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Exploring the Latest in Intellectual Property Law
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Just How Similar Must Competing Marks Be to Survive Dismissal?

by | Oct 5, 2023 |

After a de novo review, the US Court of Appeals for the Sixth Circuit affirmed in part and reversed in part a district court’s motion to dismiss, finding the competing marks sufficiently similar to avoid dismissal, and the attorneys’ fee award. Bliss Collection, LLC v. Latham Companies, LLC, Case Nos. 21-5723; -5361 (6th Cir. Sept 21, 2023) (Mathis, Bush, JJ.) (Larsen, J., dissenting).

This case between Bliss and Latham was the latest installment in a series of cases between the children’s clothing companies after a Bliss founder left to start Latham as a competitor company. Here, Bliss sued Latham for infringement of three trademarks for Bliss’s stylized lowercase “b” logo, appearing as if stitched out in thread. Bliss sued for federal copyright infringement, federal trademark infringement, federal trade dress infringement, federal false designation of origin and misappropriation of source, federal unfair competition, trademark under Kentucky law and unfair competition under Kentucky law.

The competing marks are depicted below:

Latham moved to dismiss, and the district court dismissed the federal copyright and trade dress claims. The district court did not initially dismiss the remaining claims, but later did so after a motion for reconsideration. The district court determined that Latham was not entitled to attorneys’ fees because the case was not exceptional, and Bliss had brought the suit in good faith. Bliss appealed the federal trademark infringement, federal trade dress infringement and trademark infringement under Kentucky common law only.

The Sixth Circuit focused its analysis on whether the amended complaint properly alleged that Latham’s logo was a use of Bliss’s trademark. The Court noted that dismissal was not warranted for anything but the most extreme cases, concluded that this was not such a case and reversed.

The Sixth Circuit found that Latham used the accused mark “in a trademark way” (i.e., to identify goods). Then, weighing the Frisch factors to determine likelihood of confusion between the marks, the Court found that the similarity between the marks and their “impression” favored Bliss despite the fact “that the logos share no words or homophones.” Overall, the Court found that five of the eight factors favored Bliss and that two were neutral. Only the likelihood of purchaser care factor was found to favor Latham. The Court thus found that Bliss had plausibly alleged a likelihood of confusion and that its complaint stated a federal trademark infringement claim. Applying the same logic to the state trademark claims, the Court also reversed the dismissal of those claims.

The Sixth Circuit affirmed the dismissal of the trade dress claim, however, because Bliss failed in its affirmative duty to plead facts in support of nonfunctional trade dress.

Turning to the attorneys’ fee award, the Sixth Circuit found that the mere fact that Bliss sued Latham was not sufficient to warrant an “exceptional” case finding in terms of an award for fees. The Court was also unpersuaded that the trade dress claim was worthy of a fee award [...]

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Change in Law Leading to Case Dismissal Doesn’t Preclude Attorneys’ Fees

by | Aug 24, 2023 |

Addressing the symmetrical fee-shifting provision of the Copyright Act and whether a prevailing defendant was entitled to fees even when the plaintiff moved to dismiss the case in response to a change in law, the US Court of Appeals for the Seventh Circuit reversed the district court’s denial of attorneys’ fees and remanded the case for reconsideration. Live Face on Web, LLC v. Cremation Society of Illinois, Inc., et al., Case No. 22-1641 (7th Cir. Aug. 11, 2023) (Scudder, Kirsch, Jackson-Akiwumi, JJ.)

The Cremation Society of Illinois and its co-defendants (collectively, CSI) licensed software from Live Face on Web. Live Face on Web then sued CSI for copyright infringement, seeking damages of more than 1,000 times the initial license fee. Five years later, while summary judgment was pending, Live Face on Web moved to dismiss the case, arguing that the Supreme Court’s 2021 decision in Google LLC v. Oracle America, Inc. “made the defendants’ fair-use defense insurmountable.” The district court granted the motion to dismiss, and CSI filed a motion to recover fees. The court denied the motion for fees, in part because “awarding fees would neither encourage nor discourage other defendants from maintaining valid defenses against copyright claims.” CSI appealed.

The Copyright Act allows prevailing parties to recover costs and fees. The Seventh Circuit examined the nonexclusive factors that guide this analysis:

  • The frivolousness of the lawsuit
  • The losing party’s motivation for bringing or defending the lawsuit
  • The objective unreasonableness of the losing party’s claims
  • The need to advance considerations of compensation and deterrence.

The Seventh Circuit noted that the last factor relates to the purpose of the fee-shifting provision: “[b]y encouraging parties to stand on their rights, the Act’s symmetrical fee-shifting provision advances its core purposes.” A successful copyright infringement litigant “encourages others to use the copyright system, fostering further innovation,” whereas a defendant “who successfully protects his rights to use things in the public domain necessarily gives others a license to do the same.” The Court stated that prevailing defendants in particular benefit from a strong presumption that they are entitled to recover attorneys’ fees: “Without an award of attorney’s fees, a defendant faces pressure to abandon his meritorious defenses and throw in the towel because the cost of vindicating his rights (his attorney’s fees) will exceed the private benefit he receives from succeeding (a nonexcludable right to continue doing what he was already doing).”

In this case, the district court reasoned that CSI’s success was due to the change in the law rather than meritorious defenses and, therefore, awarding fees to CSI would not advance or deter any conduct. The Seventh Circuit disagreed, stressing that Live Face on Web did not demonstrate that it would have prevailed but for the Supreme Court’s decision in Google. Moreover, the Court noted that CSI had raised multiple other defenses that were not impacted by Google. In any event, the Court reasoned, “[i]n litigation, both sides accept that as the case evolves, the law might, [...]

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Disgorgement of Profits Appropriate Remedy for Breach of Contract, Trademark Infringement

by | Aug 24, 2023 |

In a trademark infringement and breach of contract case involving real estate companies with a shared name, the US Court of Appeals for the Fourth Circuit affirmed summary judgment in favor of the trademark owner, including almost $43 million in profit disgorgement. Dewberry Engineers v. Dewberry Group, Case Nos. 22-1622; -1845 (4th Cir. Aug. 9, 2023) (Gregory, Thacker, JJ.) (Quattlebaum, J., dissenting).

Dewberry Engineers and Dewberry Group (formerly Dewberry Capital) operate in the same states, and both provide commercial real estate services. Dewberry Engineers started in the mid-1950s as a civil engineering and surveying firm in northern Virginia. Over time, its business expanded to include real estate development services such as architecture and site development. Dewberry Group similarly provides real estate development services through its affiliates, including the Dewberry Hotel in Charleston, South Carolina.

In 2006, Dewberry Group sent Dewberry Engineers a cease-and-desist letter, asserting that Dewberry Group had “senior common law rights” to use “Dewberry” in real estate. In response, Dewberry Engineers sued Dewberry Group for infringing its federally registered DEWBERRY trademark. That litigation ended in 2007 when the parties entered a confidential settlement agreement (CSA). Among other things, the CSA stated that Dewberry Group:

  • Would not challenge Dewberry Engineers’ trademark registrations
  • Could use its “Dewberry Capital” name except in enumerated geographical areas where it instead must use “DCC”
  • Would use no logo other than its “column” logo.

In 2017, Dewberry Group rebranded and attempted to register DEWBERRY GROUP and other marks, which the US Patent & Trademark Office (PTO) repeatedly rejected.

In 2020, Dewberry Engineers filed suit claiming breach of contract and trademark infringement under the Lanham Act and Virginia common law. The district court granted summary judgment to Dewberry Engineers on the contract claim, finding that Dewberry Group had violated the unambiguous CSA by changing its logo, among other offenses. The district court also granted summary judgment to Dewberry Engineers on its trademark infringement claim, finding that Dewberry Engineers’ mark was not only valid, it was incontestable since it had been in continuous use for more than five years. The district court also found that the likelihood-of-confusion factors favored infringement. The district court entered a permanent injunction against Dewberry Group’s use of “Dewberry” and granted Dewberry Engineers its attorneys’ fees and profit disgorgement. Because the court believed the tax information Dewberry Group provided did not show the true “economic reality” of the close relationship between Dewberry Group and its affiliates, the disgorgement calculation also included some of Dewberry Group’s affiliated companies’ profits. Dewberry Group appealed, challenging the summary judgment grant, the permanent injunction and the monetary awards.

The Fourth Circuit began by noting that there was “uncontroverted evidence” that Dewberry Group used the DEWBERRY trademark, used a logo other than its column logo and failed to use “DCC” in restricted areas, all in breach of the undisputedly valid CSA. The Court therefore affirmed the district court’s finding that Dewberry Group breached the CSA.

The Fourth Circuit next addressed the trademark infringement claim. The Court rejected [...]

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Remedies as Big as Your Bamba

by | Aug 10, 2023 |

Following the district court’s finding of trademark infringement on summary judgment, the US Court of Appeals for the Sixth Circuit affirmed the district court’s subsequent award of profits, costs and attorneys’ fees in favor of the trademark holder. La Bamba Licensing, LLC v. La Bamba Authentic Mexican Cuisine, Inc., nka La Villa Rica Mexican Cuisine, Inc., Case No. 22-5853 (Gilman, Larsen, Nalbandian, JJ.)

La Bamba Licensing operates a series of Mexican restaurants in the Midwest under the name “La Bamba.” It obtained various federal trademark registrations in 1998. Almost 20 years later, La Bamba Authentic Mexican Cuisine (now known as La Villa Rica) opened a Mexican restaurant under the name “La Bamba Authentic Mexican Cuisine” with a single location in Lebanon, Kentucky. Shortly after learning of the La Villa Rica restaurant, La Bamba Licensing sent a cease-and-desist letter to La Villa Rica demanding that La Villa Rica cease use of the LA BAMBA mark. La Villa Rica responded but refused to alter its conduct because it did “not see any basis for [La Bamba Licensing’s] demands.” Three months after sending the cease-and-desist letter, La Bamba Licensing filed suit in the Western District of Kentucky alleging trademark infringement and unfair competition. More than one year later, La Villa Rica changed the name of its restaurant to “La Villa Rica Authentic Mexican Cuisine, Inc.”

The district court ultimately granted summary judgment in favor of La Bamba Licensing on all pending claims and permanently enjoined La Villa Rica from using the LA BAMBA mark. La Bamba Licensing subsequently filed a motion seeking profits, costs associated with bringing the action and attorneys’ fees. Following an evidentiary hearing, the district court granted La Bamba Licensing’s motion and awarded all three forms of relief. La Villa Rica appealed the district court’s decision to award profits and attorneys’ fees but did not appeal the award of costs or the district court’s calculation of either profits or attorneys’ fees.

The Sixth Circuit started its analysis of the profits award by identifying the factors courts should consider, including the defendant’s intent to deceive, whether sales were diverted, the adequacy of other remedies, any unreasonable delay by the plaintiff in asserting its rights, public interest in making the misconduct unprofitable and “palming off” (i.e., whether the defendant used its infringement of the plaintiff’s mark to sell its own products to the public through misrepresentation). The Sixth Circuit noted that the district court relied on two factors—the defendant’s intent and public interest in making the misconduct unprofitable—plus the defendant’s “willfulness” in determining that an award of profits was appropriate. The Sixth Circuit credited the district court’s reasoning, noting that “[e]ven after La Villa Rica received a cease-and-desist letter containing notice of La Bamba’s registered mark, and ‘in the face of [its] attorney’s advice that [it] might have a problem,’ La Villa Rica continued to use the LA BAMBA mark for a year and a half and ‘offered no legally sufficient explanation or support for its actions.’”

La Villa Rica argued that [...]

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Off the Charts: Derivative Work Copyright Registers All Material in Derivative Work

by and | Jul 27, 2023 |

In a matter of first impression, the US Court of Appeals for the Ninth Circuit reversed the district court’s partial grant of summary judgment in favor of the defendants, vacated a jury verdict and an award of attorneys’ fees, and remanded an action alleging infringement of copyright in two charts depicting organizational change. The Court agreed with other circuits that by registering a derivative work, an author registers all the material included in the derivative work, including any unregistered original works. Enterprise Management Limited, Inc. v. Construx Software Builders Inc., Case No. 22-35345 (9th Cir. July 17, 2023) (Fletcher, Clifton, Ikuta, JJ.)

Mary Lippitt and her company Enterprise Management filed a lawsuit against Steve McConnell and his company Construx for copyright infringement. Lippitt has built a career around advising companies on organizational change. To this end, she created charts and materials, including one titled “Managing Complex Change,” to demonstrate how an organization can fail by missing key transitional elements. According to Lippitt, the “Managing Complex Change” chart was registered with the US Copyright Office in 1987 as part of a presentation called “Transition: Accomplishing Organization Change.” The Copyright Office subsequently destroyed the deposit copy of the registration as part of its routine practice. In 2000, an updated presentation with an updated version of the chart was registered with the Copyright Office. In 2003, the updated chart, “Aligning for Success,” was registered individually.

In 2016, McConnell used Lippitt’s chart in a YouTube video presentation. McConnell titled the chart “Lippitt/Knoster Change Model,” added supplementary information and made stylistic changes. When Lippitt found out that McConnell used her chart, she sent cease-and-desist letters. After McConnell refused to stop using the chart, Lippitt sued.

Following discovery, McConnell moved for summary judgment, which the district court granted in part and denied in part. The district court ruled that Lippitt failed to show that she had registered the “Managing Complex Change” chart because she did not present evidence that the chart was included in the “Transition: Accomplishing Organization Change” material registered in 1987. The district court also denied the motion for summary judgment with respect to Lippitt’s claim that McConnell infringed the “Aligning for Success” chart because there was a genuine issue of material fact as to whether McConnell had copied it. Based on these rulings, the district court issued a pretrial order precluding Lippitt from basing any argument on her alleged ownership of the copyright in the “Managing Complex Change” chart, including any argument that McConnell infringed the “Aligning for Success” chart by copying elements from the “Managing Complex Change” chart. At trial, the jury returned a verdict for McConnell. The district court subsequently granted McConnell’s motion for attorneys’ fees. Lippitt appealed.

The Ninth Circuit first addressed whether Lippitt raised a genuine issue of material fact that she registered the “Managing Complex Change” chart by including it in the “Transition: Accomplishing Organization Change” materials. The Ninth Circuit explained that the district court’s ruling was partially based on the fact that the copyright for Lippitt’s original [...]

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The Game of Life: Winner Gets Everything Except Attorneys’ Fees

by | Jul 13, 2023 |

The US Court of Appeals for the First Circuit agreed with the trial court regarding the reasonableness of the plaintiff’s legal positions and found that the trial court did not abuse its discretion in denying the defendants, as the prevailing party, attorneys’ fees. The First Circuit determined that the positions advanced by the unsuccessful plaintiffs were not objectively unreasonable. Markham Concepts, Inc. v. Hasbro, Inc., Case Nos. 19-1927; 21-1957; -1958 (1st Cir. June 22, 2023) (Kayatta, Lipez, Thompson, JJ.)

The underlying case involved a copyright action concerning ownership rights to The Game of Life, a board game that has been widely popular since its launch in 1960. The Game of Life became the center of a long-standing dispute between its creators, Reuben Klamer and Bill Markham. Klamer, a toy developer, conceived the initial idea for the game and enlisted Markham to design and create the game prototype. Markham believed he deserved greater recognition for his contribution and felt the royalty he received was unfairly low.

In its previous ruling on the merits, the First Circuit affirmed the district court’s decision in favor of the Hasbro defendants (including Klamer). The Hasbro defendants then sought attorneys’ fees, which the district court denied. Hasbro appealed and moved for appellate attorneys’ fees.

Although both the district court and the First Circuit examined various factors, such as Markham’s motivations and the need for compensation or deterrence, the key factor for both courts in determining whether to award legal fees hinged on the reasonableness of Markham’s litigation arguments.

The merits of the underlying case revolved around the termination right provided by the Copyright Act of 1976 (1976 Act), which allows authors to terminate copyright grants after a certain period and thereby disentangle themselves from agreements made before the true value of their work became apparent. This right does not apply to works made for hire. In this instance, the issue of whether The Game of Life qualified as a work made for hire was determined under the Copyright Act of 1909 (1909 Act), as the game was created long before the 1976 Act took effect. Under the 1909 Act, Markham had to meet the “instance and expense” test, which treats contractors as employees of the party commissioning the work, thereby presuming copyright ownership in the latter. The district court held that The Game of Life was a work for hire because it was created at Klamer’s instance and expense.

Markham’s primary argument relied on the 1989 Supreme Court decision in Reid, which interpreted “employee” for purposes of the work-for-hire test as being defined according to “the general common law of agency.” Although Markham acknowledged that Reid was directed to the 1976 Act, he contended that the logic of Reid should extend to the 1909 Act, thereby nullifying the “instance and expense” test in favor of the general common law of agency.

Four years after the Supreme Court’s decision in Reid, however, the First Circuit applied the “instance and expense” test in Forward to a work covered [...]

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‘Show Me The Money’ Isn’t Enough: Disproportionate $1.7M Attorneys’ Fees Rejected

by and | Jun 22, 2023 |

The US Court of Appeals for the Ninth Circuit reversed and remanded a $1.7 million award of attorneys’ fees, finding the amount unreasonable compared to the benefit the plaintiffs received. Lowery v. Rhapsody International, Inc., Case No. 22-15162 (9th Cir. June 7, 2023) (Smith, Collins, Lee, JJ.)

Streaming music providers such as Apple Music, Spotify and Napster (formally Rhapsody International) have fundamentally changed the way we enjoy music. Gone are the days of the mixtape. But to bring these services, providers must license the copyrighted music and pay royalties to the owners. At the time this case was filed, the two main licensing paths available to streaming music providers required either direct negotiations with the owners or compulsory licensing by serving a notice of intent to each owner. These paths were unworkable and antiquated given the millions of songs that the providers were playing.

David Lowery and others sued Rhapsody in 2016 on behalf of a putative class of copyright owners. They claimed Rhapsody had infringed their copyrights by reproducing and distributing their musical compositions through its platform without a license. The parties eventually reached a settlement. Rhapsody agreed to pay a maximum of $20 million to the class members, but because an earlier argument effectively decimated the putative class, the actual payout to the class was just over $50,000.

Despite the low amount paid to the class, the plaintiffs’ counsel requested $6 million in attorneys’ fees. The request was based on a “lodestar” calculation, where the number of hours reasonably spent on the case is multiplied by a reasonable hourly rate, then adjusted up or down as called for by the peculiarities of the case. The plaintiffs’ counsel estimated its fees to be around $2.1 million, with a proposed 2.87 multiplier due to the “exceptional” results in a “complex” case.

The magistrate judge disagreed and recommended reducing the lodestar to $1.7 million because one-fifth of the hours spent were either unreasonable or improperly blocked billed. The judge also recommended further reducing the lodestar value with a negative multiplier in light of the limited benefit actually paid out. The district court took issue with the magistrate judge’s cross-checking of the lodestar value against the amount paid. The court noted that there was “no bright-line rule” to cross-check a lodestar value either against the claimed amount ($50,000 in this case) or the possible recovery ($20 million). However, the district court agreed with the magistrate judge’s lodestar calculation and awarded $1.7 million in attorneys’ fees. Rhapsody appealed.

The Ninth Circuit rejected the award, concluding that the $1.7 million award was unreasonable given the small benefit to the class members. The Court explained that the actual benefit to the class must be considered when assessing the value of a class action settlement. Here, the Court pointed out that the district court should have cross-checked any lodestar calculations to ensure that there was a reasonably proportional benefit to the class members. The district court also should have disregarded the $20 million settlement cap when [...]

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Lanham Act Liability May Apply to Copyrighted Material

by | Jun 8, 2023 | ,

The US Court of Appeals for the Ninth Circuit found that liability under the Copyright Act and liability under the Lanham Act are not mutually exclusive and that liability under the Copyright Act does not negate trade dress damages under the Lanham Act. Jason Scott Collection, Inc. v. Trendily Furniture, LLC, Case No. 21-16978 (9th Cir. May 30, 2023) (Wardlaw, Bumatay, Schreier (sitting by designation), JJ.)

Jason Scott Collection (JSC) and Trendily Furniture are high-end furniture manufacturers that sell their products in the Texas market. In 2016, Trendily intentionally copied three unique furniture designs by JSC and sold them to Texas retailers. Both collections featured heavy carved wood pieces with detailed embellishments and metal elements. The record showed that Trendily’s collection had been based on photographs of the preexisting JSC collection. The Trendily pieces were so similar that even JSC had initially mistaken the furniture as its own when confronted by a retailer. After JSC filed suit, the district court granted summary judgment to JSC on its copyright claim. Following a bench trial, the district court held Trendily liable on the trade dress claim. On that claim, the district court awarded almost $133,000 in prospective lost annual profits over a period of three years, which amounted to about six times the almost $20,000 in retrospective gross profits awarded on JSC’s copyright claim. Trendily appealed.

To obtain a judgment for trade dress infringement, a plaintiff must prove that the claimed trade dress is nonfunctional, the claimed trade dress serves a source-identifying role because it is either inherently distinctive or has acquired a secondary meaning and the defendant’s product creates a likelihood of confusion. Trendily argued that JSC had not adequately established a secondary meaning (for trade dress the parties stipulated was not inherently distinctive) or likelihood of confusion. The Ninth Circuit, however, found that the district court found adequate evidence of secondary meaning through copying and through confusion by retailers and consumers in the high-end furniture market. The Ninth Circuit also found that the district court had correctly found likelihood of confusion, putting special emphasis on Trendily’s intentional and precise copying of the JSC pieces leading to retailer confusion.

Turning to the damages award, Trendily argued that because copying is a commercially acceptable and necessary act in terms of competition, Trendily should only be held liable under the Copyright Act, rather than for trade dress infringement under the Lanham Act. However, the Ninth Circuit affirmed that liability under the Copyright Act and liability under the Lanham Act are not mutually exclusive and that liability under the Copyright Act did not negate the judgment against Trendily for trade dress damages under the Lanham Act. The Court then affirmed the trade dress damages award, finding that the prospective damages incurred when one of JSC’s business relationships fell apart because of Trendily’s copied furniture were reasonably foreseeable and had been “satisfactorily demonstrated.” The Court emphasized that the law only required “crude measures of damages in cases of intentional infringement.”

Finally, the Ninth Circuit affirmed [...]

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Well Runs Dry: Summary Judgment Denial Supports Non-Exceptional Case Finding

by | Jun 1, 2023 |

The US Court of Appeals for the Federal Circuit affirmed a district court’s denial of attorneys’ fees, explaining that when a district court denies summary judgment and allows a plaintiff’s case to proceed, the district court effectively determines that the position of the party opposing summary judgment is not objectively baseless. OneSubsea IP UK Limited v. FMC Techs, Inc., Case No. 22-1099 (Fed. Cir. May 23, 2023) (Moore, Clevenger, Dyk, JJ.)

OneSubsea and FMC compete in the subsea oil and gas exploration and extraction industry. In March 2015, OneSubsea filed a lawsuit against FMC alleging infringement of 95 claims across 10 OneSubsea patents. After the district court issued its claim construction ruling, FMC moved for summary judgment of noninfringement. OneSubsea opposed. While the summary judgment motion was pending, the Patent Trial & Appeal Board instituted inter partes review (IPR) proceedings on a subset of the asserted patents. FMC argued that while a stay of district court proceedings would be appropriate, it was unnecessary in light of its pending summary judgment motion. In August 2016, the district court denied summary judgment and stayed the case.

The case remained stayed for three years, during which time the Board invalidated 76 claims. In 2019, the district court lifted the stay. At a pre-trial hearing in 2020 discussing whether additional discovery was needed to address summary judgment, FMC doubted the need for more discovery and pointed to the 3,200 record pages illustrating differences between the designs of the accused device and the patented devices. In response, the district court stated, “And you really think I’m going to be able to grant summary judgment on that?” After the hearing, FMC renewed its summary judgment motion, which OneSubsea opposed. In reply, FMC moved to exclude the report of OneSubsea’s expert because he applied the wrong claim construction. Ultimately, the district court granted FMC’s motion to exclude and its motion for summary judgment.

In 2021, FMC moved for attorneys’ fees based on OneSubsea’s “substantively weak infringement claims” after the claim construction order was issued and “litigation misconduct.” After briefing was complete, the district court announced that the case had been reassigned to another judge following the retirement of the original assigned judge. The new judge rejected FMC’s view that OneSubsea’s case was objectively baseless and further rejected FMC’s claims of litigation misconduct. FMC appealed.

As a threshold matter, FMC argued that the Federal Circuit should apply de novo review instead of an abuse-of-discretion standard because the new judge only briefly “lived with the case” and should be disqualified from exercising discretion in deciding FMC’s attorneys’ fees motion. The Court rejected FMC’s invitation to change the standard of review, citing the substantial body of law in which appellate courts have consistently reviewed successor judges’ decisions on discretionary issues for abuse of discretion.

Turning to the merits, the Federal Circuit found that FMC’s exceptional case argument lacked merit. The Court explained that the argument disregarded the district court’s observation that FMC’s demand for a prompt favorable noninfringement judgment based [...]

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Allegations in Complaint Prevail over Statements in Exhibit

by | Apr 20, 2023 |

The US Court of Appeals for the Federal Circuit, prioritizing specific allegations in the complaint over disclosures in exhibits to the complaint, reversed and remanded a district court decision dismissing an original complaint, denying leave to file an amended complaint. Healthier Choices Management Corp. v. Philip Morris USA, Inc.; Philip Morris Products S.A., Case Nos. 22-1268; -1563 (Fed. Cir. Apr. 12, 2023) (Taranto, Cunningham, Stoll, JJ.)

Healthier Choices Management (HCM) filed a complaint for patent infringement against two Philip Morris defendants in the Northern District of Georgia. The infringement allegation involved a patent for a nicotine delivery device. The relevant language from the claims focused on a heating element in the device “initiating . . . a combustion reaction . . . [with] the combustion reaction at least partially combusting the combustible material.” In its complaint, HCM alleged that the heating in the accused product resulted in at least partial combustion.

Philip Morris defended the claim by arguing that its accused product aerosolized the nicotine at a low temperature and, therefore, never combusted the tobacco. Philip Morris filed a motion under Fed. R. Civ. Pro. 12(b)(6) against HCM arguing that an exhibit to the complaint “conclusively demonstrated” that the accused product did not initiate a combustion reaction. The district court agreed and granted the motion to dismiss, prompting HCM to file a motion for leave to amend its complaint to more definitively allege infringement. The district court denied the motion and granted Philip Morris’s subsequent motion for attorneys’ fees under 35 U.S.C. § 285. HCM appealed.

Since the issues raised were not unique to patent law, the Federal Circuit addressed HCM’s appeal under the law of the relevant regional circuit, the Eleventh Circuit. The Court noted that in the Eleventh Circuit, exhibits attached to a complaint can be considered and the exhibit controls in the event of any conflict with allegations pertaining to the exhibit. However, when an exhibit is alleged to be factually false in some way and the allegations in a complaint are specific and well pleaded, then the allegations in the complaint control. The exhibit regarding the accused product in this case was alleged to be incorrect, as far as it stated that there was no combustion initiated by the “heat-not-burn” method described in the exhibit. HCM contended that combustion occurred despite the assertions in that document. Relying on several cases disavowing the truth of the exhibit, the Federal Circuit found Eleventh Circuit law to be both clear and in alignment with HCM. The Court concluded that in light of the detailed allegations as to the basis underlying HCM’s disagreement with the facts asserted in the exhibit, the complaint should not have been dismissed based on the exhibit.

The Federal Circuit next turned to HCM’s amended complaint. Noting that the amended complaint “superseded” the earlier complaint, the Court found that the amended complaint removed the offending exhibit and any references to the offending exhibit and included a declaration of a technical expert to further support HCM’s allegations. [...]

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