IP Update, Vol. 22, No. 7 - McDermott Will & Emery



No State Sovereign Immunity in AIA Proceedings

The US Court of Appeals for the Federal Circuit has held that state sovereign immunity does not apply to inter partes review (IPR) proceedings. Regents of the Univ. of Minn. v. LSI Corp., Case No. 18-1559 (Fed. Cir. June 14, 2019) (Dyk, J) (add’l views by Dyk, Wallach and Hughes, JJ).

The University of Minnesota (UMN) owns certain patents that it alleged were infringed by LSI. After UMN sued LSI in district court, LSI petitioned for IPR of the asserted patents. UMN moved the Patent Trial and Appeal Board (PTAB) to dismiss on state sovereign immunity grounds. The PTAB held that while state sovereign immunity applied to IPR proceedings, UMN had waived its immunity by filing suit. In a (relatively rare) concurring opinion, the PTAB noted that sovereign immunity was not implicated because IPRs are in rem proceedings in which the US Patent and Trademark Office exercises jurisdiction over patents rather than parties. UMN appealed.

The Federal Circuit affirmed the result but for different reasons. Following Saint Regis Mohawk Tribe v. Mylan Pharms. Inc. (IP Update, Vol. 21, No. 8), which held that tribal immunity does not apply in IPR proceedings, the Court took the next step and held that state sovereign immunity also does not apply to IPR proceedings. The Court reasoned that IPR proceedings are agency reconsideration of a prior patent grant in which the Patent Office acts as the United States in its role as a superior sovereign to protect the public interest in keeping patent monopolies within their legitimate scope. The Court explained that state and tribal sovereign immunity do not differ in a way that is material to the question of whether IPR proceedings are subject to sovereign immunity. The Court thus affirmed the PTAB while avoiding the waiver issue on which the PTAB relied.

In separate “additional views,” the panel echoed the PTAB’s concurrence, noting that state sovereign immunity did not apply here for the additional reason that IPR proceedings “are in substance the type of in rem proceedings to which state sovereign immunity does not apply.”

Practice Note: While citing to Return Mail, this case seems to criticize its reasoning by distinguishing IPR proceedings from district court litigation. Courts seem destined to continue to grapple with how to apply civil procedure concepts developed primarily in district court litigation to post-grant reviews under the America Invents Act.

Having now held that neither tribe nor state patent owners are immune from IPR proceedings, the Court left open the question of whether federal agency patent owners enjoy any such immunity. This may explain why the Court went out of its way to save the waiver issue for another case.

The Federal Circuit discussed the apparent inability of the Patent Office to avoid errors in the initial examination of patent applications, resulting in some interesting dicta for those seeking to attack the presumption of validity.


No Motivation to Combine Where There Is No Reasonable Expectation of Success

Amol Parikh

The US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) non-obviousness determination because substantial evidence supported the PTAB’s finding that a person of skill in the art would not have been motivated to combine two prior art references and would not have had a reasonable expectation of success in doing so because their disclosed technologies were incompatible. Samsung Electronics Co., Ltd. v. Elm 3DS Innovations, LLC, Case No. 17-2474, -2475, -2476, -2478, -2479, -2480, -2482, -2483, 18-1050, -1079, -1080, -1081, -1082 (Fed. Cir. June 12, 2019) (Moore, J).

Elm 3DS owns 11 patents that share a common specification and relate to “stacked integrated circuit memory.” The PTAB instituted inter partes review based on 13 petitions filed by Samsung, Micro and SK Hynix. The petitions challenged almost 105 patent claims as obvious based on either the Bertin patent or the Yu article as the primary reference in combination with the Leedy patent. After trial, the PTAB found the claims non-obvious because petitioners had not demonstrated a motivation to combine Bertin or Yu with Leedy, or a reasonable expectation of success in doing so. The petitioners appealed.

The Federal Circuit affirmed the PTAB’s obviousness findings. Beginning with the Bertin-Leedy combination, the petition had proposed depositing a low-stress dielectric material using plasma-enhanced chemical vapor deposition (PECVD), as disclosed in Leedy, instead of growing the dielectric layer, as disclosed in Bertin. Crediting Elm’s expert’s testimony that PECVD was incompatible with Bertin’s integrated circuit, the PTAB had found that a person of ordinary skill in the art would not have been motivated to combine Leedy with Bertin and would not have had a reasonable expectation of success in doing so. The Federal Circuit found that the PTAB’s finding was supported by substantial evidence since the petitioners did not adequately explain how Bertin’s fabrication process would be changed to use Leedy’s dielectric material, and found that the evidence showed that selecting a dielectric and a method of forming that dielectric was more complicated than the petitioners suggested, since dielectrics may have vastly different characteristics based on how they are made.

The petitioners also argued that the PTAB improperly required proof that unclaimed elements were combinable. The Federal Circuit found that the PTAB did not require unclaimed elements to be combinable, but instead had stated that integrated-circuit technology is complex and thus looked for specific evidence that a person of ordinary skill in the art would have reasonably expected success in combining Bertin’s fabrication process and Leedy’s dielectric material. The PTAB ultimately determined that the petitioners’ evidence in support combining Bertin and Leedy was insufficient, and the Court found no error in this finding.

Turning to the Yu-Leedy combination, the Federal Circuit noted that the arguments were substantially similar to those of the Bertin-Leedy combination. According to the petition, it would have been obvious to replace Yu’s silicon dioxide and processes for forming it with the dielectric and deposition process taught by Leedy. Elm’s expert testified that Yu identified its dielectric as a “field oxide,” which one of ordinary skill in the art would have understood is a highly pure dielectric grown directly on the silicon substrate at high temperatures using thermal oxidation. He further explained that a person of ordinary skill in the art would not have reasonably expected success using PECVD to deposit Leedy’s dielectric for the same reasons a person of skill in the art would not have used PECVD to deposit Leedy’s dielectric on the integrated circuit disclosed in Bertin. Accordingly, the Court found that the PTAB’s non-obviousness finding was supported by substantial evidence.


Game Over: Obviousness Can Be Based on a Single Prior Art Reference

The US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) obviousness decision, finding that obviousness can be based on a single prior art reference if modifying that prior art reference is found to be obvious. Game and Technology Co., Ltd. v. Activision Blizzard Inc., Case No. 18-1981 (Fed. Cir., June 21, 2019) (Wallach, J).

Game and Technology (GAT) owns a patent directed to a method for generating a “gamvatar” by combining game items with layers of an avatar in online games. Activision Blizzard and Riot Games sought and were granted inter partes review of the patent. During the proceeding, the PTAB construed the term “gamvatar” to be a combination of an avatar with a game item function, and construed the term “layers” to mean display regions. The PTAB issued a final written decision finding the challenged claims obvious based on a user manual for a video game called Diablo II. GAT appealed.

On appeal, GAT argued that the PTAB erred in construing the terms “gamvatar” and “layers,” and further argued that the PTAB erred in its determination that the claimed method would have been obvious over the Diablo II manual.

Addressing claim construction, GAT argued that the PTAB’s construction of “gamvatar” was broader than the broadest reasonable interpretation BRI, and argued that “gamvatar” should mean “concurrently usable online and in the game.” The Federal Circuit rejected GAT’s argument, finding that the PTAB did not err in construing the term “gamvatar” because the claims and specification both showed that “gamvatar” is a combination of an avatar with a game item function and is not limited to “concurrently useable online and in the game.” As to the term “layers,” GAT argued that the term should be construed as regions for displaying graphical objects where the layers are displayed on the avatar. The Court disagreed, finding that the claim and the specification supported the PTAB’s construction of the term “layers” to mean display regions.

Turning to obviousness, GAT argued that the PTAB erred in using the user manual to find obviousness because a “a single reference . . . cannot support obviousness.” The Federal Circuit rejected GAT’s argument as a matter of law, finding that a patent can be obvious based on a single prior art reference if it would have been obvious to modify the reference to arrive at the claims invention. Applying that standard here, the Federal Circuit found that the PTAB did not err in its obviousness decision because the PTAB’s finding that the Diablo II manual teaches the “gamvatar” and the “layers” limitations was supported by substantial evidence.


Pre-Institution Merger Creates Time Bar Under § 315(b)

Addressing for the first time whether real-parties-in-interest (RPIs) are evaluated at the time a petition is filed or at the time of institution for purposes of § 315(b), the US Court of Appeals for the Federal Circuit held that the statute requires consideration of all possible RPIs and privies at the time of institution. Power Integrations, Inc. v. Semiconductor Components Indus., LLC, Case No. 2018-1607 (Fed. Cir. July 13, 2019) (Prost, CJ). The Court also determined that Power Integration’s failure to appeal the Patent Trial and Appeal Board’s (PTAB’s) decision as to an earlier time bar under § 315(b) did not collaterally estop Power Integrations from appealing the PTAB’s decision in this inter partes review (IPR), even though issue preclusion would normally apply.

In 2009, Power Integrations sued Fairchild Semiconductor for infringement of one of its patents. Fairchild was served with the complaint alleging infringement on November 6, 2009. Several years later, Fairchild entered into a merger agreement with Semiconductor Components Industries. Before the deal closed, Semiconductor Components filed an IPR challenging the patent that had been asserted against Fairchild. The deal closed shortly before the PTAB instituted the IPR. In both the preliminary response and the patent owner response, Power Integrations alleged that the IPR was time-barred. The PTAB disagreed, holding that because Semiconductor Components was not time-bared at the time of filing, the IPR could move forward. The PTAB ultimately determined that the challenged claims were invalid. Power Integrations appealed.

While the appeal was pending, another IPR between the same parties fully and finally concluded in a final written decision, and the time for Power Integrations to appeal lapsed. In that earlier-to-conclude IPR, the PTAB reached the same conclusion on the same facts regarding lack of a time bar under § 315(b).

The Federal Circuit first addressed collateral estoppel. The circumstances would normally create estoppel because the earlier-to-conclude IPR culminated in a final judgment and the time-bar issue under § 315(b) was essential to that judgment. In this case, however, the Court found an exception under the “incentive to litigate” doctrine, finding that it would be unfair to hold Power Integrations to its decision to not appeal the earlier § 315(b) issue. Unlike the earlier-to-conclude IPR, where the subject patent was not associated with an underlying infringement finding, the subsequent IPR involved a patent with an underlying infringement finding and damages award against Fairchild and Semiconductor Components. The Court found that these circumstances created an exception to issue preclusion.

As to the time bar under § 315(b), the Federal Circuit evaluated the plain meaning of the statute, focusing on the language “an inter partes review may not be instituted if . . . .” The Federal Circuit reasoned that this language precluded institution, not filing. The Court rejected the argument that the conditional language following this prohibition on institution (“if the petition requesting the proceeding is filed more than 1 year after”) was a separate requirement, and concluded that this language sets the time for filing, not the scope of the director’s authority to institute review. Indeed, the Federal Circuit recognized that when the PTAB determines that that an IPR is time-barred under § 315(b), it does not reject the petitioner’s filing; it simply denies institution. The Court therefore determined that the statute mandates that § 315(b) be evaluated at the time of institution.

Practice Note: The Federal Circuit decision provides no guidance on whether waiting until after institution to complete a merger would save an otherwise time-barred RPI.


Late Identification of Real-Party-in-Interest Permitted Even Where It Would Otherwise Create Time-Bar

Addressing whether the Patent Trial and Appeal Board (PTAB) is permitted to excuse an inter partes review (IPR) petitioner’s late identification of additional real-parties-in-interest (RPIs), the US Court of Appeals for the Federal Circuit held that there was no reversible error since the PTAB properly applied its rules in allowing the late action. Mayne Pharma Int’l Pty. Ltd. v. Merck Sharp & Dohme Corp., Case No. 18-1593 (Fed. Cir. June 21, 2019) (Lourie, J). Because the Federal Circuit found no error, it declined to squarely address the appealability of this issue.

When Merck Sharp & Dohme Corp. (MSD) filed its IPR petition, it did not name its parent company, Merck & Co. (MCI), as an RPI, even though MCI had also been sued in the district court for patent infringement. Mayne Pharma International argued in its preliminary and patent owner responses that MCI should have been listed as an RPI. Initially, the PTAB disagreed with Mayne, but after institution, and on a more fully developed record, the PTAB changed its position. It then permitted MSD to amend its list of RPIs to add MCI. Mayne argued that this late identification of a new RPI meant that the petition must be accorded a new filing date because the petition was not “complete” until MCI had been added as an RPI. Because this date would be more than one year after MCI had been served with an infringement complaint, Mayne argued that the petition was time-barred under § 315(b).

The PTAB disagreed and permitted MSD to update its mandatory RPI notice without affecting the petition’s filing date. It did so using the “late action” rule of 37 CFR § 42.5(c)(3) that allows the PTAB to excuse late action “on a showing of good cause or upon a Board decision that consideration on the merits would be in the interests of justice.” After the final written decision, Mayne appealed the PTAB’s failure to find the petition time-barred.

On appeal, Mayne framed the issue as a time-bar under § 315(b). In contrast, the PTAB and MSD argued that the issue was more appropriately framed as a non-appealable decision to institute, focusing on whether the petition complies with § 312(a)(2). The Federal Circuit declined to address the appealability of this issue, careful to avoid characterizing such rules as jurisdictional when Congress had not. Instead, it found that the issue need not be decided because, in this case, the PTAB had not committed reversible error in deciding to excuse MSD’s late action.

Deferring to the PTAB’s interpretation of its rules, the Federal Circuit noted that the PTAB relied on the “interests of justice” language in § 42.5(c)(3) for excusing the late action. The Court found no error in applying this rule given the mandate in § 42.1 (b) that the rules be “construed to secure the just, speedy, and inexpensive resolution of every proceeding,” and the PTAB’s findings that there was no indication of MSD’s intentional concealment, bad faith, attempt to circumvent the estoppel rules, or attempt to gain other material benefit from its delay in naming MCI as an RPI. The Court rejected Mayne’s argument that § 42.104(c) provides the sole means to correct a petition, as the US Patent and Trademark Office had indicated in statements made during notice and comment rule making. The Court found that its practice had since changed, and a series of PTAB decisions showed that the PTAB had discretion to allow a petitioner to update its RPI disclosures without vacating the petition’s filing date. Accordingly, the Court found no error in the PTAB’s application of its rules to allow identification of an additional RPI without affecting the petition’s filing date.


Less or More? Asserting Infringement Under Doctrine of Equivalents Can Be Sticky

The US Court of Appeals for the Federal Circuit upheld a district court’s infringement determination, finding that a patent owner could assert infringement under the doctrine of equivalents since it never specified any unique characteristics of an explicitly claimed adhesive that would not be present in the alleged equivalent adhesive. UCB, Inc. v. Watson Labs. Inc., Case No. 18-1397 (Fed. Cir. June 24, 2019) (Chen, J). The Court also affirmed the district court’s validity finding for one patent and invalidity finding for another patent.

UCB markets rotigotine, a drug that treats Parkinson’s Disease, as a transdermal patch under the brand name Neupro. UCB owns one patent claiming a rotigotine transdermal patch and another patent claiming a polymorph of rotigotine. UCB filed a lawsuit against Watson Laboratories and Actavis for infringement of both patents after each filed an abbreviated new drug application to market a generic transdermal version of rotigotine. At trial, the district court found that all of the asserted claims of the rotigotine transdermal patch patent were infringed and valid, and found that all of the asserted claims of the polymorph of rotigotine patent were invalid. Actavis appealed the district court’s infringement and validity findings, and UCB cross-appealed the district court’s invalidity finding of the polymorph of rotigotine patent.

The Federal Circuit affirmed the infringement finding for the rotigotine transdermal patch patent. The asserted claims of the rotigotine transdermal patch patent recite a self-adhesive matrix layer that is an “acrylate-based or silicone-based polymer adhesive.” The accused products contain a polyisobutylene adhesive. UCB argued that the polyisobutylene adhesive used in the accused products was equivalent to the claimed “acrylate-based or silicone-based polymer adhesive.” Actavis argued that because UCB elected claims directed to an “acrylate-based or silicone-based polymer adhesive” in response to a restriction requirement during prosecution, UCB was now prevented from asserting infringement under the doctrine of equivalents. The Court disagreed, finding that in electing certain claims, UCB did not surrender polyisobutylene as an equivalent and never specified or relied “on any unique characteristics of acrylate or silicone-based polymer adhesive systems that would not be present in a polyisobutylene-based system” and would, therefore, distinguish these adhesives. The Federal Circuit also did not find any clear error with the finding that polyisobutylene, silicates and acrylates all had some similarities and were the most commonly used pressure-sensitive adhesives in transdermal patches at the time of the patent was filed. Therefore, despite the fact that only “acrylate-based or silicone-based polymer adhesive” were explicitly claimed, the Court found that a skilled artisan would not recognize polyisobutylene as substantially different from silicates or acrylates, and instead would consider them to be interchangeable equivalents.

Addressing the validity finding of the rotigotine transdermal patch patent, the Federal Circuit agreed that prior art did not anticipate the asserted claims because the prior art did not disclose a free base form of rotigotine “in the absence of water,” as required by the independent claim. The Court also found that other prior art disclosing a transdermal silicone or polyacrylate-based adhesive and a non-water solvent, along with a study in rats treated transdermally with rotigotine, did not invalidate the patent because one could not have reasonably expected to combine the prior art given the sparse nature of the field at the time and because one skilled in the art would have “confronted a significant challenge” in combining the prior art.

Turning to the invalidity finding of the polymorph of rotigotine patent, the Federal Circuit agreed that the patent was invalid under 35 USC § 102(a). The Court found that UCB filed its patent after discovering a precipitate in patches that it was manufacturing and distributing. However, the patches containing the precipitate were distributed and used by at least one patient, thus qualifying as an invalidating use by others in the United States before the invention by the applicant.

PATENTS / § 101

Specific Factual Allegations of Inventive Concept Defeat Motion to Dismiss

Addressing patent eligibility at the motion to dismiss stage of a case, the US Court of Appeals for the Federal Circuit vacated a district court’s grant of a motion to dismiss, finding that the district court improperly failed to accept as true the patent owner’s factual allegations that the asserted claims were directed to an inventive concept. Cellspin Soft, Inc. v. Fitbit, Inc., Case No. 18-1817, -1819, -1820, -1821, -1822, -1823, -1824, -1825, -1826 (Fed. Cir. June 25, 2019) (O’Malley J).

Cellspin owns four patents that relate to connecting a data capture device (e.g., a digital camera) to a mobile device so that a user can automatically publish content from the data capture device to a website. Cellspin filed more than a dozen cases alleging infringement of the asserted patents, including cases against Fitbit, Moov, Nike, Fossil, Canon, GoPro, Panasonic, JK Imaging and Garmin. After being served with the complaint, the defendants filed a motion to dismiss, arguing that the asserted patents were ineligible for patent protection under 35 USC § 101. The district court granted the motion based on the Supreme Court of the United States’ two-step framework for analyzing patent eligibility articulated in Mayo v. Prometheus and Alice v. CLS (IP Update, Vol. 17, No. 7). The district court found that at step one, the asserted claims were directed to the abstract idea of “acquiring, transferring, and publishing data and multimedia content on one or more websites,” and at step two, the asserted claims did not recite an inventive concept.

After the district court granted the motion, it awarded attorneys’ fees to the defendants. In finding the case exceptional, the district court found that:

  • There is no presumption that granted patents are eligible under §101.
  • Cellspin litigated the case aggressively and refused to stay discovery pending resolution of the §101 motion.
  • Cellspin failed to litigate a “test case” against one defendant and instead chose to aggressively file and pursue 14 lawsuits simultaneously.
  • Cellspin amended its complaint days before the scheduled hearing on the motion to dismiss.

Cellspin appealed.

The Federal Circuit vacated the district court’s dismissal, finding that while the asserted claims were directed to an abstract idea, the district court erred in determining there was no inventive concept because it ignored allegations that, when properly accepted as true, precluded granting a motion to dismiss. Starting with step one of the Mayo/Alice framework, the Federal Circuit found that the asserted claims were drawn to the idea of capturing and transmitting data from one device to another, and the Court has consistently held that these types of claims are directed abstract ideas.

Turning to step two of the Mayo/Alice framework, the Federal Circuit found the district court improperly discounted Cellspin’s allegations that its application of capturing, transferring and publishing data was unconventional. For instance, Cellspin alleged that prior art devices, which included a “capture” device with built-in mobile wireless internet, were bulky and expensive and required users to purchase a separate cellular service. Cellspin asserted that its invention was unconventional because it separated the steps of capturing and publishing so that each step was performed by a different device linked via a wireless paired connection, thus resulting in an improvement over the prior art. Cellspin also alleged that its specific ordered combination of elements was inventive because the prior art did not establish a paired connection before transmitting data, as was required by the asserted claims. The Court found that if it accepted Cellspin’s allegations as true, as it must do at the motion to dismiss stage, the asserted claims recited a specific and plausibly inventive way of arranging devices and using protocols rather than the general idea of capturing, transferring and publishing data. The Court thus vacated the district court’s dismissal and remanded for further proceedings.

The Federal Circuit also found that the district court’s error in granting the motion to dismiss necessitated vacatur of the attorneys’ fees award. However, in the interest of judicial economy, the Court addressed certain errors in the district court’s analysis. The Court found that patents granted by the US Patent and Trademark Office are presumed valid under § 101, and there was no need for Cellspin to file a “test case” to determine the validity of the asserted patents. The Court also found that Cellspin’s amended complaint filing was timely under the district court’s scheduling order and further justified in light of two Federal Circuit decisions that had issued weeks earlier. Accordingly, the Court found that it would be erroneous to consider these factors in determining whether the case was exceptional.


Satellite Science? No, Just a Damage Award Supported by Substantial Evidence

The US Court of Appeals for the Federal Circuit concluded that the district court did not abuse its discretion in denying defendants’ motion for a new trial on damages, finding that the jury verdict on damages was based on substantial evidence. Elbit Systems Land and C4I Ltd v. Hughes Network Systems, LLC, Case No. 18-1910 (Fed. Cir. June 25, 2019) (Taranto, J).

Elbit Systems sued Hughes Network, both satellite communication companies, for infringement of two patents related to the transmission of information using satellite communication. The jury found three claims of one asserted patent infringed and not invalid and awarded damages. The district court found the case exceptional and found that Elbit was entitled to attorneys’ fees, but had not yet quantified the fees award at the time of the appeal. Hughes appealed the infringement finding and damages award, as well as the exceptionality determination.

Focusing on the damages award, the Federal Circuit found that the district court did not abuse its discretion in denying Hughes’s motion for a new trial on damages because the jury’s damages verdict was supported by substantial evidence. The Court cited unrebutted expert testimony by Elbit’s damages expert, who provided testimony relying on a prior settlement between Hughes and another satellite internet company, Gilat, in support of the reasonable royalty award in the present case. The Court noted that Elbit’s damages expert properly accounted for differences between the circumstances of the prior settlement and the circumstances between the parties to the present case—an important step when using actual past licenses and negotiations to inform a hypothetical negotiation. The Gilat agreement occurred only four months after the agreed-on date of the hypothetical negotiation posited for determining the reasonable royalty in this matter, making the time periods for assessing value in the satellite-service marketplace very close. Additionally, the technologies were related for purposes of determining market value, as supported by testimony of Elbit’s technical expert. The Court noted that Elbit’s damages expert also accounted for the fact that the Gilat agreement was a settlement prompted by litigation and adjusted the royalty rate to account for updated technology covered by the hypothetical negotiation based on statements made by Hughes’s own executives indicating that the new technology provided a 20% increase in value over the old system.

The Federal Circuit rejected Hughes’s argument that the jury verdict failed to account for mandatory apportionment principles. The Court agreed that apportionment is required when the accused technology does not make up the “whole of the accused product,” citing Finjan. v. Blue Coat Sys. (IP Update, Vol. 21, No. 2). However, because the Gilat agreement concerned a comparable component of a larger product or service and the agreement was relied upon by Elbit’s expert to determine the reasonable royalty for the comparable components of the products at issue in this case, no further apportionment was required.

Finally, the Federal Circuit was not persuaded by Hughes’s argument that Elbit improperly presented testimony in violation of the principle that, where only a part of the value of the apparatus is attributable to the patented technology, a party’s reference to an infringer’s entire revenue earned from its sale of accused products can “skew the damages horizon for the jury” and is improper. Uniloc USA v. Microsoft (Fed. Cir. 2011). The Court rejected this argument, finding that Elbit’s reference to the amount of revenue per customer Hughes earns on average based on the infringing products is not the same as referencing company-wide revenue—the testimony found objectionable in Uniloc. Further, the Court found that Hughes failed to object to this testimony during the trial, and itself introduced a figure representing company-wide revenue, despite a pre-trial agreement reached by both parties excluding “total revenues” from the trial.


Flow Valve Shut Off from Reissue

The US Court of Appeals for the Federal Circuit invalidated reissue patent claims for impermissible broadening, finding that the newly claimed subject matter did not comply with the requirement of 35 USC § 251(a) that reissue claims must be for the same invention as that originally disclosed. Forum US, Inc. v. Flow Valve, LLC, Case No. 18-1765 (Fed. Cir. June 17, 2019) (Reyna, J).

The original and reissue patents relate to supporting fixtures for holding workpieces during machining, specifically the use of arbors. Machinists often make and use fixtures that utilize arbors to hold the workpiece while it rotates on the turning machine, and it is advantageous to have a multi-purpose fixture capable of holding a workpiece in multiple orientations to expedite machining by minimizing setup time. The original and reissue patents share the same written description that discloses a first and a second arbor as central to the fixture design, along with drawings disclosing only embodiments with arbors, none without. In the reissue patent, Flow Valve sought and obtained claims having no arbor limitation.

Although broadening reissues are permissible within the first two years after a patent issues, in order to broaden the claims, the original patent must clearly and unequivocally disclose the newly claimed invention as a separate invention. 35 USC § 251. The district court granted summary judgment in favor of Forum, finding that the written description and drawings of the reissue patent did not “explicitly and unequivocally” disclose the invention claimed in the reissue claims. Flow Valve appealed.

The Federal Circuit, relying on its prior ruling in Antares Pharma (IP Update, Vol. 17, No. 12), explained that in order to support new and broader claims in a reissue, the newly claimed subject matter must be more than merely suggested or indicated in the original specification, drawings or models; it must constitute a part or portion of the originally disclosed invention that was intended or sought to be covered or secured by such original patent. This notion has become a bedrock principle of patent reissue law since the Supreme Court of the United States decisions in U.S. Indus. Chems., Inc. (1942) and Corbin Cabinet Lock Co. (1893).

Here, the abstract and the summary of the invention in the reissue patent describe a plurality of arbors, indicating that the only disclosed invention includes arbors. Flow Valve did not dispute that the original patent did not disclose an arbor-less embodiment. Instead, using expert declaration, Flow Valve argued that a person of ordinary skill in the art would understand from the specification that arbors were an optional feature of the disclosed invention.

The Federal Circuit was not persuaded, noting that the declaration did not aid the court in understanding what the written description actually said, but instead merely asserted what a person of ordinary skill in the art would purportedly understand in the absence of the disclosure of an arbor-less embodiment. The Court found that nowhere did the written description or drawings disclose or even suggest that arbors were an optional feature of the invention as would be required to satisfy § 251. As the court noted, even if a person of ordinary skill in the art would understand that the newly claimed, arbor-less invention would be possible, that would be insufficient to comply with the standard set forth in Industrial Chemicals and Antares.

Practice Note: Before undertaking the time and expense to reissue broader claims, patent owners are advised to critically review the written description to ensure that it supports the broader claims.


Domestic Industry May Include Old Investments with Sufficient Nexus to Continuing Expenditures

Alexander P. Ott

Addressing orders entered by the International Trade Commission (ITC) against imported ATMs, the US Court of Appeals for the Federal Circuit held that expenditures up to 10 years before the complaint may be used to establish a domestic industry if they are sufficiently tied to continuing domestic expenditures. Hyosung TNS Inc. v. ITC, Case No. 17-2563 (Fed. Cir., June 17, 2019) (Dyk, J).

In late 2015, Diebold filed complaints against Hyosung at the ITC and in district court asserting infringement of six patents related to ATMs. The district court action was stayed in view of the ITC investigation, which ultimately concluded with the ITC entering exclusion and cease-and-desist orders against Hyosung based on two of the patents. Hyosung appealed.

On appeal, Hyosung and the ITC agreed that the dispute was moot for one of the two patents because of its expiration. Diebold disagreed, however, and sought to invoke collateral estoppel in favor of its winning positions in the companion district court case. The Federal Circuit reiterated that ITC determinations of infringement and validity do not have preclusive effect, even if affirmed on appeal. Because there were no pending enforcement proceedings arising from imports prior to patent expiration, the Federal Circuit dismissed the appeal for the first patent as moot.

Regarding the second patent, Hyosung argued that the ITC improperly allowed Diebold to establish a domestic industry based on R&D investments incurred between five to 10 years prior to the date of the complaint. However, the Federal Circuit disagreed that there was any bright line for rejecting expenditures and found that prior expenditures can be included as long as the ITC determines that they have a sufficient nexus to ongoing expenditures. The Court found substantial evidence to support the ITC’s determination in this instance and thus affirmed the ITC’s orders for the second patent.



Immoral No More: SCOTUS Strikes Down Ban on Registration of Offensive Trademarks

Sarah Bro

In a 6–3 opinion, the Supreme Court of the United States affirmed a 2017 US Court of Appeals for the Federal Circuit decision holding the ban on registration of immoral or scandalous trademarks under the Lanham Act to be an unconstitutional viewpoint restriction under the free speech guarantees of the First Amendment. Iancu v. Brunetti, Case No. 18-302 (S. Ct. June 24, 2019) (Kagan, Justice) (Alito, Justice, concurring) (Roberts, Chief Justice, concurring in part, dissenting in part) (Breyer, Justice, concurring in part, dissenting in part) (Sotomayor, Justice, concurring in part, dissenting in part).

In its 2017 decision in Matal v. Tam, the Supreme Court invalidated the Lanham Act’s proscription on the registration of disparaging trademarks under 15 USC § 1052(a) as a violation of the First Amendment (IP Update, Vol. 20, No. 6). In Brunetti, the Supreme Court dealt with the constitutionality of neighboring language in § 1052(a) that prohibits the registration of trademarks considered to be “immoral or scandalous.” For the same reasoning outlined in Matal—finding the trademark registration ban to discriminate on the basis of viewpoint—the Court determined that the US Patent and Trademark Office’s (PTO’s) refusal of immoral or scandalous trademarks disfavors certain ideas and thus infringes the First Amendment.


The named respondent, Erik Brunetti, is an artist and entrepreneur who founded a streetwear line in 1991 under the brand name FUCT. Brunetti has always claimed that the FUCT trademark is pronounced by saying each of the four letters individually as F-U-C-T, but the PTO and the courts along the way have all noted that consumers may read and pronounce the mark differently, and in a manner phonetically identical to a popular curse word.

Brunetti had made at least one unsuccessful attempt to register the FUCT mark in relation to clothing goods as far back as 1993. But, it was only after Brunetti’s 2011 trademark application for the FUCT brand name was refused registration by both the PTO and the Trademark Trial and Appeal Board (TTAB) (under §2(a) of the Lanham Act as consisting of immoral or scandalous matter that a “substantial composite of the general public” would find “shocking,” “disgraceful” or “vulgar”) that he appealed to the Federal Circuit, which held that the proscription on registration of immoral or scandalous trademarks violated the First Amendment. The Supreme Court then granted certiorari.

Opinion of the Court

Before addressing the specific FUCT trademark at issue in Brunetti’s appeal, Justice Kagan provided a brief primer on the Matal decision, which held that if a trademark registration bar is viewpoint based, it is unconstitutional, since the government may not discriminate against speech based on the ideas or opinions conveyed by such speech. Thus, within this framework, the Court determined that the § 2(a) immoral or scandalous registration proscription similarly discriminates based on viewpoint, and is therefore unconstitutional. As Kagan wrote, “the ‘immoral or scandalous’ bar is substantially overbroad. There are a great many immoral and scandalous ideas in the world (even more than there are swearwords), and the Lanham Act covers them all. It therefore violates the First Amendment.”

The Immoral or Scandalous Registration Bar Is Viewpoint Based

The Supreme Court’s opinion examined dictionary definitions of the terms “immoral” and “scandalous” to assess the potential for viewpoint biases. Here, the Court determined that the statutory language invites the PTO to apply a viewpoint discriminatory position by accepting for registration trademarks that are “aligned with conventional moral standards,” and rejecting those trademarks that are hostile to such societal mores. The Court flagged specific examples of the PTO’s viewpoint-based acceptance or rejection standards in relation to trademarks with terms or imagery that referenced drugs, religion and terrorism. In short, the Court found that the PTO allows for registration of marks that express societally acceptable views (i.e., JESUS DIED FOR YOU) and refuses trademarks that do not necessarily reflect views that are widely acceptable to a “substantial composite of the general public” (i.e., BONG HITS 4 JESUS).

The Court Rejects the Government’s Limiting Construction of the Statute

Arguing in support of the “immoral or scandalous” basis for trademark registration refusal, the government alleged that the statute is susceptible to a limiting construction that removes any viewpoint bias. More specifically, the government proposed narrowing the § 2(a) registration bar to marks that are offensive or shocking to a substantial segment of the public only because of their mode of expression, and not tied to the expression of a viewpoint. According to the government, this “mode of expression” assessment would primarily pertain to marks that are “vulgar . . . lewd . . . sexually explicit or profane.”

The Supreme Court rejected the government’s proposal as an attempt to create a new statute instead of interpreting the law that Congress enacted. The Court pointed out that “the statute says something markedly different,” since the § 2(a) language does not limit trademark registration refusals to only lewd, sexually explicit or profane marks, nor does it consider only the “mode of expression” of a trademark.

In Justice Alito’s concurrence, he characterized the government’s proposal to reframe the statutory language as an attempt to “substitute a new statute for the one now in force,” and refused to do so. “The provision of the Lanham Act at issue in this case violates the Free Speech Clause of the First Amendment because it discriminates on the basis of viewpoint and cannot be fixed without rewriting the statute.”

Unlike the Matal v. Tam decision, in which a unanimous court agreed that the ban on disparaging trademarks was unconstitutional, in this case, Chief Justice Roberts and Justices Breyer and Sotomayor each authored opinions, dissenting in part, in which they proposed dividing the “immoral or scandalous” provision into its component parts. The dissenting justices opined that an “immoral” assessment likely contemplates viewpoint of the speech and thus is unconstitutional, but that the “scandalous” ban could be read as viewpoint neutral in banning truly “obscene, vulgar, or profane marks,” for which a registration proscription may not violate First Amendment protections. In the words of Chief Justice Roberts, “refusing registration to obscene, vulgar, or profane marks does not offend the First Amendment. Whether such marks can be registered does not affect the extent to which their owners may use them in commerce to identify goods. No speech is being restricted; no one is being punished. The owners of such marks are merely denied certain additional benefits associated with federal trademark registration.”

Practice Note: Pursuant to the Supreme Court’s decision, on July 3, 2019, the PTO issued updated guidelines on the review and registration of trademarks under § 2(a) of the Lanham Act. Any pending trademark applications that previously received an “immoral or scandalous” refusal and were suspended pending the Supreme Court’s determination in Brunetti will now be removed from suspension for further PTO review. The guidelines also invite the refiling of trademark applications previously refused registration under the now unconstitutional “immoral or scandalous” provision.


Cream and Sugar with That? French Press Trade Dress Is Nonfunctional, Protectable

In confirming that the unregistered trade dress of the Chambord French press coffeemaker was nonfunctional, the US Court of Appeals for the Seventh Circuit affirmed the district court’s determination that plaintiff’s unregistered trade dress was protectable. Bodum USA, Inc. v. A Top New Casting Inc., Case No. 18-3020 (7th Cir. June 12, 2019) (Flaum, J).

Bodum produces and sells the iconic Chambord French press coffeemaker. Bodum sued A Top New Casting for infringing its unregistered trade dress in the Chambord. A Top never denied that it copied Bodum’s trade dress, but claimed that Bodum’s trade dress was functional and therefore not protectable. While trade dress is a valuable form of intellectual property because it allows the owner to protect product and packaging designs, in order to be protectable, the designs cannot be functional.

A jury found that Bodum’s trade dress in the Chambord was not functional and therefore was protectable, and that A Top had willfully infringed Bodum’s trade dress. The jury awarded Bodum $2 million in damages. A Top filed a post-trial motion for judgment as a matter of law, arguing that Bodum had failed to prove that the Chambord design was nonfunctional. The motion was denied. A Top also moved for a new trial based on a claim that the court excluded relevant evidence of various patents for French press coffeemakers; the district court denied that motion as well. A Top appealed.

Similar to trademarks, trade dress is granted protection under the Lanham Act. Protection is granted for a product’s trade dress, which generally includes product designs that are distinctive and identify the product’s source. Trade dress protection is not subject to any statutory expiration and can potentially provide a perpetual exclusive right to a useful product feature, as long as the feature(s) to be protected are not functional (i.e., necessary for the use of a product, or affecting the cost or quality of the product).

In deciding whether a trade dress feature is functional, courts consider several factors:

  • The existence of a utility patent, expired or unexpired, that involves or describes the functionality of an item’s design element
  • The utilitarian properties of the item’s unpatented design elements
  • Advertising of the item that touts the utilitarian advantages of the item’s design elements
  • The dearth of, or difficulty in creating, alternative designs for the item’s purpose
  • The effect of the design feature on an item’s quality or cost

No one factor is dispositive for deciding whether a trade dress element is functional and thus cannot serve as a trade dress.

The design elements of the Chambord that Bodum claimed were protectable as trade dress were the metal band that formed support feet and handle attachment, domed lid, rounded knob on top of its plunger, and C-shaped handle. Bodum’s evidence demonstrated that the design elements of the Chambord were not utilitarian and did not necessarily make it work better for its intended purpose. Bodum also submitted evidence that there were alternative and less expensive options available for the overall design and these specific design elements. The Seventh Circuit found that Bodum presented sufficient evidence to support the jury finding that its overall look and design elements were nonfunctional, and affirmed the district court’s denial of A Top’s motion for judgment as a matter of law.

The Seventh Circuit rejected A Top’s attempt to show that Bodum’s allegedly protectable design elements were functional based on drawings from utility patents covering third-party French press coffeemakers—patents that illustrated similar design elements. However, on reviewing the third-party patents in their entirety, including the drawing descriptions, the Court found there was no mention of the specific design elements and that the introduction of such evidence would have been misleading and likely to create jury confusion. Thus, the Court affirmed the district court’s denial of A Top’s motion for a new trial.


Fiesta’s Over for Trademark Claims Without Proof of Secondary Meaning

The US Court of Appeals for the First Circuit found that it had jurisdiction despite an arguably improper notice of appeal, and that the trademark owner waived its right to submit new evidence and failed to prove that the descriptive mark FIESTAS DE LA CALLE SAN SEBASTIÁN had secondary meaning. Comité Fiestas De La Calle San Sebastián, Inc. v. Carmen Yulín Cruz Soto et al., Case No. 17-1723 (1st Cir. May 29, 2019) (Kayatta, J).

Comité Fiestas De La Calle San Sebastián is nonprofit organization in San Juan, Puerto Rico, that assists with organizing and promoting the yearly Fiestas De La Calle San Sebastián held in Old San Juan. The Fiestas De La Calle San Sebastian focuses on promoting traditional Puerto Rican music and culture and the religious celebration of Saint Sebastian. In 2014, the Comité criticized the mayor of San Juan, Carmen Yulín Cruz Soto, for turning the Fiestas De La Calle San Sebastian and “historic Old San Juan into a big bar with contests to see who could drink the most.” After the criticism, the mayor allegedly retaliated against the Comité by awarding it less advantageous vendor contracts for the 2015 festival than it had previously received, imposing stricter requirements on the Comité, and giving the Comité’s coveted entertainment time slot during which it normally played traditional Puerto Rican music to a supporter of the mayor.

The Comité brought a trademark infringement claim alleging it owned the FIESTAS DE LA CALLE SAN SEBASTIÁN mark, as well as First Amendment, political discrimination, retaliation, libel and religious discrimination claims against the mayor and the Municipality of San Juan. After discovery was completed, the mayor and San Juan filed a motion for summary judgment, and the district granted the motion on all claims. Subsequently, the Comité filed a Rule 59(e) motion for reconsideration on its political discrimination, trademark infringement and libel claims. In support of its trademark claim, the Comité submitted new evidence showing that the mark had been approved for publication by the US Patent and Trademark Office (PTO). The district court denied the Rule 59(e) motion in its entirety. The Comité appealed.

Under Fed. R. App. P. 3(c)(1)9B), a notice of appeal must “designate the judgment, order or part thereof being appealed.” At the outset, the First Circuit discussed whether it had jurisdiction over the appeal in light of the fact that the Comité’s notice of appeal only mentioned the Rule 59(e) motion for reconsideration, but the Comité’s opening brief only challenged portions of the underlying summary judgment order. Although the Court noted that it had previously found it lacked jurisdiction over appeals when the notice of appeal only designated a Rule 59(e) motion, the Court further noted that its case law had some flexibility to consider grounds in the underlying dismissal if the Rule 59(e) motion and underlying dismissal were intertwined. Here, the Court found that it had jurisdiction over claims that were encompassed by the Rule 59(e) motion and the parts of the district court’s summary judgment order that were addressed in the Rule 59(e) motion—the political discrimination and trademark infringement claims.

The First Circuit also found that the Comité’s Rule 59(e) motion raised new evidence with respect to the trademark infringement claim. However, because the Comité did not raise the issue that it had new evidence from the PTO in its opening appeal brief, the Court held that the Comité had waived the issue for appeal. With respect to the trademark infringement claim, the Court held that the Comité failed to establish that FIESTAS DE LA CALLE SAN SEBASTIÁN, a descriptive mark, had acquired distinctiveness or secondary meaning. The Comité attempted to rely on several affidavits to establish secondary meaning. However, none of the affidavits mentioned the fact that the public associated the mark with a single source or the Comité. As a result, the Court held that there was no “trial-worthy” trademark infringement issue, thus affirming the district court’s summary judgment finding and denial of the Rule 59(e) motion for reconsideration.





Texas Trade Secret Law May Protect Free Speech, but Not in This Case

The Third District of the Texas Court of Appeals held that an action by an employer against a former employee for breach of contract and trade secret misappropriation fell within the commercial speech exemption of the Texas Citizens Participation Act (TCPA). Rose v. Sci. Mach. & Welding, Inc., Case No. 03-18-00721-CV (Tex. App. – (Austin), June 25, 2019) (Baker, J).

Scientific Machine & Welding, Inc., produces specialty parts and equipment. Kevin Rose had been employed as Scientific’s operations manager, pursuant to which he worked with customers to develop manufacturing drawings and blueprints for Scientific to create final products. Rose left Scientific to work for its customer FlashParking. Scientific subsequently sued Rose, alleging that Rose “improperly removed and divulged trade secrets and proprietary assets of Scientific,” including manufacturing drawings, to FlashParking. Rose moved to dismiss the suit under the TCPA, which safeguards “the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government.” After the trial court denied Rose’s motion, Rose appealed.

The Texas Court of Appeals affirmed, holding that although the TCPA applied to Scientific’s suit because the suit related at least to Rose’s exercise of the right of association, the statute’s commercial speech exemption also applied, such that dismissal was not required. The court applied the Texas Supreme Court’s four-part test for the application of the commercial speech exemption as laid out in Castleman v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018). The court concluded that the exemption applied because:

  • The defendant was primarily engaged in the business of selling goods (manufacturing blueprints) and services (drawing, sourcing, etc.)
  • The defendant engaged in the alleged conduct in his capacity as a seller of such goods and services.
  • The conduct arose out of a commercial transaction.
  • The intended audience of the alleged conduct (FlashParking) was an actual or potential customer of the defendant for the kind of goods or services the defendant provides (as shown by the new employment relationship).

Because Scientific’s lawsuit was exempt from the TCPA’s provisions, the court concluded that the trial court properly denied Rose’s motion to dismiss.

Practice Note: While the Castleman test would seem to apply to most garden-variety trade secret misappropriation claims, it also appears to leave open the possibility that a claim arising, for example, from the theft of trade secrets unrelated to an employee’s primary job responsibilities would not be considered “commercial speech.” Such a claim might therefore be subject to dismissal.


Claims for Continued Trade Secret Misappropriation Allowed when Statute Permits Separate Accrual

The US Court of Appeals for the Third Circuit reversed in part and affirmed in part a district court’s decision that a trademark owner’s infringement claims were time-barred, finding that Pennsylvania applies a separate accrual rule to continuing trade secret misappropriations. Heraeus Medical GMBH v. Esschem, Inc., Case No. 18-1368 (3d Cir. June 21, 2019) (Krause, J).

Heraeus develops and produces Palacos, a bone cement used to anchor artificial joints in joint replacement surgeries. To make Palacos, Heraeus developed its own process to manufacture two key components known as copolymers R262 and R263. Heraeus holds trade secrets related to the “overall specifications for the . . . bone cement,” including “specifications for [the] copolymers.” Biomet is Heraeus’s competitor in the bone cement market and uses the same copolymers. Biomet buys its copolymers from Esschem, a Pennsylvania company.

In 2004, Biomet gained access to Heraeus’s trade secrets and launched its own competing bone cement. Suspecting that Biomet was using its trade secrets, Heraeus acquired and analyzed samples of Biomet’s bone cement in 2005 and discovered that it was virtually identical to Heraeus’s and that Esschem was manufacturing the copolymer components for Biomet.

In 2008, Heraeus brought discovery suits against Esschem and Biomet. In March 2011, Esschem produced email chains between employees of Biomet and Esschem in which they discussed the development of the copolymers and the Heraeus trade-secret-protected copolymers. Discovery against Esschem ended sometime between August and December 2011. Discovery against Biomet continued, and in December 2011 a Biomet employee corroborated the Biomet and Esschem email chains.

Heraeus filed a lawsuit against Esschem on September 8, 2014, for misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act (PUTSA) and five counts of common law claims. Esschem moved for and was granted summary judgment on the basis that the entirety of Heraeus’s claims were time-barred under PUTSA’s three-year statute of limitations period since Heareus learned of the misappropriation in March 2011 but did not file its lawsuit until September 2014. Heraeus appealed.

The Third Circuit agreed in part with the district court’s decision, finding that Heraeus knew of Esschem’s potential infringement after Esschem’s production of the email chains in March 2011 and that any information Heraeus learned in December 2011 related to the email chains was duplicative. Therefore, any misappropriation prior to March 2011 and any that occurred between March 2011 and September 2011 was time-barred since the misappropriation occurred more than three years before the filing of the lawsuit.

The Third Circuit, however, reversed the district court’s decision related to Heraeus’s claims that Esschem continued to use Heraeus’s trade secrets between September 2011 and September 2014. The Court rejected the district court’s finding that all of the misappropriation claims should be viewed as part of one violation that was time-barred entirely. The Court examined the PUTSA and compared it to the Uniform Trade Secrets Act (UTSA) regarding continuing misappropriation. The UTSA provides that, for the purposes of the three-year statute of limitations period, “a continuing misappropriation constitutes a single claim.” The Court found that because the PUTSA omits this sentence from the same section, the PUTSA treats continuing misappropriation as separate violations subject to the separate accrual rule. As a result, the PUTSA preserves the Pennsylvania common law accrual rule, and Heraeus’s alleged injuries suffered because of Esschem’s use of its trade secrets after September 2011 were actionable under the PUTSA.

Practice Note: It is important to analyze a state’s intellectual property statutes and the language they use or omit.


Supreme Court to Consider Profit Disgorgement in Trademark Cases

Paul Devinsky

The Supreme Court of the United States granted writ of certiorari to consider the issue of profit disgorgement under 15 USC § 1117(a). Romag Fasteners, Inc. v. Fossil, Inc., et al., Case No. 18-1233 (S. Ct. June 28, 2019). According to Romag’s petition, the circuits are evenly split on whether a showing of willfulness is a prerequisite to an award of an infringer’s profits.

Section 117(a) provides for profit disgorgement as a remedy for trademark infringement “subject to the principles of equity.” In relevant part, the statute reads as follows:

When a violation of any right of the registrant of a mark registered in the [Pat & TM Ofc], a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

In its decision, the US Court of Appeals for the Federal Circuit (applying Second Circuit law) held that profit disgorgement could only be awarded if associated with a more egregious activity—such as willful infringement. Here, because the jury found no willful infringement, disgorgement was denied (IP Update, Vol. 20, No. 9).

The question, as presented in Romag’s certiorari petition, is as follows:

Whether, under section 35 of the Lanham Act, 15 USC § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of section 43(a), id. § 1125(a).

Supreme Court to Address Whether Claim Preclusion Bars Defendant from Raising Defense Not Litigated or Resolved in Prior Case

Amol Parikh

The Supreme Court of the United States granted Lucky Brand’s request to address whether claim preclusion principles bar a defendant from asserting a new defense in a case when the defense could have been raised over previous years of litigation. Lucky Brand Dungarees, Inc. et al. v. Marcel Fashion Group, Inc., Case No. 18-1086 (S. Ct. June 28, 2019). The question presented is:

Whether, when a plaintiff asserts new claims, federal preclusion principles can bar a defendant from raising defenses that were not actually litigated and resolved in any prior case between the parties.

Lucky Brands and Marcel are competitors in the apparel industry. Lucky Brands owns the trademark LUCKY BRANDS. In 2001, Marcel sued Lucky Brands for trademark infringement and unfair competition for Lucky Brand’s use of the phrase GET LUCKY. The 2001 action resulted in a settlement, which the parties signed in 2003, where Lucky Brands agreed to desist using the GET LUCKY trademark and Marcel agreed to release any and all claims relating to Lucky Brand’s LUCKY BRAND trademark in exchange for $650,000.

After the 2003 settlement, the parties engaged in series of litigations involving substantially the same trademark disputes, including a case that went to trial where a jury found that Lucky Brand infringed on Marcel’s GET LUCKY trademark and enjoined Lucky Brand from using the GET LUCKY mark. In 2011, Marcel filed another lawsuit alleging that Lucky Brand continued use of LUCKY BRAND after the injunction. In response, Lucky Brand moved for summary judgment, arguing that Marcel’s claims were barred by res judicata in light of the final disposition. The district court agreed, but the US Court of Appeals for the Second Circuit reversed, finding that the allegedly barred claims could not have been sued upon in the previous case. On remand, Marcel filed an amended complaint, and Lucky Brand moved to dismiss on the basis that the 2001 agreement barred Marcel’s claims. The district court granted Lucky Brand’s motion, but the Second Circuit vacated the ruling, finding that claim preclusion barred Lucky Brand from invoking its release defense in this action. Lucky Brand appealed to the Supreme Court.