Lamb-Weston, Inc. v. McCain Foods, Inc.

• Decision Date: 25 January 1993
• Docket Number: No. CY-90-3082-AAM.,CY-90-3082-AAM.
• Citation: 818 F. Supp. 1376
• Court: U.S. District Court — District of Washington
• Parties: LAMB-WESTON, INC., Plaintiff, v. McCAIN FOODS, INC. and McCain Foods Ltd., Defendants.

818 F. Supp. 1376

LAMB-WESTON, INC., Plaintiff, v. McCAIN FOODS, INC. and McCain Foods Ltd., Defendants.

No. CY-90-3082-AAM.

United States District Court, E.D. Washington.

January 25, 1993.

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Robert E. Rohde, Bogle & Gates, Seattle, WA, for plaintiff.

Dennis P. Hession, Richter Wimberley Ericson Woods Brown, Spokane, WA, Michael R. Levinson, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for defendant.

MEMORANDUM OF DECISION

McDONALD, District Judge.

This is a civil action for patent infringement, trademark infringement, unfair competition, and trademark dilution with respect to an allegedly unique lattice-shaped potato product. The defendants counterclaimed for a declaratory judgment of patent invalidity and unenforceability and for damages under the antitrust laws. A bench trial was conducted on the patent and trademark issues in September 1992, before the Honorable Alan A. McDonald, at Yakima, Washington.¹ Robert E. Rohde, Ramsey Al-Salam, and Al Van Kampen of BOGLE & GATES appeared on behalf of the plaintiff. Alan L. Unikel, Michael Levinson, and Alex Vessilinovitch of SEYFARTH, SHAW, FAIRWEATHER & GERALDSON and Dennis Hession of RICHTER-WIMBERLEY, P.S. represented the defendants.

After full consideration of the evidence and the arguments of counsel, the court enters the following Memorandum of Decision which shall constitute the court's findings of fact and conclusions of law pursuant to Fed. R.Civ.P. 52(a).

I.

Lamb-Weston, Inc. (Lamb-Weston) is a Delaware Corporation with its principal place of business at Kennewick, Washington. Lamb-Weston is a food processing company primarily engaged in the business of processing and distributing frozen potato products. It has processing plants located in Oregon, Washington and Idaho.

The defendants are food processors that compete with Lamb-Weston in the frozen potato business. Defendant McCain Foods, Ltd. is incorporated under the Laws of Canada and has its principal place of business in Florenceville, New Brunswick, Canada. Defendant McCain Foods, Inc. is a Maine corporation with its principal place of business at Easton, Maine.² The latter is a subsidiary of McCain U.S.A., Inc., the United States subsidiary of McCain Foods, Ltd. McCain's largest food processing facility is located in Othello, Washington.

The parties do not dispute jurisdiction or venue. Jurisdiction over this matter exists by virtue of 28 U.S.C. § 1338; 35 U.S.C. § 281, and 15 U.S.C. § 1121. Venue is proper in this district under 28 U.S.C. §§ 1391(c), 1400(b).

II.

Lamb-Weston and McCain make and sell a wide variety of frozen potato products, including french fries of diverse configurations and dimensions, diced potatoes, wedges, hashbrowns, tater tots, and other specialty items. Their products are sold to food service customers (restaurants, fast-food chains, hospitals, schools and other institutions) and to retail customers (grocery stores). Ninetyeight percent of Lamb-Weston's frozen potato products are sold to food service customers³ and the remaining two percent are sold to retail customers. McCain's sales in the United States are equally divided between the food service market and the retail market.

Most of the potato products produced by Lamb-Weston and McCain are partially fried ("parfried") and frozen prior to distribution. Frozen, parfried potato products are extremely popular in both the food service and retail markets because the parfry process reduces the time and effort necessary to prepare the product for ultimate consumption. The food service worker or retail customer need only complete the cooking process by deep fat frying, baking or microwaving the product.

Due to the fierce competition in the frozen potato market, major food processors like Lamb-Weston and McCain must constantly strive to develop new products and improve existing ones. This litigation centers around the development of a frozen, parfried lattice-shaped french fry most commonly referred to as a "waffle fry."

On October 26, 1979, an independent inventor named Edgar M. Matsler wrote to Gary Blakely, Lamb-Weston's Director of New Product Lines, informing Blakely that he had developed a method and apparatus for slicing potatoes. Matsler claimed that the "apparatus produces, in volume, a unique Potato slice that should have a significant impact on the pre-sliced, frozen fry markets, both commercial and retail."⁴ (Exhibit 604). Matsler offered to disclose his apparatus to Lamb-Weston if the latter would agree to keep the information confidential and not use it without Matsler's permission.

On December 6, 1979, Blakely sent a letter to Matsler expressing Lamb-Weston's interest in the cutting device. The letter contained a disclosure agreement and urged Matsler to call for an appointment to discuss his concept. (Exhibit 607). Matsler signed and returned the disclosure agreement with a cover letter providing more information about his device. Matsler boasted that his "product" had eye appeal, possible reduction of frying time, and taste appeal. He referred to it as the "best of chip & fry." (Exhibit 608).

On January 25, 1980, Matsler brought his potato-slicing device to Lamb-Weston's research and development facility in Tigard, Oregon, for a demonstration. While Matsler discussed his cutting concept with Blakely, other Lamb-Weston employees performed a test run of the cutting machine. The potato slices produced during the demonstration were subjected to three conventional processing techniques. The first technique employed was a basic blanching process often used for hashbrowns. The slices were blanched for two minutes at 180 degrees Fahrenheit and then frozen. The second method was a basic parfry process, consisting of a two-minute blanch at 180 degrees, a 30-second parfry at 365 degrees, and subsequent freezing. The third method was a microwave or microfry process, wherein the slices were blanched for two minutes at 170 degrees, parfried for two and a half minutes at 365 degrees, and then frozen.

Immediately after the demonstration, Blakely held a brief meeting with Jerry Sloan, Richard Livermore,⁵ and Darrell Covert⁶ to discuss Matsler's apparatus. They agreed the apparatus could be adapted for commercial purposes and concluded that the overall concept was sufficiently interesting to pursue. Before Matsler left the Tigard facility, the parties executed a confidentiality agreement. (Exhibit 612). Shortly thereafter, Lamb-Weston began negotiations with Matsler's patent attorney for a licensing agreement to use the Matsler concept and device. (Exhibit 613).

On February 6, 1980, Lamb-Weston received a letter from Murray Jayne, another independent inventor who claimed to have a machine for cutting lattice-shaped french fries. (Exhibit 788). The letter claimed that "because of the open lattice design, the potato fries more evenly and more crisply than the typical cut." Attached to Jayne's letter was a picture depicting a cutting machine and several lattice-shaped potato slices purportedly produced by the machine. On February 11, 1980, Jerry Sloan forwarded Jayne's letter to Gary Blakely with a note expressing interest in the machine and suggesting that a demonstration be arranged.

On February 22, 1980, Matsler accepted an offer from the J.R. Simplot Company, one of Lamb-Weston's competitors who was also interested in pursuing Matsler's cutting concept. On this same date, Matsler terminated negotiations with Lamb-Weston. (Exhibit 614).

Sometime in February 1980, Murray Jayne shipped his cutting machine to Lamb-Weston at the latter's request. The device, which was a crude prototype, was evaluated by Lamb-Weston employees during March of 1980. Lamb-Weston engineers initially believed the Jayne device could be adapted for commercial production, but subsequent evaluations revealed that extensive modification would be required before it would be commercially acceptable. Negotiations with Jayne were terminated in mid-1980 when Lamb-Weston decided to develop its own prototype, the "Moonwalker."

Test markets were conducted on the waffle-fry product as early as June 1980, but by early 1982, Lamb-Weston still had not developed a cutting device adequate for commercial production. Lamb-Weston abandoned work on the Moonwalker in late 1981 or early 1982 because it was incapable of producing at commercially acceptable levels. Lee Wheeler⁷ suggested that the company investigate alternative designs for a cutting device and recommended the acquisition and modification of an Urschel Model CCL which was designed to cut lattice-style potato chips.

In an effort to facilitate the development of the cutter, Lamb-Weston attempted to persuade the engineers at Urschel to make the necessary modifications since they were more experienced in equipment fabrication and manufacturing. Urschel declined to modify the device for Lamb-Weston but granted Lamb-Weston permission to make the modification.

John Julian joined the research group in the summer of 1981, replacing Mike Carrow as the project leader for the development of a waffle-shaped cutting device. Julian was assigned the task of modifying the blade assembly of the Urschel Cutter. A satisfactory knife assembly was not developed until late 1982, and a viable commercial cutting machine was finally achieved in the summer of 1983. The first test run of the machine was conducted in February of 1983. Commercial production began in November or December of 1983.

An acceptable waffle-fry product was achieved by late summer 1980, but due to the protracted development of the cutting device, Lamb-Weston continued to experiment with different thicknesses and various processing methods. Numerous combinations of blanching, drying, frying, and double frying were tried, utilizing various temperatures and time frames. At one point, the marketing group grew so frustrated with the delay in developing an...