by Dennis Crouch
In a recent decision, the Federal Circuit addressed several key issues in intellectual property litigation, including the scope of “absolute litigation privilege” under Illinois law, trade dress functionality, and the consequences of discovery sanctions. Toyo Tire Corp. v. Atturo Tire Corporation, No. 2022-1817, 2022-1892 (Fed. Cir. Oct. 4, 2024).
The decision here is non-precedential, likely because it does not include any patent-law issues and thus is entirely based upon regional circuit law (here, the Seventh Circuit). Still, the case includes a number of interesting and important holdings. In this post, I focus on two particular issues: (1) the scope of privilege against being sued for defamation or other similar torts based upon statements made in a court proceeding; (2) the strong functionality doctrine that limits protection of trade dress on three-dimensional product design.
1. Expanding the Scope of Absolute Litigation Privilege
Absolute litigation privilege is a legal doctrine that protects statements made during the course of judicial proceedings from civil liability. Its purpose is to ensure that participants in litigation can speak freely without fear of later being sued for defamation or other similar claim. This privilege is generally created at the state level, but is then brought into Federal Courts a result of the Erie doctrine. Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). Under Erie, federal courts sitting in diversity jurisdiction (or, as in this case, exercising supplemental jurisdiction over state law claims) must apply state substantive law to state law claims.
In this lawsuit, Atturo asserted claims of tortious interference, unfair competition, unjust enrichment, defamation, and violations of the Illinois Deceptive Trade Practices Act (IDTPA). These claims arose from a prior International Trade Commission (ITC) investigation initiated by the patentee Toyo who alleged various tire manufacturers and distributors were infringing its design patents. Although Atturo was not a party to the ITC action, Toyo included allegations about Atturo’s Trail Blade Mud Tire (TBMT) in its settlement agreements with ITC respondents. Specifically, Toyo identified Atturo’s TBMT as potentially infringing “other Toyo intellectual property not asserted in the ITC Action” and asked settling respondents to cease and desist from selling these tires. A jury sided with Atturo on many of these state law claims. It awarded $10 million in compensatory damages and $100 million in punitive damages.
On appeal, however, the Federal Circuit reversed — holding that Illinois’ absolute litigation privilege barred the use of the ITC approved settlement document as a basis for defamation-like claims.
Erie issues can be straightforward if the law of the state is already well settled, but it is often not settled. Here, the Federal Circuit noted that the Illinois Supreme Court has not directly addressed how the privilege should apply in this situation. Namely, there was a question of whether the privilege extends to protect against business torts such as unfair competition; further, does the privilege extend to cover settlement documents that contain statements that go beyond the scope of the original litigation. For unanswered state law questions, Erie (and its progeny) direct the courts to engage in a predictive analysis of what the Illinois Courts would rule if it faced this case.
On appeal, the Federal Circuit made several significant rulings — predicting that the Illinois Supreme Court would extend the absolute litigation privilege beyond its traditional bounds of defamation to protect against these other claims such as tortious interference, unfair competition, and unjust enrichment. This is a broader application of the privilege than the district court had allowed. In addition, the appellate panel concluded that the privilege extends to Toyo’s conduct in the ITC settlements, even though Atturo was not a party; that the settlement statements were self serving; and that they also went beyond the scope of the original ITC complaint. The court noted: “Toyo’s accusations of trade dress infringement by Atturo’s bore ‘some relationship to’ and were ‘in furtherance of’ the ITC proceedings, in which Toyo asserted other intellectual property claims.” This ruling effectively extends the protection of the absolute litigation privilege to cover not just statements made in the course of litigation, but also actions taken in settling litigation, even when those actions affect third parties not directly involved in the original proceedings (like Atturo in the ITC case). Finally, the court did not appear to directly address this issue, but implicitly concluded that the privilege applies to activities at the ITC even though it is only a quasi-judicial forum.
2. Trade Dress Functionality and Invalidity
Trade dress refers to the overall visual appearance of a product that signifies its source to consumers and can be protected under the Lanham Act if it is both distinctive and non-functional. The functionality doctrine in trade dress law prevents companies from using trade dress protection as a backdoor to perpetual patent-like protection for useful product features. In this case, Toro asserted both three-dimensional and two-dimensional tire tread trade dress, and this portion of the post focuses on the 3D version, which is much more difficult to protect.
In the appeal, the Federal Circuit affirmed the district court’s summary judgment that Toyo’s asserted three-dimensional tire tread trade dress was invalid due to functionality. A leading Supreme Court case on point is TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23 (2001), where an expired utility patent on the dual-spring design mechanism was “strong evidence that the features therein claimed are functional.” In contrast, it appears that Toyo’s patents are design patents. The court relied upon other evidence to establish functionality, including (1) Testimony from Toyo’s own corporate witness about how every element of the tread design affects the tire’s ability to provide traction; (2) Atturo’s expert testimony on the utilitarian nature of the trade dress elements; and (3) Toyo’s advertising, which emphasized the performance benefits of its tire design.
Based upon apparently uncontroverted evidence that “the three-dimensional trade dress affected driving performance,” the Federal Circuit affirmed the district court’s summary judgment of functionality. Here, the court again looked to the Seventh Circuit and aligned its approach with that in Flexible Steel Lacing Co. v. Conveyor Accessories, Inc., 955 F.3d 632 (7th Cir. 2020), which include “the utilitarian properties of the item’s unpatented design elements” and “advertising of the item that touts the utilitarian advantages of the item’s design elements.”
Toyo had provided evidence that alternative tire designs were available. On appeal, the Federal Circuit made clear that the existence of alternative designs is not sufficient to avoid a functionality finding absent evidence that the alternatives have the same use, cost, and quality. Inwood Lab’ys, Inc. v. Ives Lab’ys, Inc., 456 U.S. 844 (1982) (a product design is functional for trade dress purposes “if it is essential to the use or purpose of the article or if it affects the cost or quality of the article”); See also, Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225 (1964); Kellogg Co. v. National Biscuit Co., 305 U. S. 111 (1938).
For me, the most important part of this outcome is that the functionality was decided and affirmed on summary judgment — largely because of the burden placed on Toyo to disprove functionality.
CAFC Jurisdiction: It is interesting to pause for a moment to think about Federal Circuit jurisdiction in this appeal. Toro filed original complaint was filed back in 2014 and asserted a number of claims, including design patent infringement. However, the key party in the lawsuit — Atturo — was only accused of various business torts and was not accused of design patent infringement. Further, within three months of filing the case, Toro voluntarily dismissed the design patent infringement claims against all parties. Thus, by the time the complaint was answered, no party had to respond to any patent claim. The case then continued for 8 years (including a change of judge and multiple discovery extensions) without any patent law issues raised to or decided by the district court.
U.S. law provides that the Federal Circuit has exclusive jurisdiction over any appeal in a civil action arising under U.S. patent law. In situations where the patent claim is dismissed, the court has taken two different approaches:
- If the patent claim is dismissed without prejudice, then the dismissal is treated as a constructive amendment to the complaint, effectively removing the patent claim and leaving the parties in the same legal position as if the patent claim had never been filed. Allergan, Inc. v. Athena Cosmetics, Inc., 738 F.3d 1350 (Fed. Cir. 2013).
- However, if the patent claim is dismissed with prejudice, it is considered an adjudication on the merits, and the Federal Circuit retains jurisdiction over the appeal. See, Zenith Elecs. Corp. v. Exzec, Inc., 182 F.3d 1340 (Fed. Cir. 1999).
In this case, the patent claims were all resolved with prejudice, and allowing the Federal Circuit to maintain jurisdiction over the appeal — even absent any patent related issue.
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Opinion by Chief Judge Moore, joined by Judges Clevenger and Chen. On appeal from Judge Mary Rowland, N.D. Ill.
Matthew Lowrie and John Custer of Foley & Lardner argued for the plaintiffs-appellants Toyo Tire and was joined on the brief by Kimberly Dodd.
Deanne Maynard of Morrison & Foerster LLP argued for the defendant-cross-appellant Atturo Tire Corporation and Svizz-One, and was joined on the brief by Alexandra Avvocato from MoFo along with Brian Bianco, Joel David Bertocchi, Kristen Fiore, and Julia Lissner of Akerman LLP.