IP Update, Volume 4, No. 5, May 2001
May 2001
IN THIS ISSUE
- Supreme Court/Damages - US Courts of Appeal Must Review District Court Determination of Punitive Damages Award De Novo
- Patents/Doctrine of Equivalents - The Federal Circuit continues to adopt a "zero tolerance" policy toward the doctrine of equivalents (DOE) as two recent decisions demonstrate
- Patents/Doctrine of Equivalents - Patentee Must Offer Factual Support for Equivalents to Survive Summary Judgment
- Patents/Validity - Extrinsic Evidence May Be Used to Show "Missing" Features Is Inherent in Anticipatory Prior Art Reference
- Patent/Litigation - Lower Court Invalidity Judgment Will Not Be Vacated Based on Post-Judgment Settlement
- Trademarks/Trade Dress - The Effect of The Supreme Court TrafFix Decision on Trade Dress Prosecution Practice
US Courts of Appeal Must Review District Court Determination of Punitive Damages Award De Novo
Contact: Paul Devinsky
The US Supreme Court has held that US Courts of Appeals should apply a de novo standard when reviewing the constitutionality of punitive damages. Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 2001 US. LEXIS 3520 (May 14, 2001). In Cooper, the Court remanded a $4.5 million dollar punitive damages award because the Ninth Circuit used the less-demanding abuse of discretion standard in reviewing the district court decision.
Leatherman and Cooper are competing tool manufacturers. Leatherman’s product, the PST, is a multi-functional pocket tool that improves on the classic Swiss army knife. In 1996, Cooper used retouched photographs of the PST to market its competing product, which had not yet been manufactured. Leatherman sued Cooper for using the PST image. After trial, the jury found Cooper liable for unfair competition and assessed compensatory damages of $50,000. The jury further found that Cooper acted with a reckless indifference to Leatherman’s rights and awarded Leatherman $4.5 million in punitive damages.
Cooper claimed that the punitive damage award was "grossly excessive" under the standard of BMW of North America, Inc. v. Gore. The District Court disagreed, finding the award was "proportional and fair, given the nature of the conduct, the evidence of intentional passing off, and the size of an award necessary to create deterrence to an entity of Cooper’s size." On appeal, the Ninth Circuit declined to reduce the amount of punitive damages, holding that the district court did not abuse its discretion.
The Supreme Court reversed, holding that the broad discretion given to state legislatures to authorize permissible punitive damage awards is limited by the due process clause of the Fourteenth Amendment, which makes the Eighth Amendment’s prohibition against excessive fines applicable to the states. In addition, as the Court found in Gore, the due process clause itself prohibits states from imposing "grossly excessive" punishments on tortfeasors. Justice Stevens, writing for the Court, recognized that the constitutional line is "inherently imprecise," and the determination of whether that line has been crossed when setting a punitive damage award depends on the thorough application of the three factors outlined in Gore—the degree of the defendant’s culpability, the relationship between the penalty and the harm to the victim and the sanctions imposed in other comparable cases—to the facts of a particular case. The Supreme Court cautioned that application of the Gore factors to an award of punitive damages requires an independent review of district courts’ decisions by the appellate courts in order to "maintain control," "unify precedent" and "stabilize the law."
Patents/Doctrine of Equivalents
Festo-ring Sores: The Erosion of the Doctrine of Equivalents
The Federal Circuit continues to adopt a "zero tolerance" policy toward the doctrine of equivalents (DOE) as two recent decisions demonstrate.
Contact: Paul Devinsky
In its decision, the Federal Circuit held that Festo may be applied retroactively, even when the Federal Circuit itself has already affirmed a finding of infringement under the DOE. Insituform Technologies, Inc. v. CAT Contracting, Inc., 2001 US App. LEXIS 4570, 58 U.S.P.Q.2d 1392 (Fed. Cir. March 26, 2001). In its two previous published decisions, the Federal Circuit had affirmed a finding that one of the accused processes infringed the patent-in-suit under the DOE and it remanded for a recalculation of damages and to determine whether one of the defendants was liable for inducing infringement. In this, the third appeal, the defendants filed a motion with the Federal Circuit seeking application of Festo to their case. The patentee argued that a final judgment of infringement had already been entered and the"law of the case" applied.
The Federal Circuit, citing US Supreme Court precedent, held that the Festo decision must apply retroactively "in all cases still open on direct review and as to all events." Because the "final judgment" was still open before the Federal Circuit for review (albeit on the issues of damages and whether induced infringement should apply to one defendant), the Federal Circuit held that it was not precluded from applying Festo.
As to "law of the case," the Court held that "an intervening change in applicable law" is an exception to "law of the case" and, therefore, Festo could be applied. The Court, therefore, vacated the judgment of infringement and dismissed the case.In the second case, Lockheed Martin Corp. v. Space Systems/Loral, Inc., No. 00-1310 (Fed. Cir. April 30, 2001), the Court affirmed a finding of no infringement under the doctrine of equivalents. The patent concerned an apparatus and method for steering a satellite. The disputed claim limitation was "means for rotating [a] wheel in accordance with a predetermined rate schedule which varies sinusoidally over the orbital frequency of the satellite." The claim as originally filed recited "means for rotating [a] wheel in accordance with a predetermined sinusoidal variation." The claim was amended twice during prosecution in response to prior art rejections.
The lower court granted summary judgment based, in part, on its belief that the accused method did not "vary sinusoidally." The patentee argued that it had put forth evidence that the accused method employed a means that was insubstantially different from a sinusoidal variation. Moreover, the patentee argued that, because the "sinusoidal" limitation was present in the claim as originally written, Festo should not apply to that limitation. The patentee argued that the rate of sinusoidal variation was added in response to the prior art rejections, not the sinusoidal variation itself.
The Federal Circuit reversed, holding that because the original claim language ("predetermined sinusoidal variation") was changed to "a predetermined rate schedule which varies sinusoidally," the entire limitation was changed in response to the prior art and was, therefore, a narrowing amendment. Thus, the Federal Circuit applied the Festo rule to the entire claim limitation, finding the patentee was entitled to no range of equivalents with respect to the subject limitation.
Practice Note: Every word in a claim that is changed in an amendment may have ramifications in litigation. When amending claims, try to keep as many words the same as possible. As a consequence of the Insituform decision and the Honeywell case decided in February 2001 (see Intellectual Property Update, Vol. 4, No. 2), adjudicated patent infringement defendants who are parties to cases that are still "open," even after appeal, and who have a Festo defense, may wish to consider filing motions with the Federal Circuit seeking application of Festo to their case.
Patents/Doctrine of Equivalents
Patentee Must Offer Factual Support for Equivalents to Survive Summary Judgment
By Patrick Richards
The US Court of Appeals for the Federal Circuit affirmed a summary judgment in favor of an accused infringer, holding that Regal’s boat hull did not infringe Schoell’s patent, either literally or under the doctrine of equivalents. Schoell v. Regal Marine Industries Inc., Case No. 99-1511 (Fed. Cir. April 17, 2001).
Schoell is the owner of US Patent No. 5,456,202 ("the ‘202 patent"), which relates to planning hull for a powerboat. The hull claimed in the ‘202 patent includes a stepped offset separating a V-shaped forward keel from a "generally flat" aft keel. Regal manufactures a boat having a stepped hull design. Regal’s boat includes an aft V-shaped keel that has a 12-degree dead rise angle and a forward V-shaped keel that has a 12-degree dead rise angle just forward of the step. In Regal’s hull design, the V-shaped angle increases as the keel extends towards the bow.
The claims, which recite "a generally flat aft keel" were construed below, based on the written description and prosecution history, to require an aft keel "that is mostly horizontal." The lower court found that the ‘202 patent claims carefully differentiate between the V-shaped forward keel and the generally flat aft portion. Moreover, the lower court noted that in response to the examiner’s rejection of the originally filed claims, Schoell argued that a cited reference (which described a V-shaped aft keel with a dead rise angle of between 12 and 18 degrees) did not disclose a generally flat aft keel.
The Federal Circuit affirmed the district court on the issue of literal infringement, holding that "because Schoell so clearly differentiated between the two keel shapes, a 12-degree dead rise, found in both the aft keel and in the shallowest portion of the forward keel of Regal’s hull, cannot satisfy both the ‘V-shaped forward keel’ limitation… and the ‘generally flat aft keel’ limitation. Thus, it is impossible for Regal’s hull to literally infringe the claims of the ‘202 patent."
The court also affirmed the district court on the issue of infringement under the doctrine of equivalents. Schoell provided evidence regarding the performance of the Regal boat as well as evidence of alleged copying by Regal and, based on performance data, argued that the Regal hull performs "substantially the same function in substantially the same way to obtain substantially the same result as the claim limitation." On examining the evidentiary record, the court found that just because two hull designs may result in similar performance does not support Schoell’s claim that the Regal hull in fact performed the same function in the same way as the claimed "generally flat" aft keel. Consequently, the court held that Schoell had not make a showing of a genuine issue for trial: "The doctrine of equivalents is not a talisman that entitles a patentee to a jury trial on the basis of suspicion; it is a limited remedy available in special circumstances, the evidence for which is the responsibility of the proponent."
Extrinsic Evidence May Be Used to Show "Missing" Features Is Inherent in Anticipatory Prior Art Reference
By Michael Switzer
The US Court of Appeals for the Federal Circuit affirmed a district court ruling that patent claims directed to a mobile phone debit system are invalid as anticipated by a single reference, where extrinsic evidence was relied on to prove that a feature not explicitly disclosed by the reference was inherent. Telemac Cellular Corporation v. Topp Telecom, Inc., Case No. 99-1562 (Fed. Cir., Apr. 25, 2001).
Telemac is the owner of US Patent No. 5,577,100, directed to a mobile phone debit system where a user prepays for calls or airtime. As the user places calls, the cost for each call is debited from the credit amount stored in the memory of the phone. A billing algorithm is used to perform the debiting. The algorithm classifies a call as either local, long distance, international or roaming. The rate values corresponding to each category of call is stored in an internal rate table. The debit amount is calculated based upon the classification of the call, the corresponding rate and the time length of the call.
The district court, after first construing the claim term "complex billing algorithm" to require the storage of rate values, classification of calls and calculation of charges for local, long distance, international and roaming calls, granted partial summary judgment of invalidity, finding the claims anticipated by US Patent No. 5,631,947. The court acknowledged that the ‘947 patent did not expressly identify debiting for the four categories of calls, but found that these categories were inherently included within the disclosed "Call Detail Record," noting that "Telemac’s own documents indicate that a Call Detail Record includes information regarding the rates for such categories of calls."
The Federal Circuit, after affirming the lower court’s construction of the term "complex billing algorithm," confirmed "that recourse to extrinsic evidence is proper to determine whether a feature, while not explicitly discussed, is necessarily present in a reference." Upon a review of the Telemac informal invention disclosure form, as well as additional extrinsic evidence of record, the Court affirmed the lower courts finding that the ‘947 patent discloses an algorithm which calculates charges for all four claimed categories of charges, thus anticipating the claims of the ‘100 patent.
Lower Court Invalidity Judgment Will Not Be Vacated Based on Post-Judgment Settlement
By Fay E. Morisseau and David M. Stein
Under the category of "you can’t always get what you want," the Federal Circuit found that a patentee was stuck with a judgment of invalidity, even after securing an agreement with the accused infringer to vacate the judgment. Aqua Marine Supply v. AIM Machining, Inc. 2001 WL 392063 (Fed. Cir. April 19, 2001).
The patentee, Aqua Marine, filed suit against several defendants alleging, among other things, patent infringement. The defendants moved for summary judgment of invalidity based on an alleged on-sale bar. The district court granted the summary judgment motion, entered a declaratory judgment of invalidity and then stayed the case pending an appeal of that judgment to the Federal Circuit.
Prior to filing its appeal, Aqua Marine entered into a settlement agreement with the defendants that settled and dismissed the case with prejudice as to all claims by and between all parties. The settlement agreement required Aqua Marine and defendants to file a joint motion to vacate the district court’s invalidity judgment. The district court, however, denied the motion, stating that it had no interest in unwillingly taking part in the private settlement of the case. It further held that vacatur under Rule 60(b)(6) was to be used only in exceptional or extraordinary circumstances and that the settlement here was not a situation warranting such extraordinary equitable relief.
Aqua Marine then pursued its unopposed appeal to the Federal Circuit. As an initial matter, the Federal Circuit noted that Aqua Marine was "less than forthcoming with the court about the status of the case." Specifically, Aqua Marine failed to inform the court that the settlement agreement settled all of the claims between the parties and that the district court had denied the motion to vacate the invalidity judgment.
Putting aside the candor issue, the Federal Circuit concluded that where, as here, the alleged infringer has settled the infringement issue and no longer professes any interest in defending its declaratory judgment of invalidity, the case has become moot as a result of the voluntary act of the patentee. Indeed, the Federal Circuit no longer viewed the parties as adversaries. The Federal Circuit held that in such situations vacatur should be denied, citing the Supreme Court case of US Bancorp Mortgage Co. v. Bonner Mall Partnership for the proposition that when a case is moot, "[t]he principal condition to which we have looked [in determining whether vacatur is appropriate] is whether the party seeking relief from the judgment below caused the mootness by voluntary action." The Federal Circuit held that under the circumstances of the present case, where the mootness was the result of Aqua Marine’s own action, i.e., entering into the settlement agreement, vacatur is not appropriate.
The Effect of The Supreme Court TrafFix Decision on Trade Dress Prosecution Practice
As recently reported in the Intellectual Property Update, Vol. 4, No. 4, the US Supreme Court in the case of TrafFix Devices, Inc. v. Marketing Displays, Inc. held that a product feature that was the subject of an expired utility patent can rarely, if ever, be protected as trade dress under the federal Trademark Act because such a feature is, in essence, de jure functional. The Supreme Court also held that the proper inquiry in determining whether a trade dress is legally functional is whether "it is essential to the use or purpose of the article or if it affects the cost or quality of the article." If a trade dress meets that standard, it is not protectable even assuming the existence of secondary meaning.
While the TrafFix decision did not involve the rejection of a trade dress application by the US Patent and Trademark Office (PTO), the PTO likely will apply the functionality principles articulated in the decision during the application examination phase. The Supreme Court ruling was essentially an interpretation of 15 U.S.C. Section 1125(a)(3), which is the same statutory section of the Lanham Act that the PTO relies on when refusing to register trade dress applications on the ground of functionality. Nevertheless, TrafFix should have only a modest effect on prosecution practice before the PTO.
The TrafFix holding that a US utility patent is highly relevant in the functionality determination raises the issue of whether there is any change in the nature of a trade dress applicant’s obligation to disclose prior patents that cover the applied-for trade dress, including (a) its own US patent applications and registrations, (b) its own foreign patent applications and registrations, (c) third party patent applications and registrations, and (d) design patent applications and registrations.
US Utility Patents (of applicant) The TrafFix ruling that US utility patents are highly relevant to the issue of functionality solidifies existing PTO practice, whereby trademark examiners, as a matter of course, require trade dress applicants to disclose all US patent registrations and applications that are the subject of the proposed mark and that are owned by the applicant. If the applicant refuses to furnish this information, the application will be rejected on that ground. Thus, TrafFix would appear to have little practical impact on obligations to disclose prior US patents.
Foreign Patents (of applicant) Current PTO policy does not require an applicant to voluntarily disclose foreign patent information. The TrafFix holding does not directly bear on the relevance of a foreign patent. There are non-trivial questions as to the relevance of foreign patents to the functionality determination in view of the different requirements and standards in the foreign patent registration processes. Thus, there would appear to be no clear requirement for an applicant to routinely, voluntarily disclose foreign patents during the examination process.
Third-Party US Utility Patents Under TrafFix (as before), third party patent registrations would plainly be relevant to the functionality inquiry. If an examining attorney at the PTO asks an applicant if the applied-for trade dress mark is covered by a third-party patent registration, the applicant has a duty to disclose known third-party patents. However, there does not appear to be anything in the TrafFix decision that requires an applicant to voluntarily provide such information if not requested. Note, however, that if a device practicing the third-party patent is being used in commerce and creates the same overall visual impression as applicant’s trade dress, the applicant may not be able to sign the trade dress application, which requires the applicant to swear that it has the exclusive right to use the mark in United States commerce.
US Design Patents (of applicant) Design patents owned by a trade dress applicant were relevant before TrafFix to support an applicant’s contention that its trade dress is not de jure functional, i.e., because design patents only protect non-functional, ornamental features. This is reaffirmed in Traffix. Thus, a trade dress applicant would generally be well-advised to disclose such evidence to the examining attorney.
Effect on PTO Examination Standard The most significant likely impact of TrafFix on PTO procedure will be the substantive legal standard that is employed by trademark examiners in determining whether a trade dress is functional. Prior to TrafFix, trademark examiners held that a trade dress was de jure functional if affording protection would place competitors at a significant non-reputation-related disadvantage. A trade dress applicant could clear this hurdle by showing numerous equally efficient alternative trade dresses. TrafFix, however, held that the appropriate legal standard for determining whether a trade dress is de jure functional is whether "it is essential to the use or purpose of the article or if it affects the cost or quality of the article." If a trade dress meets that standard, it is not protectable, even assuming the existence of secondary meaning. This more onerous standard should make it easier for examining attorneys to reject trade dress applications on the ground of functionality.
