Tuesday, August 28, 2012

If you are being nasty, is it more likely you are being false?

TASER Intern., Inc. v. Stinger Systems, 2012 WL 3598267 (D. Nev.)

Another opinion from the apparently vicious battle between Taser and a competitor.  Individual defendant McNulty moved for partial summary judgment on some of the claims against him.  Stinger issued press releases in January 2008 about Stinger’s patent reexamination request.  McNulty argued that Taser hadn’t been able to show falsity; Taser said that it did, and that in the alternative “truthfulness is not a defense to a Lanham Act unfair competition claim.”  (I’m just going to interpret that as “misleading statements are actionable too,” argh.)

The first January press release was “Stinger Systems Request Reexamination of Taser International's Intellectual Property,” subheaded “Large Portion of Taser's Intellectual Property in Jeopardy.”  It stated that the PTO was “currently evaluating whether to reexamine” a Taser patent based on Stinger’s obviousness challenge.  The release claimed that the consequence of Stinger’s then-pending lawsuit against Taser would be to invalidate the relevant patent family on unequitable conduct grounds.  It ended with a lengthy quote attributed to McNulty offering his opinion that TASER “has not done a proper job of filing these patents” and that the “the financial markets are under the misimpression that Taser International has a patent monopoly on projectile stun guns.”  The second press release defended the first against charges that the first was misleading and the ensuing stock sell-off as “an overreaction.” McNulty’s quote this time urged analysts to investigate TASER's conduct and described the patent reexamination request as “quite serious.”  The third described the statistical likelihood that patent reexamination requests cancel or amend claims and quoted Stinger’s CEO as saying that “most law enforcement agencies that Stinger personnel have called on strongly prefer the Stinger [product] over the Taser X26.”  “The release also cited Stinger's lawsuit charging TASER with inequitable conduct, and again implied that the family of TASER patents were at risk of invalidation.”

McNulty argued that the statements were true.  He submitted that 94% of reexamination requests are opened and, of those, 76% of reexaminations result in claims being narrowed or cancelled.  As a result, there was a strong likelihood that Taser’s patent would have been narrowed or cancelled.  Moreover, Taser admitted that one model embodied at least one invention claimed in the relevant patent, allegedly jeopardizing the patent (this discussion is unclear on timing, but it seems that the model came before the patent, at least if you accept McNulty’s argument about continuances).  And, since a finding of inequitable conduct can invalidate a patent family, he argued, three total patents were at risk of invalidation.

None of this showed as a matter of law that the press releases were true or not misleading.  “[I]t is plainly true that a reader of the three releases at issue here would believe that TASER was on the brink of a serious collapse.”  E.g., the releases said that Taser’s intellectual property is “in jeopardy,” that Taser’s patents “may all be invalidated if Stinger's argument in the case prevails,” that Taser’s patents “are extremely narrow (and in some cases even farcical),” that Taser was “feeding” misinformation to the financial markets, that Taser’s chair could only know Stinger’s current sales pipeline if he violated security regulations and announced insider information, that “[M]any departments currently using Tasers have expressed interest in trading them in for Stingers,” etc.  “This information encompassed in releases issued in a span of three days could reasonably lead a reader to the conclusion that TASER is in serious danger. Thus the Lanham Act analysis must begin with the premise that the releases, regardless of their veracity, paint a dire picture for TASER.”

The literal truth of some of the statements—Singer did file a patent reexamination request—was not dispositive.  Stinger initially failed to meet filing requirements until March 2008, and in May the PTO denied the request for failing to establish any “substantial new question of patentability.” Thus, the reexamination request was apparently not “quite serious” in nature, and Taser’s allegation that the request was filed merely to facilitate the issuance of the press releases was consistent with its allegation that the Stinger lawsuit was filed for the same purpose.

Further, McNulty didn’t meet his burden of showing that the reexamination statistics in the releases were accurate—they appeared to be based on old data (compare Millenium Import Co. v. Sidney Frank Importing Co., 2004 U.S. Dist. LEXIS 11871 (D. Minn. June 11, 2004), finding reliance on old data legitimate) and were “deployed in the releases in a manner that would mislead a reader into believing that it is all but a foregone conclusion that TASER's patents will be rendered invalid.” 

The overall derogatory context mattered: Even if the statistics were true, putting them alongside claims about Taser’s inequitable conduct, quotes about Stinger’s superior products, and Taser’s poor corporate governance “all support a Lanham Act unfair competition claim.”  Likewise, even if the patent at issue claimed an embodiment that already existed, “a consumer would understand the release as jeopardizing much of TASER's patent portfolio,” especially since the releases referred to a cancelled Taser patent for a nonlethal landmine and a patent “at risk of cancellation” for nonpayment of fees, both seemingly unrelated to the patent reexamination request.  Misleadingness was for a jury to resolve.

McNulty also sought partial summary judgment about a January 2008 press release from Bestex.  Taser alleged that the Bestex release came from McNulty’s attempts to “broker a fraudulent relationship between Bestex and LEA [another company] in an effort to portray the two companies as entering in a business relationship, all with an eye toward pushing the value of the companies up and damaging TASER's stock.”  LEA rejected McNulty’s advances, but the Bestex release allegedly misleadingly implied that discussions were ongoing, almost a year later.  The release announced that Bestex would sell new stun guns to compete against Taser, “for a fraction of the cost.”  Bestex’s CEO attacked a recent Taser press release for including “absolutely false and misleading statements” and “absolutely outrageous and unprecedented” statements. Specifically, the release labeled Taser’s statements that Bestex had exited the stun gun market as false.  (I’m missing something about how this brings LEA in, but there was apparently something in there as well.)

McNulty argued that the press release could have related to more recent discussions; deposition testimony from Feldman, representing LEA, suggested that it was a “possibility” that there were discussions in early 2008.  There was also a recorded conversation between Feldman and McNulty (allegedly acting for Bestex) where Feldman said that the press release was true, even if the timeline “isn’t really exact.”  The court found that there were genuine issues of material fact.  The deposition was inconclusive, since Feldman couldn’t recall timing and other evidence suggested that the discussions might have ended much earlier.  And the recorded conversation was “irrelevant” to whether the Bestex release was true or false, since it occurred after the Bestex release was issued. (Does this mean it can be excluded?  Somehow I doubt it.)  “To the extent that the transcript discusses prior Bestex and LEA negotiations, it is inconclusive as to when those discussions occurred,” though the court gave “some weight” to Feldman’s representations that he believed the Bestex release was true.

Anyway, there was a question of fact as to misleadingness.  The same recorded conversation indicated that customers called LEA as a result of the press release, believing that LEA was immediately entering the market.  The Bestex release “also includes various attacks against TASER, including that it should be ‘embarrassed and ashamed’ to mention a case it had lost and that TASER's conduct was ordered unethical and ‘highly suspect.’”  (I’m not sure why that makes it more plausible to the relevant consumers that LEA and Bestex were working together, but ok.) In context, the release could be misleading.

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