Friday, July 20, 2012

Alleging false marking with particularity: difficult but perhaps not impossible

West v. Quality Gold, Inc., 2012 WL 2913207 (N.D. Cal.)
West owns nine patents relating to finger rings, and licenses them; as a result, he alleged, the finger ring industry has become “highly sensitive” to patents.  Quality, under the name Dura Tungsten, allegedly began advertising its finger rings as “patent pending,” then changed its catalogs to “patent pending USPTO 12,141,791 was granted,” allegedly conveying to the public and to competitors that it had exclusive righs in a lighter tungsten carbide ring and that others, including West’s licensees, couldn’t lawfully sell similar products.  In fact, the application had been published, not granted.  He sued for false marking (a claim that had to be substantially revised after the AIA) and false advertising under federal and California law.
The court dismissed the false marking claim for failure to plead with the requisite particularity under Rule 9(b), but indicated that this was a close case and that an amended complaint might well suffice.  For a false marking claim, Rule 9(b) means that a plaintiff can allege the identities of particular people in defendant’s company who knew that a particular patent used to mark products was expired, or alternatively can allege other facts from which intent to deceive can reasonably be inferred.  This could include suing a third party for infringement after the patent expired, or making multiple revisions of the marking after expiration.
West’s argument that intent to deceive could be inferred from the fact that Quality Gold “changed its catalogs to reflect that a patent had been granted when in fact the patent application in question merely had been published.”  But he simply alleged that Quality Gold knew or should have known that no patent had issued based on the publication notice; he didn’t allege that any individuals in particular knew that no patent had issued or facts from which such knowledge could be inferred.  Similarly, allegations that the defendant was a sophisticated company with patent experience were insufficient in themselves: intent could not be deduced merely from the marking itself.  However, West asserted a number of facts in his opposition brief and at oral argument that weren’t pled in the complaint, and incorporation of those facts might cure the pleading deficiencies.  For example, West’s counsel “discussed the history of West's patent enforcement efforts in the area of tungsten jewelry finger rings, West's interactions with particular persons associated with Quality Gold, and the manner in which a patent application is processed by the PTO” in greater detail; adding those facts could help, along with an allegation about the layout of Quality Gold’s advertising drawing consumers’ attention to the word “granted” in the claim, “The Dura Tungsten band was developed in 2006. Patent Pending USPTO 12,141,791 was granted and published in December 2009 worldwide.”
Quality Gold also argued that West hadn’t alleged the requisite “competitive injury,” a term the 9th Circuit has yet to interpret in the AIA context.  One district court has required allegations that the false marking was “harmful to the plaintiff’s ability to compete with the defendant,” while another has required the parties to be competitors, vying from the same dollars from the same consumers.  Another court defined “competitive injury” as “predatory pricing, price discrimination, injury to competition, or loss of business opportunities.”  Here, West claimed that its licensees were direct competitors of Quality Gold, and that Quality Gold’s false marking resulted in lost royalty shares of sales and lost licensing opportunities.  Given that the Second Circuit, in Famous Horse, found that parties may be considered competitors for Lanham Act purposes “even though one is a retailer and the other a wholesaler, so long as ‘the goods they sell are in direct competition in the marketplace,’” the court found the competitive injury element adequately pled.
The California and federal false advertising claims were dismissed for reasons similar to the false marking claim, with a twist: Quality Gold alleged that these claims were preempted by the false marking provisions of patent law.  Preemption might not apply if the claims in question alleged bad faith.  But, as noted above, West hadn’t yet sufficiently alleged facts giving rise to an inference of bad faith.  Presumably an amended complaint could also fix this.

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