Patent infringement claim not false advertising to sophisticated consumers

Carpenter Technology Corp. v. Allegheny Technologies Inc., 2011 WL 3652447 (E.D. Pa.)

The parties compete to sell specialty alloy ingots. ATI sent letters to Carpenter, another competitor, and Carpenter customers/potential customers (one was GE) claiming patent rights in certain alloy ingots. Carpenter then entered into an indemnification agreement with its customers. It also sued for false advertising. (As you’d expect, there are also patent claims, but they aren’t addressed in this opinion except as necessary to deal with the false advertising claims.)

Carpenter argued that ATI lacked valid patent rights at the time the letters were sent, and knew its patent was invalid. The court didn’t agree. ATI held an issued patent, which is presumed valid until a court rules otherwise. Moreover, the evidence didn’t show deception (required because there was no literal falsity); GE thought the patents were invalid. “GE knew the state of the patent when it received the ATI letters and chose to proceed in its business with Carpenter regardless of the letters' contents.” The other purchaser reacted similarly. The court said that deception is closely related to materiality; it’s really talking about materiality, and clarifies this immediately. GE insisted that Carpenter finish and deliver potentially infringing ingots. The other customer also had discussed the issue and continued to buy the ingots for at least two more years. Thus, there was no deception. (In theory, the extra cost of indemnification could count as a harm to Carpenter, but given the parties’ sophistication this may have occurred no matter what.)

In a Lanham Act case based on false patent claims, the plaintiff has to show defendant’s objective and subjective bad faith in claiming patent infringement. Carpenter couldn’t show that ATI’s assertions were objectively baseless, because ATI owned a valid patent. This seems to imply that ATI can’t be sued even if it knew that the patent had been issued in error or even if it knew that the patent didn’t cover the plaintiff’s activities. The subjective component requires a showing “that ATI knew its claims were baseless when it sent its letters,” which could occur even with an issued patent. I don’t think that a non-invalidated patent covers any and all assertions a patentee wants to make, regardless of the actual facts; that said, it may allow a lot of ground for uncertain assertions.