Nisus Corp. v. Perma-Chink Systems, Inc.

Citation421 F.Supp.2d 1084
Decision Date16 March 2006
Docket NumberNo. 3:03-CV-120.,3:03-CV-120.
PartiesNISUS CORPORATION, Plaintiff, v. PERMA-CHINK SYSTEMS, INC., Defendant.
CourtU.S. District Court — Eastern District of Tennessee

Allan G. Altera, George W. Jordan, III, Merchant & Gould, Atlanta, GA, Bradley H. Hodge, E. Jerome Melson, Gentry, Tipton, Kizer & McLemore, PC, John A. Lucas, Hunton & Williams, Knoxville, TN Douglas J. Williams, Mark D. Schuman, Rachel C. Hughey, Merchant & Gould, Minneapolis, MN, Kirstin L. Stoll-Debell, Merchant & Gould, P.C., Denver, CO, Richard C. Siefert, Merchant & Gould, Seattle, WA, for Plaintiff.

D. William Toone, Brian C. Park, Douglas F. Stewart, Mark S. Carlson, Richard M. Clinton, Dorsey & Whitney, LLP, Seattle, WA, M. Denise Moretz, Woolf, McClane, Bright, Allen & Carpenter, Knoxville, TN, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

VARLAN, District Judge.

This patent infringement action between plaintiff Nisus Corporation ("Nisus") and defendant Perma-Chink Systems, Inc. ("Perma-Chink") is before the Court for a decision on the merits following a seven-day bench trial that took place between June 1 and June 13, 2005. The parties waived their right to a jury trial. Nisus called seven witnesses in support of its case of patent infringement, while Perma-Chink cross-examined these witnesses in support of its defenses and counterclaims. By way of stipulation, the parties also submitted the deposition testimony of eighteen witnesses and numerous exhibits [see Doc. 413].

Following the trial, the parties filed proposed findings of fact and conclusions of law [see Does. 406, 409], as well as timelines illustrating critical events [see Does. 405, 408]. Perma-Chink has also filed a motion for closing argument [Doc. 411], but in light of the significant evidence and argument the Court has already heard, that motion will be denied.

Pursuant to Fed.R.Civ.P. 52(a), the Court sets forth herein its findings of fact and conclusions of law.

I. Findings of Fact1
A. Parties

1. In 1983, Richard Dunstan and Allan Dietrich formed Perma-Chink, which manufactures and sells a line of products for the log home industry. Mr. Dunstan provided the financial capital for the company, while Mr. Dietrich provided the product ideas. During the late 1980s, Mr. Dietrich and two Perma-Chink employees, Stanley Galyon and Vincent Palmere, invented a formulation for a product known as Bora-Care, which is a boron-based chemical preservative applied to wood timbers to prevent or eradicate insect infestations. The business relationship between Messrs. Dunstan and Dietrich deteriorated over time, however, and in 1990, Messrs. Dietrich, Galyon, and Palmere left Perma-Chink to form Nisus. As a result of this parting of ways, Nisus and Perma-Chink became competitors.

2. Nisus, in which Mr. Dietrich retains an ownership interest, sells pesticides to the pest control market and is located in Knoxville, Tennessee. Nisus is the owner of United States Patent No. 6,426,095 B2 ("the '095 patent"), which involves "Methods and Compositions For Retarding and Eradicating Infestation in Trees and Tree-Derived Products."

3. Perma-Chink, in which Mr. Dunstan retains an ownership interest, sells a line of pesticide products for the log home industry. Perma-Chink has its manufacturing plant and primary sales office in Knoxville but also has sales offices in other locations.

B. Nisus's Claims Against Perma-Chink

4. Since 1998, Nisus has initiated three patent infringement actions against Perma-Chink pursuant to 35 U.S.C. § 1 et seq. The instant action, known as Nisus II, was commenced on February 19, 2003. [See Doc. 1]. Nisus amended its complaint on November 18, 2003. [See Doc. 38]. The Court entered a final agreed pretrial order on June 2, 2005. [See Doc. 388].

5. Nisus alleges that Perma-Chink advertised, used, and sold products known as Shell-Guard, Guardian, and Shell-Guard Ready-To-Use ("Shell-Guard RTU") that infringe the '095 patent, which is embodied in Nisus's Bora-Care product. Nisus seeks a permanent injunction and damages. [See id.].

6. Nisus also alleges that Perma-Chink's products willfully infringe the '095 patent, entitling Nisus to treble damages. [See id.].

7. In addition, Nisus contends that Perma-Chink's acts render this case exceptional under 35 U.S.C. § 285, entitling it to attorneys' fees and litigation costs. [See id.].

C. Perma-Chink's Counterclaims Against Nisus

8. Perma-Chink claims that Nisus breached its duty of candor, good faith, and honesty in dealing with the U.S. Patent and Trademark Office ("the PTO") when it failed to disclose, mischaracterized, or misrepresented related litigation and other material information. Perma-Chink contends Nisus's breach of its duty was intentional and vvillful.2 [See Doc. 388].

9. Perma-Chink contends the '095 patent is unenforceable, because Nisus breached its duty. Perma-Chink also contends the '095 patent is invalid, because Nisus's conduct was fraudulent.3 [See id.].

10. Perma-Chink also claims that Nisus misused the '095 patent against it, which renders the patent invalid. [See id.].

11. Perma-Chink claims Nisus engaged in anti-competitive behavior prohibited by antitrust law.4 [See id.].

12. Perma-Chink claims that Nisus's conduct renders this case exceptional under 35 U.S.C. § 285, entitling Perma-Chink to recover its attorneys' fees and litigation costs. [See id].

13. If Nisus's '095 patent is valid and enforceable, however, Perma-Chink stipulates that its Shell-Guard, Guardian, and Shell-Guard RTU formulations would infringe that patent. [See Doc. 378].

D. Patent Genealogy

14. On May 24, 1990, United States Patent Application No. 07/528,838 ("the '838 patent application") was filed by attorney Michael Teschner on behalf of Stanley Galyon, Vincent Palmere, and Allan Dietrich.

15. The '838 patent application claims a concentrate pesticide formulation with three components: at least one short chain polyalkylene glycol consisting of polyethylene glycol ("PEG"), at least one short chain alkylene glycol consisting of ethylene glycol ("EG"), and a glycol-soluble boron such as disodium octaborate tetrahydrate ("DOT").

16. Nisus's commercial embodiment of the inventions claimed in the '838 patent application is a product called Bora-Care. Bora-Care is a liquid concentrate substance that is diluted by the purchaser shortly before use with equal parts Bora-Care and water.

17. Several patents derive from the '838 patent application, including the following:

a. United States Patent No. 5,104,664 ("the '664 patent"), which issued to Nisus on April 14, 1992;

b. United States Patent No. 5,645,828 ("the '828 patent"), which issued to Nisus on July 8, 1997; and

c. United States Patent No. No. 6,426,095 B2, which issued to Nisus on July 30, 2002, from United States Patent Application No. 09/888,875 ("the '875 patent application").

The '875 patent application was filed on June 25, 2001.

18. The '095 patent claims priority to the '838 patent application. Consequently, under 35 U.S.C. § 102(b) (the "on-sale bar"), the critical on-sale bar date for the '095 patent is May 24, 1989, one year prior to the filing of the '838 patent application.

E. Nisus I Litigation

19. On July 14, 1998, before the '095 patent had issued, Nisus commenced its first patent infringement action against Perma-Chink. See Nisus Corp. v. Perma-Chink Sys., Inc., No. 3:98-CV-433 (E.D.Tenn.). In that action, known as Nisus I, Nisus contended that Perma-Chink's Shell-Guard and Guardian products infringed claims of the '664 and '828 patents. Almost three years after Nisus I was commenced, Nisus would voluntarily dismiss its allegations of infringement of the '664 patent, and Perma-Chink would file a motion for summary judgment alleging that the '828 patent was unenforceable pursuant to 35 U.S.C. § 102(b), because the product that embodied those patents was sold prior to the critical on-sale bar date.

20. On April 22, 1999, Mr. Teschner, who had handled the '838 patent application for Nisus, was admitted pro hac vice to represent Nisus in Nisus I.

21. On February 25, 2000, Allan Altera was admitted pro hac vice and substituted for Mr. Teschner as Nisus's counsel in Nisus I.

22. On August 23, 2000, during a deposition in Nisus I, Mr. Altera cross-examined Jeff Baden, a former Vice President of Marketing for Perma-Chink from fall 1989 to September 1990. Mr. Baden joined Nisus as Vice President of Marketing, where he was employed from September 1990 to March 1995. Mr. Baden testified that he had direct responsibility for marketing the new Bora-Care concentrate from late 1989 through March 1995, and he had access to all of the Bora-Care marketing material. Mr. Baden also stated that he had never heard of a Bora-Care ready-to-use ("RTU") product and had never seen any marketing materials for an earlier Bora-Care RTU formulation.5

23. On August 23, 2000, during another Nisus I deposition, Mr. Altera cross-examined John Leeper, editor of the Muir Log Home Annual Buyer's Guide from 1988 to 1990. During the deposition, Mr. Leeper identified the contract for the Bora-Care advertisement "Rest Assured" and confirmed that it was executed in August 1988. He also confirmed that the "Rest Assured" ad was published in the January-February 1989 issue of the Muir Log Home Annual Buyer's Guide.

24. On August 25, 2000, during another Nisus I deposition, Mr. Altera cross-examined Jeffery Liekhus, Perma-Chink's Marketing Manager from spring 1986 through May 5, 1989. During the deposition, Mr. Liekhus testified to the following relevant facts:

a. Bora-Care was developed as a concentrate in 1988. Mr. Liekhus personally developed a marketing brochure in the fall of 1988 for the new Bora-Care concentrate. In addition, he designed the product label for the new Bora-Care concentrate, which included user application and mixing instructions as well as safety information.

b. He further testified he...

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