Bradley Corp. v. Lawler Mfg. Co., Inc.
Bradley Corp. v. Lawler Mfg. Co., Inc.
2022 WL 18958777 (S.D. Ind. 2022)
May 31, 2022
Lynch, Debra M., United States Magistrate Judge
Summary
The court denied Lawler's motion to compel as to ESI, as Lawler had not identified any particular information that constituted trade secrets or confidential information. The court noted that the value of the Lawler Trade Secrets diminished over time and their value was paid via the 18 years of royalty payments, and that ESI was needed to determine the value of the Lawler Trade Secrets.
Additional Decisions
BRADLEY CORPORATION, Plaintiff,
v.
LAWLER MANUFACTURING CO., INC., Defendant
v.
LAWLER MANUFACTURING CO., INC., Defendant
No. 1:19-cv-01240-SEB-DML
United States District Court, S.D. Indiana, Indianapolis Division
Filed May 31, 2022
Lynch, Debra M., United States Magistrate Judge
Order on Defendant Lawler's Second Motion to Compel (Dkt. 185)
*1 This matter is before the court on defendant Lawler Manufacturing Co., Inc.’s second motion to compel. Its motion concerns (1) requests for admission, (2) a request to inspect Bradley's manufacturing facilities, (3) a deposition of Kevin Kline, (4) requests for production of documents, (5) interrogatories, and (6) an order about electronically stored information.
The court has addressed discovery issues in this case before. It issued a comprehensive ruling in May 2020 (Dkt. 127) about the extent of “damages” discovery proportional to the needs of this case that plaintiff Bradley was required to provide defendant Lawler. Many of the current discovery disputes raised by Lawler stem from its belief that the court later expanded Lawler's quantum meruit claim or remedy when it issued its May 25, 2021 Order on Bradley's motion for partial summary judgment. Lawler's premise is fundamentally wrong and, as explained below, nearly all the additional discovery it now seeks is not appropriate under the governing standards.
Background
This background is taken from various filings made by the parties. It does not constitute findings of fact binding in this litigation but gives context to the discovery matters at issue.
Plaintiff Bradley and Lawler are direct competitors with respect to some products—namely thermostatic mixing valves (“TMV”) used in plumbing fixtures to control appropriate mixing of hot and cold water. The companies are parties to a License Agreement entered in 2001 as part of a settlement of previous litigation, which included allegations that Lawler's chief engineer and principal, Kevin Kline, disclosed Lawler's intellectual property to Bradley when he joined Bradley's employ in 1997. The License Agreement licensed “Lawler Patent Rights” and “Lawler Trade Secrets” to Bradley in exchange for Bradley's payment of “Royalties on all Licensed Units and Repair Parts.” See License Agreement, ¶ 3.1.
Bradley's complaint in this case sought a declaratory judgment that its obligation to pay Royalties under the License Agreement expired as of February 26, 2019, the date of expiration of the last patent (the ’206 Utility Patent) embodied in its TMVs.[1] In a first round of summary judgment briefing, the court entered summary judgment in favor of Bradley on that issue. See Order on Cross-Motions for Summary Judgment, Dkt. 149, entered November 30, 2020. The parties agreed that when, in 2018, Bradley introduced a new valve body style for certain of its TMVs, none of its TMVs practiced any extant Lawler Patent Rights, including the only unexpired patent (the ’818 Design Patent), which does not expire until 2031. SJ Order at 9. The court ruled that under the Supreme Court's decision in Brulotte v. Thys Co., 379 U.S. 29 (1964), which was reaffirmed in Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), a patent holder “cannot charge royalties for the use of his invention after its patent term has expired,” and therefore Bradley's royalty obligation under the agreement ended as of the February 26, 2019 expiration of the last patent (the ’206 Utility Patent) practiced by Bradley's TMVs.
*2 Lawler has brought counterclaims in this case. They are based on three main contentions: (1) Bradley breached the License Agreement by engaging in prohibited “design-around” activity when it redesigned certain valves in 2018; (2) Lawler is entitled to quantum meruit recovery to the extent it is not entitled to royalties under the Brulotte/Kimble patent misuse doctrine; and (3) Bradley did not properly pay royalties for certain products. The Court's May 2021 summary judgment order ruled on aspects of the design-around and quantum meruit claims. First, the court agreed with Bradley that if Lawler is successful on its design-around claim, damages are limited to the specific valves whose body designs were changed by Bradley in 2018. Second, the court agreed with Bradley that if Lawler can recover anything in quantum meruit, its recovery is limited to injury arising after February 26, 2019. As the court found, the License Agreement was in full force and effect before that date and and thus a quasi-contract theory of recovery such as quantum meruit is not available. See May 25, 2021 order at 13. The court went on to state that this bar against quantum meruit recovery “does not mean, however, that Lawler is prohibited from pursuing its quantum meruit claim altogether” because it's possible that Lawler has a continued right under the License Agreement to be paid for forms of intellectual property other than patent rights. Id. Citing two district court cases, the court stated that “Lawler is not prohibited from pursuing damages with respect to allegations that Bradley will be unjustly enriched by the continued benefit of Lawler's trade secrets and confidential information [after February 26, 2019] without royalty payments.” Id. at 13-14.
Analysis
I. Proportionality
The court's resolution of the parties’ discovery disputes is guided by proportionality principles. At this stage of the case and after having previously entered a comprehensive ruling on the appropriate extent of damages discovery, the court will allow further discovery to the extent it is shown to be important to resolving remaining issues, is commensurate with the amount in controversy, and the benefits of the discovery outweigh the burdens of providing it. See Fed. R. Civ. P. 26(b)(1). The court has wide discretion in balancing these factors and deciding the appropriate scope of proportional discovery. See Thermal Design, Inc. v. Am. Soc'y of Heating, Refrigerating & Air-Conditioning Eng'rs., Inc., 755 F.3d 832, 839 (7th Cir. 2014) (citations and quotations omitted) (“District judges enjoy broad discretion in settling discovery disputes and in delimiting the scope of discovery in a given case.”)
II. Scope of Quantum Meruit Discovery
Some of the parties’ discovery disputes revolve around Lawler's assertion that it needs information from Bradley to determine the extent to which Bradley may be unjustly enriched by its alleged continued use of Lawler trade secrets and confidential information after February 26, 2019, but which was licensed to Bradley under the License Agreement or otherwise obtained by Bradley.[2] It is important to note that Lawler has not—in its motion to compel or in any other motion or brief it has filed in this case—identified any particular information (e.g., data, formula, technique, process) that constitutes trade secret(s) or confidential information independent of patents Bradley has used after February 26, 2019, that has conferred some value. Lawler's descriptions of its quantum meruit claim have remained generic. Its failure to identify specific trade secret(s) or confidential information at issue (and not just its generic reference to all knowledge and information Mr. Kline had about TMVs in 1997) and provide any explanation about how Bradley allegedly is unlawfully gaining undue value from a continued use of whatever specific trade secret(s) or information are involved leaves a wide gap in the proportionality analysis.[3]
Further, the only quantum meruit damages theory Lawler has articulated so far (and one that apparently is not undergirded by any economic expert analysis of an appropriate methodology) is clearly meritless. In Lawler's view, it can recover in quantum meruit in this case the entire value to Bradley of its TMV business as of and after February 26, 2019 (the expiration of Bradley's royalty obligations) because Lawler's trade secrets/confidential information—in combination with Lawler's patents—allowed Bradley to build a “one stop shop” plumbing manufacturing/installation business and gain a competitive advantage in the marketplace over entities like Lawler who make and sell TMV components but not the other components necessary to supply finished plumbing facilities. That damages theory cannot be squared with undisputed facts or the law: the parties agreed in the License Agreement about the value Bradley was required to pay for the use of Lawler's patents and trade secrets/confidential information, and (except for whatever underpayments are proved in this case) Bradley has paid that value. Bradley had the right to realize for itself over the last 20 plus years (since 1997) the value (in goodwill, market position, and the like) it could create from the use of the intellectual property it paid Lawler to license to it.
*3 Whatever the contours of Lawler's eventual unjust enrichment (or damages) theories, they cannot run afoul of the fundamental underpinnings of Brulotte/Kimble that a patent holder cannot be paid for patented inventions after they enter the public domain at the expiration of the patents: patent holders simply cannot leverage their patent rights after expiration. As the Court explained in Kimble, it is possible for an entity to license in one agreement both patented technology and closely-related other forms of intellectual property—such as trade secrets—and for royalty obligations for the trade secrets to extend beyond the expiration of all covered patented technology. For example, as the Court explained in Kimble, a license agreement might provide for a 5% royalty during the period for which patent rights are extant and covering all intellectual property and provide for a reduced royalty after the patent rights expire to represent payment for the trade secrets alone. Kimble v. Marvel Entertainment, LLC, 576 U.S. 446, 454 (2015).
The License Agreement between Lawler and Bradley did not account for a reduction in royalty payments after the expiration of patents[4] but has a unitary royalty obligation covering all of Lawler Trade Secrets and Lawler Patent Rights. As the court noted in its summary judgment order, it's possible—though not inevitable—that a licensee's continued use of the trade secrets after patent expiration would result in its unjust enrichment. See Order at 13 (citing De Simone v. VSL Pharm., inc., 395 F. Supp.3d 617, 635 (D. Md. 2019). In De Simone, the parties had separate agreements covering patents and “know-how,” with the know-how license extending beyond the expiration of patents but providing for the same royalty rate as the patent license. The court found that even though the existence of the same royalty might run afoul of Brulotte/Kimble, because the licensor later terminated the “know-how” agreement, the court upheld the jury's finding that the licensee had been unjustly enriched by continuing to use the know-how after termination of the know-how agreement.[5]
While quantum meruit recovery may not be entirely precluded in this case, at least three guardrails circumscribe the extent of any alleged unjust enrichment. First, as the court made clear in its summary judgment order, Bradley could not have been unjustly enriched at any time up to February 26, 2019, because the License Agreement was in force and Bradley's royalty obligation up to that point allowed it to use all of Lawler Trade Secrets and Patent Rights.
*4 Second, Lawler can recover only to the extent that any alleged value to Bradley after the expiration of patents relates to intellectual property that exists separate from patent rights. And to the extent some of the “original” 1997 trade secrets/confidential information matured into patents, Lawler has no right to any payment based on the use of that ultimately patented intellectual property. See Meehan v. PPG Industries, Inc., 802 F.2d 881, 885 (7th Cir. 1986) (issuance of patent covering intellectual property triggers the Brulotte patent misuse rule).
Third, to avoid running afoul of Brulotte/Kimble, Lawler cannot possibly recover for the use of any Trade Secrets in the post-February 26, 2019 period in excess of that which Bradley otherwise would have been obligated to pay under the License Agreement for both Patent Rights and Trade Secrets—indeed, the damages must be less than what otherwise would have been due to avoid indirectly charging Bradley for the use of Patent Rights. Under no theory can Lawler leverage its patents as part of damages recovery. That's the core teaching of Brulotte/Kimble, and nothing within the May 2021 summary judgment order allows Lawler to recover on any basis inconsistent with that teaching.
With this background in mind, the court now addresses the specific discovery disputes at issue, beginning with the disputed requests for production (RFPs). The court then addresses the interrogatories, admissions, Kline deposition, and inspection issues.
III. Disputed RFPs
The following RFPs are at issue: 68, 83-84, 96, 97, and 105.[6] Originally, the parties also addressed Bradley's supplementation of its earlier production of royalty spreadsheets. Lawler complained that Bradley wasn't acting quickly enough to address this matter, but it has now been resolved by Bradley's agreement to create those spreadsheets for quarters after Q1 2020 as if it were obligated to pay royalties in the same manner and amounts as before February 26, 2019, and produce them.
RFP 68
This RFP seeks Bradley's documents related to its plumbing contracts with Eskenazi Health locations in Indiana, including estimates, quotes, and bids listing TMVs used in the work. Lawler asserts that these documents are relevant to calculating damages under its quantum meruit claim because an examination of these documents allegedly will reveal the value Bradley gained by using the Lawler Trade Secrets. Lawler contends that without its Trade Secrets, Bradley would not have been able to become a “one stop shop,” allowing it to provide the range of plumbing products and fixtures as well as the TMVs necessary for a plumbing environment. Because Bradley was able to be this “one stop shop,” it gained—according to Lawler—an advantage in the marketplace. But as explained above in Section II, Lawler's relevance theory is incompatible with the court's summary judgment order. As the court has ruled, Bradley cannot have been unjustly enriched at any time before February 26, 2019, because it had the right to use the Lawler Trade Secrets and Patent Rights. There is no indication that the Eskenazi work occurred after February 26, 2019, or possibly could have used Lawler Trade Secrets, if any, beyond that which Bradley was entitled under the License Agreement. If, in fact, Bradley gained an advantage in the marketplace by virtue of its ability to use Lawler Trade Secrets and Patent Rights in tandem over many years, that advantage necessarily belonged to Bradley because it paid royalties for all of that intellectual property over an approximate 18-year long period up until at least February 26, 2019.[7]
*5 The court DENIES Lawler's motion to compel as to RFP 68 because it seeks information not proportional to the needs of this case.
RFPs 83-84
These two RFPs seek information about bellows used in thermostats. RFP 83 asks for all scrap records for bellows purchased after 2008 and usable in Licensed Product or Repair Parts and RFP 84 seeks inventory records for 2020 for bellows usable in Licensed Product or Repair Parts. Lawler asserts it needs this comparative information because it is probative for determining the life span or lack thereof of bellows within Bradley's TMVs which in turn would tend to reveal “the need for and number of Repair Parts which Lawler asserts have been under reported.” Lawler believes, based on its “extensive industry experience” and Bradley's reports of warranty sales, that the records Bradley already has produced may not accurately report Bradley's sales of Repair Parts.
Bradley argues that the data sought by Lawler is both burdensome to produce because of the request for such old information about scrapped bellows and only minimally relevant to any theory about systematically underreported Repair Parts.
The court agrees with Bradley that the information requested in RFPs 83-84 is not proportional to the needs of this case. The court's prior discovery order required Bradley to produce extensive information to test the extent to which Bradley's sales reporting and royalty calculation documentation was accurate.[8] Among other things, the court required the parties to agree to an invoice sampling procedure as the means for evaluating the reliability of Bradley's royalty calculations and methodology. Lawler has not provided a sufficient explanation why the documents it has been provided—and the audits it already has conducted over the years—give rise to a reasonable belief of a systematic underreporting of Repair Parts for which scrapped bellows information from 2008 forward and 2020 bellows inventory data would provide proportional discovery. The reference to its own “extensive industry experience” is far too thin a basis to support these discovery requests. The court DENIES the motion to compel as to RFPs 83 and 84.
RFPs 96-97 and 105
RPFs 96 and 97 seek all documents relating to the design, prototyping, making and/or testing of Bradley's TMVs before February 20, 1997 (RFP 96) and after February 20, 1997, through December 1999 (RFP 97), including “lab notebooks, engineering notebooks, spreadsheets, emails, lab reports, data reports and any other testing report.” RFP 105 asks for all documents relating to the changes in design of any of Bradley's TMVs or the components thereof before January 1, 2000.
With respect to the information before February 20, 1997, Lawler states that it is relevant to determine the extent to which Bradley had any of its own intellectual property for making or manufacturing TMVs before Mr. Kline left Lawler's employ. The information for the period February 20, 1997, through December 1999 and the design-change information before January 2000 is designed, according to Lawler, to ferret out the extent to which Bradley obtained Lawler Trade Secrets “upon and after Mr. Kline's arrival at Bradley.” See Lawler brief, Dkt. 186, at p. 20.
*6 This discovery is far afield from the issues remaining in this case, and treads over ground that was subject to extensive discovery in the prior litigation that eventually led to execution of the License Agreement in 2001. Moreover, Bradley's counsel maintained the discovery files from that earlier litigation and has now produced all of it to Lawler. To the extent that determining the state of Trade Secrets before and immediately after Mr. Kline's employ by Bradley and examining Bradley design changes within the period is at all useful at this point, Bradley's production of the discovery from the earlier litigation (along with the inspection of Bradley's manufacturing process, addressed infra) satisfies Bradley's obligations with respect to RFPs 96, 97, and 105.
Correlation of Documents to RFPs
Lawler also raises an issue about Bradley's identification of documents by Bates Number to every RFP to which it is responsive. Lawler complains that Bradley has not produced its documents as they were kept in the ordinary course of business or provided “bates numbers by topics,” meaning that Bradley did not provide a key or label to identify each document as responsive to a particular RFP or RFPs. It seeks an order requiring Bradley to correlate every document by bates number to the RFPs.
The court agrees with Bradley that Lawler has not identified a sufficient basis to require this correlation at this stage of the case. Over the course of this litigation, Lawler has served fifteen different sets of Rule 34 requests with 151 separate document requests, and Bradley has so far produced over 16,000 pages of documents. Lawler has not shown that it does not understand the nature of the documents that were produced or how they relate to the issues in this case. Nor has it shown that it has been stymied in the prosecution of any of its counterclaims because Bradley has not made lists of how each document may pertain—or not—to every one of the 151 separate document requests. If Lawler's trial preparation is truly hindered in some way because of the importance that specific documents are tied to some specific request or requests, then the court expects it to work with Bradley to resolve those discrete issues. The court will not, however, require Bradley to go over every one of the 151 requests and tie its documents to them.[9]
ESI Order
The parties also have not agreed on the extent of searches of electronically stored information. The court has carefully reviewed the parties’ competing proposals and adopts Bradley's proposal. As noted above, Lawler has consistently overreached in discovery; its ESI proposal illustrates that conduct. For example, there is no reason that electronic searches should be made about nearly every valve type manufactured and sold by Bradley; it's obvious that searching is disproportional to the prosecution of any claim. And, as the court has explained in detail in this order, Lawler's quantum meruit theory of recovery is a limited one and does not permit it to research or value TMV business covering the last 25 years.
IV. Disputed Interrogatories
Interrogatory 22
Interrogatory 22 asks Bradley to provide “the dollar value” of its TMV business after February 26, 2019, “using EBITDA ... and using other business valuation methods used by Bradley and/or Bradley's consultants or experts, and detail such methodologies and dollar amounts used in such methodologies.” Lawler contends that the value of Bradley's business as of the end of its royalty obligations under the License Agreement (as the court ruled in its second summary judgment order) is relevant because before Mr. Kline provided Bradley with Trade Secrets in or about 1997, Bradley's TMV business had zero value (it did not exist), and determining the extent to which Bradley was unjustly enriched by using Lawler Trade Secrets without paying royalties after February 26, 2019, can be determined by the value of its business after that point.
*7 The court disagrees that a valuation of Bradley's entire TMV business after February 26, 2019, provides a reasonable basis to measure any quantum meruit recovery possibly available in this case. As explained supra at pp. 5-9, the court's May 2021 summary judgment order makes plain that Bradley could not have been unjustly enriched at any time up to February 26, 2019, because the License Agreement was in force and Bradley's royalty obligation up to that point allowed it to use all of Lawler Trade Secrets and Patent Rights. Thus, even if Bradley's TMV business had a zero value before Mr. Kline went to work for Bradley, a comparison to the February 2019 period or even shortly thereafter does not provide a reasonable basis for determining what value any Trade Secrets have bestowed from February 2019 forward. Moreover, at this stage, Lawler has not even identified any specific Trade Secrets that Bradley may continue to be using. For these reasons, the court DENIES Lawler's motion to compel as to Interrogatory 22.
Interrogatory 25
This interrogatory seeks information about the average life span, in years, of a Bradley thermostat used in Licensed Product, “including detailing any and all statistics, numbers, facts and figures and identifying and summarizing any and all reports, studies, reviews and emails regarding the same or related thereto, and asks “how and/or why Bradley determined its 10 year warranty period for Navigator TMV thermostats.” The purpose of this interrogatory, says Lawler, is to demonstrate that Bradley has underpaid royalties on Repair Parts. Lawler reasons that because Bradley provides a 10-year warranty, it must have determined that thermostats would systematically fail at some point near the time after the end of the 10-year warranty period. Yet, says Lawler, Bradley's records do not show Repair Parts royalties in this period consistent with the 10-year earlier TMV sales volumes.
The court determines that Interrogatory 25 is not proportional discovery and, indeed makes little sense. It is an odd, indirect, and burdensome method for determining whether Bradley has shorted Lawler on royalties for Repair Parts. First, the court does not find persuasive the notion that the expiration of a manufacturer's product warranty period necessarily correlates with the systematic failure of that product, and Lawler provides no evidence to support that notion. Second, as previously explained, the court's prior discovery order required Bradley to produce extensive information, including an invoice sampling method, to test the extent to which Bradley's sales reporting and royalty calculation documentation was accurate. The court will not require Bradley to provide statistics, facts, and figures about the lifespan of its thermostats and its warranty period based on Lawler's unsupported belief that thermostats should systematically fail commensurate with a period ending after the warranty period. The motion to compel as to Interrogatory 25 is DENIED.
V. Requests for Admission
The following RFAs are at issue: 29-41 and 46-56.
The dispute about Bradley's responses to these RFAs is the same. The RFAs ask Bradley to admit that certain documents are authentic and that they “are admissible evidence in this case.” See, e.g., RF 29. Bradley has, in the main, admitted authenticity but will not concede admissibility because it disputes the extent to which some or all of the documents ultimately will be relevant and admissible on any contested issue to be tried.
The court agrees with Lawler that Bradley is required to provide an unequivocal response about whether it is contesting the authenticity of any of the referenced documents, but it agrees with Bradley that it is not required to concede admissibility in the context of a Rule 36 request for admission. Local Rule 36-1 allows a party to ask as many requests for admission as it likes with respect to the authenticity or genuineness of documents. To the extent that Bradley has not provided a clear “yes or no” as to whether a document is authentic, it must revisit its responses to the subject RFAs and give that clear answer. That task must be completed within 10 days.
*8 It is appropriate for Bradley to contest admissibility at this point when the purpose for which Lawler may seek to put a document into evidence is not yet clear. Any particular document may be relevant for one purpose but not another, and Bradley need not decide now that it will have no objection to the admissibility of the documents. That day will come, however. The court strongly encourages parties to agree to admissibility and it will require admissibility concerns with respect to specific documents to be addressed in conjunction with final exhibit lists and the final pretrial conference.
VI. Dispute about Filming/Photography of Manufacturing Process
Lawler's Rule 34 inspection request sought an inspection of Bradley's manufacturing facility—to be attended by Lawler's counsel and expert(s)—for the purposes of photographing and videotaping “the methods and associated in-house equipment, jigs, and fixtures used in the methods” for Bradley's manufacture of TMVs. Bradley objected to access of this kind because the parties are competitors; it offered a compromise position. After negotiation, the parties have reached an agreement about the filming and photography except for one sticking point. See Dkt. 192-1. Lawler wants its outside counsel to be present during the filming and photography to ensure that “what is filmed is complete and accurate” Dkt. 192 at p. 2.), but Bradley contends that the presence of Lawler's outside counsel does not resolve any of its concerns about allowing its competitor to view manufacturing processes for products that have no connection to this lawsuit. Bradley states that if outside counsel were present, it would be required to mitigate the danger of its processes not at issue in this case from being revealed to Lawler by “moving, cordoning off, or otherwise delaying its other manufacturing lines during the inspection,” and that that burden is undue given the detailed protocol the parties have agreed to with respect to the filming/photography. Dkt. 193 at p. 2.
The court determines that it is reasonable for Lawler to have one of its outside counsel present for the filming and photography so that disputes about the completeness of the filming/photography can be avoided. Lawler's counsel are officers of the court, bound by the protective order in this case, and bound to professional ethical duties. To the extent the lawyer actually sees any part of any manufacturing process that is not within the agreed subjects of filming/photography, any perception thereby gained (e.g., any information, facts, inferences, opinions) may not be shared with anyone (even other counsel for Lawler) and may not be used in any way whatsoever in this litigation or outside this litigation. Lawler's counsel is expected figurately to wear blinders, studiously avoid as great as possible even looking at the non-filmed manufacturing processes, and figuratively erase any such perceptions from his or her mind.
VII. Deposition of Kevin Kline
Bradley's counsel also represents Kevin Kline, its former employee, whose change of employment from Lawler to Bradley in 1997—about 25 years ago—sparked the first lawsuit between the parties. Lawler seeks to take Mr. Kline's deposition, and Bradley—on behalf of itself and Mr. Kline—has balked. Bradley claims that a deposition poses an undue hardship because Mr. Kline is in poor health, is 71 years old, was deposed over 7 days in the prior litigation, and he testified at length during a preliminary injunction hearing during that litigation. Lawler has copies of the transcripts of all of that testimony, and Bradley contends that because Lawler has not identified any matters about which it seeks Mr. Kline's testimony that have not been fully explored before, a deposition now is unnecessary and inappropriately burdensome. If the court allows Mr. Kline's deposition, Bradley asks that the court order that certain subjects of inquiry are off-limits—no questions about any conduct “giving rise to the prior litigation” and no questions about issues that were resolved in prior litigation, including litigation that ultimately was heard by the Federal Circuit. Lawler objects to these conditions but has offered to conduct its deposition in the city of Mr. Kline's residence and over two days to ameliorate any strain on Mr. Kline's health.
*9 The court determines that Bradley (and Mr. Kline) have not shown that a deposition of Mr. Kline is inappropriate discovery. There is no basis for the court to find that Mr. Kline lacks information relevant to disputed issues in this case. The court will not micromanage the subject matter of questions that Lawler may ask Mr. Kline, and it perceives as unworkable anyway conditions prohibiting questions about “conduct giving rise to prior litigation” or “issues that were resolved” before.
The parties must cooperate to schedule Mr. Kline's deposition. The deposition is limited to 7 hours (as provided by Fed. R. Civ. P. 30(d)(1)) and Bradley/Mr. Kline may insist that the 7 hours be spread over two consecutive days.
Conclusion
For the foregoing reasons, the court GRANTS IN PART AND DENIES IN PART Lawler's second motion to compel (Dkt. 185) as provided in this order.
So ORDERED.
Distribution:
All ECF-registered counsel of record by email through the court's ECF system
Footnotes
Bradley also seeks to recoup royalties it has paid in connection with certain outdoor shower assemblies.
The License Agreement defined “Lawler Trade Secrets” as “the trade secrets and confidential information of Lawler ... regarding the design, performance, testing, assembly, pricing, and marketing of [TMVs] to which Kevin B. Kline had access during his employment [by] Lawler between 1988 and 1997.” See License Agreement, § 1.3.
Unfortunately, Lawler's approach to discovery in this case has consistently eschewed proportionality concerns. The court will not countenance the weaponization of discovery.
The parties may not have contemplated the possibility of royalty obligations for trade secrets alone. The application that led to the issuance of the unexpired design patent on which Lawler has relied to extend the period of royalty obligations to 2031 was not filed until 2015, fourteen years after the License Agreement was signed.
Though Bradley asserts that Lawler cannot possibly show that post-February 26, 2019, it is unjustly enriched by any Lawler Trade Secrets within the scope of the License Agreement, it also contends that the prior Settlement Agreement released Bradley from any conversion or misappropriation of trade secrets claims, and it offers to present these arguments in the context of a third motion for summary judgment. The court will not decide in the context of the parties’ discovery disputes that any quantum meruit claim is barred. Although the court is sympathetic to the fact that Lawler has not been forthcoming about the nature of the intellectual property underlying its unjust enrichment claim and that that lack of precision prevented Bradley from seeking a dispositive ruling before, the court declines Bradley's proposal to engage in yet another round of summary judgment briefing at this stage. The court stresses, however, that the May 2021 summary judgment order did not rule that Lawler is entitled to recover in quantum meruit. It merely pointed out as a theoretical matter that such a recovery remains possible under the Brulotte/Kimble framework. That does not mean Lawler has a cognizable theory or evidence to support it; the court has so far seen neither.
Lawler's opening brief states on page 1 that additional RFPs are contested (69-75 and 85) but did not address these in the body of the brief. Because no arguments were advanced regarding these RFPs, Lawler has waived any further arguments and the court denies any implicit request for relief based on these requests.
The “bundling and convoyed” sales concept addressed in Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001), does not change the analysis. In calculating a hypothetical royalty rate to compensate the patent holder for infringement, the patent holder's expert considered, among many factors, whether the parties would have taken into account that licensing the patent would increase the hypothetical licensee's sale of unpatented components, thus leading to a higher rate than may have been negotiated were only expected profits from patented products considered. See id. at 1385-86. Here, there already exists concrete evidence about the value to Bradley of the “bundling” of Lawler Trade Secrets and Patent Rights; the parties negotiated a price under the License Agreement and Bradley paid it. Moreover, it is likely that the value of the Lawler Trade Secrets (whatever they might be) diminished over time and their value was wholly paid via the 18 years of royalty payments. The court is not deciding whether or the extent to which value has already been paid, but the concept that the kind of know-how or trade secrets licensed by Lawler diminished in value is a theory courts recognize. See St. Regis Paper Co. v. Royal Industries, 552 F.2d 309, 315 (9th Cir. 1997) (finding that the value of know-how transferred to a licensee diminished quickly and was de minimus within two years of its transfer). As Bradley suggests, its TMVs have been publicly available for more than 20 years, and there may be little to nothing about the engineering or manufacturing processes for TMVs that is not already in the public domain.
The court also noted the unlikelihood that Bradley has been operating a years-long fraudulent accounting system, which would frustrate its own knowledge about the company's business, while also opening its books and records to periodic audits conducted on Lawler's behalf, with the last audit covering the years 2013-2015. See Dkt. 127 at p. 14.