IP Law Daily, PATENT—S.D.N.Y.: Sanctions fall short of barring Lanham Act claim in foreign patent dispute, (Mar 24, 2023)

By George Basharis, J.D.

Sanctions for discovery abuses included attorney fees and costs but a decision barring a Lanham Act false advertising claim held in abeyance pending Supreme Court’s Arbitron decision.

A licensee of water-resistant zippers, who was sued for selling zippers in international markets not covered by the licensing agreement, was entitled to attorney fees and costs for the manufacturer’s failure to produce documents during discovery that were related to the validity of its foreign patents, the federal district court in New York has ruled. However, the court postponed ruling on whether the sanctions should include barring the manufacturer from asserting a Lanham Act false advertising claim relating for foreign sales against the licensee until after the U.S. Supreme Court decides Abitron Austria GmbH v. Hetronic International, Inc., a case involving the international reach of U.S. trademark law (AU New Haven, LLC v. YKK Corp., March 23, 2023, Woods, G.).

In May 2015, the owners of Au New Haven, LLC (“Uretek”) filed a lawsuit against YKK Corporation for allegedly infringing Uretek's U.S. patents related to water-resistant zippers. Uretek filed an amended complaint in 2016, that included allegations regarding foreign patents in Japan and Taiwan that covered the same invention claimed by the U.S. patent. The amended complaint also raised claims under the Lanham Act based on purportedly false statements made by YKK about being the only authorized manufacturer of Uretek zippers in foreign markets. Following the initiation of discovery, YKK requested that Uretek produce documents relating to the ownership of the Japanese and Taiwanese patents. Despite Uretek's production of numerous documents, none of them indicated that the transfer of the zipper patents in Japan and Taiwan to Uretek was carried out under the applicable local laws of those countries. As a result, YKK asserted an affirmative defense questioning Uretek's ownership of the foreign patents.

YKK investigated the validity of Uretek's patents in Japan and Taiwan after the discovery period had ended. During this investigation, YKK discovered previously undisclosed documents from foreign patent authorities, which revealed that Uretek had not properly obtained rights to the Japanese patents as claimed, and the patents in Taiwan had not been formally transferred to Uretek. YKK argued that Uretek had failed to disclose these documents despite the documents being responsive to YKK's discovery requests and should be sanctioned for noncompliance. YKK further contended that Uretek should be precluded from asserting its Lanham Act claims.

The court explained that Uretek had an obligation to supplement or correct its previous reply to YKK’s document requests. Failure to produce documents that were responsive to YKK’s demands could result in Uretek being sanctioned if the documents in question were responsive to YKK’s requests, the failure to produce was deliberate or negligent, and the withheld documents were relevant to YKK’s defense.

Production obligations. The court determined Uretek was obligated to produce all documents related to the assignment or transfer of the foreign patents. The court emphasized the fact YKK was able to find the withheld documents showed the documents’ relevance to YKK’s discovery demands. The court rejected Uretek’s argument that it was excused from supplementing its original production because it had sent drafts of the withheld documents to YKK. Producing drafts of documents does not excuse a party from producing final, executed versions of the documents, according to the court. Moreover, the information missing from the drafts showed the Japanese and Taiwanese patents were not legally owned by Uretek.

The court also rejected Uretek’s claims that the withheld documents were “equally accessible” to all parties and therefore Uretek did not have an obligation to provide them during discovery. There is no carve out from the discovery rules that permits a party to fail to produce responsive information merely because the information has been filed publicly. Moreover, the withheld documents were not equally accessible to the parties. They were produced for Uretek and were not readily available to YKK, who had to hire local counsel to file an application to access the files. Uretek had a duty to produce the documents even though YKK had enough information to prompt an independent investigation regarding the validity of Uretek’s foreign patents.

Culpability. Uretek contended that the fact that it produced earlier drafts of some of the documents illustrated that it did not have a culpable state of mind. The court found the opposite. It found the fact that Uretek produced related documents showed Uretek knew the withheld documents later found by YKK were responsive to its discovery demands. As a result, the court found Uretek was at least grossly negligent.

Relevance. Uretek argued the withheld documents were not relevant to its Lanham Act claim. Uretek also noted that YKK had not questioned Uretek’s standing to bring the claim. However, relevance is an “extremely broad concept” in the context of discovery, the court said, and information is discoverable if relevant to any claim or defense. The withheld documents were clearly relevant to the case during the discovery period when they should have been produced, the court explained. Moreover, Uretek knew documents related to the ownership of the foreign patents were relevant at the time.

In any event, the court found the withheld documents to be relevant to Uretek’s Lanham Act claim, which was viable only because YKK shared its right to manufacture patented zippers with Uretek. If Uretek did not have the right to manufacture the zippers in Japan or Taiwan, its Lanham Act claim would be undermined as to sales in those countries.

Sanctions. The court granted YKK’s motion for sanctions, finding the company was entitled to reasonable attorney fees and costs. However, the court did not decide whether Uretek should be barred from pursuing its Lanham Act claim with respect to foreign sales, choosing to wait for the Supreme Court to decide Abitron Austria GmbH v. Hetronic International, Inc., Dkt. No. 21-1043, which raises the question of whether a U.S. trademark owner can obtain relief under the Lanham Act for infringing uses of a trademark occurring abroad. The Court heard oral arguments in the case on March 21, 2023.

The Case is No. 1:15-cv-03411-GHW-SN.

Attorneys: Norman H. Zivin (Wolf, Greenfield & Sacks, PC) for AU New Haven, LLC and Trelleborg Coated Systems US, Inc. Aliki Sofis (Quinn Emanuel Urquhart & Sullivan, LLP) for YKK Corp., YKK Hong Kong Ltd. and YKK Fastening Products Sales Inc.

Companies: AU New Haven, LLC; Trelleborg Coated Systems US, Inc.; YKK Corp.; YKK Hong Kong Ltd.; YKK Fastening Products Sales Inc.

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