HITKANSUT LLC, a Michigan corporation, & Acceledyne Technologies, Ltd., LLC, a Michigan corporation, Plaintiffs, v. UNITED STATES, Defendant.
No. 12-303C
United States Court of Federal Claims.
Filed: October 21, 2014
LETTOW, Judge.
iii. Scenario Three
Under this fact pattern, plaintiff seeks to net underpayment interest on First Union‘s 1999 income tax account against overpayment interest on CoreStates‘s 1992 income tax account, representing a pre-merger acquired corporation and a post-merger surviving corporation. Specifically, plaintiff seeks to net interest on the period from March 15, 2000 to March 15, 2002. Based on the same reasoning discussed above, the court finds that the entities became the “same taxpayer” by operation of law through the statutory merger and thus the court finds that interest netting is allowed.
IV. CONCLUSION
For the reasons set forth above, plaintiff‘s motion for partial summary judgment is GRANTED and the government‘s cross-motion for partial summary judgment is DENIED.
Pursuant to
IT IS SO ORDERED.
Gary L. Hausken, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With him on the briefs were Stuart F. Delery, Assistant Attorney General, Civil Division, and John Fargo, Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C.
Barbara L. Mandell, Rader, Fishman & Grauer PLLC, Bloomfield Hills, Michigan, for Eaton Corporation. With her on the briefs were Robert J. Kimmer and Michael B. Stewart, Rader, Fishman & Grauer PLLC, Washington, D.C. and Bloomfield Hills, Michigan, respectively.
OPINION AND ORDER
LETTOW, Judge.
Pending before the court are four motions reflecting disputes over pre-trial discovery in this patent case. The parties have been pursuing discovery to prepare for a potential future trial over whether the government, acting through Oak Ridge National Laboratory (“Oak Ridge” or “the government“), has infringed United States Patent No. 7,175,722 (“the ‘722 patent“), entitled “Methods and Apparatus for Stress Relief Using Multiple Energy Sources.” In the first motion, plaintiffs Hitkansut LLC and Acceledyne Technologies, Ltd., LLC (collectively, “Hitkansut“) request that the court compel the production of certain documents and information currently being withheld by Eaton Corporation (“Eaton“), which previously had entered into Cooperative Research and Development Agreements (“CRADAS“)1 with Oak Ridge. Pls.’ Mot. to Compel Docs. from Third-Party Eaton Corporation (“Pls.’ Eaton Mot.“), ECF No. 65; see also Hitkansut LLC v. United States, 111 Fed.Cl. 228 (2013) (“Hitkansut I“) (addressing provisions of the Federal Technology Transfer Act,
BACKGROUND
The invention protected by the ‘722 patent is “a method of achieving a desired physical property in a structure ... through the concurrent application of two different energies ... [where t]he first energy may be thermal energy (i.e. heat) and the second energy may be mechanical vibration, sonic, laser, microwave, or magnetic energy.” Pls.’ Mot. to Compel & for Entry of a Protective Order at 1-2, ECF No. 11.3 Hitkansut claims that the research conducted by Oak Ridge and by private entities through their contractual CRADAS with the government employs a thermo-magnetic processing method that infringes the ‘722 patent. Id. at 2-3. The government disputes these claims.
After the suit progressed into the discovery phase, on January 28, 2013, Hitkansut moved pursuant to Rule 37(a) of the Rules of the Court of Federal Claims (“RCFC“) to compel the production by the government of information related to the CRADAS which were entered by the government with private partners. Pls.’ Mot. to Compel & for Entry of Protective Order. Hitkansut additionally requested that the protective order allow Hitkansut‘s principal access to protected information. Id. at 3. The court granted the motion in part and denied it in part. Specifically, the court allowed the government to withhold information privileged under the Federal Technology Transfer Act,
Hitkansut subsequently sought from Eaton discovery of information relating to its CRADAs with Oak Ridge by way of a subpoena duces tecum and a subpoena for a deposition of Eaton, served April 17, 2014. See Pls.’ Eaton Mot.4 On June 19, 2014, after Eaton
On July 30, 2014, one day before discovery was set to close on July 31, 2014, Hitkansut filed three additional discovery motions pursuant to RCFC 37(a). The first motion requests that the court compel the production from the government of all records and electronic data “concerning the design, development, creation, operation, and/or steps” and all “documents and things” involving the processing of materials and testing of the allegedly infringing process. Pls.’ Data Mot. at 2. The government opposes, arguing that Hitkansut‘s motion is untimely and that the requested items are irrelevant to plaintiffs’ infringement action. Resp. of the United States to Pls.’ Mot. to Compel Production of Docs. from the Def. (“Def.‘s Data Opp‘n“) at 1-2, ECF No. 84. Hitkansut‘s second motion requests the court to compel the government to divulge to Hitkansut information regarding supposedly “classified” projects on a list prepared by Dr. Gerard Ludtka, an Oak Ridge group leader and Principal Investigator. Pls.’ Classified Mot. Hitkansut expresses doubt that the information sought is truly classified and asserts that even if the projects are properly classified, the government may nonetheless disclose relevant, nonclassified information regarding whether the allegedly infringing process was used in treating materials in connection with those projects. Id. at 1, 9. The government insists that some of the projects do not involve thermo-magnetic energy sources and are therefore irrelevant and that the remaining projects are properly classified and should accordingly be protected from disclosure. Response of the United States to Pls.’ Mot. to Compel Discovery Relating to Classified Info. (“Def.‘s Classified Opp‘n“) at 1-2, 8-10, ECF No. 81. Finally, in its third motion, Hitkansut requests an extension of time within which to complete discovery. Pls.’ Enlargement Mot. The government urges the court to deny the extension on the grounds that Hitkansut re-
ANALYSIS
Under RCFC 37(a)(1), a party may, “[o]n notice to other parties and all affected persons, ... move for an order compelling disclosure or discovery.” RCFC 37(a)(1). In acting on a motion to compel discovery responses, the court exercises discretion, see, e.g., Schism v. United States, 316 F.3d 1259, 1300 (Fed. Cir. 2002) (en banc); Osage Tribe of Indians of Okla. v. United States, 84 Fed.Cl. 495, 497 (2008), guided by the provisions of RCFC 26(b)(2) and RCFC 26(g)(1). Those rules set out “proportionality” considerations that bear on disputed discovery requests, calling for a balancing of burdens, the needs of the case, and the importance of the proposed discovery in resolving the issues in the case. 7 James Wm. Moore et al., Moore‘s Federal Practice § 37.22[2][a] (3d ed. 2012). RCFC 26(b) authorizes “discovery regarding any nonprivileged matter that is relevant to any party‘s claim or defense,” RCFC 26(b)(1), but discovery can be limited where
- the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;
- the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or
- the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.
RCFC 26(b)(2)(C). RCFC 26(g)(1) indicates that a discovery request should
- not [be] interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and
- neither [be] unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action.
RCFC 26(g)(1)(B).5
A. Discovery from Nonparty Eaton
Hitkansut contends that the documents it requests from Eaton regarding its CRADAS with the government are “highly relevant” to several issues in its infringement case, including “a determination of the amount of compensation owed for any infringement, the commercial success of the patented process, and the validity of [the ‘722 patent].” Pls.’ Eaton Mot. at 2-3. First, Hitkansut claims that information regarding Eaton‘s internal analysis of the commercial value of the allegedly infringing process, and the amount of time, effort, and money, expended by Eaton relative to the process, “directly reflects the value and worth of the patented process.” Id. at 7. Hitkansut additionally asserts, without elaboration, that the requested documents relating to commercial success and awards received by those conducting the research are relevant to nonobviousness and therefore the validity of the ‘722 patent. Id. at 7-8. Finally, Hitkansut argues that because Eaton worked closely with Oak Ridge, Eaton “would have highly relevant facts, documents[,] and information” relating to the ‘722 patent. Id. at 8.
In American Standard Inc. v. Pfizer Inc., 828 F.2d 734 (Fed. Cir. 1987), the Federal Circuit addressed the similar circumstance of a patentee seeking discovery of data from a nonparty allegedly participating in infringement. In affirming the district court‘s denial of the discovery sought, the court held that
Similarly, in Micro Motion, Inc. v. Kane Steel Co., 894 F.2d 1318 (Fed.Cir.1990), a patent owner issued a subpoena seeking to obtain documents from a nonparty that were supposedly relevant to the issue of damages in its underlying patent infringement lawsuit. 894 F.2d at 1319. The district court ordered the disclosure of all of the information requested from the nonparty except the names of the nonparty‘s customers. Id. at 1320. The Federal Circuit overturned the district court‘s decision, concluding that the motion to quash the subpoena should have been granted in its entirety. Id. at 1320. The court of appeals commented that “[a] party to litigation has no absolute right to pursue any and every alternative theory of damages, no matter how complicated or tenuous.” Id. at 1324. It reasoned that for the requested documents to be relevant, the patent owner must present its damage theories and establish that “each theory [is] actually [a] subject matter involved in the pending action.” Id. at 1326-27 (emphasis in original) (internal quotation marks omitted). The court observed that because the patent owner did not sue the nonparty alleging infringement, the nonparty‘s infringement was not properly a subject matter involved in the underlying lawsuit. Id. at 1327-28.6
In this instance, Hitkansut has neither offered a specific damages theory to which the requested documents would be relevant nor charged Eaton itself with infringement.7 Given that Eaton has not developed any commercial application of the development work it undertook with Oak Ridge, Eaton‘s Opp‘n at 14, even Eaton‘s expenditures would have little if any relevance to Hitkansut‘s case against the government.8 Hitkansut similarly has offered no specific support for its assertion that Eaton‘s documentation would help it rebut a claim of patent invalidity due to obviousness.
In effect, much of the information Hitkansut seeks from Eaton would be of potential use in building an infringement case against Eaton and other third parties. Nota-
Even if the information sought were relevant, discovery is not permitted where “the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case ... and the importance of the discovery in resolving the issues.” RCFC 26(b)(2)(C)(iii). The court in its determination of whether to allow discovery must balance need against burden, confidentiality, and harm. See Mannington Mills, Inc. v. Armstrong World Indus., Inc., 206 F.R.D. 525, 529 (D.Del.2002).
Hitkansut attempts to establish its need for the information from Eaton by stating that denying Hitkansut access would “severely prejudice[]” its ability to evaluate the economic value and details of the government‘s alleged infringement. Pls.’ Eaton Mot. at 3. However, Hitkansut fails to elaborate upon this blanket assertion or explain its need for information beyond the 200,000 images that the government has already provided. United States‘s Views at 14.9
In contrast, Eaton has shown evidence of potential harm from disclosure. Earlier in this litigation when Hitkansut moved to compel the government to disclose information from its CRADA partners, Mr. John A. Kovacich, an Eaton employee, provided a declaration outlining Eaton‘s concerns. Resp. of the United States to Pls.’ Motion to Compel and for Entry of a Protective Order at Appx. A35-38, ECF No. 12. Mr. Kovacich explained that the information requested by Hitkansut at that point included Eaton-held trade secrets, technical know-how, and business and commercial projections that would be valuable to potential future competitors. Id. at Appx. A36-37. The court in Hitkansut I stated that it accepted that technical information and commercial projections “are commercial or financial information, and ... this information is confidential because it would not customarily be released publicly by a private CRADA partner.” 111 Fed.Cl. at 237.
It is also significant in assessing the burden on Eaton that Eaton is a nonparty. See Solarex Corp. v. Arco Solar, Inc., 121 F.R.D. 163, 179 (E.D.N.Y.1988) (noting that a party‘s status is significant in “determining whether compliance [with a discovery demand] would constitute an undue burden.“) (quoting Dow Chemical Co. v. Allen, 672 F.2d 1262, 1271 (7th Cir.1982)). Hitkansut counters that “[t]he CRADA documents and information being sought from Eaton are no different from confidential technical and financial information that is routinely disclosed in patent infringement lawsuits under the
In sum, Hitkansut has failed to establish that the information sought is relevant to its infringement suit against the government or that, even if deemed relevant, its need outweighs the burden disclosure would place on Eaton. Hitkansut‘s motion to compel discovery responses from Eaton consequently shall be denied.
B. Sanctions
Under RCFC 37(a)(5), if a discovery motion is denied, the court must require the moving party to pay the reasonable expenses of the opposing party, including attorneys’ fees. RCFC 37(a)(5).10 However, an exception obviates this requirement for payment of expenses if the motion was “substantially justified” or “other circumstances make an award of expenses unjust.” Id.
Hitkansut requests that Eaton be sanctioned for the time and costs of preparing its motion to compel on the grounds that that the positions taken by Eaton are frivolous, meritless, and in bad faith. Pls.’ Eaton Mot. at 2, 8. Eaton counters that Hitkansut failed to establish a good faith basis for an entitlement to sanctions against Eaton and asserts instead that Eaton should be awarded ex-
penses in defending against Hitkansut‘s motion because (1) Hitkansut failed to confer meaningfully with Eaton before filing the motion; (2) Hitkansut failed to cite to the court controlling Federal Circuit authority regarding nonparty subpoenas; and (3) overall Hitkansut displayed bad faith in pursuing its subpoena against Eaton. Eaton‘s Opp‘n at 19.
The discovery motions at issue and Hitkansut‘s actions fall within the exceptions to Rule 37(a)(5). The court‘s decision in Hitkansut I expressly reserved the issue of whether Hitkansut was entitled to third-party discovery from Oak Ridge‘s CRADA partners, see 111 Fed.Cl. at 235 n. 7, essentially inviting Hitkansut to seek discovery from the partners. Hitkansut‘s actions were therefore substantially justified, and the court declines to impose sanctions against either entity.
C. Discovery of Process Data from Oak Ridge
In its second motion, Hitkansut seeks discovery from the government of the results, electronic data, and reports pertaining to Oak Ridge‘s use of the allegedly infringing process. Pls.’ Data Mot. at 1. Hitkansut argues that those results and data are relevant to its infringement action because the information will provide proofs regarding terms of its patent claim, as follows: (1) whether and to what degree physical properties of the tested structures and materials were changed; (2) whether the applications of the thermal and magnetic energies were “first order rate relationships;” (3) whether the total energy was above the activation energy of the materials used; (4) how operational settings were selected and used; and (5) whether the “first order rate relationships” of the energy processes were first-order Larson-Miller relationships. Id. at 6-7.11 Hitkansut represents that production
The government bases its refusal to disclose the requested information on the grounds that (1) the data that Hitkansut requests are not relevant to any of Hitkansut‘s claims and are also not reasonably calculated to lead to admissible evidence, and (2) Hitkansut‘s motion to compel is untimely because it was filed on the eve of the discovery deadline. Def.‘s Data Opp‘n at 2-3, 6.
Data relating to the government‘s experimentation using thermo-magnetic processes are both relevant and typically admissible. See, e.g., In re Gabapentin Patent Litig., 393 F.Supp.2d 278, 287 (D.N.J.2005) (“The manufacturing process and testing conducted on samples made from that process are clearly relevant to the infringement inquiry.“). The requested data relate to the government‘s use of thermo-magnetic processes that arguably fall within the scope of the ‘722 patent. Nonetheless, Oak Ridge already has admitted its use of thermo-magnetic processes, and disclosure of specific results and data would be somewhat cumulative regarding infringement.
Additionally, the timeliness of Hitkansut‘s motion is problematic. While there is no specified time for filing a motion to compel, see RCFC 37, “courts generally look[] to the deadline for completion of discovery in considering whether a motion to compel has been timely filed.” Days Inn Worldwide, Inc. v. Sonia Invs., 237 F.R.D. 395, 397 (N.D.Tex.2006). A motion is timely when “filed sufficiently in advance of the discovery deadline ... to allow it to be heard by [the] court, and if granted, to allow the compelled discovery to be produced prior to the deadline.” Id. at 398. Hitkansut filed its motion on July 30, 2014, almost two years after fact discovery opened on September 4, 2012 and a single day before fact discovery was set to close. Hitkansut could not have reasonably expected the court to hear the matter or the government to produce the requested documents in a single day. Hitkansut has offered no explanation for its delay, even though the government put Hitkansut on notice of its intention to withhold the requested documents in November 2012. Def.‘s Data Opp‘n at 5.
For the foregoing reasons, the court denies Hitkansut‘s motion, without prejudice to a renewed showing of specific need, demonstrating a more apparent imbalance between need and burden and a showing that the evident untimeliness was justified by circumstances.
D. Discovery of “Classified” Information from Oak Ridge
Hitkansut‘s third motion petitions the court to compel Oak Ridge to disclose files and documents which contain “[i]nformation and documents proving whether or not any of the [projects subject to a security classification] utilize a non-classified patented method of applying two energy sources to change the physical properties of materials in a faster manner.” Pls.’ Classified Mot. at 1. Hitkansut‘s reply explains that it is asking the court only to require the government to provide information on the processes used in and for the classified projects, not to disclose the nature, captions, or sponsoring agencies of those projects. Pls.’ Reply Br. in Support of Its Mot. to Compel Disc. Relating to “Classified” Info. (“Pls.’ Classified Reply“) at 3, ECF No. 88.12 Even so, at several points in its briefing of this motion, Hitkansut contends that the projects identified by the government are not validly subject to a security classification. Pls.’ Classified Mot. at 1. But, even assuming that the programs are appropriately classified, Hitkansut emphasizes that the processes used to treat the materials involved would not themselves be classified, especially given that the government has already anonymously enumerated the projects and disclosed costs. Id. at 9; Pls.’ Classified Reply at 2.
With respect to certain Oak Ridge programs and projects employing a thermo-magnetic processing method, the government maintains that the programs were properly classified and are protected either by their classified designation or un-der the state-secrets privilege.13 To assert a classified privilege, “the head of the pertinent government department must formally invoke the privilege on behalf of the government.” Crater Corp. v. Lucent Technologies, Inc., 423 F.3d 1260, 1265 (Fed.Cir.2005). The court must then, “after reviewing the declarations of government officials” and considering the surrounding circumstances, determine whether invocation of the privilege is appropriate. Id.14
The government has sufficiently demonstrated the proper classification of the identified programs through the declaration of Mr. Christopher D. Poe, a senior classification official at Oak Ridge, who confirmed that the programs are classified. Def.‘s Classified Opp‘n at Appx. GA241-43. Notwithstanding this compelling support for the classified status of the projects, the government has offered to provide for in camera review by the court of “summary declarations of knowledgeable persons” about the programs. Id. at 21. In light of the procedural posture of the case, however, the court finds that there is no reason to undertake that step at this time and reserves that issue for consideration after the resolution of pending motions concerning invalidity pursuant to
CONCLUSION
For the reasons stated, plaintiffs’ motion to compel documents from Eaton is DENIED. Plaintiffs’ motions to compel the production of documents from the government and to compel the disclosure of classified information are also DENIED. Plaintiffs’ motion for an enlargement of time to complete factual discovery is GRANTED. The parties shall complete factual discovery on or before November 17, 2014.
It is so ORDERED.
Johnathan Daniel KING, et al., Plaintiffs, v. The UNITED STATES, Defendant. No. 12-175C United States Court of Federal Claims. (Filed: October 23, 2014)
Notes
[A]ny agreement between one or more [f]ederal laboratories and one or more non-[f]ederal parties under which the [g]overnment, through its laboratories, provides personnel, services, facilities, equipment, intellectual property, or other resources with or without reimbursement (but not funds to non-[f]ederal parties) and the non-[f]ederal parties provide funds, personnel, services, facilities, equipment, intellectual property, or other resources toward the conduct of specified research or development efforts which are consistent with the missions of the laboratory; except that such term does not include a procurement contract or cooperative agreement as those terms are used in sections 6303, 6304, and 6305 of Title 31.
- All documents withheld by the Government at the request of Eaton in the underlying litigation, which are identified in the attached privilege log.
- Funding, whether in-kind contributions or monetary contributions, from Eaton to [Oak Ridge] or from [Oak Ridge] to Eaton relative or pertaining to Eaton‘s use of the thermo-magnetic process.
- Eaton‘s internal investment and/or use relative or pertaining to Eaton‘s use of the thermo-magnetic process.
- Eaton‘s first knowledge and use of the thermo-magnetic process.
If the motion [for an order compelling disclosure or discovery] is denied, the court may issue any protective order authorized under RCFC 26(c) and must, after giving an opportunity to be heard, require the movant, the attorney filing the motion, or both to pay the party or deponent who opposed the motion its reasonable expenses incurred in opposing the motion, including attorneys’ fees. But the court must not order this payment if the motion was substantially justified or other circumstances make an award of expenses unjust. RCFC 37(a)(5)(B).
At the outset, the court must ascertain that the procedural requirements for invoking the state secrets privilege have been satisfied. Second, the court must decide whether the information sought to be protected qualifies as privileged under the state secrets doctrine. Finally, if the subject information is determined to be privileged, the ultimate question to be resolved is how the matter should proceed in light of the successful privilege claim. El-Masri v. United States, 479 F.3d 296, 304 (4th Cir.2007); see also McDonnell Douglas Corp. v. United States, 323 F.3d 1006, 1021-24 (Fed.Cir.2003) (explicitly recognizing the first and second analytical steps, and inherently applying the third step).