System Management Arts v. Avesta Technologies, 97 Civ. 8101(RWS).

• Decision Date: 03 March 2000
• Docket Number: No. 97 Civ. 8101(RWS).,97 Civ. 8101(RWS).
• Citation: 87 F.Supp.2d 258
• Parties: SYSTEM MANAGEMENT ARTS INCORPORATED, Plaintiff, v. AVESTA TECHNOLOGIES, INC. and David Zager, Defendants.
• Court: U.S. District Court — Southern District of New York

87 F.Supp.2d 258

SYSTEM MANAGEMENT ARTS INCORPORATED, Plaintiff, v. AVESTA TECHNOLOGIES, INC. and David Zager, Defendants.

No. 97 Civ. 8101(RWS).

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

March 3, 2000.

Proskauer Rose, New York City, by Nancy Kilson, Kenneth Rubenstein, Anthony C. Coles, John C. Stellabotte, of counsel, for plaintiff.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, by Martin Flumenbaum, Eric S. Goldstein, Steven C. Herzog, Robert C. Weisz, of counsel, for defendants.

OPINION

SWEET, District Judge.

Plaintiff System Management Arts Incorporated ("Smarts") has moved, pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, for summary judgment (1) excluding "Delphi" software developed by Morgan Stanley & Co., Inc. ("Morgan Stanley") as relevant prior art in this patent infringement action, and (2) dismissing the Second, Fourth, and Fifth counterclaims of defendants Avesta Technologies, Inc. ("Avesta") and David Zager ("Zager") (collectively the "Defendants"). Smarts has also moved, pursuant to Rule 56(e), Fed.R.Civ.P., to strike various portions of the record submitted by Avesta. For the reasons set forth below, these motions shall be granted in part and denied in part.

The Parties

Smarts is a corporation organized under the laws of the State of Delaware.

Avesta is a corporation whose principal place of business is in the State of New York.

Zager serves as Avesta's Chief Technology Officer, and resides within the State of New York.

Facts and Prior Proceedings

In this aggressively litigated action, the parties agree on precious few facts underlying their respective claims and counterclaims. Nevertheless, the facts set forth below are taken from the parties' Rule 56.1 statements, affidavits, and exhibits, and are not in dispute except where otherwise indicated.

Smarts and Avesta are both corporations that develop and sell software designed to manage information technology infrastructure. In the main, the parties' respective products are designed to assist the maintenance of networks, to facilitate system troubleshooting, and to identify both actual and potential problems with computer systems. Avesta and Smarts have, at times, competed for the same business.

Smarts is the assignee of U.S. Patent No. 5,528,516 (the "516 Patent"), as well as U.S. Patent No. 5,661,668 (the "668 Patent"). The 516 Patent was filed in May of 1994, and the 668 Patent was filed in July of 1996. Despite this later filing date, the 668 Patent application was a continuation of the initial application for the 516 Patent.

Avesta was incorporated in 1996, and a number of its employees and principals are former Morgan Stanley employees. Avesta has developed a computer program, called "Trinity," that is competitive in a number of respects with Smarts' software. Though the parties disagree concerning both timing and public disclosure, there is no disagreement that at some point Morgan Stanley developed a computer program called "Delphi" designed to model its network. Furthermore, a number of Avesta employees had previously been involved — directly or tangentially — with the development or maintenance of Delphi. The parties also do not dispute that, shortly before the incorporation of Avesta, defendant Zager visited Smarts on behalf of his then-employer Morgan Stanley to discuss matters related to systems management technology.

At an October, 1997 trade show known as "Interop," Smarts' president, Dr. Shaula Yemini ("Yemini"), had occasion to notice Zager at a booth run by Avesta, and viewed a portion of a demonstration concerning Trinity. Further observation was made by another Smarts employee, and the parties' respective employees engaged in what could best be described as "unpleasantries."

On October 31, 1997, Smarts filed suit, alleging that Trinity directly infringes upon Smarts' patents-in-suit, and that defendant Zager improperly appropriated confidential information obtained from Smarts during his visit on behalf of Morgan Stanley. Smarts' complaint asserts causes of action for patent infringement, unfair competition, breach of contract, interference with contractual relations, and unjust enrichment.

Avesta and Zager answered Smarts' complaint on December 10, 1997, asserting counterclaims for a declaratory judgment, unfair competition under the Lanham Act, "patent misuse," common law unfair competition, and for violations of Sections 349 and 350 of New York's General Business Law ("GBL"). The Defendants have contended, among other things, that Morgan Stanley's Delphi software would properly be considered "prior art" in this action, assuming Smarts' broad construction of its patents-in-suit, and that Smarts cynically initiated the instant action in order to cripple Avesta.

Oral argument on these respective motions was heard on October 13, 1999 and October 20, 1999, at which time they were deemed fully submitted.

Discussion

It is worth noting at the outset that, while the parties' briefing is voluminous, the issues presently before the Court are narrow. Neither the underlying meaning of the patents involved in this litigation are placed at issue by the instant motions, nor is the Court being called upon to render any decision regarding the occurrence of any infringement.

Rather, the principal questions presently before the Court are (1) whether a triable issue could exist as to whether a particular software program, Delphi, constitutes prior art, and (2) whether the record presently before the Court reveals any material dispute of fact concerning Avesta's counterclaims for unfair competition under the Lanham Act, common law unfair competition, and violations of GBL §§ 349, 350. Smarts professes that its receipt of the relief it presently seeks will enable it to proceed more economically, and without expending unnecessary efforts on irrelevant matters. The Defendants counter that Smarts' efforts are premature, and that the real reason for its motion with respect to Delphi is to facilitate an overly broad interpretation of its patent rights — an interpretation that would be especially problematic were Delphi to remain a potential prior art reference. Smarts has also moved, on evidentiary grounds, to strike various portions of the record developed by the Defendants, though the merits of that motion shall not be addressed separately from Smarts' primary motions for summary judgment.

As it has often been observed, summary judgment is appropriate only where the evidence is such that a reasonable jury could not return a verdict in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Under Rule 56(c), Fed.R.Civ.P., it shall be rendered "forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." As the Second Circuit has explained:

"As a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." However, where the nonmoving party will bear the burden of proof at trial, Rule 56 permits the moving party to point to an absence of evidence to support an essential element of the nonmoving party's claim.

Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir.1991) (quoting Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir.1988) (internal citations omitted)).

The Defendants have noted that Smarts' motion concerning Delphi is problematic, in that it is directed "only to the exclusion of a particular piece of evidence, and will not dispose of all or part of any claim or counterclaim asserted in this action." In this regard, they indicate that the motion is really a premature in limine motion improperly disguised as one for summary judgment.

Defendants' position is well-taken, in that the Defendants have asserted the existence a wide variety of other prior art in this action, and even the resolution of all Delphi-related defenses will not dispose of those claims connected to other prior art. However, whether characterized as a proper motion for summary judgment or as a motion in limine, Defendants will nevertheless be required to offer admissible evidence sufficient to create a genuine issue for trial. The parties have had ample opportunity for discovery, as well as for the preparation of briefing materials, and the Delphi-related motion will be addressed on the merits.

I. Smarts is Not Entitled to Summary Judgment Excluding Delphi as Prior Art

In their Second Amended Response to Smarts' Second Set of Interrogatories, the Defendants identified three statutory bases upon which they contend the Delphi software developed by Morgan Stanley constitutes "prior art" invalidating Smarts' patents-in-suit — subsections (a), (b), and (g) of 35 U.S.C. § 102. Smarts has seized upon this response, and presses that no triable issue exists with respect to invalidation under Section 102.

As Section 102 indicates:

A person shall be entitled to a patent unless —

(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or

(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States, or

...

(g) before the applicant's invention thereof the invention was made in this country by another who had not abandoned, suppressed, or concealed it. In determining priority of invention there shall be considered not only the respective...