The Supreme Court today adopted a new test for claims under the federal Lanham Act, which creates a cause of action for "false association" and "false advertising". Lexmark Int'l, Inc. v. Static Control Components, Inc., No. 12-873, slip op. 3 (U.S. Mar. 25, 2014).
Writing for a 9-0 Court, Justice Antonin Scalia brushed aside three different formulations, by multiple courts of appeals, of what criteria a plaintiff must meet in order to have a righ to sue under the Lanham Act.
Justice Scalia also gave the back of the Court's hand to the idea that "prudential standing" had anything to do with the case. "Just as a court cannot apply its independent policy judgment torecognize a cause of action that Congress has denied, . . . it cannot limit a cause of action that Congress has created merely because 'prudence' dictates." Id. at 9 (citation omitted).
The true test for a right to sue for Lanham Act violations, the Court ruled, asks whether the plaintiff falls within a "zone of interests" that the Act protects, id. at 10-13, and whether the conduct at issue "proximately caused" the plaintiff's injury, id. at 13-15.
The case concerned an effort by Lexmark, which makes ink cartridges for printers, to stop Lexmark cartridge-buyers from purchasing old Lexmark cartridges that a competitor refurbished and filled with new ink. Static Control made components that Lexmark competitors used in the refurbishing process. It sued Lexmark for falsely telling customers that they couldn't sell their old Lexmark cartridges to competing refurbishers and notifying the refurbishers that refurbishing Lexmark cartridges violated Lexmark's rights.
If you've handled a bunch of patent cases without running across the Kessler doctrine, don't feel like the Lone Ranger. Until today, IP wizards like you likely had little cause to know about the patent-claim-killing rule that sprang more than a century ago from Kessler v. Eldred, 206 U.S. 285 (1907). Be warned. It's lethal.
The Kessler doctrine starts where claim preclusion ends and applies only in patent infringement cases. The Supreme Court ruled in Kessler that once a patent holder loses a case against a particular product, that product becomes impervious to future infringement claims.
The doctrine of claim preclusion -- what we called res judicata in law school -- bars a second suit between the same parties for the same kind of conduct but only for conduct that precedes the judgment in the first suit. Kessler extends the period from the day of judgment until forever (by which we mean the life of the patent).
The Federal Circuit applied the Kessler doctrine in Brain Life LLC v. Elekta Inc., No. 13-1239 (Fed. Cir. Mar. 24, 2014). The panel first ruled that res judicata precluded Brain Life from suing Elekta a second time for infringement of U.S. Patent No. 5,398,684 but only for infringing acts that happened pre-judgment. Kessler covered the infringement that ensued.
But not even Kessler got Elekta home free. It had acquired a new, potentially-infringing product since the judgment in the first case. The court therefore sent the case back to the district court for proceedings as to Elekta's ERGO++ device.
The case involved an ex-employee of Energy Recovery, Inc., Leif J. Hauge. ERI had sued Mr. Hauge over who owned IP relating to "pressure exchangers", which relate somehow to "reverse osmosis". They settled on the basis that ERI had all ownership rights in patents as well as "all other intellectual property and other rights relating to pressure exchanger technology". The district court signed an order enforcing the settlement.
Years later, Mr. Hauge started making and selling pressure exchangers through Isobaric Strategies, Inc. ERI sued him again, claiming that his company's manufacture and sale of pressure exchangers violated the previous order and constituted civil contempt. The district court agreed.
The Federal Circuit begged to differ. "The Agreement only required Mr. Hauge to transfer ownership", the panel noted. Energy Recovery, Inc. v. Hague, No. 13-1515, slip op. 8 (Fed. Cir. Mar. 20, 2014). "Nothing in the 2001 Order expressly precludes Mr. Hauge from using any manufacturing process." Id.
The Chief Judge of the Ninth Circuit erred when he booted patent infringement claims against "Street View", the Google feature that lets you look at images of houses, buildings, and other objects that line streets and highways online.
The mistake came in how Chief Judge Alex Kozinski construed a phrase -- "substantially elevations" -- that described the sorts of views you can see as a result of using Vederi LLC's image-making system. His Honor ruled after a Markman hearing that the term "elevations" refers to flat pictures showing an object from the (horizontal) side. "Street View", by contrast, creates curving images, Chief Judge Kozinski concluded.
Wrong, the Federal Circuit held, ruling that the district court failed to give any meaning to "substantially" in "substantially elevations" and also ignored other clues in the patent itself, all of which added up to a conclusion that the Vederi patents do cover images that curve. Vederi, LLC v. Google, Inc., No. 13-1057 (Fed. Cir. Mar. 14, 2014).
The Supreme Court granted review on March 10 in a case that involves "American Pipe tolling" of limitations.
If that sounds unfamiliar, Blawgletter explained the underlying Second Circuit decision last year as follows:
If you have a claim under the Securities Act of 1933, you need to act promptly -- within one year after you knew or should have known you had a claim and within three years "after the security was bona fide offered to the public" or "more than three years after the sale of the security." 15 U.S.C. § 77m.
Note the "and". Even if you could not have learned that you had a basis for a claim within the three-year period, if you sue after the three years expire, you lose. And if you reasonably could have discovered the claim within the three years but wait more than a year to file suit, you lose as well.
But the Supreme Court carved out an exception to the running of limitations under federal law if someone else filed a class action that covered your claim. So long as the class claim remained pending, the Court held, the limitations period went dormant for you. It stopped running.
That gave you time to decide what to do. If a court granted class treatment of the case, you could either remain a member of the class or "opt out" of it and pursue your own claim, either individually or with a group of others. If the court denied class certification, you would have to file your own case if you wanted to pursue a recovery.
The doctrine for class action "tolling" goes under the name "American Pipe", after the case that created the concept. Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). But Am. Pipe and its offspring left open a question, at least in the context of claims under the Securities Act. Does it apply both to the one-year period and the three-year one?
The Second Circuit held this week that American Pipe tolling exists only with respect to the shorter time frame. The panel based its ruling on the distinction between a "limitations" period -- which it deemed "procedural" -- and a "repose" period -- which it called "substantive". Congress enacted the three-year cut-off as a substantive deadline of "repose", thus making class members who sue within the one-year limitations period but beyond the repose due date unable to invoke American Pipe tolling. Police & Fire Retirement Sys. of the City of Detroit v. IndyMac MBS, Inc., No. 11-2998-cv(L) (2d Cir. June 27, 2013).
What does that mean to you, assuming you have a Securities Act claim? It means that you cannot count on a class action to extend your time for filing a claim. If you think you may want to opt out, you need to put the three-year deadline on your calendar and take action before the period expires.
Will the Second Circuit's ruling open the floodgates to opt-outs in Securities Act cases? It may in the context of people that have large claims. They will need to accelerate their decision-making on whether to opt out of a class case or stay in it. Because if they wait, they'll lose the flexibility they thought they had -- before now.
Blawgletter suspects that the Court will reverse the Second Circuit's ruling. Why? Because the majority of the Court (a) dislikes class actions, (b) adores one-on-one fights between behemoths that can afford the hefty cost of individual justice, and (c) will feel a tickling sensation from holding that bad, terrible, horrible, and ugly class actions may prevent virtuous and wealthy holders of first amendment rights from suing right away and therefore should at least, for the love of God, toll limitations during the time until the ever-more-likely order denying, or reversing, class certification eventuates.
I was married by a judge. I should have asked for a jury.
A panel of the Fifth Circuit held by a 2-1 vote that British Petroleum must pay some business loss claims even if the claimants cannot prove that the blowout at the Deepwater Horizon rig in 2010 actually caused the loss.
The majority ruled that the energy giant agreed to pay claims for losses that in fact occurred during the claim period but may not have resulted from the blowout and its oily aftermath. In re Deepwater Horizon, No. 13-30315 (5th Cir. Mar. 3, 2014).
The Sarbanes-Oxley Act came in the wake of Enron's sudden sinking. It aimed in part to foster the early blowing of whistles on fraud at "publicly traded" companies in order to avoid further titanic shipwrecks al-la the Greatest Company in the World's. The Act did so in part by barring retaliation against "an employee" who blew the whistle on fraudulent activity. But does the bar protect an "employee" whose whistle-blowing concerns not her own employer but a public company that engaged her firm as an independent contractor?
Yes, the Supreme Court held today in Lawson v. FMR LLC, No. 12-3 (U.S. Mar. 4, 2014).
The 6-3 Court thus ruled that Sarbanes-Oxley protected a whistle-blowing employee of a contractor that managed a publicly-traded but employee-free mutual fund for fraud by the mutual fund.
A crucial part of a patent case involves the Markman hearing. There, the district judge listens to and sees evidence, PowerPoints, blow-ups, claim charts, and arguments that each side puts forward in hopes that Her Honor will choose their version of what the words of the patent claims mean.
You might wonder why they put so much effort into defining terms and phrases -- or construing them, in Markman lingo -- but you'll get over that if you take time to read the actual language of a patent.
Dense, turgid, looping, vague, arcane, and -- with shocking frequency -- brimming with typos and syntactical and punctuation errors.
After all that work and bother, the trial court judge issues a Markman order. This piece of prose becomes the Rosetta Stone for the case. "Means for rotating grooved metal object into solid material" becomes "screwdriver". That can save the finder of fact a lot of mental effort.
So you'd expect that the appeals court would see that the district judge likely had a better chance to get the Markman rulings right. He saw the Keynote presentation as the lawyers walked him through it. He handled the exemplar devices. He may even have talked with his own technical expert. How can an appeals court hope to do better than he?
The Federal Circuit chose not to defer to district judges on their Markman rulings in 1998. See Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc). Last week, the full court stuck by that choice. By a 6-4 vote -- two of the 12 circuit judges recused themselves -- the court ruled that "the principles of stare decisis" persuaded them to "confirm the Cybor standard of de novo review of claim construction, whereby the scope of the patent grant is reviewed as a matter of law." Lighting Ballast Control, LLC v. Philips Electronics N. Am. Corp., No 12-1014, slip op. at 7 (Fed. Cir. Feb. 21, 2014) (en banc).
The lack of deference to Markman orders helps explain why in 2013 the Federal Circuit reversed district court judgments 19 percent of the time vs. 11.3 percent by all other courts of appeals in "private civil" cases -- a whopping 41 percent higher rate of reversal.
Blawgletter expects that the Supreme Court will take up the issue soon, maybe next Term. It should.