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False Patent Marking Claims Under the Lanham Act

March 19, 2010, 4:00 AM

Section 292 of the Patent Act, 35 U.S.C. §292, led a relatively quiet existence prior to the Federal Circuit’s recent false patent marking decision in Forest Group Inc.
v. Bon Tool
Co., 590 F.3d 1295, 93 USPQ2d 1097 (Fed. Cir. 2009)(79 PTCJ 247, 1/8/10). Since that decision, plaintiffs have flooded the courts with complaints seeking relief for false patent marking. Many of these cases are limited to Section 292 claims. However, several recent filings include claims under the false advertising provisions of the Trademark Act, commonly known as Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a)(1)(B).

Section 43(a) provides a cause of action for various acts of unfair competition. However, the Supreme Court recently cautioned that it “does not have boundless application as a remedy for unfair trade practices….” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29 (2003) (66 PTCJ 162, 6/6/03)(citations omitted). There is scant precedent addressing false patent marking claims filed under Section 43(a). That is likely to change as the new wave of false patent marking cases rolls through the courts. Existing precedent suggests that Section 43(a) is a rough fit for these cases. Plaintiffs seeking Lanham Act relief must clear two significant hurdles: standing and materiality.

1. Non-Competitors Lack Lanham Act Standing

Section 43(a) provides a cause of action to “any person who believes that he or she is or is likely to be damaged” by a violation. 15 U.S.C. §1125(a). While that language on its face appears to cover everyone with a grievance, courts have effectively limited its application to competitors. “‘To have standing for a Lanham Act false advertising claim, the plaintiff must be a competitor of the defendant and allege a competitive injury.’” Telecom International America
Ltd. v. AT&T Corp., 280 F.3d 175, 197 (2d Cir. 2001) (citations omitted).

In contrasting between Lanham Act standing and the court’s interpretation of standing to bring a false marking claim under Section 292 of the Patent Act, 1Sen. Patrick J. Leahy’s (D-Vt.) recently revised Patent Reform Act of 2010 (S. 515) could narrow the gap between Lanham Act false advertising standing and Patent Act Section 292 false marking standing by limiting Section 292 claims to those persons who have “suffered a competitive injury as a result of a violation ….” Judge Leonie M. Brinkema of the Eastern District of Virginia noted that “the Lanham Act includes a clear statement that ‘[t]he intent of [the Act] is … to protect persons engaged in … commerce against unfair competition.’ 15 U.S.C. § 1127. The appellate courts narrowly construing the Lanham Act to limit suits to competitors have specifically relied on such statutory limitations in finding that Congress enacted §43(a) of the Lanham Act ‘without any consideration of consumer rights of action.’” Pequinot v. Solo Cup Co., 640 F. Supp. 2d 714, 717-18, 91 USPQ2d 1493 (E.D. Va. 2009) (78 PTCJ 342, 7/17/09)(citation omitted).

There is some Section 43(a) precedent suggesting that “competitor” could be stretched to include a relevant trade group or association. See Made in the USA Foundation
v. Phillips Foods Inc., 365 F.3d 278, 280-81 (4th Cir. 2004) (suggesting in dicta that a trade group in the subject industry may have Section 43(a) standing). However, Made in the USA clarified that a “nonprofit consumer organization” was outside the scope of proper plaintiffs. Id. at 279, 281. To date, no published opinions suggest that non-competitor individual plaintiffs would have standing to sue for false patent marking under Section 43(a) of the Lanham Act. This cause of action is likely available only to competitors.

2. 43(a) False Advertising Factors

Section 43(a) provides proper plaintiffs with a civil cause of action against a false or misleading description or representation of fact which “… misrepresents the nature, characteristics, qualities, or geographic origin of … goods, services, or commercial activities….” 15 U.S.C. §1125(a)(1)(B). Most circuits follow a multi-factor test for analyzing Section 43(a) false advertising claims that traces its origin to Judge Richard B. Austin of the Northern District of Illinois in Skil Corp. v. Rockwell International Corp., 375 F. Supp. 777, 783, 183 USPQ 157 (N.D. Ill. 1974). The Skil factors are as follows:

(1) … defendant made false statements of fact about its own [or another’s] product; (2) those advertisements actually deceived or have the tendency to deceive a substantial segment of their audience; (3) such deception is material, in that it is likely to influence the purchasing decision; (4) defendant caused its falsely advertised goods to enter interstate commerce; and (5) plaintiff has been or is likely to be injured ….

Id.

A federal district court applied these factors in the false patent marking context in Genlyte Th
omas Group LLC v. National Service
Industries Inc., 262 F. Supp. 2d 753, 756-57 (W.D. Ky. 2003). In doing so, the court held that a false marking plaintiff must expressly plead each factor. In granting a Rule 12(b)(6) motion to dismiss the Section 43(a) claim, the court noted that the pleading at issue merely “parrot[ed] a portion of the statutory language without making any affirmative allegation that the patent coverage label deceived or was likely to deceive a particular audience, influenced purchasing decisions, was transmitted in interstate commerce, [or] resulted in any actual or probable injury ….” Id. at 757 (dismissing false advertising claim with prejudice).

In addition to the five traditional Section 43(a) Skil false advertising factors, the Genlyte district court identified “bad faith” as a sixth factor for cases falling under the Federal Circuit’s jurisdiction. See id. at 757 (citing Zenith Electronics
Corp. v. Exzec Inc., 182 F.3d 1340, 51 USPQ2d 1337 (Fed. Cir. 1999)). The Genlyte court noted that although “bad faith” was not a necessary 43(a) factor under its regional Sixth Circuit precedent, the factor applied because the 43(a) claim was filed “along side” a Patent Act false marking claim and arose under identical facts. Genlyte, 262 F. Supp. 2d at 756 n.2. 2The Genlyte court noted that its ultimate ruling would be the same whether it applied Sixth Circuit or Federal Circuit precedent. Plaintiff failed to state a claim for relief under Section 43(a) under either standard. Genlyte, 262 F. Supp. 2d at 757.

The cited Zenith decision, requiring bad faith in the Section 43(a) context, was not a false patent marking case. Zenith involved Section 43(a) false advertising counterclaims asserted against a patentee who stated that: (1) its competitor’s products infringed certain patents; and (2) the competitor could not design around those patents. Zenith, 182 F.3d at 1342. The Federal Circuit had appellate jurisdiction over the Lanham Act counterclaims because the underlying complaint, as filed, contained patent infringement claims. Id. at 1346. The court applied Federal Circuit law, rather than the regional circuit’s law, because the two allegedly false statements “involv[e] statements as to the infringement and scope of patents.” Id. at 1347. Substantively, the court held that a patentee can be liable under Section 43(a) for false statements relating to infringement of its patents only if those statements were made in bad faith. Id. at 1354. It did not address false patent marking.

It is an open question whether the Federal Circuit would conclude that false patent marking, in the Section 43(a) context, is analogous to an “assert[ion] that a competitor is engaged in wrongful conduct with respect to the patent” and would therefore require proof of bad faith. Zenith, 182 F.3d at 1355. To date, no Federal Circuit decision has squarely addressed false patent marking claims under Section 43(a). No published opinions, apart from the Genlyte district court decision, link Section 43(a) false patent marking claims to the Zenith bad faith requirement. As a result, to date, only Genlyte suggests that a Section 43(a) plaintiff would need to plead and prove “bad faith” in the false patent marking context. Genlyte, 262 F. Supp. 2d at 757. Other courts evaluating false patent marking claims under Section 43(a) have applied the traditional five-factor Skil test, which does not require proof of bad faith. See, e.g., Rainworks Ltd. v.
Mill-Rose Co., 609 F. Supp. 2d 732, 740 (N.D. Ohio 2009) (applying five-factor test under Sixth Circuit law). 3Although bad faith may not be required to establish Section 43(a) liability, it may be relevant to the Lanham Act monetary relief analysis (15 U.S.C. §1117) if a false advertising plaintiff establishes liability. Regardless of whether a court requires bad faith, other significant obstacles remain.

3. The False Patent Marking Must Be Material to the Purchasing Decision

The third Skil test factor requires a plaintiff to prove that the false patent marking was “material” and “likely to influence the purchasing decision.” Skil, 375 F. Supp. at 783. To date, there have been no published opinions identifying appropriate proofs for this Skil factor (“Factor 3”) in the false patent marking context. Rainworks, 609 F. Supp. 2d at 740-41, exemplified this evidentiary hurdle. In Rainworks, plaintiff alleged that defendants falsely marked products as “patented.” Id. at 740. Defendants defeated a summary judgment motion by submitting declarations stating that purchasers did not see packaging materials bearing the word “patented” until after the purchase. As a result, the court found factual issues as to whether defendant’s false patent marking “likely and materially influenced purchasing decisions” (Factor 3) in violation of Section 43(a). Id. at 741.

In contrast, one unreported magistrate’s report and recommendation held that “materiality” could be presumed in 43(a) false patent marking claims because the claim was “literally false,” as opposed to merely misleading, under Factor 1 of the Section 43(a) false advertising test. See
M-3 & Associates Inc. v. Cargo Systems Inc., No. 3:99-cv-547, 2004 WL 834690 (N.D. Ind. Mar. 18, 2004). From this literal falsity finding (Factor 1), the magistrate concluded that the court could presume the resulting deception was material (Factor 3). Id. at *4. The magistrate relied upon BASF Corp. v. Old World Trading Co.., 41 F.3d 1081 (7th Cir. 1994), as authority for this materiality presumption. M-3, 2004 WL 834690, at *4. 4The district court judge adopted the magistrate’s report and recommendation in its entirety. Memorandum and Order Adopting Report and Recommendation, Apr. 4, 2004 (M-3 & Associates Inc. v. Cargo Systems Inc., No. 3:99-cv-547, Dkt. # 126). However, a closer reading of BASF—a case involving antifreeze product efficacy claims, not patent marking—shows that the Seventh Circuit did not address the materiality prong (Factor 3) of the Skil test. Instead, it focused on whether the advertising claims at issue were literally false (Factor 1). Id. at 1088-91. Moreover, the cited BASF opinion indicated that the record contained materiality evidence. Id. at 1091, n.10. Under well-established Section 43(a) precedent, a finding of literal falsity under Factor 1 of the Skil test results in a presumption of deception (Factor 2), not materiality (Factor 3). See, e.g., Clock Spring L.P.
v. Wrapmaster
Inc., 560 F.3d 1317, 1329-30, 90 USPQ2d 1212 (Fed. Cir. 2009) (77 PTCJ 599, 4/3/09) (applying Fifth Circuit law). No published precedent supports an argument that materiality can be presumed in Section 43(a) false patent marking cases.

Although there are few judicial opinions analyzing false patent marking claims brought under Section 43(a), existing precedent establishes that prospective plaintiffs face significant obstacles. It is unlikely that plaintiffs who are not traditional “competitors” of the marking defendants will have Lanham Act standing. Plaintiffs who are able to clear the standing hurdle must ultimately prove their claims under the traditional Skil factors. This includes proving that defendants’ false patent markings were material to the purchasing decision (Factor 3) and that the plaintiffs were injured, or likely to be injured, as a result (Factor 5)—a tall task in the false patent marking context.

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