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Connell v. KLN Steel Products Co.

April 25, 2006

MICHELLE D. CONNELL AND HI-TECH BEDS SYSTEMS, CORPORATION, PLAINTIFFS,
v.
KLN STEEL PRODUCTS COMPANY, LTD, D/B/A KLN STEEL PRODUCTS COMPANY, AND CLARK/BLINDERMAN/KNIGHT, LLC, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Michelle D. Connell and Hi-Tech Beds Systems, Corporation (together "Plaintiffs") bring claims against KLN Steel Products Company, Ltd ("KLN") and Clark/Blinderman/Knight, LLC ("Clark," and together with KLN, "Defendants") for patent infringement and for several supplemental tort claims brought under Illinois law. Defendants have moved to amend their answer both to contest jurisdiction and to add an affirmative defense of 28 U.S.C. §1498(a) as to the patent infringement claim. The motion is granted in part and denied in part. Defendants may not amend their answer to contest jurisdiction because the parties already briefed the jurisdictional implications of §1498(a), and the Court correctly ruled against the Defendants. Defendants may amend their answer to add §1498(a) as an affirmative defense because Defendants have shown "good cause" to amend a pleading at this stage in the proceedings, and it is in the interests of justice to do so in the case here.

Facts

The following facts are drawn from Plaintiffs' complaint. Plaintiff Connell is the legal owner of Patent Number 6,611,973 B2, for a mobile space-saving storage sleeper. Complaint at ¶¶ 9, 21. Plaintiff Connell is also the sole shareholder of Plaintiff Hi-Tech Beds Systems Corporation, which markets and sells the bed structure pursuant to a licencing agreement with Plaintiff Connell. Id. at ¶¶ 10-11. In 1999, Plaintiffs learned that the Navy planned to develop a barracks at its Great Lakes Recruit Training Center in Illinois (the "Center"). Id. at 20. Plaintiffs shared their design with the Navy and with Clark, the contractor constructing the beds at the Center. Id. at ¶¶ 22-23.

Plaintiffs allege that KLN, having considerable influence with Navy personnel at the Center, gained access to Plaintiffs' confidential patent information through improper means and then used the information to build a bed equivalent to Plaintiffs' design. Id. at ¶¶ 25-33. Plaintiffs allege that they submitted a second design for a bed to Clark and to the Navy, which design KLN also accessed and copied. Id. at ¶¶ 35-42. Clark signed Plaintiffs to a contract for the first two new barracks at the Center, but Clark signed KLN to the remaining contracts. Id. at ¶¶ 36, 50. Plaintiffs allege that Defendants infringed their patent, improperly misappropriated trade secrets, engaged in unfair business practices and unfair competition, and interfered with Plaintiffs' business relationships. Plaintiffs bring the patent infringement claim pursuant to federal law, and bring the state law claims by supplemental jurisdiction and potentially in diversity.

Procedural History

On January 12, 2004, Plaintiffs filed a complaint alleging patent infringement and Illinois actions in tort. See Docket No. 1. On July 28, 2004, the magistrate judge entered a scheduling order in the case setting January 12, 2005 as the deadline for amendments to the pleadings. See July 28, 2004 Order (no docket number). Throughout 2004, the parties briefed and amended the pleadings and attempted settlement. By early 2005, the parties were in the midst of written discovery. In May 2005, Defendants moved for summary judgment on the patent infringement claim. Defendants asserted that 28 U.S.C. §1498(a) barred this Court's*fn1 subject matter jurisdiction because the Court of Federal Claims has exclusive jurisdiction over claims against government contractors. See Docket No. 34. The Court granted Plaintiffs' request for additional discovery on the jurisdictional implication of §1498(a), and Plaintiffs filed their response to the motion for summary judgment at the end of September 2005. See Docket Nos. 48, 56, 59.

On December 19, 2005, the Court denied Defendants' motion for summary judgment without prejudice via Minute Order, addressing solely the fact that §1498(a) is not a jurisdictional bar when raised by a private party government contractor, but rather is an affirmative defense. See Docket No. 95. The Court noted that Defendants never asked for leave to file §1498(a) as an affirmative defense, and that it could not assume that such a motion would be granted, but that Defendants could refile their motion for summary judgment at a later date in the event that leave to amend the answer was granted. On January 6, 2006, Defendants moved to amend their answer to contest jurisdiction under §1498(a), and to add §1498(a) as an affirmative defense.

Motion to Amend to Dispute Jurisdiction

As part of the Court's December 19, 2005 Minute Order denying Defendants' motion for summary judgment, the Court explained that 28 U.S.C. §1498(a) is not a bar to subject matter jurisdiction when pled by private parties, but is instead an affirmative defense. See Docket No. 95.

The Court supported its position with case law from the Federal Circuit. Defendants now reassert their position that this Court lacks subject matter jurisdiction by seeking to amend their answer to contest jurisdiction. Therefore, the Court takes this portion of Defendants' motion as a motion to reconsider the ruling of December 19, 2005. The motion is denied.

Defendants state that there is a "split of authority" on the issue of the Court's jurisdiction to hear a claim implicating §1498(a) because that statute requires a patentee to seek remedy for infringement "by or for" the United States in the Court of Federal Claims. See 28 U.S.C. §1498(a).*fn2 Defendants note that the Seventh Circuit has not opined on the subject.

The Federal Circuit has exclusive jurisdiction over appeals from patent infringement actions. See 28 U.S.C. §1295(a) ("The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction of an appeal from a final decision of the District Court of the United States. . . if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title. . .") Because Plaintiffs have brought this action in part under 28 U.S.C. §1338, the action falls under the Federal Circuit's exclusive appellate jurisdiction. See Complaint at ¶ 7. The Federal Circuit recently opined on both its exclusive jurisdiction over and the proper interpretation of §1498(a). In Madey v. Duke University, 307 F.3d 1351 (Fed. Cir. 2002), the Federal Circuit reversed a district court for incorrectly relying on regional circuit law to determine that it lacked subject matter jurisdiction under §1498(a). The Madey court stated:

[T]he district court relied on the doctrine of jurisdictional facts when, as between private parties, §1498(a) is not jurisdictional. The district court applied the [regional circuit's] general jurisdictional facts doctrine. This is error because Federal Circuit law provides the applicable interpretation of § 1498(a). Section 1498(a) applies exclusively to patent law, meaning that Federal Circuit law applies. One might counter-argue that § 1498(a) is procedural. However, to the extent that § 1498(a) is procedural, it is unique to patent law, which also indicates that Federal Circuit law applies. Federal Circuit law, ...


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