Inguran, LLC et al v. ABS Global, Inc. et al
Filing
172
ORDER denying without prejudice 33 Motion to Dismiss by Defendants ABS Global, Inc., Genus PLC, Premium Genetics (UK) Ltd. Signed by District Judge William M. Conley on 9/28/2018. (arw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
INGURAN, LLC d/b/a STGENETICS, XY, LLC, and
CYTONOME/ST, LLC,
Plaintiffs,
v.
OPINION AND ORDER
17-cv-446-wmc
ABS GLOBAL, INC., GENUS PLC, and
PREMIUM GENETICS (UK) LTD,
Defendants.
Defendant ABS Global, Inc. (“ABS”) is one of just a few, large “bull studs” that sell
“straws” of bull semen for use in artificial insemination. Inguran, LLC (“ST”) provides
semen-processing services (“sorting”) to ABS and other bull studs to create “sexed semen
straws,” which consist primarily of either male or female sperm cells. Successful semen
sorting is a relatively new breeding technology with substantial economic value for beef
producers, who prefer male calves, and dairy farmers, who prefer female calves.
In this lawsuit, plaintiffs ST, XY, LLC (“XY”), and Cytonome/ST, LLC
(“Cytonome”)
bring
claims
for
patent
infringement,
breach
of
contract,
and
misappropriation of trade secrets under both the Defend Trade Secrets Act and state law.
Among other things, plaintiffs seek injunctive relief against defendants ABS, Genus plc
(“Genus”), and Premium Genetics (UK) LTD (“Premium Genetics”). Before the court is
defendants’
motion
to
dismiss
plaintiffs’
claims
for
breach
of
contract
misappropriation of trade secrets (dkt. #33), which will be denied without prejudice.
and
FACTS1
A. ABS I
ABS and ST entered their first sorting contract in 2006 and later reached another
agreement in 2012. In an earlier lawsuit before this court involving the same parties, ABS
alleged that ST engaged in monopolistic practices in the sorting market. See ABS Global,
Inc. v. Inguran, LLC d/b/a Sexing Technologies, No. 14-cv-503 (W.D. Wis.) (“ABS I”).
Specifically, ABS argued that ST maintained a monopoly by forcing the inclusion of
anticompetitive terms in their contracts with bull studs, including the 2012 agreement
between ABS and ST, as well as acquiring patents for the purpose of excluding others from
the sex-sorting market. ST asserted counterclaims against ABS and its parent company,
Genus. Finally, ST’s subsidiary, XY, intervened and asserted its own counterclaims.
On August 1, 2016, ABS I proceeded to a jury trial, which turned in part on evidence
that a former XY employee, Kathy Mean, brought confidential XY sorting protocols to ABS
when she began work there. ST and XY alleged that Mean’s disclosure breached the
confidentiality provisions of their 2012 Agreement with ABS and misappropriated their
trade secrets. Ultimately, ABS prevailed on its monopolization claim, while ST and XY
prevailed on their claims for breach of contract and misappropriation of trade secrets.
In evaluating a motion to dismiss, the court will accept all well-pleaded factual allegations as true
when viewed in a light most favorable to the non-moving party. See, e.g., Roberts v. City of Chicago,
817 F.3d 561, 564 (7th Cir. 2016). In addition, the court may “take judicial notice of matters of
public record without converting a motion for failure to state a claim into a motion for summary
judgment.” See, e.g., Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir.
1997).
1
2
B. The Present Lawsuit
The present lawsuit was filed more than three years after ABS I was filed. This time,
ST, XY, and Cytonome brought suit against ABS, Genus, and Premium Genetics for patent
infringement, misappropriation of trade secrets under the Defend Trade Secrets Act and
state law, and breach of the confidentiality provisions of the 2012 agreement between ST
and ABS.2 As the remedies for these alleged wrongs, plaintiffs ST, XY and Cytonome seek
various forms of monetary relief; Cytonome seeks an injunction against ABS and Genus’s
use of its patents; XY seeks an injunction against Premium Genetics’ use of XY’s trade
secrets; and ST seeks an injunction against ABS’s use or disclosure of ST’s confidential
information. In addition to disputing plaintiffs’ claims, defendants assert counterclaims
for breach of contract (alleging quality problems with various straws received) and seek a
litany of declaratory judgments related to plaintiffs’ patent infringement claims.3
The crux of ST’s breach of contract claim is its allegation that ABS breached the
confidentiality provision of the 2012 Agreement by improperly disclosing information
wrongfully taken by Kathy Mean to Premium Genetics, which then incorporated that
information into a patent application. (Compl. (dkt. #1) ¶¶ 80-81.) ST further alleges
that both ABS and Premium Genetics are legally responsible for “allow[ing] the patent
office to publish” the specific application (id. at ¶¶ 66, 84), which “diminished or
eliminated the economic value of the portions of ST’s Confidential Information that were
Neither Cytonome, an ST-affiliated LLC, nor Premium Genetics, a wholly-owned subsidiary of
Genus, were parties to the ABS I litigation.
3
These claims are in addition to defendants’ now-dismissed first and second counterclaims against
ST for antitrust violations and unfair competition.
2
3
disclosed.”
(Id. at ¶ 86.)
The application at issue is U.S. Patent Application No.
14/308,499 (“the ’499 application”), which was filed on June 18, 2014, and subsequently
published on April 30, 2015. (Id. at ¶ 66). The ABS I trial did not take place until July
2016, more than a year after this publication.
OPINION
In its motion to dismiss, defendants ABS and Genus argue that XY’s claims for
misappropriation of trade secrets and ST’s claim for breach of contract are precluded by
the judgment in ABS I, as the facts alleged could have been raised in that lawsuit.
Defendants also argue that Premium Genetics, as a party in privity with Genus and ABS,
should benefit from this same claim preclusion. Alternatively, Premium Genetics argues
that it is not subject to the personal jurisdiction of this court.
To survive a motion to dismiss, a complaint “must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (internal quotation marks omitted). To make this determination,
the court must “constru[e] the complaint in the light most favorable to the plaintiff,
accepting as true all well-pleaded facts alleged, and drawing all possible inferences in [the
plaintiff’s] favor.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009). This standard
applies to determinations of whether a claim is precluded by a prior judgment as well. See,
e.g., Lietha v. Bank of Am., N.A., No. 14-cv-442, 2015 WL 1457428, at *2 (W.D. Wis. Mar.
30, 2015) (construing a motion to dismiss on preclusion grounds as a motion for judgment
on the pleadings under Rule 12(c), which “is determined by the same standard applied to
a motion for failure to state a claim”).
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I. Claim Preclusion
The preclusive effect of this court’s judgment on the state law claims in ABS I is
governed by federal common law, which adopts as the “federally prescribed rule of decision,
the law that would be applied by state courts in the State” in which the federal court sits.
Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001).
In this case,
“Wisconsin’s interpretation of res judicata, which is virtually identical” to the federal
approach. Leaf v. Supreme Court of State of Wis., 979 F.2d 589, 600 (7th Cir. 1992).
Under Wisconsin and federal law, claim preclusion has three elements: “(1) an
identity between the parties or their privies in the prior and present suits; (2) an identity
between the causes of action in the two suits; and, (3) a final judgment on the merits in a
court of competent jurisdiction.” Menard, Inc. v. Liteway Lighting Prod., 2005 WI 98, ¶ 26,
282 Wis. 2d 582, 596, 698 N.W.2d 738, 745 (2005); accord Adams v. City of Indianapolis,
742 F.3d 720, 735-36 (7th Cir. 2014).
Claim preclusion renders a final judgment
“conclusive in all subsequent actions between the same parties or their privies as to all
matters which were litigated or which might have been litigated in the former proceedings.”
Menard, Inc., 698 N.W.2d at 745 (brackets omitted; emphasis in original).
With the exceptions of Cytonome and Premium Genetics, the preclusive effect of
ABS I turns solely on “an identity between the causes of action in the two suits,” since the
parties and the court are otherwise the same. A “transactional approach” is utilized to
determine whether two suits involve the same claim. N. States Power Co. v. Bugher, 189
Wis. 2d 541, 553, 525 N.W.2d 723, 728 (1995); Car Carriers v. Ford Motor Co., 789 F.2d
589, 593-94 (7th Cir. 1986). The transactional approach “views claims under a pragmatic
5
standard that focuses on whether the two causes of action arise out of the same common
set of material facts.” Menard, 698 N.W.2d at 747. “[I]f the same set of facts is essential
to both claims,” Jones v. Int’l Ass’n of Bridge Structural Ornamental & Reinforcing Iron Workers,
864 F. Supp. 2d 760, 771 (E.D. Wis. 2012), then the two suits arise out of the same
transaction or “series of connected events,” and the earlier judgment has preclusive effect.
Parungao v. Cmty. Health Sys., Inc., 858 F.3d 452, 458 (7th Cir. 2017). So it is under this
approach that the court will judge the parties’ claim preclusion arguments.
A. ST’s Breach of Contract Claims
Defendants argue that ST’s breach of contract claim is precluded under the
transactional approach because, as in ABS I, ST again alleges that ABS breached the
parties’ 2012 contract by improperly using and disclosing ST’s confidential information.
And, once again, the claim turns on the confidential information about XY’s sorting
protocols taken by Kathy Mean. Although the present allegations concerning the ’499
application were not a focus of ABS I, defendants argue that the claim adjudicated in ABS
I was premised on the same allegation that ABS “improperly disclosed and/or used ST’s
confidential information and trade secrets in its laser-based sex-sorting technologies and
other sex-sorting technologies.” (Am. Answer (ABS I dkt. #302) at ¶ 223.)
Moreover, the ’499 patent application was published nine months before ST’s
operative pleading in ABS I. Regardless of whether ST was aware of that publication, a
final judgment bars claims under the transactional test if they were merely discoverable at
the time of the earlier litigation. See Zientek v. Smith, 204 Wis. 2d 109, 552 N.W.2d 897
(Ct. App. 1996) (“Because the basis for the Smiths' claim to the property was discoverable
6
in the first action and could have been the subject of further investigation, we conclude
that the issue could have been fully litigated in that case.”) (per curiam); Federated Dep’t
Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981).
In response, plaintiffs argue that the transactional test is not satisfied because ST’s
and XY’s current claims center on the defendants’ conduct in destroying the value of the
protocols by publication of the ’499 patent application in 2014, rather than Ms. Mean’s
use of the protocols in her GSS-related R&D work that occurred years earlier and was the
subject of ABS I. On the other hand, defendants argue that the relevant transaction
litigated in ABS I was Ms. Mean’s misappropriation and all related issues, including the
development and publication of the ’499 patent. Given the breadth of the cause of action
in ABS I and the publication date of the ’499 patent application, this court agrees that the
present breach of contract claim is predicated upon facts that were the proper subject of
the litigation in ABS I under the transactional test.
This holding does not end the analysis, however, because even if the transactional
test is satisfied, plaintiff notes that the concealment exception to the preclusion doctrine
may be applicable due to omissions and misrepresentations by defendants during the
course of the ABS I litigation. Under the Restatement approach, “[t]he result is the same
when the defendant was not fraudulent, but by an innocent misrepresentation prevented
the plaintiff from including the entire claim in the original action.” Restatement (Second)
7
of Judgments § 26, cmt. J (1982).4 But this court need not determine if the Restatement’s
approach to cases of unintentional misrepresentation is valid under Wisconsin law, as it
does not yet find that concealment, intentional or innocent, has occurred. Instead, for
purposes of defendants’ motion to dismiss, it is enough that plaintiffs assert that ABS and
Genus deliberately misled ST and XY throughout the entirety of the proceedings in ABS I,
and in doing so, they prevented ST and XY from discovering that Premium Genetics had
accessed and publicly disclosed the stolen protocols.
Specifically, although ABS acknowledged liability for Kathy Mean’s use of the
stolen protocols in developing GSS technology, plaintiffs maintain that ABS and Genus
neither disclosed the protocols that were shared with Premium Genetics, nor that Premium
Genetics then used the information in its ’499 patent application.
Plaintiffs argue,
therefore, that defendants’ numerous representations in ABS I that Ms. Mean’s
misappropriation had been remedied by ABS were misleading at best and fraudulent at
worst, since it caused ST and XY to believe that compensation related only to the GSS
project would be sufficient. Plaintiffs further argue that this misrepresentation had the
effect of inducing them to stop investigating whether additional instances of misuse or
improper disclosure had occurred.
While this Restatement approach has not been expressly adopted by Wisconsin courts, the
Wisconsin Supreme Court has recognized that “the res judicata effect of a county court order is
dependent upon competent jurisdiction and an absence of fraud.” Hammes v. First Nat. Bank & Tr.
Co. of Racine, 79 Wis. 2d 355, 363, 255 N.W.2d 555, 559 (1977). Federal courts have similarly
concluded that under Wisconsin law, a state court judgment has no binding effect in subsequent
litigation where the plaintiff proposes to rely on evidence that he was unable or failed to present in
the first action on account of the defendant’s fraud or concealment.” Bell v. City of Milwaukee, 514
F. Supp. 1363, 1368 (E.D. Wis. 1981).
4
8
Whatever merit this claim of deception might have is, however, largely answered by
ABS’s timely disclosure of a June 12, 2014, email from Mean to Jeff Betthauser and others
at ABS, in which she provided, according to Betthauser’s own deposition testimony in that
case, “media protocols” for use in “a patent application.” (Betthauser Dep. (ABS I dkt.
#462) 99:5-100:17.) Moreover, the meaning of this email exchange was explored during
both Betthauser and Mean’s depositions. When Mean was asked about the email, she
testified that Marj Faust had “request[ed] consolidated write-ups” of ABS’s protocols “to
prepare some patent documents.” (Mean Dep. (ABS I dkt. #308) 100:10-14.) Indeed,
ST placed this email and the published version of the ’499 patent on its trial exhibit list in
ABS I (although the patent application itself was not produced in discovery and was only
added to defendants’ exhibit list on June 24, 2016, just weeks before trial).
ABS and Genus were also served with an interrogatory that asked them to “explain
with specificity [their] search for, location of, and who had access to, any copy of . . . [t]he
XY protocols in ABS or Genus’s possession, custody, or control, including the copy of the
XY protocols produced by ABS in this case.” (Matheson Decl. (dkt. #41-3) 2.) ABS and
Genus responded that:
The single copy of the XY protocols book that was produced
by ABS in this case (ABS_00124682) was gathered as part of
the document collection that was conducted in connection
with this lawsuit . . . . Only this one copy of the XY protocols
book was found in ABS’s search, and it was contained in a file
folder in a set of archive files located in a common area at
ABS’s Waunakee, Wisconsin facility. . . . ABS also conducted
a reasonable inquiry to determine whether any current ABS
employee looked at this copy of the XY protocols book or was
aware that the copy was present in a file folder in the files. The
company was unable to identify a current employee who
looked at the XY protocols book or was aware that it was
9
present in the file folder.
(Id.) While this response makes no mention of any disclosure of the protocols to Premium
Genetics or to its use in the ’499 application, defendants argue that the response was
complete and fair because the interrogatory only related to copies in the possession of ABS
or Genus and did not ask ABS to describe everything that Ms. Mean or others had
developed at ABS based on XY confidential information, or to identify every document
into which information from those protocols was incorporated.
At a minimum, the additional facts and evidence cited by ST and XY create a fact
issue. While claim preclusion is ultimately a legal question, here the dispute about the
applicability of the concealment exception hinges on questions of fact.
See Brighton
Collectibles, Inc. v. Coldwater Creek, Inc., 2009 WL 10671324, at *2 (S.D. Cal. Apr. 27, 2009)
(“Whether res judicata operates to bar a claim is a mixed question of law and fact properly
addressed in a motion brought under Rule 56(c).”); Facchiano v. U.S. Dep’t of Labor, 859
F.2d 1163, 1168 n.4 (3d Cir. 1988) (“[I]n this case we have a mixed question of fact and
law—whether the HUD cause of action and the DOL cause of action are sufficiently similar
to justify claim preclusion.”). Consequently, this court will permit further discovery, rather
than dismiss defendants’ motion with prejudice, as plaintiffs have, for now, alleged enough
to raise a reasonable possibility that concealment occurred, but have not yet proven it.5
Appropriately enough, plaintiffs will have an opportunity to come forward with their evidence of
concealment in response to defendants’ recent motion for summary judgment. (Def.’s Br. (dkt.
#162) 217-48.).
5
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B. ST’s Misappropriation of Trade Secrets Claims
Again mirroring ABS I, XY asserts a claim for misappropriation of trade secrets
based on Kathy Mean’s theft of XY sorting protocols. In ABS I, the misappropriation claim
was based on the “disclosure and use of XY’s confidential trade secret information.” (Am.
Answer (ABS I dkt. #199) at ¶ 221.) The trade secrets at issue were “XY’s protocols for
sexing and freezing of . . . sperm” obtained “through targeted hiring of former XY
employees.” (Id. at ¶¶ 218-19.) XY further alleged damages for both “disclosure” and
“use” of its trade secrets (id. at ¶ 221), and sought an injunction that would bar ABS,
Genus, and “all those in active concert or participation with them” from any further
disclosure of XY’s trade secrets. (Id. at 30.) Consequently, defendants argue that XY’s
present claim is encompassed by its previous claim in ABS I.
Since the publication that resulted in the “destruction” of XY’s trade secrets
occurred months before XY filed its pleading in ABS I, plaintiffs argue that the applicability
of claim preclusion to the state law claims will again turn on whether concealment occurred.
The court agrees. However, XY’s new claim under the Defend Trade Secrets Act fails as a
matter of law because the Act does not apply retroactively to Mean’s misappropriation that
took place before its enactment. See Defend Trade Secrets Act § 2(e), Pub. L. No. 114153 (May 11, 2016) (providing that the Act “shall apply with respect to any
misappropriation of a trade secret . . . for which any act occurs on or after the date of the
enactment of this Act.”). Since XY alleges that Premium Genetics destroyed the value of
its trade secrets in 2015, no misappropriation could have occurred after the enactment of
the Act in 2016.
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This court will continue to exercise supplemental jurisdiction over XY’s trade secret
claim given the factual issues it shares with the other claims being litigated by the parties.
Accordingly, as with the breach of contract claims, whether the state law misappropriation
claims are precluded will turn on whether concealment occurred during the related
litigation in ABS I.
C. Privity and Personal Jurisdiction over Premium Genetics
While Premium Genetics was not a party in ABS I, there is enough in the record to
conclude that it is in privity with ABS and Premium Genetics because it is a wholly-owned
subsidiary of Genus and their interests overlap. See State ex rel. Barksdale v. Litscher, 2004
WI App 130, ¶ 14, 275 Wis. 2d 493, 504, 685 N.W.2d 801, 806 (“Privity compares the
interests of a party to a first action with a nonparty to determine whether the first action
protected the interests of the nonparty.”); Anchor Glass Container Corp. v. Buschmeier, 426
F.3d 872, 880 (7th Cir. 2005) (finding privity between parent and subsidiary). Indeed,
the injunction requested by XY in ABS I would have likely applied to Premium Genetics
as a party “in active concert” with ABS and Genus. This same privity appears to apply
between ST, XY and Cytonome.
Defendants argue that if the claims against Premium Genetics are not precluded,
then they should be dismissed because Premium Genetics is not subject to personal
jurisdiction in this court as Premium Genetics is incorporated and has its principal place
of business in the United Kingdom, making the exercise of general jurisdiction
inappropriate. As defendants observe, Premium Genetics owns no property and has no
employees in Wisconsin.
Nor did the filing of the ’499 patent application occur in
12
Wisconsin, as it was a Virginia-based attorney who filed the application and was
responsible for its prosecution.
Plaintiffs counter that Premium Genetics is an intellectual property holding
company whose business consists largely of obtaining patent application disclosures and
assignments of patent rights from its Wisconsin-based sister company, ABS, and then
licensing those patents back to ABS in Wisconsin for commercial activities related to GSS
technology. This activity, argues defendants, led to the destruction of XY’s protocol-related
trade secrets. It is relevant, then, that the named inventors on the ’499 patent application
are Wisconsin residents.
If ABS’s allegations are credited, therefore, the claimed invention in the ’499 patent
directly stems from research and development work on the GSS system that was performed
by ABS employees in Wisconsin. Consequently, the present claims can fairly be said to
arise out of the suit-related conduct of Premium Genetics in Wisconsin. Adjudication by
this court is therefore consistent with due process requirements, as specific jurisdiction is
appropriate when “the defendant’s suit-related conduct [creates] a substantial connection
with the forum State.”
Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014).
“Once the
requirements of due process are satisfied, then there is little need to conduct an
independent analysis under the specific terms of the Wisconsin long-arm statute itself
because the statute has been interpreted to go to the lengths of due process.” Felland v.
Clifton, 682 F.3d 665, 678 (7th Cir. 2012).
ORDER
IT IS ORDERED that defendants’ motion to dismiss (dkt. #33) is DENIED
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without prejudice for the reasons set forth above.
Entered this 28th day of September, 2018.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
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