Opinion
No. 03 Civ. 3805 (SAS).
August 4, 2004
Louis S. Ederer, Esq., Torys LLP, New York, New York, for Plaintiff.
Nicholas Penkovsky, Esq., Law Offices of Nicholas Penkovsky, P.C., New York, New York, Ronald B. McGuire, Esq., New York, New York, for Defendants.
OPINION AND ORDER
This is an action for patent infringement and unfair competition involving the design of a lighted mirror product on which plaintiff holds a design patent, designated U.S. Pat. No. D454,701 (the "'701 Patent"). Plaintiff is suing defendants for patent infringement and unfair competition resulting from Q Marketing's sales of an allegedly infringing mirror (the "Q Mirror" or "Wonder Brite Mirrror"). The unfair competition claim is a state law claim. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1338 (conferring original jurisdiction on the district courts for any action relating to patents). Venue is proper in this district pursuant to 28 U.S.C. § 1391(b). A bench trial was held from May 17 through May 24, 2004. The following constitutes the Court's findings of fact and conclusions of law. I. FINDINGS OF FACT A. The Parties
Unless otherwise indicated, the following facts are undisputed.
The facts regarding the parties are taken from the Joint Pretrial Order.
Etna Products Co., Inc. ("Etna"), is a New Jersey corporation located and doing business in New York City. Etna holds the '701 design patent for a five times magnifying, folding, lighted mirror product (the "Magna Brite Mirror"). Defendant, Q Marketing Group, Ltd. ("Q Marketing") is a New York corporation located and doing business in Great Neck, New York. Defendant, Eduardo Gordon ("Gordon") is the president and fifty percent owner of Q Marketing.
Etna and Q Marketing are competitors in the business of selling various products to retail and mail order companies. Etna is a developer and importer of gifts, household, personal care, and novelty products. The company was founded in 1945 and has sold over a thousand products. Q Marketing, which has been in business since 1995, has also developed and imported hundreds of products including housewares and gifts. Both companies have sold products to Publishers Clearing House ("PCH"), a large mail order company. Etna has sued PCH in a separate, but related, action relating to the alleged infringement of its patent in its Magna Brite Mirror.
B. The Origins of the Magna Brite Mirror
Etna purchased the Magna Brite Mirror from Starich Industries, Inc. ("Starich"), its long-time Hong Kong supplier. See Trial Transcript ("Tr.") at 92-93, 101. Chue Lap Fu Eric, the inventor of the mirror, gave the following testimony at trial, which I find to be fully credible. Chue is an employee of Kenki Hong Kong Ltd., also known as Starich, a manufacturer. See id. at 320. He has worked at Starich for the past eleven years, where he is the chief product designer. See id. at 320, 323 Chue has designed many products including flashlights, tools and housewares, see id. at 323, and has designed products specifically for Etna. See id. at 325.
I also find Eric Snyder, Etna's President, to be a credible witness. See infra.
In October of 1999, Eric Snyder, President of Etna, asked Chue to design a folding, lighted, five times magnifying mirror. See id. at 326-27. Chue testified that he had not looked at any other mirrors when he designed the Magna Brite Mirror. See id. at 327-28. He categorically denied seeing the Brookstone Mirror until he was shown it in plaintiff's counsel's office one week before this trial began. See id. at 342.
For a discussion of the Brookstone Mirror, see infra Part I.F.
After two months of designing and numerous sketches, Chue made a hand sample of a lighted, curved mirror which he sent to Etna.See id. at 333. Chue felt his design was harmonious because it was round and curved. See id. Etna suggested that the mirror be mountable and have only two light bulbs instead of four. See id. at 334. Etna also suggested that chrome be added to the mirror. See id. at 335. Chue completed the second hand sample in April of 2000 to which Snyder gave his final approval in May 2000. See id. at 334-35, 101.
The patent names Chue as the inventor. See Copy of the File Wrapper for the '701 Patent, Plaintiff's Exhibit ("PX") 24. Chue assigned his patent rights to Etna on May 7, 2001, which was also the date Chue filed the patent application. See Copy of the Record of Assignment From Chue to Etna, PX 25. The patent was issued on March 26, 2002. See Copy of '701 Patent, PX 26. Chue has sworn that he was the first and sole inventor of the Lighted Mirror described in the patent application. See Chue Declaration of January 29, 2001; see also Tr. at 336.
Starich owns the rights to sell the mirror designed by Chue outside the United States. See Tr. at 111. Starich displayed the Magna Brite Mirror in Hong Kong, at the Wangchai Fair, in October 2000. See id. Snyder testified that he was present at the Wangchai Fair in October 2000, but did not see any other mirrors substantially similar to the Magna Brite Mirror. See id. at 112. Nor did he see any substantially similar mirrors at the Guangzhou Fair (formerly known as the Canton Fair), held in China, which he attended shortly thereafter. See id. at 114. Snyder's understanding was that Starich decided to show the Magna Brite Mirror only at the Wangchai Fair. See id.
C. Etna's Sales of the Magna Brite Mirror
The first Magna Brite television commercial was aired by Etna in December 2000. See id. at 115. In this commercial, Etna offered a bonus compact mirror to be sold with the folding, lighted mirror. See Magna Brite Mirror Television Advertisement, PX 31. Etna continued television advertising of this product over the next eight months (January through August 2001) and spent over $500,000 in promoting the Magna Brite Mirror. See Tr. at 115. A packaging box was designed for the mirror which prominently displayed the unique design of the Magna Brite Mirror and contained the "As Seen on TV" logo. See id. at 110 and PX 28.
During the period from January 2001 to December 2003, Etna sold the Magna Brite Mirror to well-known mail order catalog houses, various retail outlets, and directly to consumers. See Tr. at 118-19. Sales totaled approximately 300,000 units amounting to over $2 million. See id. at 119, 122. Etna's average cost per unit was approximately $3.50, see id. at 178, but its sale prices varied from a below-cost low of $2.90 to a high of $12.50. See Etna's Inventory Transaction Module, PX 36. In December 2001 and again in April 2002, Etna attempted to sell this product to PCH, through an independent representative, Donald Onorato, but PCH never purchased the Magna Brite Mirror from Etna. See Tr. at 123.
D. Infringement of the Magna Brite Mirror
Eduardo Gordon, as well as Jeri Silverman and Jacqueline Lee testified at the trial. Silverman was Gordon's contact at PCH and Lee is the representative of Fortune Lion, his Hong Kong supplier. The following findings are based on their testimony, unless otherwise indicated. Gordon regularly makes buying trips to the Far East. See id. at 487-88, 516-17. Gordon testified that he became aware of a magnifying, lighted mirror product while he was at the Canton Fair in April 2001. See id. at 485. Gordon saw ten to twelve folding, lighted mirrors at the Canton Fair but claims he did not see any patent markings on any of the mirrors or the packaging. See id. at 486. In July 2001, he visited a factory in China, together with Lee. The purpose of that visit was to discuss the production of a magnifying, folding, lighted mirror. See id. at 479-80. Fortune Lion is an Asian manufacturing company from which Q Marketing has obtained numerous products over the years. See id. at 475-76. Lee offered a folding, lighted mirror product to Gordon during their meeting.See id. at 479. The topic of patent protection came up and it was Gordon's understanding, based on representations made by Lee, that there was no patent on the offered mirror. See id. at 480. Gordon obtained a sample of the product from Lee. See id. at 492.
Later that year, in October 2001, Gordon made another trip to the Far East, together with Jeri Silverman. See id. at 488. During that trip, they saw a folding, lighted mirror displayed at trade fairs in Hong Kong and Guangzhou. See id. Gordon discussed the mirror product with Silverman who expressed interest in purchasing the lighted, folding mirror from Q Marketing. See id. at 526. On November 5, 2001, Silverman sent Gordon an e-mail, the subject matter of which was "recap of Hong Kong Trip." In this e-mail, Silverman listed the following as an item of interest: "Mirror Brite . . . 5x magnifier like Magna Brite paired with a smaller compact mirror . . . both would be around $2.85 ex fty . . . need all info as this is a great Super Deal!" November 5, 2001 E-Mail from Silverman to Gordon, PX 87. Q Marketing made a presentation to PCH in late 2001, displaying the sample mirror obtained by Gordon in July 2001. See Tr. at 490-92.
Don Onorato of Onorato Associates, a company that represents independent manufacturers, testified that he met with Jeri Silverman in April 2002 to pitch the Magna Brite Mirror to PCH. See Tr. at 351, 365. At that meeting, Onorato did not display the actual Magna Brite Mirror but instead handed Silverman the packaging box for the Mirror. See id. at 370. On the side of the box, in the lower right-hand corner are the words "Patent Pending." See PX 28. Although Silverman did not recall seeing the box at the meeting, see Tr. at 551, Onorato testified that she looked at the box. See id. at 370. According to Onorato, the question of patent protection never came up at the meeting, see id. at 451, and he was not sure whether Silverman in fact read the "Patent Pending" notation.See id. at 463.
On November 13, 2001, Q Marketing provided PCH with a specification sheet for a folding, lighted mirror, which was followed by a specification sheet for both the folding mirror and a compact mirror. See id. at 555; see also PCH Product Specification Sheets, PX 99. On March 4, 2002, PCH issued a purchase order to Q Marketing for the two mirrors. See id. at 551-52; see also PCH Purchase Order, PX 100. PCH sent Q Marketing a letter agreement dated April 12, 2002, which Gordon signed, warranting that the Q Mirror did not violate any existing patent rights. See Tr. at 887; see also April 12, 2002 Letter from Marjory Smith of PCH to Matt Kall of Q Marketing, PX 90. The first shipment of the Q Mirror was delivered to PCH in the United States on May 24, 2002. See PCH Receiving Document, PX 103. From April 24, 2002 through May 13, 2003, Q Marketing sold a total of 51,168 units to PCH. See Q Marketing's Sales by Item Detail Summary, PX 102. PCH sold the Q Mirror with the same bonus offering of a compact mirror in the same manner as the Magna Brite Mirror was sold. See PX 83.
Gordon testified that during this period he never learned of any patent for a folding, lighted mirror product similar to the one Q Marketing was selling to PCH. See Tr. at 850-51, 887. In addition, Q Marketing sold 670 units to another customer, Home Shopping Network ("HSN"). See PX 102. Q Marketing's sales to these two customers totaled to $161,324.44. See id. Q Marketing's total gross profit for 2003 was approximately $1.7 million. See Tr. at 911. The last sale of Q Mirrors to PCH was in mid-May 2003 and consisted of 740 units. See PX 102. These units were flown in from Hong Kong pursuant to a purchase order dated March 18, 2003, which Q Marketing accepted when Gordon was traveling. See id. at 905-06.
Gordon makes this claim despite the fact that since January 2001, the words "patent pending" appeared on the Magna Brite Mirror and its packaging. See Tr. at 125-26. Under the circumstances, this testimony is not credible.
At trial, Q Marketing could only substantiate $47,854.82 in costs for selling these mirrors. Accordingly, its profit on the sale of the Q Mirror is $113,469.62.
E. Etna's Enforcement of Patent Rights
Etna has protected its patent rights in the Magna Brite Mirror against various infringers over the years. For example, in early 2002, Etna became aware that Tactica International, Inc. ("Tactica") was selling a mirror substantially similar to the Magna Brite Mirror. See id. at 140-42. On April 9, 2002, Etna sent a cease and desist letter to Tactica informing it of its infringement. See id. On May 16, 2002, Etna filed suit against Tactica alleging patent infringement. See id. at 142, 143. The lawsuit was settled in March of 2003 for a $45,000 payment, an agreement by Tactica to cease further manufacture and sale of its mirrors, and a stipulation that Etna's design patent was valid and enforceable.See id. at 143. In May of 2002, Etna learned that Alco Industries, Inc. ("Alco") was selling an infringing mirror. See id. at 145-46. Etna sent Alco a cease and desist letter on June 11, 2002, see id., and the matter was settled in August of 2002 with Alco agreeing to cease further manufacture and sale of its lighted mirror product. See id. at 146-47. Other than the mirrors sold by Tactica, Alco and Q Marketing, there is no evidence that mirrors with a design substantially similar to the Magna Brite Mirror have ever been sold in the United States.
On March 11, 2003, Etna also wrote a cease and desist to HSN after learning that a knock-off of its Magna Brite Mirror was being sold in HSN's "Improvements" catalog. See id. at 157-59. On April 4, 2003, HSN informed Etna that it was willing to cease and desist from further sales of its mirror and identified Q Marketing as the supplier of the infringing mirror.See id. at 159-60.
On April 11, 2003, Etna sent Q Marketing a cease and desist letter with regard to its sales of the Q Mirror. See id. at 747-48. The April 11, 2003 cease and desist letter included a copy of Etna's design patent for its Magna Brite Mirror. See April 11, 2003 Letter from Bruce E. Lilling (Etna's patent counsel) to Gordon, PX 78. Gordon faxed this letter to Q Marketing's attorney, Nicholas Penkovsky, for his review. See Tr. at 497. Gordon also alerted Jeri Silverman that there may be a possible patent problem with regard to the Q Mirror and that she should contact Etna to obtain mirrors in the future. See id. at 497-98. Gordon did not offer to take back any of its mirrors from PCH, nor did he advise PCH to stop selling the mirrors it had in stock. See id. at 895-96. Through Penkovsky, Gordon informed Lilling that Q Marketing was willing to negotiate. See May 13, 2003 Letter From Penkovsky to Lilling, PX 79. However, because of an alleged miscommunication between Gordon and his attorney, see Tr. at 901, Penkovsky represented the following on May 13, 2003:
[S]ales of the item that your client claims as infringing ceased approximately two to four weeks prior to my client's receiving your April 11, 2003 cease and desist letter. I can also tell you that the item was used solely as a promotional item on two occasions. There are no other sales and this was not a regular item for distribution. I am awaiting further sales information and data.
PX 79. Even after he learned that this statement was incorrect, Gordon did not instruct his attorney to correct it. See Tr. at 902.
F. The Brookstone Mirror
In March of 1999, the Brookstone Company, Inc. published a catalog of consumer goods that was shipped to over two million consumers within the United States. See Tr. at 387. The catalog included a photograph of a lighted, folding, five times magnifying mirror with a list price of $60.00 (the "Brookstone Mirror"). See 1999 Brookstone Catalog, Defendant's Exhibit ("DX") D-1. The mirror is oval, with three light bulbs around its perimeter, and an adjustable arm that allows for positioning.See id. at 32. The Brookstone Mirror first became available in the United States in 1999. See id. at 402. It was designed by Tim Simon in 1998. See id. at 390-91. Simon testified at trial that neither he nor the Brookstone Company sought patent protection for the Brookstone Mirror. See id. at 406. The Brookstone Mirror was last sold in 2001. See id. at 403.
G. Prior Art
Bruce Dunkins, a self-employed litigation consultant, testified as plaintiff's expert. See id. at 265. Dunkins was a design patent examiner in the United States Patent and Trademark Office ("PTO") from 1956 through 1991. See id. Dunkins examined the Magna Brite Mirror, the Brookstone Mirror and a mirror cited as prior art in Etna's patent application, the Eberts Mirror. See id. at 273. Dunkins noted that all three mirrors had a base and an interconnecting, adjustable arm. See id. at 278. As such, all three mirrors are similar in function but not in appearance.See id. From a design perspective, all three mirrors are different. See id. at 285. The Magna Brite Mirror is circular and symmetrical while the Brookstone Mirror is pear-shaped or oval. See id. at 286. The base of the Magna Brite is also different from that of the Brookstone Mirror which looks like a split hoof, see id., and the Eberts Mirrors, which is raised and has ridges. See id. at 288.
On cross-examination, Dunkins testified that the Eberts Mirror was probably the best prior art available to the patent examiner.See id. at 301. He also stated that the Eberts Mirror was closer to the Magna Brite Mirror than the Brookstone Mirror.See id. at 302. If Dunkins had been the patent examiner he would not have cited the Brookstone Mirror as prior art although he would have cited the Eberts Mirror. See id. at 304. In Dunkins' opinion, which I fully credit, the Brookstone Mirror would have been immaterial to Etna's patent application. See id. at 301.
H. Functionality
Dunkins testified that he conducted a functionality analysis of the Magna Brite Mirror. See id. at 273. He looked at the mirror in its totality, rather than examining its features in isolation, see id. at 276, and determined that the mirror is ornamental and not dictated by function. See id. at 274-75. Dunkins criticized the functionality analysis of defendants' retained expert, Dr. Graham Walker, who did not testify but who prepared a report. Although the report was not received in evidence, it was reviewed by Dunkins. In his report, Dr. Walker analyzed the separate elements of the design and explained how each functioned. See id. at 285. According to Dunkins, a patent examiner must look at the entire article, not break it down to its simplest elements. See id. When considered from this perspective, an almost infinite combination of different features could produce an operable lighted magnifying mirror. But the question is whether a particular combination of features is dictated strictly by function. See id. at 274-75.
II. CONCLUSIONS OF LAW
A. Validity of the '701 Patent
Every patent is "presumed valid." 35 U.S.C. § 282. Accordingly, it is the burden of the alleged infringer to prove invalidity and this burden is extremely high. In fact, a party seeking to invalidate a patent must demonstrate that the patent is invalid by "clear and convincing evidence." Beckson Marine Inc. v. NFM Inc., 292 F.3d 718, 725 (Fed. Cir. 2002) (citing Dana Corp. v. Am. Axle Mfg., 279 F.3d 1372, 1375 (Fed. Cir. 2002)). Defendants have failed to show that the patent in issue is invalid.
1. Original Invention
Defendants' first ground for their claim of invalidity is that Etna is not even the owner of the patented design because the product was already in existence before Chue designed it. The issuance of a patent is prohibited in circumstances where the inventor "did not himself invent the subject matter sought to be patented." 35 U.S.C. § 102(f).
The burden of proof of non-inventorship under section 102(f) is by clear and convincing evidence and such a finding cannot be based on conjecture or speculation. See Porter-Cable Mach. Co. v. Black and Decker Mfg. Co., 274 F. Supp. 905, 913 (D. Md. 1967) ("[T]he granting of letters patent raises a prima facie presumption that the named persons were inventors of the patented device, and the burden is upon the defendant to show otherwise by strong clear and convincing evidence."), aff'd, 402 F.2d 517 (4th Cir. 1968).
Based upon the testimony of Chue and Snyder, I conclude that Chue was the original inventor of the Magna Brite Mirror. Defendants have put forth no evidence that a mirror substantially similar to the Magna Brite Mirror existed prior to October 2000. Gordon's testimony that he saw many folding, lighted, magnifying mirrors at the Canton Fair in April and October of 2001 does not refute this conclusion as his trips came after Chue's invention and Starich's display of the lighted, folding mirror at the Wangchai Fair in October of 2000. Defendants' attempt to invalidate the patent on this basis is unavailing.
2. Prior Art
Defendants' second attack on the patent's validity is based on Etna's alleged failure to disclose the Brookstone Mirror to the PTO as prior art. Defendants claim that had the Brookstone Mirror been disclosed, the PTO would have found Etna's design to be obvious, and its patent would not have issued.
A patent may not be obtained "if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." 35 U.S.C. § 103(a). In order to be considered relevant prior art in the case of a design patent, however, the prior art reference must be "`identical in all material respects' to the claimed invention."Door-Master Corp. v. Yorktowne, Inc., 59 U.S.P.Q.2d 1472, 1474 (Fed. Cir. 2001) (quoting Hupp v. Siroflex of Am., Inc., 122 F.3d 1456, 1461 (Fed. Cir. 1997)).
In addition to considering Dunkins' testimony, I have personally viewed and compared the Magna Brite Mirror to the Brookstone Mirror. The degree to which they are similar depends on the level of detail with which they are viewed. Both are lighted mirrors with five times magnification and adjustable arms. If one views mirrors in such general terms, the Brookstone Mirror may very well qualify as prior art. But when viewed from the perspective of a patent examiner, the two mirrors are very different. The Brookstone Mirror is oval shaped, has three light bulbs, and a split hoof-shaped base whereas the Magna Brite Mirror is circular, has two light bulbs, and a smooth round base. The Magna Brite mirror also has two pieces of chrome that partially surround the mirror. It is these design differences, some subtle and some obvious, that differentiate the two mirrors. Given these design differences, the Etna patent cannot be invalidated because of the non-disclosure of the Brookstone Mirror as prior art.
3. Functionality
The third basis for claimed invalidity is that Etna's lighted mirror design is not ornamental, as that term is interpreted under the patent law, but rather functional and therefore not the proper subject of a design patent. A design patent only protects the novel, ornamental aspects of a design as shown in the patent.See OddzOn Prods., Inc. v. Just Toys, Inc., 122 F.3d 1396, 1405 (Fed. Cir. 1997); Hsin Ten Enter. USA, Inc. v. Clark Enters., 149 F. Supp.2d 60, 63 (S.D.N.Y. 2001). A particular feature of a patented design is ornamental if "`the functional aspect or purpose [of the feature] could be accomplished in many other ways.'" Hsin Ten Enter., 149 F. Supp.2d at 63 (quoting Avia Group Int'l, Inc. v. L.A. Gear California., 853 F.2d 1557, 1563 (Fed. Cir. 1988)). See also Best Lock Corp., v. Illco Unican Corp., 40 U.S.P.Q.2d 1048, 1050 (Fed. Cir. 1996) ("A design is not dictated solely by function when alternative designs for the article of manufacture are available.").
If the design of a particular feature must appear a certain way, and only that way, in order to perform a particular function, then the feature is functional and not ornamental.See Door-Master Corp., 59 U.S.P.Q.2d at 1475 (indicating that only the non-functional aspects of an ornamental design as shown in a patent are proper bases for design patent protection, but finding that the features in the design patent for an integrated door and frame were ornamental and non-functional because many different configurations of those features could perform the same functions of an integrated door and frame).
Chue testified that he could have designed the mirror's shape, arm, light enclosures and base differently without any impact on the mirror's operability. His conclusion is fully supported by Dunkins's testimony and my own examination of the mirror. Based on the totality of the evidence, I conclude that the Magna Brite Mirror is sufficiently ornamental to warrant design patent protection. Defendants' functionality defense is therefore rejected.
4. Enforcement
Finally, defendants assert that because Etna failed to take action to stop the proliferation of identical "knock-offs" in the Far East, Etna should be foreclosed from asserting its patent rights against Q Marketing and Gordon. Defendants' unenforceability defense, however, is based on a false premise. Patent law is territorial, and Etna only owns the patent in the United States. Accordingly, it is not entitled to assert its patent rights against Far Eastern suppliers who are not selling their goods in the United States, even if it knew who they were.See 35 U.S.C. § 271(a) ("[W]hoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.").
By contrast, Etna has shown that is has asserted its patent rights against every known party selling infringing goods in the United States. Accordingly, Etna is not foreclosed from bringing this enforcement action against Q Marketing and Gordon because it did not bring enforcement actions against foreign suppliers who may have been selling knock-off mirrors outside the United States.
B. Infringement
The determination as to whether a design patent has been infringed involves a two-step process. First, the court must construe the design patent's claims. Next, the fact-finder must compare the claim and the accused product, employing both the "ordinary observer" test and the "point of novelty" test.Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277, 1286 (Fed. Cir. 2002) (citing Contessa Food Prods., Inc. v. Conagra, Inc., 282 F.3d 1370, 1377 (Fed. Cir. 2002)).
The process of construing the claims of a design patent "must be adapted to the practice that a patented design is claimed as shown in its drawing. There is usually no description of the design in words[.]" Goodyear Tire Rubber Co. v. Hercules Tire and Rubber Co., Inc., 162 F.3d 1113, 1116 (Fed. Cir. 1998). Rather, design patents are limited to what is shown in the application drawings and are narrow in scope. Hsin Ten Enter., 149 F. Supp.2d at 63.
In order to construe the claims of a design patent, the court must identify the non-functional, or ornamental features of the design. See id. (citing OddzOn Prods., 122 F.3d at 1405). An ornamental feature can have a function and still be ornamental. A particular feature is ornamental if "the functional aspect or purpose could be accomplished in many other ways." Avia Group, 853 F.2d at 1563.
Applying these standards and examining the drawings of the '701 patent, the ornamental aspects of Etna's mirror design encompass, among other features, the appearance of the mirror portion of the unit. This mirror portion comprises a round mirror encircled on its outer edge by a circular frame consisting of two unique light receptacles at the top and bottom edges of the mirror, both identically curved in stylized, semi-circular shapes, and semi-circular strips on the right and left sides of the mirror that connect or sit between the two light receptacles. The mirror is partially surrounded by two strips of chrome. Another ornamental feature of the patented design is the circular base of the mirror product. Accordingly, these are the features that defendants' mirror design is to be measured against in determining infringement.
The first test for determining infringement, the "ordinary observer" test, is as follows:
[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.Gorham Mfg. Co. v. White, 81 U.S. (14 Wall.) 511, 528 (1871);see also Catalina Lighting, Inc., 295 F.3d at 1286.
Simply looking at the two mirrors reveals that the Q Mirror is a virtual duplicate of the design depicted in the '701 patent. In particular, the ornamental aspects of the mirror portion of the design, as well as the base portion, are virtually identical. The differences, if any, are imperceptible, except on close examination, and are certainly not visible in catalog photographs. Under the ordinary observer test, the design of the ornamental features of the Q Mirror is substantially the same as that depicted in the '701 patent, in that the resemblance is such as to deceive an observer, inducing him or her to purchase one supposing it to be the other. It is beyond dispute that the Q Mirror is virtually identical to the Magna Brite Mirror and an obvious copy. I find this conclusion to be further supported by the fact that Q Marketing sold its Q Mirror along with a compact mirror, which is exactly how the Magna Brite Mirror was marketed.
Indeed, in a recent submission to the Court, defendants' counsel essentially conceded infringement, stating that "[t]here is no dispute that the mirror marketed by the Defendant Q Marketing Group, Ltd. (the "Q Mirror") is substantially similar to the Magna Brite." April 16, 2004 Letter from Ronald B. McGuire to the Court.
In applying the "point of novelty" test, the court must determine whether the accused design appropriates the points of novelty that distinguish the patented design from the prior art. See Catalina Lighting, Inc., 295 F.3d at 1286 (citing Contessa Food Prods., Inc., 282 F.3d at 1377). The points of novelty that distinguish the '701 patent from the prior art are essentially the same as those discussed earlier as the ornamental features, particularly the design of the mirror portion. None of the four patented designs cited as prior art in the Etna patent have a mirror portion that looks anything like the mirror portion of the Etna mirror. In particular, none have a circular frame around the mirror consisting of two stylized light receptacles at the top and bottom of the mirror, and semi-circular strips of chrome on the right and left sides connecting the two light receptacles. Applying the "point of novelty" test, it is clear that the Q Mirror appropriates the points of novelty that distinguish the '701 patent from the prior art, and infringes the patent under that test as well. Accordingly, under both tests, defendants have infringed Etna's patent.
C. Willfulness
There are no definitive rules regarding the precise factors indicative of willfulness. See Graco, Inc. v. Binks Mfg. Co., 60 F.3d 785, 792 (Fed. Cir. 1995); Transmatic, Inc. v. Gulton Indus., Inc., 53 F.3d 1270, 1279 (Fed. Cir. 1995). Rather, willfulness is determined by the totality of the circumstances. Graco, Inc., 60 F.3d at 792; Transmatic, Inc., 53 F.3d at 1279. The Federal Circuit discussed the following factors relevant to a finding of willfulness: "(1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when [it] knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that the patent was invalid or that it was not infringed; and (3) the infringer's behavior as a party to the litigation."Bott v. Four Star Corp., 807 F.2d 1567, 1572 (Fed. Cir. 1986),overruled on other grounds sub nom., A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992). In Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992), the Federal Circuit considered the following additional circumstances that may be relevant to a finding of willfulness: (4) defendant's size and financial condition; (5) the closeness of the case; (6) the duration of the defendant's misconduct; (7) remedial action by the defendant; (8) the defendant's motivation; and (9) whether the defendant attempted to conceal its misconduct.
With the exception of remedial action, these additional factors are discussed in the Enhancement of Damages section. See infra Part II.D.3. Defendants' behavior as litigants is discussed in the Attorney's Fees section. See infra Part II.D.4.
Defendants argue that they are not liable for damages to Etna because Etna did not mark its Magna Brite Mirror with the statutorily required notice indicating that it was patented and defendants had no other notice of Etna's patent until they received direct notice of the patent in April 2003. See 35 U.S.C. § 287(a) (requiring a patentee to give notice to the public that an article is patented). Plaintiff responds that its product was marked "patent pending" and that under the unique circumstances of this case, defendants had a duty to investigate Etna's patent rights as early as April 12, 2002 (the date of the letter agreement between Q Marketing and PCH). Plaintiff argues that a finding of willfulness depends not on when defendants were directly notified of the issuance of the patent, or even when they knew of the existence of the patent, but at what point did circumstances dictate that they should have known of its existence. See Branch v. Ogilvy Mather, Inc., 772 F. Supp. 1359, 1364 (S.D.N.Y. 1991) ("[I]n order to prove willfulness, a plaintiff must show that the defendant knew or should have known that its conduct constituted copyright infringement."). According to plaintiff, if that date is earlier than the date of actual notice, an infringer can be found liable for willful infringement for pre-notice sales.
Willfulness depends on whether the defendant had actual or constructive knowledge that its conduct was infringing. See Fitzgerald Pub. Co. v. Baylor Pub. Co., Inc., 807 F.2d 1110, 1115 (2d Cir. 1986). Accordingly, knowledge of infringement "need not be proven directly but may be inferred from the defendant's conduct." N.A.S. Import, Corp. v. Chenson Enters., Inc., 968 F.2d 250, 252 (2d Cir. 1992). Thus, a court may base a finding of willfulness on defendant's reckless disregard of the patent holder's rights. See id.
Here, Q Marketing's duty to investigate was triggered when Q Marketing deliberately copied Etna's heavily advertised product which was marked "patent pending." This intentional copying was evidenced by Silverman's November 5, 2001 e-mail referring to Etna's Magna Brite Mirror, and the signing of the April 12, 2002 letter agreement, whereby Q Marketing assured PCH that the sale of the lighted mirror product would not give rise to any patent infringement. Defendants cannot claim ignorance by refusing to see that which is plain. Actual knowledge is not required. See Polo Ralph Lauren, L.P. v. 3M Trading Co., Inc., No. 97 Civ. 4824, 1999 WL 33740332, at *5 (S.D.N.Y. Apr. 19, 1999) ("Plaintiff need not demonstrate that the defendant actually knew at the time that its conduct was infringing, since the requisite knowledge may be constructive."). It is sufficient if defendants would have known but for their conscious avoidance of the facts.
Under these circumstances, a finding of willfulness on Q Marketing's part is inescapable. In addition to Q Marketing's blatant copying of the Magna Brite Mirror and its receipt of Silverman's November 5, 2001 e-mail, there is even more evidence of willfulness. For example, before Q Marketing started distributing the Q Mirror, Gordon did nothing other than accept Lee's verbal representation that there was no patent on the mirror product she offered him in July 2001. Moreover, Gordon testified that prior to signing the April 12, 2002 letter agreement, he did no research and made no inquiries as to any patent protection that may have been issued on the mirror design. See Tr. at 887.
Furthermore, at the time Q Marketing received Etna's cease and desist letter, 13,600 Q Mirrors were "on the water" waiting to be received by PCH. See id. at 894. Gordon testified that he was unaware of these units. See id. This testimony is of doubtful credibility. Gordon notified Silverman of Etna's claim on April 28, 2003, seventeen days after he received the cease and desist letter. See id. at 895. Gordon did not offer to take back any Q Mirrors from PCH, nor did he advise PCH to stop selling the mirrors it had in stock. See id. at 895-96. Had he done so, PCH would have complied. See id. at 576 (testimony of Jeri Silverman). I therefore find defendants' conduct to be willful.
D. Damages
1. Etna Is Entitled to a Permanent Injunction
The first remedy Etna seeks is a permanent injunction which a court may grant "to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." 35 U.S.C. § 283. Section 283 states that injunctions may be granted "in accordance with the principles of equity." Id. It is beyond dispute the Q Marketing infringed Etna's valid patent and, as a result, a permanent injunction should issue. See Xerox Corp v. 3Com Corp., 66 U.S.P.Q.2d 1216, 1220 (Fed. Cir. 2003) (stating the general rule that a permanent injunction will issue once infringement and validity have been found); W.L. Gore Assocs., Inc. v. Garlock, Inc., 842 F.2d 1275, 1281-82 (Fed. Cir. 1988) (holding that discontinuing sale of infringing product is not a sufficient reason for denying injunction). Accordingly, defendants are hereby permanently enjoined from selling the Q Mirror within the United States.
2. Etna Is Entitled to Recover Damages Proximately Caused by Defendants' Infringing Acts
In patent infringement cases, courts shall award "damages adequate to compensate for the infringement. . . ." 35 U.S.C. § 284. Section 284 imposes no limitation on the types of compensable harm resulting from infringement. The statute's broad language awards damages for any injury as long as the injury resulted from the infringement. By using the phrase "damages adequate to compensate," section 284 provides economic redress sufficient to restore the patentee to its rightful position absent the infringement. See King Instruments Corp. v. Perego, 65 F.3d 941, 949 (Fed. Cir. 1995). One measure of damages is the profits plaintiff lost as the result of the infringement. "`If the record permits the determination of actual damages, namely, the profits the patentee lost from the infringement, that determination accurately measures the patentee's loss.'" Id. (quoting Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir. 1983)).
To recover its lost profits as a result of patent infringement, a patent owner must show that it would have made the same sales, and the profits on those sales, "but for" the infringement. Id. at 952; see also Milgo Elec. Corp. v. United Bus. Communications, Inc., 623 F.2d 645, 663 (10th Cir. 1980). The patent owner bears the burden of showing a reasonable probability that it would have made the asserted profits absent infringement.See King Instruments, 65 F.3d at 953. A plaintiff need not present absolute proof that purchasers of the infringing product would have bought the patent-holder's product instead. See Milgo Elec. Corp., 623 F.2d at 663. Rather, plaintiff's burden of proof is one of reasonable probability:
If in all reasonable probability, the Patent Owner would have made the sales which the Infringer has made, what the Patent Owner in reasonable probability would have netted from the sales denied to him is the measure of his loss, and the Infringer is liable for that. Id. at 663-64. There is no one method by which the patent owner must meet this burden; rather, "`the methodology of assessing and computing damages is committed to the sound discretion of the district court.'" King Instruments, 65 F.3d at 952 (quoting State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1576-77 (Fed. Cir. 1989)).
Doubts concerning the calculation of lost profits and other business must be resolved against the infringer. Milgo Elec. Corp., 623 F.2d at 663-64. In Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931), the Supreme Court held:
Where the tort itself is of such a nature as to preclude the ascertainment of the amount of damages with certainty, it would be a perversion of fundamental principles of justice to deny all relief to the injured person, and thereby relieve the wrongdoer from making any amends for his acts. In such case, while the damages may not be determined by mere speculation or guess, it will be enough if the evidence show[s] the extent of the damages as a matter of just and reasonable inference, although the result be only approximate. The wrongdoer is not entitled to complain that they cannot be measured with the exactness and precision that would be possible if the case, which he alone is responsible for making, were otherwise. . . . [T]he risk of uncertainty should be thrown upon the wrongdoer instead of upon the injured party.Id. at 563 (citations omitted). See also Livesay Window Co., Inc. v. Livesay Indus., Inc., 251 F.2d 469, 471-72 (5th Cir. 1958) ("If in all reasonable probability, the Patent Owner would have made the sales which the Infringer has made, what the Patent Owner in reasonable probability would have netted from the sales denied to him is the measure of his loss and the Infringer is liable for that.").
There are two components to Etna's request for damages. First, Etna claims that but for Q Marketing's sales of infringing mirrors to PCH, Etna could have sold at least the same number of Magna Brite Mirrors to PCH. Etna easily meets the "but for" test as far as these sales are concerned. In all reasonable probability, Etna would have made the same sales to PCH that Q Marketing made, and is entitled to recover the profits it would have made on such sales.
It is undisputed that Q Marketing sold $161,324.44 worth of its mirror. But because Q Marketing has not adequately documented its costs in selling its mirror to PCH, it is impossible to accurately determine Q Marketing's profits. At trial, Etna established that it sold its mirror to catalog companies at prices varying from $6.50 to $8.50. It is therefore fair to presume that PCH would have bought Magna Brite Mirrors for at least $6.00. Etna's proven cost per unit was $3.50. At this price and cost per unit, Etna's net profit per unit would have been $2.50, resulting in a total lost profit of $127,920. This is a fair measure of damages.
The second component of Etna's damage claim is the profit it lost on PCH business as a result of its decision to sue PCH. Etna claims that as a result of Q Marketing's failure to take remedial action, it was forced to sue PCH. By bringing suit, Etna destroyed its relationship with PCH and lost all of the business it had with PCH. Etna's projected annual sales to PCH in the relevant period was $850,000. In that same period, Etna's profit margin on sales to PCH was twenty-six percent. Accordingly, Etna estimates that its profit on annual sales to PCH would have been $221,000 a year. Etna estimates that it will be at least three years before PCH will ever buy from it again. Etna thus seeks to recover three years of lost profits, totaling $663,000, as a result of losing PCH as a customer.
There are several problems in awarding Etna damages for its lost PCH business. First, and foremost, Q Marketing did not force Etna to sue PCH. Before bringing suit, Etna could have done a cost/benefit analysis to determine whether losing PCH as a customer would outweigh any damages it might recover in a lawsuit against PCH. It apparently did not do this. Rather than seek damages solely from the infringing party, Q Marketing, Etna brought suit against PCH, a common customer. Understandably, PCH stopped doing business with Etna. Etna should have foreseen this consequence. In an attempt to blame Q Marketing by claiming that it was forced to sue PCH, Etna unreasonably stretches the concept of compensatory damages. Second, Etna's proposed recovery is far too speculative. Who is to say that PCH would have continued purchasing $850,000 worth of products from Etna or that it will take at least three years before their relationship can be repaired? The amount of lost profit estimated by Etna is based on pure speculation and cannot support an award of damages.
3. Etna Is Entitled to an Enhancement of Damages Under Section 284
Damages resulting from patent infringement may be enhanced up to three times the compensatory award. See 35 U.S.C. § 284. Whether to enhance damages, and to what extent, are issues committed to the discretion of the trial court. See Graco, Inc., 60 F.3d at 792. The purpose of section 284 is to make an award that takes into account a defendant's conduct. Typically, increased damages are awarded where a defendant has acted with deliberate intent to infringe and cause harm. See Amsted Indus., Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 183 (Fed. Cir. 1994).
The decision whether to enhance damages requires the court to look to the totality of the circumstances. See Graco, Inc., 60 F.3d at 792.
A district court's analysis of whether to increase damages, therefore, is a two-step process. First, the court must determine whether willful infringement (or another circumstance justifying an enhanced award) is proven, a finding of fact which we review only for clear error. Second, if the court finds such a basis proven, it must still determine whether or not, under the totality of the circumstances, increased damages are warranted.State Indus., Inc., 948 F.2d at 1576 (citation omitted).
The size of an enhancement must bear some relationship to the level of culpability. See Graco, Inc., 60 F.3d at 794 n. 4. A paramount factor in deciding whether to grant an enhancement and the size thereof is the egregiousness of the defendant's conduct based on all facts and circumstances. See Rite-Hite Corp. v. Kelley Co., 819 F.2d 1120, 1125-26 (Fed. Cir. 1987). In awarding an enhancement of damages, the district court looks to the same factors considered when determining an infringer's willfulness, namely: (1) whether the infringer deliberately copied the patent; (2) whether the infringer knew of the patent and had a good-faith belief it was invalid; (3) the infringer's behavior as a party to the litigation; (4) the infringer's size and financial condition; (5) closeness of the willfulness question; (6) duration of defendant's misconduct; (7) remedial action by the defendant; (8) defendant's motivation for harm; and (9) whether defendant attempted to conceal its misconduct. See Amsted Indus. Inc., 24 F.3d at 183; see also Goodwall Constr. Co. v. Beers Constr. Co., 991 F.2d 751, 758 (Fed. Cir. 1993) (upholding award of treble damages where defendant willfully copied plaintiff's patented process and attempted to conceal information from its patent attorney when seeking an infringement opinion);Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1581 (Fed. Cir. 1992) (trial court may consider weight of evidence of willfulness, and thus may consider culpability of the infringer with close attention to any mitigating circumstances).
Numerous courts have held that an infringer's "faithful copying" of a patented product demonstrates an intentional disregard for the patent owner's rights and supports an award of enhanced damages under section 284. See, e.g., Milgo Elec. Corp., 623 F.2d at 666; American Safety Table Co. v. Schreiber, 415 F.2d 373, 378 (2d Cir. 1969). This factor weighs in favor of an enhancement here as do many of the other factors. For example, Q Marketing did little, if anything, to investigate whether there was a patent on the lighted, folding mirror product before it started distributing a virtually identical copy of the Magna Brite Mirror. Furthermore, Q Marketing is a relatively large company with $1.7 million in gross profits in 2003 whose president is a sophisticated businessman. The question of willfulness is not close as I have found that Q Marketing blatantly infringed Etna's patent for over a year. When confronted with a cease and desist letter, Q Marketing did virtually nothing to remedy its infringement. In fact, it is fair to infer that the response sent by Q Marketing's attorney was an effort to conceal such infringement. Finally, during the course of this litigation, Q Marketing has frustrated several of Etna's attempts to obtain relevant discovery. For these reasons, I conclude that Etna's damages should be doubled. Accordingly, Etna is awarded $255,840 in compensatory damages.
Defendants' behavior as parties to this litigation is more fully discussed in the Attorney's Fees section. See infra Part II.D.4.
4. Etna Is Entitled to Recover Its Attorney's Fees Under the Exceptional Case Doctrine
"The court in exceptional cases may award reasonable attorney's fees to the prevailing party." 35 U.S.C. § 285. The determination of an award of attorney's fees pursuant to section 285 is a two-step inquiry: first, the trial court must determine whether the case is exceptional; if so, it is then within the court's discretion to award attorney's fees to the prevailing party.See Interspiro USA, Inc. v. Figgie Int'l Inc., 18 F.3d 927, 933 (Fed. Cir. 1994); Brooktree Corp., 977 F.2d at 1582 (statutory purpose of 35 U.S.C. § 285 is to reach cases where the interests of justice warrant fee shifting).
Exceptional circumstances are shown by willful infringement, inequitable conduct before the PTO, litigation misconduct, and vexatious or frivolous litigation. See Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989). In fact, a court must explain why the case is not exceptional within the meaning of section 285 if it does not award attorney's fees where it finds willful infringement. See Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990); Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1329 (Fed. Cir. 1987) (a finding of willfulness is legally sufficient to support an award of attorney's fees).
Although not precisely the same test as that used in determining whether to award enhanced damages under section 284, the test for determining whether to award attorney's fees revolves around the conduct of the infringing party. Conduct during the case can also include conduct within the litigation, such as stalling tactics, refusal to cooperate in discovery, and other litigation tactics designed to increase expense.
This case is sufficiently exceptional to require an award of reasonable attorney's fees. The evidence has shown that defendants targeted Etna's patented product design and, at least, acted with willful blindness with regard to Etna's patent rights. Then, after being put on notice and later sued, defendants refused to recall mirrors that had either not yet been delivered to PCH, or which PCH had in its inventory and had not sold. In fact, Q Marketing did nothing to remedy the harm caused to Etna by its infringement from the time it received Etna's cease and desist letter on April 11, 2003, until November 2003, when PCH returned 521 mirrors to Q Marketing. Finally, during the course of this litigation, Q Marketing has been uncooperative in discovery by failing to produce documents demanded by Etna and by tardy production of relevant information. Q Marketing's conduct continued to be obstructive by filing late motions up to the day of trial and seeking to admit new evidence at the eleventh hour, necessitating additional motions be Etna. For all of these reasons, Etna is entitled to an award of reasonable attorney's fees.
E. Gordon's Personal Liability
It is well established in this Circuit that a principal of a corporation may be held personally liable for the infringing acts of the corporation, even if acting in his capacity as a corporate officer, if he is the moving, active, conscious force behind such acts. See GTFM, Inc. v. Park, No. 02 Civ. 7020, 2002 WL 31890940, at *3 (S.D.N.Y. Dec. 30, 2002); Bambu Sales, Inc. v. Sultana Crackers, Inc., 683 F. Supp. 899, 913 (E.D.N.Y. 1988). Where an individual defendant personally made and controlled all the major decisions and actions relating to the design, manufacture, and sale of an infringing product, that individual defendant is personally liable for the infringement. See Innovac Tech., Inc. v. Ryan Eng'g, Inc., 12 U.S.P.Q.2d 1239, 1240 (Fed. Cir. 1989).
The clear weight of the evidence produced at trial reveals that Gordon was the driving force behind every aspect of Q Marketing's infringing acts. Gordon is responsible for product development at Q Marketing and it was he, in conjunction with Jeri Silverman of PCH, who decided to "knock-off" Etna's Magna Brite mirror. It was Gordon who personally traveled to the Far East to source the infringing product, both by himself and together with Silverman. And it was Gordon, representing Q Marketing, who sold the infringing product to PCH. From these facts, there is no question that Gordon was the moving, active, conscious force behind Q Marketing's acts of infringement. Gordon is therefore personally liable to the same extent as Q Marketing.
III. CONCLUSION
Because I find that defendants willfully infringed Etna's patent for its Magna Brite Mirror, Etna is awarded $255,840 in compensatory damages plus its reasonable attorney's fees in prosecuting this litigation. Q Marketing and Gordon are liable for this total award jointly and severally. Etna is directed to submit its fee application forthwith. Upon receipt of Etna's fee application, defendants will have fifteen days in which to file their opposition. A final Judgment will be entered once Etna's reasonable attorney's fees have been determined.
SO ORDERED: