A plaintiff’s settlement agreements resulting from an International Trade Commission investigation listed infringing products that included a product sold by a third-party supplier. When the plaintiff sued the third-party supplier in a later case, the supplier counterclaimed for defamation. The Illinois federal court determined that the defamation claims could proceed to be heard and would not be dismissed on summary judgment.
Toyo sued several tire manufacturers in the International Trade Commission (ITC), asserting infringement of its design patent. In the resulting settlement agreements, Toyo noted it believed a particular tire sold by third-party Atturo infringed Toyo’s trade dress and required the ITC respondents to agree not to sell Atturo’s tire. One of the respondents who previously sold Atturo’s tire subsequently stopped selling that tire. Toyo also sent a threatening letter to Atturo’s marketing partner.
Toyo later sued Atturo for trade dress infringement, and Atturo counterclaimed, amongst other things, that Toyo defamed Atturo by listing Atturo’s tire as an infringing product in the earlier ITC settlement agreements and sending a threatening letter to Atturo’s marketing partner. Toyo then moved for summary judgment on all of Attturo’s counterclaims, including the one for defamation.
The court denied Toyo’s motion for summary judgment in large part. Specific to the defamation counterclaim, the court concluded the statement was not privileged from liability merely because it was made in the context of litigation. It also found that Toyo’s statements involved verifiable facts rather than a mere opinion and could defame Atturo.
Toyo argued Atturo’s defamation claim was barred by the “absolute litigation privilege,” which immunizes certain statements made during litigation. For the privilege to apply, however, the statements made during litigation must bear some relationship to the pending litigation and must be made in furtherance of the litigation.
Toyo contended that the privilege barred Atturo’s defamation claim because the statements, accusing Atturo of trade dress infringement, were made in and related to the prior ITC settlement agreements. Atturo argued that Toyo waived the defense, and alternatively, the privilege did not apply because Toyo’s statements were unrelated to the ITC proceeding.
While the court did not decide if the defense was waived, the court agreed with Atturo that the statements were unrelated to the ITC proceeding because: (1) the settlement agreements were private agreements that did not require ITC approval to become effective, (2) the agreements between Toyo and the ITC respondents regarding Atturo were actions taken by the parties themselves, (3) the agreements between Toyo and the ITC respondents regarding Atturo were beyond the scope of Toyo’s complaint and the ITC investigation, and (4) the settlement agreements became effective without approval from the ITC judge.
The court explained the purpose of the privilege did not support Toyo’s arguments. The absolute litigation privilege allows attorneys freedom to secure justice for their clients by facilitating the free flow of information. Toyo, however, was not attempting to secure justice from the ITC when it made the statements about Atturo. Placing the statements in settlement agreements for another case did not cloak the statements with privilege because (1) Atturo was not a party in the ITC action that settled, (2) Atturo’s tire accused of infringement was not identified in the ITC complaint, and (3) Toyo asserted no claims of trade dress infringement in the ITC action (which it alleged against Atturo’s tire in the instant case).
Toyo next argued Atturo did not identify any defamatory per se statements by Toyo. Defamatory statements tend to harm another person’s reputation such that they deter third parties from associating with the person. Courts deem certain categories of defamatory statements to be defamatory per se. The relevant business-related category of defamation per se applies here, involving words that prejudice a business or impute lack of the ability in the business.
The court determined Toyo’s statements might be defamatory per se. Toyo argued that defamation allegations cannot be based on its claims of intellectual property infringement alone. Atturo argued Toyo made the following multiple defamatory per se statements: (1) believing additional tires infringed Toyo’s intellectual property and including Atturo’s tire in a list of tires infringing Toyo’s trade dress in the prior ITC settlement agreements, (2) making the same statements in later agreements with Atturo customers, and (3) sending a threatening letter to Atturo’s marketing partner. The court agreed that the first two statements might be defamatory per se because Illinois law recognizes that intellectual property infringement allegations can provide viable defamation claims.
Toyo alleged that it expressed an opinion rather than a verifiable defamatory fact. Showing that a statement fails to contain any verifiable fact, or in other words, is an opinion, serves as a defense to defamation. However, dressing a factual statement with the qualifier “in my opinion” does not shield the statement from defamation claims. Courts consider the context of the statement when determining if a statement is opinion or fact-based.
The court rejected Toyo’s opinion defense regarding the agreements. Toyo focused its defense on the language of the agreements stating that it was “aware of additional tires that it believes infringe.” The court classified these words as mere prefatory language. The court considered the accusations of infringement and the prohibitions against Atturo customers purchasing Atturo tires in the context of the legally binding settlement agreements. Ultimately, the court determined the statements in the settlement agreements involved verifiable facts, including whether Toyo owned protectable trade dress rights in its tire and whether Atturo’s tire infringed those rights.
The court, however, agreed with Toyo’s defense that the letter Toyo sent to Atturo’s marketing partner was not defamatory. Toyo stated in the letter that it believed Atturo had only joined the marketing partner to legitimize its tire, that Atturo was telling a false story, and that the marketing partner should proceed carefully. Unlike the settlement agreement statements, the court determined that the letter was vague and did not assert verifiable facts, was not addressed to an Atturo customer, and was not part of an executed settlement agreement.
Statements in settlement agreements may result in claims of defamation when they allege that third-parties infringe intellectual property.
The Toyo Tire decision can be found here.
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