Saturday, February 23, 2019

CAFC vacates ND Ohio in Coda v. Goodyear; a case of "judicial notice" overreaching?

The CAFC vacated the decision of the Northern District of Ohio in the Coda case:

Plaintiffs appeal the district court’s dismissal and denial of leave to amend. We vacate the district
court’s dismissal and remand for further proceedings consistent with this opinion.

GREGORY A. CASTANIAS of Jones, Day represented the losing party, Goodyear.

The issues included inventorship and misappropriation of trade secrets, involved after talks between Coda and
Goodyear broke down concerning a tire inflating technology. The gist of the problem is seen in the text:

The following month, December 2009, a Goodyear employee
on Mr. Benedict’s team independently contacted
Coda to inquire about the status of Coda’s SIT technology
in preparation for an internal Goodyear meeting.

Coda explained that Mr. Benedict had surprisingly gone silent.
The employee replied, saying that “during [Goodyear’s]
brainstorm session, I indicated your invention matches up
nicely with Goodyear’s current criteria for development
and asked if we have looked into this with SIT Coda. [Mr.
Benedict’s] response to this question was oddly vague.”
J.A. 58 ¶ 40 (first alteration in original).
Also that month, and unbeknownst to Coda, Goodyear
applied for a patent entitled “Self-Inflating Tire Assembly.”
Goodyear’s application published on June 23, 2011, issued
as U.S. Patent No. 8,042,586 (the “’586 patent”) on October
25, 2011, and named Messrs. Benedict and Losey as the


The complaint [of Coda] alleges that
these patents have claims with limitations covering the
novel, proprietary, and confidential information Coda disclosed to Goodyear.

Of Coda's initial losses at district court:

Nine months after briefing on the motion to dismiss
concluded, the district court issued an opinion and order
denying Plaintiffs’ motion to strike and granting Defendants’ motion to dismiss.
Coda Dev. s.r.o. v. Goodyear Tire
& Rubber Co., No. 5:15-cv-1572, 2016 WL 5463
058 (N.D.
Ohio Sept. 29, 2016) (“Dismissal Opinion”). The court denied Plaintiffs’ motion to strike because it found the Hrabal
article was judicially noticeable as a “2008 public disclosure of something [Plaintiffs]
now claim[] was secret when
disclosed to Goodyear in 2009.” Id. at *2.

The court’s opinion did not explain why it denied Plaintiffs’ alternative request
to file a sur-reply addressing the new article.


Nearly a year after Plaintiffs filed their post-judgment
motions, the district court denied them. Coda Dev. s.r.o. v.
Goodyear Tire & Rubber Co., No. 5:15-cv-1572, 2017 WL
4271874 (N.D. Ohio Sept. 26, 2017). The court acknowledged that the
proposed amended complaint set forth
Plaintiffs’ correction-of-inventorship claims with “amazing
clarity.” Id. at *6. But, in the court’s view, the factual details
added in the proposed amended complaint—particularly the specific location of the pump tube—should have
been in the original complaint. Id. at *5–6. Given this
view, and Plaintiffs’ decision not to request leave to amend
before judgment, the court declined to allow Plaintiffs a “do
over” on these claims. Id. at *7. The court separately rejected Plaintiffs’
arguments concerning their trade-secretmisappropriation claim. Id

The CAFC found the district court in error.

Accepting the complaint’s well-pleaded factual allegations as true and drawing all reasonable inferences in
Plaintiffs’ favor, we conclude that Plaintiffs’ claims for correction of inventorship are plausible.
The complaint describes Goodyear’s prior failures with inflation technology.
It also describes two meetings with Goodyear representatives—both arranged at Goodyear’s initiative and attended
by Mr. Benedict, Goodyear’s point-person on SIT technology. Goodyear sought technical information from Coda at
both meetings. And in the second meeting, Mr. Benedict
requested that he and his team be allowed to spend some
time alone with Coda’s functional prototype, during which
he photographed it without permission. After this second
meeting, Goodyear stopped communicating with Coda for
a time. When Coda reached out to Mr. Benedict attempting
to restart communications, Mr. Benedict responded that a
meeting would be premature.


These facts allow the
reasonable inference that Mr. Hrabal conceived the invention
of the ’586 patent and that Messrs. Benedict and Losey
did not. See Iqbal, 556 U.S. at 678 (“A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”). They also
allow the reasonable inference that Mr. Hrabal made a
more-than-insignificant contribution to the conception of at
least one claim of each of the Alleged Jointly Invented Patents.
Cf. Fina Oil, 123 F.3d at 1473 (“The determination
of whether a person is a joint inventor is fact specific, and
no bright-line standard will suffice in every case.”).
Further, Coda’s two meetings with Goodyear representatives,
as well as the parties’ signing a nondisclosure agreement
going to cooperation between the parties in developing SIT
technology, allow the reasonable inference that the collaboration
requirement was satisfied as to the Alleged Jointly
Invented Patents.

The “plausibility standard is not akin to a ‘probability
requirement.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 556). Rather, Plaintiffs need only “nudge[]
their claims across the line from conceivable to plausible.”
See Twombly, 550 U.S. at 570.

The district court committed procedural error:

The district court’s contrary conclusion rested largely
on a procedural error—namely, the consideration of material outside the pleadings.
The principle is familiar:

Assessment of the facial sufficiency of the complaint must ordinarily be undertaken without
resort to matters outside the pleadings. If a court
does consider material outside the pleadings, the
motion to dismiss must be treated as a motion for
summary judgment under Rule 56 and all parties
must be given a reasonable opportunity to present
all material pertinent to the motion.

Gavitt v. Born, 835 F.3d 623, 640 (6th Cir. 2016) (citation
omitted); see Fed. R. Civ. P. 12(d) (stating similarly); 5C
Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure § 1366 (3d ed. 2018) (“Once the district court
decides to accept matters outside of the pleadings, the presence of the word ‘must’ [in Rule 12(d)] indicates that the
judge must convert the motion to dismiss into one for summary judgment . . . . [T]hat is what has been done in a vast
array of cases, especially when the district court actually
considers the contents of this material in deciding the motion.”).

The district court considered the Hrabal article without
converting Defendants’ motion into one for summary judgment
and without giving Plaintiffs a reasonable opportunity to present all pertinent material.

Of judicial notice:

Although a district court may consider judicially noticeable matters
outside the pleadings without converting
a Rule 12(b)(6) motion into one for summary judgment, see
Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir.
1999), overruled on other grounds by Swierkiewicz v.
Sorema N. A., 534 U.S. 506 (2002), judicially noticeable
facts must “not [be] subject to reasonable dispute,” see Fed.
R. Evid. 201(b). Here, the district court used the Hrabal
article to “determine whether it was a 2008 public
disclosure of something Coda now claims was secret when
disclosed to Goodyear in 2009.” Dismissal Opinion, 2016
WL 5463058, at *2; see J.A. 24–25 (concluding that the article
publicly disclosed each element of the alleged trade
secrets). But whether the Hrabal article actually disclosed
those alleged novel trade secrets was a reasonably (indeed,
hotly) disputed factual issue—one outside any judicial-notice exception
to the general rule requiring conversion, and
one that should not have been resolved adversely to Plaintiffs on a motion to dismiss.
The district court erred in considering the Hrabal article for this purpose without
converting Defendants’ motion to dismiss into one for summary judgment and
giving Plaintiffs a reasonable opportunity to present all pertinent material.

Of significance in the trade secret component of the case was the fact that the
district court adopted a theory NOT PRESENTED by the defendants, and to which the plaintiffs had
no opportunity to respond:

The district court adopted a different
theory—one to which Plaintiffs never had an opportunity
to respond. The court found that the facts alleged in the
complaint, including the independent contact from the
Goodyear employee in 2009, “should have been sufficient
notice to plaintiffs that something might have been amiss,”
thus triggering a duty to investigate. Dismissal Opinion,
2016 WL 5463058, at *10 (emphasis in original). The court
found that such an investigation would have led to the discovery of the patent application when it published. Id.

Of the denial of plaintiffs' amended complaint:

At oral argument, Plaintiffs expressed their desire to
proceed with their proposed amended complaint even if
this court were to conclude, as it now has, that the original
complaint sufficiently stated the claims on appeal. Oral
Arg. at 7:40–52; see id. at 7:02–40 (describing how the number
of claims in the proposed amended complaint has been
pared down from the original complaint). We deem Plaintiffs’ suggested
approach sensible and are aware of no reason why they should not be permitted to file their proposed
amended complaint on remand


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