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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