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.

from Blogger

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