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United States Ex Rel. Heathcote Holdings Corp, Inc v. Maybelline LLC

March 15, 2011


The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer


This is one of dozens of qui tam actions filed in federal courts around the country pursuant to 35 U.S.C. § 292, charging the distributor of a product with false patent marking. In this case, Relator, Heathcote Holdings Corporation ("Heathcote" or "Plaintiff"), alleges that Maybelline LCC, Maybelline New York, L'Oreal USA Creative, Inc., and L'Oreal USA, Inc. (collectively, "Defendants") falsely marked the packaging of several cosmetics products with expired patents. Defendants have moved to dismiss, arguing that Plaintiff has failed to satisfy heightened pleading standards under FED. R. CIV. P. 9(b), and that the court lacks personal jurisdiction over L'Oreal USA Creative. In the alternative, Defendants seek to transfer to this case to the Southern District of New York pursuant to 28 U.S.C. § 1404(a). For the reasons stated below, Defendants' motion to dismiss is granted in part and denied in part, and Defendants' motion to transfer is granted.*fn1


Plaintiff Heathcote is an Illinois corporation with its principal place of business in Evanston,

Illinois.*fn2 (Am. Compl. ¶ 4.) Defendant L'Oreal USA, Inc., and its subsidiary, L'Oreal USA Creative, Inc., are Delaware corporations with their principal places of business in New York, New York. (Id.

¶¶ 9-10.) Defendant L'Oreal USA manufactures and sells various cosmetics and skin care products, including a mascara line at issue. (Declaration of Laura Hastings ("Hastings Dec.") ¶ 10, Ex. A to Defs.' Mem. in Supp. of Defs.' Mot. to Dismiss (hereinafter, "Defs.' Mem.").) Defendant Maybelline LLC is a wholly owned subsidiary of L'Oreal USA with its principal place of business in New York, New York. (Id. ¶ 3.) Defendant Maybelline New York is not a corporation, but rather a brand owned by L'Oreal USA Creative. (Id. ¶ 18.)

On July 16, 2010, Heathcote filed the present complaint, alleging that Defendants falsely marked the packaging of various mascara products with expired patent numbers "with the intent to deceive the public," in violation of 35 U.S.C. § 292.*fn3 (Am. Compl. ¶ 53.) The fifteen separate mascara products described in Plaintiff's complaint are marked with one or more of the U.S. Patent Numbers: 4,796,647, 4,871,536, 4,887,622, 4,898,193, and 4,993,440; all have expired.*fn4 (Id. ¶ 15.) Plaintiff seeks $500 for each falsely marked product, half of which would be paid to the United States Government, as required under § 292. Plaintiff urges that the false markings on the products' packaging have "the potential to discourage or deter persons and companies from commercializing competing products." (Am. Compl. ¶ 125.) On July 30, 2010, Defendants filed a motion to dismiss, arguing that: (1) Plaintiff lacked standing; (2) Plaintiff failed to allege specific facts demonstrating fraudulent intent as required under FED. R. CIV. P. 9(b); and (3) Defendants L'Oreal USA Creative and Maybelline New York should be dismissed for lack of personal jurisdiction. Defendants simultaneously filed a motion to transfer to the Southern District of New York under 28 U.S.C. § 1404(a).

In August of 2010, the court granted the parties' request for a stay of the proceedings pending the Federal Circuit's decision in Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010). On August 31, 2010, the Federal Circuit recognized that qui tam plaintiffs have standing to sue under § 292. Id. at 1325. Soon thereafter, the parties filed a joint motion stipulating that Defendants' challenge to Heathcote's standing was moot, and Plaintiff agreed to dismiss Defendant Maybelline New York. [Doc. No. 30.] On September 17, 2010, the court granted the parties' joint motion. [Doc. No. 33.] The other arguments in Defendants' motion to dismiss regarding lack of jurisdiction and failure to state a claim remain pending, as does Defendants' motion to transfer.


Defendants move to dismiss Plaintiff's complaint pursuant to FED. R. CIV. P. 12(b)(6) for failing to meet the pleading requirements of FED. R. CIV. P. 9(b). On a motion to dismiss, the court must "accept as true all of the allegations contained in a complaint" and draw all reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). While detailed factual allegations are not required, a plaintiff's factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In other words, a plaintiff's complaint must allow the court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556). Rule 9(b) imposes stricter requirements for fraud allegations: "A party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." FED. R. CIV. P. 9(b). At bottom, Rule 9(b) requires a plaintiff to state "the who, what, when, where, and how: the first paragraph of any newspaper story." DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

I. False Marking Allegations

The false patent marking statute provides that "[w]hoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word 'patent' or any word or number importing that the same is patented for the purpose of deceiving the public. . . . [s]hall be fined not more than $500 for every such offense." 35 U.S.C. § 292(a). Defendants argue that Heathcote has failed to meet the pleading standards of FED. R. CIV. P. 9(b) in that Heathcote has not alleged any facts from which one could infer an intent to deceive the public. Heathcote responds by noting that 9(b) does not apply to § 292 cases, but urging that even if it does, Heathcote has complied with the rule. The court concludes that Rule 9(b) does in fact apply to § 292 claims, but that Plaintiff's complaint satisfies the requirements of that rule.

Defendants correctly note that while the issue of Rule 9(b)'s applicability to § 292 claims has divided many courts, the Federal Circuit and the majority of courts in this district have ruled that an allegation of false marking is a "fraud-based" claim, thus triggering the heightened pleading requirements of FED. R. CIV. P. 9(b). See, e.g., Stauffer, 619 F.3d at 1328; Simonian v. Maybelline LLC, No. 10 C 1615, 2011 WL 814988, *3 (N.D. Ill. Mar. 1, 2011); Simonian v. Allergan, Inc., ___F. Supp. 2d___, No. 10 C 02414, 2010 WL 5175017, at *3 (N.D. Ill. Nov. 30, 2010); Simonian v. Blistex, Inc., No. 10 CV 01201, 2010 WL 4539450, at *5-6 (N.D. Ill. Nov. 3, 2010). Following the lead of Stauffer and other courts in this district, this court will apply Rule 9(b) to the instant § 292 action.

Defendants contend that Heathcote has failed to plead the "who, what, when, where, and how" required by Rule 9(b), but the court disagrees. Heathcote has sufficiently pleaded each of these elements simply by asserting that Defendants falsely marked the outside of its mascara products with expired patents, and have sold and continue to sell such products in the Northern District of Illinois. (Am. Compl. ¶ 13.) Heathcote has provided pictures of each product at issue with the expired patent numbers on the packaging of those products.*fn5 (Ex. I to Am. Compl.) Heathcote has also provided copies of the patents, and identified the dates on which each was issued and expired. (Ex. A-E to Am. Compl.) In concluding that these allegations are sufficient, the court does not write on a clean slate. Several other courts in this district have found similar allegations sufficient under Rule 9(b). See, e.g., Englehardt v. Costco Wholesale Corp., No. 10 C 1424, 2010 WL 4822926, at * 2 (N.D. Ill. Nov. 22, 2010) (denying motion to dismiss where complaint identified "the entity responsible for the alleged fraud, the conduct through which the fraud was accomplished [. . .], the item falsely marked, and also provide[d] a temporal and geographical frame of reference for the conduct at issue."); Blistex, 2010 WL 4539450, at *6 ("The 'who' is [defendant]. The 'what' is Defendant's allegedly falsely marked . . . products and the . . . patent. The 'when' is after the expiration of the . . . ...

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