IP Law Daily, PATENT—N.D. Ohio: Attorney fees awarded in floor tape dispute, (Apr 25, 2023)

By George Basharis, J.D.

Former owner of floor tape patent acted in bad faith by failing to disclose transfer of license.

A manufacturer of industrial floor tape has been awarded reasonable attorney fees and costs incurred defending a patent infringement lawsuit. The lawsuit was filed by Spota LLC against ShieldMark, Inc., but Spota LLC had transferred ownership of the patent and licensing to a third party, which it failed to disclose. According to the federal district court in Ohio, Spota acted in bad faith by misrepresenting in pleadings that it had standing to pursue its patent infringement claims against ShieldMark. The court also determined that Spota violated its obligation to protect confidential information when it filed an expert report that contained information marked by ShieldMark for “Attorneys’ Eyes Only” (Lowe v. ShieldMark, Inc., April 21, 2023, Gwin, J.).

Spota and ShieldMark are competitors in the industrial floor-tape market. In April 2019, Spota sued ShieldMark, alleging that ShieldMark's floor tape infringed on Spota's tape patent. However, in December 2021, Spota granted a permanent, “royalty-free” license to a third party for its tape patent, which meant that Spota no longer had the power to exclude others from using the patent or standing to sue ShieldMark for infringement. Despite this, Spota failed to disclose the license transfer to the trial court or ShieldMark until several months later. In addition, shortly after the transfer, Spota filed an amended complaint that deliberately misrepresented the ownership and licensing status of the patent.

Separately, Spota publicly filed an expert report that contained information ShieldMark had marked as “highly confidential.” The filing required ShieldMark to file a motion to have the report sealed and to implement a protective order.

After the case was dismissed on summary judgment, ShieldMark sought to recover attorney fees and costs under the Patent Act. Alternatively, ShieldMark sought fees and costs under civil procedure rules for discovery sanctions, as well as the court’s inherent power to impose sanctions for inequitable conduct and litigation abuses.

ShieldMark sought fees on three grounds. First, ShieldMark argued that Spota engaged in inequitable conduct before the Patent and Trademark Office (PTO) by failing to disclose ShieldMark’s existing tape patent in its application or to the examiner. Second, ShieldMark sought fees for Spota’s litigation misconduct, specifically for failing to disclose the license transfer. Finally, ShieldMark also sought fees for Spota’s disclosure of confidential information.

Following the dismissal of Spota’s patent infringement claim, the trial court found that it had jurisdiction under the Patent Act to consider ShieldMark’s counterclaim for fees. The court determined that although Spota had not engaged in inequitable conduct before the PTO, it had acted in bad faith. The court explained that an award of fees under the Patent Act is only justified in exceptional cases, and a case is considered exceptional if there was either inequitable conduct before the PTO or litigation misconduct later on.

PTO misconduct. ShieldMark alleged that Spota knew of its prior art tape patent but failed to disclose it to the PTO. However, Spota submitted a photograph of ShieldMark’s patented floor tape and noted that the tape had been on sale since before ShieldMark’s application. The court found that while the issue was a close one, ShieldMark’s conduct did not warrant a fee award. This was particularly because ShieldMark had not provided clear and convincing evidence that Spota had intended to conceal ShieldMark’s patent.

Litigation misconduct. However, the court found Spota’s failure to disclose the license transfer to be exceptional. ShieldMark had requested documents related to the ownership and licensing of Spota’s tape patent before the transfer occurred, and as a result, Spota had a continuing duty to supplement the production of those documents to disclose the transfer. Additionally, Spota “blatantly mispresented” in its amended complaint that it was still the owner of all “rights, title, and interest” in the patent. Spota argued that it did not hide the transfer because the agreement was publicly available, but the court rejected this argument since federal rules do not shield publicly available documents from discovery. Spota also argued that the failure to disclose did not matter because the case was later dismissed, but the transfer was dispositive, and ShieldMark could have moved to dismiss the case earlier, avoiding additional fees and costs. As a result, the court found that Spota acted in bad faith, and its litigation misconduct directly caused ShieldMark to incur fees and costs from December 2021 onwards.

The court also awarded fees and costs that ShieldMark incurred when it had to seal an expert report containing confidential information. Spota had argued that the report did not violate a local patent rule on the disclosure of confidential information because the information disclosed was already publicly available. However, the court held that parties cannot disclose information marked as confidential, even if it can be found in the public domain.

The Case is No. 19-cv-748.

Attorneys: Laura J. Gentilcore (Renner, Kenner, Greive, Bobak, Taylor & Weber, LPA) for Clifford A. Lowe and Spota LLC f/k/a Insite Solutions, LLC. David J. Sheikh (Lee Sheikh & Haan, LLC) for ShieldMark, Inc., Advanced Plastics, Inc. and Crown Equipment Corp.

Companies: Spota LLC f/k/a Insite Solutions, LLC; ShieldMark, Inc.; Advanced Plastics, Inc.; Crown Equipment Corp.

Cases: Patent OhioNews