TELEBRANDS CORP. v. RAGNER TECHNOLOGY CORPORATION et al
Filing
155
OPINION. Signed by Judge Esther Salas on 4/3/2019. (dam, )
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
TELEBRANDS CORP.,
Plaintiff,
v.
RAGNER TECHNOLOGY CORP. and
TRISTAR PRODUCTS, INC.,
Defendants.
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Civil Action No. 16-3474 (ES) (MAH)
OPINION
SALAS, DISTRICT JUDGE
Before the Court are motions to dismiss under Federal Rule of Civil Procedure 12(b)(6) by
all parties. (See D.E. Nos. 70, 87 & 91). Plaintiff Telebrands Corporation (“Telebrands”) moves
to dismiss Counts V to VIII of Defendants Ragner Technology Corporation (“Ragner”) and Tristar
Products Inc.’s (“Tristar”) (collectively, “Defendants”) counterclaims (D.E. No. 60,
(“Counterclaims”)). (D.E. No. 70). Counter Defendant Bulbhead.com, LLC (“Bulbhead”) moves
to dismiss all counterclaims asserted against it by Defendants. (D.E. No. 87). And Defendants
move to dismiss Count XI of Telebrands’ Amended Complaint (D.E. No. 77, (“Am. Compl.”)).
(D.E. No. 91).
The Court has considered the parties’ submissions and decides the matter without oral
argument. See Fed. R. Civ. P. 78(b). For the following reasons, the Court DENIES Telebrands’s
motion, DENIES Bulbhead’s motion, and GRANTS Defendants’ motion.
I.
Background
The dispute between these parties spans multiple lawsuits, multiple jurisdictions, and even
multiple countries. See, e.g., Telebrands Corp. v. Ragner Tech. Corp., No. 15-3163 (D.N.J.);
Tinnus v. Telebrands Corp., No. 15-0551 (E.D. Tex.); E. Mishan & Sons, Inc. v. Superlek Canada
Inc., 2014 FC 326 (Can. Fed. Ct. 2014). The facts are convoluted and the procedural history
lengthy. Because the Court writes primarily for the parties, the Court provides only a very
abbreviated version of the facts and procedural history. 1
Ragner owns U.S. Patent Nos. 7,549,448 (“the ’448 patent”); 9,022,076 (“the ’076
patent”); 9,182,057 (“the ’057 patent”); and 9,371,944 (“the ’944 patent”) (collectively, “the
patents-in-suit”), all of which relate to expandable hose technology. (Counterclaims ¶¶ 1-2, Exs.
A, B, C & D). Tristar is the exclusive licensee of the patents-in-suit. (Counterclaims ¶ 1). Under
the brand name “FLEX-ABLE HOSE,” Tristar sells expandable hoses embodying the technology
of the patents-in-suit. (See id. ¶ 12).
Telebrands is a direct response marketing company that sells consumer products. (Am.
Compl. ¶ 29). Relevant here, Telebrands sells expandable hoses under the brand “POCKET
HOSE,” and is the exclusive licensee of a patent directed to expandable hose technology, U.S.
Patent No. 8,291,941 (“the ’941 patent”). (Id. ¶¶ 14 & 31). Bulbhead is alleged to be affiliated
with Telebrands, affiliated with the website www.bulbhead.com, and under common control with
Telebrands. (Counterclaims ¶¶ 15 & 17).
On July 9, 2018, Telebrands filed this action seeking declaratory judgment that the patentsin-suit are invalid and that Telebrands has not infringed any of them (Counts I to IV & VI to X).
(Am. Compl. ¶¶ 115-36 & 154-193). With respect to the ’076 and ’944 patents, Telebrands also
seeks declaratory judgment that the patents are unenforceable due to inequitable conduct during
prosecution (Count V). (Id. ¶¶ 137-53). Specifically, Telebrands alleges that inventors Gary Dean
1
The Court must accept the opposing parties’ factual allegations as true for purposes of resolving these
motions to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bistrian v. Levi, 696 F.3d 352, 358 n.1 (3d Cir.
2012).
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Ragner and Robert Daniel deRochement, Jr., and the law firm Frost Brown breached their duty of
candor and good faith by not disclosing that multiple claims had been copied from the ’941 patent
exclusively licensed to Telebrands. (Id. ¶¶ 14, 59, 63, 69-70, 73 & 87-88). Telebrands also brings
a “misappropriation of intellectual property” claim (Count XI) that appears to be based on the same
facts. (See id. ¶¶ 194-206).
Defendants bring patent infringement counterclaims against Telebrands and Bulbhead for
each of the patents-in-suit. (Counterclaims ¶¶ 56-91). Defendants also bring four counterclaims
(Counts V to VIII) based on unfair competition laws. (Id. ¶¶ 92-127).
In their counterclaims, Defendants allege that Telebrands and Bulbhead promulgated a
series of video advertisements that falsely and misleadingly touted the strength of POCKET HOSE
products. (Id. ¶¶ 48 & 49). For example, Defendants allege that one video falsely and misleadingly
stated that the POCKET HOSE product was “strong enough to pull this 5,000 pound SUV,” while
another falsely and misleadingly stated that the product was “tough enough to tow a truck.” (Id.).
Defendants aver that they were injured by these advertisements through lost sales, through lost
goodwill and reputation, and through the resulting general disbelief in the novel and utility of
expandable hoses. (Id. ¶ 50). From these factual allegations, Defendants bring a Lanham Act
counterclaim (Count V), a counterclaim under N.J. Stat. Ann. § 56:4-1 et seq. (Count VI), and a
New Jersey common law unfair competition counterclaim (Count VIII)—all under a false
advertising theory. (Id. ¶¶ 92-108 & 118-27).
Defendants also allege that Telebrands improperly obtained a Ragner prototype from a
third party, and then used that prototype to develop the POCKET HOSE products. (Id. ¶¶ 44, 113
& 124). Defendants aver that they were injured by these acts through loss of sales, loss of goodwill
and reputation, and resulting disbelief in the novel and utility of expandable hoses generally. (Id.
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¶ 115). From this set of facts, Defendants bring a counterclaim for tortious interference with
business advantage (Count VII) and an additional legal theory under their New Jersey common
law counterclaim for unfair competition (Count VIII). (Id. ¶¶ 109-27).
In its motion, Telebrands moves to dismiss the four counterclaims Defendants assert based
on unfair competition laws (Counts V to VIII). (D.E. No. 70). Bulbhead in its motion moves to
dismiss all counterclaims asserted against it. (D.E. No. 87). And Defendants move in their motion
to dismiss Telebrands’s claim for misappropriation of intellectual property (Count XI). (D.E. No.
91).
II.
Legal Standard
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Id. In a Federal Rule of Civil Procedure
12(b)(6) motion to dismiss, the burden is on the moving party to show that the plaintiff has not
stated a facially plausible claim. See Davis v. Wells Fargo, 824 F.3d 333, 349 (3d Cir. 2016).
Moreover, “[a]ll allegations in the complaint must be accepted as true, and the plaintiff must be
given the benefit of every favorable inference to be drawn therefrom.” Malleus v. George, 641
F.3d 560, 563 (3d Cir. 2011). But a court does not accept as true the complaint’s legal conclusions.
See Iqbal, 556 U.S. at 678 (“[T]he tenet that a court must accept as true all the allegations contained
in a complaint is inapplicable to legal conclusions.”).
“[A] court must consider only the complaint, exhibits attached to the complaint, matters of
public record, as well as undisputedly authentic documents if the complainant’s claims are based
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upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010); see also Buck v.
Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (“In evaluating a motion to dismiss,
we may consider documents that are attached to or submitted with the complaint, and any matters
incorporated by reference or integral to the claim, items subject to judicial notice, matters of public
record, orders, and items appearing in the record of the case.” (citations and internal quotation
marks omitted)). “The purpose of this rule is to avoid the situation where a plaintiff with a legally
deficient claim that is based on a particular document can avoid dismissal of that claim by failing
to attach the relied upon document.” Jeffrey Rapaport M.D., P.A. v. Robins S. Weingast & Assocs.
Inc., 859 F. Supp. 2d 706, 714 (D.N.J. 2012).
III.
Discussion
A.
Telebrands’s Motion to Dismiss Counts V to VIII of the Counterclaims
Telebrands moves to dismiss Defendants’ false advertising counterclaim under the Lanham
Act (Count V), unfair competition counterclaim under N.J. Stat. Ann. § 56:4-1 et seq. (Count VI),
counterclaim for tortious interference with prospective business advantage (Count VII), and
counterclaim for common law unfair competition (Count VIII). (D.E. No. 70).
i.
Defendants’ false advertising counterclaim under the Lanham Act
A plaintiff must allege five elements to state a false advertising claim under Section 43(a)
of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B):
1) . . . the defendant has made false or misleading statements as to
his own product [or another’s]; 2) . . . there is actual deception or at
least a tendency to deceive a substantial portion of the intended
audience; 3) . . . the deception is material in that it is likely to
influence purchasing decisions; 4) . . . the advertised goods traveled
in interstate commerce; and 5) . . . there is a likelihood of injury to
the plaintiff in terms of declining sales, loss of good will, etc.
Group SEB USA, Inc. v. Euro-Pro Operating, LLC, 774 F.3d 192, 198 (3d Cir. 2014) (quoting
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Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F3d. 241, 248 (3d Cir. 2011)). Regarding
the first element, a plaintiff must show “that the advertisement ‘is either (1) literally false or (2)
literally true or ambiguous, but has the tendency to deceive consumers.’” Id. (quoting Novartis
Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578, 586
(3d Cir. 2002)); see also Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993) (“[A]
plaintiff must prove either literal falsity or consumer confusion, but not both.”).
Determining whether a message in an advertisement is literally false requires a contextual
analysis. Group SEB USA, 774 F.3d at 198. A court first determines whether a message is
unambiguous. Id. Only if a court finds a message unambiguous does it turn to the question of
whether the statement is false. Id. A literally false message may be either explicit, or necessarily
implicated by the advertisement as a whole. Id. “The greater the degree to which a message relies
upon the viewer or consumer to integrate its components and draw the apparent conclusion . . . the
less likely it is that a finding of literal falsity will be supported.” Id. at 198-99 (internal quotation
marks omitted).
If a message is literally true or ambiguous, a plaintiff must show actual deception or a
tendency to deceive, such as with consumer survey evidence. See Pernod Ricard USA, 653 F.3d
at 248. Finally, puffery, i.e. “an exaggeration or overstatement expressed in broad, vague, and
commendatory language,” is not actionable under Section 43(a) of the Lanham Act. Castrol, 987
F.2d at 945; see also W. Page Keeton, et al., PROSSER AND KEETON ON THE LAW OF TORTS § 109,
at 756-57 (5th ed. 1984) (“Such sales talk, or puffing, as it is commonly called, is considered to be
offered and understood as an expression of the seller’s opinion only, which is to be discounted as
such by the buyer. . . . The ‘puffing’ rule amounts to a seller’s privilege to lie his head off, so long
as he says nothing specific.”).
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Here, Telebrands challenges the sufficiency of Defendants’ pleading of the first and third
elements. (See D.E. No. 70-1 at 6-8). Regarding the first element, Telebrands argues that
“Defendants do not assert . . . that the video advertisements relating to the strength of POCKET
HOSE products are literally false . . . . [or] that these video advertisements are misleading, i.e.,
literally true but tending to deceive.” (Id. at 6). Telebrands argues that the advertisements’
statements “[i]t’s strong enough to pull this 5,000 pound SUV” and “[i]t’s tough enough to tow a
truck” only communicate a message that the hoses could pull the vehicles shown in the
advertisements—not that the hoses could pull a vehicle generally. (Id.). Telebrands therefore
contends that there is no plausible factual basis for concluding that the advertisements are false or
misleading. (Id. at 6-7). As to the third element, Telebrands contends that the statements-at-issue
“are a form of non-actionable puffery to tout the high strength of the POCKET HOSE products
and [are] not directed to the hose’s qualities to function as a hose (other than its strength generally)
. . . .” (Id. at 7). Telebrands argues that Defendants’ have not adequately pleaded materiality, as
“[i]t is implausible that any customer is being induced to purchase the POCKET HOSE products
to pull their vehicles.” (Id.).
The Court holds that Telebrands has not met its burden of showing that Defendants have
failed to state a facially plausible, false advertising counterclaim. See Davis, 824 F.3d at 349.
First, contrary to Telebrands’s assertion, and as Defendants correctly point out, the Counterclaims
do allege that the statements-at-issue are literally false or misleading. (See D.E. No. 90 at 6).
Paragraph 93 states “[Telebrands and Bulbhead] have made and continue to make commercial
advertising and promotional claims, including without limitation those described in paragraphs 4849, that are false and misleading statements of fact . . . and that both deceive and have the capacity
to deceive a substantial segment of the relevant consumers and potential customers . . . .”
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(Counterclaims ¶ 93 (emphasis added)). Paragraph 48 of the counterclaims identifies the video
advertisements and lists the statements-at-issue. (See id. ¶ 48). Paragraph 49 of the counterclaims
goes on to allege that “[e]ach of [the previous] statements is unequivocally false.” (See id. ¶ 49
(emphasis added)). The Court does not see how Defendants have failed to allege that the
statements in the video advertisements are literally false or misleading.
Second, Defendants have pleaded facts sufficient to demonstrate that Telebrands and
Bulbhead have made false or misleading statements as to its POCKET HOSE products. For
example, Defendants allege that one of the video advertisements states the following regarding
POCKET HOSE ULTRA: “[i]t’s tough enough to tow a truck.” (Counterclaims ¶ 48). Defendants
allege that the statement is “unequivocally false”—i.e., that POCKET HOSE ULTRA is not tough
or strong enough to tow a truck. (See id. ¶ 49). Defendants then provide a link to a non-party
video purportedly demonstrating the falsity of the statement. (Id.). These pleaded facts, accepted
as true and read in a light favorable to Defendants, lead to the reasonable inference that the
statement in the video is unambiguous and false, or at least that it has a tendency to deceive. See
Group SEB USA, 774 F.3d at 198-99; Malleus, 641 F.3d at 563.
Third, Defendants have adequately pleaded the third element, materiality. For example,
Defendants allege that “[u]pon information and belief, [Telebrands and Bulbhead’s] false and
misleading advertisements led to increased sales of Pocket Hoses, to the detriment of Defendants.”
(Counterclaims ¶ 50). This pleaded fact, accepted as true and read in a light favorable to
Defendants, lead to the reasonable inference that the deception “is likely to influence purchasing
decisions.” See Group SEB USA, 774 F.3d at 198-99; Malleus, 641 F.3d at 563.
Telebrands’s arguments otherwise on materiality are unpersuasive. Telebrands argues that
the advertisement videos are not material because “[i]t is implausible that any customer is being
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induced to purchase the POCKET HOSE products to pull their vehicles.” (D.E. No. 70-1 at 7).
But then Telebrands acknowledges that the video advertisements speak generally to the high
strength of the products. (Id.). Defendants likewise contend that the video advertisements speak
to the high strength of POCKET HOSE products, albeit falsely. (D.E. No. 90 at 10). At the
motion-to-dismiss stage, the Court cannot say that allegedly false advertisements touting a
product’s high strength would not influence purchase decisions. See Group SEB USA, 774 F.3d
at 198-99; Malleus, 641 F.3d at 563.
Nor can the Court at this time conclude as a matter of law that the statements at issue are
non-actionable puffery. (See D.E. No. 70-1 at 7). Telebrands provides no case law to support its
puffery argument. (See id.). Defendants, on the other hand, provide a line of case law indicating
that statements directed to specific, measurable product attributes are not puffery. (See D.E. No.
90 at 10-11); see, e.g., Castrol, 987 F.2d at 946 (rejecting argument that the defendant’s claim of
engine protection was puffery where “the claim [was] both specific and measurable by
comparative research” and citing to a line of cases holding similarly). The claims at issue appear
specific (e.g., “[i]t’s strong enough to pull this 5,000 pound SUV”) and directed to a product
attribute that the Court at this stage can only assume is measurable (i.e., strength).
Finally, “[g]iven the fact-intensive issues presented by these statements—i.e., are the
statements false or misleading (as opposed to nonactionable puffing), and did they deceive and
influence purchasing decisions?—the Court finds that it is not proper to formally resolve these
issues at the motion-to-dismiss stage.” See Horizon Healthcare Servs., Inc. v. Valley Health Sys.,
No. 16-0545, 2016 WL 4770032, at *5 (D.N.J. Sept. 12, 2016); see also D’Agostino v. Appliances
Buy Phone, Inc., 633 F. App’x 88, 94 (3d Cir. 2015) (holding that determining when a copyright
claim accrued “require[d] a resolution of factual issues that is inappropriate on a motion to
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dismiss”). The Court therefore will not delve into each statement from the advertisements to
determine whether each actually violates the Lanham Act. The Court simply “finds that the
pleadings sufficiently demonstrate a plausible claim to relief such that they are ‘entitled to offer
evidence to support the claims,’” and that Telebrands has not met its burden of demonstrating
otherwise. See Horizon Healthcare, 2016 WL 4770032, at *5 (quoting United States ex rel.
Wilkins, 659 F.3d 295, 302 (3d Cir. 2011)); Davis, 824 F.3d at 349; (Counterclaims ¶¶ 20, 47-51,
54 & 93). Telebrands’s motion to dismiss Count V of the counterclaims is denied.
ii.
Defendants’ unfair competition counterclaims under N.J. Stat. Ann. §
56:4-1 et seq. and New Jersey common law
New Jersey statutory and common-law unfair competition claims mirror claims under
Section 43(a) of the Lanham Act. See NY Machinery Inc. v. Korean Cleaners Monthly, No. 1712269, 2018 WL 2455926, at *4 (D.N.J. May 31, 2018); see also Am. Tel. & Tel. Co. v. Winback
& Conserve Program, Inc., 42 F.3d 1421, 1433 (3d Cir. 1994) (“We previously have held that the
‘federal law of unfair competition under § 43(a) is not significantly different from the New Jersey
[common] law of unfair competition’ and have applied the identical test to both claims.”). For the
same reasons the Court denies Telebrands’s motion to dismiss Count V, the Court denies
Telebrands’s motion to dismiss Counts VI and VIII of the counterclaims. See NY Machinery, 2018
WL 2455926, at *4.
iii.
Defendants’ counterclaim for tortious interference with prospective
business advantage
To state a claim for tortious interference with prospective business advantage under New
Jersey law, a plaintiff must allege “[1] that it had a reasonable expectation of economic advantage,
[2] which was lost as a direct result of [defendant’s] malicious interference, and [3] that it suffered
losses thereby.” Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 354, 382 (3d Cir. 2016) (internal
quotation marks omitted) (quoting Ideal Dairy Farms, Inc. v. Farmland Dairy Farms, Inc., 659
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A.2d 904, 932 (N.J. Super. Ct. App. Div. 1995)). This cause of action “protects the right ‘to pursue
one’s business, calling or occupation free from undue influence or molestation.’” Printing MartMorristown v. Sharp Elecs. Corp., 563 A.2d 31, 36 (N.J. 1989) (quoting Louis Kamm, Inc. v. Flink,
175 A. 62, 66 (N.J. 1934)). “What is actionable is the luring away, by devious, improper and
unrighteous means, of the customer of another.” Avaya, 838 F.3d at 382 (cleaned up).
The Court finds that Defendants have sufficiently pleaded a counterclaim for intentional
interference with prospective business advantage. Defendants allege that Ragner had developed a
prototype that embodies the invention disclosed and claimed in the ’448 Patent.
(See
Counterclaims ¶ 44). Defendants allege that “Tristar sells [the patented] hoses under the brand
name ‘FLEX-ABLE HOSE’” and that through this invention they have “a protected interest in
their prospective business advantage with their prospective customers.” (Id. ¶¶ 12 & 110).
Defendants’ allegation that they had conceived and reduced to practice a patentable invention is
an “allegation[] of fact giving rise to some ‘reasonable expectation of economic advantage.’”
Printing Mart, 563 A.2d at 37 (quoting Harris v. Perl, 197 A.2d 359, 363 (N.J. 1964)). And
Defendants’ allegation that Tristar was selling the invention “demonstrate[s] that [they] w[ere] in
‘pursuit’ of business.” Id. This is enough to satisfy the first prong.
As to the second prong, Defendants allege that “Telebrands improperly, and without
Ragner Corp.’s consent, obtained Ragner Corp.’s . . . prototype . . . from a third party who was
under an obligation not to disclose it” and that Telebrands developed and sold its own product
based on the improperly obtained prototype. (Counterclaims ¶¶ 44 & 45). Defendants also allege
that Telebrands’ CEO stated that Telebrands “created Pocket Hose by adapting the idea of an
earlier product by” Defendants. (See id. ¶¶ 2, 16 & 45). Taking another company’s prototype and
developing and selling one’s own product from it “would not be sanctioned by ‘the rules of the
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game’” and is wrongful conduct. See Avaya, 838 F.3d at 383 (quoting Printing Mart, 563 A.2d at
40); Lamorte Burns & Co. v. Walters, 770 A.2d 1158, 1172 (N.J. 2001) (The “taking of plaintiff’s
confidential and proprietary property and then using it effectively to target plaintiff[’s] clients, is
contrary to the notion of free competition that is fair.”). Defendants have adequately pleaded “the
intentional doing of a wrongful act without justification or excuse.” See Avaya, 838 F.3d at 383
(quoting Printing Mart, 563 A.2d at 39).
Regarding the third element, loss and causation, Defendants allege that they directly
compete with Telebrands and Bulbhead “for sales of consumer expandable hoses and for wholesale
customers that sell consumer expandable hoses to their customers.” (Counterclaims ¶ 42).
Defendants also allege that “[a]s a result of [Telebrands and Bulbhead’s] copying of Defendants’
product,” Telebrands and Bulbhead have “captur[ed] major wholesale customers and caus[ed]
Tristar to lose sales of its hoses to those major wholesale customers.” (Id. ¶ 46). These allegations
are enough to support a finding that, but for Telebrands and Bulbhead’s alleged tortious
interference, Defendants would have consummated sales to wholesale customers and made a
profit. See Avaya, 838 F.3d at 383.
The Court is not persuaded by Telebrands’s arguments that Defendants have not stated a
viable counterclaim for tortious interference with prospective business advantage. (See D.E. No.
70-1 at 8-11). Telebrands argues that Defendants’ failure to identify a specific, interfered-with
transaction is fatal to their claim. (Id. at 10-11). This argument is meritless. “Courts have found
‘a reasonable expectation of economic gain in as slight an interest as prospective public sales.’”
Avaya, 838 F.3d at 383 (quoting Printing Mart, 563 A.2d at 39 (collecting cases)). For the reasons
the Court has explained above with respect to the second and third elements, Telebrands’s
argument that Defendants have not adequately pleaded malice or causation is also meritless. If
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anything constitutes the “luring away, by devious, improper and unrighteous means, of the
customer of another,” it is taking a confidential and proprietary prototype of another and selling
your own version of it to their prospective customers. See Avaya, 838 F.3d at 382 (cleaned up).
The Court denies Telebrands’s motion to dismiss Count VII of the counterclaims.
For the foregoing reasons, the Court denies Telebrands’s motion to dismiss in its entirety.
B.
Bulbhead’s Motion to Dismiss
Bulbhead moves to dismiss all claims asserted against it in the counterclaims. (D.E. No.
87). Without a single legal citation and with little reference to the counterclaims, Bulbhead argues
that “Defendants have not sufficiently alleged that Bulbhead.com, LLC was engaged in any
activity associated with the alleged infringement of Defendants’ patents or the business torts set
forth in the Counterclaims.” (Id. at 4-6). Bulbhead argues that Defendants “do not allege that
Bulbhead.com, LLC committed any act of infringement or any act in furtherance of a business tort
other than through the Bulbhead website, which is operated by Telebrands.” (Id. at 5). Bulbhead
accuses Defendants of purposefully obfuscating Bulbhead.com, LLC, the Bulbhead website, and
the Bulbhead brand. (Id. at 5). In sum, Bulbhead argues that Defendants have not shown a
sufficient link between it (i.e., Bulbhead.com, LLC) and the Bulbhead website (i.e.,
www.bulbhead.com). (See id. at 4-5). In the alternative, Bulbhead incorporates by reference the
arguments in Telebrands’s motion to dismiss and argues that Counts V to VIII should be dismissed.
(Id. at 5-6).
Defendants contend that they have sufficiently pleaded Bulbhead’s control over the
Bulbhead website. (D.E. No. 94 at 6-7). Defendants contend that Bulbhead admitted in another
case that it owns www.bulbhead.com. (Id. at 4-5). Plaintiff also contends that United States Patent
and Trademark Office (“USPTO”) records contradict Bulbhead’s position. (Id. at 5).
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The Court considers the connections between Telebrands, Bulbhead, the website
www.bulbhead.com, and the Bulbhead brand, issues of fact inappropriate to resolve at the motionto-dismiss stage. See Horizon Healthcare, 2016 WL 4770032, at *5; D’Agostino, 633 F. App’x at
94. The Court holds only that Defendants have pleaded sufficient facts to link Bulbhead to alleged
infringement and business torts in the Counterclaims and survive a motion to dismiss. For
example, Defendants allege that Bulbhead is a business entity “affiliated with Telebrands, with
Bulbhead being Telebrands’s website, and Bulbhead (and, therefore, Telebrands) makes profits
from selling Telebrands infringing Pocket Hoses via the Internet.” (Counterclaims ¶¶ 14-15).
Defendants further allege that “Telebrands and Bulbhead are under common control, with Mr.
Khubani as the CEO and founder of” both businesses. (Id. ¶ 17). Defendants aver that “upon
information and belief, Telebrands has transferred and is transferring accounts from Telebrands to
Bulbhead.” (Id. ¶ 21). Finally, Defendants generally do not distinguish between Telebrands and
Bulbhead when asserting Defendants’ theories of liability. (See id. ¶¶ 56-127).
The Court rejects Bulbhead’s alternative arguments for the same reasons stated above in
denying Telebrands’s motion. Bulbhead’s motion to dismiss is denied.
C.
Defendants’ Motion to Dismiss Count XI of the Amended Complaint
Defendants move to dismiss Telebrands’s claim for misappropriation of intellectual
property (Count XI). (D.E. No. 91). Defendants argue that neither New Jersey state courts nor
federal courts applying New Jersey law recognize a cause of action for misappropriation of a
patent. (See D.E. No. 91-1 at 3-4). Defendants contend that Count XI simply repackages
Telebrands’s inequitable conduct claim and is therefore preempted by federal patent law. (Id. at
4-6). Defendants also contend that the factual allegations underlying Count XI do not align with
any other unfair competition theory under New Jersey law. (See id. at 6-10).
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In opposition, Telebrands argues that misappropriation of intellectual property is a
recognized cause of action under New Jersey’s unfair competition case law. (D.E. No. 96 at 2-5).
Telebrands also argues that its claim is not preempted by patent law because the cause of action
contains the additional element of direct competition. (Id. at 7-9).
Defendants reply that Telebrands’s opposition “lacks any discussion of the required
elements of any recognized misappropriation claim under New Jersey law” and “does not address
whether and how any alleged facts could be mapped to any requisite element. (D.E. No. 98 at 2).
Defendants contend that each of the cases Telebrands relies on is inapposite or distinguishable.
(See id. at 3-9).
The Court finds Defendants’ arguments persuasive. As currently pleaded, the core factual
allegations of Count XI appear to be the following: (i) counsel at the law firm Frost Brown copied
claim language from the ’941 patent exclusively licensed to Telebrands into patent applications
that issued as the ’076 and ’944 patents; (ii) during prosecution, the inventors and Frost Brown did
not disclose this conduct to the USPTO, in violation of their duty of candor; and (iii) because of
this improper conduct, the ’076 and ’944 patents were obtained fraudulently. (See Am. Compl. ¶¶
14, 59, 63, 69-70, 73 & 87-88 & 194-206). The claim does not specify what intellectual property
right was misappropriated, but it appears to be the ’944 patent rights licensed to Telebrands. (See
id.).
The Court is not aware of any New Jersey state court or federal court decision recognizing
misappropriation of a patent, or the legal language contained in a patent claim, as a valid cause of
action. And Telebrands does not provide a case. (See D.E. No. 96). Telebrands’s reliance on
Rudolph v. Yari Film Group Releasing is misplaced. See No. 06-1511, 2007 WL 674708 (D.N.J.
Feb. 23, 2007). That case simply applied existing Third Circuit authority in the copyright realm
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to hold that the federal copyright statute did preempt the plaintiff’s claim of misappropriation by
unfair competition. Id. at *3-4. Thus, the case does not provide support for the proposition that
misappropriating a patent or the legal language contained therein is actionable. See id. Similarly,
Scibetta v. Slingo, Inc., does not support Telebrands’s position. See No. 16-8175, 2018 WL
466224 (D.N.J. Jan. 17, 2018). Scibetta does not address whether a valid cause of action exists
under New Jersey law for misappropriation of a patent; the Scibetta court denied the motion to
dismiss based on the moving party’s burden and the deficiencies in both parties’ briefing. See id.
at *18.
Moreover, the Court is unaware of any recognized cause of action under New Jersey’s
unfair competition case law that mirrors the factual allegations of Count XI. As Defendants point
out, Telebrands does not discuss the required elements of any misappropriation claim under New
Jersey law which might be applicable to Count XI. (See D.E. No. 96).
For these reasons, the Court dismisses Count XI for failure to state a recognized
independent cause of action. See, e.g., In re Lamictal Indirect Purchaser & Antitrust Consumer
Litig., 172 F. Supp. 3d 724, 755 (D.N.J. 2016) (dismissing an unjust enrichment claim because
such a claim is not a recognized independent cause of action in California).
The Court also dismisses Telebrands’s claim for being preempted by federal patent law as
currently pleaded. To this point, the Court finds the Semiconductor Energy Lab. Co., Ltd. v.
Samsung Elecs. Co., Ltd. highly analogous. See 204 F.3d 1368 (Fed. Cir. 2000). In that case, the
alleged infringer asserted counterclaims under the New Jersey Racketeer Influenced and Corrupt
Organizations (“RICO”) law, alleging numerous qualifying predicate acts under the statute. Id. at
1381. But the underlying factual allegations boiled down to one misdeed: the patentee filing a
false statement with the USPTO. Id. at 1382. In holding the counterclaim preempted as applied
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by the alleged infringer, the Federal Circuit reasoned:
As pleaded by [the alleged infringer], its New Jersey RICO
counterclaims occupy a field identical in scope with the inequitable
conduct defense. If the conduct constituting inequitable conduct,
without more, could be considered predicate acts under federal or
state RICO law, then every accused infringer asserting an
inequitable conduct defense would also bring such a RICO
counterclaim. An additional state cause of action predicated so
squarely on the acts of inequitable conduct would be “contrary to
Congress’ preemptive regulation in the area of patent law.”
Id. (quoting Abbott Labs. v. Brennan, 952 F.2d 1346, 1357 (Fed. Cir. 1991)). The Federal Circuit
then rejected the alleged infringer’s argument that its New Jersey RICO counterclaim was not
preempted because the counterclaim “allege[d] additional elements not found in the federal patent
law cause of action for inequitable conduct . . . .” Id. The alleged infringer had “ignore[d] the
distinction between acts that may be proven as part of a state RICO violation and those which must
be proven for liability.” Id. And as pleaded by the alleged infringer, the acts constituting the
necessary elements for the New Jersey RICO claim completely overlapped with the acts
constituting the alleged infringer’s inequitable conduct defense. Id.
Here, the Court cannot ascertain a meaningful distinction between Telebrands’s inequitable
conduct claim and its claim for misappropriation of intellectual property. (Compare Am. Compl.
¶¶ 137-53, with id. ¶¶ 194-206). Like the New Jersey RICO counterclaim in Semiconductor
Energy Lab., Telebrands’s claim for misappropriation of intellectual property appears to be “an
additional state cause of action predicated . . . squarely on the acts of inequitable conduct”—i.e.,
the alleged misconduct of Frost Brown, Gary Dean Ragner, and Robert Daniel deRochemont, Jr.,
before the USPTO in obtaining the ’076 and ’944 patents. See 204 F.3d at 1382. Telebrands
argues that that patent law does not preempt its claim because the claim “contains the additional
element of direct competition.” (D.E. No. 96 at 8). In other words, “[t]he crux of Count XI . . . .
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is that [Defendants] misappropriated Telebrands’ intellectual property and used it in direct
competition with Telebrands.” (Id. at 9). But this argument is unavailing because, like the alleged
infringer in Semiconductor Energy Lab., Telebrands “conveniently ignores the distinction between
acts that may be proven as part of a state [cause of action] and those which must be proven . . . .”
See 204 F.3d at 1382. Telebrands only argues that its claim for misappropriation of intellectual
property “contains the additional element of direct competition.” (See D.E. No. 96 at 8 (emphasis
added)). Telebrands does not argue that the element of direct competition is a necessary element
of a “misappropriation of intellectual property” cause of action. (See id.). Nor can it, as Telebrands
does not identify an actual legal test, under a recognized New Jersey unfair competition law, for
comparison. (See id.).
The Court grants Defendants’ motion to dismiss, but grants Telebrands one, final chance
to amend Count XI.
IV.
Conclusion
In summary, for the reasons above, the Court DENIES Telebrands’s and Bulbhead’s
motions to dismiss (D.E. Nos. 70 & 87), and GRANTS Defendants’ motion to dismiss (D.E. No.
91).
s/Esther Salas
Esther Salas, U.S.D.J.
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