Friday, April 14, 2017

Lack of damages dooms false marking, advertising claims

Gravelle v. Kaba Ilco Corp., 2017 WL 1349278, No. 2016-2318 (Fed. Cir. Apr. 12, 2017)

Gravelle sued his competitor Kaba for falsely marking its key-cutting machines as “patent pending” for a time, as Kaba eventually admitted, and sought monetary relief under the Patent Act, the Lanham Act, and North Carolina’s Unfair and Deceptive Practices Act.

In April 2015, Gravelle sold the rights to his key-cutting machine to Hudson Lock LLC which sold “between 50 and 85” RapidKey 7000 machines over a year and spent “probably ... $30,000 in advertising.” Kaba’s competing machine had two features, “automatic blade detection” and “automatic calibration,” marked as “patent pending,” although no patent application for those features was ever filed. Kaba sold 687 EZ Code machines between 2008 and 2015, continuing to use the false marking through at least September 10, 2013.

In order to sue under the false marking statute, a plaintiff must have “suffered a competitive injury as a result of a violation” of the marking statute. The court of appeals found that the district court correctly concluded that Gravelle did not put forth sufficient evidence to connect the decline in his sales to Kaba’s false marking of its machine as “patent pending.”  Gravelle claimed that he was “forced” to sell his rights to Hudson for $20,000, representing a loss of the value in the absence of Kaba’s false marking. Again, his evidence—his own estimate—was too speculative.  “Gravelle has advanced no evidence that he was deterred from introducing or continuing to market a product similar to Kaba’s falsely marked one or from engaging in innovation in the field of Kaba’s product, or that he incurred costs in designing around the features Kaba marked as subject to a pending patent.”  Gravelle claimed that the features “automatic blade detection” and “automatic calibration” were “highly desirable within the small locksmith community, at large, to the extent that same could readily influence a buyer[’]s purchasing decision.” But that was “too speculative and unexplained an assertion to support the causal proposition, which is anything but obvious, that buyers actually purchased the ‘patent pending’ machines over Gravelle’s machines.”  Further, no reasonable juror could find that Gravelle’s testimony was sufficient to show that the reason Hudson spent $30,000 advertising for a product it believed would generate $2 million in annual profits was that the expenditure was necessary to overcome Kaba’s false marking.

This same problem prevented success on Lanham Act false advertising claims.  Gravelle didn’t argue for a presumption of injury due to direct competition in the district court, and anyway this case didn’t involve a two-player market.  Though disgorgement is an available remedy under the Lanham Act, liability still depends on showing proximately caused harm.  So too with the state-law claim.

The court of appeals remanded for further fact-finding on the award of fees to Kaba.  The district court found that Gravelle’s case for injury causation was frivolous. Though no reasonable jury could find sufficient evidence of injury, “the question of whether the evidence crossed the triable-issue threshold was a closer one than the district court concluded. It is not implausible that in some markets a number of potential customers, choosing between two similar machines, one marked ‘patent pending’ and the other not, will buy the marked one because they think that buying the unmarked one exposes them to the risk of later infringing a patent of the seller of the marked one.”  Gravelle didn’t point to enough evidence that this would actually occur for this particular market.  But frivolousness focuses on “what a litigant could reasonably believe would constitute sufficient evidence to allow a reasonable inference of harm caused by the false marking.”  On this question, more findings were required than the district court provided.  Gravelle, a pro se plaintiff, was deeply involved in the relevant market, and he offered his own opinion that customers “could” be influenced by a “patent pending” marking. “[I]t is not clear that a person in Gravelle’s position should be charged with understanding that merely possible influence (‘could’) is inadequate and that ‘influence’ cannot be asserted in a wholly general manner, but must be supported by evidence, whether from customers or others, concretely showing how customers would have been influenced by a marking in the specific market.” The district court was thus ordered to reconsider the fee award.

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