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Chicago IP Litigation

Tracking Northern District of Illinois IP Cases

Modifying the Innovation Act to Selectively Target the Patent Troll Problem

Posted in Legal News

The following is a blog post by Varun Shah, Aruba Network’s Director, Intellectual Property — full disclosure, I previously represented Aruba.  Shah has an interesting alternative patent reform proposal that seeks to target the patent troll problem.  It is interesting because it is under-inclusive.  On the one hand, that is less than ideal because it does not cover all trolls (or at least all entities that are arguably trolls).  On the other hand, it is intriguing because by being under-inclusive it minimizes the impact of the legislation outside of the troll world, which may make it easier to get it a vote in both houses of Congress.  Additionally, while Shah’s proposal focuses only upon creating a heightened pleading requirement for a subset of patent troll cases, using the same definition of a potential troll, other requirements could be added to the legislation, for example fee awards or discovery limitations.  So, while Shah’s proposal is not perfect, it is an interesting proposal and is, at a minimum, positive in that it is creating new discussion around patent reform.

With that, here are Shah’s thoughts: 

The Innovation Act was a great attempt at reducing the patent troll problem for the Information Technology industry. For example, the Innovation Act proposed regulating patent litigation practice by increasing pleading standards, placing limitations on patent discovery, and providing cost-shifting mechanisms. However, the Innovation Act is now stalled in Congress, in part, due to the rejection by the Pharmaceutical and Biotech industries of the new proposed regulations such as the limitations on discovery. A solution is needed that reduces the patent troll problem for the Information Technology industry while balancing the needs of the Pharmaceutical and Biotech industries.

I propose modifying the Innovation Act to limit discovery only if the current patent owner is not one of:

  1. The inventor
  2. The assignee, including subsidiaries and parent companies thereof, to whom the inventor was obligated to assign to at the time of filing an application for the patent
  3. An acquiring entity that acquired the patent in a sale of an established line of business originated by (a) or (b), the sale including all trademarks, copyrights, and patents related to the established line of business.

Additional criteria for qualifying as a sale of an established line of business (such as a minimum annual revenue for the established line of business) may be needed in order to ensure that patents are not held in shell entities for selling of patents to third parties and designing around this proposal.

Similar to the limited discovery example above, other sections of the Innovation Act may be considered for modification such that the rights and requirements related to patent assertion activities depend on whether or not the current patent owner is one of (a), (b), or (c) identified above.

This proposal reduces the patent troll problem for the Information Technology industry without reducing the patent assertion rights for the original patent Applicant. More generally, this proposal will protect the interests of all innovators that actually generate the ideas/patents while partially diluting the value of the patents if commoditized and transferred to others that are abusing and burdening the patent system. This re-structuring of patent value is in-line with the true goals of the patent system, i.e., the promotion of innovation.

– — – –

Mr. Shah is actively discussing the proposal with bill writers in Representative Goodlatte’s office to modify the Innovation Act.  If you are in support of the proposal, Mr. Shah suggests contacting the key policymakers: Representative Goodlatte, Senator Reid, Senator Leahy, Senator Cornyn, Senator Schumer, and the White House Office of Science and Technology Policy (OSTP).

Patent Claims Dismissed for Lack of Ownership

Posted in Local Rules

Rehco, LLC v. Spin Master, Ltd., No. 13 C 2245, Slip Op. (N.D. Ill. Mar. 17, 2014) (Leinenweber, J.).

Judge Leinenweber granted defendant Spin Master’s motion to dismiss plaintiff Rehco’s patent infringement claim related to a toy airplane, granted in part Spin Master’s motion to strike and granted Rehco’s motion to strike. 

As an initial matter, the Court struck Spin Master’s use of Rehco’s attorney work product document because it was inadvertently produced and properly clawed back pursuant to Fed. R. Evid. 502.  Spin Master first used the document during a hearing.  Rehco did not object at that time because lead counsel was unable to attend the hearing.  But upon returning from his travels, lead counsel saw the document, identified it as work product and clawed it back.  Based upon those facts, Spin Master could not use the document and must comply with FRE 502.

The Court dismissed Rehco’s patent infringement claim because Spin Master was the proper assignee of the patent.  Rehco argued that rights in the patent reverted to Rehco based upon Spin Master’s breach of the parties’ agreement.  But even if Spin Master had breached, Rehco only received the “sole and exclusive right . . . [to] exploit . . . .”  The rights in the patent itself would not have transferred.  The agreement also would not have transferred all substantial rights because at least the right to prosecute patents and assert the patents would have been retained by Spin Master.

The Court struck a portion of Rehco’s LPR 2.2 Initial Infringement Contentions.  Because Rehco’s infringement charts were “detailed” identifying where each element was found in Spin Master’s accused products.  Rehco also provided sufficient detail regarding means plus function claim terms.  The Court, however, struck Rehco’s doctrine of equivalents arguments because the allegations were a bare recitation that the accused products “perform substantially the same function, in substantially the same way, to achieve substantially the same result” with the level of detail required by LPR 2.2(d).  The Court gave Rehco twenty one days to amend its doctrine of equivalents contentions to meet the LPR 2.2(d) standards.

Damages Awarded on Lanham Act Default Judgment

Posted in Damages

O.A. Cargo, Inc. v. OA Cargo Chicago, No. 12 C 5763, Slip OP. (N.D. Ill. Mar. 13, 2014) (Zagel, J.).

Judge Zagel awarded damages in this Lanham Act case after he and Judge Conlon entered default judgment against the defendants.

Pursuant to its “considerable discretion” to award damages based upon a default judgment, the Court awarded the following damages:

  1. Expenses incurred in setting up Defendants’ business – $36,826.24
  2. Franchise fee – $50,000
  3. Ongoing licensing fees of $8,633.33 per month for 16.5 months – $142,449.95 + $35,612.49 = $178,062.44
  4. Attorneys’ fees and costs – $35,816.47
  5.  Statutory interest

The Court did not award damages for the entire 26 month period for which plaintiff sought the ongoing licensing fees.  The Court held that the evidence did not support the full 26 months.  Instead, the evidence supported 16.5 months.  The Court awarded damages for 16.5 months.  The Court also held that there was evidence that defendants’ conduct was willful.  The evidence warranted a 25% increase in the award of ongoing licensing fees, but not the trebling sought by plaintiff.  Finally, the Court denied damages based upon plaintiff’s alleged reputational harm because the damages were “insufficiently supported.”

Descriptive Trademark Does Not Survive Summary Judgment

Posted in Summary Judgment

Box Acquisitions, LLC d/b/a Box Partners, LLC v. Box Packaging Prods., LLC, No. 12 C 4021, Slip Op. (N.D. Ill. Mar. 26, 2014) (Kocoras, J.).

The Court granted summary judgment for defendant in this Lanham Act case involving alleged trademark infringement regarding plaintiff’s BOX PACKAGING trademarks.  The “key issue” was whether BOX PACKAGING was a protectable mark or was unprotectable as a descriptive term that has not acquired sufficient secondary meaning.

The Court held that BOX PACKAGING was descriptive as a matter of law.  No imagination was required to connect BOX PACKAGING to the box and packaging services offered by plaintiff.  The fact that plaintiff did more than just distribute boxes and packaging did not sway the Court because all of plaintiff’s services encompass boxing and packaging somehow.  The Court was also swayed by how other companies used “Box Packaging” within the industry.  The fact that BOX PACKAGING is not defined in the dictionary was not enough to avoid summary judgment of descriptiveness.

Regarding secondary meaning, plaintiff did not offer any direct evidence, which comes from consumer testimony or consumer surveys.  The Court, therefore, turned to the circumstantial evidence.  Plaintiffs use of BOX PACKAGING was not exclusive, many others used the phrase.  And the fact that plaintiff largely stopped using BOX PACKAGING in favor of BOX PARTNERs weighed against a finding of secondary meaning. 

Furthermore, plaintiff offered no evidence of advertising or sales figures to support secondary meaning based upon such expenditures.  The Court also held that plaintiff’s evidence of intentional copying was weakened because plaintiff chose a descriptive mark. 

Plaintiff’s proof of actual confusion was insufficient because plaintiff could not identify the customers that allegedly expressed confusion.

The Court granted summary judgment regarding plaintiff’s claims that defendant sought to fraudulently register its trademark because there were several other entities using versions of the mark.  So, the fact that defendants were aware of plaintiff did not suggest that defendants could not register their marks. 

The Court also granted summary judgment as to defendant’s purchase of various “boxpackaging” domain names because plaintiff was not actively using BOX PACKAGING at the time, noting that had defendants acted when plaintiff was actively using the mark the result “could have been vastly different.”

An Investigation By Any Other Name is Still an Investigation

Posted in Discovery

Sloan Valve Co. v. Zurn Indus., Inc., No. 10 C 204, Slip Op. (N.D. Ill. Mar. 5, 2014) (St. Eve, J.).

Judge St. Eve denied defendants’ (collectively “Zurn”) motion to exclude plaintiff Sloan Valve’s (“Sloan Valve”) expert in this patent litigation involving dual mode flush valves for plumbing fixtures.  Plaintiff’s expert conducted what he called a “survey,” but was in fact an investigation.  The expert, a 27 year veteran of the FBI, coordinated an investigation of approximately 200 bathrooms across the country which plaintiff believed would have either Sloan or Zurn plumbing fixtures.  The expert’s agents photographed specific fixtures using an app that time and location stamped them. 

The Court held that the fact that the expert used the term “survey” did not change the fact that it was an investigation, not a survey as the term is used in the legal context.  And Zurn did not dispute that the expert was qualified to conduct such an investigation.  Furthermore, the investigators did not interview anyone, they just took pictures.  So, there were no hearsay concerns.

Finally, Zurn’s other concerns did not warrant exclusion, although the could be addressed on cross-examination:

  1. The 200 sites were not randomly selected and were selected by Sloan;
  2. The sites were “overwhelmingly” public buildings; and
  3. The investigators did not investigate every bathroom at each site and did not adequately investigate the bathrooms that they did enter.

Settlement Arbitration Clause Requires Patent Claims be Arbitrated

Posted in Pleading Requirements

Dental USA, Inc. v. Beak & Bumper, LLC, No. 13 C 2149, Slip Op. (N.D. Ill. Feb. 21, 2014) (Chang, J.).

Judge Chang granted defendants’ Fed. R. Civ. P. 12(b)(3) motion to dismiss for improper venue because plaintiff’s design patent declaratory judgment claims related to dental pliers had to be arbitrated.  The principals of the relevant parties entered a settlement agreement settling an early E.D. Michigan patent infringement suit which included the patents in suit. 

The parties’ agreement bound “any and all businesses controlled” by either of them.  That was sufficient to bind the parties in this suit, although none were parties to the agreement.  It was sufficient that the parties’ principals bound them in the agreement.  The agreement also required that plaintiff not infringe the patents in suit and that all disputes regarding the agreement be resolved by binding arbitration before the American Arbitration Association.  The parties were already arbitrating a dispute regarding one of the patents. 

The fact that defendants dismissed their arbitration infringement claims did not allow plaintiff to file a district court litigation.  Defendants dismissed their claims without prejudice and were free to re file them with the American Arbitration Association.

Because the Court lacked venue, it did not need to consider defendants’ subject matter jurisdiction and personal jurisdiction arguments.

Court Construes Distributed Data Storage Patents

Posted in Claim Construction

Cleversafe, Inc. v. Amplidata, Inc., No. 11 C 4890, Slip Op. (N.D. Ill. May 20, 2014) (Lee, J.).

Judge Lee construed the disputed claim terms of the patents in this patent dispute regarding distributed data storage systems.  Of particular note, the Court held as follows:

  • “Data slice” and “plurality of data slices” was construed as “data slice” to mean a “data structure consisting of a data subset and a coded value.”  Defendant Amplidata’s narrower construction was required by plaintiff Cleversafe’s amendments during prosecution.
  • “Virtual digital data storage vault” was construed as “software construct stored over multiple slice servers.”
  • The parties agreed that a vault is a “software container” and that it is “stored over more than one slice server.”  The dispute was whether a vault must be associated with user accounts.  The Court held that a vault need not be associated with a user account.  The patents’ specification only stated that vaults “may” be associated with user accounts.
  • “Encode, using a coding algorithm, a plurality of subsets of data to create a plurality of coded values” was construed as “encode, using a coding algorithm, n subsets of data to create n coded values.”  The Court’s construction was broad enough that it was not limited to the preferred embodiments, while creating a one-to-one relationship between data subsets and coded values.
  • “Information dispersal algorithm” was construed as “an algorithm capable of assembling a file from data slices and creating new data slices from a rebuilt file.”
  • “String(s) of data” did not require construction beyond its plain and ordinary meaning.
  • “List of unusable storage nodes” was construed as “list of storage nodes that have been rendered permanently unusable.”
  • “The request is valid” and “the request is invalid” did not require construction.
  • “Supports” was construed as “provides access to.”

General Discovery Objections are “Impermissible”

Posted in Discovery

Flava Works, Inc. v. Gunter d/b/a myVidster.com, No. 10 C 6517, Slip Op. (N.D. Ill. Oct. 24, 2013) (Grady, Sen. J.).

Judge Shadur granted in part plaintiff Flava Works’ motion to compel responses to discovery requests.  Of particular note, the Court held as follows:

  • Neither Flava Work’s complaint nor the Seventh Circuit’s decision limited Flava Work’s claims to its backup functionality.  Defendant’s therefore, could not limit their responses to the backup functionality.
  • While the Court did not strike defendants’ general objections, it disregarded them as “impermissible.”  Based upon their lack of specificity, they did “not accomplish anything useful.”  Documents withheld based upon general objections were to be identified and produced.
  • A present tense interrogatory seeking a user count was sufficiently answered with a present user count.  The interrogatory was fully answered without historic user information.
  • Defendants need not identify Bates ranges of responsive documents where the documents were produced as they were kept in the normal course of business, pursuant to Fed. R. Civ. P. 34(b)(2)(E)(i).

 

Court May Not Maintain Jurisdiction After Dismissal With Prejudice

Posted in Jurisdiction

Digital Design Corp. v. Kostan, No. 11 C 6243, Slip Op. (N.D. Ill. Oct. 7, 2013) (Holderman, J.).

Judge Holderman denied the parties’ joint motion for entry of a consent judgment.  The Court previously granted the parties agreed stipulation of dismissal and dismissed the parties’ claims with prejudice.  Seventh Circuit precedent prevents district courts from retaining jurisdiction after dismissing with prejudice.  Had the parties wanted a consent judgment entered they should have dismissed without prejudice or sought the consent judgment before dismissing with prejudice.

No Irreparable Harm Where Plaintiff Delays Seeking Injunction

Posted in Uncategorized

Real-Time Reporters, P.C. v. Sonntag Reporting Servs., Ltd., No. 13 C 5348, Slip Op. (N.D. Ill. Der-Yeghiayan, J.).

Judge Der-Yeghiayan denied plaintiff Real-Time Reporters’ (“RTR”) preliminary injunction motion in this Lanham Act matter involving RTR’s REAL-TIME REPORTERS trademark.  Defendant Sontag Reporting Services (“SRS”) use of the name “Chicago-area Realtime Reporters” alleged infringed RTR’s REAL-TIME REPORTERS trademark. 

RTR’s slow actions belied its claims of irreparable harm.  RTR allegedly learned of SRS’s use of the mark in April 2013, but did not sue until late July 2013, did not seek a temporary restraining order and waited almost a month before filing the instant motion for preliminary injunction. 

The Court also held that in light of the Supreme Court’s eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) decision, it was unclear that the presumption of irreparable harm in trademark cases remained. 

Regarding RTR’s likelihood of success, the Court held that RTR’s REAL-TIME REPORTERS mark appeared to be generic.

Balancing the harms favored SRS because it would be harmed by an injunction, while RTR had already shown it would not be significantly harmed by its delay in filing suit and its delay in seeking a preliminary injunction.