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Marx Industries, Inc. v. Chestnut Ridge Foam, Inc.

United States District Court, W.D. North Carolina, Statesville Division

October 29, 2014

MARX INDUSTRIES, INC., Plaintiff,
v.
CHESTNUT RIDGE FOAM, INC., Defendant/Third-Party Plaintiff,
v.
MTJ AMERICAN, LLC, Third-Party Defendant.

MEMORANDUM AND ORDER

RICHARD L. VOORHEES, District Judge.

THIS MATTER is before the Court on the parties' cross-motions for summary judgment. (Docs. 48, 50, 52, 54). The Court takes up the dispositive motions following the parties' failed attempts to memorialize their "agreement in principle to settle the case, " which was announced to this Court on February 28, 2014 immediately prior to commencement of the March 2014 Trial Term.[1] (Doc. 92).

Defendant/Third-Party Plaintiff Chestnut Ridge Foam, Inc. ("CRF") also moves to strike affidavits submitted by Mark Kiser ("Kiser"), President of Marx Industries, Inc. ("Marx") and Member Manager of MTJ American, LLC ("MTJ") in connection with the summary judgment motions. (Doc. 64).

Plaintiff Marx and Third-Party Defendant MTJ continue to seek additional discovery. (Docs. 97, 98). In conjunction with their filing advising the Court of the failed settlement attempt, Marx/MTJ seek leave of the Court to depose prospective trial witnesses associated with Defendant (suggesting that trial subpoenas had issued and "trial depositions" are necessary in the event the prospective witnesses are unavailable when the trial is re-calendared). Id.

The motions are fully briefed and ripe for disposition by the Court.

The case has been rescheduled for trial during the January 2015 Trial Term in the Statesville Division.

I. Nature of the Case

Plaintiff Marx is incorporated in North Carolina, with its principal place of business in Granite Falls, North Carolina.

Defendant/Third-Party Plaintiff CRF is a Pennsylvania corporation with its principal place of business in Latrobe, Pennsylvania.

Third-Party Defendant MTJ is a limited liability company organized under the laws of the State of North Carolina with its principal place of business in Granite Falls, North Carolina.

Marx and MTJ represent that MTJ is a separate and distinct entity from Marx.[2] Marx manufactures foam while MTJ manufactures mattresses with the foam produced by Marx as a primary material. Marx/MTJ admit to common ownership and "some degree [of] common management." (MTJ Answer, ¶ 11). Mark Kiser, President of Marx and a Member Manager of MTJ, serves both entities in different capacities.

According to CRF, it has been engaged in the manufacture of flame-resistant foam since 1986, has developed and refined its proprietary manufacturing process over the course of more than twenty-five years, is a leader in the industry, and occupies a significant market position. (CRF Counterclaim & Third-Party Complaint, ¶¶ 12-15). CRF sells its products within the private and public sectors, namely, within the aerospace, transportation, military and institutional sectors, as well as extensive sales to correctional facilities and state and local corrections departments throughout the United States. (CRF Counterclaim & Third-Party Complaint, ¶¶ 13-15). According to CRF, CRF employees John J. McManamy and Carl M. Ogburn began to develop plans for a correctional mattress with a transparent cover for the detection of contraband in early 2002.[3] (Doc. 55/Exh. 2/McManamy Decl., ¶ 3). Approximately nine years later, on November 15, 2011, McManamy and Ogburn (and assignee CRF), obtained U.S. Patent No. 8, 056, 169 (the 169 Patent) entitled, "Institutional Mattress and Pillow Composite with Transparent Covering." (Doc. 55/Exh. 1/169 Patent).

It is undisputed that "MTJ offers mattress products to the "correctional industry" and is likely a competitor [of CRF]." (MTJ Answer, ¶ 20). Marx/MTJ admit selling foam mattresses with clear covers since November 15, 2011. (Exh. 6/Response to Requests for Admission 10 13). The two MTJ products relevant here are MTJ's "Clear Safe Detention Mattress" and "Fire Safe Detention Mattress."

This lawsuit stems from Marx's 2011 purchase of a piece of equipment Marx has used to manufacture foam and its subsequent operation by Marx/MTJ. Prior to the initiation of this action by Marx, CRF commenced a lawsuit in Pennsylvania against another foam manufacturing company, Innovative Foam Products ("IFP"). In the Pennsylvania suit, CRF asserted that IFP misappropriated trade secrets regarding CRF's process and operation of certain equipment used to manufacture foam products. As a result of IFP's insolvency, Marx purchased the equipment previously belonging to IFP - the same equipment at issue in the earlier Pennsylvania litigation.[4] (Compl. 12, 13.)

In connection with the equipment purchase, Marx alleged it entered into a "Confidential Agreement" with IFP in which IFP represented to Marx that CRF "does not possess trade secrets relating to the equipment." (Compl. 25.) After Marx/MTJ failed to produce a copy of the alleged agreement, the Magistrate Judge issued an Order compelling production in January 2014. (Doc. 73). The inability of Marx/MTJ to produce the Agreement was a topic of the several formal discovery disputes litigated before this Court and the purported Agreement continues to be a subject of debate between the parties.[5]

On March 17, 2014, Marx/MTJ produced an unexecuted copy of a document entitled, "Confidential Discussion Document Representations, Indemnity and Confidentiality Agreement."[6] (Doc. 94/Exh. 1). The Confidential Discussion Document ("CDD") expressly represents its purpose, to enable IFP and Marx to join forces without CRF's knowledge. (Doc. 94, at 1) ("Whereas, the parties wish that Chestnut[CRF] not be aware of the terms of this Agreement or that the parties are working together out of a concern that Chestnut will file frivolous actions against Marx...."). In the CDD, "IFP warrants that it is not aware of any patents or trade secrets that Marx might infringe by using IFP's work resulting from this Agreement." (Doc. 94, at 3, ¶ 6). The document includes a provision that would require IFP to indemnify Marx from and against any and all liabilities arising from or relating to the lawsuit between IFP (a non-party to the instant lawsuit) and CRF, the equipment that was the subject of CRF's demands to IFP (the same equipment later purchased by Marx), the CDD, and any work performed by IFP relating to the CDD. (Doc. 94/Exh. 1). To date, no executed copy of any written agreement has been produced by Marx/MTJ.

Defendant CRF, believing that its "competitively sensitive operational information may have been transferred to Marx, " wrote the President of Marx on April 22, 2011, and asked Marx "to confirm that [Marx] did not intend to use [CRF's] trade secrets to compete unfairly against Chestnut Ridge." (Doc. 9, at 2./Compl. Exh.2). On May 5, 2011, Marx, through counsel, responded to the letter from CRF, asking for clarification. (Compl. 17/Exh. 3). On May 18, 2011, counsel for CRF sent a second letter, detailing CRF's concerns and threatening that CRF was willing to "take any and all necessary legal actions to protect its confidential proprietary information and trade secrets." (Doc. 1, at 21./Comp. Exh. 4).

On August 31, 2011, Marx filed suit in the North Carolina General Court of Justice, Caldwell County Superior Court, against CRF seeking declaratory judgment pursuant to the North Carolina Uniform Declaratory Judgment Act, N.C. Gen. Stat. §§ 1-253 et seq. (Doc. 1). Marx seeks a declaratory judgment holding that use of the foam manufacturing equipment purchased from IFP's creditor did not constitute a misappropriation of trade secrets purportedly held by any competitor ( i.e., CRF). Id. Marx also seeks damages from CRF for unfair competition, unfair trade practices under N.C. Gen. Stat. § 75-1.1, and tortious interference of Marx's alleged agreement with IFP. Id.

On September 30, 2011, CRF removed the suit to this federal district court based upon diversity of citizenship pursuant to 28 U.S.C. §§ 1441(a) and 1332. (Doc. 3). CRF simultaneously filed a Motion to Dismiss pursuant to Rules 12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure. CRF argued that personal jurisdiction over CRF was lacking and that there was no controversy sufficient to support a claim for declaratory relief. Id. The parties were permitted to conduct limited discovery on the question of jurisdiction. (Doc. 12).

On October 12, 2012, the Court denied CRF's Rule 12 Motions. (Doc. 21).

CRF filed its Answer on October 26, 2012. (Doc. 22). CRF simultaneously asserted Counterclaims and a Third-Party Complaint alleging patent infringement of the 169 Patent by Marx/MTJ. (Doc. 22/Counterclaim & Third-Party Compl., ¶¶ 6-30). CRF also brought Counterclaims against Marx alleging two violations of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, for selling an infringing product and for bringing an improper lawsuit against CRF. (CRF Counterclaim & Third-Party Compl., ¶¶ 31-36, 41-48). In addition, CRF brought Counterclaims against Marx alleging unjust enrichment, unfair competition, violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and a civil conspiracy. (CRF Counterclaim & Third-Party Compl., ¶¶ 37-40, 49-53, 54-60, 61-66).

In its Third-Party Complaint, CRF brought identical causes of action against MTJ with the exception of the North Carolina Unfair and Deceptive Trade Practices claim based upon the propriety of bringing the instant lawsuit (Count Four). (Third-Party Compl.).

On January 15, 2013, Plaintiff Marx and Third-Party Defendant MTJ jointly filed an Answer.[7] (Doc. 29). MTJ advanced four affirmative defenses to CRF's claims: 1) invalidity of the 169 Patent pursuant to 35 U.S.C. § 103(a) (obviousness); 2) laches; 3) failure to mark products or identify patent registration and/or failure to police patent ownership rights; and 4) lack of willfulness. (Doc. 29, 8-9).

The parties unsuccessfully mediated the case on October, 8, 2013. (Doc. 47).

On October 15, 2013, MTJ requested that it be allowed to amend its pleading to include counterclaims against CRF alleging: 1) bad faith violations of Section 43(a) of the Lanham Act; and 2) defamation and unfair trade practices. (Doc. 44, 6-9). The Magistrate Judge denied MTJ's motion and opined that to allow an amendment to the pleadings within such close proximity to trial would be "unduly prejudicial" to CRF. (Doc. 73, 12). MTJ appealed the Magistrate Judge's decision to this district judge. (Doc. 80). MTJ's objections were overruled. (Doc. 89).

Marx seeks summary judgment in its favor on all of the matters raised pursuant to N.C. Gen. Stat. §§ 1-253 et seq .[8] (Doc. 48). Marx also seeks summary judgment in its favor with respect to the Counterclaims alleged by CRF against Marx. (Doc. 48, ¶¶ 9-12).

CRF seeks summary judgment in its favor denying Marx's request for declaratory judgment in its entirety. (Doc. 52). CRF only seeks a ruling on liability with respect to the alleged patent infringement.[9] (Doc. 55, 9 n. 1).

MTJ joins Marx in contending that CRF's patent infringement claim fails as a matter of law. (Doc. 50). MTJ challenges CRF's infringement claim as well as the validity of the 169 Patent. Since Marx and MTJ advance identical legal arguments, and CRF treats the two entities as one (with one exception-Count IV), their motions are likewise considered as a joint motion by the Court.[10]

II. Standard of Review

Summary judgment is appropriate only "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a) (2010). In order to support or oppose a summary judgment motion, a party is required to cite to "materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, ... admissions, interrogatory answers, or other materials;" or show "that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." FED. R. CIV. P. 56(c)(1); Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (applying former version of Rule 56); Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (same). A genuine dispute exists only if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248. In conducting its analysis, the Court views the evidence in the light most favorable to the non-moving party. Celotex Corp., 477 U.S. at 325.

Since the parties have filed cross-motions for summary judgment and/or partial summary judgment, the Court reviews each motion separately on its own merits. See Rossignol v. Voorhaar, 316 F.3d 516 (4th Cir. 2003) (internal citation omitted); Desmond v. PNGI Charles Town Gaming, L.L.C., 630 F.3d 351 (4th Cir. 2011) (internal citations omitted). When considering each individual motion, the court must take care to "resolve all factual disputes and any competing, rational inferences in the light most favorable" to the party opposing the motion. Rossignol, 316 F.3d at 523 (internal citation omitted).

Because the parties' competing summary judgment motions stem from the need to determine the proprietary nature of CRF's intellectual property rights, including U.S. Patent No. 8, 056, 169 (the 169 Patent), the undersigned will begin by analyzing the parties' respective proprietary interests.

III. Discussion

A. Patentability & Validity of the 169 Patent, 35 U.S.C. §§ 271, 281-85

On November 15, 2011, CRF obtained the 169 Patent entitled, "Institutional Mattress and Pillow Composite with Transparent Covering." (Doc. 55/Exh. 1). There are three claims asserted within the 169 Patent. Claim 1 is independent. Claims 2 and 3 are derivative of Claim 1. The 169 Patent protects the following:

Claim 1: A composite mattress for use in confinement facilities and institutions comprising:
A flexible, compressible polymeric foamed filling material, cotton, polyester or synthetic batting formed in the shape of a mattress, and
A pliable transparent flame retardant polymeric cover encapsulating said filling material wherein said polymeric cover material is fluid resistant, anti-microbrial and UV resistant and includes a nylon, polyester or similar open weave fabric support material, wherein said mattress is not inflatable.
Claim 2: The composite mattress of Claim 1 wherein the pliable transparent polymeric cover material has a degree of clarity for permitting visual detection, location, and identification of contraband hidden under the cover.
Claim 3: The composite mattress of Claim 1, including at least one pillow, wherein the pillow is positioned at one end of the mattress within the transparent polymeric cover material.

(169 Patent).

1. Presumption of Validity

Pursuant to Title 35, United States Code, Section 282(a):

A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent, or multiple dependent form) shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim. The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.

35 U.S.C. § 282(a)(2011); Black and Decker Mfg. Co. v. Sears, Roebuck and Co., 679 F.2d 1101, 1103 (4th Cir. 1982) ("Once a patent is issued it is entitled to a strong presumption of validity...."). This presumption of validity stems from recognition [by the legislature] that the Patent Office possesses the requisite expertise and experience in passing upon a patent. See Black and Decker Mfg. Co., 679 F.2d at 1103 n. 7 (quoting Tights, Inc. v. Acme-McCrary Corp., 541 F.2d 1047, 1053 (4th Cir. 1976), cert. denied, 492 U.S. 980 (1976)).

2. Invalidity

Notwithstanding the presumption of validity that attaches upon issuance of a patent, defenses to a claim of alleged infringement include:

(1) "Noninfringement, absence of liability for infringement or unenforceability; and
(2) Invalidity of the patent or any claim in suit on any ground specified... as a condition for patentability." 35 U.S.C. §§ 282(b)(1) and (2). The conditions for patentability are that the invention be novel, nonobvious, and fully and particularly described. See 35 U.S.C. §§ 102, 103, and 112.

"Because a patent is presumed to be valid, the evidentiary burden to show facts supporting a conclusion of invalidity is one of clear and convincing evidence ." Datamize, LLC v. Plumtree Software, Inc., 417 F.3d 1342, 1345 (Fed. Cir. 2005) (emphasis provided).

Before questions of validity and infringement can be reached, the Court must first determine what the 169 Patent actually covers, or what is patented. See e.g., Bell Atl. Network Servs, Inc. v. Covad Commc'ns Group, Inc., 262 F.3d 1258, 1267 (Fed. Cir. 2001) (describing infringement as a two-step process, the first step requiring the Court to construe the claims and determine the scope of the patent). Then, the trier of fact must judge whether the claims as properly interpreted cover ...


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