Patent noninfringement claims lead to falsity finding

Optigen, LLC v. International Genetics, Inc., 2012 WL 2574805 (N.D.N.Y.)

Optigen, which provides DNA-based diagnostic services to test for inherited diseases in dogs, sued defendants for patent infringement as well as false advertising/unfair competition.  Defendant Dobbins founded defendant PinPoint, which offered DNA testing for dogs and cats and allegedly infringed Optigen’s patents.  It stopped operating and then Dobbins established defendant InGen in the Bahamas.  InGen purchased PinPoint’s assets, including its Pawsitive I.D. trademark, database, and domain names. InGen’s website stated, “InGen now offers the test for ... [ ]PRCD[ ] that [Defendant] PinPoint was forced to withdraw in April 2008 due to patent issues.... [Defendant] InGen does not have these issues and has recommended the testing for this eye disease.’”  Other statements include: “[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 that the price of the test increased “from $49.95 to $75.00” because, “[i]n order to legally offer some of [InGen's] genetic tests, [the company] needed to build a laboratory in The Bahamas[, which] has added many expenses to [the company's] product.”  InGen’s website has a Q&A column “acknowledging that [Defendant] InGen's services would amount to patent infringement if offered in the United States, Canada and/or European Union,” and InGen advertised in the US and offered the service to US customers, who made up approximately 80-85% of its customer base.  InGen, in fact, had no employees in the Bahamas; its business was mostly conducted from Georgia, though its website’s server was in the Bahamas.

The court denied Optigen’s motion for partial summary judgment on its patent infringement claims, but partially granted its motion on the false advertising claims.  Optigen alleged that InGen and Dobbins misrepresented that (1) InGen operated/was headquartered in the Bahamas; (2) all its business was transacted offshore, so therefore any transaction was outside any jurisdiction covered by any patent; (3) the patents “were never filed in The Bahamas and therefore it is perfectly legal and ethical to use the scientific processes in the Bahamian jurisdiction”; and (4) “PinPoint, as a company, is no longer involved with [Defendant] InGen.”

The court found that the first statement about where InGen and Dobbins operated didn’t relate to  “an inherent or material quality of the product.”

The statement that PinPoint was no longer involved with InGen gave rise to a false designation of origin claim.  There was a genuine dispute of material fact on literal falsity, given the details of the asset transfer.  It was therefore possible that “an appreciable number of ordinary prudent purchasers [could] be misled, or indeed simply confused” as to whether the services for which they have paid were provided by PinPoint or InGen.  (Why did Optigen have standing to raise this claim?  Shouldn’t we also be asking about materiality?  Why would consumers care about this misstatement, if it is such?  Optigen certainly isn’t claiming that PinPoint had goodwill that InGen misappropriated!  Once again, the unjustified TM/false advertising divide creates weird results.)

The other statements were literally false.  As for (2), when a customer buys a test from InGen, at least part of the transaction takes place in the US.  On (3), which I would have thought covered by the general rule that nonlawyers' statements about legality are rarely if ever actionable because they are statements of opinion rather than fact, the court found that whether the defendants’ testing methods practice all the claims of Optigen’s patents was a disputed factual issue.  Because defendants weren’t insulated from patent liability, statements to customers “purporting to conclude that its business operations are legal ‘conflict[ed] with reality.’”  (I also don’t know why this is false as opposed to potentially false, if and only if defendants lose the patent claim, since the reason for noninfringement isn't likely to matter, though if there is patent infringement I see the argument for materiality even if the customers are never at risk of being sued—people might well feel different about enabling lawbreaking v. taking advantage of territorial rules.)

Interesting side note: the court also denied summary judgment on the state-law unfair competition claims, which required unauthorized reproduction and distribution of Optigen’s work, because it had denied summary judgment on the patent claims.  Patent preemption isn’t my field, but why isn’t this claim preempted?