Spin Master, Ltd. v. E. Mishan & Sons, Inc.

Background

Spin Master brought a patent-infringement action against E. Mishan & Sons, Inc., which the opinion calls Emson. Spin Master alleged that Emson’s Radical Racer toy cars infringed four patents covering technology used in Spin Master’s Zero Gravity cars, which can drive on walls and cling to ceilings. Spin Master moved for a preliminary injunction based only on U.S. Patent No. 9,675,897, the ’897 Patent.

The ’897 Patent covers toy vehicles that use a fan and duct system to create a pressure difference and downforce, allowing the vehicle to operate on vertical and inverted horizontal surfaces. Spin Master licensed the patent from its inventors under an agreement granting Spin Master broad exclusive rights, including the sole option to prosecute infringement lawsuits.

Emson began offering Radical Racers to retailers in March 2019 and began shipping them in July 2019. The products were sold through direct-response television, online retailers, Walmart, and Target. Spin Master learned of the sales in August 2019, contacted Emson, filed this action on September 27, 2019, and moved for a preliminary injunction on October 29, 2019.

Legal standard

A preliminary injunction is an extraordinary remedy. The court required Spin Master to show a likelihood of success on the merits, or sufficiently serious questions for litigation combined with a balance of hardships favoring Spin Master; a likelihood of irreparable harm without an injunction; a balance of hardships favoring Spin Master; and that the injunction would serve the public interest. In the patent context, Spin Master also had to show that it would likely prove infringement and withstand challenges to the patent’s validity.

Standing

Emson argued that Spin Master lacked standing because it was only a licensee. The court explained that standing depended on whether the license agreement transferred all substantial rights in the patent. The agreement gave Spin Master broad exclusive rights to use, make, sell, license, and otherwise exploit the patented technology. It also gave Spin Master control over whether to bring an infringement action, control over litigation counsel, and the exclusive right to recover from an action it chose to pursue.

Considering the agreement as a whole, the court held that Spin Master possessed substantial rights and therefore had standing to bring the infringement action. The court did not need to decide whether a November 8, 2019 amendment to the agreement independently established standing because Spin Master already had standing under the earlier agreement.

Claim construction and likely infringement

The court construed disputed patent terms before comparing the patent claims with the Radical Racers. It held that “entry portion” did not require a curved or “radiused” opening. It construed “structurally smooth” to mean that the duct was constructed to create unimpeded, non-turbulent airflow from the duct’s entry portion. It declined to add limitations from preferred embodiments to the ordinary meaning of “duct.” It also declined to adopt Emson’s proposed limitation on the term “fan,” finding that the claim language supplied a clear ordinary meaning.

The court found that Spin Master’s models of the Radical Racers showed the elements of Claims 1, 21, and 23 of the ’897 Patent. The court rejected Emson’s arguments that right-angle entry portions, small bumps and holes, steep exit angles, curved or ridged undersurfaces, or the alleged use of a vacuum technique prevented infringement. The court concluded that Emson had not raised a substantial question about infringement.

Patent validity

Emson argued that Claims 1 and 21 were anticipated by Kobayashi. The court rejected that argument because Kobayashi did not disclose a fan and therefore did not disclose every element of those claims in a single prior-art reference.

Emson also argued that the claims were obvious based on combinations of prior-art references. The court found that Emson had not shown a motivation to combine those references. It also considered the commercial success of Spin Master’s Zero Gravity cars, including sales of more than 4.8 million vehicles since 2008, as evidence supporting non-obviousness. The court held that Emson had not raised a substantial question about the ’897 Patent’s validity.

Irreparable harm, hardships, and public interest

The court found that Spin Master had shown likely irreparable harm. The products directly competed in the same retail stores, and the Radical Racers were the only competitor to Spin Master’s Zero Gravity cars in Walmart and Target stores. The court also credited evidence that Spin Master reduced its retail price and that the competition threatened its market share, brand recognition, customer base, and ability to fund future product development.

The balance of hardships favored Spin Master because Emson entered the market despite knowing about the patents and continued selling the Radical Racers after receiving a warning and being sued. The court also found that the injunction served the public interest by protecting patent rights and that reducing sales of cheaper, infringing toy vehicles would not harm the public on this record.

Bond and disposition

Under Rule 65(c) of the Federal Rules of Civil Procedure, a court may require the party seeking an injunction to provide security for costs and damages caused by a wrongful injunction. Emson requested a $2.9 million bond. The court found that $1.5 million was sufficient, citing the strong evidence of infringement, Emson’s failure to provide substantial reason to believe it would prevail at trial, and the unlikelihood of Spin Master’s insolvency.

Judge Cote granted Spin Master’s October 29 preliminary-injunction motion and set the bond at $1.5 million.