Telebrands Corp. v. VindEx Solutions LLC

Background

Telebrands alleged that VindEx Solutions LLC, Cornerstone Trading, LLC, Gloria Business, Inc., Techno Zone, LLC, Okapi, LLC, Henan Derun New Material Technology Co., Ltd., Shen Zhen Hei Shi Investment Ltd., and XNH US violated California unfair-competition laws. Telebrands sells the Hempvana Rocket, a handheld transcutaneous electrical nerve stimulation (TENS) unit. It alleged that the defendants distributed similar TENS devices without first obtaining Food and Drug Administration (FDA) clearance through the required 510(k) premarket-notification process.

Telebrands submitted a verified complaint and declarations, including an engineering report from Exponent, Inc. Exponent concluded that the devices were TENS units and that none had been cleared by the FDA as Class II medical devices. Telebrands alleged that the defendants avoided the costs of FDA clearance, competed unfairly, benefited from the Hempvana Rocket’s popularity, and risked confusing customers through marketing that did not disclose the lack of FDA clearance.

Motion and legal standard

Telebrands moved for a temporary restraining order (TRO) and an order requiring the defendants to explain why a preliminary injunction should not issue. The court applied the same standard used for a preliminary injunction: whether Telebrands showed a likelihood of success on the merits, likely irreparable harm without relief, a favorable balance of hardships, and that an injunction would serve the public interest. The court also considered whether Telebrands should have to provide security to cover possible losses from an improper injunction.

Court’s analysis

The court held that Telebrands had shown a likelihood of success on its California Unfair Competition Law claims. It found that the evidence supported Telebrands’ allegations that the defendants were distributing TENS devices without prior FDA clearance and that Telebrands had suffered economic injury through lost Hempvana sales.

Gloria argued that Telebrands could not privately enforce the federal Food, Drug, and Cosmetic Act. The court agreed that the federal statute does not create a private right of action. But it concluded that Telebrands was suing under California law for unfair competition, rather than suing because the conduct violated the federal statute. The court therefore found that the claim could proceed under the narrow circumstances recognized by the Ninth Circuit for state-law claims involving conduct regulated by the federal statute.

The court also found likely irreparable harm from lost sales, dilution of the Hempvana brand, and continued competition against businesses that allegedly had not incurred the costs of FDA clearance. It found that the balance of hardships favored Telebrands because the requested relief would require the defendants to comply with FDA regulations, after which they could return to distributing competing TENS units. The public interest favored relief because it supported fair competition and medical-device safety.

The court found no realistic likelihood that the defendants would be harmed by an injunction prohibiting distribution of uncleared TENS units and therefore required no security from Telebrands.

Ruling

Judge Beth Labson Freeman granted in part Telebrands’ TRO motion. Telebrands had withdrawn the motion as to VindEx, Techno Zone, and Okapi to facilitate settlement discussions; as to those defendants, the TRO was terminated without prejudice.

As to Cornerstone Trading, Henan Derun, XNH US, Gloria Business, and Shen Zhen, the court ordered them to appear at a March 11, 2021 hearing and show cause why a preliminary injunction should not issue. Pending that hearing and the court’s ruling, the TRO barred those defendants, directly or through another name or entity, from distributing five specified uncleared TENS devices in the United States: Henan Derun’s UniforU Massager Pen, Shen Zhen’s Blitzby 5-in-1 Acupuncture Pen, XNH US’s FOHYLOY Meridian Energy Acupuncture Pen, Cornerstone’s Breolife Electronic Acupuncture Pen, and Gloria’s AOBBiY Acupuncture Massager Pen.

The order also prohibited the defendants and those acting with them from deleting or destroying case-related information in the ordinary course of business. The TRO was set to expire at 5:00 p.m. on March 11, 2021, unless the defendants consented or the court extended it for good cause. The court authorized expedited written discovery and depositions concerning the defendants’ sales channels and supporting declarations. It authorized alternative service of the order and related papers but did not authorize alternative service of the summons and complaint without a separate motion.