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Intellivision v. Microsoft Corp.

August 20, 2008

INTELLIVISION, A JOINT VENTURE, PLAINTIFF,
v.
MICROSOFT CORPORATION, DEFENDANT.



The opinion of the court was delivered by: John G. Koeltl, District Judge

MEMORANDUM OPINION AND ORDER

The plaintiff, Intellivision, brings this diversity action against Microsoft Corporation ("Microsoft"). The plaintiff asserts five causes of action in the Amended complaint: (1) fraudulent inducement; (2) unilateral mistake; (3) mutual mistake; (4) negligent misrepresentation; and (5) breach of fiduciary duty. Microsoft now moves to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.

I.

For the purposes of this motion to dismiss, the following facts as alleged in the Amended Complaint are accepted as true. Intellivision is an unincorporated joint venture formed by three principles, Bruce Adams, Paul Hoffman, and John Daniels. (Am. Compl. ¶ 1.) Intellivision was formed in New York and maintained offices in New York City and Connecticut. At all relevant times, John Daniels was a resident of Connecticut, Bruce Adams was a resident of New Jersey, and Paul Hoffman was a resident of New York. (Am. Compl. ¶¶ 1, 2.) Microsoft is a corporation organized under the laws of the state of Washington where it also has its principal place of business. (Am. Compl. ¶ 3.)

Intellivision was formed in part to develop "interactive television and related technologies" and was engaged in the commercial exploitation of twelve "core inventions" related to interactive television and television set-top box technology. (Am. Compl. ¶¶ 6-7.) These core inventions are disclosed in numerous patent applications filed in the United States and abroad, and the United States Patent and Trademark Office ("PTO") has issued a patent based on one of Intellivision's patent applications. (Am. Compl. ¶¶ 11-13.) Technology developed by Intellivision has already been incorporated into many consumer electronics products including the Digital Video Recorder ("DVR") as well as Microsoft's Windows Media Center and Windows Vista operating system. (Am. Compl. ¶ 10.)

In 1999, at an interactive television trade show in New York City, Intellivision representatives discussed its technology with John Colombo, a business development manager for Microsoft. (Am. Compl. ¶ 16.) Intellivision subsequently initiated further discussions with Mr. Colombo about Intellivision's technology, and in 2000 Microsoft invited representatives of Intellivision to visit Microsoft's WebTV campus in Mountain View, California. (Am. Compl. ¶¶ 17-18.) During the visit, Microsoft provided Intellivision with an overview of Microsoft's activities and developments in the area of television. (Am. Compl. ¶ 18.) In response to questioning from Intellivision representatives, Microsoft executives, including Anthony Faustini, stated that Microsoft had not developed and was not engaged in the development of a set-top box or software incorporating any of Intellivision's core inventions. (Am. Compl. ¶ 18.) During and after the visit, Mr. Faustini told Intellivision representatives that Microsoft was interested in purchasing Intellivision's intellectual property for defensive purposes. (Am. Compl. ¶ 19.)

Microsoft and Intellivision subsequently engaged in negotiations over a purchase of Intellivision's intellectual property. During the course of these negotiations, Intellivision made an offer combining an up-front cash payment and a per-unit royalty on products within the scope of Intellivision's patent applications. (Am. Compl. ¶¶ 20-21.) Intellivision indicated to Microsoft's attorney that it would insist on a royalty if Microsoft planned on introducing any such products. (Am. Compl. ¶ 22.) Microsoft's attorney informed Intellivision that a royalty payment would be "unworkable" because none of Intellivision's patent applications had yet issued as patents and Microsoft had not developed, was not developing, and at the time did not intend to develop any products incorporating Intellivision's core inventions. (Am. Compl. ¶ 22.) Microsoft's attorney made these representations in the fall of 2000 and again on January 15, 2001, confirming the representations of Microsoft executives made earlier in 2000. (Am. Compl. ¶¶ 23, 38.) In an attempt to confirm these representations, Intellivision conducted online searches in 2000 and January 2001 which did not yield any information that conflicted with the representations. (Am. Compl. ¶ 25.)

In January 2001, Intellivision entered into an agreement in which Intellivision agreed to assign its patent applications to Microsoft (the "Agreement"). (Am. Compl. ¶ 27.) In December 2000, Intellivision's principals executed the assignments. (Am. Compl. ¶ 28.) On January 11, 2001, Intellivision's principals executed the "body of the Agreement" and retained the signed original in their possession (Am. Compl. ¶¶ 28, 33.) The Agreement provided that Microsoft would pay Intellivision $1,000,000 within thirty days of the effective execution of the Agreement. (Agreement ¶ 3(A), Am. Compl. Ex. 1.) At that time, the parties had not reached a final agreement as to the terms of Attachment C of the Agreement, which set out the language of a patent claim that, if allowed by the Patent Office, would trigger Microsoft's obligation to pay Intellivision an additional $850,000. (Am. Compl. ¶¶ 28, 31; see Agreement ¶ 3(B).) The parties subsequently reached an agreement as to the language of Attachment C and Intellivision's principals executed Attachment C on January 16, 2001. (Am. Compl. ¶¶ 31, 33.) Intellivision delivered the signed copies of the body of the Agreement as well as the assignments and Attachment C to Microsoft and an officer of Microsoft executed the Agreement on January 19, 2001. (Am. Compl. ¶¶ 32, 34.) "Agreement" is defined as "this document and attachments thereto," and the Agreement states that it is effective "on the date of the last signature below." (Am. Compl. ¶¶ 30, 35.)

In reliance on Microsoft's aforementioned representations, Intellivision agreed to forego a per-unit royalty as part of the Agreement and agreed to a general merger clause, a disclaimer of liability, a general release, and a forum-selection clause. (Am. Compl. ¶¶ 26, 38, 59.) The Agreement "creat[ed] no ongoing duties on the part of Microsoft." (Am. Compl. ¶ 59.)

Approximately one week after the Agreement was fully executed, Microsoft launched a national advertising campaign for its "Ultimate TV" product, a television set-top box incorporating the technology embodied in the patent applications assigned by Intellivision to Microsoft pursuant to the Agreement. (Am. Compl. ¶¶ 39-40.) Microsoft was also developing or had developed a software-based version of Ultimate TV during the period it represented to Intellivision that it was not developing any products embodying the technology in Intellivision's patent application. (Am. Compl. ¶¶ 39-40.)

Intellivision discovered Microsoft's misrepresentations in 2002 after Microsoft had discontinued Ultimate TV. (Am. Compl. ¶¶ 42.) In 2002 and 2003 Intellivision insisted on rescission of the Agreement or reformation of the Agreement to incorporate a royalty, but Microsoft convinced Intellivision not to sue on the grounds that the Ultimate TV set-top box had been discontinued and therefore it would be in Intellivision's financial interest to await allowance of the patent claim set forth in Attachment C so that Intellivision could claim the additional $850,000 under the Agreement. (Am. Compl. ¶¶ 43, 45, 49.) At the same time, Microsoft concealed from Intellivision that it had developed or was in the process of developing a software-based version of Ultimate TV that would be incorporated into its Windows operating system and misrepresented facts with respect to the prosecution of the patent application containing the claim language in Attachment C. (Am. Compl. ¶¶ 46-47.) In particular, Microsoft told Intellivision that the examiner had indicated that he intended to allow the claim after he received additional information. (Am. Compl. ¶¶ 47-48.) In October 2006, Intellivision learned that in July 2006 Microsoft had lost a Patent Office appeal of the examiner's rejection of the claim language from Attachment C. (Am. Compl. ¶ 54.) Intellivision also learned that Microsoft's Windows Vista Operating System, which was slated for release, incorporated some of Intellivision's core inventions. (Am. Compl. ¶ 54). Intellivision filed the current lawsuit on January 12, 2007.

II.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Twombly v. Bell Atlantic Corp., 127 S.Ct. 1955, 1974 (2007); see also Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007).

In addition, Rule 9(b) states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Rule 9(b) requires that a complaint "adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were ...


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