In Continental Datalabel, Inc. v. Avery Denison Corp, 09 C 5980 (U.S. D. N.D. Ill 2012) the 7th Circuit considered numerous legal issues arising from a war between two companies that manufacture sticky labels.

Despite the increasing use of electronic data storage, there still seems to be a high demand for labeling things.  This apparently hotly contested market is dominated by Avery Denison.   Avery makes labels that are perforated, so the user can easily peel the label from the backing.  This works well, but if a user is not careful, and does not need all the labels in a row, this will leave some labels without backing on the edge, and hence unusable in a printer.

So, Avery’s skilled inventors devise a new invention, the “pop up edge” which allows the user to “fold” the back, pop up some labels, and then refold it flat.  This allows it to be re-printed, and also, keeps the unused labels on the backer board.  It looks like this:

Avery label

Avery sells its labels among other places, Staples.  It advertised this new product as follows:  “Only Avery label sheets bend to expose the Pop-up Edge™” and “Only Avery offers the Pop-up Edge™ for fast peeling—just bend the sheet to expose the label edge.”

Competitor Continental Datalabel also sells peel off labels.  It also had perforated rows, but its labels suffered the same issue as Avery’s perforated rows. So, Continental Datalabel also marketed that its products could be folded to reveal the label, and then re-flattened.

Avery filed a patent application on the “Pop Up Edge” technology.  Before the patent issued, it allegedly threatened retailers with patent suits if they sold products of Continental Datalabel.  It also sent one email in which it said “Avery has made 2 rounds of patent applications for Easy Peel. The first set of patent applications were filed several years ago and the additional patent applications were filed for the pop up edge which are even stronger than the first set of filings. Once the patents are granted Avery will aggressively defend its IP.” (emphasis added).

 As one might imagine, the retailers, fearing a patent suit if they sold a possibly infringing product in the future, refused to deal with Continental Datalabel.  Predictably, Continental Datalabel sued.  The two main arguments presented by Continental Datalabel were (1) that the two statements above stating that “only” Avery sold fast peeling label sheets was false and misleading advertising; and (2) that Avery’s threats to Staples and other retailers that it had existing patents (at a time when it did not have any) and threatening to file future lawsuits on as of yet issued patents, violated Continental Datalabel’s rights.

Continental Datalabel lost this case (at least at this phase).  With respect to the false advertising claims, the claims refer to a trademarked term “Pop Up Edge” and not to a generic “easy peeling” label sheet.  In false advertising cases there are primarily two types of false advertising.   Literally false statements, and literally true statements that are misleading.  Proof of the former eliminates the need to show any harm or actually misled consumers – because a person who makes a literally false statement is presumed to have intended to mislead.  Proof of the latter, however, requires that “the plaintiff [] prove that the statement is misleading in context by demonstrated actual consumer confusion.” (emphasis added).  Here, the court held that the claims were literally true, primarily because the modifier “only” modified “Pop Up Edge” which was claimed as a trademark.  So, it was literally true that “only” Avery sold products with “Pop Up Edge” technology.  Thus, Continental Datalabel was required to show actual confusion.  It attempted to do this via a survey, and by testimony of an expert.  The expert, however, failed to survey respondents on the meaning of “Pop Up Edge” and as a result, his expert testimony was essentially disregarded.

On the claims regarding enforcement of the patent, the plaintiff was not able to provide any non hearsay evidence that anyone from Avery ever threatened Staples with patent infringement before a patent was issued.  It is clear law that threatening enforcement of non existent intellectual property rights is wrongful, and that you cannot infringe a patent application.  [Side note – you can however give notice of the patent that is pending, to a person who might be infringing, and indicate that you will seek a reasonable royalty for any infringements prior to the date of issuance, under 35 U.S.C. Sec 154(d) – and that is clearly protected communication – it is not clear why Avery did not use this statute here].  So, the only evidence that remained was the email noted above.  That email, however, only stated that Avery would aggressively enforce rights after they were acquired.

The Court’s discussion here is instructive:

“Indeed, any state law imposing liability for warning of potential patent litigation, without more, would be preempted by federal patent law, which “preempts state-law tort liability for a patentholder’s good faith conduct in communications asserting infringement of its patent and warning about potential litigation.” Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004); see also Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 37-38 (1913) (“Patents would be of little value if infringers of them could not be notified of the consequences of infringement …. Such action, considered by itself, cannot be said to be illegal.”). The principle applies to a patent applicant’s statement that it will enforce its patent once the patent is granted. See Scosche Indus., Inc. v. Visor Gear Inc., 121 F.3d 675, 680 (Fed. Cir. 1997) (affirming summary judgment for the defendant on a California unfair competition claim where the defendant told a non-party that “[w]e believe that the product sold by [the plaintiff] falls within the scope of the pending application and that their sale of the [product] will infringe [the defendant’s] patent when it issues,” and noting that the plaintiff “points to no authority holding that it is unfair competition for a patent applicant to advise a prospective customer of the status of his pending patent application and of the applicant’s belief that competing goods will infringe the patent if and when it issues”). There is an exception to this preemption principle: “State law claims … can survive federal preemption only to the extent that those claims are based on a showing of ‘bad faith.’” Globetrotter Software, 362 F.3d at 1374.

It is true that the precise wording of Avery’s email—“Once the patents are granted”—suggests that it expected to receive a patent when in fact it could not have been certain that the USPTO would grant its applications. But, again, Continental has cited no authority for the proposition that a company’s expression of confidence that a patent will be granted can be tortious. The case it does cite, Foboha GmbH v. Gram Technology, Inc., supra [2008 WL 4619795, at *1-2 (N.D. Ill. Oct. 15, 2008)], is not on point because it dealt with flatly false statements: the defendant first demanded that the plaintiff pay to use the defendant’s “patented technology” when the defendant had not yet been granted a patent, and then, after the USPTO reexamined the defendant’s patent and rejected claims 1 through 10, the defendant published a press release stating that “the [USPTO] has confirmed the patentability of the [patent’s] 10 original claims.” Id. at *1-2. Avery’s email, by contrast, was not false; in particular, it neither asserted that Avery already had a patent nor asserted that Avery would sue for violation of its patent application before an actual patent was granted. If anything, the email acknowledged to Staples both that Avery did not yet have patents and that it could not sue on a patent application. Avery sent the email in response to a question from a Staples employee asking whether Avery had any “opinion letters from outside counsel that clears its Easy Peel patents?” Doc. 203-2 at ¶ 116. A rule prohibiting a prospective patentee from telling interested firms what it intends to do with the patent if granted would make no sense. Cf. Atanus v. Am. Airlines, Inc., 932 N.E.2d 1044, 1050 (Ill. App. 2010) (“where a business entity provides accurate and proper reports to another entity in a reasonable business transaction, providing those reports should not constitute intentional interference”).”

 This case is a good example of some of the more technical issues in both advertising statements (it was somewhat critical that Avery applied the “TM” symbol by the words “Pop Up Edge”), the danger of exclusionary assertions like “Only” which is not mere puffery – or at least no party apparently asserted it was here, and the risks of warning customers that you will sue them before you actually have the intellectual property rights to do so.  It is also yet another case in a long line of cases where the survey was not done correctly.

For more information on issues arising in marketing, advertising and IP enforcement statements, contact Mike Oliver.