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Judge Ramos Finds Notice of Infringement Letter to Reseller Isn’t so Bad

On February 8, 2019, United States District Judge Edgardo Ramos (S.D.N.Y.) issued a decision granting Defendants AAVN and Next Creations Holding's Rule 12(b)(6) motion to dismiss Globe Cotyarn's federal law claim of false advertising under the Lanham Act, and New York State  law claims of unfair competition, tortious interference with a business relationship, and deceptive acts, with leave to amend.

Plaintiff Globe manufacturers and sells bed sheets to U.S. importers. Defendant AAVN holds certain patents covering a process for manufacturing high thread count cotton-polyester blend fabric. Defendant Next Creations is a wholly-owned subsidiary of AAVN.

Globe's complaint alleges that Next Creations’ chief financial officer, wrote the President of J. Queen New York, a bed sheet importer and alleged Globe customer, as follows: 'I am reaching out to you today in regard to product your company sells to retailers throughout the United States that infringe upon AAVN’s CVC Patent. Your company is not authorized to sell this CVC product." A subsequent email, according to the complaint, identified an allegedly infringing Globe product. Globe acknowledged that it attempted to sell this product to J. Queen, but alleges that the product does not infringe, and that, in any event, J. Queen did not purchase it.

Globe's complaint alleges a similar letter and statements were made to other Globe customers, and that, in each case, the communications were made in bad faith.  Specifically, Globe asserts that AAVN and Next Creations never inspected Globe’s product or its production facilities and thus could not have known whether their patents were infringed.

Judge Ramos addressed Globe's false advertising claim under both Second Circuit and Federal Circuit law.  Under Second Circuit law, Judge Ramos concluded that alleged letters to only two customers and alleged similar statements to "other customers of Globe" were not "sufficiently disseminated to the relevant purchasing public."  In support of this conclusion, the court cited, inter alia, the Second Circuit decision in Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., holding that twenty-seven oral statements in a market place of thousands of customers is "insufficient to satisfy the requirement [under the Lanham Act] that representations be disseminated widely." 314 F.3d 48, 57-58 (2d Cir. 2002). The court also rejected Globe's "naked assertion" about messages sent to other customers, as stopping short of the line between possibility and plausibility under Twombly.

Under Federal Circuit law, the court concluded that Globe had failed to plausibly allege that Defendants' accusations of patent infringement were "objectively baseless" and "made in subjective bad faith." In particular, Judge Ramos concluded that (1) Defendants' mere lack of knowledge as to how Globe manufactured its product is insufficient to establish Defendants' claims were "objectively baseless;" and (2) bad faith could not be established merely on the basis that the asserted patents were the subject of prior proceedings before the ITC and PTO, where those proceedings ended in settlement without final decisions on validity.

The Court further concluded Globe's state law claims were preempted by federal patent law governing good faith assertions of infringement under Federal Circuit law.  But even under New York State law, the court stated it would dismiss these claims.  With respect to Globe's unfair competition claim, Judge Ramos concluded, as with the Lanham Act claim, that Globe had not adequately plead that Defendant's statements were in connection with commercial advertising or made in bad faith. Globe's tortious interference claim was dismissed because no facts were plead to suggest that J. Queen or others contacted by Defendants were actually Globe's customers or that Defendants used wrongful means.  Globe's deceptive acts claim under N.Y. Gen. Bus. Law § 349 was dismissed as being directed at a private contractual dispute.

Case:  Globe Cotyarn Pvt. Ltd. v. Next Creations Holdings LLC et al., 1:18-cv-04208-ER, Dkt. No. 42 (S.D.N.Y. February 8, 2019).