SUNBEAM PRODUCTS v. Wing Shing Products (BVI) Ltd., 03 Civ. 7190(RJH)

• Decision Date: 01 July 2004
• Docket Number: 03 Civ. 7923(RJH),No. 03 Civ. 7190(RJH),04 Civ. 3347(RJH).,03 Civ. 7190(RJH)
• Parties: SUNBEAM PRODUCTS, INC., Appellant-Cross-Appellee, v. WING SHING PRODUCTS (BVI) LTD., Appellee-Cross-Appellant.
• Court: U.S. District Court — Southern District of New York

311 B.R. 378

SUNBEAM PRODUCTS, INC., Appellant-Cross-Appellee, v. WING SHING PRODUCTS (BVI) LTD., Appellee-Cross-Appellant.

Nos. 03 Civ. 7190(RJH), 03 Civ. 7923(RJH), 04 Civ. 3347(RJH).

United States District Court, S.D. New York.

July 1, 2004.

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Douglas J. Gilbert, Herbert F. Schwartz, Fish & Neave, Kevin P. Hughes, Nicholas P. Groombridge, Weil, Gotshal & Manges, L.L.P., New York City, for appellant.

William Iran Dunnegan, Ronald Lee Zaslow, Perkins & Dunnegan, New York City, for appellee.

MEMORANDUM OPINION AND ORDER

HOLWELL, District Judge.

This matter comes before the Court as an appeal from a memorandum decision of the Bankruptcy Court dismissing the claims of Appellant-Cross-Appellee Sunbeam Products, Inc. ("Sunbeam") and permanently enjoining Sunbeam from infringing U.S. Patent No. D348, 585 ("Patent"). Appellee-Cross-Appellant Wing Shing Products (BVI) Ltd. ("Wing Shing") opposes cross-appeals to reverse certain parts of the Bankruptcy Court decision, including the Bankruptcy Court's calculation of damages.¹ For the reasons stated herein, the Bankruptcy Court's memorandum decision is affirmed in part and reversed in part.

FACTS

This litigation revolves around a design patent for a coffeemaker. The following facts are based on the record designated by the parties and the findings of the Bankruptcy Court after trial, see In re Al Realty Marketing of N.Y., Inc., 293 B.R. 586 (Bankr.S.D.N.Y.2003).

In June 1991, John Sham, the president of Wing Shing, contacted Mr. Coffee, Inc. ("Mr. Coffee") to inquire whether Mr. Coffee might be interested in contracting with Wing Shing to manufacture coffeemakers.² (See In re Al Realty Marketing of N. Y., Inc., 293 B.R. at 595 (hereinafter "Op."); D29.)³ Sham stated that Wing Shing had been in business for 28 years and was now one of the largest Hong Kong manufacturers of household appliances. (See D29.) Sham provided Jeffrey Blackwell, then Vice President of Operations at Mr. Coffee, with sketches of a proposed coffeemaker design. (See Op. at 595.)

Mr. Coffee produced and marketed exclusively coffeemakers. (See D12, Ex. 10.) At the time Sham contacted Mr. Coffee, Mr. Coffee was interested in marketing a series of European-styled coffeemakers. (See D82 at 100:19-102:16.) Europeanstyled coffeemakers had softer edges and were more circular, less angular than other coffeemakers. (See D82 at 102:7-102:16.)

Through a series of correspondences beginning in August 1991 and lasting through early 1992, Mr. Coffee suggested a number of changes to the coffeemaker design proposed by Wing Shing. (See Op. at 595-96; D34; D36; D39; D40; D44; D47; D49; D69.) The changes included (1) eliminating grooves on the brew basket so that the basket was smooth, (2) eliminating ridges on the reservoir cover so that the cover was smooth, (3) moving the power switch from the base of the coffeemaker to the left side, (4) making the brew basket open from left to right instead of right to left, (5) moving the water level gauge from the right side of the coffeemaker to the left side, (6) inserting a metal plate on the bottom of the coffeemaker, and (7) adding a shroud to the power switch. (See Op. at 595-96; D34; D35; D37; D38; D39.)

On November 8, 1991, while the parties were still discussing changes to the proposed coffeemaker design, Mr. Coffee provided Wing Shing with a draft supply agreement. (See Op. at 596; D12, Ex. 6.) The parties proceeded to negotiate the terms of the contract as the coffeemaker design was being finalized. (See Op. at 596.) Mr. Coffee agreed to allow Wing Shing to use certain Mr. Coffee patents for coffeemakers Wing Shing manufactured for Mr. Coffee. (See D12, Ex. 10; D81 at 37:7-37:16.)

In early July 1992, Wing Shing and Mr. Coffee executed an agreement ("Agreement") by which Wing Shing would manufacture a coffeemaker to be sold by Mr. Coffee, namely the coffeemaker ("AD10") originally proposed by Wing Shing and incorporating certain changes suggested by Mr. Coffee. (See Op. at 596; D55.) The term of the Agreement began on January 7, 1992, and extended through December 31,1994. (See Op. at 596; D55 (¶ 4).) The Agreement granted Mr. Coffee an exclusive license to sell the AD10 in North America. (See Op. at 596.) The Agreement stated that "any and all existing patent rights for the coffeemaker units or any of its component parts shall be the sole and exclusive property and/or responsibility of Mr. Coffee. In the event that Mr. Coffee and Wing Shing jointly develop a patentable item both parties agree to negotiate patent rights prior to applying for the patent." (See Op. at 596; D55 (¶ 16).) The Agreement also stated that the "tooling for the coffeemaker, and drawings related thereto, is property of Mr. Coffee." (See Op. at 596; D55 (¶ 9).) The Agreement further stated that disputes regarding the Agreement would be "governed by the laws of the State of Ohio." (D55 (¶ 23(f)).)

Shortly after executing the Agreement and without informing Mr. Coffee, Sham filed a patent application for the AD10 design. (See Op. at 596; D70; D71; D81 at 37:2-37:6, 127:11-129:3.) Sham's application listed himself as the sole inventor.⁴ (See Op. at 596; D71; D81 at 127:7-127:10.) The Patent issued in July 1994, though Wing Shing neither informed Mr. Coffee nor included notice of the Patent on the AD10 or its packaging. (See Op. at 596; D70; D81 at 37:2-37:6.)

In November 1994, Mr. Coffee informed Wing Shing that Simatelex Manufactory Co., Ltd. ("Simatelex") would be manufacturing some AD10 coffeemakers for Mr. Coffee. (See Op. at 596; D58; D81 at 44:14-44:22.) Wing Shing did not object at that time. (See Op. at 596.) However, in a March 9, 1995, fax to Dan Kubis, then an employee of Mr. Coffee, Wing Shing stated that, although Mr. Coffee owned the tooling, "we Wing Shing have the product design patent of AD10 and was being filed. That means, we can sell and we will sell the same product to other customers in the same market. It will definitely create business conflicts between us." (See Op. at 596-97; D59.)

In January 1996, Sham attended a houseware show in Chicago, Illinois, and noticed that the AD 10 on display at Mr. Coffee's booth had not been manufactured by Wing Shing. (See Op. at 597.) Sham claims that he discussed this with Kubis at the show. (See Op. at 597.)

Around the time of the houseware show, Kubis sent a letter to Wing Shing complaining about companies other than Sunbeam selling AD 10 coffeemakers manufactured by Wing Shing. (See Op. at 597.) The letter indicated that Mr. Coffee was considering production of a different model coffeemaker, the AD 12, and offered to allow Wing Shing to manufacture the AD12 as a "reward" should AD10 business decrease. (See Op. at 597.) Wing Shing responded that it would provide a price quote for manufacturing the AD 12 and that, at Mr. Coffee's request, Wing Shing would cease manufacturing the AD10 for other companies. (See Op. at 597.)

In the fall of 1998, Sunbeam, which had by then acquired Mr. Coffee, considered shifting manufacturing of the AD10 away from Wing Shing to Simatelex. (See Op. at 597; CD141 at 26:14-27:8.) In an email exchange on October 1, 1998, Sunbeam employee David Buck concluded that Wing Shing "owns the tooling and design for the AD10, even though 4 or 5 years ago we Mr. Coffee made the decision to tool the same design at Simatelex. They Wing Shing either don't realize this fact... or have kept quiet about it because our business was increasing with them. It likely WILL be an issue if we part ways". (See Op. at 597; CD113.) Armed with this information, Sunbeam employee Paul Warfel stated, in another email exchange, that the design of the AD10 "may change slightly to avoid patent issues. TBD."⁵ (See Op. at 597; CD114.)

In 2000, Mr. Coffee executed a formal supply agreement with Simatelex. (See CD120; CD121.) By the end of 2000, Sunbeam's volume of purchases from Wing Shing decreased by 50 percent. (See Op. at 597.)

On February 9, 2001, Wing Shing initiated a patent infringement action against Simatelex.⁶ (See Op. at 597-98.) On February 23, 2001, Sunbeam commenced an Adversary Proceeding against Wing Shing in Bankruptcy Court. (See Op. at 598.) The Bankruptcy Court held a trial on this matter and issued its ruling on June 3, 2003.

The Bankruptcy Court ruled that Wing Shing was not equitably estopped from asserting an infringement claim against Sunbeam because Wing Shing did not mislead Sunbeam into thinking that Wing Shing would not enforce its patent. (See Op. at 599-600.) However, the Bankruptcy Court determined that Wing Shing failed to provide notice of the infringement and that the doctrine of laches applied, thereby limiting Wing Shing's damages to the period after suit against Simatelex was initiated. (See Op. at 603.)

With respect to the contractual issues in dispute, the Bankruptcy Court found that the parties' use of the term "existing patent rights" did not include the right to apply for a patent and, thus, the assignment of "any and all existing patent rights" to Mr. Coffee did not include the idea or unfiled application for the Patent. (See Op. at 607.) The Bankruptcy Court further found that, according to the terms of the contract, Sunbeam did not have an exclusive license to use the Patent such that Wing Shing's infringement claim was barred. (See Op. at 610.) The Bankruptcy Court did hold that, assuming that the Patent was jointly developed and that Wing Shing was contractually obligated to negotiate the rights for the Patent, Wing Shing breached this obligation by filing the patent application. (See Op. at 607-08.) However, the statute of limitations had run on Sunbeam's possible claim for this breach of contract. (See Op. at 608.)

Finally, the Bankruptcy Court ruled that Sunbeam was not a joint inventor of the Patent. (See Op. at 614.) The Bankruptcy Court...