False Patent Claim Doesn’t Mean False Advertising

From 43(B)log:

Plaintiff Carter is defendant ALK’s former vice president and general manager. He alleged that ALK, which does business as ACME Security, took his idea for improving the security of safe-deposit boxes, applied for a patent that falsely listed ALK’s owner as an inventor, and coerced him to assign his rights therein. The court determined that none of Carter’s multiple claims stated a federal claim, though it agreed that his allegations were troubling.

Carter’s false designation of origin claims, based on ALK’s sales pitch to Wachovia, were precluded by Dastar. This is familiar territory: if ALK ultimately sells the invention to Wachovia, it will be the physical source of the relevant goods.

False advertising was not successful either, in part because Carter alleged that it occurred through the false patent application. The court had no problem deciding that this wasn’t “commercial advertising or promotion.” Moreover, this was the unusual case where the misrepresentations at issue didn’t involve any product or service, only the pending patent application. There is precedent holding that a patent isn’t a “good or service” under the Lanham Act. digiGAN, Inc. v. iValidate, Inc., 71 U.S.P.Q.2d 1455, 1459-60 (S.D.N.Y. 2004). (Note: a patent might be part of a defendant’s “commercial activities,” however, as that term has been broadly defined in false advertising cases. The court didn’t address the line of cases holding that misrepresentation that goods are patented or that a patent is pending can be false advertising in appropriate circumstances.)

Finally, invoking a sort of implied exhaustion requirement, the court pointed out that a falsity determination would require the court to determine who the real inventor/s was/were, and this is for the PTO in the first instance. The statutory scheme governing patents is pretty clear that courts should only determine inventorship disputes once (if) a patent issues. This isn’t akin to a garden-variety claim that the patent statute preempts the Lanham Act. There will be no patent unless the PTO approves it; it’s more like a false advertising claim based on statements about a drug the FDA has yet to approve.

Legal Filing:  Carter v. ALK Holdings, Inc., 2007 WL 1655857 (N.D. Ga.)

Patent Law Battle Plays Out Between Vonage and Verizon

From May It Please the Court:

By now, if you follow anything to do with current legal issues, you’ve seen most of the analysis and prognostications from lawyers across the country about the recent Supreme Court patent decisions, and the earth-shattering change one of Black Monday’s decisions will have on the patent bar and patent litigators, like this firm.  In case you missed it, however, click here for a roundup of the professor and practitioner’s take on the decision on KSR v. Teleflex.

Or, if you’re somewhat more kinesthetic, then you can listen to this podcast recorded today with three top patent experts.

If you’re not in the ivory towers, but rather in the trenches like we are, then perhaps this New York Times report is more apropos.  In that report, Vonage is requesting a new trial after it got slammed by a jury who favored Verizon’s version of the patent case.  The reason?  Black Monday’s Supreme Court decision.

Given that decision, anyone with a patent based in part on prior art, and if it’s “obvious” - as opposed to patentable - the patent holder can expect a challenge to their patent by someone who wants to do the same thing.  Patent holders just saw the value of their patent portfolios drop through the floor.

Perhaps this quote from Aubrey Menen encapsulates the Supreme Court’s ruling best:  “The essence of success is that it is never necessary to think of a new idea oneself.  It is far better to wait until somebody else does it, and then to copy him in every detail, except his mistakes.”

Privacy Policy Lawsuit Leads to Multimillion Lanham Act Award

From 4(3)Blog: 

After a jury trial, CollegeNET won a patent infringement claim, as well as its Lanham Act false advertising claim. The jury awarded $4.5 million in damages. The court rejected XAP’s argument that the Lanham Act claim was barred by laches, accepted the jury’s award of damages, refused to award extra recovery of XAP’s profits, and found that CollegeNET was entitled to attorneys’ fees because XAP’s conduct was willful.

Some background: CollegeNET and XAP each allow high school students to apply online for admission to colleges and universities. While CollegeNET charges each school for each student application, XAP offers its services to schools free. XAP makes its money in part from the sale of students’ personal data, submitted in their online applications, to “state agencies, departments of education, student-loan guarantee authorities, and commercial-lending institutions such as banks.”

XAP’s privacy policy promises that personal data isn’t released to third parties “without the user’s express consent and direction.” At all relevant times, students using XAP were asked an “opt-in” question when creating certain types of accounts: “Are you interested in receiving information about students loans and financial aid?” XAP treated a “yes” answer as “express consent and direction,” and forwarded the student’s personal information to its partners for a fee.

The court found clear and convincing evidence that XAP didn’t inform students that a “yes” answer was “express consent and direction,” though it could have included such clarifying language. Further, XAP chose not to do this because it was a “bad idea” that would result in fewer opt-ins and lower revenues. Indeed, “XAP intended its privacy-policy statements to lull students into a false sense of security regarding the privacy of [their] personal information.” Though there was no direct evidence that students were actually deceived, the court found that there was a presumption of deception arising from XAP’s bad faith, and that XAP “knew its deception substantially increased the number of students who answered ‘yes’ to the opt-in question.”

CollegeNET’s expert testified that it suffered $35 million in damages, assuming that all XAP’s college applications included the opt-in feature. The evidence, however, showed that only 15% of the applications had an opt-in. The jury verdict of $4.5 million is slightly less than 15% of CollegeNET’s claimed damages, which the court found appropriate. (It also noted that, under the statute, its only discretion was to increase the damages to the extent that they didn’t fully compensate CollegeNET; there is no corresponding discretion to reduce damages.) XAP’s profits from applications with the opt-in question were $2.5 million. Given that the Lanham Act aims at compensation, not penalty, the court found that disgorgement of XAP’s profits on top of the damages would be inappropriate. Despite avoiding this extra hit, XAP is still on the hook for what’s likely to be substantial attorneys’ fees as well as the $4.5 million in damages.

My question: was the opt-in question really deceptive? Just because XAP knew that it would get fewer opt-ins if it made opt-in sound more alarming doesn’t mean that students were deceived by the actual representations at issue. What could they have thought they were agreeing to when they said they wanted to receive information about student loans and financial aid? I’m surprised that, without direct or survey evidence of deception, the court found not just deception, but willful deception. Eric Goldman may have further thoughts, given his background in privacy policies.

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