Munchkin, Inc. v. Luv N' Care, Ltd.

• Citation: 960 F.3d 1373
• Decision Date: 08 June 2020
• Docket Number: 2019-1454
• Parties: MUNCHKIN, INC., a Delaware Corporation, Plaintiff-Appellant v. LUV N' CARE, LTD., a Louisiana Corporation, Admar International, Inc., a Delaware Corporation, Defendants-Appellees
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

960 F.3d 1373

MUNCHKIN, INC., a Delaware Corporation, Plaintiff-Appellant

v.LUV N' CARE, LTD., a Louisiana Corporation, Admar International, Inc., a Delaware Corporation, Defendants-Appellees

2019-1454

United States Court of Appeals, Federal Circuit.

Decided: June 8, 2020

Travis W. McCallon, Lathrop GPM LLP, Kansas City, MO, argued for plaintiff-appellant. Also represented by Luke Meriwether.

Edward David Manzo, Husch Blackwell LLP, Chicago, IL, argued for defendants-appellees. Also represented by Philip Dale Segrest, Jr.; Hartwell Powell Morse, III, Luv n' Care, Ltd., Monroe, LA.

Before Dyk, Taranto, and Chen, Circuit Judges.

Chen, Circuit Judge.

Munchkin, Inc. filed a lawsuit in the United States District Court for the Central District of California against Luv n’ Care, Ltd. and Admar International, Inc. (collectively, LNC) for trademark infringement and unfair competition claims based on LNC's spillproof drinking containers. A year later, the district court granted Munchkin leave to amend the complaint to include new trademark infringement claims, trade dress infringement claims, and patent infringement claims based on U.S. Patent No. 8,739,993 (the ’993 patent) which is directed to a spillproof drinking container. While the litigation was ongoing, Munchkin voluntarily dismissed all of its non-patent claims with prejudice and then its ’993 patent was held unpatentable through an inter partes review (IPR) initiated by LNC at the Patent Trial and Appeal Board (the Patent Board). After we summarily affirmed the Patent Board's decision, Munchkin, Inc. v. Luv n’ Care, Ltd. , 702 F. App'x 982 (Fed. Cir. 2017), Munchkin also dismissed its patent infringement claims.

The district court subsequently granted LNC's motion for attorney's fees under 35 U.S.C. § 285 and 15 U.S.C. § 1117(a), finding the case to be "exceptional" based on LNC's arguments in its fee motion that the trademark and trade dress infringement claims were substantively weak, and that Munchkin should have been aware of the substantive weakness of its patent's validity.

Munchkin appeals, contending that the district court's determination that this was an "exceptional" case lacks a proper foundation because LNC's fee motion insufficiently presented the required facts and analysis needed to establish that Munchkin's patent, trademark, and trade dress infringement claims were so substantively meritless to render the case exceptional. We agree with Munchkin. None of these issues was fully adjudicated before the court on the merits, and given the limited arguments LNC made in support of its fee motion, we hold that the district court abused its discretion in granting the motion and we reverse the exceptional-case determination.

BACKGROUND

Munchkin's lawsuit against LNC, filed on September 16, 2013, initially contained only trademark and unfair competition claims based on a version of Munchkin's CLICK LOCK logo for spillproof cups, which is a registered trademark. Munchkin's claims were directed against LNC's CLIK IT! brand spillproof cups. The district court referred to Munchkin's trademark as the "original logo."

Munchkin later filed a motion to amend the complaint, seeking to replace the original CLICK LOCK logo as the basis for its trademark and unfair competition claims with a different version of the CLICK LOCK logo (the current logo). The current and original CLICK LOCK logos are very similar in appearance, both prominently featuring the words "CLICK LOCK," "LEAK-PROOF TECHNOLOGY," AND "100% GUARANTEE." Compared to the original CLICK LOCK logo, the current CLICK LOCK logo repositioned the words "100% GUARANTEE" from the top of the logo to the middle of the logo. In its motion to amend, Munchkin indicated that it had recently applied to register the current CLICK LOCK logo with the Patent and Trademark Office (USPTO). The amended complaint also added trade dress infringement claims, alleging that the overall appearance of Munchkin's spillproof drinking cup was a protectable trade dress. In addition, Munchkin sought to add a count of patent infringement, claiming that LNC's spillproof cups infringed Munchkin's ’993 patent.

To justify its proposed addition of patent and trade dress claims to the case, Munchkin explained that the ’993 patent had recently issued and that Munchkin had recently become aware of its potential trade dress rights for the configuration of its spillproof drinking cup. For the new trademark claims, Munchkin alleged that it had made a series of minor design changes in its branding, leading to focusing on the slightly altered mark in its current CLICK LOCK logo. These minor design changes led Munchkin to file an application to register the current CLICK LOCK logo on May 7, 2014. LNC opposed Munchkin's motion, pointing out that Munchkin had provided the current CLICK LOCK logo in an exhibit attached to the initial complaint, and that Munchkin knew or should have known about any claims pertaining to that mark when it filed its original complaint. J.A. 605–06. Despite these arguments, the district court granted Munchkin's motion to amend the complaint, finding no bad faith, undue prejudice to LNC, or any proof of futility as to the new claims. Order Granting Plaintiffs’ Motion for Leave to File First Amended Complaint, Munchkin, Inc. v. Luv n’ Care, Ltd. , No. 2:13-cv-06787-JEM, at 2–3 (C.D. Cal. Oct. 1, 2014), ECF No. 45.

As the case progressed, LNC sought a claim construction that would support its invalidity contentions based on two prior art references that both disclose a mechanism for locking a cap to a bottle, U.S. Patent No. 3,101,856 (Whiteman) and U.S. Patent No. 4,230,232 (Atkins). But, in its Markman order, the district court disagreed with LNC's preferred construction and instead adopted Munchkin's narrower, proposed construction for the claim term "a platform is disposed on the shoulder" to mean "[a] structural feature distinct from the shoulder and the container body and disposed on the shoulder to change the contour of the shoulder." Claim Construction Order, Munchkin, Inc. v. Luv n’ Care, Ltd. , No. 2:13-cv-06787-JEM, at 14 (C.D. Cal. Aug. 27, 2015), ECF No. 101 (Claim Construction Order).

Subsequently, LNC filed an IPR petition at the Patent Board challenging the ’993 patent, which the Patent Board instituted. Before the Patent Board instituted the IPR, Munchkin dropped all of its non-patent claims in the district court litigation, claiming it wanted to streamline the litigation to focus just on its patent infringement claim. Order Granting Defendants’ Motion for Attorney's Fees, Munchkin, Inc. v. Luv n’ Care, Ltd. , No. 2:13-cv-06787-JEM, at 2, 7–8 (C.D. Cal. May 2, 2018) (Munchkin ).

During the IPR, in contrast to the district court, the Patent Board adopted LNC's broader claim construction, under the broadest reasonable interpretation standard, and subsequently found the ’993 patent ’s claims unpatentable in a final decision. Munchkin appealed, and we summarily affirmed. Munchkin, Inc. , 702 F. App'x 982. After our affirmance of the Patent Board's unpatentability decision, Munchkin dropped the patent claim in the district court.

LNC then filed a motion for attorney's fees under 35 U.S.C. § 285 (for the patent infringement claim) and 15 U.S.C. § 1117(a) (for the trademark and trade dress claims). The district court granted the fee motion, determining that Munchkin's claim for trademark infringement of the current CLICK LOCK logo, trade dress infringement claims, and patent infringement claim were all so substantively weak as to render the case "exceptional." Included in that fee award were LNC's attorney's fees for litigating the IPR at the Patent Board that held the ’993 patent unpatentable and its associated appeal.

In its review of Munchkin's trademark claim, the district court criticized Munchkin for switching the basis for its trademark infringement claim from the original CLICK LOCK logo to the current CLICK LOCK logo, when both logos had been identified in the initial complaint and Munchkin still continued to use both CLICK LOCK logos in commerce. Munchkin at 7. Even though the district court had previously allowed Munchkin to amend its complaint to replace the original CLICK LOCK logo with the current CLICK LOCK logo, the district court, in its fee order, nonetheless regarded this sequence of events as confusing and making "clear the substantive weakness of Munchkin's trademark related claims based on the current logo." Id.

For the trade dress claims, the district court credited LNC's assertion that, prior to the market introduction of Munchkin's cup products with the alleged trade dress configuration, there were many other cups that already exhibited the same features, but the district court opinion did not discuss or identify any specific cups or features. Id. The opinion simply stated that "LNC asserts it was able to produce prior art cup samples and catalogs evidencing that many of the alleged features of Munchkin's trade dress represented design characteristics in common use well before" Munchkin's products were introduced. Id. In the district court's view, LNC's assertion, along with Munchkin's decision to dismiss the claims with prejudice, sufficiently demonstrated the substantive weakness of Munchkin's trade dress claims. Id. at 7–8.

As to the patent infringement claim, the district court concluded that Munchkin should have realized its patent infringement claim was substantively weak after receiving LNC's invalidity contentions and LNC's IPR petition, both of which relied on the same Whiteman and Atkins prior art references. Id. at 8–9. The district court, however, did not analyze the relative merit of Munchkin's validity theory, nor did it acknowledge that LNC's invalidity positions in both documents were premised on a claim construction that the district court had rejected in its Markman order. LNC also alleged that Munchkin, during prosecution of the ’993 patent, withheld from the USPTO information...