Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Fla.: Skin health device seller’s price fixing, RICO counterclaims fail, (Oct 28, 2015)

By Greg Hammond, J.D.

The seller of a hydradermabrasion machine that allegedly infringed on a competitor’s trademarks, trade dress, and patents failed to adequately allege antitrust and Racketeer Influenced and Corrupt Organizations Act (RICO) counterclaims. The federal district court in Miami granted the competitor’s motion to dismiss the counterclaims and strike the affirmative defenses, finding insufficient facts to support each of the arguments (Edge Systems LLC v. Aguila, October 26, 2015, Moore, M.).

Plaintiffs Edge Systems LLC and Axia MedSciences, LLC sued an individual, doing business as Hydradermabrasion Systems (HS), alleging that HS’ hydradermabrasion machine used the same system and trade dress as Edge System’s machine. While HS admitted it used the same or nearly identical trademarks and trade dress as Edge Systems, HS brought various counterclaims for antitrust, RICO, declaration of unenforceability, patent false marking, and cancellation of trademark rights, as well as affirmative defenses of unenforceability, inequitable conduct, prior use of trademarks, and unclean hands. Edge Systems moved to dismiss the counterclaims and to strike the affirmative defenses.

Antitrust. HS alleged that Edge Systems engaged in anticompetitive price fixing agreements with other companies that resulted in diminished competition and increased prices for Edge Systems’ products. In addition, HS claimed that Edge Systems’ profit-margins in the hydradermabrasion industry have not fallen for over five years, indicating a monopolized marketplace. The court rejected these arguments, however, finding that HS failed to allege any specific facts to make the antitrust counterclaim plausible on its face or to demonstrate the elements of a monopolization claim under Section 2 of the Sherman Act.

RICO. The RICO counterclaim was also dismissed for failure to allege supporting facts, “let alone facts sufficient to state a claim to relief that is plausible on its face,” the court concluded. Rather, HS merely offered threadbare recitals of the elements of a cause of action, which were insufficient as a matter of law.

Remaining counterclaims. HS also brought counterclaims for: (1) declaration of unenforceability based on Edge Systems’ alleged inequitable conduct during the prosecution of one of its patent applications; (2) falsely marking articles as patented when they were not, with the intent to deceive; (3) cancellation of four of Edge Systems’ registered trademarks; and (4) declaration of trademark rights over Edge Systems’ “common law” trademark registrations. The counterclaim for declaratory judgment was dismissed for being wholly duplicative of a prior use of trademarks affirmative defense and the rest of the counterclaims were dismissed for lack of sufficient facts.

Affirmative defenses. In support of its affirmative defense for prior use of trademarks, HS claimed that Edge Systems’ trademarks are all descriptive of goods to which they apply and are therefore incapable of being trademarks; Edge Systems’ trademarks are all in common use and are public property; Edge Systems failed to use reasonable diligence to seek protection of their supposed rights; and HS was already using the Edge logo and Edge Systems name before the plaintiffs. The court, however, was unconvinced that the exhibits HS offered were authentic, noting that HS’ “repeated submissions of fraudulent documents and testimony form a sufficient basis for the Court to strike” the prior use of trademarks affirmative defense.

The affirmative defense for unclean hands was also rejected by the court, because the purported wrongdoing by Edge Systems—such as making fraudulent purchases with HS’ credit card, or that Edge Systems’ President made verbal and physical threats—had no direct relation to the claims asserted by Edge Systems in its complaint. The remaining affirmative defenses were stricken because they were duplicative of already dismissed counterclaims.

The case is No. 1:14-cv-24517-KMM.

Attorneys: Ali S. Razai (Knobbe, Martens, Olson & Bear, LLP) and James Anthony Gale (Feldman Gale PA) for Edge Systems LLC and Axia MedSciences, LLC. Rafael Newton Aguila, pro se.

Companies: Edge Systems LLC; Axia MedSciences, LLC

Cases: Antitrust RICO FloridaNews