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CareDx, Inc. v. Natera, Inc.

United States District Court, D. Delaware

December 20, 2019

CAREDX, INC., Plaintiff,
v.
NATERA, INC., Defendant.

          REPORT AND RECOMMENDATION

          CHRISTOPHER J. BURKE UNITED STATES MAGISTRATE JUDGE

         Presently pending before the Court in this suit is Defendant Natera, Inc.'s ("Defendant" or "Natera") motion seeking dismissal of Plaintiff CareDx, Inc.'s ("Plaintiff or "CareDx") Complaint, filed pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) (the "Motion"). (D.I. 8) CareDx's Complaint alleges false advertising and "trademark disparagement" under the Lanham Act, common law unfair competition, and violations of the Delaware Unfair or Deceptive Trade Practices Act. (D.I. 1; see also D.I. 9 at 1; D.I. 13 at 1-2) With its Motion, Natera argues that this action should be dismissed because: (1) CareDx lacks standing to sue for its false advertising claim pursuant to 15 U.S.C. § 1125(a) ("Section 1125(a)"); and (2) CareDx has failed to plead facts that would plausibly demonstrate the necessary elements of its various claims. For the reasons set out below, the Court recommends that the Motion be GRANTED-IN-PART and DENIED-IN-PART.

         I. BACKGROUND

         A. Factual Background

         CareDx markets and sells AlloSure®, a patented kidney transplant surveillance diagnostic test. (D.I. 1 at ¶¶ 1-2, 10) This non-invasive blood test accurately detects active kidney rejection in kidney transplant patients by measuring levels of cell-free DNA in the patient's body, with high levels of such DNA originating from the donor kidney indicating that the transplanted kidney may be in the process of being rejected. (Id. at ¶¶ 2, 19-20) AlloSure is clinically and analytically validated and Medicare-covered. (Id, at ¶ 2)

         Prior to launching AlloSure, CareDx conducted a clinical trial (the "DART study"), which involved collecting blood specimens at scheduled intervals at the time of biopsies from 14 clinical sites and comparing the levels of cell-free DNA with the biopsy results. (Id. at ¶ 21) The DART study demonstrated that AlloSure "markedly outperformed" the current standard of care for detecting kidney transplant rejection (serum creatinine testing). (Id. at ¶¶ 18, 26) The results of the DART Study were published in July 2017 in the Journal of the American Society of Nephrology (the "CareDx Study"). (Id. at ¶ 21)

         Natera has allegedly developed a competing cell-free DNA kidney transplant rejection test, Prospera™. (Id. at ¶¶ 3, 27, 51) Natera "is in the midst of launching" Prospera. (Id. at ¶ 3) To that end, Natera has "begun significant marketing efforts" with respect to Prospera, such as by making the test available for use in clinical trials and marketing it to major clinical centers. (Id, at ¶ 52) Natera also sponsored a clinical study to validate the effectiveness of Prospera (the "Natera Study"). (Id, at ¶ 27) The Complaint alleges that the Natera Study involved "retrospectively select[ing] samples that had been collected for unrelated purposes by a single clinical center and archived." (Id. at ¶ 28) The results of the Natera Study were published in the December 23, 2018 issue of the Journal of Clinical Medicine (the "Natera Study Publication"). (Id)

         Natera has made certain statements comparing the Natera Study's results with the results of the CareDx Study (the "Natera Statements"). (Id, at ¶¶ 37, 39) CareDx alleges that because the two studies did not involve "head-to-head clinical trials comparing the two [companies'] products[,]" and because the Natera Study suffers from "substantial material flaws[,]" Natera's statements comparing Prospera's performance to AlloSure's performance are "literally false and entirely misleading." (Id. at¶37) As examples of Natera's allegedly "false, misleading and harmful representations" regarding the Natera Study's results, (id. at ¶ 39), CareDx points to the following Natera Statements:

• Natera's June 21,2018 press release and its July 12,2018 Prospectus Supplement cite to sensitivity-related data from the Natera Study and state that "[t]his sensitivity compares favorably against competition [,] which reported only 59% in a 2017 study [citing to the CareDx Study]." (Id. at ¶¶ 40, 42 (internal quotation marks and citation omitted) & exs. 4, 5);
• Natera's June 27, 2018 8K includes a slide entitled "Natera Assay Outperforms Competition" that compares data from the Natera Study and the CareDx Study. (Id. at ¶ 41 (internal quotation marks and citation omitted) & ex. 3, slide 10); Natera's January 7, 2019 press release states that Prospera "include[s] higher sensitivity and nearly 18% higher area under the curve (AUC) than the competitive [] assay [relating to AlloSure]" and the Natera Study "[r]esults also showed higher sensitivity (89% vs. 59%) and higher AUC (0.87 vs. 0.74) than the competitive [] assay [relating to AlloSure]." (Id. at ¶ 43 (internal quotation marks and citation omitted) & ex. 6);
• Natera's January 9, 2019 slide presentation at the J.P. Morgan Healthcare Conference indicates a goal of changing patient care for transplant recipients that is "driven by superior clinical data [i.e., the Natera Study]" and compares data from the Natera Study and CareDx Study, indicating that the Natera Study demonstrates the "[h]ighest area under the curve" and is the "[f]irst test to consistently detect subclinical acute rejection[.]" (Id. at ¶ 44 (internal quotation marks and citation omitted) & ex. 7, slide 12) Further, Natera's CEO gave an oral presentation at this conference in which he compared the performance of Prospera with the performance of "the competitor" AlloSure. (Id. at ¶ 45);
• Natera's February 1,2019, February 22, 2019 and March 28, 2019 press releases contain similar statements comparing results of the Natera Study with the "compet[ing]" AlloSure assay. (Id at ¶¶ 46, 47, 49 (internal quotation marks and citation omitted) & exs. 8-9, 11); and
• Natera provided an advertisement to attendees at the February 2019 American Society of Transplantation CEOT Conference that cited the Natera and CareDx Studies and stated that Natera's performance "compares favorably against competition[.]" (Id, at ¶ 48 (internal quotation marks and citation omitted) & ex. 10)

         CareDx alleges that the Natera Statements have harmed and will continue to harm CareDx's reputation and have and will cause CareDx to lose sales. (Id. at ¶¶ 51, 53)

         B. Procedural Background

         CareDx filed this case on April 10, 2019. (D.I. 1) The case has now been referred to the Court to hear and resolve all pretrial matters, up to and including expert discovery.

         Natera filed the instant Motion in lieu of answering on May 31, 2019. (D.I. 8) The Motion was fully briefed on June 26, 2019. (D.I. 15) After the Motion was thereafter referred to the Court for resolution, (D.I. 17), the Court heard oral argument on the Motion on October 30, 2019, (D.I. 26 (hereinafter, "Tr.")). After oral argument, the Court ordered that Natera could file a supplemental letter brief regarding certain material referenced by CareDx for the first time at oral argument; that letter brief was filed on November 1, 2019. (D.I. 23)

         II. STANDARD OF REVIEW[1]

         When presented with a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court conducts a two-part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the court separates the factual and legal elements of a claim, accepting "all of the complaint's well-pleaded facts as true, but [disregarding] any legal conclusions." Id. at 210-11. Second, the court determines "whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. In assessing the plausibility of a claim, the court must "'construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.'" Fowler, 578 F.3d at 210 (quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)).

         III. DISCUSSION

         Natera's Motion seeks dismissal of all Counts of CareDx's Complaint. The Court will first assess the parties' arguments with respect to CareDx's false advertising claim under the Lanham Act, and will then address the remaining claims.

         A. False Advertising Under the Lanham Act (Count One)

         Count One of CareDx's Complaint alleges false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a). (D.I. 1 at ¶¶ 54-60) With respect to this claim, Natera first argues that CareDx has not established proximate causation, and that it therefore lacks standing under Rule 12(b)(1) as to this claim. (D.I. 9 at 7-10) Natera then argues that even if CareDx has established standing to bring the claim, the Complaint fails to plead sufficient facts necessary to plausibly allege multiple elements of a Lanham Act false advertising claim. (Id. at 10-14) The Court takes up these arguments in turn.

         1. Proximate Causation

         The Lanham Act provides that:

Any person who [uses any] false or misleading description of fact, or false or misleading representation of fact, which . . . misrepresents the nature, characteristics, [or] qualities . . . of his or her or another person's goods . . . shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a). In Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), the Supreme Court of the United States determined that a statutory cause of action under the Lanham Act extends only to plaintiffs whose "injuries are proximately caused by violations of the statute." Lexmark Int 7, Inc. v. Static Control Components, Inc., 572 U.S. 118, 132 (2014).[2]

         a. What Standard Applies to Assess Whether CareDx Has Established Proximate Cause?

         In order to determine whether CareDx has met its burden with regard to proximate causation, the Court must first confront what standard applies to this inquiry. In its briefing and at oral argument, Natera argues that this question-i.e., whether proximate cause has been sufficiently alleged-is one of subject matter jurisdiction. (D.I. 9 at 6-8; see also Tr. at 22 ("Proximate causation is a jurisdictional requirement."); Tr. at 34, 38, 68-70) Thus, it brought this portion of its Motion pursuant to Federal Rule of Civil Procedure 12(b)(1). (See D.I. 9 at 6) For its part, CareDx retorts that the issue does not implicate Rule 12(b)(1) or subject matter jurisdiction; instead, it argues that the question must be assessed pursuant to the Rule 12(b)(6) standard. (Tr. at 47-50, 67; see also D.I. 13 at 4)

         The Court agrees with CareDx. The Lexmark Court explained that this question (i.e., as to whether a plaintiff has sufficiently established proximate cause regarding its Lanham Act claim at the pleading stage) implicates the concept of so-called "statutory standing"-and that it "does not implicate subject-matter jurisdiction, i.e., the court's statutory or constitutional power to adjudicate the case." Lexmark, 572 U.S. at 128 n.4, 134 n.6 (internal quotation marks and citations omitted) (emphasis in original); see also, e.g., Leyse v. Bank of Am. Nat'I Ass'n, 804 F.3d 316, 320 (3d Cir. 2015) ("Unlike Article III standing, statutory standing is not jurisdictional"). Instead, statutory standing addresses "whether Congress has accorded a particular plaintiff the right to sue under a statute, but it does not limit the power of the court to adjudicate the case." Leyse, 804 F.3d at 320 (citing Lexmark, 134 S. Ct. at 1388 & n.4).

         Here, then, the proximate causation requirement of CareDx's false advertising claim is "an element of the cause of action under the statute" and is thus "subject to the rule that the absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction." Lexmark, 572 U.S. at 134 n.6 (internal quotation marks and citation omitted). Nevertheless, proximate cause, like other elements of a cause of action, must be "adequately alleged at the pleading stage in order for the case to proceed." Id. To that end, "[i]f a plaintiff s allegations, taken as true, are insufficient to establish proximate causation, then the complaint must be dismissed; if they are sufficient, then the plaintiff is entitled to an opportunity to prove them." Id. As a result, a "dismissal for lack of statutory standing is effectively the same as a dismissal for failure to state a claim, and a motion to dismiss on this ground is brought pursuant to Rule 12(b)(6), rather than Rule 12(b)(1)." Leyse, 804 F.3d at 320 (internal quotation marks and citations omitted); see also, e.g., Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1235 (Fed. Cir. 2019) ("[F]ollowing Lexmark, several courts have concluded that motions to dismiss based on 'statutory standing' defects are properly brought under Rule 12(b)(6) rather than Rule 12(b)(1) in recognition of the fact that such defects are not jurisdictional.").[3]

         With this having been sorted out, the Court will now assess whether CareDx's allegations are sufficient to establish ...


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