contempt Archives - IP UPDATE

Message Received: US Courts Are Appropriate, More Convenient Venue to Adjudicate US IP Disputes

by Courtney Seams | Feb 23, 2023 | Copyrights, Trade Secrets, Trademarks

Addressing personal jurisdiction and forum non conveniens in a software licensing dispute, the US Court of Appeals for the Fourth Circuit upheld a district court’s exercise of personal jurisdiction over a Dutch entity and the court’s decision to not dismiss the case for forum non conveniens. dmarcian, Inc. v. dmarcian Europe BV, Case Nos. 21-1721; -2005 (4th Cir. Feb. 14, 2023) (Wilkinson, Heytens, Hudson, JJ.)

dmarcian is a North Carolina-based software company that developed software to help email users authenticate incoming emails. A Dutch businessman who owned Mailmerk contacted dmarcian to offer to market the software in Europe. While dmarcian was initially unreceptive to the offer, the two parties eventually reached an oral agreement for Mailmerk to rebrand as dmarcian Europe BV (dmarcian BV) and sell the dmarcian software in Europe and Africa.

A dispute arose when dmarcian BV claimed ownership of portions of the dmarcian source code. dmarcian BV filed suit in the Netherlands, eventually filing for and winning injunctive relief in the Netherlands when dmarcian terminated dmarcian BV’s license. dmarcian then filed suit in the Western District of North Carolina asking for a preliminary injunction against dmarcian BV, which dmarcian BV opposed with a motion to dismiss for forum non conveniens. The district court denied the motion to dismiss and entered a preliminary injunction that precluded dmarcian BV from operating outside of Europe and Africa and required dmarcian BV to stop using the registered “dmarcian” trademark without a disclaimer. The district court later found dmarcian BV in contempt for violating the preliminary injunction and ordered dmarcian BV to pay $335,000 in sanctions. dmarcian BV appealed the injunction and the sanctions.

dmarcian BV argued that the district court did not have personal jurisdiction. The Fourth Circuit rejected that argument, finding that the North Carolina long-arm statute authorized jurisdiction over dmarcian BV. The Court found that the application of the long-arm statute to dmarcian BV complied with due process because dmarcian BV worked closely with the dmarcian team in North Carolina (e.g., receiving sales leads, attending virtual meetings, coordinating software development), dmarcian BV sought out dmarcian to initiate business, and there was a strong interest in protecting intellectual property rights in North Carolina.

The Fourth Circuit also upheld the denial of the dismissal for forum non conveniens because the Dutch court was not an adequate alternative forum since Dutch courts cannot effectively adjudicate US trademark claims. The Fourth Circuit found that any judgment by the Dutch court would have little effect in the United States and would deny relief to dmarcian for the infringement of its rights.

The Fourth Circuit upheld the preliminary injunction grant, finding that the district court properly applied US and North Carolina law extraterritorially and that dmarcian was likely to succeed on all claims. The Court found that US laws properly applied and that dmarcian was likely to succeed on the following claims:

Copyright infringement, because there was a registered copyright, dmarcian BV reproduced elements of the source code outside of the licensing agreement, and [...]

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Split Federal Circuit Reverses Contempt Order, Sanctions Award in Protective Order Dispute

by Paul Devinsky | Jul 7, 2022 | Patents

A split panel of the US Court of Appeals for the Federal Circuit reversed a district court’s contempt order and sanctions award, finding that there was a fair ground of doubt regarding whether the defendant’s counsel’s disclosure to a third party under a joint defense agreement constituted a violation of a protective order (PO). Static Media LLC v. Leader Accessories LLC, Case No. 21-2303 (Fed. Cir. June 28, 2022) (Dyk, Taranto, JJ.) (Reyna, J., dissenting).

Static Media sued Leader Accessories for infringement of a design patent relating to a stadium seat. The parties entered into a PO that restricted the disclosure of discovery documents designated as confidential. The PO restricted disclosure of confidential-designated documents to a limited group of people, including “outside independent persons” retained to provide consulting, technical or expert services or to give testimony (i.e., an independent consultant). The PO also required that an independent consultant execute a “written assurance.” The written assurance required that the independent consultant read and agree to be bound by the terms of the PO and prohibited the consultant from copying or using any confidential information except under the terms of the PO.

After the parties agreed to the PO, Static sent a cease-and-desist letter to another company, OJ Commerce, for infringement of the same patent. Counsel for OJ Commerce contacted Leader’s lawyer, and the parties entered into a joint defense group governed by a joint defense agreement. Static subsequently sued OJ Commerce in a different district, after which counsel for Leader shared a copy of the PO and written assurance, which counsel for OJ Commerce signed and returned. Counsel for Leader then shared with OJ Commerce two deposition transcripts containing “a few pages” of confidential-designated information relating to Static’s licensing and royalty agreements.

During settlement negotiations, counsel for OJ Commerce revealed to Static’s counsel (who was not involved in the Leader case and was not a signatory to the PO) that he was “fully aware” of the actual royalties Static had received in the past. Static moved for discovery sanctions and an order holding Leader in contempt for violation of the PO. The magistrate judge ordered Leader to pay Static’s attorneys’ fees and a $1,000 sanction. After the district court judge affirmed, Leader appealed.

Reviewing under an abuse of discretion standard, the Federal Circuit evaluated the legal theories used by the magistrate judge and the district court. The district court concluded that Leader’s counsel should be held in contempt because he was responsible for OJ Commerce’s counsel’s improper use of the confidential information. Separately, the magistrate judge based its finding on the fact that Leader’s counsel “knew or should have known” that OJ Commerce’s counsel would use the information to bolster its defense in its own case. The Federal Circuit disagreed with both of these views, finding that Static failed to prove by clear and convincing evidence that Leader violated the PO. The Court concluded that Leader’s counsel “did exactly what was required to ensure [OJ Commerce’s counsel] would abide by the [...]

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10th Circuit Falls into Line on Exceptionality Doctrine in Lanham Act Cases

by Paul Devinsky | Jun 17, 2021 | Trademarks

Addressing whether the term “exceptional case” in the Patent Act differs in meaning from the same term used in the Lanham Act, the US Court of Appeals for the 10th Circuit upheld an award of attorneys’ fees granted under a motion filed under 15 U.S.C. 1117(a) and clarified that the exceptional case standard in the Lanham Act parallels the standard in the Patent Act. Derma Pen, LLC v. 4EverYoung Limited, et al., Case No. 19-4114 (10th Cir. June 8, 2021) (Lucero, J.)

In 2013, Derma Pen sued several companies for infringement of the “DERMAPEN” mark. Four years later, Derma Pen was granted a permanent injunction prohibiting the companies and “their officers, agents, servants, employees, attorneys, licensees, and anyone in active concert or participation with, aiding, assisting, or enabling Defendants” from using the mark. A few months later, Derma Pen filed for an order of contempt against one of the defendants, Stene Marshall, alleging that Marshall, with the help of other actors (related parties), had been violating the earlier-issued injunction. During the subsequent proceedings, despite being the plaintiff, Derma Pen routinely failed to meet its discovery obligations, causing the related parties to file as many as six discovery motions and resulting in the imposition of sanctions on Derma Pen.

Following an evidentiary hearing, the district court found Marshall in contempt of the injunction, but concluded that the related parties took no part in Marshall’s violation. Subsequently, the related parties moved for attorneys’ fees incurred in the contempt proceeding under the Lanham Act, 15 U.S.C. 1117(a). The district court granted the motion and awarded more than $190,000 in fees based on application of the “exceptional case” standard set forth in the Supreme Court of the United States’ 2014 decision in Octane Fitness v. Icon Health & Fitness. Specifically, the district court decided that the case was “exceptional” because:

Derma Pen produced “no evidence of damages.”
“[T]he evidence showed [Derma Pen] had no right to enforce the injunction.”
“[T]he evidence showed that [the] trademark was abandoned.”
“[M]onetary sanctions were imposed on” Derma Pen for misconduct and delay during discovery.
Derma Pen was “entitled to no relief against the [related parties].”

Derma Pen appealed.

The 10th Circuit affirmed the district court’s holding and fees award for the related parties, noting Derma Pen’s misconduct and delay during discovery. In so doing, the Court adopted the Octane Fitness standard as applicable to cases brought under the Lanham Act.

Practice Note: The 10th Circuit noted that it was acting consistently with other circuits that have considered application of the Octane standard to fee disputes under the Lanham Act, citing LHO Chicago River, L.L.C. v. Perillo (7th Cir. 2019) (collecting cases); Xereas v. Heiss (DC Cir. 2021); and Safeway Transit LLC v. Disc. Party Bus, Inc. (8th Cir. 2020).