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Finkelstein v. Mardkha

July 10, 2007

YORAM FINKELSTEIN, PLAINTIFF,
v.
JOSEPH MARDKHA, ET AL., DEFENDANTS.



MEMORANDUM OPINION AND ORDER

Plaintiff Yoram Finkelstein ("plaintiff") brings suit against defendants Joseph Mardkha ("Mardkha") and his two companies to be named co-inventor of, and acquire an ownership interest in, patents held by Mardkha. Plaintiff also seeks a constructive trust over money received by Mardkha in connection with his ownership of the patent, and alleges unjust enrichment. Mardkha now moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure dismissing plaintiff's complaint in its entirety. For the reasons that follow, Mardkha's motion is granted in part and denied in part.

BACKGROUND

This case revolves around two patents issued in defendant Joseph Mardkha's name by the US Patent and Trademark Office. The patents-design patent no. D467,833 issued on December 31, 2001, and utility patent no. 7,146,827 issued on December 12, 2006- illustrate and describe a novel shape for a diamond. (Defs.' Ex. G); U.S Patent No. 7,146,827 (filed Sep. 10, 2001) ("'827 Patent"). Mardkha has worked in the jewelry manufacturing business, primarily with colored gemstones, for his entire adult life, and is the owner of defendant Diamond Innovations LLC, which owns the patents at issue, and president and majority shareholder of defendant ColorMasters, Inc. (Mardkha Tr. 3--11.) He has no formal training in the diamond field. (Id. 13--15.) Plaintiff has worked in the diamond business for over twenty years, and currently works for GNN Diamond LLP, an Israeli company, purchasing rough diamonds and taking them through completion of finished stones. (Pl. Tr. 11.) Plaintiff and Mardkha met shortly before plaintiff married Mardkha's sister-in-law in June 1998. (Mardkha Tr. 20) At the suggestion of Mardkha's wife, the two parties began doing business together, with Mardkha ordering diamonds through plaintiff in Israel. (Id. 21, 56.) Plaintiff would act either as a broker between Mardkha and a third-party, in which case he received a commission from Mardkha, or as a seller. (Id. 23--24.)

In late 1998 and again in January 1999, Mardkha spoke with a representative from Tiffany & Co. ("Tiffany") to gauge her interest for an idea he had to cut a diamond like a colored gemstone. (Id. 36--39.) While diamonds are typically cut to maximize their brilliance and sparkle, gemstones such as rubies and emeralds are cut to emphasize their depth and clarity. Mardkha claims he conceived of this idea in 1995 or 1996, and it became more specific in his mind after he had purchased two small diamonds from a dealer in San Francisco that were cut in a similar way to the stone he envisioned. (Id. 35.) In the second conversation with the Tiffany representative, Mardkha contends that he outlined his idea: a cushion shaped diamond with a brilliant crown and step pavilion. (Id. 38; Hanson Tr. 17.) To briefly explain these terms, a cushion shape is a stone whose cross-section is square with flared sides; a crown is the portion of the diamond above the widest point, called the girdle; a pavilion is the portion of the diamond below the girdle; brilliant facets, or surfaces, are cut so as to maximize brilliance; and step facets are rectangular shaped and can be used to emphasize the depth of the stone. See attached Diagram A. The representative encouraged Mardkha, but stated at the time that Tiffany would not be interested. (Id. 41.)

In June 1999, Mardkha visited plaintiff in Israel to discuss his idea of a diamond cut with a brilliant crown and step pavilion. (Mardkha Tr. 52.) According to Mardkha, he told plaintiff that he was to cut samples according to his instructions, that he would pay and approve everything, and that plaintiff was to keep the project secret. (Id. 54--55.) Indeed, Mardkha suggests that a principal reason for taking the project to Israel and to a member of the family was that it could be kept secret from the New York market in which Mardkha worked. (Id. 59--60.) The first set of instructions was to cut a first batch of diamonds with different combinations of facet cuts, including brilliant/brilliant, step/step, and brilliant/step. (Id. 80.) There are no formal records of this meeting.

Plaintiff has a different recollection of the origin of the project, contending that in July or August of 1999, he and Mardkha had a conversation in which they agreed to enter a partnership to "come up with a new diamond design." (Pl. Tr. 94--95; 148.) The only terms of the alleged oral partnership agreement were that Mardkha would supply the capital, while plaintiff would work on the idea, and that there would be some as yet undefined division of profits between them. (Id. 129--135.) Plaintiff is vague on the details of the alleged conception of the design, stating that the inspiration was "my mind" and that his goal was only to "come up with something new." (Id. 92.) While in deposition, plaintiff insisted that the basic idea of cutting a diamond like a colored gemstone was his and his alone, this assertion is not maintained in his opposition papers. (Id. 102, 348; Pl.'s Opp'n 2.)

Shortly after the meeting, plaintiff began to work alongside diamond cutters in creating a first batch of design samples and sent the samples to Mardkha. Upon receiving the design samples, Mardkha contends that he would instruct plaintiff, either in writing or by telephone, to change angles, the size of the table, the girdle, the steps, and the number of facets, either quantitatively if numbers were available, or qualitatively. (Id. 101--05.) Plaintiff would convey the instructions to the physical cutter, who would make the changes, and he would send the next set of design samples to Mardkha. Mardkha has presented the Court with documents both showing comments made by Mardkha on the diamond design in progress and requests from plaintiff that Mardkha approve changes. (Defs.' Ex. F.) After some dozen or two dozen design samples were sent to Mardkha in several batches, he chose a prototype and plaintiff began manufacturing hundreds of production samples. (Id. 93--100.)

While plaintiff acknowledges that Mardkha, as partner, would make comments on the samples plaintiff sent to him, plaintiff classifies them as merely an expression of "opinion" and states that Mardkha never gave him "instructions." (Pl. Tr. 103--04, 107--08, 135.) He states that he spent hundreds of hours working alongside a diamond cutter developing and refining the particulars of the diamond, including facet shapes, alignments and angles, until it looked right. (Pl. Decl. ¶¶ 2--3; see also Giladi Tr. 87; Meir Tr. 17.) Stones were sent to Mardkha only a few times during the development stage and only after they had been heavily worked and reworked. To support this version of events, plaintiff presents contemporaneous notes and drawings showing the evolution of the stone, that at the very least suggest a more active involvement than simply conveying instructions from Mardkha to the physical diamond cutter. (See Pl.'s Exs. S, T.) By May 2001, a stone was created that displayed the sought-after characteristics and Mardkha began the process of patenting and marketing the stone. (Mardkha Tr. 196.) Mardkha filed an application for a design patent on August 11, 2001 and an application for a utility patent on September 10, 2001. (Defs.' Exs. H, M.) During this process, plaintiff provided certain information for the utility patent application to one of Mardkha's employees, including measurements of specific angles, depths, and alignments. (Pl.'s Ex. U.)

During the patenting process, there was an e-mail exchange where an employee at ColorMasters asked plaintiff to itemize his costs. (Pl.'s Ex. V.) An invoice was eventually created for plaintiff's work in the amount of $10,680.30 and that sum was deposited into plaintiff's account. (Defs.' Ex. C; Pl.'s Ex. X.) The invoice includes material costs, labor costs, and shipping costs that plaintiff itemized and sent to ColorMasters, and $5,000 for research, representing 100 hours at $50/hour. (Id.) Mardkha contends that he chose the $5000 "research costs" after plaintiff declined to name a price for the hours he worked on the diamond. (Mardkha Tr. 119--21.) Plaintiff suggests that he never received the invoice and that he assumed, when the deposit exceeded the amount he had billed ColorMasters, that the excess it was for money owed to him for unrelated work. (Pl. Decl. ¶ 13; Pl. Tr. 269, 277.)

While plaintiff insists that he continued to trust Mardkha to protect his rights in the diamond at least until the end of 2002, Mardkha presents several documents seen by plaintiff prior to the issuance of the patent around that time that explicitly named Mardkha as the sole inventor. (See Pl. Tr. 72.) First, plaintiff obtained for Mardkha in May and July 2001 confidentiality agreements that "acknowledge[d] that Color Masters owns all right, title and interest in the Proprietary Information," although they say nothing about an inventor or invention. (Defs.' Ex. N.) Plaintiff claims that he merely had the forms signed and never read them. (Pl. Tr. 65, 71.) Second, plaintiff received in October 2001 and at some point marked up an "Intellectual Property Portfolio" from ColorMasters that listed Mardkha as the sole inventor of the diamond design and did not protest to anyone except his wife. (Defs.' Ex. M; Pl. Tr. 84.)

In January 2002, Mardkha again contacted Tiffany and showed them some production samples. (Mardkha Tr. 270.) This time, Tiffany expressed interest and the parties began six to eight months of negotiation that culminated in Tiffany acquiring an exclusive license to the diamond design and making it the centerpiece of its Legacy collection. (Id. 275, 277.) Mardkha's companies have received $1.25 million through the first quarter of 2006 pursuant to this license. (Id. 286.)

In March 2002, plaintiff came to the United States to attend the bar mitzvah of Mardkha's son. At this time, he asked Mardkha whether Tiffany would purchase diamonds through him and if not, where he stood in regards to the diamond. Mardkha told plaintiff that it was up to Tiffany where they wished to purchase their diamonds and that he could not answer that. If they chose not to purchase through his company, such that he could source the diamonds through plaintiff, then, Mardkha told plaintiff, "You don't stand anywhere." (Id. 240.) While the two parties continued to work together for the remainder of the year, Mardkha sensed that plaintiff was "tense" in relation to the stone. (Id. 250-- 51.) At the end of the year, Mardkha offered plaintiff $100,000 in relation to the diamond design, but insists that he only expected a "thank you" in return, and was not expecting plaintiff to waive any claim he had in connection with the stone because, according to Mardkha, "He had no claim." (Id. 248--49.) Plaintiff did not provide Mardkha with a timely response, and formally refused the offer several weeks later in an e-mail. (Pl. Tr. 447.) Communications broke off entirely between the two parties.

On December 31, 2002, the USPTO issued a design patent consisting of five drawings of the prototype diamond with Mardkha listed as the sole inventor. (Defs.' Ex. G.) At that time, plaintiff knew that Tiffany was going to license the diamond from Mardkha alone, although it is unclear he saw the issued design patent. (Pl. Tr. 233--34.) Plaintiff and his wife began to tell his wife's family that they believed Mardkha had improperly excluded him from the benefits of the diamond design. (Mardkha Tr. 265--67.) In November 2004, slightly less than two years later, plaintiff filed this action in the United States District Court in the District of Delaware, claiming, inter alia, that he was the sole or co-inventor of the design and alleging breach of contract based on non-payment of commissions by ColorMasters. This complaint was the first time plaintiff put in writing his contention that he was the sole or joint inventor of the diamond at issue. (Pl. Tr. 88-- 89, 284.) On February 22, 2006, after this suit had been transferred to this Court, the USPTO authorized the issuance of a utility patent containing the same drawings as the design patent and also describing the invention in words, again listing only Mardkha as the inventor. (Defs.' Ex. I.) That utility patent issued in December 2006. '827 Patent. The scope of these patents is described in greater detail below.

STANDARD OF REVIEW

Summary judgment is appropriate if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56. The moving party must demonstrate that no genuine issue exists as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323--25 (1986). It can satisfy this burden by showing that the opposing party is unable to establish an element essential to that party's case and on which that party would bear the burden of proof at trial. See id. at 321; Gallo v. Prudential Servs., 22 F.3d 1219, 1223-24 (2d Cir. 1994). In reviewing the record, the district court must assess the evidence in "the light most favorable to the non-moving party," resolve all ambiguities, and "draw all reasonable inferences" in its favor. Am. Cas. Co. v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994). The "non-movant may defeat summary judgment only by producing specific facts showing that there is a genuine issue of material fact for trial." Samuels v. Mockry, 77 F.3d 34, 36 (2d Cir. 1996). "[I]n ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). In the context of the pending motion, summary judgment is proper if ...


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