PA Federal Business Decisions Volume 17, No. 2

By Henry M. Sneath, Kelly A. Williams

Kelly A. Williams and Henry M. Sneath , Business Decisions Editors (Originally published in the July 2012 edition of the Pennsylvania Bar Association’s Civil Litigation Update)

Third Circuit Holds That Pay-for-Delay Drug Settlements Are Prima-Facie Evidence of an Unreasonable Restraint of Trade

In In re: K-Dur Antitrust Litigation, Nos. 10-2077, 10-2078, 10-2079, 10-4571, 2012 U.S. App. LEXIS 14527 (3d Cir. Jul. 16, 2012) (opinion by J. Sloviter), the Third Circuit considered the propriety of a so-called pay-for-delay patent infringement settlement between a brand-name drug manufacturer and a generic drug manufacturer. Other Circuit Courts of Appeals that have considered this issue have found that such settlements are permissible as long as the terms of the settlement do not exceed the scope of the patent. The Third Circuit found such an approach not to be faithful either to the law or to Congress’ intention to benefit consumers and instead found such settlements to be prima facie evidence of an unreasonable restraint of trade.

Abbreviated New Drug Applications

Before a drug manufacturer can market a drug, it must obtain approval from the Food and Drug Administration (“FDA”) by submitting a New Drug Application, which is a lengthy process involving multiple levels of review and testing. In order to encourage competition, the FDA allows a potential manufacturer of a generic version of a patented drug to file an Abbreviated New Drug Application (“ANDA”) that provides for accelerated approval. As part of the ANDA process, the generic manufacturer must certify that the generic drug does not infringe any known patents by either stating that (1) no such patents have been filed; (2) the patent has expired; (3) the patent will expire before the drug goes onto the market; or (4) there is a patent, but it is not valid or will not be infringed. A certification under the fourth standard constitutes a technical act of infringement that allows a patent owner to immediately file suit against the generic drug manufacturer for patent infringement even though no allegedly infringing drug has been sold.

To increase competition and provide consumers with access to less expensive drugs, Congress created several incentives to encourage generic manufacturers to enter the market. One such incentive is that the filing of an ANDA triggers a 180-day exclusivity period in which the FDA will not consider any other ANDAs for the same drug. This 180-day period is only available to the first ANDA filer, which creates a substantial incentive to be the first generic manufacturer to get an ANDA on file.

As brand-named drug manufacturers filed patent infringement suits under this framework, they began to enter into settlement agreements with the first generic drug manufacturers to file an ANDA. Instead of the generic manufacturer paying the brand-name manufacturer to settle the lawsuit, the brand-name manufacturer would pay the generic manufacturer to not produce the drug for a certain period of time. This had the result of preserving the exclusivity period for the brand-name manufacturer, regardless of the validity of the patent, because no one else could obtain FDA approval during the exclusivity period. These types of settlements are known as “reverse payment agreements” or “exclusion agreements.”

The Parties and Litigation

The decision in this case involved a number of antitrust lawsuits by private parties attacking two reverse payment agreements between a brand-name drug manufacturer (Schering-Plough Corp.) and two generic drug manufacturers (Upsher-Smith Laboratories and ESI Lederle).

Previously, in June 1997, Schering agreed as part of a settlement agreement in an ANDA patent infringement lawsuit that Schering filed to pay Upsher $60 million over three years in return for Upsher not entering the market until September 2001, at which point Upsher would receive a royalty-free, non-exclusive license. Additionally, Upsher granted Schering licenses to make various products that Upsher developed. Ultimately, these Upsher-developed products were abandoned and never sold by Schering.

In the fall of 1996, Schering also agreed as part of a settlement agreement in a separate ANDA patent infringement lawsuit to pay ESI $5 million plus additional sums depending on various contingencies that ultimately resulted in an additional $10 million payment to ESI in return for Schering granting ESI a royalty-free license stating in January 2004.

Thus, both of these settlement agreements implicated an apparent payment for delaying entry into the market.

A number of private parties filed suit, claiming that these settlement agreements violated the antitrust laws and were anti-competitive. The Judicial Panel for Multidistrict Litigation consolidated these cases and the district court assigned a special master to handle dispositive motions. The special master granted summary judgment for Schering and Usher, finding no antitrust violations because Plaintiffs failed to prove that the settlements exceeded the scope of the patents or that the underlying patent infringement lawsuits were baseless. The district court adopted the report and recommendation of the special master in its entirety.

The Third Circuit reversed and remanded, finding that the district court and the special master applied the wrong standard.

Third Circuit Rejects “Scope of the Patent” Test

Other Circuit Courts of Appeal (such as the Second and Eleventh Circuits) that have considered the legality of reverse payment settlement agreements such as these have applied a “scope of the patent” test that allows these kinds of settlement agreements as long as (1) the exclusion did not exceed the scope of the patent, (2) the patent holder’s infringement claim was not objectively baseless, and (3) the patent was not procured by fraud on the patent office.

The Third Circuit found, as a practical matter, that such a test does not subject these settlement agreements to any antitrust scrutiny. “In our view, that test improperly restricts the application of antitrust law and is contrary to the policies underlying the Hatch-Waxman Act and a long line of Supreme Court precedent on patent litigation and competition.” The court found that Congress intended that the Hatch-Waxman Act would increase the availability of low-cost generic drugs. The court concluded that reverse payment settlement agreements undermined this goal by restricting consumers’ access to generic drugs.

Thus, the Third Circuit held that “the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment: (1) was for a purpose other than delayed entry; or (2) offers some pro-competitive benefit.” With respect to the second possible defense, the Third Circuit theorized that a payment could benefit competition if the generic manufacturer was cash starved and needed money to avoid bankruptcy.

Given the significant split that now exists between the Third Circuit and other Circuits, and the importance of these kinds of settlement agreements in the drug industry, one might expect that the Supreme Court will have to weigh in on this issue.

Correction of Inventorship Claim Survives Summary Judgment While Tort Claims Are Dismissed

In Nova Design Technologies, Ltd. v. Walters, Civ. Action No. 10-7618, 2012 U.S. Dist LEXIS 89210 (E.D. Pa. June 27, 2012) (opinion by J. McLaughlin), the court granted summary judgment in favor of individual and corporate defendants on tort claims arising from an ownership dispute over technology developed related to a sandpaper-based trigger for use in therapeutic heat packs. However, the court did allow a correction of inventorship claim under the patent statute to proceed because it determined that Plaintiff had standing to bring such a claim.

Plaintiff, Nova Design Technologies, Ltd. (“Nova”), alleged that its founder Andrew Milligan and researcher Jaime Schlorff invented and developed a sandpaper-based trigger for heat packs. Nova alleged that Matthew Walters, Brian Guerra, and Dale Walters (the “individual defendants”) stole the idea from them and used it to apply for and receive a patent, which they later sold to defendants Children’s Medical Ventures, LLC (“CMV”), Respironics, Inc., and Respironics Nova metrix, LLC (the “corporate defendants”).

In its amended complaint, Nova alleged that in 1998 it agreed to provide samples of its sandpaper trigger to Omni Therm (“Omni”), a manufacturer of heat packs that was founded by Dale Walters and owned by Matthew Walters. Nova and Omni executed an agreement covering “confidential information” of Nova’s and prohibiting use of that information for anything other than its evaluation for use in manufacturing. Negotiations between Omni and Nova continued for several years but no ongoing business relationship was established. In 2001, Matthew Walters filed patent applications relating to a sandpaper trigger for use in a heat pack, resulting in the issuance of a patent in 2005. In 2006, Omni sold the patent and most of its assets to CMV, a manufacturer and seller of healthcare products affiliated with Respironics Nova metrix and Respironics, Inc. As part of that sale, CMV hired Brian Guerra, an employee of Omni.

The amended complaint asserted causes of action for breach of contract and a long list of tort claims. The individual defendants filed a motion for summary judgment as to all claims against them–fraudulent and negligent misrepresentation, fraudulent concealment, conversion, trade secret misappropriation and correction of inventorship and ownership. The corporate defendants separately moved for summary judgment as to the causes of action for conversion, fraudulent concealment and trade secret misappropriation.

In their motion, the individual defendants argued that the “gist of the action” doctrine barred the tort claims asserted against them. The “gist of the action” doctrine “precludes plaintiffs from recasting ordinary breach of contract claims into tort claims.” The court barred Nova’s tort claims against the individual defendants under the “gist of the action” doctrine because all of the duties allegedly breached related to information covered by and duties arising from the confidentiality agreement between Nova and Omni. Although the confidentiality agreement was between Nova and Omni, the court found that the “gist of the action” doctrine barred claims against Guerra and Matthew Walters individually because those individuals were only alleged to have breached duties imposed by their employer’s contract with Nova. The court noted that the “gist of the action” doctrine was not applicable to the remaining tort claim against Dale Walters for trade secret misappropriation because he was neither a signatory to the confidentiality agreement nor an agent of Omni at the time it was in effect. However, the court granted summary judgment in his favor with respect to that claim because Nova presented no evidence to support that claim.

Matthew Walters argued that the correction of inventorship claim asserted against him under the patent statute, 35 U.S.C. § 256, should be dismissed because: 1) Nova lacked standing to bring it because it had no interest in the patent; and 2) because Schlorff’s claims as to the invention she owned were “too broad” to serve as the basis for the claim. “To succeed on a correction of inventorship claim, a plaintiff must prove that she is the sole or co-inventor of any claim of the patent in issue by showing that she conceived the invention.” The court found that a “confirmatory assignment” by Schlorff to Nova of any rights she possessed in sandpaper triggers, including any patent rights, established Nova’s “concrete financial interest” in the patent and was sufficient to confer standing. The court rejected Walters’ over breadth claim on grounds that it did not have to decide whether Schlorff’s claims were patentable in the abstract but, rather, only had to look at whether Schlorff should be named as the sole inventor or co-inventor of the claims that were actually in the patent. The court found that Nova presented sufficient evidence that Schlorff was the inventor or co-inventor to survive summary judgment on that claim.

With respect to the corporate defendants, Nova generally argued that they participated in or contributed to the fraudulent conduct of the individual defendants by hiring Guerra and by purchasing Omni’s assets and the patent. The court found that no corporate defendant was aware, until the filing of the lawsuit by Nova, that Nova existed or that Omni had signed a confidentiality agreement with Nova. The court dismissed the fraudulent concealment claim against the corporate defendants on the basis that Nova failed to present evidence that any of the corporate defendants had a duty to speak to Nova. The court also found that the conversion claim could not be brought as a common law claim but instead must be brought as a claim under the Pennsylvania Uniform Trade Secrets Act (“PUTSA”). Finally, the court dismissed the trade secret misappropriation claim because there was no evidence that the corporate defendants knew or had reason to know that any trade secret had been acquired by improper means.

— Contributed by R. Brandon McCullough, Esq., Houston Harbaugh, Pittsburgh Pennsylvania;

Antenna Manufacturer’s Motion to Dismiss Denied After Examination of Economic Loss Doctrine

In New Hampshire Insurance Company a/s/o WHYY, Inc. v. Dielectric Communications, Inc., No. 11-7263, 2012 U.S. Dist. LEXIS 87769 (E.D. Pa. June 25, 2012) (opinion by J. Brody), the court addressed whether Defendant’s Rule 12(b)(6) motion to dismiss counts of negligence and breach of contract should be granted. The court found that questions of fact remained on both counts and Defendant’s motion was denied.

Plaintiff, New Hampshire Insurance Company (“NHIC”) as subrogee of WHYY, Inc. (“WHYY”) brought an action in state court against Dielectric Communications, Inc. (“Dielectric”) and fictious individuals and corporations alleging negligence and breach of contract for faulty installation of a defective transmitter antenna. Dielectric removed the case to federal court and moved to dismiss all counts against it.

With respect to the negligence count, Dielectric argued that it should be dismissed under the economic loss doctrine and the gist of the action doctrine. The court discussed Pennsylvania’s economic loss doctrine which states that “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical or property damage.” Finding that there was a factual dispute as to whether the damaged product caused harm to the overall antenna system, the court held that discovery was necessary to determine whether there was damage to “other property” and denied Dielectric’s motion to dismiss NHIC’s negligence claim under the economic loss doctrine.

Turning to Dielectric’s second argument under the gist of the action doctrine, the court examined Pennsylvania decisions which held that “plaintiffs may not recast ordinary breach of contract claims into tort claims” where the obligations of the parties are defined by the terms of a contract. Here the court noted that the dispute was a products liability case because the parties signed an agreement for a product which later malfunctioned. The gist of the action doctrine was therefore, inapplicable.

As to Plaintiff’s breach of contract claim, the court turned to the text of the agreement and found that the warranty and limitation of liability provisions were unambiguous. The warranty term provided for Dielectric to repair or replace a malfunctioned antenna for five years following delivery. Although this period had expired, the clause also provided for replacement parts to be available for fifteen years. The court found that discovery was necessary to determine which parts were needed as well as which parts were available when the antenna malfunctioned. Dielectric’s motion to dismiss under the breach of contract count was therefore denied, and the parties were ordered to proceed with discovery.

Pissed Trademark Owner Sued

In Amerigas Propane, L.P. v. Opinion Corp. d/b/a, Civ. Action No. 12-713, 2012 U.S. Dist. LEXIS 84679 (E.D. Pa. June 19, 2012) (opinion by S.J. Buckwalter), Plaintiff Amerigas Propane L.P., which owns the trademark registration for ” AMERIGAS”® filed suit against Defendant Opinion Corp., which owns and operates a website called for various claims related to trademark infringement and unfair competition. Before the court was a motion to dismiss most of the claims.

The website allows individuals to post complaints about products and services that they have used. Plaintiff alleged that Defendant “encourages and creates the most negative postings it can on the PissedConsumer website, displays those postings as prominently on the Internet as possible, and relates those postings as closely as possible to the companies’ brand names.” According to Plaintiff, once the reviews are posted, Defendant uses them as incentive to compel businesses to pay to have negative complaints hidden, removed or changed into positive testimonials.

With respect to its trademark, Plaintiff alleged that Defendant used AMERIGAS® in one of its website’s subdomains and the metadata associated with the website. Also, Plaintiff alleged that the website contained numerous advertisements of Plaintiff’s competitors alongside a description of Plaintiff’s business. Finally, Plaintiff alleged that Defendant engaged in improper search engine optimization techniques by: (1) purchasing hundreds of domain names that linked to its own website; (2) creating numerous subdomains that interlinked to each other; (3) making excessive use of brand name keywords to increase its own website’s relevance; (4) reposting identical consumer complaints to create the impression that they were new content; and (5) creating Twitter accounts that linked to its website without providing any other content.

Plaintiff asserted the following causes of action against Defendant: (I) trademark infringement, unfair competition, and false designation of origin in violation of 15 U.S.C. §§ 1114 and 1125(a); (II) common law trademark infringement, unfair competition, and false designation of origin; (III) trademark dilution in violation of 15 U.S.C. § 1125(c); (IV) violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. § 201-1, et seq. (the “UTPCPL”); (V) interference with contractual and prospective contractual relations; (VI) unjust enrichment; and (VII) trademark counterfeiting in violation of the Lanham Act. Defendant’s Motion to Dismiss requested that Counts I, II, III, IV and VII, which sounded in trademark infringement and unfair competition, be dismissed on the basis that Plaintiff failed to allege sufficient facts to sustain the claims. Defendant also moved to dismiss Counts IV, V and VI, Pennsylvania state law claims, pursuant to the Communications Decency Act, 47 U.S.C. § 230 (“CDA”).

With respect to Counts I, II, III, IV and VII, the court discussed the relevant aspects of each count. To state a claim under the sections of the Lanham Act (Count I) at issue, a plaintiff must demonstrate that the mark is valid and legally enforceable, it owns the mark, and defendant’s use of the mark is likely to create confusion concerning the origin of goods or services. A likelihood of confusion exists when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark. In Pennsylvania, common law trademark infringement and unfair competition (Count II) are governed by the same standards as the federal counterparts. Trademark dilution (Count III) relates to the weakening of the ability of a mark to clearly and unmistakably distinguish the source of a product. The UTPCPL (Count IV) is a statute that provides a private cause of action for any person who purchases or leases goods or services primarily for personal, family or household purposes and suffers an ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful by the act. Trademark counterfeiting (Count VII) has the same elements as those of a claim for trademark infringement.

Defendant did not separately address the elements and merits of each of Counts I, II, III, IV and VII, but instead, sought to dismiss them on the same five grounds: (1) Plaintiff failed to allege the use of “AMERIGAS”® as a trademark; (2) the case involved nominative fair use; (3) Plaintiff failed to allege a likelihood of confusion; (4) the doctrine of “initial interest confusion” did not apply; and (5) Plaintiff failed to plead a claim for secondary trademark liability. As to the first argument, Defendant argued that it was not using the trademark and offering a competing good and service. However, the court found that Plaintiff sufficiently alleged that Defendant used the mark “in commerce” and “in connection with any goods or services.”

With respect to the second argument, Defendant claimed that the use of the trademark was a nominative fair use, which occurs when the only practical way to refer to something is to use the trademarked term. The court applied a two-step approach, wherein the plaintiff must prove that confusion is likely due to the defendant’s use of the mark and then the burden shifts to the defendant to prove that its nominative use of plaintiff’s mark is nonetheless fair. The court concluded that a finding under this defense in this case would be premature without the benefit of discovery.

In regard to the third argument, the court considered the Lapp factors, which are ten factors that a court will consider to determine whether the use of a mark would create a likelihood of confusion. The court determined that Plaintiff alleged sufficient facts to state a claim for relief.

For the fourth argument, Defendant claimed that as a result of the ease of navigating the Internet a consumer would begin a new search once any initial interest confusion was dispelled. The court allowed Plaintiff to have an opportunity to present evidence and attempt to prove its theory that Defendant had lured Plaintiff’s potential customers away by initially passing Defendants goods off as Plaintiff’s, even if the confusion was gone by the time of a sale.

Finally, in regard to the fifth argument, Defendant argued that, to the extent Plaintiff alleged liability on the part of Defendant for comments or advertisements of third parties, Plaintiff failed to allege infringement on the part of anyone other than Defendant, and without any underlying trademark violation, Defendant could not be liable for contributing to such infringement. The court agreed with Defendant and dismissed the claim.

With respect to Counts IV, V and VI, Defendant argued that such claims were barred by the CDA. The CDA states that no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another “information content provider.” According to Section 230(c), three elements are required for immunity: (1) the defendant is a provider or user of an interactive computer service; (2) the asserted claims treat the defendant as the publisher or speaker of the information; and (3) the information is provided by another information content provider. Plaintiff argued, and the court agreed, that Plaintiff’s state law claims appear to derive solely from Defendant’s own conduct as opposed to the conduct of any third parties. The court determined that to the extent the state law claims were premised on Defendant’s placement of and profit from third party advertisements, Plaintiff may proceed with such claims.

–Contributed by Esq. Houston Harbaugh, Pittsburgh; (412) 288-4000;

Court Denies Motion for Leave to Amend to Include Inequitable Conduct Claim Due to Futility

In Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC, Civ. No. 1:09-cv-1685, 2012 U.S. Dist. LEXIS 80370 (M.D. Pa. June 11, 2012) (opinion by J. Caldwell), a patent infringement case, Defendants moved for leave to amend their counterclaims against plaintiff Kimberly-Clark Worldwide Inc. (“Plaintiff”). At issue was whether Defendants could amend their counterclaim to allege a supplemental claim of inequitable conduct.

Federal Rule of Civil Procedure 15(a)(2) allows courts to “freely” grant leave to amend “when justice so requires.” However, motions for leave to amend can be denied under circumstances such as where the amendment would be futile. Such was the case here and leave to amend was denied.

The court noted that inequitable conduct operates as an equitable defense to patent infringement and bars enforcement of the patent. To recover on the counterclaim of inequitable conduct, Defendants had to prove by clear and convincing evidence: (1) specific intent to deceive the Patent and Trademark Office (“PTO”); and (2) materiality. The generally established but-for standard is applied in determining the materiality of inequitable conduct, i.e. a showing that, but for the applicant’s misconduct, the PTO would not have issued the patent claim. However, egregious misconduct is material per se.

Defendants argued that Plaintiff engaged in egregious misconduct by taking positions before the PTO that conflicted with arbitration materials and by failing to disclose certain information. The court determined that Defendants’ allegations did not amount to egregious misconduct that was per se material. The court found that Plaintiff only failed to disclose to the PTO opinions of third parties that were of no legal or binding effect and that non-binding arbitration lacks the binding legal effect of litigation. Therefore, Plaintiff was not obligated to disclose to the PTO the opinions of these third parties. The court then applied the but-for standard and likewise found that Defendants failed to allege facts showing that some patent claim would not have been issued but for Plaintiff’s failure to disclose the arbitration materials or the fact that the arbitration had occurred.

The court held that Defendants’ proposed counterclaim of inequitable conduct would be futile and denied leave to amend the counterclaim to include a claim of inequitable conduct.

Western District Distinguishes Mortgage Servicers from Mortgage Lenders

Newly-appointed Judge Hornak of the U.S. District Court for the Western District of Pennsylvania recently considered whether and to what extent a mortgage servicer can be liable for violations of certain mortgage statutes. Trunzo v. Citi Mortgage, No. 2:11-cv-01124, 2012 U.S. Dist. LEXIS 87402 (W.D. Pa. June 25, 2011) (opinion by J. Hornak).

Plaintiffs owned a home in Bethel Park, PA and alleged – on behalf of a putative class of homeowners – that they had been asked to pay a series of improper fees and had received a series of improper mailings after failing to stay current on their mortgage. Defendants were two mortgage servicers and a law firm which the servicers retained after Plaintiffs’ mortgage became past due. The court considered Defendants’ motions to dismiss and expressed no opinion on the appropriateness of class certification. This summary will focus on the court’s decision regarding the mortgage servicers’ motions.

The court carefully distinguished the two mortgage servicers from the underlying holder of the mortgage note, which received a portion of the payments that the servicers collected and had not been named as a defendant. Accordingly, the court dismissed several of Plaintiffs’ stated claims on the grounds that the claims pertained to noteholders and not mortgage servicers. These included claims for breach of contract (dismissed because the mortgage contract was between Plaintiffs and the noteholder), violation of Pennsylvania’s Loan Interest and Protection Act (a/k/a “Act 6” or 41 P.S. § 101) (dismissed because Act 6 governs lenders, and the mortgage servicers were not lenders to Plaintiffs), and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) regarding misrepresentation (73 Pa. Cons. Stat. Ann. § 201-2(4)(v)) (dismissed because the servicers did not misrepresent the mortgage or the note).

However, the court ruled that some of Plaintiffs’ claims against the mortgage servicer Defendants survived the motions to dismiss. The initial noteholder assigned the servicing rights to Citi Mortgage, and they were then assigned to co-Defendant Seterus, which held those rights at the time of the lawsuit. The court ruled that Seterus might have been unjustly enriched to the extent that it received an improperly collected payment from Plaintiffs, even though it was not the noteholder. He also ruled that both mortgage servicer Defendants were potentially liable under the UTPCPL’s “catchall” provision at 73 Pa. Cons. Stat. Ann. § 201-2(4)(xxi). The mortgage servicers had charged Plaintiffs a series of fees which Plaintiffs contended were improperly identified, and the question was whether the allegedly improper fee descriptions violated the UTPCPL catchall provision. Defendants argued that the catchall provision only applies to fraud, but Plaintiffs noted that the catchall provision was amended in 1996 to include deception as well as fraud. Judge Hornak agreed with Plaintiffs and found that their claim for a violation of the “catchall” provision alleged enough facts about deception to survive.

–Contributed by Jason A. Spak, Esq., Houston Harbaugh, PC, Pittsburgh, Pennsylvania;

Defendants Put the “Squeeze” on Patentee as Court Agrees It Has Subject Matter Jurisdiction to Grant Summary Judgment

In Wawrzynski v. H.J. Heinz Company, No. 11-CV-1098, 2012 U.S. Dist. LEXIS 85690 (W.D. Pa. June 20, 2012) (Opinion by J. Schwab), the court held that subject matter jurisdiction existed in a patent law case where only common law causes of action were asserted by Plaintiff.

Plaintiff was the owner of a method patent which patented his idea for dipping French fries and other foods into a ketchup or other condiment container. It was undisputed that Plaintiff met with and exchanged correspondence with various representatives from Defendants, various Heinz entities (“Defendants”) regarding the development of the ketchup container. However, shortly after these meetings, Defendants manufactured and marketed the “Dip and Squeeze” container for Heinz Ketchup. Plaintiff subsequently filed suit against Defendants claiming it breached an implied contract and was unjustly enriched by its marketing of the “Dip and Squeeze.” He did not assert patent infringement claims, but his Complaint sought patent infringement relief. Defendants responded by counterclaiming for declaratory relief that they did not infringe Plaintiff’s patent and/or that the patent was invalid. Plaintiff’s answer to the counterclaim stated that he was not suing Defendants for infringement of his patent. In addition, Plaintiff executed a covenant not to sue Defendants for any alleged infringement on his patent.

Defendants sought partial summary judgment on their counterclaim for non-infringement and sought to dismiss their own counterclaim as to invalidity. Procedurally, the court had previously granted Defendants’ motion for summary judgment as to Plaintiff’s claims on the grounds that Plaintiff’s claims for breach of implied contract and unjust enrichment were preempted by federal patent law because Plaintiff was seeking patent law remedies for his state law claims. At the same time the court granted Defendants’ motion for summary judgment as to Plaintiff’s claims, the court denied Plaintiff’s motion to dismiss Defendants’ patent-law based counterclaims. Thus, at the time of Defendants’ motion for partial summary judgment on their counterclaims, the only claims remaining in the case were the counterclaims.

Plaintiff opposed the motion for partial summary judgment on the basis that there was no case in controversy, and therefore, the court lacked subject matter jurisdiction. In support of his argument, Plaintiff directed the court to his answer to Defendants’ counterclaims wherein he admitted that Defendants’ product did not infringe on his patent. Moreover, Plaintiff argued because his common law claims were dismissed by court order, then the factual allegations referencing his patent in the complaint were no longer before the court. Consequently, Plaintiff argued that the court should no longer consider those factors in making the current determination on Defendants’ counterclaims.

The court rejected this argument, relying on the standard set forth in Molecular Pathology vs. U.S. Patent and Trademark Office, 653 F.3d 1329, 1342-43 (Fed. Cir. 2011) to find that subject matter jurisdiction existed. In Molecular, the court explained that a dispute must be “definite and concrete, touching the legal relations having adverse legal interests, real and substantial, and admit of specific relief through a degree of conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical set of facts.”

Here, the court stated that it did not previously find that Plaintiff did not have a claim; rather the court found that Plaintiff’s claims were preempted by federal patent law. Any affirmative statement made by Plaintiff in any pleading was still part of the case and could be considered with regard to Defendants’ current motion for partial summary judgment. The court determined that the record contained conflicting evidence regarding whether Defendants’ infringed Plaintiff’s patent which meant that a justiciable controversy existed. Based on this and the very unusual set of facts, the court was not divested of subject matter jurisdiction as to the infringement counterclaim.

The court then went on to grant Defendants’ motion for partial summary judgment for declaratory relief that they did not infringe Plaintiff’s patent. While the evidence of record was conflicting, both sides of the conflicting evidence were presented by Plaintiff. Moreover, Plaintiff stated Defendants did not infringe, and he agreed not to sue for infringement. Thus, all material evidence favored Defendants on their counterclaim for declaration of non-infringement. The court also agreed to dismiss Defendants’ counterclaim as to invalidity.

Recent Insights

Related Professionals