Indiana Intellectual Property Law News

March 26, 2014

Daughter’s Facebook Comments Establish Breach of Confidentiality, Cost Her Father $80,000

Miami, Florida – The Third District Court of Appeal for the State of Florida heard the appeal of Gulliver Schools, Inc. (“Gulliver”) and School Management Systems, Inc. in the age-discrimination and retaliation lawsuit of Patrick Snay. Appellants prevailed on their claim that Mr. Snay had breached the confidentiality clause of the settlement agreement, thus gulliver Stamp picture.jpg eliminating Gulliver’s obligation to pay portions of the settlement amount.

Patrick Snay, formerly the headmaster of Gulliver, sued for age discrimination and retaliation when Gulliver did not renew his contract for the 2010-2011 school term. The dispute was settled and the parties executed a release for the full and final settlement of Snay’s claims. Under the settlement, the school would pay $10,000 in back pay and $80,000 to Snay to settle the matter, as well as $60,000 for Snay’s legal fees.

As part of the settlement, Snay agreed to a detailed confidentiality clause, which provided that the existence and terms of the agreement between Snay and the school were to be kept strictly confidential and that, should Snay or his wife breach the confidentiality provision, a portion of the settlement proceeds (the $80,000) would be disgorged by Snay to Gulliver. This provision read, in pertinent part: “[T]he plaintiff shall not either directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of this Agreement . . . A breach . . . will result in disgorgement of the Plaintiffs [sic] portion of the settlement Payments.”

Shortly after the agreement was signed, Snay informed his daughter that his lawsuit against Gulliver had been settled and that he was happy with the result. Snay’s daughter posted news of the agreement on Facebook, “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer.” This Facebook post was available for viewing by approximately 1,200 of Snay’s daughter’s Facebook friends, many of whom were either current or past Gulliver students.

Gulliver learned of the Facebook post. Four days after the agreement was signed, Gulliver notified Snay that it considered the Facebook post to be a material breach of the agreement. Gulliver stated that, while it would pay the amount of the settlement which constituted attorneys’ fees, it would not pay any of Snay’s portion as a result of the breach of the confidentiality clause.

Snay moved to enforce the settlement agreement, arguing that his statement to his daughter and her comment on Facebook did not constitute a breach. The trial court agreed, finding that neither Snay’s comments to his daughter nor his daughter’s Facebook comments constituted a breach of the confidentiality agreement.

Gulliver appealed. The appellate court held that the plain language of the contract prohibited the disclosure that Snay had made, stating “before the ink was dry on the agreement, and notwithstanding the clear language . . . mandating confidentiality, Snay violated the agreement by doing exactly what he had promised not to do.” Moreover, the court noted that the significance of confidentiality to Gulliver was evinced by the fact that the majority of the proceeds of the settlement agreement expressly hinged on compliance with the confidentiality provision.

Based on the clear and unambiguous language of the parties’ agreement and Snay’s subsequent testimony that he had, in fact, breached the confidentiality provision, the appellate court found for Gulliver and reversed the trial court’s order granting the Snays’ motion to enforce the settlement agreement.

Practice Tip:

It’s not hard to see how this happened. As parents, the Snays recognized that it was important to inform their daughter of the resolution of this matter. Not only was this settlement significant to Mr. Snay, but the news that a satisfactory resolution had been reached also was presumably intended to assist his daughter in dealing with the difficulties she had apparently encountered as a result of the dispute with Gulliver. According to Mr. Snay, these difficulties had left his daughter with “quite a few psychological scars which forced [him] to put her into therapy.” It is also not difficult to imagine that, feeling vindicated, the Snays’ college-aged daughter would do what many people that age do with big news: she posted it on Facebook.

In situations such as these, contract attorneys must take special care to provide whole-picture legal counseling to their clients, both during settlement negotiations and after. It was not unforeseeable that Mr. or Ms. Snay would inform their daughter of the settlement. Nor was it unforeseeable that she would, in turn, want to share the news with her friends. Presumably, the Snays’ daughter had not realized the importance of confidentiality.

Here, this problem might have been avoided. First, in drafting the confidentiality clause, release of the information to the daughter could have been included. Thus, Mr. Snay would not have signed an agreement that he presumably knew – as he was signing it – that he would soon violate. Second, an explicit and dire warning by the settlement attorney representing Mr. Snay should have been given to anyone privy to the settlement to lessen the chance of an inadvertent breach of the contract, for example: “You, your wife and your daughter absolutely must adhere to the provisions of the confidentiality clause or you could lose some or all of the benefits of this settlement agreement.”

March 24, 2014

Indiana Patent Litigation: Headsight Sues John Deere for Patent Infringement

By Overhauser Law Offices, LLC

Fort Wayne, Indiana – Patent lawyers for Richard Gramm and Headsight, Inc., both of Indiana, sued in the Northern District of Indiana alleging that Deere and Company of Moline, Illinois (also known as “John Deere”) infringed the patented “Combine Header Height Control“, Patent No. 6,202,395, which has been issued by the U.S. Patent Office.

Gramm, the founder and President of Plaintiff Headsight, claims to own all right, title and interest to Patent No. 6,202,395 (the “395 patent”). In its complaint, Plaintiffs allege that Deere makes, uses, sells and/or offers for sale products that infringe at least claim 27 of the ‘395 patent, including at least the header height sensor kit, for the Deere 600C Series corn headers (the “Deere Height Sensor”).

Plaintiffs contend that Deere has had actual knowledge of the ‘395 patent since at least as early as 2002 and that Deere has been and now is directly infringing, actively inducing others to infringe and/or contributing to the infringement of the ‘395 patent by making, using, selling, offering for sale and/or importing in the United States products, including at least the Deere Height Sensor, in violation of 35 U.S.C. § 271.

Plaintiffs assert one claim in their complaint, filed by Indiana patent attorneys: “Count I: Patent Infringement of U.S. Patent No. 6,202,395.” Gramm and Headsight ask the court for:

• a declaration that Deere has infringed one or more claims of the ‘395 patent in violation of 35 U.S.C. § 271;
• equitable relief under 35 U.S.C. § 283, including, but not limited to, permanently enjoining Deere and its agents from infringing, contributing to, and/or inducing infringement of the ‘395 patent;
• an award of damages adequate to compensate Plaintiffs for Deere’s infringement of the ‘395 patent, together with prejudgment and post-judgment interest under 35 U.S.C. § 284;
• a declaration that Deere’s infringement is willful and/or an order increasing damages up to and including three times the amount found or assessed consistent with 35 U.S.C. § 284; and
• a declaration that this case is “exceptional” under 35 U.S.C. § 285 and awarding Plaintiffs their reasonable attorney fees, costs, and expenses.

Practice Tip:

A court may award increased damages for willful infringement. These punitive damages, up to and including a trebling of damages, are appropriate when an infringer has acted in wanton disregard of the patentee’s intellectual property rights. In determining whether the infringing behavior supports increased damages, the court will consider the “totality of the circumstances.”

Potential exposure for increased damages may be reduced by seeking – and acting on – timely advice from a competent patent lawyer. In contrast, the failure to seek and heed such advice may increase the chance of a finding of willfulness.

March 21, 2014

USPTO to Host Additive Manufacturing Partnership Meeting

By Overhauser Law Offices, LLC

Washington, D.C. – The U.S. Department of Commerce’s United States Patent and Trademark Office (“USPTO”) will host a meeting to serve as a forum for sharing ideas and insights between stakeholders and the USPTO.

The Additive Manufacturing Partnership Meeting will take place on Wednesday, April 9, 2014 at the USPTO headquarters in Alexandria, Virginia. Additive manufacturing, also known as 3D printing, is a process of making three-dimensional solid objects from a digital model. The technology is growing in use, including in such fields as jewelry, footwear, architecture, engineering and construction, automotive, aerospace, dental and medical industries.

The meeting will serve as a forum for sharing ideas, experiences, and insights between stakeholders and the USPTO. Industry representatives will also provide an overview of the application of additive manufacturing in different technologies. Individual opinions are sought from varying participants, and the meeting is intended to be informal in nature. These partnership groups are formed with full recognition of the USPTO’s responsibility under the Federal Advisory Committee Act (“FACA”), and are not established as FACA compliant committees.

March 20, 2014

Dyer’s General Store May Not Proceed Pro Se, Ordered to Retain Counsel

By Overhauser Law Offices, LLC

Terre Haute, Indiana – Indiana trademark litigation against a corporate entity requires the participation of an attorney for the defense to avoid default.

In 2013, a trademark lawyer for Coach, Inc. of New York, New York and Coach Services, Inc. of Jacksonville, Florida (collectively “Coach”) sued for trademark infringement in the Southern District of Indiana. Plaintiffs alleged that Dyer’s General Store and Outlet (“Dyer’s General”), Kimberly Dyer and David L. Dyer, all of Worthington, Indiana, infringed Trademark Registration Nos. 2,088,706 and 3,157,972, which have been registered by the U.S. Patent and Trademark Office.

In the complaint, Coach asserted Lanham Act violations including counterfeiting, trademark infringement, false advertising, common law trademark infringement, unfair competition, forgery, counterfeiting and unjust enrichment. Coach alleges that it is suffering irreparable injury and has suffered substantial damages as a result of Defendants’ allegedly illegal activities.

David Dyer filed an answer pro se purporting to represent himself, Kimberly Dyer and Dyer’s General. While only Mr. Dyer signed this answer, the court seems to have accepted the filing with respect to both Mr. and Ms. Dyer. However, in its most recent order, the court noted that “corporations cannot appear pro se, but must appear through an attorney.” District Judge Jane Magnus-Stinson ordered Dyer’s General, a corporate entity, to retain counsel to prepare an answer to the complaint if it intends to participate in the litigation.

Practice Tip: Coach is an active litigant, especially in matters of protecting its intellectual property. Since 2009, it has sued more than 20 retailers in Indiana federal courts.

March 19, 2014

Divided Federal Circuit Rules En Banc to Retain Cybor Rule of De Novo Review for Claim Construction

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Court of Appeals for the Federal Circuit concluded in a six-to-four decision that the rule in Cybor – that claim construction is an issue of law subject to de novo review on appeal – will be retained under the principles of stare decisis.

In 1998, the Federal Circuit, sitting en banc, decided Cybor Corp. v. FAS Technologies, Inc. Among the issues in Cybor was the standard of appellate review of district court decisions concerning the meaning and scope of patent claims (“claim construction”). The Federal Circuit held that, for purposes of appellate review, claim construction was to be considered to be a question of law, not one of fact, and subject to de novo review.

Recently, in Lighting Ballast Control LLC v. Philips Electronics North America Corp, the Federal Circuit was asked to revisit the Cybor holding. In addition to the arguments presented by the parties, patent attorneys for thirty-eight organizations and individuals filed twenty-one amicus briefs.

The opinion of the Court, written by Judge Newman, was joined by Judges Lourie, Dyk, Prost, Moore, and Taranto; it included a concurring opinion by Judge Lourie. A dissenting opinion, written by Judge O’Malley, was joined by Chief Judge Rader and Judges Reyna and Wallach.

The court, again sitting en banc, retained the rule, as stated in Cybor, that no deference will be given by the appellate court to the trial court’s decisions concerning the meaning and scope of patent claims.

Among the arguments presented for reversal of Cybor was an assertion that treating claim construction as a matter of law increases uncertainty, “negates settlement and increases litigation costs.” The court found these arguments unpersuasive. Instead, it discussed two reasons to maintain the Cybor rule.

The court cited the ruling of the U.S. Supreme Court in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) (also known as “Markman II“), in which the Court had stressed that issues of claim construction should be considered “purely legal.” Moreover, the Supreme Court has emphasized the importance of “uniformity in the treatment of a given patent.” For example, the possibility of differing claim constructions could lead to different results for infringement and validity, as well as the possibility of disparate district court constructions. De novo review by an appellate court ensures national uniformity, stability and predictability in claim construction.

The court also cited the rule of stare decisis in its refusal to abandon the fifteen-year-old rule established in Cybor and the subsequent years of experience with that rule, stating that it had been presented with “no argument of public policy, or changed circumstances, or unworkability or intolerability, or any other justification for changing the Cybor methodology and abandoning de novo review of claim construction.” The court held that the demanding standard for departure from established law had not been met and retained the de novo review of claim construction established in Cybor.

Practice Tip #1: The issues addressed in claim construction are not considered to be questions of weight of the evidence or credibility of witnesses, but rather of the scope of the claims as set forth in the patent documents.

Practice Tip #2: Claim construction is typically conducted relatively early in the trial court’s proceedings, before addressing questions such as patent infringement, patent validity and damages. At the outset, the trial court must establish the metes and bounds of the claims that define the scope of the intellectual property.

Practice Tip #3: In a dissent that was, at times, strongly worded, Judge O’Malley opined that “no one in the legal community–except perhaps the members of the majority–has come to believe that either the wisdom or vitality of Cybor is settled.” She cited previous statements of Circuit Judges who challenged Cybor as improperly relying on the legal fiction that there are no facts to be decided in claim construction and as “profoundly misapprehend[ing]” the Supreme Court’s decision in Markman.

March 17, 2014

Indiana Patent Infringement Litigation: Eli Lilly Sues Numerous Defendants

By Overhauser Law Offices, LLC

Indianapolis, Indiana – An Indiana patent attorney for Eli Lilly and Company of Indianapolis, Indiana (“Lilly”) filed a lawsuit in the Southern District of Indiana against multiple defendants asserting infringement of Patent Nos. 5,288,726, “Tetrahydrothienopyridine Derivatives, Furo and Pyrrolo Analogs Thereof and Their Preparation and Uses for Inhibiting Blood Platelet Aggregation,” 8,569,325, “Method of Treatment with Coadministration of Aspirin and Prasugrel” and 8,404,703, “Medicinal Compositions Containing Aspirin,” which have been issued by the U.S. Patent Office.

In a 101-page complaint, Indiana patent counsel for Plaintiffs Lilly; Daiichi Sankyo Co., Ltd.; Daiichi Sankyo, Inc.; and Ube Industries, Ltd. sued alleging patent infringement by more than thirty Defendants. The Defendants are: Accord Healthcare, Inc. USA; Accord Healthcare, Inc.; Intas Pharmaceuticals Ltd.; Amneal Pharmaceuticals LLC; Amneal Pharmaceuticals of New York, LLC; Amneal Pharmaceuticals Co. India Pvt. Ltd.; Aurobindo Pharma Limited; Aurobindo Pharma USA Inc.; Dr. Reddy’s Laboratories, Ltd; Dr. Reddy’s Laboratories, Inc.; Glenmark Generics Inc., USA; Glenmark Generics Ltd.; Glenmark Pharmaceuticals Ltd.; Hetero USA Inc.; Hetero Labs Limited; Hetero Labs Limited Unit V; Hetero Drugs Ltd.; Mylan Pharmaceuticals Inc.; Mylan Inc.; Mylan Laboratories Limited (these three companies are, collectively, “Mylan”); Par Pharmaceutical Companies, Inc.; Par Pharmaceutical, Inc.; Sun Pharma Global FZE; Caraco Pharmaceutical Laboratories, Ltd.; Sun Pharma Global Inc.; Sun Pharmaceutical Industries, Ltd.; Teva Pharmaceuticals USA, Inc.; Teva Pharmaceutical Industries, Ltd.; Watson Laboratories, Inc.; Actavis plc; Actavis, Inc.; Actavis Pharma, Inc.; Zydus Pharmaceuticals USA, Inc.; and Cadila Healthcare Ltd. (d/b/a Zydus Cadila). Defendants hail from various areas of the world, including India, the United Arab Emirates, the British Virgin Islands, Israel, Ireland and the United States.

This complaint asserts patent infringement arising out of the filing by Defendants of Abbreviated New Drug Applications (“ANDA”s) with the United States Food and Drug Administration (“FDA”) seeking approval to manufacture and sell generic versions of two pharmaceutical products – Effient® 5mg and Effient® 10mg tablets (pictured above) – prior to the expiration of United States Patent Nos. 5,288,726 (the “‘726 patent”), 8,404,703 (the “‘703 patent”) and 8,569,325 (the “‘325 patent”), which cover the two Effient® products and/or methods of using Effient® products and for which Lilly claims an exclusively license.

Effient® products were approved by the FDA for the reduction of thrombotic cardiovascular events in certain patients with acute coronary syndrome (ACS) who are to be managed with percutaneous coronary intervention (PCI, or angioplasty). Effient® products contain prasugrel hydrochloride, which is also known as 5-[(1RS)-2-cyclopropyl-1-(2-fluorophenyl)-2-oxoethyl]-4,5,6,7-tetrahydrothieno[3,2-c]pyridin-2-yl acetate hydrochloride or 2-acetoxy-5-(alpha-cyclopropylcarbonyl-2-fluorobenzy1)-4,5,6,7-tetrahydrothieno[3,2-c]pyridine hydrochloride, and is covered by the ‘726 patent.

The instructions accompanying Effient® products state that patients taking Effient® products should also take aspirin. The use of Effient® products in combination with aspirin for the reduction of thrombotic cardiovascular events in patients with ACS who are to be managed with PCI is allegedly covered by the claims of the ‘703 and ‘325 patents.

Defendants are, in general, accused of infringing the patents-in-suit by including with their products instructions for use that substantially copy the instructions for Effient® products, including instructions for administering the Defendants’ products with aspirin as claimed in the ‘703 and ‘325 patents. Moreover, Plaintiffs contend that Defendants know that the instructions that will accompany the Defendants’ Products will induce and/or contribute to others using the Defendants’ Products in the manner set forth in the instructions.

Plaintiffs also contend that Defendants specifically intend that health care providers, and/or patients will use the Defendants’ Products in accordance with the instructions provided by Defendants to directly infringe one or more claims of the ‘703 and ‘325 patents. In doing so, state Plaintiffs, Defendants will actively induce and/or contribute to infringement of the ‘703 and ‘325 patents.

The complaint, filed by an Indiana patent attorney, lists a total of fifty counts. All Defendants are accused of infringement of the ‘703 and ‘325 patents. Declaratory judgment of infringement of these patents is sought against all Defendants. Additionally, claims of infringement of, and a request for declaratory judgment regarding, the ‘726 patent are made against Mylan.

Plaintiffs ask the court for judgment:

• That all Defendants, either individually or collectively, have infringed or will infringe one or more claims of the ‘703 patent;
• That all Defendants, either individually or collectively, have infringed or will infringe one or more claims of the ‘325 patent;
• That Mylan, either individually or collectively, has infringed or will infringe one or more claims of the ‘726 patent;
• That, pursuant to 35 U.S.C. § 271(e)(4)(B), Defendants be permanently enjoined from making, using, selling or offering to sell any of the Defendants’ accused products within the United States, or, where applicable, importing accused products into the United States prior to the expiration of the ‘703 and ‘325 patents;
• That, pursuant to 35 U.S.C. § 271(e)(4)(A), the effective date of any approval of any ANDAs under § 505(j) of the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 355(j)) shall not be earlier than the later of the expiration dates of the ‘703 and ‘325 patents, including any extensions;
• That the ‘703 patent remains valid and enforceable;
• That the ‘325 patent remains valid and enforceable;
• That the ‘726 patent remains valid and enforceable;
• If any Defendant commercially makes, uses, sells or offers to sell any accused product within the United States, or, where applicable, imports any accused product into the United States, prior to the expiration of either of the ‘703 and ‘325 patents, including any extensions, that Plaintiffs be awarded monetary damages for those infringing acts to the fullest extent allowed by law and be awarded prejudgment interest based on those monetary damages;
• If Mylan commercially makes, uses, sells or offers to sell any accused product within the United States, or, where applicable, imports any accused product into the United States, prior to the expiration of the ‘726 patent, including any extensions, that Plaintiffs be awarded monetary damages for those infringing acts to the fullest extent allowed by law and be awarded prejudgment interest based on those monetary damages;
• That the case be deemed exceptional under 35 U.S.C. § 285; and
• That Plaintiffs be awarded reasonable attorney’s fees, costs and expenses.

Practice Tip: Lilly is not an infrequent litigant. This may be in part due to the fact that the company is facing a significant patent cliff. Its patent for a former top product, the antipsychotic Zyprexa – which once generated $5 billion in annual revenues – expired in 2011. Its top-selling drug of 2013, the antidepressant Cymbalta, lost patent protection last year. The patent on blockbuster Evista, a drug for breast cancer and osteoporosis, expires this month.

March 14, 2014

Meeting on Notice and Takedown System to be Held

By Overhauser Law Offices, LLC

Washington, D.C. – A public meeting to focus on improving the operation of the notice and takedown system under the DMCA will be held on March 20, 2014.

DOC Picture.jpg The U.S. Department of Commerce’s Internet Policy Task Force (“IPTF”) will hold the first meeting of the public multistakeholder forum on improving the operation of the notice and takedown system for removing infringing content from the Internet under the Digital Millennium Copyright Act (“DMCA”) at the United States Patent and Trademark Office (“USPTO”) headquarters in Alexandria, Virginia. The meeting was called for in the Commerce Department’s Green Paper on Copyright Policy, Creativity, and Innovation in the Digital Economy released last year. The IPTF is a joint effort between the USPTO and the National Telecommunications and Information Administration (“NTIA”).

The goal of the multistakeholder forum is to identify best practices and/or produce voluntary agreements for improving the operation of the DMCA notice and takedown system. The IPTF plans to hold several additional meetings throughout the year. The initial meeting will focus on identifying concrete topics to be addressed by participants, and to discuss and make decisions about the process for the forum’s ongoing work. The IPTF aims to have participation from a wide variety of the notice and takedown system’s current users, including right holders and individual creators, service providers, and any other stakeholders that are directly affected – such as consumer and public interest representatives, technical and engineering experts, and companies in the business of identifying infringing content.

March 13, 2014

Indiana Court of Appeals Finds Noncompetition Agreement Overly Broad and Unenforceable

By Overhauser Law Offices, LLC

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

In 1998, Smith began working for Clark’s, a company that sells and services appliances in the builder-distributor market in Indiana. In 2004, after one of Clark’s high-level managers left for a competitive position at another company, Clark’s 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’s 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 the costs and profit margins of Clark’s. On April 18, 2012, he accepted an offer of employment with Ferguson, a nearby competitor. In his new position, he solicited business from various customers of Clark’s.

Indiana attorneys for Clark’s sued to enforce the confidentiality and noncompetition provisions of the agreement entered into with Smith. The trial court concluded that the restrictive covenant that Clark’s drafted was overly broad and unreasonable, and denied Clark’s motion for a preliminary injunction. From that order, this interlocutory appeal was brought.

On appeal, Clark’s challenged the trial court’s ruling, calling it clearly erroneous. It claimed that the noncompetition agreement was not unreasonable and unenforceable. Clark’s also argued that, even if the noncompetition agreement were unreasonable and unenforceable as written, the court should apply the “blue-pencil doctrine” to make whatever modifications were necessary to render the covenant reasonable and enforceable.

The Indiana appellate court first discussed whether Clark’s had a legitimate and protectable interest, defined as “some reason why it would be unfair to allow the employee to compete with the former employer.” Indiana courts have held that “the advantageous familiarity and personal contact which employees derive from dealing with an employer’s customers are elements of an employer’s ‘good will’ and are a protectible interest which may justify a restraint.” The appellate court held that, while the trial court had not explicitly stated that it had found such a protectable interest, such a finding was implicit in its ruling. The appellate court ruled that the trial court had not erred by determining that Clark’s had established this element.

The Indiana appellate court then evaluated the reasonableness of the restrictions. Both parties agreed that the two-year limit was reasonable and valid. They disagreed, however, regarding the reasonableness of the noncompetition agreement as to the scope of activities and geographic area restricted.

The appellate court held that the one type of activities prohibited – Clark’s restrictions against contact with any of its past or prospective customers – was vague and too broad. The agreement also prohibited not merely those activities which Smith had engaged in during his tenure at Clark’s, but also prohibited him from providing any services competitive to “those offered by” Clark’s. That provision was held to be “overly broad, onerous, and an undue restriction on Smith’s economic freedom” and, thus, unenforceable.

The restrictions placed on the geographic area in which Smith could work were also evaluated. Those restrictions included working “in any state in which Gregg [Smith’s previous employer] does business, as well as working for any other entity providing services competitive to Clark’s in Marion County, any county contiguous to Marion County, any county in Indiana in which Clark’s has at least one customer, the State of Indiana, or within a fifty-mile radius of Smith’s principal office with Clark’s, which was in Castleton.” The appellate court held that it was “unquestionable that the expansive geographic scope . . . is unreasonable as written.”

Finally, the court addressed the “blue-pencil doctrine.” This doctrine allows a court to strike unreasonable restrictions in a covenant not to compete, provided that they are divisible. However, this doctrine does not extend to allow a court to create a reasonable restriction, as this would subject the parties to an agreement that they have not made.

The court held that blue pencil doctrine was inapplicable, as the terms that Clark’s proposed be stricken had been written as merely a small part of an indiscrete whole. Moreover, it held that, even if it were to strike the text that Clark’s had proposed be stricken, the restrictions would still be overly broad and in excess of what would be required to protect Clark’s legitimate business interest.

The Indiana appellate court affirmed the trial court, holding that its judgment was not clearly erroneous.

Practice Tip #1: To demonstrate the reasonableness of a noncompetition agreement, the employer must first show that it has a legitimate interest to be protected by the agreement. The employer also bears the burden of showing that the agreement is reasonable in terms of the time, activities, and geographic area restricted.

Practice Tip #2: 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.

Practice Tip #3: This is at least the second time that the Indiana Court of Appeals has heard an interlocutory appeal on this non-compete litigation. In a prior appeal, the Court of Appeals reversed the trial court, which had improperly concluded that the noncompetition agreement failed for lack of consideration. We blogged about that appeal here.

Practice Tip #4: While Appellant-Plaintiff here argued that broad drafting was permissible and simply a “good faith effort to provide itself the greatest level of protection allowed by law,” the Indiana appellate court did not agree. Instead, it called the practice “unsavory” and reminded Clark’s that “Indiana law strongly discourages employers’ attempts to draft unreasonably broad and oppressive covenants.”

March 12, 2014

Supreme Court Reverses Federal Circuit on Burden of Proof in Patent Infringement Litigation Brought Under the Declaratory Judgment Act

By Overhauser Law Offices, LLC

Washington, D.C. – An issue in the patent infringement dispute between medical-device giant Medtronic, Inc. and Mirowski Family Ventures, LLC (“Mirowski”) was heard by the United States Supreme Court. In question was the placement of the burden of proof in patent infringement litigation that seeks a declaratory judgment. The Supreme Court reversed the U.S. Court of Appeals for the Federal Circuit, holding that the burden of proof of infringement rests with the patent holder even if the lawsuit is filed under the Declaratory Judgment Act.

After hearing arguments by patent attorneys for each side, the district court had held that Mirowski, the party asserting infringement, had the burden of proving patent infringement; it found that Mirowski had not met that burden.

The Federal Circuit reversed. It concluded that, when a patentee (Mirowski) is a declaratory judgment defendant and is also prevented from asserting an infringement counterclaim by the existence of a license between the parties – as Mirowski was – the party seeking the declaratory judgment (Medtronic) bears the burden of proving that it had not infringed the patent.

The Supreme Court granted certiorari. The question before the Court was “whether the burden of proof shifts when the patentee is a defendant in a declaratory judgment action, and the plaintiff (the potential infringer) seeks a judgment that he does not infringe the patent.”

Mirowski argued that it would be unfair to place a burden of proof on the party that was not seeking relief. The Intellectual Property Owners Association supported Mirowski’s position, contending that a failure to shift the burden of proof in such cases would lead to abuse of declaratory judgment actions, as the risks and burdens of patent infringement litigation would be placed entirely on the patent owner.

In contrast, Medtronic argued that placing the burden on a licensee would create an unacceptable choice between finality and fairness, as it would require the judicial system to permit a party to relitigate issues that had been previously decided under a different burden of proof.

The Supreme Court reversed the shifted burden of proof imposed by the Federal Circuit. The Court declared that it saw “no convincing reason why burden of proof law should favor the patentee” simply because it was filed under the Declaratory Judgment Act.

Practice Tip #1: It is settled law that, in patent infringement litigation, a patentee normally bears the burden of proof. Because 1) the operation of the Declaratory Judgment Act is only procedural and leaves substantive rights unchanged and 2) the burden of proof is a substantive aspect of a claim, this holding by the Supreme Court is not unanticipated.

Practice Tip #2: When drafting the terms of a license, patent owners should consider adding provisions to deter potential challenges by licensees.

Practice Tip #3: We have also blogged recently about another declaratory judgment case involving Mirowski, which is being heard in the Southern District of Indiana.

March 10, 2014

Southern District of Indiana to Begin Pilot Program

By Overhauser Law Offices, LLC

Indianapolis, Indiana – The Southern District of Indiana is beginning a pilot program that will allow active hyperlinks to be included within e-filed and court-issued documents. Hyperlinks will allow immediate access by the reader to the referenced materials, i.e., case management and electronic court filing system (“CM/ECF”) filings, case and statute citations, attachments, and exhibits.

During the initial phase of the pilot program, the court will be issuing a limited number of entries and orders containing hyperlinks. The hyperlinks may be page-specific. For instance, an order may contain a hyperlink to a specific page of a specific affidavit, which will be accessible with one click. Access to court-issued documents will continue to be available via the Notice of Electronic Filing (“NEF”) email system.

The next, and most important, phase of the pilot program will involve a small group of attorneys e-filing documents with hyperlinks. When utilized by attorneys, hyperlinks in briefs and other court filings will provide quick, easy, and pinpoint access to particular sections of a case, or to specific filings in the court’s record, adding another level of persuasion to their writing. Hyperlinking will also be a great benefit to the court, allowing members of the judiciary and their staff to quickly and easily review case-supporting materials.