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ZUP, LLC v. Nash Manufacturing, Inc.

United States District Court, E.D. Virginia, Richmond Division

January 13, 2017

ZUP, LLC, Plaintiff,
v.
NASH MANUFACTURING, INC., Defendant.

          MEMORANDUM OPINION (GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT)

          HENRY E. HUDSON UNITED STATES DISTRICT JUDGE.

         Plaintiff ZUP, LLC ("ZUP" or "Plaintiff) brings suit against Defendant Nash Manufacturing, Inc. ("Nash" or "Defendant") after a proposed business deal for a joint manufacturing venture turned sour. Both ZUP and Nash manufacture water recreational devices, with the former being a relative newcomer to the industry and the latter having worked in the area for over fifty years.

         ZUP entered the market in 2012 with the introduction of its "ZUP Board, " patented as U.S. Patent No. 8, 292, 681 (the "'681 Patent"). A year later, ZUP and Nash began discussions about a potential partnership, which eventually dissipated. Soon thereafter, Nash brought its "Versa Board" to market.

         In response to Nash's new product, ZUP filed the present suit alleging four counts: contributory infringement of the '681 Patent (Count I); inducement of infringement of the '681 Patent (Count II); trade secret misappropriation (Count III); and breach of contract (Count IV). Nash brought two counterclaims against ZUP, seeking declaratory relief regarding non-infringement (Counterclaim I) and declaratory relief regarding invalidity of the apparatus and method claims-Claims 1 and 9 respectively-of the '681 Patent (Counterclaim II).

         This matter is currently before the Court on Nash's Motion for Summary Judgment, filed on September 14, 2016. (ECF No. 35.) Both parties filed memoranda supporting their respective positions. Oral argument followed on November 16, 2016.

         For the reasons discussed herein, the Court will grant the Motion as to Defendant's Counterclaim II-rendering Counts I and II of Plaintiff s Complaint and Defendant's Counterclaim I moot-and as to Counts III and IV of Plaintiff s Complaint. Consequently, this case will be dismissed with prejudice.

         I. BACKGROUND

         As required, the Court resolves all genuine disputes of material fact in favor of the non-moving party and disregards those factual assertions that are immaterial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Applying this standard, the Court concludes that the following narrative represents the facts for purposes of resolving the Motion for Summary Judgment.

         In or around 2008, Glen Duff, ZUP's Chief Innovative Officer, and his wife bought a boat and joined a local water skiing club. (Compl. ¶ 12; ECF No. 1.) Through their volunteer activities with their church, the Duffs took groups of kids on their boat to teach them how to water ski and wakeboard. (Id. ¶ 13.) During these outings, Glen Duff noticed how difficult it was for many of the children to fully engage the water recreational devices. (Id.) As a result, he decided to develop a new product that would "allow any kind of rider, regardless of athleticism or amount of upper body strength, to get up and achieve a full standing and riding position." (Id.) Over the next four years, Duff and others tested various board designs until they developed a working prototype of the ZUP Board. (Id. ¶ 15.) This new board allows riders "to transfer easily from a prone position, to a kneeling position, to a full upright standing position, " thereby permitting "the widest spectrum of riders the most opportunity of experience." (Id. ¶¶ 14, 16.)

         The ZUP Board has a top surface and a bottom surface, two side-by-side foot bindings located on the middle section of the board, two side-by-side handles on the front section of the board, and a retractable tow hook attached to the front section of the board. See generally U.S. Patent No. 8, 292, 681. Riders are instructed to grasp the handles and lie flat on the board in a prone position. The retractable tow hook is attached to a tow rope, which is in turn pulled by a boat. As the boat picks up speed, riders pull themselves up on the board and assume a kneeling position. Then riders crouch on the board, still grasping the handles for stability, and eventually place both feet in the side-by-side foot bindings displaced on the middle section of the board. Riders finally release their grip from the handles and then grasp the tow rope bar and disengage it from the retractable tow hook on the board as they assume a full upright standing position.

         While developing a working prototype of the new device, Duff arduously fought to secure a patent for his new design, which he finally obtained on October 23, 2012. Id. Thec681 Patent includes twelve (12) total Claims, with Claim 1 covering the apparatus and Claim 9 covering the method for using the ZUP Board. Id. at Claims 1, 9.

         In September 2012, one month prior to the issuance of the '681 Patent, ZUP formally introduced its new product at the Surf Expo, a trade show for the water sports industry. (Compl. ¶ 17.) At some point during the spring of 2013, Nash became aware that ZUP had entered the industry and saw the ZUP Board for the first time. (App. 255 ¶ 4.)[1]

         Nash has been in the water recreational device industry for over fifty years and "has designed and manufactured ... water skis, knee boards, wake boards and other similar devices, and has sold these products to a variety of sporting goods retailers, including Bass Pro Shop, Academy Sporting Goods, Dick's Sporting Goods, Big Five Sporting Goods and others." (Mem. in Supp. of Mot. for Summ. J. 2.) Nash's president, Keith Parten, is the named inventor for several patents, including an aquatic recreational system with a retractable tow hook (U.S. Patent No. 7, 530, 872 B2), a retractable tow hook (U.S. Patent No. 7, 537, 502), a water recreation board with a pass-through tow rope (U.S. Patent No. 6, 042, 439), a towing harness for water recreational boards (U.S. Patent No. 6, 306, 000), a design of a wake ski (U.S. Design Patent No. D557, 635), a design of a towed inflatable device (U.S. Design Patent No. D650, 462), and a method for manufacturing a skate board (U.S. Patent No. 921, 513).

         An initial round of conversations between the two parties concerning a potential manufacturing deal took place in the fall of 2013. (See App. 271.) Before engaging in serious discussions, it appears that ZUP requested that the parties enter into a confidentiality agreement. (See id.) Parten questioned the necessity of such a contract on September 18, 2013, noting that "[w]e just need a sample so we can quote you a price to build your item. I assume we could just order one . ..." (Id. (ellipses in original).) Without signing the agreement, Nash obtained a sample of the board. (See Id. at 272.) On December 10, 2013, Parten determined that Nash would "[n]ever do this item" and sent the board back to ZUP. (Id.)

         Nevertheless, a little more than one month later, Parten reached out to Duff on January 31, 2014, "to talk ... regarding production and distribution of [the] ZUP board." (Id. at 451.) Before meeting with Nash to discuss the possibility of entering into a manufacturing and distribution partnership or potential sale of the company, ZUP again required Nash to execute a confidentiality agreement, which it did on February 5, 2014. (Id. at 273-75.) After the agreement was signed, ZUP asserts that it provided Nash "with confidential and proprietary information, including, but not limited to, information regarding: (a) ZUP's vendors; (b) component costs and materials; (c) patent information; (d) marketing plans and strategies; (e) retailer arrangements and contacts; (f) new design concepts and materials; (g) ZUP's intellectual property development and enforcement strategies; and (h) ZUP's proprietary roto-molded 3D computer designed model." (Compl. ¶ 57.)

         On February 5, 2014, the same day that the parties entered into the confidentiality agreement, representatives from ZUP and Nash held a telephone conference about the proposed deal. (See generally App. 568-72.) During the meeting, Parten allegedly told ZUP's representatives that they "had a great product" and noted that Nash "ha[d] no intentions in the next few years of doing anything that has any resemblance to the ZUP Board." (Id. at 568, 572.) Also during that conversation, Nash inquired about the issuance of the '681 Patent. (Id. at 572 ("Will your patent hold up against [another competitor's] new product[?]").)

         Two days later, on February 7, 2014, Parten sent Duff an email with several questions regarding three Claims in the '681 Patent.[2] (Id. at 462.) In response, ZUP spoke with its patent attorney and forwarded the responses to Nash. (Id. at 461.) The scope of the patent attorney's advice was explaining the difference between independent and dependent patent claims. (See id.)

         At the same time that he posed these questions to Duff, Parten asked Nash's patent attorney, Eric Karich, to look at the '681 Patent, specifically asking "[h]ow can this be issued?" (Id. at 306.) Karich responded, "It is supposedly an improvement over other such boards, the claims are quite narrow." (Id.) Parten and the attorney later spoke by phone, and Parten asked whether Nash's proposed Versa Board would infringe the '681 Patent. (Id. at 259 ¶ 11.) Karich told Parten that Nash's new product would not infringe, and later memorialized that opinion in writing on October 6, 2014. (Id. at 307-13.)

         In the meantime, discussions between Nash and ZUP ended without reaching an agreement. (See Id. at 464-86.) And in May 2014, Nash brought its new product, the Versa Board, to market. (Id. 256 ¶ 8.)

         Like the ZUP Board, the Versa Board has a top surface and a bottom surface, with a retractable tow hook disposed on the front section of the board. On the top surface of the board, there are several holes configured in different patterns. Users are instructed to attach handles or foot bindings in these holes in one of four configurations. In the first configuration, users can choose not to attach either the handles or the foot bindings to the board and use it for "wakeskating" or surfing. (Mem. in Supp. of Mot. for Summ. J. 30.) In the second, users can choose to attach only the foot bindings to the board in a side-by-side, horizontal configuration, allowing the user to water ski. (Id.) In the third configuration, users can choose to attach only the foot bindings to the board in a vertical configuration so they can wakeboard. (Id. at 29.) And in the fourth instructed configuration, users can choose to attach only the handles to the Versa Board so they can use it for kneeboarding. (Id. at 31.)

         Nash instructs its customers to only use the product in these four ways and specifically warns against leaving the handles attached while standing up on the board. (Mem. in Supp. of Mot. for Summ. J. 33-34; see also App. 387-88.) Nevertheless, it is feasible for a user to ignore those instructions and attach both the handles and the foot bindings in a configuration that is nearly identical to the ZUP Board.

         In September 2014, Nash unveiled its Versa Board at the 2014 Surf Expo. (Compl. ¶ 23.) During the event, Duff approached Parten and expressed his concern that Nash's product infringed on the '681 Patent. (Duff. Decl. ¶ 7.) In response, Parten allegedly told him to "get over it" and said that patents are meaningless in the water recreation industry. (Id.) Nevertheless, Duff reached out to Parten one more time in an attempt to secure a manufacturing or distribution deal and to avoid litigation. (App. 487, 489.) This last-ditch effort bore no fruit.

         As a result, ZUP brought suit on March 1, 2016, and Nash filed its Answer and Counterclaims on May 5, 2016. Upon reviewing the Complaint and counterclaims, the Court finds that it has original jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1338(a), and 1367(a).

         After extensive discovery, Nash filed the present Motion for Summary Judgment on September 14, 2016. (ECF No. 35.)

         II. LEGAL STANDARD

         The analytical framework for reviewing motions for summary judgment is well settled in both the Fourth and Federal Circuits.[3] Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56. The relevant inquiry in a summary judgment analysis is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52. In reviewing a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party. See Id. at 255; see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 597 (1986).

         The party seeking summary judgment has the initial burden of showing an absence of a material fact in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). To defeat summary judgment, the nonmoving party must go beyond the mere pleadings and provide affidavits, depositions, interrogatories, or other evidence to demonstrate that there is in fact a genuine issue for trial. Id. at 324. If a party who bears the burden of proof at trial fails to come forward with sufficient evidence to establish the existence of an element essential to that party's case, summary judgment should ordinarily be granted. Anderson, 477 U.S. at 248.

         This methodology is applied in a similar fashion to patent infringement cases. To prevail, the party claiming infringement must establish that the accused product meets every limitation recited in the accused claim, either literally or under the doctrine of equivalents. V-Formation, Inc. v. Benetton Group SpA, 401 F.3d 1307, 1310 (Fed. Cir. 2005); Lifescan, Inc. v. Home Diagnostics, Inc., 76 F.3d 358, 359 (Fed. Cir. 1996).

         Challenges to the validity of a patent, however, face a higher burden of proof. Noting nearly a century of seamless jurisprudence, the United States Supreme Court stated in Microsoft v. i4i Limited Partnership that "there is a presumption of [patent] validity [that is] not to be overthrown except by clear and cogent evidence." 564 U.S. 91, 101 (2011) (citations omitted). In order to prove invalidity, the movant "must submit such clear and convincing evidence of invalidity so that no reasonable jury could find otherwise." Eli Lilly & Co. v. Barr Labs., Inc., 251 F.3d 955, 962 (Fed. Cir. 2001).

         III. DISCUSSION

         A, Claims 1 and 9 of the '681 Patent Are Invalid Due to Obviousness

         Congress has stated that "[an issued] patent shall be presumed valid." 35 U.S.C. § 282(a).[4] Pursuant to this direction, Congress has also provided that "[e]ach claim of a patent (whether in independent, dependent, or multiple dependent form) shall be presumed valid independently of the validity of other claims." Id.

         In challenging the validity of Claims 1 and 9 of the ' 681 Patent-both of which are independent claims-Nash cites Section 103 of the Patent Act, which forbids the issuance of a patent where "the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains." 35 U.S.C. § 103(a).

         The Supreme Court clarified the analysis trial courts are to use when assessing a Section 103 claim of obviousness in KSR Int'l Co. v. Teleflex Inc, 550 U.S. 398 (2007). In that case, the Supreme Court held that "[t]he ultimate judgment of obviousness is a legal determination, " id. at 427, to be assessed based on several underlying factual findings, including: (1) "the level of ordinary skill in the pertinent art" at the time of the invention; (2) "the scope and content of the prior art"; (3) the "differences between the prior art and the claims at issue"; and (4) objective evidence of nonobviousness such as commercial success, long felt but unsolved needs, evidence of acclaim from the inventor's peers, and the failure of others to innovate. Id. at 406 (quoting Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17-18 (1966)); see also Eli Lilly & Co., 619 F.3d at 1336; Rolls-Royce, PLC v. United Technologies Corp., 603 F.3d 1325, 1338 (Fed. Cir.2010).

         This Court has previously held that "[t]he determinative question" in assessing a claim of obviousness "is whether 'one of ordinary skill in the art would have been motivated to use the teachings of a prior art process, in its normal disclosed operation, to create a product that [he] claims in a subsequent patent." Rutherford Controls Int'l Corp. v. Alarm Controls Corp., Civ. Action No. 3:08CV369-HEH, 2009 WL 3423849, at *8 (E.D. Va. Oct. 23, 2009) (alteration in original) (quoting LNP Eng'g Plastics, Inc. v. Miller Waste Mills, Inc., 275 F.3d 1347, 1359 (Fed. Cir. 2001)). "The question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art." KSR, 550 U.S. at 420.

         Therefore, the Court will assess the four KSR factors in determining whether Claims 1 and 9 of the '681 Patent are invalid due to obviousness.[5]

         i. The level of ordinary skill in the pertinent art

         Nash has proposed that one of ordinary skill in the art 2008 was "a person with at least 3-5 years' experience in the design and manufacture of water recreational devices or ha[s] a bachelor's degree in mechanical engineering." (App. 259 ¶12; App. 518.) ZUP does not dispute this definition. (Resp. to Mot. for Summ. J. 14.)

         Because the parties are in agreement, the Court will treat this factual finding as undisputed.

         ii. The scope and content of the prior art

         Before discussing the scope and content of the prior art, the Court finds it necessary to provide some context by detailing the Claims that Nash is challenging on obviousness grounds.

         Claim 1 of the '681 Patent-the apparatus claim-teaches a water recreation device comprising:

a riding board having a top surface, a bottom surface, a front section, a middle section, and a rear section; a tow hook disposed on the front section of the riding board;
first and second handles disposed side-by-side on the front section of the top surface of the riding board aft of the tow hook;
first and second foot bindings disposed side-by-side on the middle section of the top surface of the riding board aft of the first and second handles; and
a plurality of rails protruding from the bottom surface of the riding board and extending substantially the full length of the riding board:
wherein the tow hook includes a rearward-facing concave section sized to receive a tow rope bar and positioned to allow the riding board to be pulled in a forward direction by a tow rope attached to the tow rope bar, wherein the first and second handles and the first and second foot bindings are configured for simultaneous engagement by a rider to position the rider in a crouching stance facing in a forward direction,
wherein the plurality of rails are disposed relative to a longitudinal axis along the bottom surface of the riding board, the longitudinal axis projecting rearwardly from a reference location substantially central to the front section, and each of the plurality of rails is laterally spaced closer to the longitudinal axis nearest the rear section of the riding board than the [sic] each of the plurality of rails is laterally spaced from the longitudinal axis nearest the front section of the riding board thereby allowing the water that moves across the bottom surface nearest the front section of the riding board to funnel towards the bottom surface nearest the rear section of the riding board for the purpose of generating lift force against the bottom surface of the riding board.

         Claim 9 of the '681 Patent-the method claim-teaches a method of riding the apparatus described in Claim 1 by:

placing a water recreation device into a body of water, the water recreation device comprising:
a riding board having a top surface, a bottom surface, a front section, a middle section, and a rear section; a tow hook disposed on the front section of the riding board;
first and second handles disposed side-by-side on the front section of the top surface of the riding board aft of the tow hook; and first and second foot bindings disposed side-by-side on the middle section of the top surface of the riding board aft of the first and second handles;
attaching a tow rope to said tow hook, said tow rope also attached to a water vehicle; grasping the first and second handles of the water recreation device to establish a prone start position by a rider;
maintaining said prone start position by the rider until the riding board has achieved a substantially parallel position relative to the surface of the water;
achieving a kneeling position by the rider by placing both knees on the top surface of the riding board;
achieving a crouching position by the rider by placing a first foot into the first foot binding and then placing a second foot into the second foot binding;
grasping the tow rope by the rider by releasing the first and second handles; removing the tow rope from the tow hook by the rider; standing on the riding board by the rider while continuing to grasp the tow rope.

         Having set out the specific Claims, the Court will now shift its focus to the scope and content of the prior art at the time the '681 Patent issued.

         "Prior art' in the obviousness context includes the material identified in [35 U.S.C.] section 102(a)." Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1305 (Fed. Cir. 2006) (citing RiverwoodInt7 Corp. v. R.A. Jones & Co., 324 F.3d 1346, 1354 (Fed. Cir. 2003)). Section 102(a) defines prior art as inventions that were "patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention, " which in this case was December 2, 2008.[6] 35 U.S.C. § 102(a)(1). "Art that is not accessible to the public is generally not recognized as prior art." Ormco, 463 F.3d at 1305 (citing Minn. Mining & Mfg. Co. v. Chemque, Inc., 303 F.3d 1294, 1301 (Fed. Cir. 2002); OddzOn Prods., Inc. v. Just Toys, Inc., 122 F.3d 1396, 1402 (Fed. Cir. 1997)).

         The parties have identified eleven examples of prior art for the Court to examine.

         The Court will address each in chronological order.

         a. Atlantic Aquatic Stunt Team Board (1938-47) ("Atlantic Aquatic Reference")

         Nash alleges that ZUP neglected its duty to disclose a photograph of the Atlantic Aquatic Reference-a device apparently in use between 1938 and 1947-with its patent application, pursuant to 37 C.F.R. §1.56. (See Mem. in Supp. of Mot. for Summ. J. 20 n. 3, 20-21.) The picture of the Atlantic Aquatic Reference attached to Nash's Memorandum in Support of its Motion for Summary Judgment shows a water recreation device with side-by-side handles and side-by-side foot locators, both on the top side of the board. (Id. 21.)

         The only evidence that Nash provided regarding the source of the photograph was an email attaching the image with the subject line reading "Photo from Nov. 6, 2013." (App. 314.) Nash did not clarify how it obtained the image at oral argument. ...


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