WILLIAM D. QUARLES, JR., District Judge.
Mike's Train House, Inc. ("MTH") sued Broadway Limited Imports, LLC ("Broadway Limited") and Robert Grubba for patent infringement. Broadway Limited counterclaimed for invalidity. For the following reasons, Grubba's motion to dismiss and Erskine's motion to withdraw will be granted; Broadway Limited's motions for summary judgment and to strike will be denied; and MTH's motion for leave to file surreply will be granted, and its motions for a preliminary injunction and to strike will be denied.
MTH designs and sells O gauge and HO scale
In the model train industry, synchronizing the puffs of smoke emitted by the engine's smokestack with the "chuffing" sound of the engine has been a challenge. Wolf Decl. ¶ 14. For many years, model trains used mechanical means to emit smoke, and the "chuffing" sound was produced by a sound board in the engine. Id. ¶¶ 16-17. The lack of synchronization of the smoke, "chuffing" sound, and speed made the models appear unrealistic. Id. ¶ 17.
In 1997, Wolf assembled a team of engineers and designers to create a command control system that would synchronize the train's sound, smoke, and speed like a real train. Id. ¶¶ 8-9. Wolf, Krebiehl, and Seitz & Associates developed a functional prototype. Id. ¶ 8. By 2000, MTH had an invention that coordinated the sound, smoke, and speed of an O gauge train through integrated electrical circuitry and a microprocessor to mimic a real train. Id. ¶ 9, 13.
Between 2004 and 2006, MTH spent $1.5 million to adapt the electronic synchronization technology to HO scale trains. Wolf Decl. ¶¶ 9, 27. In June 2006, MTH shipped its first HO scale trains with smoke, sound, and speed coordinated through a microprocessor. Id. ¶¶ 9, 27. Today, MTH has an HO scale market share of about five percent and attributes its trains' success to this technology. Id. ¶ 31.
In 2009, Broadway Limited announced a new sound and control system called "Paragon2," which "mechanically synchronized smoke output" with wheel movement and "chuffing" sounds. Id. ¶¶ 38-40. Wolf purchased and sent a Paragon2 model to Seitz & Associates for testing. Id. ¶ 41. Forrest Seitz, president and director of design at Seitz & Associates, determined that the Paragon2 system was not using a mechanical method but an electronic method of synchronization, which infringed several claims of the '640 Patent. Forrest Seitz Decl. & Report ¶¶ 1, 9, Nov. 19, 2009 [hereinafter Seitz Report]; see also id.
On October 13, 2009, MTH sued Broadway Limited and Robert Grubba for infringement of the '681 and '640 Patents. Compl. ¶¶ 38-45. On October 28, 2009, Broadway Limited announced to its dealers a "New Product Arrival" of engines "with sound and synchronized puffing smoke." Wolf Decl. ¶ 42; Pl.'s Ex. 10. On November 16, 2009, Broadway Limited filed an answer and counterclaims for invalidity of the '681 and '640 Patents, Paper No. 10, and Grubba moved to dismiss for lack of personal jurisdiction and improper venue, Paper No. 13 at 1. On November 20, 2009, MTH filed a motion for a preliminary injunction. Paper No. 15.
On December 11, 2009, Broadway Limited moved for summary judgment on its invalidity counterclaims. Paper No. 23. On January 25, 2010, MTH moved to strike Broadway Limited's reply to the motion for summary judgment, Paper No. 42, and for leave to file surreply, Paper No. 43. On January 26, 2010, Broadway Limited moved to strike MTH's motion for leave to file surreply. Paper No. 44. On February 1, 2010, William Erskine moved to withdraw as counsel for MTH. Paper No. 47.
MTH has moved to enjoin sales of the Paragon2 line of model trains by Broadway Limited because they infringe several claims in the '640 Patent. Pl.'s Prelim. Inj. Mot. 7. Broadway Limited has argued that MTH failed to meet the heightened preliminary injunction standard of Winter v. Natural Res. Def. Council, Inc., ___ U.S. ___, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). Def.'s Prelim. Inj. Opp. 6-7.
To obtain a preliminary injunction, MTH must show that: (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm absent preliminary relief, (3) the balance of equities favors it, and (4) an injunction is in the public interest. Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375-76 (Fed.Cir.2009) (quoting Winter, 129 S.Ct. at 374).
MTH argues that it will suffer irreparable harm by losses of "market share, goodwill and its reputation as an industry innovator" if Broadway Limited is permitted to sell the infringing Paragon2 trains. Pl.'s Prelim. Inj. Mot. 25. Michael Wolf asserts that if Broadway Limited is allowed to sell its Paragon2 trains, MTH will lose (1) its entire investment in the technology patented in the '640 and '681 Patents, Wolf Decl. ¶ 45; (2) customer goodwill and its reputation as an innovator in the model train industry, id. ¶ 46; (3) existing and potential customers, id.; (4) market share, id. ¶ 48; and (5) it will also suffer price erosion because comparable Paragon2 trains will be sold at lower prices, id. ¶ 47. Pl.'s Prelim Inj. Mot. 21-32.
Proof of irreparable harm requires a showing that damages will be inadequate. See Eli Lilly and Co. v. Am. Cyanamid Co., 82 F.3d 1568, 1578 (Fed. Cir.1996); Nutrition 21 v. United States, 930 F.2d 867, 871 (Fed.Cir.1991).
Next, Wolf has not quantified the expected loss of HO scale market share but merely asserts that MTH "will lose existing customers and potential customers" and its current five percent market share "will be eroded." Id. ¶ 46, 48. This speculation about possible economic loss is insufficient evidence of irreparable harm.
Next, Wolf's beliefs that MTH will lose customer goodwill and its reputation as an industry innovator are unsupported. MTH introduced its HO scale trains with its microprocessor in 2006. According to MTH, it continues to be the only manufacturer of HO scale trains with this technology. Thus, notwithstanding the Paragon2 trains, MTH remains an innovator and the first-mover with this technology in the HO scale market.
Finally, MTH has not shown that its anticipated revenue losses cannot be quantified and adequately compensated by damages after trial. As it has not carried its burden of persuasion on the element of irreparable harm, MTH's motion for a preliminary injunction must be denied.
Grubba contends that this Court lacks personal jurisdiction over him under Fed.R.Civ.P. 12(b)(2).
The complaint alleges that Grubba is the president and alter ego of Broadway Limited, a Florida corporation that sells model trains in Maryland. Compl. ¶¶ 3, 4. It further alleges that the "[d]efendants do continuous and systematic business" in Maryland. Id. ¶¶ 4, 6. By affidavit, Grubba has denied (1) transacting business or performing work in Maryland; (2) contracting to supply products in Maryland; (3) owning, using, or possessing real property in Maryland; (4) contracting to insure or act as a surety for any person or agreement to be performed in Maryland; and (5) having a place of business in Maryland. See Robert Grubba Aff. ¶¶ 4-8. MTH has not refuted these assertions.
Because there is no evidence of Grubba's continuous and systematic contacts with Maryland, MTH must establish specific jurisdiction. MTH argues that specific jurisdiction is established under Maryland Code § 6-103(b)(3)
MTH has not shown an injury resulting from Grubba's acts or omissions in Maryland. There is no evidence that Grubba induced the sale of any goods in Maryland, and the mere allegation that Grubba is the alter ego of Broadway Limited is insufficient for personal jurisdiction over him.
Because MTH has failed to show a prima facie case of personal jurisdiction, Grubba's motion to dismiss must be granted.
MTH argues that Grubba's second declaration and the O Gauge Railroading article—which were appended to Broadway Limited's reply in support of the motion for summary judgment-should be stricken because they were untimely, contain hearsay, and are irrelevant. Paper No. 42 at 1-3.
Ordinarily, arguments raised for the first time in a reply brief or memorandum will not be considered. See SEC v. Pirate Investor, 580 F.3d 233, 255 n. 23 (4th Cir.2009). But "the power to decline consideration of such arguments is discretionary, and the courts are not precluded from considering such issues in appropriate circumstances." Clawson v. FedEx Ground Package Sys., Inc., 451 F.Supp.2d 731, 734 (D.Md.2006).
Broadway Limited's reply merely presented additional evidence for its previous arguments of invalidity. To the extent that the O Gauge Railroading article was presented as proof of publication, it is within an exception to the hearsay rule. See Fed.R.Evid. 801(c). The article and Grubba's second declaration are also relevant to the content of the prior art. Accordingly, MTH's motion to strike evidence from Broadway Limited's reply will be denied.
Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, "the judge's function is not . . . to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. 2505.
The Court must "view the evidence in the light most favorable to . . . the nonmovant, and draw all reasonable inferences in h[is] favor," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002), but the Court also "must abide by the affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial," Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir.2003).
Under the Declaratory Judgment Act,
The party claiming declaratory judgment jurisdiction must establish that such jurisdiction existed when the claim for declaratory relief was filed and that it has continued since. Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed.Cir.2007).
A covenant not to sue in the future for products made, used, or sold in the past can remove actual controversy in the present.
Broadway Limited has opposed the limitation of its counterclaim, arguing for jurisdiction to challenge all the claims of Patent '681. Paper No. 37 at 2. It contends that a Super Sack covenant not to sue on any claims of the patent in issue is not in this case. Because MTH is asserting some of the claims in Patent '681, Broadway Limited argues that the entire patent is in dispute, and the Court has declaratory judgment jurisdiction over all its claims. Id. As MTH continues to publically assert that Broadway Limited infringed Patents '681 and '640—without limiting its accusations to certain claims—Broadway Limited contends that there is an "actual case or controversy" as to all the claims in both patents. Id. at 3.
Post-MedImmune, district courts have differed about the effect of a partial covenant not to sue on declaratory judgment jurisdiction.
MTH notes criticism of Lear Auto, and relies on the rule adopted in MedImmune II.
This Court finds MedImmune II persuasive: a partial covenant may eliminate subject matter jurisdiction for declaratory judgment on invalidity claims within the covenant. See MedImmune II, 535 F.Supp.2d at 1008. This rule is consistent with the Federal Circuit's requirement that "the existence of an actual controversy must be evaluated on a patent by patent and claim by claim basis." Hoffman-La Roche, 2009 WL 4796736 at *2 (quoting Jervis B. Webb Co. v. S. Sys., Inc., 742 F.2d 1388, 1398-99 (Fed.Cir.1984)). The case or controversy requirement and judicial economy favor narrowing the court's review to those claims actually in issue. Because MTH's promise not to sue came early in the litigation, the invalidity counterclaims within its partial covenant are moot.
"Whether a covenant not to sue for infringement will divest the trial court of jurisdiction depends on the scope of the covenant."
Broadway Limited argues that claims 4 and 5 of Patent '681 and claims 1, 2, and 6-13 of Patent '640 are invalid because they were obvious at the time they were made. MTH argues, inter alia, that Broadway Limited has failed to provide expert evidence to establish the level of ordinary skill in the art. Pl.'s Summ. J. Opp. 9, 12-13.
Under appropriate circumstances, the court may use its common sense to determine that a combination of elements as claimed was obvious to a person of ordinary skill in the art. KSR, 550 U.S. at 421, 127 S.Ct. 1727. But when the minutiae of technical expertise preclude reliance on common sense, the party alleging obviousness must provide "substantive factual guidance" to establish the competence of a person of ordinary skill in the art.
Kriebel asserts that the configuration and operations in claims 4 and 5 of Patent '681 would not have been obvious to a person of ordinary skill in the art because: (1) the small size of model trains made it difficult to fit in all the components, e.g. motor, power supply, speed control circuitry, etc.; (2) it was difficult to supply enough power over the rails to provide the "steady, strong, and uninterrupted" power needed by a microprocessor; and (3) "electronic noise" in complex model train systems can adversely affect integrated circuit operations. Id. ¶¶ 14-16.
Because the solution was "not so simple as to convert everything to integrated circuitry" and MTH's invention broke with "industry convention," Krebiehl concluded that the Patent '681 claims would not have been obvious to one skilled in the art of train design in 2000. Id. ¶¶ 15, 26. Krebiehl has also explained the prior art cited by Broadway Limited and distinguished each reference from the claims at issue in
Toy train design is not within the "common sense" capacity of this court. Broadway Limited has failed to bear its evidentiary burden of providing expert testimony to establish the competence of a person of ordinary skill in the art, explain the prior art references, and establish the scope of the claims at issue; its attorney's argument is insufficient. Expert evidence is needed to analyze obviousness. Broadway Limited has not shown that a person of ordinary skill in the art would have been motivated to combine the prior art references or that they would have had a reasonable expectation of success in coordinating a model train's speed, sounds, and smoke. Without that evidence, this Court cannot perform the required Graham analysis; summary judgment must be denied.
Broadway Limited argues that Patent '640 claim 14 is invalid under 35 U.S.C. § 102(b) because it was anticipated by the prior art. Def.'s Summ. J. 32-46.
Section 102(b) prohibits a claim for an invention "patented or described in a print publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States." 35 U.S.C. § 102(b). "A claim is anticipated only if each and every element as set forth in the claim is found, either expressly or inherently described, in a single prior art reference." Verdegaal Bros., Inc. v. Union Oil Co. of California, 814 F.2d 628, 631 (Fed.Cir.1987).
Broadway Limited argues that every element and limitation of claim 14 was disclosed in (1) U.S. Patent No. RE38,660 to Michael Novosel, Kelly Boles, and Vincent S. Fleszewski, III (the "Novosel Patent"),
Under Local Rule 101.2.a, counsel for a business entity may withdraw with leave of court if, inter alia, "appearance of other counsel has been entered." Because Brian E. Ferguson entered his appearance on
For the reasons stated above, Grubba's motion to dismiss will be granted. Broadway Limited's motions for summary judgment and to strike the surreply will be denied. MTH's motion to file surreply will be granted, and its motions for a preliminary injunction and to strike evidence from Broadway Limited's reply will be denied. Erskine's motion to withdraw as counsel for MTH will be granted.
For the reasons discussed in the accompanying Memorandum Opinion, it is, this 29th day of April, 2010, ORDERED that:
1. MTH's motion for a preliminary injunction (Paper No. 15), BE and HEREBY IS, DENIED;
2. Grubba's motion to dismiss (Paper No. 13), BE, and HEREBY IS, GRANTED;
3. Broadway Limited's motion for summary judgment (Paper No. 23), BE, and HEREBY IS, DENIED;
4. MTH's motion to strike (Paper No. 42), BE, and HEREBY IS, DENIED;
5. MTH's motion for leave to file surreply (Paper No. 43), BE, and HEREBY IS, GRANTED;
6. Broadway Limited's motion to strike (Paper No 44), BE, and HEREBY IS, DENIED;
7. Erskine's motion to withdraw (Paper No. 47), BE, and HEREBY IS, GRANTED;
8. Counsel shall confer and submit a proposed scheduling order for this case; and
9. The Clerk of the Court shall send copies of this Memorandum Opinion and Order to counsel for the parties.
Personal jurisdiction may be general or specific. Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1410 (Fed.Cir.2009). General jurisdiction requires the defendant's "continuous and systematic" contacts with the forum state. Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1200 (Fed.Cir.2003). Specific jurisdiction arises out of or is related to the cause of action and may exist even if the defendant's contacts with the forum are "isolated and sporadic." Id.
The Supreme Court's decision in MedImmune rejected the "reasonable apprehension of suit" as the sole test for jurisdiction in favor of an "all the circumstances" test. Prasco, 537 F.3d at 1336. MedImmune's "more lenient legal standard . . . enhances the availability of declaratory judgment jurisdiction in patent cases." Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 902 (Fed. Cir.2008). "[P]roving a reasonable apprehension of suit is [now] one of multiple ways that a declaratory judgment plaintiff can satisfy the more general all-the-circumstances test." Prasco, 537 F.3d at 1336.
Although Super Sack applied the "reasonable apprehension of imminent suit" test that was disapproved in MedImmune, the Federal Circuit's recent decisions are consistent with Super Sack's holding that "a patentee defending against an action for a declaratory judgment of invalidity can divest the trial court of jurisdiction over the case by filing a covenant not to assert the patent in issue against the putative infringer with respect to any of its past, present or future acts." See Revolution Eyewear, 556 F.3d at 1297-98; Janssen Pharm., N.V. v. Apotex, Inc., 540 F.3d 1353, 1363 (Fed.Cir.2008); Prasco, 537 F.3d at 1341 n. 11; Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc., 527 F.3d 1278, 1296 (Fed.Cir. 2008); Benitec, 495 F.3d at 1348-49.
Accordingly, by promising not to sue on the patent at issue, a patentee may eliminate subject matter jurisdiction over the alleged infringer's declaratory actions for invalidity and non-infringement of that patent. Revolution Eyewear, 556 F.3d at 1297; Benitec, 495 F.3d at 1340; MedImmune, Inc. v. Genentech, Inc., 535 F.Supp.2d 1000, 1005 (C.D.Cal.2008) [hereinafter MedImmune II].
If a patentee "shows a preparedness and willingness to enforce its patent rights" by suing for infringement, the Court will carefully scrutinize its avoidance of declaratory judgment jurisdiction by later withdrawing those charges and stating its intent not to sue; a patentee may not engage in "the kind of extra-judicial patent enforcement with scare-the-customer-and run tactics that the Declaratory Judgment Act was intended to obviate." Revolution Eyewear, 556 F.3d at 1297-98 (quoting SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1383 (Fed.Cir.2007)). To preclude jurisdiction over invalidity counterclaims, a covenant not to sue must made before resolution of the underlying infringement action. See Benitec, 495 F.3d at 1347 (quoting Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1348 (Fed.Cir.2005)).
To preclude declaratory judgment jurisdiction, the covenant must be sufficiently broad to eliminate the controversy with respect to the withdrawn or unasserted patent claims. See Harris Corp. v. Fed. Express Corp., 670 F.Supp.2d 1306, 1309-11 (M.D.Fla.2009); Prasco, 537 F.3d at 1341 n. 11 ("A covenant not to sue is . . . not sufficient to defeat declaratory judgment jurisdiction if signing the covenant does not negate the underlying injury."). If the covenant "extend[s] to future production and sale of the same products that were the subject of the infringement suit" then there is no actual controversy and no declaratory judgment jurisdiction. Revolution Eyewear, 556 F.3d at 1298.
"A covenant need not extend to hypothetical or speculative future contingencies," Mylan, 2009 WL 4796736 at *7, or to "possible infringement on products or services not yet in the marketplace and not yet identified . . . with any specificity," Barnhardt Mfg. Co. v. Illinois Tool Works, Inc., 2009 WL 2498036, at *4 (W.D.N.C.2009). "[B]ut it must cover `planned future activities' in addition to past and present activities otherwise subject to an infringement claim." Mylan, 2009 WL 4796736 at *7 n. 10 (quoting Revolution Eyewear, 556 F.3d at 1297). A covenant of "absolute immunity forever for anything in relation to the [patent at issue]" is not required to extinguish jurisdiction. Barnhardt Mfg., 2009 WL 2498036 at *4. But, when the patentee "puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do," declaratory relief is available. Id. at 1298 (quoting SanDisk, 480 F.3d at 1381).
The effect of a promise not to sue also depends upon the nature of the claim withdrawn and the defense to infringement asserted. A patentee who withdraws an independent claim but continues to assert infringement of claims dependent on the withdrawn claims leaves "the entire subject matter of [those] claims at issue" because "infringement of a dependent claim also entails infringement of its associated independent claim[s]." Honeywell Int'l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 995 (Fed.Cir.2007). Similarly, claim-specific defenses—such as non-infringement and invalidity-may be precluded by a covenant not to sue on those claims, see Benitec, 495 F.3d at 1343, but defenses that implicate the validity of the entire patent-such as unenforceability due to inequitable conduct-will not be precluded. See Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229, 1243 (Fed.Cir.2008) ("[A] district court's jurisdiction . . . to determine whether there was inequitable conduct in the prosecution of the patents that are otherwise no longer in suit confers on that court jurisdiction to hold such patents unenforceable for inequitable conduct . . . [and] the unenforceability of a patent follows automatically once a patent is found to have been obtained via inequitable conduct."); Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1230 (Fed.Cir.2007) ("Because inequitable conduct with respect to one or more patents in a family can infect related applications, [the Federal Circuit found] no abuse of discretion in the district court's holding the [four patents no longer in suit] unenforceable.").
"The combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results." Id. at 416, 127 S.Ct. 1727. To determine whether there was an apparent reason to combine known elements in the patented fashion, the court may consider (1) interrelated teachings of multiple patents, (2) the effects of demands known to the design community or present in the market, and (3) the background knowledge of a person with ordinary skill in the art. Id. at 418, 127 S.Ct. 1727. There need not be "precise teachings directed to the specific subject matter of the challenged claim," as the court may "take account of the inferences and creative steps that a person of ordinary skill in the art would employ." Id.
Once issued, a patent is presumed valid, and the burden is on the challenging party to prove invalidity by clear and convincing evidence. 35 U.S.C. § 282; Boehringer Ingelheim Vetmedica, Inc. v. Schering-Plough Corp., 320 F.3d 1339, 1353 (Fed.Cir.2003). Carrying the burden of persuasion on factual issues relating to obviousness may be easier when important prior art or information was not considered by the PTO and more difficult when the challenger relies on the same evidence considered by the PTO. 2 Chisum on Patents, supra, § 5.06(2). "The ultimate judgment of obviousness is a legal determination." KSR, 550 U.S. at 427, 127 S.Ct. 1727.
