Courts Continue to Grapple with False Marking Cases
Courts continue to wage a valiant effort to create consistency and provide guidance in the numerous false marking cases launched in the aftermath of Bon Tool. Defendants accused of false marking may seek dismissal on the basis that plaintiff lacks standing. In so doing, defendants often argue that plaintiff was not in the business and suffered no competitive injury as a result of false marking.
This strategy was effectively foreclosed when the Court of Appeals for the Federal Circuit reversed and remanded the Southern District of New York’s holding in Stauffer v. Brooks Brothers. In that case, the Federal Circuit concluded that the government’s right to have its laws effectively applied provided sufficient basis for a qui tam plaintiff to bring an action on its behalf. As a result, false marking defendants now seek alternative defensive strategies, including attacks on the sufficiency of the complaint and assertion of affirmative defenses. To see the results of two such attempts, see the discussion after the jump.
One strategy that has met with mixed results has been to attack the sufficiency of a plaintiff’s complaint on the basis that false marking is a fraud-based claim subject to heightened pleading standards mandated under Fed. R. Civ. P. 9(b). This defense was successfully employed by the defendants in a recent case before the United States District Court for the Southern District of Florida. In Herengracht Group, LLC v. Intelligent Products, Inc., the plaintiff alleged that Intelligent Products, Inc. had falsely marked a disposable pet waste disposal bag commercially known as the “Mutt Mitt.” Intelligent Products sought dismissal of the complaint pursuant to Rules 9(b) and 12(b)(6). The Herengracht Group attempted to establish the requisite “intent to deceive” with conclusory assertions that the defendants were “sophisticated companies, experienced with leveraging patents and other intellectual property” and had been doing so for two decades. The court found plaintiff’s assertions were inadequate and granted Intelligent Products’ motion to dismiss. Citing Graco, the court noted that “These allegations alone do not supply enough factual matter to suggest an intent to deceive, and amount to nothing more than ‘mere labels and conclusions’ prohibited by Twombly.”
In Oakley, Inc. v. Bugaboos Eyewear Corp., Bugaboos Eyewear asserted false marking counterclaims against Oakley, Inc. Oakley filed a motion to amend its answer to the counterclaims, asserting thirteen additional affirmative defenses. Bugaboos Eyewear objected to eleven of the thirteen affirmative defenses. First, Bugaboos argued that the defenses of laches and unclean hands could not be asserted against a party standing in the shoes of the federal government. The court disagreed, citing a Ninth Circuit case involving the Clean Air Act finding that the defense of laches “must be invoked sparingly in suits brought to vindicate the public interest.” The court found that laches and unclean hands were proper affirmative defenses to a false marking claim.
The court denied Oakley’s motion to add the additional affirmative defenses, finding that they did nothing more than reframe elements that the counterclaimants were required to prove, and did not actually constitute affirmative defenses. Among the affirmative defenses Oakley sought to add was one based upon advice of counsel. The court noted that in Pequignot, the defendant used advice of counsel in order to rebut the presumption that it had marked its products with intent to deceive the public. The Oakley court concluded that advice of counsel was not an affirmative defense, but instead formed part of the “intent to deceive” analysis. In a recent opinion, the Oakley court dismissed Bugaboos’ false marking counterclaim in its entirety, finding that the warranty card where the allegedly false marking appeared did not constitute advertising as defined by the statute. As these two recent cases illustrate, defendants have been forced to inject some creativity into their attempts to short circuit what may become costly and protracted litigation.
As long as false marking suits continue to be filed at a rapid clip, defendants will be forced to explore new strategies to defend against them.