The Virginia Business Litigation Blog

August 19, 2011

Judge Hilton Grants Summary Judgment of Non-Infringement for ICON

Several exercise machines manufactured by ICON Health & Fitness, Inc., which permit a person to play blackjack, poker, and other games while exercising, don’t infringe patents held by Fitness Gaming Corp. (FGC) for a device that combines an electronic game of chance and a piece of exercise equipment. This was the decision of U.S. District Judge Claude M. Hilton of the Eastern District of Virginia in an August 12, 2011, ruling on ICON’s motion for summary judgment of non-infringement.

FGC had sued ICON for patent infringement, but the judge found, reviewing both the language of the patent and its prosecution history, that this claim had no substance and that as a matter of law, ICON hadn’t infringed the patents. “The specification and prosecution history make clear what the claims require as a matter of law, and FGC has no evidence that the accused devices have what the claims require,” Judge Hilton wrote.

The key point was that in obtaining the patent, FGC carefully specified that the patents involved a “combination of an electronic game of chance device and a piece of exercise equipment.” FGC’s patent application specifically equated the term “electronic game of chance device” with the term “legalized gambling device.” The prosecution history showed that FGC made this limitation in order to respond to objections from the patent office that an existing patent, involving the combination of exercise equipment and a video display showing the progress of a bicycle on a track, had anticipated FGC’s patent and that FGC had therefore applied for something that wasn’t novel. FGC, in its own words, said that it only wanted a patent on an exercise machine that was combined with a gambling device.

August 16, 2011

Pincher’s Fights Wendy’s For Trademark Rights to Slogan

by Lee E. Berlik

Pincher’s Crab Shack, a restaurant chain with seven locations in Southwest Florida, is taking on fast-food giant Wendy’s in a trademark lawsuit. In a case filed in federal court on July 12, 2011, Pincher’s asserts that Wendy’s has stolen its trademarked slogan, “You Can’t Fake Fresh,” and used it in its advertising on television, radio, and the Internet. Wendy’s actions “are likely to cause public confusion, mistake, or deception, and constitute trademark infringement,” Pincher’s attorneys wrote in their complaint, which alleges infringement, unfair competition, and false statements of origin under both federal and Florida law. Pincher’s is seeking more than $2 million in damages.

“Defendants have openly and actively engaged in the unauthorized, infringing, unlicensed, and imitative use of the exact same trademark registered exclusively to Plaintiff, namely YOU CAN’T FAKE FRESH for the exact same services protected in Plaintiff’s federal registration, namely ‘restaurant services,’ in the exact same geographic area in which Plaintiff uses its Mark, in commercial advertising and in exact and direct competition with Plaintiff,” wrote Pincher’s attorney Jennifer Whitelaw of Naples, Fla., in the complaint. Whitelaw was also quoted in the press as saying, “It’s a great trademark. Our client worked hard to create it and our legal team worked hard to protect it and to successfully register it. From there, apparently it caught the eye of another suitor. Admiring our client’s mark is understandable, but this is a bit more admiration than what the law allows.”

Slogans are protectable under federal trademark law, provided they are used in such a way as to identify and distinguish the trademark owner’s goods and services from those of others. Because the touchstone for liability in any trademark action is the likelihood of confusion, however, trademark infringement does not necessarily occur where slogans serve a subsidiary role to a service provider’s “main” trademark. In other words, if “You Can’t Fake Fresh” is always preceded in advertising by either “Pincher’s Crab Shack” or “Wendy’s,” it may be difficult to prove consumer confusion.

August 13, 2011

Trademark Infringement Leads to Disgorgement of Profits By Franchisee Wannabe

by Lee E. Berlik

A U.S. district judge in Virginia has adopted a magistrate judge’s recommendation to deny a Minnesota man’s motion to dismiss a trademark complaint against him in a case that centered around an automobile service center franchise, and to enter a judgment against the service center he operated in an amount to be determined by an accounting of its profits during the period it infringed the plaintiff’s trademarks by using its logos after being denied franchisee status.

Precision Franchising LLC, a Virginia company, licenses an automobile service system and owns several associated trademarks. Precision permits its licensees to use its business methods and its marks. Motorscope, Inc., was one of Precision Franchising’s franchisees. Lene Corporation, a Minnesota company with its principal place of business in Minnesota–a company that was wholly owned by Cary Lene-Tarango, the Minnesota businessman–attempted to purchase Motorscope’s franchise and to assume Motorscope’s rights and duties under the franchise agreement. Precision Franchising denied permission to Lene to make the purchase, finding that Lene’s balance sheet did not show it to be financially sound.

Lene went ahead in any case and started to use Precision Franchising’s trademarks as if it were indeed a franchisee. Since at no time was Lene a franchisee of Precision Franchising, Precision Franchising sued Lene and Tarango in the U.S. District Court for the Eastern District of Virginia under the Lanham Act for unfair competition and trademark infringement. Neither defendant filed an answer to the complaint. Tarango, however, filed a letter that was treated as a motion to dismiss, asserting that the court did not have personal jurisdiction over him since he is located in Minnesota and had no significant contacts with the Commonwealth of Virginia.

August 8, 2011

D.C. Law Firm Loses Motion to Reconsider Dismissal of D.J. Action

by Lee E. Berlik

In a case that turns on a law firm’s ethical obligations to avoid conflicts of interest, a large D.C. law firm has once again been procedurally rebuffed in its effort to have a federal judge in the District of Columbia declare that it has not violated any ethics rules in a high-profile environmental case.

Patton Boggs, a major D.C. firm, represents various parties in Ecuador that are involved in high-stakes environmental litigation against Chevron. A lobbying subsidiary of Patton Boggs, the Breaux Lott Leadership Group, has done work on behalf of Chevron on similar issues. Gibson Dunn, the law firm representing Chevron, is taking the position that Patton Boggs has a conflict of interest and has tried to have Patton Boggs removed from the case.

Patton Boggs moved in U.S. District Court for the District of Columbia for a declaratory ruling that it does not have such a conflict. Last April, however, U.S. District Judge Henry Kennedy dismissed this case, finding that the courts that are actually hearing the environmental cases against Chevron are best equipped to handle that issue. Judge Kennedy also ruled that Patton Boggs could not amend its complaint to allege that Chevron and Gibson Dunn had tortiously interfered with its contract with the Ecuadorian plaintiffs and had engaged in a civil conspiracy, since Patton Boggs had not alleged facts suggesting that they had caused any actual breach of the contract.

August 1, 2011

Virginia Court Pierces Corporate Veil But Declines to “Reverse Pierce”

by Lee E. Berlik

Courts don’t often grant requests to “pierce the corporate veil” – in other words, to disregard the existence of a corporation and to hold a shareholder personally liable for the corporation’s debts – but in a recent Virginia case, a judge did just that, entering a personal judgment against a corporation’s sole shareholder for nearly $140,000. His mistake? Failing to observe corporate formalities, and arranging for the corporation to enter into a contract while grossly undercapitalized.

Advance Technologies, Inc., had been hired as a sub-subcontractor by subcontractor ACE Electric Company on a boiler maintenance project for the University of Richmond. ACE, however, soon terminated Advance from the project, and Advance went out of business. In December 2009, a default judgment was entered against Advance for more than $137,500. ACE was unable to recover any of this money from Advance, so it sued Erik Butler, the sole shareholder, officer, and director of Advance, in an attempt to pierce the corporate veil and recover funds from Butler’s personal assets to satisfy the judgment. ACE’s lawyers also invoked a “reverse piercing” theory by seeking to impose liability against Butler’s wife, DeAnne Butler, and from another corporation, ADVTEC, Inc., of which she was the sole officer, shareholder, and director. ACE claimed that ADVTEC was created by DeAnne Butler in a fraudulent attempt to avoid the debts incurred by Advance.

In an opinion handed down on April 29, 2011, Judge Gary A. Hicks of the Circuit Court of Henrico County wrote that piercing the veil and permitting a plaintiff to recover from the personal assets of a shareholder is “an extraordinary remedy that is infrequently granted.” The judge pointed out that there are generally sound legal and economic reasons for granting immunity to shareholders. However, the judge noted, exceptions do exist. In this case, the judge wrote, the evidence was “sufficient to pierce the corporate veil as to Erik Butler.” The court found that Butler failed to adhere to corporate formalities (such as conducting annual meetings and maintaining separate books for the corporation), and that when Advance entered into the contract with ACE, Advance was “grossly undercapitalized.” It had only between $10,000 and $15,000 in the bank, and owed back taxes both to the IRS and to Virginia authorities. Under these circumstances, Judge Hicks wrote, it would be a “profound injustice” not to permit ACE to go after Erik Butler’s personal assets to satisfy the default judgment.

July 29, 2011

Unauthorized Korean DVD Sales Leads to Large Damages Award

by Lee E. Berlik

Earlier this week, a federal judge sitting in Alexandria, Virginia, ordered the owner of a now-defunct chain of Northern Virginia video stores to pay $555,000 in damages for willful violations of U.S. copyright law after he rented and sold unauthorized copies of copyrighted Korean-language DVDs and videos to customers. The individual in question, Young Min Ro, did not even attend his own trial, though he was represented by a lawyer.

The U.S.-based affiliates of the three largest television broadcasting corporations in South Korea sued Mr. Ro and other defendants for willful copyright infringement in United States District Court for the Eastern District of Virginia. They alleged and proved at a bench trial that Ro made illegal copies of their TV programs and continued to rent and sell copies of the programs to his customers even after his licensing agreement ended and he was no longer paying monthly fees to the broadcast companies. In a July 26, 2011, ruling, Judge Leonie M. Brinkema found that the evidence showed not only that Ro violated copyright law but that he did so willfully. Willful copyright violators are subject to heightened damages under a provision of U.S. copyright law. (See 17 U.S.C. 504(c)(2)).

The plaintiffs had chosen to seek statutory damages – those imposed at the judge’s discretion within certain statutory limits – rather than precise economic damages based on measures such as the defendant’s profits from the violations or the licensing fees that they did not pay. For damages purposes, the plaintiffs chose to focus on 37 specific instances of copyright infringement for which the judge had already found the defendants liable.

July 22, 2011

Virginia Business Owners Smacked For Paying Themselves Excessive Fees

by Lee E. Berlik

Two owners of a Virginia restaurant breached their fiduciary duty to the corporation they managed by paying themselves exorbitant management fees and by making improper loans and distributions to themselves, a Fairfax County judge has found.

“Fiduciary duty” in this context generally refers to the duty of loyalty owed by officers, directors, and other employees to each other or to the corporation they work for. Fiduciary duties include things like acting at all times with the corporation’s best interests in mind, refraining from usurping business opportunities for yourself, and refraining from actively competing with the company. In general, the law in Virginia and elsewhere holds that people in a position of trust vis-à-vis a closely held corporation must perform their duties without self-dealing or conflict of interest.

According to the opinion, the basic facts were as follows. As of 1993, Michael Magill, Thomas Dinsmore, and Raymond Clatworthy each owned 33 percent of the shares of DPR, Inc., a Virginia corporation that operated a restaurant. The restaurant’s primary business was preparing buffet lunches for sightseeing school groups visiting the Washington, D.C., area. Magill, who lived in the D.C. area, set up Magill Enterprises, Ltd., which operated the restaurant as an independent contractor of DPR and charged it a management fee. The other two owners did not live in the D.C. area. DPR was organized as an S corporation.

July 13, 2011

Facebook Sued for Showing Us What Kids “Like”

by Lee E. Berlik

Is Facebook violating New York privacy laws when it permits children to press the “like” button on the site to endorse advertisements without first receiving approval from their parents? That’s the question posed by a lawsuit filed on May 3, 2011, in federal court in Brooklyn, N.Y., by the father of a teenager there who is a member of the hugely popular social networking site. The case was brought as a class action on behalf of “all minors in New York whose names or likenesses were used by Facebook, Inc., for commercial purposes without the consent of the parents or guardians of said minors.” Anyone over the age of 12 can sign up for a Facebook account.

When any Facebook user, including a teenager, “likes” an advertisement, that preference appears on the Facebook page for that ad, the lawsuit says. This in turn is considered a “click” on that ad and generates revenue for Facebook, since it receives revenue from advertisers based on the number of users that “like” the advertisement. Facebook’s privacy settings don’t permit any users to prevent their names and pictures from appearing on advertising pages that they have “liked.” They can at any time withdraw their “like,” but as long as it is in effect, it will be considered a “click” and thus a “commercial use,” according to the complaint.

In order to sign up for Facebook, users, including those under age, agree to the following statement: “You can use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored or related content (such as a brand you like) served or enhanced by us. You give us permission to use your name and profile picture in connection with that content, subject to the limits you place.” According to the complaint, however, “at no time does Facebook seek or obtain the consent of any parent or guardian of its minor users to use or sell the name and likeness of the child for commercial use by Facebook or third-party advertisers.”

July 6, 2011

Apple Asserts New Intellectual Property Claims Against Samsung

by Lee E. Berlik

In a 63-page amended complaint filed on June 16, 2011, in federal court in San Jose, Apple Inc. is continuing to strongly press its contentions that Samsung Electronics Co.’s Galaxy smartphones and tablet computers infringe upon Apple’s patents and trademarks for the iPhone and the iPad. In this new filing, Apple, which has long been known as a company that pursues its intellectual property claims vigorously, amplifies a complaint it filed a couple of months ago against Samsung.

“Instead of pursuing independent product development, Samsung has chosen to slavishly copy Apple’s innovative technology, distinctive user interfaces, and elegant and distinctive product and packaging design, in violation of Apple’s valuable intellectual property rights,” Apple’s attorneys wrote in the new complaint. An Apple spokeswoman has been quoted as saying, “It’s no coincidence that Samsung’s latest products look a lot like the iPhone and iPad, from the shape of the hardware to the user interface and even the packaging. This kind of blatant copying is wrong, and we need to protect Apple’s intellectual property when companies steal our ideas.”

A key focus of Apple’s concern is several design patents that it owns for various aspects of the iPhone and iPad. These design patents, Apple said in the complaint, “cover the unique and novel ornamental appearance of Apple’s devices, which include features such as the black face, bezel, the matrix of application icons, and a rim surrounding a flat screen.”

June 22, 2011

LogMeIn Wins Summary Judgment of Noninfringement

by Lee E. Berlik

On May 4, 2011, United States District Judge Claude M. Hilton of the Eastern District of Virginia issued an opinion rejecting a claim that LogMeIn Inc., a Boston-area computer-access company, had infringed a patent owned by Canadian competitor 01 Communique Laboratory Inc. Judge Hilton granted summary judgment of noninfringement for LogMeIn, finding that LogMeIn’s devices that permit a communication session between a personal computer and a remote computer cannot, as a matter of law, be construed to infringe 01’s patent, due to differences in the technology used by the competing devices.

In evaluating the patent claim, Judge Hilton reviewed the patent prosecution history and examined the way in which the Patent and Trademark Office and the inventor had previously described and understood the reach of the patent, including its limitations. The court found that LogMeIn’s product was dissimilar enough from 01’s intellectual property as to avoid any finding that infringement had occurred. Specifically, Judge Hilton found that 01’s patent, by its own admission, was to be limited to a system in which only a single device perform the multiple duties of the so-called “location facility,” including creating communication sessions, receiving a request for communication with the personal computer from the remote computer, locating the personal computer, and creating a communication channel between the remote computer and the personal computer. If several devices together performed those functions, the judge found, the patent’s claims were not implicated.

“The accused LogMeIn products do not have any ‘location facility’ that locates a personal computer and ‘itself’ creates a communication channel between a remote computer and the personal computer,” Judge Hilton wrote. “In briefing the Motion for Preliminary Injunction, 01 admitted that LogMeIn’s products function in precisely the manner that 01 told the PTO the ‘479 Patent does not cover – that is, by distributing the functions of the ‘location facility’ among different devices,” the judge added. No one component of the LogMeIn system itself performs all the needed functions of the “location facility” under the Court’s construction of the term, the judge noted.

The VirginiaBusiness Litigation Blog