Antitrust Law Daily Wrap Up, ANTITRUST—EDLa: Shaved Ice Confection Products Manufacturer’s Allegedly Fraudulent Patent and Trademark Applications Not Antitrust Violations, (Mar 4, 2013)

By Tobias J. Gillett, J.D., LLM.

The conduct of a producer of shaved ice confection machines and flavoring syrups in allegedly flooding the United States Patent and Trademark Office (USPTO) with patent and trademark applications did not constitute “sham litigation” and therefore did not violate the antitrust laws and could not serve as evidence of anti-competitive conduct, the federal district court in New Orleans has ruled (Southern Snow Mfg. Co., Inc. v. SnoWizard Holdings, Inc., February 25, 2013, Brown, N.). The applications may not have constituted “sham litigation” because the ex parte applications themselves did not interfere with the producer’s competitors, and even if they did the “highly subjective” nature of the evaluation of a mark’s distinctiveness, and the producer’s success with many applications, meant the applications were not “objectively baseless.”

SnoWizard Holdings, Inc. manufactures and sells shaved ice machines and flavor concentrates. SnoWizard and other manufacturers and retailers of shaved ice confections, machines to make the confections, and flavor concentrates had engaged in protracted antitrust and intellectual property litigation. The present order addressed the question whether a “fraudulent application for a patent or trademark registration obtained by fraud [could] be an antitrust violation.” The plaintiffs had relied on the Supreme Court’s 1972 decision in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, to argue that SnoWizard had violated the antitrust laws by “flooding the [USPTO] with a series of fraudulent applications.”

That case had concluded that abuse of legal processes could effectively bar parties “from access to the agencies and courts,” thus producing “an illegal result.” The plaintiffs argued SnoWizard’s flood of allegedly fraudulent applications had “turned the USPTO application process, the TTAB appeal process, and the opposition and cancellation process into an anti-competitive weapon to damage its competitors.”

The court observed that the plaintiffs were attempting to argue that the allegedly fraudulent applications for parents and trademarks could constitute antitrust violations under the “sham litigation” exception to the Noerr-Pennington doctrine, which ordinarily shields petitioning activity from antitrust liability. California Motor Transport extended the Noerr-Pennington doctrine’s protected right to petition to “all departments of the government.” However, the “sham litigation” exception denies this protection to petitioning that “is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor.”

Here, the court concluded that the allegedly fraudulent applications did not constitute antitrust violations. Although both the plaintiffs and SnoWizard had a right of access to the USPTO, the USPTO’s application process did not “involve any hindrance to a business competitor, as it is an ex parte proceeding.” Although an attempt to enforce rights in a patent or trademark, once granted, could interfere with a business competitor, the applications for those rights did not “involve business competitors in any way, nor [did] it preclude business competitors from making their own applications to the USPTO.”

Since the applications did not involve interference with competitors and the application process was ex parte, the court noted it might not have to address the “sham litigation” exception, since the “applications are not ‘litigation’ in any sense.” Even if the applications were litigation, the applications at issue here were “in no way objectively baseless,” as required to constitute “sham litigation.” Evaluation of the distinctiveness of a mark is “highly-subjective,” and SnoWizard’s success with many applications also indicated its applications were not “objectively baseless.”

The court therefore concluded that the applications did not constitute “antitrust violations pursuant to the ‘sham’ litigation exception to the Noerr-Pennington doctrine,” and that they could not “serve as evidence of anti-competitive conduct.”

The case is Nos. 06-9170, 09-3394, 10-0791, 11-1499.

Attorneys: Mark Edward Andrews (Andrews Arts & Sciences Law, LLC) for Southern Snow Manufacturing Co., Inc. Jack Edward Morris for SnoWizard Holdings, Inc.

Companies: Southern Snow Manufacturing Co., Inc.; SnoWizard Holdings, Inc.

Cases: Antitrust LouisianaNews