United States: Marked Products And Past Payments Under A Licensing Contract May Be Circumstantial Evidence That The Products Are Covered By The License

In Frolow v. Wilson Sporting Goods Co., No. 12-1185 (Fed. Cir. Mar. 15, 2013), the Federal Circuit reversed the district court's grant of SJ that fourteen tennis racket models marked with U.S. Patent No. RE33,372 ("the '372 patent") were not Licensed Articles under a licensing agreement between Jack L. Frolow and Wilson Sporting Goods Co. ("Wilson").  The Court also reversed the district court's grant of SJ that 299 other models for which Wilson had paid royalties were not Licensed Articles, affirmed the district court's JMOL that Frolow failed to prove that five tennis racket models satisfied all of the claim limitations of the '372 patent, and remanded to the district court to consider the evidence relating to patent marking and past royalty payments. 

Frolow, owner of the '372 patent related to a configuration for a tennis racket, licensed the '372 patent to Wilson.  Wilson agreed to pay royalties for "Licensed Article(s)," which the agreement defined as "tennis rackets which are covered by one or more unexpired or otherwise valid claims" of the '372 patent.  Slip op. at 2 (citation omitted).  Among other limitations, the claims of the '372 patent recite a racket having a "magnitude of Ia [moment of inertia] greater than 80 ounce-inches squared."  Id. at 3 (citation omitted).

After Frolow conducted an audit of Wilson's royalty payments, he brought suit against Wilson, alleging breach of the license agreement.  The parties initially litigated whether forty-two racket models should be considered Licensed Articles.  Based on Wilson's test data, the district court granted SJ that thirty-seven of the models did not have a moment of inertia of greater than 80 ounce-inches squared and therefore were not Licensed Articles.  The district court also rejected Frolow's argument that fourteen of these rackets were marked with the '372 patent number.  After a pretrial conference, Frolow alleged that 299 additional rackets were Licensed Articles because Wilson had paid royalties on those rackets.  The district court granted SJ in favor of Wilson that the 299 additional rackets were not Licensed Articles, because Frolow's attempt to add them to the case was untimely and violated the court's orders, and because Frolow failed to offer evidence that these rackets fell within the scope of the asserted claims.  The remaining five racket models were litigated at trial, and after the close of Frolow's case, the district court granted JMOL that these rackets were not Licensed Articles because Frolow failed to introduce evidence that the rackets included a head, a handle, a grip, or strings, as required by the claims of the '372 patent.  Frolow appealed.

"Although we do not endorse Mr. Frolow's patent marking doctrine, we do agree that the fact that Wilson marked their products with his patent number is a fact which supports his allegation that Wilson's products fall within the patent claims.  The practice of marking a product with a patent number is a form of extrajudicial admission that the product falls within the patent claims."  Slip op. at 8.

On appeal, the Federal Circuit reversed the district court's SJ ruling that the fourteen rackets marked with the '372 patent number were not Licensed Articles.  The Court first considered whether a "marking estoppel" doctrine should preclude Wilson from arguing that the marked rackets were not covered by the claims of the '372 patent.  The Court declined to adopt a marking estoppel doctrine, noting that the Supreme Court has never adopted or approved such a doctrine.  It then declined to create a marking estoppel doctrine, observing that Congress statutorily provided a remedy for false marking in the False Marking Statute of the Patent Act.  The Federal Circuit explained that marking is circumstantial evidence that the marked product is covered by a patent, and that marking may be an extrajudicial admission, which is evidence that may be considered by a court.  However, the Court acknowledged that an extrajudicial admission is not binding on the party making the admission, and can be countered by that party.  The Court also determined that adopting a marking estoppel doctrine would conflict with the evidentiary treatment of extrajudicial admissions.  The Court therefore held that the district court erred when it refused to consider evidence that Wilson had marked its rackets with the '372 patent number. 

Next, the Federal Circuit addressed whether Frolow's marking evidence raised a genuine issue of material fact in this case.  The Court noted that although Wilson had submitted evidence that the fourteen marked rackets had a moment of inertia of 80 ounce-inches squared or less, Frolow had also submitted an expert declaration contesting Wilson's test data and had provided evidence of Wilson's marking.  The Court held that marking is circumstantial evidence that the marked article falls within the patent claims and therefore can preclude SJ in appropriate cases.  The Court reversed the district court's SJ ruling and remanded for consideration of the marking evidence.

The Court then turned to whether the district court erred in granting SJ on the 299 rackets for which Wilson had paid royalties during the term of the license agreement.  The Court held that Wilson's history of paying royalties is circumstantial evidence that those rackets are Licensed Articles covered by the '372 patent.  The Court also noted that Wilson introduced evidence that eighty-two of these racket models were not Licensed Articles, but that Frolow disputed the accuracy of Wilson's data and introduced evidence that Wilson had been paying royalties for these eighty-two racket models.  Thus, the Court held that the past royalty payments were circumstantial evidence that raised a genuine issue of material fact and, accordingly, reversed the district court's associated SJ ruling.  Acknowledging the district court's discretionary power to dismiss the claims relating to the 299 racket models, the Federal Circuit remanded to the district court to determine whether the 299 racket models should be included in the proceedings.

The majority then addressed the burden of proof on remand.  Although acknowledging that neither party raised the issue of the burden of proof, the majority disagreed with Judge Newman's concurrence that contended the burden should shift to Wilson to prove that the rackets are not Licensed Articles.  Basing its decision on New Jersey law, the majority stated that the plaintiff has the burden to establish the elements of a breach of contract claim.  Rejecting Judge Newman's position, the majority observed that the cases cited by Judge Newman related to contract interpretation and do suggest that the defendant has the burden to disprove breach. 

Finally, the Court rejected Frolow's argument that the district court had erred in granting JMOL that the five racket models contested at trial were not Licensed Articles because Frolow had not introduced evidence that the rackets included a head, handle, grip, and string netting.  The Court affirmed the district court's JMOL ruling because, although the claim limitations regarding the head, handle, and grip are general in nature, the string limitation is not.   Specifically, the claims require "vertical and horizontal strings," and Frolow failed to introduce evidence that the five racket models included vertical and horizontal strings, as compared with diagonal or fan-shaped strings.  Therefore, the Court held that the district court did not abuse its discretion in granting JMOL for the five racket models contested at trial.

Judge Clevenger wrote separately to explain "why this is an unusual case."  Clevenger Additional Views at 1.  Judge Clevenger explained that, although the district court must consider the evidence of marking on remand, the evidence is not necessarily admissible to a jury.  Judge Clevenger suggested that, in this case, the fourteen marked racket models did not satisfy the claim limitations and the marking evidence may be of limited probative value that is outweighed by the risk of unfair prejudice to Wilson. 

Judge Moore also wrote separately to address Judge Clevenger's additional views.  Although Judge Moore agreed that there may be circumstances where the evidence of a defendant's marking may be excluded, she did not agree with Judge Clevenger that exclusion applied in this case.  Judge Moore argued that noninfringement had not been established because the district court refused to consider evidence of marking and Frolow did not concede that the marked products did not meet certain claim elements.  Therefore, Judge Moore stated that the application of the law should be left to the district court.

Judge Newman concurred in the Court's decision to remand, but asserted that the burden of proving that the marked racket models and the models for which royalties were paid are not Licensed Products should be shifted to Wilson on remand.  Judge Newman asserted that a jury could determine that Wilson's repeated marking could constitute a waiver that the marked rackets are not Licensed Articles.  Judge Newman also disagreed with the majority's reliance on the False Marking Statute, noting that the statute relates to qui tam actions for false marking, not a patent license or a breach of contract claim.

This article previously appeared in Last Month at the Federal Circuit, April, 2013

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