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Neonatal Product Group, Inc. v. Shields

United States District Court, D. Kansas

August 24, 2017

NEONATAL PRODUCT GROUP, INC., Plaintiff/Counterclaim Defendant,
v.
JANICE M. SHIELDS, PAUL W. SHIELDS, and ANGELE INNOVATIONS, LLC, Defendants/Counterclaimants,
v.
CRECHE INNOVATIONS, LLC, MILLENNIUM MARKETING GROUP, LTD., and SCOTT A. NORMAN, Counterclaim Defendants.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree United States District Judge.

         This is a patent infringement dispute. On November 25, 2013, plaintiff Neonatal Product Group, Inc. (“Neonatal”), doing business as Creche Innovations, LLC (“Creche”) filed this lawsuit against Janice M. Shields and Paul W. Shields, individually and as trustees of the Shields Family Trust, and Angele Innovations, LLC (collectively, “the Shields Defendants”). Doc. 1. Neonatal seeks: (1) a declaratory judgment that Neonatal has not infringed U.S. Patent No. 6, 417, 498 (“the '498 Patent”); and (2) a declaratory judgment that the Asserted Claims of the '498 Patent are invalid. Doc. 49 ¶¶ 36-41; Doc. 143 at 19.

         The device disclosed in the '498 Patent is called the “Neonatal Substrate Warmer.” The device automatically warms and vibrates baby bottles containing frozen or refrigerated breast milk so that the milk thaws, warms, and mixes quickly and efficiently. Defendants Janice M. Shields and Paul W. Shields invented the Neonatal Substrate Warmer and procured the '498 Patent. Defendant Angele Innovations, LLC currently owns the '498 Patent.

         The Shields Defendants responded to the lawsuit by filing an Answer and Counterclaim (Doc. 30). It asserted eight counterclaims against four counterclaim defendants: Neonatal, Creche, Millennium Marketing Group, Ltd., and Scott Norman (collectively, “the Counterclaim Defendants”). The eight counterclaims asserted against the Counterclaim Defendants include: (1) patent infringement; (2) inducement of patent infringement; (3) breach of an Exclusive License Agreement; (4) breach of a Patent Marketing Agreement; (5) tortious interference with contract; (6) breach of fiduciary duty; (7) intentionally causing or assisting agent to violate duty of loyalty; and (8) unjust enrichment. Doc. 143 at 20, ¶ 4(c) (Pretrial Order).

         Neonatal and the Counterclaim Defendants[1] have filed a Motion for Partial Summary Judgment. Doc. 118. They seek summary judgment in favor of Neonatal's claim for a declaratory judgment of non-infringement. They also seek summary judgment against five of the Shields Defendants' counterclaims. For the reasons explained below, the court grants Neonatal's Motion for Partial Summary Judgment.

         I. Motions to Strike

         Before considering the Motion for Partial Summary Judgment, the court addresses the motions to strike filed by each party.

         A. Neonatal's Motion to Strike

         Neonatal has filed a Motion to Strike. Doc. 140. It asks the court to strike certain paragraphs of the Declaration of Drake L. Koch (Doc. 133-3) submitted by the Shields Defendants in their Opposition to the Motion for Partial Summary Judgment. It also asks the court to strike certain paragraphs from the Shields Defendants' Opposition to the Motion for Partial Summary Judgment-paragraphs that are based on the portions of Mr. Koch's Declaration that, Neonatal contends, are improper.

         Neonatal asserts that the court should strike this material because it contains new infringement contentions that contradict and depart from the infringement contentions asserted by the Shields Defendants. Neonatal contends that the Shields Defendants have argued, improperly, in their Opposition to the Motion for Partial Summary Judgment that the alleged infringing product contains a “heater block” consisting of both the outer metal shell of the warmer and the orange foam insulation blanket wrapped around the cups of the warmer. But, in their infringement contentions, the Shields Defendants asserted that the heater block consists only of the foam insulation blanket.

         On February 18, 2015, the court entered a Scheduling Order (Doc. 40) governing the first phase of discovery and establishing certain deadlines. One of the deadlines required the parties to disclose asserted claim and infringement contentions by May 1, 2015. Doc. 40 at 2. Consistent with the Scheduling Order, the Shields Defendants served their Disclosures of Asserted Claims and Infringement Contentions on May 1, 2015. Doc. 119-5 at 9-10. It identified the “heater block” in a claim chart in two different sections. See Doc. 119-5 at 2-3 (§§ 1.a., 10.a.). Section 1.a. recites: “The Penguin Single includes a heater block comprising at least one void therein. Ex. A, 7-9, Claim 1.a.” Id. at 2 (§1.a.). Section 10.a. states: “The Penguin Single includes a heater block comprising at least one well therein; Ex. A, 7-9, Claim 10.a.” Id. at 3 (§ 10.a.). The illustrations referenced in the claims identify only the foam insulation blanket. Id. at 14-15 (illustrations 7-9).

         The Scheduling Order also provides that “[e]ach party's ‘Infringement Contentions' and ‘Invalidity Contentions' shall be deemed to be that party's final contentions.” Doc. 40 at 11. The Scheduling Order permitted the parties to amend their infringement contentions in two ways. Id. at 11-12. First, the Scheduling Order allows amendment without leave of court within 30 days after the court issues its Claim Construction Order. Id. at 11. Second, the Scheduling Order allows the Shields Defendants to move for leave to amend or supplement their infringement contentions outside the 30-day window on a showing of good cause. Id. at 12. The Shields Defendants never amended their infringement contentions within the 30 days following the court issuing its Claim Construction Order. Also, the Shields Defendants never moved the court for leave to amend their infringement contentions.

         Neonatal argues that the court should strike certain portions of Mr. Koch's Declaration and the Shields Defendants' Opposition because they contradict the asserted infringement contentions. For support, Neonatal relies on a Federal Circuit case that affirmed summary judgment against a patent infringement claim. O2 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., 467 F.3d 1355, 1367-70 (Fed. Cir. 2006). The case originated in the Northern District of California. Id. at 1358. That court's local rules for patent cases imposed requirements for serving and amending infringement contentions, similar to the requirements imposed by the Scheduling Order in this case. Id. at 1262-63. The plaintiff filed its infringement contentions as the local rules required. Id. at 1360. Later, the plaintiff moved for leave to amend its infringement contentions, but did so more than six months after the district court had issued its claim construction ruling and more than three months after an expert's deposition that revealed the new facts supporting the amendment. Id. at 1361. The district court denied the motion for leave to amend because plaintiff had delayed filing the motion and this delay, the court concluded, amounted to a lack of diligence. Id. at 1361-62. The plaintiff also moved for leave to supplement its expert reports to include the amended contentions. Id. at 1362. The district court denied that motion as well. Id.

         The Federal Circuit affirmed both rulings. Id. at 1366-69. It described the local patent rules as “essentially a series of case management orders.” Id. at 1363. And, it recognized that the rules were “designed specifically to ‘require parties to crystallize their theories of the case early in the litigation' so as to ‘prevent the “shifting sands” approach to claim construction.'” Id. at 1364 (quoting Atmel Corp. v. Info. Storage Devices, Inc., No. C 95-1987 FMS, 1998 WL 775115, at *2 (N.D. Cal. 1998)). The Circuit also concluded that “[i]f the parties were not required to amend their contentions promptly after discovering new information, the contentions requirement would be virtually meaningless as a mechanism for shaping the conduct of discovery and trial preparation.” Id. at 1366. The Circuit thus held that the local patent rules were valid and consistent with the Federal Rules. Id. at 1366.

         The Federal Circuit also concluded that the district court had not abused its discretion by denying the plaintiff's motions for leave to amend and to supplement its expert report because plaintiff had delayed and otherwise acted with a lack of diligence. Id. at 1367-69. The Circuit recognized that “the exclusion of evidence is often an appropriate sanction for the failure to comply with [disclosure] deadlines.” Id. at 1369 (citations omitted). And, the Circuit found “no abuse of discretion in this case, given the significance of the omitted material and [the plaintiff's] lack of diligence.” Id.

         Neonatal urges the court to follow the Federal Circuit's reasoning in O2 Micro.[2] Similar to the plaintiff in that case, the Shields Defendants here failed to assert a newly discovered infringement contention in their required disclosures. But, unlike the O2 Micro plaintiff, the Shields Defendants never have sought leave to amend their infringement contentions to include their new infringement theory. Instead, they simply have asserted the new contentions in their Opposition to Neonatal's Motion for Partial Summary Judgment. This violates the court's Scheduling Order.

         In their Opposition, the Shields Defendants argue that Neonatal has been well aware of this theory because they asserted it over a year ago in their claim construction brief. The Shields Defendants contend that their proposed construction of “heater block” as a “housing assembly” placed Neonatal on notice that they were contending that the alleged infringing product contains a “heater block” consisting of both the outer metal shell of the warmer and the orange foam insulation blanket. Even if the court could find that this proposed claim construction-one that the court ultimately rejected in its claim construction ruling-had placed Neonatal on notice of the Shields Defendants' summary judgment argument, the Shields Defendants still failed to disclose it as one of their infringement contentions. And, the Shields Defendants cannot circumvent their obligation to identify their infringement contentions by relying on a failed proposed claim construction. Indeed, as Neonatal explains, the claim construction process and the infringement analysis are two separate, distinct parts of a patent case. The claim construction process is a question of law that requires the court to “constru[e] the patent” while the infringement analysis is a question of fact requiring a “determin[ation] whether infringement occurred.” Markman v. Westview Instr., Inc., 517 U.S. 370, 384 (1996) (citations omitted).

         The Shields Defendants never dispute that their infringement contentions never disclosed this theory. To the contrary, their infringement contentions only identify the “heater block” as the foam insulation blanket. See Doc. 119-5 at 2-3, 14-15 (illustrations 7-9). Thus, the Shields Defendants' attempt to assert a new infringement contention violates the court's Scheduling Order establishing deadlines for disclosing and amending infringement contentions.

         The Federal Rules of Civil Procedure authorize the court to impose any just sanction for a party's “fail[ure] to obey a scheduling or other pretrial order.” Fed.R.Civ.P. 16(f)(1)(C). Such sanctions may include “prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence.” Fed.R.Civ.P. 37(b)(2)(A)(ii). Here, the Shields Defendants have attempted to introduce a new infringement theory in response to Neonatal's Motion for Partial Summary Judgment-one that they never asserted in their infringement contentions, as the Scheduling Order required them to do. The court thus grants Neonatal's Motion to Strike (Doc. 140), and strikes the portions of Mr. Koch's Declaration and the Shields Defendants' Opposition to the Motion for Partial Summary Judgment improperly changing their infringement contention that the “heater block” consists only of the foam insulation blanket.

         B. The Shields Defendants' Motion to Strike

         The Shields Defendants also have filed a Motion to Strike. Doc. 151. It seeks to strike certain undisputed facts and arguments asserted in Neonatal's Memorandum in Support of the Motion for Partial Summary Judgment. Doc. 119. Neonatal filed the Memorandum on October 4, 2016. The Shields Defendants filed their Opposition on November 23, 2016. Doc. 133. In some instances, the Opposition already raised the arguments that the Shields Defendants now assert in their Motion to Strike. In other instances, the Opposition never raised these arguments. Instead, the Shields Defendants waited to assert the omitted arguments until filing the Motion to Strike on January 27, 2017 (Doc. 51)-more than one month after the briefing closed on the Motion for Partial Summary Judgment.

         Neonatal argues that the Shields Defendants asserted these arguments in an untimely fashion and, in effect, filed an unauthorized surreply to the summary judgment motion. The court agrees. The Shields Defendants already asserted some of these arguments and easily could have asserted the others in their Opposition to the Motion for Partial Summary Judgment. But, they waited until after the briefing closed to present them-some for a second time-in the Motion to Strike.

         Nevertheless, even if the court considered all the arguments advanced by the Shields Defendants' Motion to Strike, the arguments are meritless. The Shields Defendants ask the court to strike portions of Neonatal's Memorandum because, they contend, certain facts and argument are irrelevant, misleading, and improper. But, the court only considers material facts on summary judgment. See Fed. R. Civ. P. 56 (“The court shall grant summary judgment 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” (emphasis added)). And, in the Uncontroverted Facts recited below, the court has included only those facts that it concludes are material.

         The Shields Defendants also ask the court to strike portions of Neonatal's Memorandum that raise accord and satisfaction as an affirmative defense. The Shields Defendants assert that Neonatal never preserved this affirmative defense in any of their Answers, and thus Neonatal improperly raised the defense on summary judgment. The Shields Defendants already asserted this argument in their Opposition to the Motion for Partial Summary Judgment. Doc. 133 at 27- 29. The court considers this argument and the Shields Defendants' response to it in the summary judgment analysis below. The court finds there was no reason to multiply the parties' litigation efforts or to inflate the number of motions the court must decide. The Shields Defendants did not need to file a motion to strike the material from the Memorandum. For these reasons, the court denies the Shields Defendants' Motion to Strike (Doc. 151).

         II. Motions for Summary Judgment

         The court now turns to consider Neonatal's Motion for Partial Summary Judgment. Doc. 118.

         A. Uncontroverted Facts

         The following facts are either stipulated facts taken from the Pretrial Order (Doc. 144), uncontroverted, or, where controverted, stated in the light most favorable to the Shields Defendants, the parties opposing summary judgment. Scott v. Harris, 550 U.S. 372, 378 (2007).

         The '498 Patent, entitled “Neonatal Substrate Warmer, ” was filed on April 12, 2001, and issued on July 9, 2002. Janice M. Shields and Paul W. Shields are listed as inventors of the '498 Patent. On August 19, 2010, Mr. and Ms. Shields transferred ownership of the '498 Patent to the Shields Family Trust Dated August 19, 2010 (“the Trust”).

         On June 1, 2006, Mr. and Mrs. Shields entered into an Exclusive License Agreement with Neonatal. Under the Exclusive License Agreement, the Shields Defendants granted Neonatal an exclusive license in the '498 Patent in exchange for ongoing royalty payments and other consideration. In early 2013, Neonatal stopped making timely royalty payments under the Exclusive License Agreement. So, on May 23, 2013, Mr. and Mrs. Shields terminated the Exclusive License Agreement.

         When the parties signed the Exclusive License Agreement, Neonatal believed that two of its products-PENGUIN® milk-warming machines and THERMA-LINER™ bags-used the '498 Patent. But, in mid-2013, Neonatal concluded that the '498 Patent did not actually cover its PENGUIN® machines and THERMA-LINER™ bags.

         On September 27, 2013, Neonatal and Mr. and Mrs. Shields entered into a Letter of Intent. With this Letter of Intent, they resolved their dispute about contested royalties under the terminated Exclusive License Agreement. They also agreed in the Letter of Intent to negotiate in good faith to try to agree to a new license agreement that would include Mr. and Mrs. Shields' pending patent applications. Section 3.a. of this Letter of Intent required Neonatal to make a wire-transfer payment to Mr. and Mrs. Shields on the day when the Letter of Intent was signed as full payment for the 2013 1st Quarter royalties due under the terminated Exclusive License Agreement. Neonatal made and Mr. and Mrs. Shields accepted the wire-transfer payment, as required by section 3.a. of the Letter of Intent. Section 3.b. of the Letter of Intent required Neonatal to make a second wire-transfer payment to Mr. and Mrs. Shields within 30 days of the Letter of Intent's execution (provided Mr. and Mrs. Shields disclosed certain intellectual property specified in the Letter of Intent) as full payment for the portion of the 2013 2nd Quarter royalties due under the terminated Exclusive License Agreement for product sales made before the termination date of May 23, 2013. Neonatal made and Mr. and Mrs. Shields accepted the wire-transfer payment, as required by section 3.b. of the Letter of Intent. Section 3.c. of the Letter of Intent provides: “The parties acknowledge that no other royalty payments are due under the terminated Exclusive License Agreement for product sales made prior to the May 23, 2013 termination.” Doc. 120-2 at 2. Section 5.d. of the Exclusive License Agreement provides: “If the New License Agreement is not executed, [Neonatal] is not obligated to pay any royalties pursuant to the Exclusive License Agreement for any product sales that occurred after May 23, 2013, but neither party will have waived any rights it had with respect to any obligations that survived the termination of the Exclusive License Agreement, including Licensors' right to sue Licensees for patent infringement.” Id. Neonatal and Mr. and Mrs. Shields were unable to agree on the terms of a new License Agreement.

         The Asserted Claims of the '498 Patent

         Independent claim 1 of the '498 Patent reads:[3]

         A heating device comprising:

a heater block comprising at least one void therein;
at least one removable reservoir disposed within said at least one void of said heater block; and
means for heating said at least one removable reservoir, said means for heating being disposed between said at least one removable reservoir and said heater block within each said at least one void.

Doc. 1-1 at 8 (col. 6 ll. 46-53). Claims 2-7 and claim 9 “depend from” claim 1, and each of those claims incorporates all limitations of claim 1. Independent claim 10 of the '498 Patent reads:

A liquid container heating device for a liquid to a desired temperature, said liquid container heating device using heat exchange of a heating fluid with a container, said liquid container heating device comprising:
a heater block comprising at least one well therein;
at least one removable reservoir for receiving said heating fluid, said at least one removable reservoir being disposed within said at least well of said heater block; and
at least one heating element for heating said heating fluid, said at least one heating element being disposed between said at least one removable reservoir and said at least one well of said heater block;
wherein said container is placed in said heating fluid, said at least one removable reservoir, said at least one heating element heats said at least one removable reservoir and said heating fluid, and said heating fluid in turn heats said container, whereby said liquid within said container rendered suitably heated for use.

Doc. 1-1 at 9 (col. 7 ll. 13-30). Claims 11, 13, 14, 16, and 17 “depend from” claim 10, and each of those claims incorporates all limitations of claim 10.

         The Court's Claim Construction

         On May 3, 2016, the court issued a Memorandum and Order construing the claim terms. Doc. 101. The court construed “heater block” as “a solid piece of material, having at least one flat side.” Id. at 11. The court construed “removable reservoir” as “a liquid-holding receptacle designed to be removed.” Id. at 19. The court construed “void” as “an empty space formed in the heater block.” Id. at 14. The court construed “well” as “a shaft formed in the heater block.” Id. at 15.

         The Shields Defendants' Infringement Contentions

         The Shields Defendants served their Disclosures of Asserted Claims and Infringement Contentions (“Disclosures”) on May 1, 2015. Doc. 119-5. These Disclosures contend that the limitations “removable reservoir, ” “heater block, ” “void, ” and “well” are literally present in the Accused Products. Id. at 7 (§ 4.a.). The Disclosures do not contend that the limitations “removable reservoir, ” “heater block, ” “void, ” and “well” are present in the Accused Products under the doctrine of equivalents. Id. (§ 4.b.). The Shields Defendants never have amended their Disclosures as a matter of right and never have moved for leave to amend their Disclosures.

         The Accused Products

         In 2006, Millennium Marketing Group asked Drake Koch to design a milk warmer based on the '498 Patent. Mr. Koch is the designer responsible for the commercial design and manufacture of what became known as the single-bottle PENGUIN® warmer and the four-bottle PENGUIN® warmer. Mr. Koch also designed the original liner bag for the warmer, which later became known as the THERMA-LINER® bag.

         Both types of PENGUIN® warmers have an outer metal shell with seven flat sides. The metal shell is made from stainless steel. The metal shell is rigid, and it supports the other components of the PENGUIN® warmer.

         Neonatal's single-bottle PENGUIN® warmer includes a single cup located on the top of the unit that is designed to receive THERMA-LINER® bags when the warmer is in use. A photograph portrays a single-bottle PENGUIN® warmer as follows:

         (Image Omitted)

         Doc. 119-2 at 2, ¶¶ 5-6. Neonatal's four-bottle PENGUIN® warmer includes four cups located on the top of the unit that are designed to receive THERMA-LINER® bags when the warmer is in use. A ...


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