Diamond Servs. Mgmt. v. C&C Jewelry Mfg.
| Decision Date | 26 September 2022 |
| Docket Number | 19-cv-07675 |
| Parties | DIAMOND SERVICES MANAGEMENT COMPANY LLC and FREDERICK GOLDMAN, INC., Plaintiffs/Counter-Defendants, v. C&C JEWELRY MANUFACTURING, INC. and ROBERT G. CONNOLLY, Defendants/Counter-Plaintiffs. |
| Court | U.S. District Court — Northern District of Illinois |
This case involves a familiar refrain in disputes over patent license agreements: Plaintiffs allege breach of contract, and Defendants shoot back that the underlying patent is invalid. In 2011, Plaintiffs, the exclusive licensors of certain patents owned by non-party Trent West (the “West Patents”), entered into an agreement (the “License Agreement” or “Agreement”) to license the West Patents to Defendant C&C. Under the terms of the Agreement, Defendant C&C acquired certain rights to make, use, and sell tungsten carbide jewelry rings covered by the West Patents in exchange for royalty payments to Plaintiff Diamond. The Agreement was to expire when the last of the West Patents expired. At the time the parties entered into this Agreement, the last patent was set to expire in 2018. On December 24, 2018, C&C stopped making royalty payments to Plaintiffs.
In January 2019, the United States Patent and Trademark Office (“USPTO”), in response to an anonymously filed request for reexamination, issued a Certificate of Correction on the particular patent at issue; the Certificate had the effect of extending the life of the patent to 2023. That act precipitated this current lawsuit. It is also relevant that the License Agreement arose out of an earlier Settlement Agreement between Defendant C&C and Trent West following patent infringement litigation between those entities over the West Patents.
Plaintiffs filed a three-count complaint against Defendant C&C and its then-president, alleging breach of contract, tortious interference, and violation of the Uniform and Deceptive Trade Practices Act (“UDTPA”). In return Defendants filed twenty, largely patent-related counterclaims. Presently pending before the Court are eight fully briefed motions and one objection to a discovery ruling entered by Magistrate Judge Fuentes. For the reasons provided below:
Plaintiff Frederick Goldman Inc. (“Goldman”) is a jewelry manufacturing company. (Compl. ¶¶ 2, 14.) Goldman created Plaintiff Diamond Services Management Company, LLC (“Diamond”) as a separate legal entity to license tungsten carbide jewelry to third parties. (Id. ¶¶ 1, 15.) Goldman is the sole member of Diamond. (Id. ¶ 5.) Defendant C&C Jewelry Manufacturing, Inc. (“C&C”) is also a jewelry manufacturer. (Id. ¶ 3.) At all relevant times, Defendant Robert G. Connolly (“Connolly”) was the owner and president of C&C. (Id. ¶ 4.)
In 2006, Plaintiffs sued non-party Trent West, challenging the validity of Trent West's patents, including U.S. Patents No. 6,928,734 (the “ ‘734 Patent”) and No. 7,032,314 (the “ ‘314 Patent”). (Dkt. 117 at 25.) That same year, the USPTO issued a Certificate of Correction COC (the “2006 COC”) that confirmed Trent West's claim of priority dating to September 8, 1998, for the ‘734 Patent. (Id.) In 2007, Plaintiffs entered into a settlement and license agreement with Trent West (the “Diamond/West Agreement”) and dismissed their suit. Under the Diamond/West Agreement, Trent West granted Plaintiffs a worldwide exclusive license to sell jewelry manufactured using tungsten carbide under certain patented methods, including the West Patents. (Compl. ¶¶ 16-18.) The Diamond/West Agreement also gave Plaintiffs the right to sublicense the West Patents. (Id. ¶ 19.)
Defendant C&C entered the picture in 2011 when, following patent infringement litigation between C&C and Trent West, C&C entered into their own settlement agreement with Trent West (the “Settlement Agreement”). (Compl. ¶¶ 23- 24; Dkt. 24 (under seal).) Under the Settlement Agreement, C&C agreed to obtain a license from Diamond, Trent West's exclusive licensor for the West Patents. (Compl. ¶ 24.) The Settlement Agreement included a general release of “any and all claims” related to the validity of the West Patents, including the ‘734 Patent. (Dkt. 24 at 2.) Under the Settlement Agreement, C&C agreed not to challenge or cause to be challenged the validity, enforceability, or scope of the involved patents “or the additional patents in any court or other tribunal,” including the USPTO, “except as a counterclaim in a lawsuit, or in a reexamination filed in response to a lawsuit against C&C that includes a claim of infringement of the involved patents or additional patents by C&C[.]” (Dkt. 24 ¶ 7.)
That same year, C&C, “through its president, Connolly,” entered into a license agreement with Diamond (the “License Agreement”), which granted C&C a nonexclusive license “to make, use, import, offer for sale, and sell” tungsten carbide jewelry rings covered by the West Patents (the “Licensed Products”) to specified customers for a 5% royalty payable to Diamond. (Compl. ¶¶ 25, 32, 53; Dkt. 23 (under seal).) The License Agreement would be in effect “until the date of expiration of the last to expire of” the ‘734 or ‘314 Patents. (Compl. ¶ 35; Dkt. 23 ¶ 5.2.) The License Agreement also included a confidentiality clause, (Compl. ¶ 26; Dkt. 23 ¶ 10), an Illinois choice of law clause (Compl. ¶ 13; Dkt. 23 ¶ 12.1), and a Northern District of Illinois forum selection clause (Compl. ¶ 13; Dkt. 23 ¶ 12.2). When the parties executed the License Agreement, the 2006 COC was in effect. (Dkt. 117 at 28-29.). C&C stopped paying royalties under the License Agreement for the Licensed Products after December 24, 2018. (Compl. ¶ 57.)
According to C&C, Plaintiffs, together with Trent West, have manipulated the claim of priority over time to their benefit. From 2007-2009, Trent West relied on the 2006 COC to prosecute alleged infringers of the West Patents. (Dkt. 117 at 26-27.) But on October 25, 2018, Plaintiffs and Trent West filed a request for another COC, stating that the correct priority date for the ‘734 Patent was actually five years after September 8, 1998. (Dkt. 117 at 30.) On January 8, 2019, the USPTO issued a COC (the “2018 COC”)[2] that vacated the 2006 COC and determined that the ‘734 Patent's priority date is April 28, 2003-not September 8, 1998. (Id. at 31.) The 2018 COC had the effect of extending the life of the ‘734 Patent from its original October 16, 2018, expiration to August 13, 2023.
According to Plaintiffs, on April 23, 2019, C&C filed a request for another COC to obtain an earlier expiration date for the ‘734 Patent. (Compl. ¶¶ 43, 45.) The USPTO denied that request on October 3, 2019. (Id. ¶ 46.) Plaintiffs also allege that, in November 2019, C&C contacted Zales, Jared, and Kay Jewelers to sell or offer for sale the Licensed Products. (Id. ¶¶ 58, 62.) Zales, Jared, and Kay Jewelers are Goldman's “main customers for tungsten carbide rings” and “major customer[s]” of Goldman for 30 years. (Id. ¶¶ 59, 61, 65.) Zales, Jared, and Kay Jewelers are jewelry retailers that are not included within the authorized customers under the License Agreement and, (Id. ¶ 66.) That same month, Jared and Kay Jewelers (collectively, “Kay Jewelers”), decided not to renew their “large program with Goldman for tungsten carbide rings.” (Id. ¶ 62.)
On November 20, 2019, Plaintiffs brought a three-count complaint against Defendants: first, Diamond asserts a claim of breach of contract against C&C (Count I); second, Goldman asserts a claim of tortious interference against C&C and Connolly (Count II); and third, Plaintiffs assert a claim under the UDTPA against C&C (Count III). (See generally Compl.) Plaintiffs allege that C&C's failure to pay royalties after December 24, 2018, sale of or offer to sell Licensed Products to unauthorized customers, and filing of requests for a COC with the USPTO breach the License Agreement. Plaintiffs also allege that Connolly tortiously interfered with Plaintiffs' business by deliberately soliciting third parties despite knowing of Goldman's “longstanding business relationship” with those third parties.
In their First Amended Answer, Defendants asserted seventeen[3] affirmative defenses and twenty (largely redundant) counterclaims. Defendants assert the affirmative defenses of failure to state a claim, waiver, forfeiture, estoppel, acquiescence, laches, unclean hands, failure to mitigate, covenant of good faith and...
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