Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Nasal irrigation product manufacturer allegedly used sham litigation to foreclose competition, (Aug 18, 2016)

By Linda O’Brien, J.D., LL.M.

Pharmaceutical company NeilMed has used baseless litigation against a potential competing supplier in an attempt to monopolize the market for saline nasal irrigation products sold in the United States, according to a complaint filed in the federal district court in San Francisco (Version2 Technology, Inc. v. NeilMed Pharmaceuticals, Inc., August 17, 2016).

NeilMed Pharmaceuticals is the world’s largest manufacturer and supplier of over-the-counter nasal and sinus care products and distributes over22 different saline nasal irrigation systems. Its share of the nasal irrigation product markets purportedly exceeds 70 percent. Version2 Technology is a pharmaceutical company that has developed and promoted its ClearNasal nasal irrigation product.

The complaint alleges that in March 2014, NeilMed filed suit in state court against its former employee, Sareswara Rao Basa, and Basa’s then-employer Version2. NeilMed asserted that Basa, while employed at NeilMed, developed an angled bottle cap prototype that embodied NeilMed trade secrets and disclosed NeilMed confidential information in breach of his contractual obligations. NeilMed also alleged that Version2 aided and abetted Basa’s breach of his contractual obligations. The parties agreed to submit the claims to arbitration.

In September 2015, the arbitrator issued a final arbitration award, finding that NeilMed failed to show that any trade secrets were misappropriated or that Basa shared any confidential information. The arbitrator declined to award any monetary damages to NeilMed. Basa returned all documentation and prototypes of the angled bottle cap he developed to NeilMed and resigned from Version2.

According to the complaint, although NeilMed could no longer claim any rights arising under state trade secret law and could point to no applicable patent right, NeilMed filed a second suit in state court, seeking to enjoin Version2 from using any angled cap derived from the angled cap prototype. Version2 alleges that the arbitrator conclusively determined that the angled cap developed by Basa did not contain any of NeilMed’s trade secret information and that was not protected by any patent. According, there is no legal theory entitled NeilMed to such broad relief.

Version2 claims that NeilMed has no objective legal basis for seeking an injunction and its action indicate a subjective intent to use the state court proceedings to interfere with or destroy Version2’s business. NeilMed’s action to secure injunctive relief prohibiting Version2 from selling any derivative nasal irrigation devices is an attempt to prevent Version2 from entering the nasal irrigation market in any capacity. NeilMed’s actions throughout the course of the litigation has impacted Version2’s business operations and caused Version2 significant damages, the complaint alleges.

Version2 asserts claims for attempted monopolization in violation of Section 2 of the Sherman Act, as well as unfair competition in violation of California’s Unfair Competition Law. The action seeks declaratory and injunctive relief, damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:16-cv-04720-LB.

Attorneys: Darius Ogloza and David Fortney (Ogloza Fortney LLP) for Version2 Technology, Inc.

Companies: Version2 Technology, Inc.; NeilMed Pharmaceuticals, Inc.

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