patent publication privilege mostly protects licensee against licensor’s false advertising claims

 AU New Haven, LLC v. YKK Corp., No. 15-cv-3411-GHW, 2020 WL
4366394 (S.D.N.Y. Jul. 30, 2020)

Summarizing only a few key issues: YKK entered into an exclusive
licensing agreement (the ELA) with the owners of a recently issued patent. The
ELA provided YKK an exclusive (but limited) field of use license: “an
exclusive, worldwide right to manufacture, use, sell, offer for sale and
otherwise use and practice the invention… except for zippers placed in
finished goods in the high end outerwear, marine, military and luggage
(excluding sports and cosmetic bags) markets.” Plaintiffs sued YKK because,
among other things, they believe that, for years, YKK has been selling
laminated zippers into the unlicensed, high-end outerwear market.

Issues in the current motions: whether the patent
publication privilege barred plaintiffs’ Lanham Act false advertising claim;
whether plaintiffs could use Connecticut’s CUTPA to sue YKK for selling to
customers all around the world; and whether the remaining contract claim
presented triable issues, given YKK’s offer of judgment for the amount sought
(about which I will say no more).

False advertising: plaintiffs alleged that YKK falsely
advertised its field of use license by advertising that it was “licensed,” “the
exclusive licensee,” or similar statements. Precedent establishes that, to
avoid conflict with patent law, false statements about patent rights “are
actionable under the Lanham Act false advertising provision only if they are
made in bad faith.” But are statements about licensee status similarly covered?
The court said yes: Such statements “fall squarely within the scope of the
patent publication privilege: They inform the marketplace of the existence of
the ’214 patent and YKK’s rights under that patent.”

Plaintiffs argued that, since there was no need to look at
patent law to determine whether the statements were false—as there would be if
the alleged falsity went to patent validity or what infringes—the patent
privilege didn’t apply. The court disagreed: The “privileged right of a
patentee to notify the public of its patent rights is statutorily rooted in the
patent laws at 35 U.S.C. § 287, which authorizes patentholders to ‘give notice
to the public’ of a patent by marking [their] patented articles and makes
marking or specific notice to the accused infringer a prerequisite to the
recovery of damages.” Even if most of the time this means that a court has to
apply patent law to determine whether the challenged statement was true or
false, the privilege isn’t necessarily limited to that context.

Plaintiffs then made a clever argument about the inherent
nature of patent rights that the court had no interest in at all:

[B]ecause the core right conveyed
by a patent is the right to exclude others from using the claimed invention,
that fundamental right must necessarily define the scope of the patentee’s
privilege to notify the public of its patent rights. Thus, according to Plaintiffs,
because a licensee does not obtain the right to exclude by virtue of its
license—it merely obtains a covenant from the patentee not to sue for
infringement—a licensee’s statements about its own license rights cannot fall
within the scope of the publication privilege.

But the caselaw doesn’t support this; one key Federal
Circuit case explicitly treated exclusive licensees and patentholders
identically for the purposes of analyzing the privilege’s applicability. Also,
the statute from which the publication privilege is derived, 35 U.S.C. § 287,
specifically permits not just patentees, but “persons making, offering for
sale, or selling within the United States any patent article for or under them
or importing any patented article into the United States” to “give notice to
the public” that an article is patented. And finally, YKK’s exclusive license
in fact gave it a right to sue infringers.

More simply, plaintiffs argued that the publication
privilege applied only to statements claiming potential infringement. That too
was wrong. The patent laws permit marking to give notice to the world in
general. “That marking is not a statement that infringement has already
occurred; it is a warning to potential infringers.”

I’m more sympathetic to the plaintiffs’ argument, though I’m
not convinced the court is wrong—the question is about balancing the interests
served by the two bodies of law. If one were convinced that the specific aim of
protecting consumers against deception often overrides ancillary patent law aims,
then it could make sense to limit the privilege where a marketing statement
isn’t so much a warning to potential infringers as a promise of the
advertiser’s own ability to deliver. After all, the problem here is allegedly
that YKK told customers it could supply them with zippers it had no right to
supply, possibly converting the customers into patent infringers as
well/deterring them from contracting with the actual owner of the patent rights
for the relevant segment.

Regardless, given the result, plaintiffs had to show that
YKK made its statements in bad faith. They mostly couldn’t do so. The first
requirement of bad faith was that the statements were “objectively baseless,”
which usually means that “the infringement allegations [are] such that no reasonable
litigant could reasonably expect success on the merits.” Of course, the
statements here aren’t infringement allegations, but the Federal Circuit has held
that “the ‘objectively baseless’ standard applies to publicizing a patent in
the marketplace as well as to pre-litigation communications.”

The court found that three of the four challenged statements
was “objectively true on its face, and accordingly does not lack a reasonable,
objective basis.” Not objectively baseless: (1) “YKK is the Exclusive Licensee
of the [relevant tech]”; (2) “YKK Corporation is licensed to manufacture and
sell across the world, products protected by these patents”; and (3) “YKK
Corporation is a licensee to manufacture and sell products protected by [the
’214 and related foreign patents]”. But the same could not be said for: (4) “YKK
is the exclusive licensee of the water repellant slide fastener technology
embodied in U.S. Patent No. 6,105,214 and its corresponding foreign patent. YKK
has the exclusive right to manufacture, use, sell and import zippers
incorporating this water repellant technology.”

How to distinguish (1) and (4)? “The mere fact that the
exclusive license was not an unlimited exclusive license does not render these
statements objectively baseless,” but a reasonable jury could conclude that the
second sentence in (4) was objectively baseless, because YKK actually shared
that right with the licensor’s company.

Causation: Was there enough evidence for a reasonable jury
to find that YKK’s fourth category of statements caused plaintiffs’ alleged
injury? Yes. The court excluded proposed expert testimony from “a clothier,
creative director, and brand manager “who was set to testify “that companies
would not have purchased the accused zippers from YKK if they had known that
YKK was infringing upon Uretek’s patents.” The opinion was excluded for being
rooted in hypothetical speculation, “abstract belief[s],” and attorney

Still, plaintiffs had a theory: “Customers in excluded
markets, having decided that they wanted to purchase a patented water-resistant
zipper, believed they had only one choice after reading YKK’s false
advertisement—YKK-laminated zippers. Had YKK’s advertisements made clear that
only Uretek could sell in the excluded market, YKK’s customers would have had
to buy from them instead. Thus, every sale of a YKK zipper in the excluded
market was a sale stolen from Uretek.” In a footnote, the court noted that it
had looked for record evidence that customers in the excluded market were
“sensitive to the intellectual property rights of their component suppliers”
and would not have purchased infringing products. There wasn’t much, but it was
enough. Three emails suggested, with varying degrees of firmness, that desire to
respect patent rights would affect purchases. E.g., a reference to one customer
who wouldn’t buy non-YKK “because of the patent issue,” and another who “is not
interested in buying non-YKK or violating our patent.” Also: “YKK needs to
educate and inform Brand Holders (LandsEnd) that YKK is an exclusive licensee
and Uretek is a patent owner of this products. They know what this means and
what they need to do and you know that.” Drawing all inferences in favor of plaintiffs,
this evidence was sufficient to support plaintiffs’ causation theory. The court
cautioned, however, that the emails might not be admissible at trial; they were
arguably hearsay.

“Tricky as this link might be to prove at trial, the
evidence presented here is sufficient to survive summary judgment. It presents
a cogent reason why YKK’s profits on sales in the excluded market might have
been at Uretek’s expense: every sale of a YKK zipper was a diverted sale.”

CUTPA (Connecticut Unfair Trade Practices Act): This goes,
because there was no evidence that YKK engaged in any unfair or deceptive
practices “in the conduct of any trade or commerce” in Connecticut, as required
by the statute. Even if YKK’s “underlying business is associated with
Connecticut,” CUTPA “covers only unfair or deceptive practices that occur in
the course of trade or commerce in Connecticut.” Plaintiffs never alleged that
YKK made any sales into the excluded markets in Connecticut, and the court was
dubious that the act of negotiating the terms of a contract to secure the
exclusive license—“an act at least two steps removed from any eventual sale of
a zipper (first: acquire the license, next: manufacture zippers, finally: sell
them to customers)”—qualified as “trade or commerce” within the meaning of

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