accusing someone of patent infringement can be actionable disparagement if you know the patent's invalid

Cap Export, LLC v. Zinus, Inc., 2023 WL 6381821, No. 2:21-cv-07148-JWH-MRWx (C.D. Cal. Sept. 28, 2023)

Cap Export alleged that Zinus fraudulently obtained a patent after Zinus used the public domain bed-in-a-box sets of a non-party as the basis for its patent application. Before it prevailed in the underlying patent litigation, Cap Export alleged that defendants disparaged Cap Export and its products as an infringer/infringing. Among other things, Defendants’ counsel sent a letter to Cap Export’s customer 4Moda Corp. and to Amazon. Amazon responded by shutting down 4Moda’s Amazon webpage, which allegedly caused Cap Export to lose sales of its bed-in-a-box products. The underlying patent litigation allegedly fraudulently induced Cap Export to enter into a $1.1 million consent judgment, which defendants touted in a press release and advertised on Zinus’s website even after the court vacated the stipulated judgment. Defendants allegedly distributed the false advertisement to Cap Export’s online sales partners—including Amazon, Walmart, and Wayfair—which caused a decrease in Cap Export’s product ranking and sales, through Google Ads, and through a press release published in July 2019 on the Business Insider website.

When the information about the prior art came in, the court granted summary judgment in favor of Cap Export in the patent case and invalidated the patent. There was a partly successful appeal to the Federal Circuit, after which Zinus gave Cap Export a covenant not to sue.

Courts have generally harmonized the Lanham Act with the Patent Act by requiring bad faith before claims about patent infringement can constitute false advertising. Although the Ninth Circuit has held that statements about copyright licensing status are not actionable under the Lanham Act, it has referred with approval to the bad faith standard for patent-related claims, and the court here noted that Lexmark, a Supreme Court case, concerned false advertising claims based on accusations of infringement and expressed no concerns about that.

Cap Export sufficiently pled disparagement in bad faith, knowing the patent was invalid.

The litigation/fair report privileges did not, at this stage, bar the related state law claims. The ads were not necessary for the litigation, and the fair report privilege didn’t apply because Cap Export pled that the statements didn’t match the court proceedings: Defendants claimed that Cap Export infringed multiple “patents” and falsely asserted that Cap Export “deliberate[ly] cop[ied] Zinus’ innovation, which could mislead those who depend on Zinus’ exceptional product quality.”

Tortious interference: “Defendants targeted Cap Export’s economic relationship with Amazon, Walmart, and Wayfair by sending communications to those companies concerning the allegedly bad faith underlying litigation, and Cap Export pleads that those communications damaged Cap Export’s sales.” Given the alleged bad faith, this sufficed.