Monday, March 21, 2011

Tuna surprise: false patent marking leads to multimillion award

King Tuna, Inc. v. Anova Food, Inc., 2011 WL 839378 (C.D. Cal.)

Anova counterclaimed against King Tuna for false patent marking, false advertising under the Lanham Act, and state law unfair competition, based on its argument that King Tuna knew it was not processing its filtered wood smoke ("FWS") treated tuna according to the relevant patent(s), though it was licensed to practice those patents. Anova competes with King Tuna in the FWS tuna market.

King Tuna advertised that its FWS tuna was made in accordance with the relevant patent(s), and marked its products accordingly. Its principal told all his customers that the tuna was protected by the patent, so that they wouldn’t worry about infringement suits from another party. King Tuna’s former sales and marketing director testified that marketing the tuna "as consistent with a patented process" was a "key" part of their marketing. He testified: "I think the ability to establish that there was a patent and that we had the patent was an important way of establishing our credibility." The sales brochure given to all customers said that King Tuna "utilizes 'original' Filtered Wood Smoke licensed under two U.S. Patents. This technology is applied to [King Tuna's] highest quality brand--King Tuna as the best means of preserving fish color under household refrigeration. 1) U.S. Pat. # 5,484,619--extends shelf life under household refrigeration. Inventor: Kanemitsu Yamaoka of Japan, 01/16/96. Process fully FDA/USDC compliant."

King Tuna was aware of the falsity in at least one way: it never precooled the smoke down to 0° to 5° C before applying it to the tuna to be treated with FWS, one of the three steps required by the patent. Its principal received notices from judicial bodies construing the patent’s one independent claim, which showed the cooling step requirement. He read the patent and saw that the drawing required a cooling chamber; he knew that was different from the process his company used: cooling the FWS down to ambient temperature, stored around the plant until actual use in processing. He knew that a Philippine patent body had ruled, in the course of finding that another company hadn’t infringed, that the Philippine patent (which was similar to the US patent) required precooling. In response to direct questioning from the court, he said that he learned of the precooling requirement in mid-2007 (the Philippine rulings were in 2004 and 2006).

False advertising: the ads weren’t true. The patent claim was important to establish “credibility” with customers. (I sometimes say that patents probably aren’t material to most customers. But if you’re a wholesaler and your customers are retailers, matters may be very different.) Anova lost business to King Tuna. Also, King Tuna knew its statements were false as of late 2006, when the Philippine body made its final determination.

Anyway, King Tuna’s conduct constituted false marking. False advertising with knowledge of falsity sufficed to show intent to deceive the public. Likewise, this constituted false advertising under the Lanham Act. Though a false representation of patent infringement is not actionable under §43(a) (compare the recent decision finding that a false representation of noninfringement is actionable), a false representation to be an exclusive source of a certain type of product because of the patent is actionable.

Though the Lanham Act doesn’t usually require bad faith, a false advertising claim based solely on false patent marking must show bad faith to survive. I suppose there’s a little Dastar-esque justification here, but given the Lanham Act’s other requirements for recovery—competition, materiality, “advertising or promotion”—I don’t think this rule is as necessary. Also, because Anova didn’t discuss its California law claims separately, the court found that the standards should be the same as those governing the Lanham Act. Interesting question of what would’ve happened if Anova had pressed the argument that only falsity, not knowledge, is required under California law.

Intent to deceive is judged by an objective standard. Misrepresentation coupled with knowledge of falsity is enough to warrant an inference of fraudulent intent, and that existed here.

The court awarded over $1.5 million to Anova based on King Tuna’s sales during the relevant period at a 20% profit margin, using an unjust enrichment rationale under the Lanham Act. False marking penalties are assessed on a “per article” basis. FWS tuna is individually packaged and sold as steaks in 4 oz., 6 oz., 8 oz., 10 oz. and less frequently 12-14 oz. sizes. “Accordingly,” the court picked one pound as the relevant “article,” and assessed $1 per article. (RT: say what? Isn’t one pound clearly not the relevant article, since according to the court the tuna is never sold in one-pound packages?). King Tuna sold over 1.8 million pounds of FWS tuna during the relevant period. Half of the penalty went to Anova, and half to the US treasury.

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