IP UPDATE
Exploring the Latest in Intellectual Property Law
IP UPDATE
Exploring the Latest in Intellectual Property Law
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David-Versus-Goliath Trademark Victory Isn’t Necessarily “Exceptional”

by | Jul 25, 2024 |

The US Court of Appeals for the Third Circuit vacated an award of attorneys’ fees for reanalysis, explaining that the district court’s finding that the case was “exceptional” under the Lanham Act was based on policy considerations rather than the totality of the circumstances. Lontex Corp. v. Nike, Inc., Case Nos. 22-1417; -1418 (3rd Cir. July 10, 2024) (Hardiman, Matey, Phipps, JJ.)

Lontex Corporation is a small Pennsylvania business that manufactures and sells compression apparel to professional athletes and the public. Since 2008 it has held a registered trademark for the mark COOL COMPRESSION, which it used in conjunction with its sale of apparel. In 2015, Nike rebranded an athletic clothing line that included a category of “Cool” products designed to reduce body temperature, as well as various fits, including “Compression.” It also began using the words “Cool” and “Compression” together in the names of Nike clothing products sold online and in Nike catalogues. Nike used “Cool Compression” as a product name on tech sheets, which are internal documents used to explain Nike products to employees and third-party retailers.

The following year, upon discovering Nike’s use of the phrase “Cool Compression,” Lontex sent Nike a cease-and-desist letter. Nike’s lawyers directed the company to stop using the phrase “as soon as possible.” Nike took steps to remove the phrase from its website and catalogs but not its tech sheets. Two years later, Nike reached out to its third-party retailers and asked them to stop using “Compression” in product names.

Lontex sued Nike for trademark infringement of its COOL COMPRESSION mark, for contributory infringement based on its supply of “Cool Compression” products to retailers, and for counterfeiting. The district court dismissed the counterfeiting claim, and a jury trial was held on the infringement actions. The jury returned a verdict for Lontex, finding Nike liable for willful and contributory infringement. The jury awarded Lontex $142,000 in compensatory damages and $365,000 in punitive damages but declined to award Lontex disgorgement of Nike’s profits.

Post-trial, Nike renewed motions for judgment as a matter of law on fair use, trademark infringement, contributory infringement, willfulness and punitive damages. Lontex moved for disgorgement of profits and trebling of the damages awarded by the jury. The district court granted Lontex’s request for treble damages, increased the compensatory award to $426,000, and separately awarded Lontex almost $5 million in attorneys’ fees after finding that the case was “exceptional” under the Lanham Act. Both parties appealed.

As to the willfulness finding, Nike argued that the jury should not have been permitted to infer willfulness solely from its continued use of the mark after it received its cease-and-desist letter. The Third Circuit disagreed, pointing out that not only did Nike adopt the “Cool Compression” phrase without doing a trademark search, it also continued to use the phrase after receiving Lontex’s cease-and-desist letter and being advised by its own legal team to stop using it as soon as possible. The Court concluded that a jury could reasonably infer willful infringement. For similar reasons, [...]

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Preliminary Injunction Upheld in Cancer Relapse Detection Case

by | Jul 25, 2024 |

The US Court of Appeals for the Federal Circuit affirmed the grant of a preliminary injunction (PI) in the biopharmaceutical space, concluding that the plaintiff satisfied the requirements for injunctive relief, including likelihood of success on the merits. The injunction included “carve outs” for patients requiring access to the affected cancer detection kits. Natera, Inc. v. NeoGenomics Laboratories, Inc. Case No. 24-1324 (Fed. Cir. July 12, 2024) (Moore, CJ; Taranto, Chen, JJ.)

Natera and NeoGenomics are both research-focused healthcare companies manufacturing products used for early detection of cancer relapse. Natera and NeoGenomics both offer products designed to identify circulating tumor DNA (ctDNA) within the bloodstream to assess the efficacy of cancer treatment and the risk of recurrence. NeoGenomics’s product is named RaDaR.

Natera owns two patents, one claiming methods for amplifying targeted genetic material, such as cfDNA, while reducing amplification of non-targeted genetic material, and the other claiming methods for detecting variations in genetic material indicative of disease or disease recurrence, such as ctDNA. Natera sued NeoGenomics, alleging that RaDaR infringed both of Natera’s patents, and moved for a PI. The district court granted the PI, finding that Natera satisfied the requirements for injunctive relief, including likelihood of success on the merits as set forth in Purdue Pharma v. Boehringer Ingelheim (Fed. Cir. 2001). The injunction barred NeoGenomics from making, using, selling, offering for sale, marketing, distributing or supplying RaDaR, with certain carve outs for patients already using RaDaR and for finalized or in-process research projects, studies and clinical trials.

To show a likelihood of success on the merits, Natera had to show that it would likely prove infringement and that its infringement claim would likely withstand challenges to the validity and enforceability of the patents. On appeal, NeoGenomics argued that the district court did not properly evaluate the likelihood of success on the merits factor because it failed to resolve a claim construction dispute and instead applied an erroneous construction.

The Federal Circuit noted that NeoGenomics first raised the erroneous claim construction issue in its motion to stay the PI pending appeal, and that neither party raised a claim construction dispute during the PI briefing. The Court therefore concluded that the district court did not abuse its discretion by not engaging in explicit claim construction before evaluating likelihood of infringement. The Federal Circuit also found that the district court did not err by implicitly construing the claims because Natera presented evidence suggesting that RaDaR’s multi-cycle polymerase chain reaction (PCR) process likely practiced the tagging and amplifying steps of the relevant claims.

NeoGenomics also argued that the district court applied an incorrect legal standard in evaluating NeoGenomics’s obviousness challenge, asserting that “mere ‘vulnerability’” of the patent to an invalidity challenge sufficed to defeat a PI. The Federal Circuit explained that the correct analysis addresses whether the patentee has shown that it is more likely than not to prevail over an invalidity challenge. The Court explained that it was not sufficient to merely allege that the individual elements of the claimed [...]

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Canadian Legal Code? Copying Foreign Law Can’t Infringe Copyright Under US Law

by | Jul 25, 2024 |

The US Court of Appeals for the Fifth Circuit held that reprinting foreign law cannot be an infringement of US copyright law. Canadian Standards Association v. P.S. Knight Co., Ltd., Case No. 23-50081 (5th Cir. July 16, 2024) (King, Willett, Douglas, JJ.)

The Canadian Standards Association (CSA) is a nonprofit that owns Canadian copyright registrations to its model codes and standards. More than 40% of the CSA’s codes have been incorporated by reference into Canadian regulations and statutes.

Gordan Knight is the president and sole shareholder of both the Canadian company P.S. Knight and the US company P.S. Knight Americas. These companies sell versions of CSA’s copyrighted model codes and standards without a license.

In 2015, the CSA filed suit against Knight in Canada for infringing its copyrights to the Canadian Electrical Code. Knight was found to infringe, and the Canadian court enjoined Knight from reproducing, distributing or selling any publication that infringed CSA’s copyright to the code.

After losing his appeal against the Canadian court’s ruling, Knight formed P.S. Knight Americas. Using this company, Knight again produced his own versions of the CSA model codes. CSA filed suit against Knight, alleging infringement of its Canadian copyrights. The district court granted CSA’s motion for summary judgment of infringement and granted a permanent injunction against Knight, enjoining him from further infringing CSA’s copyrighted model codes.

Knight appealed, alleging that the district court erred in finding that Canadian copyrights covering laws could be enforced in the United States.

The Fifth Circuit explained that when analyzing infringement of a foreign copyright under US copyright law, a court first determines the ownership and the nature of the copyright by applying the law of the nation where the copyrights are held. Neither party contested that CSA owns valid Canadian copyrights in and to the model codes.

Infringement, however, is decided purely under US law. In a 2002 en banc opinion (Veeck v. Southern Building Code) the Fifth Circuit held that under US law, it is not copyright infringement to copy and reprint the law (in that case, model building codes that were enacted into law). Under Veeck, when model codes are enacted into law, “they become to that extent ‘the law’ of the governmental entities and may be reproduced or distributed as ‘the law’ of those jurisdictions.”

Here, it was uncontested that more than 40% of CSA’s model codes were incorporated into Canadian law by reference, and thus those model codes were part of Canadian law. Since the materials Knight copied were Canadian law, the Fifth Circuit held that such copying could not be infringement in the US: “because United States law applies to questions of infringement, Veeck is outcome determinative.” On this basis, the Fifth Circuit reversed the district court.

In dissent, Judge Douglas argued that the majority misapplied Veeck. He argued that the en banc court in Veeck held that law was not copyrightable subject matter in the US. Since copyrightability is determined based on the law of the foreign jurisdiction, and since [...]

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Credibility at Issue? Court May Compel Party Representative to Appear In Person

by | Jul 25, 2024 |

Addressing for the first time whether a district court can compel a witness to appear in person for testimony involving fraud on the court, the US Court of Appeals for the Federal Circuit affirmed the district court’s determination that it could require an in-person appearance of the sole corporate representative to make a credibility determination. Backertop Licensing LLC v. Canary Connect, Inc., Case Nos. 23-2367; -2368; 24-1016; -1017 (Fed. Cir. July 16, 2024) (Prost, Hughes, Stoll, JJ.)

During an underlying litigation, the US District Court for the District of Delaware identified potential party and attorney misconduct in dozens of patent cases related to IP Edge and Mavexar, a patent monetization firm and an affiliated consulting firm, respectively. The district court found that IP Edge and Mavexar appeared to have created LLCs, recruited individuals to serve as the sole owners, assigned patents to the LLCs for “little or no consideration,” and recorded the complete assignment of patent rights without disclosing that IP Edge and Mavexar retained significant rights to the royalties and to any settlement proceeds resulting from litigation of the assigned patents. The LLCs then filed lawsuits asserting the rights of their assigned patents without reporting the significant rights retained by IP Edge and Mavexar.

The district court conducted an evidentiary hearing to “gather more information about its concerns” over potential professional misconduct violations and real parties in interest not being identified. One of the parties was Backertop Licensing LLC and its sole owner, Lori LaPray. The district court ordered the production of documents related to the potential fraud on the court and a declaration identifying “any and all assets owned by Backertop.” Shortly thereafter, Backertop filed a joint stipulation of dismissal, and two attorneys for Backertop sought to withdraw from their representation. The district court’s investigation continued, however, and Backertop’s “allegedly responsive production” contained documents, several of which “had clearly missing attachments or cover letters.”

Left unsatisfied with the production, the district court ordered LaPray to appear in person for a hearing to “assess her credibility.” Citing preexisting travel plans, a busy work schedule and childcare obligations, LaPray notified the court that she was unable to attend the hearing as scheduled and requested to appear telephonically instead. The district court moved the hearing date to accommodate LaPray’s travel schedule but required in-person appearance because “[c]redibility assessments are difficult to make over the phone.” Backertop argued, for the first time, in its motion for reconsideration that the court’s order was precluded under the Federal Rule of Civil Procedure 45 geographic limit. The district court rejected the argument because Rule 45 does not limit the court’s inherent power to order parties to appear sua sponte. After failing to appear at the rescheduling hearing and the show cause hearing, the district court held LaPray in civil contempt and imposed a $200 per day fine until she appeared in person in court. Backertop and LaPray appealed.

The Federal Circuit concluded that Rule 45’s geographic limit only applies to a party or attorney’s efforts [...]

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House Rules: Remote Gambling Activity Claims Go Bust

by | Jul 18, 2024 |

The US Court of Appeals for the Federal Circuit applied the Alice/Mayo framework to assess whether claims directed to remote gambling were patent eligible under 35 U.S.C. § 101 and determined that the claims were directed to a patent-ineligible abstract idea and did not otherwise recite an inventive concept. Beteiro, LLC v. DraftKings Inc., Case Nos. 22-2275; -2277; -2278; -2279; -2281; -2283 (Fed. Cir. June 21, 2024) (Dyk, Prost, Stark, JJ.)

Beteiro owned several patents related to facilitating live gaming and/or gambling activity at a gaming venue remote from the user’s physical location so that a user can participate via a communication device away from the gaming venue location. In 2021 and 2022, Beteiro filed at least six patent infringement cases against the defendants. The district court granted the defendants’ motions to dismiss the claims on the grounds that the asserted claims were patent ineligible under § 101. Beteiro appealed.

The Federal Circuit agreed with the district court’s assessment of the claims under the first step of the Alice/Mayo framework and found that the claims “exhibit several features that are well-settled indicators of abstractness”:

  • The claims “broadly recited generic steps of a kind” frequently held to be abstract, such as “detecting information, generating and transmitting a notification based on the information, receiving a message (bet request), determining (whether the bet is allowed based on location data), and processing information (allowing or disallowing the bet).”
  • Claims like these, e., drafted with largely “result-focused functional language” without specifying how the purported invention achieves those results, are “almost always found to be ineligible.”
  • Citing earlier decisions, the Court found broadly analogous claims were abstract as involving methods of providing particularized information to individuals based on their locations. The Court also noted in a footnote that several district courts have found remote-gaming patents analogous to Beteiro’s patents ineligible.
  • The claimed methods were similar to “fundamental practices long prevalent,” an indicia that they are abstract and unpatentable. For example, the Federal Circuit referred to the district court’s analogy to real-world activities, including one step in the claims where “those accepting bets have always had to confirm that the bettor with whom they were dealing was located in a place where gambling was allowed.”

The Federal Circuit also agreed with the district court’s analysis of the second step of the Alice/Mayo framework and its conclusion that the claims failed to provide an inventive concept and “simply describe[d] a conventional business practice executed by generic computer components.” The Court disagreed with Beteiro’s argument that there was genuine dispute as to whether using geolocation and global positing as an “integral data point” in processing mobile wagers was conventional technology at the time of the earliest claimed priority date, 2002. Beteiro only briefly referred to conventional use of GPS in connection with several types of conventional computers but failed to describe differences between equipping GPS on a mobile phone versus any other described conventional computers. The asserted patents did not describe any advanced GPS mobile device technology [...]

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It’s an Old Tune: Third-Party-Use Evidence From Long Ago Can Support Genericness

by | Jul 18, 2024 |

The US Court of Appeals for the Fifth Circuit found that the district court abused its discretion in wholesale exclusion of evidence on the issue of genericness. The evidence was offered to show prior use of a trade dress from more than five years prior to an alleged infringer’s first use of a mark. Gibson Inc. v. Armadillo Distribution Enterprises, Inc., Case No. 22-40587 (5th Cir. July 8, 2024) (Stewart, Clement, Ho, JJ.)

Gibson filed trademark infringement and counterfeiting claims against Armadillo Distribution Enterprises in 2019, alleging that Armadillo infringed four of Gibson’s trademarked guitar body shapes, one guitar headstock shape and two word marks. Just before trial, the district court made several evidentiary rulings on the parties’ motions in limine, including one in which Gibson sought to exclude all arguments and evidence related to advertisements or sales of third-party guitars before 1992, arguing they had limited probative value and were unduly prejudicial. Gibson argued that any third-party-use evidence should be restricted to a five-year period from 1992 to 1997. In its first exclusion order, the district court found that evidence of third-party use was relevant to determining whether a mark was generic or unprotectable but concluded that the probative value of the evidence from before the 1990s was low and found that the five-year cutoff date was reasonable. Armadillo objected to that ruling, leading to oral argument and a second exclusion order upholding the first order. The district court relied on Federal Rule of Evidence (FRE) 403 and the 2018 Federal Circuit ruling in Converse v. International Trade Commission to support this wholesale exclusion of evidence prior to 1992.

The parties proceeded to trial in mid-2022. A jury found that Armadillo infringed all of the trademarks other than one word mark and found that Armadillo marketed counterfeits. Armadillo appealed based on the district court’s exclusion of decades of third-party-use evidence. Armadillo asserted that this evidence was central to Armadillo’s counterclaim seeking cancellation of the marks and its main defense of genericness.

The Fifth Circuit first considered the district court’s reliance on Converse and determined that the district court abused its discretion in excluding the third-party evidence predating 1992. Armadillo argued that reliance on Converse was error because that case concerned secondary meaning and not genericness. Gibson countered that genericness and secondary meaning are closely related issues and that the five-year period predating infringement is the most logical measuring line. Alternatively, Gibson argued that 15 U.S.C. § 1064 would bar evidence predating 1992 because it provides that a petition to cancel a mark’s registration must be filed within five years from the date of registration of the mark.

The Fifth Circuit found that Converse did not rule that third-party-use evidence from more than five years prior to the alleged infringer’s first use was irrelevant to the issue of genericness and did not compel a strict five-year limitation of third-party-use evidence. The Court further reasoned that under Converse, evidence of prior use is relevant if such use was likely to have [...]

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Message Received: Trade Secret Law Damages Available for Sales Outside US

by | Jul 18, 2024 | ,

The US Court of Appeals for the Seventh Circuit affirmed, in a matter of first impression, a district court’s decision to apply trade secret law extraterritorially and award trade secret damages for foreign sales while also finding that the copyright damages award needed to be reduced to eliminate foreign sales. Motorola Solutions, Inc. v. Hytera Communications Ltd., Case Nos. 22-2370; -2413 (7th Cir. July 2, 2024) (Hamilton, Brennan, St. Eve., JJ.)

Motorola Solutions and Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets embodied in its line of high-end digital mobile radio (DMR) products. Hytera struggled to overcome technical challenges to develop its own competing DMR products. After failing for years, Hytera hatched a plan to “leap-frog Motorola” by stealing its trade secrets. Hytera, headquartered in China, hired three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information. Before the engineers left Motorola, acting at Hytera’s direction, they downloaded thousands of documents and computer files containing Motorola’s trade secrets and copyrighted source code. Hytera relied on the stolen material to develop and launch a line of DMR radios that were functionally indistinguishable from Motorola’s DMR radios. Hytera sold these DMR radios in the United States and abroad.

Motorola sued Hytera for copyright infringement and trade secret misappropriation. The jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act. The jury awarded compensatory damages under the Copyright Act and both compensatory and punitive damages under the DTSA for a total award of $765 million. The district court later reduced the award to $544 million, which included $136 million in copyright damages and $408 million in trade secrets damages. Hytera appealed.

Hytera conceded liability and instead challenged the damages award under both the Copyright Act and the DTSA. Among other things, Hytera argued that copyright and trade secret damages should not have been awarded for its sales outside the US. With respect to the copyright award, the Seventh Circuit agreed that Motorola failed to show a domestic violation of the Copyright Act and therefore was not entitled to recover damages for any of Hytera’s foreign sales of infringing products as unjust enrichment. Specifically, to show a domestic violation of the Copyright Act, Motorola had asserted that its code was copied from servers based in Chicago. While the district court accepted Motorola’s argument, the Seventh Circuit found that this factual finding lacked adequate support in the record, citing Motorola’s expert’s admission that there was no evidence of downloads from the Chicago servers. The Court instead found that given the location of the employees in Malaysia, it was likelier that the code was downloaded from Motorola’s Malaysia server. The Court therefore reversed the $136 million copyright award and remanded with instructions to limit the copyright award to Hytera’s domestic sales of infringing products.

The Seventh Circuit affirmed with respect to the trade secret award. Like the [...]

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Golden State of Mind: Anti-SLAPP Defense Versus Privacy Rights

by | Jul 18, 2024 |

The US Court of Appeals for the Ninth Circuit affirmed a district court’s denial of a motion to strike a putative class action suit brought under Section 425.16 of California’s anti-SLAPP statute, finding that the case fell under an exemption because it sought to enforce an important right under California law. Odette R. Batis v. Dun & Bradstreet Holdings, Inc., Case No. 23-15260 (9th Cir. July 8, 2024) (Clifton, Siler, Smith, JJ.)

Odette Batis filed a lawsuit against Dun & Bradstreet (D&B) arguing that their commercial use of her name and contact information in their searchable business-to-business database was a violation of her right of publicity and unfair competition laws and constituted tortious misappropriation of her name and likeness. Batis sought a declaration of infringement, injunctive relief, restitution and damages.

D&B moved to dismiss the lawsuit under California’s anti-SLAPP statute, which is intended to provide protection against “strategic lawsuits against public participation” and “lawsuits brought primarily to chill” the exercise of speech. The statute was enacted to protect nonprofit corporations and citizens from larger entities. D&B argued that Batis’s lawsuit arose from actions D&B took in furtherance of its right to free speech and thus should be struck. The district court concluded that Batis had a right to sue, and that D&B failed to establish that Batis’s lawsuit targeted protected speech. D&B appealed.

The Ninth Circuit upheld the district court’s decision, finding that the anti-SLAPP statute did not authorize a motion to strike the lawsuit. The Court found that Batis’s lawsuit fell under the public interest exemption contained in Section 425.17(b) of the California Code of Civil Procedure. The public interest exemption protects suits where:

  • The plaintiff does not seek relief different from the rest of any class of which they are a member;
  • The action would enforce an “important right affecting the public interest”;
  • And “private enforcement is necessary and places a disproportionate financial burden on the plaintiff.”

The Ninth Circuit found that Batis’s lawsuit met these criteria. First, Batis did not seek any remedy on the face of the complaint that all members of the putative class would not have been entitled to as well. Second, Batis’s lawsuit implicated her privacy rights and rights concerning her name and likeness, both of which are considered important to the public interest, especially in California. Third, Batis’s financial burden in bringing the suit could outweigh the damages she might be able to collect, and no public entity had brought an action against D&B enforcing her rights.

Finally, the Ninth Circuit affirmed that the public interest exemption applied against D&B’s database because the database was not a protected work of expression under Section 425.17(d) of the Anti-SLAPP Act, which protects “a newspaper, magazine, or other periodical publication.” The Court explained that this protection was intended to apply to those engaged in the “dissemination of ideas or expression” rather than a directory. Therefore, Batis’s suit was protected under the public interest exception and immune to D&B’s anti-SLAPP motion.



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Smart Choice: Survey Design Didn’t Render Survey Unreliable

by | Jul 18, 2024 |

Underscoring its faith in a jury’s competency to use its “common sense and experience” in evaluating evidence, the US Court of Appeals for the Ninth Circuit affirmed a district court’s judgment in favor of the defendants in a trademark infringement action following a trial, as well as its order partially denying the defendants’ motion for attorneys’ fees. BillFloat, Inc. v. Collins Cash, Inc., Case Nos. 23-15405; -15470 (9th Cir. July 1, 2024) (Thomas, McKeown, Christen, JJ.)

BillFloat and Collins Cash both provide financing to small businesses. In 2013, BillFloat began using SMARTBIZ as a trademark and registered the mark in 2014. That same year (2014), Collins Cash began using the mark SMART BUSINESS FUNDING, although it did not file an application to register the mark until 2020. Meanwhile, in 2018, BillFloat and Collins Cash entered into a partnership agreement under which Collins Cash would refer current and prospective customers to BillFloat in exchange for a referral fee. The parties’ agreement stated that “[i]f either Party employs attorneys to enforce any right arising out of or relating to this Agreement, the prevailing Party shall be entitled to recover reasonable attorneys’ fees.”

In 2020, upon learning of Collins Cash’s use of the SMART BUSINESS FUNDING mark, BillFloat brought claims for federal and state trademark infringement, breach of contract, unfair competition and unlawful business practices. The district court granted summary judgment to Collins Cash on the breach of contract claim and proceeded to trial on the trademark infringement claim.

Collins Cash engaged an expert to conduct a likelihood of confusion survey using the so-called “Squirt” methodology, which is used for lesser-known marks. BillFloat filed a motion to exclude the expert and his survey from trial, arguing that various errors made the survey unreliable and therefore inadmissible. The district court denied the motion and admitted the expert’s testimony and his survey. The district court also admitted testimony from BillFloat’s expert that challenged the survey. Both experts were cross-examined on their qualifications and on the merits of the survey.

The jury found that BillFloat had not established trademark infringement by a preponderance of the evidence. Post-trial, BillFloat moved for judgment as a matter of law and for a new trial, and Collins Cash moved for attorneys’ fees and non-taxable costs. The district court denied BillFloat’s motion and awarded Collins Cash attorneys’ fees under the partnership agreement for the breach of contract claim but declined to award Collins Cash attorneys’ fees for the trademark infringement claim or non-taxable costs for either claim. Both parties appealed.

BillFloat argued that the district court abused its discretion in admitting Collins Cash’s expert testimony and survey evidence. It also argued that the district court erred in declining to give BillFloat’s proposed jury instruction not to draw any inferences about the fact that BillFloat did not offer its own survey evidence.

The Ninth Circuit found no abuse of discretion on these issues. The Court pointed to the distinction between the admissibility of survey evidence as opposed to the relative weight a [...]

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Shell Shocked: Judge’s Travel Plans Turn the Tide in Shrimp Dispute

by | Jul 11, 2024 |

Addressing the scope of a magistrate judge’s Article III authority, the US Court of Appeals for the Eleventh Circuit vacated a judgment and remanded the case for a new trial because the magistrate judge performed non-ministerial acts without obtaining proper consent. PB Legacy, Inc v. Am. Mariculture, Inc., Case No. 22-12936 (11th Cir. June 18, 2024) (Pryor, C.J.; Brasher, J.) (Jordan, J., concurring).

PB Legacy sued American Mariculture for trade secret misappropriation and other claims after PB Legacy failed to timely remove its shrimp from Mariculture’s facility, which Mariculture then used to start a competing company. During the trial, the district judge instructed that all arguments had to conclude by a certain date because of a scheduled flight. Although arguments ended on time, the jury engaged in extensive deliberations. On the day of the district judge’s flight, he proposed that the magistrate judge receive the jury verdict in his absence. The parties agreed to this arrangement without objection. The jury deliberations continued for three more days. During that time, the magistrate judge not only received the verdict and polled the jury, but also responded to several jury questions and denied Mariculture’s request for verdict clarification. The jury found in favor of PB Legacy. Mariculture appealed, contesting the magistrate judge’s exercise of Article III authority.

The Eleventh Circuit found that the magistrate judge improperly exercised Article III authority without proper consent. The Court clarified when a magistrate judge may exercise Article III authority, noting that while a magistrate judge’s performance of ministerial acts (such as receiving a jury verdict and polling a jury) do not require party consent, non-ministerial acts (such as responding to jury questions) do.

The Court also described how party consent is properly obtained. To avoid potential prejudice, consent for a magistrate judge to exercise Article III authority should be sought outside the presence of both the district judge and magistrate judge. Parties usually provide consent through a joint or separately filed statement, and district and magistrate judges are informed of a party’s consent only once all parties have agreed. In limited circumstances, consent may be implied when the parties are given advanced notice of the magistrate judge’s proposed Article III authority, are made aware of the need to consent, and voluntarily appear to try the case before the magistrate judge.

Against that background, the Eleventh Circuit addressed whether the parties consented to the magistrate judge’s acts in the current case. The Court found that although the district judge had notified the parties that the magistrate judge would receive the verdict in his absence, this act was a ministerial act that the magistrate judge could already perform without consent. However, the district court neither sought nor obtained the parties’ express consent for the magistrate judge to also perform the non-ministerial acts of responding to jury questions and ruling on a party’s request to have the jury clarify the verdict. Implied consent was also lacking because the parties were not given notice of need for consent or their right [...]

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