Electronic Planroom v. Mcgraw-Hill Companies

• Decision Date: 30 March 2001
• Docket Number: No. 99-71985.,99-71985.
• Citation: 135 F.Supp.2d 805
• Parties: ELECTRONIC PLANROOM, INC., and Essential Research, Inc., Plaintiffs/Counter-Defendants, v. The MCGRAW-HILL COMPANIES, INC., and Estate of Devon Shire, Defendants/Counter-Plaintiffs. and The McGraw-Hill Companies, Inc., Third-Party Plaintiff, v. G. Matthew Krause, Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Michigan

135 F.Supp.2d 805

ELECTRONIC PLANROOM, INC., and Essential Research, Inc., Plaintiffs/Counter-Defendants, v. The MCGRAW-HILL COMPANIES, INC., and Estate of Devon Shire, Defendants/Counter-Plaintiffs. and The McGraw-Hill Companies, Inc., Third-Party Plaintiff, v. G. Matthew Krause, Third-Party Defendant.

No. 99-71985.

United States District Court, E.D. Michigan, Southern Division.

March 30, 2001.

COPYRIGHT MATERIAL OMITTED

Jon R. Steiger, Kirkland W. Garey, Thomas H. Walters, Howard & Howard, Attorneys, P.C., Bloomfield Hills, MI, David J. Gaskey, Carlson, Caskey & Olds, P.C., Birmingham, MI, for plaintiffs.

Jeffrey G. Heuer, Patrice S. Arend, Jaffe, Raitt, Heuer & Weiss, P.C., Detroit, MI, Robert G. Krupka, Linda S. Resh, Alexandra N. DeNeve, G. Courtney Holohan, Kirkland & Ellis, Chicago, Illinois, for The McGraw-Hill Companies, Inc., and Devon Shire.

OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

Plaintiffs Electronic Planroom, Inc. and Essential Research, Inc. (collectively "Essential") two Michigan corporations, commenced this action on April 21, 1999 against Defendants The McGraw-Hill Companies, Inc. ("McGraw-Hill"), a New York corporation, and Devon Shire, a Michigan resident and former employee of Essential. In an amended complaint filed on January 24, 2000, Essential asserts state-law claims of misappropriation of trade secrets, tortious interference, and civil conspiracy against both Defendants, as well as a state-law breach of fiduciary duty claim against Defendant Shire. Essential further asserts a claim against McGraw-Hill under the federal patent laws, 35 U.S.C. § 1 et seq., alleging that McGraw-Hill's "Dodge View" software infringes Essential's rights under U.S.Patent No. 5,625,827 (the "'827 Patent"). This Court has subject matter jurisdiction over these state and federal claims under 28 U.S.C. § 1338(a) and 28 U.S.C. § 1367(a).

Defendants have asserted three counterclaims against Essential, seeking declarations of the non-infringement, invalidity, and unenforceability of the '827 Patent. McGraw-Hill also is pursuing a claim against Third-Party Defendant G. Matthew Krause, a named inventor and former owner of the '827 Patent, alleging that Krause failed to disclose material prior art during the prosecution of the '827 Patent, and seeking a declaration that the patent is unenforceable as a result of this alleged inequitable conduct.

By motion filed on March 1, 2000, Essential now seeks summary judgment in its favor on the issue of McGraw-Hill's alleged infringement of claim 5 of the '827 Patent. For their part, Defendants filed a motion on April 5, 2000, requesting an award of summary judgment in their favor on Essential's state-law claims and on Defendants' counterclaim asserting the invalidity of the '827 Patent. These motions have been fully briefed by the parties, and the Court held a hearing on these motions on August 31, 2000. Having reviewed the briefs and voluminous supporting materials submitted by the parties, and having considered the arguments of counsel at the August 31 hearing, the Court is now prepared to rule on the parties' motions. This Opinion and Order sets forth the Court's rulings.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties to This Action

Plaintiff Essential is a small company located in Rochester, Michigan, with approximately a dozen employees at the time of the events giving rise to this litigation. Essential develops and sells "electronic planroom" technology to the construction industry, consisting of computer software and services that assist building contractors in obtaining information about available construction jobs and preparing competitive bids for these projects. At all relevant times, Third-Party Defendant G. Matthew ("Matt") Krause has served as president of Essential.

Defendant McGraw-Hill, through its F.W. Dodge subsidiary, has provided construction news services to subscribing contractors for over a century. Since 1998, McGraw-Hill has marketed and sold its "Dodge Plans" service, which permits subscribers to obtain computer-based plans and specifications for available construction jobs via CD-ROM or the Internet. The "Dodge Plans" package includes "Dodge View" software that allows subscribers to view the electronic plan and specification data made available through the "Dodge Plans" service.

Defendant Devon Shire was employed as Essential's Vice President of Sales and Marketing from October 10, 1994 through July 3, 1998. During most of this time Shire was Essential's entire sales force. Shire did not sign, nor was he asked to sign, a confidentiality or non-compete agreement with Essential. In July of 1998, Shire resigned his position at Essential and began working for McGraw-Hill as a Sales Specialist for the "Dodge Plans" product line.¹

B. Essential's '827 Patent

In connection with Essential's development of its "electronic planroom" technology, Third-Party Defendant Matt Krause and a programmer at Essential, Brent Morrow, applied for a patent on December 23, 1994. This patent was issued on April 29, 1997 as U.S.Patent No. 5,625,827 with nine claims, and is entitled "Method and System of Blueprint Document Manipulation." All rights to this patent subsequently were assigned to Essential.

The computer-based system described in the '827 Patent permits the viewing and manipulation of building plans, blueprints, and construction drawings. The patent sets forth a method for displaying construction drawings on a computer monitor, storing these drawings in electronic form in computer memory, and compiling scaling data that is stored along with each drawing in a single computer file. This scaling information permits a user of the system to measure distances between selected points on a drawing as it is displayed on the computer monitor, and to obtain these distances in "real world" rather than computer-based dimensions. According to Essential, this measurement capability assists in the process of preparing bids for construction projects by allowing the user to more quickly and accurately determine the time and materials needed to complete a job.

Specifically, claim 1 of the '827 Patent states as follows:

1. A method for manipulating a construction drawing comprising the steps of:

a. storing in electronic form in a memory means an image of a construction drawing in a file, the construction drawing having a full scale dimension associated therewith;

b. displaying the image of the construction drawing in the file on a video display means;

c. storing in the file a scale quantity representing the full scale dimension between two selected scale points on the image of the construction drawing;

d. storing in the file a scale line extending between the two scale points on the image of the construction drawing, the scale line representing a distance expressed as a predetermined number of image units;

e. selecting any two measuring points on the image of the construction drawing; and

f. automatically determining a full scale dimension between the selected two measuring points from the scale quantity, the scale line and a number of the image units between the two measuring points.

(Defendants' Motion, Ex. 41, at col. 18.)

Claims 2, 3, and 4 depend on claim 1, and include such added steps as displaying on the computer monitor the "full scale dimension" calculated in step "f" of claim 1, and computing conversion factors between on-screen pixel coordinates, computer-based image units, and real-world or "full scale" dimensions. Claim 5 likewise depends on claim 1, but adds the step of computing the "full scale area dimension" of an enclosed area within a drawing as selected by the user. Finally, the remaining two claims at issue in this case, claims 7 and 9, are similar to claim 1, except that they describe methods of working with collections of construction drawings as opposed to individual drawings.

C. McGraw-Hill's "Dodge Plans" Product

As noted earlier, McGraw-Hill's subsidiary, F.W. Dodge, has for many years offered various products and services to the construction industry that enable contractors to learn the details of construction projects available for bid. For example, Dodge offers a service called "Dodge SCAN," which provides blueprints on microfilm to subscribers. Dodge also has established "planrooms" around the country where blueprints and specifications may be reviewed and copied. However, as of the mid-1990s, Dodge did not yet offer a computer-based product that would permit contractors to rapidly obtain and conveniently view digital images of plans and blueprints on their own office and portable laptop computers.

Accordingly, McGraw-Hill hired Jerry Murtaugh, a former IBM employee with a background in computer graphics, to develop a method for digital delivery of construction plans and blueprints to the contractor's desktop. In 1995, Murtaugh identified two companies, Essential and Sierra Networks, as engaged in this digital plans business. McGraw-Hill subsequently entered into discussions with both of these companies to explore possible partnerships in developing and marketing digital plans products. During an initial September 1995 meeting between Murtaugh and Matt Krause and Devon Shire of Essential to discuss a possible partnership, Murtaugh learned that Essential was in the process of obtaining patents on its software. In addition, on June 30, 1997, Krause wrote to Larry Wares of F.W. Dodge, enclosing copies of two patents held by Essential, including the '827 Patent. (See Plaintiff's Response, Ex. G.)

Ultimately, in June of 1997, McGraw-Hill and Essential abandoned their joint venture discussions, when the parties were unable to agree on the terms of a licensing arrangement for McGraw-Hill to market Essential's products and services. (See Defendants' Motion, Exs. 10, 11.) Instead, in July of 1997, McGraw-Hill paid a flat fee of $25,000 to an Oregon software...