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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