Steiner et al v. Lewmar, Inc et al

Filing 147

ORDER denying 73 Motion for Summary Judgment; denying 75 Motion for Summary Judgment; denying 101 Motion for Summary Judgment. Signed by Judge Dominic J. Squatrito on 10/22/13. (Glynn, T.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
DONALD J. STEINER and DAX LABS,
LLC,
Plaintiffs
V.
LEWMAR, INC. and LEWMAR LTD.,
Defendants

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CASE NO. 3:09 CV 1976 (DJS)

RULING ON THE DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT
The Plaintiffs, Donald J. Steiner (“Steiner”) and Dax Labs, LLC (“Dax”), bring this
action against the Defendants, Lewmar, Inc. and Lewmar LTD (collectively, “Lewmar”) raising
claims of (1) trademark infringement in violation of the federal Lanham [Trademark] Act ; (2)
unfair competition in violation of the Lanham Act; (3) false description in violation of the
Lanham Act; (4) breach of contract; (5) breach of the implied covenant of good faith and fair
dealing; (6) conspiracy/aiding and abetting with regard to Lewmar LTD‟s breach of its duties
and obligations to Steiner; and (7) unfair trade practices in violation of the Connecticut Unfair
Trade Practices Act. The claims relate to an agreement between the parties involving Steiner‟s
patented “OneTouch” winch handle design. Lewmar has counterclaimed for (1) a declaration of
trademark noninfringement; (2) a declaration finding no unfair competition; (3) a declaration
finding no false description; (4) a declaration finding no conspiracy/aiding and abetting; (5) a
declaration finding no unfair trade practices; (6) a declaration of patent invalidity; (7) a
declaration of patent noninfringement; (8) a declaration finding no breach of contract; (9) a
declaration finding no breach of the implied covenant of good faith and fair dealing; and (10) a
declaration of patent misuse .
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Now pending before the court are Lewmar‟s summary judgment motions as to (1)
Lewmar‟s counterclaim for a declaration of patent noninfringement (doc. nos. 73, 101) 1, and (2)
Plaintiffs‟ claim of a breach of the implied covenant of good faith and fair dealing. (Doc. No.
75). For the reasons set forth below, the motions for summary judgment are DENIED.
FACTS
Steiner, who is a resident of the State of Connecticut, is the inventor of the OneTouch
winch handle (the “OneTouch”), embodied in U.S. Patent No. 7,114,705. The OneTouch is a
sailboat winch handle that more easily attaches and detaches from a standard winch. A winch is
a spool-like drum affixed to a sailboat that permits ropes connected to sails to be reeled in or
released, permitting the sailboat to navigate accordingly. A winch handle is a device consisting
generally of a handle, crank arm, and socket that attaches to the winch. The winch handle, when
rotated upon the winch, allows for the taking back of the rope line. To release the line from the
winch, it is beneficial to remove the winch handle from the winch; this allows the line to be
efficiently lifted off of the winch. Traditional winch handles primarily require the use of two
hands in order to release the handle from the winch. The OneTouch design, by way of a “grip
lever,” allows for a one-handed release of the handle from the winch. According to Steiner,
“being able to release the [winch] handle is fundamentally important in sailing. The difference
with my approach was a one-hand operation.” (Doc. No. 117-4, at 25, p. 101, lines 22-25).
Lewmar designs, manufactures, and distributes marine products, including winch
handles. Lewmar Inc.‟s headquarters are in Connecticut; Lewmar Ltd.‟s headquarters are in the
United Kingdom. On February 24, 2005, an agreement was made between Steiner and Lewmar
which granted Lewmar “the exclusive right to manufacture, have manufactured, market, and sell
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Document 73 seeks the same summary judgment as Document 101, but, unlike Document 101,
Document 73 is based on a claim of waiver.
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[the OneTouch] . . . [throughout the world] . . . during the Term [of the Agreement].” (Doc. No.
117-8, at 7, ¶ 2.1). Among other things, Lewmar agreed to provide Steiner a royalty from the
sales of the OneTouch. Lewmar further agreed to “use commercially reasonable efforts to
maintain sufficient annual sales revenues to provide at least the minimum annual royalty
payment to Mr. Steiner specified2 [in the Agreement].” (Id. at 8, ¶ 3.3).

Lewmar was required

to ensure that all OneTouch handles manufactured by or for it and sold by it “conform to Mr.
Steiner‟s reasonable standards of quality, design and specifications . . . .” (Id. at 10, ¶ 8.1(a)).
The agreement further required Lewmar to “keep complete and proper records of all [OneTouch
handles] sold under this Agreement . . . containing all of the particulars necessary to ascertain the
royalties due Mr. Steiner . . . .” (Id., ¶ 9.1) Accurate reports of royalties due were to be delivered
to Steiner within a prescribed time. Lewmar was required to “exercise diligent and reasonable
efforts at its expense to introduce, promote the sale and use of, obtain orders for, distribute and
sell [the OneTouch] [throughout the world] and give adequate, efficient and prompt attention and
service to customers and consumers.” (Id. at 11, ¶ 11.1).
Both Steiner and Lewmar “agree[d] to inform each other of any infringement of [the
OneTouch patent or trademark] of which they become aware”; “[i]f the parties agree that
Lewmar is better situated to take actions or procedures to halt infringement, Lewmar may, in its
own discretion, do so at its own expense.” (Id. at 9, ¶¶ 5.1, 5.2).
According to Steiner, Lewmar “failed to produce even a prototype of the OneTouch
handle until April of 2006, some 1.4 years after the Agreement was signed.” (Doc. No. 117-6, at

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“Said minimum annual royalty shall be 10,000 GBP [British Pounds] per year for years 1
through 10, and 7,000 GBP for years 11 through to the end of the agreement. Such minimum
annual payments to start as of January 1, 2006.” (Doc. # 117-8, at 8, ¶ 3.3).
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6, ¶ 17).3 Lewmar also failed, among other things, “to provide [Steiner] with the contractuallyrequired reports on sales of the OneTouch handle” and “failed to make the required quarterly
royalty payments.” (Id., ¶ 18). On April 18, 2006, Steiner advised Lewmar that the prototype it
had provided to him was defective in various respects and that he “would not buy the prototype
handle if it made it into production because of its manufacturing defects.” (Id. at 7, ¶ 20).
On May 9, 2006, Steiner notified Lewmar that he intended to cancel the Agreement on the
basis of Lewmar‟s non-performance. Instead, on August 6, 2006, the parties amended their
February 24, 2005 Agreement. “Simply stated, the intent [of the amended Agreement] is that
Lewmar has the exclusive right to produce the [OneTouch] comprised, in the majority, of metal,
and Mr. Steiner has the exclusive rights to produce the [OneTouch] in any other material(s) as
long as it is not, in the majority, metal.” (Doc. No. 117-8, at 15, ¶ 2.1). After the parties amended
their Agreement, Steiner founded Dax Labs, LLC “to manufacture, primarily in composite, nonmetallic materials, the OneTouch sailboat winch handle . . . .” (Doc. # 117-6, at 1, ¶ 3).
Subsequent to the execution of the amended Agreement, Lewmar manufactured a winch
handle that was distributed under the mark “Lite Touch.” On November 10, 2008, Steiner sent
an email to Lewmar, asking for “an elaboration in regard to the design and locking mechanism
used on Lewmar‟s „Lite Touch‟ winch handle.” (Doc. No. 73-2, at 2). His concern was “that
there may be a conflict or infringement in regard to [the parties‟] existing agreement.” (Id.) On
December 1, 2008, Lewmar‟s counsel responded to Steiner‟s email, stating that “[w]e . . . are
confident that the Lewmar „Lite Touch‟ winch handle . . . does not infringe any claim of the „705
patent [i.e., the OneTouch].” (Doc. No. 73-3, at 2).

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The Court notes that for purposes of a summary judgment motion, “[t]he evidence of the
nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
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According to Steiner, the Lite Touch handle, which he characterizes as a “non-metallic
knockoff of the OneTouch handle,” was priced approximately 40% lower than the plaintiff‟s
non-metallic OneTouch handle “[i]n furtherance of [Lewmar‟s] effort to deprive plaintiff Steiner
of the benefit of his bargain.” (Doc. No. 117-7, at 9-10, ¶¶ 25, 27). Steiner further asserts that the
values of both Dax Labs, LLC and the non-metallic OneTouch handle deteriorated substantially
once Lewmar began marketing and selling the Lite Touch handle. An August 12, 2008 Lewmar
email concerning proposed pricing for the Lite Touch handle contains the following sentence:
“Specifically with the Lite Touch we have the opportunity to kill off the Dax handle and wipe
out a number of low cost/low performance handles with a single sweep if we hit the right price
point at launch and hit the market hard.” (Doc. No. 119-2, at 2).
In a November 13, 2009 email discussing a product called the “Holmatro Extreme winch
handle,” a Lewmar official stated that “[o]n the face of it this looks to be in breach of our patent,
however they would have taken there [sic] time to look at our patent and try and get round it.
They may have got round the patent by the grab bar mechanism only going half the length of the
handles top surface which they are very careful to state. We got round the Steiner patent for the
Lite touch in the same manner.” (Doc. No. 117-11, at 22).
On December 4, 2009, Steiner initiated this action. He claimed, inter alia, breach of the
implied covenant of good faith and fair dealing. In its Answer, Lewmar included a number of
counterclaims, including a counterclaim seeking a declaration of patent noninfringement. On
September 6, 2011, the Court issued an Order allowing the Plaintiffs to amend their Complaint
by adding a patent infringement claim if they wished to do so. Any such amendment was
required to be filed by October 1, 2011. The Plaintiffs did not amend their Complaint by adding
a patent infringement claim. Defendant Lewmar has filed motions seeking summary judgment

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on its claim of patent noninfringement and on the Plaintiffs‟ claim of breach of the implied
covenant of good faith and fair dealing.

STANDARD
“The court shall grant summary judgment 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(a). Summary judgment is appropriate if, after discovery, the nonmoving party “has
failed to make a sufficient showing on an essential element of [its] case with respect to which [it]
has the burden of proof.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “The burden is on
the moving party „to demonstrate the absence of any material factual issue genuinely in
dispute.‟” American International Group, Inc. v. London American International Corp., 664
F.2d 348, 351 (2d Cir. 1981).
A dispute concerning a material fact is genuine “„if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.‟” Aldrich v. Randolph Central School
District, 963 F.2d 520, 523 (2d Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986)). The Court must view all reasonable inferences and ambiguities in a light most
favorable to the nonmoving party. See Bryant v. Maffucci, 923 F. 2d 979, 982 (2d Cir. 1991).
“Only when reasonable minds could not differ as to the import of the evidence is summary
judgment proper.” Id.
DISCUSSION
A. Patent Noninfringement
One of Lewmar‟s counterclaims seeks a declaration of patent noninfringement. The
purpose of the Declaratory Judgment Act in patent cases “is to provide the allegedly infringing

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party relief from the uncertainty and delay regarding its legal rights.” Goodyear Tire & Rubber
Co. v. Releasomers, Inc., 824 F.2d. 953, 956 (Fed. Cir. 1987). A declaratory judgment action,
like all other federal court actions, must satisfy the case or controversy requirement of Article III
of the U.S. Constitution. “A party claiming declaratory judgment jurisdiction has the burden of
showing that the facts alleged, under all the circumstances, show that there is a substantial
controversy, between the parties having adverse legal interests, of sufficient immediacy and
reality to warrant the issuance of a declaratory judgment.” Streck, Inc., v. Research & Diagnostic
Systems, Inc., 665 F.3d 1269, 1281-82 (Fed. Cir. 2012) (internal quotation marks omitted). The
court‟s jurisdiction “must exist at all stages of review, not merely at the time the complaint [was]
filed.” Id. at 1282 (internal quotation marks omitted).
In order for a declaratory judgment action to satisfy the case or controversy requirement
of the U.S. Constitution, “the dispute [must] be definite and concrete, touching the legal relations
of parties having adverse legal interests; and [must] be real and substantial and admit of specific
relief through a decree of a conclusive character, as distinguished from an opinion advising what
the law would be upon a hypothetical state of facts.” MedImmune, Inc. v. Genentech, Inc., 549
U.S. 118, 127 (2007) (internal quotation marks omitted). “[C]onsistent with MedImmune, a
counter-claimant must show a continuing case or controversy with respect to withdrawn or
otherwise unasserted claims.” Streck, 665 F.3d at 1283.
Rule 13 of the Federal Rules of Civil Procedure provides in part that:
A pleading must state as a counterclaim any claim that – at the
time of its service – the pleader has against an opposing party
if the claim:
(A) arises out of the transaction or occurrence that is the subject
matter of the opposing party's claim; and
(B) does not require adding another party over whom the court
cannot acquire jurisdiction.

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Fed. R. Civ. P. 13 (a). The Plaintiffs acknowledge that because Lewmar filed a patent
noninfringement counterclaim, “an affirmative patent infringement claim [by the Plaintiffs] . . .
[became] a compulsory counterclaim under applicable patent law.” (Doc. # 145, at 2). The
Plaintiffs further acknowledge that “[a]s a matter of law, the plaintiffs cannot preserve a patent
infringement claim for future action; it is a compulsory counter-claim in this action.” (Id. at 8).
Since the Plaintiffs have made a conscious decision not to pursue a patent infringement claim
against Lewmar in this action and cannot pursue such a claim in any future action, the Court
concludes that the Plaintiffs have waived any claim they may have had that Lewmar‟s Lite
Touch winch handle infringed their patent relating to the OneTouch winch handle.
With regard to a question of possible patent infringement, “[a] useful question to ask in
determining whether an actual controversy exists is what, if any, cause of action the declaratory
judgment defendant may have against the declaratory judgment plaintiff[.]” Benitec Australia,
Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed. Cir. 2007). Because the Plaintiffs have
effectively waived any potential patent infringement claim, the answer to this question is that
they have no cause of action sounding in patent infringement against Lewmar. Keeping in mind
the purpose of the Declaratory Judgment Act in patent cases, i.e., “to provide the allegedly
infringing party relief from the uncertainty and delay regarding its legal rights,” Releasomers,
824 F.2d. at 956, the Court concludes that the case or controversy requirement is not satisfied as
to Lewmar‟s counterclaim seeking a declaration of patent noninfringement. Consequently the
Court lacks declaratory judgment jurisdiction over that counterclaim.
Lewmar contends that this Court “retains jurisdiction on infringement because it is an
element of two of Lemar‟s other counterclaims,” i.e., a declaration finding no breach of the
implied covenant of good faith and fair dealing and a declaration of patent misuse. (Doc. # 146,

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at 1-2). “It is well-established that, in patent cases, the existence of a case or controversy must be
evaluated on a claim-by-claim basis.” Streck, 665 F.3d at 1281. (internal quotation marks
omitted). Those other two counterclaims are not before the Court for purposes of the pending
summary judgment motions. The Court has determined that the counterclaim of patent
noninfringement, which was raised as a separate and distinct claim and is included in the pending
motions, does not satisfy the case or controversy requirement.
The Court also notes that a claimed breach of the implied covenant of good faith and fair
dealing “must be tied to an alleged breach of a specific contract term, often one that allows for
discretion on the part of the party alleged to have violated the duty.” Landry v. Spitz, 102 Conn.
App. 34, 47 (2007). The Plaintiffs‟ Complaint contains a number of specific allegations of
“material breaches” of the parties‟ Agreement, none of which refers to any possible infringement
by Lewmar of the OneTouch patent. (Doc. # 1, ¶¶ 15-17).
By way of its counterclaims Lewmar also seeks a declaration of patent misuse. In certain
cases courts have recognized a “patent misuse” defense to a patent infringement claim. The
rationale for that defense was articulated by the Supreme Court when it recognized “an
important public interest [that] would be prejudiced” by granting injunctive relief to the patent
holder who was claiming patent infringement but was misusing the patent. Mercoid Corp. v.
Mid-Continent Investment Co., 320 U.S. 661, 670 (1944) (internal quotation marks omitted). As
noted above, the patent misuse counterclaim is not before the Court for purposes of the pending
summary judgment motions. However, since the Plaintiffs have effectively waived any potential
patent infringement claim, it would appear that the rationale for a patent misuse defense does not
apply in this case.

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B. Implied Covenant of Good Faith and Fair Dealing
Lewmar has also moved for summary judgment as to the Plaintiffs‟ claim of a breach of
the implied covenant of good faith and fair dealing. “It is axiomatic that the implied duty of
good faith and fair dealing is a covenant implied into a contract or a contractual relationship.”
Hoskins v. Titan Value Equities Group, Inc., 252 Conn. 789, 793 (2000). That implied duty
requires “that neither party do anything that will injure the right of the other to receive the
benefits of the agreement.” De La Concha of Hartford, Inc. v. Aetna Life Insurance Co., 269
Conn. 424, 432 (2004) (internal quotation marks omitted). “The covenant of good faith and fair
dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and
that what is in dispute is a party's discretionary application or interpretation of a contract term.”
Hoskins, 252 Conn. at 793 (internal quotation marks omitted).
“To constitute a breach of [the implied covenant of good faith and fair dealing], the acts
by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she
reasonably expected to receive under the contract must have been taken in bad faith.” Alexandru
v. Strong, 81 Conn. App. 68, 80-81 (2004). “Bad faith in general implies both actual or
constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill
some duty or some contractual obligation, not prompted by an honest mistake as to one's rights
or duties, but by some interested or sinister motive. . . . Bad faith means more than mere
negligence; it involves a dishonest purpose.” Habetz v. Condon, 224 Conn. 231, 237 (1992)
(internal quotation marks and citation omitted).
The Plaintiffs have demonstrated that there are material facts genuinely in dispute as to
whether Lewmar took actions in bad faith that impeded the Plaintiffs‟ right to receive benefits
under the parties‟ contract. The Plaintiffs have alleged a number of material breaches of the

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parties‟ Agreement, (doc. # 1, ¶¶ 15-17), and have come forward with evidence in support of
those allegations. See, e.g., doc. # 117-6, ¶¶ 18, 19, 26-28. The Plaintiffs have also produced
internal Lewmar emails that could support a finding of bad faith as to certain actions alleged to
have been taken by Lewmar. An August 12, 2008 Lewmar email concerning proposed pricing
for the Lite Touch handle contains the following sentence: “Specifically with the Lite Touch we
have the opportunity to kill off the Dax handle and wipe out a number of low cost/low
performance handles with a single sweep if we hit the right price point at launch and hit the
market hard.” (Doc. No. 119-2, at 2). In a November 13, 2009 email discussing a product called
the “Holmatro Extreme winch handle,” a Lewmar official stated that “[o]n the face of it this
looks to be in breach of our patent, however they would have taken there [sic] time to look at our
patent and try and get round it. They may have got round the patent by the grab bar mechanism
only going half the length of the handles top surface which they are very careful to state. We got
round the Steiner patent for the Lite touch in the same manner.” (Doc. No. 117-11, at 22).
Because there are material facts genuinely in dispute as to the Plaintiffs‟ claim of a
breach of the implied covenant of good faith and fair dealing, that claim cannot be resolved on
the basis of a motion for summary judgment and Lewmar‟s motion for summary judgment is
denied as to that claim.

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CONCLUSION
For the reasons stated herein, Lewmar‟s motions for summary judgment as to Lewmar‟s
patent noninfringement counterclaim (doc. nos. 73, 101) are DENIED and that counterclaim is
DISMISSED on the basis of lack of declaratory judgment jurisdiction. Lewmar‟s motion for
summary judgment as to the Plaintiffs‟ claim of a breach of the implied covenant of good faith
and fair dealing (doc. no. 75) is DENIED.

SO ORDERED this

22nd

day of October, 2013.

______/s/ DJS________________________________
DOMINIC J. SQUATRITO
UNITED STATES DISTRICT JUDGE

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