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Coe/Newnes/McGehee v. U.S. Natural Resources

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA


April 14, 2005

COE/NEWNES/MCGEHEE, ET AL., PLAINTIFFS,
v.
U.S. NATURAL RESOURCES, INC, DEFENDANTS.

The opinion of the court was delivered by: James Larson United States Magistrate Judge

ORDER DENYING MOTION TO QUASH A SUBPOENA AND INSTRUCTING PARTIES TO ABIDE BY THE PROTECTIVE ORDER ISSUED BY JUDGE WARD (E.D. TEXAS)

INTRODUCTION

Ron McGehee's ("McGehee") motion to quash a subpoena issued to him by Defendant U.S. Natural Resources, Inc. ("USNR") came on for hearing on March 9, 2005. At the hearing, USNR also raised a new issue regarding the protective order entered by Judge Ward in the Eastern District of Texas. Howard Slavitt appeared for Mr. McGehee and David Gabianelli appeared for USNR. The court considered the papers submitted by both parties as well as oral argument of counsel. Ron McGehee's motion to quash a subpoena issued to him is hereby denied. Because neither party has retained him as an expert, Mr. McGehee should provide deposition testimony but only as a percipient witness. Furthermore, all parties must comply with the protective order entered by Judge Ward in the Eastern District of Texas.

FACTUAL BACKGROUND

Coe/Newnes/McGehee ("CNM") and USNR are cutting-edge sawmill machinery manufacturers. Most commercial timber is not straight, and the recent development of high-speed computer controlled equipment has significantly improved the efficiency of the milling process. The equipment laser scans incoming logs and computes an optimal cutting solution that maximizes the volume of lumber sawn from the timber. Coordinated positioners then cut the curved timber along designated paths.

Over the past two decades, Mr. McGehee has played an influential role in the development of this technology. In 1989, he designed an innovative curve saw while employed by Harvey Engineering and Manufacturing Co ("Hemco"). Later called the "wiggle box," his apparatus mounted circular saws around horizontal and vertical axis points to cut the curved timber along designated paths. In 1991 Hemco offered to sell this design to Weyerhaeuser Co., however it declined the offer.

Mr. McGehee then left Hemco to form the McGehee Equipment Company where he continued to refine his invention. In 1995, the McGehee Equipment Company collaborated with Hi-Tech Engineering, Inc. to successfully install the first "curve sawing versa gang" for the Pollard Lumber Company in Appling, Georgia.

In March 1996, the industry's leading sawmill equipment manufacturers (including USNR, McGehee Equipment Co., and Newnes Machine Ltd.) attended a trade show in Portland, Oregon. At that time, Newnes Machine Ltd. and McGehee Equipment Co. announced a partnership to jointly develop and sell optimized curve sawing edger and gang systems. McGehee Equipment Co. manufactured the edgers and gangsaws while Newnes Machine Ltd. supplied the optimization and controls. Over the next several months, the partnership provided quotes and received purchase orders for their curve sawing systems. They eventually captured over 70% of the curve sawing market in North America.

In 1998, a Canadian company called CAE, Inc. ("CAE") purchased and consolidated Newnes Machine Ltd. and McGehee Equipment Co. In 2002, CAE resold the assets to a group of investors that formed CNM to operate the business. Mr. McGehee worked for CAE, Inc. and then for CNM on an executive and consulting basis through the year 2003.

CNM now owns the following patents associated with the curve sawing system:

1) U.S Patent No. 5,722,474 ("474 patent")

2) U.S. Patent No. 5,761,979 ("979 patent")

3) U.S. Patent No. 5,884,682 ("682 patent")

4) U.S. Patent No. 5,946,995 ("995 patent")

5) U.S. Patent No. 4,599,929 ("929 patent").

In March 2004, CNM sued USNR in the Eastern District of Texas for infringement of the '979, '682, and '995 patents. The Texas Court (Hon. John Ward, U.S. District Judge) has entered a protective order in this case. (Ex. K to Opp.)

PROCEDURAL BACKGROUND

This discovery motion was referred by the district court (Hon. Phyllis J. Hamilton) as provided by Civil Local Rule 72-1 and 28 U.S.C. §636(b) on February 1, 2005. The case originated in Marshall, Texas, and all plaintiffs and named inventors reside in Canada. USNR is currently attempting to transfer the case to Tacoma, Washington or Portland, Oregon for the convenience of non-party witnesses.A pending lawsuit is also pending between Mr. McGehee and Cae McGehee, Inc. before U.S. District Judge Martin Jenkins.

LEGAL ANALYSIS

I. Mr. McGehee Should Be Deposed Only As A Percipient Witness

In Mr. McGehee's Motion to Quash Defendant's Subpoena, plaintiff's counsel argued that his testimony was not relevant to the disputed issues in the case. Yet after reviewing USNR's Opposition, Mr. McGehee now concedes the relevance of his testimony to USNR's primary defenses of patent invalidity, unenforceability, laches, and non-infringement. Mr. McGehee now asks the court to limit the scope of his deposition to his knowledge as a percipient witness, not as an expert.

Under Rule 26(a)(2) of the Federal Rules of Civil Procedure, each expert who may be called to give opinion evidence at trial must be identified. Because neither party has retained Mr. McGehee as an expert, ordering his opinion testimony would be improper. It does not appear that USNR seeks Mr. McGehee's expert opinion, however. USNR's Opposition brief emphasized that Mr. McGehee may possess "factual, personal knowledge" critically relevant to its defense. (Opposition, at p.1.) See also Email from Howard Slavitt to Ted Lee (Ex. I to Opp.); Notice of Deposition (Ex. J to Opp.)

A. Patent Invalidity

For example, USNR contends that Mr. McGehee has first-hand knowledge of three different matters that may render the '682 patent invalid:

(1) Hemco's offer to sell McGehee's curve sawing system to Weyerhaeuser in 1991;

(2) McGehee Equipment Co. and Hi-Tech Inc.'s offer and sale of a "curve sawing versa gang" to Pollard Lumber Co.; and

(3) The combination system jointly discussed and offered for sale by Newnes Machine Ltd. and McGehee Equipment Co. at the Portland trade show in March 1996.

Under 35 U.S.C. §102(b) if a person introduces his design for "public use" or places it "on sale" in this country for more than one year prior to the date of the patent application, the design is itself considered prior art. 35 U.S.C. §102(b) (2004). A subsequent patent cannot be obtained thereafter if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made. . ." 35 U.S.C. §103(a) (2004). USNR asserts that Mr. McGehee's testimony is crucial to develop its claim that the above-mentioned events "either anticipated, or rendered obvious, the claims of the '682 patent." (Opposition, at p.5.) USNR may not ask Mr. McGehee to compare the prior art to the patents; however, it may question him about what he observed or remembers about those events.

USNR also argues that it possesses confidential documents suggesting that Newnes Machine Ltd. deliberately omitted Mr. McGehee's name as a joint inventor of the '682 patent. If USNR successfully establishes this as a defense, the '682 patent would be invalid under 35 U.S.C. §102(f) (providing that a patent shall not be issued if the applicant did not himself invent the subject matter sought to be patented). 35 U.S.C. §102(f) (2004). USNR may ask Mr. McGehee as a percipient witness about the extent of his personal involvement with the '682 patent application.

B. Unenforceability

USNR further claims that the '682 and '995 patents are unenforceable because Newnes Machine Ltd. deliberately concealed Mr. McGehee's prior art from the Examiner. (Opposition, at p.5) Again, USNR will refrain from questioning Mr. McGehee about the effect of the alleged prior art on these patents. Only his personal knowledge is relevant.

C. Laches

With its laches and acquiescence defense, USNR argues that CAE failed to assert the '929 patent even after being informed of USNR's system. In 1999, Mr. McGehee wrote USNR advising them of the '929 and '474 patents:

"We understand that you have a Curve Sawing System similar to our Curve Sawing System. Please be aware of the following U.S. Patents, copies enclosed, which cover various aspects of Curve Sawing Systems: Pat #4,599,929 and Pat. # 5,722, 474." (Opposition, at p.5)

To invoke this defense, USNR must address two factors: (1) CNM delayed filing suit for an unreasonable and inexcusable length of time from the time it knew or reasonably should have known of the claim, and (2) USNR suffered prejudice and injury because of the delay.

A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020, 1032 (9th Cir. 1992). At the deposition, USNR may only question Mr. McGehee about when he knew about USNR's system. USNR cannot seek information about why CNM failed to assert the patents because that may entail expert analysis.

II. All Parties and Non-Parties Must Comply With the Protective Order Entered By Judge Ward

During the hearing on March 9, 2005, USNR raised a new issue regarding the protective order entered by Judge Ward in the Eastern District of Texas. USNR intends to show Mr. McGehee confidential documents at his deposition; however, he refuses to comply with the protective order on grounds of lack of jurisdiction. USNR contends that his testimony is critical to its claim of patent invalidity and moves this court to adopt the terms of the protective order entered by the District Court in Texas (Hon. John Ward) and permit it to proceed with the deposition.

Mr. McGehee objects on two grounds. First, he argues that exposure to this confidential information could interfere with his ability to invent other similar devices. Mr. McGehee intends to continue working in the forest products industry and claims that these disclosures may interfere with his future endeavors. If one of his future inventions is similar to a product disclosed in the confidential documents, he is concerned that he may be accused of misappropriating the information for his own use. Second, Mr. McGehee has a current lawsuit pending against Cae, Inc. He maintains that information disclosed during the deposition in this action should not prejudice his rights in his own lawsuit against Cae, Inc. Mr. McGehee reserves the right to use all available information to his advantage, including any information he obtains in the course of this lawsuit.

This Court hereby orders all parties and non-parties to comply with the protective order entered by Judge Ward (Eastern District of Texas). Any adverse effects on future litigation caused by Mr. McGehee's knowledge of confidential information is purely speculative. This court cannot block USNR's valid attempts at acquiring relevant deposition testimony to deflect harm that may never occur.

Furthermore, how this ruling affects Mr. McGehee's current lawsuit with Cae, Inc. is within Judge Jenkins' discretion. It is beyond the reach of this court to decide matters properly before another court.

CONCLUSION

Mr. McGehee's motion the quash the subpoena issued to him by USNR is hereby denied. Because neither party has retained him as an expert witness, the scope of his deposition is limited to that of a percipient witness. In addition, all parties and non-parties shall abide by the protective order entered by Judge Ward (Eastern District of Texas).

IT IS SO ORDERED.

20050414

© 1992-2005 VersusLaw Inc.



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