Lead Opinion
Opinion of the court filed by Circuit Judge NEWMAN. Dissenting in part opinion filed by Circuit Judge LOURIE.
This case concerns a design patent for a “Tote Towel,” as the patented design is designated by inventor Roger J. Hall. The Tote -Towel is a large towel with binding around all the edges, zippered pockets at both ends, and an angled cloth loop in the middle, pictured in U.S. Design Patent No. D596,439S (“the '439 patent”). The patent issued on July 21, 2009, claiming the following design and similar designs:
[[Image here]]
Mr. Hall filed this design patent application on November 17, 2008, and began producing the Tote Towel soon after the patent application was filed, with a label marked “patent pending.” On March 20, 2009, while the '439 patent application was pending, Mr. Hall contacted Bed Bath & Beyond (“BB & B”) to discuss whether BB & B would provide retail sales of the Tote Towel. At a business meeting, Mr. Hall left samples of his packaged Tote Towel with BB & B. Both the package and the towel were marked “patent pending.” BB & B then, through a supplier West Point Home, Inc., had copies of the Hall towel manufactured in Pakistan, for retail sale by BB & B. The patent duly issued, and Mr. Hall sued BB & B, West Point Home, and several executives of BB & B, for patent infringement, for unfair competition under the Lanham Act, and for misappropriation under New York statutory and common law. The defendants raised various defenses and counterclaims. The district court dismissed all of the claims and counterclaims on the pleadings,
BB & B moved, to dismiss Hall’s complaint for failure to state a claim on which relief can be granted, Federal Rule of Civil Procedure 12(b)(6). On a motion to dismiss, the court “must accept as true all of the factual allegations contained in the complaint.” Swierkiewicz v. Sorema N.A.,
I
The Complaint
A. Design patent infringement
The district court stated that Hall’s patent infringement complaint did not contain “any allegations to show what aspects of the Tote Towel merit design patent protection, or how each Defendant has infringed the protected patent claim.” Order at 15-16. Hall states that its complaint properly pleaded the issue of design patent infringement. In Phonometrics, Inc. v. Hospitality Franchise Systems, Inc.,
The district court stated that the complaint should have included answers to questions such as: “What is it about Plaintiffs towel that he claims is ‘new, original and ornamental,’ meriting the protection of a design patent?” Order at 16. The Federal Rules, and the Court in Twombly and Iqbal, do not so require. In Twombly the Court stated that “Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ ” Twombly,
Hall’s complaint identified the patent, showed the patented design, and described the accused towel as follows:
¶ 27. The Counterfeit Towel is virtually identical in design to the Tote Towel. It [has] the same shape and almost the same dimensions—50" x 9." The Counterfeit Towel also features the Tote Towel’s unique zippered compartments and hanging loop. In fact, the inseam of the Counterfeit Towel, from one pocket to the other, is exactly the same length as that of the Tote Towel.
Paragraphs 26-40 of the complaint add specificity, and the record before the district court included pictures comparing the patented and the accused towel, such as:
[[Image here]]
Hall v. Bed Bath & Beyond, No. 10-cv-4391 (S.D.N.Y. June 11, 2010) (preliminary injunction hearing).
Hall presented a lengthy complaint, stating that the resemblance is such as to deceive an ordinary observer, in accordance with the Gorham criteria of infringement. Hall’s assertion that the accused towel is “virtually identical in design” to Hall’s Tote Towel, Egyptian Goddess,
Nonetheless, the district court sua sponte dismissed the complaint. The Second Circuit in Kittay v. Kornstein,
The defendants cite this court’s precedent that a “patent holder, if challenged, must be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim that it had a reasonable chance of proving infringement.” View Eng’g, Inc. v. Robotic Vision Sys., Inc.,
Here, the pleadings fully complied with Rule 8, stated the correct law, and showed plausible entitlement to relief. Twombly,
B. Individual defendant Nachemin
The defendants who dealt with Hall were led by Mr. Farley S. Nachemin, Vice President of BB & B and General Merchandise Manager of “bath and seasonal.” On April 20, 2009 Mr. Hall sent an email to Mr. Nachemin concerning their forthcoming meeting, and stated that “[t]he ‘Tote Towel’ is covered by my patent.” Hall states in the complaint that during the meeting on April 22, 2009 the defendants told him that they could have similar towels produced in Pakistan at a lower cost than Hall’s price. Mr. Hall states that he again informed the defendants “that he had a patent pending on the product.” Compl. ¶ 23. Hall charged Mr. Nachemin, personally and in his management role, with inducement to infringe and with unfair practices in his actions related to Hall’s Tote Towel. Hall argues that precedent supports imposition of personal liability on such corporate officers, citing Or-
[I]t is well settled that corporate officers who actively aid and abet their corporation’s infringement may be personally liable for inducing infringement under § 271(b) regardless of whether the corporation is the alter ego of the corporate officer.
Id. at 1578-79 (citing Power Lift, Inc. v. Lang Tools, Inc.,
The district court dismissed all counts against Mr. Nachemin, stating that “the facts alleged in the complaint make clear that any allegedly infringing activity by Nachemin occurred while the '439 Patent was pending, and did not occur after the patent had issued for the Tote Towel.” The court cited National Presto Industries, Inc. v. West Bend Co.,
Regarding the district court’s reasoning based on when the '439 patent issued, we take note that the patent issued only three months after Hall’s sample towel was received by BB & B. On appeal, the defendants support the district court’s action, but primarily argue that under New York law, “the party seeking to pierce a corporate veil [must] make a two-part showing: (i) that the owner exercised complete domination over the corporation with respect to the transaction at issue; and (ii) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil.” Am. Fuel Corp. v. Utah Energy Dev. Co.,
C. The Lanham Act count for unfair competition
Section 43(a)(1) of the Lanham Act, 15 U.S.C. § 1125(a), provides:
§ 43(a)(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another per*1366 son’s goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
The district court states that “Count 2 of the amended complaint alleges, without elaboration, that Defendants have engaged in unfair competition in violation of § 43(a)(1) of the Lanham Act” based on trademark and trade dress infringement, as well as false advertising. Order at 5. We do not share the. district court’s view that the count is “without elaboration,” for the complaint describes BB & B’s asserted Lanham Act acts of unfair competition as follows:
¶ 62. Defendants’ use of [phrases including “Workout Towel,” “drapes around your neck,” and “convenient zipper pockets”] are likely to cause confusion, mistake, or to deceive as to the affiliation, connection, or association between the Tote Towel and the Counterfeit Towel.
¶ 63. The packaging of the Counterfeit Towel also states “performance that lasts the useful lifetime of the towel.” ... Defendants’ use of these terms and words on its label and in commercial advertising and promotion misrepresents the nature, characteristics, and qualities of the Counterfeit Towel which is of extremely poor quality and falls apart only after several washes.
¶ 64. Defendants’ attempts to claim Hall’s innovations and sell inferior, cheaper products, promising lifetime use, amount to unfair competition and misappropriation under The Lanham Act, 15 U.S.C. § 1125(a), which has caused and continues to cause serious injury to Plaintiff.
The district court held that Hall’s “likely to cause confusion” allegation did not state a viable cause of action because “the amended complaint does not allege the existence of a trademark.” Order at 8. The court stated that although the BB & B packaging shows a person using the towel, in a design similar to that shown on Hall’s packaging, the package is “not inherently distinctive because the image is nothing more than the product itself being used as intended.” Id.
Hall states that the district court erred in viewing the Lanham Act count as limited to trademark or trade dress issues. Hall states that his charge of false advertising and consumer confusion arose from BB & B’s advertising of the accused towel of identical appearance and similar packaging, and that consumers would readily confuse it with Hall’s Tote Towel. The Second Circuit has explained that “the text of the Lanham Act makes it clear that a false advertising claim can properly be brought against a defendant who misrepresents the quality of its own goods as well.” Societe Des Hotels Meridien v. La-Salle Hotel Operating P’ship, L.P.,
Hall stated that BB & B engaged in false or misleading advertising by advertís-
Precedent guides that if BB & B’s advertising statement is literally false, it may be actionable “without reference to the advertisement’s impact on the buying public.” Tiffany,
We conclude that Hall has pleaded a plausible claim of falsity, whether literal or by necessary implication. Defendants’ advertising of “performance that lasts the useful lifetime of the towel” implies that the towel will not fall apart after a single wash or a few washes. “[T]he public interest underlying the Lanham Act’s prohibition of misleading advertisement is that of preventing consumer confusion or deception.” Conopco, Inc. v. Campbell Soup Co.,
To meet the Lanham Act provision, Hall need not plead actual harm; the likelihood of harm is the statutory criterion. See § 43(a)(1) (a false advertiser “shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.”). Hall’s Tote Tow
The district court held that Hall’s § 43(a) claim merely “sought liability for nonactionable puffery.” The Second Circuit has defined puffery as “[s]ubjective claims about products, which cannot be proven either true or false.” Time Warner,
The distinction between non-actionable puffing and a misleading false statement is whether a “reasonable buyer would take [the representation] at face value.” Time Warner,
BB & B’s claim of “lasting” performance is stated as a fact; it is not “blustering” or “boasting,” and does not sound like “puf-fery.” At the pleading stage, “plaintiffs need only state that there was confusion and offer facts to support that claim.” Kuklachev,
We conclude that dismissal of the Lan-ham Act § 43(a) count on the pleadings was improper. Dismissal of that count is reversed.
D. New York law
Hall included two counts under New York law, for unlawful acts under
a. New York General Business Law
New York GBL § 349(a) states:
(a) Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.
Hall’s complaint states that the defendants violated this provision by misappropriating his towel design, and profiting therefrom:
¶ 69. Defendants’ willful misappropriation of Plaintiffs product, ideas, and design, while earning illicit profits though unauthorized sales of the Counterfeit Towels amounts to unfair competition under the N.Y. GBL § 349(a).
New York Business Law precedent establishes that “[a] plaintiff under section 349 must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act.” Stutman v. Chem. Bank,
Hall states that the deceptive act was the claim of the quality of the BB & B “counterfeit” towel. Hall argues that the statement is misleading, and thus a deceptive act under New York GBL § 349(a). The district court held that Hall had not shown that he is injured by this statement, even if consumers are misled. The district court dismissed this count on the pleadings.
Hall’s pleadings state that “the extent of the imitation of the Tote Towel by Defendants” confuses consumers into associating the Tote Towel with “the inferior Counterfeit Towels,” and that this confusing similarity harms Hall’s reputation. Compl. ¶ 45. Hall states that the defendants have sold their inferior product to Hall’s military customers, where the confusingly similar appearance could adversely affect Hall’s business. Hall sufficiently pleaded possible injury to his business. We conclude that the count under New York GBL § 349(a) was not subject to dismissal on the pleadings.
b. New York Common Law
The foundation of New York common law of unfair competition is “the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another.” Georgia Malone & Go. v. Rieder,
This count of the complaint arises from the actions of the defendants in accepting Hall’s sample towel, ostensibly for consideration of a commercial relationship, and acting in bad faith by having Hall’s towels copied for commercial benefit. The common law count of unfair competition requires some element of bad faith. See Eagle Comtronics, Inc. v. Pico Prods., Inc.,
¶ 72. Upon information and belief, Defendants have misappropriated Hall’s labors, skills, efforts, invention, and good will in connection with the Tote Towel by stealing his patented design features and creating knock-off replicas of the Tote Towel.
¶ 73. Upon information and belief, by unlawfully copying Hall’s designs, mass-producing the Counterfeit Towels, and selling them to consumers, Defendants have in bad faith exploited a commercial advantage which belongs exclusively to Plaintiff.
The district court observed that an action for misappropriation of an idea “requires showing ‘(1) a legal relationship between the parties in the form of a fiduciary relationship, an express or implied-in-fact contract, or quasi-contract, and (2) a novel and concrete idea.’ ” Order at 14 (quoting LinkCo, Inc. v. Fujitsu Ltd., 230 F.Supp.2d 492, 501 (S.D.N.Y.2002)). The district court found that Hall’s complaint “makes clear that these parties never had any kind of contractual or quasi-contractual relationship.” The court also stated that “[t]he central principle underlying a claim for unfair competition under New York law is that one may not misappropriate the results of the labor, skill, and expenditures of another.” Order at 13 (quoting LinkCo,
Hall argues that the district court confused two lines of New York precedent, one concerned with the misappropriation of ideas and the other with the misappropriation of labor. Hall asserts that the counts of his complaint are directed not to misappropriation of his idea, but of his labor. Hall states that he spent time and money designing the towel, surveying and buying materials, assessing consumer interest, manufacturing the Tote Towel, and further efforts, including applying for the '439 Patent. The complaint alleges that those skills, investments, and efforts were misappropriated by the defendants—a misappropriation of labor, not of an idea.
BB & B states that Hall voluntarily gave BB & B a sample of his towel. BB & B does not deny that it copied Hall’s towel, and states that the absence of a contractual relationship is fatal to Hall’s claim under New York common law. However, New York law does not condone inappropriate actions, and provides that equitable doctrines may support a misappropriation claim. Such a claim “contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties.” Georgia Malone,
*1371 New York courts have noted the incalculable variety of illegal practices falling within the unfair competition rubric, calling it a broad and flexible doctrine that depends more upon the facts set forth than in most causes of action. It has been broadly described as encompassing any form of commercial immorality, or simply as endeavoring to reap where one has not sown; it is taking the skill, expenditures and labors of a competitor, and misappropriating for the commercial advantage of one person a benefit or property right belonging to another. The tort is adaptable and capacious.
Roy Export Co. Establishment v. Columbia Broad. Sys., Inc.,
The LinkCo court stated that “New York courts have found that persons have a protectable property interest in their ‘labor, skill, expenditure, name and reputation.’ ”
New York precedent recognizes that quantum meruit and unjust enrichment claims may together form a “single quasi contract claim.” Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp.,
II
Preemption
The defendants argue that even if Hall has a New York cause of action on the premises pleaded, the action is preempted by federal patent law. BB & B states that Hall seeks “patent-like protection to intellectual creations which would otherwise remain unprotected as a matter of federal law.” BB & B Brief at 30 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,
The Court in Bonito Boats,
Ill
Counterclaims
A. The Rule 11 counterclaim
West Point Home appeals from the denial of its motion for Rule 11 sanctions against Hall and his counsel, West Point Home arguing that “Hall’s counsel never claimed to have engaged in the requisite pre-suit claim construction,” Brief at 55, and that Hall “made no claim to have reviewed the prior art before filing suit,” Brief at 56.
Rule 11 sanctions may be imposed on the filing of a complaint when “the frivolous nature of the claims-at-issue is unequivocal.” Carter v. ALK Holdings, Inc.,
B. The false advertising counterclaim
The defendants presented a Lanham Act § 43(a) false advertising counterclaim, on the ground that Hall’s statements to them that the Tote Towel is “protected by my patent,” while the patent application was still pending, was false advertising. Hall responds that his statement was not false because he had a patent application pending, that the statement was not “advertising,” and that the sample towel and packaging were marked “patent pending.” The district court stated that it was “apparent from the pleadings that [Hall’s] representations were not made with the intent to deceive,” and dismissed the counterclaim. West Point Home appeals the dismissal, stating that Lanham Act § 43(a) does not require proof of deceptive intent, and that the district court acted incorrectly in dismissing this counterclaim on the pleadings, instead of preserving it for trial.
The district court correctly held that no plausible false advertising issue arose from Hall’s statement that the Tote Towel was “protected by my patent” although the patent application was still pending and Hall’s sample towels were marked “patent pending.” See S.C. Johnson & Son, Inc. v. Clorox Co.,
C. The false marking counterclaim
The defendants also brought a counterclaim for “false marking,” because the Tote Towels apparently retained the label “patent pending” for a few months after the patent had issued. The defendants argue that falsity alone establishes liability for false marking, and that intent is not a component of a false marking claim.
A marking of “patent pending” after the patent has issued is not the falsity to which this qui tam statute was directed; the statute was directed at marking with an expired or inapplicable patent. The recent America Invents Act changed the law of false marking, and the complainant must now show that it suffered a competitive injury as a result of the false marking. 35 U.S.C. § 292(b). The change is retroactive in that “[t]he amendments made by this subsection ... apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment” in 2011. Pub.L. No. 112-29, § 16(b)(4), 125 Stat. 284, 329 (2011). This enactment applies “to all pending cases, including cases pending in appellate courts.” Rogers v. Tristar Prods., — Fed.Appx. -, -, Nos. 2011-1494, - 1495,
The defendants have not pleaded any competitive injury caused by the “patent pending” label on Hall’s patented Tote Towels. The district court’s dismissal of this counterclaim is affirmed.
D. Attorney fees
The district court did not err or abuse its discretion in denying the defendants’ request for attorney fees.
Summary
We reverse the dismissal of Hall’s complaint counts for patent infringement, Lan-ham Act unfair competition, and New York unfair competition and misappropriation. The other rulings of the district court are affirmed. The case is remanded for further proceedings.
Costs to Hall.
AFFIRMED IN PART, REVERSED IN PART, and REMANDED.
Notes
. Hall v. Bed Bath & Beyond, No. 10-cv-4391 (S.D.N.Y. Dec. 29, 2010), ECF No. 70 ("Order ").
Concurrence Opinion
dissenting in part.
I respectfully dissent from the majority’s decision to vacate and remand the district court’s dismissal of both the design patent claim and the Lanham Act § 43(a) claim in this case.
The district court dismissed the design patent count on the ground that the plaintiffs amended complaint failed to provide “any allegations to show what aspects of the Tote Towel merit design patent protection, or how each Defendant has infringed the protected patent claim.” Hall v. Bed Bath & Beyond Inc., No. 1:10-cv-04391-AKH, at 15-16 (S.D.N.Y. Dec. 29, 2010). The court stated, “Rather than plead in a coherent fashion, making clear how the facts support a particular theory of infringement as to a given Defendant, Plaintiff has conflated all his facts, pleading without making any distinctions of any kind. This ambiguity in pleading is unacceptable.” Id. at 16. The court further stated:
What is it about Plaintiffs towel that he claims is ‘new, original and ornamental,’ meriting the protection of a design patent? What aspects of the '439 Patent does the West Point Home Towel in*1374 fringe? How does the West Point Home Towel infringe these aspects? And how have Defendants ... infringed, contributed to infringement, or otherwise offended a provision of the patent laws? Without allegations clarifying these material propositions, the complaint is deficient under Federal Rule 8.”
Id. at 16 (internal citations omitted). It is true that much of the above statements relate to validity rather than infringement, which is what the Amended Complaint alleged. And the court seemed to focus on particular aspects of the claimed design rather than the design as a whole, which is what our Egyptian Goddess decision held was the aspect of a design patent that should be the focus of an infringement inquiry. Egyptian Goddess, Inc. v. Swisa, Inc.,
But the overall design of a design patent consists of the particular aspects of the design, and noting those aspects is not claim construction. How else does one describe a design except to note the characteristic aspects of the design? Thus, I regard the district court’s analysis as not sufficiently faulty to justify vacation of its dismissal.
Moreover, and most important, the district court invited the plaintiff to replead its patent count, and the plaintiff declined to do so. Any deficiencies in the court’s conception of the law of design patents and inadvertent concern with validity were precisely what the invitation to replead could have remedied. Failure to do so is tantamount to a waiver of any flaws in the court’s decision. The court in effect said, “show me where I’m wrong.” The plaintiff failed to take advantage of that opportunity. Under the circumstances, I see no reason to reverse the district court. The judicial system encourages correction of errors when made, and plaintiff should have paid the penalty for declining that opportunity.
In addition, I also believe that the statement appearing on the accused towel’s packaging—that it has “performance that lasts the useful lifetime of the towel”—is mere puffery, a subjective claim that cannot be proven true or false and is thus not actionable under the Lanham Act. See Time Warner Cable, Inc. v. DIRECTV, Inc.,