Friday, April 26, 2019

Allegations of patent infringement could be defamatory but not false advertising

GeigTech East Bay LLC v. Lutron Electron. Co., 2019 WL 1768965, No. 18 Civ. 5290 (CM) (S.D.N.Y. Apr. 4, 2019)

“What started as a garden-variety intellectual property dispute has morphed into something less conventional.” GeigTech initially sued Lutron, alleging that Lutron’s exposed roller windowshade product constituted patent and trade dress infringement; GeigTech voluntarily dismissed its cause of action for patent infringement after a preliminary injunction was denied. Lutron then counterclaimed for defamation, false advertising, unfair competition, and deceptive trade practices based on the patent allegations and related public statements. Here, the court partially allows the counterclaims.

When GeigTech sued, it issued a mostly “unremarkable” press release announcing the lawsuit recounting the causes of action alleged and describing how Lutron’s product allegedly “copies” the “ ‘simply modern’ look” of GiegTech’s “R Series” shading system. It included a quote from GeigTech’s principal Geiger:

Our premium products have become highly sought-after for both residential and commercial properties across the country thanks to their unique design, simple aesthetic, and our reputation for precise installation[.] It’s unfortunate that rather than investing the time, effort, and resources necessary to innovate their own products, Lutron has instead opted to poach our patented designs and intellectual property to try and remain competitive in a segment of the market that we’ve cornered. Their blatant infringement has left us no choice but to file this lawsuit to protect our patented designs as we continue to focus on providing our customers with the most innovative, highest quality window shading solutions out there.

After the patent claim was voluntarily dismissed, the court ruled that GeigTech had stated a viable cause of action for trade dress infringement but not for unjust enrichment; GeigTech issued another press release touting the court’s decision not to dismiss the trade dress infringement claim, without mentioning the unjust enrichment claim or the now-gone patent claim, though that isn’t at issue here.

Lutron alleged that the first press release misrepresented the nature of Lutron’s products and the company’s commercial activities. First, Lutron alleged that, rather than copying without effort, it expended substantial resources in designing its product in a distinctive fashion and with a particular purpose. Second, it alleged that the patent claim was filed and publicized in bad faith, because GeigTech knew and had reason to know that Lutron’s product didn’t infringe and that the asserted patent claim was invalid and unenforceable in light of undisclosed prior art.

GeigTech argued that the press release constituted a “fair report” of an ongoing lawsuit and thus were privileged under both federal and state law. There was no conflict of laws, so the court applied NY law.  The privilege didn’t provide immunity “for one who embellishes, mischaracterizes the nature of a lawsuit, or speaks in a manner that suggests more serious conduct than what is alleged – because, of course, such speech would not constitute a substantially accurate reporting of a judicial proceeding.” Nor can a party “take advantage of the privilege by instituting a judicial proceeding alleging false and defamatory charges only to then issue a press release publicizing those defamatory allegations.”

Also, the privilege didn’t apply to Lanham Act cases, since it covers state law.  [There are plenty of cases about Lanham Act claims based on allegedly false patent assertions—the federal courts have created essentially the same immunity there based on preclusion principles.]

But that didn’t matter, because the allegations overcame the fair report privilege for purposes of a motion to dismiss by sufficiently alleging that the lawsuit itself was a baseless way of getting false or defamatory statements into circulation. In particular, GeigTech allegedly knew that the Lutron product didn’t meet critical limitations of the asserted patent claims that GeigTech was required to add during prosecution in order to obtain its patent in the first place, as well as knowing of undisclosed prior art that actually inspired GeigTech’s alleged invention. “These issues came to light when Geigtech – after waiting nine months from the time the alleged infringement began – filed suit and moved for a preliminary injunction. Despite seeking such an extraordinary remedy in a patent case, Geigtech declined to perform the basic step of construing its own patent.” That’s why it didn’t get a preliminary injunction. “The deliberate institution of baseless litigation for the purpose of fabricating a reporting privilege falls squarely within the malicious filing exception” to the fair report privilege; the issue could not be resolved on a motion to dismiss.

Nor was the press release purely non-actionable opinion.  Whether Lutron actually “invest[ed] the time, effort and resources necessary to innovate their own products” as opposed to “poach[ing]” Geigtech’s “patented designs” and engaging in “blatant patent infringement” was “susceptible to proof by way of objectively verifiable facts.” Whether the Lutron system “was the product of innovation or copying is a question of fact, not a difference of opinion.” Although an average reader “might account for Geiger’s bias, somewhat neutralizing the sting of his comments,” but might also reasonably conclude “that Geiger, as president of GeigTech, is privy to undisclosed and damning information, the details of which formed the basis for [his] statements.”  The principal question was whether Geiger actually held the belief he professed: that Lutron was actually engaged in patent infringement. “Whether this is true presents a question of fact, not of opinion.”

Geigtech did better on failure to state a claim, in part.  Lutron did adequately plead defamation. However, a press release about a patent suit isn’t “commercial advertising or promotion.”  The court—staking out what I think is a minority position—suggested that the press release wasn’t even commercial speech, because it lacked the “usual trappings” of such speech.  “Aside from summarizing how the Palladiom Shading System purportedly violated Geigtech’s patent and trademarks, the press release did not contain core commercial information, including price and product information.” More persuasively, the court held that the press release wasn’t “part of an organized campaign to penetrate the relevant market,” which is a requirement for “commercial advertising or promotion” if not for commercial speech as a broader category.  The “primary focus” of the press release “was to draw attention to Geigtech’s lawsuit against Lutron, not to propose a commercial transaction. … Importing Lanham Act liability to the facts of this case, which concern public statements about pending litigation, would extend the Act beyond the parameters contemplated by Congress.”  Back to commercial speech: characterizing the press release as commercial speech would create “a chilling effect on the sort of statements litigants can make about pending litigation.”  In a footnote, the court stated that a complaint can’t form the basis of a Lanham Act claim, because a complaint isn’t commercial speech. “It stands to reason, then, that a press release that does nothing more than parrot the allegations of a complaint cannot also form the basis for false advertising under the Lanham Act – at least not without other earmarks of commercial speech being present, including the presence of a broader advertisement campaign.” This also disposed of NY/South Carolina unfair competition claims, whose elements “resemble the elements for proving false advertising under the Lanham Act.” [This may be true for substantive liability, but I don’t think it’s true for requiring “advertising or promotion.” State laws tend to cover misrepresentations made to individuals even if there was no larger campaign.  Given the court’s conclusion on commercial speech, that might not matter here, though; the court discusses South Carolina’s requirement of “an unfair or deceptive act[ ] or practice[ ] in the conduct of any trade or commerce” and concludes that the press release wasn’t an act of trade or commerce.]

Upshot: this is now a patent infringement case again; to assess the truth of the factual assertion of infringement in the press release, the parties were directed to exchange proposed claim constructions.

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