Carotek, Inc. v. Kobayashi Ventures, LLC

• Decision Date: 28 June 2012
• Docket Number: Nos. 07 Civ. 11163(NRB), 08 Civ. 5706(NRB).,s. 07 Civ. 11163(NRB), 08 Civ. 5706(NRB).
• Citation: 875 F.Supp.2d 313
• Parties: CAROTEK, INC., Plaintiff, v. KOBAYASHI VENTURES, LLC; Equaphor, Inc.; and James Dechman, Defendants. Event Capturing Systems, Inc., Plaintiff, v. Kobayashi Ventures, LLC; Equaphor, Inc.; and James Dechman, Defendants.
• Court: U.S. District Court — Southern District of New York

875 F.Supp.2d 313

CAROTEK, INC., Plaintiff,

v.KOBAYASHI VENTURES, LLC; Equaphor, Inc.; and James Dechman, Defendants.

Event Capturing Systems, Inc., Plaintiff,

v.Kobayashi Ventures, LLC; Equaphor, Inc.; and James Dechman, Defendants.

Nos. 07 Civ. 11163(NRB), 08 Civ. 5706(NRB).

United States District Court, S.D. New York.

June 28, 2012.

Michael F. Autuoro, Esq., Fish & Richardson P.C., New York, NY, Gregory A. Madera, Esq., Fish & Richardson, P.C., Boston, MA, W. Adams III, Esq., Shumaker, Loop & Kendrick, LLP, Charlotte, NC, for Plaintiffs/Counter–Defendants.

Jeffrey M. Schwaber, Esq., Deanna L. Peters, Esq., Stein, Sperling, Bennett, De Jong, Driscoll & Greenfeig, P.C., Rockville, MD, Robert P. Fletcher, Esq., LeClairRyan, A Professional Corporation, Washington, D.C., Joseph Parisi, Esq., J.A. Lindeman & Co. PLLC, Falls Church, VA, for Defendants/Counter–Plaintiff.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

Plaintiffs Carotek, Inc. (“Carotek”) and Event Capturing Systems, Inc. (“ECS”) filed separate actions, now consolidated, seeking, inter alia, a declaratory judgment that three patents owned by defendant Kobayashi Ventures, LLC (“Kobayashi”) are invalid and unenforceable, and monetary relief based on unfair trade practices, interference with prospective advantage, fraud, and defamation. Kobayashi has asserted counterclaims for patent infringement and breach of a license agreement. Presently before us are the parties' cross-motions for summary judgment on these claims and related affirmative defenses.

For the reasons stated herein, we grant plaintiffs' motion to invalidate the independent claims of the patents containing the claim term “control means” but deny it as to the claim term “extract.” We also grant plaintiffs' motion to invalidate one of Kobayashi's patents as anticipated, until September 14, 2010, when a certificate of correction was issued. Additionally, we deny plaintiffs' motion as to a finding of non-infringement.

Moreover, we grant defendants' motion as to the return of licensing fees to Carotek. Although we cannot find that federal patent law preempts plaintiffs' state claims, we nevertheless grant defendants' motions on those claims because plaintiffs have not demonstrated that Kobayashi's actions caused them damages. Finally, we grant defendants' motions with respect to plaintiff's individual claims against James Dechman.

BACKGROUND¹

I. The Patents

Kobayashi currently holds the three patents that are at issue in this litigation: U.S. patent numbers 5,717,456 (the “'456 Patent”), 5,821,990 (the “'990 Patent”), and 6,211,905 (the “'905 Patent”) (collectively, the “Patents”). The Patents belong to a family of patents and contain materially identical disclosures. They relate to a system for monitoring a continuous manufacturing process (for instance, the process by which paper is manufactured) and detecting flaws or deviations in the product or process. The system includes some means of monitoring production—such as multiple video cameras positioned along the process—and recording video, which is then converted into digitized data and digitally stored. A control device, such as a computer, interfaces with the digital storage devices, extracts video clips reflecting any detected deviations, and displays them for viewing, presumably so the problem can be identified and remedied.

The prosecution history of the Patents is convoluted.² Kobayashi filed application number 08/399,235 (the “'235 Application”) on March 6, 1995, from which the ' 456 Patent issued on February 10, 1998. While the '235 Application was pending, Kobayashi filed a patent application with a similar specification in South Africa; that application was published and issued as a patent on August 28, 1996 (the “South African Patent”).

On September 3, 1997, still prior to the issuance of the '456 Patent, Kobayashi filed application number 08/929,231 (the “'231 Application”) as a division ³ of the '235 Application. The ' 990 Patent, claiming priority to the '235 Application and the ' 456 Patent, issued from the '231 Application on October 13, 1998. Prior to the ' 990 Patent's issuance, Kobayashi disclaimed the portion of its patent term extending beyond that of the ' 456 Patent. The two patents thus expire on the same date.

Before the '990 Patent issued, on July 30, 1998, Kobayashi filed a continuing prosecution application (“CPA”) ⁴ of the '231 Application. Kobayashi, however, had filed the CPA in error, and on April 5, 1999 it petitioned pursuant to 37 C.F.R. § 1.183 to modify the CPA to become a division of the '231 Application. (Decl. of Deanna L. Peters in Supp. of Kobayashi Ventures LLC's Opp'n to Carotek's and ECS' Mot. for Summ. J. (“Peters Decl.”), Ex. 11, Petition Under 37 CFR § 1.183 Suspension of Rules (the “Petition”).) The Petition was granted on September 29, 1999, and the resulting application was assigned number 09/398,528 (the “'528 Application”). In September of the following year, Kobayashi disclaimed the portion of the term of the patent to issue from the '528 Application that exceeded the patent term of the ' 990 Patent. At the same time, upon request from the United States Patent and Trademark Office (the “PTO”), Kobayashi submitted a new inventors' declaration for the '528 Application,⁵ which declaration claimed the benefit of the '235 Application and ' 456 Patent.

On April 3, 2001, the '905 Patent issued from the '528 Application, claiming priority only to the '231 Application and '990 Patent. On August 12, 2010, after the priority of the '905 Patent became an issue in this litigation, Kobayashi requested from the PTO a certificate of correction pursuant to 35 U.S.C. §§ 254 and 255 to change the patent's claim of priority to the '235 Application and '456 Patent. Kobayashi paid the PTO's fee for the change (Oral Arg. Tr. 41:2–5), and the request was granted on September 14, 2010 (Peters Decl., Ex. 17, Certificate of Correction (the “Certificate”)).

The relevant information pertaining to the various applications and patents is summarized in the table below.

+----------------------------------------------------------------------------+
                ¦Date Filed       ¦Application¦Type               ¦Patent  ¦Date Issued      ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦                 ¦Number     ¦                   ¦Number  ¦                 ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦March 6, 1995    ¦'235       ¦Parent             ¦'456    ¦February 10, 1998¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦November 13, 1995¦n/a        ¦South African      ¦n/a     ¦August 28, 1996  ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦September 3, 1997¦'231       ¦Division of '235   ¦'990    ¦October 13, 1998 ¦
                ¦                 ¦           ¦Application        ¦        ¦                 ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦July 30, 1998    ¦n/a        ¦CPA of '231        ¦n/a     ¦n/a              ¦
                ¦                 ¦           ¦Application        ¦        ¦                 ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦September 29,    ¦'528       ¦Division of '231   ¦'905    ¦April 3, 2001    ¦
                ¦1999             ¦           ¦Application        ¦        ¦                 ¦
                +-----------------+-----------+-------------------+--------+-----------------¦
                ¦August 12, 2010  ¦n/a        ¦Correction         ¦n/a     ¦September 14,    ¦
                ¦                 ¦           ¦                   ¦        ¦2010             ¦
                +----------------------------------------------------------------------------+
                

II. Plaintiffs' Business

Carotek, among other pursuits, used to market and sell an event-capturing system for monitoring industrial processes, particularly packaging and paper-making. Carotek sold its monitoring-systems business to ECS on December 31, 2007,⁶ and ECS has continued to develop the product. Together, plaintiffs have developed a number of versions of the monitoring system, and Kobayashi accuses, in particular, ECS View versions 4 through 11, Modular RetroSpek, RetroSpek II, and RetroSpek IV of infringing the Patents. ECS View version 11—the most recent version of Carotek and ECS's system—was completed in July of 2009, and ECS began selling that version around September 2009.

III. Licensing Agreements

Effective December 8, 1998, Carotek entered into a licensing agreement with Kobayashi for the technology that Kobayashi was in the process of patenting. (Peters Decl., Ex. 1, License Agreement (the “Agreement”).) That agreement provides a system for calculating royalty payments to be made to the holder of the Patents, including a minimum of $25,000 to be paid each year. ( Id. ¶ 3.4); see also Carotek II, 2010 WL 1640190, at *7–8, 2010 U.S. Dist. LEXIS 37800, at *23–24. Between 1999 and 2005, Carotek paid $123,421.79 to Kobayashi, and it ceased making royalty payments entirely no later than June 2005.

The Agreement also contains a “most favored licensee” provision, obligating Kobayashi to notify Carotek if Kobayashi enters into any licenses for the Patents with third parties on terms more favorable than Carotek's. (Agreement ¶ 12.1); see also Carotek I, 2009 WL 2850760, at *2–3, 2009 U.S. Dist. LEXIS 79812, at *6–9.

Kobayashi had entered into a similar licensing agreement with Papertech, Inc. (“Papertech”) on November 12, 1998. See id. at *1, 2009 U.S. Dist. LEXIS 79812, at *4. Papertech stopped making payments under that agreement as early as September 27, 2000. See id. Kobayashi and its predecessors did not sue for these payments until years later. See id. at *2–3, 2009 U.S. Dist. LEXIS 79812, at *8–9.

At some point during International Paper's time as owner of the Patents, Equaphor also acquired a license to use the patented technology. Eventually Equaphor, like Papertech, ceased paying its...