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Dodge-Regupol, Inc. v. RB Rubber Products

March 31, 2010

DODGE-REGUPOL, INC. PLAINTIFF,
v.
RB RUBBER PRODUCTS, INC. DEFENDANT



The opinion of the court was delivered by: Jones, J.

Carlson, M.J.

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

In this case we are called upon to resolve competing claims for attorneys' fees.*fn1 These attorneys' fee applications are made against the backdrop of a hotly contested patent case, involving technological advances in the commercial flooring industry. These fees petitions also expose an acrimonious dispute between former joint venturers in this industry, erstwhile partners who now find themselves on opposite sides of this large-scale fees contest. Moreover, in this case we are presented with a fees dispute which has taken on a life of its own, and has endured long after the merits of the underlying patent case were resolved by the parties.

The resolution of such fee disputes rests in the sound discretion of the court, which must weigh a host of legal and equitable considerations in making a determination regarding whether to deviate from the longstanding "American Rule" that each party normally bears its own fees and costs. Having conducted this assessment, we will decline the parties' competing invitations to depart from this general rule, and shift attorneys' fees. Although the actions of Dodge-Regupol may permit a reasonable inference that the plaintiff engaged in inequitable conduct when applying for this patent, the proper exercise of discretion in this case, which the plaintiff voluntarily dismissed once this conduct came to light, does not call for shifting of these fees.

II. STATEMENT OF FACTS AND OF THE CASE*fn2

This case presents a tale of temperaments and technology in the flooring industry, a story of former partners who now find themselves on different sides of an attorney fee dispute which has out-lived the merits of this lawsuit by some 14 months. This dispute retains vitality because it involves the application of technology to a potentially lucrative marketplace, the flooring market for large, high-rise office buildings. Indeed, the parties have estimated that the global market in cork-based products is $200,000,000, and that the global market for rubber products may be as great as $20,000,000,000, making this potentially an enormously profitable market.

With the advent of high-rise office construction, there has been a growing need for flooring products which are aesthetically appealing, comfortable for foot traffic, and have sound deadening qualities that reduce the ambient noise created by movement and activity in large office spaces. To achieve these results, flooring manufacturers have for many years, and in many forms, experimented with combinations of three components designed to achieve the desired combination of aesthetics, comfort, and quiet: a bottom sub-floor layer, some middle layer of material which adds comfort while dampening sound, and a decorative top layer of carpeting.

The parties to our litigation are businesses which compete in this specialized, but highly lucrative, market. The plaintiff, Dodge-Regupol, is a Pennsylvania company and is the successor corporation to a company known as Dodge Cork. Dodge Cork manufactured cork-based flooring products for commercial and office use. BSW, in turn, is a German company, which has developed and marketed commercial products made from recycled rubber for the past four decades. One aspect of BSW's business has involved the use of recycled rubber products in commercial flooring, utilizing the qualities of recycled rubber to make commercial flooring products which are both comfortable and quiet. Finally, RB Rubber is an Oregon corporation which does business in Pennsylvania and also markets flooring products which contain rubber underlayment.

In the late 1980's Dodge and BSW began negotiations aimed at entering into a joint venture to market BSW product lines in the United States. As a result of these negotiations, in approximately 1989 BSW and Dodge entered into a joint venture agreement. As part of that agreement, Dodge-Regupol was created, and Dodge-Regupol began selling BSW products in North America. Moreover, the joint venture agreement provided that the board of directors of Dodge-Regupol would consist of officials from both Dodge Cork and BSW, thus ensuring that the German firm would be a participant in, and fully informed of, the activities of its joint venture partner, Dodge-Regupol.

As part of this joint venture marketing agreement, Dodge-Regupol received access to manufacturing information regarding a number of BSW product lines, including flooring products sold by BSW. These flooring products contained many qualities which would later find their way into the Dodge-Regupol patent application.

The products consisted of decorative carpeting which covered a layer of recycled rubber material, and was placed over a sub-floor. The BSW flooring was manufactured to specific tolerances, and the flooring was made, and marketed, as a product which provided comfort and sound absorption due to the use of the rubber sheet as a carpet underlayment. Because of its involvement in the marketing of these BSW products in North America, Dodge-Regupol and its principals had access to detailed information concerning BSW's flooring products throughout the 1990's.

In August 2001, Dodge-Regupol applied for a patent on a flooring product invention. The patent application identified a Dodge-Regupol employee, Paul Downey, as the sole inventor of this flooring product. As described in this patent application, the flooring product bore striking similarities to the long-standing BSW product line. The patent application described a decorative carpeting placed on a rubber layer manufactured to tolerances similar to those found in the BSW products. The application also noted the sound absorption qualities of this claimed invention, a matter which had been part of Dodge-Regupol's and BSW's marketing efforts over the prior decade. While the patent application described this invention in detail and compares the carpeting and rubber underlayment to a variety of other technologies that existed as prior art in this field, the application made absolutely no mention of the German prior art, BSW's flooring products.

BSW, through two of its officers, Paul Breuer and Thomas Beitzel, now claims that it was unaware of the Dodge-Regupol patent and asserts that the application is fraudulent or inequitable because it does not reveal the nature and extent of this German prior art. Dodge-Regupol, in turn, notes that the BSW officers were part of the Dodge-Regupol board at the time that Dodge-Regupol began filing lawsuits to enforce its patent. According to Dodge-Regupol, the BSW directors were briefed on this litigation and never voiced objections to these lawsuits based on the fact that the Dodge-Regupol invention was derived from BSW's prior art. Dodge-Regupol further observes that its joint venture with BSW has now ended, and that Breuer, Beitzel and BSW are now competitors in this lucrative market, a factor which Dodge-Regupol suggests profoundly colors BSW's current views regarding this patent, a patent that they allegedly agreed should be enforced while they were in a joint venture with Dodge-Regupol.

Dodge-Regupol commenced this patent action in January of 2006. (Doc. 1.) RB responded to this complaint by, in part, challenging the validity of this patent. (Doc. 4.) The parties then began a process of hotly contested litigation which spanned the following four years. One particularly acrimonious aspect of this litigation involved discovery into the relationship between BSW and Dodge-Regupol, and the extent to which Dodge-Regupol's patent failed to disclose the full scope of its knowledge concerning this German prior art.

The results of this discovery litigation throughout 2007 have been mutually unsatisfactory for the parties. For its part, RB has identified delays in discovery responses from Dodge-Regupol, as well as inconsistencies between the information provided in depositions by the principals in Dodge-Regupol, Art Dodge and Paul Downey, and statements and documents obtained from BSW, the former partner and current competitor of the plaintiff. Dodge-Regupol, in turn, contends that these inconsistencies are a function of efforts by a non-party, BSW, to undermine this patent now that its joint venture with Dodge-Regupol has come to an end. Dodge-Regupol also asserts that it has been aggrieved by RB in the discovery process, and that it has been "sandbagged" by these RB disclosures of information obtained from BSW throughout the discovery process.

We find that, while the process has not been a model of transparency, it has ultimately provided an extensive body of material to the parties, and the court, regarding the extent to which information concerning the BSW flooring process existed in the prior art by 2001. Armed with this information, in May of 2008, Dodge-Regupol moved to dismiss this patent infringement action and covenanted not to sue RB, an action which appeared to reflect a careful assessment of shifting litigative risk as the case progressed. (Docs. 85, 86.) This voluntary dismissal motion inspired further pleadings and litigation throughout the summer of 2008, (Docs. 92, 93, 96) before the motion was granted and the case was dismissed on November 12, 2008. (Docs. 98, 99.)

This November 12, ruling resolved the merits of this infringement action, but left the question of attorneys fees to be resolved. (Id.) That question has consumed the last 14 months in this case, and has inspired fifty different, competing pleadings. (Docs. 106-160.) This matter has now been referred to this Court for resolution. (Doc. 148.) As a result of this intensive fees litigation spanning more than a year these fee petitions are now ripe for resolution.

III. DISCUSSION

A. Fee Shifting Petitions in Patent Litigation, Standards of Review

In this case we are called upon by both parties to exercise our discretion in this field and deviate from the typical practice in federal civil litigation with respect to fees and costs of litigation. That typical practice, which is generally referred to as the "American Rule," provides that each party to a lawsuit bears its own attorney fees and expenses. Wedgetail Ltd., v. Huddleston Deluxe, Inc. 576 F.3d 1302, 1304 (Fed. Cir. 2009); Ultra-Temp, Corp. v. Advanced Vacuum Systems, Inc., 189 F.R.D. 17, 19 (D. Mass. 1999). Here, the competing parties each seize upon a different, narrow exception to the American Rule to invite us to exercise our discretion and shift attorney fees and costs to their adversary.

1. 35 U.S.C. § 285

For its part, RB claims that Dodge-Regupol should be ordered to reimburse its attorneys' fees because it engaged in misconduct when procuring its patent and in the course of litigating this infringement action. Specifically, RB claims that Dodge-Regupol's patent application materially misled the Patent and Trademark Office by concealing the nature and extent of the German prior art in this field. RB then contends that this same pattern of nondisclosure occurred in the course of discovery in this litigation, until the omissions in the Dodge-Regupol patent application came to light and led to the voluntary dismissal of this action.

RB looks to a provision of the patent laws to shift its fees to Dodge-Regupol, specifically, 35 U.S.C. § 285, which provides as follows:

The Court in exceptional cases may award reasonable attorney fees to the prevailing party.

As this statutory text implies:

Deciding a motion for attorney fees under 35 U.S.C. ยง 285 (1982) requires a two-step analysis. The district court must determine whether the case is "exceptional;" if it is, then it is within the court's discretion to award attorneys' fees to the prevailing party. It is only after a specific finding of exceptional ...


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