Plaintiff and defendant compete for the market for filter paper for lab tests of lead. Defendant Tamarac distributes “D-Lead waterless hand soap” and “D-Wipe towels” under an exclusive license; they’re subject to a patent application, but no patent has issued. Plaintiff “occasionally uses the D-Lead and D-Wipe products in test kits when required to meet customer specifications.”
Plaintiff alleges that defendant has falsely claimed an exclusive right to the products based on the pending patent application, including in a bid to the State of Ohio, wherein defendant stated that any other offer to provide the D-products “should be seriously questioned.” Defendant claimed to be the only lab in the US that could, “without restriction, provide all of the required brand specific components,” and claimed a “right to exclusive use of these products, as well as any other products performing essentially the same function,” protected by a patent application. Plaintiff alleges similar misrepresentations in a bid to an Oregon county health department and to another customer.
Earlier, the court issued a TRO preventing defendant from stating or implying that the pending patent application gives it the right to exclude plaintiff from marketing competing products. After that, defendant distributed a summary brochure at a conference stating that the D-products are “technology licensed to Tamarac Medical. They cannot be used with any other capillary blood lead test. U.S. patent applied for.”
Plaintiff sued under the Lanham Act and the Minnesota Deceptive Trade Practices Act, but the standards are the same so the court only discussed the Lanham Act. The court used a definition of literal falsity that includes falsity by implication, when the intended audience “would recognize the claim ‘as readily as if it had been explicitly stated’” (citing Millennium Import Co. v. Sidney Frank Importing Co., 2004 WL 1447915, at *5 (D. Minn. June 11, 2004)). (How does a court know that the intended audience would interpret a claim that way without evidence from that audience? Common sense, and perhaps expert testimony, but this definition highlights the great ambiguity that falsity by necessary implication has introduced into the explicit/implicit divide.)
Plaintiff argued that its claims aren’t literally false because its license agreement excludes other parties from providing the D-products. The court rejected this argument, because the patent application doesn’t confer a monopoly on plaintiff. Thus, statements that its exclusive rights are protected by pending patent application are false, and its use of “U.S. patent applied for” directly following a claim of exclusivity is false by necessary implication. Even a sophisticated consumer audience (which, of course, may not be legally sophisticated) is likely to interpret that as a claim of patent rights.
Having found likely success on literal falsity, the court didn’t need to consider actual consumer impact, but noted that plaintiff had submitted evidence that customers understood defendant’s claims to mean that defendant had exclusive patent application-based rights to the D-products, and that this had affected their purchase decisions.
Because plaintiff was likely to succeed on the merits, the court presumed irreparable harm under the Lanham Act – note that this is a rule from trademark cases, and not usually applied in noncomparative false advertising cases. Given the apparently small market at issue and the claim of exclusive right, it may make sense to treat the claims here like comparative false advertising. The balance of harms also favored an injunction because that would require only relatively small changes in defendant’s advertising, while plaintiff submitted evidence of harm to its sales and good will. The public interest in truthful information about competing products likewise supported an injunction.
As a result, defendant was enjoined from representing that its rights to the D-products are protected by a U.S. patent or patent application. There’s a key difference between these two things: it’s factually false to claim patent protection (and defendant doesn’t seem to have done so), whereas it’s misleading to claim application-based rights, and the misleadingness comes not from a factual misstatement but from a false implication about the law that a patent application creates some sort of legal rights. It is reasonable to conclude that customers received such an implied message – the tone of defendant’s claims is designed to create that impression, and plaintiff has evidence that customers believed it – but it is an implied message. Perhaps explicit/implied is simply not the right division for Lanham Act purposes; we might be better served by admitting there’s a spectrum and not pretending that necessarily implied claims are “really” explicit claims.
Side note: the jurisprudence on false legal claims is complex and not entirely coherent. False claims that a competitor is infringing a patent, which the claims here edge close to, are not always actionable – sometimes courts require the parties to fight the patent out first, though with no patent to litigate about that wouldn’t work here. False claims about legal requirements in general are often only actionable if the claim is made by someone a consumer would expect to have legal expertise.
The injunction also required that, if defendant refers to its rights under its exclusive license agreement with the D-products’ maker in proximity to a statement about the patent application, it must include disclaimer language making clear that its exclusive rights don’t arise from the patent application. Though disclaimers are often disfavored in advertising law, the circumstance that the falsity here is about the legal effect of a patent application rather than its existence may make such language sufficient to avoid deception.
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