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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