Friday, June 05, 2020

overstatement of claims in patent case/potential customer liability could be false advertising

Shure Inc. v. ClearOne, Inc., 2020 WL 2839294, No. 19-1343-RGA-CJB (D. Del. Jun. 1, 2020) (magistrate R&R) 

Skipping substantive design patent stuff (sorry, Sarah Burstein). The parties compete in the installed audio-conferencing market and have a history of litigation, including accusations that Shure infringed ClearOne patents. The court in that case denied a preliminary injunction on one patent and granted it on another. ClearOne also filed a separate suit against Shure. 

Shure then sued here for infringement of another patent, as well as federal false advertising, Delaware Deceptive Trade Practices Act, unfair competition, tortious interference claims based on ClearOne’s alleged marketplace misconduct; Shure then added claims based on a newly granted design patent. 

Shure alleged that ClearOne made various false or misleading statements (including statements made by its Regional Sales Manager Schnibbe and its Senior Vice President of Finance Narayanan to customers, installers and integrators regarding the status or impact of litigation between the parties, including the impact of the preliminary injunction. 

First, were these compulsory counterclaims of the other (Illinois-based) litigation? No. Shure’s non-patent claims allege that ClearOne falsely advertised regarding the “availability, legitimacy, and viability of Shure’s MXA910 product based on the ongoing litigation between the parties.” But those statements related to rulings in the earlier Illinois case and a separate IPR proceeding, not to the more recent Illinois case. Even if Shure is ultimately found to have infringed the patent at issue in the more recent Illinois case, that wouldn’t affect whether Shure’s statements about earlier litigations were misleading and/or harmed Shure at the time that they were made. And as to Shure’s patent infringemetn claim, it did involve similar conferencing and array microphone technologies as the previous patent case and implicated the same products, in the sense that ClearOne’s accused product here practices the patent ClearOne asserted and that Shure is asserting damages tied to sales of its own accused-in-Illinois product. But that wasn’t enough given the different patents in suit. 

False advertising: The claim was sufficiently pled under Rule 8. Shure alleged that “[s]ince at least March 2019” Schnibbe made false and misleading statements about the availability, legitimacy and viability of Shure’s MXA910 product in connection with the ongoing litigation between the parties to “more than a dozen installers and integrators” of Shure’s conferencing equipment. They include “that Shure’s MXA910 has been found to infringe ClearOne’s patents, that two separate court rulings found that the MXA910 infringed ClearOne’s patents, that such rulings were ‘unanimous,’ that ClearOne had ‘won’ its lawsuit against Shure, that the MXA910 will soon be unavailable, that Shure will soon have to stop selling the MXA910, that Shure was then unable to sell MXA910 products, and that integrators, installers, and/or end users will need to tear or rip out existing installations of the MXA910.” Alleging this, and that these statements were “intentionally misleading and were made in bad faith, and with the intent to induce customers to refrain from purchasing MXA910 products,” was sufficient to provide proper notice, even if Shure didn’t name a specific customer to whom the statements were made. And Shure explained why such statements were allegedly false: because they wrongly suggest that, in light of the state of the legal proceedings at issue, there is no permissible non-infringing use of the MXA910 product or that the MXA910 will no longer be available in any form.

Commercial advertising or promotion: under the alleged circumstances, statements by one person to more than a dozen customers were plausibly “part of an organized campaign to penetrate the relevant market.” 

Bad faith: because of the interaction with patent law, false statements about patent rights have to be in bad faith to be actionable under the Lanham Act. Shure alleged why the statements were false, which was sufficient to allege bad faith at this stage.

ClearOne argued that its statements were non-actionable opinion, but they could be “verifiably false statements of fact.” It wasn’t opinion to say that (1) Shure’s product had been “found to infringe” ClearOne’s patents; (2) that two court rulings came to that conclusion and were “unanimous”; (3) that ClearOne had “won” its lawsuit against Shure; and (4) that the the product would soon be “unavailable” or that Shure could not sell them or that Shure’s customers would need to rip out existing installations. These were plausibly clearly untrue, in light of the then-current state of the 2017 Illinois case and the IPR proceeding involving one patent (in which there was then no final determination of infringement, nor any order affecting sale or use).

Because Shure pled literal falsity, it was entitled to a presumption of actual deception. 

As for the state law claim, the DTPA actually has a “lower burden of proof than the Lanham Act” because “a complainant need not prove competition between the parties or actual confusion or misunderstanding” to prevail in an action under the DTPA. Because at least the allegations about Narayanan’s letter satisfied the pleading requirements, the claim should survive. (The statements were very similar to the statements discussed above; for example, the letter said that third party installers and integrators were likely infringing ClearOne’s patent by installing Shure’s product “in a drop-ceiling mounting configuration,” but this was allegedly false because some such configurations were noninfringing; it also allegedly misleadingly suggested that Shure customers could be held personally liable via the 2017 case, when that could not happen; etc.)

 The magistrate also recommended that tortious interference and unfair competition claims should survive.

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