Federal Circuit Refuses to Create Marking or Royalty Payment Estoppel Doctrines | Practical Law

Federal Circuit Refuses to Create Marking or Royalty Payment Estoppel Doctrines | Practical Law

In Frolow v. Wilson Sporting Goods, Co., the US Court of Appeals for the Federal Circuit refused to create estoppel doctrines based on the licensee's patent marking of certain products or royalty payments for its sales of certain products. The Federal Circuit therefore reversed the US District Court for the District of New Jersey's grant of summary judgment and remanded the case to the district court to weigh the evidence in its determination of whether certain tennis racket models were covered by a patent license agreement.

Federal Circuit Refuses to Create Marking or Royalty Payment Estoppel Doctrines

Practical Law Legal Update 8-524-6205 (Approx. 4 pages)

Federal Circuit Refuses to Create Marking or Royalty Payment Estoppel Doctrines

by PLC Intellectual Property & Technology
Published on 18 Mar 2013 • USA (National/Federal)
In Frolow v. Wilson Sporting Goods, Co., the US Court of Appeals for the Federal Circuit refused to create estoppel doctrines based on the licensee's patent marking of certain products or royalty payments for its sales of certain products. The Federal Circuit therefore reversed the US District Court for the District of New Jersey's grant of summary judgment and remanded the case to the district court to weigh the evidence in its determination of whether certain tennis racket models were covered by a patent license agreement.

Key Litigated Issue

The key litigated issue in Frolow v. Wilson Sporting Goods, Co. was whether certain tennis racket models were covered by a patent license agreement. Specifically, whether Wilson's patent marking and royalty payments concerning certain tennis racket models raised genuine issues of material fact as to whether these models were covered by the patent license agreement.

Background

Frolow entered into a patent license agreement with Wilson Sporting Goods, Co., where Wilson agreed to pay Frolow royalties for certain tennis racket models which were covered by one or more claims of Frolow's US Patent RE 33,372 ('372 patent). After the parties entered the agreement, Frolow determined that Wilson was not paying royalties on all licensed products and filed suit alleging that Wilson breached the license agreement and infringed the '372 patent. The US District Court for the District of New Jersey limited the breach of contract claim to determining which Wilson tennis racket models were subject to the license agreement.
Wilson presented test data and moved for summary judgment that 42 tennis racket models were not subject to the agreement. Frolow contested Wilson's data and argued that 14 of the 42 contested tennis racket models were marked with the '372 patent number. The district court rejected Frolow's claims and held that 37 of the 42 tennis racket models did not fall within the scope of the '372 patent's asserted claims.
Frolow also asserted that 299 additional tennis racket models were covered by the patent license agreement. Wilson presented test data that showed that 82 of the 299 tennis racket models did not meet the '372 patent claim limitations. Frolow contested Wilson's data and presented evidence that Wilson had been paying royalties on the 299 tennis racket models pursuant to the license agreement. Wilson claimed that the payments were made inadvertently and based on a mistaken belief that the tennis racket models were covered by the license agreement. The district court granted Wilson's motion for summary judgment concluding that Frolow added the 299 models too late in the case.
Following a trial on the issue of whether the five remaining tennis racket models were subject to the patent license agreement, the district court entered a judgment as a matter of law that these five tennis racket models were not licensed products. Frolow appealed to the US Court of Appeals for the Federal Circuit.

Outcome

In its March 15, 2013 opinion, in Frolow v. Wilson Sporting Goods, Co., the Federal Circuit affirmed-in-part, reversed-in-part, and remanded the matter to the district court for further proceedings.

The 14 Marked Tennis Racket Models

On appeal, Frolow argued that the district court erred in granting summary judgment for Wilson on the 14 tennis racket models that were marked with the '372 patent number. Although Wilson acknowledged marking those tennis rackets with the '372 patent number, it asserted that:
  • It inadvertently marked those tennis rackets.
  • Its expert report proved that the 14 tennis racket models did not meet with the '372 patent claim limitations.
In response, the Federal Circuit declined to create a marking estoppel doctrine. Instead it held that patent marking is an extrajudicial admission of fact and is rebuttable evidence that the products are covered by the license agreement. The Federal Circuit concluded that the district court erred when it determined that Wilson's marking had no bearing on whether those tennis racket models were licensed products. Specifically, the Federal Circuit noted that summary judgement was improper because:
  • Patent marking evidence is circumstantial evidence that the marked products fall within the scope of the licensed patent claims.
  • The fact finder must weigh the evidence of the patent marking against Wilson's expert report that concluded that the tennis racket models are not covered by the licensed patent claims.
Accordingly, the Federal Circuit reversed the district court's grant of summary judgment and remanded the case for further proceedings.

The 299 Tennis Racket Models on which Wilson Paid Royalties

On appeal, the Federal Circuit held that:
  • Wilson's history of paying royalties on the 299 tennis racket models was circumstantial evidence that these tennis racket models were covered by the license agreement.
  • Wilson's test data that showed 82 of the models were not licensed products conflicted with Wilson's history of paying royalties on those tennis racket models.
  • In light of the conflicting evidence, there was a genuine issue of material fact, making the district court's grant of summary judgment improper.
Additionally, the Federal Circuit noted that it was error for the district court to grant Wilson's motion based on the fact that Frolow failed to timely identify the 299 models. Although the court acknowledged that the district court could have excluded the 299 models based on untimeliness, the proper action would be to dismiss the claims, not to issue a judgment on the merits of the case. Accordingly, the Federal Circuit also reversed the district court's grant of summary judgment on this issue.
The Federal Circuit also stated that the marking and past royalty payment evidence do not create any presumption which shifts the burden to Wilson to disprove breach. This evidence merely supports Frolow's breach of contract claim.

Practical Implications

This case is notable because of the Federal Circuit's holding that it is not creating an equitable doctrine based on either a licensee's:
  • Marking of certain products with the licensed patent number.
  • Payment of royalties for sales of certain products.
However, counsel should note that this type of evidence:
  • Is a non-binding admission that the products are covered by the license agreement.
  • Can be controverted and explained away by the licensee.

Court Documents