Antitrust Law Daily Wrap Up, ADVERTISING—C.D. Cal.: Accelerometer makers state sufficient Lanham Act claims against alleged misappropriator, (Nov 4, 2014)

By Greg Hammond, J.D.

Meggitt (Orange County), Inc. (Meggitt OC) and Meggitt (Maryland), Inc. (Meggitt Maryland) have stated sufficient false advertising claims under the Lanham Act against Nie Yongzhong, a former engineer at non-party Meggitt (Xiamen) Sensors & Controls Co. Ltd. (Meggitt Xiamen). In partially denying Nie’s motion to dismiss, the federal district court in Santa Ana determined that the plaintiffs stated their fraud based Lanham Act claim with sufficient particularity (Meggitt (Orange County), Inc. v. Nie, November 3, 2014, Carter, D.).

Background. Meggitt OC and Meggitt Maryland manufacture sensors and accelerometers. Nie was an engineer at Meggitt Xiamen’s manufacturing facility in Xiamen, China, where he had access to Meggitt OC and Meggitt Maryland’s trade secrets, including detailed assembly instructions, software code for automated calibration equipment, technical photographs, engineering drawings, and written test protocols. One year prior to terminating his employment with Meggitt Xiamen, Nie established Xiamen Niell Electronics Co. Ltd., which manufactures and markets sensors and accelerometers that have nearly identical specifications as several Meggitt OC and Meggitt Maryland products.

The plaintiffs, Meggitt OC and Meggitt Maryland, filed a third amended complaint, alleging false advertising under the Lanham Act, unfair competition under California’s Unfair Competition law (UCL), and trade secret misappropriation. The defendants moved to dismiss the plaintiff’s Lanham Act and UCL claims under their third amended complaint.

Lanham Act. The plaintiffs alleged that the defendants adopted an overall plan and scheme not just to steal and use Meggitt’s trade secret, confidential, and proprietary information, but to also misrepresent and falsely hold themselves out to the industry as being a well-established, strong, reputable and reliable company with qualified engineers, and a wide range of product offerings, and from whom the customer could expect to obtain high-quality and reliable products and after-sale service. According to the court, these allegations are grounded in fraud, and must therefore satisfy the particularity requirement of Rule 9(b).

The defendants argued that the plaintiffs failed to satisfy Rule 9(b) because there were no factual allegations establishing when or where the overall scheme and plan was devised, or who at Niell-Tech devised it. However, the court determined that the plaintiffs sufficiently alleged the “who, what, when, where, and how” of the conduct charged. Specifically, Meggitt alleged that on two specific occasions, the defendants advertised several products supposedly made by Xiamen Niell-Electronics Co., Ltd. that had proven use under certain conditions, despite the fact that the products were never actually manufactured by the defendants. Consequently, the motion to dismiss the Lanham Act false advertising claim was denied.

UCL. The motion to dismiss the plaintiffs’ UCL claim was granted, however, because the plaintiffs failed to oppose that portion of the motion. The court noted that a failure to oppose is deemed consent to grant the motion to dismiss. Nevertheless, the court granted the plaintiffs leave to file a fourth amended complaint.

The case number is SACV 13-0239-DOC (DFMx).

Attorneys: Charles August Kertell (Manatt Phelps and Phillips LLP) for Meggitt (Orange County), Inc., and Meggitt (Maryland), Inc. Christian Anstett (Baker Marquart LLP), Daniel Johnson, Jr (Morgan Lewis and Bockius LLP), and Mark Hsen Wu Chu (Jun He Law Offices) for Nie Yongzhong and Xiamen Niell Electronics Co. Ltd.

Companies: Meggitt (Orange County), Inc.; Meggitt (Maryland), Inc.; Xiamen Niell Electronics Co. Ltd.

Cases: Advertising StateUnfairTradePractices CaliforniaNews