Emerson is an OEM of process control equipment used to control/regulate hazardous substances flowing through pipes. Plaintiff PCI does business as Automation. Automation, along with its competitor Emerson, remanufactures process control equipment. Factory Mutual Ins. Co. insures companies that use such equipment, and its subsidiary FM Approvals has safety standards for those companies and certifies process control equipment as “FM approved.” Many Emerson products are FM approved and bear the FM Approvals trademark, but Automation has not been approved as a repairer by FM Approvals.
“When Automation remanufactures Emerson equipment, it sometimes leaves the Emerson and FM Approvals trademarks on the equipment.” This created ongoing disputes about unfair competition and trademarks; the parties settled and released their claims from before December 3, 2007, but then began fighting again.
The court granted summary judgment to Emerson on Automation’s claims for false advertising, tortious interference, and defamation. Some of the claims were barred by the earlier release. As to the rest, Automation failed to show damages with reasonable certainty. There was little evidence that any of Automation’s customers received or acted on Emerson’s letters, emails, and articles.
Emerson brought patent infringement counterclaims, which Automation beat back because its actions constituted permissible repair rather than infringing reconstruction. Automation’s statements in marketing materials that it “remanufacture[d]” rather than “repair[ed]” the products wasn’t controlling since reconstruction for infringement purposes is a matter of law. Automation also procured parts from third parties, but repair doesn’t require that every replacement item be purchased from the patentee—third-party nuts, bolts, screws, gaskets, o-rings, glass, and gauges didn’t transform an otherwise permissible repair into an impermissible reconstruction. Automation acquired its products from third parties who discarded them or placed them in scrap bins; others were recovered after being heavily corroded by Hurricane Katrina, but that didn’t make them “spent” such that Automation’s acts were infringing. Emerson’s controllers had readily replaceable parts, with a substantial market for repaired products, and Emerson itself must have intended such repair, since it competes with Automation to do it. Even some limited customization didn’t go beyond repair.
Automation also sought summary judgment on Emerson’s trademark claim, but the court ruled (in a holding Mark McKenna will hate) that the Champion Spark Plug standard for trademark repair is different from that in patent. “While the patent cases are chiefly concerned with the physical condition of the invention, Champion ultimately turns on the issue, central to trademark law, of whether ‘the unauthorized use was likely to deceive, cause confusion, or result in mistake.’ The Champion line of cases is concerned both with the nature of the repaired product and any disclaimer notifying customers of its repaired nature.” Automation argued that it clearly indicated that the products had been repaired and that its customers were sophisticated. But that wasn’t enough. But the evidence showed that Automation didn’t repair every item in an identical manner or use the same disclaimers for every product, and that was enough to make the fact-intensive issue of infringement get past summary judgment. There were also genuine issues of material fact on Emerson’s other false advertising/unfair competition/trade secret claims, though the court didn’t go into detail.
The court also granted summary judgment on liability to FM Approvals based on Automation’s use of/failure to remove FM Approvals’ certification mark. FM Approvals has three ways to ensure that repaired equipment still complies with its standards: repair by the OEM, repair by an independent under its Standard 3606, or repair by an end user approved under 3606. Each method involves an audit or inspection of the repair facilities and processes by FM Approvals. Automation didn’t claim that it had been approved under 3606, but rather that, as an owner, it could repair the product according to the OEM’s manual without voiding the certification, and that its repaired equipment met the FM Approvals certification standard. The court responded that meeting the standard wasn’t the issue: “the FM Approvals certification mark does not simply represent the quality of the equipment, but the fact that FM Approvals has in fact inspected the equipment, facility, or repair processes and approved it. Not only does Automation's argument ignore the process for repair approvals, it would completely undermine the value of the certification system, which relies on testing and oversight ….”
Automation argued that it was nonetheless entitled to retain the FM Approvals mark under Champion. Not so. While consumers expect used goods to be inferior, and so disclosure of their status avoids actionable confusion, “certification marks are different in nature from other trademarks. Disclosing that an item is ‘repaired’ may effectively inform a consumer of the product's nature as compared to a new item of the same origin. However, simply disclosing that an item is ‘repaired’ does not similarly inform a consumer that the repair process has not been re-audited by the holder of the certification mark it bears.” Thus, Automation’s acts were likely to confuse consumers. There was also evidence of actual consumer confusion, which mooted Automation’s argument that its products could be marketed as FM Approved.