ABS Global, Inc. v. Inguran, LLC
Filing
795
Transmission of Amended Notice of Appeal, Orders, Judgment, Amended Judgment and Docket Sheet to Seventh Circuit Court of Appeals re: #793 Notice of Appeal, (Attachments: #1 Order No.: 572, #2 Order No.: 587, #3 Order No.: 772, #4 Judgment, #5 Amended Judgment, #6 Docket Sheet) (lak)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
ABS GLOBAL, INC.,
v.
Plaintiff/Counterclaim Defendant,
OPINION AND ORDER
14-cv-503-wmc
INGURAN, LLC,
Defendant/Counterclaimant/Third-Party Plaintiff,
and
XY, LLC,
Intervening Defendant/Counterclaimant/Third-Party Plaintiff,
v.
GENUS PLC,
Third-Party Defendant.
After a ten-day trial, a jury found that defendant Inguran, LLC d/b/a Sexing
Technologies (“ST”) willfully maintained its monopoly power in the market for sexed
bovine semen processing services in the U.S. through anticompetitive acts in violation of
Section 2 of the Sherman Act, but that plaintiff ABS Global, Inc. (“ABS”) had suffered
no antitrust injury.
The jury further found ABS liable for patent infringement and
breach of contract with ST. Finally, the jury awarded monetary damages to ST on its
contract and patent counterclaims.
In this opinion, the court will address the parties’ post-trial motions, which
challenge various aspects of the jury’s well balanced, carefully considered verdict. (Dkt.
##738, 741.) The court will also address ABS’s motion for permanent injunctive relief
based on the jury’s findings that ST is a monopolist. (Dkt. #680.)
BACKGROUND 1
ABS is a “bull stud,” meaning it is in the business of selling semen from its own
bulls in “straws” for use in artificial insemination, which are prized by dairy farmers and
beef producers for their specified genetic characteristics. ST provides semen-processing
services to ABS and other bull studs to produce “sexed semen straws,” a product
consisting of predominantly male or female sperm cells. The former is valued by beef
producers, and the latter by dairy farmers, ever more so as improvements in sexed semen
straw processing have begun to achieve fertility rates approaching those of traditional
semen straws.
A relatively new technology, the parties entered into their first, formal contractual
relationship for sexed semen processing or “sorting” in 2006. In August of 2012, ABS
and ST entered into their most recent contract (the “2012 Agreement”). Almost two
years into that Agreement, ABS filed this antitrust lawsuit, alleging that ST had
unlawfully maintained its monopoly power in the market for sexed semen processing
services by insisting on anticompetitive terms in the 2012 Agreement and by acquiring
related patents for the purpose of keeping others out of the market. In addition to treble
damages, ABS sought a permanent injunction for ST’s anticompetitive acts, relieving it of
A detailed description of the facts and background of this case is set forth in the fact section of
the court’s summary judgment order. (Dkt. #572.) This opinion assumes a basic understanding
of those facts, as well as the evidence at trial.
1
2
provisions in the 2012 Agreement that restricted ABS from the development and
marketing of a competing sexed semen sorting technology (the “GSS technology”). In
response to ABS’s lawsuit, ST and its wholly owned subsidiary, XY, LLC, brought
counterclaims and third party claims, respectively, for patent infringement, breach of
contract and trade secret misappropriation against ABS and its parent company, Genus
plc.
After the court denied ST’s motion for summary judgment on ABS’s Sherman Act
claim, the case proceeded to jury trial.
OPINION
I.
Sherman Act and Wisconsin Unfair Competition Claims
ABS moves for a new trial on the jury’s finding of no antitrust injury under
Federal Rule of Civil Procedure 59 on the grounds that the court’s jury instructions were
faulty. For its part, ST moves for judgment as a matter of law on the jury’s finding of a
relevant market and anticompetitive acts under the Sherman Act. Both parties further
move for judgment on ABS’s related state law claim for unfair competition, which was
not presented to the jury as a separate verdict question. For the reasons that follow, the
court will deny both motions with respect to the jury’s special verdict on the Sherman
Act claim, finding it eminently reasonable on the facts of record, and will enter judgment
under state unfair competition law consistent with those same findings.
3
A.
New trial on antitrust injury
To obtain a new trial based on erroneous jury instructions, ABS must show that
“(1) the instructions did not accurately state the law, and (2) the error prejudiced [it]
because the jury was likely to be misled or confused.” Johnson v. Gen. Bd. of Pension &
Health Benefits of United Methodist Church, 733 F.3d 722, 733 (7th Cir. 2013).
ABS
essentially merges these two elements by arguing not so much that the jury instruction on
antitrust injury failed to state the law accurately, as the instruction did not fit its theory
of the case. See Florists’ Nationwide Tel. Delivery Network -- Am.’s Phone-Order Florists, Inc. v.
Florists’ Tel. Delivery Ass’n, 371 F.2d 263, 270 (7th Cir. 1967) (“A party is entitled to
instructions presenting [its] theory of the case if there is evidence to support it.”).
Specifically, ABS argues that the jury was likely confused by the instruction that ST
caused an antitrust injury “[i]f ABS is able to prove by a preponderance of the evidence
that its injuries were caused by a reduction in competition, acts that would lead to a
reduction in competition, or acts that would otherwise harm consumers.”
(Closing
Liability Instructions (dkt. #692) at 17 (emphasis added).) According to ABS, this jury
instruction contradicted the facts of the case, since ST did not “reduce,” but rather
“prevented competition from emerging in a market that had none.” (Pl.’s Opening Br.
(dkt. #739) at 2 (emphasis in original).)
In response, ST argues that the theory ABS presented to the jury was that ST’s
anticompetitive acts caused “a reduction in competition that otherwise would not have
occurred . . . absent those acts,” and any reasonable jury would have read the “reduction in
competition” instruction in accordance with that theory. (Def.’s Resp. Br. (dkt. #752) at
4
6 (emphasis added).)
The court largely agrees.
ABS’s strained interpretation of the
injury instruction would restrict “competition” to a knowable, readily quantifiable
number that could only be reduced by deterring or eliminating competition from an
existing firm already selling competing services to buyers in the relevant market. Such a
narrow reading would not only be inconsistent with the parties’ arguments in the
monopolization context, but would also read out the broader, more abstract consumer
welfare concept in the last clause of the jury instruction as embraced by Section 2 of the
Sherman Act. See, e.g., Fishman v. Estate of Wirtz, 807 F.2d 520, 535-36 (7th Cir. 1986)
(“[T]he enhancement of consumer welfare is an important policy -- probably the
paramount policy -- informing the antitrust laws.”). Moreover, the Sherman Act liability
instructions, which referenced “potential” competition or competitors multiple times
(Closing Liability Instructions (dkt. #692) at 3, 7, 11, 15), expressly embraced this
“consumer welfare-centered” interpretation. See Alloy Int’l Co. v. Hoover-NSK Bearing Co.,
635 F.2d 1222, 1228 (7th Cir. 1980) (considering “the instructions as a whole” in
finding it unlikely that the jury was misled).
That the jury was not misled by this “reduction in competition” language in the
jury instruction is further bolstered by ABS’s own closing argument to the jury based on
the evidence at trial. During closing argument, ABS’s counsel asked the jury to find
antitrust injury because it was not “able to use [its GSS] technology to supply itself and
its customers” due to ST’s anticompetitive actions.
68:5-7.)
(8/9/16 Trial Tr. (dkt. #729) at
Ultimately, there is no reason to think that the jury was misled by the
presentation of the evidence, nor by the jury instructions, into believing that it needed to
5
find ST had reduced some particular degree of existing “competition,” as opposed to
analyzing whether ST’s actions harmed competition and consumers by preventing (or at
least delaying) the launch of ABS’s semen sorting technology into the relevant market.
Having failed to demonstrate any likelihood that the jury actually misunderstood the
appropriate standard for finding antitrust injury, ABS’s motion for a new trial on
antitrust injury will be denied. See Alloy Int’l, 625 F.2d at 1228 (“The test, then, is not
what meaning the ingenuity of counsel can at leisure attribute to the instructions, but
how and in what sense, under the evidence before them and the circumstances of the
trial, ordinary men acting as jurors will understand the instructions.”).
Even if the court were to find that the instruction on antitrust injury was incorrect
(or as ABS styles it, inappropriate), it must nevertheless take into account “the
instructions as a whole, along with all of the evidence and the arguments.” Susan Wakeen
Doll Co., Inc. v. Ashton Drake Galleries, 272 F.3d 441, 452 (7th Cir. 2001); see also Ernst v.
City of Chi., 837 F.3d 788, 794 (7th Cir. 2016) (“District courts have substantial
discretion in how to precisely word jury instructions, provided that the final result, read
as a whole, is a complete and correct statement of the law.”). Here, between the jury
instructions as a whole, as well as expert testimony and lengthy closing arguments by
counsel, the court is satisfied the jury understood full well what it was being asked to
decide. Moreover, as discussed more fully in the opinion below, there was an ample
evidentiary basis for the jury to find no present injury given that ABS and the rest of the
bull stud industry were reluctant to even offer sexed semen until ST had demonstrated its
ability to compete with conventional semen, and ABS was forced to retool its processes
6
to eliminate use of ST’s wrongfully taken proprietary information. For both reasons,
there was ample evidence for the jury to find that ABS was not yet ready to compete as
of the date of trial even if the restrictive provisions in the 2012 Agreement were not
present to inhibit it from doing so. 2
B.
Relevant antitrust market and anticompetitive acts
ST argues alternatively that judgment as a matter of law should have been entered
against ABS on whether a separate submarket existed in the U.S. for sexed semen straws.
There is even less merit in this argument.
Generally, the parties agree that “under
Seventh Circuit law, ABS must adduce ‘economic evidence’ rather than ‘conclusory
assumption[s]’ to do so.” (Pl.’s Trial Br. (dkt. #650) at 1 (quoting Reifert v. S. Cent. Wis.
MLS Corp., 450 F.3d 312, 318 (7th Cir. 2006)).) Here, ST faults ABS’s expert, Professor
Kevin Murphy, for failing to present sufficient economic evidence or analysis to meet this
standard.
More specifically, since ABS had the burden to prove a relevant antitrust
market at trial, ST argues that Murphy acknowledged that analyzing price changes in the
relationship between sexed semen straws and conventional semen straws was
“important,” but then failed to present actual economic evidence on whether those
ST also argues that ABS’s failure to prove antitrust injury for its violation of § 2 of the Sherman
Act “mandates a judgment in favor of ST on that claim” (Def.’s Opening Br. (dkt. #742) at 4),
but as ABS points out in response, the jury’s verdict is better interpreted as requiring judgment
against ST under § 2 and against ABS for treble damages under § 4 of the Clayton Act. Cf.
Comcast Corp. v. Behrend, 569 U.S. ___, 133 S. Ct. 1426, 1438 (2013) (“A firm is guilty of
monopolization under § 2 if the plaintiff proves (1) ‘the possession of monopoly power in the
relevant market’ and (2) ‘the willful acquisition or maintenance of that power[,] as distinguished
from growth or development as a consequence of a superior product, business acumen, or historic
accident.’ United States v. Grinnell Corp., 384 U.S. 563, 570-571 (1966). A private plaintiff
seeking damages must also show that (3) the monopolization caused ‘injur[y].’ 15 U.S.C. § 15.”)
(alterations in original).
2
7
products are reasonably interchangeable and instead “testified in a conclusory manner
based on hypotheticals.” (Def.’s Opening Br. (dkt. #742) at 6.) In response, ABS points
to Professor Murphy’s testimony that no other “good substitutes for sexing services”
exist, including his analysis of the price of sexed semen versus conventional semen over
time. (8/3/16 Trial Tr. (dkt. #709) at 50:17-51:3.) Because the price of “sexed semen
was going down relative to conventional semen much faster, and most of that decline
came out of the bull studs,” rather than ST, Professor Murphy concluded that the price
of conventional semen did not constrain the price ST could charge for sexed semen
processing services. (Id. at 54:11-55:17.)
Based on overwhelming evidence that bull studs increasingly felt the need to offer
both sexed and conventional semen for sale in order to remain competitive, Murphy also
testified that they had no reasonable alternative to purchasing sexed semen processing
services from ST. (Id. at 59:9-23.) Along with other factual evidence of the growing
importance of the niche being carved out for sexed semen in the bull stud market
(especially after fertility rates for sexed semen began to climb to rival those of
conventional semen), Professor Murphy reasonably analyzed the effect of competition
between sexed and conventional semen straws on ST’s ability to price sexed semen
sorting services. This evidence was far more than conclusory or anecdotal. The strong
consensus of all actors in the industry was that ST had taken the sexed semen market
from a small afterthought to an indispensable, growing part of every bull stud’s product
offering in less than a decade, at least if it wanted to remain competitive, even in the
8
market for conventional semen. Accordingly, ST’s motion for judgment as a matter of
law on the element of the relevant antitrust market will be denied.
C.
Anticompetitive contracting practices
On the element of willful maintenance of monopoly power, the jury found that ST
insisted on anticompetitive contract terms. As it did unsuccessfully before the jury, ST
again contends that the contract terms ABS now insists were anticompetitive actually
served a “normal business purpose.” State of Ill. ex rel. Burris v. Panhandle E. Pipe Line Co.,
935, F.2d 1469, 1481 (7th Cir. 1991) (“Conduct that tends to exclude competitors may
therefore survive antitrust scrutiny if the exclusion is the product of a ‘normal business
purpose[.]’”) (quoting Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585,
608-10 (1985)).
Given its monopoly position, the court agrees with ABS that the
evidence was sufficient for the jury to reasonably find “ST’s insistence on long-term, take
or pay contracts with high minimum purchase commitments, research and field trial
restrictions, and restrictions on the commercialization of competing technologies was
anticompetitive.” (Pl.’s Reply. Br. (dkt. #737) at 28 (incorporated by reference in Pl.’s
Resp. Br. (dkt. #751) at 8).)
In its brief, ST identifies procompetitive justifications for each of these challenged
contract terms:
(1) the liquidated damages provision benefited ABS by providing a certain
price at which it could exit the contract, and it was designed to cover some of
the cost of staff and equipment that ST would need to incur to perform under
9
the contract (Def.’s Resp. Br. (dkt. #727) at 29 (incorporated by reference in
Def.’s Opening Br. (dkt. #742) at 7));
(2) the evergreen and three-year notice of cancellation provisions were
designed to give ST enough time to relocate the equipment and staff at ABS’s
facility and give the parties enough time to negotiate any contract renewal (id.
at 29-30);
(3) the non-compete clause addressed ST’s concern that ABS would misuse its
confidential information (id. at 30-31); and
(4) the five-year term and annual minimum purchase commitments provided
the parties with long term certainty and guaranteed ST future sales to defray
the upfront costs of setting up at ABS’s facility (id. at 31).
While there is some merit to the justifications set forth for (1) and (2), the longer noncompete in (3) and the 5-year term and annual minimums in (4) are substantially more
suspect, as is the duplicative and constraining nature of all four contract terms together.
Regardless, ST’s own documents and witnesses at trial were enough for a reasonable jury
to disbelieve ST’s assertion that it was motivated by these procompetitive purposes.
(Pl.’s Reply Br. (dkt. #737) at 28-29.)
In reply, ST argues that Professor Murphy’s testimony and the other statements
ABS identifies demonstrate that “regardless of the effect of the Agreement on ABS’s
ability to compete . . ., each of the allegedly anticompetitive contract provisions
nevertheless also had a sensible business purpose,” and so the jury’s verdict is improper as
a matter of law. (Def.’s Reply Br. (dkt. #756) at 9.) But ST incorrectly frames the issue
10
the jury was asked to decide. ST contends “[i]t is well established that anticompetitive
conduct is ‘conduct without a legitimate business purpose that makes sense only because it
eliminates competition.” (Def.’s Reply Br. (dkt. #756) at 9 (quoting Morris Commc’ns
Corp. v. PGA Tour, Inc., 364 F.3d 1288, 1295 (11th Cir. 2004) (emphasis added)).) The
question for the jury, however, was not whether the restrictive contract terms had any
legitimate business justifications, but “[w]hether valid business reasons motivated a
monopolist’s conduct[, which] is a question of fact.” Panhandle E. Pipe Line Co., 935 F.2d
at 1481-82; see also Aspen Skiing Co., 472 U.S. at 602 (“In [a monopolization] case
evidence of intent is merely relevant to the question whether the challenged conduct is
fairly characterized as ‘exclusionary’ or ‘anticompetitive.’”).
As the jury was instructed, “generally, the desire to maintain monopoly power or
to block entry of competitors is not a legitimate business purpose.” (Closing Liability
Instructions (dkt. #162) at 11.) Since the jury was not required to believe that ST was
motivated by valid business reasons with respect to any of the challenged contract
provisions, the court must now assume the jury did not do so in considering ST’s Rule
50(b) motion. May v. Chrysler Grp., LLC, 716 F.3d 963, 971 (7th Cir. 2012).
“[B]ecause the jury found that ST lawfully acquired the patents that cover the
sorting process” addressed in the parties’ contracts, ST further asserts that “neither the
sorting contracts nor ST’s insistence on any terms in them can be unlawfully
exclusionary.” (Def.’s Opening Br. (dkt. #742) at 7.) Some parsing of ST’s argument on
this point may be helpful to illustrate its flaws. Generally, ST contends that because the
jury found that it attained monopoly power by virtue of its lawful acquisition of patents,
11
“the allegedly anticompetitive provisions in ST’s sorting contracts are merely the legal
exercise of ST’s lawfully acquired patent rights.” (Def.’s Reply Br. (dkt. #756) at 12.)
More specifically, ST asserts that in the absence of “illegal tying, fraud, or sham
litigation, a patentee’s conduct only runs afoul of the antitrust laws when it (1)
‘impermissibly broaden[s] the physical or temporal scope of the patent grant,’ and (2)
‘does so in a manner that has anticompetitive effects.’” (Def.’s Resp. Br. (dkt. #727) at
34 (emphasis in original) (quoting In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322,
1328 (Fed. Cir. 2000)).) Because the jury found that ST did not acquire its sexed semen
sorting patents for anticompetitive reasons, and because the jury did not find that “the
sorting contracts’ terms ‘impermissibly broaden’ the scope of ST’s lawfully acquired
patents,” ST further argues the jury’s finding that it insisted on anticompetitive contract
terms is contrary to law. (Id. at 34-35.)
While conceding the jury found ST’s acquisition of its patent portfolio was lawful,
ABS correctly points out that ST never proposed a jury instruction on, nor was the jury
explicitly asked to decide, whether “the sorting contracts’ terms impermissibly broaden”
the scope of its patents. Accordingly, neither can ABS be faulted for failing to make that
showing, nor can the jury be faulted for failing to make that express finding. Even so, ST
argues that it did not waive this argument, having proposed the ABA model jury
instruction on the general relationship between the patent and antitrust laws -- “as long
as the patent owner acts only to take full advantage of the right to exclude created by his
or her patent, he or she does not violate the antitrust laws.”
12
There are several flaws in this argument. As an initial matter, the court provided
that very instruction to the jury. Indeed, because it was provided at the outset of trial,
ST was free to refer to it in opening statements, as well as closing arguments.
As
importantly, this instruction does not support ST’s implicit interpretation of it: a firm
lawfully attaining monopoly power due to patent rights can insist on contract terms that
would otherwise be anticompetitive provided the contract is generally related to the
patented technology. Nor does the case ST cites in its Rule 50(a) motion, SCM Corp. v.
Xerox Corp., 645 F.2d 1195 (2d Cir. 1981), stand for that proposition. (See Def.’s Reply
Br. (dkt. #756) at 12 n.3.) Finally, ST waived this argument. See Thompson v. Mem’l
Hosp. of Carbondale, 625 F.3d 394, 403 (7th Cir. 2010) (finding waiver of an argument a
party presented in a motion for judgment as a matter of law but did not make to the jury
or request a relevant jury instruction).
Even if the court were to consider ST’s argument that its contracting practices
were somehow immunized because its semen sorting contracts were related to patents it
acquired lawfully, the court agrees with ABS that the lawful acquisition of patents does
not authorize a monopolist’s insistence on anticompetitive contract terms to downstream
customers with no other options in order to freeze out a possible future entrant into that
market.
Cf. Ford Motor Co. v. United States, 405 U.S. 562, 576 n.11 (1972) (“Even
constitutionally protected property rights such as patents may not be used as levers for
obtaining objectives proscribed by the antitrust laws.”).
13
D.
Anticompetitive conduct as a whole
In addition to finding that ST willfully maintained its monopoly power by
insisting on specific anticompetitive contract terms, the jury also found that it did so by
its “anticompetitive conduct as a whole.” Because the jury found that ST’s acquisition of
patents was not anticompetitive, ST again argues that there was no evidence post-dating
its acquisition of monopoly power in July of 2012 to support the jury’s finding of
“anticompetitive conduct as a whole,” other than evidence of allegedly anticompetitive
contract terms. Accordingly, ST moves to vacate the jury’s finding on that element as
both duplicative and as potentially leaving ambiguity regarding what conduct the jury
found to be anticompetitive to be used for purposes of estoppel or equitable relief. 3
In reply to ABS’s assertion that ST failed to move for judgment as a matter of law
on this issue in a Rule 50(a) motion, ST seeks to clarify that it is really moving to alter an
inconsistent judgment under Rule 59(e). (Def.’s Reply Br. (dkt. #756) at 15 n.4.) More
specifically, if the court were to hold that the jury’s liability findings with respect to ST’s
patent acquisitions and its anticompetitive conduct as a whole are internally inconsistent,
then ST asserts that the court “may dissipate the inconsistency by setting aside one of
the conflicting verdicts, if that verdict was unsupported by the evidence.” Am. Cas. Co. of
Reading, Pa. v. B. Cianciolo, Inc., 987 F.2d 1302, 1305 (7th Cir. 1993); see also Fox v.
Hayes, 600 F.3d 819, 844 (7th Cir. 2010) (“A new trial based on inconsistent verdicts is
warranted only when a jury’s verdict cannot be reconciled with the evidence at trial.”).
ST also argues that the jury’s “anticompetitive conduct as a whole” finding is unsupportable for
the same reasons the court should reject the jury’s specific anticompetitive contract findings.
3
14
Of course, “[any] plausible explanation for the verdict precludes reversal.” Id.; see
also Kapelanski v. Johnson, 390 F.3d 525, 530 (7th Cir. 2004) (a jury verdict should not be
set aside “if a reasonable basis exists in the record to support the verdict, viewing the
evidence in the light most favorable to the prevailing party, and leaving issues of
credibility and weight of evidence to the jury”). On this record, there was more than
sufficient evidence to support the jury’s reasonable finding that ST violated the antitrust
laws outside of its insistence on anticompetitive contract terms after it obtained
monopoly power. Indeed, ABS identifies eight such examples. Three of those examples
involve activity related to patents that the jury expressly found ST acquired lawfully -securing additional patents using patent applications it purchased from Monsanto,
choosing not to license its patents and blocking competitors from using those patents.
ABS argues that this patent activity could support an “as a whole” finding because the
Seventh Circuit has explained that conduct that may be lawful when analyzed separately
could support § 2 liability when considered in concert with other conduct. See City of
Mishawaka, Ind. v. Am. Elec. Power Co., 616 F.2d 976, 986 (7th Cir. 1980). For conduct
to be included in a holistic approach, however, it must still support a finding of willful
maintenance of monopoly power as a matter of law. See Kochert v. Greater Lafayette Health
Servs., Inc., 463 F.3d 710, 717 (7th Cir. 2006); see also Verizon Commc’ns Inc. v. Law Offices
of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (warning courts against the risk of
false positives expanding Section 2 liability to “chill the very conduct the antitrust laws
are designed to protect”) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 594 (1986)). And, as ST correctly points out, SCM holds that “where a patent
15
has been lawfully acquired, subsequent conduct permissible under the patent laws cannot
trigger any liability under the antitrust laws.” 645 F.2d at 1206.
Even without applying a per se rule adopted by the Second Circuit in SCM, this
court agrees with its general reasoning that the patent-related activities ABS identifies
could not support Section 2 liability under the circumstances of this case, particularly
given the evidence of the substantial risk ST took in acquiring those patents and
developing its technology to create a new market for sexed semen. (See, e.g., 8/9/16 Trial
Tr. (dkt. #729) at 81-86.) See also III Phillip E. Areeda, et al, Antitrust Law § 704 (4th
ed. 2015) (“[T]he Patent Act creates a federal right to exclude others from practicing the
patent, and the right is generally asserted in court through a constitutionally protected
process.
As a result, claims that a patent owner’s enforcement activities constitute
monopolization must generally be treated very circumspectly.”).
ST argues that of the other five examples of misconduct ABS identifies, all are
“contracting practices” necessarily subsumed within the jury’s finding that ST willfully
maintained its monopoly power by “insisting on anticompetitive contract terms.” But at
least one of the additional instances of arguably anticompetitive conduct to which ABS
points -- ST’s efforts to block ABS from obtaining sexed semen from Boviteq (Dep. of
Andre Barnabe (dkt. #316) at 16:8-18:4) -- reflects conduct post-dating the formation of
ST’s contracts, particularly given that the jury was instructed that it could find Section 2
liability if ABS proved that ST acted in an anticompetitive way by “[i]nsisting on specific
terms in contracts with customers, whether potential competitors or potential customers
of those competitors.” (Closing Liability Instructions (dkt. #692) at 11.) The “insisting
16
on anticompetitive contract terms” question on the liability special verdict arguably
focuses on the formation of ST’s contracts with the bull studs. Therefore, since there was
evidence in the record for the jury to find that ST’s conduct other than its insistence on
particular terms in its contract with ABS and activity related to its lawfully acquired
patents was anticompetitive, the court will not vacate the jury’s finding that ST’s conduct
as a whole was anticompetitive.
E.
Unfair competition
Both parties move for judgment on ABS’s unfair competition claim under
Wisconsin common law. The parties’ dispute centers around two issues: (1) whether
ABS waived its right to pursue liability or damages under an unfair competition claim
separate from its Sherman Act claim; and (2) whether ABS established the elements of an
unfair competition claim at trial. 4 With respect to waiver, ABS argues that it agreed to
be bound by ST’s “conten[tion] that ABS’s claim that Wisconsin’s unfair competition
law rises or falls with ABS’s antitrust claims” only “for purposes of summary judgment.”
(Pl.’s Opening Br. (dkt. #739) at 43 (quoting Pl.’s Opp’n Br. (dkt. #324) at 58).) In
addition, ABS proposed a separate unfair competition instruction and special verdict
question in its initial proposals. (Pl.’s Proposed Special Verdict (dkt. #491) at 2; Pl.’s
Proposed Jury Instrs. (dkt. #492) at 20-21.) Furthermore, ABS objected to ST’s failure
to include a separate unfair competition instruction in ST’s initial proposed jury
instructions, arguing that a separate instruction was required because “[t]he standards for
By virtue of the jury denying ABS any monetary damages for past acts, ST’s challenge to an
award of damages is moot.
4
17
finding liability are different for the two claims, and the jury could possibly find no
violation of the Sherman Act, but unfair competition under Wisconsin law.”
(Pl.’s
Objections (dkt. #534) at 7.)
As to these preliminary skirmishes between the parties, the court agrees with ABS,
but the assertion that “ABS expressly objected to the omission from the [court’s] draft
instructions of any mention of ABS’s unfair competition claim or of the legal standards
for resolving that claim” is misleading at best.
(emphasis added).)
(Pl.’s Opp’n Br. (dkt. #751) at 43
While ABS objected to ST’s omission of the unfair competition
instruction in its initial proposed jury instructions -- other than noting that it did not
waive any objections it raised earlier and contending the instructions it originally
proposed should be given (Dkt. #608 at 1; Dkt. #629 at 1; Dkt. #653 at 2 n.1; Dkt.
#661 at 9) -- ABS failed to alert the court as to any specific, unique instructions that
needed to be included in the multiple draft instructions circulated by the court during
any one of the several discussions about jury instructions that the parties had with the
court both before and during trial that were required to differentiate its liability for unfair
competition under Wisconsin law as opposed to federal law.
Federal Rule of Civil Procedure 51 requires that “a party who objects to an
instruction or the failure to give an instruction must do so on the record, stating
distinctly the manner objected to and the grounds for the objection.” Fed. R. Civ. P.
51(c)(1). “Rule 51 requires that objections to jury instructions be made in a timely
fashion, on the record and with sufficient specificity to allow the presiding judge the opportunity
to correct potential mistakes.” Consumer Prods. Research & Design, Inc. v. Jensen, 572 F.3d 436,
18
439 (7th Cir. 2009) (emphasis added); see also Schobert v. Ill. Dep’t of Transp., 304 F.2d
725, 729-30 (7th Cir. 2002) (“The [Rule 51] objection must be specific enough that the
nature of the error is brought into focus.”). Under Seventh Circuit law, merely proposing
an instruction that the court does not include is not enough to preserve an objection to
that exclusion. See Jensen, 572 F.3d at 439 (collecting cases).
ABS’s failure to raise a particular objection to an unfair competition instruction
not being included in the court’s draft instructions, despite multiple opportunities, is
particularly egregious given its further failure to correct the court’s observation at
summary judgment that “[t]he parties agree that ABS’s unfair competition claim under
the common law of Wisconsin rises or falls with its Sherman Act claim.” (See 7/21/16
Op. & Order (dkt. #572) at 28 n.8.) Regardless, ABS’s initial proffer of a separate,
largely generic instruction does not comport with the expectations under Rule 51, nor
with the purpose of raising specific objections to jury instructions expressed by the
Seventh Circuit. 5 See Petkus v. Richland Cty., Wis., 767 F.3d 647, 654 (7th Cir. 2014)
(“Although it submitted its own instructions, which the judge declined to give, it failed to
object to the instructions that the judge did give. That was another forfeiture.”); Chestnut
v. Hall, 284 F.3d 816, 819-20 (7th Cir. 2002) (holding that a party could did not satisfy
the specificity requirement of Rule 51 by objecting to a “similar” proposed instruction
because “[t]o hold so would be no different than allowing the appellant to rely on a
ABS’s proposed instruction merely explained, “[i]f you do not find in ABS’s favor on its
antitrust claim, you must consider whether ABS has shown . . . that ST engaged in an act or
practice that has substantially interfered with ABS’s ability to compete against ST on the merits,”
and provided a single example of a circumstance in which the only manufacturer of a given drug
blocks its competitors by tying up manufacturing of a critical ingredient. (Proposed Jury Instrs.
(dkt. #492) at 20-21.)
5
19
general objection, which is insufficient under Rule 51”). ABS’s failure to raise a specific
objection is even more egregious given its position that it is somehow entitled to damages
under the state law claim even though the jury found that it did not suffer antitrust
injury under the Sherman Act.
The court similarly rejects ABS’s argument that a finding of waiver would be
unfair because of the court’s statement on the evening of the sixth day of trial that it had
“considered each of the briefs and the changes proposed by the parties as objections to
my proposals” and observation that “to the extent the final version of the closing
instructions is inconsistent with the submissions by the parties, I think you’ve preserved
your record and your objection to the other language, including your comments now.”
(8/8/16 Trial Tr. (dkt. #720) at 156:19-157:2.)
Both the court’s statement and
observation immediately followed a discussion about the antitrust liability instructions,
which both parties contested vigorously, but not about the need for a wholly separate
instruction for ABS’s state unfair competition claim, much less some wholly
unarticulated difference in the scope of recoverable damages between that claim and its
Sherman Act claim.
Nor is ABS’s citation to Dawson v. N.Y. Life Insurance Co., 135 F.3d 1158 (7th Cir.
1998), persuasive for the proposition that “if the district court judge assured the parties
that the record adequately contains their objections, the parties should not be penalized
for relying on such assurances.” Id. at 1165. In Dawson, the Seventh Circuit gave several
reasons for finding that the defendant preserved its objection to the jury instructions,
none of which are present here:
20
First of all, New York Life did more than propose an
instruction and then remain silent when the court rejected its
proposal. New York Life submitted a memorandum relating
its position on the court’s own instructions and proposing
modifications to the court’s instructions that, if adopted,
would have brought the instructions back into line with what
New York Life wanted in the first place. Second, at some
point further objection became useless. The effect New York
Life desired from its many objections was the crafting of an
instruction that the court had already rejected. Further
objection would have been unavailing.
Id. at 1166 (internal quotation marks and citations omitted).
In contrast to the
defendant in Dawson, ABS never raised a specific objection to the omission of its
proposed unfair competition instruction after the court circulated draft instructions,
despite multiple invitations for both written and oral objections from the court.
The court does not find waiver here casually or with indifference to any possible
unfairness. To the contrary, the court finds the application of the requirements of Rule
51 to be wholly appropriate and fair because ABS never explained what subtle nuances
existed in state and federal law that required separate treatment, much less offered
adequate, supplemental instructions distinguishing “antitrust injury” under the Sherman
Act and “injury” or “harm” under state law for either the liability or damages phases of
trial.
Even if the court were to consider the merits of ABS’s argument that it is entitled
to a new trial on damages because its state unfair competition claim applies a different,
more lenient standard of proof than Section 2 of the Sherman Act, ABS faces another
insurmountable hurdle. Under Federal Rule of Civil Procedure 51(d)(2), a party can
obtain relief for an erroneous omission of a jury instruction only if that error affected its
21
substantial rights and it can “articulate how [it] was affected by the refused jury
instruction.” Jensen, 572 F.3d at 439-40. Here, ABS argues that a new trial based on its
unfair competition claim is necessary because an “antitrust injury is not an element of
unfair competition,” which somehow entitles ABS “to a new trial limited to the question
of whether ABS suffered harm as a result of ST’s unfair competition, since the jury’s
monopolization verdict already conclusively establishes that ST engaged in unfair
competition.” (Pl.’s Reply Br. (dkt. #754) at 36 (emphasis in original).) This argument
is nonsensical, since it is premised on a finding of liability for exactly the same conduct
the jury found violated the Sherman Act, yet argues the same jury that found no “injury,”
would nevertheless find “harm.”
Even if the court were willing to entertain that decidedly remote possibility, ABS
again offered no proposed instruction at trial, and still offers no explanation now, that
articulates this supposedly unique standard for determining harm under Wisconsin
common law of unfair competition. Hence, ABS meets the same dead end. See Lewis v.
City of Chi. Police Dep’t, 590 F.3d 427, 438-39 (7th Cir. 2009) (“Even if a party is
entitled to an instruction, it is required to tender an instruction that correctly stated the
law in order to challenge the district court’s refusal to use it.”) (internal quotation marks
and citations omitted).
For all these reasons, while ABS is entitled to judgment as a matter of law on its
unfair competition claim given the jury’s findings as to its Sherman Act claim, it is not
entitled to a new trial on damages.
22
II.
Patent Claims
Both parties also challenge the jury’s findings as to ST’s counterclaims for
infringement of two of its patents. With respect to U.S. Patent No. 8,198,092 (the
“‘092 patent”), the jury found that ABS infringed all but one of the eight asserted claims
(claim 13), but found that two of those infringed claims (1 and 13) were invalid.
(Special Liability Verdict #2 (dkt. #697); Special Liability Verdict #4 (dkt. #699).)
ABS also conceded that its sexed bovine semen sorting technology infringed the three
asserted claims of the other patent, U.S. Patent No. 8,206,987 (the “‘987 patent”), but
the jury found one of those claims (claim 2) was invalid. (Special Liability Verdict #2
(dkt. #697).)
A.
Infringement of the ‘092 Patent
ST asserted infringement of independent claims 1 and 40 of the ‘092 patent at
trial, as well as dependent claims 4, 13, 41, 42, 44 and 46. Among other things, claims 1
and 40 require the step of “detecting waveform pulses,” which the court earlier construed
to mean “applying logic to distinguish waveform pulses that represent live cells from
waveforms that represent noise, debris, or dead cells.”
(7/22/16 Op. & Order (dkt.
#572) at 71-72.) Notwithstanding the jury’s verdict, ABS argues that it is entitled to
judgment as a matter of law on all of the asserted claims of infringement of the ‘092
Patent because ST presented no evidence at trial that its GSS technology performed the
step of “detecting waveform pulses.”
In response, ST effectively concedes that it needed to show that the GSS system
actually performed the step of detecting waveform pulses to establish infringement -23
rather than to show merely that it was capable of detecting waveform pulses -- since all of
the asserted claims of the ‘092 patent are either method claims or apparatus claims. (See
Pl.’s Opening Br. (dkt. #739) at 20.)
Therefore, the parties primarily focus their
attention on the evidence at trial regarding the “minimum span,” or “min span,” feature
of the GSS system.
At trial, ST’s expert, Dr. John Nolan, testified that the GSS system used the min
span feature to avoid processing waveforms that are not likely to be live cells.
As
support, Nolan referenced Trial Exhibit 1174, an ABS document, which includes a
diagram of a sample waveform rejected by the GSS system’s min span function, as well as
a “snippet of code” describing the min span feature. (8/8/16 Trial Tr. (dkt. #717) at
39:7-42:8.) ST also points to testimony at trial from ABS’s expert, Dr. J. Paul Robinson,
that the min span feature can detect and exclude “events,” including “electronic spikes,”
or “electronic noise” (8/8/16 Trial Tr. (dkt. #720) at 126:18-127:1, 128:9-12), as well as
testimony from ABS’s engineer, Adam Schilffarth, that if an event “fails the minimum
span test, it’s rejected” (id. at 32:6-10).
ABS first argues that this evidence fails to support a finding that its sorting
process actually detected waveform pulses using the min span feature. Specifically, ABS
asserts that the values in the diagram in Exhibit 1174, including the min span value, were
exaggerated and that ABS had never actually “built a GSS system that’s on the scale
shown in [Exhibit] 1174.” (Id. at 10:18-24, 11:35.) The court agrees with ABS that
Trial Exhibit 1174 alone would be insufficient to establish infringement, since it merely
illustrated an example of how the min span function was designed to work.
24
ABS also points to Schilffarth’s trial testimony that as the GSS technology
developed, ABS recognized that it need not even use the min span feature. Instead, it
was set to 0.1 microseconds, which “has no significant difference from zero.” (Id. at
13:8-14:3.) Schilffarth further testified that the GSS system uses a 400 kilohertz low
pass analog filter to block “higher speed, shorter things,” like “noise,” from being
converted to a digital signal and analyzed by the system’s processor, but claimed the
system does not apply “logic” in doing so. (Id. at 15:15-17:10.) As a result, Schilffarth
testified on direct examination that the min span setting was set so low that it would not
filter out any noise that had not already been rejected by the analog filter, and as he
clarified on redirect, to the extent that min span was “used” in the GSS system, it was
“not a meaningful feature.” (Id. at 41:24-42:4.) Finally, Schilffarth testified that the
GSS system determines whether to fire its kill laser based on whether an event is inside
of a “gate” drawn by the operator of the machine, regardless whether events outside the
gate represent live or dead cells. (Id. at 7:5-15.)
Based on this testimony, ABS argues, the GSS system does not practice the step of
detecting waveform pulses, or “applying logic to distinguish waveform pulses that
represent live cells from waveforms that represent noise, debris, or dead cells.” Put more
succinctly, ABS argues that since the parties agree “logic” can only be applied digitally,
the GSS system’s analog filter that blocks noise from being processed as a digital signal
cannot perform logic, and since the kill laser fires at everything outside of a drawn gate, it
also applies no logic to distinguish live cells from noise, debris, or dead cells.
25
In response, ST points out that “the jury was free to disregard or disbelieve Mr.
Schilffarth’s testimony” that the GSS system’s analog filter rejects noise, debris and dead
cells without using logic. (Def.’s Opp’n Br. (dkt. #752) at 29.) More specifically, ST
attempts to draw a contrast between Schilffarth’s response to a question from the court,
indicating that the GSS technology does not use the min span feature “at all,” and a
description of the min span function in another one of ABS’s documents, Trial Exhibit
518. That document was created by ABS’s instrumentation development manager, Dr.
Dave Appleyard, and states that its purpose is to “detail[] the computational steps
involved in event detection, processing and laser triggering that are used in the GSS
instrumentation.” (Trial Ex. 518 at 4.) The min span function is described in that
document as “[t]he minimum span value that an event must exceed to be processed
further. Used as a way to remove extremely short events (noise or particulates in the
stream) from further processing.” (Id. at 7.)
Even if the jury disbelieved Schilffarth’s testimony about the GSS system’s usage
of the min span feature, ABS argues it would still be entitled to judgment of
noninfringement as a matter of law because ST failed to present any other evidence that
its technology actually performs the step of detecting waveform pulses. Specifically, ABS
rejects ST’s infringement theory that the min span feature rejects noise in the form of
“electronic spikes,” arguing that ST presented no evidence of, nor is ABS aware of any,
waveforms with “a high enough amplitude to cross the threshold, but a short enough
duration to fall below the ‘min span’ limit of 0.1 microseconds.” 6 (Pl.’s Opening Br. (dkt.
6
ABS also notes that while Exhibit 518 identifies the analog filter and the min span function as
26
#739) at 24.) On cross, ABS expert Robinson acknowledged that the min span function
“could” reject electronic spikes, but agreed with Schilffarth that they were “not going to
be seen” by the digital processor because “the 400 kilohertz filter will cut [them] out, so
[they] won’t get there.” (8/8/16 Trial Tr. (dkt. #720) at 126:14; 127:6-10.)
Still, ST points to one last portion of Robinson’s testimony.
As ST’s counsel
emphasized during its closing argument, Robinson acknowledged that it was “possible”
noise could be introduced between the conversion of the analog signals to digital ones,
including by the unit responsible for that conversion itself. (8/8/16 Trial Tr. (dkt. #720)
at 127:11-16; 8/10/16 Trial Tr. (dkt. #722) at 16:8-17:6.) For its part, ABS argues that
Robinson’s concession as to that possibility is merely hypothetical, lacking evidence to
support the jury’s verdict, just as Schilffarth acknowledged on cross examination that the
min span feature would reject an event “if for some reason the analog filter didn’t work.”
(8/8/16 Trial Tr. (dkt. #720) 32:23-33:3.)
While this evidence of infringement of the ‘092 patent at trial was far from
overwhelming, the court is persuaded that the description of the min span function in
Trial Exhibit 518, as well as Robinson’s and Schilffarth’s testimony that min span would
reject noise from further processing in the event that a waveform pulse was not rejected
by the threshold analog filter, was sufficient to support a reasonable jury’s finding of
features, it also states that min span is set at 0.01 microseconds, which is the same level to which
Schilffarth testified before min span was changed to 0.1 microseconds. (Pl.’s Reply Br. (dkt.
#754) at 18-19.)
27
infringement, particularly given Robinson’s admission that the processor that converts
analog to digital signals could itself introduce noise. 7
ABS’s final argument as to infringement of the ‘092 patent is that ST’s electronic
spike theory misapplies the meaning of “detecting waveform pulses” as construed by the
court. According to ABS, it is not enough for ST to show that the GSS digital processing
system “did something to distinguish at least some kinds of noise from live cells,” but
rather distinguished “between live cells on one hand, and debris or dead cells on the
other hand.” (Pl.’s Opening Br. (dkt. #739) at 26.) ABS appears to argue that the
court’s claim construction required that the “noise” be filtered out using logic to
eliminate anything that might contaminate the sorted semen or create inefficiency and
waste in processing (see id.) rather than “[s]imply distinguishing noise from live cells.”
(Pl.’s Reply Br. (dkt. #754) at 19.)
ST asserts, and the court agrees, that ABS’s attempts at further refinements really
amount to additional, late claim construction to argue that an infringing system must
The parties fault each other for the limited evidence as to how much “noise,” if any, is filtered
by the digital processor.
ST faults ABS for introducing its analog filter theory of
non-infringement for the first time at trial (Def.’s Opp’n Br. (dkt. #752) at 29 n.6), while ABS
claims that it introduced evidence about how the analog filter operates only after ST first
presented its electronic spike infringement theory at Robinson’s deposition, which was held on
this subject on the weekend after the trial itself had already begun (Pl.’s Reply Br. (dkt. #756) at
18 n.4). The court permitted ST to take this late deposition because ABS was given leave to
reassert its non-infringement defense with respect to claims 40-46 of the ‘092 patent after the
court entered summary judgment of infringement based on ABS’s earlier concession of
infringement. In turn, this change in ABS’s position was prompted by ST’s late-proposed
construction of “detecting waveform pulses,” which itself was triggered by ABS’s late assertion of
a newly-identified prior art reference. (See 7/29/16 Op. & Order (dkt. #622).) As the court
remarked in the opinion and order permitting ST to take the deposition, rather than parcel out
fault at the time, counsel for both parties recognized that “patent litigation frequently involves
managing moving targets and contingent positions.” (Id. at 3-4.) The court is no more inclined
to allocate fault now for the parties’ late-developing arguments.
7
28
actually distinguish live cells from: (1) noise, debris and dead cells, rather than noise
only; or (2) all, rather than only some, types of noise. (Def.’s Opp’n Br. (dkt. #752) at
32.) In reply, ABS attempts to characterize this claim construction argument as instead a
“postverdict elaboration” that “only clarified what was inherent in the construction,”
making “plain what . . . should have been obvious to the jury.” (Pl.’s Reply Br. (dkt.
#756) at 19 (quoting Cordis Corp. v. Boston Sci. Corp., 658 F.3d 1347, 1356 (Fed. Cir.
2011)).) To the contrary, the court explained in construing “detecting waveform pulses”
that claims 1 and 40 of the ‘092 patent and its specification describe “‘pulse detection’ as
a process by which the system identifies particles likely to be sorted, suggesting that the
step of detecting waveform pulses uses logic to identify live cells from other waveforms.”
(7/21/16 Op. & Order (dkt. #572) at 68-69.) No further specificity regarding the court’s
claim construction was necessary, much less inherent in that construction. Accordingly, a
system infringed even if it only filtered out some noise in the detecting waveform pulses
step consistent with the ordinary meaning of the court’s claim construction. See Cordis
Corp., 658 F.3d at 1355-56 (“[B]ecause [the defendant] did not object to the court’s jury
instruction regarding the construction of the term, . . . the verdict must be tested by the
charge actually given under the ordinary meaning of the language of the jury
instruction.”) (internal quotation marks, citation and brackets omitted); see also
SkinMedica, Inc. v. Histogen Inc., 727 F.3d 1187, 1199 (Fed. Cir. 2013). For all these
reasons, the court will not disrupt the jury’s verdict as to infringement of the ‘092 patent.
29
B.
Validity of claims 1 and 13 of the ‘092 patent
In finding that claims 1 and 13 of the ‘092 patent were invalid, the jury was
obviously persuaded by ABS’s only invalidity argument -- those claims are anticipated by
the FACS DiVa system (“DiVa”). ABS argues that the verdict was amply supported by
“testimony from both sides’ experts establishing that the digital electronics in the DiVa
system distinguished between live cells and a certain type of noise -- e.g., noise that is
substantially shorter in duration than 0.1 microseconds -- in the same way the GSS
system did.” (Pl.’s Opp’n Br. (dkt. #751) at 23.) ST, on the other hand, argues that
ABS did not establish at trial that the DiVa detects waveform pulses in light of the
court’s claim construction. 8
Instead of applying logic to distinguish waveform pulses, ST contends, the
evidence showed that the DiVa “analyzes and classifies every signal that crosses its preset
threshold.” (Def.’s Opening Br. (dkt. #742) at 25 (emphasis in original).) As support,
ST points to testimony from Nolan, who opined that “a threshold isn’t logic,” as well as
ST also contends that ABS’s argument presents a “practicing the prior art” theory, which fails as
a matter of law. Contrary to ST’s assertion, ABS’s contention that claim 13 of the ‘092 patent is
invalid because the DiVa system does not process signals shorter than 0.1 microseconds in a
similar way that the min span function of the GSS system rejects signals of the same length is not
a classic “practicing the prior art” defense, but rather a clumsy argument for interpreting the
distinguishing “noise” element of the “detecting waveform pulses” step consistently in both the
infringement and invalidity contexts. See Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d
1343, 1351 (“Because the claims of a patent measure the invention at issue, the claims must be
interpreted and given the same meaning for purposes of both validity and infringement
analyses.”). The basic reasoning that nullifies “practicing the prior art” arguments is nevertheless
pertinent here. By focusing so heavily on ST’s infringement arguments regarding the GSS system
in its invalidity case, ABS failed to meet its higher burden of proving invalidity by clear and
convincing evidence. See Zenith Elecs. Corp. v. PDI Commc’n Sys., Inc., 522 F.3d 1348, 1363 (Fed.
Cir. 2008).
8
30
Robinson’s testimony agreeing that the DiVa processes every signal that crosses the
threshold, “including live cells, noise, debris and dead cells.” (Id. at 25-27.)
In response, ABS cites Nolan’s acknowledgment on cross-examination that a signal
that was “much shorter” than 0.1 microseconds might not be detected as an event by the
DiVa’s electronics. (8/9/16 Trial Tr. (dkt. #721) at 106:22-107:4.) But, as ST points
out in reply, Nolan made clear in his testimony that the contingency regarding whether
that short signal would be detected is dependent only on the DiVa’s 0.1-microsecond
sampling rate (meaning one sample taken every 0.1 microseconds); because “if any signal
passed the threshold during that .1 microsecond, it would cross the threshold and be
recorded as an event.” (Id. at 15-21.) In other words, ST argues because the DiVa did
not apply “logic” to distinguish waveform pulses at the step in which it analyzed every
signal that crossed its pre-set threshold, then ABS was required to show that its rejection
of signals shorter than 0.1 microseconds limitation was an application of “logic,” which
ABS failed to do.
The court agrees with ST that without any showing that the DiVa’s sampling rate
was a function of “logic,” ABS did not present clear and convincing evidence that claims
1 and 13 of the ‘092 patent are invalid. ABS effectively concedes that its own expert did
not opine that claims 1 and 13 of the ‘092 Patent are invalid because the prior art DiVa
disclosed the “detecting waveform pulses” limitation. Thus, to establish that the DiVa
did disclose that limitation, ABS is forced to rely on ST’s expert, who disavowed that very
assertion. This is a strained, convoluted argument at best, which fails to meet the clear
31
and convincing evidence standard of proof, even if it convinced the jury. Therefore, the
court grants ST’s motion. 9
C.
Infringement of claim 13 of the ‘092 patent
ST also moves for judgment as a matter of law that ABS infringed claim 13 of the
‘092 patent on the basis that the jury necessarily rejected ABS’s noninfringement
argument by finding infringement on claim 1, since the evidence that it performed the
additional limitations in claim 13 was unrebutted. Indeed, ABS acknowledges that “both
sides’ experts testified that the only disputed elements in claim 13 were those in
underlying independent claim 1.” (Pl.’s Opp’n Br. (dkt. #751) at 27.) Nevertheless,
ABS argues that ST’s Rule 50(b) motion fails because it made no Rule 50(a) motion
regarding infringement of claim 13 of the ‘092 patent in its written motion regarding its
patent claims (dkt. #670), nor orally at the close of ABS’s noninfringement and
invalidity rebuttal case, even though the court invited ST to describe those grounds in
taking notice of any motions that would be filed. (8/9/16 Trial Tr. (dkt. #721) at 66:713.)
For its part, ST acknowledges making no Rule 50(a) motion on its infringement
claims, but asserts that it did not do so because the court stated after ST rested its
rebuttal case on the patent claims, that “both sides’ motions are preserved” in direct
response to ABS’s counsel advising before the jury was charged that it would be filing
Rule 50(a) motions. (Id. at 133:21-22.) Based on this statement, ST claims to have
Obviously, therefore, ABS’s argument that a new trial is required to resolve any inconsistencies
in the jury’s invalidity findings as to claims 1, 13 and 40 of the ‘092 Patent is rendered moot.
9
32
“reasonably understood the Court to be preserving patent-related Rule 50(a) motions,
and, therefore, did not make a motion on its infringement claims.” (Def.’s Reply Br.
(dkt. #756) at 36.) But, that claimed understanding does not comport with ST’s written
submission just one day after this exchange that set forth the specific grounds for its Rule
50(a) motions on invalidity, which the court allowed the parties to file to detail their oral
“placeholder” motions to avoid delaying the jury trial. Therefore, ST should have raised
any grounds for judgment as a matter of law on infringement of claim 13 of the ‘092
patent in that written submission. See Wallace v. McGlothan, 606 F.3d 410, 418 (7th Cir.
2010) (“Because the Rule 50(b) motion is only a renewal of the preverdict motion, it can
be granted only on grounds advanced in the preverdict motion.”) (quoting Fed. R. Civ. P.
50(b) committee note (2006 amend.)).
That said, the Seventh Circuit has recognized an exception to a party’s waiver of a
challenge to the sufficiency of the evidence supporting a jury’s verdict “when the failure
to review a sufficiency-of-the-evidence argument would result in ‘manifest injustice.’”
SEC v. Yang, 795 F.3d 674, 680 (7th Cir. 2015). 10 Moreover, the Seventh Circuit has
instructed district courts to interpret jury verdicts “so as to avoid inconsistency whenever
possible.” Freeman v. Chi. Park Dist., 189 F.3d 613, 615 (7th Cir. 1999). Here, the court
can avoid any inconsistency between the jury’s verdicts that ST infringed claim 1 of the
‘092 patent (as well as claims 40, 41, 42, 44 and 46, for which the jury was instructed
“The Federal Circuit reviews procedural matters that are not unique to patent issues under the
law of the particular regional circuit court where appeals from the district court would normally
lie.” DMI, Inc. v. Deere & Co., 802 F.2d 421, 428 (Fed. Cir. 1986); see also Callaway Golf Co. v.
Acushnet Co., 576 F.3d 1331, 1343 (Fed. Cir. 2009) (“We review inconsistent verdicts, an issue
not unique to patent law, under regional circuit law.”).
10
33
that “the sole issue in dispute as to infringement is whether ABS practices the step of
‘detecting waveform pulses’” (Closing Liability Instrs. (dkt. #692) at 20)) and its verdict
that ABS did not infringe claim 13, by interpreting the jury’s non-infringement verdict
on a finding that the GSS system did not perform the additional limitations in claim 13.
As ST points out, however, ABS presented no evidence to rebut the trial testimony
of Robinson, Schilffarth and Nolan that the digital signal processor of the GSS system
extracts features from waveform pulses “correspond[ing] to one or more of the following
features: pulse area, pulse peak, pulse inner area, pulse width, pulse gaussianity, pulse
lagging peak or pulse slope.” (Def.’s Opening Br. (dkt. #742) at 30-31 (quoting Trial Ex.
1626 (‘092 Patent) at 246).) Indeed, ABS admits that “[t]here was no dispute at trial
that if the limitations of claim 1 were met by the GSS system, the additional limitations
of claim 13 (and claim 11 on which it depends) were met.” (Pl.’s Opening Br. (dkt.
#739) at 29.)
Accordingly, there was no evidence at trial to support the jury’s verdict that ABS
did not infringe claim 13 of the ‘092 patent because ABS did not rebut any of ST’s
evidence that the GSS system performed the limitations that claim 13 adds to claim 1,
and so the court will grant ST’s motion for judgment as a matter of law that ABS
infringed claim 13, despite its failure to move timely under Rule 50(a). 11
ST did not seek a new damages trial for infringement of claim 13 of the ‘092 patent, moving
only for the court to “enter judgment as a matter of law of infringement in ST’s favor.” (Def.’s
Opening Br. (dkt. #742) at 31.)
11
34
D.
Validity of claims 1, 2 and 7 of the ‘987 patent
Next, ABS moves for judgment as a matter of law that claims 1, 2 and 7 of the
‘987 patent are invalid on the grounds of either obviousness or lack of enablement.
Claim 1 is an independent claim disclosing a “method of sorting a mixture of stained
sperm cells,” one of the steps of which is photodamaging sperm cells that were selected
based on their classification. (Trial Ex. 7.) The other two claims depend on claim 1.
Claim 2 adds the limitation that the step of selecting sperm cells to be photodamaged
applies a “sort strategy,” while claim 7 adds the limitation that sorting is based on the
presence or absence of X-chromosomes. (Id.) The jury found that ABS had not proven
that claims 1 and 7 were invalid, but had established that claim 2 was invalid.
1. Obviousness
The parties dispute what the jury’s verdict as to the claims of the ‘987 patent
means and, relatedly, in which party’s favor the court must construe the disputed facts in
resolving ABS’s motion. As an initial matter, ABS further contends that the court need
not reach that question because clams 1, 2 and 7 are invalid as a matter of law on the
undisputed facts at trial.
“Obviousness is a question of law based on underlying findings of fact,” Wyers v.
Master Lock Co., 616 F.3d 1231, 1237 (Fed. Cir. 2010), although the “ultimate judgment
of obviousness is a legal determination,” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 427
(2007). Judgment as a matter of law is appropriate when “the content of the prior art,
the scope of the patent claim, and the level of ordinary skill in the art are not in material
dispute, and the obviousness of the claim is apparent in light of these factors.”
35
Id.
Moreover, conflicting expert testimony regarding the factors relevant to obviousness does
not necessarily create a dispute of material fact. See Wyers, 616 F.3d at 1239. Given
KSR’s instruction for courts to take an “expansive and flexible approach” to obviousness,
including recourse to logic, judgment and common sense, in lieu of expert testimony,”
courts can resolve “the question of motivation to combine . . . on summary judgment or
JMOL in appropriate circumstances.” Id. at 1238-39 (quoting KSR, 550 U.S. at 415).
ABS identifies several facts concerning obviousness that the parties did not
dispute at trial: (1) there were three, relevant prior art references -- “Johnson 1999,” “Keij
1994” and the Shapiro patent; (2) a combination of Johnson and Keij or Johnson and
Shapiro would include every limitation in the three claims; (3) the general definition of
the level of ordinary skill in the art; and (4) five secondary considerations of obviousness.
(Pl.’s Opening Br. (dkt. #739) at 7.) ABS also asserts there was no dispute at trial that:
(1) photodamage sorting systems were one of only three conventional sorting approaches
known to those with skill in the art; (2) “combining Johnson with Keij or Shapiro would
have been a routine matter, and that there would have been a reasonable expectation of
success”; and (3) “there was undisputed evidence of a motivation to use photodamage
sorting in place of droplet sorting.” (Id. at 8.) More specifically, ABS argues that the
evidence showed combining Johnson with one of the other two references would have
been routine because Keij explained that most commercially available, “dual-beam flow
sorters,” including the “MoFlo cytometer,” could be converted to a photodamage sorter
with only “minor modifications.” (Id.) ABS further asserts that the evidence showed a
reasonable expectation of success at the time of invention because Johnson established
36
that the MoFlo cytometer could sort viable sperm cells at high speeds.
(Id.)
With
respect to a motivation to combine the references to use photodamage sorting, instead of
droplet sorting, ABS points to evidence in the prior art references identifying
photodamaging as a method to sort large numbers of cells at high speeds, both factors
known to be critical in improving on the sorting of sperm cells. (Id. at 9.)
On the other hand, ST rightly points to other evidence presented at trial that: (1)
a person having ordinary skill in the art would not have been motivated to combine the
prior art; and (2) a person having ordinary skill would not have expected success in
combining them.
In particular, ST cites: (1) ABS expert Robinson’s testimony that
droplet sorters were commercially viable at the time the technology underlying the ‘987
patent was invented, but that photodamage sorters were not; (2) Robinson’s testimony
that the Keij reference does not “specifically suggest” photodamaging sperm cells; and (3)
Robinson’s acknowledgement that the Shapiro reference does not mention sperm cells.
(Def.’s Opp’n Br. (dkt. #752) at 11-12.)
With respect to a reasonable expectation of success, ST also identifies the
evidence presented at trial that sperm cells were less likely to withstand two of the
problems causing damage to the hardier types of cells described in the Keij reference -ultraviolet (UV) light leakage and limitations on how quickly the photodamaging laser
could be turned on or off; both of particular concern given the large size and unique
shape of sperm cells and the possibility of damaging their tails or their DNA, thus
rendering them undesirable for artificial insemination because they cannot regenerate
themselves. (Id. at 12-15.) Finally, ST’s expert credibly testified that the Keij reference
37
“teaches away” from sorting sperm cells because it emphasized that his method was
appropriate for “small and sturdy” cells and also identified similar limitations due to UV
light leakage and laser speed. (Id. at 15-17.)
In light of this conflicting contemporary evidence as to the possible benefits of
photodamage sorting of bull semen, the court disagrees with ABS that the obviousness of
the ‘987 patent is established by undisputed facts “that photodamage sorters were a
known way to improve cell sorters to sort at higher speeds, that a MoFlo sperm sorter as
taught in Johnson 1999 could have been converted to a photodamage sorter, and that the
required modifications would have been ‘minor.’” (Pl.’s Opening Br. (dkt. #739) at 11.)
Nor does the court agree with ABS that the combination of the Johnson and Keij
references was obvious simply because the combination puts together old elements
performing the same functions for the same benefits.
See KSR, 550 U.S. at 417
(“[W]hen a patent simply arranges old elements with each performing the same function
it had been known to perform and yields no more than one would expect from such an
arrangement, the combination is obvious.”) (internal quotation marks and citation
omitted). On the contrary, the benefits of combining the prior art references were not
clearly ascertainable, again due to the unique properties of sperm cells and the limitations
of photodamage sorting at the time the ‘987 patent was filed. 12
Even though Nolan admitted that the specifications of the ‘987 patent do not address which
kill laser to use, how to avoid light leaking or how to turn the laser on or off, the failure of the
‘987 patent to address those issues alone does not render its claims obvious. As explained below,
while the ‘987 patent’s discussion of photodamage sorting is admittedly somewhat superficial,
this is not a situation where the patent fails completely to explain how to implement the claimed
invention, which would give rise to an enablement problem. See Muniauction, Inc. v. Thomson
Corp., 532 F.3d 1318, 1327 n.3 (Fed. Cir. 2008) (noting that a party’s argument that a person of
12
38
Construing the evidence regarding obviousness of the ‘987 patent presented at
trial in favor of ST, a reasonable jury certainly had a legally sufficient evidentiary basis to
find in ST’s favor on obviousness. Although ABS presented evidence including that the
MoFlo cytometers sorted sperm cells at high speeds and could have been converted to
photodamage sorters with only “minor” modifications, the jury was not required to find
that a person of ordinary skill in the art would have been motivated to combine existing
cytometers that sorted sperm with the photodamaging technique or would have had a
reasonable expectation of success, given the contrasting evidence that ST presented. In
particular, ST emphasized at trial that the Keij reference described the photodamaging
technique as appropriate for “small and sturdy” cells with properties unlike sperm cells,
which would have presented difficulties in using a laser to sort sperm cells, even if that
statement did not rise to the level of “teaching away.” See Apple, 839 F.3d at 1051 n.15
(noting that “even if [a prior art reference] does not teach away, its statements regarding
users preferring other forms of switches are relevant to a finding regarding whether a
skilled artisan would be motivated to combine”). 13
Nor would a reasonable jury be required to find that the Keij reference’s
suggestion that sorting sperm cells using the photodamaging technique was an
“interesting possibility” (8/8/16 Trial Tr. (dkt. #720) at 59:4-14) led only to an
ordinary skill would not have been able to incorporate a web browser into existing electronic prior
art systems “might suggest that the claims present an enablement issue, rather than support a
conclusion of nonobviousness” because the patent was “itself silent regarding how to actually
implement the methods claimed therein with a web browser”).
The court will grant ST’s unopposed motion for leave to file supplemental authority (dkt.
#758).
13
39
obviousness verdict, since that statement falls short of presenting an “identified,
predictable solution[].”
KSR, 550 U.S. 421; see also PharmaStem Therapeutics, Inc. v.
ViaCell, Inc., 491 F.3d 1342, 1364 (Fed. Cir. 2007) (“[A]n invention would not be
deemed obvious if all that was suggested was to explore a new technology or general
approach that seemed to be a promising field of experimentation, where the prior art gave
only general guidance as to the particular form of the claimed invention or how to
achieve it.”) (internal quotation marks and citation omitted). Thus, there was adequate
evidence to support the jury’s findings that the asserted claims of the ‘987 patent were
not invalid as obvious.
2. Enablement
a.
Claim 2
Since ABS cannot establish that the asserted claims of the ‘987 patent are invalid
on obviousness grounds based on undisputed facts, the court turns to the parties’ dispute
regarding the deference that should be given to the implied factual findings of the jury
based on its verdicts.
In particular, ABS argues that the jury’s invalidity verdict is
inconsistent, and so the court is not bound to construe the facts in the light most
favorable to either party. In contrast, ST argues that the jury’s findings that claims 1 and
7 are valid, but claim 2 is invalid, are not inconsistent. Rather, the jury could have found
that claim 2 was invalid on written description or enablement grounds.
Since the jury’s invalidity verdict as to the ‘987 patent is not inconsistent for
reasons set forth below, the court ultimately will construe the trial evidence in favor of
the prevailing party in reviewing ABS’s Rule 50(b) motion, and determine whether a
40
reasonable jury would have “a legally sufficient evidentiary basis” to find in that party’s
favor. See Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 831 F.3d 815, 822 (7th
Cir. 2016) (citations omitted); Lawson v. Sun Microsystems, Inc., 791 F.3d 754, 761 (7th
Cir. 2015) (“Judgment as a matter of law is proper if ‘a reasonable jury would not have a
legally sufficient evidentiary basis to find for the party on that issue.’”) (quoting Fed. R.
Civ. P. 50(a)(1)); see also Apple, Inc. v. Samsung Elecs. Co., 839 F.3d 1034, 1040 (Fed. Cir.
2016) (applying the standard of the circuit in which the district court sits in reviewing
order granting or denying motion for judgment as a matter of law).
As already discussed, courts must interpret jury verdicts in a manner that would
render them consistent, if supportable by the evidence at trial. See Fox, 600 F.3d at 844.
ABS first argues that it is necessarily inconsistent for a dependent claim to be invalid if
the broader, independent claim from which it depends is valid. Certainly, as ABS points
out, case law establishes that “[a] broader independent claim cannot be nonobvious
where a dependent claim stemming from that independent claim is invalid for
obviousness.” Callaway Golf Co. v. Acushnet Co., 576 F.3d 1331, 1344 (Fed. Cir. 2009).
ABS argues that the same is true if the jury found claim 2 invalid on enablement
grounds:
since enablement requires “the full scope of the claimed invention [to] be
enabled,” if the full scope of the narrower claim was not enabled, then ABS asserts neither
could the full scope of the broader claim be enabled. (Pl.’s Opening Br. (dkt. #739) at
17-18.) There is, however, no basis in law or logic to support this argument.
In support, ABS cites Sitrick v. Dreamworks, LLC, 516 F.3d 993 (Fed. Cir. 2008), in
which the Federal Circuit held that the patent failed for lack of enablement because the
41
patent claimed, but the specification failed to enable those skilled in the art for, both
movies and video games. See id. at 1000. As such, Sitrick stands for the proposition that
all embodiments of a particular claim must be enabled, not that a nonenabled, dependent
claim renders an enabled independent claim invalid as well. Indeed, unlike obviousness,
one can readily conceive the possibility of a patent’s independent claim being enabled,
without providing to one skilled in the art sufficient guidance to enable one of its
dependent claims. Accordingly, the court is unpersuaded that a patent’s specification is
necessarily invalidated simply because an additional limitation in a dependent claim is not
enabled, even if the broader claim on which it depends is enabled. Cf. TurboCare Div. of
Demag Delaval Turbomachinery Corp. v. Gen. Elec. Co., 264 F.3d 1111, 1120, 1126 (Fed.
Cir. 2001) (affirming the district court’s ruling that a dependent claim was invalid for an
inadequate written description and remanding for the district court to consider the
validity of the claim on which it depended in light of the Federal Circuit’s claim
construction); 3 Donald S. Chisum, Chisum on Patents § 8.06[5][c] at 8-692 (”A
dependent claim may not be patentable, despite the allowability of the independent
claim, because of the absence of support in the specification for the added limitation.”).
ABS next argues that the jury’s validity findings cannot be reconciled with the
evidence presented at trial, because there was no evidence regarding the written
description at trial, nor of the “sort strategy” limitation lacking enablement.
(Pl.’s
Opening Br. (dkt. #739) at 18 n.3; Pl.’s Reply Br. (dkt. #754) at 5.) In response, ST
points to ABS expert Robinson’s acknowledgement that a column of the ‘987 patent
discussing “photodamage sorting having a sort strategy” lacked “any details,” which ST
42
contends was sufficient to support the jury’s invalidity finding as to claim 2. (8/9/16
Trial Tr. (dkt. #721) at 46:3-15.) While conceding that the column to which Robinson
testified provided no details about sort strategies, ABS argues two other columns in the
‘987 patent’s specification provided enough information for claim 2 to survive an
enablement challenge. (Pl.’s Reply Br. (dkt. #754) at 7.) In a similar turn, ABS points
out: (1) that ST expert Nolan acknowledged the ‘987 patent “describes how you would
use the various sort strategies”; (2) the “fulsome” discussion of the sort strategy
limitation in the specification; and (3) there was “no dispute that the prior art, and the
Johnson 1999 reference in particular, disclosed the concept of using a ‘sort strategy.’”
(Id. at 5, 6, 8.)
ABS, however, does not cite to any testimony or other evidence at trial concerning
what a person having ordinary skill in the art would have understood about sorting
strategies, nor what the prior art disclosed about them. Moreover, ABS fails to establish
enablement by remarking generally that “if anything was adequately addressed in the
‘987 patent’s discussion of the photodamaging embodiment, it was the concept of a sort
strategy.” (Id. at 5.)
The jury was instructed that “ABS contends that all of the asserted claims of the
‘987 patent are invalid” for lack of enablement. (Closing Liability Instrs. (dkt. #692) at
25.) Furthermore, ABS insisted in its closing argument that the only portion of the
specification of the ‘987 patent that discusses photodamaging using a laser was “very
sparse,” contained in two columns that, combined, span “about half a page” of the 200page specification. (8/10/16 Trial Tr. (dkt. #722) at 60.) In fairness, ABS’s counsel
43
argued in his closing argument that the specification of the ‘987 patent contemplates that
a practitioner will “decide whether you want to have a high recovery or a high purity,”
but its argument that “the patent doesn’t contain enough information to enable someone
to make and practice the [invention]” constituted a broad attack on the ‘987 patent on
enablement grounds.
(Id. at 61-62.)
Ultimately, in light of the breadth of ABS’s
enablement arguments and the lack of any significant discussion of sorting strategies in
columns 126 and 127 of the ‘987 patent, which ABS identified to the jury as the only
language in the patent concerning photodamage sorting, the jury could reasonably have
found that claim 2, but not claims 1 or 7, was invalid for lack of enablement under its
additional, sorting strategy limitation.
Accordingly, the jury’s validity findings as to
claims 1, 2 and 7 of the ‘987 patent are not inconsistent, and ABS is not entitled to a
new trial on those grounds.
b.
Claims 1 and 7
Similarly, the court rejects ABS’s motion for judgment as a matter of law that
claims 1 and 7 of the ‘987 patent are invalid for lack of enablement. “The enablement
requirement is satisfied when one skilled in the art, after reading the specification, could
practice the invention without undue experimentation.”
(internal quotation marks and citation omitted).
Sitrick, 516 F.3d at 999.
With respect to enablement, ABS
stresses ST expert Nolan’s acknowledgement that: (1) the ‘987 patent does not disclose
“a specific kill laser to use”; and (2) a person of ordinary skill in the art who read the
‘987 patent would have needed to do “experimentation regarding engineering in the
optics,” including “optimizing optical elements such as beam shaping, approaches to
44
controlling the laser, and the direction and intensity of the pulse.” (8/9/16 Trial Tr. (dkt.
#721) at 117:3-7, 123:8-15.)
ABS further cites Nolan’s testimony at trial that the
experimentation to implement the kill laser would be “extensive.” Id. Finally, as already
discussed, ABS again emphasizes that the only substantive discussion of photodamage
sorting in the ‘987 patent is found in columns 126 and 127 and supported by one
diagram.
In contrast, the jury found a person having ordinary skill in the art would have
been able to implement photodamage sorting as disclosed by the ‘987 patent without
undue experimentation, a finding that is also in accordance with Nolan’s trial testimony.
(Id. at 128:20-129:7.) While ABS correctly notes that Nolan’s trial testimony lacked
much detail as to the specific portions of the specification of the ‘987 patent that were
enabling, ABS’s list of the elements of “engineering in the optics” that the ‘987 patent
failed to address only go so far, as ABS offers no case law that the specification of the
‘987 patent needed to address every problem related to photodamage sorting of sperm
cells that Nolan identified as evidence of nonobviousness to be enabling. Though again
far from overwhelming, Nolan’s testimony that a person skilled in the art would be able
to practice the photodamage sorting technology disclosed in the ‘987 patent with
extensive, but not undue experimentation was sufficient to support the jury’s verdict.
Thus, ABS is not entitled to judgment as a matter of law that claims 1 and 7 are invalid
for lack of enablement. For the reasons explained above, therefore, ABS is not entitled to
a new trial on the patent claims.
45
III. Contract Claims
At trial, the jury returned a verdict in favor of ST on its claim that ABS and Genus
materially breached the confidentiality provision in Section 16 of the 2012 Agreement
when ABS’s employee, Kathy Mean, used or disclosed ST’s confidential media protocols.
ABS moves for judgment as a matter of law to the contrary. Both parties also move for
judgment as a matter of law as to the enforceability of the liquidated damages provision
contained in the 2012 Agreement, as well as its covenant not to compete.
A.
Breach
ABS argues that the jury’s finding of a material breach is flawed for three,
independent reasons: (1) the media protocols were not “disclosed” by ST to ABS under a
proper interpretation of the contract; (2); no reasonable jury could have found that ABS’s
breach was material based on the evidence presented at trial; and (3) ST did not prove
any damages resulting from the breach as required under Texas law.
1. Interpretation of “disclosed”
Section 16 of the 2012 Agreement defines “ST’s confidential information” as the
following:
(i) information pertaining to the research, processing or
production of Sorted Semen that is disclosed by ST or its
Affiliates to ABS and is confidential, non-public, proprietary
and/or generally not known to the public, to include but not
limited to: any and all information relating to technology,
methods, techniques, processes, know-how, concepts, secrets
and scientific or technical know-how, whether such
information be tangible, intangible, intellectual or otherwise;
and (ii) any information related to Sorted Semen that is
46
based on or derived from any of the foregoing, whether by
ABS or ST or third parties.
(Trial Ex. 82 at 9.)
The court found both clauses (i) and (ii) of the definition “ST’s confidential
information” in Section 16 to be ambiguous, and thus instructed the jury to “decide their
meaning by determining the intent of the parties at the time of the agreement.” (Closing
Liability Instrs. (dkt. #692) at 29-30.) For example, a key factual question was whether
a former ST employee may bring information with her to ABS without ABS violating the
meaning of Section 16.
Based on its verdict, the jury necessarily found that “ST’s
confidential information” included that information, even though it was not affirmatively
disclosed by ST to ABS. 14 The court agrees with ST that there was enough evidence for
the jury to find that both parties intended information defined in (i) “that is disclosed by
ST or its Affiliates to ABS” to include information obtained by ABS in a manner other
than through a direct disclosure from a current ST employee to an ABS employee.
Specifically, ST presented evidence at trial that its principals expressed their
concern multiple times during the course of negotiating the 2012 Agreement about ABS
using confidential information obtained from former employee Kathy Mean.
(8/2/16
ST argues that the jury could have inferred that “ST protocols were in fact disclosed to ABS
under Section 16 of the Agreement by direct transmission from the ST sorting lab to ABS
personnel, rather than through an earlier ‘taking’ by Kathy Mean,” based on testimony at trial
from an ABS employee that she and other ABS “technical personnel . . . routinely entered ST’s
laboratory, where ST’s confidential protocols were kept, and interacted with ST’s employees.”
(Def.’s Opp’n Br. (dkt. #752) at 46-47 (citing 8/5/16 Trial Tr. (dkt. #719) at 32-35).) Even if
the jury could have reached its verdict based on that evidence, however, the jury would have had
to interpret the definition of ST’s confidential information in Section 16 as encompassing a
similarly broad scope that would cover the Kathy Mean scenario -- in other words, that the
confidentiality provision precluded use and disclosure of ST’s confidential information even if it
was obtained by ABS through means other than an ST employee directly disclosing that
information to an ABS employee.
14
47
Trial Tr. (dkt. #711) at 106:22-107:2; 8/2/16 Trial Tr. (dkt. #715) at 71:2-11.) Among
them was ST’s co-CEO Maurice Rosenstein, who testified credibly at trial that ST
insisted on the inclusion of the non-compete clause in the 2012 Agreement because of its
concerns about Kathy Mean using and sharing confidential information obtained while
working for ST. (8/2/16 Trial Tr. (dkt. #715) at 67:7-15.)
In response, ABS argued to the jury and now again to the court that inclusion of
the phrase “disclosed by ST” in defining “ST’s confidential information” in the parties’
2007 Agreement evinces the parties’ intent to exclude circumstances like those involving
Kathy Mean, since ST had no similar concerns about ABS using its confidential
information when they entered into their earlier contract. (Pl.’s Opening Br. (dkt. #739)
at 31-32 (citing Trial Ex. 117 at ¶ 13).)
As ST pointed out in reply to the court,
however, the parties did add to the definition of “ST’s confidential information” in
Section 16 of the 2012 Agreement clause (ii), which a reasonable jury might find further
evinces an intent to expand the definition to cover the use or disclosure of protected
information by a former employee. Accordingly, there was enough evidence for the jury
to find that the parties intended for Section 16 of the 2012 Agreement to include as
confidential information media protocols Kathy Mean brought to ABS from ST.
2. Materiality
Next, ABS argues that it is entitled to judgment as a matter of law because any
breach was not material. Consistent with the Texas pattern jury instructions, the jury
was instructed to consider the following non-exclusive list of factors in deciding
materiality:
48
•
the extent to which the injured party will be deprived of the benefit which
it reasonably expected;
•
the extent to which the injured party can be adequately compensated for
the part of that benefit of which it will be deprived;
•
the likelihood that the party failing to perform or to offer to perform will
cure its failure, taking into account the circumstances including any
reasonable assurances; and
•
the extent to which the behavior of the party seeking to perform or to offer
to perform comports with standards of good faith and fair dealing.
(Closing Liability Instrs. (dkt. #692) at 30.)
ABS argues that those factors all break in its favor: (1) ST was not “substantially
deprived” of the primary benefit of the contract, having received approximately $14
million per year in payments from ABS for ST’s services; (2) ABS’s use of ST’s 2005
protocols “was not material, especially since ABS has never sold any sexed semen made
with the protocols copied by Kathy Mean”; (3) ABS quickly terminated Mean after
learning that she was using XY’s protocols, and then began developing new ones; and (4)
ABS will be obligated to pay XY $750,000 for its misappropriation of XY’s trade secret
protocols anyway. (Pl.’s Opening Br. (dkt. #739) at 34-35.) But, these are the same
arguments that the jury heard and rejected, obviously giving more weight to counter
evidence that the use of XY’s protocols gave ABS an important advantage in designing its
competing sorting technology. (See Def.’s Opp’n Br. (dkt. #752) at 56-60.) Along with
proof of ABS’s failure to investigate timely and thoroughly the extent of its use of
confidential information, the court agrees with ST that this was enough evidence for the
jury to find that ABS’s breach was material under the broad, flexible factors dictated by
Texas law.
See Hiles v. Arnie & Co., P.C., 402 S.W.3d 820, 831 (Tex. App. 2013)
49
(“Generally, the issue of whether a breach rises to the level of a material breach that will
render the contract unenforceable presents a dispute for resolution by the trier of fact.”).
ABS’s motion, therefore, will be denied.
3. Damages
Finally, ABS argues that ST’s claim of a material breach must fail as a matter of
law because it failed to prove damages at trial. Under Texas law, the elements of a breach
of contract claim are: (1) a valid contract; (2) performance or tendered performance by
the plaintiff; (3) breach of the contract by the defendant; and (4) resulting pecuniary loss
suffered by the plaintiff. See Am. Certified Equip., Inc. v. Houston Plating and Coatings, LLC,
Civil Action No. 4:13-CV-853, 2014 WL 3543715, at *3 (S.D. Tex. July 14, 2014); Taub
v. Houston Pipeline Co., 75 S.W.3d 606, 615 (Tex. App. 2002). A plaintiff carries the
burden of showing a loss resulting from a breach. Sport Supply Grp., Inc. v. Columbia Cas.
Co., 335 F.3d 453, 465 (5th Cir. 2003) (citing Taub, 75 S.W.3d at 617). Under Texas
law, “[a] breach of contract claim cannot survive if the plaintiff was not damaged by the
breach.” Eckland Consultants, Inc. v. Ryder, Stilwell Inc., 176 S.W.3d 80, 89 (Tex. App.
2004).
The trial was bifurcated. In the liability phase, the jury found that ABS materially
breached the 2012 Agreement by using or disclosing ST’s confidential media protocols,
and it awarded ST’s wholly owned subsidiary, XY LLC, a reasonable royalty in the
amount of $750,000 for injuries caused by ABS’s trade secret misappropriation in the
damages phase. The jury was not instructed on, nor asked to decide an amount for,
damages for ABS’s breach of the confidentiality provision of the 2012 Agreement. Nor
50
was the jury asked to determine during the liability phase whether ST suffered a
pecuniary loss for ABS’s breach.
The section regarding contract damages was removed from the jury instructions,
because ST’s damages expert did not provide any opinions as to breach of contract
damages for ABS’s use or disclosure of ST’s confidential media protocols (as opposed to
damages for a breach based on use or disclosure of quality control data), which was the
only basis for the jury’s finding of a breach of contract. (8/10/16 Trial Tr. (dkt. #722) at
105:7-10.) Because the jury was only asked to decide what amount XY was entitled to
for damages resulting from ABS’s misappropriation of its trade secret protocols, ABS now
argues that ST failed to present any proof of breach of contract damages at trial,
requiring entry of judgment in its favor on ST’s breach of contract claim.
In support, ABS cites several cases in which Texas courts held that a plaintiff
failed to prove a breach of contract for failure to show that it had suffered damages as a
result of the breach. See Sport Supply, 335 F.3d at 465-66 (grant of summary judgment of
no breach of contract because plaintiff could not show resulting damages); Silver Lion, Inc.
v. Dolphin Street, Inc., No. 01-07-00370-CV, 2010 WL 2025749, at *14-*16 (Tex. App.
May 20, 2010) (reversing trial court’s judgment of a breach of contract because plaintiff
failed to offer sufficiently credible proof of damages); Eckland Consultants, 176 S.W.3d at
89 (trial court erred in awarding judgment to two of three, related plaintiffs who
sustained no damages); Taub, 75 S.W.3d at 616 (summary judgment of no contract
breach was appropriate because no evidence of recoverable damages and plaintiffs did not
claim nominal damages).
51
In opposition, ST initially argues that ABS waived this argument, having never
asserted it in a Rule 50(a) motion. ST also argues that any failure on its part to seek a
separate damages instruction as to the breach of contract claim was the result of its
“rel[iance] on ABS’s repeated treatment of ST and XY as indistinguishable for purposes
of the misappropriation claim and the damages stemming from the misuse of the media
protocols.” (Def.’s Opp’n Br. (dkt. #752) at 54.)
In reply, ABS argues that no Rule 50(a) motion was required, nor was there any
waiver, because ST admits making no pretrial disclosure of damages from a breach of
contract based on ABS’s use or disclosure of its confidential media protocols.
Accordingly, there was nothing ST could do to prove damages for its breach of contract
claim at trial.
Alternatively, ABS argues that even if a Rule 50(a) motion was required, then it
sufficiently alerted ST and the court by seeking “judgment as a matter of law [under Rule
50(a)] because ‘ST was not substantially deprived of the benefits it reasonably expected
under the Agreement.’” As to this last argument, however, ABS acknowledges that “this
language appeared in [its] brief in the legal context of whether there was proof of a
material breach,” not whether ST had adequate proof of a pecuniary loss. (Pl.’s Reply Br.
(dkt. #754) at 32 (citing Pl.’s Mot. (dkt. #662) at 4).)
The court agrees with ST that ABS failed to alert both ST and the court timely
about a possible, post-trial argument that it was entitled to judgment as a matter of law
on any breach of contract claim because ST failed to offer proof of damages evidence
separate from XY’s trade secret misappropriation claim.
52
At no time during trial did
ABS’s counsel indicate that ABS was entitled to judgment on ST’s breach of contract
claim if it failed to present separate damages evidence on that claim. On the contrary, in
response to the court’s question whether asking the jury to clarify whether it found a
material breach based on use or disclosure of ST’s confidential quality control data or
media protocols “matter[ed] for purposes of materiality,” ABS’s counsel simply
responded, “Well, our position would be that neither breach was material. There’s going
to be a finding to the contrary, Your Honor.”
(8/11/16 Trial Tr. (dkt. #730) at
12:25-13:7.) This statement, as well as ABS’s argument in its Rule 50(a) motion that
“ST was not substantially deprived of the benefits it reasonably expected under the
Agreement,” was inadequate to put ST or the court on notice that ST was essentially
waiving its breach of contract claim by not asserting separate damages.
Moreover, this was a deficiency that could potentially have been solved if raised
before the jury decided damages. See Laborers’ Pension Fund v. A & C Envt’l, Inc., 301 F.3d
768, 775 (7th Cir. 2002) (“The purpose of requiring that [a Rule 50] motion be made
after submission of all the evidence, but before the case is given to the jury, is to afford
the opposing party an opportunity to cure any defect in its case before the jury retires.”).
Although ST’s damages expert did not present an opinion on separate breach of contract
damages based on ABS’s use or disclosure of the media protocols, the court cannot
conclude definitively that ST would not have been able to present, at least, a case for
nominal damages for its breach of contract claim, particularly given the jury’s award of
substantial damages to XY on its trade secret misappropriation claim.
Cf. Southwest
Airlines Co. v. BoardFirst, L.L.C., Civil Action No. 3:06-CV-089-B., 2007 WL 4823761, at
53
*10 (N.D. Tex. Sept. 12, 2007) (“Texas courts recognize a distinction between
uncertainty about the fact that damages have been sustained and uncertainty as to their
amount. . . . [U]nder Texas law a plaintiff’s failure to prove actual damages stemming
from a breach of contract does not prevent recovery on a contract theory; nominal
damages may still be obtained upon proof that a contract was formed and breached.”)
(emphasis in original). As a result, ABS cannot now be heard on its breach of contract
damages argument, nor is it entitled to judgment on ST’s breach of contract claim on
that basis. Instead, the court will award nominal damages of $1.00.
B.
Liquidated damages
Both parties move for judgment as a matter of law under the liquidated damages
provision in Section 4(a) of the 2012 Agreement. Under Texas law, liquidated damages
provisions are enforceable when: “(1) the harm caused by the breach is incapable or
difficult of estimation, and (2) the amount of liquidated damages called for is a
reasonable forecast of just compensation.” FPL Energy, LLC v. TXU Portfolio Mgmt. Co.,
L.P., 426 S.W.3d 59, 69 (Tex. 2014) (internal quotation marks omitted) (citing Phillips
v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991)). Texas courts consider each element “from
the perspective of the parties at the time of contracting.”
Id.
A challenge that a
liquidated damages clause constitutes an unenforceable penalty is an affirmative defense
under Texas law, and so “the party asserting penalty bears the burden of proof.” SP
Terrace, L.P. v. Meritage Homes of Tex., LLC, 334 S.W.3d 275, 287 (Tex. App. 2010).
Section 4(a) provides for ABS to pay ST $7.50 per unpurchased straw of sexed
semen in the event that the Agreement is terminated because of ABS’s material breach.
54
ABS first contends that Section 4(a) is unenforceable because any harm caused by ABS’s
material breach was not “incapable or difficult of estimation,” as “[t]he harm is the
simple difference between the revenue ST would have gotten from those straws (i.e., price
times quantity), minus the cost of producing them.” (Pl.’s Opening Br. (dkt. #739) at
36.) But as ST’s CFO testified at trial, determining marginal costs over time is difficult,
which is no doubt why both sides originally agreed to side step that dispute in the 2012
Agreement, given variations in factors that affect its costs, not to mention the growing
demand for sexed semen and changes in the number of bulls whose semen ST was
required to sort. (Def.’s Opening Br. (dkt. #742) at 18 (citing 8/3/16 Trial Tr. (dkt.
#712) at 94:8-14).) Accordingly, ABS has failed to show that at the time of contracting,
the amount of harm for straws that were manufactured, but went unpurchased as a result
of a material breach, was an unreasonable forecast, much less that $7.50 per straw
amounts to a penalty now.
ABS further argues that the liquidated damages provision is unenforceable because
Texas law frowns upon liquidated damages clauses that do not disclaim cumulative
remedies. See Nexstar Broadcasting, Inc. v. Gray, No. 09-07-364 CV, 2008 WL 2521967,
at *3 (Tex. App. June 26, 2008) (“Generally, a contractual provision that does not
exclude further liability for actual damages is not a reasonable forecast of just
compensation and is an unenforceable penalty.”) (citing Robert G. Beneke & Co. v. Cole,
550 S.W.2d 321, 322 (Tex. Civ. App. 1977)). In support, ABS points to Section 4(c) of
the 2012 Agreement, in which:
The parties agree that the sums set forth in Sections 4(a) and
4(b) above are a reasonable estimate of the damages that
55
would be suffered by ST due solely to the lost sales of Sorted
Semen as a result of the termination scenarios set forth in
Sections 4(a) and 4(b), as the case may be, and that such
sums are not intended to be a penalty. These liquidated
damages shall not be exclusive of each other, nor of any other remedy
available to ST at law or in equity, including but not limited to
termination of this Agreement, or of the recovery of any damages
caused by any other breach of this Agreement by ABS.
(Trial Ex. 82 at 4 (emphasis added).)
At summary judgment, the court dismissed ST’s claim for damages under Section
4(b) of the 2012 Agreement, finding a $1.5 million flat fee that applied equally in the
first year of a five-year (or longer) agreement as it did in the last year was not a
reasonable estimate of compensation for sunk costs, but rather a straightforward penalty
for breach. (7/21/16 Op. & Order (dkt. #572) at 17-22.) Nevertheless, ABS argues that
since Texas courts determine the validity of a liquidated damages clause at the time of
contracting, the court should consider the cumulative remedies contemplated by sections
4(a), 4(b) and 4(c) of the Agreement in addressing whether Section 4(a) is enforceable.
Given that Section 4(c) states that the liquidated damages remedies in Sections 4(a) and
4(b) “shall not be exclusive of each other, nor of any other remedy available to ST at law
or in equity,” the court agrees that the plain language of Section 4(c) at least allows for a
duplicative award.
As ST points out, however, courts applying Texas law can: (1) reform liquidated
damages provisions that would otherwise be unenforceable; or (2) sever the language
from the 2012 Agreement that would make Section 4(a) unenforceable.
While ABS
suggests that reformation would only be available if ST could show that the parties made
a mutual mistake, citing Comiskey v. FH Partners, LLC, 373 S.W.3d 620 (Tex. App.
56
2012), ST points to a more recent decision by the same Texas appeals court in Arcturus
Corp. v. Espada Operating, LLC, NUMBER 13-13-00713-CV, 2016 WL 4272381 (Tex.
App. Aug. 11, 2016), affirming a trial court’s reforming and enforcing a liquidated
damages provision without finding mutual mistake. 15 ST also cites other cases applying
Texas law, which hold that the concerns about overlapping liquidated and actual damages
remedies seek to preclude parties from obtaining a duplicative recovery for the same
injury, see Palmco Corp. v. Am. Airlines, Inc., 983 F.2d 681, 686-87 (5th Cir. 1993),
suggesting that the language ABS cites from Nexstar that a liquidated damages “provision
must make clear that the amount of liquidated damages will be in lieu of other damages,”
2008 WL 2521967, at *3, goes too far; rather, any further recovery must be for nonduplicative damages.
Indeed, as ST emphasizes, Section 23 of the 2012 Agreement
contemplates that if a court modifies a provision of the Agreement due to it being illegal,
invalid or unenforceable, then the remaining provisions should be construed “in
accordance with the modified provision.” 16
(Def.’s Reply Br. (dkt. #756) at 25-26.)
Several other provisions of the 2012 Agreement would entitle ST to damages for reasons
other than ABS’s material breach in failing to purchase its quota in straws.
(Def.’s
Opening Br. (dkt. #742) at 22-23.)
In Arcturus, the trial court lowered the amount of the liquidated damages to reflect a
“commercially reasonable sum” under the circumstances. 2016 WL 4272381, at *5.
15
In full, Section 23 provides that: “Should any provision of this Agreement be held to be illegal,
invalid or unenforceable, by any court of competent jurisdiction, such provision shall be modified
by such court in compliance with the law and, as modified, enforced. The remaining provisions of
this Agreement shall be construed in accordance with the modified provision and as if such illegal,
invalid or unenforceable provision had not been contained herein.” (Trial Ex. 82 at 11.)
16
57
Therefore, ST has no right to recover duplicative, liquidated damages under
Section 4(b) or 4(c) for the same injury for which it can recover liquidated damages
under Section 4(a). Indeed, the liquidated damages amount in Section 4(a) represents a
reasonable estimate of a harm that was certainly difficult to estimate at the time of
contracting, and remained so even at the time of breach, and so the court will interpret
Sections 4(b) and 4(c) to avoid cumulative recoveries for “lost sales of Sorted Semen” for
unpurchased straws as set forth in Section 4(a).
This result best accomplishes the
apparent intent of the parties in negotiating the liquidated damages amount in Section
4(a), which is the ultimate aim of courts applying Texas law. See Intercontinental Grp.
P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 657-58 (Tex. 2009) (“[A] contract’s
overriding purpose is to capture the parties’ intent, meaning we must construe it in light
of how the parties meant to construe it.”). Thus, Section 4(a) is enforceable under Texas
law.
C.
Covenant not to compete
Finally, the court addresses the parties’ dueling motions as to the enforceability of
the non-compete clause at Section 18 of the 2012 Agreement. Under Texas law, “[t]he
enforceability of a covenant not to compete is a question of law.” Mann Frankfort Stein &
Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). To be enforceable, a
covenant not to compete must be
ancillary to or part of an otherwise enforceable agreement at
the time the agreement is made to the extent that it contains
limitations as to time, geographical area, and scope of activity
to be restrained that are reasonable and do not impose a
58
greater restraint than is necessary to protect the goodwill or
other business interest of the promisee.
Tex. Bus. & Com. Code § 15.50(a). If the covenant satisfies the ancillary requirement,
but is overbroad as to time, geographical area, or scope of activity, then “the court shall
reform the covenant to the extent necessary[.]” Tex. Bus. & Com. Code § 15.51(c).
ABS argues that Section 18 is unenforceable because it is not: (1) ancillary to an
otherwise enforceable agreement; and (2) reasonably limited as to geographical area and
the scope of activity restrained. As a starting point, the parties agree that an interest in
protecting confidential information is sufficient to justify restrictions on competition. See
Wharton Physician Servs., P.A. v. Signature Gulf Coast Hosp., L.P., No. 13-14-00437-CV,
2016 WL 192069, at *4 (Tex. App. Jan. 14, 2016) (“A covenant not to compete can be
enforceable not only to protect trade secrets but also to protect proprietary and
confidential information.”) (internal quotation marks, citation and brackets omitted).
ABS contends that Section 18 is not ancillary to an otherwise enforceable agreement
because ST provided no consideration for the non-compete clause, at least none
“reasonably related” to an interest in protecting its confidential information. Instead,
ABS contends that the only consideration ST provided was a promise to sort semen, not
to provide ABS with any confidential information. Marsh USA Inc. v. Cook, 354 S.W.3d
764, 775 (Tex. 2011) (“Consideration for a noncompete that is reasonably related to an
interest worthy of protection, such as trade secrets, confidential information or goodwill,
satisfies the statutory nexus[.]”).
ABS’s contentions are ridiculously superficial on the facts here. While ST did not
expressly promise to provide confidential information to ABS, this was certainly implied,
59
not just by the non-compete clause itself but also the language of the parties’ larger
agreement, which “requires confidential information to be provided” to carry out that
agreement. Mann Frankfort, 289 S.W.3d at 850; see also id. at 849-50 (explaining that
because a covenant not to compete must only be “‘ancillary to or part of’ the agreement
at the time the agreement is made,” then “the requirement that there be an ‘otherwise
enforceable agreement’ can be satisfied by the employer actually performing its illusory
promise to provide an employee with confidential information”).
Here, given the
evidence that ABS employees working on the GSS system had access to ST’s confidential
information in its laboratory in ABS’s facility (at least for some period of time), as well as
the jury’s finding that ABS used ST’s confidential media protocols to develop its
competing technology, the court agrees that Section 18 satisfies the “ancillary to or part
of an otherwise enforceable agreement” requirement under Texas law.
Whether Section 18 constitutes an overbroad restriction on competition as to
geography and scope of activity, however, presents a closer question. Under Texas law,
“[a] covenant is unreasonable if it is greater than required for the protection of the
person whose benefit the restraint is imposed or imposes undue hardship upon the
person restricted.”
Republic Servs., Inc. v. Rodriguez, No. 14-12-01054-CV, 2014 WL
2936172, at *7 (Tex. App. June 26, 2014) (citation omitted).
The covenant not to
compete in the 2012 Agreement is certainly broad -- during the five-year term of the
2012 Agreement and any additional years tacked-on under the renewal provision, Section
18 prevents ABS from developing, marketing, or selling technology or services for sorting
sexed semen on a worldwide basis, with the exception of a limited “safe harbor” for
60
research and development of the GSS system that was already in progress by a certain
time before the 2012 Agreement went into effect. (Trial Ex. 82 at 10.)
In light of the jury’s verdict that “sexed bovine semen processing in the U.S.” is a
relevant antitrust market, ABS has a strong argument that Section 18’s restriction on any
“technology for sorting mammalian semen” was an “industrywide exclusion,” which are
unreasonable under Texas law. Republic Servs., 2014 WL 2936172, at *7. Moreover,
Section 18’s global geographic restriction appears overbroad, especially in light of the
evidence at trial that ST actually provides sexed semen sorting services in only a limited
number of countries outside of the U.S. See Cobb v. Caye Publ’g Grp. Inc., 322 S.W.3d
780, 786 (Tex. App. 2010) (“The parties have not cited and we have not found, a case in
which a geographical limitation including areas where an employer does not currently
operate but has targeted for future potential expansion, standing alone, is reasonable.”).
ST asserts -- without providing supporting case law -- that “[t]he scope of the
activity was reasonably limited to ‘sorting mammalian semen’ because the evidence
shows that information on ST’s sorting method could be used for ABS’s different ‘laser
killing’ technology.” (Def.’s Reply Br. (dkt. #756) at 24.) ST also contends that the
worldwide restriction is reasonable because “both ST and ABS are sophisticated
companies that are active in the global marketplace.” (Id. (citing Daily Instruments Corp.
v. Heidt, 998 F. Supp. 2d 553, 567-68 (S.D. Tex. 2014) (global reach of an employer’s
covenant not to compete was likely to be reasonable for a “high-level sales manager,” who
had direct sales responsibilities over a large, global territory and access to the employer’s
confidential information regarding its global operations)).
61
Given its breadth, length and scope, the court is not persuaded that the
restrictions in Section 18 are reasonable, and reformation would ordinarily be in order
under Texas law. Here, however, the parties give little guidance as to what would be a
reasonable scope for reformed geographic and activity restrictions. Given this lack of
direction or legal authority from the parties as to the reasonable scope of covenants not
to compete in this context under Texas law, the court will exercise its equitable power to
reform Section 18 in accordance with the injunctive relief ordered below.
IV. Permanent Injunction
On the liability special verdict form, the jury found that ABS had proven: (1) a
relevant antitrust market for sexed bovine semen processing in the U.S.; (2) ST had
achieved monopoly power in that market in July of 2012; and (3) ST had willfully
maintained its monopoly power in that market by insisting on anticompetitive contract
terms. (Dkt. #696.)
In answering whether ABS had proven antitrust injury, however, the jury was
instructed that ABS must further prove three things:
1. ABS was in fact injured as a result of ST’s violation of the antitrust laws;
2. ST’s illegal conduct was a material cause of ABS’s injury; and
3. ABS’s injury was of the type that the antitrust laws were intended to
prevent.
(Closing Liability Instrs. (dkt. #692) at 16.)
The jury was further instructed that
materiality in the second of these three requirements was not satisfied if it found that
62
“ABS’s injury was caused primarily by something other than any antitrust violation[.]”
(Id.)
Having been so instructed, the jury found that ABS failed to prove by a
preponderance of the evidence that it suffered antitrust injury as a result of ST’s violation
of the Sherman Act. 17 (Special Liability Verdict (dkt. #696).) As a result, ABS cannot
obtain monetary damages for ST’s Sherman Act violation. 15 U.S.C. § 15(a).
Having failed to prove an antitrust injury, ABS nevertheless moves for a
permanent injunction based on the jury’s findings that ST used its monopoly power in
the U.S. market for sexed bovine semen processing to obtain anticompetitive contract
terms in the parties’ 2012 Agreement. (Dkt. #680.) For the reasons that follow, the
court agrees that some injunctive relief is warranted. Accordingly, ABS’s motion will be
granted, if only in part.
At trial, ABS argued that ST leveraged its monopoly power to obtain several terms
in the 2012 Agreement for anticompetitive reasons: an initial five-year commitment with
a rolling annual, automatic renewal provision; a minimum, three-year notice of
termination; minimum purchase requirements; restrictions on research, testing and
marketing of competing sexed semen sorting technologies; and a $1.5 million payment
triggered by ABS’s termination of the Agreement. (See 8/9/16 Trial Tr. (dkt. #729) at
43:17-44:14.) ABS further argued that ST acquired exclusive patent licenses related to
sexed semen sorting technology from XY, Monsanto and Cytonome for anticompetitive
As already discussed, the jury also found in ST’s favor on a number of ST’s patent infringement
claims and its claim that ABS materially breached the 2012 Agreement by using its confidential
information. (Liability Special Verdict #2 (dkt. #697).)
17
63
reasons. (See id. at 59:7-12.) All of these actions, ABS argues, caused it antitrust injury
because its GSS technology was ready to launch in direct competition as early as June of
2014. (See id. at 67:19-68:6.)
On the other hand, ST advanced procompetitive reasons for the contract terms
and patent acquisitions, including a need to protect, invest in and improve its own
intellectual property, as well as argued that ABS suffered no antitrust injury, since its
GSS technology was not ready to launch any earlier than September or October of 2016.
(See id. at 125:8-126:6.)
While the jury obviously agreed with ST on this latter point, it also found that ST
is a monopolist that engaged in anticompetitive contracting practices. As to this latter
finding, ABS argues that injunctive relief is necessary to prevent likely, future injury and
to open the market for sexed bovine semen processing to competition. Specifically, ABS
seeks a permanent injunction that would:
•
enjoin ST from enforcing restrictions in the 2012 Agreement on ABS’s
researching, conducting field trials, sales or marketing of competing
technologies;
•
permit ABS to terminate the 2012 Agreement and the related lease with ST on
90 days’ notice without any penalties or damages; and
•
permit other bull studs in the U.S. to terminate their existing sexed semen
sorting agreements and related leases with ST on 12 months’ notice without
any penalties or damages.
(Dkt. #680.)
In response, ST argues that ABS is not entitled to injunctive relief because the jury
necessarily found that ABS would not suffer injury throughout the life of the 2012
Agreement, and by implication that the terms of the 2012 Agreement are not
64
anticompetitive. In a series of arguments that are harder to follow, ST also maintains
that: ABS has no claim to future injury; ABS has waived its claim for injunctive relief;
and ABS’s claim for injunctive relief is moot.
Finally, ST argues that ABS has not
demonstrated that it is entitled to injunctive relief under the traditional equitable
principles. 18
A.
Future injury, waiver and mootness
As an initial matter, the parties agree that ABS’s failure to show injury for the
purpose of a treble damages award does not preclude ABS from seeking injunctive relief
under Section 16 of the Clayton Act.
See Blue Cross & Blue Shield United of Wis. v.
Marshfield Clinic, 152 F.3d 588, 591 (7th Cir. 1998).
While a showing of injury is
required to obtain damages under Section 4 of the Clayton Act, a party seeking
injunctive relief under Section 16 need only show “threatened loss or damage by a
violation of the antitrust laws[.]” 15 U.S.C. § 26; see also Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U.S. 100, 130 (1969); Sw. Suburban Bd. of Realtors, Inc. v. Beverly Area
Planning Ass’n, 830 F.2d 1374, 1377-78 (7th Cir. 1987).
Nevertheless, ST does maintain that the jury’s verdict necessarily precludes ABS’s
request for an injunction in this case. Since the injury ABS claimed at trial (an inability
to self-supply sexed semen at a lower cost using its GSS Technology) “clearly would
remain in effect for as long as ST’s contracts are in force,” ST contends that “the jury
must have considered how the Agreement would affect ABS through the full five-year
In addressing ST’s arguments, the court will also grant its motion for leave to file, and will
consider, ST’s surreply. (Dkt. #746.)
18
65
term.” (Def.’s Opp’n Br. (dkt. #727) at 5.) Therefore, ST asserts, ABS cannot now
claim that it will suffer an injury that the jury did not already reject. Put differently, ST
seems to argue that ABS’s motion for permanent injunctive relief is premised on a claim
of a future injury or damage that the jury already rejected at trial. Cf. Ohio-Sealy Mattress
Mfg. Co. v. Sealy, Inc., 669 F.2d 490, 494 (7th Cir. 1982) (“Res judicata bars the plaintiff
from splitting his cause of action; once he sues, he must seek all the damages that have
then accrued as a result of the defendant’s antitrust conduct,” including future damages,
if they “are not speculative at the time of trial”). Citing In re G-Fees Antitrust Litigation,
584 F. Supp. 2d 26 (D.D.C. 2008), ST argues that when a party brings an antitrust claim
based on an allegedly anticompetitive contract, injury occurs when that party first enters
into the contract, and any future harm concerns only future damages.
This argument fails on at least two levels. First, G-Fees is inapposite. In that case,
the plaintiffs were identified in the complaint as “those who have obtained residential
real estate loans from commercial lenders and make monthly mortgages that include
G-Fees at artificially inflated levels set by the Defendants.”
584 F. Supp. 2d at 34.
Plaintiffs in that case further alleged that those “G-Fees” were “baked into the loan [in a
single] transaction at the outset[.]” Id. at 34-35 (internal quotation marks omitted).
The district court explained that “even if this alleged collusion were to be enjoined,
plaintiffs would not feel relief because none claims to be a future mortgagee, and as
current mortgagees, the G-Fees are already ‘baked in’ to their mortgages as current
mortgagees.” Id. at 35. As a result, the court concluded that “[a]ny injury that occurred
66
to the plaintiffs occurred when they obtained their mortgages, and plaintiffs’ predicament
is one of future damages, not future injury.” Id.
In contrast here, ABS did not claim any injury at the time the parties entered into
the 2012 Agreement. Indeed, like its competitors, ABS needed to renew its contractual
relationship with ST in 2012, having no alternative to its sexed semen processing
technology, which was by then crucial for a bull stud to compete effectively.
ABS’s
claimed injury began instead when it was ready to launch its competing GSS technology
in 2014, but was locked into a longer term contract with ST that prevented it from doing
so. Thus, G-Fees is distinguishable, except to the extent the lock-in provision could be
viewed as a “prospective” injury.
Second, as ABS correctly points out in reply, the jury was instructed to consider
only whether ABS “was in fact injured as a result of ST’s violation of the antitrust laws,”
not whether ABS might be injured in the future. (Closing Liability Instrs. (dkt. #692) at
16 (emphasis added).) In other words, the jury only considered past -- that is, up to the
beginning of trial -- and not future injury. See Penry v. Johnson, 532 U.S. 782, 799 (2001)
(“We generally presume that jurors follow their instructions.”); Soltys v. Costello, 520 F.3d
737, 744 (7th Cir. 2008). 19
ST’s mootness and waiver arguments can be dispatched as easily. ST argues that
its September 22, 2016, notice of cancellation, informing ABS that it would stop
performing sexed semen processing services if permitted to do so by the court due to the
As a practical matter, this is a distinction without a difference, since the court does not find a
competitive need for ABS to be freed from its contractual obligations until the end of its current
contract.
19
67
jury’s finding that ABS materially breached the confidentiality provision of the 2012
Agreement, moots ABS’s claim for injunctive relief. (See Def.’s Surreply (dkt. #746-1) at
2.) Even if future events could potentially moot part of ABS’s motion for a permanent
injunction, however, those events will not fully moot the motion to permit other bull
studs to cancel their semen sorting contracts with ST upon a year’s notice without
penalties or damages. 20
The court similarly rejects ST’s argument that ABS waived any claim for
injunctive relief, having “said nothing about seeking an injunction during the numerous
pretrial conferences,” giving “no notice that it would not be introducing evidence of
future harm” and making “no mention of injunctive relief in its most recent disclosures.”
(Def.’s Opp’n Br. (dkt. #727) at 24.)
Contrary to ST’s assertions, ABS’s claim for
injunctive relief is hardly a moving target: not only has ABS included a claim for
injunctive relief since its original complaint, a party’s entitlement to equitable relief
under the Clayton Act is within the exclusive province of the court. Accordingly, there
was no need for ABS to introduce independent evidence or propose any additional,
advisory special verdict question, at least provided ABS was willing to stand on the trial
record in seeking post-verdict, equitable relief.
See Florists’ Nationwide, 371 F.2d at
270-71.
Moreover, as discussed later in this opinion, ST’s cancellation notice does not moot ABS’s
claim for injunctive relief because ST will not be permitted to unilaterally stop providing sexed
semen processing services to ABS before the 2012 Agreement ends by its terms on August 31,
2017.
20
68
B.
Consistency with the jury’s verdict
Next, ST argues that an award of injunctive relief would necessarily contradict the
jury’s verdict. In Miles v. Indiana, 387 F.3d 591 (7th Cir. 2004), the Seventh Circuit
described the standard under which a district court must assess a jury’s verdict before
awarding any equitable relief:
The judge is bound by the issues necessarily decided by the
jury, and, therefore, the jury’s determination often affects the
judge’s disposition of the accompanying equitable claim.
However, when the basis of the jury’s verdict is unclear, each
of the potential theories supporting the verdict is open to
contention unless this uncertainty be removed by extrinsic
evidence showing the precise point involved and determined.
Therefore, when several issues have been litigated, and the
jury may have supported its verdict by finding in the
plaintiff’s favor on any one of the issues but which one is not
clear, the court is free to determine the basis of the jury’s
verdict unless extrinsic evidence clearly resolves the issue.
Id. at 599-600 (internal quotation marks and citations omitted).
Furthermore, in
analyzing the possible basis of a jury’s verdict, the court must do so “[u]nder the
evidence and instructions, and as the case was argued.” See Ohio-Sealy Mattress Mfg. Co. v.
Sealy, Inc., 585 F.2d 821, 844 (7th Cir. 1978).
Two of ST’s arguments are again premised on a misinterpretation of ABS’s
claimed injury. First, ST argues that the jury’s finding of no injury means that the prices
ABS and other bull studs are paying for sexed semen processing services from ST are not
supracompetitive, since the jury knew what those prices were and ABS was bound by the
minimum purchase requirements until the 2012 Agreement would terminate some twelve
months after trial. This argument, however, ignores that ABS’s claimed antitrust injury
and resulting damages was based on being prevented from using its competing GSS
69
technology to self-supply sexed semen at a lower cost, not for being charged
supracompetitive prices in the abstract.
Second, ST asserts that the jury must have found the challenged contract terms in
the 2012 Agreement were not anticompetitive, instead finding that ST insisted on
anticompetitive contract terms in “ST’s subsequent sorting agreements with other bull
studs.” (Def.’s Opp’n Br. (dkt. #727) at 8.) Specifically, ST argues that the jury could
not possibly have found that any of the challenged terms were unlawful under the
Sherman Act because “the parties had agreed on most, if not all, of the Agreement’s
allegedly onerous terms by early June 2012 at the latest.” (Id.) As ABS points out,
however, the parties did not sign the 2012 Agreement until August of that year, and it
did not become effective until September. (Pl.’s Reply Br. (dkt. #737) at 5 (citing Trial
Ex. 82 at 1, 12).) Particularly in light of the incorporation clause in the 2012 Agreement
(Trial Ex. 82 at Section 21), ST does not explain why the fact that the parties began
negotiating the terms before the month in which the jury found ST achieved monopoly
power somehow would immunize it from later leveraging its newfound monopoly power
to coerce agreement to its terms. Regardless, as previously noted, ABS’s claimed antitrust
injury is based on the effect of the challenged contract terms on its later-developed ability
to self-supply, not based on the terms of the parties’ contract at the time entered.
ST further contends that the basis of the jury’s verdict is “impossible to tell” with
respect of two of the special verdict questions: (1) which, if any, of the terms of the 2012
Agreement were anticompetitive; and (2) whether ST began its anticompetitive conduct
when it achieved monopoly power in July of 2012 or at some point after the parties
70
executed the Agreement. (Def.’s Opp’n Br. (dkt. #727) at 12.) Thus, for the reasons
already discussed, as well as evidence of procompetitive reasons for the challenged terms
of the 2012 Agreement that ST introduced at trial, ST argues that the jury’s verdict
forecloses ABS’s claim for injunctive relief. (See id.)
Contrary to ST’s assertions, the jury plainly held in its special verdict that ST
willfully maintained monopoly power in the market for sexed bovine semen processing in
the U.S. by insisting on anticompetitive contract terms in its 2012 Agreement with ABS
and in later agreements with other bull studs.
At trial, ABS argued that ST had
monopoly power in the market for sexed semen processing by May of 2007, by which
time ST had long-term contracts with ABS and two of the three other major bull studs in
the U.S. (See 8/9/16 Trial Tr. (dkt. #729) at 28:12-20.) By finding that ST’s patent
acquisitions were not unlawful under the Sherman Act and that ST did not develop
monopoly power until July of 2012, however, the jury credited ST’s arguments that its
efforts to develop its sexed semen sorting technology and legitimize the market for sexed
semen straws were not realized until later. (See id. at 81:8-22.)
In support of its argument that ST insisted on several terms in the 2012
Agreement for anticompetitive reasons (see id. at 43:17-44:14), ABS presented
considerable, persuasive evidence, much of it in the form of expert opinion testimony.
(See, e.g., 8/3/16 Trial Tr. (dkt. #709) at 103:11-105:2.) Additionally, ABS pointed to
ST’s contracts with other bull studs to argue that those contracts, particularly their
lengths,
automatic
renewal
provisions
and
71
minimum
purchase
requirements,
demonstrated willfulness. (See 8/3/16 Trial Tr. (dkt. #709) at 76:5-20; 8/9/16 Trial Tr.
(dkt. #729) at 47:5-9, 48:9-49:2, 56:13-20, 58:1-59:6.)
Once again, it is only by ignoring ABS’s claimed injury that ST can assert that the
jury did not find that any of the challenged terms of the 2012 Agreement were
anticompetitive; ABS would have had no reason to establish that ST violated the
Sherman Act by insisting on anticompetitive terms in any contract other than the 2012
Agreement. In light of the parties’ evidence and argument at trial, therefore, the jury
obviously found that ST insisted on anticompetitive terms in the 2012 Agreement. Since
the equitable relief ABS seeks is not inconsistent with the jury’s findings as to ST’s
antitrust violation, the court will now consider whether ABS has shown that it is entitled
to a permanent injunction.
C.
Section 16 of the Clayton Act
To obtain injunctive relief under Section 16 of the Clayton Act, a party must
make a threshold showing of “threatened loss or damage by a violation of the antitrust
laws.” 15 U.S.C. § 26; see also Zenith Radio Corp., 395 U.S. at 130; Marshfield Clinic, 152
F.3d at 592. Courts analyze whether injunctive relief is appropriate under the Sherman
Act using traditional principles of equity. See 15 U.S.C. § 26; Zenith Radio Corp., 395
U.S. at 130. In eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), the Supreme
Court reiterated the four, general factors that a plaintiff must satisfy to be entitled to a
permanent injunction: (1) it has suffered an irreparable injury; (2) monetary damages
are inadequate to compensate for that injury; (3) the balance of hardships between
plaintiff and defendant warrant equitable relief; and (4) the public interest would not be
72
disserved by a permanent injunction. Id. at 391. The court addresses each of those
factors in the patent and antitrust context below. 21
1. Likelihood of future injury
The jury’s finding that ABS had not suffered antitrust injury as a result of ST’s
willful maintenance of monopoly power is supported by two grounds: (1) ABS was not
ready to launch its GSS technology by the time of trial; and (2) ST had only recently
achieved its dominant position in the new, niche submarket for sexing technology. At
trial, ST presented credible evidence that ABS was still testing new “protocols” for its
ABS goes to great pains to emphasize that no court in the Seventh Circuit has formally applied
the four-factor eBay test to date, but fails to explain how this is of any import in determining
what, if any, permanent injunctive relief is appropriate under Section 16 of the Clayton Act.
First, eBay is obviously controlling precedent for all lower courts. Second, eBay simply articulates
the four, equitable factors that federal courts have always considered in determining the
appropriateness of injunctive relief. Third, while suggesting that a showing of “future antitrust
injury” suffices, ABS points to an older Supreme Court case stating only that a threat of future
injury is enough to “make the cause of action for relief by injunction,” not that showing such a
threat alone is enough for a plaintiff to obtain a permanent injunction. United States v. Or. State
Med. Soc’y, 343 U.S. 326, 333 (1952) (emphasis added). Fourth, while plaintiff is correct that the
Seventh Circuit did not address the third and fourth eBay factors in Marshfield Clinic, the Seventh
Circuit had already affirmed the district court’s decision to grant equitable relief, which it reached
after applying the traditional factors, including the balance of hardships, in an earlier appeal in
that case. See Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 883 F. Supp. 1247, 1263
(W.D. Wis. 1995), aff’d in part and rev’d in part, 65 F.3d 1406 (7th Cir. 1995). Thus, the court
appropriately looks to traditional equitable factors in determining the appropriateness of
injunctive relief. See, e.g., SEC v. Citigroup Global Markets, Inc., 752 F.3d 285, 296 (2d Cir. 2014)
(“eBay strongly indicates that the traditional principles of equity it employed are the presumptive
standard for injunctions in any context”) (citations omitted); AlliedSignal, Inc. v. B.F. Goodrich Co.,
183 F.3d 568, 573 (7th Cir. 1999) (balancing hardships to the parties and the public in issuing
preliminary injunction related to a section 7 Clayton Act claim). If anything, this balancing
under the eBay factors is even more appropriate considering the “unique aspects” of the interplay
between patent and antitrust principles at issue here. Apple Inc. v. Motorola, Inc., 757 F.3d 1286,
1312 (Fed. Cir. 2014), overruled on other grounds by Williamson v. Citrix Online, LLC, 792 F.3d
1339, 1349 (Fed. Cir. 2015); see also Avaya Inc. v. Telecom Labs, Inc., Civil Action No. 06-2490
(JEI/KMW), 2014 WL 2940455, at *6 (D.N.J. June 30, 2014) (“Rather, a more coherent
interpretation of §16 and federal courts’ equitable powers is that the ‘threatened injury’
requirement sets forth the preliminary showing necessary to authorize injunctive relief, while the
four-factor [eBay] test directs a court’s issuance of the injunction sought.”).
21
73
GSS technology, which it was forced to develop to replace those provided by ST’s former
employee, Kathy Mean, without authorization.
(See 8/4/16 Trial Tr. (dkt. #718) at
92:5-20.) At best, evidence that ABS expected to receive positive results from those tests
as early as the month following trial only suggested antirust injury in the near future if
ABS remained restricted from commercializing the GSS technology. (See 8/3/16 Trial Tr.
(dkt. #709) at 39:25-40:7; 8/4/16 Trial Tr. (dkt. #718) at 92:9-20.)
At worst, the
evidence suggests that ABS was not confident in its new technology until the end of the
2012 Agreement that ABS itself triggered -- August 31, 2017.
Having sent a notice to ABS that it would stop providing semen-sorting services
on September 22, 2016, ST argues that future injury was no longer likely. As the court
already warned, however, ST’s new monopoly position has a real world impact on its
flexibility in dealing with customers and potential competitors. See Lorain Journal Co. v.
United States, 342 U.S. 143, 155 (1951) (a monopolist’s right to select its customers and
refuse to deal is “neither absolute nor exempt from regulation”). Still, monopolists have
been held liable for refusing to deal in only a limited set of circumstances -- and in no
way does the court mean to suggest that ST has committed a violation of the Sherman
Act by sending the termination notice. Here, the equities in favor of precluding ST as a
monopolist from unilaterally terminating its obligation to provide services to a new
competitor under the 2012 Agreement must be weighed against the jury’s finding of
ABS’s material breach.
Aside from pointing to Kathy Mean’s use of ST’s trade secrets, which ABS appears
to have remedied by developing new protocols once it discovered Mean’s actions, ST
74
identifies no credible, likely threat that would justify it terminating the 2012 Agreement
out of concern for misuse of its confidential information. Although the jury still found a
breach of contract, a further mitigating factor is Mean’s gaining access to that
confidential information as a former employee of XY, not through ST’s interactions with
ABS under the 2012 Agreement. (8/9/16 Trial Tr. (dkt. #729) at 116:6-9.)
Thus, lacking a sound justification, and as a monopolist in a market in which it
has faced virtually no competition (see 8/5/16 Trial Tr. (dkt. #714) at 123:18-21), and in
which ABS remains the only foreseeable potential competitor with any degree of a
likelihood of success (see id. at 124:3-14), ST’s attempt to trigger an early termination of
the 2012 Agreement hints of a move designed to forego its own, short-run benefits to
harm ABS in the marketplace over the long run, particularly in light of evidence
presented at trial that a bull stud unable to offer both sexed and conventional semen risks
losing both reputation and a significant amount of business (see 8/1/16 Trial Tr. (dkt.
#710) at 88:1-89:8; 8/2/16 Trial Tr. (dkt. #711) at 37:25-38:21; Dep. of David C.
Thorbahn (dkt. #317) at 22:22-23:14). See Lorain Journal, 342 U.S. at 154 (“[A] single
newspaper, already enjoying a substantial monopoly in its area, violates the ‘attempt to
monopolize’ clause of § 2 when it uses its monopoly to destroy threatened
competition.”).
Even aside from intending to impair a potential competitor through
anticompetitive acts, a monopolist may be liable for refusing to deal when the
characteristics of the market are such that some cooperation is required for there to be
competition, as may likely be the case with respect to sexed semen processing for the
reasons already discussed. See Olympia Equip. Leasing Co. v. W. Union Telegraph Co., 797
75
F.2d 370, 377 (7th Cir. 1986) (monopolist may have some duty to help a competitor
when “competition require[s] some cooperation among competitors”) (citing Aspen Skiing
Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)).
Under these circumstances, the court will not permit ST to cease providing sexed
semen sorting services to ABS before the 2012 Agreement terminates by its terms on
August 31, 2017.
Consistent with the jury’s verdict, the court will enjoin ST from
seeking any further damages or penalties from ABS under the contract provided it
proceeds with an orderly, timely termination of its 2012 Agreement on that date.
Similarly, ST will be enjoined from seeking damages or penalties from other bull studs
who provide at least one year’s written notice of the termination of their sorting contracts
if entered into after 2012.
2. Adequacy of legal remedies
With respect to whether damages would be adequate to remedy ABS’s claimed
future injury, ST argues that ABS’s damages experts could easily calculate damages ABS
would expect to sustain after trial based on the same calculations they were prepared to
present at trial for its claimed inability to self-supply sexed semen with the GSS
technology.
But ABS claims future injury not only in the form of an inability to
self-supply under the 2012 Agreement, but also to begin supplying other bull studs,
improving the GSS technology with field trials and developing goodwill among other bull
studs as a potential supplier while the 2012 Agreement remains in effect. Particularly
given that the market for sexed bovine semen has thus far had -- and will continue, until
ABS enters, to have -- no meaningful competition, any damages based on ABS’s
76
continued restriction from commercializing the GSS technology once it is ready to launch
will be difficult to calculate with any reliable accuracy. See Roland Mach. Co. v. Dresser
Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984) (a damages remedy can be inadequate
when the “nature of the plaintiff’s loss may make damages very difficult to calculate”).
3. Balance of hardships
ST reasonably argues that it will suffer its own hardship if ABS obtains injunctive
relief, having settled expectations regarding its contracts with other bull studs, ramped up
product capacity and made various, sunken investments in reliance on those
expectations, both at customer locations and its own facilities.
Having found that ST is
a monopolist that insisted on anticompetitive contract terms in the 2012 Agreement,
however, the jury spoke loudly: ST is no longer entitled to all the settled, long-term
benefits of its contracts with ABS and the other bull studs. Again, offsetting this is the
jury’s award of substantial damages for ABS’s trade secret misappropriation, as well as its
findings that ABS infringed ST’s patents, but having been compensated for those injuries,
the hardships ABS, and more importantly, the downstream consumers of bull semen,
would suffer if it remains contractually prevented from launching the GSS technology
substantially outweigh the hardship to ST, particularly if those restrictions on
competition are removed in an orderly, staggered and predictable fashion respectful of
ST’s intellectual property rights, as well as the need for meaningful competition, as is the
intent of the injunction entered below.
77
4. The public interest
With respect to perhaps the final factor -- whether an injunction would serve the
public interest -- ST’s lone argument is entirely self-serving: permitting ABS to suddenly
enter the market, earlier than the parties contemplated in the 2012 Agreement and
before the GSS technology is up to par, “could do more harm than good” by
reintroducing sexed semen with low fertility success rates in comparison to conventional
semen, the original stigma ST had only recently overcome.
#727) at 21-22.)
(Def.’s Opp’n Br. (dkt.
Certainly, risk of disparagement of a brand, product or even a
technology is a legitimate concern, but that is typically because of a risk of product
confusion.
As already discussed, the jury here rejected ABS’s contention that a market for
sexed bovine semen existed as early as 2007, finding instead that ST developed the
market for sexed semen through risk-taking and technological improvements. Having
successfully diminished the stigma associated with sexed semen by developing an
effective, competitive technology, and indeed built a monopoly position in a market of
sophisticated customers, ST fails to explain why the introduction of an inferior product
will meaningfully impact its successful efforts to legitimize the sexed semen market. ST
can hardly claim, for example, that the few, discerning bull studs purchasing sexed semen
processing services -- all of whom currently depend on ST -- would be confused by ABS’s
entry into the market with an inferior product. Almost as incredible is the likelihood
that ABS, itself a leading supplier of bull semen, would risk its own investment in the
78
GSS technology, much less its reputation, by introducing an inferior or substandard
product.
Similarly, ST’s claims that the market for sexed semen processing services
“inevitably will expand, and ST will face competition from other sexed semen suppliers”
ring hollow, especially given that there appear to be no other viable competitors to ST on
the horizon other than ABS. (Def.’s Opp’n Br. (dkt. #727) at 21.) As a general premise,
the court agrees with ST that the sexed semen processing market should “evolve
naturally,” but contrary to ST’s assertions, there will be no more natural evolution than
to allow ABS to compete in that market with a non-infringing technology when it is
ready to do so.
Even if ST is eventually proven right that lower prices or enhanced quality will not
immediately materialize if ABS enters the sexed semen market in September of 2017, the
court defers to the marketplace to resolve that uncertainty, not its own, and certainly not
ST’s, perception of ABS’s readiness to compete. See Nat’l Soc’y of Prof’l Eng’rs v. United
States, 435 U.S. 679, 695 (1978) (“Even assuming occasional exceptions to the presumed
consequences of competition, the statutory policy [reflected in the Sherman Act]
precludes inquiry into the question whether competition is good or bad.”). 22
On balance then, the court finds that ABS has met its burden to show entitlement
to a permanent injunction under Section 16 of the Clayton Act, though it is not entitled
For the same reason, ST’s argument that ABS presented insufficient evidence at trial that other
bull studs wish to terminate their contracts with ST early fails. See United States v. United Shoe
Mach. Corp., 110 F. Supp. 295, 349 (D. Mass. 1953), aff’d per curiam, 347 U.S. 521 (1954)
(finding that injunctive relief modifying the monopolist’s leases with other manufacturers was
appropriate even though a substantial majority of manufacturers expressed a preference for
leasing). The marketplace is best able to decide if this is so as well.
22
79
to the full scope of the injunctive relief it seeks. In determining the appropriate scope of
injunctive relief, the court keeps in mind the guiding principles pronounced by the
Supreme Court:
the purpose of giving private parties treble-damage and
injunctive remedies was not merely to provide private relief,
but was to serve as well the high purpose of enforcing the
antitrust laws. Section 16 should be construed and applied
with this purpose in mind, and with the knowledge that the
remedy it affords, like other equitable remedies, is flexible
and capable of nice adjustment and reconciliation between
the public interest and private needs as well as between
competing private claims.
Zenith Radio Corp., 395 U.S. at 130-31 (internal quotation marks and citations omitted);
see also Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 697-98 (holding that it was “entirely
appropriate” for court to order injunctive relief that reasonably eliminated the
consequences of the antitrust violation despite “go[ing] beyond a simple proscription
against the precise conduct previously pursued”); United States v. U.S. Gypsum Co., 340
U.S. 76, 88-89 (1950).
80
ORDER
IT IS ORDERED that:
1)
The parties’ motions for judgment as a matter of law under Rule 50(a) (dkt.
##660, 662, 663, 664, 668, 670, 686) are DENIED AS MOOT.
2)
Plaintiff ABS Global, Inc.’s motions for judgment as a matter of law under Rule
50(b) and for a new trial under Rule 59 (dkt. #738) are GRANTED IN PART
and DENIED IN PART consistent with this opinion.
3)
Defendant ST’s motion for judgment as a matter of law under Rule 50(b) (dkt.
#741) is GRANTED IN PART and DENIED IN PART consistent with this
opinion.
4)
The parties’ joint motion for entry of partial final judgment (dkt. #736) is
GRANTED.
5)
Defendant ST’s motion for leave to file a surreply in opposition to motion for
preliminary injunction (dkt. #746) is GRANTED.
6)
Defendant ST’s motion for leave to file supplemental authority (dkt. #758) is
GRANTED.
7)
Plaintiff ABS Global, Inc.’s motion for ruling on its motion for permanent
injunction (dkt. #766) is GRANTED.
8)
Plaintiff ABS Global, Inc.’s motion for a permanent injunction (dkt. #680) is
GRANTED IN PART and DENIED IN PART.
9)
A Permanent Injunction pursuant to Federal Rule of Civil Procedure 65 is
ENTERED under the following terms and conditions:
i.
This Permanent Injunction shall remain in full force and effect for five
(5) years;
ii.
For purposes of this Permanent Injunction, the following terms apply:
a. “ABS” shall mean plaintiff ABS Global, Inc.
b. “ST” shall mean defendant Inguran, LLC.
c. “Other U.S. bull studs” shall mean entities in the business of
selling semen from their own bulls for use in artificial
insemination that operate in the United States and are third
parties to this lawsuit.
81
iii.
ST is permanently enjoined as follows:
•
ST is enjoined from unilaterally terminating the 2012 Agreement
due to ABS’s material breach of contract as found by the jury;
•
ST is enjoined from enforcing the research restrictions, field trial
limitations and the “no sale or marketing” restrictions in the 2012
Agreement;
•
ST is enjoined from seeking to prevent the termination of sorting
contracts entered into with other U.S. bull studs on or after July of
2012, provided the bull stud gives at least one year’s advance,
written contractual notice, and ST is enjoined from seeking or
collecting any damages or penalty for such an early termination; and
•
ST shall give prompt, written contractual notice of this limitation on
the exercise of its termination rights to all applicable bull studs by
transmittal of this Opinion and Order by certified mail.
iv.
v.
10)
Violation of this Permanent Injunction shall be subject to all applicable
penalties, up to and including contempt of court.
This court shall retain continuing jurisdiction over ABS, ST and their
actions for the purpose of enforcing this Permanent Injunction.
The clerk of court is directed to enter partial final judgment consistent with this
opinion and order.
Entered this 31st day of March, 2017.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
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