Patentee’s Threatening Letters Were Not Unfair Competition Andrea L. Anderson
November 07, 2002
Last Month at the Federal Circuit - January 2003
Judges: Gajarsa (author), Newman, and Prost
In Golan v. Pingel Enterprise, Inc., No. 01- 1626 (Fed. Cir. Nov. 7, 2002), the Federal Circuit affirmed the district court’s grant of SJ dismissing Ilan Golan’s federal and state antitrust claims on the ground that Golan had introduced no evidence that Pingel Enterprise, Inc. (“Pingel”) possessed monopoly power in the relevant market. The Federal Circuit also affirmed the district court’s SJ dismissing Golan’s federal and state unfair-competition claims and state tort claims because Golan did not present sufficient evidence that Pingel made its accusation of patent infringement in bad faith. Finally, the Federal Circuit reversed the district court’s grant of SJ on the federal and state unfair-competition claims predicated upon Pingel’s allegations of trademark infringement because the district court had applied the wrong law.
Pingel and Golan manufacture aftermarket motorcycle fuel valves, called petcocks, designed for use with Harley- Davidson motorcycles. Pingel markets its petcock under the POWER-FLO mark, and Golan uses the PEAK FLOW mark. Golan also markets fuel filters for Harley-Davidson motorcycles under the PEAK FLOW mark. In 1997, after receiving a promotional brochure from Rivera Engineering (“Rivera”) that advertised that Golan’s fuel filter was flow rated at 6.3 gallons per minute, Pingel obtained a filter, tested it, and determined that it failed to exhibit the advertised flow rate. Pingel wrote to Rivera stating that it had tested Golan’s PEAK FLOW filter and that the filter would not flow at a rate of 6 gallons per minute on any gravity system.
In 1998, Golan began selling its PEAK FLOW petcock. Pingel obtained a sample and determined that it infringed a Pingel utility patent (U.S. Patent No. 4,250,921 (“the ‘921 patent”)), a Pingel design patent (U.S. Patent No. 363,533 (“the ‘533 patent”)), and Pingel’s POWER-FLO trademark. On October 30, 1998, through its patent attorney, Pingel sent Golan a cease and desist letter claiming that the Golan petcock infringed the ‘921 and ‘533 patents and its POWER-FLO trademark. The letter threatened Golan with legal action should it refuse to cease manufacturing and selling the petcocks. Pingel also sent letters to each of its twenty-two distributors alleging that Pingel was taking immediate action to halt the production and sale of this product. On February 5, 1999, Pingel, through its attorney, sent a letter to Rivera demanding that Rivera cease selling Golan’s PEAK FLOW petcock.
After sending these letters, Pingel contacted two additional outside attorneys to assess the likelihood of prevailing in a patent-infringement action. The first attorney issued an oral opinion. The second attorney, in his written opinion, informed Pingel that the issues were “close.” The second attorney also erroneously advised Pingel that the ‘921 patent would expire on April 23, 1999, twenty years after its filing. However, the ‘921 patent claimed priority from a divisional application filed May 10, 1978, and, therefore, the ‘921 patent had already expired on May 10, 1998, before Pingel sent the letters to its distributors, Rivera, or Golan.
In March 1999, Golan filed a DJ action for noninfringement of several patents owned by Pingel, including the two patents referenced in Pingel’s cease and desist letter and for noninfringement of the POWER-FLO trademark. Golan also asserted federal and state antitrust claims and federal and state unfair-competition claims, asserting that Pingel made false or misleading statements regarding the performance of Golan’s petcock to Rivera, and that Pingel’s allegation of patent infringement was in bad faith because Pingel’s ‘921 patent had expired at the time it wrote its letters to its distributors, Rivera, and Golan, and because Pingel never had an intent to bring a lawsuit against Golan. Pingel asserted counterclaims for infringement of the ‘533 design patent, and for federal trademark infringement and unfair competition related to Golan’s use of the PEAK FLOW mark. Pingel admitted that the ‘921 patent expired on May 10, 1998, but that it lacked knowledge of when Golan’s petcock was first offered for sale, although discovery later revealed that Golan made its first sales of the accused petcock after the expiration of Pingel’s patent.
Golan moved for partial SJ of noninfringement of the ‘533 design patent and of the ‘921 patent. In response, Pingel filed a statement of nonliability and covenanted not to sue Golan or any of its customers for infringement of the expired ‘921 patent. The district court granted Golan’s motion for SJ on the ‘533 design patent and dismissed Golan’s DJ claim on the ‘921 patent as moot. Neither party appealed these decisions.
Pingel then moved for SJ on Golan’s tort, unfair competition, and antitrust claims. The district court held that the communications were not actionable and, therefore, granted Pingel’s SJ. The district court held that Pingel’s communication with Rivera regarding the Golan filter’s flow rate was not actionable because Golan had presented no evidence that Pingel’s statement was untrue. The district court also held that Pingel’s communications with its distributors, Rivera, and Golan regarding Golan’s alleged patent and trademark infringement were not actionable because Golan had not presented clear and convincing evidence that Pingel had made the assertions of infringement in bad faith.
The Federal Circuit affirmed the district court’s grant of SJ on Golan’s state and federal antitrust claims on the alternate ground that Golan had failed to make the requisite prima facie showing that Pingel possessed monopoly power in the relevant market under both the Sherman Act, 15 U.S.C. § 1 et seq., and the Cartwright Act, the California antitrust statute, Cal. Bus. & Prof. Code § 16700 et seq. The Federal Circuit also affirmed the district court’s grant of SJ on Golan’s federal and state unfaircompetition claims and state tort claims arising out of Pingel’s letter to Rivera regarding the flow rate of Golan’s filters because Golan failed to present evidence sufficient to raise a genuine issue of material fact that Pingel’s statement was false or misleading. Rather, Golan offered only the argument that Pingel’s statement could be interpreted as a comment on the performance of the filter element found in the Golan fuel filter, which according to Golan, flowed at the advertised rate. The Federal Circuit rejected this interpretation, noting that Pingel’s statement plainly referred to the flow rate of the fuel filter in a gravity system and not to a particular element of the filter.
Regarding Golan’s federal and state unfair-competition claims arising out of Pingel’s accusations of patent infringement, the Federal Circuit noted that a finding of bad faith is proper only where there is clear and convincing evidence that the patentee made objectively false allegations with knowledge of their incorrectness or falsity, or with disregard for either. Here, the evidence revealed that Pingel had relied on its attorneys’ calculations of the expiration date of the patent and only learned that the advice was incorrect after sending its letters. The Court also pointed out that, even if a patentee has no intention of initiating suit, allegations of infringement are not necessarily made in bad faith, because the decision to initiate a suit often involves businessrelated concerns as well as an evaluation of relevant facts and legal issues. Thus, in the absence of clear and convincing evidence of bad faith, the Federal Circuit affirmed the district court’s grant of SJ, dismissing the federal and state unfair-competition claims predicated upon Pingel’s accusations of patent infringement.
Finally, the Federal Circuit reversed the district court’s grant of SJ on the federal and state unfair-competition claims predicated on Pingel’s assertion of trademark infringement because the district court and the parties had erroneously presumed that Federal Circuit law governedthese claims. The Federal Circuit noted that Ninth Circuit law should govern any claims arising under the Lanham Act, and that state law should govern entirely the California unfair-competition and business-tort claims. Accordingly, the Court remanded.