Antitrust Law Daily Wrap Up, RICO—DNJ: RICO, Antitrust Claims Against Start-Up Incubator and Sponsors over Support for Competitor Dismissed , (Dec 13, 2012)

By Jeffrey May, J.D.

Federal and state RICO and antitrust claims—asserted by a technology start-up company against a "business incubator" and its university and corporate sponsor, as well as a competitor—have been dismissed by the federal district court in New Jersey (Demodulation, Inc. v. Applied DNA Sciences, Inc., December 12, 2012, Martini, W.).

The complaining technology company sued the business incubator, which was formed to help start-up companies develop and market emerging ceramics-related technology; a joint venture between a private university and a corporate sponsor that operates the business incubator; and a competing start-up, as well as the university and the corporate sponsor. In its complaint, which asserted a laundry list of causes of action, the complaining technology company alleged that it was harmed in its development of its microwire technology by the defendants' failure to disclose various conflicts of interest that benefitted the defending competitor. The complaining firm alleged that it was intentionally “blackballed” by the defendants so that they could protect their interests.

The court dismissed claims for violations of the New Jersey Civil RICO statute (N.J.S.A. 2C:41-2(c)) and the New Jersey Civil RICO conspiracy statute (N.J.S.A. 2C:41-2(d)) against all four of the defendants. New Jersey RICO law makes it unlawful for anyone associated with an enterprise engaged in or associated with commerce to participate in the conduct of the enterprise through a pattern of racketeering activity. The plaintiff failed to state a claim under the New Jersey RICO law because it failed to properly allege the existence of an enterprise. The plaintiff did not even allege facts suggesting that the defendants worked together as a group, let alone that the group had a structure or made plans or coordinated any activities.

Federal RICO claims brought against the corporation and the university also were dismissed. The complaining firm failed to allege any racketeering activity. It did not specify the predicate acts upon which its federal RICO claim was based, except to say that the defendants committed wire fraud by listing the complaining firm as a graduate of the incubator on the incubator's website. It was not explained how this conduct constituted wire fraud. Even if it were wire fraud, it would only constitute one predicate act, according to the court. Further, it was not explained how the website listing proximately caused it any injury.

Antitrust Claims

Pleading deficiencies required dismissal of the federal and New Jersey antitrust claims, the court also ruled. The complaining firm failed to plead facts suggesting that the defendants had come to any sort of agreement to restrain trade or boycott the plaintiff. In addition, the complaint contained no allegations concerning the relevant market, an essential component of an antitrust claim. "While the Amended Complaint references microwire and states that Defendants are Plaintiff’s competitors, it does not include any allegations regarding the relevant market size, geographical location, or what would constitute interchangeable substitute products," the court explained.

New York Deceptive Acts and Practices Law

Neither the listing of the complaining firm as a graduate of the incubator nor the incubator's alleged failure to provide the firm with the services that it advertised supported a claim under the New York Deceptive Acts and Practices Law, New York General Business Law §349, the court also ruled. These allegedly deceptive acts were directed at the plaintiff, and not at any set of consumers. Further, the plaintiff failed to specify what, if any, harm it sustained as a result of the alleged violations.

Permission to Amend Complaint

The court dismissed the RICO, antitrust, and New York Deceptive Acts and Practices Law claims without prejudice. Thus, the plaintiff was permitted to file a Second Amended Complaint. "However, Plaintiff should be mindful that having one well-pleaded claim is better than having one hundred poorly-pleaded claims, and that failure to plead viable claims in the Second Amended Complaint will likely result in dismissal with prejudice," the court warned.

The case is Civ. No. 2:11-cv-00296 (WJM).

Benjamin D. Light (Aromando, Light, & Croft, LLC) for Demodulation, Inc. Felice Beth Galant (Fulbright & Jaworski LLP) for Applied DNA Sciences, Inc.

Cases: Antitrust RICO StateUnfairTradePractices NewJerseyNews