This is an informal case summary prepared for the purposes of facilitating exchange during the 2023 WIPO IP Judges Forum.
Session 4: Intellectual Property and Competition Issues
United States Court of Appeals for the Federal Circuit [2023]: TRUSTID, Inc. v Next Caller, Inc., No. 2022‑1433
Date of judgment: March 1, 2023
Issuing authority: United States Court of Appeals for the Federal Circuit
Level of the issuing authority: Appellate Instance
Type of procedure: Judicial (Civin( �/span>
Subject matter: Competition; Trademarks; Patents (Inventions)
Plaintiff-Appellant: TRUSTID, Inc.
Defendant-Appellee: Next Caller, Inc.
Keywords: False advertising, Lanham Act, Unfair competition, Judgment as a matter of law
Basic facts: TRUSTID, Inc. developed a caller identification product known as the Authenticator, describing that system and a method of using it in U.S. Patents 8,238,532 (the ‘532 patent) and 9,001,985 (the ‘985 patent). Next Caller, Inc. later entered the caller identification market with a product known as VeriCall, sold at a lower price point than the Authenticator. Both the Authenticator and VeriCall detect fraudulent calls and authenticate those from genuine callers.
TRUSTID advertised that use of the Authenticator could lead to a 5-10 percent improvement in Interactive Voice Response (IVR) containment rates, a measure of callers who can have their issues resolved by the automated system without having to speak to a live agent. TRUSTID’s IVR-containment marketing had been confirmed by extensive testing.
Referring to TRUSTID’s IVR-containment marketing, the Head of Sales at Next Caller instructed his team to “jack that stat or make up a number like 8%” for VeriCall, after which Next Caller advertised VeriCall as providing a 10 percent increase in IVR containment rates.
TRUSTID sued Next Caller, alleging that Next Caller falsely advertised VeriCall’s ability to increase IVR containment by 10 percent. At trial, the jury ultimately found in favor of TRUSTID on its claim of false advertising under the Lanham (i.e., Trademark) Act, finding Next Caller’s 10 percent IVR containment claims to be literally as well as willfully false.
TRUSTID further sued Next Caller for infringement of the ‘532 and ‘985 patents. The ‘532 patent relates to TRUSTID’s caller-ID system, and the ‘985 patent relates to TRUSTID’s caller-ID method.
In its noninfringement arguments, Next Caller focused on three claim limitations, one of which was common across the ‘532 and ‘985 patents. Next Caller asserted that because VeriCall’s authentication analysis is performed after an IVR system answers incoming calls, it cannot be said to perform its analysis “before the incoming call is answered,” as is required by both the ‘532 and ‘985 patents.
At trial, the jury found TRUSTID’s patents valid but uninfringed. TRUSTID and Next Caller both moved for judgment as a matter of law (JMOL). TRUSTID moved for a finding of infringement, while Next Caller moved for a finding of no false advertising and no punitive damages.
The United States District Court for the District of Delaware denied TRUSTID’s motion for JMOL, thereby upholding the jury’s finding of noninfringement, and granted Next Caller’s motion, finding no false advertising.
TRUSTID appealed the decision of the District Court denying its motion for JMOL on a claim of infringement of the ‘532 and ‘985 patents and granting Next Caller’s motion for JMOL on a claim of false advertising under the Lanham Act.
Held: The United States Court of Appeals for the Federal Circuit affirmed the decision of the District Court for the District of Delaware, which found no false advertising under the Lanham Act and denied TRUSTID’s motion for JMOL on the issue of infringement.
Relevant holdings in relation to intellectual property and competition issues: The Court of Appeals for the Federal Circuit reviews decisions on motions for JMOL under the law of the relevant regional circuit (here, the Third Circuit). In the Third Circuit, a Lanham Act false advertising claim requires a showing of five elements:
1. that the defendant made false or misleading statements as to its own product or another’s;
2. that there is actual deception or at least a tendency to deceive a substantial portion of the intended audience;
3. that the deception is material in that it is likely to influence purchasing decisions;
4. that the advertised goods travelled in interstate commerce; and
5. that there is a likelihood of injury to the plaintiff in terms of declining sales, loss of good will, etc.
Under the Third Circuit decision of Parkway Baking v. Freihofer Baking Co., 255 F.2d 641, for cases involving monetary damages, the materiality prong requires “a showing of some customer reliance on the false advertisement.”
In the present case, the record contained evidence relating to four Next Caller customers: Capital One, Dish Network, Comcast, and BBVA. The Court of Appeals for the Federal Circuit held that TRUSTID failed to identify any part of the record establishing that Next Caller’s false statements influenced these customers’ decisions to purchase a call authenticator product. That is, none of these four customers showed any reliance on Next Caller’s false IVR claims.
Moreover, the Court of Appeals for the Federal Circuit held that even assuming, as argued by TRUSTID, that Third Circuit law required TRUSTID only to establish that Next Caller’s false statements were likely to influence customer purchasing decisions, there would still be a deficiency of evidence to satisfy the materiality prong.
Thus, because of the deficiency in proof to establish materiality, the Court of Appeals for the Federal Circuit affirmed the District Court’s decision finding no Lanham Act violation under Third Circuit law.
Concerning TRUSTID’s motion for JMOL on the issue of patent infringement, the Court of Appeals for the Federal Circuit agreed with the District Court’s reasoning that, although there was conflicting testimony, the jury “was free to credit the evidence presented that the ‘call’ was no longer an ‘incoming call’ once it was answered by the IVR.”
Relevant legislation:
Section 43 of the Lanham Act (Trademark Act of 1946, 15 U.S.C. §§ 1125(a))