Source: https://www.mwe.com/en/thought-leadership/publications/2008/03/ip-update-vol-11-no-3-march-2008
Timestamp: 2018-12-17 05:02:28
Document Index: 477610114

Matched Legal Cases: ['§ 102', '§ 102', '§112', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 121', '§ 1526', '§ 1581', '§ 1526', '§ 1526', '§ 1526', '§ 1526', '§ 505', '§ 505', '§ 1', '§ 103', '§ 112']

IP Update, Vol. 11, No. 3, March 2008 | Publications | Thought Leadership | McDermott Will and Emery
IP Update, Vol. 11, No. 3, March 2008
Patents / Doctrine of Equivalents - Festo Tangential Exception Focuses on Objectively Apparent Reason for Amendment
Patents / Subject-Matter Jurisdiction - Post-MedImmune “Convenience Factors” Take on Added Significance in Forum Determination
Patents / Damages - Damages for Post-Infringement-Verdict Sales Are Affected by the Stay of Injunction
Patents / Preliminary Injunctions - Correct Claim Construction Prerequisite for Imposition of Preliminary Injunction
Patents / Statutory Bar 35 U.S.C. § 102(b) - Experimental Use Exception Does Not Include Experimentation to Determine Suitability for a Particular Customer
Patents / Employee Assignment Agreements - Automatic Assignment of Employee Rights Forecloses Certain Defenses
(Web Only) Patents / Preliminary Injunctions - A Divided Federal Circuit Lets a Defendant Off the Hook of a Preliminary Injunction
(Web Only) Patents / Doctrine of Equivalents - International Rectifier Loses Infringement Verdict . . . Again
Patents / Double Patenting - Pfizer Patent for Celebrex® Invalid for Double Patenting
Trademarks / Litigation / Sanctions - Seventh Circuit Finds Total Forfeiture Excessive Sanction for Litigation Misconduct
(Web Only) Trademarks / Likelihood of Confusion - No Likelihood of Confusion Among Co-Owner Users of Mark
Trademarks / Dilution - HOT RIGZ with Toy Trucks Dilutes HOT WHEELS
Trademarks / Famous Marks - Foreign Fame Is Still Not Enough to Justify Trademark Protection in New York
Trademarks / Customs Enforcement - CIT Has No Jurisdiction over Challenge to Seizure and Destruction of Counterfeit Merchandise
Copyrights / Attorneys’ Fees - Plaintiff Folds Hands—Left Holding the Defendants Attorney Fee Bag
Trade Secrets - Unwritten Secrets Are Protectable Under the Uniform Trade Secret Act
Legislative Update / Patent Reform - Senate Prepares to Consider Patent Reform Act of 2007, Circulates 15 Proposed Amendments
Patents / Civil Procedure - SPECIAL REPORT: COMMENTARY - Pleading in Patent Cases
Festo Tangential Exception Focuses on Objectively Apparent Reason for Amendment
In analyzing whether the “tangential relationship” exception to the doctrine of equivalents estoppel applied, the U.S. Court of Appeals for the Federal Circuit affirmed-in-part, reversed-in-part and remanded a district court’s summary judgment that the defendant did not infringe the patents directed to methods for detecting chromosomal abnormalities under the doctrine of equivalents. Regents of Univ. of Cal. v. DakoCytomation Cal., Inc., Case No. 07-1202 (Fed. Cir., Feb. 28, 2008) (Lourie, J.; Prost, J., dissenting-in-part).
The Regents of the University of California and Abbott Molecular Inc. and Abbott Laboratories Inc., as the owner and exclusive licensees of the patents-in-suit, brought an infringement action and filed a motion for preliminary injunction seeking to enjoin the manufacture and sale of several accused products. The patents in dispute claimed methods of blocking and removing repetitive nucleic acid fragments so to allow highly specific measurement of chromosomal abnormalities originating from within a cell. The district court denied the preliminary injunction, finding appellants unlikely to succeed on the merits and granted summary judgment, in part, on the construction of the claim limitation “blocking nucleic acid”—a term required by all the claims of one of the patents-in-suit. The parties stipulated that “blocking nucleic acid” means “fragments of repetitive-sequence-enriched DNA or RNA.” Because the accused kits do not use human DNA and instead use synthetic nucleic acids referred to as peptide nucleic acids (PNA), the district court concluded that those products do not literally infringe. The lower court then considered whether those products infringe under the doctrine of equivalents. After determining that the patentees narrowed the scope of the “blocking nucleic acid” limitation during prosecution, the court concluded that appellants were barred from asserting that PNAs were an equivalent of a “blocking nucleic acid” and granted summary judgment of non-infringement under the doctrine of equivalents. Patentee appealed.
On appeal, the Federal Circuit noted that “[t]he inquiry into whether a patentee can rebut the Festo presumption under the ‘tangential’ criterion focuses on the patentee’s objectively apparent reason for the narrowing amendment.” With regard to the claim limitation “blocking nucleic acid,” the Court held that, because the accused products utilized peptide nucleic acids instead of the claimed DNA/RNA fragments, there was no literal infringement. However, the Court vacated summary judgment and held in error the lower court’s finding that prosecution history estoppel barred appellants from asserting infringement under the doctrine of equivalents. Dako argued that during prosecution the appellants had narrowed the corresponding application to include only “blocking nucleic acids” and accordingly, had surrendered the peptide nucleic acid equivalent of the accused products. The Court noted that the patentees identified two main reasons for the narrowing amendment: to “facilitate prosecution” and, more significantly, to distinguish the invention over the prior art. According to the Court, the prosecution history revealed that in narrowing the claim to overcome the prior art rejections, the focus of the patentees’ arguments centered on the method of blocking—not on the particular type of nucleic acid that could be used for blocking. The facts that the “nucleic acid” limitation was never at issue during prosecution and that that none of the cited references concerned the type of nucleic acid that could perform the blocking was sufficient for the Court to conclude that the lower court erred in concluding that the appellants are precluded by estoppel from asserting that Dako’s products infringe under the doctrine of equivalents.
Judge Prost dissented with respect to the holding that tangential exception to prosecution history estoppel applies and argued that the appellants could reasonably have been expected to have drafted a claim that encompassed blocking repetitive sequences using PNA.
Overturning a district court decision dismissing a declaratory judgment patent suit for lack of subject matter jurisdiction, the U.S. Court of Appeals for the Federal Circuit applied the “all-the-circumstances” standard declared by the Supreme Court in MedImmune to replace the more rigorous “reasonable apprehension of suit” standard for determination of an Article III case and controversy. Micron Tech., Inc. v. Mosaid Tech., Inc., Case No. 07-1080 (Fed. Cir., Feb. 29, 2008) (Rader, J.).
Micron filed a declaratory judgment suit against Mosaid in the U.S. District Court for the Northern District of California seeking a declaration of non-infringement of 14 Mosaid patents. Mosaid responded by filing suit against Micron in the Eastern District of Texas and by filing a motion to dismiss the California suit for lack of subject-matter jurisdiction. The district court dismissed the California suit, finding no subject-matter jurisdiction under the reasonable apprehension of suit test.
On appeal, the Federal Circuit reversed the district court’s decision. According to the Federal Circuit, to warrant declaratory judgment all the circumstances must show a substantial controversy of sufficient immediacy and reality. The Court found that the record supported such a finding for three reasons: Mosaid threatened Micron with a suit (albeit four years earlier); Mosaid sued other manufacturers in the same space as Micron; Mosaid made confirmed public statements that it intended to pursue an aggressive litigation strategy.
Finally, the Court acknowledged that the more lenient “all-the-circumstances” standard eases the requirements of achieving declaratory judgment jurisdiction and that it “could occasion” a forum-seeking race to the courthouse. Thus, the Court ruled that in such cases of competing forum interests (which includes the instant case), a lower court must also consider the transfer analysis “convenience factors” under section 1404(a) of Title 28, which provides that, “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” The Court noted that a district court may consider a party’s intention to preempt another’s infringement suit when ruling on the dismissal of a declaratory action, but that consideration is merely one factor in the analysis. According to the Court, the convenience and availability of witnesses, absence of jurisdiction over all necessary or desirable parties, possibility of consolidation with related litigation and considerations relating to the interest of justice must be evaluated to ensure the case receives attention in the most appropriate forum. Eventually, the Court noted, robust consideration of these factors will reduce the incentives for a race to the courthouse because both parties will realize that the case will be heard or transferred to the most convenient or suitable forum. Because these factors weighed in favor of the suit proceeding in the declaratory judgment forum, the Court ruled that it was an abuse of discretion by the district court to decline to hear the case.
Damages for Post-Infringement-Verdict Sales Are Affected by the Stay of Injunction
Addressing the issue of damages for a post-infringement-verdict period, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s unexplained damage award, which trebled the per unit royalty rate for the post-verdict period, and remanded the damages issue for further consideration in view of the parties’ post-verdict legal relationship. Amado v. Microsoft Corp., Case Nos. 07-1236, -1255 (Fed. Cir., Feb. 27, 2008) (Linn, J.).
The plaintiff is the inventor and owner of a patent directed to automatically linking database records. The plaintiff alleged that multiple versions of Microsoft’s Office Suite infringed the patent. The jury found for the plaintiff and awarded reasonable royalty damages of $0.04 per infringing unit. The district court issued but stayed a permanent injunction against Microsoft pending the appeal and required that Microsoft make escrow deposits of $2.00 per unit sold during the stay. In an earlier appeal, the Federal Circuit affirmed and remanded for consideration of the disposition of the escrow funds. On remand, the district court initially stayed and ultimately dissolved the permanent injunction (based on its finding of no irreparable harm) and awarded Amado $0.12 per unit for Microsoft’s post-verdict infringement, i.e., the trebled the rate awarded for infringement before the verdict. Amado contended that the proper award was $2.00 per unit, the full escrow amount, while Microsoft contended it was the $0.04 per unit awarded by the jury. Amado appealed the dissolution of the injunction. Microsoft cross-appealed the award of $0.12 per unit and the denial of its motion for relief from judgment.
The Federal Circuit affirmed the orders dissolving the injunction and denying relief from judgment, but vacated the award of $0.12 per infringing unit sold during the stay, holding that different economic factors were involved in calculating damages during the post-verdict period versus the pre-verdict period and that a clear explanation of the post-verdict damages was required.
The Federal Circuit panel concluded that the district court failed to adequately explain the basis for its post-verdict damages award and that the recent Supreme Court case Microsoft v. AT&T (see IP Update, Vol. 10, No. 7) may affect the determination of liability and post-verdict damages. The Court also indicated that, post- eBay, the factors affecting the assessment of damages after the injunction is granted should include the infringer’s likelihood of success on appeal, the infringer’s ability to immediately comply with the injunction and whether the stay was entered by consent or stipulation.
The Federal Circuit also rejected both Amado’s and Microsoft’s damages contentions. As for Amado’s contentions, the Court noted that that $2.00 per unit was simply an upper limit on damages. Responding to Microsoft’s contention, the Court observed that while $0.04 per unit was the proper measure for pre-verdict damages, there were fundamental differences between reasonable royalties before and after the verdict due to the uncertainty of the patent validity and infringement before the verdict. The Court held that the district court should have expressly considered Microsoft’s infringing sales following the grant of the injunction for three reasons: the legal relationship between the parties changed after the verdict and Microsoft was enjoined from further sales but allowed to continue only by the stay; trebling the jury award was not the accurate measure of damages because willfulness was not the proper inquiry when the infringement was permitted by the court-ordered stay; using the pre-verdict damages as baseline for trebling was improper because the pre-verdict award was dictated by different circumstances. The Court remanded the case, indicating its belief that the post-verdict damages would logically fall between $0.04 and $2.00 per infringing unit.
Practice Note: In this case the Federal Circuit has squarely held that in cases in which a permanent injunction against the infringer is stayed pending the appeal there is no presumption of treble damages during the stay period.
In an interesting side issue, Amado challenged the authority of the district court to continue the stay of injunction or for Microsoft to now attempt to invoke the permanent injunction analysis handed down by the Supreme Court in eBay, contending that under the Federal Circuit mandate rule the issue was foreclosed to Microsoft since the eBay decision came down prior to the oral argument in the first appeal; Microsoft expressly declined to seek relief from the permanent injunction (based on the eBay decision) during oral argument; and therefore, after the Federal Circuit mandate issued in this case, it was inappropriate for Microsoft to seek relief on the basis that eBay was an “intervening” case. The Federal Circuit agreed with Amado on the applicability of the mandate rule, but nevertheless held that the district court was “well within its discretion” to reconsider prospective application of the injunction in light of eBay.
Correct Claim Construction Prerequisite for Imposition of Preliminary Injunction
The U.S. Court of Appeals for the Federal Circuit recently formalized its analytical approach to appellate review of preliminary infringement orders relying on claim construction, holding that an erroneous claim construction likely constitutes an abuse of discretion mandating vacating the injunction. Chamberlain Group, Inc., et. al. v. Lear Corp., Case Nos. 07-1314, -1467 (Fed. Cir. Feb., 19, 2008) (Rader, J.).
Chamberlain reached the Federal Circuit after the district court issued a preliminary injunction order implicitly based, in part, on its construction of the term “binary code.” Lear appealed both the claim construction and preliminary injunction orders.
After an exhaustive de novo review, the Federal Circuit reversed the district court’s construction of “binary code” as “internally inconsistent and contradictory to the rest of the patent,” noting that a preliminary injunction requires an analysis of likelihood of success on the merits and claim construction errors in the case “fundamentally influence[d] the likelihood of success in proving infringement.” The panel conducted only a relatively cursory review of the district court’s preliminary injunction ruling and vacated the preliminary injunction despite the fact that preliminary injunction rulings are reviewed under the comparatively forgiving abuse-of-discretion standard. Pointing to its own 2006 precedent in SRAM Corp.(see IP Update, Vol. 9, No. 10 ) , the Federal Circuit noted that “where a district court relies on erroneous claim construction in granting injunctive relief, this legal error may well constitute an abuse of discretion requiring this court to vacate the injunction.” According to the Court, “a correct claim construction is almost always a prerequisite for imposition of a preliminary injunction.”
Practice Note: Almost any error in claim construction will be grounds for reversing a preliminary injunction.
Patents / Statutory Bar 35 U.S.C. § 102(b)
Commercial sewing machine manufacturer Atlanta Attachment developed an automatic gusset ruffler machine in response to a request by Sealy, Inc. Atlanta Attachment developed prototypes, which it presented for sale to Sealy along with offers to sell production models. One of the prototypes was offered for sale to Sealy starting in 2000 through February 2001, at which time Sealy paid for the prototype and inspected it.
Patents / Employee Assignment Agreements
Automatic Assignment of Employee Rights Forecloses Certain Defenses
The U.S. Court of Appeals for the Federal Circuit announced that federal law partially controls the outcome in determining whether a patent assignment clause in an employment agreement applies to patents arguably developed outside the scope of employment, DDB Technologies, L.L.C. v. MLB Advanced Media L.P., Case No. 07-1211 (Fed. Cir., Feb. 13, 2008) (Dyk J.; Newman, J. dissenting-in-part).
In 1980, Dr. David R. Barstow executed an employment agreement with Schlumberger Technology Corporation that stated, in part, the following:
4. Employee agrees to and does hereby grant and assign to Company … his entire right, title and interest in and to … inventions …:
a) which relate in any way tothe business or activities of [Schlumberger], or
c) which relate in any way to the business … of Affiliates of [Schlumberger] ….
Dr. Barstow remained employed at Schlumberger until 1994. During his employment, Dr. Barstow and his brother filed four patent applications related to broadcasting data about a live event, such as a baseball game, and producing a simulation of that event to be viewed on a computer. Each brother assigned his rights to their company, DDB Technologies (DDB).
DDB brought suit against MLB Advanced Media (MLBAM) for infringement of four patents related to gathering data about and generating computer simulations of live baseball games. After the suit had been filed, MLBAM negotiated with Schlumberger to purchase whatever rights Schlumberger had to David Barstow’s inventions.
After the district court dismissed the case for lack of jurisdiction, DDB appealed, claiming the patents were unrelated to Barstow’s work for Schlumberger and thus not covered by his employment contract. DDB further claimed that Schlumberger’s claim of ownership was barred by both long inaction and earlier reassurances by Schlumberger’s counsel that the patents were unrelated to Barstow’s employment.
On appeal, the Court determined that the Schlumberger employment agreement was an automatic assignment of rights such that the statute of limitations waiver and estoppel defenses have no merit. Although the Court mentioned that state contract law would normally apply to an employment contract, it also stated that federal law preempts state law when the agreement includes rights to patents. The Court stated “a patent assignment clause [that] creates an automatic assignment … is intimately bound up with the question of standing in patent cases,” thus federal law applies. The Court determined that the employment contract was ambiguous as to what was “related to” and “suggested by” Barstow’s work with Schlumberger. The Court remanded for discovery on the issue of whether the patents-in-suit fell within the scope of the employment agreement.
In a strongly worded dissent, Judge Newman accused the panel majority of prematurely ruling that the issues of the statute of limitations and equitable defenses were not available as well as of incorrectly ruling that Dr. Barstow’s rights and obligations under his employment agreement are preempted by federal law because “standing” is involved, even though the dispute arose from an employment agreement ( the scope and meaning of which is usually an issue to be decided under state law).
Practice Note: Employers may want to review their employment agreements and determine whether the patent assignment clause creates an “automatic” assignment and unambiguously defines the scope of what is covered.
A Divided Federal Circuit Lets a Defendant Off the Hook of a Preliminary Injunction
A divided panel of the U.S. Court of Appeals for Federal Circuit reversed a district court’s grant of a preliminary injunction, ruling that the defendant had raised a “substantial question as to the validity of the patent at issue.” Erico Int’l Corp. v. Vutec Corp., Case No. 2007-1168 (Fed. Cir., Feb. 19, 2008) (Rader., J.; Newman, J., dissenting).
Erico manufactures and sells the “J-Hook,” a fastener on which to mount electrical and communications cables. Erico obtained a patent covering the J-Hook and its method of use. Doc’s Marketing Corp. (Doc’s) also sells such fasteners, which it conceded were copies of Erico’s J-Hook. Erico sued Doc’s for patent infringement and sought to preliminarily enjoin Doc’s from selling its fasteners. In response, Doc’s asserted that Erico was not likely to succeed on the merits of its infringement claims because the patent at issue was invalid and/or unenforceable. The district court agreed with Erico, and issued a preliminary injunction against Doc’s.
The Court commenced its analysis by pointing out that the showing of a substantial question of invalidity for a preliminary injunction requires less proof than the clear and convincing standard to show actual invalidity at trial. After reviewing a prior art hook, relevant industry standards and “common knowledge within the art,” the majority concluded that Doc’s invalidity challenge based on obviousness cast enough doubt on the validity of Erico’s asserted claim to negate likelihood of success on the merits as to infringement of a valid patent. Accordingly, the Court reversed the grant of a preliminary injunction.
Judge Newman dissented, arguing that the panel majority did not properly defer to the district court’s analysis of all the preliminary injunction factors as a whole and further did not properly assess the “likelihood of success” prong in preliminary injunction analysis, which must be analyzed in view of the burden of proof at trial.
International Rectifier Loses Infringement Verdict . . . Again
Reversing (for a second time) a judgment of infringement of three International Rectifier patents by a district court, the U.S. Court of Appeals for the Federal Circuit recently handed semiconductor manufacturer IXYS an important victory in its long-running battle against competitor International Rectifier Corp. International Rectifier Corp. v. IXYS Corp., Case Nos. 07-1063, -1441, -1165 (Fed. Cir., Feb. 11, 2008) (Linn J.).
The International Rectifier patents are directed to metal-oxide-semiconductor field-effect transistors (MOSFETs). IXYS’s accused devices include MOSFETs that are manufactured, in part, by doping the surface of a silicon wafer with a pattern of impurities to create multiple regions with different electrical properties. At issue in the case were three claim terms, each relating to the shape and configuration of these regions. One of the patents, U.S. Patent No. 4,959,699 (the ’699 patent), requires that the semiconductor wafer include “a lightly doped” region that is “adjoining” a “region of opposite conductivity type.”
The district court initially granted summary judgment of infringement of the ’699 patent, which the Federal Circuit reversed after articulating a revised interpretation of the term “adjoining.” Although the Court remanded and instructed the district court to enter judgment of non-infringement in favor of IXYS, the district court concluded the mandate applied only to literal infringement. It allowed the issue of infringement under the doctrine of equivalents to be tried to a jury, which found infringement. IXYS appealed.
The Federal Circuit found that besides side-stepping its mandate to enter a judgment of non-infringement, the district court apparently did not show proper deference to the prosecution history concerning the “adjoining” claim term. Specifically, the term “adjoining” was added during prosecution to overcome a rejection under 35 U.S.C. §112. The Court rejected two arguments by International Rectifier that the amendment did not preclude doctrine of equivalents. First, it did not matter that the amendment in question broadened the claim in certain respects. The Court found that the addition of the word “adjoining” narrowed the scope of the claim, at least with respect to that term and rejected International Rectifier’s argument that the amendment was broadening merely because it eliminated some claim limitations.” Second, the Court disagreed that the purpose of the amendment was tangential to the asserted equivalent. By adding the limitation “adjoining,” International Rectifier limited the claimed structure from one that could perform as either a MOSFET or an insulated gate bipolar transistor (IGBT) to one that could perform only as a MOSFET. The Court held that International Rectifier’s decision to limit its claim to only the MOSFET structure, “whether or not required to overcome the rejection, cannot be described as only tangentially related to the equivalency of a structure with non-adjoining regions.” Holding that “prosecution history estoppel precludes consideration of infringement by equivalents,” the Court vacated the damages award and permanent injunction.
Pfizer Patent for Celebrex® Invalid for Double Patenting
The U.S. Court of Appeals for the Federal Circuit recently ruled that a Pfizer patent covering Celebrex® was invalid for double patenting while affirming a lower court’s decision that two other patents covering the blockbuster anti-inflammatory are valid, enforceable and infringed by the generic manufacturer’s product. Pfizer, Inc. v. Teva Pharmaceuticals USA, Inc., Case No. 07-1271 (Fed. Cir., March 3, 2008) (Dyk, J.).
The decision arose out of Teva’s appeal from a final judgment of a district court, entered after a bench trial, in favor of Pfizer. The district court held that Teva infringed three patents owned by Pfizer: the ’823 patent, the ’165 patent—covering the active ingredient and a pharmaceutical composition of Celebrex®—and the ’068 patent, covering the use in the treatment of inflammation.
The third sentence of 35 U.S.C. § 121 provides a safe harbor from double patenting rejections for patents that issue on divisional applications filed as a result of a restriction requirement issued in the parent application by the U.S. Patent and Trademark Office (USPTO). The district court held that the safe-harbor provision of § 121 prevented the ’165 patent from serving as prior art with respect to the ’068 patent because both derived from applications filed in response to the restriction requirement made in the common parent application. Because the district court found that the ’165 patent was not prior art, it held that the ’068 patent was not invalid on grounds of double patenting.
On appeal, Teva argued that § 121 applies exclusively to divisional applications and that, because the ’068 patent issued on a continuation-in-part (CIP) rather than on a divisional application, it does not fall within the terms of the statute. Pfizer contended that the term “divisional application” as it is used in § 121 refers broadly to any type of continuing application filed as a result of a restriction, regardless of whether it is labeled by the USPTO as a divisional, a continuation or a CIP.
Pointing to the express language of § 121 as well as the statute’s legislative history, the Court concluded that there was no suggestion that the safe-harbor provision of § 121 was, or needed to be, directed at anything but divisional applications. The panel further noted that the commentary and materials published since § 121’s enactment similarly contain no suggestion that § 121 was meant to cover any applications other than divisionals. The Court concluded that the protection afforded by § 121 to applications or patents issued therefrom filed as a result of a restriction requirement is limited to divisional applications. Turning to the question of whether the claims of the ’068 application are patentably distinct over those of the ’165 patent, the panel agreed with the district court that the earlier patent merely claims a particular use that was described in connection with the later claimed compositions. The Court concluded that the asserted claims of the ’068 patent are therefore not patentably distinct over the claims of the ’165 patent and, without the shield afforded by § 121, the ’068 patent is invalid for obviousness-type double patenting. With regard to the other two patents in suit, the Court found no evidence that Pfizer concealed a preferred method of getting to the right dosage such that at least some claims in the ’823 and ’165 patents did not violate the best mode requirement.
Trademarks / Litigation / Sanctions
Seventh Circuit Finds Total Forfeiture Excessive Sanction for Litigation Misconduct
The U. S. Court of Appeals for the Seventh Circuit reversed a district court decision holding that a trademark plaintiff had forfeited its entire damage award because of litigation misconduct—specifically, interfering with a witness. The Seventh Circuit thought the plaintiff had been punished enough and that the basis for the misconduct did not affect the outcome of the suit. Ty, Inc. v. Sofbelly’s, Inc., Case Nos. 07-1452, -1519, -1782, -1793, -2401 (7th Cir., Feb. 22, 2008) (Posner, J.).
Ty is the manufacturer of the stuffed “Beanie Babies” toys. Ty sued Softbelly’s for trademark infringement under the Lanham Act for producing a product called “Screenie Beanies” bean stuffed animals having a chamois belly for wiping a computer screen. Following a trial, Ty obtained a judgment as a matter of law and was awarded $713,000 in damages and an injunction. Softbelly’s appealed, arguing that Ty Warner, the owner of Ty, had tampered with a witness who was to testify that “Beanie” was a generic term for a bean stuffed product. The Seventh Circuit ordered that the case be retried. In the second trial, the jury found for Ty on the trademark infringement issue, and the judge entered an injunction prohibiting Softbelly’s from using any term confusingly similar to “Beanie Babies” to market screen-cleaning products. However, the district court judge awarded Ty no damages, based on her view of Ty’s litigation behavior during the initial trial, even though Softbelly’s did not call the witness Ty allegedly tampered with at the original trial. Both Ty and Softbelly’s appealed.
On appeal, Softbelly’s sought yet another new trial on liability and an order vacating the district court award of attorneys’ fees awarded to Ty based on the trial court finding that Softbelly’s infringement was willful. Ty sought to have the $713,000 damages award restored.
Judge Posner found that the Eighth Amendment limits the severity of the sanctions a court may impose for litigation misconduct. Here, Judge Posner found that the district court imposed a sanction amounting to nine times the amount (i.e., of Softbelly’s attorneys’ fees) necessary to compensate Softbelly’s for any misconduct by Ty, “even though no harm was done by the misconduct beyond imposing a litigation expense on the opposing party that the misbehaving party is ready to make good.” The Court found that Softbelly’s could be fully compensated by an award of its attorneys’ fees incurred in litigating the sanctions issues and that forcing Ty to surrender its entire damages award was excessive.
Turning to the trademark infringement issues, Judge Posner determined that since many “Screenie Beanies” looked nearly identical to “Beanie Babies,” there was a high likelihood that consumers would think the Softbelly’s products were manufactured by Ty. In the Court’s view, the fact that Softbelly’s abandoned its argument that “Beanie” is a generic term made this a simple case in which a seller attaches “a popular trademark to a product that is nearly identical to the trademarked one.” The Court also found that the evidence supported the finding that Softbelly’s infringement was willful.
The U.S. Court of Appeals for the Seventh Circuit held that the plaintiff’s claim under the Lanham Act failed as a matter of law because the defendant (who was co-owner with plaintiff of the original Geisha Chicago sushi restaurant) was authorized to use the trademark for sushi restaurants opened later. Segal v. Geisha NYC LLC, Case No. 06-2897 (7th Cir., Feb. 22, 2007) (Kanne, J.).
In 2003, plaintiff Jonathan Segal worked with Rick Wahlstedt to jointly develop the concept for Japonais, an upscale restaurant and lounge that would serve a fusion of Japanese and European cuisine. To implement this concept, Segal and Wahlstedt hired a culinary expert and an architect to complete the team that would be the “founders” of Japonais. After agreeing on the concept and plans for the restaurant, the founders created two limited liability companies (LLCs) organized under Delaware law. One of these LLCs, Geisha Chicago, owns the Japonais restaurant as well as all intellectual property related to the Japonais name and design. According to Geisha Chicago’s operating agreement, the other LLC, Hospitality Chicago, is the only managing member of Geisha Chicago. The operating agreement of Hospitality Chicago vests it with the authority to make all decisions and take all actions for Geisha Chicago and possesses the exclusive power to acquire, utilize or dispose of any asset of the Geisha Chicago.
The operating agreement also provides that if at least two of the four founders “desire to open a restaurant in a location outside the greater Chicago area based upon the Restaurant’s Concept (an Expansion),” the expanding founders could do so by delivering written notice to the others setting forth the material terms of the expansion. The operating agreement defines the term “concept,” as a restaurant that is “substantially similar” that incorporates “the intellectual property of the Restaurant,” which includes “the Restaurant’s trade names, trade marks, service marks, trade symbols, emblems, signs, slogans, insignia, [and] copyrights.”
In 2006, three of the founders opened additional Japonais restaurant in New York and Las Vegas, utilizing the trade dress and design of the Japonais Chicago restaurant, without offering compensation to Geisha Chicago or Hospitality Chicago. Modeling the corporate organization of the new restaurant after the Japonais Chicago restaurant, the three founders (minus Segal) created Geisha NYC and Hospitality NYC to operate Japonais NYC. Thereafter, Segal filed a complaint against Geisha NYC, Hospitality NYC and Wahlstedt alleging trademark infringement under the Lanham Act. After the district court granted a motion to dismiss, Segal appealed.
Segal argued that the district court erred in dismissing the Lanham Act count because he adequately pled the elements of the claim. Segal also argued that Hospitality Chicago’s operating agreement was a contract intended to govern the relationship between the founders and did not and could not authorize the New York entities’ trademark use. Addressing Segal’s first argument, the Court held that while the Rule 8 of the Federal Rules of Civil Procedure only requires that a complaint adequately plead facts to put a defendant on notice of the plaintiff's claim, a complaint that satisfies the pleading requirements of Rule 8 might still warrant dismissal if the facts pleaded cannot result in any plausible relief.
Turning to Segal’s second argument, the Court held that the Geisha Chicago operating agreement delegates all of its corporate power to Hospitality Chicago, including total control over its intellectual property. Further, the Court held that the Hospitality Chicago operating agreement allows two founders to utilize the Japonais “concept,” including intellectual property, in order to expand the restaurant nationally. The Court recognized that in order to succeed on his Lanham Act claim, Segal must establish both that Geisha Chicago owns a protectible trademark and that use of this mark by Japonais New York is likely to cause confusion among consumers. However, where the trademark owner authorizes use of the mark, there can be no likelihood of confusion. Applying the law to the case at hand, the Court found that any use of the intellectual property owned by Geisha Chicago was authorized because at least two of the founders had agreed to expand the Japonais “concept”. As a result, Segal’s Lanham Act claim failed as a matter of law.
HOT RIGZ with Toy Trucks Dilutes HOT WHEELS
The U.S. Court of Appeals for the Ninth Circuit amended a decision in order to apply the new dilution standard established in the Trademark Dilution Revision Act of 2006 (TDRA) in place of the prior “actual dilution” standard arising from the 2003 Supreme Court decision, Moseley v. V. Secret Catalogue. The Ninth Circuit explained that it revisited its decision so as to adhere to its prior precedent established in Nissan Motor v. Nissan Computer, in which the Court held that application of the Federal Trademark Dilution Act (FTDA) to an alleged diluting mark that was in use before the statute’s passage was not retroactive because the FTDA authorizes only prospective relief. Jada Toys v. Mattel, Inc., Case No. 05-55627 (9th Cir., Feb. 21, 2008) (Sandoval, J.).
In 2002, plaintiff Jada Toys obtained a federal trademark registration of the term HOT RIGZ for its line of toy trucks. Jada Toys used the mark on advertising material, as well as on the toys and their packaging from 2001 to 2004. Mattel, a major toy company, has marketed its HOT WHEELS brand of miniature vehicles since 1968 and has obtained many trademarks in connection with the brand. In 2004, Jada Toys brought an action against Mattel, claiming that Mattel’s advertising and sale of its OLD SCHOOL and NEW SCHOOL lines of toys infringed on Jada’s registered trademark OLD SKOOL. Among its various counterclaims, Mattel alleged that Jada’s HOT RIGZ mark infringed and diluted Mattel’s HOT WHEELS mark.
The district court dismissed both parties’ claims on summary judgment. Based on the dissimilarity of the HOT RIGZ and HOT WHEELS marks alone, the district court found that no likelihood of confusion existed and dismissed Mattel’s infringement counterclaims. Mattel appealed.
In its first decision in this case, the Ninth Circuit reversed the ruling of the district court, finding that the district court erred in finding no likelihood of confusion because it improperly relied on the dissimilarity of the marks alone. The Ninth Circuit stated that a finding based merely on persuasive evidence of one Sleekcraft factor does not preclude the court’s need to evaluate evidence of the other factors. Because the district court neglected to evaluate the Sleekcraft factors in their entirety, the Ninth Circuit determined that a triable issue of fact existed as to whether the HOT RIGZ mark was confusingly similar to the HOT WHEELS mark, precluding the grant of summary judgment.
Approximately six months later, the Ninth Circuit issued an amended decision to replace the old “actual dilution” standard with the TDRA’s new “likelihood of dilution” standard in its discussion of Mattel’s dilution claim. The Ninth Circuit’s first decision applied the “actual dilution” standard because the case was filed in 2004, before the TDRA became effective. In its amended decision, the Ninth Circuit adjusted its dilution analysis to recite the non-exclusive list of four factors that a court may consider under the TDRA instead of the eight factors listed in the prior federal dilution statute. The Ninth Circuit also amended its previous decision to apply the TDRA’s factors for determining a likelihood of dilution by blurring or tarnishment, instead of weighing Mattel’s evidence under the actual dilution standard.
Ultimately, the Ninth Circuit again reversed the district court’s entry of summary judgment of Mattel’s dilution claim, finding the existence of genuine issues of material fact because “a reasonable trier of fact could conclude that [Mattel’s] evidence was sufficient to establish the existence of a likelihood of confusion.”
Practice Note: While the current standard for proving federal dilution claims “likelihood of dilution” is relaxed in comparison with the stringent “actual dilution” standard of Moseley v. V. Secret Catalogue, trademark owners should be aware that the TDRA limits dilution claims to dilution by “blurring” or “tarnishment” and does not recognize any other type of dilution. Also, because the TDRA defines a famous mark as being “widely recognized by the general consuming public of the United States,” many marks will not qualify for dilution protection that might have qualified previously. This effectively eliminates the availability of a dilution claim for marks with “niche fame,” i.e., those possessing fame only within a narrow sub-community.
Trademarks / Custom Enforcement
CIT Has No Jurisdiction over Challenge to Seizure and Destruction of Counterfeit Merchandise
By Valentin A. Povarchuk
Holding that the Bureau of Customs and Border Protection’s seizure of counterfeit goods under 19 U.S.C. § 1526(e) does not constitute an embargo, the U.S. Court of Appeals for the Federal Circuit vacated the decision of the Court of International Trade (CIT) and remanded with instruction to dismiss for lack of jurisdiction. Sakar Int’l, Inc. v. United States, Case No. 06-00025 (Fed. Cir., Feb. 19, 2008) (Schall, J.).
In 2002, Sakar International, Inc. attempted to import travel chargers and mini-keyboards for PDAs bearing “UL” trademark registered to Underwriters Laboratories and “Flying Window” trademark of the Microsoft Corporation. The U.S. customs officials determined that the goods were counterfeit under U.S. law, seized them and notified Sakar that the goods would be forfeited and disposed of unless, within 30 days, the trademark owners consented in writing to the importation of the goods. Consent was not received and the bureau destroyed the goods. Subsequently, the Bureau of Customs fined Sakar $381,500 for the attempted import; the amount was later reduced to $67,775.
Sakar filed suit in the CIT challenging the fine. The CIT found that it had jurisdiction over the matter, but dismissed Sakar’s complaint due to the lack of “final agency action.”
On appeal, the government argued that CIT erred in ruling that it had jurisdiction. The Federal Circuit noted that under 19 U.S.C. § 1581(i)(3) and (4), the CIT has exclusive jurisdiction over administration and enforcement of “embargoes and other quantitative restrictions on the importation of merchandise.” Therefore, the critical question was whether the Bureau of Customs’ seizure of merchandise under § 1526(e) constituted an embargo.
The Federal Circuit next noted that in K Mart v. Cartier, the Supreme Court concluded that the prohibition against importation of counterfeit goods imposed by 19 U.S.C. § 1526(a) was not an embargo because the trademark owner, not the government, had the sole authority to decide whether products bearing its trademark could be imported. The Federal Circuit rejected Sakar’s attempt to distinguish K Mart. Examining Bureau of Customs’ regulations, the Federal Circuit found that merchandize seized under § 1526(e) is forfeited, “unless the trademark owner, within 30 days of notification, provides written consent to importation.” Thus, the Federal Circuit concluded, it is the trademark owner that ultimately controls the disposition of the merchandise under § 1526(e). The government’s seizure of imported merchandise alone does not constitute an embargo when seized goods may be subsequently released for importation upon the trademark owner’s consent.
Accordingly, the Federal Circuit vacated the CIT’s decision and remanded the case with instructions for the CIT to dismiss Sakar’s complaint for lack of jurisdiction.
Plaintiff Folds Hands—Left Holding the Defendants Attorney Fee Bag
In this (video poker game) case, the U. S. Court of Appeals for the Seventh Circuit, in the context of an appeal following a voluntary dismissal of a copyright infringement action, reversed the district court and granted an award of attorneys’ fees, holding that there is no need that there be a ruling on the merits in order to determine whether there is a “prevailing party” under copyright law. Riviera Distributors v. Jones and Midwest Electronic Specialties, Case No. 06-2043 (7th Cir., Feb. 20, 2008) (Eastbrook, J.).
In the underlying action, the plaintiffs contended that the “Stars and Stripes” video-poker game sold by defendants infringes its “Americana” source code. After the suit had been pending for more than a year and long after the time for a voluntary dismissal without prejudice had passed, Riviera filed a motion to dismiss, conceding that it lacked the evidence to provide its claim. The plaintiff asked the district judge to dismiss without prejudice under Rule 41(a)(2). However, the district judge dismissed the case with prejudice.
The defendants then applied for attorneys’ fees as the “prevailing party” under 17 U.S.C. § 505. The district court denied the request noting that as there been “no finding with respect to the merits of the case.” The defendant appealed.
Judge Eastbrook began the analysis noting that the copyright fee-shifting statue “treats both sides equally and allows an award in either direction.” In this case, the Court reasoned that defendant prevailed and that just because Midwest obtained a favorable judgment “this came about when Riviera threw in the towel does not make Midwest less the victor than it would have been had the judge granted summary judgment or a jury returned a verdict in its favor. Riviera sued; Midwest won; no more is required.”
Citing the 7th Circuit’s 2005 decision in Woodhaven Homes, Judge Eastbrook faulted the district court rational for refusing an award (i.e., that “[Riviera’s pursuit of this action was [not] frivolous, baseless or objectively unreasonable,” as being inconsistent with copyright law’s symmetric approach for fee shifting under § 505, which presumptively entitles the prevailing party to reimbursement of its attorneys’ fees.
Unwritten Secrets Are Protectable Under the Uniform Trade Secret Act
Addressing the issue of trade secret infringement, the Supreme Court of Ohio affirmed the appellate court’s decision holding that memorization and use of trade secret information belonging to a former employer constitutes trade secret infringement in accordance with the Uniform Trade Secrets Act (“UTSA”). Al Minor & Assoc. v. Martin, 2008 Ohio LEXIS 240 (O’Donnell, J.).
Al Minor & Associates (AMA) is an actuarial firm that designs and administers retirement plans. AMA’s clientele had been developed by its founder Al Minor since 1983. The plaintiff, Robert E. Martin was hired by AMA in 1998 as a pension analyst. Martin was not required to sign an employment contract. Martin later organized his own company, which provided the same type of services as AMA. Upon learning of Martin’s company, AMA filed the present trade secret suit against Martin. During his tenure at AMA, Martin memorized the customer lists of AMA and used these customer lists to aid him in his own venture.
The trial court referred the case to a magistrate judge who held that Martin misappropriated AMA’s client list in violation of the UTSA. Martin appealed (to the state appellate court) asserting that “a client list memorized by a former employee cannot be the basis of a trade secret violation.” After that appellate court confirmed that the trial court’s decision was in conflict with Greenwald v. Cuyaho, Martin filed a discretionary appeal to the Supreme Court of Ohio.
The Supreme Court of Ohio affirmed the trial court’s decision, holding that the ultimate decision regarding whether a client list is a protected trade secret does not depend on whether a former employee memorized it. Rather, the Court held that memorization is no defense to a claim of trade secret infringement. Further, the Court noted that there is nothing in the UTSA to suggest that a distinction was to be made between information that had been reduced to some tangible form and information that has only been memorized. The Supreme Court of Ohio further noted that the legislature could have excluded memorized trade secrets from the UTSA, but it did not.
Senate Prepares to Consider Patent Reform Act of 2007, Circulates 15 Proposed Amendments
On March 13, 2008, the Senate Judiciary Committee released 15 proposed amendments to the Patent Reform Act of 2007 (S. 1145) in advance of full Senate consideration of the bill, anticipated to occur in April. Summaries of the significant amendments follow below.
Amend best mode to align with language in House version: The “best mode” requirement would be considered in the process of obtaining a patent, but it would not be a permissible ground upon which to institute a post-grant review proceeding to invalidate a patent.
Delete marking provision: The amendment would strike the marking requirement for certain patentees to receive damages for past infringement.
Codify Seagate’s willful infringement standard: The amendment would codify the new standard for willful infringement announced in the 2007 Federal Circuit decision, In re Seagate Tech., which requires a patentee to show clear and convincing evidence that an accused infringer acted with “objective recklessness” in order to prove willfulness.
Interlocutory appeals of claim construction orders: The amendment would limit interlocutory appeals to those that the district court : (i) determines that there was a reasonable ground for difference of opinion; and (ii) such an appeal may advance the ultimate termination of the litigation. The amendment would also give the Federal Circuit discretion whether or not to accept an appeal of a second claim construction order after it has already heard one interlocutory appeal in that same case.
Appropriate facilities for Federal Circuit judges: The amendment ensures that Federal Circuit judges are provided with use of appropriate existing facilities and administrative services by allowing judges who do not reside within a 50-mile radius of Washington, D.C. to use chambers of an existing courthouse in the district where they reside.
Post grant review—disqualification: The amendment corrects inconsistency between section 337 (1) and (2) by disqualifying post-grant reviews in which issues were raised (or could have been raised) in the litigation.
Post grant review— “final decision” defined: The amendment defines “final decision” for estoppel purposes as any final decision of a United States district court or the International Trade Commission.
Interference appeals amendment: The amendment would allow the Federal Circuit to hear interference decisions from the Board of Patent Appeals and Interferences that commenced prior to the effective date of the Act.
Derivation proceedings amendment: The amendment clarifies procedures relating to derivation proceedings (to “replace” interference practice).
Additional amendments are expected to follow in the coming weeks.
SPECIAL REPORT: COMMENTARY
The Supreme Court holding in Bell Atlantic v. Twombly[1] of a “plausibility” standard for judging whether a claim may be dismissed for failure to state a claim, has generated widespread commentary and provoked some degree of uncertainty concerning the standard for assessing the adequacy of pleadings. This commentary discusses the implication of the Bell Atlantic plausibility standard in the patent context through the analysis of several patent cases that have presented motions to dismiss.
In Bell Atlantic, the Supreme Court disavowed the oft-quoted pure notice pleading standard set 50 years ago in Conley v. Gibson that, “the accepted rule [is] that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” In cautioning that it was not creating a heightened pleading standard, the Supreme Court nonetheless held that to survive a motion to dismiss, the complaint must allege sufficient facts to support a plausible, not merely conceivable, claim for relief.
Although Bell Atlantic arose in the context of a Sherman Act, § 1 class action complaint, its holding that an allegation of parallel conduct by competitors, without more, is not sufficient to plead antitrust violation has been widely recognized as generally applicable to all civil pleadings. The new plausibility test requires less than a probability, but more than a mere possibility. In Bell Atlantic, the Supreme Court reversed the Court of Appeals “because the plaintiffs here have not nudged their claims across the line from conceivable to plausible.”
To date, the Federal Circuit had only one occasion on which to interpret and apply the Bell Atlantic plausibility standard. McZeal v. Sprint Nextel (see IP Update, Vol. 10, No. 10). In McZeal, a pro se plaintiff was found to have met the pleading requirements for patent infringement by pleading sufficient facts in accordance with Form 16 of the Federal Rules. However, Judge Dyk in dissent, criticized the majority decision as “inconsistent with … Bell Atlantic,” noting that McZeal was a serial litigator with a history of bringing non-meritorious claims and that the complaint made mere conclusory allegations of infringement under only the doctrine of equivalents. In Judge Dyk’s view, McZeal should not have been afforded any pro se deference.
Some district courts have taken up the new Bell Atlantic plausibility standard to dismiss inadequately pleaded claims. In a recent S.D.N.Y case, a court dismissed the defendant’s declaratory judgment counterclaims for non-infringement and invalidity for failing to meet the plausibility test where the defendant merely asserted the counterclaims “without alleging even general facts to support them.” Aspex Eyewear, Inc., v. Clariti Eyewear, Inc., 2008 U.S. Dist. LEXIS 7343 (Jan. 24, 2008). Quoting Iqbal v. Hasty, the court explained that, “[a]s interpreted by the Second Circuit, Bell Atlantic Corp. did not announce a ‘universal standard of heightened fact pleading, but … instead requir[es] a flexible ‘plausibility standard,’ which obligates a pleader to amplify a claim with some factual allegations in those contexts where such amplification is need to render the claim plausible.”
In three district court patent cases (all in Eleventh Circuit) different interpretations of Bell Atlantic governed the outcome. In the first case, a court denied a proposed amendment by the defendant for counterclaims for invalidity under § 103 and § 112 because the defendant’s proposed counterclaims were “pleaded in entirely conclusory fashion, with no supporting facts of any kind. As such, they run afoul of the pleading standards enunciated by the Supreme Court in Bell Atlantic and cannot survive Rule 12(b) scrutiny.” Bartronics, Inc. v. Power-One, Inc., 245 F.R.D. 532 (S.D. Al., June 15, 2007). The court stated that “[t]he Bell Atlantic Court reiterated the well-established propositions that a ‘plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,’ and that ‘[f]actual allegations must be enough to raise a right to relief above the speculative level.”
In a Florida case, Every Penny Counts, Inc. v. Bank of America Corp., the court dismissed the plaintiff’s patent infringement complaint because the complaint was “devoid of any [factual] allegations that [the defendant] makes, uses, offers to sell or sells a product that infringes on the [plaintiff’s] patent.” 2007 U.S. Dist. LEXIS 88167 (M.D. Fl., Nov. 30, 2007).
Not every court has read Bell Atlantic as having changed the pleading requirements of Rule 8. In a Georgia case patent infringement case, CBT Flint Partners, LLC v. Goodmail Systems, Inc., 2007 U.S. Dist. LEXIS 92639 (N.D. Ga., Dec. 17, 2007). The Court denied the defendant’s motion to dismiss for failure to state a claim, noting that “new standard” in Bell Atlantic “was merely a specific way to articulate a solution to what it perceived to be a specific pleading problem, in a specific area of law that inflicted a high cost upon antitrust defendants. It was not a broad based new license for federal courts to ramp up pleading requirements.” The Georgia district court saw “no principled reason” for requiring more factual detail for inducement or contributory infringement claims than that found in Form 16. In the court’s view, because the local patent rules require early disclosure of detailed infringement contentions, “[r]equiring similar[ly] detailed factual disclosures at the pleading stage would serve no useful purpose.”
Practice Note: Whether other courts will uniformly scrutinize complaints in patent cases in the pleading stage remains to be seen. Bell Atlantic has created a window of opportunity to challenge patent claims that are mechanically plead that should not ignored or overlooked, especially in circuits that have generally accepted the Supreme Court’s plausibility standard.
[1] 127 S. Ct. 1955 (2007) (Souter, J.; Stevens, J. and Ginsburg, J., dissenting).