Spotless Enterprises v. Carlisle Plastics

• Decision Date: 12 July 1999
• Docket Number: No. CIV.A.97-CV-0427(DGT).,CIV.A.97-CV-0427(DGT).
• Citation: 56 F.Supp.2d 274
• Parties: SPOTLESS ENTERPRISES, INC. and Spotless Plastics Pty. Ltd., Plaintiffs-counterdefendants, v. CARLISLE PLASTICS, INC., Defendant-Counterplaintiff.
• Court: U.S. District Court — Eastern District of New York

56 F.Supp.2d 274

SPOTLESS ENTERPRISES, INC. and Spotless Plastics Pty. Ltd., Plaintiffs-counterdefendants, v. CARLISLE PLASTICS, INC., Defendant-Counterplaintiff.

No. CIV.A.97-CV-0427(DGT).

United States District Court, E.D. New York.

July 12, 1999.

Kenneth King, Patricia Anne Wilczynski, Allen R. Morganstern, Scully, Scott, Murphy & Presser, Garden City, N.Y., for plaintiff.

Lewis H. Eslinger, Garden City, N.Y., for plaintiff.

Ira E. Silfin, Kenneth P. George, Amster, Rothstein & Eberstein, New York, NY, for defendant.

MEMORANDUM AND ORDER

TRAGER, District Judge.

As one of many claims and counterclaims between the parties to this action and their various associates and predecessors in interest, Carlisle Plastics, Inc. ("Carlisle"), in its fifth counterclaim against Spotless Enterprises, Inc. and Spotless Plastics Pty. Ltd. ("Spotless"), asserted an unfair competition and false advertising claim under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), based on Spotless' false allegations of Carlisle's patent infringement. Spotless then moved for summary judgment on that counterclaim. The parties have agreed, however, that, at this point, the motion is best treated as a motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Taken in that posture alone, the motion to dismiss is denied.

Background

Both Spotless and Carlisle manufacture clothes hangers which are sold to retailers or to clothes vendors who then deliver the clothes, already on the hanger, to retailers like Sears, WalMart, Target, and Hills Stores; it is the retailers who make the decision as to what kind of hanger is best for their stores. See Ans., Affirmative Def. and Countercl. at ¶ 91 (herein "Countercl."). The hangers are constructed in such a way, and equipped with such attachments, that information about a particular garment, for instance, size, price, or variety, can be viewed by a consumer who scans a clothes rack looking for a particular type or size of an item.

Carlisle came into direct competition with Spotless when, in 1993, Carlisle began manufacturing hangers which resembled the patented Spotless hangers already dominant in the market in that the identifying information was positioned on the top, rather than the side, of the hangers. At that time, Carlisle sent to Spotless a sample of the new design and information explaining why its hanger did not infringe on Spotless' patented hanger design. Spotless disagreed with this assessment. Moreover, allegedly fearing they might be charged with infringing Spotless' patent, retailers such as Target Stores, and later Hills Stores, rejected Carlisle's hangers. See Carlisle Plastics, Inc. v. Spotless Enterprises, Inc., 984 F.Supp. 646, 648 (E.D.N.Y.1997); Countercl. at ¶¶ 96, 99; Def. Mem. in Opp. to Pl. Motion for Sum. J. in Regard to Defendant's Fifth Countercl. (herein "Def. Mem.") at 6. In 1994, Carlisle brought a declaratory judgment action for invalidity and non-infringement of Spotless' patent. After a reexamination by the Patent and Trademark Office, Spotless countersued, in 1997, for patent infringement and unfair competition based on merchandise not included in the 1994 suit. The suits were consolidated into a 1997 action which included, inter alia, a counterclaim by Carlisle alleging unfair competition and false advertising under § 43(a) of the Lanham Act. After a bench trial which addressed the questions of the validity and infringement of Spotless' patent by Carlisle, Spotless' patent was found to be valid but not infringed either literally or under the doctrine of equivalents. See Carlisle Plastics, 984 F.Supp. at 658 (E.D.N.Y.1997). That ruling has been upheld by the Court of Appeals for the Federal circuit. See Carlisle Plastics, Inc. v. Spotless Enterprises, Inc., 178 F.3d 1313, 1999 WL 37413 (Fed.Cir.1999).

Although not relevant for the purposes of a motion to dismiss, certain evidence which was submitted pursuant to the original motion for summary judgment demonstrates the types of conduct on which Carlisle bases its Lanham Act counterclaim. For instance, Carlisle has presented evidence that, in trying to promote sales of its own hangers, Spotless' Executive Vice President, Stanley Gouldson, "probably" told Mark Swanson of Target Stores that Carlisle's hangers infringed Spotless' patent. See Dep. of Stanley Frederick Matthew Gouldson at 79, Decl. of Ira Silfin, Ex. 13. To conclude that Target's subsequent refusal to order hangers from Carlisle was a result of Gouldson's representations (if made) would certainly be premature at this point. But it seems that Carlisle will be attempting to prove just such a connection. More likely to be convincing, perhaps, is Carlisle's evidence that Hills Stores, having been informed of the alleged infringement, chose not to do business with Carlisle, despite an ongoing relationship, and turned to Spotless instead. See Letter of Howard Samuels, VP for Business Development — A & E products, dated 1/23/98, Decl. of Patricia A. Wilczynski, Ex. 3; Def. Mem. at 6.

Discussion

Carlisle's fifth counterclaim is brought under § 43(a) of the Lanham Act in its role as a federal law of unfair competition.¹ More specifically, because it is based on Spotless' alleged representations to Carlisle's customers and potential customers, it seems best characterized as a § 43(a) false advertising claim. Carlisle alleges: that Spotless "advised retailers or garment manufacturers that they [Spotless] own and are the licensee of patents which cover [the disputed] hangers [and] ... that [Carlisle's products] ... would infringe one or more of their patents," Countercl. at ¶¶ 93, 95; that Carlisle was "asked by retailers to provide indemnification against patent infringement to the retailers," id. at ¶ 96; that the acts "were [carried] out in interstate commerce during the course of [Spotless'] sales and marketing efforts to promote the sale of their products," id. at ¶ 97; that Carlisle suffered damages as a result of Spotless' actions, id. at ¶ 99; and, finally, that Spotless' statements were false. Id. at ¶ 100.

Spotless has responded that, because the damages alleged in this counterclaim are the result of Spotless' legitimate and good faith defense of its patent, federal patent law immunizes Spotless from liability. In effect, the argument is that federal patent law "trumps" other federal laws, in this case the Lanham Act. Spotless further asserts that even were its representations found to have been made in bad faith,² i.e., without a reasonable basis to believe that Carlisle was infringing Spotless' patent, liability would still not lie under the Lanham Act because that Act does not address patent claims. In contrast to the previous argument, this contention is based on a limited view of the scope of the Lanham Act rather than an expansive view of the power of federal patent law. However, I conclude that the Lanham Act covers the conduct at issue and that federal patent law will not immunize Spotless from recovery even if Carlisle fails to establish bad faith.

(1)

The Scope of the Lanham Act

The Federal Circuit has recently held that it will apply its own law to the question whether or not "patent law conflicts with other federal statutes or preempts state law causes of action." See Midwest Ind., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1999 WL 270387, at *1 (Fed.Cir. May 5, 1999). The Federal Circuit has repeatedly acknowledged, however, that, aside from cases in which there is a conflict with patent law, claims of unfair competition are governed by the law of the regional circuit in which the district court sits. See, e.g., Pro-Mold and Tool Co., Inc. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1574 (Fed.Cir.1996). Thus, the law of the Second Circuit governs Spotless' contention that even if the conflict with patent law were put aside, the Lanham Act would not provide a remedy for false claims of infringement.

In order to establish a prima facie case for damages as a result of unfair competition/false advertising under the Lanham Act, Carlisle must allege that Spotless: (1) made false representations, (2) for goods, (3) in interstate commerce, (4) in commercial advertising or promotion, (5) about a material³ facet of Carlisle's product, (6) that caused damage to Carlisle. See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, False Advertising, § 27:24 (1998); 15 U.S.C. § 1125(a)(1). Importantly, although intent is relevant on the issue of damages, intent to deceive or bad faith is not a necessary element of a Lanham Act claim. See Procter & Gamble Co. v. Cheesebrough-Pond's, Inc., 747 F.2d 114, 119 (2d Cir.1984) ("proof of good faith does not immunize a defendant" from Lanham Act false advertising charge); Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir.1980) (intent to deceive is not an element of false representation); Parkway Baking Co. v. Freihofer Baking Co., 255 F.2d 641, 648 (3d Cir.1958); Brandt Consolidated, Inc. v. Agrimar Corp., 801 F.Supp. 164, 174 (C.D.Ill.1992) (Lanham Act claim based on false representations of patent infringement did not require allegation of bad faith); Grupke v. Linda Lori Sportswear, Inc., 921 F.Supp 987, 994 (E.D.N.Y.1996) (citing Johnson & Johnson for same); McNeilab, Inc. v. American Home Products Corp., 501 F.Supp. 517, 529-30 (S.D.N.Y.1980) (false advertising claim under Lanham Act requires no intent to deceive). The Lanham Act has created a regime of strict liability with regard to false advertising claims.

In this case, absent the patent law issues, there would seem to be no question that Carlisle's complaint alleges grounds for a claim under the Lanham Act (although possibly with only limited recovery). There is no dispute that the goods at issue traveled in interstate commerce. Spotless' claim that Carlisle's hangers infringed their patent has subsequently been held to be false. And it is certainly...