Opinion
CASE NO. SACV 02-503 DOC (ANx)
January 12, 2004
ORDER DENYING MOTION FOR SUMMARY JUDGMENT RE: LACHES AND ESTOPPEL
Before the Court are Plaintiff and Counterdefendant Motorvac Technologies, Inc.'s ("Motorvac") motions for summary judgment or summary adjudication regarding laches and estoppel. After considering all moving, opposing and replying papers, oral argument on January 12, 2004, and for the reasons set forth below, the Court DENIES Motorvac's motions.
I. BACKGROUND
This action includes two consolidated actions involving claims of patent infringement by both Motorvac and Norco. Industries, Inc. against each other. The present motion involves only Norco's claims that Motorvac's TransTech I Automatic Transmission Fluid exchange machines ("TransTech I") infringe Norco's U.S. Patent No. 5,626,170 ("the `l70 patent"), and U.S. Patent No. 5,370,160 along with its associated reexamination certificate (together, "the `l60 patent").
Flo-Dynamics merged with Norco; thus, unless indicated otherwise, references to Norco. include Flo-Dynamics.
In 1993, Norco. entered into a patent agreement with the inventor of the `l60 and `l70 patents (collectively, the "Parker Patents") now in suit and owned by Norco. Around the same time, Parker had also demonstrated what he called his "Transmission Super Flusher" to Motorvac. Motorvac states that it first became aware of the Parker Patents in late February, 1998, when Motorvac received a letter from Norco's attorneys accusing Motorvac of infringing the patents. Motorvac's attorneys responded by letter on March 12, 1998 indicating they were reviewing the Parker patents and their prosecution histories, and asking for time to complete the review as well as inquiring into possible options regarding licensing the patents and cross-licensing a Motorvac patent. On November 12, 1998, after apparently hearing nothing further from Motorvac, Norco. sent a letter threatening to sue within 10 days. The letter included a courtesy copy of a complaint. Attorneys for both companies then sent a series of letters back and forth through the month of November detailing each other's positions with respect to the allegations of infringement. On January 27, 1999, Norco's attorney's again sent a letter threatening to sue Motorvac and essentially terminating communications unless Motorvac had something new to say. Motorvac's attorneys responded with a letter on February 1, 1999, reiterating why Motorvac believed that Norco's patents were not infringed and were invalid.
On March 15, 2000, Norco. initiated a reexamination proceeding before the Patent Office, presenting the validity issues raised by Motorvac and another company against which Norco. had alleged infringement. The reexamination proceeding concluded on June 15, 2002, when the Patent Office issued a reexamination certificate confirming ten of the original twelve claims of the `l60 patent. Norco. did not inform Motorvac that it was undertaking this reexamination.
On May 24, 2002, Motorvac sued Norco. for infringement of two of its patents. Apparently in response to Motorvac's suit, on June 24, 2002, Norco. notified Motorvac of the successful reexamination of its patent and its intent to sue Motorvac for patent infringement if Motorvac did not withdraw its complaint.
II. ANALYSIS
A. Laches
To succeed on a motion for summary judgment on the basis of laches, Motorvac has the burden to show that there is no genuine issue of fact that Norco: (1) delayed filing suit for an unreasonable and inexcusable length of time after Norco. knew or reasonably should have known of its claim against Motorvac, and (2) the delay resulted in material prejudice to Motorvac. See Gasser Chair Co., Inc. v, Infanti Chair Mfg. Corp., 60 F.3d 770, 773 (Fed. Cir. 1995). A court must look at all of the facts and circumstances and weigh the equities of the parties in order to assess whether laches should apply to bar those damages that accrued prior to suit. Aukerman Co. v. Chaides Constr. Co., 960 F.2d 1020, 1041 (Fed. Cir. 1992). The length of time that may be deemed unreasonable depends on the circumstances. Id. at 1032. Here, it is undisputed that the delay was about three and a half years, so Motorvac is not entitled to the presumption of laches that arises after a delay of six years. Id. at 1028.
As to the defense of laches, the Court finds that Motorvac has not provided affirmative evidence that Norco's delay of three and a half years was unreasonable. Norco. apparently took Motorvac's responses to its claims of infringement — ie. that the claims of the `l60 patent were invalid — quite seriously, particularly since Motorvac relied on purportedly prior art that was not before the Examiner during the prosecution of the `l60 patent. Thus, in undertaking what became a two-year reexamination of its patent, Norco. was pursuing what seems to be a prudent course before bringing a suit for infringement. The Court does not believe it would be equitable to turn this conduct into a sword against Norco.
Nor does the Court find the fact that Norco. did not apprise Motorvac of the reasons for its delay sufficient to find the delay was unreasonable. "Where there has been contact or a relationship between the parties during the delay period which may give rise to an inference that the [patentee] has abandoned its claim against the [alleged infringer], the facts may lend themselves to analysis under principles of equitable estoppel, as well as laches. However . . . laches focuses on the reasonableness of the plaintiff's delay in suit . . . [whereas] equitable estoppel focuses on what the defendant has been led to reasonably believe from the plaintiff's conduct." Aukerman, 960 F.2d at 1034.
It is true that Norco. failed to give notice to Motorvac about why it was delaying bringing suit; however, since laches focuses on the reasonableness of the delay rather than on what Motorvac was led to believe as a result of the delay, the Court does not find that this factor is sufficient in this instance to find there is no genuine dispute as to whether the delay was unreasonable. See, e.g., Hall v. Aqua Queen Mfg., Inc., 93 F.3d 1548, 1556 (Fed. Cir. 1996) (defendant could not rely solely on lack of notice to prove delay was unreasonable); Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1293 (Fed. Cir. 1992) (explicit notice is far from a hard and fast requirement under Aukerman). Thus, given the reason Norco. raises for the delay and the not facially excessive length of delay, the Court finds that the evidence is sufficient to raise a genuine dispute as to whether the delay was reasonable and/or excusable. At oral argument, Motorvac argued that Norco. delayed bringing suit for other reasons unrelated to the reexamination, such as questions about Motorvac's solvency and the belief that Motorvac was phasing out the infringing TransTech I. (Few Decl. ¶¶ 6, 10). However, the Court does not find that any of these reasons constitutes an undisputably unreasonable basis for Norco. to delay bringing suit.
Proof of material prejudice resulting from Norco's delay is also essential to Motorvac's laches defense. Aukerman, 960 F.2d at 1033. Economic prejudice, which is the only type of prejudice at issue here, arises if a defendant "will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit." Id. Motorvac must prove a nexus between Norco's delay in filing suit and the expenditures at issue. State Contr. Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1066 (Fed. Cir. 2003). "It is not enough that the alleged infringer changed his position . . . [t]he change must be because of and as a result of the delay, not simply a business decision to capitalize on a market opportunity." Hemstreet, 972 F.2d at 1294. Motorvac claims that it could have avoided damages associated with $254,000 in sales of TransTech I machines in 2000 and 2001, since it was already selling TransTech II machines to those same customers and could have sold them only those machines. In State Contracting Engineering Corporation v. Condotte America, Inc., 346 F.3d 1057 (Fed. Cir. 2003), alleged infringing highway construction contractors working for the Florida Department of Transportation ("FDOT") contended that they were prejudiced because, if the patentee had promptly filed suit, the FDOT and the contractors could have simply changed the specifications for the sound barrier walls or returned to the original design. Id. at 1066. The court found that those were merely damages that would be attributable to a finding of liability for infringement, and thus were not sufficient to show prejudice. Id. Similarly, Motorvac's claims of damages arising from sales of TransTech I machines in 2000 and 2001 are those merely attributable to a finding of liability for infringement.
Motorvac additionally cites as prejudice that it "filed numerous additional patent applications on the TransTech I and improvements, as well as other inventions in the same field." (Motorvac Mot. for Summ. J. Re: Laches at 12). However, the Court finds that, according to the deposition testimony of John A. Rome (a witness designated by Motorvac and a co-inventor on all of the patents in Ex. 20 of the Cohen Decl. filed in support of Motorvac's Mot. for Summ. J.), only one of the patents has even a potential connection with the TransTech I machine. The Court fails to see how investments in patents related to TransTech II and III machines — which are not alleged to infringe Norco's patents — and other inventions in the field represent losses that would have been prevented by an earlier suit regarding the TransTech I machine. Is Motorvac claiming that it would not have made investments in these non-infringing machines and other inventions if Norco. had brought suit earlier on the allegedly infringing machine?
Regarding the nexus between any investments and the delay in suit, Norco. also points to deposition testimony of former Motorvac president Lee Melody as raising a genuine issue as to whether Motorvac's conduct and investments were driven more by business considerations than concerns over Norco's patent rights. See, e.g., Gasser Chair Co. v. Infanti Chair Mfg. Corp., 60 F.3d 770, 775 (Fed. Cir. 1995); Integra Lifesciences I, Inc. v. Merck, 1998 U.S. Dist. LEXIS 23215, at *18-19 (S.D. Cal. 1998). For example,
Q: Then based on your belief that Norco. was not going to bring suit or Flo-Dynamics was not going to bring suit, did Motorvac change its position in any way?
A: We — we continued to develop the fluid management system because that was our intent from the beginning and to become the premier manufacturer of — of fluid management systems, including the TransTech machine. And we believed that we were not infringing and continued to develop the machine.
(Certified Copy of Melody Dep., p. 58, 11.1-9, also attached as Ex. B to Moffatt Supplemental Decl., hereinafter "Melody Dep.").
Motorvac also claims that it was investing heavily in production, advertising and sales of the TransTech I machines, but provides no affirmative evidence to show the investments occurred during the period of delay nor the amounts of those investments. (Motorvac Mot for Summ. J. Re; Laches at 9). Moreover, the deposition testimony of Lee Melody indicates that Motorvac had begun phasing out the TransTech I in 1999. (Melody Dep., p. 42, 11. 5-12).
At a minimum, the Court finds that Motorvac has not established that there is no genuine issue as to whether Motorvac suffered losses that were directly related to Norco's delay in filing suit. For the above reasons, the Court finds that Motorvac has not established a defense of laches for purposes of summary judgment.
B. Estoppel
To succeed on a motion for summary judgment on the basis of estoppel, Motorvac has the burden to establish three elements: (1) the patentee, through misleading conduct, leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer; (2) the alleged infringer relies on that conduct; and (3) as a result of its reliance, the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim. Aukerman, 960 F.2d at 1028. "`Conduct' may include specific statements, action, inaction, or silence where there was an obligation to speak." Id.
1. Misleading Conduct
There is ample precedent that equitable estoppel may arise through a patentee's inaction. Id. at 1042. An immediate threat of enforcement followed by a long period of silence is the most common scenario that supports a finding of misleading silence. Id. This is what occurred in this instance. There was some correspondence between the parties initiated by Norco's claim of infringement in a letter dated February 27, 1998. Then, on November 12, 1998, Motorvac received a letter from Norco's attorneys threatening suit within 10 days and attaching a copy of a complaint. More letters flew back and forth. Finally, on January 27, 1999, Norco's attorneys sent a letter again threatening suit and closed by saying that unless Motorvac wanted to raise some relevant and viable defenses there was no need to respond further until it was time to answer the complaint. Motorvac responded on February 1, 1999 reiterating its reasons for believing the patents were invalid and not infringed. Motorvac then did not hear again from Norco. until June 24, 2002.
As discussed above, Norco. notes that the reason it delayed bringing suit was because it was prudently pursuing a reexamination of its patent based on Motorvac's and another company's objections before deciding whether it had a valid claim for infringement. However, in light of the previous correspondence that culminated in a threat of imminent suit communicated by a draft complaint, the Court finds that Norco. had a duty to inform Motorvac that it was delaying suit but nonetheless intended to continue to seek to enforce the patent. As the court found in Wafer Shave, Inc. v. Gillette Co., 857 F. Supp. 112 (D. Mass. 1993), this Court agrees that it is incumbent on a patentee to inform an accused infringer of its reasons for failing to initiate a previously threatened suit and its continuing intention to do so. "This `requirement' is a matter of logic. . . . [The true reasons a suit is not initiated earlier] cannot enter into whether [the alleged infringer] drew an inference that it would not be sued if such facts are not known to [it]." Id. at 121 (citing Aukerman, 960 F.2d at 1044). Since equitable estoppel focuses on what the defendant has been led to reasonably believe from the plaintiff's conduct, it is immaterial that there were reasons, even valid reasons, for the delay in filing suit if those reasons were not communicated to or known by Motorvac. Thus, the only inference a reasonable fact finder could draw in this case is that Norco's conduct was misleading.
2. Reliance
This element is not a requirement of laches, but is essential to equitable estoppel. Motorvac "must show that, in fact, it substantially relied on the misleading conduct of the patentee in connection with taking some action." Aukerman, 960 F.2d at 1042-43.
On February 22, 1999, in connection with the claim of infringement by Norco. and the subsequent correspondence between the companies, Motorvac received an opinion of counsel that the TransTech system likely infringed claims 1-9, 11 and 12 of the Norco. `160 patent, but that those claims were not valid, and that claim 10 was not infringed. (Moffart Decl. Ex. A, pp. 37, 46). However, Motorvac's then-president, Lee Melody, testified that Motorvac never relied on any opinion that the Norco. patents were invalid because Melody believed that Motorvac was not infringing the patents. Moreover, Motorvac made the decision to keep the TransTech I machine on the market because of this belief. (Melody Dep., p. 57, 11.18-22; p. 53 1. 25-p. 54,1. 7; p. 67, 11. 7-9). At one point, Melody goes on to say that Motorvac would continue to take that position, and if Norco. sued Motorvac, then they believed they were right, and if they didn't sue, then Motorvac believed it was right and believed Norco believed it was right. (Melody Dep., p. 67, 11. 15-23). Thus, while there is some evidence that Motorvac's "wait and see" attitude could be interpreted as reliance on Norco's delay, it is by no means unequivocal and there is certainly conflicting evidence regarding other bases for Motorvac's actions.
In addition, Melody testified that he had one discussion with counsel about Norco's inability to come back later and sue Motorvac because of "estoppel" but that there was no discussion about the period of time that would be involved. (Melody Dep., p. 49, 11. 10-19). Melody testified that this discussion took place before he received the opinion letter of counsel on February 22, 1999, and that he never inquired as to why the opinion letter did not address this issue as well. (Melody Dep., p. 52, 11.12-19). Melody further testified that by the first board meeting of 2000, he was confident that Norco. could not come back and sue Motorvac on the basis of estoppel because of his own research and because of two letters that Motorvac's attorneys sent to its auditors regarding litigation. (Melody Dep., p. 54, 11.15-25 — p. 55., 11.1-20). However, by that time sales of TransTech I "had gone down dramatically, as we knew it would." (Melody Dep., p. 55, 11. 21-25 — p, 56, 1.1). One inference of Melody's testimony is that (1) prior to early 2000, Motorvac did not rely on Norco's delay, and (2) subsequent to early 2000, Motorvac's belief that it could no longer be sued was irrelevant to its conduct since Motorvac had already largely implemented and was continuing to implement its transition to non-infringing machines. Thus, the Court finds that there are genuine issues of fact with regard to Motorvac's reliance on Norco's delay.
3. Prejudice
Because the Court finds there are genuine issues as to Norco's reliance, there are necessarily also genuine issues as to whether "as a result of its reliance" the alleged infringer would be materially prejudiced if the patentee is allowed to proceed with its claim. Also, to the extent the prejudice element is synonymous with the prejudice requirement of laches, the Court determined above that there are genuine issues as to whether Motorvac suffered losses that were directly related to Norco's delay in filing suit.
III. DISPOSITION
For the reasons set forth above, Motorvac's motions for summary judgment or summary adjudication on the issues of laches and estoppel are DENIED.
IT IS SO ORDERED.