Mike's Train House Inc v. Brd.Way Ltd. Imports LLC, Civil No. WDQ-09-2657.

• Decision Date: 29 April 2010
• Docket Number: Civil No. WDQ-09-2657.
• Citation: 708 F.Supp.2d 527
• Parties: MIKE'S TRAIN HOUSE, INC., Plaintiff,v.BROADWAY LIMITED IMPORTS, LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

708 F.Supp.2d 527

MIKE'S TRAIN HOUSE, INC., Plaintiff,v.BROADWAY LIMITED IMPORTS, LLC, et al., Defendants.

Civil No. WDQ-09-2657.

United States District Court,

D. Maryland,

Northern Division.

April 29, 2010.

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William E. Erskine, Miles and Stockbridge PC, Columbia, MD, Brian E. Ferguson, Weil, Gotshal & Manges LLP, Washington, DC, Joseph Michael Konieczny, Sr., Ryder Lu Mazzeo and Konieczny LLC, Plymouth Meeting, PA, Robert Joseph Larocca, Kohn Swift and Graf PC, Philadelphia, PA, for Plaintiff.

J. Stephen Simms, M. Scotland Morris, Simms Showers LLP, Baltimore, MD, Adrienne C. Love, J. Wiley Horton, Pennington Moore Wilkinson Bell And Dunbar, Tallahassee, FL, for Defendants.

MEMORANDUM OPINION

WILLIAM D. QUARLES, JR., District Judge.

Mike's Train House, Inc. (“MTH”) sued Broadway Limited Imports, LLC (“Broadway Limited”) and Robert Grubba for patent infringement. Broadway Limited counterclaimed for invalidity. For the following reasons, Grubba's motion to dismiss and Erskine's motion to withdraw will be granted; Broadway Limited's motions for summary judgment and to strike will be denied; and MTH's motion for leave to file surreply will be granted, and its motions for a preliminary injunction and to strike will be denied.

I. Background ¹

MTH designs and sells O gauge and HO scale ² model trains in the United States. Wolf Decl. I ¶ 1. Michael P. Wolf is the founder and owner of MTH, and David Krebiehl is the vice president. Id. ¶¶ 1, 8. Broadway Limited designs and sells primarily HO scale model trains and has sold more HO scale steam engines than any competitor. Id. ¶¶ 29-30, 32. Robert Grubba is the president and sole partner of Broadway Limited. Robert Grubba Decl. ¶ 2, Dec. 4, 2009.

In the model train industry, synchronizing the puffs of smoke emitted by the engine's smokestack with the “chuffing” sound of the engine has been a challenge. Wolf Decl. ¶ 14. For many years, model trains used mechanical means to emit smoke, and the “chuffing” sound was produced by a sound board in the engine. Id. ¶¶ 16-17. The lack of synchronization of the smoke, “chuffing” sound, and speed made the models appear unrealistic. Id. ¶ 17.

In 1997, Wolf assembled a team of engineers and designers to create a command control system that would synchronize the train's sound, smoke, and speed like a real train. Id. ¶¶ 8-9. Wolf, Krebiehl, and Seitz & Associates developed a functional prototype. Id. ¶ 8. By 2000, MTH had an invention that coordinated the sound, smoke, and speed of an O gauge train through integrated electrical circuitry and a microprocessor to mimic a real train. Id. ¶ 9, 13.

MTH spent more than three and a half years and $3 million to develop electronically synchronized O gauge trains. Id. ¶ 8. From 2001 to 2004, MTH spent an additional $1 million to develop and improve a communication box and remote control system for its trains. Id. ¶ 9. Two patents were issued for these projects: (1) Patent No. 6,457,681 was filed on December 7, 2000 and issued on October 1, 2002 (“Patent '681”); and (2) Patent No. 6,655,640 was filed on September 9, 2002 and issued on December 2, 2003 (“Patent ' 640”). See Pl.'s Exs. 7 & 8.

Between 2004 and 2006, MTH spent $1.5 million to adapt the electronic synchronization technology to HO scale trains. Wolf Decl. ¶¶ 9, 27. In June 2006, MTH shipped its first HO scale trains with smoke, sound, and speed coordinated through a microprocessor. Id. ¶¶ 9, 27. Today, MTH has an HO scale market share of about five percent and attributes its trains' success to this technology. Id. ¶ 31.

In 2009, Broadway Limited announced a new sound and control system called “Paragon2,” which “mechanically synchronized smoke output” with wheel movement and “chuffing” sounds. Id. ¶¶ 38-40. Wolf purchased and sent a Paragon2 model to Seitz & Associates for testing. Id. ¶ 41. Forrest Seitz, president and director of design at Seitz & Associates, determined that the Paragon2 system was not using a mechanical method but an electronic method of synchronization, which infringed several claims of the '640 Patent. Forrest Seitz Decl. & Report ¶¶ 1, 9, Nov. 19, 2009 [hereinafter Seitz Report ]; see also id.

On October 13, 2009, MTH sued Broadway Limited and Robert Grubba for infringement of the '681 and '640 Patents. Compl. ¶¶ 38-45. On October 28, 2009, Broadway Limited announced to its dealers a “New Product Arrival” of engines “with sound and synchronized puffing smoke.” Wolf Decl. ¶ 42; Pl.'s Ex. 10. On November 16, 2009, Broadway Limited filed an answer and counterclaims for invalidity of the '681 and '640 Patents, Paper No. 10, and Grubba moved to dismiss for lack of personal jurisdiction and improper venue, Paper No. 13 at 1. On November 20, 2009, MTH filed a motion for a preliminary injunction. Paper No. 15.

On December 11, 2009, Broadway Limited moved for summary judgment on its invalidity counterclaims. Paper No. 23. On January 25, 2010, MTH moved to strike Broadway Limited's reply to the motion for summary judgment, Paper No. 42, and for leave to file surreply, Paper No. 43. On January 26, 2010, Broadway Limited moved to strike MTH's motion for leave to file surreply. Paper No. 44. On February 1, 2010, William Erskine moved to withdraw as counsel for MTH. Paper No. 47.

II. AnalysisA. MTH's Motion for a Preliminary Injunction ³

MTH has moved to enjoin sales of the Paragon2 line of model trains by Broadway Limited because they infringe several claims in the '640 Patent. Pl.'s Prelim. Inj. Mot. 7. Broadway Limited has argued that MTH failed to meet the heightened preliminary injunction standard of Winter v. Natural Res. Def. Council, Inc., --- U.S. ----, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). Def.'s Prelim. Inj. Opp. 6-7.

Under 35 U.S.C. § 283, a patentee may seek a preliminary injunction against an alleged infringer. The law of the Federal Circuit governs preliminary injunctions in patent cases see Hybritech, Inc. v. Abbott Labs., 849 F.2d 1446, 1451 n. 12 (Fed.Cir.1988), and the issuance of “such an injunction is a matter largely within the discretion of the trial court,” Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375 (Fed.Cir.2009).

To obtain a preliminary injunction, MTH must show that: (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm absent preliminary relief, (3) the balance of equities favors it, and (4) an injunction is in the public interest. Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375-76 (Fed.Cir.2009) ( quoting Winter, 129 S.Ct. at 374).⁴ Because injunctive relief is an “extraordinary remedy,” MTH must show that irreparable harm is likely and not a mere possibility in the absence of a preliminary injunction. Winter, 129 S.Ct. at 375. MTH has not carried that burden.

MTH argues that it will suffer irreparable harm by losses of “market share, goodwill and its reputation as an industry innovator” if Broadway Limited is permitted to sell the infringing Paragon2 trains. Pl.'s Prelim. Inj. Mot. 25. Michael Wolf asserts that if Broadway Limited is allowed to sell its Paragon2 trains, MTH will lose (1) its entire investment in the technology patented in the '640 and '681 Patents, Wolf Decl. ¶ 45; (2) customer goodwill and its reputation as an innovator in the model train industry id. ¶ 46; (3) existing and potential customers id.; (4) market share id. ¶ 48; and (5) it will also suffer price erosion because comparable Paragon2 trains will be sold at lower prices id. ¶ 47. Pl.'s Prelim Inj. Mot. 21-32.

Proof of irreparable harm requires a showing that damages will be inadequate. See Eli Lilly and Co. v. Am. Cyanamid Co., 82 F.3d 1568, 1578 (Fed.Cir.1996); Nutrition 21 v. United States, 930 F.2d 867, 871 (Fed.Cir.1991).⁵ Because potential lost sales revenue is compensable through damages, evidence of such losses is insufficient by itself to support a finding of irreparable harm. Illinois Tool Works, Inc. v. Grip-Pak, Inc., 906 F.2d 679 (Fed.Cir.1990).⁶ Similarly, price erosion-without evidence that the patentee would be entirely forced out of the market by the infringer's lower prices-is not irreparable harm. Automated Merch., 357 Fed.Appx. at 300-01. Mere speculation about possible market share losses is insufficient evidence of irreparable harm. Nutrition 21, 930 F.2d at 871.⁷

Here, the lone affidavit of MTH's founder and owner, Michael Wolf, which asserts imprecise and exaggerated potential losses, does not establish irreparable harm. First, Wolf's assertion that MTH will lose its entire $5.5 million research and $8 million marketing investments if Broadway Limited is allowed to sell its Paragon2 models is speculation.⁸ Over the past nine years, MTH has developed technology patented in the '640 and ' 681 Patents for use in its O gauge and HO scale models. Because Broadway Limited does not sell O gauge trains, the value of MTH's investment in that market will not be affected by Paragon2 model sales.

Next, Wolf has not quantified the expected loss of HO scale market share but merely asserts that MTH “will lose existing customers and potential customers” and its current five percent market share “will be eroded.” Id. ¶ 46, 48. This speculation about possible economic loss is insufficient evidence of irreparable harm.⁹

Next, Wolf's beliefs that MTH will lose customer goodwill and its reputation as an industry innovator are unsupported. MTH introduced its HO scale trains with its microprocessor in 2006. According to MTH, it continues to be the only manufacturer of HO scale trains with this technology. Thus, notwithstanding the Paragon2 trains, MTH remains an innovator and the first-mover with this technology in the HO scale market.

Finally, MTH has not shown that its anticipated revenue losses cannot be quantified and adequately compensated by damages after trial. As it has not carried its burden of persuasion on the element of irreparable harm, MTH's motion for a preliminary injunction...