The Patent Reform Act of 2011 portends yet another problem for small business folks trying to develop technology, and more importantly trying to enforce it. We have written about the pending legislation in prior posts. If it passes the US Congress, and if the “first to file” patent rule is therefore adopted by the USPTO as the law, patents will go to those with superior resources, in-house legal departments and the wherewithal to file patents on a moment’s notice. Gone will be the rule that “invention” is the starting point. It will be the result of a race to the PTO.
This is only part of the current IP problem for small businesses however, and the bigger problem is litigation cost. Small businesses simply cannot afford to bring or defend intellectual property lawsuits. If they are the plaintiff, it is likely that they have been given advice by counsel on the anticipated expense of patent or trademark enforcement litigation. Legal fee costs, expert witness costs, deposition costs, demonstrative evidence for trial costs and lost opportunity time for employees can add up quickly and it is important for the client and counsel to set a budget and to discuss each phase of the litigation with a projection of costs. Sadly this cost discussion is often ignored and we have received calls from potential clients who have exhausted their litigation budgets and who are nowhere near a settlement or trial. Frustrated they seek new counsel, but often new counsel is hampered by the inability to properly fund the ongoing litigation.
More difficult perhaps is the plight of the small business (or individual) defendant in an IP suit. These litigants are often ill-prepared for the costs and rigor of defending litigation in Federal Court. Having never been sued before, but having read about the high cost of lawsuits, they frequently seek legal counsel with the plea: “Can we end this quickly as I can’t afford to be in a lawsuit?” When Plaintiff is seeking to shut down production and sale of the new defendant’s chief product line, the answer to this question may not be easy. I tell them sure – we can end it early – all you need to do is stop making the product that is your main source of revenue, agree never to make it again, pay the plaintiff money for their alleged damages and pay all of their legal fees. These legal fees are generally not insignificant and may have been generated by one or more large law firms at enormous billing rates.
The client, who may even have solid defenses, is then faced with a difficult choice between: 1) Ignore the defenses and cave in quickly with all of the resultant cost and loss of income; 2) Engage in some litigation to try to establish some leverage for a favorable settlement or 3) Take the chance that expensive litigation will, over time, allow a favorable result and perhaps even an award of attorney’s fees to repay the defendant for the litigation cost. It is option 2 which poses the problem of delicate balancing by lawyer and client. How much litigation and cost is enough to create favorable settlement leverage? The client needs to balance the revenue/profit of the allegedly offending product or mark, against the phased cost of litigation. We can project that phase one (investigation, pleadings, Federal Rule initial disclosures, status conference before the court etc) might cost “x” dollars. The client can decide whether that cost is appropriate against the revenue stream attributable to the product or mark, and determine when to make the settlement move. There is never, of course, any guarantee that the settlement option will work and therein lies the balancing act problem. The client may get stuck in long litigation and need to simply fight its way out. Good communication between lawyer and client is critical to making these decisions.
Check out this article published in The National Law Journal on April 1, 2011. The Federal Circuit’s decision in In Re BP Lubricants USA Inc. has had an impact already (in only a 3 week period of time) on the number of false marking cases on the dockets across the country.
In In Re BP Lubricants USA Inc., No. 960, 2011 U.S. App. LEXIS 5015 (Fed. Cir. March 15, 2011), BP Lubricants USA Inc. filed a petition for a writ of mandamus after the Northern District of Illinois denied BP’s motion to dismiss a complaint filed by a patent attorney as a qui tam relator on behalf of the United States pursuant to 35 U.S.C. § 292. The complaint alleged generally that BP falsely marked products as covered by a patent that expired in 2005. The district court relied on Exergen Corp. v. Wal-Mart Stores, Inc. and determined that the complaint alleged circumstances with enough particularity regarding the intent to deceive to satisfy Rule 9(b).
In its petition, BP asserted that the complaint lacked sufficient facts for a court to reasonably infer that BP knew its patent had expired when it was marking its products. The Federal Circuit concluded that false marking claims should be treated analogously to actions brought under the False Claims Act and held that “Rule 9(b)’s particularity requirement applies to false marking claims and that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a ‘sophisticated company’ and ‘knew or should have known’ that the patent expired.”
Comments Off on High Pleading Standard Imposed by Federal Circuit for False Marking Claims
On February 15, 2011, Judge Schwab of the Western District of Pennsylvania ruled in favor of Fagnelli Plumbing Company, Inc. on its motion for summary judgment and found that there were no genuine issues of fact relating to the claims against Gillece Plumbing and Heating, Inc., et al., for a cybersquatting violation of the Anticybersquatting Consumer Protection Act (ACPA), a violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A), and common law trademark infringement and unfair competition.
According to the Judge’s Memorandum Opinion, Fagnelli Plumbing has been the registrant of the domain name “fagnelliplumbing.com” since 2000, and Gillece Plumbing purchased and registered the domain name “fagnelli.com” with GoDaddy in March 2007. After learning that internet traffic was being redirected to Gillece Plumbing’s website and requesting in a letter that Gillece Plumbing cease and desist from redirecting internet traffic, Fagnelli Plumbing commenced the lawsuit on May 18, 2010.
With respect to Fagnelli Plumbing’s cybersquatting claim, the Court analyzed the ACPA and concluded that the name “Fagnelli” was a distinctive mark entitled to protection, the registration of “fagnelli.com” was identical or confusingly similar to the name “Fagnelli” and Gillece Plumbing acted in bad faith with the intent to profit. In regard to the alleged Lanham Act violation, the Court noted that generally the Lanham Act does not protect surnames unless they are distinctive or famous, yet held that “Fagnelli” acquired a distinct and secondary meaning with Western Pennsylvania at the time when Gillece Plumbing began to use the mark. The Court also determined that Gillece Plumbing’s use of “Fagnelli” created a likelihood of confusion in the marketplace. Moreover, the Court granted summary judgment on Fagnelli Plumbing’s claims for common law trademark infringement and unfair competition because the Court found these claims to be identical to the violation of the Lanham Act claim. In addition to granting Fagnelli Plumbing’s motion for summary judgment, the Court also granted a permanent injunction prohibiting Gillece Plumbing from redirecting internet traffic from fagnelli.com or any other domain name using the word “Fagnelli” and owning the domain name fagnelli.com or any similar domain name. The Court noted that a subsequent proceeding will be held to determine damages against the Defendants.
Contact our Pittsburgh Intellectual Property, Cyber and Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP and Litigation Sections Chair Henry M. Sneath at 412-288-4013 or email@example.com. While focusing first on health care and prevention issues for family, friends and employees, we are also beginning to examine the overall Covid Law related issues in business litigation, contract force majeure, trusts and estates litigation and insurance coverage issues that will naturally follow the economic disruption of the Covid-19 pandemic.
Some posts herein are from the HH-Law resources of PSMN® and PSMNLaw®. Business Litigation. Pittsburgh Strong® and DTSALaw®, PSMN® and PSMNLaw® are federally registered trademarks of HH-Law. See Firm Website at: https://www.hh-law.com/Professionals/Henry-Sneath.shtml
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