Under the AIA, a False Marking Action Can Be Brought by a Potential Competitor who Suffers a Competitive Injury

Bernadette McGann | May 20, 2015

Sukumar v. Nautilus, Inc.

May 4, 2015

Before: Prost, Newman and Reyna.  Opinion by Prost.

Summary

The CAFC herein affirms the District Court grant of Nautilus’ motion for summary judgment to dismiss Sukumar’s false marking suit.  The District Court held that Sukumar had not suffered a competitive injury and thus, lacked standing to enforce 35 U.S.C. 292.  The CAFC herein determines who has standing to bring a false marking action.

Details

Sukumar recognized a need for rehabilitation equipment that was specifically designed for the needs of frail seniors undergoing rehabilitation.  Sukumar planned to open a rehabilitation center for seniors, and, in 1998 and 1999, ordered machines from Nautilus that were modified for the specific needs of elderly users.  Sukumar was dissatisfied with the machines and sued for breach of contract.  This was the beginning of several legal actions between Sukumar and Nautilus.

By 2004, Sukumar founded the Southern California Stroke Rehabilitation Associates (SCRA).  On October 21, 2010, Sukumar and SCSRA filed suit against Nautilus.  As of October 21, 2010, SCRA did not have a business plan, employees, office space nor prototype designs.

In February 2012, Sukumar moved for partial summary judgment on the issue of whether the Nautilus machines were falsely marked.  The District Court granted summary judgment in favor of Sukumar, holding that 8 of 24 patents marked on 6 machines did not cover said machines and that 8 of 16 patents marked on 3 machines did not cover said machines.  The CAFC notes that after this decision, Sukumar became substantially more active.  Sukumar hires an individual to create a business plan for selling fitness equipment, hires a design firm to create initial renderings of a fitness machine and consults with engineers in the industry.  By August of 2013, Sukumar was in the process of acquiring land for offices and a manufacturing facility.

On September 16, 2011, the America Invents Act (AIA) was signed into law.  The AIA eliminated qui tam false marking suits and added a “competitive injury” standing requirement.  35 U.S.C. 292(a) prohibits “mark[ing] upon . . . in connection with any unpatented article, the word ‘patent’ or any word or number importing that the same is patented, for the purpose of deceiving the public.”  35 U.S.C. 292(b) provides the private right of action to enforce 292(a) to any “person who has suffered a competitive injury as a result of a violation of this section.”  (emphasis added)  In Rogers v. Tristar Prods., Inc., the CAFC held that amendments to 35 U.S.C. 292 would be applied retroactively to a suit that was pending at the time the AIA was enacted.  Rogers v. Tristar Prods., Inc., 559 F. App’x 1042, 1044 (Fed. Cir. 2012).

A second round of summary judgment motions were allowed and on December 6, 2013, the District Court granted Nautilus’ motion for summary judgment on all claims and denied Sukumar’s motion.  Sukumar appeals.

Before the CAFC is the issue of “whether (or to what extent) an entity that has not entered the relevant market can suffer ‘competitive injury’.”  Id. at 5.  The CAFC holds that “a potential competitor may suffer competitive injury if it has attempted to enter the market.  An attempt is made up of two components: (1) intent to enter the market with a reasonable possibility of success, and (2) an action to enter the market.”  Id. at 6.  The CAFC holds that “§292(b) extends standing to sue for violations of §292(a) to some potential competitors” but “§292 limits standing to entities that have ‘suffered a competitive injury as a result of a violation of [section 292(a)].   A potential competitor can only suffer a competitive injury if it engages in competition.” Id. at 9.

[a]n injury is only a ‘competitive injury’ if it results from competition, and a potential competitor is engaged in competition if it has attempted to enter the market, which includes intent to enter the market and action to enter the market.  And, for the sake of completeness, an entity has standing under §292(b) if it can demonstrate competitive injury that was caused by the alleged false marking.

Id. at 10.

Thus, the CAFC agrees with Sukumar that a potential competitor may have standing to bring a false marking action, but in view of the evidence of record, ultimately agrees with the District Court that Sukumar fails to meet the standing requirements.

(1) Intent to Enter Market

Sukumar argued that the intent to compete with Nautilus started in the mid- to late 1990s.  Nautilus argues that Sukumar never intended to sell fitness machines in competition with Nautilus, but merely to operate a senior rehabilitation center using modified Nautilus machines, and thus, Sukumar is actually a customer of Nautilus.

CAFC holds that the District Court correctly ruled in favor of Nautilus.  The evidence shows that in 1998 and 1999, Sukumar purchased modified equipment from Nautilus, but then took no further actions that would indicate an intent to mass produce equipment.  In the 2000’s, during a settlement negotiation, wherein Sukumar attempted to negotiate a license to Nautilus patents, it was explained that Sukumar and SCSRA “were ‘interested in developing and operating a series of rehabilitation centers that would provide physical therapy and other rehabilitation services to stroke victims and patients suffering from stroke-like symptoms.”  Id. at 11.  Further, the latter activity by Sukumar, commission the development of a business plan, design of prototype and engage in discussions to purchase land for a manufacturing facility, was of minimal probative value, since said activities occurred after suit was filed and failed to establish that the false marking deterred entry into the market.  “Sukumar’s logic makes little sense….now that a court has confirmed that some of the patent labels on some of Nautilus’ machines were inappropriate, Sukumar is no longer deterred, even though the vast majority of Nautilus’ machines…have not been adjudicated as falsely marked.”  Id. at 12.

(2) Action to Enter Market

On summary judgment, viewing the evidence of intent to enter the market in favor of Sukumar (the non-movant party), who argued there was a subjective intent to enter the market, the District Court held that Sukumar took insufficient action to pursue said subjective intent to enter the market.  The CAFC affirmed.  “Sukumar did not attempt to compete with Nautilus, so Sukumar did not suffer a competitive injury.”  Id.at 13.  The CAFC holds that the District Court correctly held that at the time of filing the suit, Sukumar had not taken sufficient action to enter the market for fitness equipment.

The CAFC affirms the District Court holding that Sukumar was not engaged in competition with Nautilus and did not suffer a competitive injury.  The District Court properly granted summary judgment for Nautilus since Sukumar lacks standing to bring a claim for false marking under §292.  Id. at 14.

Take Away

In order to having standing under §292(b), a party must satisfy the competitive injury requirement and the causation requirement.

For a potential competitor, the intent and action prongs of the competitive injury requirements are satisfied prior to filing suit.

AIA was intended to weed out marking trolls.  It’s new provisions for false marking and retroactivity apparently impacted more than just marking trolls, as in this case.  Even if standing exists here, there are new obstacles under AIA for causation and damages that must be tied to the competitive injury.

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