Gram and its CEO, Jess Gram, claim rights in “a process for molding and assembly of a plastic object using two rotatable molds.” Gram is a nonpracticing patentholder; the particular invention at issue here was the subject of a patent application filed in April 2003. Foboha alleged that Gram began claiming that Foboha was an infringer in 2004, long before a patent issued, and made further statements after the PTO’s notice of allowance in May 2006.
In June 2006, during a trade show, Gram demanded that Foboha license Gram’s technology. Gram made similar demands of other exhibitors. Foboha knew that the patent hadn’t been granted, and told Gram that the claims were invalid based on a prior art reference that wasn’t cited during the prosecution of the patent. The PTO issued the patent in July 2006, at which point Foboha filed a request for reexamination, which was granted in April 2007, invalidating the patent as either obvious in light of or anticipated by the prior art. In response, Gram added and amended its claims, which Foboha allged substantially changed the scope of the original patent claims.
In December 2007, Gram published a press release on its website stating that the reexamination “confirmed the patentability of the 10 original claims of the … patent, as applied to mechanical in-mold assembly processes. In addition the USPTO have [sic] confirmed the patentability of 6 additional new claims sought by Gram.... Upon completion of the reexamination process, Gram intends to enforce its valuable intellectual property rights to the fullest extent permitted by law.” Gram thereafter told one of Foboha’s customers that Foboha was infringing the patent. In a letter to Foboha, Gram falsely claimed that another company had already settled with it.
Foboha sued for federal false advertising, state unfair competition, and tortious interference. Gram initially argued that the Lanham Act claim was subject to Rule 9(b)’s heightened pleading requirement. District courts have divided on this issue; the court determined that the allegations sounded in fraud, because they were all allegedly committed “maliciously, oppressively, and fraudulently,” and thus 9(b) applied. Fortunately, Foboha supplied the necessary particularity for all allegations after June 2006.
However, the court applied a highly restrictive definition of “commercial advertising or promotion.” Under First Health Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 803 (7th Cir. 2001), advertising must be communication widely disseminated to anonymous recipients, not face-to-face communication. “Direct communications, whether in person or by letter, are not commercial advertising or promotion as our Court of Appeals has defined those terms.” Foboha argued that Gram’s claims forced it to issue a press release to calm its customers, which implicated broad-based advertising. But Gram only communicated with customers at the trade show, and making allegations of infringement in person just doesn’t count.
I think this is overreading (and reading “promotion” out of the statute), and it’s inconsistent with rather a lot of Lanham Act caselaw allowing claims based on factual statements disseminated, by whatever means, to significant portions of the relevant consumer base. The letter to Foboha wasn’t commercial advertising or promotion because it didn’t target Foboha’s customers, but other communications with customers ought to count. The real problem here, of course, is standing: does a nonpracticing patentee compete with Foboha or otherwise implicate a competitive interest sufficient to trigger the Lanham Act?
The statements on Gram’s website, however, counted as advertising or promotion. (And this is why the face-to-face distinction is ridiculous. Given the industry at issue, there is no reason that anyone other than exactly the people likely to receive individual communications from Gram would be affected by the website. The only distinction between the website and the trade show statements is possible uncertainty of proof, but I’m not convinced that’s enough to justify Lanham Act coverage in one case and not the other.)
Anyway, the website discussed the reexamination and characterized the PTO’s conclusions in a way that favored Gram. A jury could conclude that the press release was false or misleading by implying that the original claims were upheld, when in fact they were rejected.
Foboha’s tortious interference claims also survived the motion to dismiss. Gram claimed competitor’s privilege. However, that couldn’t be resolved on a motion to dismiss, not least because Foboha specifically alleged that the parties don’t compete. (And again I wonder about Lanham Act standing.) Gram argued that they are competitors, because they both develop and design plastic injection molds, but merely engaging in some of the same activities and targeting some of the same customers doesn’t mean they’re competitors. Gram only sells the right not to be sued, which isn’t a product. Moreover, competitor’s privilege doesn’t cover wrongful means of interfering with a business, which might be present here.
Finally, Gram argued that the patent law preempted the claims because of insufficient allegations of bad faith. Plaintiffs are required to plead and prove bad faith even when it’s not an element of the underlying claim in order to permit patent holders to publicize and assert their patent rights without liability for unfair competition, even if they’re ultimately wrong about the scope of their rights. There’s a subjective and an objective component; the latter requires proof that the defendant’s statements were “objectively baseless.”
Foboha argued that it wasn’t required to plead bad faith because here there were no patent rights to publicize. However, here the PTO issued a notice of allowance, which meant that a presumptively valid patent was going to issue. Thus, the rationale for requiring bad faith applies, even to statements during the pendency of the reexamination. Foboha, however, sufficiently alleged bad faith for purposes of a motion to dismiss: Gram allegedly told Foboha and others that they were presently liable for patent infringement before the patent issued, a claim that was “objectively baseless.” After Gram substantially changed the patent’s scope, it kept making the same claims and issued a misleading press release. That was enough to plead bad faith.
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