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Ryan Data Exchange, Ltd. v. Graco, Inc.

United States Court of Appeals, Eighth Circuit

January 10, 2019

Ryan Data Exchange, Ltd.; Rydex Technologies, LLC, doing business as Rydex Plaintiffs - Appellees
v.
Graco, Inc. Defendant-Appellant Ryan Data Exchange, Ltd.; Rydex Technologies, LLC, doing business as Rydex Plaintiffs - Appellants
v.
Graco, Inc. Defendant-Appellee Ryan Data Exchange, Ltd.; Rydex Technologies, LLC, doing business as Rydex Plaintiffs - Appellees
v.
Graco, Inc. Defendant-Appellant

          Submitted: September 26, 2018

          Appeals from United States District Court for the Southern District of Iowa - Des Moines

          Before COLLOTON, BEAM, and GRASZ, Circuit Judges.

          BEAM, CIRCUIT JUDGE.

         After a jury found in favor of Ryan Data Exchange (Rydex) in its breach of contract claim against Graco, [1] and against Graco in its counterclaims against Rydex, Graco sought to set the jury's verdict aside, renewed its motion for judgment as a matter of law, and moved for new trial, all of which the district court[2] denied. The district court further awarded $204, 221.50 in attorney's fees to Rydex. Graco appeals. Rydex also appeals, challenging the district court's reduction of its requested amount of attorney's fees. We affirm.

         I. BACKGROUND

         On September 13, 2005, Rydex and Graco entered into a Settlement and License Agreement (Agreement) in which Rydex granted Graco a patent license. In the instant action, the parties litigated three provisions of the Agreement at trial: (1) the provision wherein Rydex granted Graco an exclusive license to make, have made, use, and sell articles covered by the patent (§ 3.0); (2) the Agreement's provision that if a third party were to infringe the patent, Rydex would have the initial choice and obligation to prosecute the infringement (§ 11); and (3) a provision stating that Graco would pay Rydex royalties of 5% of the net selling price of its product using the patent (§ 4.1).

         Relevant to the instant litigation, in 2011, years after the parties entered into the Agreement, Rydex initiated a lawsuit alleging patent infringement against Badger Meter, Inc., Balcrank Corp., and Lincoln Industrial Corp. (collectively, Badger). The district court found, and the trial evidence revealed, a unique set of circumstances regarding Badger's infringement, in that at the time Rydex and Graco entered into the 2005 Agreement, both parties were aware that Badger was allegedly already infringing the patent, and yet the Agreement purported to give Graco an exclusive right to the patent. In 2012 Rydex and Badger filed a stipulation of dismissal and agreed that Rydex's claims and Badger's counterclaims in the matter would be dismissed with prejudice. This dismissal between Rydex and Badger is the source of Graco's claim against Rydex for failure to prosecute infringement under the Agreement.

         Graco stopped paying royalties to Rydex as of December 31, 2013, as Graco believed that Rydex had breached the Agreement's exclusivity provision and the patent infringement prosecution provision (§§ 3 and 11) by allowing Badger to continue its infringement and by failing to fully prosecute the infringement claim against Badger. In May 2014, Rydex filed the instant complaint alleging breach of contract and patent infringement by Graco. Graco countersued, also alleging breach of contract and seeking declaratory judgments that the patent was invalid and that Rydex had lost its right to receive royalty payments under the Agreement due to its alleged breaches.

         A jury trial was held in November 2016 on all of the contract claims then pending. During trial Graco moved pursuant to Rule 50(a) for judgment as a matter of law at the close of Rydex's case-in-chief, claiming in part that it had established through cross-examination that Rydex had breached its duty under the Agreement to prosecute the Badger litigation, and that Rydex had breached the exclusivity provision of the Agreement. In ruling on Graco's motions from the bench, the district court held as a matter of law that Rydex had breached its duty to prosecute infringement as of the date of the dismissal of the Badger litigation in 2012, and that Rydex was in breach of the exclusivity provision of the Agreement from the date of the dismissal of the Badger litigation until the expiration of the patent on March 10, 2015. Accordingly, the court granted Graco's Rule 50 motion to that extent. There was no ruling by the court as to whether Rydex breached the Agreement by failing to provide Graco an exclusive license from the date the parties entered into the Agreement in 2005 until the dismissal of the Badger litigation in 2012.

         In that same colloquy, the district court additionally ruled as a matter of law that by way of Rydex's dismissal of the case against Badger and by failing to fully prosecute the matter, Rydex necessarily created an implied license (i.e., there existed a reasonable inference that Rydex consented to Badger's use of the patent), at the very least, with regard to Badger's past infringement, at the time of the dismissal of the litigation against Badger. In a seeming attempt to correct any potential misunderstanding of its rulings, the district court clarified that despite the terms of the Agreement, the record was clear that both parties operated under the Agreement with the knowledge and understanding that there was some threat to either the validity of the patent altogether, or the existence of potential infringing third parties, over a period of several years before Rydex ever initiated the action against Badger. Because of that knowledge on both sides, the court held it could not rule as a matter of law on the issue of Rydex's alleged breach of the Agreement at any time prior to the dismissal of the Badger litigation. The court held that particular issue of contract interpretation and breach was a matter for the jury.

         The parties discussed throughout, and after trial, how to "package" this case for the jury in light of the court's Rule 50 rulings. Accordingly, the case was presented to the jury for very particular determinations with a verdict form consisting of five narrow questions for the jury. Instruction 7, titled "Elements of Breach of Contract," stated the elements required to prove a breach of contract under Iowa law, and also instructed the jury regarding the district court's prior grant of judgment as a matter of law in favor of Graco:

Regarding the Rydex Parties' breach of contract claim, it is for you to decide whether Graco breached the License Agreement by failing to pay royalties to the Rydex Parties for the period ending December 31, 2013, through the date of the expiration of the '180 patent on March 10, 2015.
Regarding Graco's breach of contract claim, the Court has found as a matter of law that the Rydex Parties were not required to commence an infringement action prior to the filing of the Badger Litigation. The Court has also found as a matter of law that the Rydex Parties were in breach of the duty to prosecute infringement as of the date of the dismissal of the Badger Litigation on August 15, 2012. The Court has further found as a matter of law that the Rydex Parties were in breach of the exclusivity provision of the License Agreement from the date of the dismissal of the Badger Litigation on August 15, 2012, until the expiration of the '180 patent on March 10, 2015. You must accept these facts as having been proved. It is for you to decide whether the Rydex Parties were in breach of ...

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