Thursday, July 31, 2014

Super Sacking -- Does a Covenant Not To Sue Eliminate Subject Matter Jurisdiction on a Subsequent Infringement Claim?

Apparently not.  Foliar Nutrients sued Plaint Food Systems (PFS) in 2004 for infringing a number of its patents.  After PFS sought reexamination of some of those patents, the parties settled.  That settlement called for Foliar to pay PFS $50,000 over five years, and included a mutual covenant not to sue where Foliar agreed not to assert its previously asserted patents and PFS agreed not to challenge their validity.

The settlement didn't work.  After the first year's payment, the parties were unable to continue operating under the agreement.  PFS sued Foliar a couple of times, trying to collect the money that Foliar didn't pay, but those cases didn't last.  Eventually, PFS gave up on filing lawsuits against Foliar.  Foliar, however, filed suit for patent infringement, asserting a number of its patents against PFS.

PFS sought dismissal, arguing that there was no subject matter jurisdiction because of the covenant not to sue.  Specifically, PFS relied on Super Sack and its progeny.  See Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054 (Fed. Cir. 1995).  I have previously written about Super Sack a few times.

Super Sack

The typical circumstances are a patent owner asserts its patent and the defendant challenges validity of the patent.  For whatever reason, the patent owner decides it doesn't wish to pursue the patent infringement case, but it must also dispose of the counterclaim dealing with non-infringement and invalidity.  One solution to this issue is for the patent owner to covenant not to sue the defendant for infringement of the patent.  By doing this, the defendant's counterclaims for invalidity and non-infringement are no longer justiciable.  There is no longer a threat that the defendant can be sued for infringing the patent, so it can't ask the Court for a declaration that it does not infringe the patent and it has no basis to pursue a declaration that the patent is invalid.  Makes sense.

But what about when the patent owner changes its mind and wants to sue on the patent.  Does the covenant not to sue deprive the Court of subject matter jurisdiction to resolve that dispute?
"There is no authority for the proposition that a covenant not to sue stands as a jurisdictional bar to bringing a subsequent infringement claim."  Samsung Elecs. Co. v. Rambus, Inc., 440 F. Supp. 2d 495, 504 (E.D. Va. 2006).  PFS' argument to the contrary overextends the U.S. Court of Appeals for the Federal Circuit's precedent regarding invalidity claims, which are brought pursuant to the Declaratory Judgment Act and require the continuous presence of a real and immediate controversy between the litigants in order to remain justiciable.  See MedImmune v. Genentech, Inc., 549 U.S. 118, 127 (2007).  Under Super Sack and its progeny, where the case or controversy underlying a patent-invalidity action is the threat that the patentee will press an allegedly invalid patent against the invalidity claimant, the patentee can unilaterally divest the court of subject matter jurisdiction over the invalidity claim by extinguishing the immediacy and reality of that threat.  See Super Sack, 57 F.3d at 1058-60; Revolution Eyewear v. Aspex Eyewear, Inc., 556 F.3d 1294 (Fed. Cir. 2009).  One way to do so is by issuing a sufficiently broad covenant not to assert the patents-in-suit against the invalidity claimant.  Super Sack, 57 F.3d 1058.  Additionally, if the patentee has any infringement claims pending against the invalidity claimant at the time of the covenant's execution, the patentee must move to dismiss those claims under Federal Rule of Civil Procedure 41.  See Highway Equip. Co. v. FECO, Ltd., 469 F.3d 1027, 1033 (Fed. Cir. 2006); cf. Already, LLC v. Nike, Inc., 133 S.Ct. 721, 726-28 (2013) (addressing this procedure in the trademark context).  If the combination of the covenant not to sue and the Rule 41 dismissal sufficiently diminishes the controversy underlying an invalidity claim, the invalidity claim is rendered nonjusticiable and the Court is divested of subject matter jurisdiction over it.
But that logic does not extent to a plaintiff's claim of patent infringement:
Significantly though, the holdings in the Super Sack line of cases do not extend to patent-infringement claims, which are not brought pursuant to the Declaratory Judgment Act and are therefore not subject to its unique justiciability requirements.  See 35 U.S.C. 271 (Providing an independent statutory basis for patent infringement claims).  To the contrary, the Federal Circuit has clarified that a patentee's covenant not to sue does not divest a district court of subject matter jurisdiction over infringement claims -- even those that remain pending at the time of the covenant's execution.  Highway Equip., 469 F.3d at 1033 n.1 (observing that, in situations where a patentee unilaterally secures a Super Sack dismissal, the patentee's "covenant does not deprive the district court of jurisdiction to determine the disposition of the patent infringement claims raised in the Complaint under Rule 41"); Cooper Notification, Inc. v. Twitter, Inc., 545 F. App'x 959, 966-67 (Fed. Cir. 2013) (same).
Thus, PFS's motion to dismiss Foliar's patent infringement claim, for lack of subject matter jurisdiction, was denied.
Foliar Nutrients, Inc. v. Plant Food Systems, Inc., Case No. 6:13-CV-748 (M.D. Fla. July 14, 2014) (J. Dalton)

[NOTE: GrayRobinson, PA is involved in the above-captioned matter]

Monday, July 28, 2014

Stay Against a "Peripheral" Defendant?

Not if the defendant is a direct competitor.  The Andersons, Inc. has sued Harrell's, LLC and three other defendants for infringement of U.S. Patent Nos. 6,884,756; 8,435,321; and 8,574,631 relating to water-dispersible pellet fertilizer.  Harrell's asked the Court to stay the case against it, arguing that it was a "peripheral" defendant in that it merely bought the accused products from the other defendants and resold them.

The Court outlined the law for such a stay:
A district court has inherent discretionary authority to stay proceedings to control its docket and further the interests of justice. CTI-Container Leasing Corp. v. Uiterwyk Corp., 685 F.2d 1284, 1288 (11th Cir. 1982). The applicant for a stay “must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to some one else.” Landis v. N. Am. Co., 299 U.S. 248, 255, 57 S.Ct. 163, 166 (1936).  
When a patent-holder sues both the manufacturer of an allegedly infringing device and a customer of the manufacturer--who merely resells the device to the public--district courts frequently stay the claims against the customer-retailer while the suit against the manufacturer proceeds. See generally Heinz Kettler GMBH & Co. v. Indian Indus., Inc., 575 F. Supp. 2d 728, 730 (E.D. Va. 2008); Ricoh Co., Ltd. v. Aeroflex Inc., 279 F. Supp. 2d 554, 557 (D. Del. 2003); Oplus Techs., Ltd. v. Sears Holding Corp., No. 11-cv-8539, 2012 WL 2280696, at *4 (N.D. Ill. Jun. 15, 2012). In such cases, the manufacturer of the allegedly-infringing device is considered to be the real-party interest and in a better position to contest validity and infringement. See id
Notwithstanding these frequent stays, the situation is different when the "peripheral" defendant is one of plaintiff's competitors:
Plaintiff alleges that Harrell's is Plaintiff's direct competitor, that Harrell's previously approached Plaintiff about buying its product, that Plaintiff refused, and that Harrell's then sought out the accused product from [another defendant].  Plaintiff thus maintains that discovery from Harrell's will be relevant to validity, particularly non-obviousness, as well as the issue of willful infringement.
Harrell's desire to avoid the expense and time to participate in discovery did not present an undue hardship or inequity.

Motion to stay, denied.
The Andersons, Inc. v. Enviro Granulation, LLC., Case No. 8:13-CV-3004 (M.D. Fla. July 21, 2014) (J. Covington)

Tuesday, July 15, 2014

Expert Lied On The Stand - New Trial, Right?

Rembrandt Vision Technologies sued Johnson & Johnson Vision Care for alleged infringement of U.S. Patent No. 5,712,327.  During a two-week jury trial, the Court granted judgment as a matter of law in favor of Defendant based on defects in one of the Plaintiff's expert's testimony.  The jury had also found in Defendant's favor.  After the jury ruled against it, Plaintiff filed a motion asking for discovery and to reopen the case because one of Defendant's expert's had apparently lied on the stand -- he said he conducted a test when he had not personally done so and he had not told the truth about his qualifications.  The Court denied the request for discovery into this matter.  That decision (granting judgment as a matter of law and denying Plaintiff's request for discovery) was appealed and the Federal Circuit affirmed without reaching the question of whether or not denying discovery for the alleged perjury was proper.  See Rembrandt Vision Technologies, LP v. Johnson & Johnson Vision Care, Inc., 725 F.3d 1377 (Fed. Cir. 2013).

Plaintiff next asked the Court for a new trial pursuant to Fed. R. Civ. P. 60(b)(2) and (b)(3).  For relief under 60(b)(2) (newly discovered evidence), the requesting party must show:
(1) the evidence must be newly discovered since the trial;
(2) due diligence on the part of the movant to discover the new evidence must be shown;
(3) the evidence must not be merely cumulative or impeaching;
(4) the evidence must be material; and
(5) the evidence must be such that a new trial would probably produce a new result.
quoting Waddell v. Hendry Cnty. Sheriff's Office, 329 F.3d 1300, 1309 (11th Cir. 2003).  The Court was satisfied that the plaintiff met the first two elements, but elements (3) through (5) caused problems:
Regardless of the seriousness of Dr. Bielawski's offense, however, Rembrandt still must demonstrate that a new trial would probably produce a different result.  Upon sober reflection, I conclude it cannot do so. ... Rembrandt's lost opportunity to impeach Dr. Bielawski with evidence of his false testimony does not lead to Rule 60(b)(2) relief. ...Having carefully followed the evidence at trial, the Court was unsurprised by the jury's verdict of non-infringement.
It is interesting to also note that the Court conducted a three-hour hearing to address this motion, and specifically noted: "The reader is encouraged to consider the transcript of the three-hour August 2, 2013 hearing, in which counsel and the Court engaged in extensive discussions on this motion.  (Doc. 373)."

The Court turned next to Rule 60(b)(3), seeking relief from a final judgment on the basis of fraud, misrepresentation, or misconduct "by an opposing party."  Ultimately, the Court rejected plaintiff's bid because it could not show that the expert's misconduct was misconduct "by an opposing party" because the Plaintiff couldn't show that the Defendant's counsel knew or should have known of the expert's misconduct:
With the benefit of this type of hindsight [relating to the evidence showing the expert's false testimony], it is tempting to fault [Defendant's] lawyers for not discovering Dr. Bielawski's misconduct.  However, he was apparently successful in convincing [Defendant's] lawyers that he knew the subject matter and that he was going to give truthful testimony.
So, a defense expert lies on the stand and the plaintiff gets no remedy?  The Court was concerned with this perception as well:
The Seventh Circuit has put it aptly:
A motion under Rule 60(b)( often puts to a court a question without a right answer.  The district judge must weigh incommesurables -- the value of finality, the probability that an error affected the outcome of the proceeding, the probability that a second go-round would product a 'better' outcome, the costs of that second proceeding to the parties (and ultimately to society as the finality of judgments is undercut).
(citation omitted).
This is a close and difficult call.  The Court recognizes that this decision could be interpreted as not taking seriously enough the integrity of this Court's proceedings and the importance of truthful witnesses.  The Court could also be accused of treating misconduct by Rembrandt's expert witness more seriously than that of JJVC's.  While this criticism would be understandable, there are other important attributes to be considered and balanced -- finality, respect for the jury's verdict, and whether the ultimate result is just.  I sat through the trial, heard all of the evidence, and have not conducted a lengthy hearing on the Rule 60 motion.  I believe, notwithstanding the serious misconduct by Dr. Bielawski, this was a fair, through imperfect trial.  The jury's verdict is supported by the untainted evidence and should be allowed to stand.
All is not lost, however, for the plaintiff.  The Court has left open other possibilities, including reporting the issue to the U.S. Attorney's Office and requiring Defendant to explain why it should not pay Plaintiff's attorney's fees and costs associated with the investigation into the expert's misconduct.  It is also worth noting that the expert has apparently been sanctioned by his university (including a reduction in pay) and has moved to teach in Korea.

Motion to set aside judgment, denied.
Rembrandt Vision Technologies, L.P. v. Johnson & Johnson Vision Care, Inc., Case No. 3:11-CV-819 (M.D. Fla. July 10, 2014) (J. Corrigan).

Friday, July 11, 2014

Red Hot Trailers vs. Real Hot Trailers

Right Trailers, Inc. holds U.S. Trademark Registration No. 4,327,039 for the mark "RED HOT TRAILERS."  Southern Wholesale Trailers and RVs put up a wooden sign outside their business that read "Red Hot Trailers."  In response to a cease and desist from Right Trailers, Southern Wholesale changed the sign to read "Real Hot Trailers."  The font for both signs was a cursive-like font.  Right Trailers sent another cease and desist stating that the "new" name looked the same and was still likely to yield consumer confusion.  Southern Wholesale refused to change the sign.  Pictures of before (Red Hot Trailers) and after (Real Hot Trailers) are below:

Right Trailers sued Southern Wholesale and its owner, William Hobson for trademark infringement and unfair competition.  Defendants moved to dismiss.  As to Mr. Hobson, Defendants argued that there had been no allegations that he was personally liable for the allegations of the complaint.  The Court agreed, but gave the plaintiff a helping hand:
In Bentley Motors Ltd. Corp. v. McEntegart, No. 8:12–cv– 1582–T–33TBM, 2012 WL 4458397 at *3 (M.D.Fla. Sept.26, 2012), this Court noted that Bentley alleged in the complaint that the defendant, Fraray, individually was a “moving, conscious, and active force behind the infringing acts at issue, and actively participates in and approves the acts.” Therefore, the Court found that there was no basis to dismiss Fraray as a defendant. See also BabbitElec., Inc. v. Dynascan Corp., 38 F.3d 1161, 1184 (11th Cir.1994) (“a corporate officer who directs, controls, ratifies, participates in, or is the moving force behind the infringing activity, is personally liable for such infringement ...”).
 In the instant case, Right Trailers alleges no facts in its complaint that Hobson is the “moving force” behind the allegedly infringing activity. The only allegation against Hobson in the complaint states, “Upon information and belie[f], the Defendant, WILLIAM R. HOBSON, is an individual residing at all relevant times within the jurisdiction of this Court at 6710 Poley Creek Drive West in Lakeland, Polk County, Florida 33811.” (Doc. # 1 at ¶ 7). At the hearing, counsel for Right Trailers conceded that the complaint does not contain adequate allegations against Hobson. Therefore, the grants the Motion to Dismiss to the extent that the Court dismisses all claims asserted against William R. Hobson. However, the Court grants Right Trailers leave to amend the complaint on or before July 15, 2014, if it so chooses.

The Court next turned to Defendants' argument that Plaintiff hadn't pleaded a viable claim for trademark infringement.  Defendants' argument relied on two theories.  First, because Right Trailer's trademark registration was not yet incontestable, it did not serve as a basis to establish that "RED HOT TRAILERS" was a protectable trademark.  [Editor's note: What??]  Second, Plaintiff had not established a probability of confusion because Defendants used the word "Real" instead of "Red".  [Editor's note: Have you seen Coming To America?]  The Court quickly dispensed with these arguments.

As to the first argument, the trademark registration serves as prima facie evidence of the validity of the mark.  The defendants can challenge that, but it's enough to survive a motion to dismiss.  As to the second argument, the Court relied on the pictures above and stated:

Upon due consideration, the Court determines that the allegations in the complaint and the depictions of Southern Wholesale's signage are sufficient to plead the possibility of confusion, mistake, or deception. Right Trailers' trademark infringement claim is accordingly not subject to dismissal on this basis.
Motion to dismiss granted in part (with leave to amend); otherwise denied.
Right Trailers, Inc. v. Hobson, Case No. 8:14-CV-1004 (M.D. Fla. July 2, 2014) (J. Covington)

Tuesday, July 8, 2014

Preliminary Injunction - David vs. Goliath

Conair Corporation has substantial rights to U.S. Patent Nos. 8,607,804 and 8,651,118 (and its subsidiary owns Design Patent D696,456) relating to a hair styling device.  Conair sold approximately one million of these devices in 2013 and projects that it will sell approximately two million this year (2014).  Barbar, Inc apparently made 2,500 hair styling devices that bear a resemblance to Conair's.  

On May 30, 2014, Conair sought a temporary restraining order to prevent Barbar from displaying the allegedly infringing device at a trade show in Orlando the next day.  The Court denied that motion and converted it into a motion for preliminary injunction.  In denying the TRO, the Court noted:

Patent cases are notoriously complex. See Minemyer v. B-Roc Representatives, Inc., 07 C 1763, 2010 WL 3787093 (N.D. Ill. Sept. 21, 2010) aff'd sub nom. Minemyer v. R-Boc Representatives, Inc., 515 F. App’x 897 (Fed. Cir. 2013) (noting that patent cases are more time- consuming and are more taxing on judicial resources than most civil cases). In this instance, the Plaintiffs ask the Court to determine in less than a day that they have a substantial likelihood of success on a patent case involving three patents, unfair competition, and an alleged violation of trade dress. Simply put, less than twenty-four hours is too little time for a Court to make a reasoned and reflective determination as to whether Plaintiffs have a substantial likelihood of succeed on such a complex matter.
Conair Corp. v. Barbar, Inc, Case No. 6:14-CV-831 (M.D. Fla. May 30, 2014) (J. Presnell).  The parties moved onto a preliminary injunction.  The Court held an evidentiary hearing and ultimately concluded a preliminary injunction was not warranted because of the significant difference in the parties' respective sizes:
The Plaintiffs' theory of irreparable harm is that they will suffer price erosion and that their reputation and product's reputation will be tarnished. (See Doc. 2–1 at 6–7). As to price erosion, a competitor whose sales would represent less than .2% of the Plaintiffs projected sales for this year is not a significant threat to the Plaintiffs' price point. Moreover, the testimony at the evidentiary hearing showed that the Defendants' two-for-one pricing discount was simply for trade show marketing purposes and does not represent the regular pricing of the Defendants' product. (See Doc. 30 at 32:16–33:7 (describing receipt for two of Defendants' products for total cost of $100)). That limited marketing effort does not represent an intent to presently compete with the Plaintiffs' product at a dramatically lower price. 
With respect to the representational injury to the Plaintiffs' product, the evidence was mixed and none of the negative reviews could be clearly traced to any alleged faults with the Defendants' product. (See Docs. 1–1, 1–3 (attachments to Complaint showing positive reviews of Plaintiffs' product); Docs. 21–3. 21–4, 21–5, 21–6 (showing negative reviews of Plaintiffs' product). Further, even assuming that representational harm can be traced to the Defendants' product, the volume of Defendants' sales is de minimis. See Am. Beverage Corp. v. Diageo N. Am., Inc., 936 F.Supp.2d 555, 615 (W.D.Pa.2013) (addressing where large sales volume supported lack of irreparable harm upon showing of fault with allegedly infringing product). Accordingly assertions that the Defendants' product would be tarnished in a non-compensable manner are speculative.

Motion for preliminary injunction, denied.
Conair Corp. v. Barbar, Inc., Case No. 6:14-CV-831 (M.D. Fla. July 3, 2014) (J. Presnell)