Hall v. Bed Bath [opinion]

Claim Construction Is Not an Essential Element of a Patent Infringement Complaint

11-1165

January 25, 2013

Decision

Last Month at the Federal Circuit - February 2013

Judges: Newman (author), Lourie (dissenting-in-part), Linn

[Appealed from: S.D.N.Y., Judge Hellerstein]

In Hall v. Bed Bath & Beyond, Inc., Nos. 11-1165, -1235 (Fed. Cir. Jan. 25, 2013), the Federal Circuit reversed the dismissal of Roger J. Hall and RJ Hall & Associates’ (collectively “Hall”) claims for patent infringement, Lanham Act unfair competition, and New York unfair competition and misappropriation against Bed Bath & Beyond, Inc., Bed Bath & Beyond Procurement Co. Inc., and Farley S. Nachemin (collectively “BB&B”), and West Point Home, Inc. (“West Point Home”). The Court affirmed the dismissal of defendants’ counterclaims for sanctions under Fed. R. Civ. P. 11, false marking, and false advertising. The Court also affirmed the denial of defendants’ request for attorneys’ fees.

This case concerns a design patent for a “Tote Towel,” U.S. Design Patent No. D596,439 (“the ’439 patent”). While the ’439 patent application was pending, Hall contacted BB&B to discuss BB&B selling the Tote Towel. Hall left samples of his packaged Tote Towel with BB&B. Both the package and the towel were marked “patent pending.” BB&B then, through West Point Home, had copies of the Hall towel manufactured for retail sale by BB&B. The ’439 patent duly issued, and Hall sued BB&B, West Point Home, and several executives of BB&B. The district court dismissed all of the claims and counterclaims on the pleadings, and all parties appealed.

First, the Federal Circuit considered the district court’s sua sponte dismissal of Hall’s complaint. In doing so, the district court stated that the complaint should have included answers to questions such as: “What is it about Plaintiff’s towel that he claims is ‘new, original and ornamental,’ meriting the protection of a design patent?” Slip op. at 5 (citation omitted). The Federal Circuit rejected this requirement, stating that neither the Federal Rules, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), or Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009), requires such a showing. Instead, Hall needed only to apprise defendants of the infringement claim and its grounds. The Court stated that Hall presented a lengthy complaint stating that the resemblance of the design and the accused product is such as to deceive an ordinary observer under the test for design patent infringement, and Hall’s assertion that the accused towel is “virtually identical in design” to Hall’s Tote Towel is plausible. Slip op. at 7. Further, the Federal Circuit rejected BB&B’s argument that claim construction is an essential element to a patent infringement complaint. Thus, the Court found that the pleadings fully complied with Fed. R. Civ. P. 8, stated the correct law, and showed plausible entitlement to relief.

In addition, Hall sued Farley S. Nachemin, Vice President of BB&B, personally and in his management role, for induced infringement and unfair practices in his actions related to Hall’s Tote Towel. The district court dismissed the complaint against Nachemin because violation of 35 U.S.C. § 271(b) (inducement to infringe) does not reach actions taken before issuance of the adverse patent. On appeal, defendants supported the district court’s reasoning by arguing that, under New York state law, the party seeking to pierce a corporate veil must make a two-part showing (1) that the owner exercised complete domination over the corporation regarding the transaction at issue; and (2) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil. The Federal Circuit affirmed the dismissal of the complaint against Nachemin under New York state law.

As to Hall’s claim of unfair competition under the Lanham Act, the Federal Circuit found that, rather than making an allegation of unfair competition without elaboration, Hall pleaded various facts in support, including instances of consumer confusion and false advertising. The Court concluded that Hall pleaded a plausible claim of falsity, whether literal or by necessary implication. To meet the Lanham Act provision, Hall “need not plead actual harm; the likelihood of harm is the statutory criterion.” Id. at 14. Further, the Court found that BB&B’s advertising stated testable facts, not opinions that could be mere puffery. The Court held that dismissal of the Lanham Act § 43(a) count on the pleadings was improper.

The district court dismissed Hall’s two counts under New York state law for (1) unlawful acts under New York General Business Law (“GBL”) § 349 and (2) misappropriation under New York common law on the pleadings. As to the first count, the Federal Circuit found that Hall stated that the defendants sold their inferior product to Hall’s military customers, where the confusingly similar appearance could adversely affect Hall’s business, and therefore that Hall sufficiently pleaded possible injury to their business under New York GBL § 349(a). As to the second count, the complaint arose from the actions of the defendants in accepting Hall’s sample towel, ostensibly for consideration of a commercial relationship, and acting in bad faith by having Hall’s Tote Towel copied for commercial benefit. The Court stated that bad faith is a requirement to show misappropriation under New York common law, and the Court found that Hall’s complaint set forth such acts of bad faith. Although the district court found no contract existed between Hall and BB&B, “New York precedent recognizes that quantum meruit and unjust enrichment claims may together form a ‘single quasi contract claim,’” and “[a]pplying the standards of equity and good conscience embodied in New York law, the count of misappropriation was not subject to dismissal on the pleadings.” Id. at 21. The Court reversed the dismissals.

Defendants also pleaded three counterclaims: (1) Rule 11 sanctions; (2) false advertising; and (3) false marking. As to Rule 11, the district court denied the Rule 11 motion as baseless, and the Federal Circuit agreed, stating that “the pleadings state facts sufficient to support the counts of patent infringement and the various unfair competition claims.” Id. at 23. As to the counterclaim of false advertising, defendants argued that Hall’s claim to them that the Tote Towel was protected by a patent when that patent was only pending was false advertising. The Court found that, under the circumstances, Hall’s statement “cannot be viewed as even plausibly misleading.” Id. at 24. As to the counterclaim of false marking, defendants claimed that Hall’s Tote Towel retained the “patent pending” label for a few months after the ’439 patent had issued. The Court found, however, that a “marking of ‘patent pending’ after the patent has issued is not the falsity to which this qui tam statute was directed; the statute was directed at marking with an expired or inapplicable patent.” Id. at 24-25. The Court also found that the America Invents Act retroactively changed the law of false marking, and that a competitive injury because of the false marking must be shown. Because defendants pleaded no such injury, the Court affirmed the dismissal of defendants’ counterclaims.

The Court likewise affirmed the denial of defendants’ request for attorneys’ fees.

Judge Lourie dissented-in-part from the majority’s decision to vacate and remand the district court’s dismissal of both the design patent claim and the Lanham Act § 43(a) claim. Judge Lourie regarded the district court’s analysis as not sufficiently faulty to justify vacating its dismissal. Judge Lourie stated that plaintiff declined the district court’s invitation to replead the patent count, and plaintiff’s failure to do so was tantamount to a waiver of any flaws in the court’s decision. Further, Judge Lourie believed that the statement appearing on the accused towel’s packaging was mere puffery, a subjective claim that cannot be proven true or false and is not actionable under the Lanham Act, and the judge saw no reason to reverse the district court’s dismissal of the Lanham Act § 43(a) claim.

Summary authored by Robert A. Hall, Esq.