TSI Techs. v. CFS Brands, LLC

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TSI TECHNOLOGIES, LLC, Plaintiff, v. CFS BRANDS, LLC and DINEX, Defendants.

Civil Action No. 23-1011-KHV

United States District Court, D. Kansas

August 23, 2024

MEMORANDUM AND ORDER

KATHRYN H. VRATIL, UNITED STATES DISTRICT JUDGE.

On December 16, 2022, in the District Court of Sedgwick County Kansas, plaintiff filed suit against CFS Brands, LLC and Dinex. On January 26, 2023, defendants removed the case to federal court based on diversity jurisdiction. See Notice Of Removal (Doc. #1).

This matter comes before the Court on Defendants' Motion For Summary Judgment And Memorandum In Support (Doc #74) and Defendants' Motion To Exclude The Expert Opinions And Testimony Of Brian Clothier (Doc. #73) both filed June 7, 2024, and defendants' Request For Hearing (Doc. #83) filed July 30, 2024. For reasons stated below, the Court overrules defendants' motion for summary judgment in its entirety. It also overrules defendants' motion to exclude Clothier's expert testimony and overrules as moot defendants' request for a hearing on the motion to exclude.

Summary Judgment Standards

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hill v. Allstate Ins. Co., 479 F.3d 735, 740 (10th Cir. 2007).

A factual dispute is “material” only if it “might affect the outcome of the suit under the governing law.” Liberty Lobby, 477 U.S. at 248. A “genuine” factual dispute requires more than a mere scintilla of evidence in support of a party's position. Id. at 252.

The moving party bears the initial burden of showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Nahno-Lopez v. Houser, 625 F.3d 1279, 1283 (10th Cir. 2010). Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial as to those dispositive matters for which the nonmoving party carries the burden of proof. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). To carry this burden, the nonmoving party may not rest on the pleadings but must instead set forth specific facts supported by competent evidence. Nahno-Lopez, 625 F.3d at 1283.

In applying these standards, the Court views the factual record in the light most favorable to the party opposing the motion for summary judgment. Dewitt v. Sw. Bell Tel. Co., 845 F.3d 1299, 1306 (10th Cir. 2018). The Court may grant summary judgment if the nonmoving party's evidence is merely colorable or not significantly probative. Liberty Lobby, 477 U.S. at 250-51. Essentially, the inquiry is “whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.

Factual Background

The Court first addresses deficiencies in the parties' briefing, which violates District of Kansas Local Rules 7.1(d)(2) and 56.1. First, defendants' principal brief and plaintiff's response exceed the 40-page limits set forth in Local Rule 7.1(d)(2). In addition, defendants' reply brief exceeds the 15-page limit set forth in the same rule. Neither party sought or received permission to depart from the Local Rules.

Second, defendants fail to comply with Local Rule 56.1, which requires parties moving for summary judgment to begin their supporting brief with a section that contains a concise statement of material facts as to which they contend no genuine issue exists. Defendants begin their brief with an opening statement which argues their view of the case. On page nine of their brief, defendants finally begin their statement of uncontroverted facts. Because neither party has objected to these rule violations, the Court accepts the filings in this instance but states the obvious: the Court does not look favorably upon violations of the Local Rules.

The following facts are undisputed or, where disputed, viewed in the light most favorable to plaintiff, the non-movant.

I. The License Agreement And Addendum

Plaintiff, TSI Technologies, LLC, is a Kansas corporation that develops induction heating technologies and thermal energy storage materials for use in the food service industry. Plaintiff has patented some of this technology for use in various products, including induction heatable servers. An induction heatable server utilizes an induction heater and charger to automatically heat a meal server to a desired temperature on every use, allowing a plate to stay warm for over an hour. Dinex (now a division of CFS Brands) manufactures, markets and sells food service equipment.

On October 5, 2001, plaintiff and Dinex entered into a “Food Service Base License Agreement” (“the License Agreement”). Under the License Agreement, plaintiff-with input from Dinex-agreed to design a Food Service Base (“the Base”).^[1] Plaintiff granted Dinex a license to manufacture, use, market and sell the Base, incorporating certain heat retentive technology that plaintiff had developed and patented.

A. TSI Base Patents

In the License Agreement, plaintiff licensed six patents (collectively, the “TSI Base Patents”) to Dinex for use in manufacturing, marketing and selling the Base:^[2]

(1) U.S. Patent No. 5,954,984 (“the 984 Patent”), issued September 21, 1999;

(2) U.S. Patent No. 6,232,585 (“the 585 Patent”), issued May 15, 2001;

(3) U.S. Patent No. 6,274,856 (“the 856 Patent”), issued August 14, 2001;

(4) U.S. Patent No. 6,320,169 (“the 169 Patent”), issued November 20, 2001;^[3]

(5) U.S. Patent Pending No. 09/775,037; and

(6) U.S. Patent Pending No. 09/826,792

Without requiring additional compensation, the license extended to any improvements that plaintiff made on the TSI Base Patents, as well as any new inventions for use in connection with the Base.

The License Agreement allowed either party to file for a patent “on the application of the technology represented by the [TSI Base Patents] solely to the Food Service Base.” License Agreement (Doc. #17-1), ¶ 6. The License Agreement referred to such a patent as the “Food Service Base Patent.” Id. The parties agreed that if either party filed for a Food Service Base Patent on the “application of the technology represented by the [TSI Base Patents],” then “[b]oth parties shall be joint owners of such Food Service Base Patent.” Id.

B. Royalty Payments

Under the License Agreement, Dinex agreed to pay plaintiff royalty payments on Dinex's net sales of the Base. The License Agreement defined “net sales” as “the total of all charges invoiced to customers for the Food Service Base reduced by such deduction as declared in writing by [Dinex].” Id., ¶ 4(d). Dinex also agreed to provide a calculation of the royalty amount and obtain from its independent accounting firm an annual certification of the accuracy of the payments. In addition, Dinex agreed to retain for three years all records relating to royalty payments and calculations and to allow plaintiff to review the records upon request.

C. The Addendum

Under the License Agreement, plaintiff did not license any patents to Dinex to manufacture, market or sell “Food Service Base Induction Chargers” (“the Chargers”) for the Bases. In December of 2007, plaintiff and Dinex began negotiating an Addendum to the License Agreement to address Dinex's desire to manufacture and sell the Charger along with the Base. On January 23, 2008, the parties entered into an Addendum which granted Dinex a license to manufacture and sell a Charger and a Base as a system.^[4] Under the Addendum, plaintiff licensed three specific patents (collectively, “the TSI Charger Patents”) to Dinex: the 585 Patent, the 169 Patent and U.S. Patent No. 6,657,170 (“the 170 Patent”).^[5] The Addendum stated that only plaintiff had the right to file for a patent on the application of technology represented by any claim on the TSI Charger Patents.

The Addendum required Dinex to pay royalties to plaintiff on net sales of the Chargers, which included technology covered by the TSI Charger Patents. Dinex agreed to pay “[a] royalty of 4.09 percent of the amount of the Net Sales Price of each [Charger] sold by [Dinex].” Addendum (Doc. #17-4), ¶ 2(a). The Addendum defined “Net Sales Price” as “the invoiced sales price at which [Dinex] or its Affiliates sells to unaffiliated third parties, which price is not reduced by any rebates, allowances, commissions or subsequent discounts.” Id. at 1. As with the License Agreement, the Addendum specifically required Dinex to accompany its royalty payments to plaintiff with its calculation of the amount and retain all records of its calculations so that plaintiff could review them upon request.

Dinex's obligation to make royalty payments on net sales of the Base terminated once the claims of any TSI Base Patent or Food Service Base Patent no longer covered technology included in the Base. Similarly, Dinex's obligation to make royalty payments on net sales of the Chargers terminated once the claims of the TSI Charger Patents no longer covered the Charger.

II. The 882 Patent

Beginning in 2006, Dinex began to redesign the Base to resolve various mechanical issues with the product, including a water infiltration problem.

On December 18, 2007, William Hensley, an employee of plaintiff sent Rick Runyan, an employee of Dinex, a memorandum stating that while on a site visit at another entity, plaintiff's employees...