Emerson is an OEM of process control equipment used to
control/regulate hazardous substances flowing through pipes. Plaintiff PCI does business as Automation. Automation, along with its competitor
Emerson, remanufactures process control equipment. Factory Mutual Ins. Co. insures companies
that use such equipment, and its subsidiary FM Approvals has safety standards
for those companies and certifies process control equipment as “FM approved.” Many Emerson products are FM approved and bear
the FM Approvals trademark, but Automation has not been approved as a repairer
by FM Approvals.
“When Automation remanufactures Emerson equipment, it
sometimes leaves the Emerson and FM Approvals trademarks on the equipment.” This created ongoing disputes about unfair
competition and trademarks; the parties settled and released their claims from
before December 3, 2007, but then began fighting again.
The court granted summary judgment to Emerson on
Automation’s claims for false advertising, tortious interference, and
defamation. Some of the claims were barred by the earlier release. As to the rest, Automation failed to show
damages with reasonable certainty. There
was little evidence that any of Automation’s customers received or acted on
Emerson’s letters, emails, and articles.
Emerson brought patent infringement counterclaims, which
Automation beat back because its actions constituted permissible repair rather
than infringing reconstruction.
Automation’s statements in marketing materials that it
“remanufacture[d]” rather than “repair[ed]” the products wasn’t controlling
since reconstruction for infringement purposes is a matter of law. Automation also procured parts from third
parties, but repair doesn’t require that every replacement item be purchased
from the patentee—third-party nuts, bolts, screws, gaskets, o-rings, glass, and
gauges didn’t transform an otherwise permissible repair into an impermissible
reconstruction. Automation acquired its
products from third parties who discarded them or placed them in scrap bins;
others were recovered after being heavily corroded by Hurricane Katrina, but
that didn’t make them “spent” such that Automation’s acts were infringing. Emerson’s controllers had readily replaceable
parts, with a substantial market for repaired products, and Emerson itself must
have intended such repair, since it competes with Automation to do it. Even some limited customization didn’t go
beyond repair.
Automation also sought summary judgment on Emerson’s
trademark claim, but the court ruled (in a holding Mark McKenna will hate) that
the Champion Spark Plug standard for
trademark repair is different from that in patent. “While the patent cases are chiefly concerned
with the physical condition of the invention, Champion ultimately turns on the issue, central to trademark law,
of whether ‘the unauthorized use was likely to deceive, cause confusion, or
result in mistake.’ The Champion line of
cases is concerned both with the nature of the repaired product and any
disclaimer notifying customers of its repaired nature.” Automation argued that
it clearly indicated that the products had been repaired and that its customers
were sophisticated. But that wasn’t enough.
But the evidence showed that Automation didn’t repair every item in an
identical manner or use the same disclaimers for every product, and that was
enough to make the fact-intensive issue of infringement get past summary
judgment. There were also genuine issues
of material fact on Emerson’s other false advertising/unfair competition/trade
secret claims, though the court didn’t go into detail.
The court also granted summary judgment on liability to FM
Approvals based on Automation’s use of/failure to remove FM Approvals’
certification mark. FM Approvals has
three ways to ensure that repaired equipment still complies with its standards:
repair by the OEM, repair by an independent under its Standard 3606, or repair
by an end user approved under 3606. Each
method involves an audit or inspection of the repair facilities and processes
by FM Approvals. Automation didn’t claim
that it had been approved under 3606, but rather that, as an owner, it could
repair the product according to the OEM’s manual without voiding the
certification, and that its repaired equipment met the FM Approvals
certification standard. The court
responded that meeting the standard wasn’t the issue: “the FM Approvals
certification mark does not simply represent the quality of the equipment, but
the fact that FM Approvals has in fact inspected the equipment, facility, or
repair processes and approved it. Not only does Automation's argument ignore
the process for repair approvals, it would completely undermine the value of
the certification system, which relies on testing and oversight ….”
Automation argued that it was nonetheless entitled to retain
the FM Approvals mark under Champion. Not so.
While consumers expect used goods to be inferior, and so disclosure of
their status avoids actionable confusion, “certification marks are different in
nature from other trademarks. Disclosing that an item is ‘repaired’ may
effectively inform a consumer of the product's nature as compared to a new item
of the same origin. However, simply disclosing that an item is ‘repaired’ does
not similarly inform a consumer that the repair process has not been re-audited
by the holder of the certification mark it bears.” Thus, Automation’s acts were likely to
confuse consumers. There was also
evidence of actual consumer confusion, which mooted Automation’s argument that
its products could be marketed as FM Approved.
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