DCT

4:20-cv-02444

Magema Technology LLC v. Phillips 66

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I. Executive Summary and Procedural Information

  • Parties & Counsel:
  • Case Identification: 4:20-cv-02444, S.D. Tex., 07/13/2020
  • Venue Allegations: Venue is alleged to be proper in the Southern District of Texas because Defendants maintain regular and established places of business in Houston and have allegedly committed acts of infringement within the district.
  • Core Dispute: Plaintiff alleges that Defendants’ processes for producing Very Low Sulfur Fuel Oil (VLSFO) and the resulting VLSFO products infringe four patents related to the hydroprocessing of heavy marine fuel oil.
  • Technical Context: The technology addresses the need for low-sulfur heavy marine fuel oil to comply with the International Maritime Organization’s 2020 global regulations, which drastically reduced permissible sulfur emissions from ocean-going vessels.
  • Key Procedural History: The complaint alleges that Plaintiff’s predecessor disclosed its patent-pending technology to Defendants in confidence during a series of meetings in 2017 and 2018. It further alleges that Defendants subsequently implemented the technology without authorization and did not respond to a June 2019 notice of the first patent’s issuance, which forms the basis for the willfulness allegations.

Case Timeline

Date Event
2017-02-12 Earliest Priority Date for all Patents-in-Suit
2017-03 Plaintiff's predecessor allegedly first discloses technology to Phillips
2018-02-16 Plaintiff's predecessor allegedly provides technology tutorial to Phillips
2018-03-26 Phillips submits construction permit for "International Maritime Operations Fuel Treatment Project"
2019-06-04 U.S. Patent No. 10,308,884 Issues
2019-06-20 Plaintiff allegedly notifies Phillips of '884 Patent issuance
2019-12-03 Phillips issues safety data sheet for its VLSFO product
2020-01-14 U.S. Patent No. 10,533,141 Issues
2020-03-10 U.S. Patent No. 10,584,287 Issues
2020-03-31 U.S. Patent No. 10,604,709 Issues
2020-07-13 Complaint Filed

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 10,308,884, “Heavy Marine Fuel Oil Composition,” Issued June 4, 2019

The Invention Explained

  • Problem Addressed: The patent addresses the challenge faced by the marine and refining industries due to new international regulations (MARPOL Annex VI) mandating a significant reduction in the sulfur content of heavy marine fuel oil (HMFO) (Compl. ¶¶2, 27-30; ’884 Patent, col. 1:1-2:46). Conventional solutions, such as blending high-sulfur residual oils with low-sulfur distillates, were identified as being economically unattractive and technically problematic, potentially causing fuel instability and asphaltene precipitation that could lead to engine failure (’884 Patent, col. 4:40-67; Compl. ¶32).
  • The Patented Solution: The invention proposes directly treating a standard, high-sulfur HMFO that is already compliant with other industry standards (e.g., ISO 8217) to remove sulfur while preserving the fuel's essential bulk properties (’884 Patent, Abstract; Compl. ¶36). The process involves mixing the high-sulfur HMFO with an "Activating Gas" (such as hydrogen) and contacting the mixture with a catalyst to produce a low-sulfur HMFO that remains a direct, stable substitute for traditional bunker fuel (’884 Patent, FIG. 1, col. 6:36-51).
  • Technical Importance: This approach provided a method to convert a low-value, high-sulfur refinery byproduct into a high-demand, regulation-compliant marine fuel, avoiding the technical risks and higher costs associated with simple blending (’884 Patent, col. 12:5-12; Compl. ¶36).

Key Claims at a Glance

  • The complaint asserts independent claim 1 (Compl. ¶60).
  • The essential elements of Claim 1 are:
    • A low sulfur heavy marine fuel oil,
    • consisting essentially of a 100% hydroprocessed high sulfur heavy marine fuel oil,
    • wherein prior to hydroprocessing, the starting high sulfur fuel is compliant with ISO 8217:2017, is of merchantable quality, and has a sulfur content greater than 0.5% by weight,
    • and wherein the resulting low sulfur fuel is also compliant with ISO 8217:2017, is of merchantable quality, and has a sulfur content less than 0.5% by weight.
  • The complaint also notes that an alleged blend containing the accused product could infringe claim 5 (Compl. ¶63 n.8).

U.S. Patent No. 10,533,141, “Process and Device for Treating High Sulfur Heavy Marine Fuel Oil for Use as Feedstock in a Subsequent Refinery Unit,” Issued January 14, 2020

The Invention Explained

  • Problem Addressed: As demand for traditional high-sulfur HMFO was set to decline due to new regulations, refiners faced the problem of how to utilize this low-value byproduct (’141 Patent, col. 4:1-9; Compl. ¶30). The patent frames this as an opportunity to upgrade the material into a valuable input for other refinery units.
  • The Patented Solution: The patent claims a multi-step process for treating high-sulfur HMFO to make it a suitable feedstock for other refinery units, such as cokers or fluid catalytic crackers (’141 Patent, Abstract). The process comprises mixing the feedstock HMFO with an "Activating Gas," contacting the mixture with catalysts under reactive conditions, and then performing a series of separations to isolate the desired "Product Heavy Marine Fuel Oil" from gaseous components and byproducts (’141 Patent, Abstract, FIG. 1). The claims recite specific physical and chemical properties for both the input feedstock and the output product.
  • Technical Importance: The invention provides a method for refiners to integrate a previously low-value output stream (high-sulfur HMFO) back into their production chain as a higher-value, low-sulfur intermediate feedstock, thereby improving overall refinery economics (’141 Patent, col. 4:1-9).

Key Claims at a Glance

  • The complaint asserts independent claim 1 (Compl. ¶78).
  • The essential steps of Claim 1 are:
    • A process for treating high sulfur HMFO for use as a feedstock,
    • mixing the HMFO feedstock with an Activating Gas mixture,
    • contacting the mixture with catalyst(s) under reactive conditions to form a Process Mixture,
    • a first separation step to separate liquid from bulk gaseous components,
    • a subsequent separation step to separate residual gaseous and byproduct components from the liquid to yield a Product HMFO,
    • discharging the Product HMFO,
    • wherein the starting feedstock and final product meet specific, detailed parameters for sulfur content, viscosity, density, and other properties per ISO standards.

U.S. Patent No. 10,604,709, “Multi-Stage Device and Process for Production of a Low Sulfur Heavy Marine Fuel Oil from Distressed Heavy Fuel Oil Materials,” Issued March 31, 2020

  • Technology Synopsis: This patent addresses the processing of "Distressed Fuel Oil Materials" (DFOM)—fuels that are off-specification or otherwise non-compliant with industry standards—into low-sulfur fuel ('709 Patent, Abstract). The invention is a multi-stage process that first uses a pre-treatment unit (e.g., a distillation column) to transform the DFOM into a suitable feedstock, which is then sent to a core hydroprocessing unit to remove contaminants like sulfur ('709 Patent, Abstract).
  • Asserted Claims: Independent Claim 1 (Compl. ¶99).
  • Accused Features: Plaintiff alleges that Defendants’ use of a Vacuum Flasher No. 5 to process feedstock constitutes a pre-treatment unit for Distressed Fuel Oil Materials, which is then fed to a hydrotreater for desulfurization (Compl. ¶102).

U.S. Patent No. 10,584,287, “Heavy Marine Fuel Oil Composition,” Issued March 10, 2020

  • Technology Synopsis: This patent claims a heavy marine fuel oil product defined by the process used to create it (a "product-by-process" claim) ('287 Patent, Abstract). The claimed product is an ISO 8217-compliant, low-sulfur marine fuel that is made from an ISO 8217-compliant, high-sulfur marine fuel ('287 Patent, Claim 1). The recited process involves combining the high-sulfur fuel with an Activating Gas, heating and pressurizing it, contacting it with a catalyst system in a reactor, and performing separations to yield the final product ('287 Patent, Claim 1).
  • Asserted Claims: Independent Claim 1 (Compl. ¶120).
  • Accused Features: Plaintiff alleges that Defendants’ VLSFO product is made by a process of mixing high-sulfur fuel oil with hydrogen (an activating gas) and contacting it with a catalyst in a hydrotreater, thereby meeting the process limitations of the product-by-process claim (Compl. ¶¶123-130).

III. The Accused Instrumentality

Product Identification

  • The accused instrumentalities are the processes used at Defendants’ Wood River and Bayway refineries to produce low-sulfur fuel oil (LSFO) and the resulting products, specifically including Very Low Sulfur Fuel Oil (VLSFO) (Compl. ¶¶59, 78).

Functionality and Market Context

  • The complaint alleges that Defendants implemented "LSFO hydrotreater projects" at their refineries to upgrade high-sulfur fuel oil into a "very low sulfur, sub 0.5% blend stock" (Compl. ¶¶51, 55). This process allegedly involves taking high-sulfur fuel oil as a feedstock, hydroprocessing it to remove sulfur, and producing a compliant fuel product (Compl. ¶¶53, 64). Public announcements referenced in the complaint frame this as a project to "take high sulfur fuel oil and turn it into a much higher margin low sulfur fuel oil" (Compl. ¶53, Ex. 14 at 20). The complaint includes a Safety Data Sheet for the accused VLSFO product, describing it as "100%" "Fuel oil, no. 6" and not a blend, with a sulfur content of "less than 0.5 wt%" (Compl. ¶63, Ex. 15). Slides from a 2019 energy conference, attached as Exhibit 13, show Phillips publicly announcing the "Wood River LSFO hydrotreater project" and "Bayway LSFO hydrotreater project" (Compl. ¶51, Ex. 13 at 13).

IV. Analysis of Infringement Allegations

'884 Patent Infringement Allegations

Claim Element (from Independent Claim 1) Alleged Infringing Functionality Complaint Citation Patent Citation
A low sulfur heavy marine fuel oil... Defendants' VLSFO product is a low sulfur heavy marine fuel oil with a sulfur content of less than 0.5 wt%. ¶63 col. 12:13-19
consisting essentially of a 100% hydroprocessed high sulfur heavy marine fuel oil, Defendants' VLSFO is described in a safety data sheet as "100%" "Fuel oil, no. 6" and is allegedly produced by hydroprocessing high-sulfur fuel oil feedstock, not by blending. ¶¶63, 66 col. 12:13-19
wherein prior to hydroprocessing the high sulfur heavy marine fuel oil is compliant with ISO 8217:2017 and is of merchantable quality as a residual marine fuel oil but has a sulfur content... greater than 0.5% wt. Defendants allegedly use commercially sold high sulfur fuel oil (HSFO) as feedstock, which by definition has >0.5% wt. sulfur, and which Defendants' own sales documents state conforms to ISO 8217 specifications. ¶¶64, 67-68 col. 12:19-24
and wherein the low sulfur heavy marine fuel oil is compliant with ISO 8217:2017 and is of merchantable quality as a residual marine fuel oil and has a sulfur content... less than 0.5 wt%. The resulting VLSFO is commercially sold and has a sulfur content less than 0.5 wt%. Defendants' sales addendum allegedly states its fuel grades conform to ISO 8217. ¶¶63, 67-68 col. 12:24-29
  • Identified Points of Contention:
    • Scope Questions: The infringement analysis may focus on the term "consisting essentially of." The question for the court will be whether any unrecited steps or components in Defendants' process—if any exist—materially affect the "basic and novel properties" of the claimed fuel composition, thereby placing the accused product outside the claim's scope.
    • Technical Questions: A factual dispute may arise over whether the specific high-sulfur feedstock used by Defendants and the final VLSFO product meet every parameter required for ISO 8217:2017 compliance, as claimed in the patent and alleged in the complaint.

'141 Patent Infringement Allegations

Claim Element (from Independent Claim 1) Alleged Infringing Functionality Complaint Citation Patent Citation
A process for treating high sulfur Heavy Marine Fuel Oil for use as feedstock in a subsequent refinery unit... Defendants allegedly use "high-sulfur material" as a "feedstock for [its] processing units." ¶81 col. 4:1-9
mixing a quantity of Feedstock Heavy Marine Fuel Oil with a quantity of Activating Gas mixture... Defendants’ process at their LSFO hydrotreater refineries allegedly mixes the feedstock with at least hydrogen, which the complaint identifies as an activating gas. A permit summary describes a "hydrogen plant, which supplies hydrogen to the ULD2 Unit that is needed for the desulfurization process" (Compl. ¶83, Ex. 8 at 2). ¶83 col. 8:12-14
contacting the Feedstock Mixture with one or more catalysts under reactive conditions... Defendants' permit applications allegedly describe using LSFO hydrotreaters for a "desulfurization process," which inherently uses catalysts. ¶84 col. 8:14-17
receiving said Process Mixture and separating hydrocarbon liquid components... from any bulk gaseous components... The Wood River Refinery allegedly uses process heaters and/or cooling towers to separate hydrocarbon liquid components from bulk gaseous components. ¶85 col. 9:30-40
subsequently separating any residual gaseous components and any byproduct hydrocarbon components from the hydrocarbon liquid components... The complaint alleges the Wood River Refinery uses the same equipment (process heaters and/or cooling towers) to perform this subsequent separation. ¶86 col. 9:30-40
wherein the Feedstock Heavy Marine Fuel Oil complies with ISO 8217 (2017) and has a sulfur content... between the range of 5.0 mass % to 1.0 mass %... Defendants allegedly use high-sulfur feedstock that industry practice and Defendants' sales documents suggest would conform to ISO 8217 specifications. ¶¶81, 88-89 col. 22:8-20
wherein the Product Heavy Marine Fuel Oil has a sulfur content... between the range of 0.50 mass % to 0.05 mass %... Defendants’ final VLSFO product allegedly has a sulfur content of less than 0.5 wt% and is sold as conforming to ISO 8217 specifications. ¶¶87-89 col. 22:21-31
  • Identified Points of Contention:
    • Scope Questions: Does the claim's recitation of two distinct separation steps ("separating... from any bulk gaseous components" and "subsequently separating any residual gaseous components") require two structurally or temporally separate process units? The complaint alleges the same equipment performs both functions, which raises the question of whether Defendants' process meets this two-step limitation.
    • Technical Questions: A key factual question will be whether the precise numerical ranges recited in the claim for various properties of the feedstock and product (e.g., kinematic viscosity, CCAI, density) literally match those of the materials in Defendants' actual process.

V. Key Claim Terms for Construction

  • The Term: "consisting essentially of" (’884 Patent, Claim 1)

  • Context and Importance: This transitional phrase defines the scope of the product claim. Its construction will be critical to determining whether any additional, unrecited components or process artifacts in Defendants' VLSFO product are sufficient to place it outside the scope of the claim. Practitioners may focus on this term because infringement hinges on whether the accused product is fundamentally the claimed "100% hydroprocessed" fuel, or something materially different.

  • Intrinsic Evidence for Interpretation:

    • Evidence for a Broader Interpretation: The patent abstract states the product "can be used as or as a blending stock," which may suggest that the "basic and novel" properties of the fuel are not destroyed by its potential for subsequent combination with other components (’884 Patent, Abstract).
    • Evidence for a Narrower Interpretation: The specification describes the invention as a "direct substitute for the high sulfur heavy (residual) marine fuel oil" (’884 Patent, col. 12:9-12). This could support an argument that the term requires a product that is used "as is" and that the presence of any other material components that alter its character as a direct substitute would fall outside the claim.

  • The Term: "Activating Gas" (’141 Patent, Claim 1)

  • Context and Importance: The complaint alleges that the hydrogen used in Defendants' hydrotreating process is an "Activating Gas" (Compl. ¶83). The definition of this term is central to whether a standard input in many refining processes (hydrogen) meets this specific claim limitation.

  • Intrinsic Evidence for Interpretation:

    • Evidence for a Broader Interpretation: The patent provides a broad, functional definition: "a mixture of gases utilized in the process combined with the catalyst to remove the environmental contaminates from the Feedstock HMFO" (’141 Patent, col. 8:21-24). This language could be argued to cover any gas that facilitates catalytic desulfurization, including standard hydrogen.
    • Evidence for a Narrower Interpretation: The specification discloses preferred embodiments with specific parameters, such as the gas having "an ideal gas partial pressure of hydrogen (PH2) greater than 80% of the total pressure of the Activating Gas mixture (P)" (’141 Patent, col. 9:18-22). A party may argue that these more specific characteristics define the term, requiring more than just the presence of hydrogen.

VI. Other Allegations

  • Indirect Infringement: The complaint alleges that Phillips, as the operator and managing partner of WRB Refining LP, induced WRB to practice the infringing processes with knowledge of the patents (Compl. ¶¶69, 90).
  • Willful Infringement: Willfulness is alleged based on both pre-suit and post-suit knowledge. The complaint alleges pre-suit knowledge stemming from confidential meetings between Plaintiff's predecessor and Defendants in 2017 and 2018 where the patent-pending technology was allegedly disclosed (Compl. ¶¶71, 92, 112, 135). It further alleges direct, written notice of the issued '884 patent was sent to Defendants in June 2019, which Defendants allegedly ignored while continuing their infringing activities (Compl. ¶¶52, 71).

VII. Analyst’s Conclusion: Key Questions for the Case

  • A central issue will be one of pre-suit knowledge and conduct: what was the precise nature and content of the technical information disclosed to Phillips in 2017-2018, and does that information map directly onto the asserted claims? The resolution of this factual dispute will be pivotal for the allegation of willful infringement.
  • A key question of claim scope will be whether the term "consisting essentially of a 100% hydroprocessed" fuel in the '884 patent can be interpreted to read on Defendants' commercial VLSFO product, or if any unrecited components or process artifacts in the final product are sufficient to place it outside the claim's scope.
  • A further question will be one of process interpretation: for process claims like Claim 1 of the '141 patent, does Defendants' integrated hydrotreating operation contain the specific, discrete sequence of mixing and multiple separation steps required by the claim, or is there a fundamental mismatch in the number and nature of the recited process steps?