Wednesday, July 14, 2021

CAFC reviews D.N.J. on ticks and confidentiality agreements; plaintiff wins on misappropriation but loses on infringement

The background of the opinion describes the rather complex set of issues:

We describe the facts in the light most favorable to the party that won the jury verdict (here, the plaintiffs). Marni Markell Hurwitz (“Ms. Markell”) is an inventor who does not manufacture her own products but presents her ideas to companies for them to manufacture and sell. I Did It, Inc. and its d/b/a entity Nite Glow are the companies through which Ms. Markell does business. Defendant Central is a distributor and manufacturer of pet and garden products, including flea and tick products. Defendant Four Paws, a subsidiary of Central, sells products for cats and dogs. In May 2009, Ms. Markell met with the then-president (Allen Simon) and other representatives of Four Paws to share her idea for an applicator for the administration of flea and tick medicine directly to an animal’s skin. At the beginning of the meeting, Ms. Markell and Mr. Simon entered into a confidentiality agreement governed by New Jersey law and dated May 5, 2009, with Ms. Markell identified as the “Owner” of the confidential information and Mr. Simon as president of Four Paws identified as the “Recipient.”1 J.A. 20,899. Ms. Markell then presented her idea for the applicator, including drawings and a prototype. Ms. Markell testified at trial that Mr. Simon and other representatives of Four Paws were “very excited” by her presentation. Id. at 14,349. Mr. Simon instructed his assistant to send Ms. Markell’s presentation materials to Central’s then-head of Life Sciences, Rick Blomquist. Ms. Markell and Mr. Blomquist discussed Ms. Markell’s idea and materials in telephone conversations over a period of approximately five months. On November 18, 2009, Mr. Blomquist emailed Ms. Markell about a future meeting in Atlanta to discuss Ms. Markell’s applicator idea, but Mr. Blomquist cancelled the meeting. The parties did not enter into a licensing agreement for Ms. Markell’s applicator idea. Meanwhile, Central had pursued a project called Project Speed, which began in spring of 2009 and ultimately focused on designing a new applicator. There was a kickoff meeting for the project in November 2009 that focused on “a treatment dispensing system” with long-term focus on “potential solutions for spot on application.” Id. at 22,940. Mr. Blomquist participated in Project Speed, including by attending a two-day brainstorming session in February 2010. The project resulted in the selection of a new applicator design by August 2010.
In parallel with her discussions with defendants, Ms. Markell had applied for a patent for her applicator idea. On October 2, 2008, Ms. Markell filed the application that led to the ’445 patent. The patent application was published on April 8, 2010, thereby disclosing Ms. Markell’s applicator to the public. The ’445 patent was granted on November 15, 2011.

On the misappropriation claim

Defendants first argue that plaintiffs should not have been allowed to present the misappropriation of idea claim to the jury as a matter of law because of the economic loss doctrine. Many courts recognize some form of an economic loss doctrine. The Restatement (Third) of Torts’s formulation of the economic loss doctrine is that, generally, “there is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties.” Restatement (Third) of Torts: Liab. for Econ. Harm § 3 (Am. L. Inst. 2020).
New Jersey’s version of the economic loss doctrine likewise bars tort recovery under certain circumstances where the parties have entered into an express contract. The scope of the doctrine is unclear, and the Third Circuit has described the area of law as a “morass.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 144 (3d Cir. 2001), abrogated on other grounds by Ray Haluch Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Engineers & Participating Emps., 571 U.S. 177 (2014).2
To understand the defendants’ arguments, a brief explanation of the legal basis of a misappropriation of idea claim is necessary. The leading New Jersey case is Flemming v. Ronson Corporation, 258 A.2d 153 (N.J. Super. Ct. Law Div. 1969), aff’d, 275 A.2d 759 (N.J. Super. Ct. App. Div. 1971) (mem.), which recognized that where a person communicates a novel idea to another with the intention that the latter may use the idea and compensate him for such use, the other party is liable for such use and must pay compensation if he actually appropriates the idea and employs it in connection with his own activities.
Id. at 156–57. “A plaintiff is required to establish as a prerequisite to relief that (1) the idea was novel[,] (2) it was made in confidence, and (3) it was adopted and made use of.” Id. at 157
We conclude that the New Jersey Supreme Court would follow the Restatements and not bar the misappropriation of idea claim under the economic loss rule where there is a confidentiality agreement protecting the idea.

Relating to the publication of a patent application

Defendants further argue that the district court erred in denying defendants’ Rule 50(b) motion on the misappropriation claim because any purported use of Ms. Markell’s idea (the third element of a misappropriation of idea claim) “did not happen until well after that design was disclosed to the public,” Defs.’ Opening Br. 48, at which point the idea was no longer protected (discussed further below). The district court determined that “there [was] ample record evidence from which the jury could rationally conclude that defendants made use of [Ms. Markell’s] idea, and that they did so before the publication of plaintiffs’ patent application.” J.A. 21–22
As the district court summarized, there was evidence at trial showing that, before the patent application become public, Ms. Markell had presented her applicator idea to Four Paws’ then-president and vice president, who reacted with enthusiasm; that Four Paws’ president had Ms. Markell’s presentation materials sent to Central’s Rick Blomquist; that Mr. Blomquist had received the materials and talked with Ms. Markell about them over the telephone; that Mr. Blomquist was involved with Central’s project to develop the accused products, Project Speed, and called himself a “champion and facilitator” for Central on the project, id. at 20,981; and that defendants’ efforts to improve delivery methods for their tick and flea products “did not bear fruit until 2009 into 2010—temporally, after [Ms.] Markell left her materials with [Mr.] Simon and they were sent to [Mr.] Blomquist,” id. at 22–23.

We conclude that there is ample evidence from which a jury reasonably could find liability, and the district did not err in denying judgment as a matter of law on this ground.

Of affirmative defenses

Defendants would only bear the burden of proof if headstart damages were an affirmative defense. Courts have recognized that defenses that are denials of “matters that must be proven by [the plaintiff] at trial” are distinct from “affirmative defenses upon which [the defendant] has the burden of proof.” See 5 Charles Alan Wright et al., Federal Practice and Procedure § 1278 (3d ed. 2021) (quoting Dynasty Apparel Indus. Inc. v. Rentz, 206 F.R.D. 603, 607 (S.D. Ohio 2002)) (alterations in original); see also id. § 1270 (denials or negative defenses are distinct from affirmative defenses). Determination of head start damages was part of plaintiffs’ burden of proof, not an affirmative defense as to which defendants would bear the burden of proof. See, e.g., Reichert v. Vegholm, 840 A.2d 942, 945 (N.J. Super. Ct. App. Div. 2004) (“[T]he general rule is that ‘the burden of proof that the tortious conduct of the defendant has caused the harm to the plaintiff is upon the plaintiff.’”) (quoting Restatement (Second) of Torts, § 433B(1) (Am. L. Inst. 1965))
Although it was plaintiffs’ burden to prove damages arising from the misappropriation of Ms. Markell’s idea,13 plaintiffs made no effort to tie their damages case to the advantage defendants would have received from a head start resulting from the misappropriation. The time period of the sales plaintiffs relied on to establish disgorgement of defendants’ profits was from March 22, 2012, after defendants’ accused products launched (almost two years after Ms. Markell’s idea became public in April 2010), through May 31, 2018, more than eight years after Ms. Markell’s idea became public. There is no showing that this lengthy period was an appropriate measure of a head-start period. Plaintiffs indeed concede in their briefing that neither party in this case “presented evidence and argument at trial regarding ‘head start’ calculations.” Pls.’ Br. 46. Nevertheless, plaintiffs suggest that “[t]he jury’s $11 million dollar figure might well have been calculated by taking Central’s total profit and adjusting downward to account for the head-start period.” Id. at 48. Here, plaintiffs provided no evidence of a head-start period, and “it may not be presumed that the jury found facts on which there is no evidence.” Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 767–68 (Fed. Cir. 1988). We conclude that, as a matter of law, plaintiffs are limited to head-start damages and did not provide evidence that would support the damages award of over $11 million. We reverse the district court’s denial of defendants’ motion for a new damages trial, vacate the jury award of damages for misappropriation, and remand for a new trial of damages for misappropriation, which damages must be attributable to the head-start period

Patent infringement

Lastly, we address plaintiffs’ cross-appeal of the district court’s judgment of non-infringement of claim 1 of the ’445 patent as a matter of law. Claim 1 requires that the chamber of the claimed applicator’s base be made of rubber. See ’445 patent, col. 9 ll. 35–42. The district court determined that plaintiffs had disavowed plastic from the scope of the claim. Plaintiffs contend that there was no disavowal or, in the alternative, that the scope of the disavowal was not as to all plastics

“[W]hen the patentee unequivocally and unambiguously disavows a certain meaning to obtain a patent, the doctrine of prosecution history disclaimer narrows the meaning of the claim consistent with the scope of the claim surrendered.” Biogen Idec, Inc. v. GlaxoSmithKline LLC, 713 F.3d 1090, 1095 (Fed. Cir. 2013). Here, the district court’s interpretation of the prosecution history involves only intrinsic evidence (and we find the plaintiffs’ extrinsic evidence irrelevant). See Phillips v. AWH Corp., 415 F.3d 1303, 1317 (Fed. Cir. 2005) (en banc). The district court’s determination of disclaimer is therefore subject to de novo review. See Teva Pharms. USA, Inc. v. Sandoz, Inc., 574 U.S. 318, 331 (2015). We agree with the district court that plaintiffs disavowed plastic in restricting the “flexible deformable material” of the applicator base’s chamber to rubber. As submitted to the Patent and Trademark Office, original independent claim 1 claimed “[a] direct delivery applicator for delivering a solution to an animal’s skin,” and original claim 3 claimed, as relevant here, “[a] direct delivery applicator as recited by claim 1, wherein said chamber of said applicator base is composed of a flexible deformable material so that said chamber can be squeezed.” J.A. 1537–38 (emphasis added). Original claims 1 and 3 were rejected by the examiner as obvious over U.S. Patent No. 7,000,618 (“Dovergne”) and U.S. Patent No. 5,183,006 (“Robinson”). Dovergne disclosed an applicator base with a chamber made of “a flexible deformable material.” J.A. 1494.


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