False or Misleading Statements that Discredit a Competitor

Arecent decisionof the Federal Court considered an assertion of patent infringement that hadbeen made to the defendant’s customer.

The Facts

Theplaintiff was the licensee of a patent and an industrial design.  Both the patent and the design related to anexpandable garden hose made up of an inner flexible, stretchable hose encasedin an outer fabric hose.  The hose wasquite compact when no water pressure was applied but under pressure the innerhose stretched only to be constrained by the length of the outer fabric.  The expandable hose product was marketed inCanada under the name XHOSE. 

Thedefendant also sells hoses in Canada including an expandable hose marketedunder the trademark POCKETHOSE.

Inthe latter half of 2012, a large retailer agreed to purchase the plaintiff’s XHOSEproduct and a number of orders were placed for it.  However, in April of 2013 the defendant’srepresentatives approached the retailer concerning the purchase of POCKETHOSEproduct.  The defendant offered theretailer an indemnity in respect to any lawsuit the plaintiff might bring.

Whenthe plaintiff learned of this development it caused its representatives toapproach the retailer.  During a courseof meetings and other related exchanges, these individuals left the retailerwith the impression that it would be sued by the plaintiff for patent infringement. 

The Action

Theplaintiff brought an action in the Federal Court asserting that the defendant’shose infringed its patent and industrial design. The retailer was not adefendant.  The defendant defended theaction on the basis, among other things, that the patent and design were invalid.  In addition, the defendant alleged that theplaintiff’s assertions of the validity of the patent and design were directedat customers and perspective customers of the defendant and violated subsection7(a) of the Trade-marks Act.

Asthe action progressed both the patent and the design were found to be invalid,leaving only the issue of the alleged breach of subsection 7(a) to be dealtwith and only with respect to the retailer. 

Subsection 7(a)

Subsection7(a) provides that no person shall make a false or misleading statementintending to discredit the business, goods or services of a competitor.  For the purposes of the subsection statementsonly need to be misleading without being shown to be false.  In addition, the plaintiff does not have toestablish malice or knowledge of the falsity of the statement to succeed. 

Allthe plaintiff needs to establish is:

1. a false or misleading statement;

2. that tends to discredit the business orbusiness, goods or services of a competitor; and

3. resulting damages.

   Thejudge reviewed the relevant cases and concluded that not every assertion ofrights relating to a patent or an industrial design that was subsequently heldto be invalid would constitute a false and misleading statement.  The court must inquire as to the nature andthe circumstances of the assertion and any subsequent conduct by the partymaking the assertions.

   Thejudge concluded that plaintiff’s representatives deliberately and skillfullyleft the retailer with the impression that the plaintiff would sue it forpatent infringement. However, as the patent and design were invalid, thisstatement was false and misleading and intended to discredit the goods of thedefendant contrary to section 7(a) of the Trade-marksAct.

   Asnoted above, damages are an essential element in a claim under subsection7(a).  In this case, the retailer neverplaced any further orders for the POCKETHOSE after having listened to theassertions made by the plaintiff’s representatives. However it seems that theretailer was happy with the XHOSE product and intended to continue to sellit.  The POCKETHOSE purchase was only aone time promotional purchase and the retailer did not wish to sell bothproducts because of potential inventory problems.

   Whilethe discussions with the plaintiff’s representatives were stressful, theyultimately played no part in the decisions made by the retailer.  As a result, the judge concluded that therewas no causal link between the false and misleading statements made by theplaintiff and the damages alleged to have been suffered by the defendant.

   Comment

   Fromthe plaintiff’s point of view it can be effective to claim that a defendant’scustomers are infringing.  However thereare risks of proceeding this manner when the patent in issue is subsequentlyfound to be invalid.

    

   John McKeown

   Goldman SloanNash & Haber LLP

   480University Avenue, Suite 1600

   Toronto,Ontario M5G 1V2

   Direct Line:(416) 597-3371

   Fax: (416)597-3370

   Email: mckeown@gsnh.com