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Organ Recovery Systems, Inc v. Preservation Solutions

July 4, 2012

ORGAN RECOVERY SYSTEMS, INC., PLAINTIFF,
v.
PRESERVATION SOLUTIONS, INC., GARY L. SWANSON, BRIDGE TO LIFE, LTD., AND BTL SOLUTIONS, LLC, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Organ Recovery Systems, Inc. (ORS) has sued Preservation Solutions, Inc., its president Gary L. Swanson, Bridge to Life, Ltd., and BTL Solutions, LLC, for breach of contract, false advertising and unfair competition under the Lanham Act, deceptive trade practices, and consumer fraud. Both Preservation Solutions and Swanson (collectively PSI) and Bridge to Life and BTL Solutions (collectively BTL) filed motions to dismiss ORS's first amended complaint, which the Court granted in part. Organ Recovery Systems, Inc. v. Preservation Solutions, Inc., No. 11 C 4041, 2012 WL 116041 (N.D. Ill. Jan. 16, 2012). Both PSI and BTL have now moved to dismiss ORS's second amended complaint. In addition, BTL and PSI have each filed counterclaims against ORS, and ORS has moved to dismiss those claims. In this decision, the Court rules on each of the motions to dismiss.

Background

In considering each party's motion to dismiss, the Court takes as true the facts alleged by the party whose complaint or counterclaim is challenged. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). The Court will discuss the allegations in more detail as necessary.

ORS's allegations are substantially similar to those the Court discussed in its previous decision, with which the Court assumes familiarity. ORS provides two solutions that are used to preserve kidneys during transplant procedures. One of these solutions, "KPS-1," is based on a freely available recipe developed by the University of Wisconsin. ORS attempted to improve the solution's packaging and shelf life. It entered into a contract with PSI to have PSI assist with testing, manufacturing and obtaining regulatory approval for KPS-1. The contract prohibited PSI from using or disclosing ORS's confidential information.

Since 2008 or 2009, BTL has competed with ORS in the organ preservation solutions market. The two companies sell formulas based on the same solutions and have focused on innovations in packaging and storage. ORS alleges that PSI misappropriated ORS's confidential information by using it in FDA applications and delivering it to BTL. ORS also makes a series of allegations regarding communications by BTL and/or PSI to current or prospective ORS customers that suggested false or damaging information about ORS products.

In its previous decision, the Court granted in part defendants' motions to dismiss an earlier version of ORS's complaint. Specifically, the Court dismissed claims by ORS against PSI for breach of fiduciary duty and for imposition of a constructive trust (as a separate claim rather than a remedy). The Court also dismissed ORS's claim against all defendants for civil conspiracy.

Discussion

A. ORS's amended complaint

1. Counts one and two

In its amended complaint, ORS asserts two claims against PSI alone. In count one, ORS alleges that PSI breached a "confidentiality agreement" that the two businesses made in 2000 "for the purpose of exploring the possibility of engaging PSI to perform work for ORS involving the development of and improvements to organ preservation solutions." 2d Am. Compl. ¶ 21. The agreement states that ORS "desires to explore the possibility of engaging [PSI] for the purpose of prototype & development of disposables and [illegible]." Id., Ex. A at 1. According to ORS, PSI breached its obligations under the confidentiality agreement by "among other things, filing 510K applications with the FDA impermissibly based on ORS's Confidential Information and/or using ORS's Confidential Information in the design and development of packaging and label claims for organ preservation solutions sold and offered for sale by BTL and/or others." Id. ¶ 103.

In count two, ORS claims that PSI breached a 2002 contract between the parties under which PSI agreed to create solutions. PSI does not seek dismissal of count two. It contends, however, that count one should be dismissed because the 2000 confidentiality agreement merged into the 2002 contract. The 2002 contract contains a provision stating that it "is the entire agreement between [ORS and PSI] concerning the provision of the services described in Exhibit B (Statement of Work)." Id.,Ex. B at 2. The contract also "supersedes any prior agreements (including without limitation any non-disclosure agreements) proposals or other communications, oral, written, between the parties with respect to the Services." Id. Exhibit B to the agreement indicates that PSI agrees to undertake five projects, including "processing specifications to support the initial 510(k) for KPS-1," "initial production of KPS-1," and "design modification to packaging and shelf-life extension." Id., Ex. B at 10.

"It is well settled under the doctrine of merger and the parol evidence rule that a written agreement which is complete on its face supersedes all prior agreements on the same subject matter." Barille v. Sears Roebuck and Co., 289 Ill. App. 3d 171, 177, 682 N.E.2d 118, 123 (1997). ORS does not appear to contest that the 2000 confidentiality agreement merged into the parties' later contract. In particular, ORS does not argue that the 2002 agreement is incomplete on its face, and it does not argue that the two documents concern different subject matter. ORS does argue, however, that "to the extent ORS entrusted Confidential Information to PSI prior to January 30, 2002, it was subject to the terms of the Confidentiality Agreement and any misappropriation would be subject to the terms of the Confidentiality Agreement." ORS Resp. to PSI Mot. to Dismiss at 10.

ORS does not allege that PSI did anything impermissible before the 2002 contract became effective. Rather, it alleges only that it entrusted PSI with confidential information while the confidentiality agreement was in effect. ORS offers no legal support for its argument that a breach of the 2000 confidentiality agreement that occurred, if at all, only after the 2002 contract is separately actionable under the earlier, merged agreement. The Court agrees with PSI that the earlier contract merged into the later one and therefore dismisses count one.

2. Count three

a. ORS's claims against PSI

In count three, ORS asserts claims under section 43(a)(1)(B) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), against both sets of defendants. "Section 43(a)(1)(B) of the Lanham Act . . . forbids the use of any false or misleading description of fact, or false or misleading representation of fact, which in commercial advertising or promotion, misrepresents the nature, characteristics, or qualities of the seller's or another person's goods." Schering- Plough Healthcare Prods. v. Schwarz Pharma, Inc., 586 F.3d 500, 503 (7th Cir. 2009) (citing 15 U.S.C. § 1125(a)(1)(B)) (brackets and ellipses in original omitted).

ORS's Lanham Act claims against PSI appear to be based solely on a letter that PSI sent on September 12, 2011 to (among others) an Illinois organ procurement organization ("OPO") called Gift of Hope Organ & Tissue. The letter reads as follows:

Dear OPO Administrator:

We have been informed that one of the companies that has distributed UW Cold Storage Solution in compliance with the Preservation Solutions Inc. (PSI) FDA 510K applications, K073693, K083453, and K091245 is presently distributing a Solution not manufactured by PSI. . .

This is critical to you and your patients for the following reasons:

1. The instructions for use allowed for the substituted product may be different from PSI's UW Cold Storage Solution.

2. The PSI product has been stability tested, reviewed and certified for storage and shipping at room temperature. (USP definition)

3. The PSI UW Cold Storage Solution has been stability tested, reviewed and certified for use without a final filter. PSI's UW Cold Storage Solution is certified to meet both USP and European Pharmacopeial limits for endotoxin.

The transplant solution is an integral part of your organ transplant procedure. We know that patient safety is paramount and that full disclosure is essential to protecting your patient. Please check the product label to determine the manufacturer of the solution being supplied to your center. 2d Am. Compl., Ex. I. ORS alleges, on information and belief, that "PSI sent the same letter to OPO administrators, hospitals and other potential ORS customers throughout the country" and that "[n]umerous customers and potential customers have expressed confusion and concern regarding the content of PSI's letter." Id. ¶¶ 95-96. ORS alleges that two OPO employees contacted ORS to follow up on PSI's letter and that a third e-mailed other OPOs asking if "anyone know[s] what is going on?" Id. ¶¶ 98- 100.

"To establish a claim under the false or deceptive advertising prong of § 43(a) of the Lanham Act, a plaintiff must prove: (1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience;

(3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products." Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 819 (7th Cir. 1999).

In its motion to dismiss, PSI first argues that ORS does not allege the type of conduct that § 43(a) is intended to reach -- essentially, that the letter does not qualify as "commercial advertising or promotion." "Advertising is a subset of persuasion and refers to dissemination of prefabricated promotional materials." Zurich Ins. Co. v. Amcor Sunclipse North America, 241 F.3d 605, 607 (7th Cir 2001). The Seventh Circuit has stated "that § 43(a) addresses 'promotional material disseminated to anonymous recipients.'" Sanderson v. Culligan Intern. Co., 415 F.3d 620, 624 (7th Cir. 2005) (quoting First Health Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 804 (7th Cir. 2001)). This definition contrasts "a form of promotion to anonymous recipients" with "face-to-face communication" such as "a person-to-person pitch by an account executive." First Health Group, 269 F.3d at 803.

In this same vein, the Seventh Circuit determined that "three . . . supposedly false . . . person-to-person communications at trade shows" did not qualify as advertising under § 43(a). Sanderson, 415 F.3d at 624. The court has also noted that "letters sent to customers do not come within the scope of § 43(a)(1)(B)." ISI Intern., Inc. v. Borden Ladner Gervais LLP, 316 F.3d 731, 733 (7th Cir. 2003). The Seventh Circuit has never held, however, that "anonymous" must mean that a corporation cannot know the identities of the recipients of the communications.

This Court has recently determined that commercial advertising or promotion within the meaning of § 43(a) may consist of "unsolicited statements to numerous potential clients with which [an advertiser] had no relationship." Gov't Payment Serv., Inc. v. LexisNexis VitalChek Network, Inc., No. 12 C 1946, 2012 WL 1952905, at *5 (N.D. Ill. May 29, 2012). This Court has also noted determinations from other circuits stating that to be covered under § 43(a), representations must "involve commercial speech by a defendant, for the purpose of influencing customers to buy the defendant's goods or services, and must be disseminated sufficiently to the relevant purchasing public to constitute 'advertising' or 'promotion' within that industry." Installation Servs., Inc. v. Elec. Research, Inc., No. 04 C 6906, 2005 WL 645244, at *2 (N.D. Ill. Mar. 21, 2005). Another court has concluded that "where the potential purchasers in the market are relatively small in number a single promotional presentation to an individual purchaser may be sufficient to invoke the protections of the Lanham Act." Derby Indus., Inc. v. Chestnut Ridge Foam, Inc., 202 F. Supp. 2d 818, 822-23 (N.D. Ind. 2002).

PSI contends that ORS's Lanham Act claim fails because "actionable advertising must be anonymous" and ORS has alleged only "[p]erson to person statements" by PSI. PSI Reply at 2-3. ORS, however, has alleged that the letter was received by "potential ORS customers throughout the country." 2d Am. Compl. ¶ 95. The fact that the letter that ORS submitted with its amended complaint is addressed "Dear OPO Administrator" rather than to a named individual or business supports ORS's suggestion that it was a mass unsolicited communication. The Court concludes that even if PSI's letter was specifically targeted to OPOs -- which would mean that PSI knew the identities of all recipients based on its mailing list -- ORS has alleged that the letters were a generalized solicitation rather than an individualized communication. For this reason, ORS has not failed to allege "commercial advertising or promotion."

PSI next argues that ORS has not alleged that the letter had the necessary effect on customers. Because ORS is arguing not that the letter made false statements but rather that it made statements that "may be literally true or ambiguous, but which implicitly convey a false impression [or] are misleading in context," ORS must "prove that the statement is misleading in context by demonstrated actual consumer confusion." Hot Wax, 191 F.3d at 820. The Court agrees with ORS that claims that three OPO employees expressed confusion -- two of them directly to ORS -- allege customer confusion sufficiently to survive PSI's motion to dismiss. These allegations could also support a finding that ORS is "likely to be injured as a result of" PSI's statements. See id. at 819.

For these reasons, the Court declines to dismiss count three as against PSI.

b. ORS's claims against BTL

BTL makes an argument similar to one of PSI's arguments: apart from one press release, the communications that ORS contends provide a basis for a Lanham Act claim do not constitute "commercial advertising or promotion." In response, ORS argues that several of its allegations independently support the claim and those that do not should be construed in the aggregate.

In a section of its complaint entitled "BTL's Misrepresentations," ORS alleges that a BTL officer sent a "broadcast email to 'Organ Procurement Professional[s]'" stating falsely that it was "Bridge to Life that made the FDA approved label change for the room-temperature storage of UW solution possible." 2d Am. Compl. ΒΆ 65. ORS argues that it was ORS itself, not BTL, that enabled the label change and that for BTL to imply otherwise is damaging ...


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