Agrizap, Inc. v. Woodstream Corp.

• Decision Date: 28 March 2008
• Docket Number: No. 2007-1415.,No. 2007-1421.,2007-1415.,2007-1421.
• Citation: 520 F.3d 1337
• Parties: AGRIZAP, INC., Plaintiff-Cross Appellant, v. WOODSTREAM CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

520 F.3d 1337

AGRIZAP, INC., Plaintiff-Cross Appellant, v. WOODSTREAM CORPORATION, Defendant-Appellant.

No. 2007-1415.

No. 2007-1421.

United States Court of Appeals, Federal Circuit.

March 28, 2008.

Joel Mark, Nordman Cormany Hair & Compton LLP, of Oxnard, CA, argued for plaintiff-cross appellant. With him on the brief was Brook J. Carroll.

Michael R. Slobasky, Jacobson Holman PLLC, of Washington, DC, argued for defendant-appellant. With him on the brief were Philip L. O'Neill and N. Whitney Wilson.

Before BRYSON and MOORE, Circuit Judges, and WOLLE, Senior District Judge.¹

MOORE, Circuit Judge.

Agrizap, Inc. has sued Woodstream Corporation in the United States District Court for the Eastern District of Pennsylvania for fraudulent misrepresentation and infringement of U.S. Patent No. 5,949,636 (the '636 patent), which pertains to an electronic rodent-killing device. Woodstream appeals the district court's denial of its motion for judgment as a matter of law (JMOL) for no fraudulent misrepresentation. Woodstream also appeals the denial of its JMOL motion for invalidity and unenforceability. Agrizap cross-appeals the district court's final judgment of noninfringement.

Because sufficient evidence supports the jury's verdict finding Woodstream liable for fraudulent misrepresentation and the trial evidence provides a reasonable basis for the jury's attendant award of damages, we affirm. Though we defer to the jury for its fact findings on obviousness, we ultimately conclude that, despite those findings, the patent claims in dispute are invalid for obviousness and thus reverse the district court's denial of Woodstream's JMOL in that respect. As our decision on those issues completely resolves this case, we decline to address the other arguments as to patent infringement, invalidity, or unenforceability.

BACKGROUND

Agrizap is the holder of the '636 patent, which relates to a method and apparatus for electrocuting pests, such as gophers, rats, and the like. The disclosed invention operates by sensing the presence of a pest with a resistive switch. When the hapless pest makes contact with a high voltage electrode and a reference electrode, its body creates a leakage current that completes an electric circuit and triggers a generator. The generator then produces a voltage and current of sufficiently high magnitude to send the pest towards its demise. After the expiration of a predetermined amount of time, the generator deactivates and cannot be retriggered to dispatch another pest until the invention is reset by turning it off and then on again.

In March of 2000, Woodstream, a nationwide distributor of pest control products such as traditional snap traps and glue traps, approached Agrizap about marketing the Rat Zapper, the commercial embodiment of the '636 patent. The two parties engaged in negotiations from April 2000 to September 2000. During this time, they signed a mutual confidentiality agreement that permitted either party to disclose certain secret and proprietary information for the purposes of assessing Woodstream's interest in purchasing Agrizap's products and forming a business relationship with Agrizap.

In July 2000, without Agrizap's knowledge, Woodstream sent samples of the Rat Zapper to offshore Chinese manufacturers. Upon learning of Woodstream's actions, in August 2000, Agrizap's president, Robert Noe, emailed Woodstream's executive vice president, Andy Woolworth, seeking written assurance that Woodstream's actions fell within the terms of their confidentiality agreement. Woolworth responded but did not directly address the confidentiality agreement. This prompted Noe to send a second email repeating his original request for assurances. Only then did Woolworth respond, "Bob — Please reference our point 5 of the confidentiality agreement to cover your concern below. We asked a source ... to quote on the product."

Roughly five days later, unbeknownst to Agrizap, Woodstream instructed its Chinese supplier that it would make the product itself. At trial, Woodstream admitted that its vice president had not actually read the confidentiality agreement. An internal Woodstream document produced at that time revealed: "We are going through Agrizap in the short term to give Woodstream access to the technology."

At the end of negotiations, the parties established an oral marketing agreement whereby Agrizap would fulfill Woodstream's purchase orders at a lower wholesale price. The products would still be named "Rat Zapper," but would use Woodstream's Victor brand label. Woodstream agreed to distribute the Rat Zappers to large retail stores, such as Home Depot, Ace, and Lowe's. Agrizap agreed not to compete with Woodstream in these venues. Accordingly, from 2000-2003, Agrizap delivered 11,100 units of the Rat Zappers with the Victor label to Woodstream for a total of $226,000.

In 2003, Woodstream released its Electronic Mouse Trap (EMT) and in 2004, its Electronic Rat Trap (ERT). Upon learning of the ERT in 2004, Agrizap terminated its relationship with Woodstream. Agrizap claims that Woodstream purposely withheld information that it was using the Rat Zapper technology to develop its ERT. Further, Agrizap asserts that, had it known Woodstream's intentions to enter the market with a competing product, it would not have agreed to a distribution arrangement with Woodstream. Agrizap claims that, as a result, of its reliance on Woodstream's statements, it suffered damages. But for Woodstream's misrepresentation, Agrizap would not have given Woodstream exclusive access to certain large retailers in the market, i.e., Home Depot and Ace Hardware, which allowed Woodstream to establish itself in those markets years earlier than it could have otherwise.²

Agrizap sued Woodstream, alleging that Woodstream fraudulently misrepresented its motive behind sending the Rat Zappers overseas. Agrizap contends that Woodstream suggested its actions were limited to cost evaluation so as to induce Agrizap to enter into a marketing and sales agreement with Woodstream. Agrizap also sued Woodstream for infringement of independent claim 1 and dependent claims 2, 3, 5, and 10, and independent claim 16 of the '636 patent (collectively, the asserted claims). Woodstream presented a vast arsenal of affirmative defenses of patent invalidity (obviousness, incorrect inventorship, lack of written description/new matter, and lack of enablement) and unenforceability (for failure to disclose prior public use and for removing a named inventor).

The jury returned a verdict in favor of Agrizap on the fraudulent misrepresentation claim and awarded $1,275,000 in past and future damages. As for Agrizap's patent infringement claims, the jury found none of Woodstream's affirmative defenses viable. Determining that Woodstream had infringed independent claim 16, but not independent claim 1 or its dependent claims, the jury awarded $1,425,000 in damages.

Post-trial, Woodstream moved for JMOL as to the jury's verdict of fraudulent misrepresentation, infringement of claim 16 of the '636 patent, and failure to prove its affirmative defenses. Agrizap moved for JMOL of its own as to the jury's verdict of no infringement of claim 1 and its dependent claims. Overturning the jury's verdict that Woodstream had infringed claim 16 and denying Agrizap's JMOL motion, the district court thereby created a final judgment of noninfringement as to all the asserted claims of the '636 patent. The district court also denied the remainder of Woodstream's JMOL motion.

Woodstream now appeals the district court's denial of JMOL as to: (1) the fraudulent misrepresentation claim, (2) Woodstream's affirmative defense that the asserted claims of the '636 patent are invalid for obviousness and lack of written description/new matter, and (3) Woodstream's affirmative defense that the '636 patent is unenforceable on the basis that it was procured through inequitable conduct. Agrizap additionally cross-appeals: (1) the district court's grant of Woodstream's JMOL to hold that claim 16 is not infringed and (2) the district court's denial of Agrizap's JMOL to hold that independent claim 1 and its dependent claims are not infringed. We first address the fraudulent misrepresentation claim and then turn to the patent law issues of this case.

DISCUSSION

Because the denial or grant of a motion for JMOL is a procedural matter not unique to patent law, we abide by the standard of review of regional circuit law. Summit Tech., Inc. v. Nidek Co., 363 F.3d 1219, 1223 (Fed.Cir.2004). Under Third Circuit law, we exercise plenary review over a district court's rulings on motions for JMOL, applying the same standard as the district court. Gagliardo v. Connaught Labs., Inc., 311 F.3d 565, 568 (3d Cir.2002). Hence, a grant of JMOL is appropriate only where a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue. See Fed.R.Civ.P. 50(a). As the reviewing court, we are mindful that we "may not weigh the evidence, determine the credibility of witnesses, or substitute [our] version of the facts for the jury's version." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir.1993).

I.

After thorough review of the evidence submitted to the jury, we conclude that Agrizap offered sufficient evidence to hold Woodstream liable for fraudulent misrepresentation and that the district court properly denied JMOL. Under Pennsylvania law, the elements of a fraudulent misrepresentation claim are: (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance. Gibbs v. Ernst, 538 Pa. 193,...