When should a company facing charges of patent infringement be required to recall the accused products? A recent District of Minnesota decision noted the absence of controlling authority on that question, but ordered a recall nonetheless.
The case, Luminara Worldwide, LLC v. Liown Electronics Co Ltd., Case No. 14-cv-3103, pits two sellers of flameless candles against one another. Plaintiff Luminara owns an exclusive license to flameless candle technology invented by Disney for the Haunted Mansion ride in Anaheim, California. Luminara filed suit against Defendant Liown Electronics Co. accusing Liown of selling candles that infringe its exclusive license. Luminara sought a preliminary injunction preventing Liown from selling the accused candles to Luminara customers, and requiring Liown to recall accused candles already shipped to Luminara customers. Judge Susan Richard Nelson granted a preliminary injunction and ordered Liown to recall products from Luminara’s customers and distribution centers.
A PRODUCT RECALL IN A PATENT CASE IS UNCOMMON
An order requiring the accused infringer to recall products is uncommon in patent cases. Typically, patent owners seek money damages for sales of infringing products, rather than a product recall. Recalls are more commonly sought in trademark and copyright infringement cases. Are we in a new age where accused infringers should fear that they will be ordered to recall products? Probably not. Several factors make the Luminara case unique.
FIVE FACTORS MAKE THIS CASE UNIQUE
First, Liown may have appeared callous to a prior settlement agreement with Luminara. To resolve a prior lawsuit filed by Luminara in 2012, Liown agreed to stop selling the accused product. Liown later changed its mind and sent notice to Luminara that it “would no longer comply with the terms of” the settlement.
Second, Luminara made a “strong” showing of infringement and validity. The dispute appears to largely turn on the construction of disputed claim terms. Liown conceded that Luminara construed the disputed claim terms correctly for the purpose of the preliminary injunction motion. Judge Nelson found Luminara’s infringement arguments persuasive based on the agreed-upon constructions. In its challenge to the validity of the patent, Liown relied exclusively on a prior art patent that had been considered by the examiner during prosecution.
Third, the Court found that Luminara was irreparably harmed by the alleged infringement in three ways: (1) loss of goodwill and harm to reputation, (2) price erosion, and (3) loss of customers to Liown. In addressing loss of goodwill, the Court relied in part on Liown’s use of a similar name – “Illuminaries” – for its competing candles, and the confusion that could result. Although the court did not rest its finding that Luminara is likely to succeed on the merits on a claim for trademark infringement, the Court indicated that its finding of irreparable harm “is bolstered by the fact that Liown chose to market its moving flameless candles with a brand name that is substantially similar to Luminara’s.”
Fourth, Luminara limited the requested injunction and product recall to its customers. The issued injunction prevents the defendants from “manufacturing, distributing, offering for sale, selling or importing moving flameless candles to Plaintiff’s customers,” and requires defendants to “recall any and all moving flameless candles currently in Plaintiff’s customers’ stores or distribution centers.” Luminara did not seek an injunction preventing Liown from selling to non-Luminara customers, or requiring members of the public to return candles already purchased.
Fifth, Liown addressed the requested recall only in passing in the brief it submitted in opposition to Luminara’s motion. In one sentence, Liown asserted that the recall should be rejected as “overbroad,” and that it would “unjustly shift” the hardships to Liown. The number of customers and products involved in the recall is unclear from the parties’ submissions and the Court order. Neither Liown nor Luminara cited case law regarding the requested recall.
ABSENCE OF AUTHORITY ON RECALL STANDARDS
When evaluating Luminara’s request for a product recall, the Court noted a lack of authority identifying the legal standard that applies when a recall is sought. The Court relied on its “general equitable powers” to fashion appropriate equitable relief, and ordered the recall to “curb the loss of goodwill and harm to reputation suffered by Luminara and Disney” due to the claimed infringement.
The Court also noted a lack of authority from the Federal Circuit regarding the parameters for setting the amount of the injunction bond. Luminara sought either no bond or a nominal bond of $10,000. Liown argued that it would suffer losses “in the range of $15-20 million due to interference with its sales and customer relationships,” and sought a bond “no less than $2,000,000.”
“When courts in this District are presented with little or no substantive evidence to support a specific bond value,” Judge Nelson observed that they have ordered bond payments “ranging from $5,000 to $1 million.” Because Liown will “unquestionably suffer lost sales” as a result of the preliminary injunction, but “failed to present substantive evidence substantiating their anticipated losses,” Judge Nelson required a bond of $100,000.
KEEPING THE CANDLE BURNING
After the Court ordered Liown to stop selling to Luminara’s customers and recall the candles that had already been sold, Liown filed a motion to “Modify and Stay Preliminary Injunction Pending Reconsideration or Appeal.” The brief Liown filed in support of the motion has been sealed and is not available for review. Liown also sent a letter to the Court asking permission to move for reconsideration, which was denied. A hearing on Liown’s motion to modify and stay the injunction is scheduled for May 14, 2015.