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Magistrate Judge Recommends Partial Rejection of Natera Motion to Dismiss CareDx False Advertising Lawsuit

This article has been corrected to clarify that the filing made on Dec. 20, 2019 was a recommendation from a magistrate judge to the federal court, and not a legally binding district court ruling.

NEW YORK – A magistrate judge for the Unites States District Court of Delaware has recommended that the court largely deny a motion filed by Natera to dismiss a lawsuit by CareDx accusing it of false advertising, CareDx announced on Wednesday.

The suit, which was filed in April, accused Natera of trying to "mislead" patients and clinicians into thinking that Natera's Prospera kidney transplant test is superior to CareDx's AlloSure organ transplant diagnostics. CareDx made four claims against Natera: false advertising in violation of the Lanham Act, one count of trademark disparagement under the Lanham Act, one count of common law unfair competition, and one count of unfair or deceptive trade practices under Delaware law.

CareDx alleged that Natera's comparisons of its kidney transplant test to AlloSure were based on unscientific and unreliable data.

"Natera has begun a false advertising campaign designed to deceive doctors, healthcare professionals, insurance companies, and patients — as well as investors — into believing that Natera's 'me too' test is superior to AlloSure when that has simply not been shown," CareDx stated in its complaint. "Natera's dissemination of false and misleading claims about AlloSure is an attempt to poison the marketplace and must be stopped."

CareDx requested a trial by jury. The company wanted monetary damages to cover its lost business and profits, the harm to its goodwill and reputation, and Natera's "ill-gotten and unjustly derived revenues;" punitive and exemplary damages; litigation and attorneys' fees; and statutory damages.

CareDx also asked the court to issue an order preliminarily and permanently enjoining Natera from disseminating or causing the dissemination of the advertising statements it outlined in its suit. The company further asked that Natera be required to "take all necessary corrective measures to correct the false and misleading impressions created among healthcare professionals by the false and misleading statements alleged herein."

In May, Natera filed a motion to dismiss the suit, calling the complaint "fatally flawed" and citing a lack of standing on the part of CareDx to bring such an action.

The complaint brought by CareDx contained no factual allegations to show that Natera made any false statements, "let alone that any such statement deceived consumers, and in turn that any such deception led even one consumer to 'withhold trade from' CareDx," Natera's brief stated. "Therefore, it is impossible that consumers were deceived by Natera and consequently decided to 'withhold trade from' CareDx by selecting another product (much less a Natera product) instead of CareDx's product."

Natera also argued that the claim of trademark disparagement should be dismissed as the Lanham Act has no provision to allow a plaintiff to sue for such a cause of action; that CareDx's claim for common law unfair competition should be dismissed because there is no federal common law action for unfair competition; and that CareDx had failed to identify what portions of the Delaware Unfair or Deceptive Trade Practices Act (UDTPA) had allegedly been violated.

The Lanham Act is the primary federal trademark statute of law in the US, and prohibits a variety of activities such as trademark infringement, trademark dilution, and false advertising.

On Dec. 20, 2019, a magistrate judge recommended that Natera's motion to dismiss the counts relating to trademark disparagement and unfair trade practices be granted without prejudice, and that CareDx be given 14 days to refile amended complaints for those claims.

The judge's recommendation noted that CareDx had mistakenly cited the wrong portion of the Lanham Act in its argument for trademark disparagement and gave the company leave to amend the complaint with the correct citation.

As to the unfair trade practices claim, the magistrate said the count was "insufficiently pleaded," not only because the company failed to put the correct citations of law at issue in its complaint, but also because "the allegations in the count are so bare-bones that they do not provide the court with enough to go on, in order to figure out whether the complaint's pleaded facts actually substantiate the allegation." The magistrate recommended giving CareDx leave to re-plead the count with additional facts to substantiate the claims.

However, the magistrate did recommend upholding the false advertising and unfair competition claims, and denying Natera's motions for dismissal of those counts. He found Natera's argument for dismissal unpersuasive, noting that CareDx had established its standing to sue under the Lanham Act and that the company had sufficiently argued several elements of a false advertising claim against Natera. Just because Natera's Prospera test has yet to be released, the magistrate wrote, that does not mean that CareDx cannot sue based on the possibility of future harm that Natera's alleged false advertising may cause its AlloSure business.

In a statement to GenomeWeb, CareDx's attorney Edward Reines from the firm of Weil, Gotshal & Manges said the company is "delighted" with the ruling, noting that the false advertising claim that is at the heart of the complaint was left intact by the court.

Natera filed an objection to the ruling on Jan. 3, he added, so the 14 days that CareDx has been granted to refile the two claims that were dismissed without prejudice will not begin until the court has resolved that objection.

"We expect to refile those claims at the appropriate time because the issues raised by Natera are minor and easy to address," Reines said. "The ease of the refiling of CareDx's subsidiary state law claims should not distract from the fact that Natera's challenge to the central claim in this case — false advertising — was indeed squarely rejected."

The company noted that it is planning to seek all available remedies, including monetary damages, adding that it is "pleased the court recommended that its false advertising claims against Natera should go forward because they are legally supported."

In its own statement to GenomeWeb, Natera disputed CareDx's characterization that the court's ruling somehow endorses the plaintiff's claims as "legally supported." In fact, Natera said, "the magistrate merely recommended that even if CareDx's allegations were assumed to be true — which they are not — some of their claims should not be rejected outright at this time." 

Natera also noted that it expects to prevail on the remaining claims and will address CareDx's "false and misleading statements" concerning its transplant assay in due course.  

"It's worth noting Medicare specifically rejected the very arguments CareDx advanced in its complaint when it finalized its Local Coverage Decision (LCD) for Natera's Prospera donor-derived cell-free DNA test for all kidney transplant recipients, an expansion in coverage from the initial draft LCD," the firm said. "Further, Natera's performance claims are based on scientific, peer reviewed evidence. Natera's better clinical and analytic performance is documented in studies published in Transplantation and the Journal of Clinical Medicine. We believe our test is the best available tool in the management of kidney transplant patients and look forward to serving these patients."