Seller can claim patent infringement and product inferiority without self-contradiction

Implant Direct Sybron Intern. v. Zest IP Holdings, LLC, 2012 WL 1969292 (S.D. Cal.)

Zest sued Implant for patent infringement in an ongoing case whose Markman hearing had already occurred.  Implant sued Zest for false advertising and related claims, alleging that Zest’s ads: (1) misrepresented the nature of its patent infringement lawsuit against Implant Direct; (2) misrepresented the capabilities of Implant Direct's product; and (3) contained unauthorized depictions of Implant Direct's product.  Zest moved to dismiss.

Implant argued that it was false for Zest to accuse it of patent infringement while also advertising that Zest’s product had unique patented features not possessed by Implant’s product.  (The court didn’t like that Implant only attached ads to the complaint and didn’t identify the specific deceptive statements, but figured that Implant meant “Beware of other ‘look-alike’ products--they do NOT have the unique innovations provided by the Zest patented product. The ‘look-alike’ products do not have the Zest pivoting technology ….”)  The court had two problems with this argument.  First, the ad itself didn’t say anything about the patent infringement lawsuit, so wasn’t itself false or misleading.  Second, patent infringement turns on the claims of a patent, not structure or function, so it wasn’t inherently inconsistent to claim both that Implant infringed and that its product didn’t contain all of Zest’s innovations.

There was another statement in the ad of relevance: “IMPORTANT NOTICE: Dear valued customers of the ZEST LOCATOR Attachment System who currently purchase from Attachments International and Sybron Dental Specialties affiliated businesses. Please note that due to pending legal action, we are terminating our distribution agreement with Attachments International and Sybron Dental Specialties affiliated businesses effective May 4, 2011.”  Implant said this was false because Impant didn’t cause Zest to end its distribution agreement.  The court didn’t get the argument.  The ad didn’t say anything about the particulars of the pending legal action, including who sued whom or what the nature of the lawsuit was; it didn’t mention Implant, much less blame it.

To the extent the complaint could be read to allege that Zest falsely advertised the scope of its patent, creating the false impression that it couldn’t be designed around, its allegations were too conclusory.  Thus the Lanham Act claim was dismissed, as was the state law false advertising claim.

Implant also brought unfair competition claims based on Zest’s use of Implant’s marks/products in comparative ads that used side-by-side images of the parties’ products; Implant alleged that the use of its marks traded on its goodwill and misled the public.  The court found these allegations “plainly incongruent” with the ads.  The ads used Implant’s trademark, but only to identify and distinguish its product from Zest’s, and always with a TM and an attribution to Implant at the bottom.  “It can't possibly be said that, in light of this, Zest is trading on ‘the good will associated with the Implant Direct products’ or that there is a likelihood of the products being confused.”

The court turned to Implant’s claims for trade libel and product disparagement, starting with the “due to pending legal action” statement above, which the court had already found not to adequately allege falsity.  The other statements were comparative ones saying that Zest’s product had specific superior features, but Implant didn’t explain why the statements were false.  The court dismissed with leave to amend (except for the TM infringement claims, as to which amendment would be futile), and told Implant to do a “much better job” of specifically identifying what was false or misleading.