Alternative Electrodes, LLC v. Empi, Inc.

• Decision Date: 04 February 2009
• Docket Number: No. 08-CV-1247 (JFB)(ETB).,08-CV-1247 (JFB)(ETB).
• Citation: 597 F.Supp.2d 322
• Parties: ALTERNATIVE ELECTRODES, LLC, Plaintiff, v. EMPI, INC. and Encore Medical, L.P., Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 322

597 F.Supp.2d 322

ALTERNATIVE ELECTRODES, LLC, Plaintiff, v. EMPI, INC. and Encore Medical, L.P., Defendants.

No. 08-CV-1247 (JFB)(ETB).

United States District Court, E.D. New York.

February 4, 2009.

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Evan M. Janush, Esq. of the Lanier Law Firm, New York, NY, for Plaintiff Alternative Electrodes, LLC.

Kenneth I. Schacter, Esq. and Theo J. Robins, Esq. of Bingham McCutchen LLP, New York, NY, for defendants Empi, Inc. and Encore Medical, L.P.

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

Plaintiff Alternative Electrodes, LLC ("plaintiff" or "AEL") brought this action against Empi, Inc. ("Empi") and Encore Medical, L.P. ("Encore") (collectively, "defendants"), alleging violations of the Lanham Act, 15 U.S.C. § 1051, et seq., and antitrust violations under the Sherman Act, 15 U.S.C. § 2, et seq., as well as averring claims for illegal monopoly, defamation, false advertising, tortious interference with contract, tortious interference with prospective business relationship, civil conspiracy and breach of contract under New York State law.

Defendants now move for dismissal of all claims in the complaint, except the Lanham Act claim, pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, defendants' motion is granted in part and denied in part.

I. BACKGROUND

A. Facts

The following facts are taken from the amended complaint ("Am. Compl.") and are not findings of fact by the Court. The Court assumes these facts to be true for the purpose of deciding this motion and construes them in the light most favorable to plaintiff, the nonmoving party.

Defendant Empi is a wholly-owned subsidiary of DJO Inc. Defendant Encore Medical is DJO Inc.'s surgical implant division. (Am. Compl. ¶¶ 4-5.) "Defendants market and sell a range of electrical muscle stimulation devices, including the VitalStim device." (Id. ¶ 10.) The VitalStim device ("VS") is used to treat a medical condition called dysphagia, or difficulty swallowing, which affects an estimated 15 million Americans. (Id. ¶ 11.) The VitalStim requires replacement electrodes throughout the life of the machine.

Defendants allegedly dominate the market for electrodes that can be used with the VitalStim device. (Id. ¶ 13.) In fact, plaintiff alleges that "Defendants have an almost 100% market share in this relevant market and enjoy substantial profit margins." (Id.) According to the amended complaint, plaintiff "poses a business threat to the Defendants, because Plaintiff distributes far less costly electrodes that can be used with the Defendants' VitalStim device." (Id. ¶ 12.) Plaintiff has distributed these electrodes since 2006. (Id. ¶ 14.) Prior to that time, "VitalStim customers had no choice but to buy electrodes from Defendants because no other electrodes could connect to a VitalStim device." (Id.) Plaintiff alleges that "defendants' electrodes can only be used once and cost approximately $18 per four-pack, which upon information and belief, represents a profit margin of $15 or 600%." (Id. ¶ 17.) "Alternative Electrodes offered electrodes that, unlike those of Defendants, are reusable" and cost $8.95 per four-pack. (Id. ¶ 18.) Nevertheless, plaintiff has had sales of "far less than 1% of the Defendants' sales in the relevant market." (Id.)

According to the amended complaint, "[i]n order to protect its monopoly, Encore and its affiliated entities threatened, and then filed, patent infringement lawsuits against competitors within the electrode market." (Id. ¶ 15.) Plaintiff alleges that defendants also issued "repeated false statements about the manufacturers' purported failure to meet Food and Drug Administration ("FDA") regulatory requirements." (Id.)

Plaintiff alleges that, less than three weeks after it made its first shipment of sample electrodes to potential customers in October of 2006, "The Chattanooga Group, a division of Encore Medical at the time [and the manufacturer of the VitalStim device], issued a `Risk Management Alert' nationwide to all VitalStim customers, including an estimated 100 customers in New York, `re: Alternative Electrodes.com: Preventing Possible Adverse Events.'" (Id. ¶ 20.) Plaintiff alleges that this advisory contained several false and misleading statements including that Alternative Electrodes: "(1) may compromise patient safety; (2) may reduce efficacy in terms of patient outcomes; (3) have generated performance concerns by VitalStim clinicians in the field; (4) are not cleared to market by the FDA for the treatment of dysphagia; and, (5) carry unsubstantiated manufacturer claims regarding safety, compatibility and clearance for use with the VitalStim system." (Id.) The amended complaint further alleges that "Empi and its authorized dealers continue to repeat these statements to this day to Alternative Electrodes' customers and potential customers." (Id.) The amended complaint lists many potential customers that have allegedly informed plaintiff that they will not purchase plaintiff's electrodes as a result of statements made to them by defendants. (Id. ¶¶ 22-23.) The time-frame of these alleged statements are not entirely clear, but appear to range from that initial Risk Management Alert through at least 2008.

Plaintiff also alleges that Encore Medical, VitalStim and ESD LLC filed suit against it on December 20, 2006, alleging patent infringement. This suit was dismissed pursuant to a confidential settlement agreement between the parties entered into on August 23, 2007. (Id. ¶ 26, Ex. G.). As part of this agreement, Encore Medical, VitalStim and ESD agreed not to make certain statements about the safety of plaintiff's product. Plaintiff alleges that the recent statements made by defendants about its electrodes violate this agreement. (Id. ¶¶ 26-27.)

The amended complaint further alleges that Empi threatened another patent litigation as recently as February 2008 against another company which recently began selling electrodes manufactured by plaintiff's manufacturer. (Am. Compl. ¶ 30.) Empi also allegedly sent "mailings with false and misleading statements to current and potential customers of Alternative Electrodes" in February 2008. (Id. ¶ 31, Ex. F.)

B. Procedural History

Plaintiff filed the complaint in this action on March 27, 2008. On July 21, 2008, plaintiff filed an amended complaint. On October 2, 2008, defendants filed a motion for dismissal pursuant to Fed.R.Civ.P. 12(b)(6). Plaintiff submitted its response to the motion on November 3, 2008. On November 24, 2008, defendants submitted their reply. Oral argument was heard on January 23, 2009. All of the submissions have been considered by the Court.

II. STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept the factual allegations set forth in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. See Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir.2006); Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir.2005). The plaintiff must satisfy "a flexible `plausibility standard.'" Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1969, 167 L.Ed.2d 929 (2007). The Court, therefore, does not require "heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Id. at 1974.

In connection with a motion to dismiss under Rule 12(b)(6), the Court normally may only consider "facts stated in the complaint or documents attached to the complaint as exhibits or incorporated by reference." Nechis, 421 F.3d at 100; accord Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991). The Court may only consider a document not appended to the complaint if the document is "incorporated in [the complaint] by reference" or is a document "upon which [the complaint] solely relies and ... is integral to the complaint." Roth v. Jennings, 489 F.3d 499, 509 (2d Cir.2007) (quoting Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir.1991)) (emphases in original). Courts also "`routinely take judicial notice of documents filed in other courts ... not for the truth of the matters asserted in other litigation, but rather to establish the fact of such litigation and related filings.'" Crews v. County of Nassau, No. 06-CV-2610 (JFB), 2007 WL 316568, at *2 n. 2, 2007 U.S. Dist. LEXIS 6572, at *5 n. 2 (E.D.N.Y. Jan. 30, 2007) (quoting Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991)). Thus, in the instant case, this Court can consider the patent litigation plaintiff references in the amended complaint, because it is integral to plaintiff's claims, and consists of documents filed in another court being considered not for its truth, but for the fact of its filing.

III. DISCUSSION

A. Sherman Act Claims

Plaintiff's amended complaint alleges claims for unlawful monopolization and attempted monopolization in violation of the Sherman Act, 15 U.S.C. § 2. The Sherman Act makes it unlawful to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 2.

"[I]n order to state a claim for monopolization under Section 2 of the Sherman Act, a plaintiff must establish `(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'" PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d Cir.2002) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966)). To state a...