Tuesday, July 26, 2016

Failure to do anything to show damages leads to fee award in false advertising case

Gravelle v. Kaba Ilco Corp., No.13-CV-642, 2016 WL 3920208 (E.D.N.C. Jul. 15, 2016)

Bringing false advertising claims isn’t risk free for the plaintiff. Not only may the defendant scrutinize the plaintiff’s own advertising for counterclaims, attorney’s fee awards against a losing plaintiff are not unknown, and here’s one.  Gravelle, pro se, made two electronic key cutting machines, the CodePro 4500 and later the RapidKey 7000.  Kaba makes key blanks and key cutting or duplication machines, and bought  the right to manufacture and sell a key cutting machine, now known as the EZ Code, from Gravelle a decade ago. 

Gravelle alleged that Kaba falsely labeled two features on its EZ Code machine as “patent pending,” despite the fact that Kaba never filed an application for a patent for those features, and that defendant’s use of that false mark diverted sales away from Gravelle’s company. He alleged false marking under the Patent Act and false advertising under the Lanham Act, as well as state-law unfair competition.  Kaba won summary judgment because Gravelle couldn’t show competitive injury or damages proximately caused by Kaba’s conduct.

“Exceptional” cases allow fee awards in patent and false advertising cases.  Octane Fitness says that an “exceptional” case is “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  Here, the claims were “exceptionally meritless” for two reasons: first, Gravelle couldn’t produce any evidence of harm to sales of his older machine; sales numbers were consistent and only tapered off at the end of the machine’s useful life. Second, he couldn’t show any harm to sales of his new machine or any connection between his sales and Kaba’s use of “patent pending.”  The fact that the court granted summary judgment weighed in favor of finding exceptionality. Though it’s regularly the case that reasonable arguments ultimately fail, here there were no reasonable arguments.  “Plaintiff’s lack of evidence demonstrated a lack of thoughtful consideration about the quantum of evidence necessary not only to prove his claim but to substantiate it at the most basic level.”  A fee award would also discourage further frivolous claims.  The court considered Gravelle’s pro se status as well as the parties’ relative disparity in resources, but found that fees should be awarded anyway, given that “no litigant could have reasonably believed that plaintiff had been damaged by defendant’s conduct” on this record.

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