Petition for Writ of Certiorari — Nike, Inc. v. Wal-Mart Stores, Inc.

Supreme Court, U.S.

FILED

98 19 42 JUN 4-199

0-0

No.

IN THE

SUPREME COURT OF THE UNITED STATES

NIKE, INC.,

Petitioner,

Ws

WAL-MART STORES, INC. AND

HAWE YUE, INC.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeais for the Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

MARK T. BANNER

Counsel of Record

CHRISTOPHER J. RENK

MARC S. COOPERMAN

ROBERT S. KATZ

JOSEPH P. KRAUSE

BANNER & WITCOFF, LTD.

10 S. Wacker Drive

Suite 3000

Chicago, Illinois 60606

(312) 715-1000

Counsel for Petitioner

th i

ee

-

.

(i)

QUESTION PRESENTED

The right to disgorge a design patent infringer’s “profits”

under Section 289 of the Patent Act (35 U.S.C. § 289) is a

cornerstone of the nation’s patent laws. In this case, the Federal

Circuit narrowed that right by holding that the express limitation on

the recovery of “damages” under Section 287 also limits the

disgorgement of an iniringer’s “profits” under Section 289. The

Federal Circuit recognized that its statutory interpretation “departs

from the plain words of the statute”; is “anomalous”; and rests on a

conclusion that “ambiguity has invaded an apparently clear text.”

The question presented is:

Whether the Federal Circuit improperly departed from the

admittedly “plain words” and “clear text” of Section 287 of the Patent

Act, when it held that Section 287’s limitation on the recovery of

“damages” restricts a design patent owner’s disgorgement of an

infringer’s “profits” under Section 289, notwithstanding the long-

Standing distinction in the patent laws between “damages” and

“profits.”

(ii)

LIST OF PARTIES

All parties appear in the caption of the case on the cover

page. Petitioner has no parent companies or non-wholly owned

subsidiaries.

(iii)

TABLE OF CONTENTS

QUESTION PRESENTED ........................... (i)

ctor ‘al COCE CECE (ii)

TABLE OF AUTHORITIES .......................... (v)

ptt by sotega cecil eee |

ed sie ne ed avaccce ccc... |

STATUTORY PROVISIONS INVOLVED ............... 2

STATEMENT OF THECASE ........................ 3

REASONS FOR GRANTING THE WRIT .............. )

I. The Federal Circuit’s Decision Erroneously

Abandons The Plain Language of Section 287,

and the Long-Recognized Distinction Between

I ceo veh ook 9

A.

The Plain Meaning Is Supported By This

Court’s Precedent, Which the Federal

Circuit Failed to Consider or Reconcile ..... . 10

B. The Federal Circuit Erroneously Relied

on Ambiguous Legislative History, Rather

than the Plain memtmtory Tent... oo scene 13

_ to The Plain Meaning Is Supported By

the Statutory Framework .............. 16

D. The Trademark Act’s Sister Statute

Confirms the Plain cot, EEC EE rere I8

(Iv)

II. The Issue Presented Is Ripe for This Court’s Review .. 19

A. The Federal Circuit’s Decision Will Be the Law

of the Land Without Review by This Court ... 19

B. The Federal Circuit’s Decision Raises Important

Questions About the Meaning and Scope of

this Court’s Related Decision in Aro ........ 20

III. The Federal Circuit’s Ruling Will Have a Significant

Adverse Impact on Industries That Rely on Protection

of Their Designs From “Knock-Offs” ............. 23

oi bbl. ss PP rrrreTerrrr: Tree rT rrr chia eee 26

(v)

TABLE OF AUTHORITIES

Cases

Aerogroup Int'l, Inc. v. Marlboro Footworks, Ltd.,

1997 WL, 83995 (S.D.N.Y. 1997) 2... cece ences 20)

American Med. Sys. Inc. v. Med.. Eng’g Corp.,

OF ee Seer Gs POP cure sews ev bas vesuees 1]

Aro Mfg. Co. v. Convertible Top Replacement Co.,

rg ge 6. | ee or 7,11,15,16,20-23

BFP v. Resolution Trust Co.,

Pee ey EE nc 350-5 6 oeoc5seeaedee rue 18

Cardinal Chem. Co. v. Morton Int'l Inc.,

FE A PCIE 606 0 0s-6 haa wakhd da wk eeeee 20

Churchward Int'l Steel Co. v. Bethlehem Steel Co.,

Be Fs Gre PO, POUND os 80k veo da He Pde ees 12

Commissioner of Internal Revenue y. Asphalt Prods. Co.,

ee BA BAT Oe 0 io bn noes Kee ncewe whens 16

Commissioner of Internal Revenue v. Lundy,

ee We eee ki is 0k oko se eee 17

Connecticut Nat’! Bank v. Germain,

PEP A BEE 6 baie caneciere eee 9,13

Curtis v. Loether,

OE Sh eg i SOF ice ea ce 13

Duplate Corp. v. Triplex Safety Glass Co..,

ae WD. COR CUSED) ois kon cesvvesvaveesvaens tel

Feltner v. Columbia Pictures Television, Inc.,

oe ee er oe erry Freee: 13

General Motors Corp. v. Devex Corp.,

ORE Te GON Fk verbo decks veekoueutaeee 20

Mansell v. Mansell,

Se a PE orc ee RIA eee 14-16

Ratzlaf v. United States,

Be Be Fs rrr es 14

Trans Alaska Pipeline Rate Cases,

SSO UB GPa Meee 60 Kee ccc ekctvckeeneews 14-15

Tull v. United States,

Ga UD. SEZ CISSTE ook cise ec ceudscdtaveveaauess 12

United States v. Gonzalez,

Tae alah REOOETD. dekdeactacwessaveecuseuwnas 1S

United States v. Wells,

Ae Fh. eee ep re er ee 12, 19

Current Statutes

EP Rn BLED . oe cccerencideqnaetacvsousveeeen 18, 19

BD Ure © DET occ cc cveeteevedeeece deus shesws eee es 18

Fe OA. OTA ow cee ccedviciticeddeesek denne

15,16,20,21,23

Be RAG BAS! ccc ccveedeccsinduxenet yeysenee (i),2-13,15

16,18-20,23

Be A GA ec ccccsivcegevereVeseunss (i),3-11,16-18,20

BP UN BES cee nccscncvscdesve eee eoavtseweewere™ 25

er A Se cn cnet nceees uth eee eas CRERSEE EROS 18

Previous Statutes

ACES 8 PVICTIOUR 6 66ncdckedtixnidss’ Rae 19

MBG SMI oo... .ee sends eee 10

MAS ANB TINT) ooo oo onc oesnsk¥euns seein 11

Bee SE CERES) 5 ccc censanuec dbus Crechaoeeeaen 21

(vii)

Other

Donald S. Chisum, Chisum on Patents (1998) ............. 22

Kenneth W. Dam, The Economic Underpinnings of Patent Law.

23 5. Legal Stud. 247 (1994) 2.0.0... cc ccccccccee

Reed Dickerson, The Interpretation and

Application of Statutes (1975) .........0.0.00--.. 15

Todd J. Gilman, Attorney Puts Foot Down About Sneaker

Patents; Avia Takes Shoe Pirates to Court to Protect

Design, Wash. Post, July 20,1987 ............ 23,25

Thomas J. Hoffmann, Recovery in Patent Infringement Suits,

i, Pe ee eee

ues SU Ry Re EONS 5 eu bc bs bb bees od une 15

Mohamed Yusuf M. Mohamed, Unjust Enrichment for

Patent Infringement: a Novel Idea?,

4 5, Saas. Pong. L, 123 (999R) oe ckdsiecidccci<ss B

Daniel C. Munson, The Equitable Profits and Reasonable

Royalty Remedies--an Economic Connection,

76 J. Pat. & Trademark Off. Soc’y 887 (1994) ...... 23

ee SROs FUR, BOG ET7 COGIDD ois on vice dic vee vveccccdécs< 24

Richard L. Stroup, Patentee’s Monetary Recovery From

An Infringer, 59 J. Pat. Off. Soc’y 362 (1977) ....... 22

U.S. Patent and Trademark Office, Design Patents,

January 1977 -- December 1997: A Technology

Assessment and Forecast Report, April 1998 .... 24,25

]

PETITION FOR WRIT OF CERTIORARI

Petitioner respect*ully prays that a writ of certiorari issue to

review the judgment below of the United States Court of Appeals for

the Federal Circuit.

OPINIONS BELOW

The opinion of the Court of Appeals for the Federal Circuit

is reported at 138 F.3d 1437 and is reprinted in the Appendix at

App. 1. The unreported denial of the petition for rehearing and

Suggestion for rehearing in banc is reprinted in the Appendix at

App. 38.

The opinion of the District Court for the Eastern District of

Virginia is reported at 41 U.S.P.Q.2d (BNA) 1146 (E.D. Va. 1996)

and is reprinted in the Appendix at App. 27.

The subsequent unpublished judgments of the District Court

on remand, and the Federal Circuit, are reprinted in the Appendix at

App. 39 and 43, respectively.

JURISDICTION

The Court of Appeals for the Federal Circuit affirmed the

District Court’s judgment after remand on March 5, 1999. The

Federal Circuit had reversed and remanded the District Court’s initial

judgment on March 12, 1998. The jurisdiction of this Court to review

the judgment of the Federal Circuit is invoked under

28 U.S.C. § 1254(1).

2

STATUTORY PROVISIONS INVOLVED!

35 U.S.C. § 284. Damages

Upon finding for the claimant the court shall award the

claimant damages adequate to compensate for the infringement, but

in no event less than a reasonable royalty for the use made of the

invention by the infringer, together with interest and costs as fixed by

the court.

When the damages are not found by a jury, the court shall

assess them. In either event the court may increase the damages up to

three times the amount found or assessed.

* * *

35 U.S.C. § 287. Limitation on damages and other remedies; marking

and notice

(a) Patentees, and persons making, offering for sale, or selling

within the United States any patented article for or under them or

importing any patented article into the United States, may give notice

to the public that the same is patented, either by fixing thereon the

work “patent” or the abbreviation “pat.”, together with the number of

the patent, or when, from the character of the article, this can not be

done, by fixing to it, or to the package wherein one or more of them

is contained, a label containing a like notice. In the event of failure so

to mark, no damages shall be recovered by the patentee in any action

for infringement, except on proof that the infringer was notified of the

infringement and continued to infringe thereafter, in which event

damages may be recovered only for infringement occurring after such

notice.

' The full texts of these statutes are reprinted in the Appendix.

3

35 U.S.C. § 289. Additional remedy for infringement of design patent

Whoever during the term of a patent for a design, without

license of the owner, (1) applies the patented design, or any colorable

imitation thereof, to any article of manufacture for the purpose of sale,

or (2) sells or exposes for sale any article for manufacture to which

such design or colorable imitation has been applied shall be liable to

the owner to the extent of his total profit, but not less than $250,

recoverable in any United States district court having jurisdiction of

the parties.

Nothing in this section shall prevent, lessen, or impeach any

other remedy which an owner of an infringed patent has under the

provisions of this title, but he shall not twice recover the profit made

from the infringement.

STATEMENT OF THE CASE

This is a case of pure statutory construction, the results of

which raise fundamental questions regarding the enforcement of the

nation’s patent laws. The Federal Circuit curtailed a design patent

owner’s right to disgorge an infringer’s profits by holding that the

limitation on the recovery of “damages” in Section 287 also restricts

the disgorgement of an infringer’s “profits” in Section 289. In order

to do so, the Court made a shambles of statutory interpretation

principles. The Federal Circuit explicitly recognized that to reach its

“anomalous” conclusion it had to “depart|] from the plain words of

the statute” and allow “ambiguity to invade[{] an apparently clear

text.” App. 20, 6.

‘Because the Federal Circuit has nationwide exclusive

jurisdiction of patent appeals, there is no possibility that any court of

appeals will reach a contrary conclusion, or that the issue will

“percolate” in the courts of appeals. In the absence of this Court’s

review, the Federal Circuit’s unabashed judicial rewriting of the

4

patent laws, with its profound importance on the enforcement of

intellectual property rights, will be the supreme law of the land. At the

very least, the issue is of sufficient importance that it should be

reviewed and considered by this Court.

1. Summary of the Case. This case arises out of a

design patent infringement suit filed vy the Petitioner, Nike, Inc.

against the Respondents, Wal-Mart Stores, Inc. and Hawe Yue, Inc.

in the U.S. District Court for the Eastern District of Virginia. Nike

alleged that Wal-Mart and Hawe Yue were infringing Nike’s design

patent no. D348,765 for the ornamental design of its “Air Mada Mid”

shoe. The District Court found that respondents reaped more than $6

million in “profits” from their infringement of Nike’s patent, and,

pursuant to Section 289, initially ordered a return of those profits to

the patent owner, Nike.* After the Federal Circuit held that Section

287’s limitation on “damages” also restricts the disgorgement of

infringers’ “profits” under Section 289, the District Court reduced its

award to Nike on remand by more than 75% to $1.4 million.

y 2 Statutory Framework. The 1952 Patent Act, codified

as Title 35, authorizes the United States Patent and Trademark Office

to issue several types of patents. A design patent protects the

ornamental design or “look” of articles of manufacture. In contrast,

a utility patent protects the useful nature of inventions such as

processes and machines.

Section 284 of the Patent Act permits a patent owner to

recover its “damages” adequate to compensate the patent owner for

the losses it suffered due to the infringement. This is a remedy for

both utility and design patents.

? The initial judgment is believed to be the largest design patent award

in American history.

3

Under Section 287, the recovery of “damages” is limited if

the patent owner fails to mark patented products with the patent

number: “In the event of failure to so mark, no damages shall be

recovered by the patentee in any action for infringement... .”

(emphasis added). There is no reference to limiting the additional

design patent remedy of an infringer’s profit (see below) in the Section

287 limitation on “damages.”

Congress specifically codified at Section 289 an “additional

remedy” for infringement of a design patent, such as the one at issue

in this case. Under this section, in addition to recovering its

“damages,” a design patentee can disgorge the “profit” of a design

patent infringer.

3. District Court Proceedings. In 1996, Nike filed a

patent infringement suit against respondents Wal-Mart and Hawe

Yue. Nike maintained that respondents had infringed valuable

intellectual property — Nike’s design patent on its distinctive “Air

Mada Mid” shoe (shown below) — and reaped lucrative profits from

the infringement. Pursuant to Section 289 of the Patent Act, Nike

sought disgorgement of the infringers’ profits. Nike did not seek

recovery of its damages under Section 284. Senior Judge Bryan first

concluded that Nike’s design patent was not invalid and that

respondents had infringed it. Accordingly, Judge Bryan found that the

only remaining issue was the remedy for respondents’ infringement of

Nike’s patent.

Wal-Mart and Hawe Yue argued to the district court, inter

alia, that because Nike had not marked all of the shoes covered by the

patented design, it had not complied with Section 287. According to

the Respondents, Section 287’s express limitation on the recovery of

“damages” equally applied to the disgorgement of an infringer’s

“profit” under Section 289. The required result, according to Wal-

Mart and Hawe Yue, was to preclude Nike from disgorging their

profits in the case.

Judge Bryan disagreed, emphasizing the clear distinction in

the statutory text between the limitation on the recovery of “damages”

in Section 287 and the absence of such a limitation on the

disgorgement of an infringer’s “profit” in Section 289. He explained:

The statute that limits recovery in cases where there

is no marking refers only to damages. Historically,

of course, disgorgement, which is really what the

plaintiff seeks in its action for the infringers’ profits,

was not considered a recovery of damages, but an

equitable remedy to restore to the property owner

profits made by an infringer’s use of another’s

property.

7

App. 31 (emphasis added). He relied on the decisions of this Court,

such as Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S.

476 (1964), that “are instructive in their reminders of the ‘long-

standing’ and ‘important’ distinction in patent law between damages

and profits.” App. 31. He reasoned that “Congress is assumed to have

meant what it said,” and concluded that “the limitations imposed by

Section 287(a) are not applicable to an action seeking recovery of an

infringer’s profits pursuant to Section 289.” App. 32.

Judge Bryan found that Wal-Mart had sold more than

520,000 pairs of infringing shoes for a profit of more than $5.6

million, and that Hawe Yue had sold more than 599,000 infringing

pairs for a profit of approximately $372,000. Accordingly, pursuant

to Section 289, Judge Bryan disgorged these amounts from the

infringers and awarded them to Nike.

4. Federal Circuit Opinion. The Federal Circuit reversed

Judge Bryan, holding that the limitation on the recovery of the

patentee’s “damages” in Section 287 applies to the disgorgement of

the intringer’s “profits” as well, even though the statutory section at

issue refers only to “damages.” The Federal Circuit remanded the case

to the District Court for a determination of whether Nike complied

with Section 287’s marking requirements, and a commensurate

recalculation of profits to be disgorged from the infringers.

Candidly conceding that its interpretation “departs from the

plain words of the statute” (App. 6), the Federal Circuit, nonetheless,

concluded that “[t]he statutory history establishes that the marking

requirement [of Section 287] has always applied, and continues to

apply, to both recovery of the infringer’s profit under § 289, and

recovery of damages, however measured, under § 284.” App. 6.

Despite the clarity of Section 287, the Federal Circuit surveyed

legislative history, prior versions of the patent statutes, and case law

decided years before enactment of the current patent statute. The

8

Court justified its abandonment of the plain text upon its

characterization of the canons of Statutory construction:

Although a statute clear on its face does not warrant

resort to history, inquiry is proper to determine

whether ambiguity has invaded an apparently clear

text.

App. 6.

In its analysis the Federal Circuit briefly acknowledged this

Court’s decision in Aro and the conclusion reached there that the term

“damages” in Section 284 does not include an infringer’s “profits.”

The Court, nonetheless, concluded that “damages” in Section 287

does include an infringer’s “profits,” justifying “the anomaly we today

observe” as “a rare example wherein a term has a different scope in

different provisions of a now-consolidated statute.” App. 14, 17-18.

On March 25, 1998, Nike filed a Combined Petition for

Rehearing and Suggestion for Rehearing In Banc. The Federal Circuit

denied Nike’s combined petition and Suggestion for rehearing on May

7, 1998. App. 38.

~ Further Proceedings on Remand. On remand, the

District Court concluded that Nike’s marking of its patent number on

its Air Mada Mid shoes did not satisfy Section 287’s provisions,

despite the fact that Nike reached “full marking” of its shoes by

December 1994 (App. 40), and the infringers’ first sales were not

until several months later in April 1995. App. 3. Consistent with the

Federal Circuit’s interpretation that Section 287’s limitation on

“damages” also limits the disgorgement of an infringer’s “profit”

under Section 289, the District Court reduced Nike’s recovery by $4.7

million, thus allowing the infringers to retain more than three-fourths

of the profits they obtained from the violation of Nike’s patent.

App. 39.

9

On March 5, 1999, the Federal Circuit affirmed the District

Court’s new judgment without opinion. App. 43.

REASONS FOR GRANTING THE WRIT

This case presents a critically important issue of statutory

construction under the nation’s patent laws. The Federal Circuit’s

resolution of the question is blatantly erroneous and, in the Court’s

own words, leads to an admittedly “anomalous” result. App. 20; the

issue is ripe for this Court’s review; and the issue has enormous

practical consequences for numerous American industries that depend

on design protection from unscrupulous copyists.

I. The Federal Circuit’s Decision Erroneously Abandons

The Plain Language of Section 287, and the Well-

Recognized Distinction Between “Damages” and

“Profits.”

The Federal Circuit incorrectly construed the meaning of

Section 287. The Court candidly conceded that its interpretation

“departs from the plain words of the statute.” App. 5-6. None of the

justifications offered by the Court for departing from the plain

language is tenable. The Federal Circuit should have heeded this

Court’s admonition to lower courts that consider straying from the

plain language: “[w]hen the words of a statute are unambiguous, then

this first canon is also the last.” Connecticut Nat’l Bank v. Germain,

503 U.S. 249, 254 (1992). This Court should not let this example of

judicial legislation stand.

10

A. The Plain Meaning Is Supported By This Court’s

Precedent, Which the Federal Circuit Failed to

Consider or Reconcile.

The Federal Circuit attempted to justify its flight from the

plain language by asserting that the case law at the time of the

enactment supports its interpretation. In fact, however, the relevant

case law at the time of the enactment of Section 287 strongly

reinforces the distinction between “damages” and “profits” in the

patent laws, and refutes the Federal Circuit’s decision.

The supposed “great weight of authority” (App. 16) relied on

by the Federal Circuit in support of its detour from the plain language

of Section 287 is unavailing. Each of the cited appellate court cases

predated the revision leading to the current design patent statute —

Section 289. Specifically, in 1952, Congress eliminated from the then

existing design patent statute (35 U.S.C. § 74 (1946)) the phrase

“knowing that the same has been so applied.” App. 70, 69. That is,

every case was decided at a time when the precursor design patent

Statute, by its express terms, required knowledge of the patent. Any

prior notice requirement under the design patent statute was

eliminated by the amendment in the 1952 Act. By holding to the

contrary — that notice is required to recover under Section 289 — the

Federal Circuit turned on its head this plain Congressional expression

that notice of the patent is irrelevant under the design patent statute.

The Federal Circuit ignored the relevant precedent — this

Court’s decisions concerning the long-standing distinction between

“damages” and “profits” under the Patent Act. Significantly, this

Court’s discussion in Duplate Corp. v. Triplex Safety Glass Co., 298

U.S. 448 (1936) of the differences between “damages” and “profits”

in the patent laws was already standing precedent at the time Congress

amended the patent laws in 1952. In Duplate, this Court explained

that “in patent nomenclature what the infringer makes is ‘profits,’

1]

what the owner of the patent loses by such infringement is

‘damages.”” Jd. at 451. Not once did the Federal Circuit address

Duplate.

So too was this Court’s decision in Aro Mfg. Co. v.

Convertible Top Replacement Co., 377 U.S. 476 (1964), brushed

aside by the Federal Circuit. There, this Court revisited the “profits”

vs. “damages” question, and reaffirmed the “important distinction” in

the patent laws between “damages” and “profits.” 377 U.S. at 505.

This Court concluded that the word “damages” in Section 284 did not

also include an infringer’s “profits.” Jd. at 505-06. The dichotomy

between the meaning of “damages” in Section 284 and the flatly

contradictory meaning of “damages” ascribed below by the Federal

Circuit in Section 287 did not concern the Federal Circuit. Rather, the

Court simply highlighted its error by pointing out that its decision

leads to “the anomaly we today observe, where the word ‘damages’

has different meanings in different provisions of Title 35.” App. 14.

Notwithstanding the Federal Circuit’s treatment of the issue,

Congress had Duplate to consider when it removed the infringer’s

knowledge requirement from Section 289 in 1952, and when it relaxed

the notice provisions of Section 287 at the same time.* Congress had

both the Duplate and Aro decisions when it again amended Section

287 in 1988.* The existence of this Court’s relevant precedent

* tn 1952, Congress amended R.S. 4900 to become the present section

287(a), changing the language to make marking permissive rather than mandatory,

so that a ‘[p]atentee. . . may give notice to the public’ by the specified

marking.” American Med. Sys. Inc. v. Med.. Eng’g Corp., 6 F.3d 1523, 1535 (Fed.

Cir. 1993)(emphasis in original). The precursors to Section 287 made reference

only to “damages” and not to “profits.” App. 66, 67.

* Inthe 1988 amendment, Congress added subsection (b) to Section 287,

relating to limitations on remedies for product by process patents. The amendment

did not address limitations on remedies for design patents. App. 59.

12

—

concerning the meaning of “damages” in the Patent Act predating

Congress’ actions undoubtedly supports the plain meaning of Section

287 — the interpretation that the Federal Circuit rejected below. See

United States v. Wells, 519 U.S. 482, 495 (1997) (Congress expects

its statutes to be read in conformity with Supreme Court precedent).

Standing in contrast to the Federal Circuit, Judge Bryan relied

on the historic differences between “damages” and “profits,” and this

Court’s decision in Aro, in reaching his decision in the district court

that Section 287 should be read literally. App. 31. Judge Bryan also

discussed the “persuasive case” of Churchward Int'l Steel Co. v.

Bethlehem Steel Co., 262 F. 438 (E.D. Pa. 1919), rev'd on other

grounds, 262 F. 361 (3d Cir. 1920), cert. denied, 255 U.S. 572

(1921). Churchward expresses one policy reason for applying the

marking statute to limit recovery of a patentee’s damages, but not to

limit the disgorgement of an infringer’s “profits”:

Damage implies hurt, and the one who is hurt knows

it, and knows when, and usually how and by whom

he is hurt. He may therefore well be required to give

notice, and because otherwise an innocent user may

be punished and be put to a loss. . . . The fact that an

infringer is an innocent infringer without notice is a

reason for relieving him from the payment of

damages .. . . It is no reason for permitting him to

retain profits which belong to another. The fact that

he is innocent does not give him title to the property

of another.

Churchward, 262 F. at 443.

This underlying restitutional purpose of the equitable

“profits” remedy has been embraced by this Court, and discussed in

contrast to the legal remedy of “damages” in various contexts. See

Tull v. United States, 481 U.S. 412, 424 (1987) (Clean Water Act —

13

“An action for disgorgement of [ | profits . . . is a remedy for

restitution. . . . Restitution is limited to ‘restoring the status quo and

ordering the return of that which rightfully belongs to the purchaser

or tenant.””); Feliner v. Columbia Pictures Television, Inc., 118 S.

Ct. 1279, 1282, 1284-88 (1998) (Copyright Act — Remedy of

Statutory damages is more akin to damages at law, rather than an

equitable disgorgement of profits, resulting in the right to a jury trial

under the Seventh Amendment); Curtis v. Loether, 415 U.S. 189,

196-97 (1974) (Unfair housing provisions of Title VII] —

Contrasting “damages” sought under Title VIII with other equitable

monetary remedies).

In light of this Court’s guiding precedent concerning the

“important distinction” in the patent laws between “damages” and

“profits,” the Federal Circuit’s justification for abandoning the plain

language of Section 287 is unavailing. This Court, at a minimum,

should review the Federal Circuit’s decision to diverge from

Congress’ plain language. See Connecticut Nat’l Bank, 503 U.S. at

253-54 (“We have stated time and again that courts must presume

that a legislature says in a statute what it means and means in a

Statute what it says there.”’).

B. The Federal Circuit Erroneously Relied on

Ambiguous Legislative History, Rather than the

Plain Statutory Text.

The Federal Circuit’s decision misapplied the controlling

Supreme Court authorities on statutory construction. In so doing, the

court formulated a way to inject uncertainty into a statute admittedly

plain on its face:

Although a statute clear on its face does not warrant

resort to history, inquiry is proper to determine

whether ambiguity has invaded an apparently clear

ee

14

text. Cf. Mansell v. Mansell, 490 U.S. 581, 592

(1989) (requiring “clear evidence that reading the

language literally would thwart the obvious purposes

of the Act”); Trans Alaska Pipeline Rate Cases, 436

U.S. 631, 643 (1978). Our inquiry into the parallel

but separate evolutions of the marking statute and

the remedies statutes has led us to an interpretation

that departs from the plain words of the statute.

App. at 6. The Federal Circuit’s analysis resulted in an improper and

unnecessary foray into legislative history. The decision stands as a

highly erroneous paradigm of statutory construction that this Court

should correct.

Neither the Mansell nor Trans Alaska cases cited by the

Federal Circuit support a survey of legislative history to “determine

whether ambiguity has invaded an apparently clear text.” The Federal

Circuit’s use of “Cf” as a signal in its citation to this authority

confirms as much. Neither case is sufficiently analogous as to

support the proposition cited. In fact, both Mansell and Trans Alaska

interpret the statutes involved according to their plain words. This is

so even though the literal language of the statutes at issue led to

arguably harsh results. The remedy, said the Supreme Court in both

cases relied on by the Federal Circuit, is for Congress to provide, not

for the courts to legislate.

Rather than support the interpretive technique embraced by

the Federal Circuit, Supreme Court precedent squarely rejects the

approach to statutory interpretation adopted below. In Ratzlaf v.

United States, this Court warned that “we do not resort to legislative

history to cloud a statutory text that is clear.” 510 U.S. 135, 147-48

(1994). It is hard to imagine a statement more at odds with the Federal

Circuit’s pronouncement below that “inquiry [into legislative history |

is proper to determine whether ambiguity has invaded an apparently

15

clear text.” App. 6. See also United States v. Gonzalez, 520 U.S. 1, 6

(1997) (“Given the straightforward statutory command, there is no

reason to resort to legislative history. Indeed, far from clarifying the

Statute, the legislative history only muddies the waters.”) (internal

citation omitted).

Nor does correct application of the Mansell and Trans Alaska

precedent support the decision below to ignore the plain language of

Section 287. Both cases endorse an interpretive method that departs

from the plain language of a statute only if there is “clear evidence

that reading the language literally would thwart the obvious purposes

of the Act.” Mansell, 480 U.S. at 592 (emphasis added). Because the

legislative history and Congressional purpose in revising the Patent

Act is fraught with ambiguities, the Federal Circuit’s forray from the

plain language of the statute is unjustified, even under the very

precedent it cites.

The confusing nature of the legislative history is exemplified

by H.R. Rep. No. 1587. This one and a half page report was issued

in 1946, and concerned the changes to Section 284 including whether

an infringer’s “profits” would be included in the statutory phrase

“general damages.” The Federal Circuit concluded that Report

showed that Congress intended “general damages” to include an

infringer’s “profits.” App. 12. Justice Brennan in Aro, however,

reached the exact opposite conclusion when considering the identical

Report. Aro, 377 U.S. at 505-506 (“The purpose of the change was

precisely to eliminate the recovery of profits as such and allow

recovery of damages only.”).°

> Given the murky legislative history, perhaps the Federal Circuit should

have followed one author’s sarcastic advice that “whenever the legislative history

is ambiguous it is permissible to refer to the statute.” Reed Dickerson, The

Interpretation and Application of Statutes, 164 (1975).

err |

16

Because the Congressional purpose in amending the Patent

Laws in this case is far from clear, the Federal Circuit should have

adopted the plain meaning of the statutory language. The Federal

Circuit’s failure to do so runs afoul of the very precedent of this Court

cited below. See Mansell, 490 U.S. at 594 (“Given Congress’ mixed

purposes, the legislative history does not clearly support Mrs.

Mansell’s view that giving effect to the plain and precise language of

the statute would thwart the obvious purposes of the Act.”). The

Federal Circuit’s decision serves as a highly erroneous example of

Statutory construction under which courts can look outside plain

language of a statute to find statutory terms that are non-existent. The

decision warrants review by this Court. See Commissioner of Internal

Revenue v. Asphalt Prods. Co., 482 U.S. 117, 120 (1987) ( granting

certiorari because the appellate court holding “is in obvious conflict

with the plain language of the statute.”’).

c. The Plain Meaning Is Supported By The

Statutory Framework.

1. The Term “Damages” Should Be

Consistently Interpreted Within the Act.

Congress codified Sections 284, 287 and 289 all under

Chapter 29 (“Remedies For Infringement of Patent, and Other

Actions”) of the Patent Laws. In Aro, this Court concluded that

“damages” in Section 284 did not include an infringer’s “profits.” To

conclude that within the same Chapter, only three sections later at

Section 287, Congress intended “damages” to have the exact opposite

meaning would pervert the law. Yet, that is precisely whai the Federal

Circuit did below. Besides challenging common sense, that result is at

odds with a fundamental canon of statutory construction recognized

by this Court:

17

The interrelationship and close proximity of these

provisions of the statute presents a classic case for

application of the “normal rule of statutory

construction that identical words used in different

parts of the same act are intended to have the same

meaning.”

Commissioner of Internal Revenue v. Lundy, 516 U.S. 235, 249-50

(1996) (holding that the term “claim” in Section 6512 of 26 U.S.C.

had the same meaning as “claim” in Section 651 1(a)).

y & Congress Clearly Distinguished Between

“Damages” and “Profits” Within the Act.

In two sections of Title 35 Congress expressly distinguished

between the “additional remedy” of an infringer’s “profit” and a

patentee’s “damages.” The first reference of the additional remedy is

in Section 289 itself where Congress grants design patent owners the

right to recover the “profit” of the infringer. No attempt is made to

equate this remedy with “damages” within the Section. Rather,

Congress expressly distinguished this “additional” remedy from other

remedies such as damages, in the second paragraph of Section 289

where it clarifies that “|n]jothing in this section shall prevent, lessen,

or impeach any other remedy which an owner of an infringed patent

has under the provisions of this title . . . .” (emphasis added).

Only seven years ago, in 1992, Congress again confirmed that

it intentionally distinguished between “damages” and “profit” within

the Patent Act. It added to Chapter 29 a new section to abrogate the

States’ Eleventh Amendment immunity from suit under the Patent

Laws. Clarifying the potential extent of liability, Congress listed the

remedies that could be obtained against a State:

Such remedies include damages, interest, costs, and

treble damages under section 284, attorney fees

18

under section 285, and the additional remedy for

infringement of design patents under section 289.

35 U.S.C. § 296(b) (emphasis added). App. 72. This most recent

statement by Congress makes its intent to differentiate between

“damages” and “profit” within the Act unmistakable, and further

supports the plain and ordinary construction rejected by the Federal

Circuit. See BFP v. Resolution Trust Co., 511 U.S. 531, 537 (1994)

(“[I]t is generally presumed that Congress acts intentionally and

purposely when it includes particular language in one section of a

statute but omits it in another.”).

D. The Trademark Act’s Sister Statute Confirms the

Plain Meaning.

In 1946, not only did Congress amend the Patent Laws, it also

turned its attention to the related trademark laws, now codified at Title

15. As remedies for trademark infringement, Congress provided for

the recovery of both “defendant's profits” and “any damages sustained

by the plaintiff.” 15 U.S.C. § 1117 (1998). More significantly,

Congress enacted a sister provision under the Lanham (Trademark)

Act to the Section 287 notice provision under the Patent Act, that

limits the remedies of a trademark owner.

At current Section 1111 of the Lanham Act, Congress stated

the consequences to the owner of a registered trademark who did not

mark its products with the registered trademark symbol ®:

Notwithstanding the provisions of section 22 hereof,

a registrant of a mark registered in the Patent Office,

may give notice that his mark is registered by

displaying with the mark the words "Registered in U.

S. Patent and Trademark Office" or "Reg. U.S. Pat.

& Tm. Off." or the letter R enclosed within a circle,

thus ®; and in any suit for infringement under this

19

Act by such a registrant failing to give such notice of

registration, no profits and no damages shall be

recovered under the provisions of this Act unless the

defendant had actual notice of the registration.

15 U.S.C. § 1111 (1994) (emphasis added).° App. 73.

The explicit inclusion of both “profits” and “damages” in the

Lanham Act marking statute unquestionably demonstrates what

Congress intended in the parallel provision under the Patent Act,

Section 287. If Congress meant to require marking of a patent number

as a prerequisite to disgorgement of an infringer’s profit, it would

have done what it did do in the Lanham Act — make express

reference to “profits.” This contemporaneous statute confirms the

natural reading of Section 287. It also sounds the death knell to the

Federal Circuit’s detour from the plain statutory language. See United

States v. Wells, 519 U.S. at 492 (Relying on Congress’ express

inclusion of the term “materiality” in other statutes to confirm the

“natural reading” of the statute at issue that did not include

“materiality.”).

Il. The Issue Presented Is Ripe for Tiiis Court’s Review.

A, The Federal Circuit’s Decision Will be the Law of

the Land Without Review by This Court.

Unlike most cases, there is no possibility that other courts of

appeal will reach a different conlusion from the Federal Circuit on the

issue presented. Pursuant to 28 U.S.C. § 1295(a)(1), the Federal

Circuit has exclusive jurisdiction over appeals in all patent cases

throughout the United States. There is no opportunity for the question

° The text of the predecessor to Section 1111, passed by Congress in

1946, also expressly deciared that “no profits and no damages shall be recovered”

in a suit for infringement. 15 U.S.C. § 1111 (1946). App. 74.

20

to “percolate” among the other circuits. As in this case on remand, all

district courts throughout the nation now are bound to follow the

dictates of the Federal Circuit’s decision below.’ The nature of the

Federal Circuit’s exclusive review of all patent appeals makes its

interpretation of Section 287 below a matter of special importance,

and worthy of review by this Court. See Cardinal Chem. Co. v.

Morton Int'l Inc., 508 U.S. 83, 89 (1993)(“Because the Federal

Circuit has exclusive jurisdiction over appeals from all United States

District Courts in patent litigation, the rule that it applied in this case

... 1S a matter of special importance to the entire Nation” — granting

certiorari).

B. The Federal Circuit’s Decision Raises Important

Questions About the Meaning and Scope of this

Court’s Related Decision in Aro.

In addition to departing from the plain meaning of Section

287, the Federal Circuit decision also departs from this Court’s

decision in Aro Mfg. Co. v. Convertible Top Co., 377 U.S. 476

(1964) — the last time this Court addressed the “damages” available

to an aggrieved patent owner under Title 35.° In light of the questions

raised about Aro by the decision below, it is important for this Court

to address the issue presented.

” Indeed, before the Federal Circuit’s decision, a second district court

reached the same conclusion that Judge Bryan originally made concerning Section

287. Aerogroup Int’l, Inc. v. Marlboro Footworks, Ltd., 1997 WL 83395, at *5-6

(S.D.N.Y. 1997) (concluding that Section 287 does not apply to limit disgorgement

of an infringer’s profits under Section 289).

5 The only other Supreme Court decision regarding the remedies

available under the modern Patent Laws is General Motors Corp. v. Devex Corp..

461 U.S. 648 (1983). There, this Court held that prejudgment interest should

normally be awarded to a successful patent owner under Section 284. /d. at 657.

21

In an opinion authored by Justice Brennan, this Court in Aro

first decided the questions there at issue concerning liability for

infringement under the Patent Laws. In the final portion of the Aro

opinion, Section IV, Justice Brennan turned to the issue of the

remedies available to the patent owner in the case although the issue

had not been tried or argued below.’ Specifically, the Court

considered the meaning of the term “damages” in Section 284, to

determine whether it permitted the recovery of the “profits” of the

infringer. Justice Harlan did not join in the views expressed in Section

IV because he considered the matters dealt with there “not ripe for

decision,” rendering that Section a plurality opinion. Aro, 377 U.S. at

502 n.18.

The Court addressed the 1946 Amendment to the Patent Laws

and its effect on the remedies available. Contrasting the present text

of Section 284 to the prior remedial statute.'° the plurality stressed

that Section 284 makes reference to only “damages.” The Court

concluded that the purpose of the change “was precisely to eliminate

the recovery of profits as such and allow recovery of damages only.”

Id. By “allowing the recovery of ‘damages’ only,” the congressional

purpose had been carried out — the remedy of Section 284, permitting

” Justice Brennan commented on the propriety of Section IV: “It is true

that the lower courts have not yet expressly addressed themselves to the damages

issue, and that the parties have not argued it here. Nevertheless . . . because

expression of our views may obviate the need upon remand for lengthy proceedings

before a master in this already over-long litigation, we deem it in the interest of

efficient judicial administration to express those views at this time.” Aro, 377 U.S.

at 502.

'° Prior to 1946, the statutory precursor to Section 284 read: “[U]pon a

decree being rendered in any such case for an infringement the complainant shall

be entitled to recover, in addition to the profits to be accounted for by the

defendant, the damages the complainant has sustained thereby ... .” R.S. § 4921

(emphasis added). App. 48.

9

the recovery of “damages,” did not permit the recovery of an

infringer’s “profits.” Aro, 377 U.S. at 512.

Since the 1946 Patent Act and the Aro decision, the vast

majority of courts (including the Federal Circuit itself) have followed

the plurality opinion. In his leading treatise on Patent Law, Professor

Chisum lists lower court decisions concerning the award of an

infringer’s profit subsequent to Aro. 7 Donald S. Chisum, Chisum on

Patents § 20.02[4]|c] at 20-74, n.36 (1998). Nonetheless. reactions

to the plurality’s opinion in Section IV of Aro have been divided. At

least one author argues that because Part IV of Aro was unnecessary

for the decision of the case, it should be dismissed as “ober dictum.”

Thomas J. Hoffmann, Recovery in Patent Infringement Suits, 11

IDEA 89, 104 (1967) (“Part IV should be given the weight accorded

the minority opinion in a 5-4 decision.”). Professor Chisum questions

the “precedential force” of the Part IV analysis of Aro. Justice

Brennan’s statement that the Congressional purpose of the 1946 Act

was “clear” and with “no doubt” also “weakens” the opinion

according to Professor Chisum, because the plurality’s analysis did

not “[consider] the alternative interpretation supported by other

portions of the legislative history . .. .” Chisum, supra, § 20.02[4][b]

at 20-71."'

‘ Compare Richard L. Stroup, Patentee’s Monetary Recovery From An

Infringer, 59J. Pat. Off. Soc’y 362, 372-73 (1977) (“Since the Aro decision. . . the

courts have not agreed as to the proper use of an infringer’s profits in the

determination of the damage remedy.”); Kenneth W. Dam, The Economic

Underpinnings of Patent Law, 23 J. Legal Stud. 247, 256 (1994) (“No matter that

neither the language of the statute nor the legislative history required this change

in the law. As in other cases we shall come to, the Supreme Court found a way to

limit the strength of the patent right by limiting its value in infringement

litigation.”); and Mohamed Yusuf M. Mohamed. Unjust Enrichment for Patent

Infringement: a Novel Idea?, 4 J. Intell. Prop. L.123, 156 (1996) (“Congress did

not intend this result. In fact, the very House Report that the Supreme Court cited

did not mention an intent to eliminate recovery of the defendant's profits.”); with

23

Whether it should be characterized as dictum, or not, Aro’s

discussion of the term “damages” in Section 284 is intimately

intertwined with the Federal Circuit’s decision below concerning the

meaning of the term “damages” in Section 287. Indeed, the Federal

Circuit specifically acknowledged the Aro decision, but came to a

conclusion at odds with the plurality Opinion, causing what it

characterized as “the anomaly we today observe” — “a rare example

wherein a term has a different scope in different provisions of a

now-consolidated statute.” App. 17-18.

This case presents an opportunity for this Court to speak as

a majority and remove any ambiguity resulting from the plurality

opinion in Aro. An opinion from this Court giving clear guidance on

the meaning of “damages” is warranted not only by the commentary

cited above — a definitive statement from this Court will also likely

prevent such “anomalies” as the Federal Circuit decision below from

recurring in the future.

Ill. The Federal Circuit’s Ruling Will Have A Significant

Adverse Impact On Industries That Rely on Protection of

Their Designs From “Knock-Offs.”

Intellectual property piracy is not a new problem. Over ten

years ago, in 1987, the International Trade Commission estimated that

U.S. business lost between $8 billion and $20 billion a year to look-

alikes. Todd J. Gilman, Attorney Puts Foot Down About Sneaker

Patents; Avia Takes Shoe Pirates to Court to Protect Design, Wash.

Post, July 20, 1987, at F03. More recently, during its passage of the

Daniel C. Munson, The Equitable Profits and Reasonable Royalty Remedies--an

Economic Connection, 76 J. Pat. & Trademark Off. Soc'y 887, 888 (1994) (“An

award based on profits made by the defendant seems precluded by the statutory

language. The statutory language speaks only of damages.”’)

24

Anticountefieting Consumer Protection Act of 1996, Congress

elaborated on the impact of product piracy on society:

Today, counterfeit products cost American

businesses an estimated $200 billion each year.

Counterfeiting is a drain on the American economy,

on the Federal treasury, and costs American jobs.

S. Rep. No. 104-177, at 1 (1995).

Injunctions, often granted or even voluntarily agreed to by

putative defendants, do little to prevent future infringement of other

products because the profits obtained remain in the hands of the

infringer. Often the only effective deterrent to the companies

responsible for the piracy is to disgorge the ill-gotten profits made

from the infringing sales. In fact, because the infringing products are

often identical copies of the patented design, infringement is often

uncontested, leaving only the remedy to be determined.

By requiring patent owners to mark their products with a

patent number as a condition precedent to disgorging an infringer’s

profit, the desired deterrent effect on “knock-offs” will be lost. The

reality of many consumer product markets, such as footwear, fashion,

and electronics,’ is that by the time a design patent finally issues,

most of the patentee’s products have already been shipped (without

patent numbers). As observed by Michael W. Blommer, the former

Executive Director of the American Intellectual Property Law

Association:

- According to the Commerce Department, since 1977, Nike has

obtained the fourth most design patents (666) of any company. The other top ten

companies are Sharp (927), Canon (843), Motorola (737), Matsushita Electric

(Panasonic) (646), IBM (628), Sony (628), Dart Industries (578), Goodyear (557)

and Toshiba (557). U.S. Patent and Trademark Office, Design Patents, January

1977 -- December 1997: A Technology Assessment and Forecast Report, at B-1,

April 1998 [hereinafter Design Patent Report}.

25

In footwear and fashion, items go out of style faster

than patents get granted . . . In the area of designs,

sometimes the market’s passed you by by the time

the patent issues. Manufacturers like Reebok [and

Nike], they’re constantly changing the styles of their

shoes. They’re going to start selling their shoes while

the patent is pending. The knock-off artists are in

and out of the market in a year or two.

Gilman, supra, at FO3.

The data sustain Mr. Blommer’s statements even today.

According to the Commerce Department, the average time between

filing and issuance of a design patent is about 20 months. Design

Patent Report, supra, at 1. In an effort to enhance the protection of

its shoe designs, Nike has instituted procedures geared to obtain

expedited design patents from the Patent Office. As the Federal

Circuit noted in the opinion below, Nike was successful with the

design patent at issue — securing its issuance from the Patent Office

in slightly over nine months. App. 2. The prompt receipt and

enforcement of Nike’s design patent led to the initial record judgment

below of $6 million against Respondents.

Nike also marked a significant number of its patented shoes

with its patent number after issuance of the patent.'* Nike reached

“full marking” of its shoes by December 1994 (App. 40), and the

infringers’ first sales were not until several months later in April

1995. App. 3. From Nike’s perspective, this case likely exemplifies

the highest percentage of marking that Nike could reasonably

accomplish. Yet, on remand from the Federal Circuit’s decision, the

Marking is not possible until the patent issues — when the patentee

learns its patent number from the Patent Office. Indeed, “false marking” is

punishable by fine under the Patent Act. 35 U.S.C. § 292.

26

district court below concluded that Nike had not satisfactorily marked

its shoes. In accordance with the Federal Circuit’s opinion, the court

reduced Nike’s judgment to approximately $1.4 million.

If allowed to stand, the decision below limiting a design

patent owner to a recovery measured by the infringer’s profit only

after the patent owner fully complies with the marking statute will

seriously limit the value of design patents, and effectively eliminate

the deterrent effect that enforcement actions have on copyists. Because

of the adverse impact the Federal Circuit’s decision will have on

American industries attempting to ebb the flow of “knock-offs” into

the stream of commerce, this Court should grant certiorari.

CONCLUSION

For the reasons set forth above, the petition for a writ of

certiorari should be granted to review the decision of the Court of

Appeals of the Federal Circuit.

Respectfully submitted,

Mark T. Banner

Counsel of Record

Christopher J. Renk

Marc S. Cooperman

Robert S. Katz

Joseph P. Krause

BANNER & WITCOFF, LTD.

10 S. Wacker Drive, Suite 3000

Chicago, IL 60606

(312) 715-1000

Counsel for Petitioner