Claim that service doesn't infringe patent may be false advertising

Optigen, LLC v. International Genetics, Inc., 2011 WL 841506 (N.D.N.Y.)

Optigen has two patents for testing dog DNA for certain inherited diseases. InGen’s principal Dobbins founded PinPoint, offering “Pawsitive I.D.” for DNA testing cats and dogs. Optigen informed PinPoint and Dobbins in 2008 that PinPoint was infringing Optigen’s patents. Dobbins then established InGen in the Bahamas and purchased PinPoint’s assets, including Pawsitive I.D. and the related website. InGen’s website says it offers the test “that PinPoint was forced to withdraw in April 2008 due to patent issues.... InGen does not have these issues ….” The website suggest InGen’s knowledge that InGen’s services would amount to patent infringement if offered in the US, Canada, or EU (e.g., "[t]hese patents[, which] prohibit unlicensed use of the scientific techniques used in the detection of genetic mutations for some diseases[,] ... were never filed in The Bahamas and therefore it is perfectly legal and ethical to use the scientific processes needed to determine if an animal has the mutation in this jurisdiction”), and InGen offers its services to customers in the US, who make up 80-85% of its customers.

Optigen alleged patent infringement and inducement, as well as false advertising and unfair competition. I will only discuss the false advertising claims, though the inducement/“offer to sell” issues seem quite interesting.

Optigen contended that InGen falsely claimed that it didn’t infringe Optigen’s patent. InGen defended on the ground that this was true. The court disagreed, on the current record. “Because a patent is not a good or service, a misleading statement about the ownership of a patent does not give rise to a false advertising claim.” However, a plaintiff may prevail by showing that a false or misleading statement involved an inherent or material quality of a product or service. Here, InGen advertises a test for sale; the test is a good. It further advertised that its sale is legal because the test doesn’t infringe. This statement concerns the nature, quality, or characteristics of this good. (In other words, reasonable consumers care if their supplier is breaking the law, even if the consumer is not breaking the law by buying the product! Somehow I have the feeling this is more of a normative conclusion than an empirical one.) So, if InGen’s statements are false—which has to go to a factfinder, per the court’s decision on the patent claims—then InGen might be liable for false advertising. (Query whether, under this holding, materiality goes to the jury too, or whether the court resolved it as a matter of law.)