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Three−Year Silence After Letter Claiming Infringement Barred Suit Under Equitable Estoppel

May 24, 2010

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Last Month at the Federal Circuit - June 2010

Judges: Newman (author), Rader (dissenting), Bryson

[Appealed from: S.D.N.Y., Judge Chin]

In Aspex Eyewear Inc. v. Clariti Eyewear, Inc., Nos. 09−1147, −1162 (Fed. Cir. May 24, 2010), the Federal Circuit affirmed the district court’s dismissal of infringement claims on SJ as barred by equitable estoppel, and affirmed the district court’s refusal to declare the case “exceptional” under 35 U.S.C. § 285.

Aspex Eyewear Inc. (“Aspex”) sued Clariti Eyewear, Inc. (“Clariti”), alleging that Clariti’s AirMag® eyeglass frames willfully infringed U.S. Patent Nos. 6,109,747 (“the ’747 patent”) and RE37,545 (“the ’545 patent”).  Following Clariti’s launch of its AirMag® line in early 2003, Aspex sent Clariti a letter identifying the ’545 patent, among others, and stating its “understanding that some of the products sold by you may be covered by the claims of the above mentioned patents” and Aspex’s “strong intention to fully and vigorously enforce our rights” in this “very urgent and serious matter.”  Slip op. at 3.  A few days later, Aspex sent an almost identical letter regarding the ’747 patent.

Responding to the letters, Clariti stated that its policy was not to infringe any valid, enforceable patent, and requested certain information to assist it in analyzing the Aspex patents.  Aspex responded by sending copies of the file histories for two of the other patents it claimed were being infringed but failed to make any reference to either the ’545 or the ’747 patent.

After receiving those materials, Clariti responded that it believed its products did not infringe any valid claims of the two other patents for which Aspex sent the file histories, likewise neglecting to refer to the ’545 or ’747 patents.  Aspex then went silent for just over three years, at which time Aspex sent a letter to Clariti claiming the AirMag® product infringed claims of the ’747 patent.  Clariti refused to cease sales, and Aspex filed suit.  The district court dismissed by stipulation the infringement claim for the ’545 patent, leaving only the infringement claim for the ’747 patent.

Clariti moved to dismiss the infringement claims of the ’747 patent, arguing that the suit was barred by equitable estoppel in light of Aspex’s three−year period of silence.  Clariti also moved for SJ of invalidity and of unenforceability due to inequitable conduct.  Based on the asserted equitable estoppel and inequitable conduct, Clariti moved to have the case declared “exceptional” and attorney fees awarded under 35 U.S.C. § 285.  The district court granted Clariti’s motion for dismissal on the ground of equitable estoppel but ruled that the case was not exceptional.

On appeal, the Court first addressed equitable estoppel in the context of patent infringement.  Regarding the first element, the Court found that Aspex, through misleading conduct, led Clariti to reasonably believe that Aspex did not intend to enforce the ’747 patent against Clariti.  Specifically, Aspex sent Clariti a letter claiming that the AirMag® product infringed the ’747 patent and then failed to follow up regarding that particular patent for over three years.  The Court explained that misleading conduct may include specific statements, action, inaction, or silence when there was an obligation to speak.  Aspex argued that misleading silence cannot be found unless an express charge of infringement was levied against a particular product, which Aspex had not done before the three−year period of silence.  The Federal Circuit rejected this argument, finding that Aspex’s letters to Clariti can fairly be understood as threats of suit for infringement.  Regarding Aspex’s initial letter discussing the ’747 patent and then the subsequent letter failing to mention the ’747 patent, the Court held that whether this sequence is viewed as a tacit withdrawal of the ’747 patent or as misleading silence with respect to the ’747 patent, the result is the same, for it was reasonable for Clariti to infer that Aspex was not continuing the accusation of infringement as to the ’747 patent.  Thus, the Federal Circuit agreed with the district court that Aspex’s misleading conduct led Clariti to reasonably believe that Aspex did not intend to enforce the ’747 patent against Clariti.

Regarding the second element of equitable estoppel, the Court found that Clariti relied on Aspex’s misleading conduct, pointing to the evidence that Clariti expanded its business involving the AirMag® products after Aspex did not respond to Clariti’s letter asserting noninfringement.  Evidence in the record suggested that had Aspex initially filed suit against the AirMag® products, Clariti very likely would have dropped the AirMag® line and pursued other business opportunities.  This, according to the Court, was enough to show reliance on Aspex’s silence and inaction because Clariti did not need to prove precisely what alternative paths it would have taken or that every marketing decision was based on reliance on Aspex’s silence.  Thus, the Federal Circuit agreed with the district court that Clariti relied on Aspex’s misleading conduct.

Regarding the third element of equitable estoppel, the Court found that due to Clariti’s reliance on Aspex’s misleading conduct, Clariti would be materially prejudiced if Aspex were permitted to proceed with its charge of infringement.  Prejudice, the Court explained, may be shown by a change of economic position flowing from actions taken or not taken by the patentee.  In this case, Clariti continued to develop its AirMag® business in reliance upon Aspex’s silence after its aggressive letters, which represented a significant change in economic position.  Thus, the Federal Circuit held that the district court did not err in determining prejudice based on Clariti’s commercial activities undertaken and expanded during the period of silence.

With the three elements of equitable estoppel established, the Court explained, the trial court must next weigh the equities, taking into consideration any other evidence and facts respecting the equities of the parties in exercising its discretion and deciding whether to allow the defense of equitable estoppel to bar the suit.  Here, Aspex argued that the trial court did not properly consider Clariti’s continued selling of its AirMag® products without first obtaining advice of counsel after receiving the letter about the ’747 patent, which, according to Aspex, amounted to willful infringement.  The Court disagreed.  Because Aspex later sent a letter that did not mention the ’747 patent, the Court said that Clariti had no reason to think that Aspex still believed it infringed the ’747 patent.  Thus, the Court held that the district court did not abuse its discretion in weighing the equities.

The second issue the Court addressed on appeal involved whether the district court was correct in not declaring this case exceptional under 35 U.S.C. § 285 for the purpose of awarding attorney fees.  In support of such a finding, Clariti first argued that Aspex’s misleading conduct that led to a successful charge of equitable estoppel was in bad faith, making the case exceptional.  The Court rejected this argument, explaining that defeat of a litigation position, even on SJ, does not warrant an automatic finding that the suit was objectively baseless.  Thus, the Federal Circuit held that the district court did not clearly err in ruling that the act of bringing the suit, under the circumstances that existed, did not produce an exceptional case in terms of § 285.

Clariti’s second argument supporting a finding that the case qualified as exceptional stems from alleged inequitable conduct by Aspex in procuring the ’747 patent.  Specifically, Clariti argued that the inventor of the ’747 patent and his assignee knew of a material reference and intentionally withheld it from the PTO.  The district court, however, did not hold a full trial on this issue because the SJ of equitable estoppel ended the litigation and Clariti had not made a prima facie case showing clear and convincing evidence of inequitable conduct.  The Court agreed with the district court that the circumstances of this case do not meet the threshold levels of materiality and intent necessary to establish inequitable conduct by clear and convincing evidence.  Thus, the Federal Circuit held that the district court did not abuse its discretion in ruling that inequitable conduct had not been shown and in declining to award attorney fees based on prosecution of the ’747 application.

In a dissenting opinion, Judge Rader argued that silence alone will not create an estoppel unless there is a clear duty to speak or somehow the patentee’s continued silence reinforces the defendant’s inference from the plaintiff’s known acquiescence that the defendant will be unmolested and that on SJ, such inference must be the only possible inference from the evidence.  This, according to Judge Rader, is not such a case.  In his view, the letter that Aspex sent to Clariti did not create this clear duty because it did not threaten “immediate and vigorous enforcement” of its patent rights and it did not accuse specific Clariti products.  Judge Rader further argued that Clariti did not experience material prejudice because it simply continued marketing its products, which generally does not require the same kind of investment as developing and manufacturing products.  Thus, according to Judge Rader, Aspex’s infringement claim for the ’747 patent should have survived SJ.


Summary authored by Douglas W. Meier, Esq.