Antitrust Law Daily Wrap Up, ADVERTISING—MDTenn: Bad Faith Element of Patent-Related False Advertising Claim Not Met by Notifying Customer of Infringement Claim, (Jun 5, 2013)

By William Zale, J.D.

A jewelry seller’s alleged communication, notifying a purchaser of a patent infringement claim against a competing seller, did not satisfy the bad faith element of a Lanham Act false advertising claim based on a patentee’s statements about its patent rights, the federal district court in Nashville has ruled (R&L Merchandise, LLC v Alex and Ani, LLC, June 4, 2013, Campbell, T.). The court dismissed the competitor’s false advertising claim but declined to dismiss the competitor’s claim for a declaratory judgment that it did not infringe the seller’s design patent or trade dress.

When an alleged Lanham Act false advertising violation involves a patentee’s marketplace activity, the claimant must also establish that the activity was undertaken in bad faith, the court observed. A patentee’s statements regarding its patent rights are conditionally privileged under the patent laws, so that such statements are not actionable unless made in bad faith. A patentee must be allowed to make its rights known to potential infringers so that they can determine whether to cease the allegedly infringing activities, negotiate a license if one is offered, or decide to run the risk of liability. The “bad faith” element in this context cannot be satisfied without a showing that the claims asserted in the allegedly false communication were objectively baseless, meaning that no reasonable litigant could realistically expect to prevail in a dispute over infringement of the patent, according to the court.

The court found that the alleged false advertising was communication of the type allowed and protected under the above-described bad faith requirement. In the allegedly false advertising, the seller specifically advised its purchaser that seller was asserting its protected patent rights and that the purchaser could potentially have infringed the seller’s patent in relation to the competitor’s products. The communication put the customer on notice of the seller’s claim of infringement and asks the customer to preserve related evidence.

Although the competitor summarily contended that the seller-patentee had reason to know that its statements were false and misleading and that it acted willfully and in bad faith, the competitor did not allege facts that would support an affirmative finding of bad faith, that the assertion of its patent rights was objectively baseless, or that the communication was outside the scope of the seller’s protected and privileged statements. The competitor’s false advertising claim under the Lanham Act was dismissed.

Contrary to the seller’s contention, the competitor had standing to seek a declaratory judgment action that its bangle bracelets did not infringe the seller’s design patent or trade dress, based the competitor allegations of potential economic injury. Although the seller had brought a later-filed action in the federal district court in New York City for patent infringement, trade dress infringement, unfair competition, and trademark dilution, the court applied the first-to-file rule in declining to dismiss the competitor’s declaratory judgment action, noting that the seller’s claims could be asserted in the present case as counterclaims. The court concluded that the competitor satisfied the requirements of the Declaratory Judgment Act by alleging an actual controversy for resolution in its home forum.

The case is No. 3-12-1081.

Attorneys: Randall W. Burton (Jackson & Burton, PLLC) for R&L Merchandise, LLC. Daniel P. Berexa (Cornelius & Collins, LLP) for Alex and Ani, LLC.

Companies: R&L Merchandise, LLC; Alex and Ani, LLC

Cases: Advertising TennesseeNews