSfactor is superior to competing products because it is patented. Plaintiff

has "independently confirmed" with three affiliates that "the manufacturer" provided the text regarding FOCUSfactor's patented status. 1AC ¶ 23. However, FOCUSfactor is not patented.

Plaintiff pleads one claim of false patent marking, in violation of 35 U.S.C. § 292(a). He seeks an injunction

prohibiting Factor Nutrition from engaging in future acts of false patent marking. He also asks the Court to assess against Factor

Nutrition civil penalties proportional to "the total revenue and gross profit derived from the sale of" FOCUSfactor. 13:1. On August 16, 2010, the Clerk entered default against Defendant Vital Basics, Inc. Plaintiff has not moved for default 1AC at 12:28-

judgment against Vital Basics, which Factor Nutrition claims was dissolved on July 22, 2009. See Kinsel Decl. in Support of Factor

Nutrition Labs, LLC's Motion to Set Aside Entry of Default, Ex. A. On September 20, 2010, Plaintiff voluntarily dismissed his claims against Defendant Walgreen Co. LEGAL STANDARD A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Civ. P. 8(a). Fed. R.

Dismissal under Rule 12(b)(6) for failure to state a

claim is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds 2

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on which it rests. (2007).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

In considering whether the complaint is sufficient to

state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). However, this principle is inapplicable to legal conclusions; "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are not taken as true. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555). When granting a motion to dismiss, the court is generally required to grant the plaintiff leave to amend, even if no request to amend the pleading was made, unless amendment would be futile. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment NL

would be futile, the court examines whether the complaint could be amended to cure the defect requiring dismissal "without contradicting any of the allegations of [the] original complaint." Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). Leave to amend should be liberally granted, but an amended complaint cannot allege facts inconsistent with the challenged pleading. Id. at 296-97. DISCUSSION In relevant part, the false marking statute provides, "Whoever . . . uses in advertising in connection with any unpatented article, the word `patent' . . . for the purpose of deceiving the public . . . [s]hall be fined not more than $500 for every such 3

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offense."

35 U.S.C. § 292(a).

The "false marking statute is a

criminal one, despite being punishable only with a civil fine." Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010); accord U.S. Gypsum Co. v. Pac. Award Metals, Inc., 438 F. Supp. 2d 1101, 1105 n.3 (N.D. Cal. 2006) (citing Mayview Corp. v. Rodstein, 620 F.2d 1347, 1359 (9th Cir. 1980)). "Any person may sue for the

penalty, in which event one-half shall go to the person suing and the other to the use of the United States." 35 U.S.C. § 292(b).

Because claims for false marking require proof of intent to deceive the public, courts have concluded that such claims sound in fraud and are subject to the heightened pleading requirement of Federal Rule of Civil Procedure 9(b). See, e.g., United States ex

rel. Hallstrom v. Aqua Flora, Inc., 2010 WL 4054243, at *5 (E.D. Cal.); Shizzle Pop, LLC v. Wham-O, Inc., 2010 WL 3063066, at *4 (C.D. Cal.); Juniper Networks v. Shipley, 2009 WL 1381873, at *4 (N.D. Cal.). Rule 9(b) requires that, in "all averments of fraud

or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Malice, intent, knowledge, and

other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). Allegations subject to Rule 9(b) must state

the "the who, what, when, where, and how of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th The purpose of Rule 9(b) is to

Cir. 2003) (citation omitted).

"give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). 4

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Allegations of fraud based on information and belief usually do not satisfy the particularity requirements of Rule 9(b); however, as to matters peculiarly within the opposing party's knowledge, allegations based on information and belief may satisfy Rule 9(b) if they also state the facts upon which the belief is founded. Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987). Factor Nutrition argues that Plaintiff's claim attempts to hold it criminally liable for the acts of third parties. However,

nothing in the false marking statute precludes liability on the part of defendants that advertise through other individuals or entities. Factor Nutrition does not identify any language

restricting liability to those defendants that personally disseminate false advertising about an article's patent protection. Plaintiff alleges that, for advertising purposes, Factor Nutrition provided affiliates with false information that FOCUSfactor was patented and did so with intent to mislead the public. In other

words, Factor Nutrition, with ill intent, falsely advertised through third parties that FOCUSfactor was patented. of liability does not fail as a matter of law. Factor Nutrition also asserts that Plaintiff's claim must fail because its website truthfully represents that FOCUSfactor has a patent pending. Factor Nutrition notes that Plaintiff alleges that This theory

its affiliates' only role is to "drive internet traffic to" its website. Plaintiff does not allege that Factor Nutrition's Thus,

affiliates independently sell and distribute FOCUSfactor.

Factor Nutrition asserts, even if its affiliates' websites falsely 5

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represent that FOCUSfactor is patented, its website corrects their alleged misstatements. However, evidence of Factor Nutrition's

website is not currently before the Court, and Plaintiff's complaint and documents attached thereto do not suggest that the website definitively cures any misrepresentation made by the affiliates. Although the "bar for proving deceptive intent . . .

is particularly high," Pequignot, 608 F.3d at 1363, Factor Nutrition has not established that, as a matter of law, Plaintiff is unable to meet his burden. Although Plaintiff's theory of liability is not legally defective, he has failed to plead sufficient facts to support it as required under Rule 9(b). Plaintiff does not plead how the alleged

fraud operated or any facts regarding Factor Nutrition's relationship with its so-called affiliates. He does not allege

that Factor Nutrition deceived them or exercised control over them. In contrast, he alleges that former Defendant Walgreen Co. "independently advertises the product in media over which it has exclusive control." 1AC ¶ 18. Further, Plaintiff fails to plead

the identities of the three affiliate marketers that stated that "the manufacturer" supplied them with the challenged text. ¶ 23. 1AC

Plaintiff does not even allege that Factor Nutrition is "the

manufacturer" to which these marketers referred. Plaintiff also does not aver under what circumstances Factor Nutrition supplied the text to its affiliates, such as who provided the text and when the proffer was made. He argues in his complaint

that "it stands to reason that at some point the manufacturer provided approved advertising text to its affiliate marketers." 6

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1AC ¶ 23.

The fact that the affiliates employed similar language

supports a reasonable inference that the language originated from a common source; it does not necessarily follow, however, that Factor Nutrition was that source. Plaintiff must offer specific factual

allegations to support his claim, not speculation based on argument. Plaintiff's allegations fail to give Factor Nutrition sufficient notice of the alleged fraud. Accordingly, his complaint

is dismissed with leave to amend to plead his false marking claim with sufficient specificity. In particular, he must plead facts

explaining how the purported fraud operated; Factor Nutrition's relationship with its affiliates; whether Factor Nutrition was "the manufacturer" to which three of its affiliates referred; and the circumstances under which Factor Nutrition supplied the copy for the false advertising, that is, who at Factor Nutrition said what to whom and when. CONCLUSION For the foregoing reasons, Factor Nutrition's motion to dismiss is GRANTED. (Docket No. 34.) The Court dismisses

Plaintiff's complaint because it fails to comply with Rule 9(b). Plaintiff is granted leave to amend to cure the deficiencies identified above. Plaintiff may file an amended complaint within Within fourteen days of the

seven days of the date of this Order.

date the amended pleading is filed, Defendant shall file its answer or a motion to dismiss. If a motion to dismiss is filed, Plaintiff Defendant's

shall file his opposition fourteen days thereafter. reply shall be due seven days after that. 7

The motion will be taken

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under submission on the papers.

Defendant shall not re-assert the

arguments the Court rejected above. IT IS SO ORDERED.

Dated: 12/7/2010

CLAUDIA WILKEN United States District Judge

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