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Carotek, Inc v. Kobayashi Ventures

June 28, 2012


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Plaintiffs Carotek, Inc. ("Carotek") and Event Capturing Systems, Inc. ("ECS") filed separate actions, now consolidated, seeking, inter alia, a declaratory judgment that three patents owned by defendant Kobayashi Ventures, LLC ("Kobayashi") are invalid and unenforceable, and monetary relief based on unfair trade practices, interference with prospective advantage, fraud, and defamation. Kobayashi has asserted counterclaims for patent infringement and breach of a license agreement. Presently before us are the parties' cross-motions for summary judgment on these claims and related affirmative defenses.

For the reasons stated herein, we grant plaintiffs' motion to invalidate the independent claims of the patents containing the claim term "control means" but deny it as to the claim term "extract." We also grant plaintiffs' motion to invalidate one of Kobayashi's patents as anticipated, until September 14, 2010, when a certificate of correction was issued. Additionally, we deny plaintiffs' motion as to a finding of non-infringement.

Moreover, we grant defendants' motion as to the return of licensing fees to Carotek. Although we cannot find that federal patent law preempts plaintiffs' state claims, we nevertheless grant defendants' motions on those claims because plaintiffs have not demonstrated that Kobayashi's actions caused them damages. Finally, we grant defendants' motions with respect to plaintiff's individual claims against James Dechman.


I. The Patents

Kobayashi currently holds the three patents that are at issue in this litigation: U.S. patent numbers 5,717,456 (the "'456 Patent"), 5,821,990 (the "'990 Patent"), and 6,211,905 (the "'905 Patent") (collectively, the "Patents"). The Patents belong to a family of patents and contain materially identical disclosures. They relate to a system for monitoring a continuous manufacturing process (for instance, the process by which paper is manufactured) and detecting flaws or deviations in the product or process. The system includes some means of monitoring production -- such as multiple video cameras positioned along the process -- and recording video, which is then converted into digitized data and digitally stored. A control device, such as a computer, interfaces with the digital storage devices, extracts video clips reflecting any detected deviations, and displays them for viewing, presumably so the problem can be identified and remedied.

The prosecution history of the Patents is convoluted.*fn2

Kobayashi filed application number 08/399,235 (the "'235 Application") on March 6, 1995, from which the '456 Patent issued on February 10, 1998. While the '235 Application was pending, Kobayashi filed a patent application with a similar specification in South Africa; that application was published and issued as a patent on August 28, 1996 (the "South African Patent").

On September 3, 1997, still prior to the issuance of the '456 Patent, Kobayashi filed application number 08/929,231 (the "'231 Application") as a division*fn3 of the '235 Application. The '990 Patent, claiming priority to the '235 Application and the '456 Patent, issued from the '231 Application on October 13, 1998. Prior to the '990 Patent's issuance, Kobayashi disclaimed the portion of its patent term extending beyond that of the '456 Patent. The two patents thus expire on the same date.

Before the '990 Patent issued, on July 30, 1998, Kobayashi filed a continuing prosecution application ("CPA")*fn4 of the '231 Application. Kobayashi, however, had filed the CPA in error, and on April 5, 1999 it petitioned pursuant to 37 C.F.R. § 1.183 to modify the CPA to become a division of the '231 Application. (Decl. of Deanna L. Peters in Supp. of Kobayashi Ventures LLC's Opp'n to Carotek's and ECS' Mot. for Summ. J. ("Peters Decl."), Ex. 11, Petition Under 37 CFR § 1.183 Suspension of Rules (the "Petition").) The Petition was granted on September 29, 1999, and the resulting application was assigned number 09/398,528 (the "'528 Application"). In September of the following year, Kobayashi disclaimed the portion of the term of the patent to issue from the '528 Application that exceeded the patent term of the '990 Patent. At the same time, upon request from the United States Patent and Trademark Office (the "PTO"), Kobayashi submitted a new inventors' declaration for the '528 Application,*fn5 which declaration claimed the benefit of the '235 Application and '456 Patent.

On April 3, 2001, the '905 Patent issued from the '528 Application, claiming priority only to the '231 Application and '990 Patent. On August 12, 2010, after the priority of the '905 Patent became an issue in this litigation, Kobayashi requested from the PTO a certificate of correction pursuant to 35 U.S.C. §§ 254 and 255 to change the patent's claim of priority to the '235 Application and '456 Patent. Kobayashi paid the PTO's fee for the change (Oral Arg. Tr. 41:2-5), and the request was granted on September 14, 2010 (Peters Decl., Ex. 17, Certificate of Correction (the "Certificate")).

The relevant information pertaining to the various applications and patents is summarized in the table below.

Date Filed Application Patent Number Type Number Date Issued March 6, '235 Parent '456 February 1995 10, 1998 November 13, 1995 n/a South African n/a September Division of '235 October 13, 3, 1997 '231 Application '990 1998 July 30, n/a CPA of '231 1998 Application n/a n/a September April 3, 29, 1999 '528 Division of '231 Application '905 2001 September 14, 2010 August 28, 1996 August 12, 2010 n/a Correction n/a

II. Plaintiffs' Business

Carotek, among other pursuits, used to market and sell an event-capturing system for monitoring industrial processes, particularly packaging and paper-making. Carotek sold its monitoring-systems business to ECS on December 31, 2007,*fn6 and ECS has continued to develop the product. Together, plaintiffs have developed a number of versions of the monitoring system, and Kobayashi accuses, in particular, ECS View versions 4 through 11, Modular RetroSpek, RetroSpek II, and RetroSpek IV of infringing the Patents. ECS View version 11 -- the most recent version of Carotek and ECS's system -- was completed in July of 2009, and ECS began selling that version around September 2009.

III. Licensing Agreements

Effective December 8, 1998, Carotek entered into a licensing agreement with Kobayashi for the technology that Kobayashi was in the process of patenting. (Peters Decl., Ex. 1, License Agreement (the "Agreement").) That agreement provides a system for calculating royalty payments to be made to the holder of the Patents, including a minimum of $25,000 to be paid each year. (Id. ¶ 3.4); see also Carotek II, 2010 U.S. Dist. LEXIS 37800, at *23-24. Between 1999 and 2005, Carotek paid $123,421.79 to Kobayashi, and it ceased making royalty payments entirely no later than June 2005.

The Agreement also contains a "most favored licensee" provision, obligating Kobayashi to notify Carotek if Kobayashi enters into any licenses for the Patents with third parties on terms more favorable than Carotek's. (Agreement ¶ 12.1); see also Carotek I, 2009 U.S. Dist. LEXIS 79812, at *6-9.

Kobayashi had entered into a similar licensing agreement with Papertech, Inc. ("Papertech") on November 12, 1998. See id. at *4. Papertech stopped making payments under that agreement as early as September 27, 2000. See id. Kobayashi and its predecessors did not sue for these payments until years later. See id. at *8-9.

At some point during International Paper's time as owner of the Patents, Equaphor also acquired a license to use the patented technology. Eventually Equaphor, like Papertech, ceased paying its royalties, which were not pursued for a period of at least two years. (Decl. of Michael Autuoro in Supp. of Carotek, Inc. and Event Capturing Systems, Inc.'s Responses to Mot. for Partial Summ. J. Filed by Kobayashi Ventures, LLC and James Dechman, Ex. 1A, Tr. of Equaphor Bankr. Hr'g, No. 10-20490-SSM, at 102:20-103:2 (Bankr. E.D. Va. May 2, 2011).)

IV. The Letters

On April 24, 2008 -- as discussed in more detail below, after Kobayashi had already filed its counterclaims against Carotek -- Kobayashi's counsel, Jeffrey M. Schwaber, Esq., sent letters (the "Letters") on behalf of Kobayashi to ten companies -- Sappi Fine Paper ("Sappi"), Procter & Gamble ("P&G"), NewPage Corp. ("NewPage"), Kimberly-Clark Corp. ("Kimberly-Clark"), J.D. Irving, Ltd. ("JDI"), Georgia-Pacific Corp. ("Georgia-Pacific"), Domtar Corp. ("Domtar"), AbitibiBowater Inc. ("AbitibiBowater"), Sonoco, and Quebecor World ("Quebecor") (collectively, the "Customers," and each a "Customer") -- that had purchased event-monitoring systems from Carotek or ECS.*fn7

The Letters are the same in all material respects and informed the Customers of the pending litigation between Carotek and Kobayashi. In most relevant part, they state that Kobayashi "has sued Carotek for Patent Infringement and Breach of License Agreement" and "suspects [the Customers] unwittingly may be using unlicensed Products, either acquired directly from Carotek, from a distributor, or from a third party," which "would expose [the Customers] to potential liability." The Letters further state that Carotek "is no longer in the business of selling or servicing the Products on which it once paid royalties under the License Agreement," which may put the Customers "in the unfortunate position of ultimately being held legally and financially responsible for Patent Infringement." The Letters conclude by requesting "a list of all Products . . . acquired from Carotek after December 8, 1998" -- the effective date of the licensing agreement between Carotek and Kobayashi --and noting that Kobayashi "has no desire to disrupt the operations at [the Customers'] facilities."

V. Relevant Procedural History

Carotek initiated this lawsuit on December 11, 2007. On February 11, 2008, Kobayashi filed its answer and counterclaims. ECS filed its own suit against Kobayashi on June 24, 2008, and the Court consolidated the two cases on July 18, 2008. Kobayashi subsequently answered ECS's complaint and filed counterclaims against ECS on September 2, 2008.

The Court issued its first opinion in the consolidated matter on August 31, 2009, addressing most relevantly whether Kobayashi had violated the most favored licensee provision of the Agreement. See Carotek I, 2009 U.S. Dist. LEXIS 79812. On April 12, 2010, the Court issued its second pertinent decision, discussing, inter alia, whether Carotek owed minimum fees under the Agreement. See Carotek II, 2010 U.S. Dist. LEXIS 37800. Following resolution of these matters, the Court issued its Markman decision construing various claim terms on September 8, 2011. See Carotek III, 2011 U.S. Dist. LEXIS 102014.

In light of the Court's claim-construction ruling, the parties cross-moved for summary judgment on various issues on December 19, 2011. Briefing was completed on January 24, 2012, and oral argument was held on May 24, 2012.


I. Legal Standards

A motion for summary judgment is appropriately granted when "there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In this context, "[a] fact is 'material' when it might affect the outcome of the suit under governing law," and "[a]n issue of fact is 'genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (internal quotation marks omitted). When making this determination, "we are required to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Gorzynski v. JetBlue Airways Corp., 596 F.3d 93, 101 (2d Cir. 2010) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).

On a motion for summary judgment, "[t]he moving party bears the initial burden of demonstrating 'the absence of a genuine issue of material fact.'" FDIC v. Great Am. Ins. Co., 607 F.3d 288, 292 (2d Cir. 2010) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Where that burden is carried, the nonmoving party "must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact." Id. (citing Anderson, 477 U.S. at 249). The non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts and may not rely on conclusory allegations or unsubstantiated speculation." Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir. 2011) (internal quotation marks and citation omitted).

II. Sufficiency of the Patents

A. Requirements Under 35 U.S.C. § 112

1. Requirements Under Paragraph 1

A patent's specification must describe the invention "in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains . . . to make and use the same." 35 U.S.C. § 112, ¶ 1. This written description requirement mandates that the specification "describe the invention sufficiently to convey to a person of skill in the art that the patentee had possession of the claimed invention at the time of the application." LizardTech, Inc. v. Earth Res. Mapping, Inc., 424 F.3d 1336, 1345 (Fed. Cir. 2005).

The specification must thus demonstrate that "the inventor actually invented the invention claimed." Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010). Whether "a skilled person 'could' identify" or "envision" the invention is irrelevant; the question is "whether the application necessarily discloses that particular device." Goeddel v. Sugano, 617 F.3d 1350, 1355-56 (Fed. Cir. 2010) (internal quotation marks omitted). However, "the amount of detail that must be included in the specification depends on the subject matter that is described and its role in the invention as a whole, in view of the existing knowledge in the field of the invention." Typhoon Touch Techs., Inc. v. Dell, Inc., 659 F.3d 1376, 1385 (Fed. Cir. 2011). With respect to software, "it is generally sufficient if the functions of the software are disclosed, it usually being the case that creation of the specific source code is within the skill of the art." Robotic Vision Sys., Inc. v. View Eng'g, Inc., 112 F.3d 1163, 1166 (Fed. Cir. 1997).

It is a question of fact whether a patent satisfies the written description requirement of paragraph 1 of Section 112. See Ariad Pharm., 598 F.3d at 1355 (citing Ralston Purina Co. v. Far-Mar-Co, Inc., 772 F.2d 1570, 1575 (Fed. Cir. 1985)). Any claim not supported by adequate description in the specification is invalid. See id. at 1358.

2. Requirements Under Paragraphs 2 and 6

All claims in a patent must "particularly point[] out and distinctly claim[] the subject matter which the applicant regards as his invention." 35 U.S.C. § 112, ¶ 2. This definiteness requirement provides "notice to the public of the extent of the legal protection afforded by the patent." All Dental Prodx, LLC v. Advantage Dental Prods., Inc., 309 F.3d 774, 779-80 (Fed. Cir. 2002); see also Datamize, LLC v. Plumtree Software, Inc., 417 F.3d 1342, 1347 (Fed. Cir. 2005) ("[T]he purpose of the definiteness requirement is to ensure that the claims delineate the scope of the invention using language that adequately notifies the public of the patentee's right to exclude.").

The claims in the Patents are of a variety known as "means plus function." For any "means or step for performing a specified function" in those claims, there must be some "corresponding structure, material, or acts described in the specification and equivalents thereof." 35 U.S.C. § 112, ¶ 6. In other words, "a generic means expression for a claim limitation" is acceptable in means-plus-function claims, "provided that the specification indicates what structure(s) constitute(s) the means." Atmel Corp. v. Info. Storage Devices, Inc., 198 F.3d 1374, 1381 (Fed. Cir. 1999) (emphasis omitted). If the specification fails to provide a structure -- here, some computer-based algorithm -- corresponding to any limitation in a means-plus-function claim, "the claim will be found invalid as indefinite" under paragraph 2 of Section 112. Biomedino, LLC v. Waters Techs. Corp., 490 F.3d 946, 950 (Fed. Cir. 2007); see also Aristocrat Techs. Austl. PTY Ltd. v. Int'l Game Tech., 521 F.3d 1328, 1338 (Fed. Cir. 2008).

Patents issued by the PTO are presumed to be valid, but that presumption may be overcome by a showing of clear and convincing evidence that those skilled in the art would not understand the limitations in a claim. See Young v. Lumenis, Inc., 492 F.3d 1336, 1345-46 (Fed. Cir. 2007). A claim may be invalidated upon such a showing, the sufficiency of which is a question of law. See Aero Prods. Int'l, Inc. v. Intex Recreation Corp., 466 F.3d 1000, 1015-16 (Fed. Cir. 2006). The appeal to the understanding of a person skilled in art, however, "'has no application'" when "the specification discloses no algorithm." Noah Sys., Inc. v. Intuit, Inc., 675 F.3d 1302, 1313 (Fed. Cir. 2012) (quoting Aristocrat, 521 F.3d at 1337). When no algorithm is disclosed, the claim must be found invalid as indefinite. See id.; Aristocrat, 521 F.3d at 1337.

B. Claims Containing the Term "Control Means"

Every independent claim in the '456 and '990 Patents and independent claims 1 and 16 of the '905 Patent contain the term "control means." The Court has already determined that the specification does not adequately identify an associated structure for this claim term. See Carotek III, 2011 U.S. Dist. LEXIS 102014, at *29-33. We found, in fact, that the language in the specification purportedly disclosing the algorithm "simply describes the function to be performed, not the corresponding structure" and that the specification "does not even purport to describe a structure" for many of the Patents' claimed functions. Id. at *30, 33. Accordingly, the independent claims of the '456 and '990 Patents and claims 1 and 16 of the '905 Patent are invalid under paragraphs 2 and 6 of Section 112.

Kobayashi, recognizing the implications of Carotek III's holding, asks us to reconsider our construction of "control means" in light of Typhoon Touch, 659 F.3d 1376, and Ronald A. Katz Technology Licensing LP v. American Airlines, Inc. (In re Katz Interactive Call Processing Patent Litigation), 639 F.3d 1303 (Fed. Cir. 2011). While reconsideration is procedurally improper,*fn8 we also reject it on substantive grounds.

In Typhoon Touch, the Federal Circuit evaluated a specification's elaboration of the means-plus-function term "means for cross-referencing." 659 F.3d at 1383-86. The court there found the steps of the algorithm -- "data entry, then storage of data in memory, then the search in a library of responses, then the determination if a match exists, and then reporting action if a match is found," id. at 1386 -- to consist of "known computer-implement operations," which "are readily implemented by persons of skill in computer programming," id.

The same cannot be said of the steps of the algorithm purportedly described in the Patents. Kobayashi contends that its expert, Dr. Robert L. Stevenson, has identified similar steps in the Patents' specifications. Specifically, Dr. Stevenson suggested that the specifications disclose steps including, among others, (i) scanning all digitized storage means, (ii) selecting clips from all means containing data collected at the appropriate times, (iii) scanning each clip to identify the deviation event, (iv) identifying the monitoring means most proximate to the location of the deviation event, and (v) selecting a clip from the digitized storage means for the monitoring means. (Peters Decl., Ex. 19, Decl. of Robert Stevenson ("Stevenson Decl.") ¶¶ 25-26.)

Putting to the side for the moment the question of whether these steps are even to be found in the specification,*fn9 this algorithm is not akin to that under discussion in Typhoon Touch. While both contain the concepts of searching or scanning, which may be "carried out by known computer-implement operations," Typhoon Touch, 659 F.3d at 1386, Kobayashi's purported algorithm also contains identification and selection steps that hinge crucially on unspecified criteria. The record contains no meaningful evidence that these steps may be "readily implemented by persons of skill in computer programming," id., and the claims and specification describe these functions in nearly identical language, which is a far cry from the Typhoon Touch specification's elaboration on the meaning of "cross-reference."

Nor does Typhoon Touch alter our third independent reason for finding that "control means" did not have an adequately identified structure: "the Patents do not disclose a structure that corresponds to each of the identified functions." Carotek III, 2011 U.S. Dist. LEXIS 102014, at *32-33. In this respect, Katz is more on point, but it also does not change our analysis. The Federal Circuit there made clear that when a patent "has not claimed a specific function performed by a special purpose computer, but has simply recited . . . functions [that] can be achieved by any general purpose computer without special programming," the specification need not disclose a structure corresponding to those functions. 639 F.3d at 1316. The court identified "processing," "receiving," and "storing" as functions that did not require elaboration. Id. The record here contains no evidence that the functions identified in Katz are comparable to many of the functions the Patents claim the control means performs but for which no corresponding structure is disclosed, such as, for instance, "controlling the monitoring system," "forming an extracted clip," "identifying a video camera proximate to the deviation detector," "gradient edge enhancement," "image sharpening," and "interpolation," Carotek III, 2011 U.S. Dist. LEXIS 102014, at *26-27.

Typhoon Touch and Katz thus do not change our assessment of the definiteness, and therefore the validity, of claims in the Patents containing the term "control means." They are invalid.

C. Claims Containing the Term "Extract"

The remaining independent claims of the '905 Patent --claims 21, 38, and 43 -- claim a computer "configured to extract a deviation digitized video signal" or "data." The parties disagree over whether the claim term "extract" is sufficiently explicated in the specification to satisfy the written description requirement of paragraph 1 of Section 112.

Although we previously defined "extract," see Carotek III, 2011 U.S. Dist. LEXIS 102014, at *36-39, we did not reach the precise issue of whether the specification includes enough detail with respect to the term in order to disclose the claimed system. Our discussion in Carotek III is nevertheless useful for present purposes. The construction we gave to "extract" -- "to remove" -- was intended to encapsulate the notion that extracted data is preserved rather than overwritten, to prevent the equation of "extract" and "identify," and to admit the possibility that extraction may occur through means other than moving and copying data. See id. The construction, drawing from the specifications and claims from all of the Patents, evinces a meaningful understanding of how the '905 Patent uses the term "extract."

Kobayashi points to several segments of the '905 Patent's specification as explaining the meaning of the term along the lines of the Court's construction. It highlights, in particular, the following three passages:

[T]his invention relates to . . . a [monitoring] system in which process data relating to a predetermined characteristic of the process is collected and stored in digital format and extracted based upon a ...

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