Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—M.D.N.C.: Royalty, patent disputes could not be basis for unfair trade practices claims, (Oct 23, 2013)

By Edward L. Puzzo, J.D.

A cardiologist who developed medical technology could not maintain North Carolina unfair trade practice claims against a medical technology company where their consulting contract dispute over royalties affected only the parties to the agreement, and where disputes over the attribution of patents did not involve aggravating circumstances, the federal district court in Winston-Salem, North Carolina has ruled (Stack v. Abbott Laboratories, October 21, 2013, Schroeder, T.).

Dr. Richard Stack, a cardiologist who had developed stent technology, entered into an agreement with Advanced Cardiovascular Systems (ACS), later purchased by Abbott Laboratories, to consult regarding the development of non-bioabsorbable stent technology in exchange for royalties for the development of certain patents and technology.

Stack alleged that Abbott violated the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) in three respects: a failure to pay royalties due him, the removal of his name from certain Abbott patent applications, and the removal of reference to his work on Abbott’s ‘Xience V’ product packaging.

Failure to pay royalties. A prima facie claim for an unfair or deceptive trade practice under North Carolina’s UDTPA requires an unfair or deceptive trade practice, in or affecting commerce, that proximately causes injury, the court explained. North Carolina courts have generally exempted disputes arising from the employer-employee relationship from the UDTPA because they do not affect commerce. Here, Stack was an independent contractor and not an employee. Nevertheless, the proper inquiry was not whether a contractual relationship existed between the parties, but whether the defendants’ allegedly deceptive acts affected commerce.

Using the above standard, Stack’s UDTPA claim based on the failure to pay contractual royalties lacked merit because such a failure would constitute a breach of the consulting agreement between Stack and Abbott, affecting only the parties to that agreement and not commerce generally.

Patent applications references. A breach of contract between parties, even if intentional, cannot succeed as a UDTPA violation without a showing of substantial aggravating circumstances, the court explained. Such circumstances may include, for example, fraudulent inducements, lies, and forged documents.

Here, Stack alleged that the failure to include his name on patent applications egregiously violated his consulting agreement and was a deliberate bad faith effort to marginalize his value in the marketplace. Even if the allegations were true, the court noted, the claim is one of contract interpretation and performance. The alleged conduct fails to constitute a sufficient egregious or substantial aggravating factor to support a UDTPA claim, the court ruled.

Packaging references. Stack also complained of Abbott’s removal of the packaging reference on the packaging for the Xience V product to a patent (the “Pacetti Patent”), which in turn referenced one of Stack’s patents for bioabsorbable stents. Stack claimed that Abbott’s removal of the reference to the Pacetti Patent, while not in violation of the consulting agreement, was an attempt to conceal the connection between Stack and the Xience V product in order to deny him credit for the work and knowledge he provided to Abbott.

The court disagreed. This alleged aggravating factor was simply too attenuated to constitute an egregious or substantially aggravating factor in connection with a breach of a contract or an unfair or deceptive trade practice, continued the court. Stack failed to explain how he had any right to insist on the placement of someone else’s patent on any of Abbott’s products. Any effect of their omission fell well outside the bounds of what North Carolina courts have recognized as supporting a UDTPA claim, the court stated. Thus, all of Stack’s UDTPA claims must be dismissed, the court ruled.

The case is Civil Action No. 1:12CV148.

Attorneys: A. Charles Ellis (Ward and Smith, PA) for Richard S. Stack, M.D. Nash E. Long, III (Hunton & Williams LLP) for Abbott Laboratories.

Companies: Abbott Laboratories, Inc.

Cases: StateUnfairTradePractices NorthCarolinaNews