Dow Chemical Canada v. HRD Corporation

Filing 795

MEMORANDUM OPINION re 727 Exception to the Special Master's Ruling, and 707 Motion to Reopen Discovery. Signed by Judge Richard G. Andrews on 11/5/2012. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

DOW CHEMICAL CANADA INC., on its
behalf and as assignee of THE DOW
CHEMICAL COMPANY,
Plaintiff,
v.
HRD CORPORATION (d/b/a Marcus Oil
& Chemical),

C.A. 05-023-RGA

Defendant/Counterclaim
Plaintiff,
v.
DOW CHEMICAL CANADA INC., on its
own behalf and as assignee of THE
DOW CHEMICAL COMPANY, and the
DOW CHEMICAL COMPANY,
Counterclaim Defendants.

MEMORANDUM OPINION

Kenneth J. Nachbar, Esq., Wilmington, Delaware; Harry J. Roper (argued), Esq. Chicago,
Illinois; Aaron A. Barlow (argued), Esq., Chicago, Illinois; Attorneys for PlaintiffDow
Chemical Canada Inc. and Counterclaim Defendants Dow Chemical Canada Inc. and The
Dow Chemical Company.
John A. Sensing, Esq., Wilmington, Delaware; William C. Ferebee (argued), Esq.,
Houston, Texas; Attorneys for Defendant and Counterclaim PlaintiffHRD Corporation
(d/b/a Marcus Oil & Chemical).

November£ 2012
Wilmington Delaware

This Opinion considers HRD's motion to reopen discovery. (D.I. 707). 1 HRD argues
that discovery must be reopened so that it may fairly pursue its counterclaims for
misappropriation of trade secrets and for contract claims on certain Dow patent filings. The
deadline for completion of fact discovery was February 6, 2009. (D.I. 189). HRD argues that
Dow failed to produce certain patents and patent applications responsive to HRD's request for
"wax products to be used in [hot melt adhesives] or to one-pack, two-pack, or three-pack
formulations for the [hot melt adhesives]." (D.I. 708, p. 4). Dow challenged this interrogatory
as overbroad to the extent it was not limited to "products made from or containing Polyethylene
wax" ("PE wax") as defined by the Joint Development Agreement ("JDA"). (D.I. 483, Exh. 1 ~
4.2). Subject to that objection, Dow produced 14 published patent applications that related to
"low molecular weight polymers and refer to hot melt adhesive applications." HRD argues that
in making this production, Dow's responses were predicated on an artificially narrow definition
of"made from or containing a Polyethylene wax," and it thus omitted approximately 100
responsive applications. In furtherance ofthis position, HRD filed a Motion in Limine with the
Special Master to argue that "made from or containing a Polyethylene Wax" should be afforded
its plain and ordinary meaning, rather than Dow's allegedly artificially narrow technical
definition derived from the JDA and Supply Agreement. (D.I. 715). The Special Master agreed
with HRD and held that "products made from or containing Polyethylene Wax" should be
accorded its plain and ordinary meaning. (D.I. 719). Dow filed an Exception to the Special
Master's Ruling, arguing that a product should be said to contain aPE wax only if scientific

1

The procedural and factual backgrounds of this case are well known to both the parties and this Court. There is no
need for them to be reproduced at length here.

2

testing would show the presence of aPE wax compound, as defined by the parties in the JDA
and Supply Agreement. (D.I. 727).
The Court will first resolve Dow's Exception to the Special Master's Ruling and decide
what it means under the JDA and Supply Agreement for a product to be "made from or
containing Polyethylene Wax." Under the JDA, Dow and HRD were to develop two kinds of
products used in hot melt adhesives. These were PE wax products and a product called a twopack. The JDA and Supply Agreement awarded HRD ownership of certain intellectual property
"Developments" that included "all products made from or containing Polyethylene Waxes." The
scope of"made from or containing Polyethylene Waxes" is important to HRD's attempt to
reopen discovery, as HRD argues that Dow's discovery responses to its request for relevant
patent applications were predicated on an artificially narrow definition ofthis term. The

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consequence, HRD argues, is that Dow failed to produce approximately 100 discoverable
applications to HRD, thus compromising HRD's efforts to establish its claims.
In support of its argument for a broader interpretation of the term, HRD argues that there
are four scenarios that define "products made from or containing Polyethylene Waxes:" (1) the
product is completely made from PE wax; (2) the product contains PE wax because aPE wax is
physically added to the product; (3) the product contains aPE wax because the PE wax is
generated in situ during the chemical creation of the product; and (4) the product contains aPE
wax, which is generated in situ in small amounts as a result of the chemical creation of a given
polymer. (D.I. 751, pp. 5-6). HRD states that scientific testing may be used to detect whether a
product is made from or contains a PE wax in the first three scenarios. In the fourth scenario,
however, HRD does not rely on scientific methods. Rather, HRD argues that a product contains
PE wax if Dow knew that the product would contain PE wax, resulting in a change or
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improvement in the product's properties. Dow agrees with HRD that the first three scenarios
correctly describe a product made from or containing aPE wax. (D.I. 765, pp. 6-7). Dow
objects, however, to the fourth scenario. Dow argues that a product only contains aPE wax if it
can be shown, through scientific testing, to contain a compound meeting the requirements of a
PE wax as defined by the JDA and the Supply Agreement. Dow argues that the testing must
show that a compound within the product meets the PE wax production requirements of the JDA
as described in this Court's previous summary judgment opinion: (1) it is a metallocene polymer
or copolymer of ethylene that has (2) an average molecular weight ("Mn") of 600 to 9,000, (3) a
density of greater than .890 glee and (4) a melting point ("Tm") above 50°C. (D.I. 433, pp. 1821). 2 Dow argues that HRD's fourth scenario abandons any objective measure to determine
whether aPE wax is used within a product and instead proposes an unreliable subjective test.
The Court agrees with Dow. HRD's fourth scenario for determining whether a product
contains aPE wax makes no sense. It is hardly believable that two chemical companies would
agree to define a chemical product according to what employees of one party subjectively knew.
If the product contains aPE wax, it should be scientifically verifiable through testing. If a
product does not contain a PE wax, it cannot be made to contain a PE wax by a Dow employee
thinking it does. This makes the fourth category surplusage. For these reasons, the Court adopts
Dow's interpretation of"products made from or containing Polyethylene Waxes." Dow's
Exception to the Special Master's ruling is sustained.
HRD argues that even if the Court adopts Dow's definition of "products made from or
containing Polyethylene Waxes," it can prove that Dow failed to comply with its discovery

2

Dow further argues that it only must provide applications related to inventions that have been "actually reduced to
practice," as the JDA so limits HRD's ownership interest in IP Developments under the IDA. (D.I. 483, ~ 10. 7).
This detail, however, is not relevant in determining whether a product contains aPE wax.
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obligations and therefore good cause exists for the Court to reopen discovery. Federal courts
have broad discretion to manage discovery. See Sempier v. Johnson & Higgins, 45 F.3d 724, 734
(3d Cir. 1995). A party seeking to modify a Scheduling Order must show "good cause" for the
change. Fed. R. Civ. P. 16(b)(4). To establish good cause, HRD must show that a more diligent
pursuit of discovery was impossible. Alexiou v. Moshos, 2009 WL 2913960, *3 (E.D. Pa. 2009).
In deciding whether to modify a scheduling order, the Court may consider any prejudice to the
party opposing the modification. Johnson v. Mammoth Recreations, Inc., 975 F .2d 604, 609 (9th
Cir. 1992). Prejudice may include the delay of a trial date. See Redhead v. US., 686 F .2d 178,
184 (3d Cir. 1982). The trial is set for January 2013. Any reopening of discovery would cause
the trial date of this nearly eight-year old case to be lost.
HRD's argument hinges on Dow's response to "Interrogatory No.4," submitted on
January 23, 2009. (D.I. 709, Exh. 5 at 7). HRD argues that Dow failed to produce
approximately 100 patent applications responsive to this discovery request. Interrogatory No. 4
follows:
Specify all patent applications or provisional filings made by Dow since January
2001, related to wax products to be used in [hot melt adhesives], or related to onepack, two-pack or three-pack formulations for the [hot melt adhesive] industry,
and uses thereof, including the current status of each application or provisional
filing.

(Id.). Dow objected to this interrogatory to the extent that it asked for inventions outside the
scope of the JDA and Supply Agreement, arguing that it only need to produce applications
related toPE waxes. (Id. at 7-8). Subject to that objection, Dow identified 14 published patent
applications that related to "low molecular weight polymers and refer to hot melt adhesive
applications," adopting the limitations ofthe JDA and the Supply Agreement as its criteria for

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production. (!d. at 8). 3 While discovery was open, HRD never challenged Dow's objection to
the interrogatory or filed a motion to compel Dow to produce applications to the full extent of
Interrogatory No.4's literal scope. This leaves HRD in a poor position to now complain about
Dow's response. As stated above, HRD must show that a more diligent pursuit of discovery was
impossible in order to show good cause for reopening discovery. HRD argues it had no way of
knowing that Dow assigned a "secret" definition to "containing PE waxes" and was thus failing
to produce relevant patent applications. (D.I. 708, p. 9). Dow's objection, however, made it
apparent that there was a difference of opinion as to Dow's obligations in response to
Interrogatory No.4. Further, there was nothing "secret" about Dow's criteria for production, as
Dow explained it was limiting its response to inventions within the scope of the parties'
agreements, predicated on an explicit definition of what it considered relevant applications. This
put HRD on notice of Dow's criteria for production, and HRD never challenged that criteria.
Had HRD addressed this issue while discovery was still open, the dispute could have been
resolved in accordance with the Court's schedule. Instead, HRD now asks the Court to reopen
discovery nearly eight years after the initial filing of Dow's complaint and less than three months
before trial. The Court will not reopen discovery to require Dow to produce anything broader
than the express limitations Dow outlined in its objection to Interrogatory No.4.
That being said, HRD argues that Dow failed to comply with its own criteria for
production. In support, HRD cites numerous patent applications that it discovered through its
own investigation, arguing that they met Dow's criteria. HRD argues that it now must conduct
further discovery in order to determine the applications' relevance to its claims. None of the
applications HRD cites are demonstrative of Dow discovery failings, as they do not fall within
3

Dow used the definition ofPE wax limited to metallocene polymer or copolymers of ethylene with the specified
molecular weight, density, and melting point.

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the scope ofthe JDA or Supply Agreement. For example, HRD argues that U.S. Patent App.
Pub. No. 2010/0160497 ('"497 application") should have been produced. (D.I. 709, Exh. 11).
Although the '497 application does disclose copolymers with molecular weights, melting points,
and densities that overlap with polymers covered by the JDA, this is not the only requirement for
an intellectual property "Development" to fall within the scope of the JDA as HRD's property.
The JDA only provides HRD an interest in a "Development" that has been "actually reduced to
practice." (D.I. 483, Exh. 1 at~ 10.7). HRD argues that the filing ofthe '497 patent application
itself suffices to meet the reduction to practice requirement. The Federal Circuit, however,
distinguishes between "actual reduction" and "constructive reduction" to practice. See Hyatt v.
Boone, 146 F.3d 1348, 1352 (Fed. Cir. 1998). The filing of a patent application only constitutes

constructive reduction to practice. See id. Actual reduction to practice requires the invention to
be physically produced. 4 Because the JDA only awards HRD an interest in an invention that is
"actually" reduced to practice, the invention must have been actually produced for its
corresponding application to be discoverable. Within its briefing in opposition to HRD's motion
and at oral argument, Dow indicated that the '497 Patent was never actually reduced to practice.
(D.I. 721, pp. 15-16; D.I. 774, pp. 47-48). The Court has no reason to doubt Dow's assertion.
Because the '497 application was never actually reduced to practice, it was not within the scope
ofboth the JDA and Supply Agreement and was thus outside ofDow's production obligations.
Nothing here indicates Dow shirked its discovery obligations in relation to the '497 application,
and its existence does not trigger good cause to reopen discovery.

4

In order to establish actual reduction to practice, the inventor must prove that he constructed an embodiment or
performed a process that met all the limitations of the claim, and that he determined that the invention would work
for its intended purpose. Slip Track Sys., Inc. v. Metal-Lite, Inc., 304 F.3d 1256, 1265 (Fed. Cir. 2002).

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HRD next cites U.S. Patent Application No. 2009/0054861 ('"861 application"). HRD
argues that this application discloses a "two-pack" component to make a hot melt adhesive.
Because a "two pack" is a product derived from a PE wax, any related inventions would be a
"Development" owned by HRD according to the agreement. Hot melt adhesives are typically
composed of three products; a polymer, a wax, and a tackifer. (D.I. 444, p. 3). A "two-pack"
product is an invention that takes the place of the polymer and the wax in the hot melt adhesive.
(!d.). A hot melt adhesive formed with a two-pack would thus be composed of the two-pack

component and a tackifer. The '861 application, however, fails to disclose a tackifer. There is
thus no indication that the '861 application is related to a hot melt adhesive product and it
therefore does not supply good cause to reopen discovery.
HRD next cites U.S. Patent Application No. 201110118416 ("'416 application"). HRD
argues that this application discloses a PE wax product. Dow argues that nothing in the
application demonstrates a disclosed polymer with a density value above .89 glee. HRD
counters that the argument that a physical property of a polymer is unstated does not mean that it
does not exist for the polymer, nor does it negate the existence of the polymer. HRD fails to
consider that Dow's discovery objection only obligated Dow to produce applications that
disclose PE waxes precisely meeting every requirement of the JDA and Supply Agreement.
HRD cites an expert report (D.I. 736) to insist that notwithstanding the application's failure to
explicitly disclose a density value, it can be derived from other stated physical properties of the
application. This expert report, however, was submitted with HRD's Reply Brief. That is too
late. Dow did not have an opportunity to respond to its content. 5 If HRD desired the Court to
consider the expert report, it should have been submitted with HRD's opening brief to provide

5

The expert report is 28 pages long, attached with 38 exhibits comprising 5 volumes of material.

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Dow with an opportunity to respond. This would have allowed the issue to be fully vetted.
HRD's failure to do so prohibits the Court from crediting its position. Because there is no
indication that the '416 application meets Dow's criteria for production, its existence does not
provide good cause to reopen discovery.
HRD next cites U.S. Patent Application No. US2012/0108777 ("'777 application"), again
arguing it was a Dow application that should have been produced. The '777 application is a
grandchild continuation ofU.S. Patent Application No. 10/567142, which was published under
U.S. Pub. No. 2006/0287444 ("'444 application"). This Court held in its Summary Judgment
opinion that the '444 application was directed to areas of invention allocated to Dow under the
agreement, as it only claimed polymers and not products. (D.I. 248, p. 38-39). Dow's failure to
produce the '777 application is thus not a discovery violation and does not suggest that discovery
should be reopened.
HRD further referenced a series of patent filings within its brief opposing Dow's
Exception to the Discovery Master's Ruling. (D.I. 751, pp. 10-13). HRD argues that Dow's
failure to produce these applications further supports its motion to reopen discovery. Like the
previous set of applications, however, none of these provide good cause. The first application is
PCT Application No. WO 2005/090427. The face of this application shows that it shares a
disclosure with U.S. Application No. PCTIUS2005/008917. This Court previously granted
summary judgment on this application in Dow's favor. (D.I. 433, pp. at 50-51). 6 Further, the
Special Master and this Court have previously denied HRD's request for discovery on a set of
patent applications that included this application. (507, p. 2 at ~1; Exh. A to D.I. 507 at item 41).
6

The Court's summary judgment opinion used the WIPO patent application number (W0/2005/090425), but
HRD'S April2009 expert report from Greg Borsinger included both application numbers together,
"PCT/US2005/08917; (WIPO Patent Application W0/2005/090425)," making clear these application numbers
relate to the same invention. (D.I. 264, Exh. 34 at 6).

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Thus, this application does not provide HRD with good cause to reopen discovery. HRD then
cites U.S. Patent No. 7,897,689, but this patent was likewise disposed of on summary judgment
when it was identified as U.S. Patent Pub. No. 2006/0199914 ('"914 application"). (D.I. 433, pp.
51-52). The '914 application was also subject to a previous discovery request that was denied by
the Special Master and this Court. (D.I. 546; D.I. 507 at ~1). HRD then cites U.S. Patent No.
7,259,219, which again, was subject to the Court's summary judgment motion in Dow's favor.
(D.I. 433, p. 48). The Court also has already denied discovery on this patent. (D. I. 546, D. I.
507, p. 2 at ~1). HRD next cites U.S. Patent No. 8,034,878, which shows on its face it was a
PCT application with the number W02007/078697 and also that it was published as U.S. Patent
Pub. No. 2008/0306217. Dow identified this application over three years ago within an
interrogatory response. (D.I. 765, Exhibit D at 8). This Patent was further subject to the Court's
Summary Judgment opinion. (D.I. 433 at 52-54). This Court has previously denied requests for
further discovery on this application. (D.I. 546; 507).
These patent filings represent the remainder ofHRD's argument. For the reasons
discussed, HRD has not shown that Dow violated its discovery obligations. HRD has thus failed
to establish good cause for the reopening of discovery. HRD's motion to reopen discovery is
thus denied.
An appropriate order will follow.

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