Hall v. Bed Bath & Beyond, Inc. , 705 F.3d 1357 ( 2013 )

United States Court of Appeals
for the Federal Circuit
______________________
ROGER J. HALL,
Plaintiff-Appellant,
AND
RJ HALL & ASSOCIATES,
Plaintiff,
v.
BED BATH & BEYOND, INC.,
BED BATH & BEYOND PROCUREMENT CO. INC.,
and FARLEY S. NACHEMIN,
Defendants-Appellees,
AND
WEST POINT HOME, INC.,
Defendant-Cross Appellant.
______________________
2011-1165, -1235
______________________
Appeals from the United States District Court for the
Southern District of New York in case no. 10-CV-4391,
Judge Alvin K. Hellerstein.
______________________
Decided: January 25, 2013
______________________
2 HALL v. BED BATH
MITCHELL C. SHELOWITZ, Shelowitz & Associates,
PLLC, of New York, New York, argued for plaintiff-
appellant. With him on the brief was DARYA DOMINOVA.
LAURA A. WYTSMA, Loeb & Loeb, LLP, of Los Angeles,
California, argued for defendants-appellees and defend-
ant–cross appellant. With her on the brief was JORDAN A.
SIGALE, of Chicago, Illinois.
______________________
Before NEWMAN, LOURIE, AND LINN, Circuit Judges.
Opinion of the court filed by Circuit Judge NEWMAN.
Dissenting in part opinion filed by Circuit Judge LOURIE.
NEWMAN, Circuit Judge.
This case concerns a design patent for a “Tote Tow-
el,” 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. D596,439 S (“the ’439 patent”).
The patent issued on July 21, 2009, claiming the following
design and similar designs:
HALL v. BED BATH 3
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 suppli-
er 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 in-
fringement, 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, 1 and all
parties appeal. We conclude that the counts of patent
infringement, unfair competition, and misappropriation
were not subject to dismissal on the pleadings, but affirm
the district court’s dismissal of the counts against the
BB&B executives who had been sued in their personal
capacity, and affirm the dismissal of the counterclaims.
DISCUSSION
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 allega-
tions contained in the complaint.” Swierkiewicz v. Sore-
ma N.A., 534 U.S. 506, 508 n.1 (2002). However, the
1 Hall v. Bed Bath & Beyond, No. 10-cv-4391
(S.D.N.Y. Dec. 29, 2010), ECF No. 70 (“Order”).
4 HALL v. BED BATH
factual allegations must “raise a right to relief above the
speculative level” and must cross “the line from conceiva-
ble to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555, 570 (2007). “Determining whether a complaint
states a plausible claim for relief [is] a context-specific
task that requires the reviewing court to draw on its
judicial experience and common sense.” Ashcroft v. Iqbal,
556 U.S. 662, 679 (2009).
I
THE COMPLAINT
A. Design patent infringement
The district court stated that Hall’s patent in-
fringement 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 Fran-
chise Systems, Inc., 203 F.3d 790 (Fed. Cir. 2000), this
court outlined five elements of a patent infringement
pleading, to (i) allege ownership of the patent, (ii) name
each defendant, (iii) cite the patent that is allegedly
infringed, (iv) state the means by which the defendant
allegedly infringes, and (v) point to the sections of the
patent law invoked. Id. at 794. The court stated that this
is “enough detail to allow the defendants to answer” and
that “Rule 12(b)(6) requires no more.” Id. These pleading
requirements have been generally followed, including in
the district courts of New York, as illustrated in Digigan,
Inc. v. Ivalidate, Inc., No. 02 Civ. 420, 2004 WL 203010, at
*4 (S.D.N.Y. Feb. 3, 2004), where the district court ex-
plained that “Plaintiff has met the standard articulated in
Phonometrics for stating a claim under § 271.” Indeed,
the defendants themselves stated in their Motion to
HALL v. BED BATH 5
Dismiss (on other grounds) that Hall’s patent infringe-
ment claim “as set forth in the Amended Complaint is
pled properly.” Although the defendants now argue that
the complaint is flawed because of the absence of “claim
construction,” the position taken by the district court,
claim construction is not an essential element of a patent
infringement complaint.
The district court stated that the complaint should
have included answers to questions such as: “What is it
about Plaintiff’s 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, 550 U.S. at
555 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Here the defendants never stated that they were not
apprised of Hall’s infringement claim and its grounds.
In addition, the district court erred in its view of
design patent law, for, as confirmed in Egyptian Goddess,
Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc),
infringement of a design patent is based on the design as
a whole, not on any “points of novelty.” As stated in L.A.
Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1125
(Fed. Cir. 1993), “[i]n conducting [infringement] analysis
the patented design is viewed in its entirety, as it is
claimed.” See Gorham Co. v. White, 81 U.S. (14 Wall.)
511, 528 (1871) (infringement is determined by visual
comparison of the pictured design and the accused arti-
cle). The criterion is “if, in the eye of the ordinary observ-
er, giving such attention as a purchaser usually gives, two
designs are substantially the same, if the resemblance is
6 HALL v. BED BATH
such as to deceive such an observer, inducing him to
purchase one supposing it to be the other, the first one
patented is infringed by the other.” Id.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 hang-
ing 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 compar-
ing the patented and the accused towel, such as:
Hall v. Bed Bath & Beyond, No. 10-cv-4391 (S.D.N.Y.
June 11, 2010) (preliminary injunction hearing).
HALL v. BED BATH 7
Hall presented a lengthy complaint, stating that
the resemblance is such as to deceive an ordinary observ-
er, in accordance with the Gorham criteria of infringe-
ment. Hall’s assertion that the accused towel is “virtually
identical in design” to Hall’s Tote Towel, Egyptian God-
dess, 543 F.3d at 677-78, is plausible, see Twombly, supra.The pleading requirements for design patent infringement
were readily met. The district court erred in requiring
that the complaint identify “new, original, and ornamen-
tal” aspects of the design, for in Egyptian Goddess the
court negated the “point of novelty” requirement for
design patents. And as stated in Richardson v. Stanley
Works, Inc., 597 F.3d 1288, 1295 (Fed. Cir. 2010), “[t]he
ordinary observer test similarly applies in cases where
the patented design incorporates numerous functional
elements.”
Nonetheless, the district court sua sponte dis-
missed the complaint. The Second Circuit in Kittay v.
Kornstein, 230 F.3d 531, 541 (2d Cir. 2000), observed that
a sua sponte dismissal of a complaint “is usually reserved
for those cases in which the complaint is so confused,
ambiguous, vague, or otherwise unintelligible that its true
substance, if any, is well disguised.” Id. (quoting Sala-
huddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988)). Such
unintelligible traits are not here alleged, and cannot be
discerned in the complaint. “A court’s task in ruling on a
Rule 12(b)(6) motion is merely to assess the legal feasibil-
ity of the complaint, not to assay the weight of the evi-
dence which might be offered in support thereof.” Levitt
v. Bear Sterns & Co., 340 F.3d 94, 101 (2d Cir. 2003)
(internal quotations omitted).
The defendants cite this court’s precedent that a
“patent holder, if challenged, must be prepared to demon-
strate to both the court and the alleged infringer exactly
why it believed before filing the claim that it had a rea-
8 HALL v. BED BATH
sonable chance of proving infringement.” View Eng’g, Inc.
v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir.
2000). That case did not relate to dismissal on the plead-
ings; View Engineering concerned a district court’s discre-
tion to sanction a patentee under Rule 11 for filing
“baseless counterclaims,” id., counterclaims that the
patentee admitted had “no factual basis.” Id. at 984. In
contrast, Hall’s complaint described in detail the factual
basis of Hall’s infringement claim. View Engineering did
not add a claim construction requirement to patent in-
fringement complaints.
Here, the pleadings fully complied with Rule 8,
stated the correct law, and showed plausible entitlement
to relief. Twombly, 550 U.S. at 570. Whether the facts as
plausibly pleaded can be proved is a matter for trial. The
complaint meets the pleading requirements, for it has
sufficient “facial plausibility” to “allow[] the court to draw
the reasonable inference that the defendant is liable.”
Iqbal, 556 U.S. at 678. Hall’s factual allegations in the
complaint “raise a right to relief above the speculative
level” and cross “the line from conceivable to plausible.”
Twombly, 550 U.S. at 555, 570. The dismissal of the
patent infringement count is reversed.
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. Nache-
min 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
HALL v. BED BATH 9
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 Ortho-
kinetics, lnc. v. Safety Travel Chairs, Inc., 806 F.2d 1565(Fed. Cir. 1986):
[I]t is well settled that corporate officers who ac-
tively aid and abet their corporation’s infringe-
ment may be personally liable for inducing
infringement under § 271(b) regardless of whether
the corporation is the alter ego of the corporate of-
ficer.
Id. at 1578-79 (citing Power Lift, Inc. v. Lang Tools, Inc.,
774 F.2d 478, 481 (Fed. Cir. 1985)).
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., 76 F.3d 1185, 1196 (Fed. Cir. 1996), for
the proposition that violation of 35 U.S.C. §271(b) (in-
ducement to infringe) “does not reach actions taken before
issuance of the adverse patent.” On this ground, the
district court dismissed the complaint against Mr. Na-
chemin. The court did not discuss the applicability of
Orthokinetics, or whether the individual defendants had
aided and abetted violations of law.
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
10 HALL v. BED BATH
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., 122 F.3d 130, 134 (2d Cir.
1997); see also Wm. Passalacqua Builders, Inc. v. Resnick
Developers South, Inc., 933 F.2d 131, 138 (2d Cir. 1991)
(“[T]o pierce the corporate veil, the parent corporation
must at the time of the transaction complained of . . .
have exercised such control that the subsidiary ‘has
become a mere instrumentality’ of the parent, which is
the real actor.”). Applying the principles of New York
law, we do not discern reversible error in the district
court’s dismissal of the action against Mr. Nachemin.
That dismissal is affirmed.
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 repre-
sentation 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,
HALL v. BED BATH 11
or commercial activities by another
person, or
(B) in commercial advertising or
promotion, misrepresents the nature,
characteristics, qualities, or geo-
graphic origin of his or her or anoth-
er person’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 viola-
tion 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 affilia-
tion, 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 advertis-
ing and promotion misrepresents the nature,
characteristics, and qualities of the Counterfeit
12 HALL v. BED BATH
Towel which is of extremely poor quality and falls
apart only after several washes.
¶64. Defendants’ attempts to claim Hall’s innova-
tions and sell inferior, cheaper products, promis-
ing 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 confu-
sion” 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 advertis-
ing and consumer confusion arose from BB&B’s advertis-
ing 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.” Société Des Hotels Meridien v.
LaSalle Hotel Operating P’ship, L.P., 380 F.3d 126, 132
(2d Cir. 2004). Lanham Act §43(a)(1) may be violated by
advertising that is either “literally false,” or when “the
advertisement, while not literally false, is nevertheless
likely to mislead or confuse consumers.” Tiffany (NJ) Inc.
v. eBay Inc., 600 F.3d 93, 112 (2d Cir. 2010); see also
HALL v. BED BATH 13
Johnson & Johnson-Merck Consumer Pharms. Co. v.
Smithkline Beecham Corp., 960 F.2d 294, 297 (2d Cir.
1992) (“[A] plaintiff must show that either: 1) the chal-
lenged advertisement is literally false, or 2) while the
advertisement is literally true it is nevertheless likely to
mislead or confuse consumers.”).
Hall stated that BB&B engaged in false or mislead-
ing advertising by advertising that its towel has “perfor-
mance that lasts the useful lifetime of the towel.” He
stated that he washed one of BB&B’s towels and it was
damaged after a single washing, and the district court
observed that “the difference between the [once] washed
product and new is noticeable.” However, the district
court held that the “performance” advertising “is not the
sort that can be described as containing a truth or falsity,”
and “makes no guarantees about how long the towel itself
will last.” Order at 11-12. The district court held that
even if the statements of the quality of the BB&B towel
are false or misleading, they are not actionable by Hall
without a plausible showing of injury to Hall. Hall states
that this condition is met, for the similar appearance is
likely to confuse consumers, who will expect Hall’s towel
to be of similar poor quality.
Precedent guides that if BB&B’s advertising state-
ment is literally false, it may be actionable “without
reference to the advertisement’s impact on the buying
public.” Tiffany, 600 F.3d at 112 (quoting McNeil-P.C.C.,
Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d
Cir. 1991)). If the statement is not literally false but is
merely misleading, remedy may still be available, but the
evidentiary burden is higher. In Tiffany the court ex-
plained that to prevail on a likelihood-of-confusion theory
based on false advertising, the plaintiff must demonstrate
through “extrinsic evidence” that a “statistically signifi-
cant” portion of the consumer base would be confused. Id.14 HALL v. BED BATH
at 112-13. A claim may be “literally false” for Lanham
Act purposes if it is “false by necessary implication.”
Time Warner Cable, Inc. v. DIRECTV, Inc., 497 F.3d 144,
158 (2d Cir. 2007). Applying the “necessary implication”
criterion, “[i]f the words or images, considered in context,
necessarily imply a false message, the advertisement is
literally false and no extrinsic evidence of consumer
confusion is required.” Id.We conclude that Hall has pleaded a plausible
claim of falsity, whether literal or by necessary implica-
tion. 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 con-
sumer confusion or deception.” Conopco, Inc. v. Campbell
Soup Co., 95 F.3d 187, 193 (2d Cir. 1996). A reasonable
consumer would expect the “useful lifetime” of a towel to
be more than one or a few washes. The distortion is
similar to that discussed by the Third Circuit in Novartis
Consumer Health, Inc. v. Johnson & Johnson-Merck
Consumer Pharmaceuticals Co., 290 F.3d 578 (3d Cir.
2002), where the product was labeled “Night Time
Strength.” While “Night Time Strength” could mean
whatever strength the product happened to have at night,
the court held that the label was false by necessary impli-
cation because “the phrase ‘nighttime strength’ . . . neces-
sarily conveys a message that the . . . product is specially
made to work at night.” Id. at 589. Here, “lasts the
useful lifetime of the towel” literally states that the towel
lasts as long as it lasts, even if it lasts for only one wash-
ing.
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
HALL v. BED BATH 15
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
Towel and BB&B’s towel are competitive products, and
Hall stated in his complaint that one of his resale custom-
ers mistakenly believed that BB&B was selling Hall’s
towel “for nearly half his price.” Compl. ¶26. When the
parties are competitors and the advertising tends to
mislead, dismissal on the pleadings is not appropriate.
For a Lanham Act §43(a) count, a “flexible approach” to
injury and causation analysis is appropriate, so that
“while a plaintiff must show more than a ‘subjective
belief’ that it will be damaged, it need not demonstrate
that it is in direct competition with the defendant or that
it has definitely lost sales because of the defendant’s
advertisements.” Ortho Pharm. Corp. v. Cosprophar, Inc.,
32 F.3d 690, 694 (2d Cir. 1994); see also Kuklachev v.
Gelfman, 600 F. Supp. 2d 437, 470 (E.D.N.Y. 2009) (at the
pleading stage for §43(a), “plaintiffs need only state that
there was confusion and offer facts to support that
claim.”).
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, 497 F.3d at 159 (quoting Lipton v.
Nature Co., 71 F.3d 464, 474 (2d Cir. 1995)). The court in
Time Warner further defined puffery as an “exaggerated,
blustering, and boasting statement upon which no rea-
sonable buyer would be justified in relying,” id. at 160,
referencing the Third Circuit’s description that “[p]uffery
is an exaggeration or overstatement expressed in broad,
vague, and commendatory language. Such sales talk, or
puffing, as it is commonly called, is considered to be
offered and understood as an expression of the seller’s
opinion only, which is to be discounted as such by the
16 HALL v. BED BATH
buyer . . . . The ‘puffing’ rule amounts to a seller’s privi-
lege to lie his head off, so long as he says nothing specific.”
Castrol, Inc. v. Pennzoil Co., 987 F.2d 939, 945 (3d Cir.
1993) (quoting W. Page Keeton et al., Prosser and Keeton
on the Law of Torts §109, at 756-57 (5th ed. 1984)) (inter-
nal quotation marks omitted).
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, 497 F.3d at 159. If no reasonable buyer
would take the advertisement seriously, then “there is no
danger of consumer deception and hence, no basis for a
false advertising claim.” Id. In Lipton the court had
applied this distinction to conclude that the defendant’s
contention that he had conducted “thorough” research was
just puffery, which was not actionable under the Lanham
Act. 71 F.3d at 474.
BB&B’s claim of “lasting” performance is stated as
a fact; it is not “blustering” or “boasting,” and does not
sound like “puffery.” At the pleading stage, “plaintiffs
need only state that there was confusion and offer facts to
support that claim.” Kuklachev, 600 F. Supp. 2d at 470.
Hall sufficiently alleged the falsity or misleading nature
of the advertising, to avoid dismissal at the pleading
stage. See World Wrestling Fed’n Entm’t, Inc. v. Bozell,
142 F. Supp. 2d 514, 529 (S.D.N.Y. 2001) (declining to
resolve falsity on motion to dismiss).
We conclude that dismissal of the Lanham 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 New York General Business Law
HALL v. BED BATH 17
§349, and for misappropriation under New York common
law. The district court dismissed both counts on the
pleadings.
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 furnish-
ing 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
Plaintiff’s product, ideas, and design, while earn-
ing illicit profits though unauthorized sales of the
Counterfeit Towels amounts to unfair competition
under the NY 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, 95
N.Y.2d 24, 29 (2000). See Maurizio v. Goldsmith, 230
F.3d 518, 521 (2d Cir. 2000) (applying the same three
elements). New York law of unfair competition does not
require consumer confusion, unlike the Lanham Act count
for unfair competition. See Telecom Int’l Am., Ltd. v.
AT&T Corp., 280 F.3d 175, 198 (2d Cir. 2001) (“An unfair
competition claim under New York law is not . . . depend-
ent upon a showing of confusion or deception as to the
origin of a product or service.”).
18 HALL v. BED BATH
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 state-
ment, even if consumers are misled. The district court
dismissed this count on the pleadings.
Hall’s pleadings state that “the extent of the imita-
tion of the Tote Towel by Defendants” confuses consumers
into associating the Tote Towel with “the inferior Coun-
terfeit 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 ap-
pearance 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 & Co. v. Rieder, 19 N.Y.3d 511,
516 (2012) (quoting Miller v. Schloss, 218 N.Y. 400, 407
(1916)). An unfair competition claim under New York
common law “must be grounded in either deception or
appropriation of the exclusive property of the plaintiff.”
H.L. Hayden Co. v. Siemens Med. Sys., Inc., 879 F.2d
1005, 1025 (2d Cir. 1989). New York precedent establish-
es that unjust enrichment includes “that (1) the other
party was enriched, (2) at that party's expense, and (3)
that it is against equity and good conscience to permit the
other party to retain what is sought to be recovered.”
Georgia Malone, 19 N.Y.3d at 516.
HALL v. BED BATH 19
This count of the complaint arises from the actions
of the defendants in accepting Hall’s sample towel, osten-
sibly 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
Eagles Comtronics, Inc. v. Pico Prods., Inc., 682 N.Y.S.2d
505, 506 (App. Div. 1998) (the gravamen of a claim of
unfair competition is bad faith misappropriation). Hall’s
Complaint sets forth acts of bad faith:
¶72. Upon information and belief, Defend-
ants have misappropriated Hall’s labors, skills, ef-
forts, 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 un-
lawfully copying Hall’s designs, mass-producing
the Counterfeit Towels, and selling them to con-
sumers, Defendants have in bad faith exploited a
commercial advantage which belongs exclusively
to Plaintiff.
The district court observed that an action for misappro-
priation of an idea “requires showing ‘(1) a legal relation-
ship 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
20 HALL v. BED BATH
results of the labor, skill, and expenditures of another.”
Order at 13 (quoting LinkCo, 230 F. Supp. 2d at 500).
The court held that this principle was not met. Thus the
court dismissed the New York misappropriation counts on
the pleadings.
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 misap-
propriation 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 mon-
ey 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, invest-
ments, and efforts were misappropriated by the defend-
ants – 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 doc-
trines 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, 19 N.Y.3d at 516(internal citations omitted). New York unfair competition
law is “adaptable and capacious” in its reach into the
morality of commerce:
New York courts have noted the incalculable vari-
ety of illegal practices falling within the unfair
competition rubric, calling it a broad and flexible
doctrine that depends more upon the facts set
HALL v. BED BATH 21
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., 672 F.2d 1095, 1105 (2d Cir. 1982) (internal cita-
tions, quotation marks, and alterations omitted).
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.’” 230 F. Supp. 2d at 502 (citing Metropolitan
Opera Ass’n v. Wagner-Nichols Recorder Corp., 101
N.Y.S.2d 483, 492 (Sup. Ct. 1950)). The district court
erred in holding that a contractual relationship is re-
quired to support a misappropriation claim, whether the
misappropriation is of a bare idea, or of labor and skill.
New York precedent recognizes that quantum me-
ruit and unjust enrichment claims may together form a
“single quasi contract claim.” Mid-Hudson Catskill Rural
Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168,
175 (2d Cir. 2005). It was generally undisputed that Hall
provided his sample towel in good faith, and that BB&B
acted to Hall’s detriment. Applying the standards of
equity and good conscience embodied in New York law,
the count of misappropriation was not subject to dismissal
on the pleadings. Dismissal of the New York law counts
is reversed.
22 HALL v. BED BATH
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., 489 U.S. 141, 156
(1989)). Hall states that BB&B waived any preemption
argument by failing to raise it in its Rule 12(b)(6) motion.
The defendants state that the argument was not waived.
We have considered the issue, for waiver is generally
inapplicable to “significant questions of general impact or
of great public concern.” Interactive Gift Express, Inc. v.
Compuserve Inc., 256 F.3d 1323, 1345 (Fed. Cir. 2001).
The Court in Bonito Boats, 489 U.S. at 156-57, held
that state law cannot protect “an unpatented utilitarian
or design conception which has been freely disclosed by its
author to the public at large,” in that case a boat hull
design in open use. However, the Court recognized that
“all state regulation of potentially patentable but unpat-
ented subject matter is not ipso facto pre-empted by the
federal patent laws,” id. at 154, in the complex balance
between the policy of unencumbered movement of unpat-
ented ideas, and principles of morality and fairness that
are within state authority.
Hall argues that BB&B did not copy a publicly
available product from the marketplace, but copied his
proprietary towel that he showed to BB&B in the course
of discussion of a business relationship. BB&B accepted
the sample towel, and had it copied. We agree with Hall
that design patent infringement is not his only possible
remedy, and that principles of patent law preemption do
HALL v. BED BATH 23
not override potential causes of action based on unfair
commercial practices. New York misappropriation law
extends to “commercial immorality, or simply as endeav-
oring to reap where one has not sown.” Roy Export, 672
F.2d at 1105. We conclude that federal preemption does
not apply to the circumstances set forth in the pleadings.
III
COUNTERCLAIMS
A. The Rule 11 counterclaim
West Point Home appeals from the denial of its mo-
tion 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., 605
F.3d 1319, 1323 (Fed. Cir. 2010). The district court
denied the Rule 11 motion as baseless, and we agree, for
the pleadings state facts sufficient to support the counts
of patent infringement and the various unfair competition
claims. As we have discussed, Federal Circuit precedent,
the Court’s rulings in Twombly and Iqbal, and Federal
Rule 8, make clear that neither claim construction nor
prior art is required to be included in the pleadings. The
denial of the Rule 11 motion is affirmed.
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 pend-
24 HALL v. BED BATH
ing, was false advertising. Hall responds that his state-
ment 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 “pa-
tent pending.” The district court stated that it was “ap-
parent from the pleadings that [Hall’s] representations
were not made with the intent to deceive,” and dismissed
the counterclaim. West Point Home appeals the dismis-
sal, 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 plead-
ings, 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., 241 F.3d 232, 238 (2d Cir. 2001)
(“In considering a false advertising claim, fundamental to
any task of interpretation is the principle that text must
yield to context.”) (internal quotations omitted). In the
circumstances, Hall’s statement cannot be viewed as even
plausibly misleading. The dismissal of this counterclaim
is affirmed.
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
HALL v. BED BATH 25
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 excep-
tion, 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., Nos. 2011-
1494, -1495, 2012 WL 1660604, at *2 (Fed. Cir. May 2,
2012).
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, Lanham 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.
United States Court of Appeals
for the Federal Circuit
______________________
ROGER J. HALL,
Plaintiff-Appellant,
AND
RJ HALL & ASSOCIATES,
Plaintiff,
v.
BED BATH & BEYOND, INC.,
BED BATH & BEYOND PROCUREMENT CO. INC.,
and FARLEY S. NACHEMIN,
Defendants-Appellees,
AND
WEST POINT HOME, INC.,
Defendant-Cross Appellant.
______________________
2011-1165, -1235
______________________
Appeals from the United States District Court for the
Southern District of New York in case no. 10-CV-4391,
Judge Alvin K. Hellerstein.
______________________
LOURIE, Circuit Judge, dissenting in part.
I respectfully dissent from the majority’s decision to
vacate and remand the district court’s dismissal of both
2 HALL v. BED BATH
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 plaintiff’s 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 Plaintiff’s towel that he claims is
‘new, original and ornamental,’ meriting the pro-
tection of a design patent? What aspects of the
’439 Patent does the West Point Home Towel in-
fringe? How does the West Point Home Towel in-
fringe these aspects? And how have Defendants .
. . infringed, contributed to infringement, or oth-
erwise 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., 543 F.3d 665 (Fed. Cir. 2008) (en banc),
HALL v. BED BATH 3
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 dismis-
sal.
Moreover, and most important, the district court in-
vited 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 tanta-
mount 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 appear-
ing on the accused towel’s packaging—that it has “per-
formance 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., 497
F.3d 144, 159–60 (2d Cir. 2007). Indeed, such a state-
ment is an untestable tautology: the towel lasts as long as
it lasts. Thus, I also see no reason to reverse the district
court’s dismissal of the Lanham Act § 43(a) claim.