Park B. Smith, Inc. v. CHF Indus. Inc.

• Decision Date: 12 July 2011
• Docket Number: No. 06 Civ. 869(LMM).,06 Civ. 869(LMM).
• Parties: PARK B. SMITH, INC., Plaintiff, v. CHF INDUSTRIES INC., Defendant.
• Court: U.S. District Court — Southern District of New York

811 F.Supp.2d 766

PARK B. SMITH, INC., Plaintiff,

v.CHF INDUSTRIES INC., Defendant.

No. 06 Civ. 869(LMM).

United States District Court, S.D. New York.

July 12, 2011.

Peter J. Phillips, Lucas & Mercanti, LLP, New York, NY, for Plaintiff.

James P. Calve, Stephen L. Sulzer, Connolly Bove Lodge & Hutz LLP, Todd P. Taylor, Manatt, Phelps & Phillips LLP, Washington, DC, Joseph V. Saphia, Wiggins and Dana LLP, New York, NY, Rudolf E. Hutz, Connolly, Bove, Lodge & Hutz, Wilmington, DE, for Defendant.

MEMORANDUM AND ORDER

McKENNA, District Judge.

Plaintiff Park B. Smith, Inc. (“PBS Inc.”) brought this action, alleging infringement by Defendant CHF Industries, Inc. (“CHF”) of two design patents, U.S. Patent Nos. Des. 493,651 (the “'651 patent”) and Des. 505,039 (the “'039 patent”). On March 6, 2008, this Court granted CHF's motion for summary judgment of noninfringement of the '651 and '039 patents. On February 6, 2009, 309 Fed.Appx. 411 (Fed.Cir.2009), the Federal Circuit vacated that judgment and remanded the case in light of Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed.Cir.2008).

There are several motions currently pending before this Court. PBS Inc. moves to substitute Park B. Smith, Ltd. (“PBS Ltd.”) as plaintiff; CHF moves to dismiss PBS Inc.'s complaint pursuant to Rule 41(b) of the Federal Rules of Civil Procedure for lack of standing; CHF moves for summary judgment of noninfringement or, in the alternative, of invalidity of the '651 and '039 patents; and PBS Inc. moves for leave to file an amended complaint.

For the reasons stated and as set forth below, PBS Inc.'s motion to substitute is GRANTED; CHF's motion to dismiss is DENIED; CHF's motion for summary judgment is DENIED; and PBS Inc.'s motion for leave to file an amended complaint is DENIED.

BACKGROUND

A. Factual Background

PBS Inc. is a family-run business, incorporated and based in New York, New York, that designs and sells textile products, including window treatments, used to decorate residential interiors. ( See Decl. of Linda Johnson Smith, June 30, 2006, (“June 2006 Smith Decl.”) ¶¶ 5–8.) Park B. Smith is the Chairman of PBS Inc. and his wife, Linda Johnson Smith, is PBS Inc.'s President. (Decl. of Park. B. Smith, June 3, 2010, (“June 2010 Smith Decl.”) ¶ 1.) Park B. Smith and Linda Johnson Smith are also Chairman and President, respectively, of PBS Ltd., a limited partnership organized under the laws of New Jersey and based in New York, New York. ( Id. ¶ 2; Pl.'s Proposed Am. Compl. ¶ 5.)

Park B. Smith and Linda Johnson Smith are listed as the inventors on the face of both the '651 and '039 patents and PBS Inc. is listed as the assignee. ( See Def.'s Sum. J. Mem. Ex. 2 (“'651 patent”) and Ex. 3 (“'039 patent”).)

The '651 patent includes a single claim, for “[t]he ornamental design for a window shade” as shown in ten drawings, and describes “a raisable panel without specified ornamentation; a back also without specified ornamentation; folds that stack and cascade slightly upwards at the bottom of the shade when the shade is raised; and a continuous rod pocket or sleeve formed at the top of the shade for suspending the shade from a rod or pole.” Park B. Smith, Inc. v. CHF Indus., Inc., 2008 WL 650339, at *3; see '651 Patent. The effective filing date of the '651 patent is November 21, 2003. ( See '651 Patent.)

The '039 patent also includes a single claim, for “[t]he ornamental design for a raisable panel” as shown in ten drawings, and similarly describes “a raisable panel without specified ornamentation; a back also without specified ornamentation; and folds that stack and cascade slightly upwards at the bottom of the shade when the shade is raised.” Park B. Smith, 2008 WL 650339, at *3 (S.D.N.Y. Mar. 6, 2008); see '039 Patent. The effective filing date of the '039 patent is November 21, 2003. ( See '039 Patent.)

CHF is a corporation, with its principal place of business in New York, New York, that makes and distributes home textile products, including window treatments. (Def.'s Ans. & Countercls. ¶ 5.) Of relevance here, CHF offers a product identified as the Empire Silk Pole–Top Roman Shade (the “Pole–Top Roman Shade”) for sale in the United States. ( Id. ¶ 13.)

B. Procedural Background

On February 3, 2006, PBS Inc. brought this action against CHF, alleging that CHF's Pole–Top Roman Shade design infringed the '651 and '039 patents, which were allegedly owned by PBS Inc. through assignment. ( See Pl.'s Compl. ¶¶ 15–20.) On March 24, 2006, CHF answered PBS Inc.'s complaint, asserted various affirmative defenses, and asserted counterclaims seeking declaratory judgment of noninfringement and invalidity of the '651 and '039 patents. ( See Def.'s Ans. & Countercls.)

On March 6, 2008, this Court granted CHF's motion for summary judgment of noninfringement of the '651 and '039 patents. Park B. Smith, 2008 WL 650339, at *5. Specifically, to determine whether CHF's product infringed the patents-at-issue, this Court applied two tests, both of which had to be satisfied: (1) the “substantial similarity” or “ordinary observer” test, and (2) the “point of novelty” test. Id. at *4. This Court held that the overall similarity of CHF's product and PBS Inc.'s claimed designs demonstrated that there was an issue of material fact precluding summary judgment on the basis of the ordinary observer test. Id. The Court held, however, that PBS Inc. failed to present legally cognizable points of novelty for the '651 and ' 039 patent designs, and thus, summary judgment of noninfringement was appropriate on the basis of PBS Inc.'s failure to satisfy the point of novelty test.¹ Id.

The Federal Circuit eliminated the point of novelty test in Egyptian Goddess, 543 F.3d 665, and thus, on February 6, 2009, the Federal Circuit vacated this Court's grant of summary judgment and remanded the case to this Court.

On April 16, 2009, CHF again moved for summary judgment of noninfringement, or in the alternative, of invalidity of the '651 and '039 patents. CHF argues that it is entitled to summary judgment under the ordinary observer test as set forth in Egyptian Goddess, or, in the alternative, that the '651 and '039 patents are invalid as anticipated by prior art. ( See Def.'s Mem. in Supp. of Its Mot. for Summ. J. (“Def.'s Summ. J. Mem.”) at 1–3.)

On March 26, 2010, the same day that the parties completed briefing on CHF's summary judgment motion, PBS Inc. moved to amend its complaint to: (1) add PBS Ltd. as a co-plaintiff; (2) add Wal–Mart Stores, Inc. (“Walmart”), a customer of CHF, as a defendant; (3) add a claim for patent infringement of U.S. Patent No. Des. 499,596 (“'596 patent”); and (4) add a claim for unfair competition based on CHF's and Walmart's sales of the Pole–Top Roman Shade. ( See Pl.'s Proposed Am. Compl. ¶¶ 5, 7, 11, 21–37.)

At some point soon after PBS Inc. filed its motion to amend, it was discovered that PBS Ltd., not PBS Inc., is the assignee and owner of the '651 and '039 patents. ( See Def.'s Mem. in Supp. of Its Mot. to Dismiss (“Def.'s Mot. to Dismiss Mem.”) at 5; Pl.'s Mem. in Supp. of Its Rule 17(a) Mot. to Substitute (“Pl.'s Rule 17(a) Mem.”) at 2–3.) PBS Inc. is listed as the assignee on the face of the '651 and '039 patents, but all of the underlying assignment documents on file with the USPTO designate PBS Ltd. as the assignee. ( See Def.'s Mot. to Dismiss Mem. at 5; Pl.'s Rule 17(a) Mem. at 2–3.) PBS Inc. asserts that the designation of PBS Inc., instead of PBS Ltd., as assignee on the face of the '651 and '039 patents was the result of a clerical error. ( See Decl. of Thomas J. Parker, June 3, 2010, (“Parker Decl.”) ¶ 4.)

On June 3, 2010, CHF moved to dismiss PBS Inc.'s complaint with prejudice pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. CHF argues that PBS Inc. lacked constitutional standing when it filed suit, and thus, the suit must be dismissed. ( See Def.'s Mot. to Dismiss Mem. at 1.)

On June 4, 2010, PBS Inc. moved, pursuant to Rule 17(a) of the Federal Rules of Civil Procedure, to ratify or substitute PBS Ltd. as Plaintiff. PBS Inc. argues that the Court should allow ratification or substitution here because the wrong party was named as the result of mistake, not bad faith, and CHF will suffer no prejudice. ( See Pl.'s Rule 17(a) Mem. at 1–2.)

DISCUSSION

A. PBS Inc.'s Motion to Substitute

PBS Inc. concedes that it lacks statutory standing to sue in its own name because it is not the owner or assignee of the '651 or '039 patent, and thus, PBS Inc. moves to ratify or substitute PBS Ltd. as the plaintiff pursuant to Rule 17(a)(3) of the Federal Rules of Civil Procedure. ( See Pl.'s Rule 17(a) Mem. at 1–2.) In response, CHF argues that because PBS Inc. lacked statutory and constitutional standing at the time it filed suit in 2006, PBS Inc. cannot cure this standing defect by substituting PBS Ltd., the party with constitutional standing, as plaintiff and therefore the suit must be dismissed because this Court is without jurisdiction. ( See Def.'s Mem. in Opp'n to Pl.'s Rule 17(a) Mot. (“Def.'s Rule 17(a) Opp'n Mem.”) at 1–2.) PBS Inc., in turn, argues that it did have constitutional standing, as an exclusive licensee, at the time it filed suit and even if it did not, this Court has discretion to allow substitution under Rule 17(a) to cure such a jurisdictional defect. ( See Pl.'s Rule 17(a) Reply Mem. at 1–3.)

1.

The Court will first consider whether PBS Inc. had constitutional standing at the time it filed suit. The Federal Circuit has made clear that a patent licensee does not have constitutional standing to sue in its own name or even participate in a suit unless it holds “exclusionary rights and interests created by the patent statutes.” Morrow v. Microsoft Corp., 499 F.3d 1332, 1340 (Fed.Cir.2007). As the Federal Circuit has explained, “plaintiffs in patent suits fall into three categories for standing purposes: ‘those that can sue in their own name alone; those that can sue as long as the...