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Jacob v. (ILG) Corp.

June 5, 2006


The opinion of the court was delivered by: Glasser, United States District Judge



Harold Jacob ("plaintiff" or "Jacob") brings suit against Kimberly-Clark Corporation ("defendant" or "KC") for alleged violations of a patent licensing agreement ("License Agreement"). The Amended Complaint ("Am. Compl.") alleges conversion, breach of contract, fraud, negligence, and breach of fiduciary duty and requests alternative forms of relief including declaratory judgment, injunction, accounting, rescission, and the imposition of a constructive trust. Defendant moves to dismiss the majority of these claims.


I. History of the Agreement

This dispute arises out of a patent licensing agreement between plaintiff-licensor and a subsidiary of the defendant as licensee and a subsequent assignment ("Assignment") of plaintiff's interest in that patent to the defendant.*fn1 The Agreement between plaintiff and Arrow Precision Products, Inc. ("Arrow") (the "licensee") was entered into March 1, 1994. In or about November of 1995, plaintiff assigned the entirety of his partial interest in the patent to Arrow. The parties do not dispute that, in or about April of 1996, Arrow assigned the License Agreement to a division of the defendant, KC.

The License Agreement granted Arrow a "worldwide, exclusive license, with the right by Licensee to grant sublicenses...and to make, have made, use and sell Licensed Products" ("Agmt.," Attached to Def. Mem., Ex. B § 3.01). Jacob, plaintiff and licensor, received royalties subject to a payment schedule. Agmt. § 4.01. The License Agreement provided in relevant part as follows:

2.01 Licensee will pay the cost of prosecuting and maintaining the Patent Rights Listed on Appendix A using patent counsel selected by Licensee. Licensor will fully cooperate with Licensee in preparing, filing, prosecuting and maintaining such applications and patents.

2.03 Licensee may, upon reasonable notice to licensor, decide to discontinue paying the expenses associated with any particular application or patent. If Licensee decides to discontinue paying such expenses, Licensor may pay such expenses. If Licensee declines to apply for a patent application for an invention of Know-how*fn2 then Licensor may at its sole discretion decide to pursue such application. Licensee shall retain no further rights in any application or patent which (1) Licensee declines to patent and licensor does patent or (2) Licensee decides to discontinue paying such expenses and for which Licensor assumes such responsibility.

3.01 Licensor grants to Licensee and Subsidiaries a worldwide, exclusive license, with the right by Licensee to grant sublicenses, under Know-how and Patent Rights to make, have made, use and sell Licensed Products.

5.02 Licensee and Subsidiaries shall maintain the usual books of accounts...showing sales of Licensed Products, Net Sales..., amounts received from sublicenses and Net Proceeds attributable thereto. Such books and records shall be open to inspection by Licensor during usual business hours and upon reasonable notice, by an independent certified public accountant appointed by Licensor and as to whom Licensee has no reasonable objection...for the purpose of verifying the accuracy of the payments made...Licensor agrees that the books and records of Licensee and Subsidiaries contain confidential business information and further agrees that Licensor will not divulge to third parties information obtained as a result of such inspection.

9.01 Licensee shall have the right, in its sole discretion and at its sole expense, to initiate, prosecute and conclude legal proceedings in Licensor's name or its own name against any infringer of Patent Rights....

9.02 In the event Licensee proceedings to enforce Patent Rights..., Licensor shall fully cooperate with and supply all assistance reasonably requested by Licensee. Licensor, at its expense, shall have the right to be represented by counsel of its choice in any such proceeding, provided that Licensee shall have the sole right to conduct such proceedings and to enter into any settlement thereof.

10.01 This Agreement shall be interpreted and construed in accordance with the laws of the Commonwealth of Pennsylvania.

In a letter to Jacob dated November 8, 1995, Kenneth George, counsel for Arrow, sought an assignment from Jacob of his title to patents embraced by the License Agreement in order to "greatly simplify the filing and prosecution of the corresponding foreign [patent] applications... [and to] make it simpler to enforce [Jacob's] patents against third parties by way of litigation." Am. Compl. ¶ 7. On November 27, 1995, Jacob granted that Assignment. He alleges that he received no consideration for the Assignment, and asserts that he agreed to it in reliance on George's aforementioned statement as well as his proposal that "in the unlikely event that Arrow Precision seeks to terminate the License Agreement, Arrow Precision will make y you [sic] a co-owner of the patents by assigning your rights back to you." Am. Compl. ¶ 7.

Although the language of the Assignment provided Arrow with patent rights "to be held and enjoyed by the Assignee for its own use and benefit,"*fn3 the plaintiff contends that the patent rights that were assigned to KC were to be held by it as trustee for his benefit. Am. Compl. ¶ 30.

"Subsequent to his execution of the Assignment, Jacob requested in writing that KC reassign his Patent Rights to him." (¶ 12). In response, in an undated letter, Dennis Cox, KC's Director of Marketing, Ballard Medical Products (a division of KC) stated that:

We [,KC,] also concluded that [Jacob's] original joint ownership rights in the patents and patent applications governed by the 1994 agreement should be reassigned to [Jacob]. This reassignment will place [Jacob] in the same legal position [he was] in prior to [his] assignment of [his] joint ownership rights to Arrow. Please note that we will retain those joint rights in the patents and patent applications which we received from Arrow and which were based upon the rights of the other co-inventors. The net effect of the re-assignment will be for [Jacob] and Ballard to be joint owners of the patents and patent applications.

Am. Compl. ¶ 12.*fn4

Jacob alleges that he relied upon this promise until November 26, 2003, when he received a letter from KC's attorney refusing to reassign the patent rights to him. Am. Compl. ¶¶ 13, 108.*fn5

In March, 2004, he demanded by letter that he and his attorney be permitted to inspect the books and records of KC. Am. Compl. ¶ 83. Also in that month, Jacob, through his attorney, wrote KC, ostensibly rescinding the Assignment. On March 16, 2004, KC wrote Jacob, recognizing its failure to pay him a portion of his proceeds and remitting to him a check for those proceeds. Id. ¶ 84. In July of 2004, Jacob again sent a letter demanding he and his accountant be allowed to inspect the licensee's books. Id. ¶ 45. In September of 2004, KC responded by requiring them to sign a confidentiality agreement, and demanded that neither Jacob nor his attorney be present at the inspection. Id. ¶ 86. On April 6, 2005 the Complaint was filed.

II. The Amended Complaint

The Amended Complaint of 109 rambling paragraphs alleging seventeen "causes of action" arising from defendant's alleged activities is ...

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