Wednesday, June 27, 2007

Another false patent marking as false advertising case

Third Party Verification, Inc. v. SignatureLink, Inc., 2007 WL 1752541 (M.D. Fla.)

Plaintiff Third Party sought a declaratory judgment that it was not infringing copyrights, patents, or other intellectual property rights in SignatureLink Web Signature Software that captures signatures and records proofs of purchases for online transactions. Defendant SignatureLink counterclaimed that Third Party’s AssureSign Electronic Signature Technology infringed the copyright in SignatureLink’s source code. Third Party accused SignatureLink of false marking and false advertising; SignatureLink counterclaimed for misleading advertising and unfair competition.

Among other things, SignatureLink allegedly accused Third Party of violating its patent and copyrights when SignatureLink possessed neither a patent nor a registered copyright. SignatureLink responded that there was a copyright registered by an actual third party, which was transferred to SignatureLink in July 2005 though not recorded until November 2006. And SignatureLink argued that the difference between “patented” and “patent pending” couldn’t support a misleading advertising case, since no consumer would rely on it.

The court referenced other cases in which misuse of “patented” or “patent pending” supported a false advertising allegation. Moreover, in Florida, a competitor can maintain a case for misleading advertising with the element of competition substituting for the otherwise necessary element of reliance. Thus, reliance doesn’t necessarily need to be alleged or proven.

This analysis doesn’t seem quite right – competition should substitute for the plaintiff’s reliance, not the element that the misrepresentation should be the type of thing on which consumers are likely to rely. But “patented” could lead to reliance, if consumers are induced to believe that (1) the product is superior to others because it’s patented or (2) similar products are unavailable elsewhere because of the patent protection. Indeed, Third Party’s false advertising allegation was not just that SignatureLink falsely advertised that it had patent protection, but that it also advertised that “there are no other companies that have online signatures.” Thus, Third Party's false advertising cause of action survived, as did its cause of action for false marking in violation of 35 U.S.C. § 292, which authorizes qui tam actions against people who intentionally falsely mark or advertise articles as patented. In order to avoid preemption of state unfair competition law by the patent statute, however, the court noted that it would require a finding of bad faith, which was properly alleged.

SignatureLink’s false advertising cause of action challenged Third Party’s ad claims to be “the only service-based, electronic, hand-written signature on the market” and that “never before has obtaining a signature on a document been so easy, so secure, so fast.” This avoided dismissal for the same reason Third Party’s counts did.

Finally, the parties argued over whether F.R.C.P. 9’s heightened pleading standard applied to Third Party’s allegations, because they have elements of deceit or bad faith. The court refused to apply Rule 9 to false marking claims. Also, and in some tension with its preemption rationale, it relied on case law holding that Florida state false advertising/unfair competition/unfair trade practices law was supposed to cover more than fraud, so Rule 9 doesn’t apply if the state-law claim isn’t predicated on fraud allegations. The court didn’t discuss pleading standards for the Lanham Act claims.

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