Virginia IP Law

IP Claims in Corporate Breach of Fiduciary Duty Cases

Dabney Carr — Fri, 10 Aug 2012 16:23:27 -0500

A recent decision from Judge Trenga in the Eastern District of Virginia illustrates how corporate disputes can give rise to intellectual property claims, including trademark infringement, anti-cybersquatting and Computer Fraud and Abuse Act claims. Ritlabs, S.R.L. v. Ritlabs, Inc., Case No. 1:12CV215 (E.D.Va. Aug. 9, 2012), found here.

Ritlabs, S.R.L. (“SRL”) is an Internet software company based in Moldova, which is a former Soviet Republic east of Romania. Ritlabs developed and distributed several software products throughout the world. One of Ritlabs three owners, Serghei Demcenko, served as the director, or CEO, of SRL.

In 2008, Demcenko formed Ritlabs, Inc. (“Inc.”) in Virginia, without informing the other two owners of SRL. Demcenko, on behalf of SRL, cancelled SRL’s agreement with its U.S. based distributor and gave Inc. an exclusive license to sell SRL’s software products in the United States as well as a non-exclusive license to sell SRL’s products around the world. Demcenko then had Inc. enter into distributorship agreements with SRL’s former U.S. distributor and other companies for distribution of SRL’s products.

SRL sued Inc. and Demcenko asserting the types of claims ordinarily asserted when company executives compete with their employer, including breach of fiduciary duty, conversion and tortious interference with contract. In addition, though, SRL asserted violations of the Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C. § 1125(d); false designation of origin under the Lanham Act, 15 U.S.C. § 1125(a)(1) and violation of the Consumer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030(a)(4).

Judge Trenga granted summary judgment that Demcenko had breached his fiduciary duties to SRL and that the breach of fiduciary duty entitled SRL to summary judgment on its anticybersquatting and CFAA claims. When the other owners of SRL found out about Demcenko’s actions, they removed him as a director. In response, Demcenko changed the registrant of several of SRL’s domain names to Inc., which Judge Trenga held to be a violation of the ACPA. Demcenko also accessed SRL’s computers to change access codes and other features of the computer system. Judge Trenga held that this unauthorized computer access violated the CFAA.

Judge Trenga entered summary judgment in Demcenko’s favor, however, on SRL’s false designation of origin and common law unfair competition claims because Demcenko’s use of SRL’s marks in commerce was not confusing or deceptive because the marks were used in connection with products that were, in fact, SRL’s products.

Disputes in a closely-held company often involve a scenario similar to that in Ritlabs. Judge Trenga’s ruling points up that conduct like Demcenko’s will give rise to claims that goes beyond common law fiduciary duty and tort claims. For example, simply by using Ritlabs’ computers in his attempt to take over the company, Demcenko exposed himself to liability under the CFAA. Litigators representing either companies or employees must be mindful of the potential impact of intellectual property claims under the ACPA, the CFAA and the Lanham Act in these types of disputes.

Court Awards Attorneys' Fees for Willful Trademark Infringement

Dabney Carr — Wed, 08 Aug 2012 14:45:04 -0500

After a bench trial, Judge Gibney of the Eastern District of Virginia found in favor of Lorillard Tobacco on its claims of trademark infringement, unfair competition and trademark dilution and awarded attorneys’ fees to Lorillard based on an exceptional case finding under 15 U.S.C. § 1117(a). Lorillard Tobacco Co. v. California Imports, LLC, Case No. 3:10CV817-JAG (E.D.Va. Aug. 7, 2012), found here. While the trademark infringement case was clear-cut, Judge Gibney’s imposition of liability on the individual defendants based on their personal involvement in the infringing activities, and his discussion of the factors necessary to an exceptional case finding make Lorillard an important case for both trademark holders and potential infringers.

Lorillard brought suit for infringement of the trademarks and trade dress associated with its NEWPORT^® brand cigarettes. NEWPORT^® is the second leading brand of cigarettes in the United States and accounted for 90% of Lorillard’s revenue in 2010.

Lorillard claimed that the defendants infringed on their trademarks and trade dress through the sale of their NEWPROT “spice” smoking products. “Spice,” according to the Court, is a mix of dried herbs, flowers, tobacco leaves and other substances sprayed with a synthetic chemical similar to THC, the active ingredient in marijuana. The Court found that the NEWPROT product was sold in pouches that mirrored the distinctive elements of Lorillard’s trade dress

Trademark and Trade Dress Infringement

Judge Gibney found that Lorillard had easily proven all the elements of trademark and trade dress infringement. On the issue of likelihood of confusion, Judge Gibney found that other than evidence of actual confusion, Lorillard had established all seven factors for determining likelihood of confusion that are set forth by the Fourth Circuit in Pizzeria Uno Corp. v. Temple, 747 F.2d 1522, 1527 (4^th Cir. 1984). Specifically, Judge Gibney held that the NEWPORT^® marks were “famous” under 15 U.S.C. § 1125. Defendants’ NEWPROT product merely transposed two letters in the NEWPORT name and mimicked each and every element of the NEWPORT^® trade dress. Further, Judge Gibney found, defendants’ product was used in connection with smoking products and was sold in similar channels of commerce.

Lastly, Judge Gibney found that the defendants intended to trade on the goodwill of the NEWPORT^® marks based on the defendants’ decade-long involvement in the retail tobacco business.

Trademark Dilution

In addition to his findings on trademark infringement, Judge Gibney found that the similarity between the NEWPORT^® products and the defendants’ products gave rise to an association among NEWPROT, NEWPORT and controversial synthetic marijuana which would harm Lorillard and its trademarks.

Attorneys’ Fees and Costs

In the Fourth Circuit, unlike several other circuits, an exceptional case finding under 15 U.S.C. § 1117(a) of the Lanham Act requires both a showing of “deliberate and flagrant infringement” and a showing that the defendant acted in “bad faith.”

Actions need not be malicious, however, to constitute deliberate or willful infringement. Here, both of the individual defendants were aware of the popularity of the NEWPORT^® brand and admitted that the NEWPROT label looked very similar to the NEWPORT^® package. As a result, Judge Gibney held, their decision to advertise, distribute and sell their NEWPROT amounted to “deliberate and flagrant infringement” even if those acts were not malicious.

As to bad faith, Judge Gibney found that the defendants had delayed in responding to discovery, failed to appear for depositions and provided inaccurate and misleading discovery responses. Further, Judge Gibney found that the defendants continued to give testimony at odds with the facts of the case at trial. These findings, the Court held, amounted to litigation misconduct which justified a finding of bad faith. While Lorillard had not suffered any actual damages from NEWPROT’s advertising and sale, the existence of damages is only one of the factors in determining whether attorneys’ fees are appropriate.

Virginia State Bar IP Section Fall CLE To Feature BPAI Hearing and Presentation By Undersecretary of Commerce Teresa Stanek Rea

Dabney Carr — Fri, 03 Aug 2012 13:48:57 -0500

The Intellectual Property Section of the Virginia State Bar will hold its Annual Fall CLE Seminar at the Westin Hotel in Alexandria on September 21-22.

Highlights include:

A presentation on implementation of the AIA by Undersecretary of Commerce for Intellectual Property Teresa Stanek Rea
A panel discussion on pretrial resolution of IP disputes featuring Eastern District of Virginia Magistrate Judge John Anderson and former U.S. Magistrate Judge Dennis Dohnal.
A live hearing of the Board of Patent Appeals and Interferences followed by a Q&A on Board practice.
A presentation on Copyright Fundamentals by former Register of Copyrights Marybeth Peters.
A presentation on the new generic Top-Level Domain names

The brochure, which includes full details on the program and registration can be found here.

Federal Circuit Reverses Judge Hilton Claim Construction in Software Patent Suit

Dabney Carr — Tue, 31 Jul 2012 12:06:02 -0500

In a July 31 decision, the Federal Circuit reversed Judge Claude Hilton’s claim construction in an Eastern District of Virginia patent infringement suit relating to software that enables one computer to access another computer over the Internet. 01 Communique Lab., Inc. v. LogMeIn, Inc., No. 2011-1403 (Fed. Cir. July 31, 2012) found here.

The patent at issue disclosed the use of a “locator server computer” which includes software referred to as a “location facility.” The location facility creates a connection between a “remote computer” and the computer to be accessed, called a “personal computer,” by receiving a request for communication from the remote computer, locating the personal computer and then creating a communication channel between the two remote computers.

In claim construction, Judge Hilton concluded that the location facility must be contained on a single physical computer and granted summary judgment of non-infringement because the system used by the accused infringer, LogMeIn, did not contain a single component that performed all the functions of the claimed location facility.

Judge Hilton’s “single computer” construction was based primarily on a perceived disclaimer in the prosecution history. At the Federal Circuit, LogMeIn made four arguments in support of that construction:

First, LogMeIn argued that the claims consistently referred to the locator server computer in the singular. The Federal Circuit quickly dismissed this argument based on its “general rule” that the words “a” or “an”carry the meaning “one or more” except under extremely limited circumstances where a patentee evinces a clear intent to limit “a” or “an” to “one.”
Second, LogMeIn argued that the patentee had disclaimed a broader construction of “location facility” during an inter partes reexamination brought by a third party. LogMeIn argued, and Judge Hilton agreed, that statements by the patentee’s expert disclaimed distribution of the location facility among multiple computers. The Federal Circuit held that Judge Hilton had simply misinterpreted the expert’s statements and that the expert had not addressed whether the location facility must be based on a single computer.
Third, LogMeIn argued that the patentee had disclaimed distribution of the location facility among multiple computers in order to avoid rejection based on two prior art references. The Federal Circuit held, however, that nothing in the record suggests a disclaimer based upon the statements made by the patentee in response to the prior art. Rather, it appeared to the Federal Circuit that Judge Hilton may have mistakenly believed that the “location facility” was a device, rather than software, leading to an erroneous claim construction.
Finally, LogMeIn argued that the patentee effectively disclaimed a location facility distributed among multiple computers when it cancelled a claim defining “locator server computer” to encompass multiple computers after the claim was rejected by the examiner. The Federal Circuit pointed out, however, that the examiner allowed several other claims disclosing multiple locator server computers.

The 01 Communique decision illustrates the Federal Circuit’s ongoing willingness to re-write District Court claim constructions, particularly for cases involving software or other high-technology patents. While respectful, the Federal Circuit clearly thought that Judge Hilton’s reference to the location facility as a “device”, rather than software, indicated a fundamental misunderstanding of the nature of the patented system which led to an erroneous claim construction.

Third-Party Submissions During Patent Prosecution Under the AIA

Matthew Osborne — Thu, 26 Jul 2012 15:51:07 -0500

Ever since it was signed into effect on September 16, 2011, the Leahy-Smith America Invents Act (AIA) has gradually phased in changes to our nation's Patent Laws. Over the course of the summer, we will be updating this blog with information about the major upcoming phases of this landmark legislation.

Starting on September 16^th, any third party will be allowed to submit printed publications to the USPTO for consideration during the examination of a pending patent application. While some third-party submissions were previously permitted, the AIA drastically expands the availability of this procedure to include reasoned statements of relevance of the art submitted.

The third-party submission procedure can be an especially helpful tool for concerned businesses actively watching competitive patent prosecution. All submissions under this new procedure must include:

a list of all documents being submitted;
a concise description of the relevance of each document being submitted;
a legible copy of each non-U.S. patent document being submitted and, if a non-English publication, an English translation of the document;
a statement that the submission complies with the rule; and
the appropriate fee.

The USPTO has put a timeline on the filing of these submissions, requiring that a submission be filed either before a first office action rejection is mailed in the case or within six-months from publication of the application. Notwithstanding these timelines, the Patent Office will not review a submission after a Notice of Allowance is mailed in the corresponding application.

In our experience with the Patent Office, concise and to-the-point submissions will be most effective in garnering the attention of the Patent Examiner. Submitters should resist the urge to make voluminous filings of prior art to the USPTO and, instead, focus on drafting well reasoned and concise arguments explaining the few listed publications.

Patent Infringement Claims are Subject to Arbitration, But District Court Orders Stay Rather than Dismissal Pending Arbitration

Megan Rahman — Wed, 25 Jul 2012 11:34:16 -0500

In a July 13 decision found here, Judge Jackson stayed, rather than dismiss, the case pending arbitration and ruled that the court could determine the issues of arbitrability, which would, in this case, include the patent infringement claims. Bayer CropScience AG, et al. v. Dow AgroSciences LLC, et al., Civil Action No. 2:12cv47, 2012 Dist. LEXIS 97850 (E.D. Va. July 13, 2012). This matter involved a dispute between the parties arising out of a patent license agreement which contained a mandatory arbitration clause, which provided for final, binding arbitration in accordance with the Rules of the International Chamber of Commerce ("ICC"). Plaintiffs alleged that Defendants had violated the License Agreement, causing Plaintiffs to terminate the License Agreement and sue for patent infringement. Defendants moved to dismiss Plaintiffs' patent infringement claims for lack of subject matter jurisdiction, based upon the arbitration clause, alternatively, moving to stay the litigation pending arbitration.

With respect to Defendants' request for dismissal of the case because of the arbitration clause in the License Agreement, the district court recognized that the Fourth Circuit provides the option of either dismissal of a dispute covered by an arbitration agreement or a stay of the action pending arbitration. In contrast, the Federal Circuit has reasoned that an arbitration agreement does not divest a court of jurisdiction to hear a case at all. Finding no justification for dismissal as a result of such authority, the district court found that the outright dismissal requested by Defendants was not warranted.

The district court next addressed whether an arbitrator, as opposed to the court, should determine the threshold issues of arbitrability. The district court recognized that the Fourth Circuit has stated generally that a district court should decide the scope of the issues to be submitted to arbitration, but it noted that a majority of federal courts have held that the incorporation of the AAA rules in a contract vest the arbitrator with the authority to decide which issues are subject to arbitration. Noting both that the question remains unsettled in this Circuit, and the fact that the contract before it invokes the ICC rules and not the AAA rules, the district court found that it could determine the threshold issue of arbitrability.

Having decided that, the district court went on to conclude that the patent infringement claims are subject to arbitration, given the scope of the arbitration clause and the fact that under 35 U.S.C. § 294, patent infringement claims are expressly arbitrable. Accordingly, the district court stayed the entire action pending arbitration of all issues in the complaint, reserving its right to dismiss the action sua sponte at a later date.

Judge Spencer Finds Slow Cooker Patent Invalid Based on "New Matter" and On-Sale Bar Defenses

Dabney Carr — Wed, 25 Jul 2012 10:10:31 -0500

In a July 13 decision found here, Judge Spencer held on summary judgment that Hamilton Beach’s patent on a clip to prevent the lid of a slow cooker from sliding off during transportation was invalid based on Sunbeam’s “new matter” defense and held in the alternative that Hamilton Beach’s commercial embodiment of the patented invention invalidated the patent under the on-sale bar of 35 U.S.C. § 102(b). Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc., Case no. 3:11CV345, 2012 U.S. Dist. LEXIS 97923 (E.D.Va. July 13, 2012).

Judge Spencer also granted Sunbeam summary judgment that its Crock Pot® Cook & Carry Slow Cooker did not literally infringe the Hamilton Beach patent but denied summary judgment on infringement under the doctrine of equivalents.

As we posted here, Judge Spencer denied Hamilton Beach’s motion for a preliminary injunction last August. Trial was set for March of this year, but the trial date was continued pending Judge Spencer’s decision on the parties’ cross-motions for summary judgment. Given the parties’ long history of litigation, it is likely that Judge Spencer’s ruling will be appealed, and so this crock pot saga is far from over.

Infringement

While Judge Spencer agreed with Sunbeam on both of its literal infringement arguments, he denied summary judgment on infringement under the doctrine of equivalents, holding that further factual development was necessary. As a result, Sunbeam’s victory turns on the Court’s findings of invalidity.

Invalidity – “New Matter”

Perhaps the most interesting aspect of the decision is the discussion of Sunbeam’s “new matter” defense. Hamilton Beach claimed priority for the patent in suit (the ‘928 patent) through a chain of continuation applications to the filing date of an earlier patent, the ‘831 patent.

Sunbeam asserted that new matter inserted into the ‘928 specification barred reliance on the ‘831 patent’s priority date. Sunbeam pointed out that the latching mechanism on the Sunbeam product was the reverse of the mechanism disclosed in the ‘831 patent. Sunbeam’s product had a clip mounted on the lid, while the ‘831 patent described a clip mounted on the side of the slow cooker. Sunbeam claimed that Hamilton Beach broadened both the meaning and the location of the “clip” in the ‘928 patent application in an attempt to cover both mounting locations.

Hamilton Beach argued that the original disclosure of the ‘831 patent supported mounting of the hook and clip on both the lid and the side of the product. Judge Spencer rejected this argument, holding that the ‘831 patent did not disclose clips that included a “catch” as in the ‘928 patent and that the description of the location of the clip in the alternative in the ‘928 patent was “conspicuously absent” from the ‘831 patent disclosure. The notion that the ‘831 patent contemplated “clips” having a “catch” or that the “catch” might be mounted on the side wall, the Court held, “strains credulity.”

A finding of invalidity necessarily followed from the holding that the ‘928 patent could not claim the earlier filing date. Without the benefit of the filing date of the ‘831 patent, both Hamilton Beach’s own slow cooker and the accused product anticipated the asserted claims under 35 U.S.C. § 102(a) and (b).

Invalidity – Alternative Ruling

Despite his ruling on Sunbeam’s new matter defense, Judge Spencer went on to address Sunbeam’s alternative claims that, even if the patent was entitled to the ‘831 patent’s priority date, Hamilton Beach’s slow cooker invalidated the ‘928 patent under the on-sale and public use bars of 35 U.S.C. § 102(b) and that the ‘928 patent was obvious over the prior art.

The On-Sale Bar

The key issue for the on-sale bar was whether the claimed invention was the subject of a commercial offer for sale as defined by Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001), before the critical date. Prior to the critical date, Hamilton Beach met with buying agents for several retailers and made presentations that included price quotations and computer renderings of its slow cooker that appeared to depict all of the limitations claimed in the ‘928 patent.

Judge Spencer agreed with Hamilton Beach, though, that its product presentations did not constitute binding contractual “offers” for sale. The Court looked to practices in the small kitchen appliance industry and found that a true commercial “offer” required a purchase order from a customer which is accepted by the seller’s agreement to ship the product. The standard purchase orders and vendor agreement submitted by Hamilton Beach established that prior communications and interactions between the parties, such as product presentations, did not form a sales contract and so could not qualify as an offer for sale.

That left Hamilton Beach’s contract with its supplier to manufacture the Hamilton Beach slow cooker as the only possible offer for sale before the critical date. Shortly before the critical date, Hamilton Beach had sent a purchase order to its supplier for production of the patented slow cooker. That purchase order, however, was an “offer to buy” not an “offer to sell.” Where there is an offer to buy in the form of a purchase order, the key issue is whether the offeree accepts the offer before the critical date.

Four days before the critical date, Hamilton Beach and its supplier engaged in a series of emails in which the supplier confirmed receipt of the purchase order, acknowledged the quantity ordered, described arranging for QC inspection and promised a ship date. The supplier’s email, Judge Spencer held, was sufficient evidence of acceptance because it objectively manifested the offeree’s assent to the purchase order.

Hamilton Beach argued that since the sale was “F.O.B.” outside the U.S., the sale was not consummated in the U.S. as required by § 102(b). Judge Spencer rejected this argument, noting that offers for sale by foreign parties that are directed to U.S. customers at their place of business in the U.S. qualify as invalidating sales. That being the case, “the Court can discern no reason why a accepted offer to buy by a U.S. customer directed to a foreign entity should not also qualify.”

Once Judge Spencer determined that the Hamilton Beach product had been the subject of a commercial offer for sale before the critical date, he Spencer quickly concluded that Hamilton Beach’s detailed drawings and descriptions of the product established that the product was “ready for patenting” at that time. What is important, the Court held, is whether one of ordinary skill in the art could practice the invention given the drawings, descriptions and similar tools. Further refinement of the product at a later time did not undermine that conclusion.

Public Use

Judge Spencer did not agree, however, that Hamilton Beach’s public demonstrations of the product to retail customers constituted invalidating public use. At these demonstrations, the Court found, the product was only described or visually displayed, not used.

Obviousness

Finally, Judge Spencer quickly rejected Sunbeam’s claim that it was obvious to devise a slow cooker with a sealable lid. In support, Sunbeam listed multiple prior art combinations, but did not set forth how the references fit together to render the claims obvious nor did it submit any evidence showing why it would been obvious to combine elements from those prior art references.

Troutman Sanders Welcomes IP Team to NYC (part 2)

Robert Angle — Mon, 16 Jul 2012 15:35:40 -0500

For the second time in recent weeks, we have added a high-profile Intellectual Property team to our New York office. Joining Troutman Sanders are partner Louis J. DelJuidice, of counsel Hiroyuki Yasuda and patent agent Nicole R. Sullivan, Ph.D. All three were previously at McDermott Will & Emery LLP, as was a group of four attorneys who arrived at Troutman Sanders in May 2012.

Lou DelJuidice focuses his practice on litigation, prosecution and client counseling in the electromechanical, cellular telephone, computer and medical device areas. He specializes in preparing and prosecuting both inter partes and ex parte reexaminations as both requestor and owner as well as legal opinions on issues relating to patentability, freedom to operate, noninfringement and invalidity. An important portion of Lou’s practice involves managing portfolios for U.S. and Japanese clients, as well as auditing and performing due diligence on intellectual property assets in the furtherance of licensing. The Legal 500 United States has ranked Louis as one of the leading patent litigation lawyers in the United States.

Hiro Yasuda, who is fluent in Japanese, focuses his practice on patent litigation and prosecution, particularly in the areas of mechanical, electromechanical and medical device technologies. He has worked on patent infringement litigations before district courts such as the U.S. District Courts for the Eastern District of Texas and the Northern District of Illinois, involving technologies relating to motor vehicles and medical devices. Further, he has prepared and prosecuted numerous patent applications, and provided legal opinions and pre-litigation advice to clients on issues relating to patent infringement, validity and freedom to operate, in a broad range of technologies.

Nicole Sullivan focuses her work on U.S. and foreign patent prosecution in the biotechnology, pharmaceutical, bioengineering and molecular biology fields. She assists with patent due diligence, opinion letters, patentability assessments, inter partes reexaminations and patent litigation.

Please welcome our new colleagues.

Applying Twombly/Iqbal to Trademark Infringement Claims

Dabney Carr — Tue, 03 Jul 2012 11:28:14 -0500

In a recent decision denying a motion to dismiss claims relating to a “poached” service mark, Judge Hudson set a lenient standard for pleading trademark infringement under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., Civil Action No. 3:12CV303, 2012 U.S. Dist. LEXIS 90222 (E.D. Va. June 28, 2012), found here.

Diamonds Direct is a North Carolina jewelry company that alleged it had established a service mark over the name “Diamonds Direct” through continuous use of the mark over sixteen years in the southeastern United States, including Virginia, where it claimed to have over 700 customers.

When it learned that Diamonds Direct was expanding to Richmond, the defendant, Capri Jewelers, allegedly registered “Diamonds Direct” as a service mark in Virginia as a preemptive measure and began using the phrase “Diamonds Direct” in its advertising.

Capri claimed that Diamonds Direct did not advertise or provide services in Virginia to an extent necessary to demonstrate a common law right in the “Diamond Direct” mark and moved to dismiss all the counts in the Complaint.

Citing Twombly, Judge Hudson ruled that a Complaint for trademark infringement must “state a claim to relief that is plausible on its face.” “A complaint achieves facial plausibility when the facts contained therein support a reasonable inference that the defendant is liable for the misconduct alleged.” The inquiry is context-specific and requires the court to draw on its judicial experience and commons sense.

The alleged “fatal flaw” in the infringement claim was the absence of factually supported allegation of a valid and enforceable service mark. The Court disagreed. “Taken in its best light,” Diamond Direct’s allegation of use of the mark in Virginia and the southeastern U.S. was enough to state a “plausible” claim for relief.

The takeaway from Judge Hudson’s decision is that courts will be unwilling to look beyond any “plausible” factual allegation at the pleadings stage. While purely conclusory allegations of continuous use of a mark may not meet the Twombly/Iqbal standard, factual allegations containing any detail will probably pass muster. Thus, as in patent infringement cases, Twombly/Iqbal will likely not pose substantial hurdles to trademark infringement plaintiffs.

Judge Hudson did, however, grant Capri’s motion to dismiss Diamond Direct’s claim under the Virginia Consumer Protection Act (VCPA), Va. Code § 59.1-196, holding that only members of the consuming public, not commercial competitors, could bring claims under the VCPA.

EDVA Rejects Injunction Requiring Pre-Approval of Design-Around Products

Dabney Carr — Thu, 28 Jun 2012 07:51:41 -0500

In a recent ruling, Judge Lee of the Eastern District of Virginia held that an injunction after a finding of patent infringement should not require the defendant to submit its design-around products to the patentee for inspection and testing before introducing those products into the market. MeadWestvaco Corp. v. Rexam PLC, Case No. 1:10CV511, 2012 U.S. Dist. LEXIS 82148 (E.D.Va. June 12, 2012), found here. Our previous posts on the MeadWestvaco case can be found here, here and here.

The successful patentee, MeadWestvaco, proposed a permanent injunction requiring that before introducing a design-around product, the defendants (1) provide the product to MeadWestvaco for inspection and testing, (2) provide an explanation for the basis for non-infringement, and (3) if MeadWestvaco does not agree that the design-around avoids infringement, defendants can seek relief from the Court.

Judge Lee refused to include such pre-approval in the injunction order. Such broad injunctive relief, the Court held, should only be used in exceptional cases. In the cases cited by MeadWestvaco, the defendants repeatedly violated an existing injunction order, justifying the exceptional relief, but no such circumstances existed in this case.

MeadWestvaco’s proposed pre-approval language also seems to improperly shift the burden to a defendant to prove that a design-around product should be enjoined. As the Court pointed out, “the only acts an injunction may prohibit are infringement of the patent by the adjudicated devices and infringement by devices not more than colorably different from the adjudicated devices.” MeadWestvaco, slip op. at 4 (quoting Int’l Rectifier Corp. v. IXYS Corp., 383 F.3d 1312, 1316 (Fed. Cir. 2004)). In addition, a competitor’s design-around efforts “generally promote innovation, a goal consistent with the policies of our patent system.” Id. at 6.

Under the standards for determining contempt of an injunction recently set down by the Federal Circuit in TiVo v. Echostar, 646 F.3d 889, 882-83 (Fed. Cir. 2011) a patentee must show, by clear and convincing evidence, both (1) that a design-around product is not more than colorably different from a product found to infringe and (2) that the design-around product actually infringes the patent. MeadWestvaco’s proposed language is thus directly contrary to TiVo because it relieves MeadWestvaco of the burden of showing the lack of colorable differences in a design-around product and shifts the burden of proof of infringement to the defendants.

Troutman Sanders Welcomes Four New IP Attorneys in the New York Office

Robert Angle — Wed, 27 Jun 2012 14:19:37 -0500

We are pleased to welcome four IP attorneys to our New York office, partners Joseph R. Robinson and Robert Schaffer, of counsel Heather Morehouse Ettinger, Ph.D., and associate Phoenix Pak. All are registered U.S. patent attorneys and joined us from McDermott Will & Emery LLP.

Joe Robinson has more than 20 years of experience in all aspects of intellectual property law and focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman (ANDA) litigation; licensing; post-grant proceedings; counseling; due diligence; and patent and trademark prosecution.

Bob Schaffer applies his expertise to IP litigation, counseling and management, including patent procurement, strategic planning and transactional advice, for biotechnology and pharmaceutical companies, computer software companies and new media firms. He handles domestic and international patent and trademark portfolios and due diligence studies for clients, including major U.S. corporations, start-ups and high-technology ventures. His cases include Hatch-Waxman (ANDA) litigation, complex U.S. Patent and Trademark Office interferences, reexaminations and reissues, strategies for post-grant proceedings.

Heather Ettinger focuses her practice on patent counseling, procurement and litigation in the biotechnical, pharmaceutical and chemical fields. She regularly handles domestic and international patent portfolios and due diligence studies for clients, including major corporations, tech ventures and research institutes.

Phoenix Pak’s practice focuses primarily on intellectual property litigation. He is a Registered Patent Attorney and counsels clients on identifying, protecting, defending, and enforcing their intellectual property.

More information about Joe, Bob, Heather and Phoenix can be found at www.troutmansanders.com.

EDVA Rules that Past Presence in Virginia is Not Relevant to Venue Transfer

Dabney Carr — Wed, 27 Jun 2012 10:25:55 -0500

The result of a venue transfer motion in an Eastern District of Virginia patent case can often be predicted by the degree of deference given to the plaintiff’s choice of forum. If either the parties or the claims have a substantial connection with Virginia, transfer will be denied. If those connections are weak, transfer will be granted.

In a decision earlier this month, Judge Spencer added a new wrinkle to this analysis, holding that past presence or past litigation in the Eastern District of Virginia is not relevant to whether the plaintiff’s choice of forum should receive any deference. Jaffe’ v. LSI Corp., Civil Action No. 3:12CV25, 2012 U.S. Dist. LEXIS 83558 (E.D.Va. June 15, 2012), found here.

In Jaffe’, the plaintiff was the insolvency administrator for Qimonda AG, a bankrupt German semiconductor manufacturer. Jaffe’ brought suit against multiple defendants for infringement of several patents relating to integrated circuits that Qimonda’s U.S. subsidiary used to manufacture in Richmond, Virginia.

Jaffe’ argued that he had strong connections with Virginia because of Qimonda’s past production of patented products in Virginia, past patent infringement actions brought in Virgina and the location of Qimonda’s bankruptcy proceedings in the Eastern District of Virginia.

Judge Spencer rejected this argument, holding that “[n]one of these facts show that Jaffe’s connection to the EDVA extends beyond the fact that it is his preferred venue for litigation.” The operation of Qimonda’s subsidiary and Qimonda’s prior infringement suits were “past issues not relevant to the Court’s venue analysis” because the Court is to focus on the conditions which exist when suit was instituted.

Once the Court determined that Jaffe’s choice of forum was entitled to only little weight, the result became inevitable because the defendants could show a strong connection with the transferee forum in California. Jaffe’ argued that witnesses were located throughout the world, and so trial in Virginia was no more inconvenient than trial in any other forum. Where this argument failed, however, was that Jaffe’ could not show any relevant witnesses or evidence that was located in Virginia. As a result, “citizens in the EDVA have no special interest in this case’s outcome, no manufacturing relevant to this case occurs her, and any alleged infringement through the product is not unique to the EDVA.”

One way Jaffe’ will affect future patent cases in the EDVA is that a defendant’s past connections to Virginia may no longer be relevant to the venue analysis. For example, that a defendant has defended cases in the EDVA in the past has operated almost as an admission that it was not inconvenient to that defendant to litigate in the EDVA. Under Judge Spencer’s decision in Jaffe’, a decision not to challenge venue in the past may no longer be relevant.

USPTO Extends Window for After Final Consideration Pilot

Matthew Osborne — Fri, 15 Jun 2012 17:33:22 -0500

Today, the US Patent and Trademark Office announced a continuation of the After Final Consideration Pilot (AFCP). The AFCP, a pilot program allowing Patent Examiners a discretionary three hours of examining time for amendments and arguments made after the final rejection of a patent application, was originally scheduled to end tomorrow, June 16th. The program will now continue until the end of the USPTO's fiscal year, September 30th.

The AFCP is a great opportunity for patent applicants to get an additional opportunity at allowability before having to pay for continued examination. In deciding to extend the term of the pilot, the USPTO noted an increase in allowance rates after a final rejection since the window opened.

Federal Circuit Applies Twombly and Iqbal to Indirect Patent Infringement Claims

Dabney Carr — Tue, 12 Jun 2012 08:26:41 -0500

As we discussed here, one Eastern District of Virginia court has set a low bar for pleading claims of indirect infringement under the Supreme Court’s “Twiqbal” decisions. In a ruling last week, the Federal Circuit weighed in on the issue, making clear that the low pleading standard for direct infringement does not apply to claims of indirect infringement. In re Bill of Lading Transmission and Processing System Patent Litigation (R+L Carriers), 2012 U.S. App. LEXIS 11519 (Fed. Cir. June 7, 2012) (found here).

R+L Carriers involves a claim of indirect infringement of a patent relating to the freight industry. The patented method allows shipping documents to be scanned and sent directly from a truck driver so that billing and load planning can occur while freight is on route. The patentee, R+L Carriers, sent cease and desist letters to several companies selling allegedly infringing products. Several of the target companies filed declaratory judgment actions, and R+L responded by asserting claims that the defendants had indirectly infringed the patent through their customers. The District Court dismissed all of R+L’s claims with prejudice for failure to state a claim under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). The Federal Circuit affirmed in part and reversed in part and remanded.

In McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1360 (Fed. Cir. 2007), the Court held that a claim of direct infringement must only meet the bare-bones pleading requirements set forth in Form 18 of the Federal Rules of Civil Procedure. Our earlier posts on the EDVA's application of McZeal can be found here and here. In R+L, the Court reiterated its holding in McZeal but held that Form 18 does not apply to claims of indirect infringement.

The highlights of the Court’s decision are as follows:

A plaintiff asserting indirect infringement need not identify a specific direct infringer, “if it pleads facts sufficient to allow an inference that at least one direct infringer exists.” Circumstantial evidence of direct infringement by unknown parties is sufficient.
Form 18 does not apply to the sufficiency of allegations of indirect infringement. Rather, claims of contributory infringement or inducement of infringement must meet the stricter requirements of Twombly and Iqbal.
The Court did not delve into the requirements for pleading contributory infringement because it held that the Complaint itself alleged substantial non-infringing uses that precluded a finding of contributory infringement. Thus, while a “formulaic recitation” of the elements of contributory infringement is insufficient, it remains to be seen what a plaintiff must assert to adequately allege the lack of a substantial non-infringing use and the other elements of contributory infringement.
Claims of inducement must contain facts “plausibly showing” specific intent to induce another to infringe, drawing all reasonable inferences are drawn in favor of the plaintiff.
To determine whether it is reasonable to infer intent from statements or conduct, the Court looked to the standard the Supreme Court adopted in Matrixx Initiatives, Inc. v. Siracusano, 131 S.Ct. 1309, 1323 (2011) for pleading intent in a securities fraud action. There, the Supreme Court held that “a court must assess the facts in the context in which they occurred and from the standpoint of the speakers and listeners within that context.” That alternative inferences are also reasonable does not render a complaint deficient.
R+L’s allegations of intent to induce infringement relied on the defendants’ public statements that the accused products increased efficiency by scanning and transmitting shipping documents from the truck and notice of the patent through its cease and desist letters. The Court found these allegations to be sufficient, based in part on the defendants’ failure to identify a non-infringing method by which a trucking company could increase efficiency by scanning shipping documents and transmitting them from the cab of the truck.
The Court rejected the argument that R+L must produce statements from the defendants that specifically instructed customers to perform all the steps of the patented method on the grounds that such a standard would require R+L to prove its claims at the pleading stage.
The Court also rejected the argument that a plaintiff must plead facts showing that every step in a claimed method is performed in the claimed order, holding that “nothing in Twombly or Iqbal demands this level of factual specificity at the pleading stage,” though under other circumstances, “failure to allege facts that plausibly suggest a specific element or elements of a claim have been practiced may be fatal.”

While Form 18 sets a bar for pleading direct infringement that is easy to meet, the Federal Circuit’s application of Twombly and Iqubal to indirect infringement claims may prove to be a substantial hurdle. Contributory infringement claims, for example, will require allegation of specific facts showing the lack of a substantial non-infringing use. Likewise, claims for inducement of infringement will require facts which allow an inference of specific intent. In R+L Carriers, the inducement claims survived because of the broad scope of the claimed method. For narrower claims, it will likely be far more difficult to establish the plausibility of allegations of specific intent based on a defendant’s advertising and public statements. Thus, accused infringers can be expected to use R+L Carriers to continue to attack the specificity of claims of indirect infringement, particularly the specificity of allegations of the elements of indirect infringement other than direct infringement.

EDVA Court Denies Attorney's Fees to Successful Patent Defendant

Dabney Carr — Tue, 05 Jun 2012 14:43:38 -0500

Judge Morgan’s recent denial of attorney’s fees to an accused patent infringer highlights the high bar a defendant must meet for sanctions under 35 U.S.C. 285 and the pitfalls of the EDVA’s fast docket for a plaintiff-patentee when circumstances change. General Components, Inc. v. Micron Tech., Inc., Civil Action No. 2:11CV152, 2012 U.S. Dist. LEXIS 76584 (E.D.Va. June 1, 2012) found here.

The Underlying Litigation

General Components (GCI) brought suit against Mott Corp. and Setra Systems for infringement of its patent for sealing technology used in semiconductor manufacturing equipment. Mott and Setra filed answers stating that the accused products were covered by a license that GCI had given to a third party, Fujikin.

At the Rule 26(f) conference, GCI offered to dismiss its suit without prejudice pending resolution of an arbitration proceeding between GCI and Fujikin in which GCI claimed that Fujikin had improperly sublicensed GCI’s patent. Shortly afterwards, the Court entered a standard scheduling order that required fact discovery to be completed in four months and expert discovery in five months.

Over the next two months, the parties had intermittent discussions about GCI’s proposal to dismiss the case without prejudice. Ultimately, Mott and Setra refused the offer and pressed forward on discovery. GCI finally filed a motion to stay the suit pending resolution of the arbitration two and a half months after first making its offer. Faced with looming discovery deadlines, though, GCI gave both defendants a covenant not to sue and moved to dismiss the case with prejudice a week later. After dismissal of the suit, Mott and Setra moved to have the case declared exceptional under 35 U.S.C. 285 and for an award of attorney’s fees.

Defendants’ Attorneys’ Fee Motion

The Court began its analysis with the observation that attorney’s fees under § 285 are available only to prevent a “gross injustice’ to an accused infringer and in only two circumstances:

Where there is clear and convincing proof of misconduct which generally involves unethical or unprofessional conduct. The alleged misconduct must occur after the litigation is filed, and otherwise valid actions accompanied by “open speculation” as to the purpose of those actions is insufficient.
Where an accused infringer shows that the litigation was brought in subjective bad faith and was objectively baseless. To be objectively baseless, allegations must be such that “no reasonable litigant could reasonably expect success on the merits.” In other words, Mott and Setra had to show by clear and convincing evidence that all reasonable litigants would have known that GCI was actually foreclosed from bringing its claims in federal court rather than in arbitration. The standard for subjective bad faith is similarly high, requiring proof that the plaintiff knows its allegations are baseless but pursues them anyway.

Mott and Setra could not establish either basis for an award of attorneys’ fees. GCI’s offer of a dismissal without prejudice at the Rule 26(f) conference and its ultimate dismissal of the suit was entirely contrary to a finding of litigation misconduct. Further, the lack of timely communication over the three months between GCI’s dismissal offer and its covenant not to sue, the Court held, were due to inaction and failure to communicate by both parties. The Court also noted that Mott and Setra could have moved to dismiss in favor of the arbitration at the beginning of the case and thus avoided the legal fees it was seeking to recover from GCI.

Similarly, the litigation was not objectively baseless or brought in subjective bad faith. Neither GCI’s license agreement with Fujikin or any previous precedent clearly barred GCI from asserting its claims in federal court, and so the claims were not objectively baseless. Further, at the time suit was filed, GCI had no way of knowing that the accused products were subject to the Fujikin license, precluding a finding of subjective bad faith.

Under these standards, it will be rare that an accused infringer can recover attorney’s fees under § 285. The substantive standard and the burden of proof are so high that attorney’s fees will be awarded only in case of clearly egregious bad faith conduct that has no rational legitimate basis. Indeed, it may be that it was Judge Morgan's intent to discourage exceptional case motions by both plaintiffs and defendants, just as courts have increasingly narrowed the grounds for inequitable conduct claims.

The Lesson for Plaintiff-Patentees

The speed of litigation in the EDVA is often a great advantage to the plaintiff-patentee, but GCI’s experience shows how the EDVA’s docket speed can be fatal when circumstances change. GCI was forced to dismiss its claims with prejudice because it delayed a mere two months in filing its motion for a stay.

If GCI had pressed Mott and Setra to accept or refuse its offer of dismissal without prejudice and moved to stay quickly if that offer was refused, it stood a good chance of living to fight another day. Instead, GCI wasted valuable time by failing to follow-up on its offer and was forced into a dismissal with prejudice because of the EDVA’s short discovery and claim construction deadlines . In almost any other district in the country, GCI’s inaction would have made no difference, but in the EDVA it resulted in dismissal and the additional cost of defending a motion for attorney’s fees.

Patent Office Publishes Proposed Regulations for Micro Entities

Matthew Osborne — Mon, 04 Jun 2012 16:15:51 -0500

Amongst the many new provisions of the America Invents Act (the “AIA”), Congress created a new class of patent applicants entitled “micro entities.” Applicants eligible for “micro entity” status will be entitled to a reduction of patent application fees by 75% (which can be compared to the current 50% fee reduction for small entities).

In order to qualify as a “micro entity” under the AIA, an applicant needs to have:

an income less than three times the median household income (currently about $50,000 based on 2010 income data, resulting in an income ceiling of $150,000),
not more than four filed non-provisional patent applications, and
not assigned or licensed the invention to a large entity.

Applicants under an obligation to assign or license the application to an institution of higher education also qualify.

While the implementation of “micro entity” status is not expected to occur until March of 2013, the U.S. Patent and Trademark Office just published proposed regulations to enact the “micro entity” category. Those proposed regulations may be found here.

Megan Rahman Interviewed on Apple v. Samsung

Robert Angle — Mon, 04 Jun 2012 09:27:12 -0500

Following her blog post entitled Apple v. Samsung: Irreparable Harm and Obviousness in Preliminary Injunction Analysis (found here), our partner Megan Rahman was interviewed via Skype by LexBlog's Colin O'Keefe. That interview can be found here.

Virginia State Bar IP Section -- Annual Dinner Meeting (6/14) and CLE on Trade Secrets (6/15)

Robert Angle — Wed, 23 May 2012 16:38:41 -0500

In conjunction with the Virginia State Bar’s 74^th Annual Meeting at Virginia Beach, the IP Section of the VSB will hold its annual dinner meeting at the Hilton Oceanfront Hotel at 3001 Atlantic Avenue in Virginia Beach on Thursday, June 14, 2012. We will enjoy cocktails beginning at 6:30 p.m., followed by dinner at 7:15 p.m., in the Peacock Ballroom, Salon C. Attached is a flier for the Thursday night dinner. All section members also should be receiving a copy via email directly from the Virginia State Bar. Please complete the form and mail your checks to Stephen Palan (spalan@crowell.com) for registration.

At 9:00 a.m. the following day (Friday, June 15, 2012), the IP Section will host a CLE entitled “Protecting Trade Secrets: Strategic Advice for Today's Information Economy.” Our panel includes Brian Riopelle of McGuireWoods and Michael Songer of Crowell & Moring – who represented Dupont in the record $920 million verdict last year against Kolon Industries for various trade secrets violations. (Our various blog posts about this case can be found here.) This very interesting CLE presentation will take place on the top floor of the Holiday Inn Hotel & Suites - North Beach (formerly the “Sunspree”). If you have any questions on the CLE, please contact Chris Forstner at chris.forstner@mmlawus.com.

If you need any more information about the VSB Annual Meeting, see http://www.vsb.org/site/events/item/vsb-74th-annual-meeting.

EDVA Extends Personal Jurisdiction to German Website

Dabney Carr — Wed, 23 May 2012 15:23:09 -0500

Personal jurisdiction based on website activity is an “ever evolving” area of the law and is especially important in intellectual property disputes that cross many jurisdictions. In a recent ruling, Judge Liam O’Grady of the Eastern District of Virginia indicated that any ongoing customer relationship with Virginia residents over the Internet or individual internet transactions with as few as sixteen Virginia residents is likely sufficient for jurisdiction. Bright Imperial Ltd. v. RT Media Solutions, S.R.O., Civil Action No. 1:11CV935, 2012 U.S. Dist. LEXIS 70000 (E.D.Va. May 18, 2012) (found here). The bottom line is that even very limited Internet activity can subject non-resident companies to jurisdiction in Virginia.

The plaintiff, Bright Imperial, and the defendant, Swiss Media, are both, as Judge O’Grady delicately put it, “adult content website” providers. Swiss Media operates the website red-tube.com, and Bright Imperial claimed that it owns all of the U.S. trademark rights in the REDTUBE mark and uses that mark on its own website, redtube.com.

Swiss Media does not have extensive contacts with Virginia or the U.S. Swiss Media’s website is almost all in German, and Swiss Media does not personally solicit customers in the U.S., though it does send periodic emails to its registered users. The website had 16 registered users in Virginia (less than .001% of the total number of users) and 577 registered users in the entire U.S. The Virginia registered users accounted for .02% of the revenue from the website and U.S. registered users provided 0.76% of Swiss Media’s total revenue. The website also allowed users to post their own content on the website and to be paid for that content. No users who posted content on the site – called “amateurs” by Swiss Media – were located in Virginia, and there were only 5 “amateurs” in the entire U.S. Swiss Media also had an “affiliate webmaster” program, but there was only one affiliate webmaster in the U.S.

The Fourth Circuit Standard

The test in the Fourth Circuit for personal jurisdiction based on Internet activity is set forth in ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 714 (4^th Cir. 2002), which provides that a state can exercise jurisdiction over a non-resident defendant when:

The defendant directs electronic activity into the State;
With the manifested intent to engage in business or other interactions within the State; and
That activity creates, in a person within the State, a potential cause of action.

Judge O’Grady quickly determined that Swiss Media satisfied the first and third prongs of the ALS Scan test and so focused on the middle prong, which the judge broke up into two parts:

Did Swiss Media engage in business in Virginia? and
Did they do so with the manifest intent of engaging in such interactions?

Again, Judge O’Grady easily concluded that the key issue, as is the case in most Internet personal jurisdiction cases, is whether Swiss Media manifestly intended to direct their business contacts into Virginia.

The Key Factors

Judge O’Grady’s key conclusions after reviewing the Fourth Circuit and EDVA authority in this area are as follows:

Website interactivity is not enough. Thus, the fact that a defendant sells products or services over the Internet, standing alone, will not subject it to jurisdiction.
Ongoing relationships are important. A defendant which maintains an ongoing business relationship with Virginia residents will likely be subject to jurisdiction.
Jurisdiction based on one-time business transactions depends on the number of transactions. Two sales to Virginia residents over the Internet is not enough but how many would trigger jurisdiction is unclear.
The aggregate number of contacts matters, not the relative percentage. Judge O’Grady focused on the absolute number of Swiss Media's website customers in Virginia rather than the relative percentage of its customers in Virginia. Importantly, Judge O’Grady characterized 16 contacts with Virginia residents as “certainly not insignificant” and “numerous.”
The overall focus of the website is relevant but often not determinative. This factor appears to be a catch-all, allowing the court to consider facts other than the number and nature of contacts with Virginia residents.

In finding jurisdiction, Judge O'Grady focused on the ongoing nature of the website’s relationship with its customers in Virginia. Specifically, once access to content is paid for, a customer had permanent online access to that content. Second, Swiss Media reached out to its Virginia customers by providing free “bonus coins” to purchase additional content and to encourage interaction with the website. Finally, Swiss Media sent periodic emails to its Virginia resident users in English.

Jurisdiction under Rule 4(k)(2)

Alternatively, Judge O’Grady found that jurisdiction was proper under Fed. R. Civ. P. 4(k)(2), which permits jurisdiction over a foreign defendant for a claim arising under federal law where the defendant’s contacts with a single state are insufficient for jurisdiction, but the defendant’s contacts with the United States as a whole are sufficient to create jurisdiction.

Judge O’Grady’s analysis of jurisdiction under Rule 4(k)(2) tracked his analysis of jurisdiction under Rule 4(k)(1), which provides for jurisdiction under a state’s long-arm statute. Again, Judge O’Grady focused on the absolute number of contacts with the U.S., not the relevant percentage of contacts as compared to other forums. Judge Grady also found that there was no state in the U.S. with which the defendant had significantly more contacts than Virginia. Thus, if jurisdiction was not appropriate under Virginia’s long-arm statute, it would not be appropriate under any other state’s long-arm statute.

Take-Aways

There are a few lessons IP lawyers should draw from Judge O’Grady’s decision:

The EDVA is likely to assert jurisdiction over any defendant who has any type of ongoing relationship with “registered users” or customers in Virginia;
Even where a defendant only engages in one-time business transactions with customers over the Internet, very few transactions will be enough to create jurisdiction – perhaps as few as 10 to 20 sales over the Internet.
Rule 4(k)(2) is being increasingly cited as a basis for jurisdiction over foreign defendants, virtually guaranteeing that jurisdiction can be asserted over foreign websites which interact with U.S. citizens in at least one state in the U.S.

Apple v. Samsung: Irreparable Harm and Obviousness in Preliminary Injunction Analysis

Megan Rahman — Tue, 22 May 2012 11:41:06 -0500

On May 14, the U.S. Court of Appeals for the Federal Circuit in Apple, Inc. v. Samsung Electronics Co. Ltd.,No. 2012-1105 (Fed. Cir. May 14, 2012) affirmed-in-part, vacated-in-part and remanded the district court's denial of a preliminary injunction awarded to Apple with respect to three design patents and one utility patent relating to smartphones and tablet computers. With respect to three of Apple’s four patents-in-suit, the Federal Circuit affirmed the district court’s denial of a preliminary injunction. With respect to Apple’s fourth patent, the Federal Circuit vacated the district court’s denial of preliminary injunctive relief finding the district court erroneously concluded that the patent claims were obvious over prior art, and that Apple was therefore unlikely to succeed on the merits. As a result, the Federal Circuit remanded the case for a consideration of factors that the district court had not already reached in its decision on preliminary injunctive relief and the fourth patent.

On appeal, the Court affirmed the denial of preliminary injunctive relief with respect to three of the patents based on a lack of irreparable harm. On the issue of irreparable harm, the Court held “that the district court was correct to require a showing of some causal nexus between Samsung’s infringement and the alleged harm to Apple as part of the showing of irreparable harm.” The Court concluded that "a likelihood of irreparable harm cannot be shown if sales would be lost regardless of the infringing conduct." Further, a "mere showing that Apple might lose some insubstantial market share" as a result of the infringement is not enough, as a party seeking injunctive relief must make a "clear showing" that it is at risk of irreparable harm. The Court agreed with Apple that a wholesale rejection of design dilution as a theory of irreparable harm would have been improper, but disagreed that the district court had done that. Rather, the Court found that even if brand dilution could arise from design patent infringement, Apple had not shown that brand dilution was likely to occur. Finally, while the Court stated that the district court should not have faulted Apple for failing to file suit as early as the release of the first infringing products, it was reasonable for the district court to consider the issue of delay and find that Apple had not proceeded as quickly as it otherwise could have in seeking relief.

The Court vacated the denial of preliminary injunctive relief with respect to the last patent, agreeing with the district court’s conclusion that Apple was likely to suffer irreparable harm, but holding that the district court erred in finding that there was a substantial question of validity concerning the patent. The district court had concluded that the validity of the patent was subject to substantial challenge based on two prior art references, its holding based primarily on its finding that when compared with a 1994 tablet design, the patent created the same visual expression. The Federal Circuit disagreed. In design patent obviousness analysis, a primary reference must be "something in existence, the design characteristics of which are basically the same as the claimed design in order to support a holding of obviousness." The Court found significant differences between the 1994 tablet design and the Apple patent and held that it was not a proper primary reference. Moreover, the secondary reference “could not bridge the gap.”

Having found a substantial question of validity concerning the last patent, the district court “did not make any findings with regard to the remaining two questions bearing on whether to issue a preliminary injunction—the balance of hardships and the public interest.” The Federal Circuit, as a result, remanded that portion of the case back to the district court to consider whether a preliminary injunction should issue based on the fourth patent.

In a partial dissent, Judge O’Malley found a remand unnecessary. In his view, “the only remand appropriate in this case is for entry of a preliminary injunction with respect to the [the fourth patent] . . . .” Judge O’Malley stated that the Court’s decision was “unwarranted because: (1) remand will cause unnecessary delay, which is inconsistent with the very purpose of preliminary injunctive relief; and (2) once we reject its validity analysis, the district court’s decision, taken in its entirety, reveals that all of the prerequisites for preliminary injunctive relief are satisfied.”