UCP International Company Limited v. Balsam Brands Inc.

Background

UCP International Company Limited and Global United Enterprises Limited, referred to together as UCP, compete with Balsam Brands Inc. and its founder and chief executive officer, Thomas Harman, in selling high-end artificial Christmas trees. UCP alleged that Balsam pursued patent-infringement claims against UCP’s only U.S. supplier in 2015 and 2016, even though the claims were objectively baseless, and induced the supplier to accept abusive settlement terms. UCP claimed that these actions removed its trees from the market.

UCP’s first amended complaint also challenged three statements Balsam allegedly made to customers: an open letter posted on Balsam’s website, a YouTube video, and the website fliptrees.com. UCP alleged that these statements falsely described Balsam’s patents and characterized UCP’s trees as imitations or copies. UCP brought state-law claims and federal claims under Section 2 of the Sherman Act and Section 43(a) of the Lanham Act.

Balsam moved to strike the state-law claims under California’s anti-SLAPP statute, which provides a procedure for challenging claims arising from protected speech or petitioning activity. Balsam also moved to dismiss the federal claims under Federal Rule of Civil Procedure 12(b)(6), which applies when a complaint does not adequately state a claim for relief.

Anti-SLAPP motion

The court concluded that Balsam’s online statements could fall within California’s commercial-speech exemption because Balsam sells goods, the statements concerned Balsam’s and UCP’s products, the statements could reasonably be understood as promoting Balsam’s sales, and they were directed to actual or potential customers.

But the court found that UCP’s second, third, and fourth causes of action were based on Balsam’s filing, pursuit, and settlement of the earlier patent litigation, rather than on the online statements. Those causes of action alleged interference with contractual relations, interference with prospective economic advantage, and unfair competition. The court treated them as claims involving both protected and allegedly unprotected conduct, but held that the protected litigation activity was part of the basis for the claims.

At the second step of the anti-SLAPP analysis, the court held that UCP could not show a probability of success because the California litigation privilege and the Noerr-Pennington doctrine protected Balsam’s conduct. The California litigation privilege generally protects communications made in connection with judicial proceedings. The Noerr-Pennington doctrine generally protects petitioning and litigation activity from liability, unless the litigation was a sham.

The court rejected UCP’s argument that the earlier patent litigation was a sham. UCP identified several alleged weaknesses, including lack of standing, inequitable conduct before the Patent and Trademark Office, invalidity under the on-sale bar, an allegedly improper request for past damages, and the alleged absence of a reasonable basis to believe that UCP’s trees infringed. The court held that these alleged weaknesses did not establish that no reasonable litigant could realistically expect success. Based on its review of the filings and proceedings in the related cases, the court concluded that Balsam’s patent case was not objectively baseless and therefore did not reach Balsam’s alleged improper motive.

The court therefore held: “Balsam’s motion to strike is GRANTED IN PART as to” UCP’s second, third, and fourth causes of action.

False-advertising claim and federal claims

The court considered whether the litigation privileges also barred UCP’s sixth cause of action for false advertising, which was based on Balsam’s online statements. The court held that the California litigation privilege applied because the statements informed customers about pending litigation in which they had a substantial interest. The court also held that Noerr-Pennington protected the statements because they were sufficiently related to Balsam’s petitioning activity. The sixth cause of action was therefore “DISMISSED WITH PREJUDICE.”

The court held that UCP’s federal claims were based on the same allegations and were barred by Noerr-Pennington. The opinion’s conclusion states that “the remaining claims are DISMISSED WITH PREJUDICE.” The court directed that judgment in favor of Balsam be entered.

Sealing motions

The court granted requests to seal the Balsam-Frontgate settlement and references to its specific terms, finding compelling reasons to protect the terms from disclosure. It also granted UCP’s request to seal Exhibits A and B to the first amended complaint, which were contracts containing sensitive information. The court denied Balsam’s request to seal part of its supplemental brief concerning the Federal Circuit’s decision and ordered the Clerk to unseal all entries at Docket No. 61.

Ruling

Judge William H. Orrick entered judgment for Balsam Brands Inc. and Thomas Harman after granting the anti-SLAPP motion to strike in part and dismissing the remaining claims with prejudice.