Wednesday, March 20, 2019

Lanham Act claim based on patent threats fails even with invalidation of the patent

American Fireglass v. Moderustic, Inc., --- F.Supp.3d ----, 2019 WL 1227963, No. 15-CV-2866 JLS (BGS) (S.D. Cal. Mar. 15, 2019)

The parties compete in the market for pieces of broken tempered glass for use in fireplaces and fire pits (Moderustic also sells “fireglass” for use in aquariums), where it apparently gives an appealing visual effect (fire on ice). Moderustic obtained a patent for a method of creating tumbled tempered glass and began contacting American Fireglass, its dealers, and other glass sellers alleging infringement. In a newspaper article, its principal stated that “he hopes to shut down competition and bring his annual sales up.”

American Fireglass originally tumbled many of its products, but by November 2014 it had completely “stopped tumbling the tempered glass fragments that it sold because tumbling slowed production and caused the glass fragments to become scratched and dull and less desirable.” It “began removing references to tumbling its fireglass from its advertising and promotional material, including its web site.” However, it “mistakenly overlooked some products that appeared on its website” but “removed these remaining references to tumbling ... immediately after it was brought to [Plaintiff’s] attention in August 2016.”

American Fireglass sued Moderustic to invalidate the patent and for its patent-related threats; Moderustic counterclaimed for false advertising about tumbling. The court invalidated the Moderustic patent as obvious. Its remaining counterclaim, false advertising, survived summary judgment because the claims on the website were literally false as to some products, and there is no “de minimis damage” exception to the Lanham Act. [The real issue here sounds like it might be materiality.] “[A]n inability to show actual damages does not alone preclude [ ] recovery” under the Lanham Act, but the real issue was American Fireglass’s lack of evidence on lack of harm.

Moderustic sought summary judgment on the patent-based Lanham Act/UCL claims. In the Ninth Circuit, “where Lanham Act claims ... are based on a defendant’s representation that someone infringed his patent, plaintiff must show that defendant’s representation was made in bad faith.” Moderustic’s statements in letters that it had been issued patents covering its methods weren’t literally false—it had an issued patent at the time, and while the PTO had rejected a different patent, “it was technically being reconsidered by the Federal Circuit at that time the letters were sent” and the letter clearly indicated its status. Thus, no reasonable jury could find the statements misleading, especially since the second patent was duplicative of the first.

Nor was there evidence of bad faith. “Without a showing that Defendant had some malicious intent, rather than simply asserting its rights as the patentholder, the Court cannot find bad faith present here.” The same result obtained under California’s UCL.

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