STATIC CONTROL COMPONENTS v. LEXMARK INTERN., INC.Nos. 09-6287, 09-6288, 09-6449.
697 F.3d 387 (2012)
STATIC CONTROL COMPONENTS, INC., Plaintiff-Appellant/Cross-Appellee,
LEXMARK INTERNATIONAL, INC., Defendant-Appellee/Cross-Appellant.
LEXMARK INTERNATIONAL, INC., Defendant-Appellee/Cross-Appellant.
United States Court of Appeals, Sixth Circuit.
Argued: March 6, 2012.
Decided and Filed: August 29, 2012.
ARGUED: Seth D. Greenstein, Constantine & Cannon LLP, Washington, D.C., for Appellant/Cross-Appellee. Steven B. Loy, Stoll Keenon Ogden PLLC, Lexington, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Seth D. Greenstein, Constantine & Cannon LLP, Washington, D.C., Joseph C. Smith, Jr., Bartlit Beck Herman Palenchar & Scott, LLP, Denver, Colorado, William L. London III, Static Control Components, Inc., Stanford, North Carolina, M. Miller Baker, Stefan M. Meisner, McDermott Will & Emery LLP, Washington, D.C., W. Craig Robertson III, Mickey T. Webster, Wyatt, Tarrant & Combs, LLP, Lexington, Kentucky, for Appellant/Cross-Appellee. Steven B. Loy, Anthony J. Phelps, Christopher L. Thacker, Stoll Keenon Ogden PLLC, Lexington, Kentucky, William J. Hunter, Jr., Stoll Keenon Ogden PLLC, Louisville, Kentucky, Timothy C. Meece, Binal J. Patel, Matthew P. Becker, Jason S. Shull, Michael L. Krashin, Banner & Witcoff, Ltd., Chicago, Illinois, Joseph M. Potenza, Christopher B. Roth, Banner & Witcoff, Ltd., Washington, D.C., for Appellee/Cross-Appellant.
Before: KEITH, BOGGS, and MOORE, Circuit Judges.
KAREN NELSON MOORE, Circuit Judge.
Lexmark International, Inc. ("Lexmark") is a major producer of laser printers
Lexmark sued Static Control in 2002 (the "02 Action") for copyright violations related to its source code in making the duplicate microchips and was given a preliminary injunction by the district court. Static Control counterclaimed under federal and state antitrust and false-advertising laws. While that suit was pending, Static Control redesigned its microchips and sued Lexmark for declaratory judgment in 2004 (the "04 Action") to establish that the redesigned microchips did not infringe any copyright.
On appeal of the preliminary injunction, the Sixth Circuit vacated and rejected Lexmark's copyright theories. Lexmark Int'l, Inc. v. Static Control Components, Inc.,
For the following reasons, we
A. Factual Background
Lexmark manufactures laser printers, which require toner cartridges to print. The market for printers and toner cartridges generally has many players, e.g., Xerox, Epson, Hewlett-Packard, and Canon, and Lexmark's share of the overall printer market is less than 15%. Second Appellee Br. at 4. Each company generally manufactures its printers to work with only its own style of cartridges, and each company's cartridges will work with only its brand of printers. Therefore, each company typically dominates the aftermarket for cartridges compatible with its brand of printers, although the primary market for printers is well populated.
Remanufacturers are companies that participate in the toner-cartridge aftermarkets by acquiring used toner cartridges of all kinds of printers, repairing and refilling them, and selling them to
Lexmark toner cartridges each contain a microchip that communicates with the printer once installed. Toner cartridges that are otherwise compatible with Lexmark printers will not function without the microchip. Lexmark obtains these microchips from a supplier that has allegedly agreed to sell microchips only to Lexmark. All Lexmark toner cartridges are initially manufactured with the necessary microchip, but the microchip for the Prebate cartridges is specifically designed to enforce the Prebate terms by disabling the cartridge for future use after the cartridge runs out of toner. To use the Prebate cartridge again, the microchip needs to be replaced. To use a non-Prebate cartridge again, the microchip does not need to be replaced unless it was damaged.
Lexmark eventually obtained several patents relating to its toner cartridges. At issue on appeal are nine utility patents that the remanufacturers allegedly infringe (referred to as the "nine mechanical patents") and two design patents relating to seven different toner cartridges. Static Control developed a microchip that could replace the microchip on the Prebate toner cartridges, permitting a third party to remanufacture and sell the toner cartridge again. Static Control also sent its customers a letter, referred to as an "Anti-Prebate kit," consisting of information from Static Control's general counsel regarding why the Prebate program is not valid under principles of contract law. Second Appellee Br. at 33. Remanufacturers buy these microchips from Static Control, along with other parts. Static Control does not manufacture, remanufacture, or sell toner cartridges of any kind, but it is the market leader on making and selling the components necessary to remanufacture Lexmark cartridges. First Appellant Br. at 11. Lexmark, on the other hand, sells toner cartridges but does not sell any of the component parts necessary to repair or remanufacture its toner cartridges, whether Prebate cartridges or not.
B. Procedural Background
Lexmark sued Static Control in December 2002 for violations of federal copyright
On January 8, 2003, Lexmark received a temporary restraining order in the 02 Action, and on January 24, 2003, the district court required Lexmark to post an injunction bond of $75,000. On February 7, 2003, the district court increased the bond to $250,000 and extended relief for 21 days. On February 27, 2003, district court granted the preliminary injunction. Static Control appealed both the injunction and the bond amount, and in October 2004 the Sixth Circuit reversed the preliminary injunction, making no comment on the bond amount. Lexmark I, 387 F.3d at 551. Static Control sought rehearing on the issue of the bond amount, which we denied in a one-sentence order. Lexmark Int'l, Inc. v. Static Control Components, Inc., No. 03-5400 (6th Cir. Dec. 29, 2004) (unpublished order). In light of the ruling, the parties stipulated to summary judgment against Lexmark on its DMCA claims. R. 216 (D. Ct. Order 2/23/06).
Before the Sixth Circuit ruled, however, Static Control initiated the 04 Action seeking declaratory judgment under federal copyright laws and the DMCA that its newly modified chips did not infringe Lexmark's copyrights. Lexmark counterclaimed raising patent infringement, DMCA violations, and tort claims, and added three remanufacturers as third-party defendants — Wazana, NER, and Pendl. Following the Sixth Circuit's remand, Lexmark moved to dismiss Static Control's counterclaims. The district court granted the motion in September 2006. During the course of the proceedings, which concluded in a jury trial, nine of Lexmark's mechanical patents were held valid, see R. 1008 (D. Ct. Order 4/24/07), and summary judgment was granted to Lexmark on its claims of direct patent infringement against Wazana, NER, and Pendl, see R. 1203 (D. Ct. Order 5/25/07); R. 1245 (D. Ct. Order 5/31/07). All three defendant remanufacturers ultimately settled with Lexmark at various points before the verdict. The district court also granted summary judgment to Lexmark on the validity of its single-use license for Prebate cartridges, which the district court concluded prevented Lexmark's patents from exhausting following the initial sale of the Prebate toner cartridges to end users. R. 1008 (D. Ct. Order 4/24/07).
By the close of trial, the only remaining issues were Lexmark's patent-infringement-inducement claims against Static Control and Static Control's equitable defense of patent misuse. Because the district court had already ruled on summary judgment that three of the remanufacturers directly infringed, the jury was asked to decide whether the unnamed remanufacturers directly infringed as a class and whether Static Control induced any direct infringement. Because the district court determined that patent misuse was an equitable defense, the final jury instructions indicated that the jury's findings with respect to misuse would be merely advisory. R. 1365 (Jury Instructions). The jury returned a verdict that Lexmark had failed
Lexmark moved for judgment as a matter of law both before and after the verdict and also filed a motion for a new trial on its patent inducement claim, arguing that the evidence was sufficient to establish direct infringement by Static Control's customers as a class and that, with respect to inducement, the district court erroneously excluded evidence at trial. The district court denied the motions. R. 1430 (D.Ct.Op.10/03/08); R. 1521 (D. Ct. Op. & Order 10/28/10). The district court subsequently reversed its prior ruling that Lexmark's patents were not exhausted in its Prebate cartridges in light of recent Supreme Court precedent. R. 1443 (D. Ct. Op. & Order 3/31/09). Both parties filed timely appeals.
The parties did not state in their initial briefs the basis for this court's appellate jurisdiction. We therefore asked the parties to submit letter briefs addressing whether we have jurisdiction over this appeal or whether the Federal Circuit has exclusive jurisdiction to review the case under 28 U.S.C. § 1295. After all, the entirety of Lexmark's appeal requires us to resolve substantive issues of patent law. Static Control responds that this court has jurisdiction; Lexmark maintains that the Federal Circuit has exclusive jurisdiction. On review, we determine that 28 U.S.C. § 1295 does not require that the Federal Circuit hear this case on appeal. We have jurisdiction under 28 U.S.C. § 1291.
The Federal Circuit has exclusive jurisdiction over appeals from final decisions of a district court "if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title." 28 U.S.C. § 1295(a)(1) (2000). Section 1338 gives federal district courts original jurisdiction exclusive of the state courts over "any civil action arising under any Act of Congress relating to patents." 28 U.S.C. § 1338(a) (1999). Because Congress used the phrase "arising under," the Supreme Court has held that patent issues raised in relation to a defense or as counterclaims are insufficient to confer Federal Circuit jurisdiction. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc.,
At first glance, this case appears clear cut: In both the 02 and the 04 Actions, the issues implicating patent law arose as counterclaims. However, the Supreme Court has suggested — but declined to decide — that the evolving circumstances of a case may create a situation wherein exclusive Federal Circuit appellate jurisdiction would follow. Holmes, 535 U.S. at 829 n. l,
Whatever those evolving circumstances may be, however, they are not present in this case. Lexmark can point to no actual or constructive amendment of either complaint. Constructive amendments typically occur when a specific claim is not raised, but the parties by their actions act as if they consent to making the claim a part of the proceedings. See Torry v. Northrop Grumman Corp.,
Lexmark's best argument is that its patent counterclaims in the 04 Action added new parties, and that the district court's jurisdiction over Lexmark's third-party complaint potentially "arose under" the patent laws. Unfortunately for Lexmark, this too seems insufficient to make the case one "arising under" patent laws. Lexmark offers no law or case addressing whether a third-party complaint can render any part of the controversy "arising under" patent law. However, the Supreme Court in Holmes compared the "arising under" inquiry for 28 U.S.C. § 1338 to the "arising under" inquiry for original jurisdiction under 28 U.S.C. § 1331. And we know that third-party defendants may not remove a controversy to federal court solely because the original defendant filed related federal claims against them. First Nat'l Bank of Pulaski v. Curry,
III. INJUNCTION-BOND AMOUNT
Static Control appeals the amount of the injunction bond entered by the district court when the district court issued the preliminary injunction in 2002.
In November 2009, only a few days after filing its notice of appeal, Static Control filed a Motion for Wrongful Injunction Damages in the district court, seeking actual damages of $7-10 million, well in excess of the $250,000 injunction-bond amount. R. 1473 (Static Control's Mot. to Vacate). Lexmark opposed, arguing that the bond amount should serve as the cap on damages. R. 1495 (Lexmark's Opp. to Mot. to Vacate). As late as January 29, 2010, Static Control was imploring the district court to "recalculate the bond to reflect the projected damages and set an evidentiary hearing to allow Static Control to prove its actual damages." R. 1503 (Static Control's Reply Mot. to Vacate at 14). After oral argument in this appeal and prompting from Lexmark, the district court recently denied this motion and ordered the clerk to release the security bond to Static Control. R. 1530 (D. Ct. Order 4/24/12). Static Control has sent us a letter brief asking us to ignore this order because the district court lacked jurisdiction to decide this amount following the filing of Static Control's notice of appeal, an argument which Static Control presented in its most recent papers before the district court but not in its initial motion seeking the very relief it now claims the district court lacks the jurisdiction to award.
Lexmark contends that this panel should not consider this argument because the Sixth Circuit necessarily rejected Static Control's claim in declining to vacate the bond amount on the initial appeal. Static Control argues that this issue may be considered because it was never "squarely decided" on the first appeal. First Appellant Br. at 24 n.9 (internal quotation marks omitted). "Issues decided at an early stage of the litigation, either explicitly or by necessary inference from the disposition, constitute the law of the case." Hanover Ins. Co. v. Am. Eng'g Co.,
A bond amount shall be set "in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed.R.Civ.P. 65(c). District courts have broad discretion in setting the bond amount. Div. No. 1, Detroit, Bhd. of Locomotive Eng'rs v. Consol. Rail Corp.,
At the preliminary injunction hearing, Static Control's CEO testified that the company would lose $17,463,580 if forced to halt sales for two years. The CEO testified to the overall method his company used to calculate that number, but never presented any underlying calculations. Cross-examination revealed a number of assumptions underlying Static Control's estimate, including the assumption that it would take six years for Static Control to regain its previous market position if enjoined. The fact that the ultimate bond amount selected by the district court was only two percent of Static Control's claimed damages therefore carries little weight. The district court was not required to credit Static Control's testimony solely because Lexmark did not present evidence to the contrary. The district court received evidence from Static Control, weighed the evidence against the strength of Lexmark's claims, which were deemed strong at the time, and accordingly raised the initial bond from $75,000 to $250,000. We decline to hold that the district court abused its discretion in setting the bond amount under these circumstances.
IV. STATIC CONTROL'S FEDERAL ANTITRUST COUNTERCLAIMS
Static Control counterclaimed in the 02 Action under §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, seeking damages and injunctive relief. 02R. 172 (2d Am. Answer & Counterclaim). The district court granted Lexmark's motion to dismiss on the basis that Static Control did not have standing to bring the federal antitrust claims for damages or injunctive relief. R. 392 (D. Ct. Order 9/28/06).
A. Standard of Review
We review de novo a district court's decision to dismiss a counterclaim for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). United Ass'n of Journeymen & Apprentices of the Plumbing and Pipefitting Indus., Local No. 577 v. Ross Bros. Constr. Co.,
B. Antitrust Standing for Counterclaims with Money Damages
Pursuant to the Clayton Act, 15 U.S.C. § 15(a), private parties may bring private actions for violations of the Sherman Act. Section 1 of the Sherman Act prohibits conspiracies to restrain trade. 15 U.S.C. § 1. "A Section 1 conspiracy requires more than a manufacturer's unilateral refusal to deal. `There must be evidence that tends to exclude the possibility that the [conspirators] were acting independently.'" Watson Carpet & Floor Covering, Inc. v. Mohawk Indus., Inc.,
To bring a private claim for damages under either section of the Sherman Act, the claimant must first demonstrate that it has standing. Although required in all cases, standing in an antitrust case is more onerous than the conventional Article III inquiry. "[A]ntitrust standing is a threshold, pleading-stage inquiry and when a complaint by its terms fails to establish this requirement we must dismiss it as a matter of law ..." NicSand, Inc. v. 3M Co.,
Southaven Land Co., Inc. v. Malone & Hyde, Inc.,
Static Control alleges that Lexmark conspired with unidentified microchip suppliers and resellers of Lexmark-manufactured printers to restrain trade and otherwise monopolize "the relevant markets," thereby reducing output, increasing prices, and maintaining Lexmark's monopoly. Static Control defines the "relevant markets" as including three distinct but related aftermarkets for Lexmark-specific products: (1) the market for Lexmark replacement toner cartridges, (2) the market for component parts for Lexmark cartridges, and (3) the market for microchips for Lexmark cartridges.
In its counterclaim, Static Control's allegations can be categorized into five practices by Lexmark that Static Control claims constitute anticompetitive conduct: (1) the Prebate program;
1. Prebate Program
Static Control alleges that the Prebate Program, through its lower prices and misleading statements that the end user committed to a license agreement when no such license existed, cajoled end users into purchasing fewer remanufactured cartridges and thereafter returning them primarily to Lexmark. As a result, Static Control was also harmed because it lost profits from the decline in sales of microchips and components for Lexmark-compatible cartridges following the decline in sales of remanufactured cartridges. First Appellant Br. at 16.
As alleged, the Prebate Program targets only the market for remanufactured cartridges. No part of the Prebate Program relates to the market for microchips or components, even though the allegations support the Prebate Program's incidental effects in the other markets. Static Control itself states that "Lexmark specifically launched its Prebate program to intimidate and to exclude competition from remanufacturers." 02R. 172 (2d Am. Answer & Countercl. at ¶ 33) (emphasis added). And as discussed above, although Static Control's allegations often refer to the "relevant markets," the specific factual allegations explain only Prebate's impact on the market for remanufactured cartridges. For example, when Static Control alleges that Lexmark used Prebate to "effect its deliberate, unlawful, anticompetitive intent to raise prices and exclude competition," id., we can conclude only that this allegation relates to the market for toner cartridges because of the lack of any allegations that the prices were raised in other markets. Having identified the proper market, we easily conclude that all five of the AGC factors are lacking with respect to the Prebate program.
Static Control also fails sufficiently to identify its role in the relevant market for remanufactured cartridges. Traditionally, only claimants who are competitors or consumers within the injured market have standing to sue. Southaven, 715 F.2d at 1086. However, claimants who are not direct players in the relevant market may nonetheless have standing if their injury is "`inextricably intertwined' with the injury sought to be inflicted upon the relevant market or participants therein." Id. The "inextricably intertwined" exception, however, is narrow. See Blue Shield of Va. v. McCready,
Static Control must therefore have alleged that an injury in Lexmark's market — the market for replacement toner cartridges — is inextricably intertwined with the injuries Static Control claims to be suffering in the market for component parts and microchips. The district court rejected Static Control's argument, because Static Control failed adequately to allege that it was "manipulated or utilized by the defendant as a fulcrum, conduit or market force to injure competitors or participants in the relevant product and geographical market." R. 392 (D. Ct. Order 9/28/06 at 10) (quoting Province v. Cleveland Press Publ'g Co.,
Static Control's counterclaim makes no mention of being used by Lexmark as a fulcrum, and Static Control does not allege that it was harmed because it was manipulated into harming the remanufacturers. Static Control on appeal argues that Lexmark used Static Control as a fulcrum to injure the remanufacturers by (1) falsely telling remanufacturers that using Static Control's products would constitute infringement; (2) redesigning its microchips, thus forcing Static Control to redesign its microchips to remain compatible; (3) threatening legal action against Static Control; (4) and suing Static Control for baseless copyright claims. First Appellant Br. at 39. But, although these specific
Static Control's allegations establish that it was negatively affected by Lexmark's manipulation of the end users into buying Prebate cartridges, but that Static Control itself was not used as a conduit to achieve the alleged anticompetitive effect in the remanufactured cartridge market. See Southaven, 715 F.2d at 1086 (harm from tangential effects of anticompetitive conduct not enough to convey standing). Indeed, the allegations make very clear that Lexmark is using the end users to obtain the desired anticompetitive effects, rather than using Static Control. Static Control specifically alleges that Lexmark "fraudulently induces customers' use of Prebate cartridges" and "exploit[s] consumers' lack of information about choices in replacement cartridges" to reduce the number of non-Prebate cartridges on the market. 02R. 172 (2d Am. Answer & Countercl. at ¶ 37); see also id. at ¶ 38 ("Lexmark's anticompetitive exploitation of consumers' and end-users' lack of adequate information increases prices and reduces output in the relevant markets.") (emphasis added). No such allegations of exploitation or manipulation exist with respect to Static Control. The level of manipulation of the claimant — and the necessity of the success of such manipulation to achieve the anticompetitive conduct — is simply not present in this case with respect to Static Control. See Peck, 894 F.2d at 847.
Even if we were to consider Static Control's injury in the market for components and microchips sufficiently related to the harm caused by the Prebate Program in the remanufactured cartridges market, Static Control still lacks standing due to its failure to satisfy the remaining AGC factors. See Fallis v. Pendleton Woolen Mills, Inc.,
Static Control also fails to establish the final three AGC factors, which all relate to the directness of Static Control's injuries relative to potentially more-direct victims. Static Control's injuries as a result of the Prebate program are clearly a "byproduct" of the alleged antitrust violation. Province, 787 F.2d at 1053; Fallis, 866 F.2d at 211. The more-direct victims are the end users, who according to the allegations had to pay more for their cartridges as a result of the allegedly anticompetitive conduct, and the remanufacturers, who were unable to compete in the market for Lexmark-compatible toner cartridges after Lexmark's Prebate program undercut their prices and reduced supply. Although the end users may have little incentive to sue, two of the remanufacturers raised (and ultimately settled) antitrust claims against Lexmark in the same action. R. 392 (D. Ct. Order 9/28/06 at 12). Where there are more-direct victims of the anticompetitive conduct, those victims have the standing to sue, rather than those affected indirectly.
The existence of this clear class of direct victims increases the danger of duplicative recovery should Static Control be given antitrust standing to pursue the Prebate Program and receive treble damages.
Static Control's argument for directness of its injury relies heavily on the Second Circuit case Crimpers Promotions, Inc. v. Home Box Office, Inc.,
2. Restraints on Microchips in Lexmark Printers and Cartridges
Static Control also argues that the existence of microchips in the cartridges in the first place and Lexmark's exclusive distribution agreement with its own microchip supplier are anticompetitive acts. These acts differ from the Prebate program because they directly target the microchip market in which Static Control is a competitor. Although Lexmark does not compete in the market for microchips, the allegations suggest that Lexmark uses its influence to restrain trade in the microchip market in order to restrain trade in the remanufactured cartridge market. Here, however, Static Control again lacks standing because it has failed to allege how Lexmark's actions caused any antitrust injury.
Static Control objects to the initial creation of the "anticompetitive microchips," but fails to allege how the existence of a microchip requirement alone caused Static Control any injury. See 02R. 172 (2d Am. Answer & Countercl. at ¶ 44). Static Control makes no allegations at all relating to the change in prices for components and microchips as a result of Lexmark's use of microchips in its toner cartridges, and Static Control makes no allegations regarding how a microchip requirement affected Static Control's share of the market for components and microchips. Indeed,
Static Control's allegations relating to Lexmark's microchip supplier's refusal to compete with third parties fares no better. As a self-proclaimed "leading supplier to toner cartridge remanufacturers," id. at ¶ 30, Static Control fails to allege how the removal of one of its direct competitors from the components and microchips market following an exclusive distributorship agreement with a single customer caused any damage to Static Control's position within those markets or profits. See New Albany Tractor, Inc. v. Louisville Tractor, Inc.,
"Antitrust injury does not arise for purposes of § 4 of the Clayton Act until a private party is adversely affected by an anticompetitive aspect of the defendant's conduct." Atl. Richfield Co. v. USA Petroleum Co.,
3. Redesigning Microchips to Circumvent Static Control's product
Once the market for microchips was created, however, the issue becomes whether Lexmark can engage in a conspiracy to eliminate that market or stifle competition within that market. If Lexmark were able to maintain a monopoly on remanufactured toner cartridges by making cartridge parts wholly unavailable, Static Control might have standing to pursue an antitrust violation. See Eastman Kodak Co. v. Image Technical Servs., Inc.,
4. Filing Suit
Lexmark further correctly observes that the act of filing suit generally does not constitute an antitrust injury under the Noerr-Pennington doctrine.
C. Antitrust Standing for Counterclaims Seeking Injunctive Relief
The Clayton Act also permits a private party to obtain injunctive relief
The Clayton Act does not "authorize a private plaintiff to secure an injunction against a threatened injury for which he would not be entitled to compensation if the injury actually occurred." Cargill, Inc. v. Monfort of Colo., Inc.,
V. STATIC CONTROL'S LANHAM ACT COUNTERCLAIM
Static Control contends that Lexmark violated the Lanham Act by engaging in false advertising. Static Control alleges that Lexmark "falsely informed customers that SCC's products infringe Lexmark's purported intellectual property," and "misled ... customers of SCC's products that license agreements prohibit remanufacturing Lexmark toner cartridges, when no license agreements actually exist," causing Static Control's customers to believe that Static Control is engaging in illegal conduct and thereby damaging Static Control's business and reputation.
Static Control maintains that the test "[i]n this Circuit" is "not the same
Lexmark urges us to follow one of the narrower approaches adopted by our sister circuits. The Seventh, Ninth, and Tenth use a categorical test, permitting Lanham Act suits only by an actual competitor making an unfair-competition claim. L.S. Heath & Son, Inc. v. AT & T Info. Sys., Inc.,
The Third, Fifth, Eighth, and Eleventh Circuits all reference antitrust standing or the AGC factors in deciding Lanham Act standing. Conte Bros. Auto., Inc. v. Quaker State-Slick 50, Inc.,
Although the claimant in Frisch's Restaurants brought a claim under 15 U.S.C. § 1125(a)(1)(A) for false association of trademark, not under § 1125(a)(1)(B) for false advertising, we agree with the Third Circuit's reasoned analysis rejecting a distinction between these two types of claims
VI. STATE-LAW COUNTERCLAIMS
The district court dismissed Static Control's counterclaims for unfair competition and false advertising under North Carolina law for lack of standing. Static Control appeals and agrees that substantively the state law claims all "substantially mirror" the federal claims. First Appellant Br. at 54.
The parties dispute whether standing under the North Carolina Unfair Deceptive Trade Practices Act ("NCUDTPA"), N.C. Gen.Stat. §§ 75-1, et seq., which is the state-law equivalent of the Sherman, Clayton, and Lanham Acts, is identical to the standing requirements of the federal acts. The district court held that North Carolina had not yet decided the question, and applying "North Carolina's general rule that federal case law is persuasive and instructive in construing North Carolina's own antitrust statutes," the district court dismissed the state-law counterclaims "for the same reasons that it dismissed [Static Control's] federal claims above." R. 392 (D. Ct. Order 9/28/06 at 16). Static Control disagrees that the North Carolina standard is the same.
North Carolina has held that the AGC factors "do not apply in determining which indirect purchasers have standing to sue under the North Carolina antitrust statutes." Teague v. Bayer AG, 195 N.C. App. 18,
In deciding to reject the federal test for standing for indirect purchasers, the North Carolina Court of Appeals examined the standing landscape when the North Carolina statute governing standing, N.C. Gen.Stat. § 75-16, was most recently substantively amended in 1969. Hyde, 473 S.E.2d at 684-85 (citing Ill. Brick Co. v. Illinois,
Applying the same considerations to the circumstances at hand, we believe North Carolina would grant standing to suppliers such as Static Control. Prior to 1969, the law, at least in the Sixth Circuit, was that suppliers like Static Control lacked standing. See Volasco Prods. Co. v. Lloyd A. Fry Roofing Co.,
In ruling that indirect purchasers were not subject to the AGC factors, the court in Teague emphasized the differences between cases involving indirect purchasers and those, such as AGC itself, that did not. Teague, 671 S.E.2d at 556 (rejecting analogies to AGC and other state cases applying AGC factors to state-law claims because they did not involve indirect purchasers). However, the Hyde court independently rejected many of the concerns identified in Illinois Brick (and later repeated in AGC) as simply inapplicable to state-law antitrust statutes. Hyde, 473 S.E.2d at 687-88 (addressing issues of multiple liability, incentives to sue, and complexity of damages). Because the state of the law in 1969 in the Fourth Circuit appears more
VII. IMPACT OF JURY VERDICT ON REMAND
Because we have reinstated some of Static Control's counterclaims, Static Control requests that we instruct the district court on remand to treat retroactively the advisory jury's findings that Lexmark misused its patents as binding jury findings. Lexmark unsurprisingly objects to this. The Seventh Amendment provides that "no fact tried by a jury, shall be otherwise reexamined in any Court of the United States." U.S. CONST. amend. VII. Static Control claims that presenting the reinstated antitrust claims now to a binding jury would violate this prohibition because these issues were already presented once to a jury, albeit an advisory one. Because those claims must be decided by a jury if reinstated, Static Control suggests that the only remedy to this problem is retroactively to call the advisory jury's findings of fact binding, as opposed to proceeding with a new trial before a new, binding jury.
The differences between the defense of patent misuse and affirmative state-law antitrust claims or a Lanham Act claim notwithstanding, we decline to deem an advisory jury's findings binding retroactively. See Hildebrand v. Bd. of Trs. of Mich. State Univ.,
VIII. LEXMARK'S PATENT COUNTERCLAIMS
Lexmark counterclaimed in the 04 Action that Static Control induced the remanufacturers
A. Standards of Review
We review de novo a district court's decision to deny a motion for a judgment as a matter of law under Federal Rule of Civil Procedure 50. Mike's Train House, Inc. v. Lionel, L.L.C.,
We review for abuse of discretion a district court's decision to deny a motion for a new trial under Federal Rule of Civil Procedure 59. Mike's Train House, 472 F.3d at 405. A new trial is warranted after a jury verdict "for any reason for which a new trial has heretofore been granted in an action at law in federal court." Fed.R.Civ.P. 59(a). We have previously held that a new trial is appropriate when the jury reaches a "seriously erroneous result as evidenced by (1) the verdict being against the [clear] weight of the evidence; (2) the damages being excessive; or (3) the trial being unfair to the moving party in some fashion, i.e., the proceedings being influenced by prejudice or bias." Mike's Train House, 472 F.3d at 405 (internal quotation marks and alterations omitted) (quoting Holmes v. City of Massillon,
We review de novo a district court's grant of summary judgment. Int'l Union v. Cummins, Inc.,
B. Evidence of Direct Infringement by Static Control's Customers as a Class
Lexmark argues on appeal that the evidence established as a matter of law that Static Control's customers as a class directly infringed Lexmark's patents. Lexmark seeks to overturn the jury's verdict to the contrary. To establish a claim for patent inducement under 35 U.S.C. § 271(b), Lexmark bore the burden of showing by a preponderance of the evidence that (1) Static Control's customers directly infringed Lexmark's patents; (2) Static Control took active steps that induced the customers' infringement; (3) Static Control intended the customers to take the infringing acts; and (4) Static Control knew or willfully disregarded the risk that those actions by its customers would constitute direct infringement. See Global-Tech Appliances, Inc. v. SEB S.A., ___ U.S. ___,
A plaintiff can establish the first element of inducement to infringe either by demonstrating "specific instances of direct infringement or a finding that the accused products necessarily infringe." Lucent Techs., Inc. v. Gateway, Inc.,
Direct patent infringement occurs under 35 U.S.C. § 271(a) when someone "(1) without authority (2) makes, uses, offers to sell, sells, or imports (3) the patented invention (4) within the United States, its territories, or its possessions (5) during the term of the patent." HERBERT F. SCHWARTZ & ROBERT J. GOLDMAN, PATENT LAW AND PRACTICE 163-64 (6th ed.2008); see also Global-Tech, 131 S.Ct. at 2065 n. 2 ("Direct infringement has long been understood to require no more than the unauthorized use of a patented invention."). Determining whether someone is making, using, or selling a patented invention "requires a finding that the patent claim covers the alleged infringer's product or process," Markman v. Westview Instruments, Inc.,
An accused device will necessarily infringe, permitting a finding of direct infringement by a class of customers and an inference that the inducer intended the infringement, if the "customers can only use the [defendant's] products in an infringing way." Symantec Corp. v. Computer Assocs. Int'l, Inc.,
Prior to the jury's verdict, the district court granted summary judgment to Lexmark on whether the three named remanufacturers — Wazana, NER, and Pendl — directly infringed Lexmark's nine valid mechanical patents. R. 1245 (D. Ct. Order 5/31/07) (holding direct infringement); R. 1008 (D. Ct. Order 4/24/07 at 48-49) (holding mechanical patents valid). Lexmark had therefore established the necessary predicate to inducement, but could recover only for those three remanufacturers' infringement unless Lexmark could demonstrate that all of Static Control's customers as a class necessarily infringed. The question of direct infringement by Static Control's customers as a class was submitted to the jury, which held that Lexmark had failed to meet its burden. R. 1366 (Special Verdict Form at 1). The district court denied Lexmark's renewed motion for a judgment as a matter of law and also Lexmark's motion for a new trial on this issue, finding that the evidence in support of Lexmark did not compel a different result. The district court upheld the jury's verdict because "[t]hough Lexmark presented evidence of infringement by Static Control's customers, that evidence was not so overwhelming that reasonable people could come to but one conclusion." R. 1430 (D. Ct. Order 10/03/08 at 9).
Lexmark argues that the district court erroneously conflated the direct-infringement inquiry, which Lexmark must establish, with the affirmative defense of patent exhaustion, which Static Control must establish. Lexmark offered as circumstantial evidence of infringement by the class the testimony of an expert establishing that the toner cartridges remanufactured by Wazana, NER, and Pendl all literally infringed the claims present in the nine mechanical patents. Although Lexmark offered no testimony regarding specific cartridges from other remanufacturers, Static Control has not argued or even suggested that the unidentified remanufacturers' cartridges did not literally infringe at least some of the more than one hundred patent claims that cover the original cartridges. Instead, Static Control argues that Lexmark confuses literal infringement
Part of the problem here is that the jury instructions never defined what it means for a party to "directly infringe" a patent. Lexmark maintains that when the jury was asked to decide whether Static Control's customers as a class "directly infringed," the question must have related solely to whether the remanufactured toner cartridges as a class literally infringed, because Static Control's sole arguments against direct infringement related to patent exhaustion, which was delineated as a separate question on the jury's special-verdict form. R. 1366 (Special Verdict Form at 1, 4). Lexmark is theoretically correct — exhaustion of a patentee's rights is a defense to direct infringement and is not the same as establishing a non-infringing use of a patented device, which would defeat a finding that Static Control's customers necessarily infringed the patents. However, this distinction was never clearly made to the jury.
Lexmark's claim fails upon closer examination of the jury's instructions. The jury instructions explicitly suggested that patent exhaustion would defeat a finding of "direct" infringement, as opposed to operating only as a defense following a showing of direct infringement:
R. 1365 (Jury Instructions at 18) (emphasis added). The district court then gave the same instruction with respect to the IBM cartridges. Although Lexmark is correct that exhaustion should be an affirmative defense,
Jurors are presumed to be "diligent in following the precise instructions given to them." United States v. Tosh,
C. Excluded Evidence Relating to Intent to Induce Infringement
Lexmark claims that it was entitled to a new trial on the issue of inducement of the three direct infringers because the district court erroneously excluded certain questions relating to opinion-of-counsel letters at trial, rendering the proceedings unfair. We review for abuse of discretion.
At trial, Lexmark was not allowed to ask Static Control's CEO explicitly whether Static Control had ever obtained a legal opinion regarding potential patent or antitrust violations. R. 1269 (Trial Tr. at 108-09). Static Control objected to the presentation of evidence relating to Static Control's failure to obtain advice of counsel, even though Static Control had made available to third parties advice of counsel on the issue of whether Prebate violated contract law.
Lexmark's argument on appeal relies heavily on Broadcom,
We need not decide whether a party's failure to obtain an opinion-of-counsel letter may ever constitute circumstantial evidence of the requisite intent to induce infringement. Even if we assume that this evidence was wrongly excluded, the best-case scenario for Lexmark — a negative answer to the forbidden question — would not have changed the jury's verdict on this issue.
Lexmark bore the burden of establishing by a preponderance of the evidence that Static Control had the requisite intent to induce infringement. The Supreme Court has recently clarified that this means that the alleged inducer must intend the customers to take the acts that ultimately constituted infringement and the inducer must know or willfully disregard the risk that those actions by its customers would constitute direct infringement. See Global-Tech, 131 S.Ct. at 2065. By way of analogy, the Supreme Court compared a used-car salesman who encouraged a customer to buy a car that later turned out to be damaged to a used-car salesman who encouraged a customer to buy a car knowing it was damaged; we fault the latter more than the former.
Lexmark correctly explains that "advertising infringing uses, instructing how to engage in infringing uses, demonstrating infringing uses, and recommending infringing uses is strong evidence of specific intent to cause the actions that constitute direct infringement." Second Appellee Br. at 31 (citing Grokster, 545 U.S. at 936, 125 S.Ct. 2764). But, given the jury instructions that delineated certain cartridges as non-infringing, Lexmark's evidence needed to show that Static Control advertised, instructed, or otherwise recommended the remanufacture of infringing cartridges, which at the time of trial were the Prebate cartridges and the cartridges first sold outside the United States. Lexmark's proof, however, is not compelling enough for us to find that the district court abused its discretion in upholding the jury verdict.
Lexmark argues that it presented specific evidence demonstrating that Static Control encouraged and instructed remanufacturers to remanufacture Prebate cartridges and cartridges first sold overseas, the two categories not deemed "non-infringing" at trial. But the testimony primarily indicated that Static Control encouraged and instructed its customers to remanufacture cartridges generally and such instructions did not distinguish between foreign or domestic-sold cartridges or Prebate cartridges. See, e.g., R. 1242 (Trial Tr. 5/30/07 at 37-38) (testimony
The excluded question during Static Control's CEO's testimony does not change this calculus. Lexmark inflates the significance of the exclusion. Static Control's CEO was asked if he "ever had an outside patent attorney ... give you advice on the issue of single-use patent licenses," to which the CEO responded in the negative. R. 1269 (Trial Tr. 6/4/07 at 94). He was then asked explicitly whether he sought out legal counsel relating to Prebate, and the CEO answered affirmatively that he "sought advice about prebate cartridges that had been either put into the landfill or were on the way to the landfill." Id. at 95. When asked if that was all he sought advice on, he unequivocally said "Yes." Id. It was only when counsel later asked specifically whether Static Control sought advice relating to patent or antitrust law that Static Control objected and the district court instructed the witness not to answer. Id. 108-09. And despite this exclusion in the CEO's testimony, Static Control's general counsel was asked about and specifically discussed concerns over patent-law issues, including whether or not Static Control's actions could constitute inducement to infringe. R. 1242 (Trial Tr. 5/30/07 at 249-50, 263-65, 272-73).
Lexmark bore the burden of establishing Static Control's knowledge or willful blindness to the underlying infringing acts. Based on the related evidence already on the record, we cannot conclude that the jury would have reached a different conclusion had the jury been told that Static Control failed to obtain an opinion-of-counsel letter specifically on issues of patent law. The exclusion of this potential evidence was harmless in light of the other elements that Lexmark failed to establish by a preponderance of the evidence. See Bridgeport Music, Inc. v. Justin Combs Publ'g,
D. Exhaustion of Prebate Cartridges
Lexmark also challenges the district court's post-trial ruling holding that Lexmark's
E. Design-Patent Invalidity
The district court held on summary judgment that two of Lexmark's design patents relating to the appearance of its toner cartridges — D399,249 and D458,300 — were invalid. R. 1008 (D. Ct. Order 4/24/07). Patent invalidity is a defense to a claim for patent infringement. 35 U.S.C. § 282. As a result of this ruling, the issue of whether any party directly infringed Lexmark's design patents or induced someone else to infringe was never decided. Lexmark appeals, and we affirm.
All patents are presumed valid, and the burden of overcoming this presumption rests on the party seeking invalidity. 35 U.S.C. § 282; Campbell v. Spectrum Automation Co.,
Design patents are issued to whoever "invents any new, original and ornamental design for an article of manufacture." 35 U.S.C. § 171; Schnadig, 494 F.2d at 387 ("To be patentable a design must be new, original, ornamental and nonobvious."). A design patent is not ornamental if the design serves only functional purposes. In other words, "[a] design patent cannot be obtained to protect a mechanical function or cover an article whose configuration affects its utility alone." Kwik-Site Corp. v. Clear View Mfg. Co.,
Lexmark claims that the district court improperly shifted the burden of proof onto Lexmark to show validity and improperly credited disputed issues of fact in Static Control's favor. Lexmark does not dispute the general proposition that to establish invalidity, the infringer must show "that consumers do not consider [the patented design] to be significant." Second Appellee Br. at 36 (quoting Int'l Seaway Trading Corp. v. Walgreens Corp.,
The district court applied the correct standard and evaluated the undisputed facts offered by Static Control establishing that the design of the cartridges was functional and not ornamental.
On appeal, Lexmark does not attempt to dispute any of these material facts, arguing instead that Static Control should have presented more evidence, such as consumer surveys, and suggesting that the presence of photographs of the product should be enough to create a dispute over whether appearance matters. Second Appellee Br. at 36-37. Although we make all inferences in favor of Lexmark on this issue, Static Control has demonstrated by undisputed clear and convincing evidence that
For the aforementioned reasons, we
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