In re Ai Realty Marketing of New York, Inc.

293 B.R. 586

In re AI REALTY MARKETING OF NEW YORK, INC., Laser Acquisition Corp., DDG I, Inc., Sunbeam Americas Holdings, Ltd., et al., Debtors Sunbeam Products, Inc., Plaintiff-Counterclaim Defendant, v. Wing Shing Products (BVI) Ltd., Defendant-Counterclaimant.

Bankruptcy No. 01-40252 (AJG).

Adversary No. 01-2439(AJG).

United States Bankruptcy Court, S.D. New York.

June 3, 2003.

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Weil, Gotshal & Manges, LLP, Kevin P. Hughes, Nicholas Groombridge, Brian S. Sung, of counsel, New York City, for Sunbeam Products, Inc.

Perkins & Dunnegan, William Dunnegan, Ronald L. Zaslow, of counsel, New York City, for Wing Shing Products (BVI) Ltd.

MEMORANDUM DECISION, AFTER TRIAL, REGARDING THE OWNERSHIP AND INFRINGEMENT OF U.S. PATENT NO. D348,585

ARTHUR J. GONZALEZ, Bankruptcy Judge.

I. INTRODUCTION

Plaintiff-Counterclaim Defendant, Sunbeam Products, Inc. ("Sunbeam"), a corporation organized and existing under the laws of the State of Delaware with its principal place of business located in Palm Beach County, Florida, is a subsidiary of Sunbeam Corporation. Sunbeam acquired Signature Brands, Inc. ("Signature Brands") in 1998, which had previously acquired Mr. Coffee, Inc. ("Mr. Coffee") in 1996.¹ Defendant-Counterclaimant, Wing Shing Products (BVI) Ltd. ("Wing Shing"), a corporation organized and existing under the laws of the British Virgin Islands with a place of business in Hong Kong, is a subsidiary of Global-Tech Appliances Inc. ("Global-Tech"), a publicly traded company listed on the New York Stock Exchange. Wing Shing is one of a family of companies under common ownership and management.² Wing Shing is a manufacturer of coffeemakers and other consumer products. Since 1992, Wing Shing has supplied model number AD10 coffeemakers (the "AD10"), a 10-cup coffeemaker, and derivatives and variations of the AD10 (together with the AD10, each an "AD Coffeemaker" and collectively, the "AD Coffeemakers") to Sunbeam. Since at least 1994, Sunbeam has also sourced AD Coffeemakers from Simatelex Manufactory Co., Ltd. ("Simatelex"), another manufacturer of consumer products. Wing Shing is the holder of the design patent for the AD Coffeemaker specifications, U.S. Patent No. D348,585 (the "Design Patent").

On February 23, 2001, Sunbeam commenced this adversary proceeding (the "Adversary Proceeding") against Wing Shing, requesting this Court to enter a judgment declaring that Sunbeam: (i) is the exclusive owner of the Design Patent; (ii) has an indefinite exclusive license to market and sell the AD Coffeemakers in the United States, Canada and Mexico; and (iii) has the full right and authority to choose the supplier of its choice for the manufacture of the AD Coffeemakers. On March 13, 2001, Wing Shing filed a counterclaim against Sunbeam requesting this Court to enter a judgment, as later amended: (i) permanently enjoining Sunbeam, its officers, directors, employees and attorneys and all those acting in concert with them from infringing the Design Patent; (ii) awarding Wing Shing its damages and/or the total profits from the infringement of the Design Patent; (iii) awarding Wing Shing treble damages; and (iv) awarding Wing Shing its costs relating to the action brought before this Court including its reasonable attorneys' fees.

Sunbeam contends that it was assigned the Design Patent by Wing Shing pursuant to an agreement between Mr. Coffee and Wing Shing Overseas Ltd., entered into as of June 22, 1992 (the "Agreement"), and that it also holds an indefinite exclusive license to the Design Patent pursuant to the Agreement. Furthermore, Sunbeam asserts that, as a result of the contributions that Mr. Coffee made to the development of the Design Patent, this Court should find that it is a joint inventor of, and is therefore entitled to exploit, the Design Patent. In response, Wing Shing claims that Sunbeam has not been assigned any rights to the Design Patent pursuant to the Agreement, nor was Sunbeam granted a license to the Design Patent extending beyond December 31, 1994, the termination date of the Agreement. Wing Shing also claims that John Sham ("Sham"), president of Wing Shing Global-Tech, is the sole inventor of the Design Patent.

The following decision is the Court's findings of fact and conclusions of law under Rule 52 of the Federal Rules of Civil Procedure, as incorporated into this Adversary Proceeding under Rule 7052 of the Federal Rules of Bankruptcy Procedure.

II. JURISDICTION

This Adversary Proceeding relates to the Chapter 11 cases, styled In re AI Realty Marketing of New York, Inc., Laser Acquisition Corp., DDG I, Inc., Sunbeam Americas Holdings Ltd., et al., Chapter 11 Case Nos. 01-40252(AJG) through 01-40290(AJG). The Court has jurisdiction over this Adversary Proceeding pursuant to section 1334(b) of title 28 of the United States Code. This Adversary Proceeding is a core proceeding pursuant to section 157(b) of title 28 of the United States Code. Venue is proper in the district of New York pursuant to section 1408 of title 28 of the United States Code.

III. FACTUAL AND PROCEDURAL BACKGROUND

In June 1991, Sham approached Mr. Coffee to inquire into a potential business relationship between the two entities. Sham informed Mr. Coffee that Wing Shing had coffeemakers of a specific design that it was interested in manufacturing and selling to Mr. Coffee. Sham provided Jeffrey Blackwell ("Blackwell"), then Vice President of Operations of Mr. Coffee, with sketches of the proposed coffeemakers. On July 23, 1992, Sham informed Dilworth & Barrese, LLP, patent counsel to Wing Shing, that Wing Shing wanted to proceed with the Design Patent, which represented the design of the coffeemakers that Sham had previously forwarded to Blackwell. In August 1991, Blackwell responded to Sham with a number of questions concerning the proposed coffeemaker's design and requesting a price quote. Sham followed-up with a photograph of a wooden model depicting the proposed coffeemaker. Beginning with Blackwell's August 1991 letter through early 1992, there were multiple correspondences between Mr. Coffee and Wing Shing regarding the proposed coffeemaker. Through these correspondences Mr. Coffee suggested a number of changes to the coffeemaker to Wing Shing. These included the following:

• Eliminating the grooves on the brew basket. The proposed coffeemaker originally had grooves on its brew basket.

• Eliminating the ridges on the reservoir cover. The proposed coffeemaker originally had ridges on its reservoir cover.

• Moving the power switch to the column. The proposed coffeemaker originally had the power switch on its base.

• Opening the brew basket from left to right. The proposed coffeemaker originally opened from right to left.

• Moving the water-level gauge from the right to left side of the coffeemaker. The proposed coffeemaker originally positioned the water-level gauge on the right side.

• Inserting a bottom metal plate. Mr. Coffee provided Wing Shing with a sample metal plate, modeled after the plate located on the bottom of the Mr. Coffee IDS40 coffeemaker, to be inserted on the bottom of the coffeemaker.

• Adding a shroud to the power switch. The proposed coffeemaker did not have a shroud.

On November 8, 1991, Mr. Coffee provided Wing Shing with a draft supply agreement. Mr. Coffee and Wing Shing proceeded to negotiate the terms of this supply agreement, and entered into the Agreement as of June 22, 1992. Sham executed the Agreement on July 1, 1992, and Mark Kopaskie ("Kopaskie"), who succeeded Blackwell as Vice President of Operations at Mr. Coffee, executed the Agreement on July 13, 1992. Terms of particular import are as follows:

• Paragraph 4(a) of the Agreement states that "this Agreement shall begin on January 7, 1992 and shall extend through December 31, 1994." The Agreement also provides that it may be terminated by Mr. Coffee prior to the end of its term upon at least ninety (90) days prior written notice.

• Paragraph 16(a) of the Agreement states that "[a]ny and all existing patent rights for the units or any of its component parts shall be the sole and exclusive property and/or responsibility of Mr. Coffee. In the event that Mr. Coffee and [Wing Shing] jointly develop a patentable item both parties agree to negotiate patent rights prior to applying for the patent."

• Paragraph 17 of the Agreement provides that Mr. Coffee shall have an "exclusive license" to market and sell the [AD Coffeemaker] in accordance with the terms of the Agreement in the United States, Canada and Mexico.

• Paragraph 9 of the Agreement provides that the "tooling, and drawings related thereto, is the property of Mr. Coffee, inc. [sic]."

Subsequent to the execution of the Agreement, Wing Shing began to manufacture and sell AD Coffeemakers to Mr. Coffee pursuant to the terms of the Agreement. Mr. Coffee paid $100,000 to Wing Shing for the tooling necessary to manufacture the AD10.

On July 13, 1992, Sham filed an application for a design patent on the AD Coffeemaker without informing Mr. Coffee that he was doing so. Sham listed himself as the AD Coffeemaker's sole inventor on the patent application. Sham was issued the Design Patent by the United States Patent and Trademark Office on July 12, 1994. Sham did not inform Mr. Coffee of the issuance of the Design Patent. At no time thereafter did Wing Shing include notice of the Design Patent on the AD Coffeemakers or their packaging.

In a communication to Wing Shing dated November 28, 1994, Mr. Coffee told Wing Shing that Simatelex was also manufacturing AD Coffeemakers for Mr. Coffee. Wing Shing did not object to the manufacture and sale of the AD Coffeemakers by Simatelex at that time. On March 9, 1995, in a facsimile (the "March 9, 1995 Fax") to Dan Kubis ("Kubis"), then an employee of...