Bdt Products, Inc. v. Luxmark Intern., Inc.

• Decision Date: 31 July 2003
• Docket Number: No. CIV.A. 99-61-JMH.,CIV.A. 99-61-JMH.
• Citation: 274 F.Supp.2d 880
• Parties: BDT PRODUCTS, INC. et al., Plaintiffs, v. LEXMARK INTERNATIONAL, INC. et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

274 F.Supp.2d 880

BDT PRODUCTS, INC. et al., Plaintiffs, v. LEXMARK INTERNATIONAL, INC. et al., Defendants.

No. CIV.A. 99-61-JMH.

United States District Court, E.D. Kentucky, Lexington.

July 31, 2003.

Michael R. Adele, Cooley Godward LLP, San Diego, CA, Charles S. Kratzer, III, Lexmark Intern., Inc., Intellectual Property Law Dept., Lexington, KY, William M. Lear, Jr., William L. Montague, Jr., John B. Park, Charles E. Shivel, Jr., Richard B. Warne, Stoll, Keenon & Park, LLP, Lexington, KY, John T. Ryan, Stephen P. Swinton, Philip C. Tencer, Cooley Godward LLP, San Diego, CA, for Lexmark Intern., Inc.

Joe B. Campbell, Law Offices of Joe B. Campbell, Bowling Green, KY, for BDT Products, Inc., Buro-Datentechnik GMBH & Co. KG.

Steven Davis, Higgs, Fletcher & Mack, LLP, San Diego, CA, Matthew V. Herron, Meisenheimer, Herron & Steele, San Diego, CA, for BDT Products, Inc.

John L. Morrell, Higgs, FLetcher & Mack LLP, San Diego, CA, for John L. Morrell.

John Morris, Higgs, FLetcher & Mack LLP, San Diego, CA, for BDT Products, Inc.

James M. Peterson, Higgs, Fletcher & Mack LLP, San Diego, CA, Don A. Pisacano, Rambicure, Miller & Kuebler, PSC, Lexington, KY, Philip C. Samouris, Higgs, Fletcher & Mack LLP, San Diego, CA, Robert M. Steele, Meisenheimer, Herron & Steele, San Diego, CA, Susanne E. Washington, Foley & Lardner, San Diego, CA, for BDT Products, Inc.

MEMORANDUM OPINION AND ORDER

HOOD, District Judge.

This matter is before the Court on Defendant Lexmark International, Inc.'s ("Lexmark's") motions for summary judgment [Record Nos. 304 & 305]. Fully briefed, Defendant's motions are ripe for review.

I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

The following are the relevant facts, viewed — as they must — in the light most favorable to plaintiff.

Plaintiffs (collectively "BDT") are experts in the design and manufacture of paper handling systems and, as such, have solved difficult paper-handling challenges for the largest printer companies in the world. Plaintiffs allegedly invented and perfected the technology which Lexmark used as part of the paper handling system of its Optra S printer. In this case BDT alleges that Lexmark seeks to avoid paying for the use of Plaintiffs' trade secrets disclosed in confidence over a period of almost three years.

In May 1997, Lexmark announced the introduction of its Optra S line of printers, which included a standard 250-sheet paper tray. This design was a substantial departure from Lexmark's existing paper handling system. Previously, Lexmark had used a lift-plate system, which incorporated a spring attached to the metal plate, which raised the paper to printer input. The system separated the paper with a metal corner-separator which caused each individual sheet to snap away from the stack. The new system, which Lexmark used for the first time in the Optra S, did not use a lift plate or a corner-separator. In their place, the Optra S separated the paper with an arm which dropped down into the tray and moved the paper forward against an angled dam, which then directed the paper from the top of the stack to the printer. In the place of a corner-separator, the individual sheets of paper were separated from the stack by the forward force applied by the arm to the top sheet. This design eliminated the need for springs, lift plates, or corner separators and allowed the tray to be made without any moving parts.

Lexmark's engineers described the Optra S paper handling system as a "fundamentally significant change" over the former design, and its marketing department described the new system as a "dramatic improvement." Lexmark not only touted the new technology as revolutionary, it also claimed that the new trays were "Even More Reliable Than Ever." Visually, however, Lexmark's "revolutionary" tray was nearly identical to the tray that Plaintiffs designed and built for Hewlett Packard.

Over the years, the parties interacted closely. While a detailed description of the extensive interaction between the parties would be laborious, an overview is needed to place their cooperation and agreements in proper context.

Plaintiffs' technical disclosures concerning the angled-dam tray started in March 1993 in Germany in a confidential demonstration of Plaintiffs' prototype and ended in early 1996, when Lexmark informed Plaintiffs that Lexmark was no longer interested in receiving information from Plaintiffs on this technology. During this period, which spanned almost three years, Plaintiffs disclosed its technology, and Lexmark — whether based on Plaintiffs' disclosures or its own development — decided to abandon its existing design and use an angled-dam tray for the Optra S. Plaintiffs made their disclosures because they believed that Lexmark would purchase products which incorporated Plaintiffs' technology in Lexmark printers, just as Plaintiffs had designed and manufactured paper handling systems for other companies, such as Hewlett Packard. Lexmark's employees admit these disclosures were confidential and were treated as such.

Lexmark asked for, and received, far more than simply a demonstration of the prototypes. As a result, Plaintiffs eventually provided: details about the technology, an appraisal of the technology's commercial feasibility in application, test results, prototypes, unannounced product materials, detailed explanations of the theory of operation, and a technical explanation of how to control multiple input and output sources.

Seeing the technology and making it work reliably were two different things, however, and Lexmark, new to this design, continued to seek help from Plaintiffs well into 1995, (over a year after Lexmark decided to implement the design). Although Lexmark claims that its own engineers invented a paper separation arm, which it dubbed the "autocompensator," and incorporated that arm to the angled-dam tray, Plaintiffs allege that Defendant's new technology was based on Plaintiffs trade secrets. To put it simply, Lexmark claims that its engineers worked their way, on their own, to this design; BDT, however, argues that "both the direct and the circumstantial evidence leads to the conclusion that Lexmark used Plaintiffs' information to adopt and implement the angled-tray design for the Optra S printer." This question is at the core of the instant litigation.

Critical to the Court's disposition of this case are the series of agreements executed between the parties between 1990 and 1996. During this period, Lexmark and BDT executed seven confidentiality agreements concerning the disclosure of information. While certain provisions differ somewhat from agreement to agreement, at least one recurs — each agreement expressly provided that Lexmark was free to use information provided to Lexmark by BDT.

The parties entered into four agreements labeled as "Confidential Disclosure Agreement(s)." These agreements were labeled as "disclosure" agreements because only one party, Lexmark, received protection with regard to disclosed information. All four of those agreements expressly provided in section 9 that Lexmark could freely use any information, confidential or otherwise, that BDT disclosed to Lexmark. Section 9 reads:

9. In connection with this agreement, Lexmark does not wish to receive any information which may be considered confidential or proprietary by CONTRACTOR [defined; earlier as "BDT"]. Accordingly, except with respect to the rights of CONTRACTOR under valid patents and copyrights, no obligation of any kind is assumed by or is to be implied against Lexmark by virtue of Lexmark's discussions with CONTRACTOR or with respect to any information received (in whatever form) from CONTRACTOR and Lexmark will be free to reproduce, use and disclose such information to others without limitation. Moreover, discussions and/or correspondence, or other activities under this agreement shall not in any respect, impair the right of Lexmark to make, procure, or market products or services now or in the future which may be competitive with those offered by CONTRACTOR. The above terms control over any language that may be contained in any sign-in or visitor's log at CONTRACTOR'S facility.

The parties also entered into three additional agreements, entitled "Confidential Exchange Agreement(s)." These were two-way confidentiality agreements in which both sides would be exchanging confidential information. Two of these agreements contained an express disclaimer in section 3 providing that despite a general obligation not to disclose confidential information, both parties were free to use any confidential information disclosed under the agreement by the other party:

3. Except with respect to rights under valid patents and copyrights, Recipient shall be free to use any such Confidential Information provided by Discloser subject only to the obligation not to disclose, publish or disseminate such Confidential Information during the foregoing specified period of confidentiality.

Likewise, the last Confidential Exchange Agreement contained a similar provision:

Except with respect to rights under valid patents, the receiving party shall be free to use any such Confidential Information provided by the disclosing party any reports and written documentation prepared by the receiving party, and any ideas, concepts and/or techniques contained in any such Confidential Information for any purpose including the use of such Information in the development, manufacture, marketing and maintenance of its products and services, subject only to the obligation not to disclose, publish or disseminate such Confidential Information during such foregoing specified period of confidentiality.

In 1993 and 1994, BDT disclosed its alleged trade secrets to two competitors of Lexmark, Hewlett Packard Guadalajara and a division of Xerox then known as Tektronix, Inc. BDT freely disclosed its alleged trade secrets to both of these two Lexmark competitors under agreements that failed to...