GARY R. BROWN, Magistrate Judge.
In these actions, plaintiffs Nationwide Sales and Services, Inc. and Imig, Inc. have brought claims against defendants Envirocare Technologies International, Ltd. and Envirocare Technologies, LLC (together "Envirocare") and Steel City Vacuum Company based on the importation and sale of certain vacuum cleaner components.
On November 30, 2016, plaintiffs commenced this action and, on January 27, 2017, filed an amended complaint alleging that Envirocare acquired and sold vacuum cleaner parts made with plaintiffs' trade secrets and patented technology, and asserting the following claims: patent infringement, violation of the Federal Defend Trade Secrets Act of 2016, conversion and tortious interference with contractual and business relations. More particularly, plaintiffs allege that four hose assembly parts acquired by Envirocare from a Chinese national named Xu Shihui and Chinese companies he purportedly operates, identified as Omi and Startrade (collectively "Shihui"), and sold to Steel City for resale, including parts covered by plaintiffs' patents numbered 7,159,270 ("`270 Patent") and 7,168,127 ("`127 Patent").
In paragraph 17 of the amended complaint, plaintiffs define their trade secrets as follows:
The amended complaint identifies more than twenty vacuum cleaner parts manufactured by Shihui using tooling and trade secrets of plaintiffs, which Envirocare allegedly purchased and sold to Steel City.
Pursuant to the Court's discovery plan, the parties were directed to complete certain discovery, after which defendants could move for summary judgment. As part of that initial phase of discovery, plaintiffs subpoenaed third-party Import Commodity Group Ltd. ("ICGL") seeking documents relating to Envirocare's importation of vacuum cleaner parts. Plaintiffs were required to respond to a contention interrogatory requiring them to "identify all products imported into the United States, offered for sale or sold by defendants which plaintiffs claim were manufactured by Shihui using the trade secrets, proprietary tooling and molds, or other intellectual property of plaintiffs." Plaintiffs responded by referring to their 900-page document production, largely consisting of public patent filings. The remainder does not identify with particularity any trade secrets allegedly disclosed to Envirocare or used by Envirocare.
Based upon the submissions of the parties, the following material facts are either undisputed or have been ineffectively disputed by the parties:
Plaintiffs' infringement contentions, required under the Court's discovery plan, identified eight vacuum cleaner parts as infringing every claim of the `127 and `270 patents.
As a result, the Court permitted plaintiffs to obtain third-party discovery of the customs brokers, prior to the resolution of the pending motions or the filing of dispositive motions.
On June 16, 2017, counsel for plaintiffs informed Envirocare's counsel that he could not identify the allegedly offending products using the part numbers and descriptions Envirocare had provided, and requested that Envirocare send plaintiffs photographs of each of the parts listed on the Envirocare Parts List. Envirocare supplied plaintiffs' counsel with photographs of certain components. Subsequently, plaintiffs subpoenaed records from two customs brokers, ICGL and K-Line, which resulted in the production of more than 3,000 pages of customs records to plaintiffs. Furthermore, plaintiffs took the deposition of the representative of one of the customs brokers on November 15, 2017. Plaintiffs have not filed any motion seeking further compliance by the customs brokers.
After review of this information, on the question of alleged trade secret misuse, counsel for plaintiffs contended that "the items m34 and m37 were made partially with tooling of Nationwide and Imig; as well as the 18/3 50' grey cord." No further detail was supplied. However, as discussed further herein, Envirocare submitted evidence supporting the notion that the m34 and m37 components are made with plaintiffs' tooling. To date, plaintiffs have failed to produce any patent infringement charts as directed by the Court.
On November 9, 2016, plaintiffs filed a parallel action against Steel City, alleging acquisition and sale of unspecific vacuum products made with "confidential and trade secret information and proprietary tooling" owned by plaintiffs and asserting claims of patent infringement, violation of the Federal Defend Trade Secrets Act of 2016, tortious interference with contract and business relationships and conversion. Plaintiffs alleged that Shihui sold these unspecified products to plaintiffs prior to the filing of the action. Shortly thereafter, plaintiffs filed an amended complaint, which did not further identify the offending products.
On January 13, 2017, counsel for Steel City sought to schedule a motion to dismiss. In response, plaintiffs' counsel sought to file a second amended complaint to "address matters raised by Defendant" and avoid the need for a motion to dismiss the first amended complaint. Plaintiffs filed a second amended complaint, which identified, by specific Steel City part number, fourteen components allegedly purchased from Shihui that incorporated plaintiffs' trade secrets and patented technology.
In May 2017, counsel for defendants moved for an order to compel plaintiffs to specifically identify the vacuum cleaner parts plaintiffs allege have been imported by defendants and are the subject of this action, and to provide the required claim charts. DE 25. Counsel for plaintiffs responded that a subpoena had been served upon defendants' customs broker seeking importation records. DE 26. Attached to that response were certain documents obtained from an online source indicating vacuum cleaner parts had been imported by Envirocare and some of these shipments had been directed to Steel City. Counsel indicated that the customs documents available from the online service did not include packing lists, invoices, bill of lading and the like that would identify the actual items being imported. These documents pertained to thirteen shipments of vacuum cleaner parts identifying Envirocare Technologies International as "consignee" and in some cases as "shipper" with the same address as Shihui.
At the above-referenced conference on June 15, 2017, the Court directed that all customs documents required in the subpoena be produced. During that conference, the Court permitted plaintiffs to obtain such third-party discovery and ordered plaintiffs (1) to identify the infringing parts and parts manufactured using plaintiffs' trade secrets imported by defendants as listed on the Envirocare Parts List and (2) produce patent infringement claim charts by July 31, 2017. The deposition of the customs broker was taken on November 15, 2017 and approximately 2,700 customs documents were produced.
For more than seventy years, Steel City has operated as a distributor of vacuum cleaners and parts from its headquarters in Mount Pleasant, Pennsylvania. Steel City does business with vacuum dealers and customers across the nation and maintains an inventory of over 13,000 vacuum products. Steel City maintains sales relationships with a number of domestic and foreign manufacturers, brokers and other sources of vacuum products, including plaintiffs.
In approximately 2005 or 2006, Steel City began purchasing components from plaintiffs for commercial vacuum systems. Because plaintiffs also sold these vacuum products to vacuum product dealers and end-users, plaintiffs directly competed against Steel City for such sales. Steel City continued to order such products from plaintiffs until the fall of 2016, when plaintiffs stopped fulfilling open orders from Steel City and ultimately brought this litigation against Steel City on November 9, 2016. Another source of vacuum products for Steel City is Shihui. Through Shihui, Steel City has purchased vacuum products from Chinese manufacturing firms since approximately 2005.
Steel City produced 589 pages of documents confirming purchases from Nationwide from 2014 through 2016, including Steel City purchase orders, Nationwide invoices and Nationwide packing slips. Additionally, plaintiffs subpoenaed third-party ICGL seeking "documents pertaining to the importation into the United States subsequent [sic] January 1, 2014 of vacuum cleaner parts involving Envirocare Technologies International, Ltd. or Envirocare Technologies, LLC, or any related company under common ownership and control."
On August 18, 2017, ICGL produced to plaintiffs and Steel City 240 pages of customs records reflecting Steel City purchases of vacuum products from Shihui. These customs records include the unredacted invoices for vacuum products purchased by Steel City from Mr. Shihui for dates of entry from 2014 through 2016. None of the products identified in the second amended complaint appear on the invoices produced by ICGL. Instead, plaintiffs' own invoices for purchases by Steel City from plaintiffs during this same period reflect purchases of all of these products. In fact, it is undisputed that, from 2014 until litigation commenced, Steel City purchased at least the following number of the products identified below from plaintiffs rather than Shihui, under the listed number or any other product number:
At the June 15, 2017, status conference before the Court, Steel City presented undisputed evidence, based on Nationwide's own invoices to Steel City, that the subject products were directly sold by plaintiffs to Steel City prior to the litigation, and were not purchased from Shihui during that same period. On July 28, 2017, Steel City served a Rule 11 Notification to plaintiffs and requested that plaintiffs voluntarily withdraw their claims based on the evidence presented at the June 15, 2017 conference and subsequently produced to plaintiffs on June 23, 2017.
On July 31, 2017, Steel City filed its July 31, 2017 Status Report, which confirmed that a sample of the customs records requested by plaintiffs from Steel City did not reflect any Steel City purchases of the Accused Products from Shihui. On September 1, 2017, Steel City filed a Letter Motion to Compel Compliance with the June 15 Order, which requested that plaintiffs confirm whether the accused products appear on the customs records produced by ICGL. Plaintiffs had not presented any evidence that Steel City purchased any of the subject products from Shihui prior to the litigation.
The Court considers these motions for summary judgment under the oft-repeated and well-understood standard for review of such matters, as discussed in Bartels v. Inc. Vill. of Lloyd Harbor, 97 F.Supp.3d 198, 211 (E.D.N.Y. 2015), aff'd sub nom., Bartels v. Schwarz, 643 F. App'x 54 (2d Cir. 2016), which discussion is incorporated by reference herein. Furthermore, as this Court has previously held:
Gervis v. Target Corp., No. CV 16-380 (GRB), 2017 WL 3669009, at *2 (E.D.N.Y. July 20, 2017). Thus, by way of example, in many instances, the parties responded to Rule 56.1 assertions by claiming that the posited fact was irrelevant. Such bald claims may, after appropriate review, result in the admission of the asserted fact.
This Court has enacted Local Patent Rules that "apply to patent infringement, validity and unenforceability actions and proceedings," such as the cases at bar. Local Patent Rule 1. Those rules require certain disclosures to ensure fair notice and reasonable management of patent cases—the litigation of which can be costly and difficult. In furtherance of these principles, the Local Patent Rules require that:
Local Patent Rule 6. Frequently referred to as "claim charts," such disclosures are commonly required by courts in such cases. "The requirement `to disclose where each element of each infringed claim is found within the accused device . . . is typical in patent litigation as its purpose is to put a defendant on notice of all contentions regarding how each claim limitation is allegedly met by the accused device.'" Canvs Corp. v. United States, 107 Fed. Cl. 100, 103 (2012) (quoting Iris Corp. Berhard v. United States, 84 Fed. Cl. 12, 16 (2008)). Many jurisdictions require the production of preliminary claim charts before discovery in the case. See, e.g., McZeal v. Sprint Nextel Corp., 335 F. App'x 966, 969 (Fed. Cir. 2009) ("[R]equiring a preliminary claim chart before discovery is not an abuse of discretion and is routinely required in many jurisdictions.") (collecting rules).
Customizing the requirements of the Local Patent Rules to the contours of the instant case, on March 29, 2017, the Court executed a stipulated discovery schedule prepared and negotiated by and between the parties calling for the production of infringement contentions and claim charts by May 15, 2017. DE 20. Plaintiffs' failure to comply led to the filing of a motion to compel by defendants, which motion was addressed at the June 15 conference. By the time of the conference, however, the charts had still not been produced. Plaintiffs' counsel conceded that defense counsel "needs the claim chart. I agree that that's reasonable." Tr. at 44. Defense counsel raised the following argument:
Tr. at 45. Despite the validity of this point, the Court allowed plaintiffs additional time to provide patent claim charts. Rather than impose an arbitrary date, the Court asked plaintiffs' counsel to suggest a date; counsel agreed to provide claim charts by July 2017. By the time of the filing of the instant motions many months later, plaintiffs' counsel still had not provided claim charts. Thus, in this case, "[p]laintiff[s] [have] been given every opportunity, and then some, to provide . . . an element-by-element analysis of the claim limitation." Rates Tech. Inc. v. Mediatrix Telcom, Inc., No. CV 05-2755(JS)(AKT), 2008 WL 8443501, at *17 (E.D.N.Y. Mar. 31, 2008), supplemented by, 2008 WL 8443564 (E.D.N.Y. Sept. 2, 2008).
The failure to provide a claim chart can provide the basis for dismissal for failure to prosecute. Id. The Federal Circuit has held that "unlike the liberal policy for amending pleadings, the philosophy behind amending claim charts . . . is decidedly conservative and designed to prevent the `shifting sands' approach to claim construction." Genentech, Inc. v. Amgen, Inc., 289 F.3d 761, 774 (Fed. Cir. 2002) (internal quotation marks omitted) (quoting Atmel Corp. v. Info. Storage Devices, Inc., No. C 95-1987, 1998 WL 775115, at *2 (N.D. Cal. Nov. 5, 1998)). Further, the Federal Circuit "defers to the district court when interpreting and enforcing local rules so as not to frustrate local attempts to manage patent cases according to prescribed guidelines." Id.
Most of the cases in this area discuss the adequacy of the claim charts submitted, or the extent that claim charts may be amended to include new theories. See, e.g., Canvs Corp., 107 Fed. Cl. at 103. This case represents the rare situation in which plaintiffs' counsel has simply failed or refused to submit claim charts, notwithstanding the requisites of the Local Patent Rules, stipulated court orders and a court directive issued in response to a motion to compel. Furthermore, as is plain in the record, plaintiffs' counsel well knew that dispositive motion practice would follow.
As my colleague Judge Tomlinson has held:
Mediatrix Telcom, Inc., 2008 WL 8443501, at *21 (recommending dismissal as sanction). In addition to the procedural failings, the failure or refusal to provide claim charts underscores plaintiffs' inadequate allegations of patent infringement. Thus, the motions for summary judgment are granted as to the patent claims.
Defendants seek summary judgment regarding plaintiffs' claims of trade secret misappropriation under New York state law and claims under the Defend Trade Secrets Act of 2016, which creates a concomitant federal cause of action. As a threshold matter, despite many months of litigation and discovery, plaintiffs have identified only three components that arguably fall within the ambit of their trade secret claims—Envirocare Part Nos. m34, m37 and the 18/3 50' grey cord, claiming that said components had been fabricated, in whole or part, with "tooling" owned by plaintiffs. Because plaintiffs have been given ample opportunity to identify other components allegedly sold in violation of their rights and have failed to do so,
First, defendants argue that plaintiffs have failed to identify such trade secrets with particularity as required under case law and the rules and rulings of this Court. The Federal Circuit, applying Second Circuit case law in the context of summary judgment, has urged the exercise of caution before a district court imposes the extreme sanction of dismissal based on a failure to adequately identify trade secrets. TNS Media Research, LLC v. Tivo Research & Analytics, Inc., 629 F. App'x 916, 929 (Fed. Cir. 2015) ("[T]he district court abused its discretion when it dismissed all of TRA's trade secrets claims as a discovery sanction."). In applying New York law, the Second Circuit has held:
Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir. 2009). Here, the plaintiffs' allegations that the three accused components were made with their "tooling" falls well within these parameters, and plaintiffs have alleged (though disputed by defendants) that the products made by Shihui incorporated their secrets.
However, the difficulty for plaintiffs arises from the fact that there is simply no allegation nor evidence here suggesting that its trade secrets were disclosed to or used by these defendants. Plaintiffs' position turns exclusively upon the notion that "with knowledge [Steel City] imported motors made with the trade secret." DE 48 at 8. This concept—that trade secret misappropriation (as distinct from other causes of action) can be predicated entirely upon the knowing purchase of a product wrongfully made with a trade secret—appears inconsistent with existing case law. Lehman v. Dow Jones & Co., 783 F.2d 285, 298 (2d Cir. 1986) ("[T]he information at issue here was not used to run Lehman's business but was its product: like the car that rolls off the production line, this information was what Lehman had to sell."); Archie MD, Inc. v. Elsevier, Inc., No. 16-CV-6614 (JSR), 2017 WL 3421167, at *12 (S.D.N.Y. Mar. 13, 2017) ("[P]roducts that Archie licensed and that were eventually distributed to consumers, do not constitute trade secrets.") (citing Lehman, 783 F.2d at 298); Waterville Inv., Inc. v. Homeland Sec. Network (NV Corp.), No. 08-CV-3433 (JFB)(WDW), 2010 WL 2695287, at *4 (E.D.N.Y. July 2, 2010) (distinguishing trade secret disclosure from "a finished product displaying the effects of [a trade secret] process"). Therefore, plaintiffs' trade secret claims fail, and summary judgment is warranted.
Defendants also seek summary judgment as to the tortious interference claims brought by plaintiffs.
Steel City raises several legal arguments seeking summary judgment on the tortious interference claims. However, because it is now undisputed that Steel City acquired the components alleged in the complaint from plaintiffs, and there appears to be no suggestion that Steel City was involved in the procurement or sale of the m34, m37 or grey power cord components, Steel City is entitled to summary judgment as to the remaining claims.
In response to the instant motions seeking summary judgment in both actions, plaintiffs offer little legal argument, other than a generalized invocation of Rule 56(d) suggesting that more discovery is required. As the Second Circuit has held:
Lunts v. Rochester City Sch. Dist., 515 F. App'x 11, 13 (2d Cir. 2013). The affidavit supplied complains that the production of documents from the customs broker was incomplete, but unconvincingly so. DE 51; see Lego A/S v. Best-Lock Constr. Toys, Inc., No. 3:11-cv-01586 (CSH), 2017 WL 6540268, at *5 (D. Conn. Dec. 21, 2017) ("[T]he movant in a Rule 56(d) motion has the burden of convincing the Court that additional discovery is required.").
Plaintiffs' repeated reference to discovery being "limited" in the instant action constitutes a mischaracterization of the record. As the transcript of the June 15 conference demonstrates, discovery was not "limited" here, rather the Court devised a phased discovery plan in an effort to create some efficiencies for the benefit of the parties, prioritizing those matters which the parties—and most particularly the plaintiffs—identified as critical to the dispute. Plaintiffs' counsel focused on obtaining records from customs brokers, which he described as the "lynchpin" to the entire matter, and acknowledged that if those records did not support plaintiffs' theories, the cases would likely need to be withdrawn. The Court fully supported this effort, and plaintiffs not only obtained said documents, but also had the opportunity to depose at least one of the brokers. Belated complaints that these third party productions (which dovetail, in certain respects, with plaintiffs' own records) are somehow incomplete or insufficient are belied by the absence of any effort by plaintiffs to move to compel further compliance. Thus, Rule 56(d) does not provide a basis to overcome defendants' motions for summary judgment.
Based on the foregoing:
Counsel for plaintiffs and Envirocare are directed to meet and confer to develop a mutually convenient scheduling order regarding discovery as to the limited remaining claims and the scheduling of trial and/or further dispositive motion practice. A stipulated schedule shall be submitted to the Court within ten days of this order. Furthermore, counsel are to confer concerning the effect of this decision, if any, upon the claims in Imig v. Omi, 16-CV-628 (GRB) and supply a status report within the same time frame.
