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Shoup v. Shoup Manufacturing

September 16, 2010

KENNETH E. SHOUP, PLAINTIFF,
v.
SHOUP MANUFACTURING, INC., DEFENDANT.
SHOUP MANUFACTURING CO., INC., COUNTER-PLAINTIFF,
v.
GENE SHOUP MANUFACTURING, INC. (NOW KNOWN AS NOT DEAD YET MANUFACTURING, INC.,) AND KENNETH E. SHOUP, COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

On July 21, 2010, Counter-Defendants Gene Shoup Manufacturing, Inc. (GMS) and Kenneth E. Shoup (KES) filed this Motion for Judgment of Counter-Plaintiff's Counterclaims (#19). Counter-Plaintiff Shoup Manufacturing Co., Inc. (Shoup), filed their Response (#21) on August 4, 2010. For the reasons that follow, KES/GMS's Motion for Judgment (#19) is DENIED.

BACKGROUND

KES used to be an employee and officer of Shoup. While KES was at Shoup, several patents were developed. KES eventually left Shoup and started his own business under a similar name.

KES and Shoup entered into litigation over KES's use of the name.*fn1 On April 13, 2010, KES filed a Complaint (#1) that makes the following allegations:

KES founded Shoup Manufacturing, Inc., in 1977. KES became President of Shoup Manufacturing in 1977 and remained in that position until November 6, 2006. KES conceived of and reduced to practice several inventions while at Shoup Manufacturing, which were patented on behalf of Shoup Manufacturing. While with Shoup, KES did not have an express, written employment contract that explicitly required assignment of rights to inventions. However, Shoup maintains that KES was nonetheless obligated to do so. While at Shoup, KES was responsible for the following inventions: (1) row cleaner, which was conceived and reduced to practice no later than April 29, 1994, and a patent (U.S. Patent No. 5,497,716) was granted on March 12, 1996; (2) gauge wheel scraper, conceived of and reduced to practice no later than April 15, 1997, and a patent (U.S. Patent No. 5,884,711) was granted on March 23, 1999; (3) adjustable gauge wheel for a planter, conceived of and reduced to practice no later than June 9, 2000, a patent (U.S. Patent No. 6,321,667) was granted on November 21, 2001. Shoup admits that applications were filed for these inventions by and on Shoup's behalf, but maintains that Shoup, not KES, is the rightful owner of the patents.

In 2000 KES transferred ownership of Shoup to his then wife, Cheryl M. Baber. KES terminated his relationship with Shoup on November 7, 2006. The dispute at issue in the original Complaint (#1) concerns ownership of the three patents mentioned above. In his Complaint, KES alleges Shoup has manufactured and/or sold the patented products at issue. He alleges that, since November 2006, Shoup has had no express or implied license to practice those patents, but that Shoup continues to advertise the patented products in catalogues. KES claims Shoup is infringing and inducing others to infringe the patents in violation of 35 U.S.C. § 271. KES alleges Shoup had actual knowledge of the patents and their applicability to the products they are selling, yet wilfully and wantonly continued to sell the products. Count I concerned the row cleaner (patent No. 5,497,716); Count II concerned the gauge wheel arm kits (patent No. 5,884,711); and Count III concerned the gauge wheel arm kits as well (patent No. 6,321,667) (these three patents will hereinafter be referred to as the "original patents in suit"). KES asks for injunctive relief and damages against Shoup for the patent infringement.

Shoup filed its Answer and Affirmative Defenses to Complaint and Counterclaims (#8) on May 3, 2010. In the Answer, Shoup denied both that KES held title and was the rightful owner of the patents at issue. Shoup denied that it was infringing on any patents held by KES. Shoup denied KES was suffering damages. Shoup further alleged affirmative defenses to KES's Complaint, such as the Complaint being barred in whole or in part because KES does not own the patents on which the Complaint is based and because KES was obligated to assign to Shoup the original patents in suit. Further, Shoup alleges they received an express or implied license to the inventions and original patents in suit.

Shoup also filed Counterclaims, on which this instant Motion for Judgment on the Pleadings is based. In the Counterclaim, Shoup alleges that KES developed nine patents related to Shoup (including the original patents in suit) while KES was an employee and officer of Shoup on company time using company resources. Shoup contends it is the rightful owner of these patents and seeks to memorialize the ownership by compelling a written assignment from KES to Shoup. Shoup also seeks an accounting in relation to the revenues, royalties, and other payments received by KES as a result of his "unauthorized exploitation of these patents," as well as an order forcing KES to disgorge any sums he has received from this unauthorized exploitation. Shoup also seeks damages for trademark infringement and unfair competition arising out of KES's infringement of the Shoup trademark in connection with a competing business KES set up, Gene Shoup Manufacturing (GSM). Although KES and GSM recently consented to a permanent injunction based on this trademark infringement and unfair competition in Case No. 10-CV-2038 before Judge Baker, the damages aspect of these claims was dismissed without prejudice and is realleged by Shoup as part of their counterclaim.

Shoup alleges that there is an ownership dispute as to nine patents developed by KES while at Shoup (the original patents in suit and the six additional patents alleged in the counterclaim, hereinafter known as a the "additional patents in suit"). Shoup alleges that it is the rightful owner of the patents and that KES, while at Shoup, improperly licensed and personally accepted royalty payments for the Shoup patents without Shoup's knowledge or consent.

Shoup also alleges trademark infringement and unfair competition. Between October 27, 2008, and the entry of the consent decree on April 1, 2010, KES and GSM began a competing farm equipment business in connection with and under the expression "Gene Shoup Manufacturing, Inc." and variations thereof. Shoup alleges this competing business involved the sale of products under the infringing expression (Gene Shoup Manufacturing) which were the same as, or related to, the goods provided by Shoup under the Shoup trademark and the U.S. trademark registrations. Shoup claims KES and GSM's use of the infringing expression in connection with their products was an attempt to misappropriate the goodwill and reputation of Shoup based on the Shoup trademark and that it caused actual confusion in the marketplace.

There are nine counts in the Shoup Counterclaim: Count I- declaratory judgment under 28 U.S.C. § 2201 against KES, that KES possesses a duty to assign to Shoup patents but he has refused to do so; Count II- breach of fiduciary duty against KES, which KES breached, while an officer and employee of Shoup, by licensing and covenanting, on behalf of Shoup without authorization, not to sue the licensees under one or more of the Shoup patents for his own personal benefit and by accepting and retaining royalty payments from the licensees in consideration for the same; Count III - usurpation of corporate opportunity against KES, as KES owed Shoup a duty of loyalty, and instead personally accepted royalty payments from licensees, instead of having Shoup receive the payments; Count IV- unjust enrichment against KES, in that while an employee of Shoup, KES licensed and covenanted that Shoup would not sue licensees under one or more of the Shoup patents and personally accepted royalty payments from licensees; Count V- trademark infringement pursuant to § 32 of the Lanham Act (15 U.S.C. § 1114); Count VI- federal unfair competition pursuant to § 43(a) of the Lanham Act (15 U.S.C. § 1125(a) against KES and GSM; Count VII-Uniform Deceptive Trade Practices Act (815 Ill. Comp. Stat. 510/2) against KES and GSM; Count VIII- Consumer Fraud and Deceptive Business Practices Act (815 Ill. Comp. Stat. 505/2) against KES and GSM; and Count IX- common law unfair competition against KES and GSM.

ANALYSIS

Rule 12(c) of the Federal Rules of Civil ...


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