IP Law Tracker Docket Review

By Christopher Smith
Brooks Kushman P.C.

Aug 18, 2015

Each month, we review significant intellectual property decisions from the U.S. Court of Appeals for the Sixth Circuit and the U.S. District Courts for the Eastern District and Western District of Michigan. Below is the summary of significant cases for July 2015.

U.S. District Court – Eastern District of Michigan

Big Guy’s Pinball LLC v. Lipham, Case No, 14-CV-14185, 2015 WL 4209042 (July 10, 2015)

U.S. District Judge Victoria A. Roberts denied the defendant’s motion to dismiss an action for copyright infringement based on a lack of personal jurisdiction. Plaintiff Big Guy’s Pinball, LLC (“BGP”) distributed a free software program called “Nucore,” which emulates the function of a mechanical pinball machine. BGP filed suit against defendant Lipham, a resident of Georgia, alleging that Lipham downloaded the Nucore program from BGP’s website, modified it (including removing security protections), and republished it on Lipham’s own website. Lipham moved to dismiss for lack of personal jurisdiction. Lipham also moved to dismiss the copyright infringement count based on allegations that BGP violated the terms of an open source software license agreement that required BGP to distribute the program under the terms of the open source license.

The court denied the motion to dismiss for lack of personal jurisdiction, holding that jurisdiction over Lipham was proper under the Michigan long-arm statute, M.C.L. § 600.705, and met the minimum contacts required to satisfy due process concerns. See Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945). The court ruled that Lipham purposely availed himself of the privilege of operating in Michigan by committing deliberate actions that amounted to an intentional tort. The court reasoned that Lipham’s alleged infringement satisfied the “effect test” for purposeful availment, which required BGP to show that “(1) BGP felt the brunt of the injury in Michigan, (2) Lipham used BGP’s copyrighted material intentionally or deliberately, and (3) Lipham expressly aimed his actions at Michigan.” Slip op. at *3. See Calder v. Jones, 465 U.S. 783 (1984); Ford Motor Co. v. Great Domains, Inc., 141 F.Supp.2d 763 (E.D. Mich. 2001). The court held that whether Lipham actually knew that BGP was located in Michigan at the time it downloaded Nucore was irrelevant to jurisdiction. “If Lipham was ignorant of this fact, that ignorance does not protect him from litigating in the state where he caused consequences resulting in tortious injury.” Slip op. at *3.

The court also ruled that the exercise of personal jurisdiction over Lipham was reasonable, since the forum state’s interest in protecting Michigan companies from copyright infringement outweighed the burden to Lipham of appearing in Michigan courts. See Audi AG & Volkswagen of Am., Inc. v. D’Amato, 341 F. Supp.2d 734 (E.D. Mich. 2004) (finding jurisdiction in action for trademark infringement).

The court also ruled that venue was proper in the Eastern District of Michigan because Lipham was amenable to personal jurisdiction in that District. 28 U.S.C. § 1400(a). The court denied Lipham’s request to transfer jurisdiction to the Northern District of Georgia, where he resides, because he failed to overcome the “substantial deference” afforded to the plaintiff’s choice of venue. The court noted that transfer would merely “shift” the inconvenience of defending the action in an unfamiliar forum from Lipham to BGP, and that Lipham failed to show that “fairness and practicality strongly favor[ed] a Georgia venue.”

Finally, the court declined to rule on Lipham’s motion to dismiss based on BGP’s alleged violation of the open source software license agreement governing the Nucore program, because it amounted to an affirmative defense rather than an insufficiency in BGP’s complaint for relief.

U.S. District Court -Western District of Michigan

Allen Trench Safety Corp. v. Ozark Laser Systems, Case No. 1:15-CV-255, 2015 WL 4475645 (July 21, 2015)

In contrast to the decision in Big Guy’s Pinball, summarized above, the U.S. District Court for the Western District of Michigan granted a defendant’s motion to dismiss for lack of personal jurisdiction in a copyright infringement action. In the alternative, the court granted the defendant’s motion to dismiss for failure to state a claim.

The plaintiff, Allen Trench Safety Corp. (“Allen Trench”), is a Michigan company with a website containing information on trench boxes, which provide trench stability during excavation operations. It alleged that the defendants, Ozark Laser Systems and its principals (“Ozark”), all located in Missouri and its surrounding states, infringed Allen Trench’s copyrights by copying and posting on Ozark’s own website three informational videos from Allen Trench’s website. Ozark moved to dismiss for lack of personal jurisdiction.

In a decision by U.S. District Judge Robert Holmes Bell, the court granted the motion to dismiss. First, the court held that the defendants were not subject to general personal jurisdiction, despite the fact that Ozark had made repeated sales to a customer in the district. The sales amounted to less than two percent of Ozark’s annual gross sales, and thus were merely single and occasional acts unrelated to the alleged infringing acts. “[M]ere purchases, even if occurring at regular intervals, are not enough to warrant a State’s assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions.” Slip op. at *3, quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984).

The court also held that Allen Trench failed to establish a basis for specific personal jurisdiction. The only basis for specific jurisdiction was Ozark’s maintenance of a website containing the allegedly infringing videos that was accessible to Michigan residents. Applying the Zippo “sliding scale” assessment of website interactivity, the court concluded that the Ozark website was only a passive, informational site that did not result in commercial activity involving Michigan residents. See Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).

Similarly, Allen Trench’s position was not aided by the Calder test, because the alleged infringement did not result from intentional tortious conduct directed to the forum. See Calder v. Jones, 465 U.S. 783 (1984). Although the defendants purposely posted the allegedly infringing videos on the Ozark website, there was no evidence that the actions were directed toward Michigan.

As an alternative ground for dismissal, the court ruled that Allen Trench’s complaint failed to state a claim for relief. Although the videos were first published on the website in 2011 and 2012, and Ozark allegedly copied and republished the works in 2014, Allen Trench only registered its copyright in 2015, after the infringing conduct had ceased. As a result, the court ruled that Allen Trench was not entitled to damages, including statutory damages or attorney’s fees, under the Copyright Act. 17 U.S.C. § 412.

Pleading Patent Invalidity Counterclaim and Affirmative Defenses; Leave to Amend Denied

Quality Edge, Inc. v. Rollex Corp., No. 1:10-CV-278, 2015 WL 4392980 (July 15, 2015)

The U.S. District Court for the Western District of Michigan granted a patent owner’s motion to strike an accused infringer’s counterclaim and twelve affirmative defenses for failure to satisfy the applicable pleading standards. In addition, the court denied the defendant’s request for leave to file an amended pleading, noting the defendant’s pattern of vexatious litigation tactics and the undue prejudice that would result.

Plaintiff Quality Edge, Inc. filed an action alleging that Rollex Corporation infringed its patent for a vented soffit panel design. Rollex filed a counterclaim seeking a declaration that the patent was invalid and also asserted twelve affirmative defenses. Part way through discovery and after the claim construction order, Quality Edge moved to strike the counterclaim and affirmative defenses as indefinite. The court allowed the motion.

In a decision by U.S. District Court Judge Janet T. Neff, the court held that Rollex’s counterclaim did not meet the pleading standard required by Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The counterclaim stated only that, “The ′224 Patent, and each claim thereof, is invalid for failure to satisfy one or more of the conditions of patentability set forth in Title 35, including, inter alia, 35 U.S.C. §§ 101, 102, 103, 112, 116 and/or 132.” Slip op. at *1. The court rejected Rollex’s argument that the pleading could be supplemented by discovery documents setting forth Rollex’s contentions. “Rollex may not rely on assorted filings related to other matters in the course of this litigation to cure clear deficiencies in its Answer and Counterclaims. This is particularly so given the lengthy course of this case, which, as the Court has noted previously, has been anything but straightforward.” Id.

In addition, the court held that Rollex’s “barebones, boilerplate” affirmative defenses failed to provide fair notice of the basis of the defenses, as required under Sixth Circuit authority. Lawrence v. Chabot, 182 F. App’x 442 (6th Cir. 2006) (“An affirmative defense may be pleaded in general terms and will be held to be sufficient … as long as it gives plaintiff fair notice of the nature of the defense”). The court noted that “[d]espite Rollex’s notation that other district courts have permitted such invalidity affirmative defenses, this Court finds such bare citations to the statute devoid of any substantive nature or relevance to this litigation-and hardly ’fair‘ notice.” Slip op. at *3.

Finally, the court denied Rollex’s request for leave to file an amended pleading. Although leave is frequently granted in such circumstances, the district court held that Rollex’s pattern of delay and tactical maneuvers required a different result:

Here, the factors of undue delay, undue prejudice and futility all weigh against leave to amend. Rollex’s motion is belated, wasteful of resources, and unduly prejudicial to Quality Edge. This Court has fully expressed its concerns with Rollex’s repeated backtracking in this case for what appear to be purely strategic purposes. Rollex has attempted to litigate this case piecemeal, even to the extent of a premature and piecemeal appeal, which this Court denied. The Court acknowledges that the nature of patent litigation may well provide opportunity for strategic maneuvering. However, when such maneuvering simply attempts to reinvent a legal case at each point of decision by the Court, it becomes wholly counterproductive to the substantive outcome of the litigation, and should not be permitted. Such is the case here with respect to Rollex’s request to amend its counterclaim and affirmative defenses.

Slip op. at *4 (record citation omitted).

Trademark Infringement; First Sale Doctrine

Rohn v. Viacom International, Inc., Case No. 1:14-CV-83, 2015 WL 4395280 (July 15, 2015)

The U.S. District Court for the Western District of Michigan granted a co-defendant’s motion to dismiss the plaintiff’s complaint for trademark infringement on the grounds that: (1) the defendant was not using the allegedly infringed mark “as a trademark,” and (2) its use on products for resale was protected by the trademark “first-sale” doctrine.

The plaintiff owns the registered trademark GUPPIE for clothing goods. Viacom International registered the trademark BUBBLE GUPPIES, based on the success of an animated television show, and licensed the mark for use by several major retailers. One defendant, Goodies for Kiddies, based in New Jersey, purchases apparel from retail stores and resells the merchandise on the Internet. The plaintiff filed suit against defendants, alleging that their use of the BUBBLE GUPPIES mark was an infringement of the GUPPIE mark. Goodies for Kiddies moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

In a decision by U.S. District Court Judge Janet T. Neff, the court granted the motion to dismiss. First, the court held that Goodies for Kiddies did not use the alleged mark in commerce, as required by the Lanham Act. See Hensley Mfg. v. ProPride, Inc., 579 F.3d 603 (6th Cir. 2009). The court held that the plaintiff failed to state a claim for infringement because Goodies for Kiddies, in purchasing and reselling trademarked goods, did not “use” plaintiff’s trademark “as a trademark.” Specifically, the court concluded that Goodies for Kiddies only used the mark to identify goods that it resold. However, “the use of a trademark in a non-trademark sense, where the trademark is used fairly and accurately as a way to identify an individual working for a company or the nature of the goods or services being offered are not prohibited by the Lanham Act.” Slip op. at *4, quoting Review Directories, Inc. v. McLeodUSA Publ’g Co., 236 F. Supp.2d 810 (W.D. Mich. 2001). The court held that, “Trademark infringement requires conduct more culpable than the mere act of putting a manufacturer’s product on one’s shelf and offering it for sale. Therefore, Plaintiffs’ claims of trademark infringement, false designation of origin, and unfair competition against Defendant Goodies for Kiddies must be dismissed.” Slip op. at *4 (quotation and citation omitted).

In addition, the court held that the use of the allegedly infringing mark by Goodies for Kiddies was protected under the trademark “first-sale” doctrine. See Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924). The doctrine permits the first purchaser of a trademarked article to use the mark to stock, display, and resell the article. The court held that, “Goodies for Kiddies’ conduct — the resale of unaltered goods bearing the term ’Bubble Guppies‘ purchased from retail stores — cannot, as a matter of law, cause consumer confusion.” Slip op. at *5. Thus, the court granted Goodies for Kiddies’ motion to dismiss.