Standard competitive bluster can be used as evidence of bad faith

Hillman Group, Inc. v. Minute Key Inc., 2016 WL 3654437,  No.13-cv-00707 (S.D. Ohio Jul. 8, 2016)
Hillman makes duplicate keys, sold in at mass merchants,
home centers, automotive parts retailers, franchise and independent hardware
stores, grocery/drug chains, parcel shipping outlets, etc.  Key duplication has traditionally been
manual; a human identifies the proper blank key that fits the one the customer
hands over, then cuts the duplicate. 
Hillman has 60% of that market.
Self-service, automatic key duplication is a new trend.
Kiosks allow retailers to devote fewer employees, less inventory, and less
floor space to the process. Minute Key patented such a kiosk and sought to
displace Hillman and its FastKey kiosk. 
Minute Key placed 19 kiosks in Walmart stores across the country, then
in 2012 signed a Walmart contract for a national rollout of 1000-1600
kiosks.  The rollout was delayed, and
Minute Key found that it would have to compete against Hillman in a 100-store
head to head pilot.  Minute Key believed
that Hillman’s “very good relationship” with Walmart’s Tire Lube Express (TLE)
team was at the root of the decision to extend the pilot and, in turn, delay
Minute Key’s national rollout, which “practically put minuteKEY out of
business.”
A Minute Key board member and investor, as part of
discussions about the Walmart pilot, asked if its patent applications could be
used to create “some FUD” about Hillman with Walmart.  In late 2012, Hillman won the pilot, with 900
stores going to Hillman and 300 to Minute Key. 
A Minute Key principal responded, “in every retailer where we have gone
head to head with fastkey @ Lowes, Menards, Meijer, Orchard Supply Hardware;
our machine has won in every category; revenue, reliability, customer
experience and accuracy. Is there anything we can do here to improve our
position?”  (Etc.)  Discussions with Walmart revealed that
Hillman succeeded in stores that also used Hillman’s transponder key program in
their auto departments.  Another Minute
Key person questioned whether it was time for Minute Key to consider
“how/whether to use our patents to play offense.” There was further discussion
of the patents, the threat they might pose to Hillman, and when the “patent
card” should be played.
And there were some of the usual insider comments, which are
almost inevitable; generally just bluster; and yet can be made to look
bad.  E.g., “Fuck Hillman, they don’t
know they are messing with a pirate.”/ “Ha…love it. Always need a competitor
and we will whack them in time,” to which another responded, “Need to whack
them now!”
The Walmart employee responsible for the Walmart decision
then took a job at Hillman; his replacement looked at the trial and concluded
that, based on revenue per square foot, downtime, returns, and customer experience,
Minute Key, rather than Hillman, should have won:
In terms of profit per square foot,
[Minute Key] was 25 percent more per machine per store. The customer experience
was a little over a minute compared to between a little over three minutes. The
downtime was a fracture [sic] of what the Hillman machine was. And the returns
was [sic] significantly less, which all factor into customer experience.
Based on this, he started talking with Minute Key about
rolling out at 1000 more stores, though Walmart had a three-year commitment to
Hillman. 
In September 2013, Minute Key emailed Walmart that it would
be sending Hillman a patent infringement notice when its patent was
issued.  The email continued:
Our investment is only protected by
our intellectual property, and thus we have no choice but to enforce our
intellectual property against anyone who attempts to misappropriate it, such as
by infringing our patent rights. The patent to be issued next Tuesday is only
the tip of the iceberg of our intellectual property, and there are many more on
the way.… It is flattering to be imitated by others, but it also is evidence of
the significance of the contribution that MinuteKey’s technology has made to
the industry, and our technology must be protected.
Walmart responded by deciding to give all kiosks at new
stores/stores that requested kiosks to Minute Key, while Hillman would continue
to install in its approved locations. 
Walmart also requested a claim chart indicating which claims Minute Key
alleged Hillman to be infringing.
Hillman sued for a declaration of noninfringement; Minute
Key then provided Hillman with a covenant not to sue and argued that no case or
controversy existed.  Hillman then sought
to amend its complaint to add federal and state false advertising claims.
Courts have decided that, in cases involving statements
about patent infringement, Lanham Act plaintiffs have to show bad faith in
order to “give effect both to the rights of patentees as protected by the
patent laws under ordinary circumstances, and to the salutary purposes of the
Lanham Act to promote fair competition in the marketplace.”   The court found genuine issues of material
fact precluding summary judgment.
First, Minute Key argued that its statements were opinion,
not fact. In context, they were claims of fact, clearly declaring that Hillman
was a patent infringer, and a jury could readily conclude that Walmart
understood these as statements of fact. 
Walmart’s counsel responded by asking Minute Key for a claim chart and
Hillman to acknowledge its indemnification obligation; then Walmart suspended
the deployment of key kiosks based on the patent claim.
Were the statements “commercial advertising or promotion”?  The relevant customer base as the market for
self-service kiosks, not key duplication equipment generally. Hillman argued
that Minute Key only seriously tried to get Walmart’s business (though why this
should matter is unclear, since the key is distribution in the market, whatever
that is, not how many entities in that market the defendant targeted).  Whether the market at issue was limited to
Walmart was a factual question for the jury.
Bad faith: Minute Key argued that there could only be bad
faith if its patent infringement claim was “objectively baseless.”  But Minute Key’s representation in marketing
that its machine was fully automatic, while Hillman’s was not, could be taken
into account in determining this, as well as the board member’s speculation
about using patents to create “FUD” and “quips from its CEO such as ‘Fuck
Hillman, they don’t know they are messing with a pirate’ and ‘Need to whack
them now!’ and ‘Thinking about raising the patent card.’”

There were also questions of fact about damage to Hillman;
though Hillman wasn’t guaranteed any extra stores, Walmart decided to use
Minute Key for new stores/requests the day after Minute Key confirmed that it
would be issuing a patent infringement notice to Hillman; before that, Hillman
was the vendor of choice.  There was a
dispute about whether Walmart offered, as a custom though not a contractual
obligation, a “right of first refusal” to existing vendors for future business.  There was also a factual question about
whether a delay in the already-promised kiosk rollout was due to the
infringement claims, or whether the Hillman kiosks were still in production and
then blocked by Walmart’s blackout period from mid-October to mid-January
during which no vendor is allowed to place any kiosk.

from Blogger http://ift.tt/29KwITq

Advertisements
This entry was posted in Uncategorized and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s