Laches, patent claims, and false advertising

Icon Health & Fitness, Inc. v. The Nautilus Group, Inc., 2005 WL 3681813 (D. Utah)

False advertising cases, like trademark cases, are often decided at the preliminary injunction stage. Because one of the factors in granting preliminary relief is whether the plaintiff delayed in bringing its case, indicating that immediate relief is unnecessary, there is substantial Lanham Act caselaw on the topic. There is somewhat less precedent on the related subject of laches, which was at issue in Icon Health. Laches will bar an action if the plaintiff inexcusably delays in bringing suit and the defendant is prejudiced by that delay.

Icon, which produces fitness equipment under brand names including NordicTrack and Reebok Fitness, challenged two of the Nautilus Group’s claims for its Bowflex exercise machine: (1) that the Power Rods on the Bowflex were patented, and (2) that the Poly-Hexamethaline-Adipamide ("PHA") used in the Power Rods was "developed exclusively by Bowflex" and "not available anywhere else in the world." (Though it doesn’t appear in the decision, it seems likely that PHA is a misspelling of polyhexamethyleneadipamide, also known as nylon.)

The Bowflex patents were issued in 1986 and 1988, and Nautilus has made the claim that the Power Rods are patented for many years. In 1995, Nautilus asked its manufacturer what the Power Rods were made of, and, upon receiving the answer, added the PHA claims to its advertising.

Icon is a large Nautilus competitor with its own patent portfolio, but, the court found, in such a competitive market (at least 100 serious competitors), it cannot reasonably monitor everyone’s patents. The court accepted Icon’s testimony that there is so much advertising in the exercise industry – including via infomercials - and so much work to be done selling one’s own products that keeping track of every competing claim is impossible. Icon occasionally examines competitors’ products when it suspects patent infringement or is developing a similar product. The court found it significant that Nautilus, too, did not generally attempt to verify its competitors’ claims.

The claims at issue here came to Icon’s attention when it developed its own resilient-rod exercise machine, the Crossbar, and Icon had outside patent counsel investigate the matter in 2002. Icon had, however, encountered the Bowflex before, in 1987 when its creator was seeking marketing partners. The creator testified that he always brought along a copy of the patent in his marketing presentation. He sent marketing materials and a product sample to Icon before their meeting, and at the meeting the parties discussed the Bowflex patents as well as the function and features of the Bowflex machine. Icon chose not to invest in Nautilus. The court found that, though the parties are now competitors, they weren’t in 1987 and Icon had no reason to investigate further (presumably because Nautilus was still struggling to get off the ground, and thus was like every other self-promoting small business convinced that it had the Next Great Idea; Nautilus, unlike most ventures, might have been right, but Icon couldn’t have known that at the time).

Aside from that specific encounter, the Bowflex has been widely marketed since the 1980s, and Icon’s witnesses were generally aware of it, whether they watched SportsCenter and saw Bowflex ads or couldn’t sleep and therefore saw infomercials.

The Lanham Act has no limitations period; courts recognize a laches defense using an analogy to the most appropriate state limitations period as a starting point. The parties agreed that the analogous limitations period is Utah’s 3-year statute of limitations for fraud. (This is not a foregone conclusion, since state unfair competition law or even state trademark law are also candidates for the analogy.) Utah applies a discovery rule that starts to run when the plaintiff knew or should have known of the facts constituting the fraud or mistake.

The question was not when Icon knew of the Nautilus statements, but when it should have looked into the truth or falsity of those statements. The court found that Icon had no reason to investigate before 2002, and filed suit shortly thereafter. Its actions, in the context of the highly competitive and claim-clogged exercise market, were not unreasonable. Thus the Lanham Act claim will proceed. (A similar result obtained with respect to Icon’s claims for false patent marking.)

Other observations: (1) Critics of competitor suits for false advertising have pointed to cases like this (objections to a competitor's claim of patent protection) as evidence that competitors sue over matters about which consumers in fact care little. Materiality will still be an issue as the case proceeds, but I think it's reasonable for consumers to be influenced by claims of uniqueness and patent protection, both of which imply special efficacy. Consider patent medicine, which used the legal concept of patent (or, more often, trademark) to give nostrums a convincing mystique.

(2) This case features a 1:14 ratio of plaintiff’s attorneys (attorney, actually) to defendant’s attorneys. The race is not always to the swift, nor the battle to the strong – though, present result notwithstanding, that’s the way to bet.