Cover v. Hydramatic Packing Co.
1996 WL 239354, 83 F.3d 1390 (1996)
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Rule of Law:
Federal patent law's damages limitation for lack of patent marking (35 U.S.C. § 287(a)) does not preempt a state commercial law provision (UCC § 2312(c)) that requires a buyer furnishing specifications to indemnify a seller against infringement claims, as these laws govern different legal relationships and do not present a direct conflict.
Facts:
- Craig H. Cover obtained U.S. Patent No. 4,605,992, which describes a lighting fixture system incorporating a batt of thermal insulation.
- In January 1986, Cover entered an exclusive license agreement with Pacor to commercialize the '992 patent.
- Pacor began supplying multi-layered insulation batts (designated as part numbers 6254 and 6255) to Sea Gull Lighting, Inc., but Pacor did not mark these units with the '992 patent number in accordance with 35 U.S.C. § 287.
- In July 1988, Sea Gull began furnishing Hydramatic Packing Co. with drawings and specifications to manufacture the same part numbers (6254 and 6255), which Hydramatic produced until late 1993.
- In 1989, Cover discovered Sea Gull was ordering insulation units from Hydramatic and subsequently sent cease and desist letters to Hydramatic (June 5, 1989) and Sea Gull (October 9, 1989), with the letter to Sea Gull indicating that purchasing from a 'known violator' was itself a patent violation.
- The district court later found that Cover's October 9, 1989 letter to Sea Gull did not constitute sufficient notice of infringement under 35 U.S.C. § 287(a), meaning Sea Gull was not liable for damages, if at all, until after Cover's complaint was filed in December 1993.
Procedural Posture:
- Plaintiff Craig H. Cover commenced a patent infringement action in the U.S. District Court for the Eastern District of Pennsylvania, suing Hydramatic Packing Co. for contributory infringement and Sea Gull Lighting, Inc. for direct infringement of his U.S. Patent No. 4,605,992.
- Hydramatic Packing Co. filed a counterclaim seeking a declaratory judgment that the '992 patent was unenforceable due to inequitable conduct.
- Hydramatic Packing Co. also filed a cross-claim against Sea Gull Lighting, Inc. for indemnification under § 2312(c) of the Pennsylvania Uniform Commercial Code.
- Cover settled his claims with Sea Gull Lighting, Inc., and their case was dismissed with prejudice, with Sea Gull paying Cover $75,000.
- Hydramatic Packing Co. also settled with Cover, agreeing to pay him $175,000 in liquidated compensatory damages and stipulating that it would not contest the validity, infringement, or enforceability of the '992 patent.
- The U.S. District Court for the Eastern District of Pennsylvania concluded that Hydramatic's state law indemnification claim against Sea Gull was precluded because the state statute was preempted by federal patent law, specifically 35 U.S.C. § 287(a).
- Hydramatic Packing Co. appealed the district court's judgment to the U.S. Court of Appeals for the Federal Circuit.
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Issue:
Does 35 U.S.C. § 287(a) of the federal patent code preempt a state commercial law provision, specifically § 2312(c) of Pennsylvania’s Uniform Commercial Code, which requires a buyer who furnishes specifications to a seller to indemnify the seller against third-party infringement claims arising out of compliance with those specifications?
Opinions:
Majority - RICH, Circuit Judge
No, 35 U.S.C. § 287(a) of the federal patent code does not preempt § 2312(c) of Pennsylvania’s Uniform Commercial Code because there is no direct conflict between the two statutes. The court examined the three grounds for preemption: explicit, field, and conflict. It found no explicit preemption as § 287(a) does not mention preemption of state commercial law, nor did it find field preemption, as federal patent law occupies the field of patent law, not general commercial law. The primary focus was on conflict preemption, which requires either a physical impossibility of compliance or that the state law stands as an obstacle to federal objectives. The court concluded there was no such conflict. It reasoned that § 287(a) defines the rights and damages between a patentee and an infringer, while § 2312(c) defines the contractual relationship and indemnification obligations between a buyer and a seller based on provided specifications. Once the patentee (Cover) settled with both Hydramatic and Sea Gull, the federal patent law's role in determining liability and damages was resolved and no longer in the picture. The remaining dispute between Hydramatic and Sea Gull, concerning indemnification for costs arising from a 'rightful claim' of infringement, became a matter solely governed by state contract law. The court rejected Sea Gull’s argument that 'rightful claim' in the UCC should be equated with patent liability as defined by federal law, stating that this misunderstands the preemption issue and would create an undesirable public policy by forcing parties into litigation rather than settlement. The state law does not attempt to grant patent-like property rights but rather allocates financial risk between contracting parties, thus avoiding conflict with federal patent policy.
Analysis:
This case significantly clarifies the limits of federal patent law preemption, particularly in its interface with state commercial and contract law. It establishes that while federal patent law governs the core patentee-infringer relationship and dictates damages limitations, it does not automatically extend to preempt state law provisions that regulate contractual indemnification between a buyer and seller in the context of potentially infringing goods, especially once the patentee's claims have been resolved. This decision reinforces the principle that states retain substantial authority to regulate commercial transactions and allocate contractual risks, even when patented subject matter is involved, provided the state law does not create new patent-like rights or directly impede federal patent objectives. It encourages reliance on contractual provisions for risk allocation and settlement, as litigation to ascertain a 'rightful claim' would be disfavored.
