New Decisions

May 16, 2013

Serenity Springs Prevails Against Allegations of Trademark Infringement and Cybersquatting

Indianapolis, Ind. — The Indiana Court of Appeals has vacated a trial court’s judgment in favor of the LaPorte County Convention and Visitors Bureau (the “Bureau”) of LaPorte, Ind., holding that neither trademark infringement nor cybersquatting had been committed by Serenity Springs (“Serenity”) of LaPorte, Ind.

Serenity operates a resort in LaPorte County. The Bureau is a special-purpose governmental unit charged with representing the visitor industry by marketing to potential visitors to the LaPorte area.

On September 9, 2009, the Bureau announced at a public meeting that it planned to adopt the phrase “Visit Michigan City LaPorte” as its branding identifier for the area. A representative of Serenity was in attendance. Immediately afterward, an employee for Serenity registered the domain name “visitmichigancitylaporte.com” and set it up to redirect internet traffic to Serenity’s website.

The Bureau sent a cease-and-desist letter claiming trademark infringement and cybersquatting. Serenity responded that (1) it had registered and begun using the domain name before the Bureau had made any commercial use of it and (2) the designation was not protectable as a trademark because it was merely descriptive and had not acquired distinctiveness.

In April 2010, the Bureau filed an application with the Indiana Secretary of State to register “Visit Michigan City LaPorte” as a trademark under the Indiana Trademark Act. In its application, the Bureau indicated that it had first used the mark in commerce on September 9, 2009. The application was approved. Nonetheless, Serenity continued using the visitmichigancitylaporte.com domain name.

The Bureau sued Serenity in the LaPorte Superior Court alleging, inter alia, trademark infringement, cybersquatting and unfair competition by Serenity. The trial court permanently enjoined Serenity from using “Visit Michigan City LaPorte” and ordered the transfer of the domain name “visitmichigancitylaporte.com” to the Bureau.

Serenity appealed the trial court’s holding that it had committed trademark infringement and cybersquatting. The trial court had held that, due to the Bureau’s status as a governmental entity, it was entitled to a different application of trademark law. Specifically, it held that there was a lesser requirement for using the mark to acquire trademark rights.

The appellate court disagreed. It has long been held that the exclusive right to use a mark is acquired through adoption and use of the mark in commerce. The appellate court also held that this mark was clearly geographical in nature and that it was “difficult to conceive of a mark that falls more squarely within the category of geographically descriptive marks.” Geographically descriptive designations generally fall within the descriptive category; thus, to be protected, the must have acquire secondary meaning.

The trial court considered the entirety of the time that the Bureau had been using the mark in considering whether the Bureau had established secondary meaning. It found that such secondary meaning had been established. However, the correct test for secondary meaning is to evaluate whether secondary meaning had been established by the senior user immediately prior to the time and place that the junior user began to use the mark. As this was, on its face, entirely unsupported by evidence, the appellate court held that the trial court erred in its determination that the Bureau had acquired secondary meaning in the mark. The appellate court reversed the trial court’s judgment, holding that the Bureau had not established that it held a valid and protectable trademark in the designation “Visit Michigan City LaPorte.”

The appellate court did, however, point out that additional claims had been made by the Bureau which had not been reached by the trial court. One of the claims, unfair competition, does not require the existence of a protectable trademark. Instead, it is an open-ended category of torts designed to protect “commercial values.” The appellate court remanded with instructions to the trial court to vacate its judgment as to trademark infringement and cybersquatting and to adjudicate the Bureau’s remaining claims.

Practice Tip #1: While the Indiana Trademark Act and the Lanham Act have many similarities, the former does not provide all of the protections afforded by the latter. While the Lanham Act provides that federal registration of a mark provides prima facie evidence of its validity, the Indiana Trademark Act contains no such provisions. A certificate of registration with the Indiana Secretary of State is proof of registration only (although such a registration is necessary to support a claim of infringement under the Indiana Trademark Act).

Practice Tip #2: One wonders if the entirety of this litigation might have been avoided by taking one simple step: registering the domain name before making the public announcement.
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May 15, 2013

Federal Circuit Denies Petition by ArcelorMittal France for Rehearing in Patent Infringement Case

By Overhauser Law Offices, LLC

Washington, D.C. — The United States Court of Appeals for the Federal Circuit denied the petition of ArcelorMittal for a rehearing in its patent infringement lawsuit against AK Steel involving ULTRALUME®.

AK Steel produces flat-rolled carbon and stainless and electrical steels. Their products are primarily for automotive, infrastructure, manufacturing, construction, and electricity-generation and distribution markets. The company, headquartered in West Chester, Ohio, also employs people in Indiana, Pennsylvania, and Kentucky.

ArcelorMittal is a multinational steel manufacturing corporation headquartered in Avenue de la Liberté, Luxembourg. It is the world’s largest steel producer, with an annual crude steel production of 97.2 million tons as of 2011.

At issue in this suit was a claim of patent infringement by ArcelorMittal France and ArcelorMittal Atlantique et Lorraine (collectively “ArcelorMittal”) against AK Steel et al. of Patent No. 6,296,805, entitled “Coated hot- and cold-rolled steel sheet comprising a very high resistance after thermal treatment,” (“the ‘805 patent”) which has been issued by the U.S. Patent Office.

The ‘805 patent covers boron steel sheeting with an aluminum-based coating applied after rolling the sheet to its final thickness. The steel is used for “hot-stamping,” a process which involves rapidly heating the steel, stamping it into parts of the desired shape, and then rapidly cooling them. The rapid heating and cooling alters the crystalline structure of the steel, converting it to austenite and then martensite. By altering the steel’s microstructure in this manner, hot-stamping produces particularly strong steel. Because hot-stamped steel is so strong, parts created using the process can be thinner and lighter than steel parts produced with other methods while being just as strong.

ArcelorMittal sued AK Steel and two other steel producers in the United States District Court for the District of Delaware, alleging infringement of the ‘805 patent. In 2011, a jury found that defendants AK Steel, Severstal Dearborn, Inc., and Wheeling-Nisshin Inc. had not infringed ArcelorMittal’s patent and that the asserted claims were invalid as anticipated and obvious.

ArcelorMittal appealed from the judgment of the trial court, challenging both the district court’s claim construction and the jury’s verdict.

The federal circuit upheld the district court’s claim construction in part and reversed it in part. It also reversed the jury’s verdict of anticipation. With respect to obviousness, a new trial was required because a claim-construction error by the district court prevented the jury from properly considering ArcelorMittal’s evidence of commercial success.

Despite the mixed results – partially affirming, partially reversing, partially vacating and remanding for a new trial – the decision of the federal circuit has confirmed that AK Steel did not infringe Arcelor’s patent and can sell Ultralume, its aluminized boron steel product.

Practice Tip: Patent decisions of the Federal Circuit, a federal appellate court, are unique in that they are binding precedent throughout the United States. Decisions of the Federal Circuit can be superseded only by decisions of the U.S. Supreme Court or by legislation. As such, Federal Circuit decisions are often the final word nationwide on the issues of patent law that the court decides. In contrast, the authority of other federal appellate courts is restricted by geographic location. In those courts, the federal common law often varies among the circuits (a “circuit split”).

May 10, 2013

Endotach Patent Claims Construed

By Overhauser Law Offices, LLC

Indianapolis, Ind. — The Southern District of Indiana has construed the claims of two patents-in-suit in the matter of Endotach LLC v. Cook Medical Inc.

In 2012, patent attorneys for Endotach LLC of Frisco, Texas sued Cook Medical Inc. of Bloomington, Ind., alleging infringement of Patent No. 5,122,154, entitled “Endovascular Bypass Graft,” and Patent No. 5,593,417, entitled “Intravascular Stent with Secure Mounting Means,” both issued by the U.S. Patent Office. The suit, initially filed in the Northern District of Florida, was transferred to the Southern District of Indiana.

The patents, both of which were issued in the 1990s, were granted to Dr. Valentine Rhodes, an award-winning surgeon who practiced in the field of vascular medicine for over 30 years. The patents are directed to intraluminal and endovascular grafts for placement within a blood vessel, duct or lumen to hold it open. As it pertains to this lawsuit, the patents-in-suit are used for revascularization of aneurysms or stenosis occurring in blood vessels which includes anchoring projections to aid in securing the graft in place within the blood vessel.

Upon the death of Dr. Rhodes, the patents-in-suit passed as part of his estate to his wife, Brenda Rhodes. While Mrs. Rhodes remains the owner of the patents, Endotach is the exclusive licensee and has the right to enforce the patents against all infringers.

In its complaint, Endotach asserted infringement of one or more claims in each of the patents-in-suit. It sought a judgment that the patents-in-suit have been infringed, either literally and/or under the doctrine of equivalents; damages, including treble damages; costs; interest; attorneys’ fees and an injunction.

In its opinion, the court construed multiple terms:

· The term “stent means” was construed to mean “a generally ring-like, hollow support that is resistant to contraction back to a compact state once it has been expanded”

· The term “resistant to contraction back” was construed to mean “able to withstand the force or effect of”

· The term “tubular member” was construed to mean “tubular member”

· The term “anchoring means” was construed to mean “multiple projections or protuberances with a leading portion and a trailing portion, such that one surface of the trailing portion is positioned at an acute angle relative to the direction of fluid flow”

· The term “projections” was construed to mean “protuberances or parts that extend outward from a surface”

· The term “a leading portion” was construed to mean “part of a projection oriented in the upstream direction of the fluid flow”

· The term “a trailing portion” was construed to mean “part of a projection oriented in the downstream direction of the fluid flow, with at least one portion positioned at an acute angle to the fluid flow”

· The term “at least one surface” was construed to mean “one portion, part or surface of the trailing portion of a projection oriented at an acute angle to the fluid flow”

· The terms “engagement with” and “engaging” were construed to mean “to partly embed, interlock or enmesh”

· The term “tightly” was construed to mean “firmly”

· The term “stent” was construed to mean “a hollow support”

Practice Tip: When construing the terms in the asserted claims of a patent-in-suit, the court must determine the meaning of the language used before it can ascertain the scope of the claims that the plaintiff asserts are infringed. In doing so, the court’s interpretive focus is not the subjective intent of the party employing a certain term, but the objective test of what one of ordinary skill in the art at the time of the invention would have understood the term to mean.

May 3, 2013

District Court Dismisses Two Counts in Konecranes’ Suit Against Industrial Crane Service

By Overhauser Law Offices, LLC

Indianapolis, Ind. — The Southern District of Indiana has dismissed two of four claims by Konecranes, Inc. of Pascagoula, Miss. against Industrial Crane Service, Inc. of Pascagoula, Miss. and Brian Scott Davis of Marion County, Ind.

Plaintiff Konecranes, Inc. (“Konecranes”) provides lifting equipment and services to various clientele including manufacturing and process industries, shipyards, ports and terminals. To serve its customers, Konecranes enters into agreements with subcontractors to assist it in the performance of the maintenance agreements it has entered into.

Industrial Crane Service, Inc. (“ICS”) has served as a subcontractor for Konecranes, although ICS and Konecranes also compete for customers to enter into maintenance agreements with them directly.

Brian Scott Davis (“Davis”) was employed at Konecranes as a Service Manager. During that employment, he and Konecranes entered into a noncompetition and confidentiality agreement, which contained provisions to keep certain Konecranes information confidential. Davis and ICS both worked for Konecranes on various maintenance and service contracts with Nucor Sheet Metal Group (“Nucor”) and Steel Dynamics Incorporated (“SDI”).

In May 2012, Davis resigned from Konecranes and began working for ICS. Since Davis began working for ICS, Nucor has cancelled purchase orders with Konecranes and SDI did not renew an existing purchase order with Konecranes. Instead, both have contracted with ICS to perform the work. Konecranes also alleged that Davis and ICS have been actively soliciting other customers to change their crane maintenance provider from Konecranes to ICS.

In response to the activities of Davis and ICS, Konecranes sued for injunctive relief and damages, asserting claims for: (1) breach of contract, (2) breach of fiduciary duty and/or duty of loyalty, (3) tortious interference with contractual relationships and (4) unfair competition. Davis and ICS moved to dismiss the claims for tortious interference with contractual relationships and unfair competition.

The court granted the motion on both counts. On the claim of tortious interference with contractual relationships, the court found that the plaintiff had “pled itself out of court” by admitting in its pleadings that an element of its claim was not present. Under Indiana law, the elements of a claim for tortious interference with a contract are: (1) the existence of a valid and enforceable contract; (2) defendant’s knowledge of the existence of the contract; (3) defendant’s intentional inducement of breach of the contract; (4) the absence of justification; and (5) damages resulting from defendant’s wrongful inducement of the breach.

While Konecranes did allege the element of “absence of justification” in its complaint, it also alleged that Davis and ICS had induced Nucor, SDI and others to break their contracts with Konecranes, or not renew them, so that ICS could gain their business. The court held that this amounted to an acknowledgement that the actions of Davis and ICS were motivated at least in part by a legitimate business interest — their own desire to secure new customers. The court held that this constituted justification under Indiana law. Having admitted in its pleadings that it lacked an element of this claim, Konecranes was barred from pursuing it.

On the claim of unfair competition, the court cited the Indiana Uniform Trade Secret Act, Ind. Code § 24-2-3-1(b) and (c) (the “IUTSA”) which “‘abolishes…causes of action for theft or misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status….” It held that, under the facts of the case, Konecranes’ unfair competition claim was preempted by the IUTSA and not cognizable under Indiana law.

Practice Tip: As the court notes, while the claim under unfair competition failed, Konecranes may still pursue claims for misappropriation of information or ideas that are protected by contract. This is a good reminder to those whose practice of law includes shielding sensitive information from disclosure: if you want it protected, get it in writing.

April 3, 2013

Indiana Court of Appeals Affirms Preliminary Injunction Barring Tortious Interference by Former Employee

By Overhauser Law Offices, LLC

Indianapolis, Ind. – The Indiana Court of Appeals has affirmed the judgment of the Hamilton Circuit Court granting a preliminary injunction in favor of Classic Restaurant Services of Westfield, Ind. against former employee Christopher Snyder for tortious interference with business relationships.

Classic Restaurant Services, LLC (“Classic”) provides heating, air conditioning, refrigeration, and cooking equipment sales and service predominantly to restaurants throughout central Indiana. Christopher Snyder began working as a service technician for Classic in 2009. Snyder did not have a non-compete agreement with Classic and was expressly permitted to do residential jobs on the side while using his company vehicle. During his more than three years of employment, Snyder serviced all of Classic’s customers.

In the summer of 2011, Snyder began organizing his own competing business and planning to take customers from Classic. By July 2011, Snyder had succeeded in taking the business of two Subway restaurants from Classic. He serviced these restaurants after hours on his own behalf. Classic did not know that it had lost these customers to Snyder.

In the fall of 2011, Snyder unsuccessfully attempted to solicit Ruby Tuesday restaurants to transfer their business to him. Although he was still employed by Classic, Snyder had prepared to compete by purchasing and outfitting a van, obtaining business cards and insurance, and printing marketing flyers. He distributed his flyers to several restaurants in central Indiana and, in February 2012, organized his new company, A Plus Air LLC.

Snyder resigned from Classic in April 2012 but retained a binder that contained contact information of all Classic’s vendors and customers. This list was marked confidential and Classic employees had been directed on numerous occasions to keep its contents confidential. Snyder continued to use the list for his new business. He also obtained additional Classic documents from Doris Warswick, Classic’s office manager, who knew of Snyder’s intention start a competing business.

Classic sued, asking that Snyder be enjoined from “continuing to interfere with the relationships that Classic had with customers while he was employed” but agreed that Snyder should be otherwise free to compete in the local restaurant HVAC business. The Hamilton Circuit Court found that “while he was Classic’s employee and agent, Mr. Snyder engaged repeatedly in self-dealing and other acts of disloyalty to his employer and principal, thereby breaching his fiduciary duties to Classic.” It concluded that Classic had a reasonable likelihood of success on the merits on its claims for 1) tortious interference with Classic’s business relationships and 2) misappropriation of trade secrets and granted the injunction.

Snyder appealed. He did not dispute that he had actively violated his fiduciary duties to Classic during the last year of his employment but argued instead that this prior misconduct should not affect his ability to compete with Classic following the termination of his employment.

In a unanimous memorandum opinion, the appellate court upheld the injunction on the grounds of a likelihood of success on Classic’s tortious interference claim. It further held that Snyder’s claim that a preliminary injunction was improper because he no longer owed a fiduciary duty to Classic was entirely unsupported and without merit. The appellate court did not reach Snyder’s arguments against Classic’s trade-secret claim, as Classic’s tortious interference claim was sufficient to support the trial court’s grant of a preliminary injunction.

Practice Tip: As the appellate court stated: “An employee owes his employer a fiduciary duty of loyalty. To that end, an employee who plans to leave his current job and go into competition with his current employer must walk a fine line. Prior to his termination, an employee must refrain from actively and directly competing with his employer for customers and employees and must continue to exert his best efforts on behalf of his employer….” Further, although the employee’s fiduciary relationship with his employer ends upon the termination of his employment, he is not then “free to enjoy the fruits of his breach of fiduciary duties.”
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April 1, 2013

Indiana Court of Appeals Holds that Forfeiture for Fraud in the Form of Copyright Infringement Requires Nexus Between Fraud and Forfeited Property

By Overhauser Law Offices, LLC

Indianapolis, Ind. – The Indiana Court of Appeals granted Indiana’s petition for rehearing and reaffirmed its January ruling in favor of defendant Michael Curtis that a conviction for fraud in the form of copyright infringement was, by itself, an insufficient predicate for forfeiture.

Curtis was charged with four counts of Class D felony fraud for selling pirated movies out of his truck. He pleaded guilty to one count of fraud, which was entered as a misdemeanor, and the remaining charges were dropped. The state also filed a complaint for forfeiture of Curtis’s truck under Indiana Code § 34-24-1-1(a)(1)(B) (2009), which allows the seizure of vehicles “if they are used . . . to transport . . . stolen [IC §35-43-4-2] or converted property.” The trial court granted the forfeiture.

The Indiana Court of Appeals reversed the decision, holding that fraud in the form of copyright infringement was neither garden-variety theft nor conversion and, thus, was not within the scope of the forfeiture statute. We blogged about that decision here.

The state asked for and was granted a rehearing. It argued that Yao v. State, 975 N.E.2d 1273 (Ind. 2012), required a different outcome. The appellate court disagreed, stating that, while Yao “might support the proposition that pirated movies constitute stolen property,” it failed to answer the question of forfeiture. On that issue, the court looked to Katner v. State, 655 N.E.2d 345 (Ind. 1995).

In Katner, the Indiana Supreme Court reversed the forfeiture of a vehicle predicated on an empty container in the possession of the driver that was found to have cocaine residue. There, the trial court had ordered the defendant’s vehicle forfeited under a statute allowing forfeiture where a vehicle was used to transport a “controlled substance for the purpose of. . . [p]ossession of cocaine.” The Court held that the state had not met its burden under the forfeiture provision to show a nexus between the property to be forfeited and the underlying offense.

The appellate court in this case held that such a nexus analysis was also appropriate for the forfeiture provision which applies to stolen or converted property. As the state had apparently had not shown a nexus between the use of the truck and the sales of the pirated movies, the court affirmed its earlier decision.

Practice Tip: It looks like Curtis can keep his truck. However, in the January decision, the appellate court suggested that legislation would likely be required to allow forfeiture in cases involving copyright infringement. In contrast, this current decision seems to hold that, should the required nexus between property and copyright infringement be proven at trial, a forfeiture statute could be used to seize property involved in that infringement.
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March 8, 2013

Continuation of At-Will Employment Held to be Adequate Consideration for Noncompetition Agreement

By Overhauser Law Offices, LLC

Indianapolis, IN – The Indiana Court of Appeals has reversed the decision of the Marion Superior Court to deny injunctive relief to Clark Sales & Service, Inc. (“Clark”) of Indianapolis, Indiana in its suit against John D. Smith (“Smith”) and Ferguson Enterprises, Inc. (“Ferguson”) of Newport News, Virginia.

In 1998, Smith began working for Clark, a company that sells and services appliances in the builder-distributor market in Indiana. In 2004, after one of its high-level managers left Clark for a competitive position at another company, Clark had Smith and various other employees sign a written employment agreement containing both a confidentiality clause and a noncompetition agreement.

Smith resigned his position at Clark on April 13, 2012 but, before doing so, he took copies of Clark’s sales records from 2010 and 2011, including customer and builder contact information, the price of materials sold and Clark’s costs and profit margins. On April 18, 2012, he accepted an offer of employment with Ferguson, a nearby competitor. In his new position, he solicited business from various Clark customers.

Attorneys for plaintiff Clark sued to enforce the confidentiality and noncompetition provisions of the agreement entered into with Smith. The trial court granted Clark’s non-disclosure request and ordered the confidential documents to be returned but it denied Clark’s request for an injunction to enforce the noncompetition portion of the employment agreement. The trial court noted that there had been no incentive for Smith to agree to the noncompetition provision in the form of, for example, the commencement of a new job or a pay raise. It held that, as a result, the noncompetition agreement failed for lack of consideration.

Clark filed an interlocutory appeal. In a memorandum decision, the Indiana Court of Appeals found that the trial court had abused its discretion by denying the injunction and reversed the decision. The appellate court held that Indiana law, as enunciated by the Indiana Supreme Court, was that an employer’s promise to continue an employee’s at-will employment was sufficient consideration to support the employee executing a new employment contract with a noncompetition agreement. No raise or other additional incentive was required.

The appellate court remanded the matter to the trial court for further proceedings regarding the reasonableness of the noncompetition agreement.

Practice Tip: Covenants not to compete are in restraint of trade and are not favored by the law. If a court applying Indiana law finds that portions of a noncompetition agreement are unreasonable, it may not modify the restrictions to make them reasonable. Doing so would subject the parties to an agreement they had not made. The court may, however, employ the “blue pencil” rule to “cross out” portions deemed unreasonable while leaving any separable and reasonable portions intact.

March 5, 2013

Court Refuses to Quash or Modify Subpoena Designed to Identify Alleged Infringer of Copyrighted Movie

By Overhauser Law Offices, LLC

Indianapolis, IN – The Southern District of Indiana ruled in favor of Plaintiff Patrick Collins, Inc. by denying the motion of pro se Defendant John Doe No. 7 to quash or modify Plaintiff’s subpoena.

In a lawsuit originally styled “Patrick Collins, Inc. v. John Does 1 – 13,” Patrick Collins, Inc. of Canoga Park, California (“Patrick Collins”), alleged direct and contributory infringement by 13 then-unidentified individuals including John Doe No. 7. The suit was filed by copyright attorney Paul Nicoletti.

By motion, Dustin Hillman (“Hillman”), identifying himself only as “John Doe 7,” asked the court to quash or modify the subpoena seeking to compel his internet service provider to provide his real name to the Plaintiff, stating that “such actions violate right to privacy and the disclosure of such matters may result in wrongful or unjust incrimination.”

Hillman attached for the court’s review an article which concluded that a common approach for identifying users infringing copyright law using BitTorrent (via the Internet) was not conclusive. He then asked the court to require Plaintiff to provide further information about its methods of identifying defendants and proof of the reliability of those methods. “Hardly a day goes by,” said Hillman, “that the news does not contain a story where a computer system containing highly confidential data has been hacked, spoofed and infected by malware.” He asked for the subpoena to be quashed or modified on these grounds.

The court was not persuaded. It discussed those situations under FRCP 45(c)(3)(A) where a court must quash or modify a subpoena and then those situations under FRCP 45(c)(3)(B) where a court may quash or modify a subpoena. Citing the Malibu Media litigation, a similar matter which we blogged about here, the court then noted that the burden of establishing the grounds to quash a subpoena is borne by the party seeking to quash it. Hillman, it said, had made an argument denying liability based on the possibility that his IP address may have been used by someone else. Such an objection was an argument on the merits of the case and was “irrelevant and premature” in the discovery phase of the litigation.

Hillman also asked the court to require the Plaintiff to disclose its “shake down methods” of collection, how much it had collected from alleged copyright infringers, the percentage of cases settled without trial and the total costs incurred by the Plaintiff. The court was not moved by this request, either, stating that no evidence of abusive settlement tactics had been presented to the court.

Hillman’s identity was deemed “relevant information that is reasonably calculated to lead to the discovery of admissible evidence” and Hillman’s motion to quash or modify the subpoena was denied.

Practice Tip: Patrick Collins, Inc. has filed quite a few suits, including another case naming over 1,000 John Doe defendants. The company has been called a “copyright troll” on more than one occasion. The actions of companies such as Patrick Collins and Malibu Media have been called “extortionate” and, in at least one case, a class action suit has been filed against these “trolls.”

February 15, 2013

Southern District of Indiana Grants in Part Plaintiff’s Daubert Motion to Preclude Expert Testimony Regarding Damages

By Overhauser Law Offices, LLC

Indianapolis, IN – Boston Scientific Corporation (“Boston Scientific”) of Natik, Massachusetts, was granted three of its four requests to exclude Defendant’s expert testimony in its declaratory judgment suit against Mirowski Family Ventures, LLC (“Mirowski”) of Bethesda, Maryland.

The litigation surrounding the Boston Scientific/Guidant Corp. (“Guidant”) / Mirowski / St. Jude Medical, Inc. (“St. Jude”) matter began in the Southern District of Indiana (and also in Delaware) as a patent infringement suit regarding an implantable cardioverter defibrillator. It was appealed to the Federal Circuit, reversed and returned to the Southern District of Indiana. It was later appealed again to the Federal Circuit. The second ruling of the Federal Circuit was then appealed to the U.S. Supreme Court, which declined to hear the case. The matter was finally settled and the case dismissed but a subsequent dispute regarding the settlement resulted in the commencement of the current litigation.

In 1996, patent attorneys for Guidant (Boston Scientific’s predecessor) sued St. Jude for infringement of, inter alia, Mirowski’s Patent No. 4,407,288 (“the ‘288 patent”) which had been issued by the U.S. Patent Office, and for which Guidant had an exclusive license. Mirowski was added as a Plaintiff in 2001. That same year, a jury found that St. Jude had infringed the ‘288 patent that had been licensed to Guidant and jointly awarded Guidant and Mirowski $140 million in damages.

The court disagreed with the jury’s conclusions and, in 2002, entered a judgment as a matter of law for St. Jude on most issues, including finding both the ‘288 patent and another of Mirowski’s patents invalid. It granted a new trial on many of the issues on which St. Jude had not prevailed. The court also sanctioned Guidant $300,000 for misconduct relating to a Guidant expert witness.

Mirowski and Guidant appealed. Guidant also ceased royalty payments to Mirowski, as the agreement for royalties was limited to only those devices that were covered by a valid, unexpired patent. The Federal Circuit reversed the district court’s determination of invalidity of the ‘288 patent and remanded the case for further proceedings.

In 2010, Boston Scientific (which had acquired Guidant in 2006), Mirowski and St. Jude entered into a stipulation of dismissal and the case was closed. Boston Scientific paid Mirowski approximately $5.3 million and later slightly less than $1.4 million, the latter amount covering an error in the calculation of the earlier payment.

Mirowski objected to the amount of the royalty payments, contending that more was due. Mirowski also argued that Boston Scientific breached the parties’ agreement when it settled portions of its claims with St. Jude without Mirowski’s knowledge and approval.

On May 31, 2011, Boston Scientific filed suit against Mirowski, seeking declarations of non-infringement, satisfaction of royalty obligation, and no breach of contract regarding both the Indiana and the Delaware litigation. See a previous post discussing the commencement of this suit here. [NB: The Plaintiff listed in that complaint, Cardiac Pacemakers, Inc., is now a wholly-owned subsidiary of Boston Scientific.]

In the current matter, in a motion in limine pursuant to the suit for declaratory judgment, Boston Scientific asked the court to exclude certain testimony regarding damages by Mirowski’s expert witness, Dr. Mohan Rao. After discussing a substantial list of his credentials, the court found Dr. Rao to be qualified to testify as an expert. The court also found the data on which Dr. Rao relied to be sufficient. The court then addressed Boston Scientific’s objections to Dr. Rao’s opinions in the areas of relevancy and methodology under the standard set forth in Daubert.

Dr. Rao summarized his opinions in four points: 1) his opinion regarding baseline royalties, 2) his opinion about the expected damages in the Delaware litigation, 3) his settlement valuations of the Indiana and Delaware litigations and 4) his unjust enrichment analysis. The court excluded the first, third and fourth opinions.

The court excluded the first opinion regarding baseline royalties as irrelevant. Through Dr. Rao, Mirowski argued that a baseline level of damages should be established that reflected the royalty that it would have received had Boston Scientific sought Mirowski’s consent before proceeding with the lawsuit, stating that such consent would not have been forthcoming. The court excluded this opinion, as it had already held that, pursuant to an agreement between the parties, Boston Scientific had no duty to obtain Mirowski’s consent to litigate. To the contrary, under the licensing agreement, Boston Scientific was obligated to sue St. Jude and similar infringers unless Boston Scientific and Mirowski agreed that a lawsuit should not be brought. Because Boston Scientific had an unfettered right to sue under the licensing agreement, Mirowski could not prove a factual predicate – that Boston Scientific had acted improperly by failing to obtain consent to sue – of its baseline-royalties argument. As such, the argument was impossible to win and the testimony was excluded as irrelevant.

The court excluded Dr. Rao’s third opinion, regarding the settlement valuations of the Indiana and Delaware litigations, as inconsistent with his own stated methodology of calculating an estimated settlement value. Dr. Rao had explained his methodology as consisting of two parts: the range of damages that the Plaintiff would accept at settlement and the range that the Defendant would offer. The estimated settlement value, then, would be within the overlap of those two ranges. However, in calculating his estimated settlement value, the court found that Dr. Rao appeared to have considered only the Plaintiff’s point of view. Because Dr. Rao failed to apply the methodology he described, this opinion was held to be inadmissible.

The court excluded the fourth opinion, regarding unjust enrichment, as demonstrating a fundamental misunderstanding of the doctrine. Specifically, Dr. Rao seemed to believe that a finding of unjust enrichment would result in a payment that would be split approximately evenly between Boston Scientific and Mirowski. He stated, “Mirowski would only get a portion of the proceeds on whatever it is that Boston Scientific was enriched, unjust or otherwise…Boston Scientific’s unjust enrichment would be roughly twice what the expected proceeds would be to Mirowski.” Holding that this testimony evinced a lack of understanding of the doctrine of unjust enrichment, the contractual relationship of the parties, and the parties’ positions at the time the settlement occurred, the court held the fourth opinion to be inadmissible.

The court denied one of the four motions to exclude, allowing in Dr. Rao’s testimony as to “expected damages” (the second opinion). Boston Scientific had characterized the testimony as “irrelevant, confusing, and a waste of time” and argued that, on the issues to which this testimony pertained, Mirowski could not meet its burden of proof. The court found that this issue could have been properly raised on a motion for summary judgment (but had not been) but was not properly excluded on Daubert grounds.

Practice Tip #1: Raising an argument when one of the factual predicates to that argument has already been settled by the court in favor of your opponent is not likely to be a winning strategy. To prevent such an error, it is useful to ensure that you have thoroughly considered each element of each of your claims.

Practice Tip #2: On the surface, the errors with opinions three and four seem easy to avoid: 1) make sure your expert follows his own stated methodologies and 2) make sure your expert is well versed – and conversant at deposition – in all elements of each legal claim at issue.

January 30, 2013

Stryker Prevails on the Construction of All Claims in Patent Infringement Suit

By Overhauser Law Offices, LLC

Indianapolis, IN – The Southern District of Indiana has issued an Order concerning claim construction for three of nine patents-in-suit: U.S. Patent Nos. 5,699,038,6,147,592 and 7,538,659.

Patent attorneys for Hill-Rom Services, Inc., Hill-Rom Company, Inc. and Hill-Rom Manufacturing, Inc. (collectively, “Hill-Rom”) filed a patent-infringement action against Stryker Corporation, doing business as Stryker Medical and Stryker Sales Corporation (collectively, “Stryker”), alleging that Stryker had infringed nine of its patents. Stryker countered, alleging non-infringement and invalidity of the patents-in-suit.

The suit, initially filed in the Western District of Wisconsin, was transferred to the Southern District of Indiana. Six of the nine patents-in-suit are currently undergoing reexamination before the United States Patent and Trade Office pursuant to Stryker’s request and the Court considered only the other patents-in-suit.

In this Order, the Court determined the scope and meaning of the asserted patent claims, a necessary step before ruling on the question of infringement. The three patents-in-suit addressed involve data transfer patents that allow hospital personnel to monitor the status of patients’ beds remotely.

Five claim terms from the three patents at issue were presented to be construed by the Court: 1) “datalink”, 2) “interface board including processor”, 3) “message”, 4) “bed condition message” and 5) “message validation information”.

In each case, Hill-Rom proposed no definition other than reiterating the precise wording of each claim term at issue, apparently relying substantially on the heavy, but rebuttable, presumption that claim terms will be afforded their full ordinary and customary meaning. In contrast, Stryker criticized Hill-Rom’s failure to expand on what a plain and ordinary meaning would be when considered in the context of the specification and prosecution history.

The Court agreed with Stryker. For each of the five claim terms at issue, the Court exactly or substantially adopted Stryker’s proposed definition.

For “datalink”, which was both the claim term and the proposed construction by Hill-Rom, the Court adopted Stryker’s proposal exactly, construing it to mean “A cable connected to the bed that carries data”.

The Court construed “interface board including processor” to mean “A board that processes an input signal to create bed condition messages and sends those messages to a remote location via the wall interface unit. It can also receive messages through the wall interface unit.” Of all of the claim terms, the Court differed the most from Stryker’s proposal — “A board that includes the electronics that control the sending of messages to, and the receiving of messages from, a remote location.” — on the construction of this term.

The third term, “message”, again proposed to mean only “message” by Hill-Rom, was interpreted to mean “A plurality of data fields of appropriate length assembled into a defined structure. A message is distinct from an input signal.”

“Bed condition message” was construed to mean “A message not generated in response to any user request that contains the status of all conditions the bed is capable of monitoring.”

Finally, “message validation information” was construed to mean “A data field within a message that is used to verify that the message was received exactly the same as it was sent.”

The case was referred to Magistrate Judge LaRue for further proceedings.

Practice Tip #1: Hill-Rom’s interpretation of “plain and ordinary meaning” as requiring merely the repetition of the terms at issue was soundly rejected by this Court, as it has been by other courts. Instead, it is often true that, in those cases that a lawsuit is filed, the parties can expect that there will be disagreements on what constitutes a “plain and ordinary meaning.” Consequently, it is advisable for both parties to consider providing the court with additional language supporting their respective positions. Failure to do so results in the court being presented with only one alternate definition to consider when construing claims, a situation not likely to benefit the party providing no additional language.

Practice Tip #2: It appears that Hill-Rom was trying to use general language in its claims to secure for itself broad protection under its patents. While that goal is understandable, claims cannot enlarge the scope of a patent beyond what has been described in the invention. So, for example, while the use of the broad term “datalink” might seem to protect a wide range of types of data sent over different types of links, without a proper foundation elsewhere in the patent, such a term will be ineffective in providing the desired protection.
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