Monday, May 23, 2011

Failed false marking claim largely preempts related false advertising claims

Champion Laboratories, Inc. v. Parker-Hannifin Corp., 2011 WL 1883832 (E.D. Cal.)

Champion sued Parker for patent false marking, false advertising under the Lanham Act, and violation of California Business & Professions Code §§ 17200 et seq. The parties compete to sell auto parts to car manufacturers and have a history of litigation over patents and business practices. Both produce fuel filtration products for Ford trucks equipped with the Powerstroke diesel engine. Parker was the OEM and sold a replacement filter. Parker has and licenses a number of relevant patents, including '537 and '993 as relevant here. The patents, according to Parker, disclose a filter assembly that prevents an improper filter element from being used, reducing mess and environmental issues during an element change. It also sells other components of the filtration system and allegedly has the ability to control the design of the system.

Champion alleged that Parker falsely marked its replacement filter with the patent numbers even though the claims are inapplicable to that filter. Parker argued that a first-to-file limitation barred Champion’s false marking claim because a different plaintiff filed a separate false patent marking qui tam action against Parker based on the same material allegations three weeks before Champion filed. This claim was settled in January 2011.

One court has found the qui tam provision unconstitutional. Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., --- F. Supp. 2d ----, No. 5:10-CV-1912, 2011 WL 649998 (N.D. Ohio Feb. 23, 2011), while several others subsequently rejected that decision. But the court could avoid the question, because the case law supported Parker’s argument that only one private individual can assert a qui tam cause of action under the statute. Champion argued that the prerequisites for claim preclusion weren’t satisfied, but it had no standing to challenge the earlier litigation (filed hours before this case) because the government was the real party in interest. Champion’s status as a competitor did not give it special status in a false marking case. Here, the government acknowledged the settlement and accepted its share (which was not disclosed), and relitigating the merits would be complex and burdensome.

Champion argued that the settlement was staged and lacked transparency. This was similar to the constitutional arguments that the government lacked sufficient control over the qui tam action. The court was unpersuaded (and noted the conflict between asserting that the statute is constitutional and that a settlement wasn’t fair to the government because of the government’s inability to control the terms). The government can assert its interests: it’s required to receive notice and it can intervene if it chooses. Thus, the false marking qui tam claim was dismissed with prejudice.

Champion’s Lanham Act and state law claims alleged an attempt to suppress competition through false and misleading patent claims about the replacement filter that were likely to cause consumer confusion. Champion also alleged as a basis of state law liability that Parker changed the filtration system to prevent competitors’ use of noninfringing replacement filters, incorporating meaningless features in order to suppress competition.

Parker argued that these claims were precluded because they were predicated on barred false marking claims. The court agreed that, to the extent that the claims were predicated only on false marking of the filters, they were preempted. It’s not enough to allege intentional or knowing false marking. The allegations that Parker incorporated a nonessential plastic structure into its filter design to "thwart competition from Champion's competing replacement filter" were also not specific enough under Iqbal and fell short of alleging “marketplace bad faith,” an additional element that avoids preemption.

The Lanham Act claim was also insufficient. Champion argued that it alleged that Parker wrongfully claimed patent rights through product packaging and other promotional material, but these allegations were conclusory and unclear; the alleged ad was apparently found inside the filter package and Champion didn’t explain how the consumer viewed the ad or how it impacted consumer choice. Also, the allegations relied solely on the alleged false marking, nothing more. They didn’t meet Iqbal’s standard for pleading facts instead of labels.

The non-false marking claims were dismissed with leave to amend to explain its claims with greater particularity.

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