Disparagement to suppliers doesn't trigger Lanham Act

Neonatal Product Group, Inc. v. Shields, No. 13–CV–2601, 2014 WL 6685477 (D. Kan. Nov. 26, 2014)

This is largely a patent case, in which defendants threatened Neonatal (dba Creche) with a lawsuit for patent infringement.  Creche sought a declaratory judgment of noninfringement, as well as making affirmative claims against defendant Janice Shields, individually, for false advertising and tortious interference with a business relationship.

Creche makes and sells products used to care for newborn infants in hospital neonatal units.  Shields and Paul Shields patented a “Neonatal Substrate Warmer” and granted Creche an exclusive 20–year license (governed by Kansas law) to use the patent. Defendants are in California.  After more than six years, Creche allegedly determined that its products weren’t covered by the patent and stopped making royalty payments.  Negotiations were unsuccessful.  In November 2013, Shields sent an e-mail to a supplier of plaintiff’s product:

[I] wanted to warn you that there will more than likely be a ‘Cease and Desist’ letter to you from my lawyers to not supply bags to Creche. [Creche is] still selling my warmer and refusing to pay me royalties on it. That means all suppliers will have to stop selling to Creche until the case is a[d]judicated. * * *

I will be making the bags and selling them too. I have the only patent on the bags you supply. * * *

Creche is most obviously using my patent, and they will not win in court.

This lawsuit followed.  The first issue was personal jurisdiction, since warning letters and negotiations for a license can’t, without more, support personal jurisdiction in an action for a declaratory judgment of patent invalidity and noninfringement.  The court determined that the preexisting license agreement provided the necessary “more,” establishing personal jurisdiction.  This also provided pendent jurisdiction over the nonpatent claims because they formed part of the same case or controversy.

On failure to state a claim, I didn’t know this but the Federal Circuit takes the position that the Forms in the Federal Rules of Civil Procedure create different pleading requirements for patent infringement (and thus noninfringement) claims and override/supplant Iqbal and Twombly.  (Is that ok or just another Federal Circuit underruling of the Supreme Court?)  Thus, alleging that Creche’s products didn’t infringe and that it sought a declaration of noninfringement was sufficient.  However, Twiqbal did apply to the declaratory claim for invalidity, and they’d need to replead with facts to pass.  (The court here rejected the reasoning of a different court that a request to declare a patent invalid is really an affirmative defense to a potential infringement suit, not an independent claim, and that Iqbal and Twombly do not apply to affirmative defenses.)

False advertising: The court found that Creche failed to allege commercial advertising or promotion.  There were only two communications alleged: First, the email to one of Creche’s suppliers (not customers), which was not disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion.  Second, Creche alleged damages in the form of lost business from a potential partner that Shields convinced not to work with Creche until it obtained a license. Again, there was no allegation that this threat reached any members of the purchasing public.

Tortious interference: Creche alleged that the supplier email and discouragement of a potential partner was tortious interference, along with attempting to file a “specious trademark application” knowing of Creche’s marks.  However, Creche never alleged that the relationship with the supplier was actually disrupted, a necessary element.  Nor did the trademark allegations explain how this damaged an existing business relationship.  As for the potential partner, Creche didn’t properly allege a probable expectancy of business; “potential” isn’t enough.