Holding The Infringer's Cup

Last week, we took a look on these pages at some things we could learn from a pretrial order in a hotly contested patent dispute between two consumer products giants, Sonos and Google. This week, I would like to consider what we can take away from an order issued after a trial has taken place in an IP case. Thankfully, this past week brought us a long and well-reasoned decision and order on post-trial motions filed in a trade dress and patent infringement case between two competitors in the furniture space, "comfort solutions" provider Raffel Systems and wholesale furniture giant Man Wah Holdings. At issue? Advanced cup holder technology, or what Raffel calls the ICH or "Integrated Cup Holder." After a 10-day trial ending in mid-June of last year, a Eastern District of Wisconsin jury returned a verdict in Raffel's favor. The parties then submitted post-trial motions seeking, in Man Wah's case, to overturn the jury's liability findings and to reduce or eliminate any damages due to Raffel. In contrast, Raffel's post-trial motions sought to extract maximum value from the jury verdict, in the form of enhanced damages, attorney's fees, as well as interest and costs. On May 11, 2023, EDWI Magistrate Judge Nancy Joseph released a 56-page opinion and order addressing the motions raised by each side.

First, the court addressed the finding of trade dress infringement by Man Wah, knocking down each of the arguments raised by the losing defendant like so many bowling pins. In reviewing the decision, it is clear that there were a number of bad facts for Man Wah that impacted on the jury's -- and later the court's -- view of their conduct. One example cited by the court was in relation to the issue of customer confusion, where a customer had contacted Raffel for a replacement cup holder, only for Raffel and the customer to realize that the cup holder that failed had been supplied to Man Wah by someone other td products with the ICH cup holder, Flat Rock Furniture, also received complainthan Raffel. Compounding the problem was "that another furniture retailer who sols about failing cup holders and returned the cup holders to Raffel, believing the cup holders to be Raffel's." Except they weren't Raffel's, but actually knockoffs found in Man Wah furniture as well. Add in that furniture with the infringing cup holders was sold alongside furniture containing Raffel's ICH's at a popular furniture retailer and it is not hard to see why confusion was not a particularly close call in this case.

Another striking example of bad facts for Man Wah were brought forward on the issues of damages and willfulness relating to the trade dress claim. In particular, a Raffel executive testified how the problems with the inferior Man Wah cup holders ended up poisoning the well for Raffel at two prominent retailers, even though Raffel's ICH's had no such quality concerns. Even worse were internal Man Wah communications showing that Man Wah employees knew of Raffel's IP rights but turned a blind eye, or even encouraged, Man Wah supplier malfeasance with respect to infringing cup holders. In an extreme example, Man Wah emails even discuss the need to investigate how many cup holders had been bought from the "knockoff supplier," while also mentioning how the supplier had "even used raffel patent # stickers..in an effort to [deceive] the consumer, retailer, etc." as to the source of the cup holders embedded in the furniture produced by Man Wah. Not that the sticker trick helped, since the non-Raffel cup holders apparently had a Ted Williams-esque batting average in terms of becoming non-operational. With facts like these, it was no wonder that Man Wah went nowhere with respect to the trade dress claim in its post-trial hopes for a reprieve.

It is also no surprise that Man Wah's conduct led to an extreme award of punitive damages by the jury with respect to Raffel's common law misappropriation claim, to the tune of $97.5 million. But the court concluded that "under Wis. Stat. ? 895.043(6), punitive damages on Raffel's claim of common law misappropriation are limited to $2 million, or twice the compensatory damages Raffel recovered on its misappropriation claim," even as it rejected Man Wah's argument that even $2 million in punitive damages was excessive. Here again, it was the internal Man Wah emails that did the company in, including emails where the CEO had identified his company's conduct with regard to the cup holders at issue as constituting "fraud" -- which, together with his testimony, the court found "clearly support the jury's finding that Man Wah acted in intentional disregard to Raffel's rights." As a result of that intentional disregard, the court had no problem pushing away nearly all of Man Wah's attempts to curb the impact of the trade dress infringement finding from a damages perspective.

With respect to Raffel's post-trial motions -- which as a whole sought to increase the value of the verdict as much as possible -- the court was much more accommodating than it had been to Man Wah's arguments. In support of her conclusion that enhanced patent damages were warranted, for example, the court pointed to evidence that Man Wah had previously been a customer of Raffel's ICH's, before turning to other suppliers for inferior and infringing alternatives. Tellingly, Man Wah did so despite knowing of Raffel's ICH patents, which it had asked a supplier to suggest a design around of, before plowing ahead even though no design around was forthcoming. In the court's view, such behavior by a sophisticated global company with billions in annual sales was "egregious behavior" that "must be sanctioned to discourage such action in the future."

Likewise, the court had little hesitation in awarding attorney's fees, especially where Man Wah was found to have violated a preliminary injunction "by continuing to sell furniture with the "knockoff" cup holders between March and November 2019," on top of the willfulness findings by the jury. Still, because the preference is for parties to "settle the amount of a fee" according to SCOTUS precedent, the court offered a 45-day negotiation period for the parties to try to settle the amount of fees due without further court intervention. That grace period, of course, was accompanied by a stern warning that "the Court will not look favorably on a lack of good faith effort to resolve this matter and will not allow the matter to become a "second major litigation."

Ultimately, even though the decision is worth reading in its entirety, I think the snippets above paint a pretty damning picture of what the consequences can be for wanton IP infringement. Moreover, this case also illustrates that plaintiffs with strong claims are not limited to Texas in terms of finding juries that will look askance at infringing behavior, particularly when that behavior can be tied to adverse commercial impact for the IP owner. Lastly, this dispute provides yet another example of how issue-rich even straightforward IP disputes can be, irrespective of the technology at issue. It is not always possible for IP owners to earn as clean a sweep as Raffel did against Man Wah. But perhaps this decision will help persuade IP owners of the benefits of asserting their rights, while also motivating defendants to try as best as possible to avoid getting burdened with holding the infringer's cup.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston's practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.