Leines v. Homeland Vinyl Prods., Inc., 2:18-cv-00969-KJM-DB

• Decision Date: 20 July 2020
• Docket Number: No. 2:18-cv-00969-KJM-DB,2:18-cv-00969-KJM-DB
• Court: U.S. District Court — Eastern District of California
• Parties: RICHARD A. LEINES, Plaintiff/Counter-Defendant, v. HOMELAND VINYL PRODUCTS, INC., Defendant/Counterclaimant.

RICHARD A. LEINES, Plaintiff/Counter-Defendant, v. HOMELAND VINYL PRODUCTS, INC., Defendant/Counterclaimant.

No. 2:18-cv-00969-KJM-DB

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

July 20, 2020

ORDER

In this dispute over patented decking materials, plaintiff/counter-defendant Richard Leines ("plaintiff" or "Leines") moves for summary judgment on his breach of contract and patent infringement claims. Defendant/counterclaimant Homeland Vinyl Products, Inc. ("defendant" or "Homeland") moves for partial summary judgment seeking dismissal of several claims and theories alleged in plaintiff's first amended complaint.¹ Defendant also moves to exclude the testimony of three of plaintiff's expert witnesses. For the reasons set forth below, the motions, respectively, are GRANTED in part, DENIED in part and DENIED as moot.

I. BACKGROUND

A. Factual Background

The following disputed facts and undisputed facts are derived from the first amended complaint ("FAC"), ECF No. 27, defendant's response to plaintiff's omnibus statement of facts, Def.'s Disputed Facts ("DDF") & Def.'s Undisputed Facts ("DUF"), ECF No. 89, and plaintiff's response to defendant's statement of facts, Pl.'s Disputed Facts ("PDF") and Pl.'s Undisputed Facts ("PUF"), ECF No. 104.

Plaintiff Richard Leines is the creator of an easy-install vinyl decking product designed for homeowners and contractors alike. FAC ¶ 8. On July 22, 2003, Leines obtained a patent on his decking product through the United States Patent and Trademark Office (PTO), as evidenced by U.S. Patent No. 6,594,961 (the "'961 Patent"). Id. ¶ 6; DDF 1 (disputing validity of '961 Patent as indefinite, anticipated and obvious). On July 31, 2012, Leines entered into an exclusive license agreement ("License Agreement") with defendant Homeland Vinyl Products, Inc. ("Homeland") in which Leines granted Homeland an exclusive license "to make, use, sell, offer to sell, or import 'Licensed Products' . . . in exchange for . . . royalty and various warranties and obligations made by Homeland." DUF 2, 3. The License Agreement provides, in pertinent part, as follows:

[Article 2] Licensed Products 2.2 "Licensed Products" are defined as any product, apparatus, method or service the manufacture, use, sale of which (a) is covered by a Valid Claim of an issued, unexpired Licensed Patent, or (b) is covered by a claim being prosecuted in any pending application listed in Schedule B; and (c) is sold by Licensee and incorporates, uses, or employs the Technology.

. . .

Article 8-Royalties All royalties ("Licensed Product Royalties" or "Royalties") provided for under this Agreement shall accrue when the respective Licensed Products are sold, billed, and paid for. Licensee shall be exempt from paying royalties to Licensor on items not billed, including, but not limited to, those samples of the Licensed Products used for marketing purposes and Licensed Products used for replacing defective Licensed Products as covered in Licensee's product warranty, to individuals or companies which are affiliated with, associated with, related to, or subsidiaries of Licensee. Royalties shall be computed based upon collected payments from Licensee's Net Sales (defined below).

Article 9-Net Sales "Net Sales" are defined as Licensee's gross sales (i.e., the gross invoice amount billed customers) less: quantity discounts; returns actually credited, freight charges, sales tax, use tax or other taxes imposed by governmental agencies. A quantity discount is a discount made at the time of shipment. No deductions shall be made for cash or other discounts, for commissions, for uncollectable accounts, or for fees or expenses of any kind which may be incurred by the licensee in connection with the Royalty payments.

Article 10-Licensed Product Royalty 10.1 Licensee agrees to pay an annual royalty of Five percent (5%) on Net Sales revenue of the Licensed Products ("Licensed Product Royalty" and "Sublicensing Royalty") up to and when the first One Million Linear Feet (1,000,000 l.f) of decking profile is sold in the year commencing upon the effective date of this agreement. When Licensee's sales reach this Licensed Products threshold, a Four percent (4%) royalty will be paid for any Licensed Products or Sublicensed Products sold in this same annual year. This payment percentage schedule shall be implemented every year of the Initial Term and thereafter may be renewed by Licensee under the same terms and conditions for the remaining life of said patent No. 6,594,961, as listed in Schedule C.

10.2 In addition to the Royalty, Licensee agrees to manufacture and sell to the Licensor, over the Initial Term of this Agreement, and the Renewal Term if so renewed, up to Four Hundred and Eighty Thousand linear feet (480,000 l.f.) per year of deck which incorporates the technology of the Licensed Product, at a price agreed upon by both parties. Also components which function with the decking known as Track, removal tool, H-trim, L-Trim and C-Trim, priced and agreed upon by both parties as listed in Schedule D.

...

Article 36-Entire Understanding This Agreement expresses the complete understanding of the parties and supersedes all prior representations, agreements and understandings, whether written or oral. This Agreement may not be altered except by a written document signed by both parties.

License Agreement, Declaration of Eric Benisek ("Benisek Decl."), Ex. A, ECF No. 67-2; DDF 4-10.

Under the License Agreement, Homeland manufactured and sold the patented product as "Gorilla Lock" vinyl deck product. DUF 12. Homeland sold Gorilla Lock to its distributor customers and also to Leines's Northern California company, Paragon. DUF 13. Over the term of the License Agreement, Homeland sold 1,008,773 linear feet of Gorilla Lock product. DUF 14. Homeland did not apply the five percent royalty rate, as contemplated by Article 10.1, to any sales of Gorilla Lock made to Leines's company, Paragon. DUF 14. Homeland chose notto exercise its renewal rights under Article 26 of the License Agreement; as a result, the initial five-year license term expired on July 31, 2017. DUF 17.

Over the term of the License Agreement, Homeland also manufactured, marketed and sold a product it dubbed Gorilla Deck, a decking installation system similar to Gorilla Lock, but wholly owned and controlled by Homeland. SAC ¶¶ 12, 32. Leines alleges Homeland favored its own Gorilla Deck system over Gorilla Lock by failing to utilize best efforts in marketing and selling Gorilla Lock. Id. ¶¶ 32, 45. Leines believes Homeland's failure to effectively market Gorilla Lock is evidence of its larger strategy to neutralize Gorilla Lock's competitive market share. Id. ¶ 45.

Leines alleges that Homeland's conduct over the life of the License Agreement gives rise to the following claims: breach of contract (Count One), breach of express warranty (Count Two), breach of express warranty of merchantability (Count Three), breach of the covenant of good faith and fair dealing (Count Four), false advertising under California Business and Professions Code section 17500 (Count Five), unfair competition under Business and Professions Code section 17200 (Count Six), infringement of the '961 Patent (Count Seven), unfair competition under 15 U.S.C. § 1125(a)) (Count Eight) and fraud in the inducement (Count Nine). See generally FAC.

B. Procedural Background

Leines initiated this action on April 19, 2018, Compl., ECF No. 1, and filed the operative first amended complaint on November 28, 2018, FAC. On December 18, 2018, Homeland answered and brought two counterclaims of its own. See Answer, ECF No. 28. On February 7, 2020, Leines moved for summary judgment on two claims: breach of contract regarding Homeland's royalty obligations, Pl.'s Contract MSJ, ECF No. 64, and patent infringement, Pl.'s Patent MSJ, ECF No. 65. Homeland opposes both motions, Def.'s Opp'n to Contract MSJ, ECF No. 88; Def.'s Opp'n to Patent MSJ, ECF No. 87. Leines lodged a reply to both. Pl.'s Contract Reply, ECF No. 107; Pl.'s Patent Reply, ECF No. 106.

Homeland separately moves for summary judgment on a variety of claims and theories alleged in the first amended complaint. Def.'s MSJ, ECF No. 69. Leines opposes themotion, Pl.'s Opp'n to MSJ, ECF No. 92, and Homeland has replied, Def.'s MSJ Reply, ECF No. 108. Homeland also moves to exclude the expert testimony of three of Leines's witnesses: Dr. Chris Rauwendaal, ECF No. 75, Stephen Daughters, ECF No. 77, and Mark Knudson, ECF No. 79. Plaintiff opposes each motion to exclude. ECF Nos. 93-95. Homeland has replied to all. ECF Nos. 110-12.

On May 14, 2020, the court held a telephonic hearing on the motions, given the circumstances occasioned by the coronavirus pandemic. Counsel Eric Benisek appeared on behalf of plaintiff; counsel Darren Reid, Eric Maxfield, Timothy Getzoff, Brandon Christensen and Laura Goodman appeared for defendant. After hearing argument, the court submitted the matter for resolution by written order.

II. LEGAL STANDARD

A court will grant summary judgment "if . . . there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The "threshold inquiry" is whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

As a general matter, the moving party bears the initial burden of showing the district court "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325. The burden then shifts to the nonmoving party, which "must establish that there is a genuine issue of material fact . . . ." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585 (1986). In carrying their burdens, both parties must "cit[e] to particular parts of materials in the record . . . ; or show [] that the...