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finding that it was "improper to penalize [the objecting party] for standing on her objections" because the requesting party failed to seek an order determining the sufficiency of the objections
Summary of this case from Rimkus Consulting Group, Inc. v. Rault Resources, Inc.Opinion
No. 3-03-CV-1428-L.
June 7, 2005
FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Plaintiff Stephen A. Gummow has filed a motion for partial summary judgment on his claims for patent infringement and breach of contract. For the reasons stated herein, the motion should be denied.
I.
In 1983, plaintiff obtained a patent on a dual action ratchet wrench. (U.S. Patent No. 4,406,186, or "the '186 Patent"). (Plf. MSJ App. at 4-10). The unique feature of this tool is an elongated handle that moves into different positions above the wrench body and rotates the wrench body while the head is fixed. This special configuration allows the user to rapidly and easily fasten or loosen a nut, which is particularly useful where space is limited. Over the years, plaintiff conceived, designed, and invented several improvements to the '186 Patent, including an indexable head ratchet wrench. Some of the prototypes, designs, and writings depicting these improvements were disclosed by plaintiff to Charles Austin Cole and James G. Jones for the purpose of obtaining their assistance in marketing the wrenches. ( Id. at 19-22, 185-87). According to plaintiff, Charles Cole and Jones communicated his ideas to James Ellis Cole, who proceeded to file two patent applications for indexable head ratchet wrenches claiming plaintiff's improvements as his own invention. Patents were subsequently issued to James Cole on May 30, 1995 (U.S. Patent No. 5,419,221, or "the '221 Patent") and July 7, 1998 (U.S. Patent No. 5,775,184, or "the '184 Patent"). ( Id. at 11-14; see also Def. MSJ App. at 23-29).
An "indexable head ratchet wrench" is a wrench to which other tools are connected for use in tightening and loosening nuts and bolts.
In November 1995, James Cole assigned the '221 Patent to Splined Tools Corporation ("Splined Tools"), a company owned by his former wife, Teresa M. Cole. (Def. MSJ App. at 30). Splined Tools then licensed the patent to Superior Rachet and Tool Company, Inc. ("Superior"), a company formed by James Cole to manufacture and market his wrench. ( See Plf. MSJ App. at 33, 58). In May 1997, Splined Tools granted Snap-On Tools Corporation ("Snap-On") an exclusive licence to manufacture an indexable head ratchet wrench that is the commercial embodiment of the '221 Patent. ( Id. at 96-106). What followed was nearly 10 years of litigation involving the '186 and '221 Patents. In 1996, plaintiff sued Superior, Splined Tools, and James Cole in Illinois federal court alleging infringement of the '186 Patent. James Cole countered by filing a declaratory judgment action against plaintiff in Texas. Both cases were settled in October 1998. Under the terms of the settlement, James Cole agreed that:
Although the Coles divorced in 1993, they remained on good terms. ( See Plf. MSJ App. at 198, ¶ 19).
[D]uring the remaining term of the '186 Patent he will not, either directly or indirectly through others, make, cause to be made, import, use, or sell in the United States the accused indexable ratchet wrenches, or receive royalties or other income from or otherwise benefit from the manufacture or sale of such wrenches in the United States.
( Id. at 1).
Just two months after this settlement, plaintiff filed a patent infringement action against Snap-On in Illinois federal court. Snap-On counterclaimed for a declaratory judgment of noninfringement. At issue in that case was whether the Snap-On wrench embodies two critical elements of the '186 Patent: (1) a "surface of the second end of the handle engaging in a mating surface of the wrench body so that the handle and the wrench body are in a fixed engaged force transmitting relationship," and (2) a "cylindrical opening" in the handle end. The district judge interpreted both elements in favor of plaintiff and found that the Snap-On wrench literally infringed the '186 Patent. Gummow v. Snap-On Tools Corp., 2001 U.S. Dist. LEXIS 11163 (N.D. Ill. Mar. 21, 2001).
Armed with this judgment, plaintiff sued James Cole in Illinois seeking to correct inventorship of the '221 Patent. James Cole then filed a declaratory judgment action against plaintiff in Texas federal court to clarify his inventorship status. The Illinois case was dismissed for lack of personal jurisdiction. Gummow v. Cole, 2002 WL 959836 (N.D. Ill. May 9, 2002). The Texas case was dismissed for lack of subject matter jurisdiction. Gummow v. Cole, 2003 WL 22455387 (N.D. Tex. Oct. 22, 2003). Plaintiff then filed the instant lawsuit against Splined Tools, Jones, and the Coles. The case is before the court on plaintiff's motion for partial summary judgment. The motion has been fully briefed by the parties and is ripe for determination.
Plaintiff asserts claims against various defendants for patent infringement, breach of contract, breach of fiduciary duty, breach of the duty of good faith and fair dealing, unjust enrichment, fraud, conspiracy, recision, and correction of inventorship. ( See Plf. Compl. at 7-11, ¶¶ 42-87). However, he only seeks summary judgment on his claim for patent infringement against Splined Tools and Teresa Cole and his claim for breach of contract against James Cole.
II.
Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
Where, as here, a party seeking summary judgment has the burden of proof at trial, he must submit evidence to establish every essential element of his claim. See Garden City Boxing Club, Inc. v. Vinson, 2003 WL 22077958 at *1 (N.D. Tex. Sept. 3, 2003). Once the movant meets his initial burden, the non-movant must show that summary judgment is not proper. Duckett v. City of Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir), cert. denied, 113 S.Ct. 82 (1992). All evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir. 1993); Reid v. State Farm Mutual Automobile Insurance Co., 784 F.2d 577, 578 (5th Cir. 1986).
III.
Plaintiff seeks summary judgment on three grounds: (1) Splined Tools and Teresa Cole are precluded from contesting infringement of the '186 Patent by virtue of the Illinois judgment against Snap-On; (2) Teresa Cole's insufficient answers to discovery requests constitute deemed admissions that the wrenches sold by Snap-On infringe the '186 Patent; and (3) James Cole breached the 1998 settlement agreement by receiving income from the manufacture and sale of Snap-On wrenches. The court will address these arguments in turn.
A.
Plaintiff first contends that the Illinois judgment against Snap-On is entitled to preclusive effect under the doctrines of res judicata and collateral estoppel in this subsequent action against Splined Tools and Teresa Cole. Res judicata, or claim preclusion, is appropriate if: (1) the parties in the subsequent action are identical to, or in privity with, the parties in the prior action; (2) the judgment in the prior case was rendered by a court of competent jurisdiction; (3) there has been a final judgment on the merits; and (4) the same claim or cause of action is involved in both suits. See Ellis v. Amex Life Insurance Co., 211 F.3d 935, 937 (5th Cir. 2000). Collateral estoppel precludes relitigation of an issue in a subsequent action if: (1) the issue is identical to one decided in the first action; (2) the issue was actually litigated in the first action; (3) resolution of the issue was essential to a final judgment in the first action; and (4) the party against whom collateral estoppel is invoked had a full and fair opportunity to litigate the issue in the first action. See Lamps Plus, Inc. v. Dolan, 2003 WL 22435702 at *1 (N.D. Tex. Aug 26, 2003), citing Innovad Inc. v. Microsoft Corp, 260 F.3d 1326, 1334 (Fed. Cir. 2001).
Because this procedural issue is not unique to patent law, Fifth Circuit precedent controls. See, e.g., Vardon Golf Co., Inc. v. Karsten Manufacturing Corp., 294 F.3d 1330, 1333 (Fed. Cir. 2002) (applying law of the circuit in which district court sits because "the application of collateral estoppel is not a matter within the exclusive jurisdiction of [the Federal Circuit] court"); Hartley v. Mentor Corp., 869 F.2d 1469, 1471 n. 1 (Fed. Cir. 1989) (same as to res judicata).
The requirement of privity is central to both res judicata and collateral estoppel. See Marine Office of America Corp. v. Vulcan MV, 921 F.Supp. 368, 373 n. 14 (E.D. La. 1996). Here, neither Splined Tools nor Teresa Cole were parties to the Illinois litigation. Nevertheless, plaintiff contends that privity exists because: (1) Snap-On and Splined Tools have a mutual relationship in the same property; (2) Snap-On was the "virtual representative" of Splined Tools in the Illinois action; and (3) both the Illinois case and the present action involve interpretation of the '186 Patent.
Plaintiff makes no attempt to independently establish privity between Snap-On and Teresa Cole. Instead, he makes the blanket statement that "all references to Splined Tools are intended to include Teresa Cole, Splined Tools' president, as well." (Plf. MSJ Br. at 11 n. 3). This is wholly insufficient to establish privity on the part of Teresa Cole.
1.
Plaintiff argues that Snap-On and Splined Tools stand in privity with one another based on their mutual relationship as licensee and licensor of the '221 Patent. However, none of the authorities cited by plaintiff hold that such a relationship establishes privity as a matter of law. At most, these district court decisions from other jurisdictions, some of which were decided more than 30 years ago, suggest that the relationship between a patent licensee and licensor may give rise to privity. See, e.g. Erbamont Inc. v. Cetus Corp., 720 F.Supp. 387, 394-95 (D.Del. 1989) (stating in dicta, without analysis, that there is a "strong possibility" that the relationship between licensor and licensee satisfies the definition of privity when privity is defined as the "mutual or successive relationship to the same rights of property"); Tycom Corp. v. Redactron Corp., 380 F.Supp. 1183, 1189 (D.Del. 1974) (concluding that there was a "strong probability" that defendant could successfully assert the defenses of res judicata and collateral estoppel in subsequent attempt by nonparty patent owner to relitigate the issues of patent infringement). But see Butterfield v. Oculus Contact Lens Co., 332 F. Supp. 750, 762 (N.D. Ill. 1971), aff'd, 1973 WL 19832 (7th Cir. Jan. 17, 1973) ("There certainly can be factual situations in which a licensor and licensee may be in privity but it does not follow that they always are."). The court is unwilling to grant summary judgment in favor of plaintiff based on such questionable authority.2.
Plaintiff further argues that Splined Tools should be bound by the Illinois judgment because Snap-On was its "virtual representative" in that case. In order to establish virtual representation for purposes of res judicata or collateral estoppel, there must be an express or implied relationship in which the parties to the first suit are accountable to non-parties involved in a subsequent action raising identical issues. Benson Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1175 (5th Cir. 1987); see also Marine Office of America Corp. v. Vulcan MV, 921 F.Supp. 368, 373 (E.D. La. 1996) (requiring more than just a "parallel interest" to show virtual representation). The question of virtual representation is one of fact and is to be kept within "strict confines." Benson Ford, 833 F.2d at 1175, quoting Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 339 (5th Cir. 1982).
The threshold issue is whether Snap-On had a duty of accountability to Splined Tools in connection with the Illinois litigation. To the extent such a duty exists, it must arise from the license agreement between the parties. That agreement provides, in pertinent part:
8.2 Snap-On shall have the sole right and authority to institute actions for infringement of the ['221 Patent] against third parties. Snap-On may join [Splined Tools] as a plaintiff in any such action, and shall join [Splined Tools] in any such action at [Splined Tools'] request.
8.3 [Splined Tools] may institute actions for infringement of the ['221 Patent] against third parties if Snap-On fails to do so under Section 8.2. [Splined Tools] may join Snap-On as a plaintiff in any such action, and shall join Snap-On in any such action at Snap-On's request.
8.4 If Snap-On brings an action or requests to be joined as a plaintiff, Snap-On shall control the action. If a party joins or is joined in any action hereunder, the joined party shall cooperate fully with the other party in any such action. If a party does not join or is not joined, the other shall pursue the action sufficiently aggressively that the other party's rights hereunder will not be materially adversely affected by any such infringement.
(Def. MSJ App. at 46) (emphases added). The court initially observes that the license agreement does not speak to litigation brought against Snap-On and Splined Tools. Rather, it addresses only the rights of the parties to institute actions for infringement of the '221 Patent. The Illinois litigation, which was filed by plaintiff alleging infringement of the '186 Patent, is not covered by the terms of the license agreement. Moreover, even if the license agreement is construed to cover infringement actions brought against Snap-On and Splined Tools involving other patents, the agreement makes clear that Snap-On, not Splined Tools, has the right to control such litigation. Thus, plaintiff is not entitled to summary judgment against Splined Tools under the theory of virtual representation. See Meza v. General Battery Corporation, 908 F.2d 1262, 1264 (5th Cir. 1990) (no virtual representation where party in prior action had no contractual duty or statutory obligation to represent nonparty).
The court also notes that the indemnity provision of the licence agreement, which obligates Splined Tools to "defend and indemnify Snap-On against all claims or loss or damages, . . . that Snap-On may suffer as a result of any claims or action brought against Snap-On for patent infringement . . . [,]" does not apply to actions involving the '186 Patent. ( See Def. MSJ App. at 48, § 12).
3.
In a final attempt to establish privity between Snap-On and Splined Tools, plaintiffs relies on a line of cases suggesting that non-mutual offensive collateral estoppel should apply to questions involving "the legal effect of a document identical in all relevant to respects to another document whose effect was adjudicated in a prior action." Burlington Northern Railroad Co. v. Hyundai Merchant Marine Co., 63 F.3d 1227, 1238 n. 14 (3d Cir. 1995), quoting Hicks v. Quaker Oats Co., 662 F.2d 1158, 1167 n. 4 (5th Cir. 1981). See also RESTATEMENT (SECOND) OF JUDGMENTS, § 27, cmt. c (1982). Because the legal effect of the '186 Patent was decided by the Illinois court, plaintiff contends that Splined Tools should be precluded from relitigating that issue in the instant case.
The court notes that none of the authorities cited by plaintiff are patent cases. See, e.g. Burlington Northern Railroad, 63 F.3d at 1237-38 (construing indemnity provision in contract of carriage); Meador v. Oryx Energy Co., 87 F.Supp.2d 658, 665-666 (E.D. Tex. 2000) (construing interest in oil and gas lease). Indeed, it would be inappropriate for this court to simply adopt the claim construction made by the Illinois court without an independent analysis. See Lamps Plus, 2003 WL 22435702 at *2 (adoption of prior claim construction without giving defendants an opportunity to brief the issues may violate due process); Texas Instruments, Inc. v. Linear Technologies Corp., 182 F.Supp.2d 580, 588-89 (E.D. Tex. 2002) (court not bound by claim construction in prior case where defendants "have had no chance to litigate their claims"). This court already has construed the disputed claim elements of the '186 Patent. Gummow v. Splined Tools Corp., 2004 WL 893436 (N.D. Tex. Apr. 26, 2004), rec. adopted, 2005 WL 525405 (N.D. Tex. Mar. 3, 2005). The legal effect of that ruling, which differs slightly from the ruling of the Illinois court, may or may not lead to a finding of infringement. Significantly, plaintiff does not seek summary judgment based on this court's claim construction as applied to the facts of the case. Rather, he relies solely on the preclusive effect of the Illinois judgment. That judgment, standing alone, does not bar Splined Tools and the other defendants, who were not parties to the Illinois action, from litigating the issue of infringement.
The Illinois court interpreted "fixed engaged force transmitting relationship" to mean "that as long as the handle and body surfaces are fixed and engaged while force is transmitted, the handle surface need not actually directly cause the force transmission." Gummow, 2001 U.S. Dist. LEXIS 11163 at *2. ( See also Plf. MSJ App. at 201). That court construed the term "cylindrical opening" to mean "any shaped opening of a cylindrical surface formed by any curve, whether it be formed by sharp bends, a continuous arc, a continuous wave, or any other shape." Id. at *5. While this court gave a similar construction to "cylindrical opening," it gave a slightly different construction to the terms "engaging a mating surface" and "in a fixed force transmitting relationship." Gummow, 2004 WL 893436 at *5 ("engaging a mating surface" means to "interlock with a mating surface of the wrench body" and "in a fixed forced transmitting relationship" means "in a force transmitting relationship in which there is no angular movement between the wrench handle and the wrench body").
Plaintiff has failed to conclusively establish as matter of law that Splined Tools and Snap-On were in privity with one another. This pretermits consideration of the other elements of res judicata and collateral estoppel. Accordingly, plaintiff is not entitled to summary judgment on this ground.
The court questions, without deciding, whether res judicata or collateral estoppel would apply even if plaintiff could establish privity between Splined Tools and Snap-On. Plaintiff sued Snap-On in Illinois under a theory of direct infringement. His complaint in the instant case alleges only infringement by inducement. ( See Plf. Compl. at 10, ¶¶ 73-75). Thus, it does not appear that the issue of induced infringement was actually litigated in the prior action. See Homedics, Inc. v. Valley Forge Insurance Co., 315 F.3d 1135, 1150 (9th Cir. 2003) (patent infringement and inducement of patent infringement are separate and distinct causes of action).
B.
Next, plaintiff argues that Teresa Cole's insufficient answers to discovery requests constitute deemed admissions that the wrenches sold by Snap-On infringe the '186 Patent. At issue are objections to plaintiff's interrogatories and requests for admission. When asked to explain why the Snap-On wrenches do not infringe the '186 Patent and to identify each element of the '186 Patent missing from the Snap-On wrenches, Teresa Cole answered:
Defendant Teresa M. Cole objects to this interrogatory because it is premature. The claims of the '186 patent have not yet been construed by the Court in this case. After the claims are construed, Defendant Teresa M. Cole will supplement this answer. Subject to this objection, Defendant Teresa M. Cole answers that the referenced wrenches do not infringe the '186 patent because, without limitation, the claim limitations "with a surface of the second end engaging a mating surface of the wrench body in a fixed force transmitting relationship" and "cylindrical opening" do not read on and are not present in the referenced wrenches.
(Def. MSJ App. at 152). Teresa Cole also objected to requests for admission asking her to agree with the definition of two disputed claim elements — "cylindrical opening" and "with a surface of the second end of the handle engaging in a mating surface of the wrench body so that the handle and the wrench body are in a fixed engaged force transmitting relationship." ( Id. at 156-57). Despite the fact that plaintiff never sought a ruling on any of these objections, he argues that the subject matter of the unanswered discovery requests should be deemed admitted against Cole.
The federal discovery rules require the party serving interrogatories or requests for admission to seek an order determining the sufficiency of objections or answers. See FED. R. CIV. P. 33(b)(5) 36(a). Here, plaintiff failed to seek such an order. It is therefore improper to penalize Cole for standing on her objections. Brown v. P.S. Sons Painting, Inc., 680 F.2d 1111, 1114-1115 (5th Cir. 1982), citing 4A MOORE, LUCAS AND EPSTEIN, MOORE'S FEDERAL PRACTICE ¶ 36.06, at 66 (1987); see also Texaco Puerto Rico, Inc. v. Medina, 834 F.2d 242, 247 n. 3 (1st Cir. 1987).
C.
Finally, plaintiff contends that James Cole breached the 1998 settlement agreement by receiving income from the manufacture and sale of Snap-On wrenches. In response to requests for admission, Cole admitted that between 1998 and 2001, Snap-On made quarterly payments to Splined Tools totaling $996,000 as royalties for the manufacture and sale of indexable head ratchet wrenches. ( See Plf. MSJ App. at 70-74). During the same period, Splined Tools made quarterly payments to James Cole totaling more than $500,000 under the terms of an oral consulting agreement. ( Id. at 150-56; see also Def. MSJ App. at 16, ¶ 24). Plaintiff characterizes these consulting fees as "royalties" from the sale of wrenches that infringe the '186 Patent. James Cole argues that the fees were paid for "inventive and marketing" services. (Def. App. at 15, ¶ 23).
Both parties agree that plaintiff's breach of contract claim is governed by Illinois law, as provided in the settlement agreement. ( See Plf. MSJ App. at 2, ¶ 6).
Viewed in the light most favorable to James Cole, the summary judgment evidence fails to conclusively establish that his receipt of quarterly payments from Splined Tools between 1998 and 2001 violated the terms of the settlement agreement with plaintiff. In his declaration, James Cole explains:
In late 1997, I entered into the expected consulting agreement with Splined. Pursuant to the agreement, which was an oral agreement, I consulted with Splined over inventive and marketing activities and assigned to Splined the rights to United States Patent Numbers 5,775,184 (Indexable Wrenches) (issued July 7, 1998); 5,820,288 (Adjustable Tool with a locking hinge mechanism) (issued October 13, 1998); 6,000,299 (Modular Tool System) (issued December 14, 1999); and 6,161,982 (Assembly with a sealed coupler) (issued December 19, 2000). I assigned the '184 Patent to Splined on September 9, 1998. I was able to enter into and continue under the income producing consulting agreement with Splined based in large part on my status as the named and correct inventor of the '221 and '184 Patents.
( Id.). Although the timing and amount of "consulting fees" paid to James Cole are suspect, this suspicion does not warrant summary judgment in favor of plaintiff. Rather, whether such payments constitute royalties from the sale of infringing wrenches or fees for legitimate consulting services is a genuine issue of material fact that must be resolved at trial.
RECOMMENDATION
Plaintiff's motion for partial summary judgment should be denied in its entirety. The court will set this case for trial by separate order.
A copy of this report and recommendation shall be served on all parties in the manner provided by law. Any party may file written objections to the recommendation within 10 days after being served with a copy. See 28 U.S.C. § 636(b)(1); FED. R. CIV. P. 72(b). The failure to file written objections will bar the aggrieved party from appealing the factual findings and legal conclusions of the magistrate judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1417 (5th Cir. 1996).