False advertising and TM infringement receive very different damages treatment: case in point

CareDx, Inc. v. Natera, Inc., No. 19-662-CFC, 2023 WL 4561059 (D. Del. Jul. 17, 2023)

Another entry in the “courts treat Lanham Act false advertising very differently than Lanham Act trademark infringement, despite identical damages provisions” line. Natera made superiority claims for its Prospera. CareDx sued Natera for false advertising. In a trial held last year, the jury found that CareDx proved by a preponderance of the evidence at trial that: (a) nine of the ten alleged false advertisements were false; (b) Natera intentionally and willfully engaged in false advertising; (c) Natera was liable for false advertising under the Delaware Deceptive Trade Practices Act; (d) Natera was liable for unfair competition; and (e) Natera intentionally or recklessly engaged in unfair competition. It also found that CareDx was entitled to $21.2 million in actual damages “attributable to Natera’s false advertising and/or unfair competition,” and that CareDx was entitled to $23.7 million in punitive damages “for Natera’s unfair competition.” The court rejected the damages award.

Actual deception—reliance on the falsity—must be proven to establish damages for a Lanham Act violation, even if based on an unambiguous and literally false advertisement. (The missing step is treating state and federal claims the same here, which presumably everyone already agreed to.)

The jury was instructed that:

to recover damages under the Lanham Act, the plaintiff must prove by a preponderance of the evidence that, one, the defendant’s false advertising actually deceived a portion of the purchasing public in that customers relied on the false advertising in making a purchasing decision. There’s no presumption here for the damages question. The burden rests on the plaintiff to prove that by a preponderance of the evidence.

All right. And then the second thing that the plaintiff must prove by a preponderance of the evidence is that, as a result of the false advertising, the plaintiff sustained injury. If you find that CareDx proved these things, then you consider what amount of money to award to CareDx as damages.

But, the court concluded, there was no evidence at trial that any person was deceived by or relied on any of the nine advertisements found by the jury to be false. CareDx’s evidence “does not establish directly or even circumstantially that a person was in fact deceived by or relied on Natera’s advertisements.” Specifically, Natera internally characterized a PowerPoint slide that contained at least one of the false advertisements as “the money slide.” “But that testimony is not probative of actual customer behavior.”

Nor did significant sales growth linked to the marketing campaign at issue.  

Natera’s marketing plans and its training of marketing personnel were also insufficient. “Proof of what Natera intended to accomplish or thought it could achieve with its marketing plans and training efforts in no way establishes that those plans and efforts succeeded.”

Compare the treatment of intent/expectation on the trademark side: It is basically inconceivable that a court would reason this way in a trademark damages case, despite the same statutory language for both.

The court also found that the following testimony didn’t show reliance:

Counsel: And did this concern you, that they were marketing that their specificity was better in the Sigdel study than in the Bloom study?

Witness: You [counsel] kind of mentioned how many phone calls I got from the University of Pennsylvania, from Cleveland Clinic, from all around the country about their claiming superiority based on what, they have a better assay. So this caused a lot of confusion internally and externally with our customers.

Another witness:

Counsel: So does it matter whether the other party is claiming superiority or not?

A. Absolutely.

… You know, these two publications are ones that are not apples to apples, and they’re going around as if they are and confusing clinicians, confusing patients.

“No rational juror could conclude from this vague, conclusory, and hearsay-riddled testimony that customers were deceived by or relied on false advertisements published by Natera.” In a trademark case, it’s much less likely that this would be considered hearsay, but instead reporting mental state.

Still, “in the Third Circuit, evidence of an intent to mislead does not warrant a presumption of actual deception.” Judgment as a matter of law on Lanham Act damages for Natera. Thus, CareDx also failed to establish the causation and injury required to sustain a damages award arising from its state law claims (and this also doomed the entire state unfair competition claim).

However, there was sufficient evidence of literal falsity. For example, the jury found literally false Natera’s claim that Prospera is “[m]ore sensitive and specific than current assessment tools across all types of rejection.” But Natera’s designated corporate representative admitted at trial that two studies showed that Prospera’s specificity was lower than AlloSure’s specificity and that AlloSure was a “current assessment tool[,]” as that phrase is used in the advertisement. Natera argued that the claim was ambiguous and thus not literally false because the phrase “sensitive and specific” “reasonably refers to ‘AUC’—a measure familiar to physicians that combines both sensitivity and specificity.” But ambiguity is a fact question for the jury.

The DTPA doesn’t require actual confusion, so there was still liability.

If the judgment was later vacated or reversed, a new trial would be required.