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Pulse Health LLC v. Akers Biosciences, Inc.

United States District Court, D. Oregon

April 14, 2017

PULSE HEALTH LLC, Plaintiff,
v.
AKERS BIOSCIENCES, INC., Defendant.

          David H. Angeli, Kristen L. Tranetzki, ANGELI LAW GROUP LLC Michael Rounds BROWNSTEIN HYATT FARBER SCHRECK, LLP Attorneys for Plaintiff

          Anthony J. DiMarino, III Emmett S. Collazo A.J. DIMARINO, Jennifer Wagner STOLL STOLL BERNE LOKTING & SCHLACHTER Attorneys for Defendant

          OPINION & ORDER

          MARCO A. HERNÁNDEZ UNITED STATES DISTRICT JUDGE.

         Plaintiff brings three claims against Defendant: (1) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (2) unlawful trade practices in violation of Oregon Revised Statute § (O.R.S.) 646.608; and (3) breach of contract. Defendant moves to dismiss Plaintiff's claims. The Court held oral argument on March 10, 2017.

         The Court grants Defendant's motion to dismiss Plaintiff's Claims 1 and 2 for failure to state a claim. The Court denies Defendant's motion to dismiss Plaintiff's Claim 3 for lack of personal jurisdiction. The Court also denies Defendant's alternative motion to transfer venue. In sum, Plaintiff's third claim for breach of contract can proceed in this Court.

         BACKGROUND

         Defendant Akers Biosciences, Inc. (“Defendant”) is a New Jersey corporation with its principal place of business in West Deptford, New Jersey. Akers Decl. Supp. Def.'s Mot. Dismiss (“Akers Decl.”) ¶ 8, ECF 19. According to Defendant, it develops and sells diagnostic products and devices designed to deliver various health information test results with laboratory-level accuracy, but with cheaper and faster results. Id. at ¶ 5. Defendant is publicly held, with common stock traded on the NASDAQ Exchange and London Stock Exchange. Id. at ¶ 9.

         Defendant has no place of business in Oregon and has no employees in Oregon. Id. at ¶¶ 7, 10, 11. However, on October 4, 2016, Defendant engaged an independent sales representative in Oregon for marketing and selling the OxiChek product at issue in this case. Id. at ¶ 15. Defendant also engages independent sales distributors that have made sales to a hospital in Corvallis, Oregon, totaling less than $15, 000 since 2013. Id. at ¶ 14.

         Plaintiff Pulse Health LLC (“Plaintiff”) is an Oregon limited liability company with its principal place of business in Lake Oswego, Oregon. Compl. ¶ 1, ECF 1. Plaintiff formed in 2006 for the purpose of developing a product that can measure aldehyde molecules in human breath via a non-invasive hand-held device. Marsh Decl. ¶ 3, ECF 28. In pursuit of that goal, Plaintiff invented a hand-held computer system that could be used to measure certain health markers, such as aldehyde molecules, via a breath test. Compl. ¶ 9. Plaintiff had initially called this product the “Free Radical Enzymatic Device” or “FRED, ” but later changed the name of the device to “Revelar.” Id. at ¶¶ 9, 18. Plaintiff currently employs fourteen people at its Portland, Oregon facility. Id. at ¶ 3.

         Beginning in September of 2007, Plaintiff and Defendant entered into a number of contracts for the development and manufacture of a breath tube containing a chemical reagent that could accurately measure aldehyde molecules in human breath, to be used in conjunction with Plaintiff's FRED/Revelar device. Id. at ¶¶ 8-15; Marsh Decl. ¶ 9. Defendant had previously invented a test kit for a Blood Alcohol Test which took the form of a tube containing chemical reagents into which the test-taker would blow air. Compl. ¶ 10. The chemical reagents would react and change color based upon their interaction with alcohol present in the breath. Id. Defendant also invented another tube-and-reagent test that it claimed could detect the product of “free radical metabolism, such as aldehydes, MDA or peroxides, and react such substances with a compound producing a color.” Id. The parties entered into a Technology and Development Agreement (“TD Agreement”) pursuant to which Defendant would design “New Versions” of its free radical test product in order for it to be used in combination with Plaintiff's hand-held FRED product. Id. at ¶ 11.

         In addition to the TD Agreement, the parties simultaneously entered into a Supply and Manufacturing Agreement (“Supply Agreement”). The Supply Agreement provided that Defendant would manufacture the New Versions for Plaintiff to sell with its FRED/Revelar product if Defendant successfully developed and tested the New Versions of the free radical test tubes. Id.

         The relationship between the parties and the circumstances surrounding the development of the New Versions changed in the following year. In December 2008, the TD Agreement and Supply Agreement were terminated in a Technology Transfer Agreement (“TT Agreement”). Id. at ¶ 12. Under the TT Agreement, Defendant assigned all intellectual property rights in the “Assigned Technology” to Plaintiff. Id. at ¶ 13. The “Assigned Technology” included all technology related to non-invasive exhaled breath testing. Id. The TT agreement provided Defendant with a license to use the Assigned Technology in the “ABI Field” which was limited to a handful of breath-test products related to diabetes, lung cancer, and alcohol detection. Id. at ¶ 14.

         Under the TT agreement, Defendant agreed to complete research, development, and testing for the “Free Radical Technology” and Plaintiff agreed to pay a transfer fee of $3, 000, 000 in periodic payments through June of 2010. Id. The TT Agreement included an amended version of the previous Supply Agreement and provided for Defendant's potential manufacture and sale of the “FRED Aldehyde Assay Tubes” (apparently the new moniker for the New Versions of Defendant's aldehyde test tubes). Id.

         Defendant's development of the test tubes failed, according to Plaintiff. Id. at ¶ 16. Plaintiff determined in its testing laboratory that the chemical reagents developed by Defendant did not work. Id. According to Plaintiff, when the reagents in the tube changed color in reaction to a user's breath, the reagents were not detecting aldehydes, as they were supposed to. Id. Instead, the change in color in the tube (which the hand-held device reads to determine the amount of aldehyde molecules in the breath) was actually a result of the reagents reacting with humidified air (i.e. water) in the breath. Id. After Plaintiff determined that Defendant could not develop Free Radical Technology that successfully tested for accurate measurement of aldehydes in breath condensate, Plaintiff requested to part ways with Defendant. Id. The parties subsequently terminated all prior agreements between each other and entered into the April 8, 2011 Assignment, License, and Settlement Agreement (“Settlement Agreement”) at issue in this action. Id. at ¶ 15.

         The Settlement Agreement provided that Plaintiff assigned and transferred the Assigned Technology back to Defendant, and Defendant waived the remainder of Plaintiff's $3, 000, 000 payment. Id. at ¶ 17. The Settlement Agreement also provided that Defendant granted Plaintiff an exclusive and perpetual license to use the Assigned Technology in the field of Aldehyde Tests, which included any testing for oxidative stress, but excluded the “Defendant Field” of tests relating to diabetes, cancer, and alcohol. Id. The Settlement Agreement further provided that Defendant had no rights with respect to Plaintiff's Technology for its hand-held FRED/Revelar device. Id. at ¶ 18.

         In approximately May of 2012, Plaintiff became aware that Defendant was selling a hand-held “Vivo” product that Defendant claimed measured oxidative stress and free radical damage through disposable tubes, which Plaintiff determined was a copy of Plaintiff's FRED/Revelar product in several respects. Compl. ¶ 19; Marsh Decl. ¶ 17. One of the former sales agents of Plaintiff was attempting to sell the Vivo product to Plaintiff's Oregon-based customers, and Plaintiff's law firm sent that former agent a cease-and-desist letter. Marsh Decl. ¶ 17. Both Defendant and the former sales agent thereafter stopped selling the Vivo product. Id.

         In December 2015, Plaintiff became aware that Defendant was offering an “OxiChek” product for sale at a trade show in Las Vegas. Id. at ¶ 21. The Oxi-Check device uses a hand-held reader device in which a chemical reagent tube (the OxiChek product) is inserted after a person has exhaled breath into it. Compl. ¶ 21. The OxiChek device is supposed to measure free radicals such as superoxides, hydrogen peroxide, and aldehydes, and then send the results to a software application downloaded on a person's mobile phone or computer. Id. The software then displays oxidative stress and free radical results. Id.

         After reviewing Defendant's OxiChek advertising materials, Plaintiff sent Defendant a cease-and-desist letter on March 1, 2016, complaining that Defendant may be using the Assigned Technology and Plaintiff's technology in breach of the parties' Settlement Agreement. Id. at ¶ 22. Plaintiff requested Defendant's technical materials showing the composition of its chemical reagents. Id. Defendant refused to remove its product from the market or provide any information concerning its OxiChek product. Id. at ¶ 23.

         In July of 2016, Plaintiff obtained a sample of the OxiChek product by purchasing it from one of Defendant's distributors. Id. at ¶ 24. After analyzing the device, Plaintiff determined that the OxiChek product is a copy of the Assigned Technology and Pulse Technology. Id. The chemistry for the OxiChek and the Assigned Technology reagents are the same, and the circuit boards for the OxiChek product have a similar layout and the same optical chamber, LED, diodes, switches and gates as the original FRED/Revelar device developed by Plaintiff. Id. at ¶¶ 24-25.

         STANDARDS

         I. Rule 12(b)(6)

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Am. Family Ass'n, Inc. v. City & Cnty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). However, the court need not accept conclusory allegations as truthful. See Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (“[W]e are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint, and we do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations.”) (internal quotation marks, citation, and alterations omitted). Rather, to state a plausible claim for relief, the complaint “must contain sufficient allegations of underlying facts” to support its legal conclusions. Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

         A motion to dismiss under Rule 12(b)(6) will be granted if a plaintiff alleges the “grounds” of his “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)[.]” Id. (citations and footnote omitted).

         To survive a motion to dismiss, a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face[, ]” meaning “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). A complaint must contain “well-pleaded facts” which “permit the court to infer more than the mere possibility of misconduct[.]” Id. at 679.

         II. Personal Jurisdiction

         Under Federal Rule of Civil Procedure 12(b)(2), a defendant may move to dismiss on the grounds that the Court lacks personal jurisdiction. Personal jurisdiction over an out-of-state defendant involves two questions: whether jurisdiction exists under the forum state's long-arm statute and, if so, whether asserting personal jurisdiction is consistent with the limitations of the Due Process Clause of the federal Constitution. Witt Co. v. RISO, Inc., 948 F.Supp.2d 1227, 1248 (D. Or. 2013) (citing Pebble Beach Co v. Caddy, 453 F.3d 1151, 1155 (9th Cir. 2006)). These inquiries essentially merge because Oregon's long-arm statute extends jurisdiction to the outer limits of due process. ORCP 4(L); Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003) (when state long-arm statute reaches as far as the Due Process Clause, the court need only analyze whether the exercise of jurisdiction complies with due process); Millennium Enters., Inc. v. Millennium Music, LP, 33 F.Supp.2d 907, 909 (D. Or. 1999) (because Oregon's catch-all jurisdictional rule confers personal jurisdiction coextensive with due process, the analysis collapses into a single question and the court proceeds under federal due process standards).

         The Due Process Clause “protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful contacts, ties, or relations.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985) (internal quotation marks and citation omitted). To satisfy this due process protection, the plaintiff must show that the defendant has “at least ‘minimum contacts' with the relevant forum such that the exercise of jurisdiction ‘does not offend traditional notions of fair play and substantial justice.'” Boschetto v. Hansing, 539 F.3d 1011, 1015-16 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

         III. Venue

         A motion to transfer venue is governed by 28 U.S.C. § 1404(a), which provides that “[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where the action might have been brought[.]” The purpose of 28 U.S.C. § 1404(a) is to “prevent the waste of time, energy and money and to protect litigants, witnesses, and the public against unnecessary inconvenience and expense[.]” Van Dusen v. Barrack, 376 U.S. 612, 616 (1964) (internal citation and quotation marks omitted).

         A motion to transfer lies within the broad discretion of the district court and must be determined on a case-by-case basis. See Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000). However, the burden is on the moving party to demonstrate that the balance of conveniences favoring the transfer is high. The defendant must make “a clear showing of facts which . . . establish such oppression and vexation of a defendant as to be out of proportion to plaintiff's convenience, which may be shown to be slight or nonexistent.” Dole Food Co. v. Watts, 303 F.3d 1104, 1118 (9th Cir. 2002).

         Courts employ a two-step analysis when determining whether transfer is proper. First, a court must ask “whether the transferee district was one in which the action might have been brought by the plaintiff.” Hoffman v. Blaski, 363 U.S. 335, 343-44 (1960). Second, if the moving party has made this threshold showing, courts may consider “individualized, case-by-case consideration[s] of convenience and fairness.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting Van Dusen, 376 U.S. at 622).

         “When ruling on motions to transfer based on § 1404(a), the court may consider undisputed facts outside of the pleadings.” Palmer Events, LLC v. Hyundai Hope on Wheels, No. 3:15-CV-02223-PK, 2016 WL 1179857, at *1 (D. Or. Feb. 26, 2016), F&R adopted, No. 3:15-CV-02223-PK, 2016 WL 1181679 (D. Or. Mar. 25, 2016); accord Samson Tug & Barge Co. v. Koziol, 869 F.Supp.2d 1001, 1015 (D. Alaska 2012) (citing Gherebi v. Bush, 352 F.3d 1278, 1302 (9th Cir. 2003)).

         DISCUSSION

         Plaintiff brings three claims against Defendant: (1) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (2) unlawful trade practices in violation of O.R.S. 646.608; and (3) breach of contract. Defendant moves to dismiss all of Plaintiff's claims for lack of personal jurisdiction. Alternatively, Defendant moves to transfer venue. Additionally, Defendant moves to dismiss Plaintiff's Claims 1 and 2 for failure to state a claim.

         The Court finds that Plaintiff's Claims 1 and 2 should be dismissed for failure to state a claim and, thus, the analysis below addresses those claims first. As to Plaintiff's Claim 3, this Court has personal jurisdiction over the claim and declines Defendant's alternative motion to transfer venue.

         I. Motion to Dismiss Claims 1 and 2 for Failure to State a Claim

         Defendant moves to dismiss Plaintiff's false advertising claims, Claims 1 and 2, for failure to state a claim. The Court grants Defendant's motion and, because amendment would be futile, dismisses the claims with prejudice.

         A. Claim 1-Lanham

         Act Plaintiff's first claim alleges that Defendant engaged in false advertising, in violation of the Lanham Act, 15 U.S.C. § 1125(a). Plaintiff lacks Lanham Act standing to bring its claim because Plaintiff is not within the zone of interests protected by the statute and there is no proximate causation between Plaintiff's alleged injury and the alleged statutory violation. Thus, the Court dismisses Plaintiff's claim.

         The Supreme Court has established a two-part test to determine whether a plaintiff can bring a cause of action under the Lanham Act. See Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1388-89 (2014). First, the Court must determine whether the plaintiff comes within the “zone of interests”; that is, whether the plaintiff has a cause of action under the substantive statute. Ray Charles Found. v. Robinson, 795 F.3d 1109, 1120-22 (9th Cir. 2015). The Lexmark court looked to the statement of the Lanham Act's purposes and observed “the Act's goal of protecting persons engaged in commerce within the control of Congress against unfair competition, ” and of redressing “injuries to business reputation and present and future sales.” Lexmark, 134 S.Ct. at 1389-90 (alterations and internal quotation marks omitted). It thus held that “to come within the zone of interests in a suit for false advertising under § 1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales” as opposed to an allegation that a consumer or business was misled into purchasing disappointing or inferior products. Id. at 1390.

         The second requirement to bring suit for false advertising under Section 1125(a) of the Lanham Act is a “proximate cause requirement.” Id. The Court asks “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.” Id. “In the context of the Lanham Act's prohibition on false advertising and unfair competition, the Court held ‘that a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.'” Id. at 1391.

         Defendant argues that Plaintiff's claim does not fall within the zone of interests of the Lanham Act because Plaintiff fails to allege an injury to a commercial interest in reputation or sales. Plaintiff responds that its allegations of commercial injury fit squarely within the zone of interests of Section 1125(a).

         Plaintiff alleges that Defendant copied technology that it knew Plaintiff exclusively licensed, owned, and had been using since 2011. Compl. ¶ 6, 24. In addition, Plaintiff alleges that Defendant knowingly made false statements in advertising the technology's ability to detect levels of oxidative stress or free radicals. Id. at ¶ 27. Thus, according to Plaintiff, its claim is within the Lanham Act's zone of interests because Defendant made knowing misrepresentations in the advertisement of a product that competes with the technology used by Pulse. Plaintiff alleges that it has been damaged by Defendant's false advertising “in an amount not less than $500, 000.” Compl. ¶ 29.

         However, Plaintiff fails to allege any injury to a commercial interest in reputation or sales. Plaintiff argues that “ABI's advertisement serves to misguide the same market and consumer base that Pulse targets with its technology” and cites Obesity Research Inst., LLC v. Fiber Research Int'l, LLC, 165 F.Supp.3d 937, 946 (S.D. Cal. 2016) in support of its argument that its allegations suffice to state a claim. Plaintiff is correct that both this case and Obesity Research dealt with situations in which a defendant's allegedly false representations about its product misled the same customers targeted by the plaintiff. However, in Obesity Research, the plaintiff expressly alleged it had been injured in its ability to sell its product because the defendant was selling a sub-standard product and passing it off as the superior product sold by the plaintiff. 165 F.Supp.3d. at 947. Here, in contrast, Plaintiff does not allege any injury.

         Plaintiff's reliance on POM Wonderful LLC v. Coca-Cola Co., 134 S.Ct. 2228, 2234 (2014), is similarly misplaced. POM did not merely claim, as Plaintiff does, that its competitor deceptively marketed a product to consumers. Instead, POM alleged that the misleading advertisements caused it to lose sales. POM Wonderful, 134 S.Ct. at 2235. Such an allegation of an injury to a commercial interest in reputation or sales is lacking in Plaintiff's complaint.

         Cases from other circuits confirm that Plaintiff must allege an injury to its reputation or sales in order to state a claim. In Belmora LLC v. Bayer Consumer Care AG, the plaintiff's claim fell within the Lanham Act's zone of interests because it alleged that it had lost sales revenue due to the defendant's deception of consumers, distributors, and vendors. 819 F.3d 697, 711 (4th Cir. 2016). In contrast, in Global Tech LED, LLC v. Hilumz Int'l Corp., the district court dismissed the plaintiff's Lanham Act claim because nothing in the pleading indicated that the plaintiff had ever been injured. No. 2:15-CV-553-FTM-29CM, 2016 WL 3059390, at *3 (M.D. Fla. May 31, 2016) (“Neither an anticompetitive purpose nor consumer deception establishes injury.”); see also Die-Mension Corp. v. Dun & Bradstreet Credibility Corp., No. C14-855 TSZ, 2015 WL 5307472, at *4 (W.D. Wash. Sept. 10, 2015) (plaintiff not within Lanham Act's zone of interests because there was no allegation of harm to reputation or diminished sales).

         At oral argument, Plaintiff stressed that it could allege an injury based on harm to future sales. Plaintiff submits the declaration of Chris Marsh, Plaintiff's President and CEO. Marsh Decl. ECF 28. Mr. Marsh attests that Plaintiff “has spent more than $20, 000, 000 developing its Revelar product since the inception of the company and has filed numerous patent applications on its proprietary technology.” Id. at ¶ 6. Mr. Marsh declares that “Pulse will be the first company to successfully develop and sell such a product to physician and other end consumers.” Id. According to Mr. Marsh, “Pulse has recently completed the most current prototype of its Revelar product and will be selling it first in Europe and then in the United States beginning in the second quarter of 2017.” Id. at ΒΆ 7. Plaintiff argues that, by the time ...


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