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Motorola, Inc v. Lemko Corp.

January 10, 2012

MOTOROLA, INC., PLAINTIFF,
v.
LEMKO CORP., XIAOHONG SHENG, SHAOWEI PAN, HANJUAN JIN, XIAOHUA WU, XUEFENG BAI, NICHOLAS LABUN, BOHDAN PYSKIR, HECHUN CAI, JINZHONG ZHANG, ANGEL FAVILA, ANKUR SAXENA, RAYMOND HOWELL, FAYE VORICK, AND NICHOLAS DESAI, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Motorola, Inc. has sued Lemko Corp. and fourteen individuals under a variety of theories arising from their alleged theft of Motorola's intellectual property. Defendants Lemko, ShaoWei Pan, and Nicholas Labun have moved for summary judgment on Motorola's declaratory judgment claim for patent ownership. Defendants Lemko, Pan, Labun, Xuefeng Bai, Bohdan Pyskir, Hechun Cai, Jinzhong Zhang, Ankur Saxena, Faye Vorick, and Nicholas Desai have moved for summary judgment on Motorola's claims for misappropriation of trade secrets, usurpation of corporate opportunity, and breach of contract. For the reasons stated below, the Court denies both motions.

Background

The Court takes the following facts from the parties' memoranda of law and statements of uncontested facts. On a motion for summary judgment, the Court construes all facts favorably to the nonmoving party and makes reasonable inferences in that party's favor. Eaton v. Ind. Dep't of Corr., 657 F.3d 551, 552 (7th Cir. 2011).

In 2002, a group of people, including several who were or who had been Motorola employees, began to implement a plan to establish Lemko. The new company's slogan was "Wireless for the Next Billion People." Among the early documents created for Lemko was a white paper that described the problem the company intended to address and some of the technology it was developing or planned to develop:

Cellular infrastructure is too expensive . . . because [it uses] an outdated design very similar to the old mainframe computer.

The mainframe model employed a super computer at the center accessed by "dumb" terminals, computer screens with keyboards. The mainframe was the hub and the terminals were the spokes. All the brains were in the hub. . . . Desktop computing moved the brains out of the hub and into the spokes. The Internet connected the spokes and the hub disappeared for most applications. Cellular networks still use the old hub and spoke design. The cellular switch and base station controller constitute the hub while the base stations and cell phones are the spokes. Like the mainframe, the cellular hub (switch and controller) consists of large electronic equipment racks. It is the brains of the network. Additionally, the cellular hub is extremely expensive. An operator needs tens of thousands of users to get a positive or attractive return on investment. Furthermore, the hub must maintain constant and costly communication links called backhaul with all the base station spokes.

In emerging and underdeveloped countries, these characteristics impede cellular companies from expanding coverage to urban fringes and offering services in rural towns and villages. . . . The cost to link a base station (spoke) to a switch (hub) is prohibitive in remote areas. . . .

Lemko has developed a distributed architecture for wireless telecommunication networks. Similar to the desktop computing model, Lemko's solution decentralizes the network, which greatly reduces costs.

Lemko's Control and Soft-Switch Element, CASSE, is . . . the least expensive, fully functional, combined, cellular soft-switch and base station controller. With CASSE, there is no need to buy the expensive hub equipment. . . .

Since CASSE is so inexpensive, it is now possible to deploy it alongside a base station. In other words, an operator can push the intelligence from the center out to the spokes, creating a distributed network. CASSEs can be connected to each other or to an existing cellular switch.

Pl. Ex. 12 at LEM112753-55.*fn1

According to Motorola, the process of founding and developing Lemko involved the violation of a number of Motorola's rights, in particular defendants' theft, by virtue of their Motorola employment, of proprietary information. Defendants deny Motorola's allegations.

Motorola makes two particular contentions that are now the subject of defendants' summary judgment motions. First, Motorola accuses Pan and Labun of breaching their contractual duty to assign to Motorola the patents for all inventions they conceived or created during their employment. Motorola seeks a declaratory judgment that it is the rightful owner of eight patents and ten pending patent applications (the "Lemko patents") that Pan and Labun obtained or filed and assigned to Lemko between 2004 and 2009. Defendants*fn2 respond that Pan and Labun conceived and created each invention after they left Motorola.

Second, Motorola accuses all of the former Motorola employees of stealing trade secrets -- confidential and proprietary information, including technological concepts and source code. Defendants deny this accusation and contend further that Motorola has failed to comply with its discovery obligations in identifying the evidence that supports this claim.

Defendants have moved for summary judgment on Motorola's patent claim (count six) and all the claims they believe are related to the trade secrets accusation (count two for misappropriation of trade secrets, count five for usurpation of corporate opportunity, and counts seven through eleven and thirteen for breach of contract). The Court discusses the facts and evidence relevant to each motion in more detail below.

Discussion

Summary judgment is proper when the moving party shows that there is no genuine dispute over any material fact and that they are entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A genuine issue of material fact exists when, based on the record, a reasonable fact finder could find in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The Court views the record and draws all reasonable inferences in the light most favorable to the nonmoving party. Outlaw v. Newkirk, 259 F.3d 833, 836-837 (7th Cir. 2001).

A. Patent Claims

Labun started working for Motorola in September 1989 and eventually became Director of Strategy for Motorola's New Enterprises division. Pan began working as a Motorola staff engineer in August 1994 and was promoted to Director of Advanced Technology and Development by approximately September 2000. At some point during their employment, Pan and Labun both worked on a Motorola project or group involving "seamless mobility" technology, Pan as an inventor and Labun as the project head.

When Motorola hired Pan and Labun, it required each of them to sign an employment agreement that contained the following language:

In consideration of any employment, or continued employment by Motorola, Inc. or its subsidiaries (referred to separately or together as "Motorola") and the salary or wages paid to me, I understand and agree to the following provisions for the protection of Motorola property rights: . . .

To assign and I hereby assign to Motorola as its exclusive property the entire right, title and interest in all my inventions, innovations, or ideas developed or conceived by me solely, or jointly with others, at any time during the term of my employment and which inventions, innovations, or ideas related to the actual or anticipated business activities of Motorola, or result from, or are suggested by, work which I do for Motorola.

Def. Ex. F.

While at Motorola, Pan and/or Labun were named inventors on over sixty patents and patent applications that were later assigned to Motorola. The latest of these was filed on October 28, 2002. Both Pan and Labun left Motorola in 2004, Pan in late March and Labun in early May. Both began full-time employment with Lemko shortly thereafter, Labun eventually becoming Lemko's Chief Executive Officer and Pan its Chief Technology Officer. Both are also directors of Lemko. They filed the first Lemko patent application in November 2004 and the latest in June 2009. Eight of the applications have been granted to date.

Lemko was incorporated in mid-2002, but the parties dispute the degree to which it was active and/or various defendants were taking actions on its behalf at that point. Defendants argue that Lemko was an unfunded "shell of a company" with "no products, no sales and no patents" until the second half of 2004. Defs.' Reply at 6. Motorola argues that, regardless of Lemko's corporate viability, Pan and Labun began doing work for the new company, including conceiving of the inventions that are the subject of this claim, in 2002 or earlier, while they were still employed at Motorola. As the Court discusses in detail below, to prove this, Motorola offers evidence of documents produced for Lemko before 2004, as well as communications during that time between Pan and Labun and other defendants, particularly Vorick and Desai. Motorola contends that these documents establish pre-2004 Lemko activity and thereby constitute circumstantial evidence that Pan and Labun conceived of the inventions embodied in the Lemko patents during their Motorola employment. Therefore, Motorola argues, under the terms of the employment agreements, it is the rightful owner of all eighteen Lemko patents.

Defendants argue that Motorola has produced insufficient evidence that Pan and Labun conceived of each invention before they left; that even if there is such evidence, the inventions are not "related to" Pan and Labun's work at Motorola or otherwise within the agreements' scope; and that either way, Motorola forfeited its claim by not recording its right to the inventions before Lemko did so.

Defendants argue that the employment agreements should be read by reference to patent law. Patent law defines conception of an invention as the "formation in the mind of the inventor of a definite and permanent idea of a complete and operative invention, as it is hereafter to be applied in practice." Spansion, Inc. v. Int'l Trade Comm'n, 629 F.3d 1331, 1356 (Fed. Cir. 2010). Defendants argue that proof of conception requires corroborating evidence "which shows that the inventor disclosed to others his completed thought expressed in such clear terms as to enable those skilled in the art to make the invention." Coleman v. Dines, 754 F.2d 353, 359 (Fed. Cir. 1985). Defendants also argue that because each claim of a patent is considered "a separate invention," Jones v. Hardy, 727 F.2d 1524, 1528 (Fed. Cir. 1984), Motorola must produce corroborating evidence of conception and disclosure before May 2004 for each of the 488 claims of the patents in order for a reasonable jury to find defendants breached the agreement.

Motorola argues that the Court should look instead to DDB Technologies, LLC v. MLB Advanced Media, LP, 517 F.3d 1284, 1290 (Fed. Cir. 2008), in which the court, construing similar language in an employment agreement, treated the question of patent ownership as one governed solely by the terms of the contract, which it analyzed according to state law rather than patent law. See also SiRF Tech., Inc. v. Int'l Trade Comm'n, 601 F.3d 1319 (Fed. Cir. 2010) ("The question [of] whether the invention is 'related to or useful in the business of the Employer' within the meaning of the agreement . . . is a matter of state law.")

The Court concludes that DDB and SiRF establish the proper framework for this action. The Federal Circuit considered in those cases essentially the same claim that Motorola is making and recognized that the parties did not necessarily use terms in their agreements in the same way in which they are defined in patent law. The patent-law corroboration rule upon which defendants rely comes from cases in which parties sought "to prove conception via the oral testimony of a putative inventor," who "might be tempted to describe his actions in an unjustifiably self-serving manner in order to obtain a patent." Singh v. Brake, 317 F.3d 1334, 1341 (Fed. Cir. 2003). A district judge recently rejected, in a case involving issues similar to the present one, a plaintiff's argument that proof of conception further requires disclosure, and that it must encompass all limitations of the claimed invention. As the defendant correctly points out . . . this exacting standard hails from a line of cases involving claims in which the plaintiff sought [to] be added as a co-inventor or from interference proceedings, in which policy concerns about self-serving claims of inventorship require courts to exercise the greatest caution. It is in this context . . . that courts have hewn to the line of the patents themselves to determine whether and when the complete and operative invention has been conceived.

As the FilmTec court makes clear, a less stringent standard applies when determining whether patent rights were contractually assigned. Indeed, in FilmTec, the Federal Circuit Court of Appeals held that the district court had erred by resolving the issue of title to the patent-in-suit according to the patent claims rather than the terms of the operative contract.

Leighton Techs. LLC v. Oberthur Card Sys., SA, No. 04 C 2496, 2007 WL 2230157, at *14 (S.D.N.Y. July 11, 2007) (citing FilmTec Corp. v. Hydranautics, 982 F.2d 1546 (Fed. Cir. 1992)) (internal citations omitted). The Court finds these decisions persuasive.

Because Pan and Labun's employment agreements stated that they "hereby assign[ed]" their interest in related inventions to Motorola and did not require any further action on the inventors' part, any inventions meeting the agreements' requirements belong to Motorola. See DDB, 517 F.3d at 1290. Thus, the relevant question at this juncture is whether there is evidence from which a reasonable jury could find that these particular inventions were within the scope of the assignment term contained in Pan and Labun's employment agreements.

In DDB and SiRF, the court found that the employment agreements were "ambiguous as to what is 'related to' or 'suggested by'" an inventor's work for a company "because resort to extrinsic evidence, for example, as to the nature of [the company's] business or to that of [inventor's] work, is necessary to determine whether the provision applies." DDB, 517 F.3d at 1292; see also SiRF, 601 F.3d at 1326 ("Neither the agreement nor [state law] specifies what it means for an invention to be 'related to or useful in the business of the Employer.'"). In both cases, the Federal Circuit cited state law allowing it to resort to extrinsic evidence to determine the meaning of ambiguous contract terms.

"When interpreting written contracts, the trial judge initially makes the determination of whether the contract is ambiguous or unambiguous as matter of law." Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1389(7th Cir. 1993). The Court finds that the terms "related to the actual or anticipated business activities of Motorola, or result from, or are suggested by work I do for Motorola," which are very similar to those discussed in DDB and SiRF, are ambiguous. Like the terms in DDB and SiRF, the meaning of these terms may depend on extrinsic evidence. Under Illinois law, the meaning of an ambiguous contract is a question for the trier of fact, which must consider the language of the contract along with any extrinsic or parol evidence presented by the parties. LaSalle Nat'l Bank v. Serv. Merch. Co., 827 F.2d 74, 78 (7th Cir. 1987).

The Court finds, however, that the terms "developed or conceived . . . during the term of my employment" are not ambiguous. Their meaning is sufficiently clear that a jury could simply examine evidence of when the inventions or ideas embodied in the Lemko patents first came into existence in order to determine whether Pan and Labun's actions were within the scope of the contractual term.

The Court therefore considers whether a reasonable jury could find that the evidence that Motorola has produced demonstrates, first, that the subjects of the Lemko patents are "inventions, innovations, or ideas related to the actual or anticipated business activities of Motorola, or result from, or are suggested by, work which [Pan and Labun did] for Motorola," and second that they were "developed or conceived by ...


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