Hillman Grp., Inc. v. Minute Key Inc.

Citation: 317 F. Supp. 3d 961Docket: Case No. 1:13-cv-00707

Court: District Court, S.D. Ohio; March 28, 2018; Federal District Court

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The Federal Circuit's decision in Zenith outlines the criteria for assessing bad faith in patent disputes, determining that the evaluation must be made on a case-by-case basis. A clear instance of bad faith occurs when a patentee, aware that their patent is invalid, unenforceable, or not infringed, falsely claims that a competitor is infringing. The jury was instructed that if Hillman can prove by clear and convincing evidence that Minute Key knew the '809 patent was not infringed by Hillman’s FastKey kiosk yet misrepresented this to Walmart, then Minute Key's actions could be deemed bad faith.

The jury was also instructed that bad faith could be established through both objective and subjective components. The objective component necessitates Hillman demonstrating that Minute Key's infringement claim was objectively baseless—meaning no reasonable entity could expect to succeed in litigation regarding their allegations. If it is found that Minute Key's claim was objectively baseless, the jury could then examine the subjective intent behind Minute Key's actions, considering evidence of their motivation, including whether the allegation was aimed at disrupting Hillman’s business with Walmart. Both parties did not object to the jury instructions concerning "Clear Case" or "Objective Baselessness/Subjective Intent."

Regarding the interpretation of patent infringement, the jury was instructed to assess it on a claim-by-claim basis, with the claim elements analogous to property deed boundaries. For the '809 patent, the jury was directed to interpret the claim element "fully automatic" according to its plain meaning, as proposed by Minute Key during the charge conference, clarifying that all claim elements must be present for infringement to occur.

Hillman objected to the jury instructions regarding the case, asserting that the instructions were correctly framed. The case began as a patent dispute, where Hillman sought a declaration of non-infringement of Minute Key's '809 patent concerning its FastKey kiosk, while Minute Key counterclaimed for infringement. Both claims were eventually dismissed, leaving only Hillman’s false advertising claims against Minute Key for jury consideration. The jury was instructed not to determine if Hillman's FastKey kiosk infringed the '809 patent but rather if Minute Key's infringement allegations to Walmart were made in bad faith. The law allows patent holders to make true statements about their rights and even false or misleading statements, provided they are not made in bad faith.

Minute Key argued that for the jury to find bad faith, they needed to conduct their own claim construction favoring Hillman and compare the kiosks. This argument was deemed erroneous, as juries cannot perform claim construction, and product comparisons are improper for infringement analysis. Hillman countered that Minute Key was attempting to relitigate claim construction issues previously settled. The court, adhering to a prior order, instructed the jury that it was not to decide on actual infringement but on the good faith of Minute Key’s allegations made in 2013. The jury was informed that infringement cannot occur if any claim element is absent from the accused product and that the term "fully automatic" in the '809 patent should be interpreted in its plain meaning.

A kiosk that is not classified as "fully automatic" cannot be deemed to infringe Minute Key's '809 patent in the context of a Lanham Act false advertising claim, as the claim's terms have a plain meaning easily understood by a jury. The Court did not engage in claim construction because it deemed the terms straightforward. Minute Key's argument that its marketing documents are irrelevant to the reasonableness of allegations against Walmart was rejected, as marketplace representation is central to the cause of action. The Court maintained that marketing documents could be considered regarding bad faith after an objective analysis. 

Under the "clear and convincing" standard, the jury could reasonably conclude that Minute Key acted in bad faith by misrepresenting to Walmart that its kiosk infringed the '809 patent, despite knowing it did not. Evidence supporting this includes an internal spreadsheet differentiating between the automation of Minute Key's kiosk and Hillman's FastKey kiosk, marked as "high" importance. Additionally, Minute Key's communications to Walmart, which asserted it was the "first and only fully automated" kiosk, further reinforced claims of bad faith, especially in light of discussions about raising patent issues just prior to these representations.

Fagundo acknowledged that the terms "fully automated" and "fully automatic" are synonymous, with the former appearing in marketing materials and the latter in the '809 patent. Minute Key's defense claimed its actions were merely "reasonable commercial behavior" as it consulted a patent attorney for infringement analysis before notifying Walmart and continued to work with the attorney to create a claim chart that resulted in blank entries regarding the disputed claims. However, Fagundo admitted he did not share marketing documents with the attorney. Walmart's Associate General Counsel requested a claim chart to clarify Minute Key's infringement allegations, which was presented to the jury and notably included blank fields for key claims.

Minute Key did not bring its patent attorney to trial, which could not mitigate claims of bad faith. Minute Key conceded that evidence could reflect only the subjective aspect of bad faith. Contextually, after being informed in April 2012 about competing against Hillman, a Minute Key board member suggested using the patent application to instill fear, uncertainty, and doubt (FUD) with Walmart regarding Hillman. Following a loss to Hillman in December 2012, Fagundo contemplated leveraging the patent issue in communications with Frick. 

Emails between Minute Key employees indicated hostile sentiments towards Hillman, with Fagundo and others expressing aggressive intentions and a desire to harm their competitor, highlighting a malice-driven approach rather than a legitimate business strategy.

Minute Key's comments regarding the patent infringement claim were perceived as dismissive. Fagundo shared his email with Walmart representatives and Minute Key's leadership, signaling the start of potential legal troubles. Following receipt of a "freeze" letter from Walmart, Fagundo informed board members that Walmart was taking the infringement letter seriously, indicating escalating tensions. After securing a new business contract in March 2014, Fagundo expressed confidence about their situation, suggesting a favorable outcome.

The court found ample evidence for a jury to conclude that Minute Key acted in bad faith, leading to the denial of Minute Key's motion. Additionally, Minute Key's argument that there was a lack of relevant evidence to support a claim of literal falsity was rejected. The court previously ruled that a claim construction was unnecessary for Hillman to pursue its false advertising claims against Minute Key. The court maintained that the phrase "it appears" could be interpreted as literally false, emphasizing that context is key in determining whether a statement is factual or opinion-based. 

Fagundo's email, viewed in its entirety, could be interpreted as a factual assertion of Hillman's patent infringement. Under the Lanham Act, a finding of literal falsity leads to a presumption of deception, while a statement deemed true but misleading requires proof of actual deception. The jury was instructed accordingly. Minute Key's assertion that Hillman failed to provide direct evidence of Walmart's deception was dismissed by the court, which referenced precedents regarding the burden of proof in such cases.

Dan Hoelter, Walmart's Senior Manager for Home Services, testified in a videotaped deposition that Minute Key's allegations of patent infringement did not disrupt Walmart's business operations. He indicated that there was no change in the rollout schedule following an email from Fagundo on September 5, 2013, and that business continued as usual. Minute Key contends that Hillman failed to demonstrate any change in Walmart's purchasing decisions, as Hillman proceeded to install 1,000 kiosks after winning a pilot. However, Hillman argues that under Podiatric Physicians, only evidence showing that the advertisement misled consumers about the product is required for proving materiality, not a change in purchasing decisions. 

Hoelter's testimony noted that he sent a directive within 24 hours of receiving the September 5 email, indicating the use of the Minute Key Program for self-assisted key cutting kiosks due to an impending patent issuance and a cease order for Hillman. Walmart's Associate General Counsel required Hillman to confirm indemnification obligations shortly after the email, which Hillman's General Counsel described as redundant, reflecting Walmart's anxiety over Minute Key's claims. 

Hillman asserts that it need only show that the statement in question was likely to influence consumer purchasing decisions, supporting this with Hoelter's follow-up email. Additionally, evidence was presented suggesting that Walmart's initial purchasing decision was altered due to Minute Key's allegations, highlighted by a letter from Hoelter that connected the rollout freeze to these allegations. Walmart acknowledged its non-exclusive agreements with both Hillman and Minute Key for key duplication services, noting its inability to assess the validity of the Minute Key patent or the merits of the infringement claims.

Walmart is halting the installation of key duplication machines from Minute Key and Hillman, effective immediately, and will not accept any new machines until further notice. This decision impacts Hillman’s contractual rights and expected revenues during a critical sales period. The court indicates that a reasonable jury could find actual deception and materiality in the evidence presented, despite a finding of literal falsity. Walmart's witness, Hoelter, contradicted his own statements regarding the causes of the freeze on FastKey installations, which could lead a jury to prefer the contemporaneous documents over his testimony. The court may deny Minute Key's Motion based on these inconsistencies. Additionally, the Lanham Act's applicability to false advertising claims is discussed, emphasizing that only statements made in "commercial advertising or promotion" are actionable. The court concluded that the relevant customer base should be defined within the niche market of self-service key duplication kiosks, as opposed to the broader key duplication equipment market. The jury will ultimately determine if the market should be confined to Walmart alone.

Minute Key asserts that evidence presented at trial indicated that Hillman's customer base for the FastKey, as of September 2013, included several mass retailers beyond Walmart, such as Home Depot, Lowe's, Orchard Supply, Meijer, and Menards. Despite Hillman's claims that the FastKey was designed for Walmart and that nearly all units were located in Walmart stores, Minute Key argues it is entitled to judgment regarding dissemination due to Walmart being only one of many customers. Hillman counters that testimony from its employees highlighted that virtually all FastKeys were in Walmart, contradicting Minute Key's broader customer base claim. The jury was presented with evidence that could support a finding that Minute Key's infringement statement reached a significant portion of Hillman's existing customer base, as required by the Grubbs decision. Additionally, Minute Key contests that no reasonable jury could find its infringement caused harm to Hillman, arguing that Hillman's actions and Walmart's independent decisions negate any causal link. Hillman responds that Minute Key's arguments should be dismissed as they were not previously raised in relevant motions during the trial, reinforcing that a Rule 50(b) motion only renews grounds from a preverdict motion.

If a legal ground is not presented adequately in an earlier motion, it is not preserved for a subsequent Rule 50(b) motion. Minute Key's counsel argued that the concepts of actual deception, materiality, and purchasing decision changes are connected to causation, and these arguments were documented in the trial transcript. Further discussion included a lack of evidence regarding damages due to a rollout delay. The "freeze" letter from Dan Hoelter, drafted with Walmart's legal team, supported the jury's causation verdict for Hillman, indicating that operations were suspended to avoid patent infringement. Certified Public Accountant Matthew L. Gutzwiller testified that Hillman incurred lost profits of $328,144 due to the rollout freeze, based on expected installation rates of 303 machines. However, Gutzwiller did not factor in Walmart's holiday blackout, which commenced mid-October. The jury awarded Hillman $164,072.25, likely reflecting adjustments for the blackout period. The court found the jury's verdict non-speculative and refused to overturn it. Consequently, Minute Key's Renewed Motion for Judgment as a Matter of Law was denied, and jurors received printed instructions during the trial.

The court is tasked with determining whether certain statements are factual or opinion-based, referencing Podiatric Physicians and Champion Labs. Inc. The analysis includes statements made by Minute Key regarding an impending patent infringement notice related to U.S. Patent No. 8,532,809, emphasizing the necessity of enforcing intellectual property rights for shareholder returns and technology protection. Fagundo provided related documentation, including the "Issue Notification" and "Allowed Claims" for the patent. Additionally, it is noted that Walmart's holiday season creates a "blackout period" from October 15 to January 15, during which third parties cannot set up kiosks in stores to maintain focus on customer service. Hoelter clarified the start of this blackout period and its consistency with past practices. Counsel's assertion of a lack of causation evidence is positioned as a concluding remark rather than a mere conclusion, supported by witness testimony regarding the timing of blackout periods.