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Statement Contradicting Earlier Sworn Statement Supports Vacatur of Summary Judgment

June 22, 2006

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Last Month at the Federal Circuit - July 2006

Judges: Newman (author), Mayer, Schall

In Gemmy Industries Corp. v. Chrisha Creations Ltd., No. 05-1110 (Fed. Cir. June 22, 2006), the Federal Circuit vacated the district court’s SJ of invalidity based on an on-sale bar.

Gemmy Industries Corporation (“Gemmy”) obtained U.S. Patent No. 6,644,843 (“the ’843 patent”) directed to an inflatable decorative holiday figure with internal lighting. The patent application was filed on January 9, 2002. It is undisputed that Gemmy showed prototype Halloween and Christmas figures to potential customers in Hong Kong in October 2000. The prototypes were inflated by a hair dryer through a tube, whereas the patent claims require a fan mounted inside the base. Additionally, approximately thirty retailers viewed the prototypes and had access to “quote sheets” that included an estimated price, measurements, and sometimes the weight of the product, but no orders were taken at this time. Gemmy sent the first commercial shipments in May 2001.

In October 2003, after the ’843 patent was allowed, Gemmy filed suit against Chrisha Creations Ltd. (“Chrisha”) in federal court in Kansas, asserting trade secret violation, copyright infringement, and other commercial torts. In that action, Gemmy’s president, Dan Flaherty, asserted by affidavit that “Gemmy has been selling its Airblown Inflatable product line since at least October 2000.” Slip op. at 5-6. Upon issuance of the ’843 patent, Chrisha sued Gemmy in the U.S. District Court for the Southern District of NewYork seeking DJ of noninfringement and invalidity, and charging other claims. Shortly thereafter, Gemmy amended the complaint in Kansas to include a claim for patent infringement.

Upon Chrisha’s motion, the Kansas case was transferred to the Southern District of New York and the two suits were consolidated. Chrisha also moved for SJ of invalidity based on Mr. Flaherty’s admission of sales. After consolidation, Mr. Flaherty modified his earlier statements to assert that “Gemmy never intended to nor did it anticipate shipping the prototypes with the hair dryers” and the Hong Kong prototypes underwent several structural changes before a commercial product was available for sale. Id. at 6. Mr. Flaherty’s testimony was corroborated by other testimony and photographs. Despite its acceptance of Gemmy’s position regarding the structure of the prototype and that no sales orders were taken, the district court held on SJ that the ’843 patent was invalid for violation of the on-sale bar, finding that the product was on sale in October 2000. In addition, Chrisha sought, and the district court granted, a preliminary injunction on false marking and false advertising claims, which required Gemmy to stop selling products marked with the ’843 patent number. Gemmy then sought an interlocutory appeal of the grant of SJ of invalidity.

On appeal, the Federal Circuit first analyzed whether the invention was ready for patenting when offered for sale. Gemmy argued that the prototype shown in Hong Kong was not ready for patenting because it was inflated by a hair dryer, not the base fan required by the claims, which Mr. Flaherty’s corrected statement supported. The Federal Circuit agreed, explaining that the district court’s determination that the prototype was ready for patenting could not be reconciled while accepting Mr. Flaherty’s statements and findings that the prototype did not have a fan unit. Furthermore, the Court explained that, regardless of whether Mr. Flaherty’s statements were true, the product offered for sale must be the product claimed in the ’843 patent.

Next, the Federal Circuit reviewed whether the product was the subject of a commercial offer for sale in this country before the critical date. Gemmy argued that the “quote sheets” distributed in Hong Kong were mere preparation to place the product on sale and lacked key terms that typically accompany the sale of goods. Chrisha, on the other hand, argued that the purpose of the displays in Hong Kong was to solicit orders—and orders must have been taken because deliveries were made in May—and alleged that Gemmy refused discovery of its relevant documents.

The Federal Circuit vacated and remanded the district court’s SJ ruling of invalidity. Further, the Federal Circuit instructed the district court to reassess the injunction directed to patent marking in light of the vacatur.