The opinion of the court was delivered by: 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 judgement 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.
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.
Carlisle's fifth counterclaim is brought under § 43(a) of the
Lanham Act in its role as a federal law of unfair competition.*fn1 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 ¶
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,
*fn2 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.
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 material*fn3 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 possible that
Spotless' representations did harm Carlisle's sales; thus, both the prongs
of causation and materiality are satisfied by this allegation. Finally,
Carlisle's allegation that Spotless' claims were made during Spotless'
"sales and marketing efforts to promote the sale of their products,"
Countercl. at ¶ 97, is an effective allegation that Carlisle's claims
were made in "commercial advertising or promotion."
15 U.S.C. § 1125(a)(1).
Indeed, the fact pattern in the present case seems to resemble a
standard Lanham Act cause of action — the so-called "false
comparative advertising" case. For example, in Castrol, Inc. v. Quaker
State Corp., 977 F.2d 57 (2d Cir. 1992), the Court of Appeals for the
Second Circuit affirmed a district court's issuance of a preliminary
injunction under, the Lanham Act which enjoined the continued broadcast
of a television commercial which allegedly falsely asserted that tests
showed that Quaker State automobile oil protected engines better "at
start-up" than "any other leading  motor oil." Id. at 59. The Second
Circuit ruled that, as the district court had found that the tests to
which Quaker referred did not, in fact, support its claim, but rather
contradicted its claim, the broad injunction was valid.
Similarly, in McNeilab, Inc. v. American Home Products Corp.,
675 F. Supp. 819 (S.D.N.Y. 1987), the manufacturers of Tylenol sought and
received an injunction pursuant to § 43(a) of the Lanham Act against
the manufacturers of Advil. The manufacturers of Advil were enjoined from
publishing advertisements which claimed that Advil was as mild on the
stomach as Tylenol, because it had already been found in a prior judgment
that Advil was not, in fact, as mild as Tylenol, and evidence showed that
the statement at issue was probably misleading to consumers.
As in both of the above cases, Carlisle alleges that Spotless has made
false statements which tended to mislead the target audience, in this
case, retailers, as to the comparative quality of the goods produced by
the manufacturers. Here, however, Spotless' claim of superior quality is
related to the legality of its product under patent law. While this
action is for damages and not for injunctive relief, the effective
difference between the two claims is only that the former requires proof
of causation while the latter requires only that the claimant show a
likelihood of harm. As already noted, Carlisle has sufficiently alleged
causation to survive the motion to dismiss. It seems clear that, if
made, Spotless' false claims and implications that Carlisle's hangers
infringe Spotless' patent and, thus, may subject purchasers to suit, or
other problems,*fn4 are as harmful to fair competition and as material
to a decision to purchase as claims that Advil is as mild on the stomach
as Tylenol, or that Quaker Oil protects a car better than other oils.
Therefore, but for the patent aspect of the case, one would expect
Spotless' statements to create the same
liability as did the statements of the defendants in Castrol and
A number of courts have applied the Lanham Act to patent cases such as
the one at hand without even a discussion of foreclosure by federal
patent law. For example, the Western District of New York did so in Laser
Diode Array, Inc. v. Paradigm Lasers, Inc., 964 F. Supp. 90 (W.D.N.Y.
1997). The Laser Diode decision begins with the words "[t]his is a patent
infringement case." Id. at 91. The case was based on a failed
relationship between two manufacturers that degenerated into charges by
Laser Diode Array, Inc. ("LDAI") that Paradigm Lasers, Inc. ("Paradigm")
was infringing their patents. The relevant portion of the case dealt with
Paradigm's counterclaim under the Lanham Act. Paradigm alleged that LDAI
was claiming within the industry that one of Paradigm's products
infringed on LDAI's patents and that LDAI had contacted at least one
customer and induced that customer not to purchase Paradigm's product
because it violated LDAI's patent. See id. at 94. In holding that these
allegations constituted a viable claim under the Lanham Act, the district
court quoted the Second Circuit: "Although early judicial interpretations
of this section restricted its applicability, section 43(a) subsequently
has been employed successfully to combat a wide variety of deceptive
commercial practices." Id. at 95, quoting PPX Enterprises v.
Audiofidelity Enterprises, 818 F.2d 266 (2d Cir. 1987). The district
court went on to cite cases from other circuits in which district courts
had ruled that allegations of false representations of infringement had
served as grounds for viable Lanham Act claims. See id. at 95-96 (citing
Laitram Machinery, Inc. v. Carnitech A/S, 901 F. Supp. 1155, 1162
(E.D.La. 1995); Larami Corp. v. Amron, 36 U.S.P.Q.2d 1073, 1084 (E.D.Pa.
1995); Accent Designs, Inc. v. Jan Jewelry Designs, Inc., 827 F. Supp. 957,
964-65 (S.D.N.Y. 1993); Repap Enterprises Inc. v. Kamyr Inc., 27
U.S.P.Q.2d 1685, 1690, 1993 WL 322881 (E.D.Pa. 1993); and Brandt
Consolidated, Inc. v. Agrimar Corp., 801 F. Supp. 164, 170 (C.D.Ill.
Brandt is squarely on point. There, the district court, addressing
facts similar to those at bar, awarded summary judgment on the issue of
liability under § 43(a) of the Lanham Act. Brandt Consolidated, Inc.
("Brandt"), a manufacturer of fertilizer mixtures, had purchased certain
chemicals from Agrimar Corp. ("Agrimar") over an extended period of
time. When the relationship ended, Brandt continued to manufacture and
sell a chemical compound allegedly similar or identical to the one made
by Agrimar. Agrimar, alleging it had a valid patent for a key ingredient
in the compound, sued Brandt for patent infringement in the Middle
District of Florida, Tampa division, and sent letters alleging
infringement to one of Brandt's customers. Brandt brought a clalm in the
United States District ...