Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 1 of 18 PageID: 1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

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1 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 1 of 18 PageID: 1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY : MYCONE DENTAL SUPPLY CO., INC. : d/b/a/ KEYSTONE RESEARCH & : PHARMACUETICAL : 616 Hollywood Avenue : Cherry Hill, New Jersey : : Plaintiff, : Civil Action No. : v. : CIVIL ACTION : CREATIVE NAIL DESIGN, INC. : COMPLAINT 1125 Joshua Way : Vista, CA : and : JURY TRIAL DEMANDED BEAUTY SYSTEMS GROUP, LLC : 3001 Colorado Boulevard : Denton, TX : and : EAST COAST SALON SERVICES, INC. : 100 E. Ninth Avenue : Runnemede, NJ : and : EMILIANI ENTERPRISES, INC. : 600 Green Lane : Union, NJ : : Defendants. : : COMPLAINT Plaintiff, Mycone Dental Supply Co., Inc. d/b/a/ Keystone Research & Pharmaceutical ( Plaintiff or Keystone ), files its complaint against Defendants Creative Nail Design, Inc. ( CND ), Beauty Systems Group, LLC ( BSG ), East Coast Salon Services ( ECSS ), and Emiliani Enterprises, Inc. ( Emiliani ), and alleges as follows: 1

2 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 2 of 18 PageID: 2 NATURE OF THE ACTION 1. Keystone has developed innovative and unique products and methods for the cosmetic fingernail industry, including the invention of a substantially acid-free nail coating that forms a strong protective bond with the fingernail in a toxicologically and dermatologically safe manner. That invention is embodied in Keystone s United States Patent No. 5,965,147. Keystone s competitor, CND, is manufacturing, using, selling, offering to sell and/or importing infringing products, namely, its nail coating system known as SHELLAC. 2. Not only is CND infringing Keystone s patent, but CND also is making statements that are false, misleading, and have the tendency to confuse the consuming public. Even though SHELLAC infringes Keystone s patent, CND falsely advertises and markets the SHELLAC products as being invented by CND and as having unique, innovative chemical formulas that have not been available to consumers before CND allegedly created the SHELLAC products. 3. Thus, Keystone brings this action against CND for patent infringement, violations of the Lanham Act s prohibition on false advertising and New Jersey s Fair Trade Act (N.J.S.A. 56:4-1), common law unfair competition, and unjust enrichment. 4. Because BSG, ECSS and Emiliani also sell and offer to sell the infringing SHELLAC products, Keystone asserts claims against them for patent infringement. 2

3 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 3 of 18 PageID: 3 THE PARTIES 2. Plaintiff Mycone Dental Supply Co., Inc. is a New York corporation with its principal place of business at 616 Hollywood Avenue, Cherry Hill, New Jersey Mycone Dental Supply Co., Inc., which also does business as Keystone Research & Pharmaceutical, is a privately-owned company with operating subsidiaries in the dental, cosmetic and medical device manufacturing and distribution industries. 4. Upon information and belief, defendant CND is a California corporation with its principal place of business at 1125 Joshua Way, Vista, CA Upon information and belief, defendant Beauty Systems Group, LLC is a Delaware limited liability company with its principal place of business at 3001 Colorado Boulevard, Denton, TX Upon information and belief, defendant East Coast Salon Services, Inc. is a Florida corporation with its principal place of business at 100 E. Ninth Avenue, Runnemede, NJ Upon information and belief, defendant Emiliani Enterprises, Inc. is a New Jersey corporation with its principal place of business at 600 Green Lane, Union, NJ

4 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 4 of 18 PageID: 4 JURISDICTION AND VENUE 8. This action arises under the United States Patent Act, 35 U.S.C. 1, et seq., the Lanham Act, 15 U.S.C et seq., and under common law. 9. This Court has subject matter jurisdiction pursuant to 28 U.S.C and 1338(a). This Court also has jurisdiction under 28 U.S.C over Plaintiff s related state law claims. 10. This Court has personal jurisdiction over CND and the other defendants because, among other reasons, upon information and belief, they do business in this judicial district, including the business out of which this action arises, and/or have ongoing and systematic contacts with this judicial district. 11. Venue is proper in this district pursuant to 28 U.S.C. 1391(b) and (c) and 1400(b). Upon information and belief, CND and the other defendants do business in this judicial district and are subject to personal jurisdiction in this judicial district. 12. Upon information and belief, CND sells, continues to sell and/or has sold products that are the subject of this suit to professional fingernail salons in, among other places, Collingswood, NJ; Haddon Township, NJ; Sewell, NJ; Williamstown, NJ; Clementon, NJ; Voorhees, NJ; West Deptford, NJ; and Berlin, NJ. BACKGROUND Keystone Obtains a Patent for Its Invention 13. For many years, Keystone has developed innovative, high-tech products. Keystone has a number of unique product lines for use in the cosmetic fingernail industry, including a nail coating product comprised of a substantially acid-free hydrophilic acrylate monomer gel, promoted under the name GEL POLISH. 4

5 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 5 of 18 PageID: Keystone s GEL POLISH nail coating products are sold in the form of a base nail coat (which is the first coating applied to a fingernail), a color coat (the pigmented nail coating that usually is applied over the base coat), and a top coat (the finishing protective coat that usually is applied over the color coat). 15. In general, Keystone manufactures and sells GEL POLISH products in bulk to other cosmetic nail companies. Those purchasers use and sell the Keystone GEL POLISH products under those companies own brand names. 16. Keystone s invention, which uses a substantially acid-free hydrophilic acrylate monomer composition, has several beneficial, innovative effects for cosmetic nail consumers, including providing materials and methods for cosmetically treating a fingernail to form a strongly-bonded protective coating in a manner that is toxicologically and dermatologically safe to the user, the user's natural fingernail, and the human tissue surrounding or underlying the fingernail. 17. The substantially acid-free nature of Keystone s GEL POLISH products represents a significant improvement over known acid-based fingernail products in that it minimizes the toxicological and dermatological hazard of acid-based products to the user's living tissue, such as the living tissue underlying or surrounding the fingernail plate. Keystone s GEL POLISH products also eliminate the need to physically roughen the fingernail surface with a file or other abrasive material prior to application of the artificial nail coating. As a result of this substantial innovation, Plaintiff was awarded 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. 5

6 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 6 of 18 PageID: Keystone has marketed its GEL POLISH products throughout the United States and other countries. 19. The United States Patent and Trademark Office duly and legally issued U.S. Patent No. 5,965,147 to Keystone on October 12, 1999 (the 147 Patent ). A true and correct copy of the 147 Patent is attached hereto as Exhibit A. 20. The invention embodied in the 147 Patent is used by Keystone in the manufacturing and selling of the GEL POLISH products. 21. Plaintiff is the owner, by assignment, of the 147 Patent and has not licensed its use to others. 22. Plaintiff has developed, manufactured, distributed, and sold products embodying the inventions of the `147 Patent. Plaintiff also provides services embodying the inventions of the `147 Patent. Plaintiff has spent considerable time, effort, and resources developing and promoting its products embodying the inventions of the `147 Patent. CND Infringes the 147 Patent and Engages in False, Misleading Advertising 23. Defendant CND is in the business of manufacturing, marketing and selling of cosmetic nail products, including fingernail coatings of the kind at issue in this action. 24. Without Keystone s permission or authority, CND has engaged in the manufacture, use, distribution, sale, importation and/or offering for sale of products and services infringing at least one claim of the `147 Patent. 25. CND markets and sells an integrated fingernail polish system under the brand name SHELLAC. 6

7 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 7 of 18 PageID: Much like Keystone s GEL POLISH products, CND s SHELLAC system includes a SHELLAC Base Coat, a SHELLAC Top Coat, and a SHELLAC Color Coat. 27. The SHELLAC Base Coat is the first coat that is applied to the nail in the SHELLAC system. The SHELLAC Base Coat is the layer of the SHELLAC system that binds solidly with the natural nail. 28. The second layer, which is applied to the Base Coat in the SHELLAC system, is the Color Coat. 29. Upon information and belief, using the SHELLAC Base Coat, as opposed to not using it, increases the adhesion of the Color Coat to the fingernail. CND markets the SHELLAC Base Coat as providing a superior adhesion layer to nails... anchoring Shellac Color Coat to the nail. See Exhibit B hereto. 30. Upon information and belief, the SHELLAC Base Coat is a substantially acid-free liquid. 31. Upon information and belief, the SHELLAC Base Coat does not contain an acid and is not an acid-based primer. 32. Upon information and belief, the SHELLAC Base Coat contains a monomer and CND markets the product as containing a monomer. 33. Upon information and belief, the SHELLAC Base Coat contains an acrylate monomer and CND markets the product as containing an acrylate monomer. 34. Upon information and belief, the SHELLAC Base Coat contains more than one hydrophilic acrylate monomer. 35. Propylene glycol monomethacrylate (i.e., PPG-5 methacrylate) is substantially acid-free. 7

8 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 8 of 18 PageID: Propylene glycol monomethacrylate (i.e., PPG-5 methacrylate) is a hydrophilic acrylate monomer. 37. Hydroxypropyl methacrylate is substantially acid-free. 38. Hydroxypropyl methacrylate is a hydrophilic acrylate monomer. 39. The SHELLAC Base Coat contains propylene glycol monomethacrylate (i.e., PPG-5 methacrylate) and CND markets the product as containing that acid-free hydrophilic acrylate monomer. 40. The SHELLAC Base Coat contains hydroxypropyl methacrylate and CND markets the product as an acid-free liquid composition with a hydrophilic acrylate monomer as a featured ingredient. See CND advertisements, Exhibit C hereto. 41. Upon information and belief, the SHELLAC Color Coat and the SHELLAC Top Coat also are acid-free liquid compositions containing hydrophilic acrylate monomers, which also infringe the 147 Patent. CND markets the Color Coat and the Top Coat as containing the 8

9 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 9 of 18 PageID: 9 hydrophilic acrylate monomers propylene glycol monomethacrylate (i.e., PPG-5 methacrylate) and hydroxypropyl methacrylate. Ex. C. 42. In its marketing of the SHELLAC products, CND concedes that the presence of monomers enhances the adhesive performance of the products by stating: [SHELLAC] contains monomers that give it the longevity and the wear of a gel. As disclosed and claimed in the 147 Patent, the hydrophilic acrylate monomers contained in the SHELLAC products are used to enhance the adhesive performance of the nail coatings. 43. Upon information and belief, CND has been manufacturing, using, selling, importing and/or offering for sale the SHELLAC system products since approximately May 1, 2010, if not earlier. 44. By virtue of the foregoing, CND s manufacture, use, sale, import and/or offer for sale of the above-described SHELLAC products, which are substantially acid-free liquids containing at least one hydrophilic acrylate monomer, constitutes infringement of the `147 Patent. 45. CND has knowledge of the 147 Patent. 46. CND s infringement of the 147 Patent has been and continues to be willful. 47. At this time, and without the benefit of discovery, Keystone cannot allege with certainty the first point in time that CND obtained actual or constructive notice of the 147 Patent. However, at the very minimum, CND has had actual knowledge of the 147 Patent and Keystone s allegations of infringement since March 3, 2011, when the president of Keystone sent written notice to CND s chief executive officer. A true and correct copy of the March 3, 2011 written communication is attached hereto as Ex. D. 9

10 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 10 of 18 PageID: At no time since CND obtained constructive or actual notice of the 147 Patent has CND ceased its infringing activities, all of which continue as of the date of this filing. 49. Even though CND s SHELLAC products infringe the 147 Patent obtained by Keystone in 1999, CND falsely advertises and markets the SHELLAC products as being invented by CND and claims that such products have unique, innovative chemical formulas that have not been available to consumers before CND s SHELLAC products. Such statements by CND are false, misleading, and have the tendency to confuse the consuming public. 50. 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 in the 147 Patent. By way of example, CND falsely claims the following about SHELLAC: Our chemists invented a modern solution to the normal polish inconveniences that frustrate women. (emphasis added). revolutionary, new hybrid color service for nails breakthrough, patent-pending UV3 technology A true innovation in chip-free, extended-wear color game-changing product 51. CND s marketing statements falsely claim that the SHELLAC products have unique, innovative chemical formulas that allegedly have not been available to consumers before CND created the SHELLAC products. By way of example, CND misrepresents the following to the consuming public about SHELLAC: Unique formula like no other product in the world revolutionary, new hybrid color service for nails 10

11 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 11 of 18 PageID: 11 breakthrough, patent-pending UV3 technology A true innovation in chip-free, extended-wear color game-changing product a product no one had ever done before First ever hybrid nail color Q: Is there anything else like Shellac in the marketplace? How does it compare to soakable gels? A: Shellac is a breakthrough, patent-pending UV3 technology that combines the ease of polish with the permanence of gels. No other products in the market can stand up to the claim on like polish, wears like gel, off in minutes. Better science makes better products. The patent-pending formulation of solvents, monomers and polymers is why Shellac goes on like polish, wears like gel and removes in minutes. Plus it's hypo-allergenic and 3-FREE... containing no formaldehyde, toluene or DBP. Shellac stands miles apart from others in the market with the science and testing to back it up. Nail Professionals that participated in more than 4 years of controlled, blind testing said unanimously there s no comparison not even close! The Science of Shellac! Shellac stands miles apart from others in the market with the science and testing to back it up. The patent-pending formulation of solvents, monomers and polymers is why Shellac goes on like polish, wears like gel and removes in minutes. Plus it's hypo-allergenic and 3-FREE... containing no formaldehyde, toluene or DBP. Happy Shellac launch week! We are so excited to share the launch of this revolutionary nail product with all of you. The Other Defendants Infringe the 147 Patent 52. Upon information and belief, each of the other named defendants engages in the using, selling, and/or offering for sale of CND s SHELLAC products that infringe the `147 Patent. 53. BSG, ECSS and Emiliani are each listed as an authorized distributor of CND s SHELLAC products on CND s website. 11

12 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 12 of 18 PageID: BSG, ECSS and Emiliani all advertise that they are dealers for CND and/or its SHELLAC products. 55. By way of example only, BSG targets salons and salon professionals for sales through its CosmoProf and Armstrong McCall stores, as well as through its network of distributor sales consultants, such as Schoenemann Beauty Supply operating in New Jersey. BSG markets that, as of year end 2010, it had 1,027 stores (including 159 franchises) and 1,051 distributor sales consultants. Through all of these channels, BSG sells and offers for sale the infringing SHELLAC products throughout the United States, including New Jersey. 56. Upon information and belief, BSG, ECSS and Emiliani each have infringed the `147 Patent by using, selling, and/or offering for sale of CND s SHELLAC products. forth herein. COUNT I Patent Infringement of the 147 Patent Against All Defendants 57. Plaintiff incorporates by reference the preceding paragraphs as though fully set 58. Plaintiff has acquired and continues to maintain the right to sue on the 147 Patent and the right to recover for infringement thereof. 59. Upon information and belief, defendant CND has infringed, induced infringement of, and contributorily infringed at least one claim of the 147 Patent, and continues to do so by making, selling, offering for sale, importing into the United States and/or using products and processes embodying the patented inventions of the 147 Patent (including the SHELLAC Base Coat, Color Coat and Top Coat products), and will continue to do so unless enjoined by this Court. CND has infringed the 147 Patent literally and/or under the doctrine of equivalents. The use of CND s products also infringes the 147 Patent. 12

13 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 13 of 18 PageID: Further, defendants BSG, ECSS and Emiliani each have infringed, induced infringement of, and contributorily infringed at least one claim of the 147 Patent by using, selling, and/or offering for sale of CND s SHELLAC products (including the SHELLAC Base Coat, Color Coat and Top Coat products). 61. Plaintiff has at all times complied with 35 U.S.C Plaintiff has suffered and continues to suffer monetary damages from defendants infringement of the `147 Patent that are compensable under 35 U.S.C. 284 in an amount to be determined at trial. 63. Plaintiff has been damaged by defendants infringement of the 147 Patent and will suffer irreparable injury unless such infringement is permanently enjoined by this Court. 64. Upon information and belief, CND s infringement of the 147 Patent has been and continues to be willful and deliberate, making this an exceptional case entitling Plaintiff to recover additional damages and reasonable attorneys fees pursuant to 35 U.S.C Plaintiff has placed the required statutory notice on products manufactured and sold by it under the 147 Patent. 66. CND has been given notice of its infringement of the 147 Patent, both constructively and actually. Plaintiff has notified CND that CND is infringing the 147 Patent. At no time has CND ceased its infringing activities. 67. CND and the other named defendants have induced others to infringe, and have contributed to infringement by others, of at least one claim of the 147 Patent through the use of CND s products in the manner in which they are intended by CND to be used. 13

14 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 14 of 18 PageID: 14 forth herein. COUNT II Violation of 43(a) of the Lanham Act Against CND 68. Plaintiff incorporates by reference the preceding paragraphs as though fully set 69. Section 43(a) of the Lanham Act, 15 U.S.C. 1125(a), provides in relevant part that any person who, on or in connection with any goods or services... uses in commerce any...false or misleading description of fact, or false or misleading representation of fact, which (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act. 70. CND s statements in marketing the SHELLAC products to the public (set forth in detail above at paragraphs and incorporated by reference herein), violate the Lanham Act because they are literally and/or impliedly false, misleading and likely to cause confusion. 71. CND s SHELLAC products travel in interstate commerce. 72. As a result of CND s conduct, Plaintiff has suffered and will continue to suffer harm to its business, sales, reputation and goodwill, entitling Plaintiff to damages in an amount to be determined at trial. Pursuant to 15 U.S.C. 1117, Plaintiff is entitled to damages for CND s violations of the Lanham Act, an accounting of profits made by CND on sales of the SHELLAC products, and recovery of Plaintiff s costs and reasonable attorneys fees incurred in this action. 14

15 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 15 of 18 PageID: CND s acts are willful, wanton, and calculated to deceive, and are undertaken in bad faith, making this an exceptional case entitling Plaintiff to recover additional damages and reasonable attorneys fees incurred in this action pursuant to 15 U.S.C Unless enjoined by this Court, CND s acts will irreparably harm and damage Plaintiff s reputation and goodwill and erode Plaintiff s market share. COUNT III Violation of N.J.S.A. 56:4-1 (New Jersey Fair Trade Act) Against CND 75. Plaintiff incorporates by reference the preceding paragraphs as though fully set forth herein, including, without limitation, the specific allegations of Count II above. 76. N.J.S.A. 56:4-1 provides: No merchant, firm or corporation shall appropriate for his or their own use a name, brand, trade-mark, reputation or goodwill of any maker in whose product such merchant, firm or corporation deals. 77. CND s conduct described herein violates N.J.S.A. 56: As a result of CND s conduct, Plaintiff has suffered and will continue to suffer harm to its business, sales, reputation and goodwill, entitling Plaintiff to damages in an amount to be determined at trial. Such damages should be trebled pursuant N.J.S.A. 56: Unless enjoined by this Court, CND s acts will irreparably harm and damage Plaintiff s reputation and goodwill and erode Plaintiff s market share. 15

16 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 16 of 18 PageID: 16 forth herein. COUNT IV Common Law Unfair Competition Against All Defendants 80. Plaintiff incorporates by reference the preceding paragraphs as though fully set 81. Defendants have engaged in unfair competition by misappropriation and use of the invention embodied in the 147 Patent and making false marketing claims related to its SHELLAC product as described herein. Plaintiff. 82. The invention embodied in the 147 Patent has commercial or pecuniary value to 83. Defendants conduct described herein constitutes unfair competition. 84. As a result of defendants conduct, Plaintiff has suffered and will continue to suffer harm to its business, sales, reputation and goodwill, entitling Plaintiff to damages in an amount to be determined at trial. forth herein. COUNT V Unjust Enrichment Against All Defendants 85. Plaintiff incorporates by reference the preceding paragraphs as though fully set 86. Upon information and belief, defendants have been unjustly enriched, and have obtained sales, profits, monetary and other unjust rewards due to its wrongful acts complained of herein. 87. Plaintiff expected (or if the true facts were known to Plaintiff, it would have expected) to be compensated for the benefits that defendants enjoyed through their improper conduct set forth in this Complaint. 16

17 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 17 of 18 PageID: It would be inequitable and unjust to allow defendants to have accepted the benefits conferred upon them without paying fair value therefor. PRAYER FOR RELIEF WHEREFORE, Plaintiff respectfully requests that this Court enter judgment against CND, BSG, ECSS and Emiliani, jointly and severally, and pray for relief as follows: (a) (b) A declaration that Defendants have infringed the 147 Patent; A permanent injunction against CND, BSG, ECSS and Emiliani, and all of their agents, servants, employees, and all persons acting in concert or in participation with them, or any of them, permanently enjoining further acts of infringement of the 147 Patent, and specifically enjoining them from directly or indirectly making, using, selling, offering for sale and/or importing any products or services infringing any claim of the 147 Patent until the expiration of the 147 Patent, without the express written authority of Plaintiff; (c) An order requiring Defendants to deliver to Plaintiff, for destruction at Plaintiff option, all products that infringe any claim of the 147 Patent; (d) An award of damages, in an amount to be determined, to fully compensate Plaintiff for all damages attributable to Defendants infringement of the 147 Patent, and that such amount be trebled, in accordance with 35 U.S.C. 284; (e) An award of damages against CND, in an amount to be determined, to fully compensate Plaintiff for all damages attributable to violations of 15 U.S.C. 1125, and that such amount be enhanced; (f) An award of damages against CND, in an amount to be determined, to fully compensate Plaintiff for all damages attributable to violations of N.J.S.A. 56:4-1, and that such amount be trebled, in accordance with N.J.S.A. 56:4-2; 17

18 Case 1:11-cv JBS -KMW Document 1 Filed 07/28/11 Page 18 of 18 PageID: 18 U.S.C. 1117; (g) An award of reasonable attorneys fees pursuant to 35 U.S.C. 285 and/or 15 (h) An assessment of costs of suit against Defendants, and pre-judgment and postjudgment interest on each and every award; (i) An accounting of all profits which Defendants have received or will hereafter receive as a result of using, marketing, distributing, advertising, promoting, licensing, offering for sale, or otherwise commercially exploiting the infringing products, including the sale of convoyed (or collateral) products; and (j) Such other and further relief, in law and in equity, to which Plaintiff may be justly entitled under the circumstances. KLEHR, HARRISON, HARVEY, BRANZBURG LLP s/ Ira A. Rosenau Ira A. Rosenau, Esq. Robert A. McKinley, Esq. 457 Haddonfield Road, Suite 510 Cherry Hill, NJ (609) Attorneys for Plaintiff Mycone Dental Supply Co., Inc. d/b/a Keystone Research & Pharmaceutical Dated: July 28,