Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Ohio: Dental strip manufacturer states antitrust counterclaims, affirmative defenses against P&G in patent infringement suit, (Sep 25, 2013)

By Jody Coultas, J.D.

The federal district court in Cincinnati denied The Procter & Gamble Company’s (P&G) motion to dismiss affirmative defenses and counterclaims filed by CAO Group, Inc. in a patent infringement claim filed against it by P&G (The Procter & Gamble Company v. CAO Group, Inc., September 24, 2013, Black, T.).

CAO produces dental strip products that whiten teeth, deliver fluoride, and desensitize teeth. In its counterclaims against P&G, CAO alleged that P&G violated Section 2 of the Sherman Act by monopolizing or attempting to monopolize the dental strip treatment market and/or the market for strips through channels other than dental professional networks by threatening to enforce and actually enforcing patents and instituting sham litigation.

Under a Section 2, Sherman Act attempted monopolization claim, a plaintiff must prove: (1) that the defendant has engaged in predatory or anti-competitive conduct; (2) with a specific intent to monopolize; and (3) a dangerous probability of achieving monopoly power. The plaintiff must define the relevant market.

CAO alleged a credible definition of the relevant market, according to the court. The proposed market was strips for dental treatment generally and strips for dental treatment available through channels other than dental professional networks. The geographic market was the United States. P&G argued that the proposed market was over-inclusive because it includes a number of dental treatment products that are not functionally interchangeable. While the fluoride or desensitizing products were not interchangeable with products for whitening teeth, P&G had the ability to take significant amounts of business in such fluoride or desensitizing products away from CAO and others in the market. P&G also argued that the relevant market was under-inclusive because it was limited to strips. CAO admitted that non-strip forms of teeth whitening systems were available, but claimed many consumers regard such other options as inferior to strips because of the additional inconvenience and expense.

P&G failed to cite any cases where an antitrust clam was dismissed based on a proposed geographic market covering too large an area. Because of the availability of P&G’s products on the Internet, consumers could reasonably be expected to purchase products and seek alternative products in the market across state lines.

At this stage in the litigation, CAO properly alleged monopoly power or a probability of achieving such power, according to the court. Monopoly power is the ability to raise prices or to exclude competition when it is desired to do so. Prior to discovery, a plaintiff does not have to allege an exact, percentage-based market share. The market shares alleged, if proven, supported a finding that P&G had monopoly power or a dangerous probability of achieving monopoly power in the relevant markets.

The court held that CAO pled sufficient facts to allege Walker Process fraud. CAO counterclaimed that P&G violated Section 2 of the Sherman Act based on the enforcement of two patents allegedly procured by fraud on the PTO. To state Walker Process fraud, a claimant must make a higher threshold showing of both materiality and intent than are required to show inequitable conduct, and show that traditional common law fraud was committed on the PTO. CAO’s allegations that P&G made misrepresentations of material fact to the PTO during prosecution of the patents, and that the patents would not have issued but for the misrepresentations were sufficient to state the counterclaim. The allegation that P&G filed this lawsuit with knowledge of the misrepresentations was also sufficient.

The facts supporting the Walker Process claim also supported CAO’s sham litigation claim, according to the court.

The case is No. 1:13-cv-337.

Attorneys: David M. Maiorana (Jones Day) for Procter & Gamble Company. Edgar R. Cataxinos and J. Jeffrey Gunn (Traskbritt PC) and Glenn Virgil Whitaker (Vorys Sater Seymour & Pease) for CAO Group, Inc.

Companies: The Procter & Gamble Company; CAO Group, Inc.

Cases: Antitrust OhioNews