Antitrust Law Daily Wrap Up, ANTITRUST—NDLa: Shaved Ice Confection Manufacturers Allowed to Pursue Antitrust Claims Based on Alleged Fraudulent Procurement of Trademarks , (Feb 20, 2013)

By Cheryl Beise, J.D.

In a case consolidating four lawsuits among competitors in the business of selling, distributing, or manufacturing shaved ice confections and flavoring syrups, the federal district court in New Orleans has clarified that the plaintiffs could pursue an antitrust claim under Section 2 of the Sherman Act against defendant SnoWizard Holding, Inc. (“SnoWizard”) arising out of its alleged fraudulent procurement of federal trademark registrations (Southern Snow Manufacturing Co., Inc. v. SnoWizard Holdings, Inc., February 18, 2013, Brown, N.). The court also clarified that the plaintiffs’ claims under Section 38 of Lanham Act for the fraudulent procurement of trademarks could proceed against SnoWizard with regard to its registered marks but not its pending trademark applications.

In this pretrial ruling, the court resolved specific questions of law disputed by the parties.

A claim under Section 38 of the Lanham Act requires procurement of a trademark registration. Lanham Act §38, 15 U.S.C. § 1120, provides: “Any person who shall procure registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof.” The parties disputed whether the plaintiffs could pursue a Section 38 challenge with regard to SnoWizard’s pending applications with the USPTO to register the marks PRALINE, BUTTERED POPCORN, GEORGIA PEACH, and MUDSLIDE and KING CAKE.

Though the court identified no controlling precedent on this issue, other cases, including the Seventh Circuit have interpreted Section 38 to require actual procurement of the mark’s registration in order to state a viable claim. Moreover, in one of the consolidated actions (No. 10-0791, the court previously held that the claims under § 1120 required actual registration of the marks. The court therefore dismissed the plaintiff’s Section 38 claims with regard to SnoWizard’s pending applications.

Attempted enforcement of a patent or trademark registration obtained by fraud can constitute an antitrust violation. In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the U.S. Supreme Court held that a plaintiff could pursue a federal antitrust claim predicated on a defendant’s maintenance and enforcement of a patent allegedly procured by knowing and willful fraud before the PTO, provided that the other elements necessary to the antitrust claim are present. On the issue of whether the fraudulent procurement of a patent can constitute an antitrust violation, controlling precedent clearly answered in the affirmative.

The plaintiffs, however, also seemed to suggest that the Walker Process doctrine was applicable not only to SnoWizard’s alleged fraudulent procurement of its patent, but also to the procurement of its trademarks. The plaintiffs also maintained that by flooding the USPTO with a series of fraudulent applications, SnoWizard has “weaponized” the USPTO application process, the TTAB appeal process, and the opposition and cancellation process to damage SnoWizard’s competitors.

There is no controlling case law addressing whether the attempted enforcement of a trademark can constitute an antitrust violation, but there is persuasive precedent which indicates that, if a plaintiff could demonstrate the other elements of a violation of Section 2 of the Sherman Act, then the attempted enforcement of a trademark may constitute an antitrust violation, the court said. In particular, in Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623 (1977), Justice Blackmun’s concurring opinion noted that “the enforcement of restrictive provisions in a license to use…a trademark may violate the Sherman Act.”

The court concluded that attempted enforcement of a trademark registration could constitute an antitrust violation if the plaintiffs can establish the other elements of an antitrust violation under Section 2 of the Sherman Act. The court cautioned, however, that the nature of a trademark, “which does not in any way represent a monopoly conferred upon a particular product, will make it particularly difficult to establish that ‘the plaintiffs’ actions have led to or resulted in a dangerous probability that it will gain a monopoly over the product in issue.” The court found it unnecessary to address the plaintiffs’ additional argument that “by flooding the USPTO with a series of fraudulent applications,” SnoWizard engaged in conduct that was actionable as an abuse of the administrative process under California Motor Transport v. Trucking Unlimited, 404 U.S. 508, 513 (1972) and the “sham” litigation exception to the Noerr-Pennington doctrine.

Other issues. Specifically left unresolved by the court was the issue of whether an antitrust violation can arise from a fraudulent application for a patent or trademark registration. The court requested additional briefing on this issue. The other legal issues raised by the parties already had been addressed in the court’s January 2, 2013 ruling regarding SnoWizard’s icemaker patent and its January 30, 2013 ruling dismissing duplicative claims.

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