Antitrust Law Daily Antitrust, Lanham Act claims against Chinese hoverboard company avoid dismissal
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Monday, March 23, 2020

Antitrust, Lanham Act claims against Chinese hoverboard company avoid dismissal

By Nicole D. Prysby, J.D.

A U.S. hoverboard manufacturer sufficiently alleged that a Chinese manufacturer made false representations to the USPTO about prior art and engaged in sham litigation over its unenforceable patents. Company’s related antitrust and Lanham Act counterclaims also avoid dismissal.

The bulk of the counterclaims brought by a Texas-based hoverboard manufacturer and Walmart (together, GoLabs) against a Chinese hoverboard manufacturer survived dismissal, including a Walker Process antitrust claim, and sham litigation antitrust claim, the federal district court in Dallas has determined. After being sued by the Chinese company Hangzhou Chic, Texas manufacturer GoLabs, Inc. brought counterclaims. GoLabs alleged that Hangzhou’s patent inventor falsely represented to the U.S. Patent and Trademark Office (USPTO) that GoLabs’ prior art patent lacked features of the Hangzhou hoverboard. Based on those allegations, GoLabs’ counterclaims for inequitable conduct would go forward. GoLabs’ tortious interference with contract counterclaim failed; even if Amazon delisted GoLabs product based on Hangzhou’s false representations of infringement, GoLabs’ contract with Amazon allowed the vendor to cease to sell GoLabs’ products at-will. Lanham Act and state unfair competition counterclaims would go forward based on allegations that Hangzhou repeatedly contacted GoLabs’ customers, claiming that various GoLabs hoverboard products violated Hangzhou patents. GoLabs’ antitrust counterclaims survived, based on the allegation that Hangzhou engaged in a pattern of malicious and systematic prosecution of competitors over patents it knew to be unenforceable, and contacted third-party sellers falsely claiming infringement (Unicorn Global Inc. v. Golabs Inc., March 20, 2020, Godbey, D.).

Chinese hoverboard manufacturer Hangzhou filed a series of complaints with Amazon and Walmart against hoverboard products from Texas-based GoLabs, asserting they infringed on Hangzhou patents. Hangzhou then filed suit against GoLabs, Walmart, and Amazon. Amazon was dismissed from the suit shortly after it delisted all GoLabs hoverboard products from its site. GoLabs filed counterclaims, which Hangzhou sought to dismiss.

Inequitable conduct. GoLabs alleged that Hangzhou’s patent inventor misrepresented the prior art patent (the ’278 GoLabs patent) because he characterized it as lacking foot placements that rotate relatively, in contrast to his asserted ’155 patent. One could plausibly infer that, had he not told the USPTO that the ’278 patent could not rotate relatively, the Examiner would not have found that the ’155 asserted patent was sufficiently distinct from the ’278 patent, the court reasoned. And it was plausible to infer that he made the misrepresentation with the intent to deceive the USPTO in order to obtain the ’155 patent. GoLabs also alleged that the Hangzhou inventor knew of a prototype created by the GoLabs patent inventor, the Hovertrax. GoLabs’ allegations supported an inference that the Hangzhou inventor sought to misdirect the USPTO because he did not want his asserted patents invalidated by a competing, prior patent and prototype. The ’802 patent is a continuation of the ’155 patent application and therefore, the claim of inequitable conduct related to the ’802 patent would also proceed, the court ruled.

The claim for inequitable conduct related to the ’723 patent failed. GoLabs asserted that the Hangzhou inventor breached his duty of candor to the USPTO by listing himself as a co-inventor on the ’723 patent application, despite the fact that he was listed as the sole inventor on a prior Chinese patent application describing the same patent. But it was not clear from the counterclaim what he stood to gain from listing a co-inventor on the ’723 patent application that could motivate him to withhold the inventorship information about the asserted Chinese patent, the court explained.

Tortious interference with contract. GoLabs failed to allege that Hangzhou’s interference with GoLabs business relations led third parties to breach their contracts with GoLabs. GoLabs’ contract with Amazon allowed the vendor to sell, and cease to sell, GoLabs’ products at-will. Consequently, Amazon’s decision to delist GoLabs’ products from its site, even if prompted by Hangzhou’s actions, was not sufficient to establish tortious interference with contract.

Remaining claims. Counterclaims under the Lanham Act, Sherman Act, and common law unfair competition go forward. Hangzhou argued that these claims should be dismissed under the Noer-Pennington doctrine, because Hangzhou acted in good faith in asserting patent rights. But this defense depended on whether GoLabs plausibly alleged that the inventor committed inequitable conduct in procuring the patents, which it did, the court held. GoLabs sufficiently alleged that the 155 and 802 patents are unenforceable for inequitable conduct, and plausibly pleaded bad faith by alleging that Hangzhou made infringement assertions to third-party sellers regarding GoLabs’ competing products; made systematic assertions of patent infringement to Amazon even after Amazon cleared those patents; and offered to dismiss Amazon from its lawsuit in exchange for Amazon’s delisting of GoLabs’ products.

GoLabs’ Lanham Act counterclaim would go forward based on allegations that in order to gain a commercial advantage, Hangzhou repeatedly contacted GoLabs’ customers, including Amazon and Walmart, claiming that various GoLabs hoverboard products violated Hangzhou patents. Amazon removed GoLabs’ products from its online site multiple times prior to reinstating the products and Amazon fully delisted GoLabs’ products after Amazon’s dismissal from this suit. These facts supported the inference that Hangzhou’s representations were false, that they misled at least one of GoLabs’ third-party sellers, and that GoLabs suffered financial and reputational injury as a result, as Amazon sales allegedly comprised nearly half of GoLabs’ product sales. Because GoLabs stated an independent claim under section 43(a) of the Lanham Act, the court also decided that it stated a common law unfair competition claim.

GoLabs’ antitrust counterclaims would goes forward, based on the allegation that Hangzhou engaged in a pattern of malicious and systematic prosecution of competitors based on patents it knew to be unenforceable, according to the court. Further, GoLabs claimed that Hangzhou routinely contacted GoLabs’ third-party sellers asserting GoLabs’ products infringed Hangzhou’s patents and pressuring them to delist GoLabs’ products, despite knowing that the patents they asserted were likely unenforceable and that the infringement claims were thus baseless. The court rejected Hangzhou’s argument that GoLabs failed to identify the relevant market and did not show any probability of monopoly power. GoLabs identified the geographic market as the U.S.; and alleging that Hangzhou is specifically focusing their anticompetitive efforts on the Amazon platform did not contradict that market definition. As to the probability of monopoly, GoLabs alleged that Hangzhou has a substantial share of the US. hoverboard market, that GoLabs is one of the few remaining competitors, and that there is a "dangerous probability" of Hangzhou gaining a monopoly given its lawsuits against various competitors and its concerted efforts to pressure third-party sellers into delisting competitors’ products—including its tacit agreement to drop third-party sellers from its lawsuits if they delist competitor products.

The case is No. 3:19-cv-00754-N-BT.

Attorneys: S Wallace Dunwoody, IV (Munck Wilson Mandala LLP) for Unicorn Global Inc., Hangzhou Chic Intelligent Technology Co. Ltd. and Shenzhen Uni-sun Electronics Co., Ltd. William Chu (Law Offices of William Chu) for GoLabs Inc. d/b/a GOTRAX., Walmart Inc. and Wal-Mart Stores Texas LLC.

Companies: Unicorn Global Inc; Hangzhou Chic Intelligent Technology Co. Ltd; Shenzhen Uni-Sun Electronic Co., Ltd; Golabs Inc. d/b/a GOTRAX; Walmart Inc; Wal-Mart Stores Texas LLC

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