Rambus Decision: Lawful Monopolist’s Allegedly Deceptive Conduct Not Actionable Under Antitrust Laws
By Craig P. Seebald and Hillary A. Webber
The U.S. Court of Appeals for the D.C. Circuit overturned the Federal Trade Commission’s (FTC) landmark decision regarding standard-setting activities and held that a lawful monopolist may engage in deceptive behavior without violating the antitrust laws so long as the deceptive behavior is not used to acquire or maintain monopoly power. Rambus, Inc. v. FTC, 2008 U.S. App. LEXIS 8662 (D.C. Cir., Apr. 22, 2008) (Williams, Sr., J.).
The case appeared before the court after a unanimous FTC found that Rambus’ failure to disclose its patent interests to the Joint Electron Device Engineering Council (JEDEC) led to Rambus’ monopolization of the markets for certain DRAM technologies in violation of Section 2 of the Sherman Act and Section 5 of the FTC Act. Even though JEDEC’s disclosure policies were “not a model of clarity,” the FTC determined that members expected one another to disclose patents, patent applications and planned amendments to pending applications that related to the technologies being considered for standardization. The FTC concluded that but for Rambus’ deceptive conduct, which significantly contributed to Rambus’ monopoly power, JEDEC either would have excluded Rambus’ patented technologies from the JEDEC standards or would have demanded reasonable and non-discriminatory (RAND) licensing assurances. As a result of Rambus’ deceptive behavior, the FTC required Rambus to license its technology at “reasonable royalty rates.”
On appeal, a unanimous three-judge D.C. Circuit panel vacated the FTC’s findings and held that the FTC failed to show that Rambus’ conduct was exclusionary under a theory of monopolization. The key to the decision was the FTC’s inability to conclusively prove that JEDEC would have standardized non-proprietary technology but for Rambus’ deception. Rather, the FTC “left open the likelihood that JEDEC would have standardized Rambus’ technologies even if Rambus had disclosed its intellectual property.” Accordingly, Rambus’ conduct did not exclude any rivals or lead to Rambus’ monopoly power.
Even if Rambus’ conduct allowed it to demand higher royalties by avoiding RAND licensing terms, the court found this conduct did not injure competition because the higher royalties stemmed from Rambus’ lawful exercise of monopoly power. The court stated, “an otherwise lawful monopolist’s use of deception simply to obtain high prices normally has no particular tendency to exclude rivals and thus to diminish competition.”
Practice Note: The outcome of the Rambus case is highly fact-specific, and engaging in deceptive conduct in the standard-setting process still presents a risk of antitrust liability because the standard-setting organization could later claim that it would have standardized a different technology but for the patent holder’s deception. Therefore, patent holders should continue to exercise caution when participating in standard-setting activities and should act in good faith to disclose relevant patents in accordance with the standard-setting organization’s disclosure rules.
Implied Patent Licenses Might Be Exhausted; Quanta Preview?
By Suzanne Wallman
The U.S. Court of Appeals for the Federal Circuit issued a mixed decision upholding a district court’s grant of summary judgment for non-infringement of one patent and vacating a grant of summary judgment for non-infringement of another patent. Zenith Electronics Corp. v. PDI Communication Systems, Inc., Case No. 04-4796 (Fed. Cir., April 16, 2008) (Schall, J.). Perhaps anticipating the imminent Supreme Court decision in Quanta , the Court devoted much of its discussion to an explanation of the circumstances under which the Federal Circuit will infer an implied patent license to a third-party user of a patented article.
Zenith asserted two patents against PDI Communication Systems. The patents generally relate to televisions and wired remote control devices found in pillow speakers used in hospital rooms. Three companies— Curbell Electronics, MedTek, Inc. and Crest Electronics (the pillow speaker manufacturers)—manufacture and distribute digital pillow speakers pursuant to a patent licenses that they have from Zenith in one of the two patents. Although the patent covers only pillow speakers, the pillow speaker manufacturers specifically designed their pillow speakers to operate using Zenith control codes. After PDI began marketing an LCD television that was compatible with the digital pillow speakers but that used Zenith control codes, Zenith filed suit, asserting that PDI was directly infringing its patents by testing and operating its televisions with pillow speakers and indirectly infringing by supplying televisions and encouraging its customers to operate the televisions using pillow speakers.
Among other defenses, PDI asserted it had an implied license that precluded Zenith’s infringement claims.
The Federal Circuit affirmed, noting that the license agreements for the one patent that was licensed explicitly authorize the speaker manufacturers to sell pillow speakers for uses covered by the licensed patent. The Court noted that Zenith could have placed restrictions on third-party use when it granted licenses to the pillow manufacturers but did not. Since the manufacturers were expressly authorized to manufacture pillow speakers for all purposes, the Court concluded that customers who purchase pillow speakers from these authorized manufacturers obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions.
In contrast, the Federal Circuit found no implied license in the other, unlicensed patent in suit. Thus, to the extent that the district court’s grant of summary judgment of implied license defense included that patent, the Federal Circuit vacated the ruling.
As to the district court’s grant of summary judgment on PDI’s anticipation defense, the Federal Circuit reversed. PDI defended against the infringement charge, raising what is colloquially known as a “practicing prior art” defense; a sort of hybrid non-infringement defense that requires only a preponderance of the evidence standard to prove. However, as the Court reminded us, in order to invalidate by anticipation the more stringent clear and convincing standard must be met. The Court noted that “mere proof that the prior art is identical, in all material respects, to an allegedly infringing product cannot constitute clear and convincing evidence of invalidity.” Only where the appropriate burden of proof is established, can the maxim “[t]hat which infringes if later, anticipates if earlier” be applied.
Practice Note: The Federal Circuit’s extensive discussion of implied patent licenses is likely to soon be upstaged by the impending Supreme Court decision in QuantaComputer v. LG Electronics. Under the Supreme Court precedent on the doctrine of patent exhaustion, once a patentee grants a license to the patented invention and the licensee sells patented goods under its license, the patentee is prohibited from enforcing post-sale restrictions on use or resale by authorized purchasers or downstream users of the patented goods. At issue in Quanta is whether a Federal Circuit line of cases which allow a patentee to contract around the doctrine of patent exhaustion by imposing express restrictions in its patent license grants are in conflict with Supreme Court precedent.
Uniformity in Parallel Claim Construction and the Hazards of Analogies in Patent Drafting
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Finding that a district court had erred in construing a vital claim term, the U.S. Court of Appeals for the Federal Circuit vacated the lower court’s verdict of infringement and, with it, more than $100 million in judgments against DirecTV. Finisar Corp. v. The DirecTV Group, Inc., Case Nos. 07-1023, -1024 (Fed. Cir., April 18, 2008) (Rader, J.).
The patent-in-suit concerns an information broadcasting system that gives subscribers access to video and audio programs through high-speed satellite or cable links, utilizing an information database to track popular broadcasts and to anticipate user requests. At trial, the district court broadly construed the term “information database” as “a collection of computerized information which can be accessed.” While conceding that the term “information database” in isolation suggested broad coverage, the Federal Circuit noted that the claim term appeared within a context requiring, in addition to accessing the database, referencing, embedding, assigning and transmitting portions thereof. These functions, the Federal Circuit held, further presupposed searchability and retrievability. To support this narrower reading, the Court turned to the specification, which analogized the invention to a large library. Seizing upon this analogy, the Court held that the indices of the information database were akin to a card catalog system, providing searchability to the information database, which the Federal Circuit likened to a library’s collection of books. Indicating that it could not “envision carefully organizing each book’s card catalog records, but then randomly heaping the books themselves into an inaccessible pile in the center of the library,” the Federal Circuit narrowly construed the information database term to require the presupposed searchability and retrievability.
In its review of the U.S. District Court for the Eastern District of Texas’ claim construction, the Federal Circuit considered the analysis of the U.S. District Court for the Northern District of California, which had construed the same claim terms differently than the Texas court in a later-filed action. While reiterating Markman’s emphasis on uniformity in the treatment of a patent, the Federal Circuit nevertheless approvingly noted the California court’s rejection of the Texas court’s analysis, holding that the California court’s claim construction was the more correct. In so doing, the Federal Circuit appeared to reserve to itself the safeguarding of the desired uniformity and to grant the district courts wide latitude in formulating their own claim constructions.
Practice Notes: Litigators should be aware that in view of the Federal Circuit’s treatment of the competing claim constructions herein, district courts may feel free to be less deferential to each others’ claim constructions. Patent prosecutors should be careful when attempting to clarify an invention with reference to the familiar by way of analogy, lest the limitations of the familiar unduly limit the claims, however broadly drafted.
Preamble Language Presumed to Provide Context, Not Impose Limitations
By Shon Lo
Addressing the rules of claim construction pertaining to preambles and preferred embodiments, the U.S. Court of Appeals for the Federal Circuit vacated the district court’s summary judgment of non-infringement. Symantec Corp. v. Computer Assoc. Int'l, Inc. et al, Case Nos. 07-1201, -1239 (Fed. Cir., April 11, 2008) (Dyk, J.).
Symantec Corporation appealed from the district court’s summary judgment that Computer Associates Int'l, Inc. did not infringe U.S. Patent No. 5,319,776 (the ’776 patent). Symantec argued the district court erred in its claim construction on two grounds: reading a term from the preamble as a claim limitation and limiting the scope of a claim term to the preferred embodiment.
On appeal, the Federal Circuit noted that the “the purpose of a claim preamble is to give context for what is being described in the body of the claim.” According to the Court, preamble language is assumed to be “duplicative of the language found in the body of the claims” unless the claims, specification or prosecution history indicate otherwise. Here, the Court determined the prosecution history showed the terms “as it is being transferred” and “prior to storage” were added concurrently to overcome the same prior art. This did not constitute “clear reliance” on the preamble to distinguish from the prior art. Furthermore, nothing in the claim or specification suggested the terms have different meanings. Accordingly, the Court concluded the preamble term “as it is being transferred” simply meant “prior to storage” and did not impose a separate claim limitation.
The Court also agreed with Symantec that the district court improperly limited the claim term “computer system” to cover only the preferred embodiment. Citing its decision in Phillips, the Court noted “the claims ‘must be read in view of the specification, of which they are a part.’” The Court found the specification did not expressly or specially define the term “computer” or “computer system,” thus the words should be given their “ordinary and customary meaning.” The Court relied on the Dictionary of Computing to determine that the ordinary meaning of the words, as understood by a person of ordinary skill in the art at the time of invention, was not limited to a single, stand-alone computer. In view of the correct construction of “computer system,” the Court also determined the district court erred in construing the term “destination storage medium” to encompass only a storage system residing within a single, stand-alone computer, i.e., a hard drive. “Destination storage medium” could properly include peripheral devices in addition to hard drives, a scope consistent with the broad construction of “storage medium” determined in a prior Federal Circuit case involving the patent-in-suit.
Due to these errors in claim construction, the Court vacated and remanded the district court’s decision on non-infringement and invalidity. In the decision, the Court also addressed laches, inequitable conduct and inventorship, affirming the district court’s decision on each of these issues.
Broad Reach of Foreseeability Limits Ability to Rebut DOE Estoppel Presumption
By Matthew G. Cunningham
In affirming a district court’s holding that the patentee failed to rebut the presumption of prosecution history estoppel, the U.S. Court of Appeals for the Federal Circuit rejected the patentee’s argument that, because the equivalent was not developed by the alleged infringer until years after the patent issued, the alleged equivalent was unforeseeable at the time of the patent’s prosecution. Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp., Case No. 06-1602 (Fed. Cir., April 18, 2008) (Rader, J.; Newman, J., dissenting).
Honeywell’s patents at issue relate to auxiliary power units (APUs), which are gas turbine engines used in aircrafts. The patents claim technology that prevents airflow from surging back into the engine’s compressor, thereby averting damage to the APU.
Honeywell accused Sundstrand’s APU device of infringement. In an earlier decision in this litigation, the Federal Circuit vacated the jury’s verdict that Sundstrand infringed the patents under the doctrine of equivalents because the Court found that the patentee’s “rewriting of dependent claims into independent form coupled with the cancellation of the original independent claims creates a presumption of prosecution history estoppel.” Prosecution history estoppel prevents a patentee from recapturing under the doctrine of equivalents subject matter surrendered during prosecution to obtain a patent. As a result, Honeywell would only be permitted to assert infringement under the doctrine of equivalents if it rebutted the presumption of prosecution history estoppel.
Under Festo, the presumption of estoppel can be rebutted, inter alia, by demonstrating (as Honeywell attempted here) that the alleged equivalent was unforeseeable at the time of the amendment. The alleged equivalent was that Sundstrand’s APU devices used the position of inlet guide vanes (IGVs) to detect high flow and low flow. On remand, the district court found that the alleged equivalent was foreseeable and thus barred Honeywell from asserting the doctrine of equivalents. Honeywell appealed.
On appeal, Honeywell argued that the alleged equivalent was unforeseeable because surge control systems did not use IGVs to ascertain the existence of high or low flow situations during the relevant time period. Honeywell also pointed to the fact that Sundstrand did not develop the alleged equivalent until years after the relevant amendments. The Court rejected Honeywell’s arguments because “the mere temporal relationship” of the equivalent to the amendment process does not make the equivalent unforeseeable.
The Court emphasized that “foreseeability only requires that one of ordinary skill in the art would have reasonably foreseen the proposed equivalent at the pertinent time.” In affirming the finding that the equivalent was foreseeable, the Court cited prior art which showed that it was known that surge control was important; IGVs were routinely used in surge control systems; and IGVs affected the air flow rate. In addition, the Court noted that the district court determined that Sundstrand’s expert was credible. Thus, the Court found no clear error in the district court’s conclusion that the use of IGVs to detect high flow and low flow was foreseeable. Thus, Honeywell should have drafted claims to encompass this foreseeable equivalent during prosecution.
It is apparent that the Court intends to use the foreseeability principle to limit the application of the doctrine of equivalents. The Court stated, “The foreseeability principle thus relegates the doctrine of equivalents to its appropriate exceptional place in patent enforcement.”
Prosecution History Estoppel Precludes Infringement Under the Doctrine of Equivalents
By David L. Romero
The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s decision granting summary judgment of non-infringement holding that the accused device did not infringe literally or under the doctrine of equivalents due to prosecution history estoppel. Helena Laboratories Corp. v. Alpha Scientific Corp., Case No. 07-1503, (Fed. Cir., April 16, 2008) (Moore, J.).
The case stemmed from a declaratory action brought in the U.S. District Court for the Eastern District of Texas by Helena Laboratories that asserted non-infringement and invalidity of Alpha Scientific’s patent directed to medical dispensing devices. Helena conceded that its device, the H-Pette 3611, met all the elements of the claimed device, other than the “stabilizing supports” claimed in the patent-in-suit.
In construing the claims, the Federal Circuit found that the “stabilizing supports” of the patent-in-suit were defined as a plurality of flange-like structures, which contacted the target surface at multiple points. Because of the stabilizing supports, a user was able to place the dispensing tip at a predetermined distance from the target surface, allowing for delivery of a desired volume of fluid into a container.
On analyzing literal infringement, the court held that contrary to the claimed apparatus, the H-Pette, at most, possessed a single stabilizing support and was incapable of delivering a predetermined volume of fluid. In analyzing infringement under the doctrine of equivalents, the court held that Alpha’s claim was barred due to prosecution history estoppel. The panel noted that during prosecution Alpha successfully overcame an obviousness rejection by distinguishing the cited prior art as being incapable of dispensing a predetermined volume of fluid and that key to the invention was the plurality of stabilizing supports which kept the dispensing portion of the device at a predetermined distance from the target surface.
Practice Note: This ruling serves as a reminder that a patentee who clearly and unmistakably surrendered claim scope through arguments made to an examiner during prosecution will not be able to later assert infringement under the doctrine of equivalents.
State-Law Business Torts for Communications Regarding Patents Preempted by Federal Patent Law Unless Bad Faith Shown
By Thomas George
The U.S. Court of Appeals for the Federal Circuit recently held that communications publicizing a patent in the marketplace as well as communications alleging infringement sent to the patentee’s sales and distribution partners did not violate state-law business torts because the alleged infringer did not show that the patentee’s actions were “objectively baseless.” Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, Case No. 07-1456 (Fed. Cir., April 23, 2008) Kennelly, J.).
The patentee, OSRAM, sent an e-mail to its sales and distribution partners stating that the products of the alleged infringer, Dominant, possibly infringed its patents. Included with the e-mail was a letter from OSRAM’s outside counsel opining that Dominant’s products were infringing OSRAM’s patents. The e-mail suggested that the recipients might wish to show the letter to their customers. Later, OSRAM filed a complaint in the International Trade Commission (ITC) against Dominant asserting that its products infringed; infringement was later found in this action. Shortly after filing the ITC complaint, OSRAM issued two press releases: one describing the infringement allegations in the ITC action and the other announcing that one of OSRAM’s distributors promised not to import any of the allegedly infringing products.
After the ITC complaint was filed, another lawsuit was initiated for the communications regarding the patents in which Dominant asserted, among others, the following business torts all under state law: unfair competition, trade libel, interference with contractual relations and interference with prospective economic advantage. The district court granted OSRAM’s summary judgment motion, finding that the e-mail and the two press releases were not objectively baseless and thus were not made in bad faith.
The Federal Circuit affirmed the grant of summary judgment reasoning that federal patent law preempts state-law tort claims for publicizing a patent in the marketplace (e.g., the two press releases) or communicating infringement allegations to Dominant (e.g., OSRAM’s e-mail to sales and distribution partners) unless Dominant shows that OSRAM acted in bad faith. The Court further stated that bad faith includes separate objective and subjective components and requires a showing that the asserted claims are “objectively baseless” which requires that “no reasonable litigant could reasonably expect success on the merits.” The Court ruled that OSRAM satisfied its burden of production because infringement was found in the ITC action and thus the earlier claims of infringement by OSRAM could not have been objectively baseless. In contrast, Dominant failed to produce any evidence of objective baselessness and its argument that the analysis by OSRAM’s outside counsel was unsound, while relevant to the issue of subjective baselessness, was irrelevant to objective baselessness.
Federal Circuit Affirms Denial of Preliminary Injunction Seeking to Prevent Patent Owners from Warning Buyers about a Competitor’s Infringing Product
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The U.S. Court of Appeals for the Federal Circuit rejected the argument that the presumption of patent validity is improperly applied where the patent has allegedly been fraudulently acquired, finding that while unenforceability may yet be shown, “the possibility of inequitable conduct behind the patent is not so clear-cut that the district court’s reliance on the presumption of validity made its denial of the preliminary injunction an abuse of discretion.” Judkins v. HT Window Fashion Corp., Case No. 07-1434 (Fed. Cir., April 8, 2008) (Kennelly, J., sitting by designation).
Ren Judkins (Judkins) sued HT Window Fashion Corporation for infringement of Judkins’ patents relating to window coverings. HT counterclaimed for, among other things, a preliminary injunction under Sec. 43(e) of the Lanham Act, to enjoin Judkins from sending HT’s customers and potential customers warning letters to advise them that an HT product infringed Judkins patents. In denying HT’s motion for a preliminary injunction, the district court held that the balance does not weigh in HT’s favor because the patent is presumptively valid and Judkins had a right to protect its invention by warning the marketplace against infringement. HT appealed.
HT argued that the court improperly applied a presumption of validity to patents that, as HT contended, were fraudulently obtained and applied the wrong legal standard for bad faith. With regard to bad faith, HT asserted that the court erred by requiring HT to provide evidence of Judkins’ subjective knowledge of bad faith rather than using the “objectively baseless” standard.
The Federal Circuit concluded that while unenforceability for inequitable conduct may yet be shown, the mere “possibility of inequitable conduct behind the patent-in-suit was not so clear-cut that the court’s reliance on the presumption of validity made its denial of the preliminary injunction an abuse of discretion.”
With regard to the alleged failure of the district court to apply the proper standard for bad faith, the Federal Circuit noted that although bad faith has both objective and subjective elements, the former is a threshold requirement and that “a bad faith standard cannot be satisfied in the absence of a showing that the claims asserted were objectively baseless,” meaning no reasonable litigant could realistically expect to prevail in a dispute over infringement of the patent. If a court, weighing a motion to enjoin a patentee from communicating its rights, determines the patent in question is not necessarily invalid or unenforceable, the objective baselessness requirement is not met and no injunction should issue. Since the status of the patent-in-suit was “open to reasonable debate,” the Court concluded that Judkins had not acted in an objectively baseless way by notifying the market of the alleged infringement.
A Continuation-in-Part (CIP) Is an Unholy Mix
By Ed Garcia-Otero
Addressing the issue of the priority date of claims in a continuation-in-part (CIP) application, the U.S. Court of Appeals for the Federal Circuit ruled that the burden of proof ordinarily should rest with the party claiming priority to the earlier priority date, unless the Patent Office has previously determined otherwise. PowerOasis, Inc. v. T-Mobile USA, Inc., Case No. 07-1265 (Fed. Cir., April 11, 2008) (Moore, J.).
A CIP application is an application filed during the lifetime of an earlier non-provisional application that “discloses and claims subject matter not disclosed in the prior application.” Generally a CIP adds at least one claim that relies, for support, on new matter first presented in the CIP application. Typically a CIP application will contain a mix of claims, some of which are only entitled to the actual filing date of the CIP application, while others may be entitled to the effective filing date of the earlier application. In this case, the district court found that PowerOasis’ asserted patent claims were only entitled to the filing date of the CIP application. On that basis, the claims were held invalid as anticipated by a prior third-party public use and sale. PowerOasis appealed.
PowerOasis argued that because its patent enjoyed a statutory presumption of validity, the district court erred in allocating the burden of proof on PowerOasis to prove it was entitled to claim priority back to its original application for the claims in issue. The Federal Circuit disagreed, concluding that although an issued patent is entitled to a presumption of validity, that does not include a presumption that every claim in a CIP application is entitled to the earliest effective filing date. The Court noted that as a matter of course in prosecution, the U.S. Patent and Trademark Office (USPTO) usually does not make determinations regarding the priority date of each individual claim because such a determination is time consuming and complex. However, in the event that the USPTO does actually determine the priority date of a claim during prosecution, then the determined date would be entitled to a presumption of validity.
Practice Note: Recognizing that a rejection based on an intervening reference may be overcome by demonstrating support for the claim in the earlier application, patent examiners typically attempt to avoid the issue of claim-by-claim priority determination by searching only for references that predate the earliest possible priority date i.e., they avoid relying on “intervening” references (dated between the earliest possible priority date and the CIP application filing date). Occasionally, an examiner will directly address the priority date issue in a CIP application by invoking 37 C.F.R. 1.105(viii) to require an applicant to expressly state a priority date for each pending claim in a CIP application and cite support in the earlier application for every claim which the applicant contends is entitled to the earlier priority date.
That Check Won’t Clear—Patent Assignee Not Bound By Assignor’s Arbitration Agreement
Please contact Paul Devinsky
Addressing whether a patent assignee is bound by a pre-existing arbitration agreement entered into by its assignor, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s application of state contract law in denying the defendants’ motion to dismiss or stay an infringement suit pending arbitration because the assignee was not a signatory to the arbitration agreement. DataTreasury Corp. v. Wells Fargo & Co. and Wells Fargo Bank, N.A., Case No. 2007-1317 (Fed. Cir., April 16, 2008) (Fogel, Distr. J., sitting by designation).
After obtaining four patents related to check-imaging technology from WMR e-Pin LLC in 2006, DataTreasury promptly filed a highly-publicized infringement suit in the U.S. District Court for the Eastern District of Texas against dozens of financial institutions. In the motion at issue, Wells Fargo asserted that DataTreasury should be bound by an arbitration clause contained in a 2003 license agreement between a Wells Fargo subsidiary and WMR. The 2003 agreement explicitly named one of the patents-in-suit and Wells Fargo argued it also covered the other asserted patents. The district court denied the defendants’ motion, finding that DataTreasury was not a party to the 2003 agreement. Wells Fargo appealed.
Based on a de novo review and applying regional circuit law—specifically, Fifth Circuit law—to the contract dispute, the Court held that no valid agreement existed between Wells Fargo and DataTreasury because “courts in Minnesota [the state law specified in the agreement] have held that a party is not bound by an arbitration clause unless it is a signatory to the underlying contract.” By affirming on this basis, the Federal Circuit never reached a decision on whether the agreement covered all of the patents-in-suit.
Wells Fargo argued that DataTreasury should be bound by the arbitration clause because it “runs with the patent.” The Federal Circuit found Well Fargo’s theory lacking in legal authority because the cited cases did not “support a conclusion that procedural terms of a licensing agreement unrelated to the actual use of the patent (e.g., an arbitration clause) are binding on a subsequent owner of the patent.” The Court also cited Fifth Circuit opinion that “requiring a non-signatory party to arbitrate solely on the basis of an arbitration clause license agreement between signatory parties would be inconsistent with the basic principles of contract law and the Federal Arbitration Act.”
Practice Note: Wells Fargo did not argue equitable estoppel, assumption, agency or third-party beneficiary upon which non-signatories have previously been compelled to arbitrate under Minnesota law. Query: Based on this decision, will patent owners try to escape from tactically unfavorable arbitration agreements by means of an assignment to a separate (but “friendly”) entity?
Prior Victory Turns Pyrrhic—You’ll Get No Charge Out of This
By Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit, in a closely-watched case issued a trifurcated, non-precedential decision, affirming the International Trade Commission (ITC) decision that the asserted claims, directed to zero memory added alkaline batteries, were invalid for failure to meet the written description requirement of 35 U.S.C. § 112, ¶ 1. The Court declined to reach the issue of infringement. Energizer Holdings v. International Trade Commission, Case No. 07-1197 (Fed. Cir., April 21, 2008) (Schall, J.; Linn, J., concurring; Newman, J., dissenting).
After the ITC issued a notice terminating its investigation and finding the asserted claims invalid for failure to meet the definiteness requirement of 35 U.S.C. § 112, ¶ 2, Energizer appealed to the Federal Circuit, resulting in a reversal and remand. (See IP Update, Vol. 9, No. 2.) On remand, the ITC determined that the asserted claims were invalid for failure to meet the written description requirement of 35 U.S.C. § 112, ¶ 1 and that, if valid, were not infringed. Energizer again appealed to the Federal Circuit.
The patent-in-suit issued following the discovery of a test for screening zinc metal in order find zinc substantially free of the impurities that cause corrosion. Using such zinc lessens the need for mercury as an additive. The invention was claimed as follows:
An electrochemical cell comprising an alkaline electrolyte, a cathode comprising manganese dioxide as an active cathode component, and an anode gel comprised of zinc as the active anode component, wherein the cell contains less than 50 parts of mercury per million parts by weight of the cell and said zinc anode has a gel expansion of less than 25% after being discharged for 161 minutes to 15% depth of discharge at 2.88A. (Emphasis added.)
In the initial ITC decision, the ITC ruled that the claim was indefinite because the term “said zinc anode” did not have a definitive antecedent basis. On appeal, the Federal Circuit held that the claim was not invalid by reason of indefiniteness, noting that “[a] claim that is amenable to construction is not invalid on the ground of indefiniteness.” The Court stated:
Here, it is apparent that the claim can be construed. In that regard, we conclude that “anode gel” is by implication the antecedent basis for “said zinc anode.” The Commission’s holding of invalidity on the ground of indefiniteness is reversed.
On remand, using the Federal Circuit’s mandated claim construction, the ITC concluded that the claim was invalid because the specification does not “contain a written description of the invention” as it was construed. On appeal, Energizer argued that the Federal Circuit did not construe the term “said zinc anode” (and so the law-of-the-case doctrine does not apply) and that the ITC’s written description analysis was flawed “because it is based upon an incorrect claim construction.”
Judge Schall noted that the prior panel did indeed construe the term “said zinc anode” and that “[w]henever a panel of an appellate court definitively decides an issue, the issue cannot be reconsidered by a lower court on rehearing the case or by a second panel of the appellate court.” So construed, the Court found “a fundamental disconnect exists between the claims and specification of the … patent” and that no court can “remedy for Energizer the gulf that it has created between the claims and the specification.”
Judge Linn concurred in the result, but concluded that the case properly should be decided on the basis of § 112, ¶ 2 indefiniteness, arguing that a “proper construction of the disputed claim is unattainable.”
Judge Newman dissented. While conceding the “claims are not perfect,” she insisted that the invention “is unambiguously and clearly described in the specification” and that by “wiping out a valuable patent on imperfections that confuse no one,” the Court “fails in its responsibility as ministrator of justice.”
Practice Note: The name of the game is the claim. Get it right!
Federal Circuit Denies Parties’ Petitions to Rehear Celebrex® Decision
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The U.S. Court of Appeals for the Federal Circuit has denied petitions by both parties to for a rehearing of its March 2008 decision that invalidated one of three asserted Pfizer patents covering Celebrex® for double patenting, while finding that the other 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 opinion by Judge Dyk ruled that one of three asserted Pfizer patents was invalid for double patenting (see IP Update, Vol. 3, No. 11). The third sentence of patent code section 121 provides a safe harbor from double patenting rejections for patents that issue on divisional applications filed as a result of U.S. Patent and Trademark Office (USPTO) restriction requirements. After reviewing the legislative history, the Federal Circuit decided the protection of the sentence does not extend to continuation-in-part (CIP) applications. The method patent issued from a CIP application and was invalid because it was not “patentably distinct” from a Pfizer patent for the composition. Both Pfizer and Teva had asked the U.S. Court of Appeals for the Federal Circuit for a rehearing on its split ruling. The two infringed patents do not expire until May 2014.
Guidance Issued on English Approach to Staying Patent Revocation Proceedings
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In dismissing an appeal against a refusal to stay patent revocation proceedings, the English Court of Appeal has set out useful guidance on the criteria to be applied in determining whether such proceedings before the English courts should be stayed in favor of European Patent Office opposition proceedings. Glaxo Group Limited v. Genentech Inc. and Biogen Idec Inc.,  EWCA Civ 23 (Eng. Ct. of Appeal, Jan. 31, 2008) (Mummery, Lord J.).
In order to clear the path for the commercialization of a new product for rheumatoid arthritis, the claimant Glaxo applied to the English Patents Court in February 2007 for revocation of a European patent held by the defendants. Glaxo had previously filed a notice of opposition to the patent at the European Patent Office (EPO) and relied on the same broad grounds of invalidity in both cases. The English trial was set down for February 2008, at which point Genentech applied to stay those proceedings in favor of those at the EPO, arguing that the English proceedings were an abusive duplication of the EPO proceedings.
The court of first instance rejected the application for a stay at first instance on the basis that, as it would take at least another 18 months and perhaps up to three years for the EPO to come to a decision, granting a stay would unduly prejudice Glaxo’s commercial interest in launching its new product as soon as possible. Genentech appealed.
The Court of Appeal upheld the first instance decision as a valid exercise of the judge’s discretion. In doing so, the Court emphasized that it was legitimate for a party contesting the validity of a European patent to do so both in a revocation action in the English court and by opposition proceedings at the EPO. In contrast to ordinary commercial litigation, no principle of estoppel arose as a result. The most important factor for the court to consider in such circumstances will usually be the length of time for the respective proceedings to achieve some certainty on the issue of the validity of the patent-in-suit, so that business knows where it stands. If the likelihood is that the national proceedings would achieve this resolution significantly sooner that those at the EPO, it would normally be a proper exercise of discretion to decline to stay the national proceedings.
Practice Note: This judgment illustrates the ability of companies seeking to revoke European patents to bring parallel proceedings in the EPO and in the English court. It further reflects that the English courts are sensitive to the interests of those companies engaged in commercialization over those of patentees seeking to delay revocation proceedings.
Revocation for Insufficiency: Invention Must Be Disclosed Clearly and Completely Enough for It to Be Performed by a Person Skilled in the Art
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In an appeal taken by Lundbeck against an earlier decision in which certain claims of Lundbeck’s patent, directed to an enantiomer of the antidepressant drug Citalopram, were held invalid, the Court of Appeals reversed, finding that Lundbeck’s patent was valid. H. Lundbeck A/S v. Generics (UK) Limited & Ors, et. al., Case Nos. A3/2007/1326, A3/2007/1387 (Eng. Ct. of Appeal, April 10, 2008) (Lord Hoffman, Lady Justice Smith and Lord Justice Jacob).
Citalopram was patented by Lundbeck, but since the original patent expired several years ago, the respondents have been selling the generic form. Upon separating the enantiomers from the racemic mixture of Citalopram, Lundbeck filed an application for a new patent and obtained patent-in-suit EP (UK) 0,347,066 for the (+) enantiomer and have been marketing the resultant drug. The respondents sought revocation of the patent, basing their claims on lack of novelty, obviousness and sufficiency of disclosure for enablement.
As to the issue of sufficiency of disclosure for enablement, the judge in the court of first instance had held that claims 1 and 3 were insufficient on the basis that Lundbeck had discovered one way of resolving the enantiomers and as such should not be entitled to a monopoly for every way of achieving this. In contrast, the Appeals Court held that if the invention is sufficiently enabled, then one method of achieving the invention is enough and that the first instance judge had erred basing his contrary decision solely on Biogen v. Medeva. Biogen dealt with a claim that was defined in terms of a “class” of processes of manufacture, but only one process was described and no general principle was disclosed. The Appeals Court reasoned that such a decision cannot be extended to an ordinary product claim.
With reference to the lack of novelty issue, the claimants argued that the claim in issue not only covered the isolated enantiomer but also the enantiomer as an unresolved moiety of the racemate, and hence was anticipated by Lundbeck’s patent for the racemate (Citalopram). This raised a question of claim construction since the claim does not expressly disclaim the unresolved enantiomer or state that the (+) enantiomer was “isolated.” However, the Appeals Court concluded that the context would have made it obvious to the person skilled in the art that the patentee was not intending to claim the unresolved moiety of the racemate and that the claim would not be construed as such. Hence, novelty was intact.
Regarding inventive step, both parties were in agreement that one skilled in the art would initially attempt resolving the enantiomers from the final product. However, the claimed method was not directed to resolving the enantiomers from the final product but rather was directed to an indirect route of resolving the enantiomers from an intermediate product. The respondent’s expert had suggested that the route pursued by the patentees was an obvious one to try with a high expectation of success. However, since this was rejected by the first-instance judge. The Appeals Court saw no reason to re-assess the evidence and so concluded that the claimed method was not obvious.
Practice Note: As illustrated by this case, English courts differentiate between a non-allowable claim in which the breadth of the claim is not enabled by the description and an allowable claim in which the breadth of the claim is enabled, even though different or alternative techniques may be used. Where novelty is an issue, the English courts tend to take a pragmatic approach to claim construction.
Prior Federal Court Judgment Bars Cancellation Proceeding Based on Claim Preclusion
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The U.S. Court of Appeals for the Federal Circuit recently explored the applicability of claim preclusion when a cancellation proceeding is brought by the unsuccessful defendant in a federal district court infringement suit. The Court upheld dismissal of such a cancellation petition on the grounds of claim preclusion. Nasalok Coating Corp. v. Nylok Corp., Case No. 07-1432, 2008 U.S. App. LEXIS 8376 (Fed. Cir., April 14, 2008) (Dyk, J.; Newman, J., concurring).
Nylok filed a trademark infringement case in the U.S. District Court for the Northern District of Illinois, claiming infringement of, inter alia, its federal trademark registration for use of the color blue for a component of self-locking fasteners. Nasalok, a Korean corporation, did not file an appearance in the case, and the district court entered default judgment. The court also entered a permanent injunction against Nasalok and found that Nylok’s trademark registration was valid and enforceable. Nasalok then filed a petition to cancel Nylok’s registration before the Trademark Trial and Appeal Board (the Board), on grounds that included unregisterability and fraud. The Board granted summary judgment for defendant Nylok, applying the Jet test to holding that Nasalok’s petition was barred by claim preclusion. Nasalok appealed.
The Federal Circuit’s Jet test finds claim preclusion if “(1) there is identity of parties (or their privies); (2) there has been an earlier final judgment on the merits of a claim; and (3) the second claim is based on the same set of transactional facts as the first.” The Court said the Jet test was designed for the situation in which a plaintiff in an unsuccessful infringement suit filed a cancellation petition against the defendant in the suit. The Board had erroneously applied this test, which differs slightly from the test properly applied when the second claim (or defense) is raised by the defendant in the first suit (defendant preclusion), which requires that the defendant’s claim or defense was a compulsory counterclaim in the original suit or represents a collateral attack on the first judgment.
Noting that it was an issue of first impression among the circuit courts, the Court held that a counterclaim of registration invalidity is not compulsory in a trademark infringement suit under Fed. R. Civ. P. 13(a)(1). The critical question when determining whether two claims arise from the same “transaction or occurrence” under Rule 13(a) is “the extent of factual overlap between what the plaintiff must establish to prove its claim and what the defendant must establish to prove its counterclaim” (emphasis in original). The Court reasoned that the facts alleged by Nylok to support its infringement claim (i.e., Nylok’s ownership of a registered mark and Nasalok’s allegedly infringing behavior) do not form the basis for Nasalok’s cancellation petition, which asserts unregisterability of Nylok’s mark and fraud by Nylok in obtaining the registration. Therefore, the two claims do not arise out of the same occurrence under 13(a). The Court added that treating challenges to trademark registration as compulsory counterclaims would be contrary to the Lear policy of freely allowing challenges to the validity of intellectual property.
However, the Court found that allowing Nasalok to petition to cancel Nylok’s trademark registration would amount to a collateral attack on the judgment in the first action, because it would effectively undo the relief granted by the district court. Nylok could have, but did not, advance the issue of registration invalidity in the first suit and was thus precluded from attacking the judgment in that suit by raising the issue in a cancellation petition. The Court did not accept Nasalok’s argument that preclusion should not apply because the injunction was the result of a default judgment, finding that the default judgment satisfied due process and thus could give rise to claim preclusion. The Board’s entry of summary judgment was affirmed.
Judge Newman concurred in the judgment, but disagreed with the majority panel’s reasoning. Judge Newman found the discussion regarding compulsory counterclaims was irrelevant given that the validity of the trademark had been before the district court. She also was troubled by the invocation of Lear, stating that trademark law serves a different purpose from patent law and the public policy supporting challenges to patents does not apply to trademark law.
Three Strikes at Secondary Meaning … and You’re Out!
By Paul Devinsky
In what is now the third attempt by Singh to raise the issue of trademark infringement with respect to the mark “TESTMASTERS,” the U. S. Court of Appeals for the Fifth Circuit affirmed the district court conclusion that collateral estoppel precluded the case from going forward—finding the issues presented regarding alleged rights in the mark here were the same as those presented in prior actions. Robin Singh Educational Services v. Excel Test Prep., Case No. 06-20915 (5th Cir., April 16, 2008) (per curiam).
To understand the collateral estoppel issue, some context is needed. Singh did business under the name TestMasters from 1991, offering test preparation services. Singh operated out of California and until 1996 only offered courses in California. In 1991, Haku Israni established the Test Masters Educations Services, Inc. (TES) which operated out of Houston and taught courses only in Texas.
In 1999, Singh decided to create his own website, but discovered TES had the rights to the domain name for “TESTMASTERS.” Singh sued TES for trademark infringement. The jury found the “TESTMASTERS” mark was a descriptive mark that had a secondary meaning, sufficient to constitute a legally protected trademark. The jury also found that TES infringed on the mark, but was immune, because it was a prior innocent user. The district court ordered the U.S. Patent and Trademark Office to modify the trademark registration to permit TES to use the mark in Texas and ordered TES to transfer its rights to the domain name Singh. Both sides appealed.
In that appeal (Test Masters I), the 5th Circuit concluded that Singh presented “little or no evidence regarding secondary meaning,” invalidated Singh’s trademark registration and vacated the district court’s order.
Singh applied again to register the “TESTMASTERS” mark and TES sought and obtained a district court injunction barring Singh from registering the trademark and infringing upon TES’s usage of the mark in Texas. No appeals were taken. Shortly prior to the issuance of the injunction, Singh filed another lawsuit against TES, this time in California, alleging that TES was misusing the “TESTMASTERS” trademark in California to mislead consumers into thinking that TES was affiliated with Singh. The California court transferred the action back to the Texas court, which dismissed the case with prejudice concluding that res judicata barred the new action because the action presented the same operative set of facts as the operative facts in Test Masters I. The district court also rejected Singh’s contention that the “secondary meaning” of the trademark should be re-litigated only 16 months after the Test Masters I decision. Both parties appealed.
In that appeal (Test Masters II) (see IP Update, Vol. 8, No. 11), the 5th Circuit concluded that while “true” res judicata did not bar Singh from pursuing his claims, collateral estoppel did since the issue presented, i.e., the existence of secondary meaning, “was incontrovertibly identical to the issue already decided.” The court concluded that in order to re-litigate Singh must “allege a significant intervening factual change,” which he failed to do.
While the Test Masters II appeal was pending, Singh sued defendant Excel Test Prep (Excel) in California, alleging that Excel was using the “TESTMASTERS” name in violation of Singh’s trademark rights and was advertising itself as an affiliate of TES. (The founder of TES is also a co-founder of Excel.)
Again the California district court transferred the case to Texas, and that court again dismissed Singh’s case on collateral estoppel grounds. And once again, Singh appealed.
The 5th Circuit again affirmed, explaining that the dispositive issue was whether collateral estoppel bars the present trademark infringement action. As the court noted, a descriptive mark (such as “TESTMASTERS”) can become distinctive if over time “it has developed secondary meaning, which occurs when, in the minds of the public, the primary significance of a mark is to identify the source of the product rather than the product itself.” The question presented is when does a prior final judicial decision collaterally estop a renewed attempt to re-allege establishment of secondary meaning.
The court explained that complete identity of parties is not required to raise a collateral defense so long as “in the initial litigation, (1) the issue at stake in the pending litigation is the same, (2) the issue was actually litigated and (3) the determination of the issue in the initial litigation was a necessary part of the judgment.” Rather, the court instructed that collateral estoppel, in the form of issue preclusion, may be invoked by a non-party against a party to the prior suit. “Defensive use of collateral estoppel occurs when a defendant seeks to prevent a plaintiff from relitigating an issue the plaintiff has previously litigated unsuccessfully in another action against the same or a different party.”
The court concluded that for “the same reasons as in Test Masters II, this case is collaterally estopped,” dismissing Singh’s argument that the different geographic region in issue are sufficient to affect the analysis and concluding that there had not been sufficient factual changes affecting the secondary meaning analysis to justify re-litigation.
Hold on to Your Jeans—District Court Oppositions Not Limited to Issues Presented to TTAB
By Paul Devinsky
The U.S. Court of Appeals for the D.C. Circuit has now ruled that a trademark opposition under §21(b) of the Lanham Act need not be limited to the issues presented before the Trademark Trial and Appeal Board (TTAB). Aktieselskabet af 21 November 2001 v. Fame Jeans Inc., Case No. 07-7105, (D.C. Cir., April 29, 2008) (Brown, J.).
The plaintiff-appellant is a Denmark-based clothing company that is part of the Bestseller A/S fashion group. Since 1990, Bestseller has marketed a line of denim trousers under the brand name “Jack & Jones” and has registered the mark “Jack & Jones” in 46 countries.
By the time Bestseller applied to register the mark in the United States, Fame Jeans had already filed an intent-to-use application for the same term. Bestseller opposed Fame’s application. The TTAB granted summary judgment in Fame’s favor on the basis that Bestseller had not yet used the mark in the United States and that its overseas use gave it no priority before the U.S. Patent and Trademark Office (USPTO).
Bestseller then filed an opposition in federal district court under § 21(b) of the Lanham Act, arguing that it had used the mark in the United States, but that in any event, under principles of equity, the court should recognize its worldwide use since 1990 for priority purposes. Bestseller also argued that at the time Fame filed its application with the USPTO, it had no bona fide intent to use the mark in commerce. This latter argument had not been presented to the TTAB.
After the district court dismissed the complaint, concluding the Bestseller could not present new grounds for opposition that had not been presented before the TTAB, Bestseller appealed.
The D.C. Circuit, drawing a distinction between actions initiated in district court under § 21(b) and appeals of TTAB decisions to the U.S. Court of Appeals for the Federal Circuit, held that district courts may entertain issues in § 21(b) actions that have not been presented to the TTAB. The Court reasoned that a § 21(b) case is a new action, not an appeal of a TTAB decision. The D.C. Circuit contrasted a §21(b) action with a direct appeal from the TTAB to the Federal Circuit, where the USPTO transmits its record to the court, which is the record for the appeal. “By contrast, in a § 21(b) action, the PTO does not automatically transmit its record to the court; rather, any party may, on its own motion, enter the record into evidence. … The district court then decides de novo whether the application at issue should proceed to registration, or the registration involved should be canceled, or such other matter as the issues in the proceeding require, as the facts in the case may appear.”
Not So Fast … eBay Analysis Extended to Preliminary Injunctions in Trademark Cases
By Rita W. Siamas
The U.S. Court of Appeals for the Eleventh Circuit evaluated the trademark significance of using a competitor’s trademarks in internet meta-tags, as well as the evolving standard for granting preliminary injunctions in trademark infringement actions in determining that a defendant’s use of plaintiff’s trademarks as a meta-tag was actionable and likely to cause confusion. Nonetheless, the court vacated the district court’s grant of preliminary injunction, finding that under the Supreme Court decision in eBay, it was error to presume irreparable harm based only on the plaintiff’s demonstration of a likelihood of confusion. North American Medical Corp. v. Axiom Worldwide, Inc., Case No. 07-11574, (11th Cir., April 7, 2008) (Anderson, J.).
Plaintiff North American Medical Corp. (NAM) sought a preliminary injunction against defendant Axiom, a competitor in the traction device industry, based upon Axiom’s intentional use of NAM’s trademarks in the meta-tags of Axiom’s website. Although Axiom’s website did not display NAM’s marks and did not refer to NAM’s products, the district court determined that such use was actionable under the Lanham Act. The district court presumed irreparable harm based on plaintiff’s showing of a likelihood of success and ultimately preliminary enjoined Axiom from using NAM’s trademarks as meta-tags.
On appeal, the court affirmed the district court’s holding that NAM had demonstrated a likelihood of success on its trademark infringement claim, finding that that Axiom’s meta-tag use was indeed actionable “use in commerce” that created a likelihood of confusion. The court vacated the injunction, however, finding that the district could not presume irreparable harm when granting a preliminary injunction in trademark infringement cases based solely on a showing of likelihood of success. The court acknowledged that the 11th Circuit historically has extended the presumption in trademark infringement cases, but stated that the presumption no longer applies after the Supreme Court’s 2006 eBay decision. In eBay, the Supreme Court held that injunctions should not be automatically granted based on a finding of patent infringement. Rather, courts must exercise their equitable discretion when deciding whether to grant or deny injunctive relief.
Although eBay involved a patent infringement action and request for permanent injunctive relief, the court ultimately determined that eBay also applied to trademark infringement actions and requests for preliminary injunctive relief. In so doing, the court explained that the language of the Lanham Act governing the grant of injunctive relief was very similar to the corresponding language of the Patent Act. Further, the court stated that “no obvious distinction exists between to permanent and preliminary injunctive relief to suggest that eBay should not apply to the latter.” The 11th Circuit ultimately declined to opine how eBay would affect the case before it, but remanded the issue to the district court for a determination of whether the district court’s presumption of irreparable harm was the “equivalent of the categorical rules rejected by the Court in eBay.”
Practice Note: The 11th Circuit has now joined the Ninth and Tenth Circuits in holding that use of a competitor’s trademarks in meta-tags may constitute actionable trademark infringement, although the court cautions that its holding is factually narrow.
This decision will likely spark debate about whether the holding in eBay should be limited to permanent injunctions, due to the fundamental differences between preliminary and permanent injunctions in terms of purpose, procedure and timing. Additionally, questions are likely to arise as to whether the eBay holding should be extended to trademark cases. In the wake of the NAM decision, trademark owners seeking preliminary injunctions should take care to specifically allege and explain the threat of irreparable harm, separately from any presumption of irreparable harm that may arise based on a showing of likelihood of success on the merits.
Inevitable Confusion and Fraud on the USPTO
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In a case involving the doctrine of inevitable confusion and fraud in obtaining a trademark registration, the U.S. Court of Appeals for the Eleventh Circuit held that a district court did not err in ruling Angel Flight Southeast (AFSE) infringed Angel Flight of Georgia’s (AFGA) common-law trademark rights by using the mark in a manner that created a substantial risk of confusion. The 11th Circuit also held that AFGA had not acquiesced to AFSE’s infringing use and was not estopped by laches from enforcing its common-law rights in the mark. Similarly, the court found that the injunction entered by the district court, which was tailored to protect AFGA’s rights and ensure the public would not be confused, was properly entered and that the district court did not clearly err by cancelling United States Trademark No. 1,491,541 on the ground the registration had been obtained through fraud. Angel Flight of Georgia, Inc. v. Angel Flight America, Inc., No. 07-11460 (11th Cir., April 4, 2008) (Black, J.).
Angel Flight America, founded in 2000, is a national organization of volunteer pilots dedicated to transporting needy patients and donated organs to hospitals around the country. The organization authorized its members to operate in designated geographical areas using the “Angel Flight” service marks. For reasons that are unclear, Angel Flight of Georgia (AFGA) did not become a member of AFA. When Angel Flight Southeast (AFSE), a member of AFA, opened offices and began soliciting donations in AFGA’s operating area, AFGA sued AFSE for common-law trademark infringement and other related violations of state and federal law. Six months later, AFA intervened in the lawsuit, at which time AFA and AFSE raised counterclaims mirroring those claims brought against them by AFGA.
Following a five-day bench trial in July 2006, the court issued a verdict in favor of AFGA on all claims and against AFA and AFSE on their counterclaims. Four months later, the district court entered a permanent injunction, enjoining AFA and its members from using the Angel Flight mark in Georgia, Alabama, Mississippi, Tennessee, North Carolina and South Carolina for the “purpose of soliciting donations, advertising, promoting their services, or recruiting volunteers.” AFA and AFSE appealed.
The appellants raised four issues:
- The district court erred by relying on hearsay testimony to find that their use of the mark in appellee’s territory resulted in actual confusion and therefore constituted infringement.
- The district court did not apply the doctrine of laches or acquiescence to bar AFGA’s enforcement of its common law rights in the mark.
- The district court entered an overly broad, “draconian” injunction.
- The district court canceled the federally registered Angel Flight mark owned by one of the appellants on the basis of fraud.
The 11th Circuit rejected all of appellants’ arguments. Specifically, the court found that, even if evidence of actual confusion were excluded, ample evidence remained to substantiate the district court’s finding that confusion was likely, especially since appellants used the “same mark in the same territory directed to the same entities by the same means.” The court further reasoned that, because there was an inevitability of confusion, the appellants’ affirmative defense of laches was not applicable and thus did not bar injunctive relief. The court also held that the district court had not erred in holding that AFA committed fraud on the U.S. Patent and Trademark Office (USPTO) by falsely stating in a Section 1(a) (“use”) affidavit that no other organization had the right to use the mark, while knowing that others were in fact using the mark.
California Unfair Competition Claims Not Amenable to Demurrer, and Not Precluded by Compliance with FDA Regulations
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The U.S. Court of Appeals for the Ninth Circuit recently reversed the dismissal of a class-action lawsuit against Gerber Products Company (Gerber) for deceptive advertising on labels of its “Graduates for Toddlers” food line. The court found that demurrer is inappropriate in most such cases because of their fact-specific nature and held that compliance with Food and Drug Administration (FDA) regulations does not shield a manufacturer from California tort liability. Williams v. Gerber Products Co., Case No. 06-55921 (9th Cir., April 21, 2008).
The class members are parents of small children who bought Gerber’s Fruit Juice Snacks because they believed they were healthy snacks for their toddlers. The lawsuit includes statutory claims, under California’s Unfair Competition Law and Consumer Legal Remedies Act, alleging that the Gerber packaging is misleading and deceptive. It also includes fraud and warranty claims.
In their unfair competition claim, the plaintiffs challenge five features of Gerber’s packaging. These include, for example, the juxtaposition of the words “fruit juice” with images of oranges, peaches, strawberries and cherries, none of which represents the source of any juice that is actually in the snack; and a statement that the product is made “with real fruit juice and other all natural ingredients,” even though the two most prominent ingredients are corn syrup and sugar. The plaintiffs argued that these statements, and other features of the packaging, are misleading and deceptive. The fraud and warranty claims challenge statements on the packaging that the product is “nutritious.”
Initially, the district court granted Gerber’s motion to dismiss under Rule 12(b)(6) for failure to state a claim. The district court found that Gerber’s statements “were not likely to deceive a reasonable consumer, particularly given that the ingredient list was printed on the side of the box.” The district court also found that “the ‘nutritious’ claim was non-actionable puffery.” In addition, the district court stated that it believed that “the FDA authorizes the way in which Gerber labels snacks.”
The 9th Circuit reversed on appeal, finding that the district court made its decision to dismiss “based solely on its own review of an example of the packaging.” Recognizing that demurrer is rarely appropriate in cases of deceptive advertising or practices, the court found that the facts of this case did not represent such an instance. The court stated, “[w]e disagree with the district court that reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” It also held that while Gerber’s claim that the snack is “nutritious” could arguably constitute puffery “were it standing on its own,” the statement “must be read in the context of the packaging as a whole.” The court therefore “decline[d] to give Gerber the benefit of the doubt by dismissing the statement as puffery.”
The court went on to reject Gerber’s argument that the district court’s recognition of Gerber’s compliance with FDA regulations on packaging labels somehow shielded it from tort liability. Here, the court opined that the FDA requirement to list ingredients does not confer carte blanche upon manufacturers to mislead consumers and then rely on the ingredient list to correct those misinterpretations and shield them from liability for the deception. The case was been remanded to the district court for fact-finding and adjudication of the claims on their merits.
When Is a Patented or Copyrighted Item Sold in the United States?
By Kenneth E. Crowell
The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s denial of defendant’s motion for judgment as a matter of law respecting jury verdicts of patent and copyright infringement and also affirmed the court’s denial of defendant’s motion to dismiss those causes of action for lack of subject matter jurisdiction. Litecubes, LLC v. Northern Light Prods., Inc., Case No. 06-1646, (Fed. Cir., April 28, 2008) (Gajarsa, J.). The resolution of both issues turned on the question of whether shipment of an item FOB (free on board), from a foreign country into the United States, is a “sale” in the United States and thus a potentially infringement act under the patent and copyright statutes.
The patent in issue is directed to illuminated “beverage accessories” or artificial “ice cubes.” Defendant Northern Light Products is a Canadian corporation that purchases novelty items from Chinese manufacturers and then advertises those items to customers in the United States and Canada on its website. American customers called the phone number provided to order the illuminated cubes and Northern Light shipped them FOB from Canada. Commercial law provides that title to goods is transferred to the buyer at the point of FOB shipment, in this case Canada. Northern Light thus contended that all sales were made in Canada, not in the United States. Northern Light moved to dismiss both patent and copyright infringement actions on grounds that the district court did not have subject matter jurisdiction. The district court denied the motion, finding that Northern Light “clearly imported the accused products into the United States,” giving the district court jurisdiction to hear the case and providing substantial evidence to support the jury’s patent and copyright infringement verdicts. Northern Lights appealed.
The Federal Circuit affirmed, agreeing with the district court’s assertion of subject matter jurisdiction on the bright line test enunciated by the Supreme Court in Arbaugh v. Y & H Corp. In Arbaugh, the Supreme Court held that courts should construe statutory requirements as matters to be determined on the merits rather than as threshold, jurisdictional limitations. A statutory limitation should be treated as jurisdictional only where Congress has clearly articulated such an intent in the statute. The Federal Circuit noted that neither the patent and copyright statutes evince any such congressional intent and held that while an infringing act, such as a sale, offer to sell or importation of a patented or copyrighted item in the United States, must be proven as an element of a claim for infringement, such an act is not a prerequisite for subject matter jurisdiction.
Turning to Northern Light’s motions as a matter of law and relying on its own precedent of North American Philips Corp. v. American Vending Sales, Inc., the Federal Circuit found the sales to American customers FOB (Canada) were sales in the United States. North American Philips held, in the context of personal jurisdiction, that a “sale” of a patented item occurred not only at the single point where commercial law would deem the transaction to have taken place but also at the locations of both buyer and seller (and perhaps at the locus of all points comprising the shipment route). In the case at bar, the Court found that there was substantial evidence to support the jury’s patent and copyright infringement verdicts because the customers were in the United States when they ordered the accused artificial cubes and the cubes were delivered to those customers in the United States. The Court, in dicta, further noted that a distinction should be drawn between such conduct, part of which occurs in the United States and thus can support a finding of infringement by an American court and purely extraterritorial, non-infringing conduct.
Practice Note: Where patented or copyrighted items are made in a foreign jurisdiction and shipped into the United States, counsel should determine sufficient facts to carefully consider the appropriate defendant(s). If a foreign manufacturer has sold and shipped goods to a second entity in that jurisdiction who in turn ships those goods into the United States, the second entity, not the manufacturer, is more likely to be an appropriate accused infringer. If the manufacturer sells the goods to entities located in the United States, the manufacturer (and potentially also the American entities) may well have infringed the American patent or copyright irrespective of the formal location of transfer of title to the goods under commercial law. In any event, so long as the plaintiff pleads a substantial and non-frivolous act of infringement within the United States, a United States district court will have subject-matter jurisdiction.