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Sukumar v. Nautilus, Inc.

United States District Court, Fourth Circuit

December 6, 2013

PONANI SUKUMAR, and SOUTHERN CALIFORNIA STROKE REHABILITATION ASSOCIATES, INC., Plaintiffs,
v.
NAUTILUS, INC., Defendant.

MEMORANDUM OPINION

JAMES C. TURK, Senior District Judge.

This matter is before the Court on cross-motions for summary judgment. Plaintiffs Ponani Sukumar ("Sukumar") and Southern California Stroke Rehabilitation Associates, Inc. ("SCSRA") have filed a renewed motion for partial summary judgment, ECF No. 136, in which they cite to new evidence in seeking some of the same rulings as a matter of law that the Court previously denied. See ECF No. 103 (Memorandum Opinion granting in part and denying in part Plaintiffs' Motion for Partial Summary Judgment, ECF No. 80). Defendant Nautilus, Inc. ("Nautilus") has filed its own summary judgment motion, in which it seeks judgment in its favor as to all claims asserted by Plaintiffs, primarily on the grounds that Plaintiffs have insufficient evidence of damages caused by Nautilus's conduct. ECF No. 138. The parties argued both motions before the Court on September 17, 2013, and the motions are now ripe for disposition.

As explained in more detail below, summary judgment is appropriate as to Plaintiffs' claim under the federal false patent marking statute, 35 U.S.C. § 292, because Plaintiffs have produced insufficient evidence of a "competitive injury, " which is required to show standing under the revised statute. Similarly, as to their state law claims under California and Washington law, the Court concludes that Plaintiffs have failed to put forth sufficient evidence from which a jury could find that they suffered an injury proximately caused by Nautilus's violations of those statutes. For these reasons, explained in more detail below, Defendant's Motion for Summary Judgment, ECF No. 138, is GRANTED, and Plaintiffs' Motion, ECF No. 136, is DENIED AS MOOT.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

At the outset, the Court notes that the cross-motions and related filings are voluminous, contain extensive exhibits, and address a number of issues that the Court will not reach in this opinion.[1] For example, it will be unnecessary to address Plaintiffs' motion for summary judgment at all (which focuses entirely on issues related to liability), because the Court's conclusions as to damages render Plaintiffs' motion moot. Accordingly, in discussing the factual background of the case, the Court focuses on the background most pertinent to the issues in this opinion and omits a discussion of the background related to many other legal issues raised by the parties. Primarily, the Court focuses on the facts related to damages, since the lack of proof of damages caused by Nautilus's conduct is the basis of the Court's ruling.

Nautilus is a publicly-traded American corporation, headquartered in Vancouver, Washington. ECF No. 138-6, Murdock Decl. at ¶ 2. It has been in the exercise and fitness equipment industry for over twenty-five years and develops, manufactures, and markets several different lines of fitness products both domestically and internationally. Id. at ¶¶ 2-3. It sells its products directly to consumers through television advertising, catalogs, and the Internet, and also offers products through a network of independent retail companies with stores and websites. Id. at ¶ 3.

Plaintiff Ponani Sukumar is an individual and California resident. ECF No. 138-3, Sukumar Dep. at 13.[2] He founded Plaintiff Southern California Stroke Rehabilitation Associates, Inc. ("SCSRA") in 2004 and is its President. Id. at 13-14, 46. When SCSRA was established, Sukumar intended to utilize the corporation to eventually open approximately 70 stroke rehabilitation centers to treat elderly and medical patients. Id. at 63, 66. His motivation for establishing SCSRA stemmed from his personal experience, starting in 1994, with his elderly father's illnesses. ECF No. 150-10, Sukumar Decl. at ¶ 6.[3] As part of his attempts to help his father regain functionality, he "concluded that strength training equipment would form the nucleus" of his father's rehabilitation plan. Id . When he founded SCSRA, he intended to use strength training equipment in SCSRA's centers, as well. Id. at ¶ 13; see also Am. Compl. ¶¶ 25-29 (explaining that SCSRA was founded in order to generate profit by offering "traditional' physical rehabilitation in addition to other treatment modalities, including diet, mental and spiritual wellness"; the physical rehabilitation program would use specific types of exercise equipment that would work for "frail elderly clients with limited physical strength" and contain certain safety features to "protect compromised clients").

Sukumar explains that he was "most interested in the use of the Arthur Jones inspired core designs of Nautilus's 2ST and [Next Generation ("NG") lines of] machines, " but that he believed those machines would have to be modified in order to properly serve the senior fitness and rehabilitation market. Id. at ¶¶ 6, 8. These modifications included features designed to assist elderly or infirm patients to use them safely. See id. at ¶¶ 7-8. Sukumar avers that since the late 1990s, he has "formed and continually refined, very specific concepts and criteria for machines in the senior fitness market." Id. at ¶ 7.

As part of his research, Sukumar purchased a number of different exercise machines from Nautilus and other manufacturers. Id. at ¶ 23(c).[4] SCSRA currently owns approximately 110-120 Nautilus machines that have been purchased either directly by SCSRA or purchased by Sukumar and ownership transferred to SCSRA. Sukumar Dep. at 96-97. Approximately 50-55 of the machines that are the subject of this lawsuit were purchased within the five-year period preceding the filing of suit and are therefore within the applicable statute of limitations. Id. at 148.

Pertinent here, Sukumar claims that in the course of investigating Nautilus machines, he was several times told by Nautilus employees or representatives that Nautilus machines were patented and that Nautilus vigorously protects the machines from patent infringement. Sukumar Decl. at ¶¶ 9-10. Additionally, the Nautilus machines at issue in this lawsuit contained patent labels. Although Nautilus repeatedly points to a portion of Sukumar's testimony as him "conceding" that he did not even look at the patent labels until after he had purchased them, that testimony cannot bear the weight Nautilus assigns it. As explained in Plaintiffs' response, see ECF No. 150 at 24-25, defense counsel's questioning did not ask Sukumar to identify each and every instance he had looked at the patent labels, nor did Sukumar testify that the one instance he mentioned of reviewing the labels was the only time he had looked at them. Moreover, there is additional evidence (including photographs of patent labels taken around 2003) that Sukumar looked at patent labels prior to purchasing the machines at issue in this lawsuit.

As this Court has already ruled, at least some of the patent labels on the machines were false, in that they listed patents that did not apply to that particular machine. Specifically, nine of the machines Nautilus manufactured at its Independence, Virginia plant-six strength machines and three cardiovascular machines-were unpatented and falsely marked. See ECF No. 103 at 5-8. The six strength machines contained labels referencing at least eight inapplicable patents (of twenty-four listed on the label). Likewise, the cardio machines contained labels referencing at least eight inapplicable patents (of sixteen listed on the label). Id.

In addition to purchasing off-the-shelf Nautilus equipment, Sukumar also placed several orders in 1998 and 1999 for a number of customized Nautilus machines that he claims incorporated "certain of [his] innovations." Sukumar Decl. at ¶ 9. He was dissatisfied with the machines as delivered, id. at 11, 15, 23, and eventually filed a breach of contract action against the distributor of those products, Med-Fit Systems, Inc., and against Nautilus, who Sukumar claimed induced Med-Fit to breach its contract with him. See, e.g., Sukumar v. Med-Fit Sys., Inc., 2012 WL 1534098, at *1 (Cal.Ct.App. May 2, 2012). Portions of that case were tried to two different juries and both times, the jury ruled against Sukumar. Id., at *1. He appealed, but the final judgment was affirmed on appeal. See id.

In his declaration, Sukumar claims that around October 2001 and again around February of 2002, he had a "plan to build, deploy, and sell my machines" that would "pitch [him] into direct competition with Nautilus." ECF No. 150-10, Sukumar Decl. at ¶ 11.[5] Because of the patent labels on the machines, however, and the statements by a former Nautilus employee, he thought "obtaining a license was not only required, but... also... the fair and prudent thing to do." Id. at ¶¶ 11-12. Sukumar testified that he twice sought a license from Nautilus so that he could use Nautilus machines and modify them to his satisfaction, "once in 2004, just before the Direct Focus trial, and once in 2009 through [his] Jones Day lawyers." Sukumar Dep. at 110. At least one of these requests was in the context of a settlement discussion with Nautilus over pending litigation. See Ex. 1 to Sukumar Decl. He now claims that, had he known those machines were not patented-an understanding he claims he has just recently reached as a result of the Court's February 2012 Order-he would have built his own machines at that time for selling to others and thus competed directly with Nautilus. This testimony, however, is contradicted by the terms he offered in the settlement letter from his attorneys, in which he claimed he wanted to license Nautilus technology solely for use in SCSRA centers and makes no mention of selling exercise equipment. It also conflicts with his deposition testimony in this case, when he testified that he now has an intention to manufacture and sell his customized machines, but has had that intent only since February 2012.

Additionally, although Sukumar avers he has been working on his modified equipment designs since the late 1990s, he also admitted at his deposition a number of facts that show that neither Sukumar nor SCSRA is presently a competitor of Nautilus. In particular, Sukumar testified that:

• SCSRA has no other employees other than Sukumar (Dep. at 14);
• neither he nor SCSRA has actually created or opened any senior spa centers or any stroke rehabilitation centers (Sukumar Dep. at 66-67);
• neither he nor SCSRA have sold any specifically-modified Nautilus equipment, or any machines of his own design and manufacture (Sukumar Dep. at 167, 169, ECF No. 138-4, SCSRA Dep. at 253-54);
• neither he nor SCSRA hold any patents on fitness equipment (Sukumar Dep. at 190);
• SCSRA has not realized a profit in any given year since its inception (SCSRA Dep. at 259); and
• the protocol that Sukumar has developed for assisting patients is not written, but "in [his] mind and [he] put it in effect in the case of [his] father" and discussed it with people (Sukumar Dep. at 171).

Nautilus summarizes these admissions by describing Sukumar as an individual with a "nonfunctioning business" and contends that, even if SCSRA were in business, it would not operate in the same commercial market as Nautilus." ECF No. 138 at 16, 18, 50. That is, Nautilus manufactures and sells equipment; SCSRA would merely use equipment or make it to use in its own centers.

To counter these facts, Plaintiffs emphasize in their opposition all the efforts they have made since the Court's February 2012 opinion ruling the machines at issue are falsely marked. Sukumar's Declaration, for example, claims that since this Court's February 2012 Order on Plaintiffs' partial summary judgment motion when he learned for certain that the accused machines were falsely marked, Plaintiffs have taken steps and invested time, energy, and resources to become a fitness equipment manufacturer. Sukumar Decl. at 14-15. These include "retain[ing] the services of John Whitman" to "obtain updated research on the senior fitness market" and working to develop a comprehensive business plan that includes "designing, manufacturing, and selling my own line of fitness equipment." Id. at 15. SCSRA is also working with a design house in Utah and two overseas manufacturers to develop prototypes and manufacture a line of fitness equipment based on Nautilus's core designs. Id . Plaintiffs are in the process of retaining other industry professionals and have "engaged with Gregg Hamann" to purchase land for a California manufacturing facility, with space for "offices, research & development, prototyping fitness equipment, and manufacturing fitness equipment." Id . According to Plaintiffs, these recent efforts support their claim that, were it not for the false patent labels, they could and would have engaged in such efforts previously. Id. at 15-16 (claiming that the false marking impeded Plaintiffs "from building machines based upon the core design elements of Nautilus's NG and 2ST lines of equipment, thereby delaying our entry into this market by nearly 15 years").

Plaintiffs also contend that they have suffered a "variety of cognizable harms directly because of Nautilus's violation of the false marking statute." ECF No. 150 at 5. They specifically identify ...


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