On January 25 2013, the United States Court of Appeals for the Federal Circuit (CAFC) issued its opinion in the case of Hall v. Bed Bath & Beyond, which was authored by Judge Newman who was joined by Judge Linn; Judge Lourie filed an opinion dissenting in part. The appeal arose from the United States District Court for the Southern District of New York. The CAFC ultimately reversed the district court’s dismissal of the plaintiff’s complaint counts for patent infringement, Lanham Act unfair competition, and New York unfair competition and misappropriation.
The patent in question — U.S. Design Patent No. D596,439 (the ’439 patent) — covers a Tote Towel which is essentially a large towel that has padding around the edges, and “zippered pockets at both ends, and an angled cloth loop in the middle.” Mr. Roger Hall (“Mr. Hall”) filed the patent application on November 17, 2008.
Mr. Hall contacted Bed Bath & Beyond (BB&B) in hopes of having them resell his Tote Towel in its stores nationwide. At the time of the meeting with BB&B, the patent application was pending and packaging on Mr. Hall’s Tote Towel reflected so. Instead of entering into a contractual relationship to resell the Tote Towel, BB&B which still had a prototype of Mr. Hall’s Tote Towel, decided to mass produce its own version manufactured in Pakistan.
On July 21, 2009 Mr. Hall’s patent application successfully issued and he sued BB&B for patent infringement, unfair competition under the Lanham Act, and for misappropriation under New York statutory and common law. BB&B raised various legal defenses and subsequent counterclaims. All parties appealed after the district court dismissed all of the claims and counterclaims on the pleadings.
Design patent infringement:
BB&B initially moved to dismiss Hall’s complaint in accordance with Federal Rule of Civil Procedure 12(b)(6) – failure to state a claim on which relief can be granted. The district court granted the dismissal of the complaint. In part, the district court stated that Hall’s complaint failed to contain “any allegations to show what aspects of the Tote Towel merit design patent protection, or how each Defendant has infringed the protected patent claim.” Order at 15-16. The CAFC cited Phonometrics, Inc. v. Hospitality Franchise Systems, Inc. as precedent for the requirements of patent infringement pleading. The five elements include (i) to allege ownership of the patent, (ii) name each defendant, (iii) cite the patent that is allegedly infringed, (iv) state the means by which the defendant allegedly infringes, and (v) point to the sections of the patent law invoked. The CAFC stated that Mr. Hall had presented a lengthy complaint outlining the merits of his case and, therefore, had satisfied the standards set forth in Phonometrics.
Originally the district court stated that complaint should contain answers to questions such as: “What is it about the Plaintiff’s towel that he [Mr. Hall] claims in ‘new, original and ornamental’ meriting the protection of a design patent?” Order at 16. The CAFC found that the district court erred in requiring this from Mr. Hall because subsequent precedent had overturned the “point of novelty” requirement. What makes the dismissal of the complaint a bit puzzling is that the district court dismissed it sua sponte. That is, the district court on its own accord dismissed the complaint without being prompted. This type of tactic is typically reserved for cases in which the complaint is extremely vague, confusing or so unintelligent that it is improbable to discern any true substance. Ultimately the CAFC reversed the ruling found by the district court on the grounds that Mr. Hall met the pleading requirements.
Lanham Act count for unfair competition:
Subsequently, the CAFC moved its attention to the Lanham Act count for unfair competition. As was with the patent infringement claim, the main point of contention was whether Mr. Hall plead with sufficient particularity his case with regards to unfair competition. The district court initially held that Mr. Hall’s “likely to cause confusion” allegation was not sufficient because the amended complaint did not allege the existence of a trademark. Mr. Hall contended that his charge of false advertising and consumer confusion was due to BB&B’s advertising, of identical appearance and similar packaging enough to cause consumer confusion. Ultimately the CAFC determined that Mr. Hall met the necessary pleading requirements and reversed the district court’s initial ruling.
New York Law:
In his initial complaint, Mr. Hall also sued BB&B under New York General Business Law and for misappropriation under New York common law. Both charges had initially been dismissed by the district court. Mr. Hall alleged that BB&B violated New York General Business Law by misappropriating his Tote Towel design in addition to profiting from it. The CAFC laid out that Mr. Hall must prove: (i) that the challenged act or practice was consumer oriented, (ii) that it was misleading in a material way, (iii) that the plaintiff suffered injury as a result from the deceptive act. The CAFC pointed out that although the Lanham Act count for unfair competition required consumer confusion, New York state law of unfair competition does not. While the district court initially held that Mr. Hall had not shown that he was indeed injured by a deceptive act, the CAFC reversed by stating Mr. Hall sufficiently showed injury to his business by pointing out various instances for which consumers had indeed mistaken Mr. Hall’s Tote Towel with that of BB&B.
Moreover, BB&B argued that even if Mr. Hall had sufficiently and adequately met his pleading requirements for his New York cause of action, the action should in fact be preempted by federal patent law. The CAFC disagreed stating that “the principles of patent law preemption do not override potential causes of action based on unfair commercial practices.”
Counterclaims and Attorneys Fees:
Lastly, the CAFC affirmed the decisions made by the district court regarding counterclaims and attorney fees. Judge Lourie dissented in part from the majority stating that the district court invited Mr. Hall to replead with greater particularity and that Mr. Hall declined to do so. The case is currently remanded for further proceedings. Judge Newman wrote the majority opinion.