SoClean accused Sunset of violating a patent covering a system using ozone to sanitize CPAP devices, as well as for infringing SoClean’s trade dress in replacement filters for the sanitization device. SoCLean was granted a preliminary injunction on the trade dress claim in April 2021, but rather than prohibiting Sunset from selling replacement filters altogether, Judge Talwani enjoined Sunset only from marketing its filters using images of the filter cartridge alone, and requiring the Sunset brand to be prominently displayed in connection with promotion, marketing and sales of the filter cartridges.
Sunset appealed the preliminary injunction, asserting that the District Court was incorrect in determining that Sunset would not succeed in showing that the cartridge configuration lacked secondary meaning (which is a requirement for product design trade dress). The Federal Circuit rejected Sunset’s argument, noting that the existence of a federal registration established a prima facie case of secondary meaning (and thus validity) of the mark. As the mark was not yet registered for five years, and was therefore not incontestable, this shifted the burden to Sunset to introduce evidence to rebut the presumption of validity. While Sunset contested that the trademark examiner had failed to properly look for evidence of secondary meaning – and indeed, apparently the sole evidence SoClean had presented to the examiner was a self-serving statement from SoClean that the product was distinctive. The Federal Circuit determined, however, that Sunset was required to do more than poke holes in the examination process, and instead must produce additional evidence of lack of distinctiveness to prevail.
In the meanwhile, counsel for SoClean approached counsel for Sunset to discuss whether the case might be settled. Sales data on the accused products was exchanged, and SoClean made a proposal, which SoClean identified as “very rough terms, but the key points are there.” Sunset countered, and a series of counteroffers were made, with some but not all of the terms apparently being agreed upon. The parties did get close enough to report that they were “approaching settlement” and to obtain a 60 day stay of the litigation to try to bring the settlement to a conclusion. During the stay, the attorneys reached a verbal agreement, which SoClean’s counsel indicated would be “subject to a final written settlement agreement, including approval by SoClean’s board.” Further discussion resulted in a February 11, 2022 e-mail from Sunset’s attorney stating “[w]e have a deal to settle the case on the following terms, which you communicated to me yesterday: and setting forth bullet points of the terms. SoClean’s attorney responded that “this looks right to my eye.” The attorneys subsequently began drafting a written agreement on these terms. In March 2022, however, SoClean’s attorney reported that the board was unwilling to approve the settlement, and a day later he withdrew from representation of SoClean.
Sunset moved to enforce the purported settlement agreement, arguing that the February 11 email exchange served to memorialize the agreement. Judge Talwani first noted that the February 11 email exchange appeared to include all material terms, and that SoClean’s attorney had not mentioned any unresolved terms in his response. She noted, however, that a party’s attorney does not have authority to bind a client to a settlement based solely on his being retained by the client, but instead the attorney must reasonably believe, in accordance with manifestations to that effect by the principal, that the attorney has been so authorized. Here, Sunset could not point to any authority given by SoClean to the attorney to make the agreement. Further, She further noted that Sunset could not assert apparent authority, because apparent authority must stem from conduct between the principal purporting to manifest authority, and not from the attorney allegedly having apparent authority. No such evidence was presented in this case, meaning the agreement could not be enforced. Further, as the discussion which resulted in the February 11 email expressly indicated that an agreement was subject to board approval, no agreement could take place until that condition precedent was satisfied, which here it was not. Accordingly, the motion to enforce settlement was denied.
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