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Absorption Pharmaceuticals, LLC v. Reckitt Benckiser, LLC

United States District Court, D. New Jersey

December 1, 2017



         Presently before the court is defendant Reckitt Benckiser's motion to dismiss or, in the alternative, transfer venue. (ECF No. 6). Plaintiff Absorption Pharmaceuticals, LLC filed a response (ECF No. 16), to which defendant replied (ECF No. 17).

         Also before the court is plaintiff's motion to take jurisdictional discovery. (ECF No. 27). Defendant filed a response (ECF No. 28), to which plaintiff replied (ECF No. 30).

         I. Facts

         a. Promescent

         Plaintiff manufacturers and sells Promescent, an over-the-counter lidocaine spray that functions to desensitize male genitalia. (ECF No. 1 at 4). Plaintiff's primary target consumer base is males who suffer from premature ejaculation (“PE”), [1] and the company's stated goal is to “close the ‘arousal gap' between men and women.” Id.

         Plaintiff began selling Promescent in 2011 and alleges a successful launch due to an “innovative proprietary formula and unique marketing strategies.” Id. By 2012, larger companies began to notice plaintiff's success. Id. Auxilium Pharmaceuticals, Inc. (“Auxilium”), a pharmaceutical manufacturer who was since purchased by Endo International plc (ECF No. 6 at 19), approached plaintiff regarding a possible acquisition. (ECF No. 1 at 4). Plaintiff alleges that on January 27, 2013, Auxilium offered to acquire plaintiff in a deal consisting of an upfront cash payment, sales milestone earn-outs, and future royalties, which plaintiff valued at over $150 million. Id. Plaintiff declined the offer and decided to remain independent for the time being.

         In 2014, plaintiff hoped to expand its operation, and began seeking out a “corporate partner with a large global presence.” Id. Plaintiff alleges that Auxilium, who was still interested in an acquisition, re-affirmed its prior offer. Id. In addition, defendant approached plaintiff to discuss a potential acquisition. Id.

         b. Initial discussions regarding a potential acquisition

         Plaintiff alleges that in March of 2014, defendant acquired the K-Y Brand from Johnson & Johnson. Id. at 8. Thereafter, defendant hired Stephen De Pretre as an acquisition consultant. Id. De Pretre suggested to defendant that plaintiff was a promising acquisition target. Id. In May of 2014, Corrie Mueller, then marketing manager for Durex (one of defendant's brand labels), ordered eight bottles of Promescent to defendant's affiliate in Beijing, China. Id.

         Later that month, Mueller set up a telephone conference between Reckitt Benckiser Household Products (China) Co. Ltd. (defendant's Chinese affiliate, hereinafter “RBHP”) and plaintiff. Id. Mueller generated talking points for the meeting, including plaintiff's “financial overview, supply and distribution chain details, and marketing overview.” Id. The parties executed a “Mutual Confidentiality Agreement” to facilitate the exchange of information and the protection of the parties. Id. Plaintiff proposed an agreement, and RBHP responded by including two terms: an English choice of law provision and a permissive arbitration clause providing for the possibility of arbitration in London. Id.

         On June 4, 2014, in New York City, plaintiff's chief executive officer (“CEO”) met with Volker Sydow, Reckitt Benckiser global category director for sexual wellness products. Id. at 9. Sydow expressed initial reservations regarding the effectiveness of a lidocaine-based PE spray and the size of the potential market. Id. Plaintiff alleges that its CEO was able to overcome Sydow's concerns, and that Sydow left the meeting impressed by the potential of plaintiff's product. Id.

         Sydow scheduled a meeting between plaintiff's CEO and Mueller for the next day. Id. The meeting between plaintiff's CEO and Mueller took place in Las Vegas, Nevada. Id.

         c. Due diligence

         On June 25, 2014, plaintiff and defendant participated in a “kick-off” telephone conference, during which defendant sent plaintiff 60 due diligence questions regarding 15 topics, including plaintiff's “business and market, finance and accounting, intellectual property, regulatory, information technology, supply, market research and consumer, technology, and marketing and communication.” Id. at 10. Plaintiff claims that it initially expressed reservations about disclosing proprietary information to defendant, but that assurances from two of defendant's directors encouraged plaintiff to begin its disclosures. Id.

         On June 30, 2014, plaintiff's CEO expressed concern regarding the lack of a term sheet, and stated that plaintiff was anticipating beginning due diligence with another company soon. Id. at 11. Defendant's senior vice president of corporate development wrote to plaintiff's CEO, highlighting the strength of defendant's brands and global presence. Id. The senior vice president encouraged plaintiff to “bear with us and continue to help us in our due diligence effort.” Id. Plaintiff responded by continuing to disclose its proprietary information to defendant. Id. at 11- 12.

         De Pretre, who had been employed by defendant, began working for plaintiff. Id. at 12. In meetings with De Pretre, Sydow showed him tests defendant conducted regarding Promescent, including tests on human cadavers that would monitor the degree of absorption. Id. De Pretre in turn divulged to Sydow proprietary information regarding Promescent. Id.

         Throughout the due diligence process, plaintiff's CEO had numerous conversations with Sydow. Id. During these conversations, plaintiff's CEO would explain plaintiff's business and marketing strategies. Id. Sydow told plaintiff's CEO about defendant's power over certain retailers. Plaintiff alleges that Sydow stated that Reckitt Benckiser's market power was so strong that it could induce retailers-including Target-to take shelf space away from other companies' products to immediately make room for Reckitt Benckiser's products. Id. Plaintiff also alleges that Sydow stated that Reckitt Benckiser has significant influence over See Id. (“Amazon does not tell us what to do, we tell Amazon what to do.”).

         Plaintiff alleges that it complained to defendant about the lack of a formal offer. Id. After one such complaint, Sydow informed plaintiff's CEO that an offer was sitting on the desk of the CEO for Reckitt Benckiser and waiting for a signature. Id.

         During the due diligence process, defendant asked plaintiff to send 15 kilograms of bulk product for “condom testing.” Id. at 13. Plaintiff alleges that such quantity is far in excess of anything that defendant would need to perform such testing, although plaintiff did not know as much at the time of the request. Id.

         d. The market study, stalled negotiations, and ...

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