Saturday, April 11, 2009

False accusations of patent infringement justify fee award, not damages

Veteran Medical Products, Inc. v. Bionix Development Corp., 2009 WL 891724 (W.D. Mich.)

Veteran Medical makes a plastic double-ended ear curette. The CEO of Bionix accused Veteran Medical of infringing a Bionix design patent and misappropriating trade secrets; this included calling one of Veteran Medical’s suppliers and threatening litigation. Veteran Medical and related individuals/entities sued for a declaration of noninfringement and nonmisappropriation (if you’ll excuse the neologism), as well as for state and federal unfair competition and tortious interference. Bionix made the expected counterclaims of patent infringement and trade secret theft.

The district court granted declaratory judgment on noninfringement and dismissed the patent infringement counterclaim. There was a jury trial; the court granted judgment as a matter of law on the tortious interference claim, but, though finding plaintiffs’ evidence “very thin,” refused to do so on the unfair competition claims.

The jury found for Veteran Medical, awarding various plaintiffs nearly $200,000 in damages, divvied equally between Lanham Act and state unfair competition claims, as well as rejecting Bionix’s trade secret claims.

Bionix renewed its motion for judgment as a matter of law. It argued that there was no proof of damages, and that four of the plaintiffs lacked standing. The court agreed on the damages point. There was no evidence that Bionix made any statements to existing or potential customers about alleged patent infringement.

Plaintiffs brought their state law claims not as injurious falsehood/trade libel claims, but as general unfair competition claims. Michigan unfair competition law doesn’t fit the situation very well; most cases concern trademark-type claims, but the gist is that the defendant’s deception causes the plaintiff to lose some trade. A showing of actual confusion isn’t required, but actual or probable deception must be shown. Michigan courts have condemned as unfair competition any conduct that is fraudulent or deceptive and tends to mislead the public; the law is based on the principles of “common business integrity.”

Unfair competition, however, requires competition. But most of the plaintiffs weren’t in competition with defendants, only Veteran Medical. One of the other plaintiffs was a contract manufacturer for health care companies including Veteran Medical; it didn’t sell any of its own products. And the individual plaintiffs worked for the manufacturer. Even if they’d worked for Veteran Medical, they couldn’t have filed a claim on behalf of their employer. Thus, they lacked standing.

Bionix’s CEO did make a statement to a third party that Veteran Medical’s product was infringing. This supported Veteran Medical’s common law unfair competition claim based on defamation. Corporate defamation doesn’t require a showing of special damages. However, Veteran Medical still needed to establish the amount of damages to obtain a damages award. The court agreed with defendants that Veteran Medical didn’t prove anything to justify the damages awarded by the jury ($25,000, at this point). The testimony on damages was too vague and based on speculative business plans.

Finally, the court turned to plaintiffs’ argument that the patent infringement counterclaim was an exceptional case justifying an award of attorneys’ fees. Despite threatening suit, filing an infringement counterclaim, and filing suit in another district, Bionix ultimately didn’t oppose plaintiffs’ motion for summary judgment of noninfringement.

An exceptional case usually involves bad litigation behavior, including vexatious, unjustified, or frivolous litigation. Assertions of infringement of a granted patent are presumed to be in good faith; patentees aren’t liable for vigorous prosecution or enforcement of a presumptively valid patent. The underlying improper conduct must be shown by clear and convincing evidence; the burden is on the accused infringer to show that the patentee knew or should have known that the suit was baseless.

Here, the court determined that the infringement suit was baseless and brought in bad faith. The patent was a design patent, and the differences between the parties’ products were “startling.” “The Veteran Medical curettes have an hourglass-shaped, ribbed handle[] that is flat on one side. The Bionix curettes have a straight, elongated, smooth, octagon shaped handle with a flat rectangular-shaped recess (‘the notch’) in the middle of one side of the handle. Within the notch, the name BIONIX is spelled out in raised capital letters. It is difficult to conceive of much greater differences between two handle designs, and certainly no ordinary observer would be confused.”

Bionix knew this from the beginning. Nonetheless, defendants spent two years threatening litigation and insisting on litigation. The court concluded that Bionix had an anticompetitive motive. This was the type of case Congress had in mind when it authorized courts to award fees.

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