Monday, June 25, 2018

false patent marking doesn't presumptively cause injury even in 2-player market

John Bean Technologies Corp. v. Morris & Assoc., Inc., No. 15-CV-02211, 2018 WL 3039734 (W.D. Ark. Jun. 19, 2018)

JBT’s predecessor asserted Patent Act false marking claims, Lanham Act false advertising claims, and various North Carolina and Arkansas State law claims against Morris, its sole competitor in selling auger chillers to poultry processors in the United States. An auger chiller takes chicken carcasses in the middle stages of the butchering process and cools them to prevent contamination.  Cold water runs from the far end to the receiving end and the auger slowly rotates on a shaft, driving the chickens against this current to the far end of the tank, where they enter the next stage of the processing line. These are expensive and durable machines; sales are therefore rare and lucrative.  

Morris uses vertical openings in the auger blades of its chiller to increase the flow of water (a desirable feature) and advertised its chiller as patented (the ’529 patent). JBT’s chiller also had openings for water in the blades, though its didn’t run to the edge of the blade as Morris’s did.

Morris’s website advertised that its auger chiller was patented. It also included caricatures of the parties’ chillers (JBT’s recognizable from the openings in the auger blades) and a statement that “In other systems, water circulates only around the shaft and through a narrow gap between the auger flights and the tank wall.” JBT alleged that the openings on the caricature were disproportionately small compared to their size on an actual JBT chiller, and that the image plus the statement about water flow in “other systems” were literally false comparative ads.

The false marking claims failed because JBT couldn’t show competitive injury, as is now required:

If an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market. False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement. False marking can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete.

JBT argued that competitive injury necessarily occurred from false marking in a two-player market because Morris’s auger chillers gained value from being marked as patented, causing the value of JBT’s chillers to decrease. In addition, JBT argued that its reputation and goodwill with a customer were injured when the customer declined to purchase a JBT auger chiller with openings because Morris’s auger chillers were marked as patented, but subsequently asked JBT to retrofit the auger chiller with openings.

The two-player market supported a rebuttable presumption of economic injury in false advertising cases where a two-player market necessarily makes ads comparative. But such a presumption was inappropriate for false marking, given that the Patent Act now affirmatively requires a plaintiff to demonstrate competitive injury as part of a false marking claim.

The evidence about the one customer who wanted a retrofit was just hearsay and speculation. (Even if it had been admissible, it tended to show that Morris’s past patent litigation practices led to the request, not false patent marking.)  Anyway, JBT made that sale, and additional sales to that customer, meaning that there wasn’t evidence of lost reputation or goodwill.  (It seems like retrofitting was likely to be more costly than initially manufacturing the auger with the openings, but I guess JBT didn’t say that?)  There was no other evidence of deterred market entry, deterred research, design-around investments, or costs incurred to analyze the validity or enforceability of the marked patent.

Likewise, there was insufficient evidence of harm on the false advertising claims. Again, even assuming the customer experience above were admissible, there was no evidence the customer was affected by Morris’s advertising.  The “two-player market” principle created a rebuttable presumption of economic injury, but such presumptions serve only “to control the result where there is an entire lack of competent evidence.” When sufficient proof has been offered to rebut a presumption, “it falls out of the case.” Even assuming that JBT was entitled to the presumption of injury, Morris rebutted it: “Multiple deponents familiar with selling auger chillers testified that whether equipment is advertised as patented is all but meaningless to customers seeking to purchase.”  There was also evidence that customers do not make equipment purchases based on websites. There was also evidence that Morris didn’t hurt JBT’s reputation or goodwill, and that any relevant decline happened because JBT’s predecessor was sold to JBT, whose sales remained strong nonetheless. All this rebutted any presumption of injury and of irreparable harm.

Morris won summary judgment on these claims; the coordinate state claims also failed.

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