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Integrated Cards, L.L.C v. McKillip Industries

November 19, 2009


The opinion of the court was delivered by: Virginia M. Kendall United States District Judge Northern District of Illinois

Judge Virginia M. Kendall


Plaintiff/Counter-Defendant Integrated Cards, L.L.C. ("Integrated Cards") brought this suit against Defendant/Counter-Plaintiff McKillip Industries, Inc. d/b/a USA/Docufinish ("USA"), alleging infringement of U.S. Patent No. 5,462,488 ("the '488 patent"), entitled "Integrated Card and Business Form Assembly and Method for Fabricating Same on Label Formation Equipment." On August 8, 2008, the Court denied USA's Motion for Summary Judgment on the basis of laches and equitable estoppel, finding that Integrated had raised triable issues of material fact regarding when it knew or should have known about USA's alleged use of the '488 patent. The Court bifurcated the defenses of laches and equitable estoppel and held a bench trial to resolve the disputed issues. After listening to the testimony presented by both parties and reviewing the documents entered into evidence at trial, the following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52.


I. Background

John J. McKillip ("John") became involved in the business printing industry in the 1960s.

(Stip. ¶ 1.) After getting his start in the industry selling business forms, he formed Illinois Stencil in the early 1970s, which merged with American Stencil in the late 1970s. (Stip. ¶¶ 7-9.) John hired his brother Stephen M. McKillip ("Steve") as a salesman at American Stencil, where the sales department comprised the two McKillip brothers. (Tr. Vol. 4-A, pgs. 582-83.) They worked together for a few years until 1986, when Steve unexpectedly and unamicably left American Stencil after getting into a dispute with John regarding sales calls. (Id. at 583-84.) John thought that Steve planned on starting a convenience store when he left American Stencil. (Id. at 584-85.) Instead, Steve started his own business printing company, United Stencil and Affixing, Inc. (Id.; Tr. Vol. 1-A, pg. 17.) Since 1986, Steve has served as president of United Stencil and Affixing, now named USA/Docufinish. (Tr. Vol. 1-A, pg. 17; Stip. ¶¶ 1-2.) Within the business printing industry, USA/Docufinish has always been known as "USA." (Tr. Vol. 2-B, pgs. 341, 364.) Unfortunately, the business printing industry was not big enough to hold both of the feuding McKillip brothers who have not spoken to each other in over twenty years. After Steve informed John in 1987 that he had started USA, the brothers stopped communicating with each other. (Tr. Vol. 4-A, pg. 585.) USA went on to take most of American Stencil's business. (Id. at 586.)

In 1993, John started another printing company, named Tri-Graphics, with his partners Stanley Stack ("Stack") and Bob VanHyfte ("VanHyfte"). (Stip. ¶¶ 10-11.) John began to use his knowledge of the business printing process to obtain ten patents for various types of business forms, labels and cards. (Def. Ex. 5.) At Tri-Graphics, John focused on research and development. (Stip. ¶ 10.) His efforts in that role paid off when he developed a method for integrated card assembly in 1994. (Stip. ¶ 12.) The term "integrated card" generally describes a business form that has a base document with an attached card that can be peeled away from the base document. (Stip. ¶¶ 4-5.) For example, a letter that has a peel-off membership card incorporated into it would be an integrated card. Not every type of integrated card has the same construction. (Stip. ¶ 4.) The '488 patent, issued to John and Stack on October 31, 1995, describes a specific type of integrated card that has a base document and a back patch. (Stip. ¶¶ 4, 5.) To make the integrated card described in the '488 patent, a die cuts the card shape into the base document, but not through the back patch, enabling someone to peel the card away from the remainder of the base document and the back patch. (Stip. ¶ 5.) Tri-Graphics began using the method described in the '488 patent to make integrated cards for its customers. (Stip. ¶ 13.) In 1997, American Stencil and Tri-Graphics each auctioned off their assets after their creditors forced them into bankruptcy involuntarily. (Tr. Vol. 4-A, pgs. 588, 591.)

Once American Stencil and Tri-Graphics ceased operations, John began selling business forms for AmeriPrint Corporation ("Ameriprint"), another business forms vendor. (Id. at 591-92; Stip. ¶ 24.) With John on board, AmeriPrint began selling integrated cards in 1998. (Stip. ¶ 25.) In July 1999, John left AmeriPrint and started Integrated Label Corporation ("Integrated Label") with his wife, where he has continued to work through the filing of this lawsuit in 2006. (Stip. ¶ 29; Tr. Vol. 4-A, pgs. 595-600.)

On September 29, 2005, John assigned his interest in the '488 patent to Malessa Partners, LLC ("Malessa"). (Stip ¶ 14.) In October 2005, Stack assigned his interest in the patent to his company, Stack, LLC. (Id.) Malessa and Stack, LLC then formed Integrated Cards, LLC and assigned their interests in the '488 patent to the newly formed entity. (Id.) The sole members of Integrated Cards remain Malessa and Stack, LLC. (Stip. ¶ 15.)

Integrated Cards and USA each manufacture business forms, including integrated cards. (Tr. Vol. 1-A, pgs. 17, 19.) Since 1995, USA has continuously manufactured and sold integrated cards that allegedly infringe the '488 patent. (Stip. ¶ 6.) On April 12, 2006, Integrated Cards filed suit, claiming that USA's integrated card products infringe the '488 patent. The Court denied USA's Motion for Summary Judgment on the basis of laches and equitable estoppel, finding that disputes of material fact existed regarding when John had knowledge of USA's alleged infringement that could be imputed to Integrated Cards.

II. Findings of Fact

The Court makes the following findings of fact after conducting a bench trial, observing the testimony of the witnesses, and assessing their credibility.

USA has manufactured the accused integrated cards since 1995. (Stip. ΒΆ 6.) To make integrated cards, USA purchased two Tamarack machines, a piece of equipment made primarily for the production of integrated cards and labels. (Tr. Vol. 1-A. pg. 102, 105.) In 1996, USA purchased a Tamarack machine for $266,000 to make integrated cards. (Id. at 108-09.) That machine was not sufficient for USA's integrated card manufacturing needs, so it purchased another Tamarack machine in January 1997 for $242,000 (Id. at 110.) In July 1997, USA purchased another Tamarack machine for $265,835 (Id.) USA now has four Tamarack machines that it uses nearly exclusively for producing integrated cards. (Id. at 104-05.) From 1998-99, USA purchased three FME machines that it uses to make integrated cards that have irregular form depths. (Id. at 103, 112.) The FME machines cost $100,000 each. (Id. at 112.) USA would not have had a need for the FME machines if it did not manufacture integrated cards because it could have used other machinery to manufacture integrated labels of irregular depths. (Id. at 119-20.) USA's machinery purchases increased the company's total capacity to manufacture integrated cards and led to increased sales of integrated cards. (Tr. Vol. 2-B pgs. ...

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