Court Rules That Patent Infringement Damages May Only Be Collected From The Date of Actual Notice of Patent; Imposes Sanctions For Spoliation of Evidence.

In a December 31, 2013 ruling, Judge Jed S. Rakoff denied the parties’ cross-motions regarding infringement, granted defendants’ Microscan Systems, Inc. and the Code Corporation’s motion for partial summary judgment, and ruled that plaintiffs Cognex Corporation and Cognex Technology & Investment LLC were not entitled to damages for patent infringement prior to providing actual notice of the alleged infringement to the defendants, and further sanctioned plaintiffs for spoliating evidence.

The plaintiffs plead in the complaint that damages should run from actual notice of the patent-in-suit, and later sought to add a constructive notice theory. In considering the date from which patent infringement damages may be awarded, the Court recognized that the patent statute requires that “when a patented article has been produced by a patentee or its licensee, the amount of damages the patentee can recover in an infringement suit is statutorily limited to those acts of infringement that occurred after the patentee gave the alleged infringer notice of infringement.” While the statute permits either “constructive notice, which is accomplished by marking the article with the patent number, or actual notice,” the court nevertheless held that “when a patent owner or licensee makes or sells a product that embodies at least one claim of a patent but does not mark that product as patented as required by 35 U.S.C. § 287(a), damages are limited to the period beginning when the patentee provides actual notice of infringement.” As the plaintiffs failed to plead compliance with the marking statute, the Court ruled that allowing the plaintiffs to amend the complaint in order to comply with the marking statute at the summary judgment stage would unduly prejudice the defendants because the defendants would have been entitled to discovery on the constructive notice theory which they did not pursue. Accordingly, the plaintiffs were permitted to collect infringement damages only for the period after the date on which the actual notice of the infringement was provided to the defendants.

Court Certifies Interlocutory Questions About DCMA Safe Harbor to Second Circuit

In a December 31, 2013 decision, Judge Ronnie Abrams considered the application of the “Safe Harbor” defense in the Digital Millennium Copyright Act to plaintiffs’ claims against Vimeo, LLC. Vimeo operates a service that allows users to upload videos that they have created. The plaintiff music publishers sued Vimeo “asserting claims for direct, contributory, vicarious, and common law copyright infringement, as well as for inducement to infringe copyright and unfair compliance.” In a prior decision, the Court ruled that certain videos on the Vimeo service met the Safe Harbor requirements, others did not, and that “the Safe Harbor did not extend to videos containing music recorded before February 15, 1972.” Vimeo sought reconsideration of the denial of Safe Harbor status as to some of the videos, and sought leave to file an interlocutory appeal about the pre-February 15, 1972 recordings.

Regarding the reconsideration motion, the Court noted that the “Safe Harbor limits the liability of service providers for copyright infringement that occurs ‘by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider,’ as long as the provider satisfies certain criteria.” Vimeo argued on reconsideration that the only evidence that Vimeo had viewed certain of the challenged videos was that its employees could review videos in the accounts of the users who had uploaded these videos, not that they had done so. Judge Abrams ruled that this evidence was too tenuous to permit the Court to conclude that Vimeo’s employees had in fact viewed the videos. The Court largely rejected, however, Vimeo’s argument on reconsideration that even if Vimeo had viewed the videos, they did not have “red flag” knowledge – i.e., it was not “obvious” that they infringed the plaintiffs’ copyrights – finding fact questions for the jury about that issue.

The Court also agreed to certify two questions for interlocutory review: (1) the issue about the pre-February 15, 1972 recordings, and (2) “whether . . . a service provider’s viewing of a user-generated video containing all or virtually all of a recognizable, copyrighted song may establish ‘facts or circumstances’ giving rise to ‘red flag’ knowledge of infringement.” As to the first issue, Judge Abrams ruled that it is a pure question of law, and “that there exists a substantial ground for difference of opinion on this issue.” As to the second issue, the Court noted that although the inquiry depends in part on the contents of each video, the defendants do not contest for purposes of the appeal that the videos “contain visual images set to copyrighted songs played essentially in their entirety.” The Court further found that determining whether a defendant has sufficient “knowledge of infringement [to void the Safe Harbor] is a difficult question that has important ramifications for service providers such as Vimeo,” and that there is a “substantial ground for difference of opinion” on the issue. Thus, the Court certified both issues for interlocutory review.

Court Finds Commodore Computer Marks Infringed

In a December 17, 2013 ruling, Judge Richard J. Sullivan entered judgment against defendant Asiarim Corporation after a bench trial in favor of plaintiff C=Holdings B.V. on its claim, among others, for trademark infringement of the "Commodore" marks for computers that were popular in the 1980's.  The principal dispute at trial was the ownership of C=Holdings, which had been a subsidiary of Asiarim until a claimed spin-off.  There was no dispute at trial that C=Holdings owned the registrations for the Commodore marks, and that another subsidiary of Asiarim had previously been licensed to use the marks.

Judge Sullivan began the analysis of the trademark infringement claim by noting that "when a plaintiff sues for infringement of its registered mark, the defendant bears the burden of production and persuasion to rebut the presumption of ownership" of the mark provided by the registration.  Judge Sullivan rejected defendant Asiarim's contention that it was the owner of the mark, in fact ruling that Asiarim's attempt to claim ownership was fraudulent.  Thus, the Court concluded "that C=Holdings owns the Commodore trademarks, and that any unsanctioned use by Asiarim would amount to an infringement."

Court Finds Trade Dress Generic and Dismisses Infringement Claim, Stay Infringement Claim and Denies Interlocutory Appeal

In a December 11, 2013 ruling, Judge Shira A. Scheindlin granted defendant Regent Baby Products Corp.'s summary judgment motion to dismiss plaintiff Luv N' Care, Ltd.'s trade dress infringement action over infant sippy cups.  In considering the motion, Judge Scheindlin noted that a "plaintiff asserting a trademark infringement claim must show first that its trade dress or trademark is a protectable interest under the Lanham Act, and second that there is a likelihood of confusion.  If a plaintiff offers no evidence of a protectable interest, a court need not consider likelihood of confusion."

Regent did not contest likelihood of confusion, but instead argued that Luv N' Care's cups are not entitled to trade dress protection because they are generic.  In support of its argument, Regent submitted "exhaustive evidence" of numerous designs similar to Luv N' Care's cups "that have been widely available on the market for over two decades, through submission of third party catalogs and websites of online retailers."  Judge Scheindlin accepted this evidence, and ruled:

There is no genuine issue of material fact as to whether these designs are generic.  [Luv N' Care's] trade dress descriptions refer to common shapes frequently used in the sippy cup industry -- a "generally cylindrical cup with a slightly wider upper portion" and a cap with a "bulb-like base and a slightly pointed top" or a "football-helmet shaped cap" with a "ring shaped base" -- that even when configured together would simply be too broad and too general to warrant trade dress protection. . . . [T]hese general shapes and configurations are ubiquitous in the sippy cup market and do not warrant Lanham Act protection.

The Court also rejected Luv N' Care's argument that its designs had acquired secondary meaning "as irrelevant for generic trade dress.  Second Circuit law is clear that 'even a showing of secondary meaning is insufficient to protect product designs that are overbroad or generic' and that '[g]eneric trade dress in never entitled to protection.'"  The Court thus dismissed the trade dress claims.

In a subsequent February 13, 2014 ruling, Judge Scheindlin stayed the remaining design patent infringement claims so as to avoid duplicative trials of the trade dress and design patent infringement claims should the trade dress claims proceed to trial first, and the design patents later survive reexamination.  The Court also declined to permit an interlocutory appeal, finding that the plaintiff's request did "not raise a controlling question of lwa, 'a new legal question or [a legal issue] of special consequence appropriate for interlocutory review."

Court Refuses to Return Christmas Song to Authors

In a December 16, 2013 ruling, Judge Shira A. Scheindlin rejected the plaintiffs' copyright termination notice to the song "Santa Claus Is Coming to Town," and left ownership of the copyright with defendant EMI Feist Catalog, Inc.  The parties cross-moved for summary judgment, and EMI moved to exclude the plaintiffs' "purported copyright law expert" under Daubert.  Judge Scheindlin granted EMI's motions.

With regard to the expert testimony, the Court noted that the expert "opines on one issue:  the meaning of Sections 304 and 203 of the Copyright Act."  Judge Scheindlin excluded the opinion, ruling that the "Second Circuit has held that the testimony of an expert on matters of domestic law is inadmissible for any purpose.  Courts have an obligation to exclude affidavits that purport to construe Copyright Law.  Alter's [the expert's] affidavit expresses legal conclusions on the meaning of the 1976 [Copyright] Act, with the sole exception of some brief historical background on the Act."

With regard to the merits, the Court noted that the "sole issue in this case is whether Plaintiffs have the right to terminate EMI's copyright ownership in the Song."  The Court concluded that the plaintiffs did not have the right to do so because they failed to record a 1981 notice that terminated a 1951 agreement regarding ownership.  The failure to record the 1981 termination notice leaves the 1951 agreement in place until 2029.  Judge Scheindlin also found that the failure to record the 1981 notice of termination rendered subsequent notices ineffective even though those notices were served and filed according to the correct procedures.  The Court thus granted summary judgment in favor of EMI.

Court Rejects Patent Infringement and Unfair Competition Claims

In a December 9, 2013 ruling, Judge Richard J. Sullivan granted the defendants' motion for summary judgment of non-infringement in plaintiff Enzo Biochem, Inc.'s patent infringement action.  Enzo entered into a distribution agreement with PerkinElmer to manufacture and distribute Enzo's patented biotechnology inventions.  PerkinElmer appointed defendants Molecular Probes, Inc. and Orchid Biosciences, Inc. as sub-distributors.  In dismissing the patent infringement claims against Molecular Probes and Orchid Biosciences, the Court noted that "[b]ecause the features of the accused product are not in dispute, the Court may construe Claim 1 and then compare it to the undisputed features" of the accused product. 

Judge Sullivan rejected the defendants' argument that Enzo's proposed construction was limited solely by statements made to the PTO during prosecution of the patent-in-suit, and instead looked both to the language of the claim, and to the prosecution history.  The Court wrote that as "it turns out, though, the language of Claim 1 aligns with Enzo's statements to the PTO," and concluded that "[b]ased on the record before the Court, Enzo's statements to the PTO have not been wrenched from their context or mischaracterized; rather, they clearly set forth a difference -- evident on the face of Claim 1 -- between the accused features" of the challenged product.

Court Sets Post-Judgment Patent Royalty Rate

In a December 11, 2013 ruling, Judge Jed S. Rakoff set the post-judgment patent royalty rate in Tomita Technologies USA, LLC's patent infringement action against Nintendo Co., Ltd.  The Court rejected Tomita's request for a flat dollar amount for each unit, finding that the "rapid pace of technological advancement -- and its effect on prices -- counsels the Court that it is highly likely that the price will drop with time.  If, as Tomita suggests, the ongoing royalty rate were expressed as a flat dollar amount per unit sold, Tomita would capture an increasingly large proportion of each sale as the price falls, even as the technology's reliance on the infringed patent remains constant."  Judge Rakoff also rejected Nintendo's argument to set the royalty rate as the same implied rate found by the jury as was subsequently halved by a remittitur, noting that "Tomita . . . argues with some force that courts routinely increase the implied royalty rate of a verdict after a finding of infringement because the status of the parties has changed, as would the result of the hypothetical negotiation between them."  The Court then set the royalty rate at two thirds the implied royalty rate found by the jury.

Court Finds Use Might Be Authorized By Agreement, Denies Summary Judgement of Patent Infringement

In a December 9, 2013 ruling, Judge Richard J. Sullivan denied plaintiff Roche Diagnostics GMBH's motion for summary judgment to dismiss, among other claims, defendant Enzo Biochem, Inc.'s patent infringement counterclaims.  Enzo alleged that Roche breached a distribution agreement authorizing "Roche to use Enzo's patented property."  The Court wrote that to "the extent that Roche can show that its use of the Products was permitted under the terms of the Distribution Agreement, Roche may well be insulated from liability for patent infringement."  Since Judge Sullivan found that he could not "conclude as a matter of law that Roche's activities fell within the Agreement's use authorization" and denied Roche's motion for summary judgment for breach of the distribution agreement finding that, the Court ruled that "Enzo's patent infringement claims remain viable."

Court Finds Order Bias in Claim Terms

In a December 2, 2013 ruling, Judge Jed S. Rakoff in construing 24 claim terms in ADREA, LLC's patent infringement action against Barnes & Noble, Inc. over its ebook reader, construed the terms "selecting a title from the transmitted list of titles," and " "supplying a selected electronic book corresponding to the selected title to be encrypted" to have an order bias.  Judge Rakoff wrote:  "Although it is true that '[u]nless the steps of a method actually recite an order, the steps are not ordinarily construed to require one,' . . . 'if, as a matter of logic or grammar, they must be performed in the order in which they are written,' an ordered construction is required."  The Court ruled that an ordered construction is required here because the supplied ebook must first be selected before it can be supplied.

Court Awards Reasonable Royalty of 50% of Gross Margin in Patent Infringement Action

In a December 3, 2013 ruling, Judge Denise L. Cote entered a damages award in the last of a long-running series of patent infringement actions brought by Astrazeneca against generic drug manufacturers over the active ingredient in Astrazeneca’s brand-name drug Prilosec for heartburn.  Apotex Corporation, the largest generic drug manufacturer in Canada, was the remaining defendant.  The Court had previously found Apotex liable for infringement, and the December 3 ruling concerns only the assessment of a reasonable royalty as damages.  After a lengthy analysis, Judge Cote concluded that “the hypothetical licensing fee to which [the parties] would have agreed would have been at least 50% of the Apotex gross margin from its sales” of the infringing products, and ruled that Astrazeneca “is entitled to damages in the amount of $76,021,994.50 plus pre-judgment interest.”

In reaching that decision, the Court considered three threshold issues.  First, Judge Cote analyzed whether the royalty should be applied to the full value of the infringing product, or merely to the supposedly “minimal” value of the infringing component.  The Court noted that “[w]here a product, typically an electronic product, is composed of many different components, royalties for infringement are awarded ‘based not on the entire product, but instead on the smallest salable patent-practicing unit.’”  The Court further wrote, though, that under the “entire market value” rule, “a patentee may assess damages based on the market value of the entire product ‘where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’”  The Court rejected the notion that a rule developed for complex electronic products should be applied to generic pharmaceutical products.  The Court further ruled that even applying the entire market value rule, the patented component of the infringing generic drug did substantially create the value for the finished products.  So Judge Cote concluded that the royalty rate should be applied to the value of the generic pills sold by Apotex.

Court Declines to Dismiss Lanham Act Claims for Mark on Supplemental Register

In a November 19, 2013 ruling, Judge Louis L. Stanton largely denied defendant American Tibetan Health Institute, Inc.'s motion to dismiss plaintiff C&L International Trading Inc.'s action asserting Lanham Act and related claims.  C&L had a design mark registered on the Trademark Office's supplemental register that incorporated the word mark "Tibetan Baicao Tea," and a registration for the word mark alone with New York State's Department of State.  American Tibetan claimed that it had its own registration for the identical word mark on the Trademark Office's principal register.  American Tibetan filed a trademark infringement action against C&L, and C&L started this separate trademark infringement action against American Tibetan, which did not mention American Tibetan's trademark registration.

American Tibetan moved to dismiss C&L's complaint, arguing that its superior rights arising from its registration on the principal register should prevail.  The Court noted that although American Tibetan's superior rights could provide a defense, C&L's complaint does not mention American Tibetan's registration and so cannot be considered on a motion to dismiss.  Judge Stanton also ruled that C&L's complaint adequately alleged that American Tibetan had abandoned any rights it might ever have had in the marks.