Group One Ltd v. Hallmark Cards Inc

• Decision Date: 15 June 2001
• Citation: 59 USPQ2d 1121,254 F.3d 1041
• Parties: (Fed. Cir. 2001) GROUP ONE, LTD., Plaintiff-Appellant, v. HALLMARK CARDS, INCORPORATED, Defendant-Appellee. 00-1014 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1041

254 F.3d 1041 (Fed. Cir. 2001)

GROUP ONE, LTD., Plaintiff-Appellant, v. HALLMARK CARDS, INCORPORATED, Defendant-Appellee.

00-1014

United States Court of Appeals for the Federal Circuit

DECIDED: June 15, 2001

Appealed from: United States District Court for the Western District of Missouri

Judge Dean Whipple

Richard S. Clark, Baker & Botts, L.L.P., of New York, New York, argued for plaintiff-appellant. With him on the brief was Robert Neuner.

Norman C. Kleinberg, Hughes Hubbard & Reed LLP, of New York, New York, argued for defendant-appellee. With him on the brief were Jeff H. Galloway, and Peter A. Sullivan.

Before LOURIE, Circuit Judge, PLAGER, Senior Circuit Judge,^** and GAJARSA, Circuit Judge.

Opinion for the court filed by Senior Circuit Judge PLAGER. Additional remarks filed by Circuit Judge LOURIE.

PLAGER, Senior Circuit Judge.

In this patent case, Group One Ltd. ("Group One") sued Hallmark Cards, Inc. ("Hallmark") for infringement of two patents, U.S. Patent No. 5,518,492 (the "'492 patent"), directed to a machine for producing curled and shredded ribbon for decorative packaging, and U.S. Patent No 5,711,752 (the "'752 patent"), directed to a method for producing the curled and shredded ribbon. Group One also claimed that Hallmark had earlier misappropriated its trade secrets regarding the curling and shredding machine and method. Hallmark counterclaimed for a declaratory judgment that Group One's '492 patent was invalid and unenforceable.

Ruling on summary judgment, the district court, Judge Dean Whipple, found that Group One's communications with Hallmark more than one year before the filing date of the application for the '492 patent constituted an offer for sale, and therefore the patent was invalid under 35 U.S.C. § 102(b). Group One Ltd. v. Hallmark Cards, Inc., No. 97-1224-CV-W-1 (W.D. Mo. Sept. 2, 1999). The district court also ruled that Group One's trade secrets ceased to be such on the date on which Group One's Patent Cooperation Treaty ("PCT") patent application was published, and therefore misappropriation damages were limited to any "head-start" advantage Hallmark obtained by using the trade secrets between the date Group One disclosed them to Hallmark and the date the PCT application was published. Group One Ltd. v. Hallmark Cards, Inc., No. 97-1224-CV-W-1 (W.D. Mo. July 29, 1999). Group One subsequently stipulated that it could not prove any such damages, and the misappropriation counts were therefore dismissed. The district court also granted Hallmark's motion for summary judgment on its counterclaim.

Group One appeals the rulings to this court. We affirm the district court's judgment regarding the trade secret issue. However, because we are unable to agree with the district court's analysis of the on-sale bar issue, we reverse that part of the judgment and remand to the district court for further proceedings. The grant of the counterclaim, based on the on-sale bar, falls with it; the judgment on the counterclaim is vacated.

BACKGROUND

Group One is a corporation registered in the United Kingdom. The Managing Director and sole beneficial shareholder of Group One is Frederic Goldstein, a United States citizen residing in Sweden. Goldstein is the named inventor on the '492 patent and the '752 patent. Hallmark is a Missouri corporation headquartered in Kansas City, Missouri.

On November 14, 1991, Goldstein filed a patent application in the United Kingdom for an automated ribbon curling and shredding device. On November 12, 1992, Goldstein filed a patent application with the European Patent Office under the Patent Cooperation Treaty ("PCT"), designating, among other countries, the United States. Pursuant to the PCT, this application was published on May 27, 1993, 18 months after the filing date in the United Kingdom. Goldstein subsequently filed a U.S. patent application corresponding to the PCT application on May 13, 1994. This application eventually issued as the '492 patent on May 21, 1996. A continuation of this U.S. application issued as the '752 patent on January 27, 1998.

The '752 patent claims a method for curling and shredding ribbon on a mass basis, and the '492 patent claims a machine for performing the method. Prior to Goldstein's conception, ribbon had been sold in a form that was suitable for curling, but was not so curled until curled by the consumer. Goldstein perceived a market for pre-curled ribbon for use, for example, as filler in a gift package or gathered in a bow and conceived the inventions of the '492 patent and '752 patent to exploit that market.

Before filing his PCT application, Goldstein attempted to generate interest in his device, commencing a series of communications with Hallmark (and others). On June 24, 1991, he wrote to Hallmark: "We have developed a machine which can curl and shred ribbon so that Hallmark can produce the product you see enclosed a bag of already curled and shredded ribbon. . . . We could provide the machine and/or the technology and work on a license/royalty basis." Hallmark expressed some interest, and the parties continued their correspondence.

Hallmark and Goldstein arranged a meeting to discuss details of the curling and shredding machine for February 17, 1992. Prior to the meeting, the parties negotiated a Confidential Disclosure Agreement ("CDA") regarding the technology to be discussed at the meeting. However, despite essential agreement on the terms of the CDA, Hallmark never signed it. On February 14, 1992, shortly before the scheduled meeting, Goldstein had a telephone conference with a Hallmark engineer, in which the parties discussed details of Group One's machine and method. At the time, Goldstein had signed the CDA and (incorrectly) believed it to be in effect. Hallmark then cancelled the planned February 17 meeting, deciding it would instead evaluate its own internal capability of producing a curling and shredding machine.

On June 6, 1992, Hallmark sent a letter to Goldstein indicating that it had "developed our own machine for curling and shredding ribbon, and therefore we are not presently interested in purchasing such a machine from your firm." The letter went on to state "we would like to thank you[r] firm for suggesting the curled ribbon product to us by paying you $500." Apparently anticipating a claim of misappropriation, the letter specifically pointed out that Hallmark had never signed the CDA "pending our internal consideration of such product," and requested that Goldstein sign a release "on account of our use of the curled ribbon idea" in return for the $500 payment. The letter makes no mention of the telephone conference of February 14, 1992 or the information Hallmark obtained during the conference. Goldstein declined the $500 and did not sign the release.

According to Hallmark, the company temporarily abandoned the project and did not again begin developing a fully suitable curling and shredding machine until April 1994. Sometime in March or April 1995, it began producing its "Curl Cascade" product, which is a clump of curled ribbon attached to a card, and its "Curl Fill" product, which is a gift-bag stuffing comprised of strands of curled ribbon. The machine used to make these products, the Curl Cascade machine, is the subject of the present suit.

On August 4, 1997, Group One filed suit in the Western District of Missouri. The final amended complaint had four counts, two for patent infringement and two relating to theft of trade secrets. Count I alleged infringement of the '492 patent and Count II alleged infringement of the '752 patent. Count III alleged misappropriation of trade secrets, and Count IV claimed unjust enrichment due to the misappropriation.

With respect to the patent counts, Hallmark moved for summary judgment of invalidity under 35 U.S.C. § 102(b), on the grounds that the patented machine and method had been "on sale" more than one year prior to the filing date of the application. Under 35 U.S.C. § 363, the United States filing date, for § 102(b) purposes, of a patent application filed under the PCT in which the United States is designated, is the date of the PCT application in this case, November 12, 1992. Thus the "critical date" is November 12, 1991.

The court concluded that, while the pre critical-date communications between Group One and Hallmark did not constitute a formal offer for sale in the contract sense, they did constitute an offer for sale in the § 102(b) on-sale bar context. The court therefore ruled that the '492 patent and the '752 patent were invalid, and dismissed the patent counts.

The district court also decided the trade secret counts. Ruling on Hallmark's motion for summary judgment, the district court noted that Hallmark did not deny the existence of trade secrets or a confidential relationship between Hallmark and Group One. Hallmark did argue that the relationship was governed by the CDA, but the district court rejected this contention because Hallmark had never signed the CDA. The district court concluded that under Missouri common law (which the parties agreed applied, since Missouri did not adopt the Uniform Trade Secrets Act until 1995, and the adoption was specifically not to be applied retroactively), any possible misappropriation ended with the publication of the PCT application on May 27, 1993. After this date, the information was no longer secret because it had been made available to the public. The district court did rule, however, that Group One could recover for any "head-start" advantage gained by Hallmark because it had improperly used the confidential information during the period prior to the PCT publication date. Group One subsequently stipulated that it could prove no such damages and the trade secret counts were also dismissed.

Group One now appeals the rulings by the district court, alleging that the court erred in declaring its patents invalid and in limiting its recovery for Hallmark's misappropriation...