894 F.2d 1318 (Fed. Cir. 1990), 89-1219, Micro Motion, Inc. v. Kane Steel Co., Inc.

Docket Nº:89-1219, 89-1220.
Citation:894 F.2d 1318
Party Name:13 U.S.P.Q.2d 1696 MICRO MOTION, INCORPORATED, Plaintiff-Appellant, v. KANE STEEL CO., INC., Cross/Appellant.
Case Date:January 24, 1990
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1318

894 F.2d 1318 (Fed. Cir. 1990)

13 U.S.P.Q.2d 1696

MICRO MOTION, INCORPORATED, Plaintiff-Appellant,

v.

KANE STEEL CO., INC., Cross/Appellant.

Nos. 89-1219, 89-1220.

United States Court of Appeals, Federal Circuit

January 24, 1990

Page 1319

David J. Lee, Fish & Neave, New York City argued for plaintiff-appellant. With him on the brief were Jesse J. Jenner, Christa Hildebrand and John O. Tramontine.

Thomas J. Durling, Seidel, Gonda, Lavorgna & Monaco, P.C., Philadelphia, Pa., argued for cross/appellant.

Seymour Rothstein, Daniel A. Boehnen and Robert H. Resis, Allegretti & Witcoff, Ltd., Chicago, Ill., were on the brief for amicus curiae, Exac Corp.

Before MARKEY, Chief Judge, SKELTON, Senior Circuit Judge, and NIES, Circuit Judge.

NIES, Circuit Judge.

This appeal involves an order of a district court in an ancillary proceeding to obtain discovery from a nonparty in connection with a patent infringement suit being tried before a different district court. Two related appeals by similarly situated nonparties are also currently before us. 1 Discovery subpoenas relating to the same case were also served on at least two other nonparties. In each instance, the patent owner, Micro Motion, Inc., sought to obtain information from a nonparty competitor

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purportedly relevant and necessary to the issue of damages in the underlying patent infringement suit. In each instance, the nonparty moved to quash the subpoena, which in large part sought disclosure of the nonparty's confidential business information, such as sales volume of particular products and customer lists. In the proceeding involving the nonparty K-Flow Division of Kane Steel Company (K-Flow), dealt with in this opinion, the ancillary court ordered the disclosure of all information requested except for the names of K-Flow's customers.

Micro Motion appeals the denial of its request for the identities of K-Flow's customers (Appeal No. 89-1219); K-Flow cross-appeals the denial of its motion to quash with respect to the allowed requests (Appeal No. 89-1220). We conclude that Micro Motion has established no right under the Federal Rules of Civil Procedure to the discovery it requested and hold that K-Flow's motion to quash should have been granted in its entirety. Thus, in Appeal No. 89-1219, we affirm the district court's order to the extent challenged by Micro Motion, and in Appeal No. 89-1220, we reverse the rulings adverse to K-Flow.

I

Appellate Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. Sec. 1295(a)(1) (1982) over the appeal by Micro Motion from the order of the New Jersey district court granting K-Flow's motion to quash in part where the discovery relates to a patent infringement suit under 28 U.S.C. Sec. 1338(a) (1982). Heat & Control, Inc. v. Hester Indus., Inc., 785 F.2d 1017, 228 USPQ 926 (Fed.Cir.1986). An order quashing a subpoena in an ancillary proceeding not only terminates that proceeding but also is unreviewable on appeal of the final judgment in the principal action. Thus, such order is deemed a final order and is immediately appealable as of right. National Life Ins. Co. v. Hartford Accident & Indemnity Co., 615 F.2d 595, 597 (3d Cir.1980). In this case the cross-appeal of K-Flow need not be independently appealable to obtain review. The issues of the cross-appeal are closely intertwined factually and legally with the issues of the appeal. Under these circumstances, we may exercise pendent jurisdiction to review the merits of the cross-appeal, and we exercise our discretion in this case to do so. See Intermedics Infusaid, Inc. v. Regents of the Univ. of Minn., 804 F.2d 129, 134, 231 USPQ 653, 657 (Fed.Cir.1986).

II

Background

In November 1984, Micro Motion, Inc., sued Exac Corp., Civil Action No. 84-20681 WAI, in the United States District Court for the Northern District of California, charging Exac with infringement of United States Patent Nos. 4,187,721, Re 31,450 and 4,491,025, in which suit it sought damages and injunctive relief. The subject matter of each patent relates to Coriolis mass flowmeters. Exac raised the defenses of unenforceability and noninfringement. The issues in the case were trifurcated for separate trials. First, the defense of unenforceability because of inequitable conduct was tried to the court and rejected. Thereafter, the issue of infringement was tried to the jury, which returned a verdict that Exac did not infringe. That verdict and the district court's denial of Micro Motion's motion for judgment NOV on infringement rendered a trial on damages unnecessary. However, the court granted a new trial on the issue of Exac's alleged infringement under the doctrine of equivalents, which brought the damage issue back into the case. Micro Motion, Inc. v. Exac Corp., 686 F.Supp. 789, 5 USPQ2d 1957, 1963 (N.D.Cal.1987). 2 The parties agreed to additional discovery for the purpose of updating the evidence on damages, and the court set August 9, 1988, as the cutoff date for the additional discovery. On July 22, 1988, Micro Motion served a notice of deposition and accompanying subpoena on five companies, each of which allegedly competes with

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Micro Motion and Exac in selling Coriolis mass flowmeters. The date for completion of discovery was subsequently extended by the district court judge who took over the case from the judge who presided at the first trial.

In each subpoena, Micro Motion sought to take the deposition of a person designated under Fed.R.Civ.P. 30(b)(6) and the production of the following documents and things from each of the nonparties:

(1) Documents evidencing the configuration and operation of each type or model of Coriolis mass flowmeter sold by [the company, including certain designated models].

(2) One sample of each type or model of Coriolis mass flowmeter sold by [the company].

(3) [Company] invoices for sales of Coriolis mass flowmeters or, if no invoices are kept, documents evidencing [the company's] sales volume and customers for Coriolis mass flowmeters.

(4) Documents relating to loss of sales by [the company] of its Coriolis mass flowmeters to Coriolis mass flowmeters of Micro Motion, Incorporated ("Micro Motion") or Exac Corporation ("Exac").

(5) Documents relating to deficiencies or malfunctioning of [the company's] Coriolis mass flowmeters, including but not limited to customer complaints, application data sheets for specific customers and call reports.

(6) Documents relating to comparisons of [the company's] Coriolis mass flowmeters with Micro Motion's Coriolis mass flowmeters and/or Exac's Coriolis mass flowmeters.

(7) Documents mentioning by name, number or other means of identification any of U.S. patents 4,187,721, Re 31,450 and 4,491,025.

Micro Motion obtained the subpoena for deposition and production served on K-Flow from the District Court for the District of New Jersey. After unsuccessful negotiations to limit the inquiry, K-Flow filed a motion to quash or in the alternative to modify the scope of the requested disclosure. K-Flow urged, inter alia, that the information Micro Motion sought was not relevant or necessary, that its secrecy and confidentiality were essential to K-Flow, and that its disclosure would cause K-Flow serious, if not irreparable, injury. Micro Motion responded that the requested material was relevant to the issue of "damages" in that, to recover lost profits in the Exac suit, Micro Motion might have to prove that K-Flow's flowmeters were infringements or were unacceptable noninfringing substitutes. Micro Motion concedes that most of the information is confidential which is one reason it asserts it needs discovery from K-Flow.

The district court denied K-Flow's motion to quash the subpoena, except with respect to disclosure of the identities of K-Flow's customers (paragraph (3) of subpoena list, supra ). The court noted that the other courts addressing the same issues against other competitors in this case had generally upheld Micro Motion's discovery requests and that the Federal Circuit had counseled that an ancillary court should be "especially hesitant" to pass judgment on relevancy, citing Truswal Sys. Corp. v. Hydro-Air Eng'g, Inc., 813 F.2d 1207, 1212, 2 USPQ2d 1034, 1038 (Fed.Cir.1987). With respect to "relevancy" the court held that Micro Motion need only show that the requested information sought "somehow relates to its pending California action", and it accepted Micro Motion's discourse on damage theories as establishing the relevancy of all the requests except as to the identities of K-Flow's customers. The court found "need" because the confidential information was not available elsewhere. Sua sponte, the court entered a protective order subjecting the disclosed information to the California court's protective order and, in addition, specifically limiting use of the information to the underlying litigation, prohibiting Micro Motion from contacting K-Flow's customers if the names were inadvertently disclosed, and providing for return of the materials to K-Flow. K-Flow urges that relevancy and need had not been established for any of the requested items and that, in any event, it will be substantially

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harmed by the disclosure even under a protective order. Micro Motion claims entitlement to the discovery of K-Flow's customer lists, as well as all of the information, by reason of the pendency of the underlying patent infringement suit in which "damages" is an issue and urges that a protective order is sufficient to protect K-Flow's interests.

III

Patent Damages

A

If successful in an infringement suit, a patent owner may recover actual damages or at least a reasonable royalty. 35 U.S.C. Sec. 284 (1982). Where the patentee produces or sells a product (or service) covered by the patent claims, the patentee may seek to recover damages based on a theory of lost profits because the amount is likely to be greater than reasonable...

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