IP Law Daily Trade secret and contract claims that could have been brought in prior patent suit were time-barred
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Tuesday, January 19, 2016

Trade secret and contract claims that could have been brought in prior patent suit were time-barred

By Peter Reap, J.D., LL.M.

Medical device manufacturer KFx Medical, LLC, and Joseph Tauro (the “defendants”) were entitled to judgment on the pleadings on the claims asserted by competitor Arthrex because the claims, including misappropriation of trade secrets relating to patents for surgical devices and techniques, were barred by the statute of limitations and also were compulsory counterclaims that Arthrex should have brought in earlier litigation between the parties, the federal district court in Trenton, New Jersey, has decided (Arthrex v. KFx Medical, LLC, January 15, 2016, Sheridan, P.).

On July 31, 2015, Arthrex filed its Complaint in the Superior Court of New Jersey, alleging breach of contract, unjust enrichment, unfair competition, breach of fiduciary duty, misappropriation of trade secrets, tortious interference of contract and civil conspiracy against KFx and Tauro. In September 2015, KFx filed its answer and counterclaim, alleging that Arthrex infringed two of KFx’s patents, U.S. Patent Nos. 8,926,663 and 9,044,226, both entitled “System and Method for Attaching Soft Tissue to Bone.”

The thrust of Arthrex’s complaint was that Tauro breached confidential, non-disclosure contracts by misappropriating the information he acquired through his partnership with Arthrex, the court noted. Specifically, Arthrex alleged that unbeknownst to it, Tauro was named as an inventor on several patent applications that relied on the ideas developed by Arthrex. Arthrex alleged that certain patent applications, on which Tauro was a named inventor, were based on Arthrex’s intellectual property, including U.S. Patent 7,585,311 (the ’311 patent).

These basic facts in the instant action were related to prior litigation between KFx and Arthrex. On August 1, 2011, KFx filed suit against Arthrex in U.S. District Court for the Southern District of California (“the California litigation”), alleging patent infringement, including some of the same patents that gave rise to the contractual claims in this suit. Specifically, KFx alleged that Arthrex indirectly infringed the ’311 patent and other patents in the California litigation. Ultimately, in the California litigation, the jury found for KFx and Arthrex was required to pay KFx $29 million in damages.

Motion to remand. As an initial matter, Arthrex contended that the present case should be remanded to state court, except for KFx’s patent infringement counterclaim. However, after considering the facts alleged in Arthrex’s complaint, KFx’s patent infringement counterclaim, and the history between the parties stemming from the California litigation, jurisdiction over all claims was proper, the court held. Although the complaint sounded in breach of contract, it really implicated issues of patent inventorship and ownership arising out of same facts tried in the California litigation. All of the claims related to inventorship of the ’311 patent, which related back to the California litigation. Accordingly, the court would exercise supplemental jurisdiction over Arthrex’s complaint and the motion to remand was denied.

Statute of limitations. It was undisputed that the statute of limitations governing Arthrex’s claims was six years. It was further undisputed that Arthrex did not commence this action until July 31, 2015, more than six years after Tauro allegedly breached its non-disclosure agreements with Arthrex.

Arthrex asserted that the limitations period should be tolled under New Jersey’s discovery rule because it did not learn of the facts giving rise to the claim until 2011. Alternatively, Arthrex contended that Tauro fraudulently concealed his misconduct, which prevented Arthrex from learning the basis of its claims. Both of these arguments were rejected because the patents were recorded, the court ruled.

As of January 5, 2006, the publication date of the ’311 patent, Arthrex knew enough to trigger a duty to investigate. Such an investigation would include a search of the USPTO’s records. Thus, the defendants were entitled to judgment on the pleadings because the causes of action were time-barred under the statute of limitations.

Compulsory counterclaims. As a separate and independent basis, KFx argued that the allegations of Arthrex’s complaint were compulsory counterclaims in the California litigation in 2011.

Arthrex’s claims against KFx in this suit bore a logical and related relationship to the California litigation, and were an offshoot of the patent infringement claims asserted in that action, the court determined. The central dispute in both the California litigation and this case was the rights and/or ownership of the disputed patents, including the ’311 patent. Arthrex’s claims in this case were essentially a defense to the California litigation. Any such claims should have been asserted as counterclaims in the California litigation because those claims bore directly on the validity of the patents that were at issue in that litigation. Thus, the defendants were granted judgment on the pleadings on this basis as well.

The case is No. 3:15-cv-06580-PGS-LHG.

Attorneys: John D. Giampolo (Wollmuth Maher & Deutsch LLP) for Arthrex, Inc. Gregory Robert Haworth (Duane Morris, LLP) for Joseph Tauro. Donald A. Ottaunick (Cole Schotz PC) for KFX Medical Corp.

Companies: Arthrex, Inc.; KFX Medical Corp.

MainStory: TopStory Patent TradeSecrets NewJerseyNews

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