An actual jury verdict favoring plaintiff in false advertising case based on false patent claims

Hillman Group, Inc. v. Minute Key Inc., No. 13-cv-00707, 2018 WL 1532526 (S.D. Ohio Mar. 29, 2018)

Here's a reminder that meaningless macho banter about the competition can come back to haunt you.  The parties compete in the self-service, automatic key duplication industry. Hillman initially sued Minute Key, seeking a declaratory judgment of non-infringement and invalidity of U.S. Patent No. 8,532,809; Minute Key provided Hillman with a covenant not to sue, but Hillman’s claims under the Lanham Act/Ohio Deceptive Trade Practices Act continued based on allegedly false and misleading representations of patent infringement to Walmart, the parties’ mutual customer for key duplication machines.  A jury trial resulted in a verdict in favor of Hillman. 

Minute Key sought to overturn that verdict, arguing that Hillman needed to demonstrate that its statements were “objectively baseless” as part of the bad-faith requirement applied to false advertising claims based on patent rights assertions. Minute Key argued that Hillman could not establish objective baselessness without first proving that its kiosk didn’t infringe the patent, which would have required pretrial claim construction by the court, which didn’t happen.  The court agreed with Hillman that claim construction was unnecessary when the claim terms— “fully-automatic” and “fully automatic”—were clear on their face.  Indeed, Minute Key had repeatedly claimed in its marketing materials that its product was fully automatic and Hillman’s was not, and also a central MK witness agreed that the marketing materials used the term synonymously with the patent. 

The jury found that Hillman proved by clear and convincing evidence that Minute Key knew that Hillman’s FastKey kiosk did not infringe the ’809 patent but nonetheless represented to Walmart that it did. The court instructed the jury that bad faith could be found in a clear case of knowledge of noninfringement, or by showing that the claim was objectively baseless and subjectively made as an attempt to interfere with Hillman’s business relationship with Walmart. The jury was also instructed that a patent can’t be infringed if even a single claim element is missing in an accused infringing product.  The court instructed the jury to give “fully automatic” its plain meaning, but noted that the jury wasn’t being asked to decide whether the Hillman kiosk infringed.  The instructions also stated that “A patent holder is even allowed to make representations that turn out to be false or misleading as long as the representations are not made in bad faith.”

 

A reasonable jury could have found bad faith by clear and convincing evidence. MK’s internal discussions distinguished its “fully automated” kiosks from those of Hillman, a distinction it considered of “High” importance.  The same day the CEO told a board member that he was “[t]hinking about raising the patent card” with Walmart, MK told Walmart that its kiosk was the “first and only fully automated, self-service key duplication machine,” a statement repeated in direct comparisons with Hillman in marketing behavior. Though MK engaged a patent attorney to conduct an infringement analysis before telling Walmart about potential infringement, it produced a chart that showed “‘blank’ or ‘zero’ entries in the chart next to the preamble to the claims that embody the parties’ claim construction dispute.” Moreover, MK never provided any of the marketing documents to the attorney. “The absent patent attorney in this case, whom Minute Key curiously did not bring to trial, cannot save Minute Key on the question of bad faith.”

The subjective component of bad faith was also supported by the record.  After learning that MK would be required to compete against Hillman in a head-to-head competition for Walmart, a board member/investor asked the CEO “if there is any way we can use the patent application to create some FUD [fear, uncertainty, and doubt] with Walmart re Hillman.” Fagundo testified at trial that “FUD” is an acronym for “fear, uncertainty, and doubt.”  Once MK learned it lost the head-to-head pilot, the CEO emailed that he was “[t]hinking about raising the patent card.”  And here’s the bad stuff that almost always shows up in discovery:

“Fuck Hillman, they don’t know they are messing with a pirate.” (the CEO); “Ha…love it. Always need a competitor and we will whack them in time[;]” and “Need to whack them now!” (the CEO). After this civil action commenced, “I’m pissed. I don’t want to win at the kiosk level – I really want to hurt them – badly.” (to the CEO); and “We are and will continue. If we were not they would not be fucking with us. Go to bed please;).” Further, MK’s remarks surrounding the patent infringement allegation were “glib,” e.g., “Let the fun begin” and “Interesting developments at WalMart. They appear to [be] taking the patent infringement letter very seriously[.]...It’s getting exciting!” (the CEO).

A reasonable jury could also have found literal falsity, given the absence of a need to engage in claim construction, and given that the phrase “it appears” in the letter MK sent to Walmart needed to be interpreted in context.  That message, “examined as a whole, is not equivocal in nature, and the jury reasonably could read it to state the fact that Hillman is a patent infringer.”  In the alternative, a reasonable jury could have found that Walmart was actually deceived and that it influenced Walmart’s purchase decisions.

Walmart’s Senior Manager for Home Services denied that MK’s allegation of patent infringement “brought everything to a halt.” Rather, “it was considered that Hillman was going to file a countersuit, which then complicated things.”  However, this testimony failed to account for that manager’s contemporaneous directive, sent soon after he received MK’s message: “Due to the upcoming issuance of the MinuteKey Patent that will occur on Tuesday and the cease order that will be issued to the Hillman Group (FastKey) we will be using the MinuteKey Program for all stores asking for the self-assisted key cutting kiosk.” All that was necessary was proof that “the statement is material in that it will likely influence the deceived consumer’s purchasing decisions,” and this email sufficiently demonstrated this likelihood. Likewise, delaying Hillman’s exercise of a contractual right to install kiosks in the relevant time period, and denying Hillman (as well as its customer, Walmart) the revenue expected during that time period, qualified as a “change” to the original purchasing decision.  A reasonable jury could have believed the manager’s contemporaneous statements over his after-the-fact testimony.

In addition, a reasonable jury could have found “commercial advertising or promotion.” This requires dissemination either widely enough “to the relevant purchasing public” or “to a substantial portion of the plaintiff’s or defendant’s existing customer or client base.” Here, the proper customer “base” was the market for self-service key duplication kiosks and not key duplication equipment generally. “Statements to a single customer can trigger the protections of the Lanham Act ‘if the market at issue is very small and discrete,’ but it was for the jury to decide whether the market at issue in this civil action was properly limited to Walmart.” The evidence allowed this conclusion, even though Home Depot, Lowe’s, Orchard Supply, Meijer, and Menards were also allegedly in the market. There was testimony “that virtually every FastKey ever built was and has always been in Walmart stores,” that, out of “a thousand and twenty” FastKeys ever built, “a thousand” were in Walmart stores, and that Walmart was “100 percent of [Hillman’s] focus” for self-service key duplication.

The test for commercial advertising or promotion can focus on an “existing” customer base, and doesn’t have to include a “potential, possible, or even once-contemplated customer base.” No retailers besides Walmart invited a 100-store to 100-store, head-to-head competition between Hillman and MK; the jury could reasonably find in Hillman’s favor.

Similarly, a reasonable jury could have found causation and harm based on the rollout freeze on installing kiosks. The jury awarded $164,072 in damages, which was half of the amount computed by Hillman’s witness regarding the freeze in installation in different Walmart stores brought about by the patent threat. The court thought this was likely related to the testimony that Walmart had put a holiday installation blackout in place for half the time covered; the jury also declined to award damages because of lost placement of kiosks beyond the initial 1000 awarded by Walmart. The award wasn’t speculative so the court left it alone.