Mr. Storms, an individual with significant experience with Bitcoin mining, is the founder and sole employee of BearBox LLC. Mr. McNamara and Dr. Cline co-founded Lancium in November 2017 with the intention of co-locating flexible datacenters (e.g., Bitcoin miners) at wind centers to exploit the highly variable power output of windfarms.
Lancium intended to exploit the power output of flexible datacenters by “ramping down” and selling power to the electrical grid when energy prices are high. Conversely, when energy prices were low flexible datacenters would “ramp up.” These concepts were disclosed by Lancium in February 2018 in International Publication No. WO 2019/139632, entitled “Method and System for Dynamic Power Delivery to a Flexible Datacenter Using Unutilized Energy Sources.” This application names McNamara and Cline as inventors, and has a priority date of January 2018.
In 2019, Lancium began to develop internally its own software to control cryptocurrency miners, which it monitored at least one windfarm with by May 2019. Lancium also worked with various companies to design and manufacture portable mining containers.
Around this same time (late 2018 to early 2019) BearBox began to design, build, and test the BearBox system that allowed a remote user to control an individual relay to turn on and off Bitcoin miners. By May 7, 2019, Mr. Storms developed source code that could control a mining site based on various economic conditions, such as the cost of electricity.
On May 3, 2019, Mr. Storms met Lancium for cocktails and dinner at a cryptocurrency conference, where Mr. Storms and Mr. McNamara discussed the Bear Box system. The two exchanged numbers, but never met in person again. On May 8, 2019, after a few exchanged text messages, Mr. McNamara asked Mr. Storms for BearBox design specifications. Mr. Storms responded the by an email with the following attachments: (1) a one-page BearBox Product Specification Sheet; (2) an annotated diagram of BearBox’s Automatic Miner Management System; (3) specification sheets on fans and other hardware components; and (4) a data file modeling a simulation of the BearBox system. Mr. McNamara credibly testified that he spent no more than three minutes reviewing the attachments before considering the price of the BearBox system too high compared to other solicited manufacturers.
On October 28, 2019, Lancium filed U.S. Provisional App. No. 62/927,119 ( the ’119 application), which ultimately issued as the ’433 patent, entitled, “Method and Systems for Adjusting Power Consumption Based on a Fixed-Duration Power Option Agreement.” The ’433 patent relates to a set of computing systems that are configured to perform computational operations using power from a power grid; and a control system that monitors a set of conditions and receives power option data based, in part, on a power option agreement, and McNamara and Cline are the named inventors.
BearBox brought a lawsuit against Lancium asserting, inter alia, claims of sole or joint inventorship of the ’433 patent and conversion under Louisiana state law. Lancium succeeded on summary judgment that federal patent law preempted the conversion claim as pled.
Lancium was denied summary judgment on inventorship, but in the interim, the district court struck a supplemental report from BearBox’s technical expert. The district court determined BearBox had acted in bad faith when it served the report three weeks before the start of trial, and five months after the close of expert discovery, without seeking leave of court or Lancium’s consent, as required by the district court’s scheduling order.
Following a three day bench trial, the district court concluded that BearBox had not met its burden under the inventorship claim by clear and convincing evidence. BearBox appealed the district court decision.
Issues
- Did the district court err in holding BearBox’s claim for conversion, under Louisiana state law, as pled is preempted by federal patent law?
- Did the district court err in deciding to strike BearBox’s expert’s supplemental report in toto?
- Did the district court err in holding that BearBox failed to provide clear and convincing evidence that Mr. Storms should be named a sole or joint inventor?
Holding
- No, the district court properly held that federal patent law preempted the state law conversion claim as pled by BearBox.
- No, the district court properly excluded BearBox’s expert’s supplemental report.
- No, the district court properly held that BearBox failed to provide clear and convincing evidence that Mr. Storms should be named a sole or joint inventor.
Reasoning
Preemption of Conversion Claim
The Federal Circuit reviewed de novo the district court’s grant of summary judgment as is required under the law of the regional circuit, the Third Circuit. However, for the question of whether federal patent law preempts a state law claim Federal Circuit law governs.
While there are three types of preemption: explicit, field, or conflict preemption; only conflict preemption was implicated by BearBox’s claim. Conflict preemption occurs “when a state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” BearBox v. Lancium, 2023-1922, 12 (Fed. Cir. 2025) (quoting Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1377 (Fed. Cir. 2005)). While there are several congressional objectives for federal patent law, “public disclosure and use . . . is the centerpiece of federal patent policy.” BearBox, 23-1922 at 12 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 157 (1989)). Thus, any state law that “substantially interferes with the enjoyment of an unpatented utilitarian or design conception which has been freely disclosed by its author to the public” is preempted as contravening the ultimate goal of federal patent law. Id.
Under Louisiana state law, conversion is “an act in derogation of the plaintiff’s possessory rights and any wrongful exercise or assumption of authority over another’s goods, depriving him of the possession, permanently or for an indefinite time.” BearBox, 23-1922 at 13 (quoting Bihm v. Deca Sys., Inc., 226 So. 3d 466, 478 (La. App. 1 Cir. 2017)). A Louisiana conversion cause of action is not necessarily preempted by federal patent law, as a it may cover a range of conduct not implicating federal patent law. Id. at 13. Additionally, BearBox’s claim was not based on acts of patent infringement or a determination of inventorship, but rather on conversion of documents and information. Id. at 13. However, under Federal Circuit law, a preemption analysis is not a “mechanical compar[ison]” of the required elements of the state law claim with the objectives embodied in the federal law. Id. Instead, the analysis is whether the state law as pled “stands as an obstacle to the accomplishment of the full purposes and objectives of Congress.” Id. (quoting Ultra Precision, 411 F.3d at 1378).
Under this analysis the Federal Circuit affirmed the district court’s determination that BearBox’s conversion claim was preempted by federal patent law. BearBox’s claim, as pled, was “essentially an inventorship cause of action and patent infringement cause of action” that sought patent-like protection for ideas that are unprotected under federal law. BearBox, 23-1922, at 14. The Federal Circuit held the conversion claim “reads like a patent infringement cause of action.” BearBox, 23-1922 at 14. Even the damages sought by BearBox for the use, sale, and monetization of the technology it alleged it owns and invented, were patent-like damages. BearBox’s proposed damages were a “repackaged form of a royalty payment,” instead of the proper measure of damages under a Louisiana conversion claim, which is the return of the property or the value of the property at the time of the conversion. BearBox, 23-1922at 15-16.
Furthermore, federal patent law generally precludes a plaintiff from recovering damages from a defendant’s making, using, offering to sell, or selling an “unpatented discovery after the plaintiff makes the discovery available to the public.” BearBox, 23-1922 at 16 (quoting Ultra-Precision, 411 F.3d at 1380). Here, BearBox’s technology was not patented and was freely shared with others. Thus, allowing BearBox’s claim to proceed would potentially allow it to “recover lost profits or a reasonable royalty from its competitor . . . [for] alleged use of technical information that ‘otherwise remain[s] unprotected as a matter of federal law.’” BearBox, at 16-17 (quoting Bonito Boats, 489 U.S. at 156).
Exclusion of Expert Report
BearBox argued the district court’s decision to strike the supplemental expert report in toto was an abuse of discretion for three reasons: (1) the untimely supplemental report was justified; (2) the supplemental report did not offer new opinions; and (3) the district court incorrectly determined the Pennypack factors weighed in favor of exclusion. BearBox, 23-1922 at 17. The Federal Circuit reviewed the district court’s evidentiary rulings for abuse of discretion.
BearBox first asserted that its expert’s supplemental report, although untimely, was justified because Lancium raised a new claim construction dispute for the first time after the close of discovery. BearBox, 23-1922 at 17-18. The Federal Circuit, however, viewed this assertion as a mischaracterization of the record. While the district adopted Lancium’s construction after the close of discovery, the adopted constructions were raised before and were not new to either BearBox or its expert. The Federal Circuit agreed that BearBox should have addressed Lancium’s proposed constructions in its expert reports.
Next, BearBox asserted that the district court erred in concluding its expert’s report offered new opinions. BearBox, 23-1922 at 19-20. The Federal Circuit saw no error in the determination that the opinions in the Supplemental Report were “beyond mere elaboration or clarification.” Id. at 19. Furthermore, the portions of the prior expert reports BearBox pointed to as support for its claim construction did not overcome or otherwise rectify its expert’s “clearly contradictory testimony.” Id.
Lastly, the Federal Circuit took up BearBox’s contention that even if the supplemental report contained new opinions, striking the report was an “extreme sanction, not normally warranted absent a showing of willful deception or flagrant disregard of court orders.” BearBox, 23-1922 at 20 (internal citations omitted). The Federal Circuit reviewed the district court’s Pennypack factor analysis forabuse of discretion in excluding the evidence. BearBox, 23-1922 at 20-21. The Pennypack factors are:
(1) “the prejudice or surprise in fact of the party against whom the excluded witnesses would have testified” or the excluded evidence would have been offered; (2) “the ability of that party to cure the prejudice”; (3) the extent to which allowing such witnesses or evidence would “disrupt the orderly and efficient trial of the case or of other cases in the court”; (4) any “bad faith or willfulness in failing to comply with the court’s order”; and (5) the importance of the excluded evidence.
BearBox, 23-1922 at 20-21 (quoting ZF Meritor, 696 F.3d at 298 (quoting Meyers v. Pennypack Woods Home Ownership Assn., 559 F.2d 894, 904–05 (3d Cir. 1977))).
For factors (1) and (2), the Federal Circuit reiterated that “the supplemental report offered new legal theories and opinions related to BearBox’s alleged conception and communication of the subject matter of the ’433 patent.” BearBox, 23-1922 at 21. Additionally, the new theories, if allowed, would have unfairly prejudiced Lancium because it was months after the close of discovery and only a few weeks before trial. While allowing Lancium’s expert to respondcould have cured some of the prejudice, given the strained schedule and quickly approaching trial, the Federal Circuit agreed that Lancium had “no meaningful opportunity” to sufficiently cure the prejudice. Id.
Similarly, for factor (3), the Federal Circuit saw no error in the conclusion that the risk of prejudice to Lancium was uncurable in light of the strained schedule and quickly approaching trial, and BearBox presented no evidence to demonstrate that the district court’s determination for this factor was erroneous. Id. at 22.
For factor (4), the Federal Circuit pointed to the district court’s scheduling order that stated that “after discovery no other expert reports [would] be permitted without either the consent of all parties or leave of the court.” BearBox, 23-1922 at 22. Since BearBox did not seek either Lancium’s consent or leave from the district court, the Federal Circuit saw no error in the determination that BearBox’s disregard of the scheduling order indicated bad faith and weighed in favor of exclusion of the report. Id.
For factor (5), the Federal Circuit reviewed the district court’s analysis, which it noted was assessed in two different ways. See BearBox, 23-1922 at 22-23. First, the district court compared BearBox’s expert opening and reply reports to the supplemental report at issue, and concluded the supplemental report “went beyond mere elaboration or clarification.” Id. at 22. Alternatively, the district court assumed the supplemental report did not contain new opinions. Id. at 23. Nevertheless, the district court found it could not reasonably conclude that the exclusion of the supplemental report would harm BearBox. Id. Thus, under either analysis the Federal Circuit viewed the district court as doubtful of the supplemental report’s importance and saw no error in either analysis.
The Federal Circuit ultimately determined, noting the considerable discretion of district courts in expert discovery and case management matters, that there was no abuse of discretion in excluding BearBox’s supplemental report.
Inventorship
For inventorship, BearBox did not challenge the district court’s factual findings or credibility determinations, rather it contended that the district court erred by: (1) excluding Mr. Storms’ testimony as hearsay; (2) analyzing individual claim elements (rather than a combination) by comparing them to Mr. Storms’ corroborating documents; and (3) applying the rule of reason by evaluating documents in isolation.
A district court may correct inventorship under 35 U.S.C. § 256 when it determines that an inventor has been erroneously omitted from a patent. BearBox, 23-1922 at 24. Inventorship is determined on a claim by claim basis and the issuance of a patent creates a presumption that the named inventors are the true and only inventors. Id. Any party seeking to correct inventorship of a patent must show by clear and convincing evidence that a joint inventor “contributed significantly to the conception . . . or reduction to practice of at least one claim,” and the “contribution” must arise out of some joint behavior of the inventors. Id. at 25 (internal citations omitted). Furthermore, an alleged joint inventor’s testimony is insufficient to establish inventorship, and must be corroborated by further evidence. Id.
To determine whether an alleged co-inventor’s testimony has been sufficiently corroborated a rule of reason is applied by the district court. BearBox, 23-1922 at 24 (quoting Blue Gentian, LLC v. Tristar Prod., Inc., 70 F.4th 1351, 1357 (Fed. Cir. 2023)). The rule of reason requires the district court to examine all pertinent evidence to “determine whether the inventor’s [testimony] is credible.” BearBox, 23-1922 at 24 (quoting Blue Gentian, 70 F.4th at 1358). Since inventorship is a question of law based on underlying facts, a district court’s inventorship determination is reviewed de novo and the underlying fact findings are reviewed for clear error. BearBox, 23-1922 at 24-25 (citing In re VerHoef, 888 F.3d 1362, 1365 (Fed. Cir. 2018); and Dana-Farber Cancer Inst., 964 F.3d at 1370 (Fed. Cir. 2020)).
With respect to the ’433 patent, the only information shared by Mr. Storms with Lancium was his May 2019 email containing the four attachments, which the district court held were insufficient to establish that Mr. Storms’ inventorship. As a result, the Federal Circuit affirmed that BearBox had failed to prove by clear and convincing evidence that Mr. Storms had either conceived of, or communicated prior to Lancium’s independent conception, the subject matter of any claim of the ’433. BearBox, 23-1922 at 25.
BearBox also contended that the district court improperly excluded, as hearsay, Mr. Storms’ testimony about statements he made to Mr. McNamara at the May 2019 dinner. The Federal Circuit acknowledged some merit in BearBox’s contention, but held that BearBox did not properly preserve its claim of error for appellate review. BearBox, 23-1922 at 27. Specifically, when the district court ruled that Mr. Storms’ testimony was hearsay, BearBox’s counsel made no offer of proof as to what Mr. Storm’s response would have been had he been permitted to answer the question. Id. Therefore, the Federal Circuit could not determine that there was prejudicial error in excluding Mr. Storms’ testimony as hearsay. Id.
BearBox’s next contention was that the district court failed to consider claim elements in combination, and only focused on individual elements when it evaluated whether Storms conceived of the claimed inventions. BearBox, 23-1922 at 27-28. The only case BearBox cited in support of this argument that addressed inventorship was Blue Gentian. Id. The Federal Circuit, however, noted that in Blue Gentian it did not adopt a general criticism of limitation-by-limitation analysis. Id. Thus, Blue Gentian could not support a determination that the district court erred in adopting a limitation-by-limitation approach.
Lastly, BearBox contended that the district court erred by “referenc[ing] the Rule of Reason” but “not address[ing] whether, under the Rule of Reason, the totality of the evidence, including circumstantial evidence supports the credibility of the inventors’ story.” BearBox, 23-1922 at 28 (internal quotations omitted). BearBox asserted that two of the district court’s fact findings were inconsistent, and thus, improperly evaluated. First was the finding that “through late 2018 into early 2019, Storms began to design, build, and test a system . . . that allowed a remote user to control individual relays so that miners could be turned on or off.” Id. The alleged conflicting finding was “BearBox did not otherwise proffer evidence establishing that the BearBox System could individually control the system of 272 miners.” Id. The Federal Circuit held the that the later fact finding was taken out of context. For that finding of fact, the district court found, based on a credibility determination regarding competing expert testimony, that Mr. Storms’ “Source Code ‘only ever instructs . . . all the relays of the PDUs to turn on or off.” Id. at 29 (emphasis added). Additionally, the district court found, which BearBox did not mention on appeal, that “even if Storms’ Email did meet [the claim element at issue] of the ’433 patent, the Court finds as a matter of fact that Storms did not communicate [this element] prior to [Lancium’s] independent conception.” BearBox, 23-1922 at 29. Finding the remaining arguments unpersuasive, the Federal Circuit affirmed the district court’s dismissal of the state law conversion claim, exclusion of the supplemental expert report, and denial of the claim that Mr. Storms was either a sole or joint inventor of the ’433 patent.