Arthrex v. KFX Med., LLC

• Decision Date: 12 January 2016
• Docket Number: Civil Action No. 3:15-cv-6580 (PGS)(LHG)
• Citation: Arthrex v. KFX Med., LLC, Civil Action No. 3:15-cv-6580 (PGS)(LHG) (D. N.J. Jan 12, 2016)
• Parties: ARTHREX., Plaintiff, v. KFx MEDICAL, LLC and JOSEPH TAURO Defendants.
• Court: U.S. District Court — District of New Jersey

ARTHREX., Plaintiff, v. KFx MEDICAL, LLC and JOSEPH TAURO Defendants.

Civil Action No. 3:15-cv-6580 (PGS)(LHG)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

January 12, 2016

NOT FOR PUBLICATION

MEMORANDUM & ORDER

This matter comes before the Court on three motions: (1) Motion to Remand filed by Plaintiff Arthrex (ECF No. 18); (2) Motion for Judgment on Pleadings filed by Defendant KFx Medical LLC (ECF No. 13); and (3) Motion for Judgment on the Pleadings filed by Defendant Joseph Tauro (ECF No. 24).

I.

On July 31, 2015, Arthrex filed its Complaint in the Superior Court of New Jersey, alleging breach of contract, unjust enrichment, unfair competition, breach of fiduciary duty, misappropriation of trade secrets, tortious interference of contract and civil conspiracy against KFx and Tauro. On September 1, 2015, KFx filed its answer and counterclaim, alleging that Arthrex infringed two of KFx's patents, that is, U.S. Patent Nos. 8,926,663 ("the '663 patent") and 9,044,226 ("the '266 patent"), both entitled "System and Method for Attaching Soft Tissue to Bone." (ECF No. 1, Notice of Removal). On September 2, 2015, KFx filed a notice of removal, based on federal question jurisdiction over its patent infringement counterclaims.

Arthrex and KFx are in the same business of manufacturing and selling medical devices in the field of orthopedic surgery. Tauro is an orthopedic surgeon and consultant. Between 2000 and 2005, Tauro entered into four contracts with Arthrex, whereby the parties agreed to share with each other sensitive information regarding the development of new surgical devices and techniques. (ECF No. 1, Complaint (hereinafter "Compl.") ¶ 9). The thrust of Arthrex's Complaint in the within matter is that Tauro breached these confidential, non-disclosure contracts by misappropriating the information he acquired through his partnership with Arthrex. Specifically, Arthrex alleges that unbeknownst to it, Tauro was named as an inventor on several patent applications that relied on the ideas developed by Arthrex. (Compl. ¶ 32). Arthrex alleges that the following patent applications, on which Tauro is a named inventor, are based Arthrex's intellectual property: U.S. Patent 7,585,311 ("the '311 patent"), U.S. Patent 8,100,942 ("the '942 patent"), U.S. Patent 8,109,969 ("the '969 patent"), U.S. Patent 8,267,964 ("the '964 patent"), and U.S. Patent 8,267,287 ("the '287 patent") (collectively "the Tauro Patents"). (Compl. ¶¶ 33-34). These patents cover features of various knotless suture anchors and the use of these knotless anchors in various surgical techniques. (Compl. ¶ 34). For Tauro's allged breaching and KFx's cooperating participation, Arthrex alleges against KFx: (1) misappropriation of trade secrets; (2) tortious interference of contract; and (3) civil conspiracy.

These basic facts in the instant action are related to prior litigation between KFx and Arthrex. On August 1, 2011, KFx filed suit against Arthrex in U.S. District Court for the Southern District of California (hereinafter "the California litigation"), alleging patent infringement, including some of the same patents that give rise to the contractual claims in the within Complaint. (Compl. ¶ 36). Specifically, KFx alleged that Arthrex indirectly infringed the '311 patent, the '942 patent, and the '969 patent in the California litigation (Id.) These patentsare specifically referenced in Arthrex's Complaint in this action. (Compl. ¶36). Arthrex asserts that it was during the California litigation that it learned that Tauro had been collaborating and working with KFx as early as January 2004, during his ongoing relationship with Arthrex. (Compl. ¶ 37). According to Arthrex, its technology became the basis for the '311, '942, and '969 patents, and this technology and methodology was protected by the non-disclosure provision of the contracts between Arthrex and Tauro. (Compl. ¶¶ 39-41). Moreover, Arthrex learned throughout the course of the California litigation that Tauro had acquired an ownership interest in KFx. (Compl. ¶ 42). Ultimately, in the California litigation, the jury found for KFx and Arthrex was required to pay KFx $29 million in damages ("the California Judgment"). (Compl. ¶ 43; ECF No. 32, p. 4).

II.

Arthrex contends that the present case should be remanded to the Superior Court, except for KFx's patent infringement counterclaim. Arthrex contends its state law contractual claims are not related to KFx's counterclaim for patent infringement, and this Court does not have subject matter jurisdiction over them. (ECF No. 18). Arthrex asserts that KFx's patent infringement counterclaim did not occur until ten years after the events giving rise to contractual claims against Tauro in the Complaint, and therefore this Court should not exercise supplemental jurisdiction.

KFx counters that the opposite is true: its counterclaim for patent infringement is related to Arthrex's state law claims, because the patents that form the basis of the counterclaim—the '663 and '226 patents—relate back to the '311 patent, which is not only the basis for the within Complaint, but also was part of the California litigation.

Federal district courts have original jurisdiction over all civil actions arising under the Constitution, laws, or treaties of the United States. 28 U.S.C. § 1331. Federal district courts also have original jurisdiction over any civil action arising under any act of Congress relating to patents. 28 U.S.C. § 1338(a); Wills, O'Neill & Mellk v. Rothman, No. CIV.A. 10-3078 JAP, 2012 WL 1854060, at *5 (D.N.J. May 21, 2012). A claim brought in state court may be removed to federal court pursuant to 28 U.S.C. § 1441. A party may seek to remand a civil action back to state court based on an alleged defect in the removal procedure, or lack of subject matter jurisdiction. 28 U.S.C. § 1447(c). Moreover, the party asserting that federal jurisdiction is proper bears the burden of showing that the case is properly before the federal court. Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 1990). Therefore, the Court must determine whether the action was removable as pending in the state court. 28 U.S.C. § 1441(a); see also United States Experss Lines, Ltd. v. Higgins, 281 F.3d 383, 389 (3d Cir. 2002).

Here, the patent infringement counterclaim gives rise to federal jurisdiction pursuant to 28 U.S.C. § 1338(a), yielding jurisdiction over KFx's counterclaim against Arthrex. The issue, then, is whether the Court may properly exercise supplemental jurisdiction over Arthrex's Complaint. The Third Circuit has stated that three requirements must be satisfied before a federal court may exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367. That is: (1) "[t]he federal claim must have substance sufficient to confer subject matter jurisdiction on the court"; (2) "[t]he state and federal claims must derive from a common nucleus of operative facts"; and (3) "the claims must be such that they would ordinarily be expected to be tried in one judicial proceeding." See MCI Telecomm. Corp. v. Teleconcepts, Inc., 71 F.3d 1086, 1102 (3d Cir. 1995); Callaway Golf Co. v. Acushnet Co., 585 F. Supp. 2d 592, 599 (D. Del. 2008).

In considering the facts alleged in Arthrex's Complaint, KFx's patent infringement counterclaim, and the history between the parties stemming from the California litigation, jurisdiction over all claims is proper. Although the Complaint sounds in breach of contract, it really implicates issues of patent inventorship and ownership arising out of same facts tried in the California litigation. Moreover, Arthrex seeks relief that requires a determination of inventorship or ownership of the patents at issue, in that Arthrex seeks a constructive trust of a number of patents, including patent '311, the parent patent for the ones set forth in the counterclaim. As such, this case arises from the same common nucleus of fact. That is, all of the claims relate to inventorship of the '311 patent, which relates back to the California litigation. Accordingly, this Court will exercise supplemental jurisdiction over Arthrex's Complaint and the Motion to Remand is DENIED.

III.

KFx and Tauro seek judgment on the pleadings. Defendants contend that: (1) Arthrex's Complaint is time-barred under the statute of limitations; and (2) the allegations of Arthrex's Complaint were compulsory counterclaims against KFx in the California litigation. Specifically, KFx contends that because Arthrex seeks a constructive trust over the patents that were subject to the California litigation, its claims must have been brought in that case because it implicates issues of patent inventorship and ownership.

Arthrex counters that it only learned of the actions giving rise to this Complaint during the pendency of the California litigation, beginning in 2011. Moreover, Arthrex asserts that its current claims against Tauro and KFx are unrelated to the California litigation, and therefore did not need to be asserted in that action.

The next issue is whether KFx and Tauro are entitled to judgment on the pleadings. A party may make a motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). The standard for a decision pursuant to Rule 12(c) is nearly identical to that for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). See Turbe v. Gov't of V.I., 938 F.2d 427, 428 (3d Cir.1991).

On a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), the Court is required to accept as true all allegations in the Complaint and all reasonable inferences that can be drawn therefrom, and to view them in the light most favorable to the non-moving party. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a...