False advertising claim based on patent threats fails to overcome high hurdles for such a claim

Globe Cotyarn Pvt. Ltd. v. Next Creations Holdings LLC, 2019 WL 498303, No. 18 Civ. 04208 (ER) (S.D.N.Y. Feb. 8, 2019)

Globe, a fabric manufacturer, sued a fabric patent holder, AAVN, and its subsidiary, Next Creations, for falsely claiming that Globe had sold infringing products. The court dismissed the complaint without prejudice. 

AAVN owns patents for the manufacture of high thread count cotton-polyester blend fabric. In 2015, AAVN filed an ITC complaint alleging that certain imported textiles violated a portion of one of its patents; it settled with one respondent.  Another company, AQT, filed a 2017 petition with the PTO to review two patents, later adding another after the PTAB found that a trial was justified on the first two. The parties settled.  

Defendants allegedly contacted a number of Globe’s customers and falsely accused Globe of selling infringing materials. Globe alleged that this was done in bad faith: defendants allegedly never inspected Globe’s product or its production facilities and thus could not have known whether their patents were infringed.

Lanham Act claims: there wasn’t a sufficient allegation of commercial advertising or promotion.

Globe didn’t identify the size of the relevant purchasing public, but alleged only two messages to one customer and a third to another customer, with even vaguer allegations about messages to other, unnamed, unnumbered customers. “[T]hree messages sent to two customers in a marketplace of an unidentified size are not sufficiently disseminated to the relevant purchasing public to fall within the Lanham Act’s coverage.”

Separately, under Federal Circuit law, “[t]o prevail on an unfair-competition claim under section 43(a) of the Lanham Act stemming from a patentee’s marketplace activity in support of his patent, the claimant must first establish that the activity was undertaken in bad faith.” This requires a showing that the claims were “objectively baseless, meaning no reasonable litigant could realistically expect to prevail in a dispute over infringement of the patent” and that the claims were also subjectively made in bad faith. 

The court didn’t think that alleging that defendants claimed infringement without having any idea how the allegedly infringing product was made could satisfy that standard; doing so might show subjective bad faith, but not objective baselessness. [I dunno; it seems to me that “having no reason to think that the products were infringing” is kind of the definition of “baseless,” not just for subjectivity but for an objective analysis.]  Globe also argued that the defendants asserted a patent they knew was invalid. This too couldn’t show bad faith. The validity of the patents was never finally determined; as far as we know, they’re still valid.

Unfair competition, tortious interference, and deceptive acts: under Federal Circuit precedent, “federal patent law preempts state-law tort liability for a patentholder’s good faith conduct in communications asserting infringement of its patent and warning about potential litigation.” Even applying NY law alone, the court would reject the claims.  NY’s unfair competition law “closely resembles” §43(a)(1)(B), so the absence of commercial advertising or promotion doomed that claim too, as well as NY’s requirement of bad faith.  Disparagement: Globe failed to plead special damages; the one named customer didn’t ever agree to purchase its product anyway. Tortious interference: Again, Globe failed to do more than make conclusory assertions about specific customers, and it also didn’t sufficiently allege wrongful means.

Deceptive acts under N.Y. Gen. Bus. Law § 349: This wasn’t consumer-directed harm, just a private dispute.