Author Archives: Erin O. Dungan

Supreme Court Eases The “Exceptional Case” Standards for Patent Cases

In October, we reported on the Supreme Court’s decision to take on two patent cases addressing the “exceptional case” standards of Section 285. This week, the Court issued its unanimous decisions in Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health, abolishing the Federal Circuit’s rigid standards for these types of cases and creating new standards that will make it easier for district courts to award fees to prevailing parties in patent infringement actions.

Prior to this week’s decisions, in order to establish that a case was exceptional, a prevailing party was required to show by clear and convincing evidence that the litigation was both brought in bad faith and objectively baseless. In Octane Fitness, however, the Court found that Section 285 contains no such requirements. Rather, according to the Court, Section 285 “imposes one and only one constraint on district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for ‘exceptional’ cases.” Similarly, the Court found that “nothing in [Section 285] justifies such a high standard of proof” as clear and convincing evidence. Instead, “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less a high one.”

Construing the term “exceptional” in accordance with its ordinary meaning, the Court held that an “exceptional” case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position. . . or the unreasonable manner in which the case was litigated.” Accordingly, under the new framework set forth in Octane Fitness, district courts may determine whether a case is “exceptional” in a “case-by-case exercise of their discretion, considering the totality of the circumstances.”

Piggy backing on the holding of Octane Fitness, the Icon Health decision held that all aspects of an “exceptional case” determination should be reviewed under an abuse of discretion standard rather than the Federal Circuit’s previously exercised de novo review of the “objectively baseless” determination.

While both of these cases had implications relating to the rise of non-practicing entity (“NPE”) litigation, the Court did not specifically address NPE issues. However, with the more flexible standards set forth in these decisions, there is no doubt these holdings will impact not only NPE litigation, but patent litigation in general. “Exceptional case” motions are likely to become more common, and, as one amicus suggested, the new standards will “incentivize[] patent holders and accused infringers to litigate only legitimate, good-faith disputes over patent infringement and validity.”

Supreme Court to Review “Exceptional Case” Standard for Patent Cases

This week the Supreme Court granted cert petitions in two patent cases: Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management.  Both cases address 35 U.S.C. § 285, which allows a court to award reasonable attorneys’ fees to the prevailing party in “exceptional cases.”  Under Section 285, a case is “exceptional” if the litigation (1) was brought in subjective bad faith; and (2) is objectively baseless.  Octane Fitness addresses the propriety of this two-prong test.  Highmark addresses the appropriate standard for reviewing a district court’s exceptional case determination under the two-prong test.

In Octane Fitness, the district court granted accused infringer Octane’s motion for summary judgment of non-infringement, but denied Octane’s motion for attorneys’ fees under Section 285.  The district court found that the litigation was neither objectively baseless nor brought in subjective bad faith.  On appeal, Octane sought to lower the standard for exceptionality to “objectively reasonable” in order to “re-balance what it alleges as the power of large companies over smaller companies in infringement litigation.”  The Federal Circuit affirmed, refusing to revisit “the settled standard for exceptionality.”

In its Supreme Court petition, Octane argued that Section 285, as interpreted by the courts over time, “has strayed from the original intent of preventing ‘gross injustice’ to an accused infringer (the result of a defendant having to spend $1 million plus to defend itself against overreaching and unfounded contentions), to a standard that is near-impossible for an accused infringer to meet no matter the unreasonableness of the litigation, and that consequently serves as no deterrent to the assertion of spurious claims.”  Octane noted that a patentee, on the other hand, can establish an exceptional case solely on a finding of willful infringement.  Willful infringement requires that a patentee show by clear and convincing evidence that (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent; and (2) the accused infringer knew or should have known about this objectively-defined risk of infringement.  According to Octane, a patentee’s ability to rely on a finding of willful infringement results in a lower threshold for prevailing patentees than for prevailing accused infringers seeking to recover their fees under Section 285.

In Highmark, after several years and millions of dollars in legal costs, accused infringer Highmark prevailed on summary judgment.  Conducting an extensive analysis, the district court determined the case was exceptional under 35 U.S.C. § 285 on several grounds, including: (1) no pre-filing investigation was performed by an attorney – rather, attorneys relied on an analysis performed by a non-attorney/non-engineer, and claim charts and summary judgment rulings from another case in which Allcare had asserted the same patent (both of which focused on claim construction and not infringement); (2) Allcare asserted meritless defenses, knowing such defenses were not available; (3) Allcare argued in a jurisdictional motion to dismiss that it had no control over a pre-litigation survey of potential infringers, although subsequent Allcare filings contradicted that assertion; (4) Allcare engaged in needless alterations of its claim construction assertions; and (5) Allcare continued to pursue infringement claims as “leverage,” even after its own expert conceded there was no infringement.

Affording no deference to the district court’s findings that the suit was objectively baseless, the Federal Circuit reversed in part, finding that at least some of the aspects of the case were non-frivolous.  In a sharply contested six to five vote, the Federal Circuit denied rehearing en banc.  One of the dissents observed that the Federal Circuit’s de novo review “deviates from precedent . . . and establishes a review standard for exceptional case findings in patent cases that is squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law.”

The Court’s grant of these two cases appears to confirm the need to address the rise of non-practicing entity (“NPE”) litigation.  The patentee in Allcare was an NPE, and although the patentee in Octane Fitness is a large manufacturer/seller of exercise equipment, it never sold a commercial product covered by the patent at issue in that case.  According to Blue Cross Blue Shield Association, who submitted an amicus brief in the Highmark case, “[t]he one weapon that parties sued by NPEs have to level the playing field and deter abusive litigation tactics is the threat of shifting attorney’s fees ‘in exceptional cases.’”  Blue Cross further commented that Section 285 “plays a critical role in regulating the quality of patent infringement lawsuits,” because the prospect of the prevailing party recovering its attorneys’ fees “incentivizes patent holders and accused infringers to litigate only legitimate, good-faith disputes over patent infringement and validity.”

 

An Unending Hangover for The Hangover Part II—Trademark Action and the Imposter Bag

The artist who designed Mike Tyson’s famous face tattoo wasn’t the only IP holder to sue over the Hangover Party II. Luxury retailer Louis Vuitton filed a trademark infringement action, claiming that the film featured a knockoff version of one of its designer bags.

Louis Vuitton’s complaint was filed in the Southern District of New York on December 22, after Warner Brothers allegedly failed to respond to a cease-and-desist letter from Louis Vuitton.  The complaint focuses on an opening scene in the film, in which the main characters are in an airport.  Zach Galifianakis’ character (“Alan”) sits down on a bench, places his bag on an empty seat next to him, and warns one of the other characters, “[c]areful that is . . . that is a Louis Vuitton.”  According to the complaint, Alan’s bag is not a genuine Louis Vuitton bag.  Rather, alleges Louis Vuitton, it is a counterfeit bag made by the so-called Diophy group of companies.  The Diophy group of companies are subjects of an ITC investigation in which Louis Vuitton is seeking a general exclusion order preventing the importation of counterfeit products that infringe the decades-old Louis Vuitton marks.

Louis Vuitton’s complaint against Warner Brothers alleges that “it is custom and practice in the film industry that, when branded products are to be used in a movie, a motion picture studio requests and the brand owner provides express consent with respect to the use of its branded products in a movie.  Moviegoers and consumers who purchase and/or view recorded versions of the movie thus are likely to presume that branded products shown in a movie are authentic.”  The complaint further claims that “[b]y using the infringing Diophy Bag and affirmatively misrepresenting that it is a Louis Vuitton bag, the public is likely to be confused into believing that the Diophy Bag is an authentic Louis Vuitton product.”  The complaint asserts causes of action for false designation of origin, unfair competition, and trademark dilution, and seeks monetary damages as well as a permanent injunction preventing distribution of any version of the film that contains scenes with the allegedly-infringing bag.

The irony created by “Alan’s” concern over an imposter bag makes the scene even funnier than if his bag were genuine.  That said, assuming the allegations in the complaint are true, Louis Vuitton has a right to not be impressed by this irony.

A Candyman and His Marks

I heard on the radio recently that Nello Ferrara, the creator of Lemonheads and Atomic Fire Balls candy, died earlier this year at the age of 93.  The mention of Lemonheads brought back childhood memories of my sisters and I riding our bikes to the local convenience store to buy Ferrara’s candy, which came in little boxes and – if I remember right – put us back a whopping 10 cents per box.

The news of Mr. Ferrara’s passing and the sudden surge of childhood memories encouraged me to do a little research on Ferrara’s company.  According to the New York Times, the Illinois-based Ferrara Pan company was started in 1908, and Nello took it over from his father decades ago.  Nello’s son, Salvatore Ferrara, is the company’s current president and CEO.  Salvatore claims that his head was shaped like a lemon when he was born, inspiring his father to invent the Lemonhead candy.  The full New York Times article can be found here.

Regardless of the inspiration, a quick search reveals that the Ferrara Pan company has a track record of protecting the names the company has given its products over the years.  The company has filed over 250 trademark applications, one of the first being filed in December of 1954 for the “ATOMIC FIRE BALL” mark.  The mark for “LEMONHEAD” came in April of 1963.  One registration that I was particularly excited to see was the November 1975 registration for “ALEXANDER THE GRAPE,” which is associated with my favorite Ferrara candy (although it appears this candy may now go by the name “GRAPEHEAD,” registration for which was filed in 1996).

Over the years, the company has expanded the reach of its marks beyond candy, filing applications for marks associated with everying from body lotion and lip balm, to clothing, to alcoholic beverages.  Many of these marks have since been abandoned, but the company does sell clothing bearing the company’s marks on its website.  It is clear, though, that candy is still the company’s main focus: it reportedly produces 135 million pounds of candy per year (using 200,000 pounds of sugar per day).

An Unending Hangover for “The Hangover Part II”

Warner Brothers has met its fair share of IP-related legal battles in connection with 2011’s popular hit movie, The Hangover Part II.

The first assault came before the film was even released. In April 2011, the artist who designed Mike Tyson’s famous face tattoo attempted to block release of the film, claiming that a replica of the tattoo was used in the film without the artist’s permission.

The Copyright Action and the Tyson Tattoo
In a complaint filed in the Eastern District of Missouri, Plaintiff S. Victor Whitmill claimed that character Stu Price, played by actor Ed Helms, sported a “virtually exact reproduction” of Tyson’s tattoo without Whitmill’s authorization. Whitmill alleged that “[t]he Pirated Tattoo is a recurring device and plays an important role in the plot of the Movie.”  A side-by-side comparison of Tyson’s tattoo and the alleged replica is here.

Whitmill sought to block release of the film with a preliminary injunction. Interestingly, Whitmill did not register the copyright for the original tattoo until April 19, 2011.  In its opposition to Whitmill’s preliminary injunction motion, Warner Brothers noted that Whitmill’s registration of the Tyson tattoo came long after Tyson (and, in turn, his tattoo) had appeared in the original Hangover movie, and in the midst of the Hangover II’s marketing campaign (which included materials showing Helms’ tattoo).

The case raised the novel issue of whether a tattoo is enforceable as a copyright.  Warner Brothers argued that extending copyright protection to a tattoo created on a human being – with human flesh acting as the “medium of expression” required  under copyright law  – “would lead to troubling and unintended results under the Copyright Act.”  First, Warner Brothers argued that if a tattoo was considered a copyrightable work and gained “recognized stature” under the Copyright Act, a court could enjoin the tattoo holder from ever removing it.  Second, to the extent that the tattoo holder wished to alter the tattoo in any way, such alteration would be in violation of the artist’s exclusive right to prepare derivative works, and the artist could obtain a court order requiring the offending work be destroyed (i.e. the tattoo removed).  Finally, any publication of the person sporting the tattoo would be in violation of the artist’s display right under the statute: the publisher would be on the hook for infringement, and the tattoo holder would be considered a contributory infringer.  David Nimmer, author of the frequently-cited “Nimmer on Copyrights,” supported Warner Brothers’ argument as an expert witness, submitting a lengthy declaration  in which he admits to changing his previous position on the issue.

 On May 24, just two days before the film’s scheduled opening, U.S. District Judge Catherine D. Perry denied Whitmill’s motion for a preliminary injunction based on the financial hardship it would cause Warner Brothers.  However, Judge Perry was outwardly skeptical of Warner Brothers’ defenses, referring to them as “silly.”  Judge Perry stated her position that tattoos are indeed copyrightable:

Of course tattoos can be copyrighted . . . I don’t think there is any reasonable dispute about that. They are not copyrighting Mr. Tyson’s face, or restricting Mr. Tyson’s use of his own face, as the defendant argues, or saying that someone who has a tattoo can’t remove the tattoo or change it, but the tattoo itself and the design itself can be copyrighted, and I think it’s entirely consistent with the copyright law.

Having reached a settlement (the terms of which were obviously confidential), the parties filed a joint motion to dismiss the case in June.  The issue of whether a tattoo is copyrightable is apparently tabled for the time being.  But who knew a movie about debauchery in Thailand could spurn such an interesting debate about copyright law?

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