Nationwide Sales & Servs. Inc. v. Steel City Vacuum Co.
| Decision Date | 16 March 2021 |
| Docket Number | 16-cv-06223 (DRH) (ST) |
| Parties | NATIONWIDE SALES AND SERVICES INC. and IMIG, INC., Plaintiffs, v. STEEL CITY VACUUM COMPANY, d/b/a Steel City Vacuum Company Inc., Defendant. |
| Court | U.S. District Court — Eastern District of New York |
REPORT AND RECOMMENDATION
Plaintiffs Nationwide Sales and Services Inc. and IMIG, Inc. (together, "Nationwide") commenced this action against Steel City Vacuum Company ("Steel City") on November 9, 2016. Steel City later asserted counterclaims, including two for patent misuse, against Nationwide. On May 30, 2018, this Court issued an Order granting summary judgment in favor of Steel City as to all of Nationwide's claims. Now before the Court is Nationwide's Motion for Judgment on the Pleadings as to Steel City's counterclaims for patent misuse. The Honorable Denis R. Hurley referred the Motion to the undersigned to issue a Report and Recommendation.
For the reasons set forth below, I respectfully recommend that Nationwide's Motion for Judgment on the Pleadings be GRANTED.
This Court assumes familiarity with the underlying facts of the case. To summarize in relevant part, Nationwide commenced this action on November 9, 2016. See generally Compl., Dkt. No. 1. In its Second Amended Complaint, Nationwide alleged, among other things, that Steel City infringed United States Patent Nos. 7,159,270 and 7,168,127 (together, the "Patents") by importing certain vacuum cleaner components into the United States and selling, or causing to be sold, and offering for sale those components. Second Am. Compl. ¶¶ 30-43, Dkt. No. 19. Nationwide Sales and Services Inc. owns both the Patents. Id. ¶¶ 31, 38. Steel City filed its Counterclaims on March 15, 2017, in which it alleged four counts against Nationwide. See generally Counterclaims, Dkt. No. 22. Counts I and II sought declaratory judgment of noninfringement of the Patents and Counts III and IV sought unenforceability of the Patents due to patent misuse. Id. ¶¶ 8-31. Separately from Counts I-IV, the Counterclaims document asserted that this matter is an exceptional case and Steel City is entitled to an award of attorneys' fees incurred in connection with this action, per 35 U.S.C. § 285. Id. ¶ 32.
At the summary judgment phase of this litigation, this Court granted Steel City's Motion for Summary Judgment in all respects. See generally Order Granting Mot. Summ. J., Dkt. No. 51. The Court entered final judgment in favor of Steel City on all of Nationwide's claims and the parties stipulated to the dismissal of Steel City's counterclaims for declaratory judgment of noninfringement. Stipulation, Order and Certification Pursuant to Fed. R. Civ. P. 54(b), Dkt. No. 62. Nationwide appealed this Court's summary judgment Order to the Federal Circuit, which affirmed. See Nationwide Sales and Servs. Inc. v. Steel City Vacuum Co., 771 F. App'x 490 (Fed. Cir. 2019) (per curiam).
In the instant Motion for Judgment on the Pleadings, Nationwide seeks dismissal of Steel City's two counterclaims for unenforceability due to patent misuse. See generally Notice Mot. J. Pleadings, Dkt. No. 71. The Motion has been fully briefed. See generally Mem. Supp. Mot. J. Pleadings ("Mot."), Dkt. No. 71-1; Mem. Opp'n Mot. J. Pleadings ("Opp."), Dkt. No. 71-2; Reply Supp. Mot. J. Pleadings ("Reply"), Dkt. No. 71-3. Discovery has largely been stayed pending the resolution of this Motion. See Min. Entry Pre-Mot. Conference, Dkt. No. 69.
A party may move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). "The same standard applicable to Fed. R. Civ. P. 12(b)(6) motions to dismiss applies to Fed. R. Civ. P. 12(c) motions for judgment on the pleadings." Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 922 (2d Cir. 2010). Accordingly, to "survive a Rule 12(c) motion, the [counterclaims] 'must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Id. (quoting Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 2010)). As with motions to dismiss, the "district court must accept all allegations in the [counterclaims] as true and draw all inferences in the non-moving party's favor." Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001).
In its Motion, Nationwide offers three arguments as to why Steel City's misuse counterclaims fail as a matter of law and should be dismissed with prejudice: first, patent misuse cannot be alleged as an affirmative claim for damages, Mot. at 2-3; second, Nationwide's commencement of this action cannot constitute patent misuse, Id. at 3-4; third, Steel City's claims are moot because any alleged misuse has been purged, Id. at 4-5. I will assess each of Nationwide's arguments in turn. I will then address Steel City's arguments concerning its anticipated request for an exceptional case award.
Nationwide first argues that patent misuse "is merely a defense and does not create an affirmative claim for damages." Mot. at 2-3. Steel City claims it "is not seeking damages for its misuse claims." Opp. at 6.
The Federal Circuit has identified patent misuse as "an extension of the equitable doctrine of unclean hands, whereby a court of equity will not lend its support to enforcement of a patent that has been misused." B. Braun Med. v. Abbott Lab'ys, 124 F.3d 1419, 1427 (Fed. Cir. 1997). The existence of misuse hinges on whether the patentee has "impermissibly broadened the 'physical or temporal scope' of the patent grant with anticompetitive effect." Id. (quoting Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001-02 (Fed. Cir. 1986)); see also C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998) (). When the patent misuse doctrine is B. Braun Med., 124 F.3d at 1427. Similarly, "the defense of patent misuse may not be converted to an affirmative claim for damages simply by restyling it as a declaratory judgment counterclaim." Id. at 1428. It may, however, be asserted as a counterclaim "to the extent that an accused infringer is seeking declaratory judgment." Max Impact, L.L.C. v. Sherwood Grp., 09 Civ. 902 (LMM), 2011 WL 507600, at *5 (S.D.N.Y. Feb. 14, 2011).
As mentioned, Steel City now confirms that it is not seeking damages.1 Accordingly, it would be inappropriate to dismiss Steel City's misuse counterclaims on the grounds that they are brought in pursuit of a damages remedy they cannot provide. There does however remain the issue of whether Steel City's misuse allegations state any plausible claim for relief, which I will discuss in relation to Nationwide's third argument.
Next, Nationwide asserts that "filing a lawsuit for patent infringement cannot be patent misuse." Mot. at 4. Steel City contends that Nationwide's infringement claims were outside the scope of its patent rights. See Opp. at 2-5.
As Nationwide indicates, 35 U.S.C. § 271(d)(3) provides, "[n]o patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having . . . sought to enforce his patent rights against infringement or contributory infringement." See Mot. at 4. Relatedly, "[i]t is not patent misuse to bring suit to enforce patent rights not fraudulently obtained." C.R. Bard, 157 F.3d at 1373. Nonetheless, as mentioned above, the "key inquiry" under the patent misuse doctrine is whether a patentee has impermissibly broadened the scope of its patent grant. B. Braun Med., 124 F.3d at 1426. The Supreme Court has stated that a patentee Impression Prods., Inc. v. Lexmark Int'l, Inc., 137 S. Ct. 1523, 1531 (2017) (internal quotation marks, citations, emphasis omitted).
Here, the Counterclaims aver Steel City "does not infringe the [Patents] through the sale of products purchased from Nationwide" and that Nationwide "knew or should have known" Steel City did not infringe. Counterclaims ¶¶ 21-22, 27-28. This Court has already noted that "Steel City presented undisputed evidence . . . that the subject products were directly sold by [Nationwide] to Steel City prior to this litigation." Order Granting Mot. Summ. J. at 9. Even if this was not the case, I am required to accept Steel City's factual allegations as true for the purposes of this Motion. Patel, 259 F.3d at 126. In substance, Steel City's Counterclaimscontend that, in bringing its infringement suit, Nationwide broadened the scope of its patent grants to encompass products to which its patent rights have already been extinguished through sale. This is different than alleging Nationwide committed misuse by enforcing its patent rights. As Steel City identifies in its Opposition, courts have permitted misuse allegations to proceed against plaintiffs whose patent infringement suits were claimed to have exceeded the scopes of their patent rights. See Opp. at 4-5; Bayer CropScience AG v. Dow AgroSciences LLC, Civil No. 10-1045 RMB/JS, 2011 WL 6934557, at *4 (D. Del. Dec.30, 2011) (); Marchon Eyewear, Inc. v. Tura LP, 98 CV 1932 (SJ), 2002 WL 31253199, at *9 (E.D.N.Y. Sept. 30, 2002) (...
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