Wednesday, August 28, 2013

"always lit" not plausibly material for Christmas lights

Marvellous Day Electric (S.Z.) Co. v. Ace Hardware Corp., No. 11 C 8756 (N.D. Ill. Aug. 27, 2013)

Previous discussion, wherein the court dismissed Marvellous Day’s claims except for its design patent infringement claim, which remains on hold pending reexamination.  Repleading didn’t help.

Marvellous Day makes LED string lights under a design patent it owns.  Initially, MD sold its lights to defendant HBL, which imported them into the US.  HBL sold the lights to Ace, which sold them to retail customers.  In 2011, HBL switched to another manufacturer, causing Ace to switch.  Along with design patent infringement and false marking, MD alleged that HBL and Ace violated the Illinois Consumer Fraud Act (CFA) and Illinois Unfair and Deceptive Trade Practices Act (UDTPA) by using a photograph of Marvellous Day’s Christmas lights in ads for the infringing lights and by using the terms “patented” and “always lit” to describe the infringing lights.

First the court found that the false patent marking allegations failed to state a plausible claim.  MD alleged that Ace continued to advertise its Christmas lights as having the “Patented T5 LED bulb” actually exclusive to MD, in order to deceive consumers into thinking they were still getting the same product.  The statute states in relevant part:

Whoever, without the consent of the patentee, . . . uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, . . . the name or any imitation of the name of the patentee, the patent number, or the words “patent,” “patentee,” or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee . . . Shall be fined not more than $500 for every such offense.

Violations have to be pleaded with particularity.  Here, MD didn’t plausibly allege “that by describing its Christmas lights as ‘patented,’ Ace intended to deceive consumers into believing that Marvellous Day was the manufacturer.”  (Yeah, false marking seems like a pretty dead letter now, except maybe in certain counterfeiting cases (despite the disjunctive “or”).)  There needs to be some objective reason to infer that by using the word “patented,” Ace intended to deceive the public into believing that its Christmas lights were still produced by MD.  

There were no allegations that would support an inference that “patented” would conjure any association with MD in consumers’ minds; the PTO has issued millions of patents over the years.  MD alleged that, because Ace first used the term to describe Marvellous Day’s Christmas lights, its continued use of the term was intended to deceive consumers into believing that nothing had changed.  But this was implausible: MD itself argued that Ace used the term “in order to communicate to consumers that the T5 LED light string product was superior to other light string products.”  This was the opposite of an intent to counterfeit.  A motive to make products seem innovative doesn’t suggest a motive to have consumers believe the products were authorized by MD. The law required more than an intent to deceive consumers about the patent status of the product: it required MD to show that Ace intended to deceive consumers into believing that the Christmas lights were manufactured by MD.  Using “patented” wouldn’t plausibly do that.  The complaint didn’t allege that any consumers actually associated the unique and novel ornamentality of MD’s lights with MD as a single source.  Possibly something like “Still the Same Patented Design” or “Patented and Unchanged” would have qualified.

The state law claims also failed.  The court rejected the argument that the parties needed to be competitors to allow a claim—these laws weren’t identical to the Lanham Act.  Nor did the court buy that there could be no claim because the defendants didn’t intend for MD to rely on any deceptive act or practice.  The Illinois courts have recognized that victims of disparagement and other commercial plaintiffs can bring CFA claims, even though the defendant’s intent was for third party consumers to rely on the deceptive statement.  Allowing a plaintiff damaged by a defendant’s attempted deception to sue furthered the broad remedial purposes of the CFA.

However, MD didn’t adequately allege materiality, and here things get a little weird.  Materiality looks to whether a reasonable person would be expected to rely on a matter in making a purchase decision.  MD failed plausibly to plead the materiality of “patented,” which is a standard result.  MD alleged that “patented” was material “because consumers would prefer a product being claimed to have superior patented design qualities and consumers would associate the product and its source with such patented bulb shape and design qualities.”  That wasn’t enough to plead facts sufficient to support an inference of materiality.  (Here we have a normative disagreement on what constitutes a “fact”—MD is pleading a fact about consumer psychology; the court just doesn’t believe it and wants further supporting “facts.”)  The possibility that a patent would make a product seem higher-quality wasn’t enough for plausibility.

This is where I’m surprised: the court found that the claims related to “always lit” suffered the same defect.  The court initially wanted “qualitative, quantitative, or even anecdotal evidence that might provide some basis to support its conclusory claim that the ‘always lit’ phrase is material to consumer purchasing decisions.”  I don’t know why logical inference wouldn’t suffice: consumers want Christmas lights for decorative purposes; burnt-out/unlit bulbs look bad; therefore features that makes it easier to deal with a burnt-out bulb would seem material.  This is the magic of common sense: courts always demand more evidence for things that they don’t think are true (though I don’t know why the court is skeptical here, other than bleedthrough from the other claims) and don’t notice when they find logical inference sufficient for materiality in claims like “this product will improve your health!” 
Anyway, MD didn’t plead real facts, just alleged that consumers preferred their Christmas lights to have this feature and that they understood that it meant that if an individual bulb in a string was burned out the rest would remain lit and the bulb could be replaced without turning off the remaining lights.  This didn’t add any “factual information,” whether qualitative, quantitative, or anecdotal.  “To say that a characteristic is material because consumers prefer products with that characteristic is a tautology; it provides no basis to assess the plausibility of the major premise.”  Moreover, “a claim about what ‘consumers’ understand a term to mean cannot be taken at face value; it requires some factual foundation.”  (What would “qualitative” evidence be?  A dictionary definition of “always lit”?  Pleading that experts in the field consider this feature important?)  The judge’s common sense, under Iqbal/Twombly, routinely fills in these gaps—so it’s very important to know what seems like common sense to an Article III judge.  The court noted that it was required to use experience and common sense in assessing plausibility, but couldn’t do so here without “factual information” about what consumers understand the term “always lit” to mean.

Finally, MD’s allegations about Ace’s use of a photo of MD’s bulbs in ads for non-MD bulbs failed for the same reason.  MD alleged that the photos sold replaceable bulbs but that Ace actually sold lights without replaceable bulbs.  But it failed to allege facts sufficient to show that replaceability was material.  And it was also implausible to believe that consumers would recognize the bulbs in the photo as MD’s or that, even if they did, that increased the likelihood of purchase.

Similarly, MD didn’t sufficiently allege causation.  MD alleged that defendants’ deceptive conduct caused consumers to buy competing lights, diminishing the demand for its own lights.  It also alleged that its US sales dropped 65% during the period of wrongful conduct.  This wasn’t enough, because the complaint didn’t allege facts from which one could plausibly infer that the drop in sales reflected consumer deception, rather than defendants’ shift to another supplier.  That loss could’ve occurred whether or not defendants engaged in wrongful conduct, and mere consistency with liability isn’t enough to plead plausibility.  The UDTPA claims failed for the same reasons.

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