Spellbinders Lawsuit Against QuicKutz Dismissed

Spellbinders' lawsuit against QuicKutz for patent infringement has been thrown out of court by the judge in the case after a nearly three year court fight.

The company filed suit against QuicKutz in Dec. 2009 for alleged infringement on a patent it had been granted (referred to in court filings as the "634 patent") by the U.S. Patent & Trademark Office for creating dies with an aperture. QuicKutz responded to the suit with multiple defenses, including by challenging with the PTO the validity of the patent that the suit was based on.

In July 2010, QuicKutz sold all of its assets to an investment group that formed a new company called Lifestyle Crafts around the company's product lines. The original QuicKutz, renamed legally as QK2015 because the QuicKutz trademark had been sold to Lifestyle Crafts but referred to as QuicKutz in court filings, continued to exist as an entity to fight the lawsuit against it. Spellbinders also filed suit in January 2012 against the new Lifestyle Crafts entity alleging infringement of the 634 patent by that company as well.

The case began to turn against Spellbinders in late 2010 when the grounds the 634 patent were originally granted on were rejected by the PTO upon completion of the ex-parte re-examination of the patent that had been requested by the QuicKutz. This effectively invalidated the patent, and launched a lengthy round of appeals and counter-arguments to the PTO by Spellbinders and QuicKutz over the validity of the grounds for the patent that lasted until yesterday. 

Tuesday, Judge Neil Wake of the U.S. District Court of Arizona issued a summary judgement against Spellbinders in the case that declared the 634 patent unenforceable due to what the court believed was material misconduct by Spellbinders in defending it to the PTO and the court. The patent infringement case was ordered terminated immediately.  A 2012 declaration that Spellbinders owner Jeffrey Caron made to the court under oath was also ordered stricken from the record of the case due to it being submitted to the court in what the judge termed "bad faith."

The court's opinion also left the door open for QuicKutz to proceed with action for collecting attorney's fees for the case from Spellbinders - a bill that could total hundreds of thousands of dollars after three years of hard-fought litigation in the case.

The 33 page opinion issued by the judge explaining his ruling is scathing in its characterization of Spellbinders'  actions in the case.

Regarding Spellbinders' actions in initially listing J. Michael Dywan as an inventor on the patent, and then attempting to remove him from it, the Judge wrote:

Plaintiffs intended to deceive the PTO by submitting inventorship information that suited their current interests without regard for its truthfulness. (p.9)

In ruling that Spellbinders misled the PTO by presenting supporting affidavits from industry experts and consumers about the success of the dies, and failing to fully disclose their financial ties to the experts, the court concluded:

The specific intent to deceive the PTO is the only reasonable inference that can be inferred from this evidence. Thus, the Court finds by clear and convincing evidence Plaintiffs acted with the specific intent to deceive the PTO by submitting the declarations...(p.17)

The judge was especially critical of a 2011 declaration filed with the PTO by Jeffrey Caron as part of the appeal by Spellbinders of the initial PTO action that removed the basis for the patent being granted, writing at various times in the opinion:

If Caron’s 2011 representations to the PTO about his knowledge of the method recited in claims 37-42 and 46 are true, his deposition testimony was more than evasive; it was false or misleading. If his deposition testimony was true and responsive, then his 2011 representations to the PTO are, at the least, misleading. (p.20)

In the Caron 2011 Declaration, Caron declared certain things to be true, including that “Hixon teaches dies having embossing features that are made by chemical etching from only one side of the die to form the embossing element” and other facts about chemical etching and Hixon’s teachings. The evidence submitted here establishes that he did not know those things to be true when he made the 2011 declaration and may not even now. (p.21)

...it is an “unmistakably false affidavit,” constituting an affirmative act of egregious misconduct because it misrepresented that it conveyed information that the declarant knew to be true and was submitted to the PTO with the misrepresentation that the declarant had firsthand knowledge about the subject of the declaration. (p.21)

Ultimately, the judge concluded that the only proper remedy was to rule the patent unenforceable:

QuicKutz has proven Plaintiffs’ intent to deceive and materiality by clear and convincing evidence. No evidence before the Court weighs against rendering the entire patent unenforceable. Therefore, having found by clear and convincing evidence that Plaintiffs’ misconduct was material and that they intended to deceive the PTO, the ’634 Patent is held unenforceable under the inequitable conduct doctrine, and QuicKutz’s Motion for Summary Judgment of Unenforceability Due to Inequitable Conduct (Doc. 160) will be granted. (p. 23)

Without the patent being deemed enforceable, there is nothing to sue QuicKutz for infringing and so the judge ordered the case terminated. The court also struck a 2012 declaration of Jeffrey Caron's made in response to the motion for summary judgement by QuicKutz from the record in ruling on a second part of the QuicKutz motion, although doing so did not affect the overall outcome of the case.

Judge Wake also issued an order Tuesday in the case that Spellbinders has been pursuing against Lifestyle Crafts, in which he is also the presiding judge. That order gives Spellbinders, in light of the 634 patent that is the basis of their suit being ruled unenforceable in the QuicKutz action, until November 27th to provide the court a reason why the Lifestyle Crafts case should not also be dismissed. A dismissal in that case could leave Spellbinders vulnerable to a claim for legal fees from Lifestyle Crafts.

In a statement to Scrapbook Update, QK2015 owner Eric Ruff said he was grateful to see the suit come to an end finally:

It's sad to see that so much time, energy, and money was wasted on such a frivolous and misguided lawsuit that has now, thankfully come to a proper end.  This judgment has restored the pristine honor and legacy to QuicKutz that all our customers knew and appreciated from the beginning.

Spellbinders' co-owner Stacey Caron, on the other hand, says the company is not ready to concede defeat. She told Scrapbook Update:

We will appeal because the judge is incorrect.

In the past few years Spellbinders has been touted as one of the scrapbook industry's great successes, making Inc. magazine's list of the U.S.'s fastest growing companies, and earning multiple industry awards. It remains to be seen what effect the legal setback will have on the company long-term.