IP News

Federal Circuit HoldsThat 'Ordinary Observer' Test Is Sole Test for Design Patent Invalidity

In International Seaway Trading Corp. v. Walgreens Corp., 2009-1237 (Fed. Cir. Dec. 17, 2009), the Federal Circuit affirmed-in-part, vacated-in-part and remanded a district court's summary judgment ruling that the design patents-in-suit were invalid as anticipated, holding that the district court correctly held that the “ordinary observer” test was the sole test of design patent invalidity under 35 U.S.C. ' 102, but that it erred in limiting application of that test to the “portions of the product that are visible during normal use.”

Plaintiff International Seaway Trading Corporation (“Seaway”) is an importer of footwear to mass merchandise retailers and sporting good stores. Seaway also creates its own shoe and boot designs and pursues design patents for them. On Feb. 15, 2008, Seaway brought suit against Walgreens Corporation and Touchsport Footweare USA, Inc. in the United States District Court for the Southern District of Florida, claiming infringement of three design patents: U.S. Design Patent Nos D529,263, D542,032 and D543,033 (collectively, “the patents-in-suit”). Each of the patents-in-suit is part of the same family and claim designs for casual, lightweight footwear, typically referred to as “clogs.”

The district court granted summary judgment for defendants, finding that the claims of the asserted patents were invalid under 35 U.S.C. ' 102 as anticipated by a patent assigned to Crocs, Inc. (“Crocs”), U.S. Design Patent No. D517,789 (“the Crocs '789 patent”). In doing so, the district court applied only the “ordinary observer” test and not the “point of novelty” test. Further, the district court compared the exterior portions of the designs of the patents-in-suit, but not the insoles of the designs, to the prior art.

The Federal Circuit held that the district court correctly applied only the “ordinary observer” test, but that it should have considered the insoles of the patented designs, as well as exterior portions, when comparing them to the prior art. The court reasoned that it has been well established for over a century that the same test must be used for both infringement and anticipation. Since Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc) changed the test for design patent infringement and held that the “ordinary observer” test should be the sole test for design patent infringement, the court reasoned that this test must also be the only one used to analyze invalidity. Moreover, the court noted that eliminating the point of novelty test for anticipation “has the advantage of avoiding the debate over the extent to which a combination of old design features can serve as a point of novelty under the point of novelty test.”

The Federal Circuit then held that the district court erred in applying the “ordinary observer” test since the court had limited its comparison of the prior art to the exterior portions of the patented clog designs. The CAFC held that the proper analysis compares the prior art to the features of the patented design visible during “normal use” of the product, which, in the design patent context, extends from the completion of manufacture or assembly until the ultimate destruction, loss or disappearance of the article. The court reasoned that during “normal” use, the insole of a clog is visible to potential purchasers when displayed on a shelf or rack, or when it is removed from a wearer's foot.

In The Forest Group, Inc. v. Bon Tool Co., 2009-1044 (Fed. Cir. Dec. 28. 2009), the Federal Circuit held that each article falsely marked with a patent number with intent to deceive constitutes an offense under 35 U.S.C. ' 292, subject to a fine of up to $500.

In December 2005, The Forest Group, Inc. (“Forest”) sued Bon Tool Co. (“Bon Tool”) in the United States District Court for the Southern District of Texas alleging infringement of U.S. Patent No. 5,645,515 (the “'515 patent”). The '515 patent relates generally to “an improved spring-loaded parallelogram stilt of the type commonly used in construction” and names William Armstrong and Joe Lin as inventors. Messrs. Armstrong and Lin each formed companies for selling stilts covered by the '515 patent ' Mr. Armstrong created Southland Supply Co. (“Southland”) and Mr. Lin created plaintiff Forest. Southland previously sold stilts to Bon Tool before Bon Tool started purchasing stilts from a foreign supplier that manufactured stilts identical to Southand's, but without a license from Forest. In response to Forest's infringement charge, Bon Tool denied infringement and counterclaimed alleging, among other things, false marking pursuant to 35 U.S.C. ' 292.

In Aug. 2007, the district court granted summary judgment of noninfringement to Bon Tool and, in a later ruling, found that Forest falsely marked its own S2 stilts with the '515 patent number after Nov. 15, 2007. It was on this date that a different district court, in a related case, granted another defendant, Warner Manufacturing Co., summary judgment of noninfringement with respect to the '515 patent. The Southern District of Texas ruled that as of this second summary judgment ruling, Forest knew that its own S2 stilts were not covered by the '515 patent. Finding that Forest placed at least one order for additional S2 model stilts marked with the '515 patent number after Nov. 15, 2007, the district court fined Forest $500 for a single offense of false marking. Bon Tool appealed, arguing that the district court erred in applying the false marking penalty for a single decision to mark, rather than on a per article basis.

The Federal Circuit agreed with Bon Tool, vacated the portion of the district court's opinion fining Forest $500, and remanded for further proceedings. The court held that 35 U.S.C. ' 292 requires false marking penalties to be imposed on a per article basis. The court reasoned that the statute prohibits false marking of “any unpatented article” and imposes a fine for “ every such offense.” (emphasis in original). The court further reasoned that imposing the fine (which is capped by statute at $500) per continuous act of marking, “which act could span years and countless articles, would be insufficient to deter in nearly all cases.” The court noted that Congress considered false marking a serious enough offense that it enacted legislation allowing third parties to bring qui tam suits to enforce the statute. Congress, the court reasoned, could hardly have intended to cap fines at $500 per continuous act of marking, as this would provide insufficient motivation for qui tam plaintiffs ' who would share in the penalty ' to bring suit.

In i4i Limited Partnership v. Microsoft Corp., 2009-1504 (Fed. Cir. Dec. 22, 2009), the Federal Circuit affirmed a $240 million damages award against Microsoft for infringement by its Word software of a patent related to an improved method of editing XML, even though that damages award was calculated using a royalty base exceeding the retail price of certain Word products.

In 2007, i4i Limited Partnership (“i4i”) sued Microsoft Corp. (“Microsoft”) in the United States District Court for the Eastern District of Texas, alleging that 2003 and later versions of Microsoft Word infringed several claims of U.S. Patent No. 5,787,449 (the “'449 patent”), which related generally to an improved method for editing documents containing markup languages like XML. At trial, i4i's expert, Dr. Wagner, opined that a reasonable damages award would be $200 million, based on a hypothetical negotiation between i4i and Microsoft at the time the infringement began. To arrive at the $200 million figure, Dr. Wagner calculated a royalty rate of $98, and multiplied that rate by the number of Word products actually used in an infringing manner (2.1 million, which was determined by i4i's consumer survey). To arrive at the $98 royalty rate, Dr. Wagner first chose a product called XMetaL, which was a high-end program with XML editing capabilities as well as many other features, as a “benchmark” to value Microsoft's use of the claimed invention at the time of the hypothetical negotiation. XMetaL had a retail price of $499. To calculate the licensing fee, Wagner multiplied the price of XMetaL ($499) by Microsoft's profit margin (76.6%), and then applied the 25% rule to this number. This calculation resulted in a baseline royalty rate of $96, which Dr. Wagner increased after “analysis” of the Georgia-Pacific factors. At trial, the jury found that the 2003 and later versions of Word infringed all asserted claims of the '449 patent, that the patent was not invalid, and that Microsoft's infringement was willful. The jury awarded i4i $200 million in damages, which the district court enhanced to $240 million based upon the jury's willfulness finding.

On appeal, the Federal Circuit affirmed the infringement, validity and damages rulings. Microsoft argued that in light of the Federal Circuit's decision in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), that the $200 million is not a “reasonable royalty.” The court disagreed, however, distinguishing Lucent with respect to its procedural posture since, unlike in Lucent, Microsoft never filed a pre-verdict JMOL on damages. The court held that Microsoft's strategic decision meant that the damages award could not be reviewed for sufficiency of the evidence. The court noted that, had Microsoft filed a pre-verdict JMOL, the court could have considered whether the $200 million damages award was “grossly excessive or monstrous” in light of Word's retail price and the licensing fees Microsoft paid for other patents. Instead, the court held that it was constrained to the much narrower review standard applying to denials of new trial motions, where the damages award could be set aside “only upon a clear showing of excessiveness.” The court reasoned that to be excessive, “the award must exceed the maximum amount calculable from the evidence.” Under this standard, the court held that Microsoft was not entitled to a new trial on damages since the jury's award was supported by Dr. Wagner's testimony.

Federal Circuit HoldsThat 'Ordinary Observer' Test Is Sole Test for Design Patent Invalidity

In International Seaway Trading Corp. v. Walgreens Corp., 2009-1237 (Fed. Cir. Dec. 17, 2009), the Federal Circuit affirmed-in-part, vacated-in-part and remanded a district court's summary judgment ruling that the design patents-in-suit were invalid as anticipated, holding that the district court correctly held that the “ordinary observer” test was the sole test of design patent invalidity under 35 U.S.C. ' 102, but that it erred in limiting application of that test to the “portions of the product that are visible during normal use.”

Plaintiff International Seaway Trading Corporation (“Seaway”) is an importer of footwear to mass merchandise retailers and sporting good stores. Seaway also creates its own shoe and boot designs and pursues design patents for them. On Feb. 15, 2008, Seaway brought suit against Walgreens Corporation and Touchsport Footweare USA, Inc. in the United States District Court for the Southern District of Florida, claiming infringement of three design patents: U.S. Design Patent Nos D529,263, D542,032 and D543,033 (collectively, “the patents-in-suit”). Each of the patents-in-suit is part of the same family and claim designs for casual, lightweight footwear, typically referred to as “clogs.”

The district court granted summary judgment for defendants, finding that the claims of the asserted patents were invalid under 35 U.S.C. ' 102 as anticipated by a patent assigned to Crocs, Inc. (“Crocs”), U.S. Design Patent No. D517,789 (“the Crocs '789 patent”). In doing so, the district court applied only the “ordinary observer” test and not the “point of novelty” test. Further, the district court compared the exterior portions of the designs of the patents-in-suit, but not the insoles of the designs, to the prior art.

The Federal Circuit held that the district court correctly applied only the “ordinary observer” test, but that it should have considered the insoles of the patented designs, as well as exterior portions, when comparing them to the prior art. The court reasoned that it has been well established for over a century that the same test must be used for both infringement and anticipation. Since Egyptian Goddess, Inc. v. Swisa, Inc. , 543 F.3d 665 (Fed. Cir. 2008) (en banc) changed the test for design patent infringement and held that the “ordinary observer” test should be the sole test for design patent infringement, the court reasoned that this test must also be the only one used to analyze invalidity. Moreover, the court noted that eliminating the point of novelty test for anticipation “has the advantage of avoiding the debate over the extent to which a combination of old design features can serve as a point of novelty under the point of novelty test.”

The Federal Circuit then held that the district court erred in applying the “ordinary observer” test since the court had limited its comparison of the prior art to the exterior portions of the patented clog designs. The CAFC held that the proper analysis compares the prior art to the features of the patented design visible during “normal use” of the product, which, in the design patent context, extends from the completion of manufacture or assembly until the ultimate destruction, loss or disappearance of the article. The court reasoned that during “normal” use, the insole of a clog is visible to potential purchasers when displayed on a shelf or rack, or when it is removed from a wearer's foot.

In The Forest Group, Inc. v. Bon Tool Co., 2009-1044 (Fed. Cir. Dec. 28. 2009), the Federal Circuit held that each article falsely marked with a patent number with intent to deceive constitutes an offense under 35 U.S.C. ' 292, subject to a fine of up to $500.

In December 2005, The Forest Group, Inc. (“Forest”) sued Bon Tool Co. (“Bon Tool”) in the United States District Court for the Southern District of Texas alleging infringement of U.S. Patent No. 5,645,515 (the “'515 patent”). The '515 patent relates generally to “an improved spring-loaded parallelogram stilt of the type commonly used in construction” and names William Armstrong and Joe Lin as inventors. Messrs. Armstrong and Lin each formed companies for selling stilts covered by the '515 patent ' Mr. Armstrong created Southland Supply Co. (“Southland”) and Mr. Lin created plaintiff Forest. Southland previously sold stilts to Bon Tool before Bon Tool started purchasing stilts from a foreign supplier that manufactured stilts identical to Southand's, but without a license from Forest. In response to Forest's infringement charge, Bon Tool denied infringement and counterclaimed alleging, among other things, false marking pursuant to 35 U.S.C. ' 292.

In Aug. 2007, the district court granted summary judgment of noninfringement to Bon Tool and, in a later ruling, found that Forest falsely marked its own S2 stilts with the '515 patent number after Nov. 15, 2007. It was on this date that a different district court, in a related case, granted another defendant, Warner Manufacturing Co., summary judgment of noninfringement with respect to the '515 patent. The Southern District of Texas ruled that as of this second summary judgment ruling, Forest knew that its own S2 stilts were not covered by the '515 patent. Finding that Forest placed at least one order for additional S2 model stilts marked with the '515 patent number after Nov. 15, 2007, the district court fined Forest $500 for a single offense of false marking. Bon Tool appealed, arguing that the district court erred in applying the false marking penalty for a single decision to mark, rather than on a per article basis.

The Federal Circuit agreed with Bon Tool, vacated the portion of the district court's opinion fining Forest $500, and remanded for further proceedings. The court held that 35 U.S.C. ' 292 requires false marking penalties to be imposed on a per article basis. The court reasoned that the statute prohibits false marking of “any unpatented article” and imposes a fine for “ every such offense.” (emphasis in original). The court further reasoned that imposing the fine (which is capped by statute at $500) per continuous act of marking, “which act could span years and countless articles, would be insufficient to deter in nearly all cases.” The court noted that Congress considered false marking a serious enough offense that it enacted legislation allowing third parties to bring qui tam suits to enforce the statute. Congress, the court reasoned, could hardly have intended to cap fines at $500 per continuous act of marking, as this would provide insufficient motivation for qui tam plaintiffs ' who would share in the penalty ' to bring suit.

In i4i Limited Partnership v. Microsoft Corp., 2009-1504 (Fed. Cir. Dec. 22, 2009), the Federal Circuit affirmed a $240 million damages award against Microsoft for infringement by its Word software of a patent related to an improved method of editing XML, even though that damages award was calculated using a royalty base exceeding the retail price of certain Word products.

In 2007, i4i Limited Partnership (“i4i”) sued Microsoft Corp. (“Microsoft”) in the United States District Court for the Eastern District of Texas, alleging that 2003 and later versions of Microsoft Word infringed several claims of U.S. Patent No. 5,787,449 (the “'449 patent”), which related generally to an improved method for editing documents containing markup languages like XML. At trial, i4i's expert, Dr. Wagner, opined that a reasonable damages award would be $200 million, based on a hypothetical negotiation between i4i and Microsoft at the time the infringement began. To arrive at the $200 million figure, Dr. Wagner calculated a royalty rate of $98, and multiplied that rate by the number of Word products actually used in an infringing manner (2.1 million, which was determined by i4i's consumer survey). To arrive at the $98 royalty rate, Dr. Wagner first chose a product called XMetaL, which was a high-end program with XML editing capabilities as well as many other features, as a “benchmark” to value Microsoft's use of the claimed invention at the time of the hypothetical negotiation. XMetaL had a retail price of $499. To calculate the licensing fee, Wagner multiplied the price of XMetaL ($499) by Microsoft's profit margin (76.6%), and then applied the 25% rule to this number. This calculation resulted in a baseline royalty rate of $96, which Dr. Wagner increased after “analysis” of the Georgia-Pacific factors. At trial, the jury found that the 2003 and later versions of Word infringed all asserted claims of the '449 patent, that the patent was not invalid, and that Microsoft's infringement was willful. The jury awarded i4i $200 million in damages, which the district court enhanced to $240 million based upon the jury's willfulness finding.

On appeal, the Federal Circuit affirmed the infringement, validity and damages rulings. Microsoft argued that in light of the Federal Circuit's decision in Lucent Technologies, Inc. v. Gateway, Inc. , 580 F.3d 1301 (Fed. Cir. 2009), that the $200 million is not a “reasonable royalty.” The court disagreed, however, distinguishing Lucent with respect to its procedural posture since, unlike in Lucent, Microsoft never filed a pre-verdict JMOL on damages. The court held that Microsoft's strategic decision meant that the damages award could not be reviewed for sufficiency of the evidence. The court noted that, had Microsoft filed a pre-verdict JMOL, the court could have considered whether the $200 million damages award was “grossly excessive or monstrous” in light of Word's retail price and the licensing fees Microsoft paid for other patents. Instead, the court held that it was constrained to the much narrower review standard applying to denials of new trial motions, where the damages award could be set aside “only upon a clear showing of excessiveness.” The court reasoned that to be excessive, “the award must exceed the maximum amount calculable from the evidence.” Under this standard, the court held that Microsoft was not entitled to a new trial on damages since the jury's award was supported by Dr. Wagner's testimony.