Radio Sys. Corp. v. Lalor, No. 2012-1233 (Fed. Cir. Mar. 6, 2013)

http://www.cafc.uscourts.gov/images/stories/opinions-orders/2012-1233.Opinion.3-4-2013.1.PDF

In a split decision in Radio Sys. Corp. v. Lalor, the Federal Circuit partially reversed a judgment of non-infringement, allowing a patentee to avoid equitable estoppel through a later granted continuation-in-part patent and thereby pursue its infringement claims.

In February 2005, Innotek, Inc. received a demand letter from Tom Lalor and Bumper Boy, Inc. (collectively, “Bumper Boy”) accusing Innotek’s UltraSmart electronic dog collar of infringing Bumper Boy’s ‘014 patent. Innotek replied that the ‘014 patent was invalid. Bumper Boy never responded and waited over four years before taking further action against Innotek. During this time, Innotek continued to sell the UltraSmart collar, and expanded its product line to include the GS-011 and FieldPro collars. In 2006, Radio Systems acquired Innotek and then released the SD-1825 collar, which incorporated an earlier Innotek design. In 2007, Bumper Boy was issued the ‘082 patent, a continuation-in-part of the ‘014 patent.

In November 2009, Bumper Boy sent a second demand letter to Radio Systems accusing its products of infringing both the ‘014 and ‘082 patents. Radio Systems filed a declaratory judgment action for non-infringement and invalidity of the two patents. Bumper Boy counterclaimed for infringement, accusing several products based on the UltraSmart, GS-011, FieldPro, and SD-1825 designs. The ‘082 asserted claims are supported by the earlier ‘014 patent specification.

On summary judgment, the district court denied Radio System’s invalidity defense but held that three of its designs did not infringe the ‘014 or ‘082 asserted claims as construed. The district court also held that equitable estoppel barred Bumper Boy from alleging that Radio System’s UltraSmart collar infringed either the ‘014 or ‘082 patent.

The Federal Circuit affirmed the district court’s judgment of non-infringement of the three designs. The Court also affirmed that Bumper Boy was equitably estopped from claiming the UltraSmart design infringed the ‘014 patent as the required elements for equitable estoppel - misleading conduct (or silence), reliance, and material prejudice - were met. The Court relied on the district court’s findings that Bumper Boy misled Innotek through its 2005 demand letter and subsequent silence for over four and a half years, that Innotek relied on this silence by significantly expanding its product line and by being acquired by Radio Systems, and that Innotek suffered economic prejudice through its investment in new products. The Court also affirmed that Radio Systems could exercise equitable estoppel on the ‘014 patent as a successor-in-interest to Innotek with established privity.

However, the Federal Circuit reversed the district court’s application of equitable estoppel to the ‘082 patent, rejecting the district court’s approach of treating the two related patents as one in its equitable estoppel analysis. The Court stated, “[r]egardless of whether the ‘082 patent claims are supported by the subject matter in the ‘014 patent … the patents contain claims of different scope. Quite simply, the ‘082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued.” And unlike the four and a half years of silence by Bumper Boy on the ‘014 patent, the Court noted that there was no misleading conduct or silence by Bumper Boy to indicate that it did not intend to enforce the ‘082 patent against Radio Systems, nor any evidence that Radio Systems relied on such misleading conduct or silence.

Lastly, the Federal Circuit declined to review Radio Systems’ invalidity defense on appeal finding that, since a judgment of invalidity would enlarge the scope of a judgment of non-infringement, Radio Systems was required to raise this defense in a cross-appeal and not as an alternative ground for affirming the district court’s judgment.

Judge Newman dissented from the majority in two respects. First, she reasoned that equitable estoppel should have applied to the ‘082 patent: “[t]he force of equitable estoppel cannot be escaped by including previously disclosed but unclaimed subject matter in a continuation-in-part patent.” Second, Judge Newman would have permitted Radio System to raise invalidity on appeal on the basis that as the prevailing party Radio System was not required to file a cross-appeal in order to defend a judgment in its favor.