Innovative Engineering Solutions, Inc. v. Misonix
| Decision Date | 17 October 2006 |
| Docket Number | Civ. No. 05-1592-PK. |
| Citation | 458 F.Supp.2d 1190 |
| Parties | INNOVATIVE ENGINEERING SOLUTIONS, INC., Plaintiff, v. MISONIX, INC.; and Evans Components, Inc., Defendants. |
| Court | U.S. District Court — District of Oregon |
Julia E. Markley, Elizabeth Schwartz, Scott D. Eads, Paul T. Fortino, Kevin M. Sali, Perkins Coie, LLP, Portland, OR, for Plaintiff.
Gary E. Rhoades, Gary E. Rhoades, PC, Portland, OR, Mark L. Lorbiecki, Black Lowe & Graham, PLLC, Seattle, WA, for Defendants.
Plaintiff Innovative Engineering Solutions, Inc. (IES) brings this action for patent infringement against defendants Misonix, Inc., and Evans Components, Inc. (Evans).
The parties have filed cross-motions for summary judgment. IES moves to strike a declaration submitted by defendants. I grant defendants' motion for summary judgment in part and deny plaintiffs motion for summary judgment. I deny plaintiffs motion to strike as moot.
Silicon chip manufacturers use silane, a gas that spontaneously ignites when exposed to air. To contain and neutralize the potentially hazardous combustion of silane, manufacturers use "burn boxes" in which silane is allowed to oxidize in a controlled environment.
Plaintiff's president, Samir Shiban, developed an improved burn box while working as a safety engineer for Intel Corp. One version of Shiban's improved burn box, called a "dynamic neutralization chamber" (DNC), or gaseous effluent mixing chamber, used a fan to mix silane 1 with oxygen for more complete combustion.
In 1993, Shiban formed IES to manufacture and market the DNC technology. He assigned his rights in the technology to IES.
In October 1993, Intel authorized Shiban to develop and market the DNC technology independently of Intel. Intel later assigned any rights it had in the DNC technology to IES.
IES reached a license agreement with Delatech, Inc. to produce and market burn boxes using IES's technology. IES received royalties from Delatech on sales. The resulting burn boxes, called E.DOCs, were purchased primarily by Intel and one other customer.
IES decided to replace Delatech with a different manufacturer. In 1995, IES began negotiations with Evans, which manufactured stainless steel gas-handling equipment. In February 1997, IES and Evans executed a licensing and service agreement (the Agreement). IES agreed to provide Evans with trade secrets, confidential information, licenses for the DNC technology, and business contacts. In exchange, Evans agreed to pay IES royalties on products manufactured, sold, or serviced using the DNC technology. Evans also agreed not to disclose confidential information and to return such information to IES when the Agreement terminated.
Evans found that the fans in the E.DOCs clogged and jammed because of the heat and sand (silicon oxide) produced by the combustion of silane. In 1996, Evans developed a forced-air register to replace the fan. As required by the Agreement, rights to the invention were assigned to IES.
The Agreement's original term was three years, starting in March 1996. In February 1999, Evans and IES agreed to a one-year extension of the Agreement. Evans and IES later exchanged letters showing their interest in further extending the Agreement, but the parties never agreed on a definite term. From March 2000 until April 2002, Evans and IES continued to operate under an implied license.
In 2002, Evans began making and selling a gas abatement product called the Altair, which Evans produced with defendant Misonix. Evans refused to pay royalties to IES on sales of the Altair, contending that it had "designed around" IES's licensed technology. IES disputed this assertion. In February 2004, IES filed a demand for arbitration with the American Arbitration Association, as required by the Agreement. IES asserted claims for breach of contract and quantum meruit.
In July 2004, IES submitted additional claims for patent infringement, negligent misrepresentation, misappropriation of trade secrets, and intentional interference with business relationship. Just before the arbitration hearing, however, IES withdrew its claims for patent infringement.
Shiban, the president of IES, states that IES withdrew the patent infringement claims when Shiban Deck at 2, ¶4.
The arbitrator issued his Interim Award in October 2004. The arbitrator found that the Agreement between IES and Evans "is neither void at its inception, nor is it voidable." Interim Award at 3, ¶8. The arbitrator also found,
Pursuant to Section 3 of the Agreement, the duration of the license was three years from March 3, 1996. The Agreement was extended for a period of one year to March 3, 2000. There was no written extension thereafter; however, Claimant [IES] and Respondent [Evans] continued to perform as if an agreement existed until April 2002, and, therefore, had an implied agreement.
Id. at ¶9. The arbitrator further found, After April 2002, [Evans] ceased sales of E.DOC's and began selling the "Altair." The Altair uses the same technology and is merely an improved version of the E.DOC. Those improvements were developed by [Evans] while the Agreement was effective, did not involve "designing around the patent," and are owned by [IES].
The arbitrator found that Evans had breached the Agreement by
a. Failing to pay royalties to [IES].
b. Failing to cease production of the DNC technology, failing to cease use of the technical information, and failing to return the technical information.
c. Failing to assign to [IES] any patents and improvements to the DNC technology.
The arbitrator ordered that Evans "cease manufacture and sale of all Licensed Products, including the E.DOC and Altair, without paying royalties to [IES] as specified in the Agreement." Id. The arbitrator concluded that the Agreement was "valid and enforceable." Id.
In December 2004, the arbitrator issued his Final Award. The arbitrator awarded IES $127,823.30, which he calculated using the Agreement's royalty rate. He also awarded IES interest, costs, and attorney's fees.
The arbitrator ordered that Evans return technical information to IES and stop manufacturing and selling the E.DOC and the Altair products. The arbitrator stated that Evans could continue to manufacture and sell licensed products only "if the parties enter into a new license agreement." Final Award at 2, ¶5.
In January 2005, the arbitrator's Final Award was entered as a stipulated judgment in state court. Evans has since satisfied the judgment.
In March 2005, IES and Evans executed a licensing agreement similar but not identical to the parties' previous agreement.
In October 2005, IES filed this action for patent infringement against Misonix and Evans. IES claims that defendants infringed three of IES's patents on gas neutralization technology. Shiban states that the March 2005 licensing agreement with Evans terminated at about the time IES brought this action.
The court must grant summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). If the moving party shows that there are no genuine issues of material fact, the nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The substantive law governing a claim or defense determines whether a fact is material. See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987). The court should resolve reasonable doubts about the existence of an issue of material fact against the moving party. Id. at 631. The court should view inferences drawn from the facts in the light most favorable to the nonmoving party. Id. at 630-31.
Defendants' motion for summary judgment relies on six affirmative defenses: claim and issue preclusion, the Rooker-Feldman doctrine2, the alleged existence of an ongoing implied license, and, as to Misonix only, the patent law doctrines of "first sale" and "full compensation." I conclude that defendants are entitled to summary judgment based on claim preclusion and the existence of an implied license until September 2004.
Defendants contend that IES's failure to pursue its patent infringement claims in the arbitration proceeding bars IES from bringing those claims here. IES responds that the Agreement did not require arbitration of the patent infringement claims.
The Agreement has a provision governing choice of law and the arbitration of disputes:
This Agreement is executed and delivered in the state of Oregon, USA, and it shall be construed in accordance with the law of the State of Oregon USA, except the conflict of laws rule. Any dispute relating the [sic] interpretation or performance of this Agreement shall be conducted in the county of Washington, Oregon, in accordance with the then existing rules of the American Arbitration Association. Judgment upon any award by the arbitrator(s) may be entered by the state or Federal Court having jurisdiction. The prevailing party of such arbitration is entitled to arbitration fees and reasonable attorney fees as determined by the arbitrator(s). In the event that resolution is not reached through arbitration, any dispute relating to the interpretation or performance of this agreement shall be conducted in the county of Washington, Oregon, USA, and the applicable state or federal court. The prevailing party shall be entitled to court fees and reasonable attorney fees as determined by the court.
Agreement, at 8, ¶29 (emphasis added). The arbitration clause contains a typographical error, omitting...
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