Sunday, August 23, 2009

Litigation privileges and false advertising

Pactiv Corp. v. Perk-Up, Inc., 2009 WL 2568105 (D.N.J.)

Plaintiffs sued defendants for various claims centered on a patent for sealable food containers sold under the mark VERSAtainer. Defendants (the main one, Kari-Out, is both a customer and a competitor: it redistributes the VERSAtainer to various clients and sells its own food containers) counterclaimed for false advertising, trade libel, tortious interference, etc. Basically, defendants alleged that plaintiffs began treating defendants badly, making it impossible for them to compete with other redistributors, and approached defendants’ customers and offered to sell directly to them at steep, short-term discounts. Also, they alleged that plaintiffs’ patent and trade dress lawsuits were objectively baseless, used to crush competition, including by notifying customers of the lawsuit. Plaintiffs also allegedly falsely told customers that Kari-Out had a large outstanding debt with plaintiffs and that Kari-Out didn’t have and wouldn’t be able to sell relevant products.

In a move I must admit confused me, plaintiffs moved to dismiss on grounds of protection under New Jersey’s litigation privilege. I didn’t think a state-law privilege of this sort could defeat a federal claim, but the court held that the filing of the complaint was protected by the litigation privilege. The court went on to note that federal law shields a patent holder from liability for publicizing its patent in the marketplace, unless objective and subjective bad faith is shown. “A patentholder’s privileged right to make statements about potential infringement of his patent and federal prohibition of unfair competition does not conflict because patents publicized in bad faith do not further the purposes of patent law.” Here the counterclaims had trouble with Twombly: although they alleged that the infringement claims were objectively baseless, defendants failed to provide any facts suggesting that plaintiffs actually gained the alleged knowledge of noninfringement or that discovery would reveal evidence of knowledge. (So we get the standard complaint about Twombly: those facts the court wants seem to be the kind of things uniquely known to the target of the allegations and hard to specify in advance of discovery.) Thus, the allegations of bad faith publicity were not sufficient to survive a motion to dismiss.

As for the rest of the false advertising claims, plaintiffs alleged that the statements were true at the time they were made: Kari-Out owed them money and they weren’t going to continue shipping product to Kari-Out until the debt had been satisfied. The court found that the remaining false advertising counterclaim, the trade libel counterclaim, and the tortious interference claim survived the motion to dismiss. Defendants sufficiently alleged that the statements were made to enough customers that Kari-Out lost sales and goodwill, and that customers were left with a harmful false impression.

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