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May 25, 2010

Silence Not Golden

Aspex and Clariti litigation counsel know each other well. Aspex first sued Clariti over eyeglass frames patents in 1999. They settled the next year. In March 2003, Aspex sent nastygrams to Clariti over some other patents. Clariti responded by letter. Over three years later, in August 2006, Aspex rattled its paper saber again. Correspondence turned into complaint. Aspex sued in March 2007. Clariti got the district court judge to dismiss the case in summary judgment on equitable estoppel, legalese for sitting on the litigation duff a wee too long.

Aspex Eyewear v. Clariti Eyewear (CAFC 2009-1147, -1162) precedential

In the context of patent infringement, the three elements of equitable estoppel that must be established are: (1) the patentee, through misleading conduct, led the al- leged infringer to reasonably believe that the patentee did not intend to enforce its patent against the infringer; (2) the alleged infringer relied on that conduct; and (3) due to its reliance, the alleged infringer would be materially prejudiced if the patentee were permitted to proceed with its charge of infringement. Aukerman, 960 F.2d at 1028. Misleading "conduct" may include specific statements, action, inaction, or silence when there was an obligation to speak. Id. In deciding whether to bar the suit on estoppel grounds, the court must consider all evidence relevant to the equities. Id. at 1043.

Aspex argues that misleading silence cannot be found unless an express charge of infringement was levied against a particular product. Aspex states that no particular product was identified by either Aspex or Clariti during the 2003 correspondence and that Aspex did not threaten an immediate suit for infringement, whereby its failure to sue could not produce an estoppel. In support Aspex cites Meyers v. Asics Corp., 974 F.2d 1304 (Fed. Cir. 1992). However, this case does not support the position taken by Aspex. In Meyers the court explained that intentionally misleading silence arises when a patentee "threatened immediate or vigorous enforcement of its patent rights but then did nothing for an unreasonably long time." Id. (quoting Meyers v. Brooks Shoe, Inc., 912 F.2d 1459, 1464 (Fed. Cir. 1990)). Meyers did not hold that failure to identify specific products is a critical condition, when the accused infringer is sufficiently apprised of the products of the patentee's concern.

The CAFC retains discretionary wiggle room while waving off Aspex's punctilious parsing of case law.

Aspex also seeks to distinguish Scholle Corp. v. Blackhawk Molding Co., 133 F.3d 1469 (Fed. Cir. 1998), and Wafer Shave, Inc. v. Gillette Co., 857 F. Supp. 112 (D. Mass. 1993), aff'd, 26 F.3d 140 (Fed. Cir. 1994).

Although Aspex notes factual differences among Wafer Shave, Scholle Corp., and the instant case, equitable relief is not a matter of precise formula. Aspex's letters to Clariti of March 7 and 10, 2003 can fairly be understood as threats of suit for infringement, for Aspex stated its "understanding that some of the products sold by you may be covered by the claims of the above mentioned patents," and Aspex's "strong intention to fully and vigorously enforce our rights" in this "very urgent and serious matter." The ensuing silence is analogous to the silence in Scholle Corp. and in Wafer Shave.

Aspex points out that silence alone does not generate an estoppel, and that Clariti "must show that, in fact, it substantially relied on the misleading conduct of the patentee in connection with taking some action." Aukerman, 960 F.2d at 1042. It is correct that estoppel requires reliance. Clariti's position is that it expanded its AirMagĀ® products in the belief that the '747 patent would not be enforced.

Clariti's development of its AirMagĀ® business, in reliance on Aspex's silence after its aggressive letters, represents a significant change in economic position and constitutes material preju-dice sufficient to support equitable estoppel. Clariti need not show a total loss of value in order to show material prejudice. Prejudice may be shown by a change of economic position flowing from actions taken or not taken by the patentee. See ABB Robotics, Inc. v. GMFanuc Robotics Corp., 52 F.3d 1062, 1065 (Fed. Cir. 1995) ("[C]ases in which economic prejudice has been found lacking did not so hold because of a lack of capital investments, but, rather, because the alleged infringer failed to prove that their in-creased expenditures, i.e., on marketing and development, were in any way related to actions taken by the patentee.").

Affirmed.

Judge Rader dissented, against Judges Newman and Bryson. Silence was not so damning to Rader.

"Silence alone will not create an estoppel unless there was a clear duty to speak or somehow the patentee's continued silence reinforces the defendant's inference from the plaintiff's known acquiescence that the defendant will be unmolested. . . . [O]n summary judgment, such inference must be the only possible inference from the evidence." A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1043-44 (Fed. Cir. 1992) (en banc) (internal citations omitted) (emphasis in original). In Aukerman, this court held that because the district court could draw different inferences from the correspondence between the parties, the district court clearly and impermissibly drew an unfavorable inference against the patentee in granting summary judgment. Id.; see also Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1295 (Fed. Cir. 1992) (holding that "mere silence must be accompanied by some other factor which indicates that the silence was sufficiently misleading as to amount to bad faith" (emphasis in original)). The patentee's silence "must be combined with other facts re-specting the relationship or contacts between the parties to give rise to the necessary inference that the claim against the defendant is abandoned." Aukerman, 960 F.2d at 1042. This court held that even an invitation to sue made by the defendant did not create a clear duty to speak for the patentee. See id. at 1026-27.

In this case, Aspex sent Clariti a letter that does not create the clear duty required by Aukerman. Notably absent is a threat of "immediate and vigorous enforcement of its patent rights." Hottel Corp. v. Seaman Corp., 833 F.2d 1570, 1574 (Fed. Cir. 1987) (holding that "[i]n the cases that have applied intentionally misleading silence in the patent infringement context, a patentee threatened immediate and vigorous enforcement of its patent right but then did nothing for an unreasonably long time").

Licensing negotiations in which a patentee asserts infringement do not create estoppel. See, e.g., Meyers, 974 F.2d at 1308-09 (holding that "a suggestion of infringement coupled with an offer to license followed by silence [does not] suffice to establish equitable estoppel").

Funny how different folks read the same case differently. Especially when the folks are different judges on the same bench.

This court mistakenly relies on Scholle Corp. v. Black-hawk Molding Co., 133 F.3d 1469 (Fed. Cir. 1998) and Wafer Shave, Inc. v. The Gillette Co., 857 F. Supp. 112 (D. Mass. 1993), aff'd, 26 F.3d 140 (Fed. Cir. 1994) to establish misleading conduct. In Scholle, the accused infringer made a design-around product during litigation in an effort to avoid future infringement. 133 F.3d at 1470. The defendant presented samples of the design-around product to the patentee and informed the patentee that it would consider the design-around product non-infringing unless the patentee advised it otherwise. The patentee gave no response to the defendant's inquiry. Id. Following the defendant's inquiry, the parties had numerous discussions regarding the patent and even a possible merger. Id. at 1471. The patentee knew of the defendant's position in the market and the rapidly growing sales of the design-around product. Id. In those years of discussions, the patentee never suggested that it might consider the design-around product to infringe its patent. Id. Years later, the patentee sued the defendant for infringement by the design-around product. Id. at 1471-72. In Scholle, this court found that the discussions that the parties had over the years was "cooperative behavior [that], in light of [the patentee's] previous threats to sue, created a reasonable inference that [the patentee] considered the [product] a non-infringing design-around product and did not intend to sue." Id. at 1472. In other words, the "course of dealing" and "extensive contact" between the parties coupled with the patentee's inaction created the estoppel. Id. at 1472, 1473.

Judge Rader goes on to give the majority opinion a thorough trashing.

In this judgment call, I'd go with the majority. The circumstances of this case are such that a competitor's business plans should not be held hostage by a patent owner that threatens but does not pull the trigger.

Posted by Patent Hawk at May 25, 2010 9:04 PM | Case Law

Comments

PH,

Newman has the edge on this case over Rader, although the "reliance" issue is closer than it might appear. In addition, Aspex can only blame itself for setting up this estoppel "time bomb" which went off during the suit. As I've previsouly said, the patentee who hesitates in situations like these will be "lost" (aka estopped or at least facing laches).

Posted by: EG at May 26, 2010 12:07 PM