Sukumar v. Nautilus, Inc. ( 2015 )

United States Court of Appeals
for the Federal Circuit
______________________
PONANI SUKUMAR, AN INDIVIDUAL, SOUTHERN
CALIFORNIA STROKE REHABILITATION
ASSOCIATES, INC., A CALIFORNIA
CORPORATION,
Plaintiffs-Appellants
v.
NAUTILUS, INC., A WASHINGTON
CORPORATION,
Defendant-Appellee
______________________
2014-1205
______________________
Appeal from the United States District Court for the
Western District of Virginia in No. 7:11-cv-00218-JCT,
Senior Judge James C. Turk.
______________________
Decided: May 4, 2015
______________________
STEFFEN NATHANAEL JOHNSON, Winston & Strawn
LLP, Washington, DC, argued for plaintiffs-appellants.
Also represented by GEOFFREY P. EATON; MICHAEL A.
TOMASULO, Los Angeles, CA.
PATRICK J. KEARNS, Wilson, Elser, Moskowitz, Edel-
man & Dicker, LLP, San Diego, CA, argued for defendant-
appellee. Also represented by ROBERT W. HARRISON.
2 SUKUMAR v. NAUTILUS, INC.
______________________
Before PROST, Chief Judge, NEWMAN and REYNA, Circuit
Judges.
PROST, Chief Judge.
Ponani Sukumar and Southern California Stroke Re-
habilitation Associates, Inc. (collectively, “Sukumar”)
appeal from the district court’s grant of summary judg-
ment for Nautilus, Inc. (“Nautilus”). The district court
held that Sukumar had not suffered “competitive injury”
necessary to have standing to assert a false marking
claim. See 35 U.S.C. § 292(b). The district court also
granted summary judgment on Sukumar’s state law
unfair competition claims. We affirm.
I. BACKGROUND
In 1994, Sukumar began caring for his aging father
after Sukumar’s father became ill and lost much of his
mobility. Sukumar assisted his father with his rehabili-
tation, but, according to Sukumar, he noticed that the
rehabilitation fitness machines used by his father did not
adequately suit frail seniors. As a result, Sukumar re-
solved to learn more about rehabilitation for seniors, and
he went to trade shows in the late 1990s where he met
Nautilus representatives.
Soon afterward, in 1998 and 1999, Sukumar ordered
Nautilus machines and asked for certain modifications to
cater to elderly users’ needs. When Nautilus delivered
the custom fitness machines, Sukumar was dissatisfied,
and Sukumar filed a breach of contract action against
Nautilus and Med-Fit Systems, Inc., the distributor of the
SUKUMAR v. NAUTILUS, INC. 3
products. That case was the first of several legal actions
between Sukumar and Nautilus. 1
In 2004, Sukumar founded Southern California
Stroke Rehabilitation Associates (“SCSRA”), the other
plaintiff in this action. Although somewhat unclear,
SCSRA’s business was likely to include opening and
running the senior rehabilitation facilities in which
Sukumar was to use modified Nautilus fitness machines.
However, SCSRA’s operations have been quite limited.
SCSRA has acquired over 100 Nautilus fitness machines
and, according to Sukumar’s deposition testimony,
SCSRA has twice attempted to negotiate a patent license
from Nautilus. At least one of these license negotiations
was proposed by Sukumar in settlement of litigation.
Sukumar filed this case on October 21, 2010. As of that
date, SCSRA had no business plan, no employees other
than Sukumar, no office space, and no prototype designs.
On February 10, 2012, Sukumar moved for partial
summary judgment on the issue of whether the Nautilus
machines were falsely marked. The district court granted
Sukumar’s motion. Specifically, the district court found
that eight of the twenty-four patents marked on the 2006
Nitro Plus Biceps Curl, the 2007 Nitro V-Triceps Exten-
sion, the 2008 F2 Lat Pulldown, the 2008 Studio Pec Fly,
the 2009 One Triceps Press, and the 2009 XPLoad Com-
pound Row did not cover the machines. In addition, eight
of the sixteen patents marked on the 2006 Nautilus
Commercial Series E916 Elliptical, 2006 Nautilus Com-
mercial Series EV 916 Elliptical, and 2006 StairMaster
StepMill 7000PT were found to not cover the machines.
1 The other legal actions are relevant because depo-
sitions and a settlement offer from those cases include
evidence that contradicts portions of Sukumar’s testimony
in this case.
4 SUKUMAR v. NAUTILUS, INC.
After the district court’s partial summary judgment
decision, Sukumar became substantially more active.
Sukumar retained John Whitman to create a business
plan for selling fitness equipment, hired a design firm to
create initial renderings of a fitness machine, and con-
sulted with engineers in the industry. At least as of
August 2013, Sukumar was in talks to acquire land for
offices and a manufacturing facility.
In the meantime, the law concerning who could bring
an action for false marking had changed. On September
16, 2011, President Obama signed the America Invents
Act (“AIA”) into law. The AIA amended 35 U.S.C. § 292
to eliminate qui tam false marking suits and require that
an entity suffer a “competitive injury” to bring a private
right of action to enforce the false marking statute.
America Invents Act, Pub. L. No. 112–29, § 16, 125 Stat.
282, 329 (2011). Soon after, this court held in a nonprece-
dential opinion that this amendment applied retroactively
to a suit pending at the time the AIA was enacted. See
Rogers v. Tristar Prods., Inc., 559 F. App’x 1042, 1044
(Fed. Cir. 2012).
After a period of discovery to inform issues of standing
and causation, the district court allowed a second round of
summary judgment motions, and the parties brought
cross-motions for summary judgment. On December 6,
2013, the district court granted Nautilus’ motion for
summary judgment on all claims and denied Sukumar’s
motion. Sukumar appeals.
II. DISCUSSION
The district court’s grant of summary judgment is re-
viewed de novo. Grober v. Mako Prods., Inc., 686 F.3d
1335, 1344 (Fed. Cir. 2012); Bruckelmyer v. Ground
Heaters, Inc., 445 F.3d 1374, 1377 (Fed. Cir. 2006).
Summary judgment is appropriate if, viewing the evi-
dence in the light most favorable to the non-moving party,
the movant shows that there is no genuine dispute as to
SUKUMAR v. NAUTILUS, INC. 5
any material fact and the movant is entitled to judgment
as a matter of law. Fed. R. Civ. P. 56; Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 255 (1986). We first consider
Sukumar’s false marking claim, followed by Sukumar’s
state law claims.
A. False Marking Claim
Title 35 section 292(a) prohibits, in part, “mark[ing]
upon . . . in connection with any unpatented article, the
word ‘patent’ or any word or number importing that the
same is patented, for the purpose of deceiving the public.”
35 U.S.C. § 292(a). Section 292(b) provides a private right
of action to enforce § 292(a) to any “person who has suf-
fered a competitive injury as a result of a violation of this
section.” 35 U.S.C. § 292(b). The district court granted
Nautilus summary judgment on Sukumar’s false marking
claim because it found that Sukumar had not suffered a
competitive injury, and thus lacked standing to enforce
§ 292(a).
1. The Competitive Injury Requirement
Section 292(b)’s “competitive injury” standing re-
quirement was added in 2011 by the AIA. The parties do
not dispute that Sukumar was not selling products in
competition with Nautilus at the time this suit was filed. 2
This case thus presents the question of whether (or to
what extent) an entity that has not entered the relevant
market can suffer “competitive injury.” Nautilus argues
that an entity cannot suffer competitive injury unless it
actively sells products in the market. Sukumar contends
that a potential competitor may suffer competitive injury
2 A plaintiff must possess standing as of the time
the suit was filed. See Friends of the Earth, Inc. v.
Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 191
(2000).
6 SUKUMAR v. NAUTILUS, INC.
if it intends to enter the market. We hold that a potential
competitor may suffer competitive injury if it has at-
tempted to enter the market. An attempt is made up of
two components: (1) intent to enter the market with a
reasonable possibility of success, and (2) an action to
enter the market. 3
This court has yet to address the meaning of “compet-
itive injury,” so we begin with its plain meaning. Black’s
Law Dictionary defines “competitive injury” as “[a] wrong-
ful economic loss caused by a commercial rival, such as
the loss of sales due to unfair competition; a disadvantage
in a plaintiff’s ability to compete with a defendant, caused
by the defendant’s unfair competition.” Black’s Law
Dictionary (9th ed. 2009). This definition, while hardly
conclusive, lends some support for Sukumar’s position. A
potential competitor would generally not be considered a
“commercial rival,” but a potential competitor may suffer
“a disadvantage in [its] ability to compete” if another’s
actions impair its ability to enter the market. Still, this
definition does not include all potential competitors. To
suffer a disadvantage in the “ability to compete,” an entity
must have some present ability to compete—if only in
part—that is disadvantaged. Therefore, Black’s Law
Dictionary defines “competitive injury” to encompass
some potential competitors, but only those that suffer “a
disadvantage in [their] ability to compete.”
3 Satisfaction of this competitive injury require-
ment, however, does not mean that a party necessarily
has standing under § 292(b). The statute also imposes a
causation requirement. Standing under § 292(b) is lim-
ited to those who have suffered a competitive injury “as a
result of a violation of [section 292(a)].” 35 U.S.C.
§ 292(b).
SUKUMAR v. NAUTILUS, INC. 7
Because the text of the statute is inconclusive, we
next consider the legislative history. The House of Repre-
sentatives’ report on the AIA provides the most succinct
summary of congressional intent with respect to the
amendments to § 292. The report notes a recent “surge in
false-marking qui tam litigation” and explains that most
of the new suits involve a product that was originally
properly marked, but no longer was once the patent
expired. H.R. Rep. 112-98, 53, 2011 U.S.C.C.A.N. 67, 84.
According to the report, “[i]t is doubtful that the Congress
that originally enacted this section anticipated that it
would force manufacturers to immediately remove
marked products from commerce once the patent expired,
given that the expense to manufacturers of doing so will
generally greatly outweigh any conceivable harm of
allowing such products to continue to circulate in com-
merce.” Id. The report concludes that
[t]o address the recent surge in litigation, the bill
replaces the qui tam remedy for false marking
with a new action that allows a party that has suf-
fered a competitive injury as a result of such
marking to seek compensatory damages. The
United States would be allowed to seek the $500-
per-article fine, and competitors may recover in
relation to actual injuries that they have suffered
as a result of false marking, but the bill would
eliminate litigation brought by unrelated, private
third parties. 4
4 Congress explicitly preserved the ability to seek a
$500-per-article fine in § 292(a), but limited enforcement
to the government. As such, the statute uses the threat of
a government suit—rather than the previous mechanism
of qui tam actions—to deter businesses from falsely
marking their products.
8 SUKUMAR v. NAUTILUS, INC.
Id.
Nautilus seizes on the language that “competitors
may recover in relation to actual injuries that they have
suffered as a result of false marking” to argue that only
current market participants have standing to bring a
false marking action. But the use of the word “competi-
tors” just begs the question of what “competitors” means.
In the same sentence, the report juxtaposes “competitors”
with “unrelated, private third parties.” Entities actively
attempting to enter the market are not “unrelated, pri-
vate third parties.” As such, the legislative history is
inconclusive.
Another source to inform the meaning of “competitive
injury” is the term’s use in analogous areas of law. Alt-
hough the phrase is not identical, “injury to competition”
is a common concept in antitrust law. See, e.g., Razorback
Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 488 (8th
Cir. 1985); Midwest Underground Storage, Inc. v. Porter,
717 F.2d 493, 498 (10th Cir. 1983). In that context,
preventing market entry unquestionably qualifies as
“injury to competition.” For example, the Supreme Court
has held that injury to competition includes “creat[ing]
barriers to entry of new competitors in the market.”
Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14
(1984), abrogated in part on other grounds by Ill. Tool
Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006). In
addition, the Ninth Circuit has stated that “[v]ertical
agreements that foreclose competitors from entering or
competing in a market can injure competition by reducing
the competitive threat those competitors would pose.”
Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1198 (9th
Cir. 2012). Similarly, on another occasion the Ninth
Circuit has reasoned that “[t]ying arrangements are
forbidden on the theory that, if the seller has market
power over the tying product, the seller can leverage this
market power through tying arrangements to exclude
SUKUMAR v. NAUTILUS, INC. 9
other sellers of the tied product.” Cascade Health Solu-
tions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008).
We also find persuasive Sukumar’s argument that
“competitive injury” in § 292 must include what is argua-
bly the most egregious type of competitive injury: the
prevention of market entry altogether. The rule Nautilus
proposes would exclude this important circumstance.
Indeed, competition is certainly harmed when a market
participant’s false marking deters a would-be competitor
from attempting to enter the market. This was recog-
nized as one of the original rationales for allowing qui tam
actions to remedy false marking. See Forest Grp., Inc. v.
Bon Tool Co., 590 F.3d 1295, 1303 (Fed. Cir. 2009) (“If an
article that is within the public domain is falsely marked,
potential competitors may be dissuaded from entering the
same market.”). The AIA’s removal of qui tam claims for
false marking did not indicate disapproval of this ra-
tionale. Rather, the AIA recalibrated the enforcement
mechanism for false marking in response to a flood of
false marking claims that did little to achieve the original
objective of minimizing anticompetitive conduct.
From the above review of the statutory text, legisla-
tive history, analogous areas of law, and policy rationale,
we conclude that § 292(b) extends standing to sue for a
violation of § 292(a) to some potential competitors. Nev-
ertheless, it is equally clear that the amended statute
does not confer standing upon any entity that claims a
subjective intent to compete. Rather, § 292 limits stand-
ing to entities that have “suffered a competitive injury as
a result of a violation of [section 292(a)].” A potential
competitor can only suffer a competitive injury if it engag-
es in competition. Dreaming of an idea but never at-
tempting to put it into practice is insufficient. Otherwise,
market entry is too speculative and, thus, competition
cannot be harmed by the false marking. Likewise, some-
times a falsely marked product is also properly marked
with other patents. In that case, a potential competitor
10 SUKUMAR v. NAUTILUS, INC.
must show that the falsely marked patents deterred
market entry, but that—for some reason—the properly
marked patents did not deter market entry. Therefore, an
injury is only a “competitive injury” if it results from
competition, and a potential competitor is engaged in
competition if it has attempted to enter the market, which
includes intent to enter the market and action to enter
the market. And, for the sake of completeness, an entity
has standing under § 292(b) if it can demonstrate compet-
itive injury that was caused by the alleged false marking.
2. Application to Sukumar
a. Intent to enter the market
Sukumar alleges that he developed the intent to com-
pete with Nautilus in the mid- to late-1990s. Nautilus
responds that Sukumar never intended to sell fitness
machines in competition with Nautilus, and that, if
anything, Sukumar intended to operate senior rehabilita-
tion centers. According to Nautilus, these rehabilitation
centers would use modified Nautilus fitness machines,
which would make Sukumar a customer of Nautilus’, not
a competitor.
To support his argument, Sukumar cites his declara-
tion, which was prepared for the purposes of summary
judgment; the summary judgment declaration of Frank
Smith, a former Nautilus employee hired as a consultant
by Sukumar; and some excerpts of Sukumar’s deposition
testimony in this case. These three sources claim that,
beginning in the late 1990s, Sukumar intended to modify
Nautilus machines and sell the modified machines in
competition with Nautilus.
The district court properly found that other evidence,
including nearly all of the objective evidence, tends to
support Nautilus. Sukumar v. Nautilus, Inc., No. 7:11-
CV-00218, 2013 WL 6408351, at *10–12 (W.D. Va. Dec. 6,
2013). In 1998 and 1999, Sukumar placed orders for
SUKUMAR v. NAUTILUS, INC.
11
custom Nautilus fitness machines with certain modifica-
tions requested by Sukumar. When Sukumar was dissat-
isfied with the machines Nautilus eventually delivered,
he commenced litigation against Nautilus. There is no
evidence that Sukumar intended to mass produce the
designs Nautilus produced for him in competition with
Nautilus.
Several years later, in 2004, Sukumar incorporated
SCSRA. It is unclear what, if any, business activities
SCSRA or Sukumar undertook with respect to the fitness
machines market over the next half-decade apart from
litigating against Nautilus and purchasing several modi-
fied fitness machines from a company called MedX Corpo-
ration. Both parties direct the court to a litigation
settlement proposed by Sukumar as evidence of Suku-
mar’s intent during this time. In this settlement pro-
posal, which Sukumar communicated to Nautilus in 2009,
Sukumar attempted to negotiate a license to Nautilus
patents. The license offer explained that Sukumar and
Southern California Stroke Rehabilitation Associates, Inc.
were “interested in developing and operating a series of
rehabilitation centers that would provide physical therapy
and other rehabilitation services to stroke victims and
patients suffering from stroke-like symptoms.” The
proposed patent license extended only for Sukumar “to
make and have made for use exclusively in Sukumar-
owned rehabilitation centers equipment and parts that
are covered by a claim of Nautilus’ patent rights.”
The district court also noted that the bulk of Suku-
mar’s testimony confirms that Sukumar’s intent was
always to use modified fitness machines in senior rehabil-
itation and spa centers. Id. at *12. At his deposition in
this case, Sukumar spoke at length about his plans to
devote SCSRA to open senior rehabilitation centers and
senior spa centers. Id. In addition, the district court
found that this testimony comports with testimony
Sukumar has given in previous cases between the parties.
12 SUKUMAR v. NAUTILUS, INC.
Id. at *11. For example, in another lawsuit Sukumar
testified that SCSRA would have started senior rehabili-
tation centers were it not for Nautilus’ failure to provide
Sukumar seven fitness machines.
In response to this glut of evidence, Sukumar points
to numerous activities he has undertaken since the dis-
trict court found that some of Nautilus’ machines were
falsely marked as evidence of his earlier intent to compete
with Nautilus. As an example, Sukumar has recently
commissioned the development of a business plan and
design of a prototype, and engaged in discussions to
purchase land for a manufacturing facility. However, the
district court did not err in finding that this evidence has
minimal probative value for several reasons. See id. at
*11, *11 n.14, *12. First, crediting it would allow parties
in litigation to manufacture evidence after the suit has
been filed. Second, in this case Sukumar’s logic makes
little sense. Sukumar says he was deterred from entering
the market by Nautilus’ patent labels. Apparently now
that a court has confirmed that some of the patent labels
on some of Nautilus’ machines were inappropriate,
Sukumar is no longer deterred, even though the vast
majority of Nautilus’ machines—including all those
released prior to 2006—have not been adjudicated as
falsely marked.
In sum, we agree with the district court that Suku-
mar’s evidence of his intent to compete with Nautilus is
weak. Sukumar and Frank Smith’s assertions as to
Sukumar’s subjective intent are contradicted by Suku-
mar’s statements in both this case and others. The docu-
mentary evidence suggests that Sukumar intended only
to open senior rehabilitation centers, which would not
operate in competition with Nautilus. Still, on summary
judgment, as did the district court, we must view the
evidence in the light most favorable to Sukumar. There-
fore, we must consider the second component of an at-
SUKUMAR v. NAUTILUS, INC.
13
tempt to enter the market: whether Sukumar took action
to enter the market.
b. Action to enter the market
Consistent with the district court, we conclude that,
even if Sukumar subjectively intended to enter the mar-
ket for fitness machines, he took insufficient action to
pursue that intent. See id. at *10–12. Thus, no genuine
issue of material fact remains—Sukumar did not attempt
to compete with Nautilus, so Sukumar did not suffer a
competitive injury. Sukumar possesses a Master of
Business Administration degree and previously held a
career as an investment banker. Sukumar has little to no
engineering knowledge of fitness machines or business
experience in the fitness machine market. Sukumar
contends that, to gain familiarity with Nautilus fitness
machines, he purchased over 100 exercise machines from
Nautilus. But Sukumar’s alleged attempt to compete
with Nautilus ends here. Sukumar placed the Nautilus
machines he purchased in storage for years. And despite
the fact that over a decade passed between when Suku-
mar claims he developed the intent to compete with
Nautilus and when Sukumar filed this case, the list of
basic steps Sukumar did not take is long:
Sukumar did not develop a business plan.
Sukumar did not attempt to design a prototype.
Sukumar did not hire any employees.
Sukumar did not gain engineering knowledge.
Sukumar did not investigate developing manufac-
turing capacity.
As the district court noted, the undisputed evidence
establishes that, at the time Sukumar filed the suit,
Sukumar had not taken sufficient action to enter the
market for fitness machines. Id. at *10. Therefore,
Sukumar was not engaged in competition with Nautilus
14 SUKUMAR v. NAUTILUS, INC.
and did not suffer a competitive injury. Accordingly, the
district court properly granted summary judgment for
Nautilus because Sukumar lacks standing to bring a
claim for false marking under § 292.
B. State Law Claims
Sukumar also appeals the district court’s grant of
summary judgment for Nautilus on Sukumar’s unfair
competition claims, which were brought under Washing-
ton and California law. Sukumar contends that the
district court applied the wrong causation standard to the
state law claims. Specifically, Sukumar argues that the
district court required Nautilus’ false marking to be the
sole cause of his damages, rather than an “immediate
cause” (the standard in California) or a “but-for cause”
(the standard in Washington).
In arguing that the district court applied the wrong
legal standard for causation, Sukumar cites a single
sentence from the district court’s opinion: “It simply defies
common sense to conclude that, for more than ten years,
Plaintiffs have not entered the market to compete with
Nautilus and that the sole item holding them back was
their fear of infringing patents that were falsely listed on
the accused machines’ patent labels.” Id. Apparently
based on the district court’s usage of the word “sole” in
one sentence, Sukumar contends that the district court
employed an improperly stringent causation standard
throughout the district court’s entire twenty-eight page
opinion.
Sukumar takes a single word of the district court’s
opinion out of context. The district court used the word
“sole” for emphasis in demonstrating the absurdity of
Sukumar’s causation claim. While the district court’s
particular word choice in that sentence may be imprecise,
it does not negate the district court’s two-page recital of
what even Sukumar admits is the correct law. Nor does a
single use of the word “sole” nullify the district court’s
SUKUMAR v. NAUTILUS, INC.
15
faithful application of the correct law throughout the rest
of the opinion.
Furthermore, as to Sukumar’s argument that Nauti-
lus’ false marking caused his alleged damages, we agree
with the district court that Sukumar does not present
sufficient evidence. For example, the district court found
that “Sukumar has repeatedly blamed other actions of
Nautilus—not any false patent labels—for the years of
delay in accomplishing his business objectives and he has
done so both in prior litigation and in his deposition in
this case.” Id. at *11. Such actions include Nautilus’
alleged “unwillingness or inability to provide satisfactori-
ly-modified equipment” to Sukumar and “oral representa-
tions by Nautilus regarding patent protection generally
on its machines.” Id. at *11, *13. We also note that
Sukumar never attempted to develop a capacity to enter
the market. As discussed above, the district court proper-
ly found that Sukumar’s intent was to open senior reha-
bilitation and spa centers, not to compete with Nautilus.
Id. at *11–12. Finally, at bottom, Sukumar cannot create
a genuine issue of material fact by simply submitting a
conclusory declaration against overwhelming evidence to
the contrary. Moore U.S.A., Inc. v. Standard Register Co.,
229 F.3d 1091, 1112 (Fed. Cir. 2000) (“A party may not
overcome a grant of summary judgment by merely offer-
ing conclusory statements.”). Thus, the district court did
not err in granting summary judgment for Nautilus on
Sukumar’s state law claims.
III. CONCLUSION
Accordingly, we affirm the district court’s grant of
summary judgment for Nautilus on Sukumar’s false
marking and state law claims.
AFFIRMED