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Judge Tiscione Rules Patent Misuse Is Purged When Infringement Tainted Lawsuit Is Dismissed

On February 16, 2021, U.S. Magistrate Judge Steven L. Tiscione (E.D.N.Y.) recommended granting plaintiff Nationwide Sales and Services Inc.’s (“Nationwide”) motion for judgment on the pleadings as to patent misuse counterclaims asserted by defendant Steel City Vacuum Co. (“Steel City”).

Nationwide sells vacuum cleaners and parts in the United States.  Its products are sourced from a Chinese manufacturer that allegedly used Nationwide’s trade secrets and proprietary designs to produce Nationwide products.  Steel City is a vacuum cleaner and parts distributor, and purchased vacuum products from Nationwide as well as from various Chinese manufacturers, including the manufacturer that supplied Nationwide with its products.  Nationwide sued Steel City in November 2016 for, among other things, infringement of two U.S. patents alleging that Steel City imported directly from Nationwide’s Chinese manufacturer vacuum hose assembly parts that were covered by Nationwide’s patents.  Steel City asserted, among other things, a counterclaim of patent misuse alleging that Nationwide knew or should have known that its patent rights had already been extinguished through sale of its products to Steel City.  In May 2018, the court agreed with Steel City and granted its summary judgment motion, dismissing all claims against Steel City.

As to Steel City’s patent misuse counterclaims, Magistrate Judge Tiscione recommended granting Nationwide’s motion for judgment on the pleadings, finding that Nationwide’s alleged misuse—its claims against Steel City for infringement based on Nationwide’s own products—was purged when those claims were dismissed on summary judgment.  Because “patent misuse simply renders the patent unenforceable” until the “misconduct can be purged,” “Steel City’s claims for unenforceability no longer provide grounds for relief.”  In so holding, Magistrate Judge Tiscione rejected Nationwide’s argument that filing a claim for infringement can never constitute patent misuse, distinguishing between a patentee’s right to enforce its patents and a patentee’s attempt, as alleged here, to broaden the scope of its patent grant to cover patent rights extinguished through sale.  Finally, Magistrate Judge Tiscione rejected Steel City’s argument that the court should allow Steel City to proceed on its patent misuse claim because evidence of patent misuse may support an award of attorneys’ fees under 35 U.S.C. § 285.  The judge explained that because the misuse claims no longer “provide a plausible avenue for relief,” they must be dismissed while the issue of fees can be litigated independently.

Case:  Nationwide Sales & Servs. Inc. v. Steel City Vacuum Co., No. 16-CV-6223 (E.D.N.Y.).