Federal Circuit Finds No Breach of Settlement Agreement Where Accused Device Neither Same As Product Defined in the Agreement Nor Covered Under Patent

Case:Panduit Corp. v. HellermannTyton Corp., Case No. 05-1337 (Fed. Cir. 6/12/06)

The One Sentence Summary: The Federal Circuit affirmed summary judgment in favor of Defendant HellermannTyton Corporation ("HellermannTyton") finding that there was no genuine issue of material fact that HellermannTyton breached a Settlement Agreement prohibiting it from making or selling a product covered by a patent owned by Plaintiff Panduit Corporation ("Panduit").

What They Were Fighting About: In 2001, Panduit sued HellermannTyton alleging that HellermannTyton's power box product sold under the label "Part No. MCR-SEB" infringed on Panduit's U.S. Patent No. 5,998,732 ("the '732 patent"). Shortly thereafter, the parties agreed to a settlement of the dispute and entered into a Settlement Agreement ("Agreement"). Under the Agreement, HellermannTyton agreed not to make or sell "Subject Products." The Agreement defined "Subject Products" as: (1) the HellermannTyton product known as "Part No. MCR-SEB" (¶ 1(b)(i)); and (2) as "all products, existing now or in the future, covered by any claim of [the '732 patent]" (¶ 1(b)(ii)). Some time later, HellermannTyton began selling a redesigned power box product. Panduit sued HellermannTyton for breach of contract (for violating the terms of the Agreement) and for infringement of the '732 patent based on HellermannTyton's sale of what Panduit claimed was a redesigned version of the "Subject Products." HellermannTyton filed for summary judgment arguing that it did not violate the Agreement because its new product was not "Part No. MCR-SEB" and was different from the product covered by the '732 patent.

Federal Circuit Holdings:

• Upon de novo review, the Federal Circuit determined there was no genuine issue of material fact that HellermannTyton's revised product was not the "Subject Product" as defined in ¶1(b)(i) and ¶ 1(b)(ii) of the Settlement Agreement, and thus affirmed the district court's grant of summary judgment that HellermannTyton did not breach the Agreement.
• The Court explained that the question of whether HellermannTyton had breached the Agreement required it to assess whether HellermannTyton's redesigned product infringed the '732 patent. The '732 patent involved a "modular offset power box and communication extension" for "a multi-channel power and communication wiring and raceway system" used when installing power and communication conductors through the walls of an office building. The system was described in claim 1 as having "an opening formed in the abutment portion of the projection...in communication with an aperture formed in a side wall of the offset power box adjacent the duct." The only difference between HellermannTyton's "Part No. MCR-SEB" product and the revised product was that the wall abutting the trunking duct in the revised product was solid with no cutaway (i.e. no opening).
• The Court began its analysis by noting that the Agreement clearly defined the "Subject Product" as "Part No. MCR-SEB." Panduit argued that even though the revised product was not identical to "Part No. MCR-SEB," it nonetheless infringed on the '732 patent because it had only "colorable changes" or "changes unrelated to the '732 patent." In the alternative, Panduit argued that the Agreement was ambiguous and urged the Court to interpret ¶ 1(b)(i) to include HellermannTyton's redesigned product in order to effectuate the parties' intent when settling the litigation. The Court rejected Panduit's arguments, concluding that the district court and HellermannTyton were correct in interpreting ¶ 1(b)(i) to cover only the specific product known as "Part No. MCR-SEB." Because there was no dispute that the revised product was not the same as "Part No. MCR-SEB," the Court held that the district court did not err in granting summary judgment that the accused device was not a "Subject Product" as defined in ¶ 1(b)(i).
• The Court next analyzed whether the district court erred in finding that HellermannTyton did not breach ¶ 1(b)(ii) of the Agreement. The district court had ruled that the revised product did not infringe the '732 patent because the wall abutting the trunking duct in HellermannTyton's revised product was solid and had no "opening," "projection," and "abutment portion" limitations of claim 1 of the '732 patent. The district court had determined that the "opening" in the claim had to descend in a particular manner and because HellermannTyton's revised product had no such opening, there was no breach of ¶ 1(b)(ii) of the Agreement (prohibiting HellermannTyton from making or selling all products covered by any claim of the '732 patent). The parties disputed the interpretation of the opening limitation. The Court looked to the claim language itself, the written description and the prosecution history to determine the meaning of the disputed claim limitation and found that HellermannTyton's interpretation of the opening limitation was correct -- the "opening" had to be in "an area that extended downward from the top portion of the projection and needed to provide a passage through which wires could pass." HellermannTyton's revised product had no such opening and therefore was not covered under the '732 patent. The Court thus held that HellermannTyton did not breach ¶ 1(b)(ii).
• The Court also rejected Panduit's argument that HellermannTyton's revised product infringed the '732 patent under the doctrine of equivalents finding that if it were to apply that doctrine to find that HellermannTyton's revised product infringed the '732 patent, it would vitiate the opening limitation of the claim. Because HellermannTyton's product did not have an "opening in an abutment portion through which wires may pass from a trunking duct into an offset power box," the doctrine of equivalents could not be applied, and therefore the district court did not err in granting summary judgment that the revised product did not qualify as a "Subject Product" as defined in ¶ 1(b)(ii) of the Agreement.

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Are Non-Compete Agreements With Step-Down Provisions Enforceable?

An interesting article entitled "Non-Compete Agreements with Step-Down Provisions: Will Courts in "Blue-Pencil" States Enforce Them?" by Ray Harris and Ali Farhang in the July 2006 edition of The Computer & Internet Lawyer questions whether non-compete agreements with step-down provisions are enforceable in light of a recent decision by a District Court in Arizona upholding such a non-compete. Compass Bank v. Hartley, 2006 WL 11333325 (D. Ariz. April 28, 2006).

A non-compete with a step-down provision has restrictive clauses which "step-down" to clauses of lower restriction should the court find that the original clause was too broad to be enforceable. For example, the article discusses a non-compete agreement with a time period of the employee's entire life, or if that is held to be unenforceable, a five year time period, or if that is held to be unenforceable, a six month time period.

The article questions whether states that are willing to "blue pencil" an agreement to reduce the severity of unenforceable clauses should enforce agreements with step-down provisions. For example, the article questions whether it is good public policy to allow employers to use such clauses. It also questions whether an enforceable contract can be arranged when the parties do not know what a court would determine to be enforceable.

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Over Dissent, Federal Circuit Panel Allows Trial Court to Decide Inequitable Conduct Issue Without Any Jury Trial

Case: Agfa Corp v. Creo Products Inc.; No. 05-1079 (Fed. Cir. 6/26/06)

The One Sentence Summary: Over a dissent, the Federal Circuit panel held that the trial court could sever the issue of inequitable conduct and try it separately, and affirmed findings of patent invalidity due to inequitable conduct where the applicant had withheld prior art from the Patent Office.


What They Were Fighting About: Agfa had asserted various patents for computer-to-plate (CTP) systems that allow direct transfer of a computer image to a printing plate. The system had a machine that pulled various light sensitive printing plates from stacks in the machine in response to commands from a computer. Creo had defended patent infringement claims by contending that Agfa had improperly failed to disclose three prior art systems to the Patent Office. The District Court severed the inequitable conduct issue and conducted a bench trial of that issue. At the conclusion of the trial, the District Court declared all of Agfa's patents unenforceable due to inequitable conduct and awarded attorney's fees as an exceptional case under 35 U.S.C. section 285.

Federal Circuit Holdings:

• The District Court acted properly in deciding the inequitable conduct issue without a jury trial. The panel found the case indistinguishable from the earlier case of Gardco Manufacturing, Inc. v. Herst Lighting Co., 820 F.2d 1209 (Fed. Cir. 1987).
• The Supreme Court decision in Beacon Theaters, Inc. v. Westover, 359 U.S. 500 (1959) does not require a jury trial on inequitable conduct issues. Unlike Beacon Theater, there are no overlapping issues between the inequitable conduct claims and the jury questions of invalidity. Therefore, the trial court is free to first conduct the trial on inequitable conduct.
• The discussion in the decision of In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995) does not indicate that a jury trial was necessary on the inequitable conduct claims. The discussion in Lockwood of the similarity of the writ of scire facias to an inequitable conduct determination does not mean that there would have been a right to a jury trial under the 7th Amendment for inequitable conduct.
• With respect to claim construction, the trial court properly held that the word "stack" could include horizontal or vertical arrangements of plates. The court's reference to a dictionary in reaching this determination was permissible. The illustration of a single embodiment of a horizontal stack in the figures in the patent did not limit the term to that single embodiment.
• The trial court properly determined that the prior art withheld from the patent office was material. Had the prior art been disclosed, the applicant would not have been able to make statements to the Patent Office regarding what was different from conventional aspects of the prior art. This allowed a finding of materiality.
• The trial court properly found intent to deceive based upon the applicant's extensive knowledge of the prior art and its failure to cite that prior art to the Patent Office. Agfa's challenge to the claim construction of the term "stack" did not excuse its failure to disclose the prior art. The appellate court deferred to the trial court's credibility determinations that Agfa intended to deceive the patent office.
• The trial court properly held that a continuation patent was invalid upon a finding of inequitable conduct as to an earlier patent. The inequitable conduct as to the parent patent invalidated the continuation where the claims were similar.
• The trial court did not need to have explained its balancing of materiality and intent in light of its finding that both were high.
• The award of attorneys' fees for exceptional circumstances is justified in light of the trial court's findings that this was an exceptional case even among inequitable conduct cases.
• In a dissent, Circuit Judge Newman argued that a jury trial on common issues between the inequitable conduct and patent validity claims should have been held. Judge Newman also disagreed with the claim construction of the term "stack". In light of the descriptive text in the invention saying that it was directed to substantially horizontal plates, Judge Newman would have held that stack could not be construed to include the vertical alignment of the prior art.

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Supreme Court to Review Test for Obviousness

Case: KSR International, Co. v. Teleflex, Inc., No. 04-1350 (Cert. Granted 6/26/06)

The United States Supreme Court has again demonstrated its recent interest in intellectual property law questions by granting review in a case posing the question of how one must prove that a patent is invalid due to obviousness. The question is whether the Federal Circuit erred in requiring that the prior art suggest combination of the prior art. Petitioner, in a position supported by the United States, had argued that there need be no teaching or suggestion of combining prior art.


The specific question for resolution is as follows:
Whether the Federal Circuit has erred in holding that a claimed invention cannot be held “obvious”, and thus unpatentable under 35 U.S.C. §103(a), in the absence of some proven “ ‘teaching, suggestion, or motivation' that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed.”

The Supreme Court had requested the position of the United States government on the question, and in May 2006, the Solicitor General had filed a brief urging reversal of the underlying Federal Circuit opinion.

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Supreme Court Declines to Decide Case on the Patentability of a Law of Nature

Case:Laboratory Corp. of America Holdings v. Metabolite Labs., Inc., No. 04–607 (S. Ct. 6/22/06)

The Supreme Court decided not to decide a case posing the question of whether a blood test patent was invalid because it patented a basic law of nature. Justice Breyer dissented in an opinion joined by Justices Stevens and Souter, arguing that the case posed important questions that should be decided now.



In his dissent, Justice Breyer acknowledged that there were technical reasons not to decide the case because the invalidity questions had not been considered by the Federal Circuit. However, Justice Breyer argued that the case involved important questions affecting medical research that should be resolved sooner rather than later. Justice Breyer also explained his view that the patent was invalid because it would impermissibly patent a law of nature.

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Original "Flashdancer" Precluded From Bringing Claims Against J. Lo

Case: Marder v. Lopez et. al, Case No. 04-55615 (9th Cir. 6/12/06)

The One Sentence Summary: A broad release of all claims in connection with a film precluded releasor from asserting copyright claims against the releasee and from establishing copyright ownership.


What They Were Fighting About: Plaintiff had released Paramount Pictures from all claims relating to the movie Flashdance, which was allegedly based on her life story. Following a Jennifer Lopez music video released by Sony, which allegedly contained re-creations of well-known scenes from Flashdance, plaintiff sued Paramount, Lopez and Sony.

Ninth Circuit Holdings:

• Upon de novo review, affirms district court's dismissal of the complaint for failure to state a claim.
• The exceptionally broad release executed by plaintiff is fatal to each of her claims against Paramount. The release of "each and every claim" included the copyright claims asserted against Paramount. Although plaintiff received only $2300, there was no evidence that her consent was improperly obtained.
• A provision releasing claims and a provision granting rights (in this case, to plaintiff's life story) may both be included in a contract without undermining the effect of either. The provisions do not negate each other or create impermissible redundancy.
• Given the release, plaintiff cannot establish the requisite ownership of the allegedly infringed material as required to state a copyright claim against Lopez or Sony.

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State Publicity and Privacy Claims for Sample in J.Lo and LL Cool J Song Preempted by Copyright Law

Case: Laws v. Sony Music Entertainment, No. 03-57102 (9th Cir. 5/24/06)

The One Sentence Summary: Claims for violation of the rights of privacy and publicity for the use of a copyrighted sample were preempted by copyright law.

What They Were Fighting About: Recording artist Debra Laws entered into an agreement with Elektra/Asylum Records ("Elektra") conveying the copyrights in her song "Very Special," with certain limitations. Twenty-two years later, Elektra granted a non-exclusive license to Sony Music Entertainment, Inc. ("Sony") to use a sample of "Very Special" in the song "All I Have," performed by J.Lo and LL Cool J. Laws claimed that Sony's subsequent use amounted to (1) common law invasion of privacy for the misappropriation of her name and voice, and (2) statutory misappropriation of her name and voice for a commercial purpose in violation of Californi Civil Code § 3344.
Ninth Circuit Holdings:

• The Ninth Circuit applied a two-part test to determine whether the state law claims were preempted by the Copyright Act.
• First, the Court determined that the subject matter of Laws' state claims fell within the subject matter of the Copyright Act. It stated, "[a]lthough California law recognizes an assertable interest in the publicity associated with one's voice, we think it is clear that federal copyright law preempts a claim alleging misappropriation of one's voice when the entirety of the allegedly misappropriated vocal performance is contained within a copyrighted medium."
• Second, the Court found that the rights asserted under state law were equivalent to the rights contained in the Copyright Act, stating: "To survive preemption, the state cause of action must protect rights which are qualitatively different from the copyright rights." Even though the statutory right of publicity claim required an additional element of use for a "commercial purpose," it was essentially a claim for the reproduction of Laws's song, a right protected by the Copyright Act. "The mere presence of an additional element in [C.C.] section 3344 is not enough to qualitatively distinguish Laws's right of publicity claim from a claim in copyright. The extra element must transform the nature of the action."
• The court found persuasive Fleet v. CBS, Inc., 58 Cal. Rptr. 2d 645 (Ct. App. 1996), where plaintiff actors brought a right of publicity claim for airing of a motion picture in which they performed. There, because the "use of plaintiffs' likenesses did not extend beyond the use of the copyrighted material . . . there was no right of publicity at issue. . . . Had the court held otherwise, each actor could claim that any showing of the film violated his right to control his image and persona."
• The court indicated that a proper claim might be a contract claim against Elektra, instead of tort claims against Sony.

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PalmPilot's "Graffiti" System May Infringe Xerox Patent

Case: Xerox Corp. v. 3Com Corp. et al, Case No. 04-1470 (Fed. Cir. 6/8/06)

The One Sentence Summary: Federal Circuit reverses summary judgment of invalidity based on anticipation, obviousness and indefiniteness.

What They Were Fighting About: Patent infringement defendant sought to invalidate Xerox's patent on a system for interpreting handwritten text as being invalid in light of prior art and on its face.

Federal Circuit Holdings:

• Reverses summary judgment with regard to invalidity based on anticipation and obviousness because genuine issues of material fact exist.
• Because invalidity by anticipation requires that the four corners of a single, prior art document describe every element of the claimed invention, the district court had to consider whether the prior art references disclosed the Xerox patent's use of stroke direction in distinguishing symbols, even though other limitations of the Xerox patent had clearly been disclosed in the prior art. The conclusion with regard to whether stroke direction was disclosed by the prior art would effect the analysis of obviousness.
• Reverses summary judgment with regard to invalidity based on indefiniteness, because the disputed claims were not insolubly ambiguous. While the descriptions in the Xerox patent of "sloppy space" were not rigorously precise, they provided adequate guidance as to the types of symbols that were separated from each other, given the difficulty of articulating a standard for the concept.
  
  

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Trademark Applicants Are Not Required to Defend Against Multiple Oppositions in Order to Preserve the Right to Defend Against One

Case: Sharp Kabushiki Kaisha v. Thinksharp, Inc., No. 05-1220 (Fed Cir. 5/30/06)

The One Sentence Summary: Where ThinkSharp filed two trademark applications (for a word mark and a design mark), and Sharp opposed both, ThinkSharp was not required to litigate both oppositions in order to preserve the right to litigate one.


What They Were Fighting About: ThinkSharp filed an application to register the word mark THINKSHARP in February 1999 and filed a second application to register the word and design mark THINKSHARP in June 1999. Sharp filed notices of opposition as to both marks. ThinkSharp chose to defend only the word mark and did not file an answer in the word-and-design opposition. The Trademark Trial and Appeal Board (TTAB) entered default judgment in favor of Sharp as to the word-and-design mark application. Sharp then argued that this default judgment had res judicata effect on the word application opposition. The TTAB rejected Sharp's opposition and held that there was no res judicata effect or likelihood of confusion between ThinkSharp and Sharp. The Federal Circuit affirmed.

Federal Circuit Holdings:

• In this case the two mark registrations at issue were filed at the same time, so there was no attempt by ThinkSharp to register the word mark as an attempt to evade the findings of the word-and-design mark.
• "It is highly relevant that the default judgment on the word-and-design mark was entered without consideration of the merits" because precedent cautions against extending res judicata effect to claims that are not before the court.
• ThinkSharp should not be denied its day in court without a "clear and persuasive basis for that denial."
• When a party does not have an opportunity to litigate disputed issues (as was the case with the default judgment at issue for the word-and-design mark) a decision to permit such litigation is favored.
• The purpose of res judicata is to protect a party from being required to relitigate the same issue against the same party in a separate action.
• "However, the imposition of claim preclusion in the present case would not further this purpose, for not only are the marks not identical, but the issues of likelihood of confusion and dilution were not litigated in the defaulted opposition."
• Precedent and "sound administrative policy" support the TTAB's reasoning that a trademark owner is entitled to choose which opposition to defend, when the proceedings are not an attempt to evade the effect of a previous adverse judgment on the merits.
  
  

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California Court of Appeals Takes Bite Out Of Apple's Attempts To Subpoena E-mails

Case: O'Grady v. Superior Court (Apple Computer, Inc. Real Party in Interest), (Cal. Ct. App. - 6th District Case No. H028579 - decided 5/26/06)

The One Sentence Summary: The California Court of Appeals ruled that third-party subpoenas directed to publishers of web sites carrying news about Apple products and companies that hosted their email accounts which commanded the production of the contents of e-mails should be quashed because: (1) ordering production of the e-mails would compel the email providers to violate the federal Stored Communications Act; and (2) the web sites' communications with their sources were protected by California's reporter's shield laws.


What They Were Fighting About: In November 2004 two online web sites devoted to news and information about Apple Computers, "PowerPage" and "Apple Insider", published several articles concerning a rumored new Apple product. The articles included unreleased product information concerning the target price and target introduction date, and the web sites published several technical drawings attributed to a "Bob Borris," and a "Paul Scates" whose email address was provided in the article.

On December 13, 2004 Apple filed suit against several "Doe" defendants, whom it described as unidentified persons or entities, alleging that the defendants had misappropriated and disseminated confidential information about the unreleased products. Apple also filed ex parte applications for commissions and orders empowering it to serve subpoenas on several companies and entities, including Powerpage.org and Appleinsider.com, and any Internet service providers identified in the information and testimony produced by those entities. The stated basis for the application was that the true identities of the defendants in the action could not be ascertained without the subpoenas.

The trial court granted the application for discovery. The publishers moved for a protective order to prevent any such discovery, and the trial court denied the motion on the ground that the publishers had involved themselves in the unlawful misappropriation of a trade secret. The publishers moved for a writ of mandate or prohibition from the Court of Appeal to compel the trial court to set aside its denial of the motion for a protective order. The Court of Appeal issued a writ of mandate directing the trial court to set aside its order denying the motion for a protective order, and to enter a new order granting the motion.

Court of Appeals Holdings:

• The subpoena to the email service providers could not be enforced under the plain terms of the federal Stored Communications Act, 18 U.S.C. Sections 2701-2712 ("the SCA"). Compelling compliance with the subpoenas would force the e-mail providers to violate the SCA, which would offend the principle of federal supremacy, and thus the subpoenas should have been quashed. The SCA declares that, subject to certain conditions and exceptions, "a person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service," and "a person or entity providing remote computing service to the public shall not knowingly divulge to any person or entity the contents of any communication which is carried or maintained on that service . . . ." The Court of Appeals noted that responding to a civil subpoena was not among the enumerated exceptions in the SCA.
• The Court of Appeals refused to create an implied exception to the SCA for civil discovery - holding that Congress demonstrated that it knew quite well how to make exceptions, chose not to make one for civil discovery, and the court should not create such an implied exception. The Court noted that it would be far from irrational for Congress to conclude that one seeking disclosure of the contents of email, like one seeking old-fashioned written correspondence, should direct his or her effort to the parties to the communication and not to a third party who served only as a medium and neutral repository for the message.
• Any subpoenas seeking unpublished information from the publishers would be unenforceable through contempt proceedings in light of the California reporter's shield (Cal. Const. Art. I, Section 2, subd (b) and California Evidence Code Section 1070. Article 1, Section 2, subdivision (b) of the California Constitution provides, "A publisher, editor, reporter, or other person connected with or employed upon a newspaper, magazine, or other periodical publication . . . shall not be adjudged in contempt . . . for refusing to disclose the source of any information procured while so connected or employed for publication in a newspaper, magazine or other periodical publication, or for refusing to disclose any unpublished information obtained or prepared in gathering, receiving or processing of information for communication to the public." The Court of Appeal held that the publishers were engaged in the function of gathering news, like any newspaper or magazine. "They operated enterprises whose raison d'etre was the dissemination of a particular kind of information to an interested readership." The operators of the web sites were "publishers" for purposes of the California Constitution, and the web sites were "newspapers, magazines, or other periodical publications" within the meaning of the California Constitution. The shield law applies to media that are not paper-based as well as print publications. The web-sites were highly analogous to printed publications, even though they were not published at regular time intervals, but rather, added new stories as they developed.
• Discovery of the sources was also barred on the record by the conditional constitutional privilege against compulsory disclosure of confidential sources enumerated by the California Supreme Court in Mitchell v. Superior Court 37 Cal. 3d 268 (1984). In light of the Court of Appeals' conclusion that it could see "no sustainable basis to distinguish petitioners from the reporters, editors, and publishers who provide news to the public through traditional print and broadcast media," the web-publishers fell within the conditional privilege enunciated in the Mitchell case. That case requires the court to weigh (1) the nature of the litigation and whether the reporter is a party; (2) the relevance of the information sought to plaintiff's cause of action; (3) the extent to which the party seeking disclosure of confidential sources has exhausted all alternative sources of obtaining the needed information; (4) the importance of protecting confidentiality in the case at hand; and (5) whether the plaintiff had made a prima facie case that the challenged statements were false (or in the case of trade secret theft, whether it appears likely that the journalist had indeed committed a tort against the plaintiff). The Court of Appeals weighed these factors at length and concluded that none of the factors favoring disclosure possessed sufficient weight on the record to over-balance the countervailing factors, particularly the inadequacy of Apple's showing that it exhausted alternative avenues of investigation.

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Stipulated Dismissal Barred Claims Against Dow Despite Allegations of Fabricated Evidence

Case: Pactiv Corp. v. Dow Chemical Co., Case No. 05-1260 (Fed. Cir. 6/5/06)

The One Sentence Summary: Prior settlement and dismissal with prejudice will bar claims that are not expressly reserved even if the settlement was motivated by fabricated evidence.


What They Were Fighting About: Pactiv sought a declaratory judgment that it did not infringe two of Dow's patents and that the patents were invalid and unenforceable.

Federal Circuit Holdings:

• Patent litigation, commenced in 1995, resulted in a Settlement and License Agreement between the parties whereby Pactiv agreed to pay royalties on two Dow patents. In late 2002, Pactiv ceased payments and in 2003, it filed for declaratory judgment against Dow, alleging noninfringement, invalidity and unenforceability of the patents.
• The parties agreed that Pactiv's suit was barred by res judicata unless (1) the Agreement reserved Pactiv's right to challenge the patents in the future or (2) the judgment was unenforceable because Pactiv was denied a full and fair opportunity to litigate its invalidity and unenforceability claims.
• Applying the res judicata law of the Second Circuit, the Federal Circuit affirmed the trial court's dismissal of Pactiv's complaint.
• The defense of res judicata (or claim preclusion) is generally available where the asserted claim was, or could have been, raised in a prior action between the parties which has been adjudicated on the merits.
• The dismissal of the prior case with prejudice constituted a judgment on the merits.
• Because the Agreement at issue did not expressly reserve the right to litigate Pactiv's claims, the res judicata exception for express reservation of a claim that would otherwise be barred by res judicata did not apply. To the contrary, Pactiv expressly released Dow from claims relating to the two patents.
• The court also rejected Pactiv's argument that res judicata should not apply on the ground that it was denied a full and fair opportunity to litigate the patents because data relied upon in an expert report produced by Dow in the earlier litigation had been fabricated. The denial of a full and fair opportunity to litigate is a defense to collateral estoppel, but in the context of res judicata, the prior judgment is denied preclusive effect only where there has been a due process violation. Due process requires notice, service of process, and a court of competent juridiction. Procedural irregularities, even serious ones, will not deny a judgment preclusive effect and there was no claim for a denial of due process here.
  
  

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Opposition to Trademark Registration Dismissed Where Software Products Used In Different Industries

Case: M2 Software, Inc. v. M2 Communications, Inc., No. 05-1599 (Fed Cir. 6/7/06)

The One Sentence Summary: Although the two trademarks were "very similar," the Federal Circuit found no likelihood of confusion where the products were used in distinctly separate industries.

What They Were Fighting About: M2 Software, Inc., the registered owner of the mark "M2" opposed the registration of the mark "M2 COMMUNICATIONS" by M2 Communications, Inc. Both companies were in the business of providing computer software products and services; however, M2 Software sold products in the entertainment industry while M2 Communications sold products in the pharmaceutical and medical industries.

Federal Circuit Holdings:

• In determining whether there was a likelihood of confusion, the court analyzed the relevant factors described in In re E.I. DuPont de Nemours & Co., 476 F. 2d 1357, 1361 (CCPA 1973) ("the DuPont factors").
• First, the court found that the goods were not related because M2 Software had specifially limited its trademark registration to products catering to the entertainment industry, whereas M2 Communication's application covered products serving the medical and pharmaceutical communities. Moreover, the court held, "given the pervasiveness of software and software-related goods in society, it would be inappropriate to presume relatedness on the mere basis of goods being delivered in the same media format, especially where, as here, the goods described in both the application and registration are defined narrowly, along distinct industry lines."
• Second, the court found that the parties' channels of trade and purchasers were different, as the parties' known customers were different, and there was no evidence of overlap of trade channels or marketing. The court noted, "although both parties operate websites, that fact, without more, is insufficient to overcome the vast weight of evidence establishing that no overlap exists."
• Third, the court found that the marks were "very similar."
• Fourth, the court found that the mark was fanciful and therefore deserving of heightened protection.
• Fifth, the court found that there was no evidence of "bad intent" in M2 Communications' attempt to register its mark. The conception of the term related to M2 Communications' business, and there was no evidence that M2 Communications was aware of M2 Software's ownership of the "M2" mark when it designed its mark.
• The court held that, upon balancing the relevant DuPont factors, there was no likelihood of confusion, affirming the lower court's dismissal of the opposition.
  

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Multi-Million Dollar Infringement Damages Flow From Manure Mixing Patent

Case: Liquid Dynamics Corp. v. Vaughan Co., Inc., No. 05-1105 (Fed Cir. 6/1/06)

The One Sentence Summary: Rejecting best mode, enablement, Daubert and inequitable conduct arguments, the Federal Circuit panel affirmed a district court’s award after a jury trial of treble damages and attorneys’ fees for willful infringement of a patent for mixing the contents of million gallon manure slurry tanks with a substantially helical flow.

What They Were Fighting About: Liquid Dynamics sued Vaughan for infringement claims of U.S. Patent No. 5,458,414. The ‘414 patent described an apparatus and method of using pumps to mix the liquids and solids in million gallon waste tanks. The ‘414 patent improved over earlier systems by generating flow throughout the entire tank rather than in zones. After a jury trial, the jury found willful infringement, and rejected invalidity claims, awarding damages of $1,183,722. After a bench trial, the district court rejected an inequitable conduct challenge to the patent. The district court trebled damages because of willfulness and defendant’s conduct in the litigation. The court awarded attorneys’ fees of $1.5 million and entered a permanent injunction.

Federal Circuit Holdings:

• Despite the lack of detailed engineering drawings of 11 of defendants’ tanks, Plaintiff presented sufficient circumstantial evidence of infringement in the tanks by presenting evidence that defendant’s engineering manual used to construct the tanks had an infringing configuration.


• An earlier Federal Circuit decision in the case which had mentioned computer flow simulations was not “law-of-the-case” that those simulations were admissible evidence because admissibility had not been considered before.


• Defendants challenged the use of an expert’s computational fluid dynamics (“CFD”) study that was used to show an infringing helical flow. Plaintiff’s expert admitted that he did not use the exact parameters of defendant’s tanks but testified that the different parameters did not change his opinion of infringement. Applying the Daubert test for admission of expert testimony, the panel rejected defendant’s challenge. The panel explained that the CFD method was well accepted in the scientific community and by courts, and that the challenges to the specific parameters used in the study affected the weight, but not the admissibility of the evidence. The jury heard these challenges to the testimony on cross-examination, but reasonably rejected the challenges and accepted the evidence.


• The jury had sufficient evidence to find that defendant induced infringement by six of its tanks located outside of the United States under 35 U.S.C. § 271(f). Defendant knew of the patent, and had hired an employee from plaintiff who had constructed plaintiff’s system before. This was sufficient to allow the jury to find that defendant intended to induce buyers to install infringing systems.


• The jury was reasonable in concluding that defendant had failed to prove by clear and convincing evidence that the best mode requirement was violated. The jury properly relied upon evidence that the nozzle details omitted from the description were just routine details that one of skill in the art would know, and were not necessary to the invention.


• The panel rejected an enablement challenge to the patent. The jury reasonably made the factual determination that the written description of the patent enabled helical flow. The district court did not err in rejecting expert testimony from defendant on enablement.


• The willful infringement finding was adequately supported by evidence that defendant hired plaintiff’s former employee to duplicate the flow patterns of plaintiff’s tanks. The jury properly discounted the fact that plaintiff had obtained a non-infringement opinion of counsel due to evidence that plaintiff deliberately concealed evidence of vertical flow patterns from counsel.


• The challenge to the litigation conduct finding for enhancement of damages was not adequately preserved when it was made only in a footnote of the opening brief.


• On the inequitable conduct issue, the district court erred in finding that two prior installations of tanks used by inventors in developing their invention was not “material” information that would have been important for a reasonable examiner to know. However, the panel affirmed the district court’s finding of no intent to deceive. The district court judged the inventor to be credible in testifying that he did not think it was necessary to disclose the earlier tanks, and that he told the examiner about the tanks.

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