Specialty Rental Tools & Supply, Inc. v. Boyd's Bit Service, Inc.

Citation: 84 F. App'x 90Docket: No. 02-1530, 03-1066

Court: Court of Appeals for the Federal Circuit; December 16, 2003; Federal Appellate Court

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Specialty Rental Tools Supply, Inc. sued Boyd’s Bit Service, Inc. for infringing U.S. Patent No. 5,284,210, while Boyd's counterclaimed for a declaratory judgment of invalidity and non-infringement of the patent, as well as damages for breach of a 1995 settlement agreement regarding U.S. Reissue Patent No. 33,150 and unfair competition. Boyd's motion for summary judgment on the breach of the settlement agreement was denied by the district court, which instead granted summary judgment in favor of Specialty. Boyd's did not seek reconsideration. At trial, the jury found the ’210 patent invalid and not infringed, and the district court denied Specialty's motion for Judgment as a Matter of Law (JMOL) on the patent's validity and infringement. Boyd's appeal includes the summary judgment regarding the settlement agreement and the decision that the case is not exceptional, which the court found not clearly erroneous, affirming that judgment. Specialty cross-appeals the denial of its JMOL motion, which was affirmed due to substantial evidence indicating the patent was anticipated or obvious based on prior art. The ’210 patent relates to devices, termed “Entry subs,” designed to improve the recovery of stuck drill pipe in oil drilling operations, allowing for diagnostic tools to access the drill pipe and facilitating communication with surface equipment, thus enhancing recovery efficiency.

Boyd’s and Specialty have differing terminologies for their entry subs, with Boyd’s referring to them as “side entry subs” and Specialty as “top entry subs.” Specialty claims its top entry subs are superior due to the ability to insert more tools through their third opening, which has a less acute angle compared to Boyd’s side entry subs. Additionally, wireline wear affects the interior of entry subs, necessitating their eventual replacement. To mitigate this wear, a “saver sub” can be attached to protect the more expensive drilling equipment's threaded ends by absorbing physical wear.

The ’150 reissue patent was reissued on January 23, 1990, and Specialty’s ’210 patent for top entry subs was issued on February 8, 1994. In 1995, Boyd’s informed Specialty of alleged infringement regarding the top entry sub, leading to Specialty’s lawsuit for a declaratory judgment of noninfringement, with Boyd's counterclaiming for infringement. The dispute was settled on September 19, 1995, allowing Specialty to continue producing the top entry sub under strict conditions, including design constraints and notification requirements regarding changes.

In 1996, Boyd’s developed a larger version, the “long boy sub,” based on prior designs. In June 1999, Specialty sued Boyd’s for infringement of its ’210 patent concerning the long boy sub. Concurrently, Boyd’s discovered Specialty was using saver subs that assumed more wireline wear than permitted, prompting Boyd’s to counterclaim for declaratory judgment of noninfringement and breach of the prior settlement agreement. The district court granted summary judgment for Specialty on the breach claim and denied its motion for judgment as a matter of law regarding the jury’s findings of invalidity and noninfringement of the ’210 patent. The summary judgment is reviewed de novo, applying circuit standards for procedural issues and Federal Circuit standards for substantive patent issues.

In the Fifth Circuit, a court's failure to provide a party with ten days' notice before granting summary judgment sua sponte constitutes procedural error, as established in Love v. Nat’l Med. Enters. However, this failure may be deemed harmless if either the nonmovant has no further evidence or if the appellate court determines that any additional evidence does not create a genuine issue of material fact. If the losing party requests reconsideration without addressing the procedural error, the appellate court will evaluate the defect under a plain error standard. 

Boyd contests both the procedural validity of the summary judgment—specifically regarding the lack of notice—and the merits of the judgment concerning the interpretation of a settlement agreement. Settlement agreements, treated as contracts, are typically governed by state law, which in Texas mandates that courts interpret them to reflect the parties' written intent. A contract is considered unambiguous if it conveys a definite legal meaning; otherwise, ambiguity leads to factual questions regarding interpretation.

The court analyzed the settlement agreement, concluding that it intended to prevent Specialty from manufacturing a specific type of sub that accommodates a "wear sleeve" for wireline wear. However, it also recognized that the agreement did not explicitly prohibit Specialty from using a saver sub with a female thread on its upper end, which might temporarily endure increased wireline wear. Key paragraphs of the agreement discuss permissible wireline wear on members threaded onto Specialty’s top entry sub, suggesting that the intent was not to completely restrict the use of a saver sub. The language in the agreement raises questions about whether it restricts all members that take on greater wireline wear or only those in specific locations.

Boyd's contends that the court improperly granted summary judgment without allowing them the legally required ten days to present evidence regarding the parties' intent in a settlement agreement. Specialty does not dispute this procedural error but argues that the error was harmless, a claim it failed to substantiate with legal citations. The court determined that Boyd's should have been allowed to present evidence and therefore vacated the summary judgment ruling that Specialty did not breach the settlement agreement, remanding for further proceedings.

Regarding whether the case was exceptional, the court found Boyd's three arguments unpersuasive. First, the jury's verdict indicated no inequitable conduct occurred in the prosecution of the patent, undermining Boyd's claim. Second, the district court noted that the litigation arose from failed negotiations, suggesting the circumstances did not warrant an exceptional finding. Lastly, the jury's invalidation of the patent claims was insufficient to deem the case exceptional. The district court's conclusions on these matters were not found to be clearly erroneous.

The court also clarified the review standards for judgments as a matter of law (JMOL) and the distinction between factual determinations of anticipation and obviousness, with the latter being a legal question. The review process involves assessing whether jury findings are supported by substantial evidence.

The court reviews the conclusion of obviousness de novo, establishing that prior art anticipates a claim when it discloses and enables every element of that claim. If prior art anticipates a claim, it renders the claim obvious. A Specialty challenges the jury's finding that claims 1 and 16 were anticipated, arguing insufficient evidence supported the jury's conclusions and that Boyd's proof of anticipation was flawed. To succeed, Specialty must demonstrate that no reasonable jury could have reached the same conclusion. The jury has the prerogative to assess credibility and weigh evidence, which included diagrams and actual subs that Boyd presented. The court finds that substantial evidence supported the jury's conclusion that the prior art anticipated the claims. Therefore, the court affirms the jury's verdict that claims 1 and 16 of the ’210 patent are both anticipated and obvious. The district court's summary judgment against Boyd’s is vacated due to insufficient notice, but the decision that the case is not exceptional is affirmed. Additionally, the jury's finding of invalidity is upheld as it was based on substantial evidence, and the finding of no infringement is affirmed since invalid claims cannot be infringed. The Helms affidavit submitted by Specialty regarding intent is noted as being reflected in the lower court's opinion.