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U-FUEL, INC. v. HIGHLAND TANK & MANUFACTURING CO.

November 4, 2002

U-FUEL, INC. (NV), PLAINTIFF
V.
HIGHLAND TANK & MANUFACTURING COMPANY, INC., STEEL TANK INSTITUTE, AND MODERN WELDING COMPANY OF OHIO, INC. DEFENDANT.



The opinion of the court was delivered by: Jan E. Dubois, United States District Judge

MEMORANDUM

I. INTRODUCTION

Plaintiff, U-Fuel, Inc. ("U-Fuel" or "plaintiff") alleges in this patent infringement action that Highland Tank & Manufacturing Company, Inc. ("Highland"), Steel Tank Institute ("STI"), and Modem Welding Company of Ohio, Inc. ("Modem") (collectively, "defendants") infringed U-Fuel's United States Reissued Patent No. 37,144 (the "`144 patent") by licensing, manufacturing, and selling non-insulated, above-ground storage tanks ("ASTs") and marketing such tanks as "fire-resistant." U-Fuel, Highland, and Modern manufacture and sell ASTs. STI is a non-profit trade association whose members include AST manufacturers. STI's purpose is to promote the use of high-quality steel tanks which are manufactured by its members to meet fire codes and environmental regulations.

Presently before the Court is plaintiffs Motion for a Preliminary Injunction (Document No. 3, filed May 9, 2002), in which plaintiff seeks an order barring defendants from marketing, selling, offering for sale, distributing, licensing, manufacturing, or using any non-insulated, "fire-resistant" ASTs which infringe the `144 patent. Defendants respond by asserting a number of defenses — prior art inherently anticipates the `144 patent; plaintiff's claim construction violates the written description requirement of 35 U.S.C. § 112; the allegedly infringing activities of defendants are protected under the intervening rights provision of 35 U.S.C. § 252; plaintiff failed to disclose the best mode in making "fire-resistant" ASTs; inconsistent testimony by plaintiff evidences unclean hands; and plaintiff procured the `144 patent through inequitable conduct — warranting the denial of plaintiff's motion.

For the reasons set forth in this Memorandum, plaintiffs Motion for a Preliminary Injunction is denied.

II. PROCEDURAL HISTORY

U-Fuel filed a Complaint against defendants on May 7, 2002. The Motion for a Preliminary Injunction was filed on May 9, 2002. Defendants responded on June 13, 2002; plaintiff filed a reply on July 17, 2002.

The Court held a hearing on the Motion for a Preliminary Injunction on July 22 through 25, 2002, and wanted the parties leave to file supplemental memoranda on the issue of the validity of the reissued `144 patent. Both parties thereafter filed supplemental memoranda. The motion was fully briefed on September 9, 2002.

The Court will now set forth findings of fact and conclusions of law in ruling on plaintiff's Motion for a Preliminary Injunction based on evidence presented at the hearing and the written submissions of the parties.

III. FINDINGS OF FACT

ASTs are used for industrial and commercial purposes to store combustible and flammable liquids such as gasoline. Because of the inherent safety risks that ASTs pose, private and public entities have promulgated standards for the testing and rating of ASTs. Such private entities include Underwriter's Laboratories, Inc. ("UL"), the National Fire Protection Association ("NFPA"), and Southwest Research Institute ("SwRI").

The "Standard for Steel Aboveground Tanks for Flammable And Combustible Liquids" ("UL 142") was created in 1922 by UL and prescribes the minimum construction standard for single and double wall ASTs.*fn1 Due to increased demand for ASTs for storing commercial fuel,*fn2 UL developed an additional performance-based listing, known as the "Standard for Insulated Aboveground Tanks for Flammable and Combustible Liquids" ("UL 2085"),*fn3 which tested the internal temperature rise of insulated ASTs when subject to an external temperature of 2000 degrees Fahrenheit for not less than two (2) hours. Insulated ASTs are listed as "protected" under UL 2085 if the increase in internal temperature does not exceed 400 degrees Fahrenheit. Non-insulated ASTs are not tested under the UL 2085 standard.

The NFPA is an organization which periodically publishes fire codes and safety use requirements, such as separation distances between an AST and a building, an AST and a public roadway or other property line, and an AST and a fuel dispenser. Defs.' Ex. 8. Section 2-4.5 of the NFPA 30A, Automotive and Marine Service Station Code ("NFPA 30A"), created the standard for "fire-resistant tanks."*fn4 Under Section 2-4.5(a), an AST is listed as "fife-resistant" if it prevents: (a) the release of liquid; (b) failure of the supports for the tank; and (c) impairment of venting for two (2) hours when tested using "a fire exposure that simulates a high-intensity pool fire, such as that described in UL 2085 . . . or equivalent test procedure." Section 2-4.5(a), NFPA 30A (1996).

In the late 1980's and early 1990's, double wall, non-insulated tanks, constructed in accordance with UL 142, were manufactured and sold as ASTs.*fn5 These ASTs were non-insulated in that the space between the primary and secondary tank was not filled with insulation (usually a concrete mixture) and they were capable of being monitored for any leakage into this space. Noninsulated ASTs are lighter than insulated tanks and thus more mobile and easier to transport. Testimony of R. Michael Webb, July 23, 2002, at 92. In addition, non-insulated tanks cost approximately fifty percent less than insulated tanks. Testimony of Charles A. Frey, July 24, 2002, at 41-42, 45.

In 1993, STI published the "Standard for Aboveground Tanks With Integral Secondary Containment" ("F921"), a specification standard for double wall, non-insulated tanks made in accordance with UL 142. Pl.'s Ex. 35. Thousands of ASTs manufactured to this standard were sold by STI members during the 1993-1995 period. Defs.' Ex. 8. Highland and Modern each sold their own versions of double-wall, non-insulated tanks that conformed to UL 142 during this time period as well. Defs.' Ex. 9; Defs.' Ex. 10.

U-Fuel filed a patent application on January 17, 1996 covering the construction of an "improved" AST "fabricated from steel plates of minimum thickness, the sheets being made from a special metal alloy, and the plates welded in a specific way, in order to withstand a 2000°F. environment for a minimum of two hours." (U.S. Patent No. 5,723,842 (the "`842 patent"), column 2, lines 41-44). The `842 patent was issued by the Patent Office on March 3, 1998.

SwRI is an applied research and development non-profit organization which provides standards and protocols for the testing, listing, and labeling of tanks, including ASTs. In 1995, U-Fuel contracted with SwRI to create a testing protocol for its non-insulated ASTs. In the context of the contractual arrangement between U-Fuel and SwRI, U-Fuel's President R. Michael Webb ("Mr. Webb") persuaded SwRI to adopt a testing protocol with no internal temperature limits on the ground that Section 2-4.5 of NFPA 30A imposed no requirements for maximum internal temperature rise in its definition of "fire-resistant." This led to the development of testing protocol 97-04 ("SwRI 97-04") in 1997. SwRI 97-04, a high-intensity fire exposure, leakage, and hose stream test, provided a new standard for the industry to test whether a non-insulated AST met the fire-resistant requirements of NFPA 30A; i.e., listed as able to withstand an environment of 2000°F. for two hours without sustaining any welding failure or leakage. Prior to SwRI 97-04, only tanks containing insulation could meet the internal temperature requirements of UL 2085 and thus be considered "fire-resistant" pursuant to NFPA 30A.

SwRI began testing U-Fuel's tanks pursuant to SwRI 97-04 on April 15-16, 1999. Due to industry-wide acceptance of SwRI 97-04, other tank manufacturers and organizations contacted SwRI to have their ASTs tested for labeling and listing under this protocol. STI contracted with SwRI to conduct an SwRI 97-04 test on one of its F921 tanks. On May 13, 1999, STI publicly announced that its F921 tank passed the SwRI 97-04 protocol. Thereafter, STI adopted the trade name "Flameshield" for its F921 tanks. On November 21, 1999, STI issued a press release reporting that its Board of Directors had authorized the "Flameshield" program and that its members could officially begin marketing "Flameshield" tanks in early 2000. Defs.' Ex. 22. Accordingly, members of STI, including Highland and Modern, began manufacturing and selling "Flameshield" tanks in early 2000 and continue to do so today. "Flameshield" tanks are listed as "fire-resistant" under NFPA 30A and are marketed as such.

After learning about the successful SwRI 97-04 test of STI's F921 tank, U-Fuel notified SwRI that the SwRI 97-04 testing and certification of tanks of U-Fuel's "competitors" conflicted with U-Fuel's original `842 patent. Mr. Webb sent a letter to Gladys Finley of SwRI, dated July 15, 1999, stating that U-Fuel "underst[ood] that Southwest Research Institute has tested and certified other tanks for our competitors as being Fire Resistant under Test Procedure 97-04. It is [our attorneys'] opinion that U-Fuel owns this technology and that it is unlikely that Southwest Research Institute could perform certification without conflicting with U-Fuel's [`842] Patent . . ." Defs.' Ex. 57.

U-Fuel then filed suit against SwRI on May 3, 2000, alleging, inter alia, misappropriation of trade secrets; that SwRI wrongfully disclosed to third parties proprietary and confidential information relating to the technology U-Fuel used in the manufacture of its non-insulated ASTs. See U-Fuel, Inc. v. Southwest Research Institute, CA. No. 00-480 (W.D. Tex. Dec. 3, 2001). Specifically, U-Fuel contended that SwRI disclosed information (obtained through U-Fuel's production manual obtained as part of its contractual arrangement with SwRI, and during SwRI's on-site inspections of U-Fuel's manufacturing plants) to U-Fuel's competitors, such as STI, so that they in turn could directly manufacture "fire-resistant" ASTs and become clients of SwRI without entering into licensing agreements with U-Fuel. Id. at 3.

On December 3, 2001, the magistrate judge in the SwRI suit recommended that SwRI's motion for summary judgment with regard to the trade secret misappropriation claims be granted because U-Fuel failed to establish that SwRI wrongfully divulged to third parties any confidential or proprietary information received from U-Fuel; the magistrate judge concluded that it was undisputed that U-Fuel had already provided the same information to third parties and thus, SwRI did not make any "unauthorized" disclosures of U-Fuel's confidential or proprietary information. Id. The district court accepted the magistrate judge's recommendation by order dated January 31, 2002. Defs.' Ex. 17.

Prior to the suit against SwRI, U-Fuel filed a reissue patent application on January 24, 2000, which contained the original claims from the `842 patent and additional method claims specifically referencing non-insulated fire-resistant ASTs. U-Fuel sought a reissued patent on the ground that the original `842 patent was "overly specific" and "partly inoperative because [U-Fuel] claimed less than [it was] entitled to claim." Defs.' Ex. 4; see also Testimony of R. Michael Webb, July 23, 2002, Hearing Tr. at 186. The Patent Examiner originally rejected U-Fuel's additional claims in view of the two UL standards, UL 142 and UL 2085. However, after an interview with representatives of U-Fuel, the Examiner allowed the new claims on the basis that such claims were to be limited to "non-insulated" ASTs, mistakenly noting that the UL standards were for "insulated tanks" only. Defs.' Ex. 6.*fn6 The Patent Office issued the `144 patent to U-Fuel on April 24, 2001.

On April 30, 2001, Mr. Webb sent a copy of the `144 patent to Wayne Geyer of STI and offered STI a license under the `144 patent. Pl's Ex. 15. In May 2001, Mr. Webb and Mr. Geyer discussed the possibility of a license agreement. Mr. Geyer informed Mr. Webb in this conversation that STI's Board of Directors would consider U-Fuel's proposal. Testimony of Mr. Geyer, July 23, 2002, Hearing Tr. at 76-77. There was, however, no further contact between the parties regarding U-Fuel's licensing offer. Nevertheless, U-Fuel delayed initiating the present patent infringement action until May 7, 2002.

For purposes of plaintiffs Motion for a Preliminary Injunction, plaintiff proceeds on only one of claims set forth in the `144 patent, Claim 27. Claim 27 is a method claim — a claim which is not tied to a particular device, but is a series of steps that are performed to transform materials to a "different state or thing." Schumer v. Lab. Computer ...


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