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holding "patentee is charged with such knowledge as might have [been] obtained upon inquiry, provided the facts already known by him were such as to put upon a man of ordinary intelligence the duty of inquiry"
Summary of this case from Synopsys, Inc. v. Atoptech, Inc.Opinion
Case No. SACV 02–578 AG (ANx).
2012-04-20
ULTIMAX CEMENT MANUFACTURING CORP., et al., Plaintiffs, v. CTS CEMENT MANUFACTURING CORP. d/b/a CTS Cement Manufacturing Co., et al., Defendants.
Mir Saied Kashani, Saied Kashani Law Offices, Los Angeles, CA, for Plaintiffs Ultimax Cement Manufacturing Corp. & Hassan Kunbargi and KA Group. Michael R. Annis, Husch Blackwell Sanders LLP, Bryce J. Bartlett, Husch Blackwell LLC, St. Louis, MO, for Plaintiff Heartland Cement Sales Company.
Mir Saied Kashani, Saied Kashani Law Offices, Los Angeles, CA, for Plaintiffs Ultimax Cement Manufacturing Corp. & Hassan Kunbargi and KA Group. Michael R. Annis, Husch Blackwell Sanders LLP, Bryce J. Bartlett, Husch Blackwell LLC, St. Louis, MO, for Plaintiff Heartland Cement Sales Company.
Richard C. Leonard, Leonard, Dicker & Schreiber LLP, Thomas J. Gray, Orrick, Herrington & Sutcliffe LLP, Irvine, CA, for Defendants and Counterclaimant.
ORDER GRANTING DEFENDANTS' MOTION FOR JUDGMENT AS A MATTER OF LAW ON SHOP RIGHT AND GRANTING DEFENDANTS' MOTION FOR JUDGMENT AS A MATTER OF LAW ON LACHES AND ESTOPPEL
ANDREW J. GUILFORD, District Judge.
After a four-week trial in this decade-old patent infringement case, the jury was unable to reach a verdict. The Court discharged the jury, and the parties timely filed renewed motions for judgment as a matter of law under Federal Rule of Civil Procedure 50(b). Defendants CTS Cement Manufacturing Corp., et al. (together, “Defendants”) move for judgment as a matter of law on the issues of shop right, co-inventorship, and noninfringement. (“Defendants' Rule 50 Motion”). Defendants also request judgment as a matter of law on the grounds of laches, equitable estoppel, and obviousness (“Defendants' Laches and Estoppel Motion” and “Defendants' Obviousness Motion”). Plaintiffs Ultimax Cement Manufacturing Corp. (“Ultimax”), Hassan Kunbargi, and KA Group (together, “Plaintiffs”) move for judgment as a matter of law on the issues of shop right, best mode, inventorship, and the quantity of infringing cement sold by Defendants (“Plaintiffs' Rule 50 Motion”).
After considering all arguments and papers submitted, the Court GRANTS Defendants' Rule 50 Motion as to shop right. The Court also GRANTS Defendants' Laches and Estoppel Motion. The parties' remaining Motions are DENIED as moot.
BACKGROUND
Ultimax and CTS Cement Manufacturing Corp. (“CTS”) both produce rapid-hardening, high-strength cement. See generally Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 587 F.3d 1339 (Fed.Cir.2009). Hassan Kunbargi, the owner of Ultimax, and Edward K. Rice, the owner of CTS, have a long history together. In the mid–1980s, Kunbargi began experimenting with cement chemistry as a graduate student at UCLA. Rice became Kunbargi's mentor and sought an adjunct faculty position at UCLA to serve as Kunbargi's advisor.
Kunbargi began working for Rice in 1985 and started working for CTS no later than 1987. In the summer of 1988, while working for Rice and CTS at the Riverside Cement Company, Kunbargi participated in experiments involving rapid-hardening, high-strength cement. Later in 1988, while working on a project for Rice and CTS at the Heartland Cement Sales Company cement plant in Independence, Kansas, Kunbargi participated in a burn experiment (known as “Burn One” or the “Heartland Burn”) which resulted in the production of a novel form of rapid-hardening, high-strength cement.
Kunbargi stopped working on Rice's projects in early 1989, and in September 1990, Kunbargi received U.S. Patent 4,957,556patent (“'556 patent”) titled “Very Early Setting High Strength Early Cement.” Ultimax now owns the ' 556 patent.
Twelve years after receiving the '556 patent, Plaintiffs sued Defendants for misappropriation of trade secrets, various business torts, infringement of claims 9–11 of the '556 patent, and infringement of various claims of U.S. Patents 6,113,684 and 6,406,534. In 2004, the previous district court granted Defendants' motion for summary judgment as to claim 9 of the '556 patent after finding that CTS did not infringe claim 9 and that the '556 patent was unenforceable due to laches. Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 2004 WL 3770498, 2004 U.S. Dist. LEXIS 29580 (C.D.Cal. Dec. 6, 2004) (Stotler, J.). In 2009, the Federal Circuit reversed the district court's summary judgment based on a revised construction of the claim terms and a finding that genuine issues of material fact existed as to Defendants' laches defense. Ultimax, 587 F.3d at 1339. The case was transferred to this Court in mid–2011. When the case went to trial in September 2011. the only claim remaining was for infringement of claim 9 of the '556 patent.
As noted, the month-long trial in this case ended without a verdict. The jurors' task was very difficult. They were asked to absorb and apply significant amounts of complex evidence, without the background and contextual understanding often taken for granted by experts in the subject matter. Counsel for both sides also struggled to frame important issues and put the voluminous evidence—including weeks of highly technical testimony and more than 150 evidentiary exhibits—in context.
PRELIMINARY MATTERS
Because of delays related to production of the trial transcript, the parties' Rule 50 Motions, though timely, lacked verifiable citations to the trial record. (See Rule 50 Motions, Oppositions, Replies, Objections, Dkt. Nos. 1550–1557, 1563, 1564, 1567.) Both parties acknowledged the difficulties this posed. In their Rule 50 Motion, for example, Defendants admitted the “possib[ility] that without the benefit of a transcript, both Plaintiffs and Defendants have made claims about evidence that may not have been as they remembered it.” (Dkt. No. 1564 at 2:1–3). Plaintiffs expressly requested that consideration of Defendants' Rule 50 Motion “be deferred until it can be compared to the actual trial transcript....” (Dkt. No. 1555 at 1:23–24.)
Although there were sufficient grounds to grant Defendants' Rule 50 Motion and Defendants' Laches and Estoppel Motion based on the papers originally filed, the Court permitted the parties to supplement their Motions with references to the trial record. (See Dkt. Nos. 1575. 1610–1615.) The addition of excerpts from the trial record proved useful. While Defendants' recollection of the record was less than perfect, many of Plaintiffs' characterizations of the record were misleading or simply false. For example, Plaintiffs stated in their objections to Defendants' Rule 50 Motions that “there was no record testimony that the cement produced at Heartland in 1988 made 3000 [pounds per square inch] in one hour....” (Dkt. 1567 at 3:1–3.) A review of the trial transcript reveals just the opposite. Indeed, in deposition testimony read into the record by defense counsel. Plaintiff Kunbargi admitted that the Heartland cement reached a strength of 3000 PSI. ( See Tr. Sept. 16, 2011, Dkt. No. 1584, Part 3, at 48:14–23.)
Plaintiffs also state that there is “[n]o record evidence Kunbargi was consulting ‘for Rice.’ ” (Dkt. 1567 at 8:19–21.) Nonsense. The record contains numerous references to Kunbargi's work as a consultant for Rice. In a 1988 letter to Rice, for example, Kunbargi wrote that in 1985, “I was consulting for you on different projects.” (Ex. 558.) When asked at trial whether he was “an employee of Mr. Rice or a consultant.” Kunbargi simply responded, “[a] consultant.” (Tr. Sept., 21, 2011, Dkt. No. 1565, at 18:3–5; see also references at Dkt. No. 1612 at 9:20–12:28.)
Finally, the Court notes that Plaintiffs' Rule 50 Motion opens not with an argument concerning the merits of the case, but instead with an attack on defense counsel's motives in questioning Kunbargi. Plaintiffs state that
Defendant's counsel spent considerable time at trial reminding the jury of Mr. Kunbargi's national origin (such as cracks about “some university in Syria”), going out of his way to tell that jury that Mr. Kunbargi's brother is named Abdul and that he once considered importing goods from Syria, deliberately confusing Mr. Kunbargi with his attorney Kashani, and other character assassination.... But counsel forgot to. or was unable to make the basic outline of his case on shop right.
(Dkt. 1552 at 1:5–13.) This theme appears throughout Plaintiffs' papers. For example. Plaintiffs contend that “Defendants presented no evidence tying any defendant in this case to Kunbargi's employer in 1988” because “Defendants were too busy insulting Mr. Kunbargi's heritage.” (Dkt. 1552 at 4:2–5; see also Dkt. No. 1613 at 10:11–12.)
The Court takes accusations of this sort extremely seriously and refuses to tolerate invidious racial tactics. But in this case, there is nothing to support Plaintiffs' allegation that defense counsel attempted to improperly influence the jury, much less through references to Kunbargi's heritage, national origin, or ethnicity. In any event, the Court puts this disturbing and distracting claim to the side, and turns instead to the merits of the parties' Motions.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 50(b), a party may renew a motion for judgment as a matter of law after the jury returns a verdict, or after the jury, having been unable to reach a verdict, is discharged. Fed.R.Civ.P. 50(b). The standard here, after a mistrial, is certainly no stricter than after a jury verdict. Judgment as a matter of law may be granted only when the evidence and its inferences, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion as to the verdict. See Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 999 (9th Cir.2008);see also Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1226–27 (9th Cir.2001),cert. denied, 534 U.S. 1055, 122 S.Ct. 645, 151 L.Ed.2d 563 (2001).
“A jury's verdict must be upheld if it is supported by ‘substantial evidence.’ ” See SEC v. Todd, 642 F.3d 1207, 1215 (9th Cir.2011) (citing Maynard v. City of San Jose, 37 F.3d 1396, 1404 (9th Cir.1994)). “Substantial evidence is evidence adequate to support the jury's conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.” Todd, 642 F.3d at 1215 (quoting Wallace v. City of San Diego, 479 F.3d 616, 624 (9th Cir.2007) and Paradise Valley, 251 F.3d at 1227). In making this determination. “[t]he court must not weigh the evidence, but rather should ask whether [the nonmoving party] has presented sufficient evidence to support the jury's conclusion.” Todd, 642 F.3d at 1215 (citing Paradise Valley, 251 F.3d at 1227–28). The court must disregard all evidence favorable to the moving party that the jury is not required to believe. See Wallace v. City of San Diego, 479 F.3d at 624. Further. “[t]he evidence must be viewed in the light most favorable to the nonmoving party, and all reasonable inferences must be drawn in favor of that party.” Todd, 642 F.3d at 1215. “Judgment as a matter of law may be granted only where, so viewed, the evidence permits only one reasonable conclusion, and that conclusion is contrary to the jury's verdict.” Wallace, 479 F.3d at 624 (citing McLean v. Runyon, 222 F.3d 1150, 1153 (9th Cir.2000)).
ANALYSIS
Judgment must be granted for Defendants on two independent bases. First, when all the evidence is considered and all inferences are drawn in Plaintiffs' favor, the only reasonable conclusion the evidence permits is that Rice and CTS have a shop right in the '556 patent. Second, Plaintiffs' infringement claim as to claim 9 of the '556 patent is barred by the doctrines of laches and equitable estoppel. The Court first discusses the defense of shop right before turning to the defenses of laches and estoppel.
1. RICE AND CTS HAVE SHOP RIGHTS IN THE '556 PATENT
“A ‘shop right’ is generally accepted as being a right that is created at common law. when the circumstances demand it. under principles of equity and fairness, entitling an employer to use without charge an invention patented by one or more of its employees without liability for infringement.” McElmurry v. Arkansas Power & Light, 995 F.2d 1576, 1580 (Fed.Cir.1993) (citing D. Chisum, Patents, § 22.02[3] (1985 rev.)); see also Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed.Cir.1996) ( “[T]he law recognizes that employers may have an interest in the creative products of their employees.”); see also United States v. Dubilier Condenser Corp., 289 U.S. 178, 188–89, 53 S.Ct. 554, 77 L.Ed. 1114 (1933) ( “Since the servant uses his master's time, facilities, and materials to attain a concrete result, the latter is in equity entitled to use that which embodies his own property....”). Guided by these equitable principles, the Federal Circuit has held that “an employer may obtain a shop right in employee inventions where it has contributed to the development of the invention.” Teets, 83 F.3d at 407.
A strong argument can be made that questions concerning shop right—which, after all, is “a type of implied license,” McElmurry, 995 F.2d at 1581—should be decided by courts, not juries. See Glass Equipment Development, Inc. v. Besten, Inc., 174 F.3d 1337 (Fed.Cir.1999) (citing Met–Coil Sys. v. Korners Unlimited, Inc., 803 F.2d 684 (Fed.Cir.1986) (holding that “[t]he existence of an implied license to use a patent is a question of law”)); see also Cornell Univ. v. Hewlett–Packard, 609 F.Supp.2d 279 (W.D.N.Y.2009) (Rader, J.) (“The existence of an implied license is a question of law reserved for the court.”).
Indeed, the Ninth Circuit has expressly held that the determination of a shop right is a question of law. See Francklyn v. Guilford Packing Co., 695 F.2d 1158, 1160 (9th Cir.1983) (holding that “[t]he district court's finding of shop right, as a question of law, is subject to our independent review”); see also Rentrop v. Spectranetics Corp., 514 F.Supp.2d 511, 517 (S.D.N.Y.2007), aff'd, 550 F.3d 1112, 1117 (Fed.Cir.2008) (declining to submit equitable defenses, including shop right, to the jury, while “recognizing the court's power do so ... on an advisory basis”) (emphasis added).
Further, there may be advantages to submitting the sometimes complex issues of shop right to the equitable determinations of the court, not the jury.
But the Court need not decide whether shop right determinations should be reserved to courts because, in this case, the only reasonable conclusion the evidence permits is that Rice and CTS hold a shop right in the '556 patent. The Court reaches this conclusion viewing the record in the light most favorable to Plaintiffs, with all inferences drawn in their favor. See Wallace, 479 F.3d at 624 (citing McLean v. Runyon, 222 F.3d 1150, 1153 (9th Cir.2000)). The Court also arrives at this conclusion without weighing the evidence submitted by the parties or making any determinations of credibility.
Plaintiffs' argument that no shop right exists in the '556 patent fails in part because Plaintiffs interpret the shop right doctrine too narrowly. Plaintiffs argue that “shop right requires acquiescence by the employee in the employer's use of the invention.” (Dkt. 1615 at 3:5–6 (emphasis in original).) And because Plaintiffs claim that there is evidence that Kunbargi did not acquiesce to Defendants' use of the '556 patent, Plaintiffs conclude that Defendants' have no shop rights in it. But acquiescence by the patentee is not a precondition of the shop right doctrine. As the Federal Circuit explained in McElmurry,
An employer will have shop rights in an invention in situations where the employer has financed an employee's invention by providing wages, materials, tools and a work place. Other factors creating shop rights include an employee's consent, acquiescence, inducement, or assistance to the employer in using the invention without demanding compensation.
McElmurry, 995 F.2d at 1582 (emphasis added). While “acquiescence” is a factor that may be considered under the “totality of the circumstances,” its absence does not preclude the existence of a shop right. Id. The reality is that “an employer may obtain a shop right in employee inventions where it has contributed to the development of the invention.” Teets, 83 F.3d at 407. A contrary rule would enable employees to prevent employers from acquiring shop rights simply by refusing to consent to the employers' use of inventions created with the employers' resources.
Judgment as a matter of law for Defendants on the issue of shop right is supported by the record, which conclusively establishes that Kunbargi was hired to invent rapid-hardening high-strength hydraulic cement. The record compels the conclusion that Rice and CTS hold shop rights in the '556 patent because all of the elements of claim 9 of the '556 patent were first reduced to practice at Burn One using resources provided by Rice and his entities. While it is not necessary to support these conclusions with specific citations to the trial record, such references help explain why the only reasonable conclusion the evidence permits is that Rice and CTS have a shop right in the '556 patent.
1.1 Kunbargi Was Hired to Invent Hydraulic Cements
The record conclusively establishes that Kunbargi was hired to invent hydraulic cements like the one described in the '556 patent. Exhibit 6094 is a classified advertisement, published by Rice in October 1986, describing the duties ultimately assigned to Kunbargi.
MATERIALS SCIENCE ENGINEER: Develop new hydraulic cements. Design/develop/test equip. Conduct lab/field investigations. Plan experiments re: mfg. methodology, commercial prod....
Further, Kunbargi himself testified that the hydraulic cement Rice hired him to develop is the subject of the '556 Patent. When asked by defense counsel whether “develop[ing] new hydraulic cements ... was one of [his] jobs with Mr. Rice,” Kunbargi responded, “Yes.” (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 2, at 49:5–8.) Immediately afterward, defense counsel asked Kunbargi whether “the cement which is the subject of the '556 Patent is a hydraulic cement.” ( Id. at 49:9–10.) Kunbargi responded that “[i]t is a hydraulic cement, yes.” ( Id. at 49:11.)
Kunbargi's 1988 and 1989 letters to Rice further establish that he was hired to develop rapid-setting cement. (Exs. 558, 565.) In his December 29, 1988 letter to Rice, for example. Kunbargi writes that “I have been appointed as the man in charge at Heartland cement to produce the new cement and to supervise the quality control of the cement.” (Ex. 558.) In the same letter, Kunbargi predicted that “the new Rapid Set cement is going to be the cement of the future, and the new processing technology is going to be the technology of the future.” ( Id.)
1.2 Every Element of Claim 9 of the '556 Patent was Present at Burn One
The record conclusively establishes that every aspect of claim 9 of the ' 556 patent was present at Burn One in 1988. Claim 9 of the '556 patent teaches
A very early setting, ultra high strength cement consisting essentially of 10% to 30% by weight C4A3S, 5% to 25% by weight soluble CaSO4 ranhydride and 45% to 85% by weight hydraulic cement and having a compressive strength on the order of 3000 psi within approximately one hour following hydration.
Ultimax, 587 F.3d at 1339 (citing '556 patent col.12 ll.5–10). The specification redefines common chemical symbols by, for example, stating that “C” represents CaO, “A” represents Al2O3, and “S” represents SO3. See id.
Plaintiffs argue that every element of claim 9 was not present at Burn One. ( See, e.g., Dkt. 1555 at 3:2–5 (stating that “[t]here was no record evidence showing Kunbargi formed a cement that achieved 3000 psi in one hour at Heartland in 1988, which is one of the patent elements.”).) The Court could go through the voluminous evidence establishing that all elements of claim 9 were present at Burn One. But the Court need not do so because Plaintiff Kunbargi testified as follows.
Q. [Defense Counsel] All the elements in Claim 9 were at hand at Burn 1, weren't they?
A. [Kunbargi] Yes.
(Tr. Sept. 16, 2011. Dkt. No. 1584, Part 4, at 48:1–3.)
1.3 Kunbargi First Achieved His Invention at Burn One
Plaintiffs argue that even if all the elements of claim 9 were present at Burn One, the shop right defense still must fail because Defendants did “not prove [ ] ... that 1988 was the first time all the elements of the invention were utilized.” (Dkt. 1615 at 7:25–27 (emphasis in original).) In his November 2011 objections to Defendants' Shop Right Motion, Plaintiffs specifically stated that “[t]here was no record evidence Kunbargi formed a cement that achieved 3000 psi in one hour at Heartland in 1988.” (Dkt. 1555 at 3:2–4.) With all inferences drawn in Plaintiffs' favor, the trial record, including Kunbargi's testimony, establishes just the opposite. The following deposition testimony from Kunbargi, introduced at trial, is illustrative.
Q: [Defense Counsel] ... when was the first time that you observed ultra high-strength early setting cement having a compressive strength on the order of 3000 PSI within one hour?
A: [Kunbargi] I think when I apply my formula to the production in the Heartland 1988, when I make that demonstration to Ed Rice.
Q: That was the first time you'd observed that; okay?
A: If I remember correct, yes. Yes.
(Tr. Sept. 16, 2011. Dkt. No. 1584, Part 3, at 48:14–23.) Indeed, Kunbargi stated that the compressive strength described in the '556 Patent “was previously unobtainable before I apply my formula to produce the cement in Heartland.” (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 4, at 1:25–2:2 (emphasis added).)
Kunbargi wrote in his January 9, 1989 letter to Rice that the “Riverside burn” which took place before Burn One. “did not meet our strength requirements.” (Ex. 588 at 2.) He then adds that “a very important discovery during the design of [Burn One] ... explains what went wrong in the Riverside Burn....” ( Id. at 3.) In the same letter, Kunbargi states that “I found the solution, which was the new Rapid Set while I was at Heartland.” ( Id. (emphasis added).) These admissions by Kunbargi preclude the need to address any argument that he invented, perfected, or reduced to practice claim 9 of the '556 patent before Burn One.
1.4 Burn One Was Financed By Rice and His Entities
The record also conclusively establishes that Rice provided the financing and resources necessary to conduct Burn One at Heartland in 1988. See McElmurry, 995 F.2d at 1582 (“An employer will have shop rights in an invention in situations where the employer has financed an employee's invention by providing wages, materials, tools and a work place.”); see also Teets, 83 F.3d at 407 (“[A]n employer may obtain a shop right in employee inventions where it has contributed to the development of the invention.”).
Kunbargi testified, for example, that Rice paid “all costs for the Heartland burn,” including travel expenses, rental fees for the Burn One facility in Kansas, “all the equipment used at the burn,” and materials used in the burn, among other things. (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 3, at 29:8–30:12.)
1.5 Kunbargi Was Working For Rice and Rice's Entities, Including CTS, in 1988
Plaintiffs argue in their Rule 50 Motion that judgment as a matter of law should be granted in their favor because “[t]here is certainly no evidence that defendant CTS Cement Manufacturing Corp., a corporation, or defendant Rice, employed Kunbargi in 1988.” (Dkt. 1552: at 1:24–26.) In their Opposition to Defendants' Supplementary Rule 50 Motion—submitted after the parties received copies of the trial transcript—Plaintiffs revised their argument. Instead of arguing that CTS and Rice did not employ Kunbargi in 1988, Plaintiffs concede that Kunbargi “was working for Ed Rice at some point and was paid by a company,” but claim that “[w]hich company, or when remains unclear.” (Dkt. 1613 at 3:12–15.)
Plaintiffs' argument fails because the record conclusively establishes that Kunbargi was working for Rice and his entities, including CTS. in 1988. Conversely, there is no evidence—much less “sufficient evidence” or “substantial evidence”—to support a reasonable finding that Kunbargi did not work for Rice or CTS in 1988. See Wallace, 479 F.3d at 624 (citing Paradise Valley, 251 F.3d at 1226–27). As before, the Court arrives at this conclusion without weighing the parties' evidence.
Evidence introduced during Plaintiffs' case-in-chief and Defendants' case-in-chief independently compel the conclusion that Kunbargi worked for Rice and his entities, including CTS. in 1988. Additional support for this conclusion comes from admissions made by Plaintiffs' counsel throughout the trial, including during opening statements.
In a letter from Kunbargi to Rice dated December 29, 1998, Kunbargi admits that “[d]uring that time period [1985] I was consulting for you [ Rice ] on different projects....” (Ex. 558. p. 1). In the same letter. Kunbargi writes that “I started consulting for CTS and I was appointed as a project manager at the end of 1987. when I started to get involved in the production of old Rapid Set cement, as a next step of R & D....” (Ex. 558 at 2 (emphasis added).)
In a second letter from Kunbargi to Rice, dated January 9.1989, Kunbargi confirms that his employment extended through December 1988. Kunbargi specifically states that “[f]or my consulting for you during the last burn [, Burn One], from June 1988, to December 1988, I have been under the impression that I was going too [sic] have a share of the profits now that burn is completed, based on our conversations and your promises during that period....” (Ex. 565 (emphasis added).)
In Plaintiffs' September 2001 business plan—written before this lawsuit was filed—Kunbargi states that he served as a “partner/production manager at CTS Cement Company, where he led growth of the first production of rapid hardening cement technology in the nation.” (Ex. 4406, Appx. I.)
When asked by defense counsel at trial when he started working for Rice. Kunbargi answered “[s]ometime in the summer of 1985.” (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 2. at 23:2–3.) When asked moments later if he worked for Rice's company, Rapid Set, Kunbargi responded “you see Rice and Rapid Set and Chem–Comp. they are the one. the same. I get paid from different entities, so I don't know if—which one I was consulting to. All what I know is I was consulting to Mr. Rice.” (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 2, at 23:8–11.) Kunbargi later testified that “[a]s far as I know they are the same on one, Rice. Ritech, CTS, Rapid Set. Chem–Comp. At that time I was working for Ed Rice.” (Tr. Sept. 16, 2011. Dkt. No. 1584. Part 3. at 18:24–19:1.)
Throughout the trial, defense counsel repeatedly questioned Kunbargi about his work for CTS. The following exchanges during defense counsel's cross-examination of Kunbargi on September 21, 2011 are illustrative.
Q: [Defense Counsel] And as of January 9[, 1989,] you were no longer officially working for CTS; correct?
A: [Kunbargi] I think as of January—end of January... I stopped consulting for CTS or Ed Rice.
...
Q: Before you left your position with CTS, you asked Mr. Rice to provide you with a—a job reference, didn't you?
A: I think so, yes.
...
Q: Did you understand the work you did for CTS was confidential?
A: Supposed to be, yes.
(Tr. Sept. 20, 2011, Dkt. No. 1583, Part I, at 8:23–9:3, 13:4–7, 22:1–3.)
In his opening statement. Plaintiffs' counsel admitted the following
It is true that years and years ago Mr. Kunbargi was working as a consultant for Mr. Rice and CTS Cement, but the evidence will also show that Mr. Kunbargi invented this invention before he ever worked for Mr. Rice.
(Tr. Sept. 13.2011, Dkt. No. 1586, Part 4, at 6:18–21.) “The binding effect on a party of a clear and unambiguous admission of fact made by his or her attorney in an opening statement was acknowledged by the Supreme Court in Oscanyan v. Arms Co., 103 U.S. 261, 263, 26 L.Ed. 539 (1880). and has been frequently recognized in subsequent lower court decisions involving civil cases.” United States v. McKeon, 738 F.2d 26, 31 (2d Cir.1984); see also U.S. v. Carleson, 103 F.3d 141 (9th Cir.1996) (“Statements made by an attorney concerning a matter within his employment may be admissible against the party retaining the attorney.”) (quoting McKeon, 738 F.2d at 30);see also United States v. Hurwitz, 459 F.3d 463, 481 (4th Cir.2006) ( “[A] clear and unambiguous admission of fact made by a party's attorney in an opening statement in a civil or criminal case is binding upon the party.”) (citing U.S. v. Blood, 806 F.2d 1218, 1221 (4th Cir.1986).)
The record, including the following testimony from Kunbargi, establishes that he received payments from Rice and companies Rice owned.
Q: [Defense Counsel] And—well you testified you received payment, though, sometimes from various of Mr. Rice's affiliated companies; correct?
A: [Kunbargi] As far as I know it's his company 100 percent. He has no—he has no partners, no corporation. He—okay. I got being paid by a company name, a check, but the work was for Ed Rice.
Q: The work was requested by Mr. Rice for his Company; correct?
A: I was working for Ed Rice.
(Tr. Sept. 16, 2011, Dkt. No. 1584, Part 2, at 39:3–13.)
Plaintiffs' odd, piecemeal objections to the trial record excerpts in Defendants' Rule 50 Motion grasp at straws and further confirm that the only reasonable conclusion supported by the evidence is that Kunbargi worked for Rice and his entities, including CTS, in 1988. See Wallace, 479 F.3d at 624. For example, Plaintiffs argue that evidence establishing that Kunbargi worked for Rice and CTS in 1987 shows that Kunbargi did not work for Rice or CTS in 1988. (Dkt. 1615 at 17:14–26.) But when confronted with evidence showing that Kunbargi did indeed work for Rice and CTS in 1988 ( see, e.g., Dkt. 1615 at 18:1–4), Plaintiffs ignore the date altogether and instead focus on the identity of the employer.
Further, when confronted with specific evidence showing that Kunbargi worked for CTS in 1988 ( see, e.g., Exs. 558, 565). Plaintiffs claim the reference to “CTS” is ambiguous. Plaintiffs specifically claim that CTS “could, for example, refer to ‘Chem Tech Services Company’, an Illinois corporation referenced in Exhibit 484.” (Dkt. No. 1613 at 9:14–17.) This argument is frivolous. CTS Cement Manufacturing Corporation, also known as “CTS,” is the first Defendant named in Plaintiffs' June 2002 Complaint. At the beginning of the trial, the Court stated that “[t]he defendants consist of CTS Cement Manufacturing Corporation—sometimes called ‘CTS.’ ” (Tr. Sept. 13, 2011, Dkt. No. 1586, Part 1, at 24:10–11.) And throughout the trial, both counsel and numerous witnesses repeatedly referred to CTS Cement Manufacturing Corporation simply as CTS. Because the examples are too numerous to catalog. the Court discusses just a few.
In his opening statement, Plaintiffs' counsel stated that “[t]he defendants in this case, the other side, consists of a company called CTS Cement Manufacturing Corporation, some companies related to CTS that have more or less the same name, Rapid Set, which is the brand name for CTS cement.” (Tr. Sept. 13, 2011, Dkt. No. 1586, Part 3, at 24:5–9 (emphasis added).) Plaintiffs' counsel then proceeded to refer to “CTS” dozens of times in his opening statement, without using its full name. And during his initial questioning of Kunbargi—the first witness at trial—Plaintiffs' counsel referred to Defendants not by its full name, but rather by the acronym “CTS.” (Tr. Sept. 14.2011, Dkt. No. 1585, Part 4, at 21:25 (Q: [Plaintiffs' counsel] “Are you familiar with how CTS makes cement?”).) Kunbargi also consistently referred to CTS Cement Manufacturing Corporation simply as “CTS.” For Plaintiffs to now suggest that CTS “could ... refer to ‘Chem Tech Services Company.’ ” (Dkt. No. 1613 at 9:14–17), is to condemn Plaintiffs' overall argument with faint support.
Plaintiffs next argue that “CTS Cement Mfg. Corp. did not exist in 1988.” (Dkt. 1615 at 14:24–25); see also Dkt. 1613 at 8:9–10 (“CTS Cement Mfg. Corp. ... did not exist in 1988.”; see also Dkt. 1552 at 1:26 (“There is no evidence that CTS even existed in 1988.”).) This argument borders on frivolous. Tellingly, Plaintiffs provide no supporting excerpts from the trial record. The Court need not rely on CTS's certificate of incorporation—which was issued by the California Department of State in 1987—to show that CTS existed in 1988 because Plaintiffs' own evidence establishes CTS's existence at that time. In his January 1989 letter to Rice, for example, Kunbargi admits that “[he] started consulting for CTS and ... was appointed as a project manager at the end of 1987.” (Ex. 558 at 2.)
Even if the Court were to disregard the record and assume that certain jurors concluded that Kunbargi was not working for CTS in 1988, judgment as a matter of law for Defendants would still be appropriate because any shop rights in the '556 Patent held by Rice, or one of his companies, would have passed to CTS, a company Rice wholly owned. Kunbargi's purported inability to distinguish between Rice, CTS, and Rice's other entities does not change this fact. ( See, e.g., Tr. Sept. 16, 2011, Dkt. No. 1584, Part 1, at 38:23–25 (A [Kunbargi]: “That's their—their cement, CTS cement, Ed Rice cement.”); see also Tr. Sept. 16, 2011, Dkt. No. 1584, Part 3, at 18:24 (A: [Kunbargi] “As far as I know they are the same on one. Rice, Ritech, CTS, Rapid Set, Chem–Comp.”).)
While shop rights are personal and cannot be assigned or transferred, see. e.g., Hapgood v. Hewitt, 119 U.S. 226, 7 S.Ct. 193, 30 L.Ed. 369 (1886), a shop right can pass to others under certain circumstances. See California Eastern Laboratories v. Gould, 896 F.2d 400, 400–02 (9th Cir.1990); see also Lane & Bodley Co. v. Locke, 150 U.S. 193, 14 S.Ct. 78, 37 L.Ed. 1049 (1893) (distinguishing Hapgood ). The record establishes that Rice possessed a shop right in the '556 patent and that Rice was the owner of CTS and the other relevant companies in 1988. For example, Kunbargi testified “As far as I know, [the company that paid Kunbargi in 1988] is [Rice's] company 100 percent. He has—he has no partners, no corporation.” (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 2, at 39:6–7; see also Tr. Sept. 23, 2011, Dkt. No. 1569, at 128:7–15.)
In California Eastern Laboratories, the Ninth Circuit held that it would violate the principles of equity underlying the shop right doctrine to deny a shop right to a successor corporation that acquired the entire business of the original holder of the shop right. 896 F.2d at 402 (finding that a shop right passed from seller to buyer even though the buyer “distributed the [seller's] assets to various existing subsidiaries”). The Court specifically held that attempts to invalidate shop rights based on the “ formalities of modern business organization ” were “unsuitable to the equitable origins of the shop right concept.” Id. (emphasis added) (citing Gate–Way, Inc. v. Hillgren, 82 F.Supp. 546, 555 (C.D.Cal.1949)), aff'd per curiam,181 F.2d 1010 (9th Cir.1950) (“Unassignable licenses may sometimes be invoked by persons who are not exactly identical with the licensees.”) (quoting 1 Walker on Patents, 437 (6th ed.)).
Plaintiffs' argument that CTS could not have held a shop right in the '556 patent because the shop right was held by Rice himself or entities owned or controlled by Rice elevates the “formalities of modern business organization” over the “equitable origins of the shop right concept.” See California Eastern Laboratories, 896 F.2d 400, 402 (9th Cir.1990). ( See, e.g., Dkt. No. 1613 at 1:11–12 (where Plaintiffs argue “references to different employers at different times” precludes a finding that CTS held a shop right in the '556 patent).)
The holding of California Eastern Laboratories is far from novel. In Lane & Bodley Co. v. Locke, 150 U.S. 193, 196, 14 S.Ct. 78, 37 L.Ed. 1049 (1893), a seminal case interpreting the shop right doctrine, the Supreme Court expressly permitted the use of a shop right by a successor. The Court stated that
In the present case it clearly appears that the [successor corporation. Lane & Bodley Company] was organized upon the same basis as the [original] firm [of Lane and Bodley]: that the business of the company was to be the same as that carried on by Lane & Bodley. and to be carried on on the same premises; that the entire property and assets of the [original] firm and its liabilities and obligations were devolved upon the [successor] company.
Plaintiffs also briefly argue that CTS is not entitled to a shop right because Defendants failed to established that “[Kunbargi] had an employer as opposed to an independent contractor relationship[ ] in 1998.” (Dkt. 1613 at 1:4–5.) This argument fails because the shop right analysis does not hinge on whether Kunbargi was an employee, an independent contractor, or a consultant. As the Ninth Circuit stated in Francklyn v. Guilford Packing Co., 695 F.2d 1158, 1160–61 (9th Cir.1983),
while a shop right generally arises out of an employer-employee relationship, it is not necessarily limited to such a relationship. [Citations omitted.] The full nature of the parties' relationship must be examined to determine whether a shop right exists, not merely whether that relationship is characterized as an employment or as an independent contractual arrangement.
1.6 Conclusion
“To promote the Progress of Science and useful Arts,” the Constitution of the United States authorizes Congress to pass laws “securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries[.]” U.S. Const. art. I, § 8, cl. 8. “There is virtually unanimous agreement that the purpose of the patent system is to promote innovation by granting exclusive rights to encourage invention.” Dan L. Burk & Mark A. Lemley, The Patent Crisis and How the Courts Can Solve It, at 37 (2009). The doctrine of shop right does not diminish the incentive to innovate, but instead extends it to those who make innovation possible in the first place “by providing wages, materials, tools and a work place.” McElmurry, 995 F.2d at 1582.
The innovations in cement technology that Plaintiffs claim to have pioneered would not have been possible without the capital and resources that Defendants provided. When all the evidence is viewed in the light most favorable to Plaintiffs, and all inferences and credibility determinations are drawn in Plaintiffs' favor, the only reasonable conclusion the evidence permits is that Rice and CTS held a shop right in the '556 patent.
The Court GRANTS Defendants' Rule 50 Motion.
2. LACHES AND EQUITABLE ESTOPPEL
The Federal Circuit defines laches to mean “neglect or delay in bringing suit to remedy an alleged wrong, which taken together with lapse of time and other circumstances, causes prejudice to the adverse party and operates as an equitable bar.” A.C. Aukerman v. R.L. Chaides Const. Co., 960 F.2d 1020, 1028–29 (Fed.Cir.1992) (en banc) (“Courts of equity, it has often been said, will not assist one who has slept on his rights, and shows no excuse for his laches in asserting them.”) (quoting Lane & Bodley, 150 U.S. at 201, 14 S.Ct. 78). The doctrine of laches
assures that old grievances will some day be laid to rest, that litigation will be decided on the basis of evidence that remains reasonably accessible and that those against who claims are presented will not be unduly prejudiced by delay in asserting them. Inevitably it means that some potentially meritorious demands will not be entertained. But there is justice too in an end to conflict and in the quiet of peace.
A.C. Aukerman, 960 F.2d at 1029 (quoting Environmental Defense Fund v. Alexander, 614 F.2d 474, 481 (5th Cir.1980)).
To establish laches in an infringement context, an alleged infringer must prove (1) that the patentee delayed filing suit for an unreasonable and inexcusable length of time from the time the patentee knew or reasonably should have known of his or her claim against the alleged infringer, and (2) that the delay prejudiced or injured the alleged infringer. See Ultimax, 587 F.3d at 1349 (citing A.C. Aukerman, 960 F.2d at 1032). “[T]he underlying critical factors of laches are presumed upon proof that the patentee delayed filing suit for more than six years after actual or constructive knowledge of the defendant's alleged infringing activity.” Id. at 1349–50. (quoting A.C. Aukerman, 960 F.2d at 1035–36). The delay “is measured from the time [the patentee] knew or reasonably should have known of [the] alleged infringing activities to the date of suit.” Id. at 1349 (citing A.C. Aukerman, 960 F.2d at 1032).
While “laches bars relief on a patentee's claim only with respect to damages accrued prior to suit,” where the patentee “in addition to being guilty of laches has, by his conduct, estopped himself from asserting his rights under the patent, all relief should be denied....” A.C. Aukerman, 960 F.2d at 1041. “As equitable defenses, laches and equitable estoppel are matters committed to the sound discretion of the trial judge....” Id. at 1028. “With its origins in equity, a determination of laches is not made upon the application of ‘mechanical rules.’ ” Id. at 1032 (quoting Holmberg v. Armbrecht, 327 U.S. 392, 396, 66 S.Ct. 582, 90 L.Ed. 743 (1946)). Because laches calls for “flexibility in its application,” courts “must look at all the particular facts and circumstances of each case and weigh the equities of the parties.” Id. (citing Bott v. Four Star Corp., 807 F.2d 1567, 1576 (Fed.Cir.1986)). “Like laches, equitable estoppel is not limited to a particular factual situation nor subject to resolution by simple or hard and fast rules.” Id. at 1041.
Based on the evidence presented at trial, the Court holds that Plaintiffs' infringement claim on the '556 patent is barred by the doctrines of laches and equitable estoppel. This holding is supported by the Court's finding that, on hearing the testimony of witnesses at trial, Plaintiffs' witnesses were far less credible than Defendants' witnesses. Before explaining the bases for its findings, the Court first briefly discusses the relevant procedural history.
2.1 Procedural History
In 2004, the district court found the '556 patent unenforceable due to laches and granted summary judgment for Defendants. Ultimax Cement Mfg. Corp v. CTS Cement Mfg. Corp., 2004 WL 3770498, 2004 U.S. Dist. LEXIS 29580 (C.D.Cal. Dec. 6, 2004) (Stotler, J.), rev'd, 587 F.3d 1339 (Fed.Cir.2009). The district court and Federal Circuit opinions provide a helpful framework for reviewing laches. The learned district judge previously presiding found that Defendants established laches because Kunbargi's extensive personal and professional relationship with Rice put him on “inquiry notice regarding defendants' accused cement from the date of the issuance of the 556,” and that “CTS's competition in the rapid hardening cement market should have heightened Kunbargi's vigilance.” Id. at *14, 2004 U.S. Dist. LEXIS 29580 at *48–49 (citing Wanlass v. GE, 148 F.3d 1334, 1340 (Fed.Cir.1998) (“[The patent holder's] failure to investigate GE's products is especially egregious in light of his past dealings with GE.”)). The court went on to say that
[t]he friendly notes written by Rice to Kunbargi, and Kunbargi's bare assertions that Rice maintained that CTS was not using ‘soluable [sic] anhydrite’ in Rapid Set, [were] insufficient to contradict the other evidence that demonstrates that plaintiffs should have been on inquiry notice from the date of the issuance of the 556 patent in 1990.
Id. at *14, 2004 U.S. Dist. LEXIS 29580 at *49–50.
In reaching its decision, the court relied on Defendants' evidence establishing that “Kunbargi expressed his intent to sue CTS as early as 1997, but was waiting for Rice to build up the business.” Id. at *14, 2004 U.S. Dist. LEXIS 29580 at *50. The court noted that Kunbargi once hired a private investigator to look into CTS's activities, but found this minimal effort insufficient to satisfy his duty to inquire. see Advanced Cardiovascular Sys., Inc. v. SciMed Life Sys., Inc., 988 F.2d 1157, 1162 (Fed.Cir.1993), especially because “Plaintiffs provide[d] no evidence regarding the scope of the private investigator's inquiry.” Id. at *14, 2004 U.S. Dist. LEXIS 29580 at *49. The district court also acknowledged Plaintiffs' argument that it would have been impossible to reverse engineer the cement. But “[g]iven the twelve-year delay between the issuance of the patent and the filing of the present suit, and the fact that plaintiffs were on inquiry notice of potential infringement well before 1997 when plaintiffs admit Kunbargi contemplated filing suit,” the court ruled that laches barred Plaintiffs' suit notwithstanding Plaintiffs' purported inability to reverse engineer Defendants' cement. Id. at *14, 2004 U.S. Dist. LEXIS 29580 at *50.
In 2009, the Federal Circuit reversed the district court's ruling, holding that “genuine issues of material fact precluded summary judgment that the ' 556 patent is unenforceable due to laches....” Ultimax, 587 F.3d at 1349. The Federal Circuit ruled that the district court's finding of laches at the summary judgment stage was improper because “it [was] not clear that Ultimax knew or should have known of CTS's alleged infringement before it conducted discovery on the '684 patent in 2002.” Id. The Federal Circuit also stated that “there is a genuine issue of material as to whether Kunbargi fulfilled his duty to investigate by hiring a private investigator, especially given Kunbargi's allegation that Rice assured him that CTS was not infringing because it did not use soluble anhydrite.” Id. at 1350. Thus, the issue of laches is framed.
2.2 Plaintiffs Delayed Unreasonably in Filing Suit
To establish laches, Defendants must first show that Plaintiffs delayed filing suit for an unreasonable and inexcusable length of time after they discovered or reasonably should have discovered that Defendants were allegedly infringing the '556 patent. See Ultimax, 587 F.3d at 1349 (citing A.C. Aukerman, 960 F.2d at 1032). In determining the date of constructive knowledge, a patentee is charged “with such knowledge as might have obtained upon inquiry, provided the facts already known by him were such as to put upon a man of ordinary intelligence the duty of inquiry.” Advanced Cardiovascular, 988 F.2d at 1162.
While genuine issues of material fact precluded a finding at the summary judgment stage that Plaintiffs should have known about Defendants' alleged infringement when the patent was issued in 1990, the same rigorous evidentiary standards do not bar such a finding now. The evidence presented during the course of this four-week trial convincingly establishes that Kunbargi and his fellow Plaintiffs reasonably should have known of their claims against Defendants well before they filed suit. Kunbargi's extensive employment history with Rice and Rice's entities, his participation in Burn One. and his acknowledgment that “the cement of the future” produced at Burn One was “patentable” and commercially viable, put Kunbargi on inquiry notice of his claims against Defendants from the date the '556 patent was issued in 1990. The fact that Plaintiffs considered CTS to be their main competitor further sets in concrete that Plaintiffs had constructive notice of their claims before filing suit. (Ex. 4406.)
Plaintiffs argue that they had no reason to suspect that Defendants' cement infringed anytime before 2002 because Rice assured Kunbargi otherwise. The Court finds Kunbargi's scant testimony regarding Rice's assurances not credible. But even if Rice did make such statements, they would not have been sufficient to overcome the substantial evidence establishing Plaintiffs' constructive knowledge of the alleged infringement.
Plaintiffs also argue that Kunbargi's hiring of a private investigator in 1997 precludes a finding of laches because it establishes that Kunbargi made reasonable attempts to discover Defendants' alleged infringement. As an initial matter, the Court notes that Kunbargi's decision to hire this investigator in the first place undermines his testimony that he was entirely blind to any potential infringement before 1997. Indeed, Kunbargi admits that he hired a private investigator after receiving information that Rice was infringing the '556 patent. But Plaintiffs do not come close to showing that Kunbargi's decision to hire this investigator, even if true, satisfied his “duty to inquire,” see Advanced Cardiovascular, 988 F.2d at 1162, especially given the credibility issues surrounding Kunbargi's testimony related to Rice's purported assurances. See also Ultimax, 587 F.3d at 1350 (reversing summary judgment because “[t]here is a genuine issue as to whether Kunbargi fulfilled his duty to investigate by hiring a private investator, especially given Kunbargi's allegation that Rice assured him that CTS was not infringing because it did not use soluble anhydrite.” (emphasis added)). Plaintiffs do not identify the investigator, much less describe his qualifications. Nor do Plaintiffs explain what the investigator actually did. or provide any documentary evidence of his conclusions.
Plaintiffs' legal arguments opposing Defendants' Laches and Estoppel Motion are unsupported and unsound. Plaintiffs argue, for example, that Kunbargi could not have been on notice of Defendants' infringement because he stopped working for Rice and CTS after Burn One in 1988 and before the '556 patent was issued. This argument fails because it conflates the concepts of actual and constructive notice. Kunbargi may not have actually known that the accused cement infringed the '556 patent, but his participation in Burn One put him on constructive notice of Defendants' purported infringement. Indeed, as noted in Section 1, Kunbargi admitted that all elements of claim 9 were present at Burn One. (Tr. Sept. 16, 2011, Dkt. No. 1584, Part 4, at 48:1–3 (“Q: [Defense Counsel] All the elements in Claim 9 were at hand at Burn 1, weren't they? A: [Kunbargi] Yes.”).)
Kunbargi also saw the commercial viability of the cement produced at Burn One and sought greater compensation for his participation in its creation. Kunbargi stated that “the new Rapid Set cement [created at Burn One] is going to be the cement of the future,” (Ex. 558), and argued that his “contributions to the new technology of producing the new Rapid Set” entitled him to a stake in this “patentable” cement. (Ex. 558.)
The evidence at trial persuades the Court that Plaintiffs should have known of their claim against CTS when the '556 patent was issued—12 years before they filed suit. While laches may be “presumed upon proof that the patentee delayed filling suit for more than six years after actual or constructive knowledge of the defendant's alleged infringing activity,” A.C. Aukerman, 960 F.2d at 1035–36, the Court need not apply that presumption because the evidence establishes that Plaintiffs' delay was not reasonable or excusable.
2.3 Plaintiffs' Unreasonable Delay Caused Defendants Evidentiary and Economic Prejudice
Proving unreasonable delay is not sufficient to establish the defense of laches. Defendants must also show that Plaintiffs' unreasonable delay caused it prejudice. See Ultimax, 587 F.3d at 1349 (citing A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1032 (Fed.Cir.1992) (en banc)). “Such prejudice may be economic or evidentiary.” A.C. Aukerman, 960 F.2d at 1033 (citing Cornetta v. United States, 851 F.2d 1372, 1378 (Fed.Cir.1988)). As the Federal Circuit explained in A.C. Aukerman,
Evidentiary, or “defense” prejudice, may arise by reason of a defendant's inability to present a full and fair defense on the merits due to the loss of records, the death of a witness, or the unreliability of memories of long past events, thereby undermining the court's ability to judge the facts.
Id. Economic prejudice, on the other hand, “may arise where a defendant and possibly others will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit.” Id.
The evidence submitted at trial convincingly establishes that Plaintiffs' unreasonable delay caused Defendants both types of prejudice. Plaintiffs unreasonable delay resulted in substantial evidentiary prejudice because many of those involved in Burn One—namely Dick Pegram, Larry Roach, and John Bush—are now dead. (Tr. Oct. 5, 2011, Dkt. No. 1571, at 156:7–20, 158:4–159:13.) Indeed. Kunbargi acknowledged that the cement produced at Burn One was “designed” by Pegram and the burn temperature used in the kiln was “reached as a result of a consensus between Mr. Rice, Mr. Pegram, Mr. Keller, and [Mr. Kunbargi].” (Tr., Sept. 16, 2011, Dkt. No. 1584, Part 3. at 28:18–29:1.)
Besides the unavailability of key witnesses. Plaintiffs' delay also resulted in the loss of records. Additionally, memories have faded since Burn One occurred in 1988. Indeed, Rice was 62 years old when he organized Burn One and is 86 years old now. The evidence also establishes that Defendants suffered economic prejudice through expenditures that would not have occurred if Plaintiffs had filed their lawsuit sooner. See, e.g., ABB Robotics v. GMFanuc Robotics Corp., 52 F.3d 1062, 1062–64 (Fed.Cir.1995).
2.4 Equitable Estoppel Bars Post–Suit Recovery
As noted, laches bars relief on a patentee's claim for damages that accrued before the patentee files suit. The defense of equitable estoppel, by contrast, bars all relief in an infringement action—both before and after the lawsuit is filed. See A.C. Aukerman, 960 F.2d at 1041 (holding that where the patentee “in addition to being guilty of laches has, by his conduct, estopped himself from asserting his rights under the patent, all relief should be denied”); see also ABB Robotics v. GMFanuc Robotics Corp., 52 F.3d 1062, 1063 (Fed.Cir.1995) (“Estoppel is an equitable defense to a charge of patent infringement and. if proven, may entirely bar an infringement suit.”).
Defendants argue that Plaintiffs should be equitably estopped from obtaining any relief, and the Court agrees. Plaintiffs do not sufficiently address this argument in any their seven post-trial fillings. ( See Dkt. Nos. 1552, 1553, 1555, 1556, 1567, 1613, 1615.) Instead, Plaintiffs conflate the concepts of laches and estoppel, relying exclusively on the argument that Plaintiffs had no reason to know of Defendants' infringement before 2002 to defeat both.
“Three elements are required to prove estoppel.” ABB Robotics, 52 F.3d at 1063. “The first is that the patentee, through misleading conduct, leads the alleged infringer to reasonably infer that he does not intend to enforce the patent against the alleged infringer. The conduct may include specific statements, action, inaction, or silence where there was an obligation to speak.” Id.
As noted, the evidence shows that Plaintiffs were on inquiry notice of the accused product years before filing suit. Plaintiffs' inaction over a 12–year period coupled with numerous other factors led Defendants to reasonably conclude that Plaintiffs were not going to assert infringement claims on the ' 556 patent. These factors include the close personal and professional relationship between Rice and Kunbargi, Kunbargi's detailed knowledge of the cement first produced at Heartland and described in the '556 patent. Kunbargi's request for a financial stake in the new cement, and his suggestion that Rice obtain a patent or trademark on the cement. Indeed, in his December 1988 letter to Rice. Kunbargi described the new rapid hardening cement as “the cement of the future,” told Rice that the new cement was “patentable.” and requested compensation for his “contributions to the new technology.” (Exs. 558, 565.) These factors, combined with the 12–year delay in filing suit after receiving inquiry notice of the infringing product, led Defendants to reasonably believe that Plaintiffs had abandoned any infringement claim. See A.C. Aukerman, 960 F.2d at 1042 (“[P]laintiff's inaction must be combined with other facts respecting the relationship or contacts between the parties to give rise to the necessary inference that the claim against the defendant is abandoned.”). Defendants' reliance is made all the more reasonable by the believable testimony that they assumed they had a shop right to use the allegedly infringing cement. Again, testimony from Plaintiffs' witnesses that Rice assured Plaintiffs that CTS's cement did not infringe the '556 patent lacked credibility.
The second element of an equitable estoppel defense is reliance. In other words, “[t]he accused infringer must show that ... it substantially relied on the misleading conduct of the patentee in connection with taking some action.” A.C. Aukerman, 960 F.2d at 1042–43. The credible evidence establishes that Defendants spent more than a decade developing, marketing, and selling the rapid-hardening cement while justifiably relying on Plaintiffs' apparent decision not to assert an infringement claim. Evidence of Defendants' substantial investments in producing and commercializing the allegedly infringing cement further establishes that they relied on Plaintiffs' lengthy inaction.
The final element of the equitable estoppel defense is prejudice. The “accused infringer must establish that it would be materially prejudiced if the patentee is now permitted to proceed. As with laches, the prejudice may be a change of economic position or loss of evidence.” A.C. Aukerman, 960 F.2d at 1043 (citing Advanced Hydraulics v. Otis Elevator Co., 525 F.2d 477, 481–82 (7th Cir.1975)). As explained more fully in the preceding section, the evidence establishes that Plaintiffs' unreasonable delay in filing suit caused Defendants substantial evidentiary and economic prejudice.
The Court finds that Plaintiffs are equitably estopped from asserting their infringement claims against Defendants.
2.5 Conclusion
The doctrines of laches and equitable estoppel bar Plaintiffs from asserting any claims for infringement of the '556 patent against Defendants. Accordingly, the Court GRANTS Defendants' Laches and Estoppel Motion.
DISPOSITION
The Court GRANTS Defendants' Rule 50 Motion as to shop right. The Court also GRANTS Defendants' Laches and Equitable Estoppel Motion. Judgment for Defendants as a matter of law is appropriate on each of these Motions standing alone. The parties' remaining Motions are DENIED as moot.
IT IS SO ORDERED.