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IP Alert: Federal Circuit Addresses Pleading Requirements

February 4, 2013

In a recent panel decision, Hall v. Bed Bath & Beyond, the Federal Circuit addressed the standards for notice pleading in patent infringement litigation after Bell Atl. Corp. v. Twombly (“Twombly”) and Ashcroft v. Iqbal (“Iqbal”). The Hall decision is significant for parties at the pleadings stage of infringement litigation. The Hall case also addressed the pleading requirements under the Lanham Act and under certain New York State causes of action.

The plaintiff, Roger J. Hall, alleged that he had designed a towel with zippered pockets on each end (known as the “Tote Towel”). Hall allegedly approached Farley S. Nachemin, a vice president of defendant Bed Bath & Beyond (“BB&B”) to sell the product and advised BB&B that a patent was pending on same. After initially expressing interest, Hall alleged, Nachemin (through one of BB&B’s suppliers) sent the Tote Towel to Pakistan and had copies made that were then sold by BB&B. 

Hall sued BB&B and Nachemin personally under several causes of action, including design patent infringement, violation of the Lanham Act, and misappropriation under New York state law. Some defendants brought counterclaims, and defendant BB&B moved to dismiss for failure to state a claim, citing the Supreme Court’s decisions in Twombly and Iqbal. In Twombly, the Court held that the factual allegations contained in a complaint must raise a right to relief above the speculative level and must cross the line from conceivable to plausible. The Court in Iqbal further held that determining whether a complaint states a plausible claim for relief is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.

The district court dismissed the entire action sua sponte. With regard to the infringement allegations against BB&B, the court held that Hall’s complaint did not contain “any allegations to show what aspects of the Tote Towel merit design patent protection or how each Defendant has infringed the protected patent claim.” In effect, the district court faulted the complaint for lack of claim construction and for failing to address prior art designs. With regard to the infringement and other allegations against Nachemin, the district court held that there were insufficient allegations of “piercing of the corporate veil” under corporate law to warrant maintaining the complaint against Nachemin personally. For Hall’s Lanham Act claims, the district court held that Hall’s complaint failed to state a cause of action because it was “without elaboration” and did not reference a specific trademark. The district court also dismissed the New York state law claims and all of the defendants’ counterclaims.

On appeal, the Federal Circuit reversed the dismissal of Hall’s infringement, Lanham Act, and state law claims, and affirmed the dismissal of the claims against Nachemin personally. The court also affirmed the dismissal of the defendants’ counterclaims.

As to the patent infringement claims, the court noted that proper patent infringement pleadings need only state the following five elements: (i) allege ownership of the patent; (ii) name each defendant; (iii) cite the patent that is allegedly infringed; (iv) state the means by which the defendant allegedly infringes; and (v) point to the sections of the patent law invoked. Hall’s complaint recited these elements and included images of the allegedly infringing design. The court rejected the notion that Twombly and Iqbal require pleading of claim construction or (in a design case) a statement of what is “new, original and ornamental” over the prior art. Instead, the court held that Hall’s factual allegations in the complaint “‘raise a right to relief above the speculative level’ and cross ‘the line from conceivable to plausible’” (citing Twombly).

With regard to Hall’s Lanham Act claims, the district court held that Hall alleged unfair competition “without elaboration” and that the mere “likely to cause confusion” allegation didn’t state a claim because the complaint did not allege the existence of a trademark (either in the packaging or the design). On appeal, the Federal Circuit observed that the complaint sufficiently pleaded the Lanham Act unfair competition claims because it alleged (1) consumer confusion based on BB&B’s advertising of a towel of identical appearance and similar packaging to the Tote Towel, which would readily cause consumer confusion and (2) false advertising based on Hall’s claim that BB&B’s towel was damaged after one washing despite BB&B advertising the towel as having “performance that lasts the useful lifetime of the towel,” which the court found to imply that the towel would not fall apart after one wash or a few washes.

The court also reversed the district court’s dismissal of the state law causes of action, holding, inter alia, that these causes of action were not preempted by federal law. With regard to the claims against Nachemin personally, the court observed that state law requires a party seeking to pierce a corporate veil to make a two-part showing: (i) that the owner exercised complete domination over the corporation with respect to the transaction at issue; and (ii) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil. The Federal Circuit agreed that the complaint failed to meet this showing.

The Hall case provides guidance for those considering whether a complaint for patent infringement and unfair competition under the Lanham Act satisfies the pleading requirements of the rules, as explained by the Twombly and Iqbal Supreme Court decisions.

For more information, please contact Fitch Even partner Edward E. Clair.

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