Thursday, August 13, 2020

statements to 3 of 15 market participants weren't "commercial advertising or promotion"

Globe Cotyarn Pvt. Ltd. v. Next Creations Holdings LLC, No. 18 Civ. 04208 (ER), 2020 WL 4586892 (S.D.N.Y. Aug. 10, 2020) 

Globe, a fabric manufacturer, sued a fabric patent holder, AAVN, and its subsidiary, Next Creations, for allegedly falsely telling certain of Globe’s potential customers that Globe sold infringing products. Globe alleges Lanham Act false advertising and tortious interference and unfair competition under New York law. The court dismissed the amended complaint. 

Background: AAVN previously filed an ITC complaint against certain imported textiles. An (unrelated) respondent defended on the basis that its allegedly infringing product had been on sale before AAVN even received the relevant patent. The parties settled, but Globe alleged that in filing the ITC complaint AAVN had determined that the prior art product practiced claims of one patent, and also was within certain claims of other patents. Another company petitioned the PTO for review of three AAVN patents as invalidated by prior art; as to two of them, the PTAB found that “more likely than not that [the challenger] will prevail in showing that at least one of the challenged claims in each of the patents is unpatentable” (it didn’t rule on the third, which was challenged separately). The parties settled. 

Globe argued that defendants contacted a number of Globe’s customers and falsely accused Globe of selling infringing materials. Globe identified three importers, but contends on “information and belief” that defendants also spoke to the buyers of certain retailers who, in turn, relayed the message to other importers. For example, Next Creations’ CFO wrote to one importer: “I am reaching out to you today in regard to product your company sells to retailers throughout the United States that infringe upon AAVN’s CVC Patent. Your company is not authorized to sell this CVC product.” He wrote a similar letter to another, and the named inventor/alleged owner/officer of defendants, told another importer that it should not purchase CVC bed sheets from Globe because the sale of those products in the U.S. would infringe AAVN’s patent. Globe alleged that he also told buyers for five retailers the same thing.

Globe alleged that these five retailers, along with another, sell the “vast majority of CVC bed sheets” in the United States, and that the buyers informed importers of CVC bed sheets what defendants told them. According to Globe,“[o]ver half of the 15 to 25 companies who import CVC bed sheets into the United States for sale” sell or have sold CVC bed sheets to the five stores the buyers represent.

Lanham Act claims: Commercial advertising or promotion was a barrier. Globe still didn’t show that the messages were sufficiently disseminated to the relevant purchasing public. As the Second Circuit has held, a business “harmed by isolated disparaging statements do[es] not have redress under the Lanham Act” and should instead “seek redress under state-law causes of action.” Prior cases have held that, for example, “[d]issemination of a statement to one customer out of 36 simply does not meet [the necessary] standard,” and that “six statements, most directed at a single individual,” were not sufficiently disseminated to qualify as commercial advertising or promotion, “[e]ven if the relevant market, jewelry retailers, is in fact ... smaller than that for [previous Second Circuit precedent].” 

Though the allegations here were broader than that, they insufficiently alleged that defendants’ actions “were part of an organized campaign to penetrate the market.” Globe alleged specific communications to three importers, but the court declined to consider other allegations “on information and belief” withouth a further “statement of the facts upon which the belief is founded.” Statements relating to communications to buyers didn’t appear to be based on more than “conjecture and speculation.” With only communications to three of the “15 to 25” importers, “apparently made in private over a 10-month period,” the facts didn’t reasonably suggest “the contested representations [were] part of an organized campaign to penetrate the relevant market.” Instead, they appeared to be “isolated events, for which Globe should seek redress under state law, rather than the Lanham Act.” Out-of-circuit precedent was not to the contrary; compared to other cases, the three targeted importers didn’t allegedly “represent an outsized share of the relevant market.” 

Bad faith: both Lanham Act and state law claims required a showing of bad faith to avoid patent law preemption. “Bad faith is determined on a ‘case by case basis,’ but the Federal Circuit has held that if a patentholder knows that its ‘patent is invalid, unenforceable, or not infringed, yet represents to the marketplace that a competitor is infringing the patent, a clear case of bad faith representations is made out.’” Bad faith has both objective and subjective elements: that “no reasonable litigant could realistically expect to prevail in a dispute over infringement of the patent” and that the “lack of objective foundation for the claim was either known or so obvious that it should have been known.” 

Globe failed to allege objective baselessness.  It suggested that, having done analysis to show that the product at issue in the ITC proceedings practiced its patents and been through part of a PTAB proceeding, defendants now knew that these patents were invalidated by prior art. But the complaint didn’t sufficiently allege that all claims of the AAVN patents were invalidated by prior art, which matters because “statements that Globe products infringed its patents could not have been made in bad faith if only some portion of its patents were invalid.” [I’m not sure this is always true but it might require additional facts about the claimed infringement.] 

Tortious interference: without sufficient evidence of bad faith/falsity or misleadingness, this also failed.

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