Antitrust Law Daily Wrap Up, ANTITRUST—W.D. Pa.: Supplement maker pleads inequitable conduct, unfair competition, antitrust violations against ‘abusive’ patentee, (Aug 13, 2015)

By Thomas Long, J.D.

In an infringement action brought by Thermolife International over patents for certain compounds, Dietary supplements maker iForce Nutrition adequately pleaded defenses and counterclaims of unenforceability due to inequitable conduct, Lanham Act unfair competition, tortious interference, and antitrust violations, the federal district court in Pittsburgh has determined (Thermolife International, LLC v. D.P.S. Nutrition, Inc., August 12, 2015, Schwab, A.). iForce adequately alleged that Thermolife brought the suit in bad faith, for the “abusive” purpose of coercing a settlement and a licensing agreement in regard to patents it knew were unenforceable. Six other defendants, however, failed to plead facts sufficient to support a finding of inequitable conduct, and their affirmative defenses were stricken.

Thermolife asserted that seven online vitamin and supplement businesses infringed five of Thermolife’s patents for amino acid composition and betaine compounds. The defendants raised affirmative defenses of inequitable conduct. Thermolife was accused of intentionally failing to disclose material prior art to the USPTO during prosecution of Thermolife’s patents. Thermolife contended that the inequitable conduct defense was inadequately pleaded because it was conclusory and did not meet federal standards with regard to particularity in pleading fraud.

One defendant, iForce Nutrition, also raised counterclaims of unfair competition in violation of the Lanham Act, tortious interference with business relations, and violations of Section 2 of the Sherman Act. Thermolife moved to dismiss these counterclaims for failure to state a claim upon which relief can be granted.

Inequitable conduct. Claims of inequitable conduct before the USPTO must be pleaded with particularity. A defendant must plead facts to establish the who, what, when, where, why, and how regarding the alleged misrepresentation or material omission. To be sufficient, the allegations must allow the court to reasonably infer that the party accused of inequitable conduct knew of the withheld material information or the falsity of the material representation and withheld or misrepresented the information with the specific intent to deceive the USPTO.

Only iForce set forth factual averments in its answer, some of which supported an affirmative defense of inequitable conduct. According to iForce, Thermolife operated primarily to sue manufacturers and retailers in the sports nutrition and supplement industry. Thermolife had instituted 117 such cases in 2013 alone. Thermolife had not obtained a verdict or judgment against a defendant in any case; iForce asserted that the suits were instituted for the sole purpose of coercing settlements and license agreements. Thermolife allegedly failed to disclose material prior art to the USPTO in prosecuting its patents-in-suit, which, iForce argued, were improperly dependent on the invention of amino acids, a subject that had been rejected previously by the USPTO as unpatentable.

In the court’s view, there were sufficient allegations to allow the court to infer that specific individuals with Thermolife knew of material prior art that was withheld in an attempt to deceive the USPTO. Specifically, Thermolife’s principal, Ron Kramer, and the company’s counsel were aware during the application process and reexamination processes of two patents-in-suit that certain prior are (“the Barger reference”) impacted the patents such that the USPTO would not have issued it patents if it had been aware of the Barger reference. The facts pleaded by iForce were sufficient to put Thermolife on notice of iForce’s inequitable conduct counterclaim, the court decided.

The other defendants did not make factual averments in their answers and did not appear to incorporate iForce’s allegations by reference. Therefore, the inequitable counterclaims were stricken with respect to defendants D.P.S. Nutrition, Inc.; A1 Supplements, Inc.; Muscle and Strength, LLC; Suppz, Inc.; and Supplement Direct Ventures, Inc.

Unfair competition. According to iForce, Thermolife violated Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a), by making false or misleading representations of fact before the USPTO and in a February 10, 2015 demand letter. The letter—which set forth the alleged infringing conduct, demanded that iForce cease infringing activity and desist from future infringement, and called on iForce to comply with additional requirements—was sent to iForce’s customers. The letter, iForce asserted, contained false descriptions of iForce and its products that were made in bad faith in an effort to deceive iForce’s customers for the profit of Thermolife, and damaged iForce’s marketplace reputation and revenues.

As set forth in iForce’s answer, Thermolife allegedly was not a true patent owner because it knew or should have known that its patents-in-suit were unenforceable, the court noted. If proven at trial, the allegations would necessitate a finding that claims against iForce made in the demand letter were made in bad faith and, as iForce contended, as part of a pattern of abusive litigation by Thermolife. Accordingly, the motion to dismiss this counterclaim was denied.

Tortious interference. The court also denied Thermolife’s motion to dismiss iForce’s counterclaim for tortious interference with business relations and potential business relations. Thermolife allegedly threatened to sue—and did sue—iForce’s customers for selling iForce’s products, filed meritless lawsuits in bad faith, and defamed iForce with the intent to harm iForce’s business. At the pleadings stage, iForce adequately alleged that Thermolife acted with the requisite bad faith to support a tortious interference claim.

Sherman Act violations. In two separate courts, iForce set forth counterclaims under the Sherman Act for Walker Process and Handgards claims. In support of these claims, iForce asserted that Thermolife and Kramer made material misrepresentations and omissions to the USPTO in regard to the patents-in-suit, which would not have issued otherwise, and that these actions were made knowingly, willingly, and with the deceptive intent to control prices, destroy competition, and accomplish monopolization.

Thermolife contended that the Walker Process claim failed because iForce did not plead the threshold degree of intent with particularly and did not allege facts to demonstrate that Thermolife or its agents knew that any of the asserted patent claims were invalid. Thermolife also contended that both Sherman Act counterclaims must be dismissed because iForce did not set forth facts showing that Thermolife had monopoly power.

The elements of a Walker Process antitrust claim are: (1) a false representation or deliberate omission of a fact material to patentability; (2) made with the intent to deceive the patent examiner; (3) on which the examiner justifiably relied in granting the patent; (4) the patent would not have been granted but for the misrepresentation or deliberate omission; and (5) injury. A Handgards claim requires allegations of objectively baseless litigation, which has been used as an anticompetitive weapon to directly interfere with a competitor’s business relationships.

Thermolife’s motion sought to ask the court to impose a higher burden on iForce than was proper in determining the merits of a motion to dismiss, the court said. The inquiry at this early stage was not on whether iForce will ultimately prevail on its counterclaims, but on whether the counterclaims were adequately pleaded. In the court’s view, iForce sufficient pleaded antitrust claims based on its allegations of deliberate actions by Thermolife and Kramer during proceedings before the USPTO and the effects these actions had on iForce, as well as the high risk of an anticompetitive impact. Therefore, the motion to dismiss the Sherman Act counterclaims was denied.

The case is No. 15cv0273.

Attorneys: Kirsten R. Rydstrom (Reed Smith LLP) for Thermolife International, LLC. Ansley S. Westbrook, II (Dinsmore & Shohl LLP) for D.P.S. Nutrition, Inc., Tribravus Enterprises, LLC, A1 Supplements, Inc., Muscle and Strength, LLC, and Suppz Inc.

Companies: Thermolife International, LLC; D.P.S. Nutrition, Inc.; Tribravus Enterprises, LLC; A1 Supplements, Inc.; Muscle and Strength, LLC; Suppz Inc.

Cases: Antitrust Advertising PennsylvaniaNews