Previous
discussion. The court goes through a lot of facts and
effort here to confirm that the AIA made false marking claims essentially
impossible to win, and I’m not so sure about that adverb. Sukumar sued Nautilus for false marking of
certain exercise machines, and, even despite the court’s ruling that some false
marking occurred, the court found that he hadn’t shown enough evidence of
“competitive injury,” as required under the AIA. Coordinate state law claims also failed for
lack of evidence of proximate causation.
Sukumar founded plaintiff Southern California Stroke
Rehabilitation Associates (SCSRA) with the intention of opening stroke
rehabilitation centers. Based on his
experience with his elderly father’s illnesses, he made strength training
equipment a central part of his plan. He believed Nautilus machines would need
to be modified to serve the senior fitness and rehab market, and developed
concepts for such machines. As part of
his research, he bought a number of different exercise machines from Nautilus
and others. In the course of his
investigations, he was told several times by Nautilus employees or
representatives that Nautilus machines were patented and that Nautilus
vigorously protects the machines from patent infringement. The Nautilus machines also contained patent
labels. “[A]t least some of the patent
labels on the machines were false, in that they listed patents that did not apply
to that particular machine.”
Sukumar also ordered a number of customized Nautilus
machines, but was dissatisfied with the delivered machines and sued the
distributor for breach of contract and Nautilus for inducing breach. He lost those claims.
He testified that he wanted to enter direct competition with
Nautilus, but because of the patent statements, he thought he needed a
license. He twice sought a license from Nautilus
to modify the machines, at least once in the context of a settlement
discussion. He argued that, had he known
those machines were not patented, he would have built his own machines for sale
and thus competed directly with Nautilus. However, his testimony was
contradicted by terms in the settlement letter, in which he claimed he wanted
to license Nautilus technology solely for use in SCSRA centers; at his
deposition, he testified that he only formed the intent to make and sell
customized machines in early 2012.
Although Sukumar claimed to have been working on his designs
since the late 1990s, he and SCRSA are not presently Nautilus competitors. SCSRA has no other employees; they haven’t
created or opened any senior spa centers or stroke rehabilitation centers; they
haven’t sold any modified Nautilus equipment or machines of his own design;
they hold no patents on fitness equipment; SCRSA has yet to show a profit in
any year; and Sukumar’s patient protocol isn’t written, but kept in his
mind. In rebuttal, plaintiffs emphasized
their efforts since the early 2012 decision that the machines were falsely
marked. They retained an expert on the
senior fitness market and worked to develop a business plan and retain other
industry professionals; they were working with a design house and manufacturers
to develop prototypes; and they were working to buy land for a manufacturing
facility. Thus, they argued, were it not for the false patent labels, they
could and would have engaged in such efforts previously.
Plaintiffs’ injuries, they argued, were delay in entry into
the fitness equipment market; unnecessary expenses in attempting to license or
purchase Nautilus patents/assets and those of another manufacturer; unnecessary
expenses in analyzing the validity and enforceability of the falsely marked
patents; and unnecessary expenses in storing machines they acquired.
None of this was sufficient.
The AIA requires “competitive injury,” in order to eliminate abusive qui
tam actions. Although plaintiffs relied
on the idea that they were competitively injured when they were impeded in
their efforts to enter the market and incurred unnecessary costs, citing Forest
Group. Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), that case has been
superseded by the AIA, and in any event involved parties who were concededly
competitors.
“Indeed, some of the precise harms that Plaintiffs claim
here, e.g ., unnecessary investment in design around costs, or costs incurred
to analyze the validity or enforceability of patents, are described in [another
case] as hurting ‘a member of the public [who] desir[es] to participate in the
market for the marked article.’ Those harms would not be competitive injuries,
therefore, but instead harms suffered by the general public.” Forest
Group didn’t identify the harm of dissuading potential competitors as
competitive injury. The case law to date
was ambiguous about potential competitors; analogies to the Lanham Act were
also not dispositive. The court declined
to make a blanket ruling on potential competitors. Instead, it held that no
reasonable jury could conclude that these
plaintiffs suffered a competitive injury.
Assuming that prevention of entry into the market is
actionable, “it must mean that the entity was capable or able to compete (or
actively trying to do so), but that the false marking impeded those efforts in
some concrete way. A competitor must do more than show it had a desire to
compete, and that it did not attempt to compete out of a fear of infringing
another’s patent.” But that’s all that plaintiffs here could show. “It simply
defies common sense to conclude that, for more than ten years, Plaintiffs have
not entered the market to compete with Nautilus and that the sole item holding
them back was their fear of infringing patents that were falsely listed on the
accused machines’ patent labels.” Plus,
a subjective fear of infringing was insufficient to establish competitive
injury, because that standard would allow lots of plaintiffs to sue. Notably, the Federal Circuit has rejected
subjective fear of infringement as sufficient injury to convey standing to
challenge a patent.
Sukumar might well have great ideas, and since 2012 he might
have begun in earnest trying to make them reality. “But concerted efforts after
a lawsuit is filed or a partial decision rendered is not proof a jury can rely
on to determine that the reason those efforts were not taken sooner was because
of false patent labels.” This was especially true because he repeatedly blamed
other, non-false marking actions by Nautilus for years of delay in his business
objectives. His sincere belief didn’t
substitute for evidence that “if not for Nautilus’s false marking of its
machines, the road to Plaintiffs’ development of competing machines and
rehabilitation or spa centers would have been swift and easy and that SCSRA
would be competing with Nautilus today.”
In addition, there was insufficient evidence that plaintiffs
ever intended to compete with Nautilus in the relevant market—making and
selling exercise equipment—before the lawsuit, as opposed to using machines in
his own facilities. In fact, plaintiffs’
changing plans further showed that they weren’t sufficiently established as a
business to suffer competitive injury.
The other claimed damages were also insufficient. Any claimed overpayment for machines based on
the false marking, even if it occurred, was injury as a consumer, not competitive
injury. As for the unnecessary expenses
in analyzing/attempting to license the patents, etc., they weren’t competitive
injuries for the same reasons: “Plaintiffs are neither competitors nor
sufficiently close to competing to state a valid claim for ‘competitive injury.’” Plus, the licensing attempts were part of an
effort to settle pending litigation, unrelated to false marking. There was also no evidence that storage fees
and legal fees incurred in analyzing the patents’ validity were caused by the
false marking; Sukumar had previously blamed other causes, such as Nautilus’s
breach of contract or warranty, on the claimed storage fees.
Nor is work performed to determine the validity of Nautilus
patents inherently a competitive injury, but rather a “generic” type of
harm. Also, the fees weren’t unnecessary
because they were the basis for the lawsuit, but attorneys’ fees aren’t
recoverable in a California consumer protection claim, so to allow them to
count under the AIA would be an unacceptable end-run. (Comment: what? That makes no sense to me; the AIA is not a
coordinate federal law to the general California consumer protection law, and
anyway the feds are entitled to decide what counts as injury to a federal
right.)
In any event, the harms alleged were simply too speculative
for a jury to find them to have been caused by the false labels.
The state law claims under California and Washington law
also failed, even though they didn’t require competitive injury: they required
damages caused by the mismarking, and evidence of causation was absent.
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