AU New Haven, LLC v. YKK Corp.

• Decision Date: 31 March 2019
• Docket Number: 1:15-cv-3411-GHW-SN
• Parties: AU NEW HAVEN, LLC, and TRELLEBORG COATED SYSTEMS US, INC., Plaintiffs, v. YKK CORPORATION et al., Defendants.
• Court: U.S. District Court — Southern District of New York

AU NEW HAVEN, LLC, and TRELLEBORG COATED SYSTEMS US, INC., Plaintiffs, v. YKK CORPORATION et al., Defendants.

1:15-cv-3411-GHW-SN

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 31, 2019

MEMORANDUM OPINION AND ORDER

GREGORY H. WOODS, United States District Judge:

TABLE OF CONTENTS

BACKGROUND .............................................................................................................................................. 1

DISCUSSION .................................................................................................................................................... 6

I. Validity of the '214 Patent ................................................................................................................. 6

A. Enablement ........................................................................................................................................ 7

B. Inventorship ..................................................................................................................................... 10

C. Written Description ........................................................................................................................ 12

D. Definiteness ...................................................................................................................................... 13

E. On-Sale Bar ...................................................................................................................................... 15

F. Obviousness ..................................................................................................................................... 16

II. Breach of Contract ........................................................................................................................... 17

A. Law Governing the Exclusive Licensing Agreement ................................................................. 18

B. The ELA Is Unambigous: It Is a License; Not A Covenant Not to Compete ..................... 20

C. Breach of the Implied Covenant of Good Faith and Fair Dealing .......................................... 23

D. Breach of Contract Claim against YKK Corp.'s Affiliates ....................................................... 28

III. Validity of Foreign Patents .............................................................................................................. 28

IV. Fraudulent Inducement ................................................................................................................... 29

V. Infringement ...................................................................................................................................... 30

VI. Equitable Estoppel ........................................................................................................................... 31

VII. Exhaustion ......................................................................................................................................... 32

VIII. Lost Profits Remedy for Patent Infringement ............................................................................. 32

IX. Lost Profits Remedy for Breach of Contract ............................................................................... 33

X. Lanham Act ....................................................................................................................................... 34

XI. Connecticut Unfair Trade Practices Act ....................................................................................... 36CONCLUSION ............................................................................................................................................... 38

Those zippers on your jackets represent a multi-billion dollar industry. This case is about one particular zipper that has a tight grip on the waterproof zipper market. Plaintiffs hold the patent to a water-resistant zipper, and the Defendants have an exclusive "field of use" license. This litigation challenges, among other things, the patent's validity, the scope of Defendants' use of the patent, and whether Defendants owe Plaintiffs lost profits.

BACKGROUND

The parties have submitted a thorough statement of undisputed material facts ("SUMF") pursuant to local rule 56.¹ Rather than review the entire statement, the Court has adopted the parties' admissions and will address any disputes of material fact as they are relevant to each motion for summary judgment. The relevant background to the case is detailed below.

The path to this case began in 1995, when Mike Blenkarn met Stuart Press at a trade show.² Blenkarn, who was an employee of Arc'teryx Equipment at the time,³ was trying to make a water-resistant zipper by laminating the zipper with polyurethane.⁴ He had already laminated some reverse coil zippers—i.e., a zipper facing the inside of the garment—using a hot pad.⁵ But the polyurethane either flaked off or made the zippers too stiff,⁶ so Blenkarn went looking for someone at the trade show who could satisfactorily laminate a zipper.⁷ That is when Blenkarn found Press.⁸

At that time, Press operated Uretek, Inc. along with Harold Hoder. He had never attempted to laminate a zipper before he met Blenkarn.⁹ But he did have expertise in the lamination of fabrics,¹⁰ and he told Blenkarn that he could laminate the zipper with polyurethane.¹¹ True to his word, Press was able to laminate the zipper to Blenkarn's satisfaction,¹² and Arc'teryx began sending zippers to Uretek for lamination.¹³

The zippers that Arc'teryx sent to Uretek for lamination were purchased from YKK Canada, Inc., a subsidiary of the Japanese zipper manufacturer YKK Corp.¹⁴ In November 1998, Arc'teryx requested a meeting with Uretek and YKK to encourage YKK to work directly with Uretek to manufacture a water-resistant zipper.¹⁵ Approximately six representatives from YKK attended that meeting along with Blenkarn and Tom Herbst on behalf of Arc'teryx and Press on behalf of Uretek.¹⁶ During that meeting, Press told the attendees that he had applied for the patent that would eventually become the approved '214 Patent, and YKK expressed strong interest in his water-proofing process.¹⁷

That meeting began a relationship between Uretek and YKK that culminated in an exclusive output contract between Uretek and YKK USA.¹⁸ Under the agreement, which was executed onAugust 11, 1999, Uretek agreed to laminate zippers exclusively for YKK USA in exchange for an upfront payment as well as a guaranteed minimum annual order.¹⁹ The agreement expired on July 31, 2004.²⁰ Although the agreement was never renewed, YKK USA continued to pay Uretek to laminate its T4 and T5 zippers for many more years.²¹

Before the output contract expired in 2004, YKK became concerned that the Uretek-laminated T4 and T5 zippers were not competitive in the Asian market due to higher prices and longer lead times.²² In response to that concern, YKK Corp. entered into an exclusive licensing agreement (the "ELA") with Press and Hoder, the owners of the recently issued '214 Patent.²³ In exchange for a $0.03 per meter royalty, the ELA gives YKK the exclusive right to manufacture and sell zippers covered by the '214 and related foreign patents with one exception: the ELA does not convey a license to use the patents "for zippers placed in finished goods in the high end outerwear, marine, military and luggage (excluding sports bags and cosmetic bags) markets."²⁴

Following the ELA's execution, sales of YKK's water-resistant zippers increased substantially.²⁵ During that time, YKK paid the $0.03 per meter royalty for all of the YKK-laminated T8, T9, and T10 AquaGuard zippers.²⁶ But in 2006, Press came to believe that YKK was sellingthese zippers into the unlicensed markets.²⁷ Nevertheless, Uretek and YKK attempted to negotiate a resolution while they continued business as usual,²⁸ with YKK paying the royalty for the zippers it laminated as well as paying Uretek to laminate the T4 and T5 zippers.²⁹

Ultimately, they were unable to resolve the dispute amicably. In July 2014, Uretek was purchased by Trelleborg Coated Systems US, Inc.³⁰ Trellborg and Uretek—which changed its name to Au New Haven, LLC—then initiated this suit in May 2014.³¹ In the operative complaint, Plaintiffs have sued for infringement of the '214 Patent, breach of the ELA, deceptive marketing under the Lanham Act, and deceptive practices under the Connecticut Unfair Trade Practices Act.³² In response, Defendants—who are comprised of YKK Corp. and several of its local subsidiaries—assert a variety of defenses, including that: (1) Plaintiffs' patents are invalid; (2) many of the YKK-laminated zippers do not infringe on Plaintiffs' patents; (3) the ELA does not prohibit sales of patented zippers into the unlicensed markets; and (4) in the alternative, Plaintiffs cannot prove that they are entitled to their claimed damages.³³ Both parties have cross-moved for summary judgment on an assortment of these claims and defenses.³⁴

LAW GOVERNING SUMMARY JUDGMENT

Under Federal Rule of Civil Procedure 56, the Court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."³⁵ The moving party must show that "under the governing law, there can be but one reasonable conclusion as to the verdict."³⁶ The moving party bears the initial burden of establishing that there are no material facts in dispute and must provide "affirmative evidence" from which a factfinder could return a verdict in its favor. ³⁷ Then "the burden shifts to the non-movant to point to record evidence creating a genuine issue of material fact."³⁸ The "trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are any genuine issues of material fact to be tried, not deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to...