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Mycone Dental Supply Co., Inc., Doing Business As Keystone Research v. Creative Nail Design

August 16, 2012

MYCONE DENTAL SUPPLY CO., INC., DOING BUSINESS AS KEYSTONE RESEARCH & PHARMACEUTICAL, PLAINTIFF,
v.
CREATIVE NAIL DESIGN, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Simandle, Chief Judge:

OPINION

I. OVERVIEW

On July 28, 2011, Plaintiff Mycone Dental Supply Co., Inc., doing business as Keystone Research & Pharmaceutical ("Keystone"), filed a Complaint against Defendants Creative Nail Design, Inc. ("CND"); Beauty Systems Group, LLC; East Coast Salon Services, Inc.; and Emiliani Enterprises, Inc.*fn1 [Docket Item 1.] The action concerns the manufacture, marketing, and sale of cosmetic fingernail industry products, (Compl. ¶ 1), and it has five counts: (I) patent infringement against all Defendants, (II) violation of § 43(a) of the Lanham Act against CND, (III) violation of § 56:4-1 of the New Jersey Fair Trade Act against CND, (IV) common law unfair competition against all Defendants, and (V) unjust enrichment against all Defendants. (Compl. 2.)

This matter is presently before the Court on Defendants' Motion to Dismiss Counts II-V of Plaintiff's Complaint. [Docket Item 13.] For the reasons explained herein, the Motion will be denied in part and granted in part: Counts II, III, and IV will stand against CND; Count IV against the Distributors will be dismissed without prejudice and with leave to file a motion for amended pleading; Count V will be dismissed with prejudice as to all Defendants.

II. Background

A. Procedural History

On July 27, 2011, one day before Plaintiff filed this action, the Defendants filed a declaratory judgment action in the Southern District of California. Creative Nail Design, Inc. v. Mycone Dental Supply Co., Inc., Civ. No. 11-1658 (S.D. Cal. 2011). Both this Court and the Southern District of California received motions to dismiss or transfer to the other court. Because the California action began one day earlier, this Court stayed and administratively terminated this action until the California court decided the motion to dismiss or transfer. [Docket Item 41.]

The Southern District of California issued a decision finding that, although that action was filed first, it fell within the exception to the first-filed rule for actions that "evidence[] bad faith, anticipatory suit, or forum shopping." Creative Nail Design, Inc. v. Mycone Dental Supply Co., Inc., Civ. No. 11-1658, 3 (S.D. Cal. June 11, 2012). The court ruled that "impos[ing] the first-to-file rule . . . would unreasonably penalize Keystone for its attempt to resolve this dispute without bringing the matter to Court," and it dismissed the declaratory judgment action with prejudice. Id. at 5. On June 12, 2012, Plaintiff notified this Court of the decision issued in the Southern District of California. [Docket Item 42.] The Court restored this action to active status on July 23, 2012 and heard oral argument on August 7, 2012.

B. Factual Background

Keystone alleges that it has invented "a substantially acid-free nail coating that forms a strong protective bond with the fingernail in a toxicologically and dermatologically safe manner." (Compl. ¶ 1) This nail coating product is "comprised of a substantially acid-free hydrophilic acrylate monomer gel," which Keystone promotes under the name "GEL POLISH." (Id. ¶ 13.) Keystone has embodied its invention in United States Patent No. 5,965,147, which has "16 claims directed to substantially acid-free compositions containing at least one hydrophilic acrylate monomer and methods of using the compositions." (Id. ¶ 17)

There are three types of GEL POLISH nail coating products: base, color, and top coats. (Id. ¶ 14.) Keystone's invention has many beneficial effects, including "form[ing] a strongly-bonded protective coating . . . that is toxicologically and dermatologically safe. . . ." (Id. ¶ 16.) The bonded protective coatings "eliminate the need to physically roughen the fingernail surface" before applying nail coatings. (Id. ¶ 17.)

Keystone alleges that CND's sale of nail polish products under a brand named "SHELLAC" infringes upon Keystone's patent and that CND's marketing and advertising statements for the SHELLAC products are "false, misleading, and have the tendency to confuse the consuming public." (Id. ¶ 2) CND has been "manufacturing, using, selling, importing and/or offering for sale the SHELLAC system products since approximately May 1, 2010, if not earlier." (Id. ¶ 43.)

Like the GEL POLISH products, CND's SHELLAC line has three types of coatings: base, color, and top coats. (Id. ¶ 26.)

SHELLAC's base coat, like the GEL POLISH products, binds solidly with the natural nail. (Id. ¶ 27.) In addition, the SHELLAC products are substantially acid-free and contain hydrophilic acrylate monomers, like the GEL POLISH products. (Id. ¶ 34.) Keystone therefore alleges that CND's products infringe Keystone's patent No. 5,965,147 and that this infringement is willful. (Id. ¶ 44, 46.) Keystone alleges that "CND's marketing statements falsely claim that CND created and owns the substantially acid-free fingernail coating technology that, in reality, Keystone invented and patented. . . ." (Id. ¶ 50.) In other words, Keystone alleges that, because it invented and patented these technologies, any statement from CND that it created and brought these technologies to the market is false and misleading. The Complaint provides 14 examples of CND's statements, (Id. ¶¶ 50-51), and attaches examples in exhibits B and C.*fn2

Keystone alleges that Defendants Beauty Systems Group, East Coast Salon Services, and Emiliani Enterprises all use, sell, or offer for sale CND's SHELLAC products. (Id. ¶ 52.) In addition, they are all "listed as an authorized distributor of CND's SHELLAC products on CND's website," (Id. ¶ 53), and they all "advertise that they are dealers for CND and/or its SHELLAC products," (Id. ¶ 54).

Keystone alleges that CND is violating § 43(a) of the Lanham Act because its statements marketing the SHELLAC products are "literally and/or impliedly false, misleading, and likely to cause confusion." (Id. ¶ 69.) CND's conduct has caused harm to Kaystone's business, sales, reputation, and goodwill. (Id. ¶ 72.)

Keystone also alleges that CND has violated the New Jersey Fair Trade Act, which prohibits a corporation from "appropriating for [its] own use a name, brand, trade-mark, reputation or goodwill of any maker in whose product such . . . corporation deals." N.J. Stat. Ann. § 56:4-1.

Keystone alleges that all the Defendants have engaged in common law unfair competition through "misappropriation and use of the invention embodied in [Keystone's] Patent and making false marketing claims. . . ." (Compl. ¶ 81.)

Keystone alleges that all defendants have been unjustly enriched and have "obtained sales, profits, monetary and other unjust rewards" due to their wrongful acts. (Compl. ¶ 86.)

C. Jurisdiction and Venue

Plaintiff brings this action under the United States Patent Act, 35 U.S.C. § 1, et seq, and the Lanham Act, 15 U.S.C. § 1051, et seq. The Court has subject matter jurisdiction over these claims because district courts have original jurisdiction ...


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