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Vapor Point LLC v. Moorhead

United States Court of Appeals, Federal Circuit

August 10, 2016

VAPOR POINT LLC, KEITH NATHAN, KENNETH MATHESON, Plaintiffs-Cross-Appellants
v.
ELLIOTT MOORHEAD, NANOVAPOR FUELS GROUP, INC., BRYANT HICKMAN, Defendants-Appellants DON ALFORD, JEFFEREY ST. AMANT, Counterclaim Defendants-Cross-Appellants

         Appeals from the United States District Court for the Southern District of Texas in No. 4:11-cv-04639, Judge Vanessa D. Gilmore.

          Jason Aaron Wietjes, Polsinelli PC, Dallas, TX, argued for plaintiffs-cross-appellants and counterclaim defendants-cross-appellants. Also represented by Michael David Pegues.

          William Peterson Ramey III, Ramey & Schwaller, LLP, Houston, TX, argued for defendants-appellants.

          Before O'MALLEY, Chen, and Stoll, Circuit Judges.

          OPINION

          PER CURIAM.

         Vapor Point, L.L.C., Keith Nathan ("Nathan"), and Kenneth Matheson ("Matheson") (collectively "Vapor Point") sued Elliott Moorhead ("Moorhead"), NanoVapor Fuels Group, Inc., and Bryant Hickman ("Hickman") (collectively "NanoVapor") in the United States District Court for the Southern District of Texas, seeking to have Nathan and Matheson recognized as joint inventors under 35 U.S.C. §256 on NanoVapor's U.S. Patent Nos. 7, 727, 310 ("the '310 patent") and 8, 500, 862 ("the '862 patent"). NanoVapor responded by suing Vapor Point, seeking to have Moorhead recognized as a joint inventor under 35 U.S.C. § 256 on Vapor Point's U.S. Patent Nos. 7, 740, 816; 7, 803, 337; 8, 337, 585; 8, 337, 604; 8, 337, 763 and for declaratory relief regarding inventorship of NanoVapor's '310 and '862 patents. After a four-day evidentiary hearing, the district court issued an order granting Vapor Point's motion for correction of inventorship and denying each of NanoVapor's motions. Vapor Point moved for exceptional case status and attorneys' fees. The district court issued a final judgment correcting inventorship, dismissing the action with prejudice, and denying Vapor Point's motion for exceptional case status and attorneys' fees.

         NanoVapor appeals the district court's order on inventorship and its dismissal of the case. Vapor Point cross-appeals the same order to the extent it holds that the case is not exceptional and that an award of attorneys' fees is not warranted. We find that the district court did not err in dismissing the case after determining inventorship, especially in light of NanoVapor's concession that a determination of inventorship would resolve the case. We further find that the district court did not abuse its discretion in denying Vapor Point's motion for exceptional case status and attorneys' fees. Therefore, we affirm.

         Background

         The factual and procedural history in this case is confusing, but is important to the issues we resolve. We do our best to lay it out with clarity.

         The patents-in-suit are generally directed "to the removal of volatile fuel vapors, also known as volatile organic compounds ('VOCs'), from storage tanks and other holding vessels, generally in the oil and gas industry." Inventorship Order at 3, Vapor Point, L.L.C., et at. v. Moorhead, et at., No. 4:11-CV-04639 (S.D. Tex. Mar. 13, 2015), ECF No. 321 (hereinafter "Inventorship Order"). "EPA and state 'clean air' regulations regulate the percentage of contaminates that may be discharged" into the atmosphere. Id. at 4. The patents-in-suit "address this problem by capturing and recovering the fuel vapors." Id.

         "NanoVapor is an industry leader in the field of [VOC] containment, including a process called Vapor Suppression System developed by Moorhead that aims to control or eliminate combustible and toxic gases in fuel storage and transfer operations." Id. at 7. After working with Moorhead to help market this technology, Nathan became Chief Operating Officer of Nano Vapor in 2007. Id. at 8.[1] NanoVapor later hired Matheson to help with the "commercial embodiment" of the technology being developed. Id. Moorhead filed provisional patent application 60/871/766 on December 22, 2006, claiming the vapor suppression system that is the subject of NanoVapor's '310 patent. The '310 patent claims priority to this application. The parties disagree over whether Nathan was aware at the time of the progress of the patent application. Id. at 8.

         NanoVapor alleged that Nathan and Matheson "plotted to steal [NanoVapor's] technology and destroy [NanoVapor's] business when [Nathan and Matheson] developed the commercial embodiment of NanoVapor's patent-pending concept." Id. According to NanoVapor, "an outside group conducted due diligence testing that exceeded expectations, " after which Nathan and Matheson "decided to steal the technology and associated trade secrets." Id. NanoVapor asserts that Nathan and Matheson "each requested a 20% stake in NanoVapor, which [NanoVapor] rejected." Id.

         In contrast, Vapor Point alleges that "the '310 patent [NanoVapor] filed for on December 18, 2007 wrongfully incorporated, disclosed, and claimed all of Nathan and Matheson's conceptual and inventive contributions." Id. The '862 patent, according to Vapor Point, similarly misappropriated Nathan and Matheson's work. Id. Nathan and Matheson allege that they are the true inventors of the technology disclosed in the '310 patent "because Defendant Moorhead brought on Nathan and Matheson to help him reengineer the system and bring it to market but that Moorhead wrongfully filed for the '310 patent without consent, notice, or compensation to Nathan or Matheson." Id. at 9. Based on the allegations, Vapor Point asked that the district court correct inventorship of the '310 and '862 patents to add their names to both, or possibly even substitute their names for Moor-head's on both.

         For its part, NanoVapor asked the district court to alter the inventorship of Vapor Point's five patents to include Moorhead "because the Vapor Point patents are based on Defendant Moorhead's conceptions in the '310 patent." Id.

         In addition to its requests to correct the inventorship of NanoVapor's patents, Vapor Point also asserted a number of state law claims against Nano Vapor: common-law fraud, fraud by nondisclosure, unjust enrichment, tortious interference, misappropriation of trade secrets, and the Texas Theft Liability Act. First Amended Complaint at ¶¶ 61-104 (Counts III-VIII), Vapor Point (S.D. Tex. Aug. 16, 2013), ECF No. 151. Nano Vapor, in turn, asserted a number of affirmative defenses to the claims in Vapor Point's First Amended Complaint, including that "[Vapor Point] cannot prevail because [Vapor Point has] an obligation to assign any invention to NanoVapor Fuels Group, Inc." Original Answer to First Amended Complaint at ¶ 116, Vapor Point (S.D. Tex. Aug. 30, 2013), ECF No. 155; see also id. at ¶ 117 (specifying that an obligation to assign arises from an alleged employment of Nathan and Matheson by NanoVapor). In its counterclaim NanoVapor also asserted infringement of the '310 patent and eight state law claims: misappropriation of trade secrets, the Texas Theft Liability Act, fraud, breach of fiduciary duty, tortious interference with business relationships, tortious interference with prospective business relationships, breach of contract, and unjust enrichment. Fourth Amended Counterclaim at ¶¶ 83-138, Vapor Point (S.D. Tex. May 14, 2014), ECF No. 212.

         On June 25, 2014, the district court issued an order denying NanoVapor's motion for an evidentiary hearing on inventorship. Order, Vapor Point (S.D. Tex. June 25, 2014), ECF No. 241. The district court reasoned that, "[b]y requesting findings of fact and conclusions of law relating only to inventorship under 35 U.S.C. § 256, both parties are essentially requesting that this Court bifurcate the inventorship claims from the state law and infringement claims and make an early determination on the inventorship issues." Id. at 1. Because "the state law causes of action share a common factual core with the inventorship claims and judicial determination of the inventorship issues at [that] time would deprive the parties of their right to a jury trial, " the district court denied the parties' request for an evidentiary hearing. Id. at 2.

         NanoVapor then filed a notice with the district court dismissing its state law claims "with prejudice to refiling." Notice of Nonsuit of State Law Claims, Vapor Point (S.D. Tex. Aug. 1, 2014), ECF No. 254. In that notice, NanoVapor asserted that, "[i]n response to [NanoVapor] non-suiting their state law claims, [Vapor Point has] agreed to nonsuit" its state law claims. Id. at 2. "After [Vapor Point's] concurrent nonsuit of the state law claims only claims related to inventorship and infringement will remain before the Court." Id. In so doing, NanoVapor explicitly "request[ed] the Court to decide the inventorship issues as there is no right to a jury trial on contested fact issues related to inventorship." Id. Accordingly, the district court dismissed all of the state law claims pled by either Vapor Point or NanoVapor, with prejudice. See Order on Notice of Nonsuit of State Law Claims, Vapor Point (S.D. Tex. Aug. 11, 2014), ECF No. 261.

         "[S]ection 256 . . . explicitly authorizes judicial resolution of co-inventorship contests over issued patents." MCV, Inc. v. King-Seeley Thermos Co., 870 F.2d 1568, 1570 (Fed. Cir. 1989). Consistent with § 256, the district court held a four-day evidentiary hearing to determine inventorship of the patents-in-suit. After the hearing, the district court issued an order denying NanoVapor's claims of inventorship and granting Vapor Point's to the extent Nathan and Matheson sought to be added to the '310 and '862 patents as additional inventors. See Inventorship Order at 27.

         In that decision, the district court addressed the "four key concepts in the '310 and '862 patents": (1) using biodiesel as a vapor capture medium; (2) removing VOCs from a vessel containing fuel vapors and introducing them into a vapor capture medium (such as biodiesel); (3) using a particulatizer to create micro-sized VOC particles for treatment; and (4) using diffusion plates to distribute micro-sized particles across the vapor capture medium. Id. at 11. The district court found that Nathan contributed to the conception of the first three of these four key concepts and that Matheson contributed to the third and fourth concepts. See id. at 16-24. The district court denied NanoVapor's claim that Moorhead should be a named inventor on Vapor Point's patents. See id. at 24-26.

         Following the district court's resolution of the inventorship issues, NanoVapor moved for a new trial "solely address[ing] the Court's closing of the case without allowing a trial on the affirmative defenses, " including any obligation to assign. NanoVapor's Motion for a New Trial, Vapor Point (S.D. Tex. Apr. 3, 2015), ECF No. 330. In Vapor Point's response, it argued that NanoVapor's motion for a new trial on the affirmative defense of an obligation to assign was improper.

         Vapor Point initially asserted a claim for correction of inventorship under § 256 along with its various state law tort claims. Because the latter were dismissed with prejudice, only the federal claim under § 256 remained. Since "an obligation to assign is not an affirmative defense to a cause of action to correct inventorship, " and because only the inventorship claims remained, Vapor Point argued that the equitable affirmative defense of an obligation to assign also should be dismissed with prejudice. Vapor Point's Response to NanoVapor's Motion for New Trial at 6, Vapor Point (S.D. Tex. Apr. 24, 2015), ECF No. 335. Because NanoVapor did not join Nathan and Matheson-now deemed to be two of the inventors of the patents-in-suit-in the infringement claims against Vapor Point, Vapor Point argued that NanoVapor "d[id] not have standing to pursue [its] claim for infringement of the '310 patent, eliminating any claim against Vapor Point." Id. at 9; see also Appellant's Br. at 13 ("All patent owners must join in a patent infringement suit. NanoVapor did not join Nathan and Matheson in its infringement claim. Therefore, NanoVapor did not have standing to pursue a claim for infringement of the '310 patent.") (citing Enovsys LLC v. Nextel Commc'ns., Inc., 614 F.3d 1333, 1341 (Fed. Cir. 2010) ("When a patent is co-owned, a joint owner must join all other co-owners to establish standing."); 35 U.S.C. § 281). The district court agreed with Vapor Point and dismissed the case. Final Judgment at 2, Vapor Point (S.D. Tex. Aug. 24, 2015), ECF No. 377.

         After the court's order on inventorship, Vapor Point moved for a determination that the case was exceptional, entitling it to attorneys' fees. See Vapor Point (S.D. Tex. June 16, 2015), ECF No. 347; Vapor Point (S.D. Tex. June 16, 2015), ECF No. 349. The district court, without discussion, denied these motions in its final order. Final Judgment at 2, Vapor Point ...


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