IP Law Daily False patent marking counterclaim against bong maker tossed for lack of competitive injury
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Wednesday, November 7, 2018

False patent marking counterclaim against bong maker tossed for lack of competitive injury

By Robert B. Barnett Jr., J.D.

A bong inventor, whose lawsuit against Open Source Steel (OSS) asserted patent infringement claims, was entitled to summary judgment on a counterclaim filed by OSS, alleging that the inventor (1) made false patent marking claims and (2) committed unfair business practices in violation of the Lanham Act, a Seattle federal district court has ruled. On the allegation that the inventor falsely claimed to have patents before he acquired them, although OSS was able to establish false statements, an intent to deceive, and use of the false statements in advertising, its claim failed as a matter of law because it could not establish any "competitive injury" in the absence of any proof that it lost sales, lost opportunities, or suffered reputational harm. The Lanham Act claim also failed because of a lack of proof of any injury but also because OSS failed to prove false statements via widespread ads, what the relevant market was, who the potential customers were, who received the statements, and whether customers relied on the statement. After the court granted summary judgment on the counterclaims, the case was dismissed in its entirety because the inventor had previously voluntarily dismissed his patent infringement claims after OSS stopped selling its knock-off versions (Kremerman v. Open Source Steel, LLC, November 5, 2018, Tsuchida, B.).

Background. A California inventor developed and began selling in 2015 two novel designs for distillation heads on cannabis distillation products. One product had a bent head, while the other had a straight head. He filed for patents on the two products on April 11, 2016, receiving a patent on the bent head on December 27, 2016, and a patent on the straight head on January 10, 2016. Meanwhile, in March 2016, before he filed for patent protection, the inventor discovered that OSS had reverse-engineered his heads and were selling them—and for far less than the inventor was. A series of one-on-one conversation then occurred in which the inventor complained that OSS had stolen his product and was violating his patents. On April 22, 2016, just after filing the patent applications, the inventor’s lawyer sent a cease and desist letter to OSS, which was allegedly ignored.

In January 2017, after he received the patent protection, the inventor filed suit against OSS in Washington federal court, asserting claims for (1) direct patent infringement, (2) induced patent infringement, (3) contributory patent infringement, (4) trade dress infringement under the Lanham Act, (5) unfair business practices in violation of California law, and (6) unjust enrichment. The court granted OSS’s motion to dismiss the induced infringement, contributory infringement, and unjust enrichment claims, after which OSS asserted its counterclaim for (1) patent false marking in violation of 35 U.S.C. §292 and (2) unfair business practices in violation of both the Lanham Act (15 U.S.C. §1125(a)) and Washington law. The inventor later filed a motion to voluntarily dismiss his claims because OSS discontinued sales of the infringing products and its sales volume was particularly low. The court granted the motion, leaving only the counterclaims. Both parties then filed competing motions for summary judgment.

False marking. To establish a false marking claim under 35 U.S.C. §292(a), OSS had to prove that (1) the inventor falsely marked an article with the word "patent" or something similar, (2) the inventor had the intent to deceive the public, (3) the false marking deceived the public, and (4) the false marketing caused OSS to suffer a competitive injury. The problem for the inventor was that he had on numerous occasions stated in email and in other communications that he had prematurely claimed that he had obtained patents and filed suit against OSS. The court rejected his argument that he did not understand the difference between filing for a patent and being granted a patent, noting that some of the statements were made before he had even filed. Even though the statements were generally made one on one in private communication, the court concluded that the misstatements were sufficient to satisfy the first three elements of the false marking claim, or at least to raise questions of fact for the jury to determine.

The claim died, however, on OSS’s inability to prove any "competitive injury." To survive the motion for summary judgment, OSS needed to establish lost sales, lost reputation or goodwill, or an inability to freely market or price its products. And, of course, any proof of loss must be as a result of the statements. OSS was not entitled, the court said, to a presumption of competitive injury simply because the inventor and OSS were direct competitors. The only proof that OSS offered that its reputation was harmed was that it had to field phone calls from potential customers asking about the dispute with the inventor. That was simply not enough to prove that OSS’s reputation was harmed in any way. While it was true that OSS lost a potential distribution network as a result of the dispute, OSS could not prove that the loss of the potential distribution network was caused by the inventor’s statements. OSS also failed to offer any evidence that it would have made more money had it used that distribution network rather than the one it ultimately did use. For all of those reasons, the court ruled, OSS failed to prove competitive injury and, thus, its false marking claim failed as a matter of law.

Lanham Act. False advertising under §43(a)(1)(B) requires proof (1) that a false statement was made in a commercial advertisement, (2) the statement actually deceived the audience, (3) the deception was material, (4) the false statement entered interstate commerce, and (5) the statement injured the other party. Although the Lanham Act claim failed on the same ground that the false marking claim failed—an inability to establish injury—unlike the false marking claims, the Lanham Act claim also failed on numerous additional grounds. No evidence was presented to demonstrate: that the false statements were spread via widespread advertisements; a relevant market; who the potential customers were; who received and read the statements; whether any customers relied on the statements; and lost profits or deceived customers. The Lanham Act claim, as a result, also failed as a matter of law.

State unfair business practices. The court determined that the Washington Consumer Protection Act is analogous to the Lanham Act. Thus, when a party’s claim fails under the Lanham Act, it also fails under the Washington Consumer Protection Act.

The court, therefore, granted the inventor’s motion for summary judgment on the counterclaim and denied OSS’s motion for summary judgment with prejudice. Because the original claims were withdrawn, the court ordered the case closed.

The case is No. 2:17-cv-00953-BAT.

Attorneys: David B. Draper (Terra Law LLP) for Elliot Kremerman. Duane H. Mathiowetz (Morgan Franich Fredkin Siamas & Kays LLP) and Benjamin J. Hodges (Foster Pepper PLLC) for Open Source Steel, LLC.

Companies: Open Source Steel, LLC

MainStory: TopStory Patent WashingtonNews

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