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Neonatal Product Group, Inc. v. Shields

United States District Court, D. Kansas

February 28, 2018

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 matter comes before the court on cross motions for summary judgment filed by each party to this patent infringement dispute. Plaintiff Neonatal Product Group, Inc. (“Neonatal”), doing business as Creche Innovations, LLC (“Creche”), initiated 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”), by filing a Complaint asserting two claims: (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 (Amended Complaint ¶¶ 36-41); Doc. 143 at 19 (Pretrial Order ¶ 4.a.).

         The Shields 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 an agent to violate the duty of loyalty; and (8) unjust enrichment. Doc. 143 at 20 (Pretrial Order ¶ 4.c.).

         On August 24, 2017, the court granted Neonatal and the Counterclaim Defendants'[1]Motion for Partial Summary Judgment. Doc. 180. In its Memorandum and Order, the court granted summary judgment for Neonatal on its declaratory judgment claim and entered a declaratory judgment that Neonatal has not infringed the '498 Patent. Id. at 27-34, 45. Naturally, the court also granted summary judgment against the Shields' counterclaims for patent infringement (Count I) and inducement of patent infringement (Count II). And the court granted summary judgment against the Shields' counterclaims for breach of an Exclusive License Agreement (Count III), tortious interference with contract (Count V), and unjust enrichment (Count VIII). Id. at 45-46.

         Nonetheless, the Shields now have filed a Motion for Partial Summary Judgment (Doc. 188) requesting two things that directly contradict the rulings in the earlier Order on summary judgment. First, the Shields seek summary judgment against Neonatal's declaratory judgment claim seeking a declaration that Neonatal did not infringe the '498 Patent. And second, they seek summary judgment in their favor on their counterclaim for patent infringement (Count I). Id. The Shields seek summary judgment on these claims even though the court already has ruled, as a matter of law, in Neonatal's favor on both claims. See generally Doc. 180.

         Neonatal also has filed a summary judgment motion. It is a Motion for Summary Judgment on the Remaining Counterclaims (Doc. 185). It seeks summary judgment against all of the Shields' undecided counterclaims, i.e., (1) breach of a Patent Marketing Agreement (Count IV); (2) breach of fiduciary duty (Count VI); and (3) intentionally causing or assisting an agent to violate the duty of loyalty (Count VII).

         For reasons explained below, the court denies the Shields' Motion for Partial Summary Judgment (Doc. 188). And the court grants Neonatal's Motion for Summary Judgment on the Remaining Counterclaims (Doc. 185) in part and denies it in part.

         I. Uncontroverted Facts

         The following facts are either stipulated facts taken from the Pretrial Order (Doc. 143), uncontroverted, or, where controverted, stated in the light most favorable to the parties opposing summary judgment. Scott v. Harris, 550 U.S. 372, 378 (2007).

         The '498 Patent

          Defendants Janice M. Shields and Paul W. Shields are the named inventors of the '498 Patent that issued on July 9, 2002. 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. The Shields owned the '498 Patent until August 2010, when they transferred the patent's ownership to the Shields Family Trust dated August 19, 2010 (“Shields Family Trust”). Mr. and Ms. Shields serve as trustees of the Shields Family Trust.

         The Shields Contract to Commercialize the '498 Patent

         In 2004, Counterclaim Defendant Millennium Marketing Group, Ltd. (“MMG”) contacted the Shields to assist them with commercializing the '498 Patent. MMG was a patent marketing company familiar with patents and intellectual property license agreements.[2] Through this communication, the Shields first became acquainted with Counterclaim Defendant Scott Norman-an owner and President of MMG. In 2006, Mr. Norman created another company- plaintiff Neonatal-who sought to license the '498 Patent. Mr. Norman is Neonatal's Chief Executive Officer. When Mr. Norman introduced the Shields to Neonatal, through his patent marketing company MMG, he owned both companies.

         On April 27, 2004, Mr. and Ms. Shields entered into a Patent Marketing Agreement with MMG. MMG and the Shields twice amended the Patent Marketing Agreement. The parties first amended the Patent Marketing Agreement on October 13, 2005-extending its term to October 13, 2006. The parties amended the Patent Marketing Agreement again on June 9, 2006.

         On June 1, 2006, Mr. and Ms. Shields-together with MMG-entered an Exclusive License Agreement with Neonatal. The Exclusive License Agreement granted an exclusive license to Neonatal to manufacture and sell products covered by the '498 Patent. The Shields, as individuals, entered the Exclusive License Agreement with Neonatal.

         The Patent Marketing Agreement

         The Patent Marketing Agreement defines Mr. and Ms. Shields as the “Client” and the '498 Patent as the “Product.” The Patent Marketing Agreement imposed several obligations on MMG during its term. At least 14 of these obligations appear in Section 3 of the Patent Market Agreement. Section 3's obligations include:

(a) Promote the “Client” and the “Product” and to develop a proprietary database of qualified Licensees that are commensurate with the potential for the “Product”.
(b) Communicate with potential Licensees and negotiate the most favorable license terms for the “Product” and with all Licensees. “Client” shall have final approval of all terms agreed to with Licensees.
(c) Abide by the “Client's” policies as communicated to “MMG” at any time during the Licensing process.
(d) “MMG” shall act as an independent contractor and be solely responsible for and bear all expenses incurred as a result of “MMG's” office facilities and business activities generally.
(e) Keep “Client” informed on progress of the marketing efforts and provide a written report of this progress on a quarterly basis (minimum of four written reports).
(f) Not make any written or oral promises to any Licensee or potential Licensee without the prior knowledge and approval of the “Client”.
(g) Notify “Client” of any products that appear to infringe on the patent or trademark protection of the “Product”.
(h) Prepare a comprehensive Product Prospectus that is written exclusively for the “Product” and obtain “Client's” written approval prior to submission to potential Licensees.
(i) Prepare a financial Pro Forma; including costs to manufacture, sales projections and other balance sheet items that match the licensees and Obtain “Client's” written approval prior to submission to potential Licensees.
(j) Produce a media kit designed exclusively for the “Product” containing the above Product Prospectus and financial Pro Forma to be used in presentations with each potential Licensee and obtain “Client's” written approval prior to submission to potential Licensees.
(k) Develop a web page for the “Product” and provide World Wide Internet presence during the term of this agreement.
(1) During the term of this agreement “MMG” shall represent the “Product” at a minimum of two (2) applicable trade shows.

Doc. 24-1 at 1-3 (Patent Marketing Agreement). Ms. Shields testified that the purpose of MMG's obligations in paragraphs 3(a) through 3(1) was to secure a license for the '498 Patent. Ms. Shields also testified that she was not sure if these obligations applied to MMG after the parties executed the Exclusive License Agreement because she thought the Exclusive License Agreement effectively “replaced” the obligations listed in sections 3(a) through 3(1) of the Patent Marketing Agreement.

         The Patent Marketing Agreement imposed two more obligations on MMG in sections 3(m) and 3(n):

(m) After a licensing agreement has been executed “MMG” shall provide account management with each Licensee and act as “Client[']s” liaison for the entire term of the license agreements.
(n) “MMG” shall be responsible for collection and distribution to “Client” of all royalties due. “MMG” shall distribute “Client's” portion of these royalties within three (3) business days of receipt from Licensee.

Doc. 24-1 at 3 (Patent Marketing Agreement).

         Under paragraph 3(m), Ms. Shields testified that that MMG acted as a liaison-"more or less”-between the Shields and Neonatal during the term of the Exclusive License Agreement. Doc. 186-4 at 5 (Janice M. Shields Dep. 120:24-121:1). In reference to paragraph 3(n), Ms. Shields testified that MMG collected and distributed royalties from Neonatal, passing those royalties on to Ms. Shields.

         The parties also agreed in the Patent Marketing Agreement that MMG would receive 50% of all royalties paid to the Shields for the first five years of any license agreement the parties entered during the Patent Marketing Agreement's term.

         MMG Hires Drake Koch to Design a Milk Warmer Based on the '498 Patent

          In 2006, MMG hired a product developer named Drake Koch to design a milk warmer based on the '498 Patent. Mr. Koch ultimately designed for MMG what became known as the PENGUIN® Single Well Warmer and the PENGUIN® Four Well Warmer. Mr. Koch also is responsible for the commercial design of THERMA-LINER™ bags.

         While Mr. Koch was designing the PENGUIN® warmers, Ms. Shields talked extensively with him to make sure that he “didn't mess it up.” Doc. 186-4 at 3 (Janice M. Shields Dep. 74:9-16). Ms. Shields also testified that she worked with Mr. Koch “a lot” and made a long list of things for him to do and not do as he ...


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