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Georgia IP Litigation: January 2013

BLOGS: Georgia IP Litigation

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Friday, January 25, 2013, 4:56 PM

Kason Industries Sues Competitor Over Commercial Refrigeration and Restaurant Equipment Hardware Patent

On January 22, 2013, Kason Industries, Inc. ("Kason"), a New York corporation based in Newnan, Georgia, filed a complaint in the Northern District of Georgia against Component Hardware Group, Inc. ("CHG"), a Delaware corporation based in Lakewood, New Jersey, alleging that CHG is infringing United States Patent No. 7,571,887 ("the '887 patent") through its sale of certain commercial refrigeration and restaurant equipment hardware.

According to the complaint, since the 1920s Kason has been in the business of developing refrigeration and restaurant equipment hardware.  Kason alleges that CHG competes with Kason in the refrigeration and restaurant equipment hardware industry, and that CHG "promotes, offers to sell, provides and sells refrigeration and restaurant equipment hardware products, including, but not limited to, its adjustable support (Accused Product), which infringes, includes and/or practices one or more of the inventions in the '887 Patent."  The '887 patent, titled "HEIGHT ADJUSTABLE SUPPORT FOR FOOD SERVICE EQUIPMENT," issued on August 11, 2009 and generally relates to adjustable supports for various restaurant equipment.  Kason asks that the Court enjoin CHG from making, using, offering to sell, selling, or importing the Accused Product, enter judgment that CHG has willfully infringed such that any damages awarded be trebled under 35 U.S.C. § 284, declare the case exceptional under 35 U.S.C. § 285 and award Kason its attorneys' fees and costs.

The case is Kason Industries, Inc. v. Component Hardware Group, Inc., Case No. 3:13-cv-12-TCB, United States District Court for the Northern District of Georgia, Atlanta Division, and is assigned to U.S. District Judge Timothy Batten.

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Thursday, January 24, 2013, 1:19 PM

BMI, Music Publishers Bring Copyright Suit Against Georgia Restaurant, Seeking Statutory Damages

Set in the beautiful north Georgia mountains, the scenic town of Ellijay, Georgia (population 1,619) provides a tranquil escape from the hectic pace of daily life for many visitors.  Yet not even Ellijay is small enough or remote enough to escape the attention of New York-based music licensing behemoth Broadcast Music, Inc. (“BMI”), as discovered the hard way by local establishment East Ellijay Pourhouse Bar and Grille, LLC (“the Establishment”) and associated individuals (collectively, “Defendants”).

In a copyright infringement complaint filed in the Gainesville Division of the U.S. District Court for the Northern District of Georgia on January 22, 2013, BMI and 16 music publishers (collectively, “Plaintiffs”) allege that on July 1, 2011, Defendants had engaged in “unauthorized public performance” of nine copyrighted songs, including two Rolling Stones hits (“Jumpin’ Jack Flash” and “Honky Tonk Women”) and Creedence Clearwater Revival’s “Green River.”  The complaint does not describe the Establishment’s manner of such performance.
Read more »

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Wednesday, January 23, 2013, 4:51 PM

Jewelry Design Theft Raised by Ronaldo Designer Jewelry Against Golden Stella in new Copyright Suit

Ronaldo Designer Jewelry (Ronaldo) asserts copyright infringement, trade dress infringement, unfair competition and unfair trade practices under the Lanham Act, and unfair and deceptive trade practices under the Georgia Fair Business Practices Act against Golden Stella, Inc. ("Golden Stella") and 99 John Does (reproducers, manufacturers, copiers, importers, distributors, displayers, and sellers for or on behalf of Golden Stella, including agents).

The complaint identifies the infringing works, beginning with “The Power of Prayer Bracelet” pictured on page 4 of the complaint with the accused infringing products pictured on page 5.  Pictured to the left below is the Ronaldo bracelet with the accused bracelets to the right.

The United States Copyright Office granted Ronaldo’s predecessor Registration VA 1-813-280 with an effective date of April 17, 2012.

On page 6 of  the complaint, Ronaldo pictured “The Wide Power of Prayer Bracelet” along with two accused Golden Stella products, respectively pictured on the left and right below:   

No separate copyright registration for “The Wide Power of Prayer Bracelet” was identified in the complaint.

On page 7 of the complaint, Ronaldo pictured the “Stackable Bracelet” (shown on the left below) and two accused Golden Stella bracelets (pictured on the right below):

The United States Copyright Office granted Ronaldo’s predecessor Registration VA 1-125-963 with an effective date of December 7, 2001, for a catalog containing this design.  An application for the specific design of this bracelet was filed on or about November 7, 2012.  [Exhibit K]

On pages 8 and 9 of the complaint, Ronaldo pictured the Waverly Bracelet (shown below on the left) and three allegedly infringing Golden Stella bracelets (pictured on the right below):

An application for copyright of the Waverly Bracelet was filed on or about April 12, 2012.  [Exhibit M].

On page 10 of the complaint, Ronaldo pictured the Pearl of My Heart bracelet (shown below on the left) and two allegedly infringing Golden Stella bracelets (pictured on the right below):

An application for copyright of the Pearl of My Heart bracelet was filed on or about April 20, 2012.  [Exhibit P].

In Count II (Trade Dress and Unfair Competition), Ronaldo stressed that its handmade jewelry was distinctive and “immediately identifiable” and associated by the public with its brand – THE RONALDO COLLECTION®.  The common features, Ronaldo states, enhance compatibility and collectability for use together for a consistent look and feel.  The complaint describes these distinctive design features in detail as including:  “a combination of square, diamond and round cut 18-20 guage gold artist’s wire and sterling silver wire, which when used in a twisted form has approximately 8-10 twists per inch and use 18 gauge half round wrap to form the hook clasps.  The clasps have the distinctive, signature shape of a house, to meet the hook and eye sides of the closure. …”  The complaint describes these features as not being essential to the function of the jewelry.

Ronaldo jewelry designs, according to the complaint, have been promoted in over 50,000 catelogs, featured in Who’s Who in America, promoted on the Internet and at many trade shows and art fairs, as well as large retail stores such as Dillards, and have been “extensively advertised and promoted” for over two decades.

Ronaldo alleges that the infringement began in November 2012 and is deliberate and continuing and has caused irreparable harm.  Ronaldo seeks damages, including actual damages and profits or statutory damages, along with willfull copyright damages and trebled damages under the Lanham Act, and a temporary and permanent injunction.

The case is Ronaldo Designer Jewelry, Inc. v Golden Stella, Inc., No. 1:12-cv-132-TWT, filed 01/14/13 in the U.S. District Court for the Northern District of Georgia, Atlanta Division, and has been assigned to U.S. District Judge Thomas W. Thrash, Jr.

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Tuesday, January 22, 2013, 11:49 AM

Banks and Credit Union Latest Targets of Joao Bock Transactional Systems, LLC Patent Suits

On January 15 and 16, 2013, Yonkers, New York-based Joao Bock Transactional Systems, LLC (“JBTS”) filed complaints initiating the following lawsuits in the U.S. District Court for the Northern District of Georgia:
1)                  Joao Bock Transaction Systems, LLC v. Georgia’s Own Credit Union, No. 1:13-cv-0147- RWS, filed 01/15/13 in the Atlanta Division, assigned to U.S. District Judge Richard W. Story;
2)                   Joao Bock Transaction Systems, LLC v. The Bank of Georgia, No. 3:13-cv-0007-TCB, filed 01/15/13 in the Newnan Division, assigned to U.S. District Judge Timothy C. Batten;
3)                  Joao Bock Transaction Systems, LLC v. United Community Bank, No. 2:13-cv-0008-WCO, filed 01/15/13 in the Gainesville Division, assigned to U.S. District Judge William C. O’Kelley; and
4)                  Joao Bock Transaction Systems, LLC v. Hamilton State Bank, No. 2:13-cv-0010-WCO, filed 01/16/13 in the Gainesville Division, also assigned to U.S. District Judge William C. O’Kelley.

Each lawsuit alleges infringement of two related patents: U.S. Patent No. 6,047,270 (“the ’270 Patent”), issued April 4, 2000 and titled “Apparatus and Method for Providing Account Security”; and U.S. Patent No. 7,096,003 (“the ’003 Patent”), issued August 22, 2006 and titled “Transaction Security Apparatus.”  These are two of the same patents asserted against defendants in other litigation, identified in our 08/23/12 post, which also generally describes the technology disclosed in those patents.

JBTS’ above-identified complaints describe the accused products as “Online Banking products and/or services,” including: in lawsuit (1), Georgia’s Own Credit Union’s “Online Banking and Online Bill Pay services”; in lawsuit (2), The Bank of Georgia’s “eBiz Express Online Banking Service”; in lawsuit (3), United Community Bank’s “Business Online Banking Service”; and in lawsuit (4), Hamilton State Bank’s “Business Cash Management Service.”

The complaints allege both direct infringement and indirect infringement (i.e., inducement to infringe under 35 U.S.C. § 271(b) and contributory infringement (35 U.S.C. § 271(c)).  All of the complaints allege willful infringement and seek remedies for such infringement under the Patent Act.

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Friday, January 18, 2013, 3:22 PM

License Demand Letter Isn't Enough to Establish Personal Jurisdiction Over Patentee Defendant in a Declaratory Judgment Action

Attorneys often worry that sending a license demand letter (or cease-and-desist letter) on behalf of a patentee will prompt an accused infringer to file a declaratory judgment action in its home forum, thus preempting the patentee's choice of forum.  This fear is the most significant factor behind patentees' tendency to "shoot first, ask questions later" in patent litigation.  Recent Federal Circuit law has largely erased that concern by holding that only activity relating to the enforcement or defense of a patent can serve as a basis to establish specific personal jurisdiction in a declaratory judgment action.  The Northern District of Georgia is the latest court to apply that rule in dismissing a declaratory judgment action for lack of personal jurisdiction over the patentee.

Procedural Background

As reported in our August 13, 2012 post, a patent infringement action involving indoor greenhouse patents was transferred from the Central District of California to the Northern District of Georgia based on the "first-to-file" rule because the accused infringer filed a declaratory judgment action in this district before the patentee filed its infringement suit.  The declaratory judgment action and the infringement action were not consolidated, but proceeded in tandem before Judge Pannell of the Northern District.  On January 3, 2013, Judge Pannell issued an order in each case on various outstanding motions, the net effect of which resulted in a dismissal of the declaratory judgment action for lack of personal jurisdiction and a stay of the infringement action pending reexamination of the patents-in-suit before the United States Patent and Trademark Office ("PTO").

For more background on the technology at issue, see our previous post.  In short, in response to a license demand letter from patentee International Growers Supply, Inc. ("IGS") regarding U.S. Patent Nos. 7,823,324 and 7,975,428, accused infringer Atlantis Hydroponics, Inc. ("Atlantis") filed a declaratory judgment action in the Northern District of Georgia on April 9, 2012.  Four days later, on April 13, 2012, IGS filed an infringement action in the Central District of California against Atlantis and its manufacturer, retailer, and owners.  On August 8, 2012, the California case was transferred to the Northern District of Georgia based on the "first-to-file" rule.  

In the declaratory judgment action, IGS moved to dismiss for lack of personal jurisdiction or, alternatively, to transfer to the Central District of California under 28 U.S.C. § 1404.  Atlantis moved to conduct jurisdictional discovery, and also moved to stay the action pending a PTO reexamination of the '324 and '428 patents.  In the transferred infringement action, Atlantis filed an identical motion to stay pending reexamination, and IGS moved to consolidate the case with the declaratory judgment action.

Order Dismissing Declaratory Judgment Action for Lack of Personal Jurisdiction

First, the Court had to address whether IGS had waived a defense of personal jurisdiction because the time for filing a responsive pleading under F.R.C.P. 12(a) had expired when the motion to dismiss was filed.  IGS filed a motion to set aside default contemporaneously with the motion to dismiss.  Atlantis consented to setting aside the default but moved to strike the motion to dismiss.  The Court found that because the defense was raised in the first responsive pleading or paper filed, though it was not timely filed, IGS did not waive the defense. 

Next, the Court considered the law of personal jurisdiction over a patentee defendant in a declaratory judgment action.  The plaintiff bears the burden of establishing a prima facie case for personal jurisdiction, and the court must construe all pleadings and affidavits in a light most favorable to the plaintiff.[1]  Personal jurisdiction may be based on either general or specific jurisdiction.  As stated by the Supreme Court, a "court may assert general jurisdiction over foreign (sister state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State."[2]  

Specific jurisdiction, however, requires that the defendant have "purposefully directed" his activities at residents of the forum State and that the litigation have resulted from alleged injuries that "ar[o]se out of or relate[d] to those activities."[3]  A court's exercise of specific personal jurisdiction over an out-of-state defendant must comport with the forum State's long-arm statute and the requirements of due process.[4]  Georgia's long-arm statute is expansive enough that its reach is only limited by the boundaries of due process.[5]  The Federal Circuit recently explained the relevant contacts and activities a court may consider in determining whether it has personal jurisdiction over a defendant patentee in a declaratory judgment action:
[A]n action for a declaratory judgment "arises out of or relates to the activities of the defendant patentee in enforcing the patent or patents in suit," and ... the relevant inquiry for specific jurisdiction is "to what extent the defendant patentee purposefully directed such enforcement activities at residents of the forum and the extent to which the declaratory judgment claim arises out of or relates to those activities." Thus, only those activities of the patentee that relate to the enforcement or defense of the patent can give rise to specific personal jurisdiction for such an action.[6] 

To support its assertion of personal jurisdiction, Atlantis alleged in the complaint that IGS "transacts extensive business within [Georgia]" and that "Defendant's products are sold by dozens of dealers in the State of Georgia."  Atlantis also pointed to the license demand letter IGS sent to Atlantis.  Atlantis' arguments in favor of both general and specific jurisdiction relied heavily on a "stream of commerce" theory -- that is, that by placing goods into the stream of commerce "with the expectation that they will be purchased by consumers within the forum State," IGS could be said to have purposefully availed itself of the State's laws such that personal jurisdiction would be appropriate.[7]  The Federal Circuit has held that the stream of commerce theory applies to patent declaratory judgment actions.[8]  In Atlantis’ declaratory judgment action, the court prefaced its analysis by declaring the stream of commerce theory irrelevant to the question of specific jurisdiction, as it does not relate to the defendant's enforcement or defense efforts relating to the patents-in-suit.  

With regard to general jurisdiction, the Court noted that "simply selling products in a forum through the stream of commerce is not sufficient to support general jurisdiction."[9]  Judge Pannell held that, even taking Atlantis' allegations in the complaint as true, the Court did not have general personal jurisdiction over IGS.

As to specific jurisdiction, the Court held that it could not exercise jurisdiction over IGS because IGS' only contacts within the forum were sales of its patented product and not enforcement activity.  Judge Pannell noted that the only enforcement action taken in Georgia was the March 26, 2012 license demand letter IGS had sent to Atlantis, which alone could not justify the exercise of specific jurisdiction.[10]  In one of the Federal Circuit cases cited by Judge Pannell, Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., the Court there held that three cease-and-desist letter sent by the patentee were insufficient contacts to create personal jurisdiction, announcing that "[p]rinciples of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum."[11]

Because Atlantis made no allegations regarding IGS' enforcement or defense of the patents-in-suit in Georgia, the Court held that it could not exercise specific jurisdiction over the declaratory judgment action and dismissed the action without prejudice.  

Turning to the remaining motions filed in that action, the Court denied Atlantis' motion to conduct jurisdictional discovery, holding that because the complaint failed to allege sufficient activity, or even general categories of activity, to support a finding of personal jurisdiction, it would not grant Atlantis the right to conduct a "fishing expedition."  Finally, the Court dismissed as moot Atlantis' motion to stay the action pending reexamination.  The Court having granted IGS’ principal motion (the motion to dismiss), IGS’ alternative motion to transfer was not addressed.

Order Staying Infringement Action Pending Patent Reexamination

In the patent infringement case, Atlantis filed an identical motion to stay the action pending reexamination of the patents-in-suit.  IGS never filed a response to the motion, arguing that it was not served with the motion papers in this action.  Judge Pannell placed the blame for not receiving Atlantis' motion on counsel for IGS, who waited for three months after the case was transferred to make an appearance in the case.  Nevertheless, Judge Pannell decided to consider IGS' opposition to the motion to stay filed in the declaratory action as if it had been filed in the infringement action.  However, the Court refused to consider IGS' "request" that its papers filed in the declaratory judgment action regarding personal jurisdiction and transfer be considered, as well.  Judge Pannell noted that while the identical motion to stay was before the Court, the issues involved in making a determination regarding jurisdiction or transfer were entirely different than in the declaratory judgment case.  

The Court then turned to the motion to stay.  On September 10, 2012, an unrelated third party filed a request for ex parte reexamination of one of the patents-in-suit, the '324 patent.  The PTO granted the request as to all claims in the '324 patent, finding that the request presented a "substantial new question of patentability."  The Court considered the following three factors in using its discretion whether to grant a stay: "(1) whether a stay will unduly prejudice or tactically disadvantage the non-moving party; (2) whether a stay will simplify the issues and streamline the trial; and (3) whether discovery is complete and a trial date has been set."[12]  The Court found all three factors to weigh in favor of a stay primarily due to the stage of litigation and the "benefit [the court will receive] from the PTO's analysis of nonobviousness" in the reexamination.

Thus, the case has been administratively closed pending the resolution of the reexamination.  IGS' motion to consolidate the two cases was dismissed as moot due to the dismissal of the declaratory judgment action.  Presumably, if IGS’ infringement action is re-opened following the conclusion of the PTO reexamination proceedings, nothing would preclude IGS from filing a motion to transfer that action back to California, pursuant to 28 U.S.C. § 1404(a)

The declaratory judgment order is Atlantis Hydroponics, Inc. v. International Growers Supply, Inc., 1:12-cv-1206-CAP, 2013 U.S. Dist. LEXIS 2187 (N.D. Ga. Jan. 3, 2013) (Pannell, J.).  The order issued in the infringement action is International Growers Supply, Inc. v. Atlantis Hydroponics, Inc., et al., 1:12-cv-2728-CAP (N.D. Ga. Jan. 3, 2013) (Pannell, J.).
[1] Trintec Indus., Inc. v. Pedre Promotional Prod., Inc., 395 F.3d 1275, 1282 (Fed. Cir. 2005).
[2] Goodyear Dunlop Tires Operations, S.A. v. Brown, ___ U.S. ___, 131 S. Ct. 2846, 2851 (2011).
[3] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985).
[4] Radio Sys. Corp. v. Accession, Inc., 638 F.3d 785, 788-89 (Fed. Cir. 2011).
[5] Innovative Clinical & Consulting Servs., LLC v. First Nat'l Bank of Ames, 279 Ga.  672, 675, 620 S.E.2d 352, 355 (2005).
[6] Radio Sys. Corp., 638 F.3d at 789 (quoting Avocent Huntsville Corp. v. Aten Int'l Co., 552 F.3d 1324, 1332 (Fed. Cir. 2008)) (emphasis added); see also Avocent, 552 F.3d at 1338 (The "mere sale of defendant's products--whether covered by the patents in suit or not--is not sufficient to establish specific personal jurisdiction in a declaratory judgment suit.")
[7] J. McIntyre Mach., Ltd. v. Nicastro, ___ U.S. ___, 131 S. Ct. 2780, 2788 (2011).
[8] Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 428 (Fed. Cir. 1996).
[9] Citing Goodyear, 131 S. Ct. at 2856.
[10] Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998).  IGS’ infringement action against Atlantis did not count toward enforcement activity within Georgia, stated the Court in Footnote 5 of its order, because that action “was transferred here against [IGS’] wishes after the present suit had been filed.”
[11] Id. at 1360-61.
[12] Tomco2 Equip Co. v. Se. Agri-Systems, Inc., F. Supp. 2d 1303, 1307 (N.D. Ga. 2008).

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Monday, January 14, 2013, 5:19 PM

Battle for the Beltline: Atlanta Beltline Sues Andrew Realty Group Over BELTLINE domain names

On January 10, 2013, Atlanta Beltline, Inc. ("Atlanta Beltline"), a Georgia non-profit corporation, filed a complaint in the Northern District of Georgia against Andrew Realty Group, Inc., a Georgia corporation based in Sandy Springs, Georgia, and Alan Andrew (collectively, "Andrew Realty"), alleging that Andrew Realty is using domain names incorporating the marks "BELTLINE" and "ATLANTA BELTLINE" in connection with its real estate business in order to trade on the reputation and goodwill of Atlanta Beltline and create customer confusion and deception.  The complaint includes counts for trademark infringement, trademark dilution, unfair competition, and cybersquatting under the Lanham Act, 15 U.S.C. § 1051; state law claims for trademark infringement, unfair competition, dilution, attorney fees, and violation of the Georgia Uniform Deceptive Trade Practices Act; and for declaratory relief under the Declaratory Judgment Act, 28 U.S.C. § 2201.

According to the complaint, the Atlanta BeltLine Project is a comprehensive revitalization effort being undertaken by the City of Atlanta that will "ultimately consist of a branded network of public parks, multi-use trails, affordable housing options, and transit for the citizens of Atlanta existing along 22 miles of historic railroad corridors circling Downtown Atlanta and connecting 45 Atlanta in-town neighborhoods."  Atlanta Beltline contends that their BELTLINE and ATLANTA BELTLINE brands have become a valuable indicator of the source of various goods and services, including real estate development services, in connection with the project.  The complaint indicates that Atlanta Beltline formed in June 2006 with the purpose of working closely with the City of Atlanta departments to oversee planning, funding, and management of the project.  On October 18, 2005, another project-related entity, Atlanta Beltline Partnership ("ABP"), filed a trademark application with the USPTO for the term "BELTLINE" for real estate development services (International Class 37), which ultimately issued as registration number 3356126 on December 18, 2007.  Atlanta Beltline later obtained federal registration for the mark "ATLANTA BELTLINE" (registration number 3922938) and Georgia state trademark registrations for "BELTLINE" and "ATLANTA BELTLINE."  The complaint states that Atlanta Beltline or its predecessors have used the registered marks continuously since May 2004.

Atlanta Beltline claims that in January 2006 Andrew Realty registered the domain name <www.atlantabeltline.org> and 31 other domain names containing "ATLANTA BELTLINE" and "BELTLINE," none of which displayed any content until 2009.  Atlanta Beltline accuses Andrew Realty of intentionally attempting to attract users looking for information on the Atlanta BeltLine Project though it has no connection to the project.  According to the complaint, many of the properties highlighted on Andrew Realty's websites are in areas far outside of central Atlanta where the BeltLine is located.  The complaint also notes that Andrew Realty registered the top-level domain ".org," which is commonly used by non-profit organizations (such as Atlanta Beltline), schools, and communities.  The exhibits submitted with the complaint reveal a dispute that has been simmering for several years and has now boiled over into this lawsuit.  Atlanta Beltline sent Andrew Realty a cease and desist letter in September 2010.  In its response, Andrew Realty stated that it would not stop using the domain names unless Atlanta Beltline paid $130,000.  Andrew Realty subsequently filed a Petition for Cancellation of the BELTLINE mark with the USPTO on December 17, 2012, presumably prompting Atlanta Beltline to file suit.

Atlanta Beltline asks the Court to grant a judgment in its favor on all twelve counts, to enjoin Andrew Realty from further use of the domain names incorporating BELTLINE and ATLANTA BELTLINE, to award Atlanta Beltline actual and punitive damages, and to award Atlanta Beltline its attorney fees and costs associated with the action.

The case is Atlanta Beltline, Inc. v. Andrew Realty Group, Inc. et al., 1:13-cv-00091-MHS, United States District Court of the Northern District of Georgia, Atlanta Division, and is assigned to U.S. District Judge Marvin Shoob.

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Discovery of Accused Contributory and Vicarious Infringer’s Tax Returns and General Financial Information Denied for Lack of Assertion of Theory to Recover its Profits

With a recent order that issued from the Southern District of Georgia, Savannah Division, Coach, Inc. and Coach Services, Inc. (collectively “Coach”) continue to add to the body of case law from Georgia federal courts on trademark and copyright issues.[1]    
On December 19, 2012, in an order by U.S. Magistrate Judge G.R. Smith, the Southern District of Georgia denied Coach’s motion to compel discovery of tax returns and general financial information from defendant Hubert Keller, Inc. (“HKI”), whom Coach had accused of contributory trademark infringement and vicarious copyright infringement.  In so doing, Judge Smith explored damages principles and raised a practical, and unanswered, question on how a trademark or copyright claimant could recover profits against an accused contributory or vicarious infringer.

Background Facts

The court’s order describes HKI as a Savannah-based flea market operator.[2]  Asserting claims for contributory trademark infringement and vicarious copyright infringement, Coach alleged that, upon information and belief, HKI “‘willfully and knowingly encouraged and permitted the sale of Infringing Product [(handbags, watches, jewelry, etc.)] to occur at The Flea Market.’”[3]

Coach served document requests on HKI, seeking HKI’s tax returns for 2009 through 2011, as well as HKI’s financial statements.[4]  HKI’s counsel objected to those requests on the grounds that they were “‘overly broad, not relevant, and not reasonably calculated to lead to the discovery of admissible evidence in this matter.’”[5]

Later, Coach served a notice of a Rule 30(b)(6) deposition[6] of HKI.  Topics recited in that notice included “(K) Financial information relating to the flea market; and (L) Financial information relating to the sales of merchandise by tenants known to have sold counterfeit merchandise.[7]  Prior to the deposition, the parties’ attorneys conferred with one another in attempt to resolve a dispute concerning discovery of HKI’s tax returns and general financial information.  The court summarized the position of HKI’s counsel during those discussions as follows:

HKI, after all, engaged in no sale of any goods, but merely rented stall space.  So even as a contributory infringer, its financials would show no useful information because at best Coach “was entitled to an award of an infringer’s profits related to the sale of infringing items.”[8]

The deposition of HKI proceeded, but when Coach’s counsel asked HKI’s testifying representative about the disputed information, HKI’s counsel instructed her not to answer, on the basis of irrelevancy.[9]  HKI asserted that “it reasonably believed that this issue had been resolved prior to that deposition,” as neither counsel were able to locate any authorities to alter their positions by that time.[10]  Coach’s counsel, claimed HKI, “‘admitted that he had never seen a case addressing the calculation of profits in the secondary infringement context.’”[11]  HKI did not, however, move for a protective order to preclude inquiry into the disputed information.[12]

Coach filed two motions.  One motion sought to compel discovery of HKI’s “tax returns and financial information for 2009-2011,” as well as to re-depose HKI on those topics.  The other sought sanctions under Fed.R.Civ.P. 37 for Coach’s motion and re-deposition expenses.[13]

The Court’s Denial of Coach’s Motions

“There is no dispute that tax returns and private financial data enjoy some protection,” began the court, “and most courts require a clear and compelling showing to justify disclosure.”[14]  The court then asked a practical question:

The crux of the instant discovery dispute is whether Coach’s discovery quest goes too far by demanding sensitive financial data to ultimately prove ill-gotten profits damages.  As further discussed below, trademark and copyright victims may sue both direct infringers and, as alleged here, contributory infringers. And if they may also pursue statutory or actual (wrongful profits) damages from them, then how is that done?  Because if there is no way to[] prove actual, profit-based damages from a contributory infringer, then it is reasonable to prevent discovery efforts on that score.  Hence, it is necessary to explore briefly the operational dynamics of infringement damages.[15]

Judge Smith first explored direct infringement damages principles, observing that Congress provided for the option to recover statutory damages in trademark counterfeiting cases “‘because evidence of a defendant’s profits in such cases is almost impossible to ascertain.’”[16]  Judge Smith then explained that in trademark infringement cases, one may elect to recover the accused infringer’s profits, in which case the trademark owner bears the burden to establish the defendant’s gross sales of the accused product, and the defendant then has the burden to refute the claimed amount of sales “and/or proffer costs that should be deducted from the gross sales.”[17]  “Also,” noted the court, “‘[i]f a defendant shows that its sales were unrelated to the infringement, then the plaintiff is not entitled to a recovery of those profits.’”[18]  Judge Smith summarized his exploration of direct infringement damages principles as follows:

The case law generally shows, then, that “[i]f General Motors were to steal your copyright and put it in a sales brochure, you could not just put a copy of General Motors' corporate  income tax return in the record and rest your case for an award of infringer's profits.  Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir. 1983).”  Put another way, claimants must use a method to sort and sift wrongful profit from underlying costs and unrelated sales.[19]

Next, Judge Smith discussed the specific context of the case before it, namely, secondary liability theories of trademark and copyright infringement:

Here Coach pursues HKI only as a contributory infringer. But what method will Coach use to collect non-statutory (sales-based profits) damages from HKI?  It fails to say.  It does correctly point out that flea marketers can Contribute to such infringement by facilitating (supplying a vendor stall and looking the other way) the sale of counterfeit goods.  It also reasons that, in the discovery stage, it must be free to pursue information on contributory infringement damages even if ultimately it cannot prove same at trial -- and it need not elect which form of damages it wants now.  And, since HKI has admitted it has no electronic accounting data, the only source of its profits is likely to be its tax returns.

As the plaintiff it is Coach’s burden to show how it can recover for actionable wrongs committed.  It fails to show how it can recover profit-based damages, and thus how HKI's tax returns will yield it information to that end.  . . . Coach may be right in stating that infringement plaintiffs may elect between the two forms of damages, but it has yet to explain how that is realistically done in a case like this, much less how HKI's tax returns will assist Coach in proving actual (sales/profit-based) damages.  No doubt a lax flea market over time can attract more and more counterfeiting vendors and thus more rental fees.  But sifting the flecks of “counterfeit income” from the rental stream would be, on its face, at best a speculative mirage. Coach is thus left with this question: How can it possibly prove anything but statutory damages (i.e., a profit-based form of damages) even if it is armed with the knowledge that HKI, for example, took in $500,000 of rental income and claimed a $100,000 profit?  Again, even a direct-infringement plaintiff must initially prove an infringing defendant's sales before the burden shifts to the defendant to prove deductible costs. Coach can’t even do that here, because the only thing HKI sold is rental space. Coach's direct infringer cases are easily distinguishable.[20]

Judge Smith remarked that Coach was free to invoke the option of a statutory damages remedy, but that “[o]therwise, it is not entitled to HKI’s tax returns and financials on these grounds.”[21]

Nor did Coach’s claim for enhanced damages under the Lanham Act, or for punitive damages under Georgia law, justify the discovery sought, concluded the court, because “[a]n enhanced damages award may be obtained without proving net worth or analyzing profits,” and because Coach did not make an evidentiary showing that it had a factual basis for claiming punitive damages.[22]

Finally, as to Coach’s motion for sanctions, the court acknowledged that “generally all blocking [of deposition questions] except as to privilege must be pre-authorized by way of motion for protective order or (less preferably) by stopping a deposition to seek a ruling.”[23]  However, given counsel’s efforts to confer with one another before the deposition, the failure of either party to cite any additional authorities to sway their positions at that time, and the lack of any suggestion of unprofessionalism, the court denied Coach’s motion.

The decision is Coach, Inc. and Coach Services, Inc. v. Hubert Keller, Inc., No. CV411-285, 2012 U.S. Dist. LEXIS 183632 (S.D. Ga. Dec. 19, 2012) (Smith, M.J.).  The case is assigned to U.S. District Judge B. Avant Edenfield.

[1] We covered a prior decision involving Coach, and a complaint filed by Coach, in other litigation.  See, respectively, in our blog entries of November 12, 2012 and October 31, 2012.
[2] Coach, Inc. and Coach Services, Inc. v. Hubert Keller, Inc., No. CV411-285, 2012 U.S. Dist. LEXIS 183632, at *2 (S.D. Ga. Dec. 19, 2012).
[3] Id.
[4] Id., 2012 U.S. Dist. LEXIS 183632, at *3 & *4.
[5] Id. at *3.
[6] “[Federal] Rule [of Civil Procedure] 30(b)(6) governs deposition notices directed to organizations. The deposition notice ‘must describe with reasonable particularity the matters for examination.’ Fed.R.Civ.P. 30(b)(6).  In response, the organization must designate one or more persons to testify on its behalf as to those matters. Id.  ‘The persons designated must testify about information known or reasonably available to the organization.’ Id.  Continental Cas. Co. v. First Fin. Employee Leasing, Inc., 716 F.Supp.2d 1176, 1189 (M.D. Fla. 2010).
[7] Coach, 2012 U.S. Dist. LEXIS 183632, at *3.
[8] Id. at *4.
[9] Id. at *6 & *19.
[10] Id. at *6.
[11] Id. at *5.
[12] Id. at *6.
[13] Id. at *1.
[14] Id. at *8 & n.6 (citing cases).
[15] Id. at *9-*10 (footnotes omitted; italics in original).
[16] Id. at *12 (citation omitted; italics added by court) (quoting legislative history).
[17] Id. (citing Wesco Mfg., Inc. v. Tropical Attractions of Palm Beach, Inc., 833 F.2d 1484, 1488 (11th Cir. 1987)).
[18] Id. (quoting Flowers Bakeries Brands, Inc. v. Interstate Bakeries Corp., 2010 U.S. Dist. LEXIS 6601, 2010 WL 2662720, at *12 (N.D. Ga.  June 30, 2010)).
[19] Id. at *14-*15 (other citations omitted).
[20] Id. at *15-*16 (italics in original).
[21] Id. at *17.  The prayer for relief in Coach's complaint includes a request for statutory damages under the Lanham Act.
[22] Id. at *17-*18.
[23] Id. at *19 (citing authorities).

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False Advertising Complaint Charges that Competitor Used Doctored Photograph

In a complaint filed in the Atlanta Division of the Northern District of Georgia on January 4, 2013, Wika Instrument Corporation (“WIKA”) seeks lost profits, treble damages, and to enjoin allegedly false statements about the flammability and safety of its market-leading XSEL® pressure gauges by a competitor, Ashcroft, Inc. (“Ashcroft”).  

WIKA assets that Ashcroft is seeking to seize market share and damage WIKA’s reputation by touting unreliable and manipulated flammability tests and doctored photographs, which are therefore literally false. 

The complaint identifies WIKA as a global manufacturer and supplier of pressure and temperature measurement instruments for highly combustible materials throughout the United States and globally, primarily to the refinery industry.  WIKA’s market share in the refinery industry, according to the complaint, has increased over the past five years due to its high-quality products and superior ratings for safety and flammability.  WIKA describes a gauge as being comprised of a protective case with a lens protecting the dial and pointer, a Bourdon tube pressure sensing element, a “movement to convert motion” from the sensing element to the pointer, and a connector to attach the gauge to the monitored device or system.  A WIKA XSEL® Process Gauge is pictured below:

A WIKA YouTube production describes the features of the gauge at:  http://www.youtube.com/watch?v=uWYwZhi4g88

Flammability and fire safety characteristics such as temperature resistance, thermal stability, flame resistance, burn time, and ability to rapidly self-extinguish, are significant customer considerations because of the serious risk of fires in the refinery industry. 

The complaint assets that Ashcroft has been losing business to WIKA for years due to WIKA’s superior quality, safety, flammability characteristics, and price.  The competing Ashcroft Type 1279 Duragauge pressure gauge is shown below:
According to WIKA, Ashcroft advertisements falsely state “Thermoplastics are also more likely to burn than thermosets. … When thermoplastics burn, the material will melt, creating a pool of burning liquid, or even worse, spattering burning molten plastic onto nearby surfaces” and further state that testing has shown WIKA gauges “burn intensely when contacted with the flame,” while “the Ashcroft 1279 did not burn and case integrity was not compromised.”  WIKA referred to a 30 minute 550ºF test reported in an Ashcroft brochure as literally false:  In Paragraph 30 of the complaint, WIKA included the following “after” photo as depicted in the brochures:
The WIKA complaint alleges this photo is “doctored.”  Much of the WIKA allegations are based on information and belief that at least one of the following actions was taken to skew the test results:  (1) the pictures were doctored; (2) flammable portions of the Ashcroft gauge were removed before testing; (3) the Ashcroft gauge was cleaned after the test but before the photo; or (4) the pictured Ashcroft gauge was not the gauge used in the test.

WIKA asserts a false advertising claim under Lanham Act § 43(a)(1)(B) [15 U.S.C. §1125(a)], seeking injunctions pursuant to §1116 , attorney fees, profits, costs, prejudgment interest, corrective advertising costs, monetary damages enhanced damages, and attorneys’ fees under §1117(a), and destruction of advertisements under §1118.  WIKA further asserts Georgia’s Uniform Deceptive Trade Practice Act (O.C.G.A. § 10-1-372), Connecticut’s Unfair Trade Practices Act (C.G.S.A. § 42-110a et seq.), and tortious interference with current and prospective business relationships.

The elements of a prima facie case of false advertising under the Lanham Act are recited in our November 13, 2012 blog post, which covers a complaint filed by WIKA against a different competitor.

The case is Wika Instrument I, LP, f/k/a Wika Instrument Corp. v. Ashcroft, Ins., No. 1:13-cv-43-WSD, filed 01/04/13 in the U.S. District Court for the Northern District of Georgia, Atlanta Division, and has been assigned to U.S. District Judge Charles A. Pannell, Jr.

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Friday, January 11, 2013, 12:44 PM

E-Z-GO Saved by Bad Case Law: Southern District of Georgia Court Denies Motion for Attorney Fees

In a dispute between golf cart manufacturers E-Z-GO and Club Car, Judge J. Randal Hall of the Southern District of Georgia has denied Club Car's motion seeking attorney fees pursuant to 35 U.S.C. § 285, holding that under the Federal Circuit's standard E-Z-GO's suit and litigation conduct did not warrant finding the case exceptional.  Judge Hall's holding was based at least in part on the plaintiff's citation to a case from another district court, which gave support to E-Z-GO's "mischaracterization" of an applicable statute.


E-Z-GO (a division of Textron Inc.) and Textron Innovations, Inc. (collectively, "E-Z-GO") brought suit against Club Car, Inc. ("Club Car") on October 1, 2009, alleging that Club Car's Carryall 2 LSV and Carryall 6 LSV vehicles infringed U.S. Patent No. 7,332,881 ("the '881 patent"), titled "AC Drive System for Electrically Operated Vehicle."  Before filing an answer to the complaint, Club Car shared with E-Z-GO a draft inter partes examination request it had prepared, along with prior art references which Club Car contended invalidated the '881 patent.  E-Z-GO disagreed and refused to drop the suit, prompting Club Car to file the reexamination request and a motion to stay the litigation on December 7, 2009.  Despite E-Z-GO's opposition to the motion, the Court granted the motion to stay even before the USPTO granted the request.  

The PTO granted the reexamination request and the Examiner issued an Action Closing Prosecution, rejecting the claims 32 through 38 of the '881 patent.  E-Z-GO appealed to the Board of Patent Appeals and Interferences ("BPAI"), which affirmed the Examiner's rejections.  E-Z-GO appealed to the Federal Circuit but later withdrew its appeal.  Club Car then moved the Court to lift the stay, dismiss the action with prejudice, and award attorney fees under 35 U.S.C. § 285.  After reviewing the briefing, the Court viewed the parties as agreeing to a dismissal with prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(ii).  The Court held oral argument on November 27, 2012 to address the motion for attorney fees.

Standard for Finding of Exceptional Case Under 35 U.S.C. § 285

Section 285 states that a "court in exceptional cases may award reasonable attorney fees to the prevailing party."  A determination whether to award attorney fees under § 285 involves a two-step process.  First, a court must determine whether the prevailing party has proved by clear and convincing evidence that the case is exceptional.[1]  Second, if the court finds the case to be exceptional, the court must then use its discretion to determine whether an award of attorney fees is warranted and, if so, the proper amount of the award.[2]  

The Federal Circuit has adopted a two-pronged approach for determining whether a case is exceptional under § 285.  Under the first prong, a court must look to whether "there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates [Federal Rule of Civil Procedure] 11, or like infractions."[3]  Absent litigation or prosecution misconduct, the second prong allows an award of attorney fees if (1) the patentee brought the litigation in bad faith, and (2) the litigation is objectively baseless.[4]  Courts recognize a presumption that the assertion of infringement of a duly granted patent is made in good faith.[5]


The Court acknowledged that Club Car was clearly the prevailing party, and thus it considered whether Club Car had proved by clear and convincing evidence that the case should be deemed "exceptional" under either prong.  

First Prong: Material Inappropriate Conduct

The Court first examined whether E-Z-GO engaged in material inappropriate conduct under the first prong.  Club Car argued that the case was unjustified and baseless because E-Z-GO "brought the lawsuit in the face of clear evidence that the asserted claims were invalid."  Club Car pointed out that it presented the draft reexamination request and prior art to E-Z-GO soon after the complaint was filed, that E-Z-GO pressed on with the litigation, and that the PTO completely invalidated the claims based on the prior art Club Car presented.  E-Z-GO maintained that it analyzed the prior art but simply disagreed with Club Car's contention that it invalidated the '881 patent's claims.  The Court stated that it would not hold a plaintiff liable for "vigorously enforcing a presumptively valid patent."  At best, the Court held, E-Z-GO was negligent in continuing the litigation, but negligence alone is not enough to conclude the litigation was unjustified.  Further, E-Z-GO promptly dismissed the case with prejudice after withdrawing its appeal of the BPAI's ruling, an action that belies unjustified litigation. 

Second, Club Car contended that E-Z-GO committed inequitable conduct in failing to cite its own manual during prosecution of the application that became the '881 patent.  The Court said that it was "peculiar" that E-Z-GO did not cite its own manual, but held that there was "simply no evidence showing Plaintiffs' intent to deceive the PTO."  E-Z-GO argued that it believed the reference to be cumulative of what had already been disclosed, and while the Court considered that justification "weak," it found that Club Car had not shown that E-Z-GO's conduct was inequitable.

Finally, Club Car argued that E-Z-GO engaged in misconduct during litigation by mischaracterizing the meaning of 35 U.S.C. § 318 in its brief opposing Club Car's motion to stay the litigation.  E-Z-GO cited § 318 and a case from the Eastern District of Virginia for the proposition that the Court was precluded from granting a stay until after the PTO granted the request for reexamination.  The Virginia case stated in part: "Because Escalade's request for reexamination is still pending, a stay is premature. ... Should the PTO grant Escalade's request for reexamination, defendant may again request a stay of this case pending the conclusion of those proceedings."[6]  The cited case is at odds with the language of § 318 and the balance of case law on the issue, so the Court found E-Z-GO's argument "deeply concern[ing]" and "troubling."  Nevertheless, the Court held that E-Z-GO's mischaracterization, in light of its reliance on the Virginia case (though improperly decided), to fall short of rendering the case exceptional.  

Second Prong: Objectively Baseless Litigation Brought in Bad Faith

Having found no misconduct during litigation or in securing the patent, the Court turned to whether the litigation was brought in bad faith and was objectively baseless.  For objective baselessness to exist, the infringement argument must be so unreasonable that no reasonable litigant could expect it to succeed.[7]  To prove objective baselessness, Club Car repeated the arguments it made regarding unjustified litigation, namely, that E-Z-GO had access to the prior art and reexamination request that ultimately led to its patent's invalidation, yet it pressed ahead.  E-Z-GO pointed out that even once the reexamination had been granted, there were multiple possibilities for how the proceedings would play out.  The PTO could have found that the cited art did not invalidate the patent, the PTO could have found amended claims to be patentable, or the BPAI or Federal Circuit could have reversed the Examiner's decision that the claims were unpatentable.  The Court found that Club Car had simply not produced enough evidence for the Court to conclude that the litigation was objectively baseless.

"Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation."[8]  Having found that Club Car did not meet its burden of showing that the litigation was objectively baseless, the Court did not address the issue of bad faith.  Thus, the Court denied Club Car's motion for attorney fees and ordered the clerk to close the case.

The case, now closed, was E-Z-GO et al. v. Club Car, Inc., 1:09-cv-119-JRH-WLB, United States District Court for the Southern District of Georgia, Augusta Division.  

[1] Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1327 (Fed. Cir. 2003).
[2] Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454-55 (Fed. Cir. 1998) (en banc).
[3] Brooks Furniture Mfg. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
[4] Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1324 (Fed. Cir. 2011).
[5] Golan v. Pingel Enter., 310 F.3d 1360, 1371 (Fed. Cir. 2002).
[6] Heinz Kettler GMBH & Co. v. Indian Indus., 592 F. Supp. 2d 880 (E.D. Va. 2009).
[7] iLor, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).
[8] Id.

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