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Energy Recovery, Inc. v. Hauge

United States Court of Appeals, Federal Circuit

March 20, 2014

ENERGY RECOVERY, INC., Plaintiff-Appellee,

Appeal from the United States District Court for the Eastern District of Virginia in No. 00-CV-0431, Judge Raymond Alvin Jackson.

STEPHEN E. NOONA, Kaufman & Canoles, P.C., of Norfolk, Virginia, argued for plaintiff-appellee.

RICHARD A. STERBA, Fish & Richardson P.C., of Washington, DC, argued for defendant-appellant. With him on the brief was AHMED J. DAVIS.

Before RADER, Chief Judge, REYNA, and WALLACH, Circuit Judges.


Page 1354

Wallach, Circuit Judge.

Leif J. Hauge appeals the district court's decision finding him in contempt of that court's March 19, 2001, Order (the " 2001 Order" ), which adopted Mr. Hauge and Energy Recovery, Inc.'s (" ERI" ) March 16, 2001, Settlement Agreement (the " Agreement" ). For the reasons set forth below, this court reverses the contempt finding and vacates the injunction.


The dispute between Mr. Hauge and his former employer, ERI, began more than thirteen years ago over ownership of intellectual property rights related to " pressure exchangers," a type of energy recovery device used in reverse osmosis. On March 16, 2001, the parties entered into the Agreement resolving the litigation.

Page 1355

Three days later, the district court adopted the Agreement and issued the 2001 Order, stating that ERI was to be the sole owner of three U.S. patents and one pending U.S. patent application: U.S. Patent Nos. 4,887,942, 5,338,158, and 5,988,993, and U.S. Patent Application No. 09/508,694, which later issued as U.S. Patent No. 6,659,731.[1]

The Agreement and subsequent Order obligated Mr. Hauge to transfer ownership not only of the patents, but also " all other intellectual property and other rights relating to pressure exchanger technology" pre-dating the Agreement and 2001 Order. J.A. 10, 16. The Agreement states: " [t]his assignment and transfer of rights is not intended to extend to inventions by Hauge... made after the date of this Agreement." J.A. 16. The Agreement also contains a non-compete clause, prohibiting Mr. Hauge from making or selling energy recovery devices for use in reverse osmosis salt water desalination for two years from the date of the Agreement. J.A. 18.

After the expiration of the non-compete clause, on August 10, 2004, Mr. Hauge filed a provisional patent application, titled " Pressure Exchanger," and filed a utility application one year later. U.S. Patent No. 7,306,437 (the " '437 patent" ) issued on December 11, 2007. Its abstract describes " [a] pressure exchanger for transferring pressure energy from a high-pressure fluid stream to low-pressure fluid stream." '437 patent, at [57].[2]

In 2009, Mr. Hauge arranged a meeting with ERI on behalf of his new company, Isobaric Strategies, Inc. (" Isobarix" ). In subsequent correspondence, Mr. Hauge wrote " the main topic under consideration was the possibility of uniting all pressure exchanger technology and [intellectual property] rights under the umbrella of [ERI] and the potential benefits to those concerned." J.A. 85. ERI ultimately declined to " get involved in [Mr. Hauge's] project" and wished him " success with current and future endeavors." J.A. 84. After ERI's rejection of Mr. Hauge's proposal, Mr. Hauge, through Isobarix, began selling a pressure exchanger based on the '437 patent, called " XPR." In 2010, Mr. Hauge created a consulting agreement for two ERI employees, Tristan Nillo and James Coyle, regarding services they could provide to Isobarix; they ultimately contracted with Isobarix.

On September 11, 2012, ERI filed a Motion for Order to Show Cause, alleging Mr. Hauge was using ERI's proprietary technology in the manufacture of the XPR pressure exchanger, in violation of the district court's 2001 Order. ERI submitted the declaration of an expert who testified that Mr. " Hauge and Isobarix are using 'pressure exchanger technology' from pre-March 19, 2001[,] in both the design and manufacture of the Isobarix pressure exchanger," which the expert opined is " virtually identical to the ERI pressure exchanger" in terms of operation. J.A. 237. At the hearing, Mr. Hauge's counsel argued that ERI had failed to show that the allegedly proprietary technology was protectable as a trade secret, and argued that Mr. Hauge was ...

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