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From Antitrust Law Daily, October 24, 2013

Sham litigation, price fixing, and monopolization counterclaims fail in wastewater pump patent dispute

By Tobias J. Gillett, J.D., LL.M.

A manufacturer of pumps for wastewater treatment facilities cannot proceed with Walker ProcessHandgards, sham litigation, price fixing, and conspiracy to monopolize counterclaims in a patent and copyright infringement action brought by a competitor, the federal district court in Utica, New York has ruled (Vaughan Company v. Global Bio-Fuels Technology, LLC, October 23, 2013, Hurd, D.).

Vaughan Company manufactures specialized pumps used in municipal wastewater treatment facilities. According to Vaughan’s complaint, in January 2000, Richard Behnke began working for Vaughan. In 2010, while still employed by Vaughan, Behnke allegedly formed Global Bio-Fuels Technology, LLC, a company specializing in the manufacture of pump mixing systems similar to those made by Vaughan. Behnke resigned from Vaughan in 2011, and allegedly used Vaughan’s confidential information to underbid Vaughan on mixing system projects incorporating components patented by Vaughan in Portland, Indiana and Rensselaer, New York.

Vaughan filed suit against Global and Behnke, asserting a variety of claims, including patent infringement and misappropriation of trade secrets. The defendants filed a variety of counterclaims, including Walker ProcessHandgards, and sham litigation antitrust claims; a claim for conspiracy to monopolize; and a Sherman Act price fixing claim.

In their answer, the defendants alleged that Vaughan used information it obtained from disassembling a Hayward Gordon Chop-X pump already on the market to design the components for which it later secured certain patents, but did not disclose the similarity of the Chop-X pump to the U.S. Patent and Trademark Office (USPTO). The Chop-X pump was also described in a printed publication prior to Vaughan’s patent applications. The defendants noted that Global’s bid on the Rensselaer project included a price estimate for equipment related to a Chop-X pump, and did not identify any other pump.

Employees of Vaughan and a company serving as a sales representative for Vaughan also allegedly made defamatory statements about Global and Behnke to contractors and engineers associated with wastewater treatment projects on which Vaughan and Global were submitting competing bids. According to the answer, Vaughan has a 65 to 75 percent share of the relevant markets for (1) “chopper pumps capable of pumping sludge mixtures of viscous liquids and suspended solids typically having between 1% - 6% solids by weight” and (2) “the design of mixing systems that include chopper pumps.”

Walker ProcessHandgards, sham litigation claims. The court dismissed without leave to amend the defendants’ Walker ProcessHandgards, and sham litigation antitrust counterclaims. The court explained that a “Walker Process claim is based on enforcement of a fraudulently procured patent”; a “Handgards claim generally alleges that a plaintiff has asserted an infringement in bad faith, knowing the patent is invalid”; and a sham litigation claim required a showing that the litigation was “objectively baseless.” The defendants alleged Vaughan did not disclose the Chop-X pump as prior art or Hayward Gordon patents covering the Chop-X pump during prosecution of the patents. The defendants alleged that Vaughan must have known of those patents and prior art because the PTO expressly cited one of the patents, which invoked the other patent, during prosecution; because three Vaughan employees knew of the prior art from the reverse engineering of the Chop-X pump; and because the attorney of record on Vaughan’s patent applications knew of it.

However, these allegations did not sufficiently allege Vaughan’s specific intent to deceive the USPTO, according to the court, a failure that doomed all three claims. The court observed that “if defendants have failed to sufficiently allege that the patents were obtained through deceit or fraud, then they cannot possibly establish that Vaughan initiated this litigation knowing that their patents were invalid.”

Conspiracy to monopolize and price fixing. The defendants’ counterclaims for conspiracy to monopolize and price fixing were also subject to dismissal without leave to amend, according to the court. The defendants alleged that Vaughan conspired with certain of its employees and agents from the company acting as its sales representatives to monopolize the relevant markets, and that Vaughan and the employees and agents had entered into a price fixing agreement. The court found the alleged disparaging statements made by the agents and employees were enough to support a plausible defamation claim, but the court could not reasonably infer that those “statements were the product of a concerted agreement to interfere with any project” other than the project to which the statements related. Nor were the statements “indicative of a larger conspiracy between multiple corporate entities to fix prices or monopolize the relevant markets.”

The case is No. 1:12-cv-01292-DNH-RFT.

Attorneys: John D. Cook (Hiscock & Barclay, LLP) and Nicholas S. Lee (Bishop & Diehl Ltd.) for Vaughan Company. James R. Muldoon (Harris Beach PLLC) for Global Bio-Fuels Technology, LLC and Richard Behnke.

Companies: Vaughan Company; Global Bio-Fuels Technology, LLC

MainStory: TopStory Antitrust NewYorkNews

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