A Potential Competitor May Bring False Marking Action if It Suffered Competitive Injury
Ponani Sukumar and Southern California Stroke Rehab. Ass., Inc. v. Nautilus, Inc., No. 2014-1205, 2015 U.S. App. LEXIS 7329 (Fed. Cir. May 4, 2015) (Prost, CJ.). Click Here for a copy of the opinion.
Sukumar launched several legal actions against Nautilus relating to its purchase of Nautilus's custom fitness machines. The current litigation was filed by Sukumar and SCSRA (collectively "Sukumar") after SCSRA (a company founded by Sukumar) had acquired over 100 Nautilus fitness machines. On summary judgment, the district court found that several patents marked on the Nautilus fitness machines did not cover them, which is a violation of 35 U.S.C. § 292(a). However, in order to bring a private action to enforce this provision, 35 U.S.C. § 292 (b) requires the plaintiff to have suffered a "competitive injury as a result of a violation of this section." The district court found that Sukumar failed to show a competitive injury and therefore lacked standing to bring the suit.
On appeal, Sukumar claimed that although he was not selling products in competition with Nautilus, he suffered competitive injury as a potential competitor because he intended to enter the market. The Federal Circuit examined the statutory text, legislative history, analogous areas of the law, and policy considerations for the false marking statute. It concluded that §292(b) extends standing to potential competitors who "suffered a competitive injury" as a result of the 292(a) violation, i.e. those who are engaged in competition. "[A] potential competitor is engaged in competition if it has attempted to enter the market," in other words, it intended to enter the market with a reasonable possibility of success and it had taken sufficient steps to enter the market.
Here, Sukumar "intended only to open senior rehabilitation centers" and "to use modified fitness machines in senior rehabilitation and spa centers." There was no evidence that Sukumar intended to mass produce machines in competition with Nautilus. As part of a litigation settlement strategy, Sukumar attempted to negotiate a license to Nautilus' patents. The license explained that Sukumar and SCSRA were "interested in developing and operating a series of rehabilitation centers that would provide physical therapy and other rehabilitation services to stroke victims and patients suffering from stroke-like symptoms." The proposed license envisioned that Sukumar would "make and have made for use exclusively in Sukumar owned rehabilitation centers equipment and parts that are covered by a claim of Nautilus' patent rights."
Sukumar's action to enter the fitness machines market was deemed insufficient. At the time he filed this suit, Sukumar "did not develop a business plan," "did not attempt to design a prototype," "did not hire any employees," "did not gain engineering knowledge," and "did not investigate developing manufacturing capacity." The Court therefore affirmed the district court's summary judgment for lack of standing.
Sukumar also appealed the summary judgment rejecting its unfair competition claims. Sukumar relied on a quotation from the district court decision to argue that the court incorrectly required Nautilus' false marking to be the "sole cause" of his damages rather than the immediate or but-for cause. The Federal Circuit held that "[w]hile the district court's particular word choice in that sentence may be imprecise, it does not negate the district court's two-page recital of what even Sukumar admits is the correct law." Since the district court also "faithfully applied the correct law" throughout the rest of the opinion, the Federal Circuit affirmed.
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