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Milwaukee Electric Tool Corp. v. Chervon North America Inc.

United States District Court, E.D. Wisconsin

May 26, 2017




         Defendant Chervon North America Inc. (“Chervon”) filed a motion to compel discovery responses on April 7, 2017. (Docket #171). In its motion, Chervon contends that Plaintiffs' assertions of attorney-client privilege as to certain documents should be pierced because Plaintiffs engaged in fraud on the U.S. Patent and Trademark Office. Plaintiffs oppose the motion, arguing that their representations to the Patent Office have always been candid and truthful. Chervon's motion is fully briefed and, for the reasons stated herein, the Court will deny the motion.

         1. BACKGROUND

         The relevant facts can be briefly summarized. Chervon claims that Plaintiffs obtained the patents-in-suit by withholding or misrepresenting material information to the Patent Office in two declarations submitted by Gary Meyer (“Meyer”), a named inventor for each of the patents-in-suit and former Director of Advanced Engineering Technology at Plaintiff Milwaukee Electric Tool Corporation. First, in 2007, Meyer submitted an affidavit to the Patent Office in connection with U.S. Application No. 10/721, 800 (“the '800 Application”), the parent application for the subject patents. The affidavit was submitted to combat the patent examiner's view that using lithium-based batteries in corded power tool applications was obvious. In it, Meyer averred that “[t]he conventional view in the industry was that one alternative battery chemistry, lithium, was too unstable for use in corded tool applications.” (Docket #173-4 ¶ 6). Plaintiffs claimed that their lithium battery packs solved this problem. Id. In light of this declaration and the other materials Plaintiffs submitted, the patent examiner allowed the patent to issue. According to Chervon, contrary to his assertions in the 2007 declaration, Meyer admitted during his deposition in this case that as early as 1999, he predicted that it was a “matter of time” before the industry embraced lithium technology for power tools. (Docket #173-8 50:15-51:14).

         A similar event unfolded in 2009 in connection with the application for one of the patents-in-suit. Meyer submitted another affidavit and in it, he revealed for the first time that in 2001 he had received two lithium-ion battery backs from a representative of a Canadian firm, E-One Moli Energy (Canada) Ltd. (“Moli”). The plastic battery packs contained rechargeable lithium-ion rechargeable cells and were designed for use with power tools. Meyer averred that he had tested Moli's battery packs in late 2001 and found them insufficient to meet certain benchmarks. For instance, he claimed that they could not sustain a 20-amp discharge current for longer than one minute without a drop-off in voltage, rendering the packs unacceptable for use with power tools. Likewise, Meyer said that the battery packs failed a test wherein they were used in a circular saw to make repeated cuts because they overheated and could not deliver their claimed amp rating over the entire rated capacity of the battery.[1] Chervon alleges that Meyer's testing and averments helped convince the Patent Office that the Moli packs were failures, thus bolstering Plaintiffs' own application.

         His representations are contradicted, in Chervon's view, by several of Meyer's statements, including: (1) his admission at his deposition that those packs could sustain 20 amps of continuous discharge for over three minutes without a voltage drop-off; (2) his admission during his deposition that the packs delivered an average discharge current of 26.19 amps during over 30 cuts with a circular saw; (3) his admission during his deposition that the circular-saw application can be “the most demanding on a battery pack, ” (Docket #173-8 255:25-257:11), and that Moli's battery worked better in less-demanding applications such as drilling; (4) his admission in his deposition that the initial voltage depression that occurred at the beginning of cutting was commonplace and could be compensated for with a control circuit; (5) his statement in an October 2001 email to his coworkers that the packs “ran some of [Plaintiffs'] tools OK, ” (Docket #173-13); and (6) another statement in a November 2001 email to a colleague that the packs “perform[ed] outstanding-even in our toughest application, the circular saw, ” (Docket #173-14).

         Further, says Chervon, Meyer knew that Moli had developed battery cells with greater amp capabilities than the packs he tested, yet he did not disclose this to the Patent Office in connection with the applications underlying the patents-in-suit. Finally, although Meyer characterized the Moli battery packs as failures in 2009 because of overheating, Plaintiffs represented to the Court in their prior summary-judgment briefing that a battery pack can meet the 20-amp discharge requirement “regardless of what tool is used, regardless of what application is performed, [and] regardless of the temperature during discharge.” (Docket #82 at 5).

         Plaintiffs withheld some documents otherwise responsive to Chervon's document requests. Plaintiffs prepared a privilege log identifying the documents it withheld. Forty-nine such documents are drafts of Meyer's 2007 and 2009 declarations or are related communications about the declarations. Plaintiffs asserted the attorney-client privilege as their basis for withholding these documents. Chervon now seeks an order from the Court directing Plaintiffs to turn them over.[2]

         2. DISCUSSION

         The attorney-client privilege is one of the oldest recognized privileges in the common law. Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Piercing it is not undertaken lightly. However, it can be done if the moving party can show that the communications were made in furtherance of a crime or fraud. United States v. Zolin, 491 U.S. 554, 563 (1989). In the context of alleged fraud on the Patent Office, the Federal Circuit[3] has held that “[a] party must establish Walker Process fraud, also known as common law fraud, to successfully pierce the attorney-client privilege under the crime-fraud exception.” Unigene Labs., Inc. v. Apotex, Inc., 655 F.3d 1352, 1358 (citing Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965)).[4] This requires that the moving party make a prima facie showing as to the following elements: “(1) a representation of material fact, (2) the falsity of that representation, (3) the intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to the equivalent of intent (scienter), (4) a justifiable reliance upon the misrepresentation by the party deceived which induces him to act thereon, and (5) injury to the party deceived as a result of his reliance on the misrepresentation.” In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 807 (Fed. Cir. 2000). The Court of Appeals has said that “making a prima facie showing is ‘not a particularly heavy' burden, ” Micron Technology, Inc. v. Rambus, Inc., 645 F.3d 1311, 1330 (Fed. Cir. 2011) (quoting In re Grand Jury Investigation, 445 F.3d 266, 274-75 (3d Cir. 2006)), but has also held that the movant must come forward with “‘independent and clear evidence of deceptive intent together with a clear showing of reliance'” in order to warrant the “extreme remedy of piercing the attorney-client privilege.” Unigene, 655 F.3d at 1358-59 (quoting Spalding, 203 F.3d at 803).[5]

         Chervon's presentation falls short of meeting its burden to establish the that crime-fraud exception applies here. Put simply, while Meyer may have stated his case strongly to the Patent Office, there is insufficient evidence to conclude that he actually misrepresented facts or intended to deceive the patent examiners. Because the evidence on these issues is sharply disputed, the Court cannot conclude that the crime-fraud exception applies. See In re Feldberg, 862 F.2d 622, 625-26 (7th Cir. 1988) (holding that the crime-fraud exception must be established by a preponderance of the evidence).

         A brief examination of each of Chervon's contentions will explain this result. Chervon complains that the following represent fraudulent statements or omissions respecting the Patent Office: (1) Meyer's 2007 statement that the industry believed that lithium batteries were too unstable for use in power tools; (2) Meyer's failure to disclose the 2001 Moli battery packs and his testing thereon in connection with the ‘800 Application; and (3) Meyer's representation in 2009 that the Moli packs failed the discharge and cutting tests he performed. None of these feature the level of falsity or deceptive intent necessary to sustain a claim of fraud.

         First, with respect to the 2007 declaration, the Court finds no fault in Meyer's statement that the industry was, as a whole, of the view that lithium batteries were too unstable for wide application. True enough, Meyer said in his deposition that he predicted a move toward lithium as early as 1999, but Meyer's and his colleagues' beliefs about industry trends and technological development are not facts. Thus, Chervon places more weight on his deposition testimony than it can bear. At worst, Meyer's knowledge of and optimism about the Moli battery packs might support an inference that he omitted some contextual information from his 2007 declaration. See In re Method of Processing Ethanol Byproducts & Related Subsystems (‘858) Patent Litig., Master Case Nos. 1:10-ml-02181- LJM-DML, 2014 WL 2938183, at *6 (S.D. Ind. June 30, 2014). But the possibility of such an inference is not enough to meet Chervon's burden.

         Second, the Court finds unavailing Chervon's assertion that Meyer fraudulently failed to disclose the Moli battery packs during the ‘800 Application. Plaintiffs explain that while the Moli packs could handle a combined voltage of 21 volts, the ‘800 Application concerned 28-volt packs and the 20-amp limitation. At the time, it seems that Plaintiffs did not perceive enough similarity between the two to warrant disclosure. Moreover, according to Plaintiffs, the patents-in-suit are far more similar to the Moli battery packs, and they fully disclosed all of Meyer's testing in connection with their prosecutions of these patents. Chervon responds that Plaintiffs' view was unreasonable because the Moli packs and the ‘800 Application each concerned a plurality of 4.20-volt lithium-based battery cells in a plastic housing. Additionally, some of the claims in the ‘800 Application had a 20-amp limitation, and the 7-volt difference between the two could have been made up by adding ...

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