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Integrated Cards, L.L.C. v. McKillip Industries

March 9, 2009


The opinion of the court was delivered by: The Honorable Virginia M. Kendall

Magistrate Judge Brown


I. Introduction

Plaintiff, Integrated Cards, L.L.C. ("Integrated Cards"), moves for entry of judgment against Defendant, McKillip Industries, Inc. d/b/a USA/Docufinish ("Docufinish") with respect to the affirmative defense of estoppel. Docufinish bears the burden of proving each of the elements of an equitable estoppel defense but has failed to do so.

As an equitable defense, estoppel was tried to the Court, and Docufinish has rested its case. Rule 52(c) provides as follows:

If a party has been fully heard on an issue during a non-jury trial and the court finds against the party on that issue, the court may enter judgment against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue.

Because Docufinish has failed to prove any of the essential elements of estoppel during its case-in-chief, judgment as a matter of law dismissing this defense under Fed. R. Civ. P. 52(c) should be granted.

II. Applicable Legal Standards

In this patent infringement case,Docufinish needed to prove each of three elements to establish a defense of equitable estoppel:

(i) the patentee must communicate to the accused infringer (by words, conduct or silence) that the patentee will not pursue an infringement claim; (ii) the accused infringer must rely on that communication; and (iii) the accused infringer must establish that it would be materially prejudiced if the patentee is now permitted to proceed with the infringement claim.

B. Braun Med. Inc. v. Abbott Labs., 124 F.3d 1419, 1425 (Fed. Cir. 1997) (citing A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1041-43 (Fed. Cir. 1992)).

III. Docufinish Has Failed to Prove Any of the Three Elements of Estoppel

A. Docufinish Did Not Establish the "Communication" Element

The Federal Circuit has explained the first required element of an estoppel defense as follows:

The first element of equitable estoppel concerns the statements or conduct of the patentee which must 'communicate something in a misleading way.' The 'something' with which.the vast majority of equitable estoppel cases in the patent field is concerned, is that the accused infringer will not be disturbed by the plaintiff patentee in the activities in which the former is currently engaged. The patentee's conduct must have supported an inference that the patentee did not intend to press an infringement claim against the alleged infringer..In the most common situation, the patentee specifically objects to the activities currently asserted as infringement in the suit and then does not follow up for years.

Aukerman, 960 F.2d at 1042.

Docufinish offered no evidence of any affirmative communication as described in Aukerman, such as a "specific objection," from the owners of the patent-in-suit regarding the patent-in-suit in which infringement was alleged, or any other affirmative statement or action which could possibly have been taken by Docufinish as giving rise to a knowing acquiescence in Defendant's willful infringement. Thus, Docufinish must necessarily rely solely upon alleged inaction or silence on the part of the current or prior owners of the patent-in-suit. But silence is not enough to prove this element, at least where (as here) there has been no prior threat to enforce the patents. "In the cases that have applied intentionally misleading silence in the patent infringement context, a patentee threatened immediate or vigorous enforcement of its patent right but then did nothing for an unreasonably long time." Meyers v. Asics Corp., 974 F.2d 1304, 1308 (Fed. Cir. 1992) (citation omitted).

Docufinish presented no evidence of being threatened with enforcement of the patent-in-suit prior to the commencement of this action.

For an estoppel to arise where the alleged misleading conduct is inaction, the "inaction must be combined with other facts respecting the relationship or contacts between the parties to give rise to the necessary inference that the claim against the defendant is abandoned." Aukerman, 960 F.2d at 1042. In other words, "mere silence must be accompanied by some other factor which indicates that the silence was sufficiently misleading as to amount to bad faith." Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1295 (Fed. Cir. 1992).

An estoppel does not automatically arise even where the patentee has knowledge of the infringing activity, because awareness of the infringing activity alone is not sufficient to render inaction misleading. R2 Med. Sys., Inc. v. Katecho, Inc., 931 F. Supp. 1397, 1416 (N.D. Ill. 1996). "Instead, courts have required communication between the parties either somehow encouraging the challenged activity, or indicating an intent to enforce the patent rights followed by inaction." Id. Thus, the Court can decide that Docufinish failed to prove this element of estoppel without deciding whether the owners of the patent-in-suit knew or should have known of Docufinish's infringement and brought suit earlier.

Cases addressing the circumstance where silence, accompanied by some other factor, can create an estoppel clearly illustrate what Docufinish failed to show in its affirmative case here. For example, there is no evidence of (1) a prior accusation of infringement of the patent-in-suit followed by silence (see Scholle Corp. v. Blackhawk Molding Co., 133 F.3d 1469, 1472 (Fed. Cir. 1998)); (2) Docufinish asking whether the accused products infringed the patent-in-suit followed by silence (Electromotive Div. of General Motors v. Transp. Sys. Div. of General Electric Co., 275 F. Supp. 2d 850, 858-59 (E.D. Mich. 2003)); or (3) failure of the owners of the patent-in-suit to respond to a warning letter and actions affirmatively acknowledging the accused infringer's right to market its product without concern (Stryker Corp. v. Zimmer, Inc., 741 F. Supp. 509, 514-515 (D.N.J. 1990)).

In sum, Docufinish has shown no relationship or contacts between the parties that could possibly give rise to the necessary inference from subsequent silence that the infringement claim against Docufinish was intentionally abandoned. Docufinish proved -- at most -- that it relied upon silence alone, but silence alone is not enough. But even on that subject, Docufinish proffered only conclusory testimony that is not, particularly without corroboration, sufficient to prove this element of estoppel. Specifically, Stephen McKillip testified as follows (responding to leading questions to which plaintiff objected):

Q: Steve, did you rely on the fact that no one threatened you with infringement, in your understanding -- I mean, in your belief that you wouldn't get infringed [sic]?


Q: That you wouldn't be sued for infringement.

A: Yes.

(67:13-68:10.)*fn1 These questions and answer make explicit that Docufinish's estoppel defense rests entirely on the patent owners' alleged silence (e.g., ...

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