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Instead, Inc. v. ReProtect

February 5, 2009

INSTEAD, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
v.
REPROTECT, INC., A MARYLAND CORPORATION, DR. RICHARD CONE, AND DR. THOMAS MOENCH, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

In 1996, the corporate defendant ReProtect, Inc. ("ReProtect") and non-party Ultrafem, Inc. ("Ultrafem") entered into an agreement. Ultrafem filed for bankruptcy in 1998, and plaintiff Instead, Inc. ("Instead") became an assignee of certain rights purchased from Ultrafem following its bankruptcy filing. Instead brings this action for a declaratory judgment as to certain intellectual property rights and certain rights relating to a non-competition agreement, as well as for anticipatory breach of the non-competition agreement. Instead's claims depend upon a finding that Instead acquired Ultrafem's rights under Ultrafem's 1996 agreement with ReProtect. Defendants have moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the complaint against them. For the reasons that follow, defendants' motion is granted.

BACKGROUND

The following facts are taken from the amended complaint, as well as from exhibits attached to that complaint, and are assumed to be true for the purposes of deciding the motion. On February 8, 1996, ReProtect and Ultrafem entered into a License, Research and Product Development Agreement (the "Agreement") to facilitate the research, development, and marketing of women's reproductive health products. Defendant Dr. Richard Cone is the Chairman of ReProtect's Board of Directors, and defendant Dr. Thomas Moench is ReProtect's President and Chief Operating Officer (collectively the "Individual Defendants"). Prior to the Agreement, the two companies had each developed women's reproductive health products: ReProtect owned a patent for an "Acidic Buffer" gel, and Ultrafem owned a patent for a "Feminine Cup." The Agreement between the two companies had several components: a research and development agreement, a "Cup License," a "Gel License," (collectively the "Licenses"), and a non-competition agreement.

The research and development component of the Agreement provided that ReProtect would research and develop applications and uses for the Feminine Cup in exchange for monthly payments from Ultrafem. ReProtect and Ultrafem would each own an undivided one-half interest in any products or technologies that came out of this research. The Agreement further provided that upon its termination, each company would have the right to develop and exploit any intellectual property in which they owned a one-half interest.

The Cup License component of the Agreement granted Ultrafem an "exclusive worldwide perpetual license" to use and commercially exploit "all of [ReProtect's] right, title, and interest in" the Acidic Buffer in connection with the Feminine Cup. In exchange, Ultrafem was to pay ReProtect $100,000, grant ReProtect certain stock options, and pay ReProtect certain royalties.

The Gel License Component of the Agreement granted Ultrafem a "worldwide perpetual license" to use and commercially exploit "all of [ReProtect's] right, title, and interest in" the Acidic Buffer (the "Gel") for use without the Feminine Cup or other vaginal device. In exchange, Ultrafem was to pay ReProtect $100,000, grant ReProtect certain stock options, and pay ReProtect certain royalties.

The non-competition portion of the Agreement provided that during the "Non-Competition Period," ReProtect and the Individual Defendants would not participate in the marketing of any vaginal product that was competitive with "(i) any vaginal product which Ultrafem is then marketing or (ii) any vaginal product which Ultrafem has the right . . . to market and with respect to which an application for Phase I clinical trials has been submitted to the FDA . . ., in any geographic area in which any of Ultrafem's products are then being marketed." The Agreement provided that with respect to any vaginal product that utilized the Acidic Buffer or any component therefore, the Non-Competition Period would end on the latest to occur of certain specified dates after the termination of the Agreement or "the date Ultrafem does not have any obligation to pay any royalties pursuant to" inter alia the Cup and Gel Licenses.

On March 10, 1998, Ultrafem failed to make its required monthly payment as required by the research and development component of the Agreement. Shortly thereafter, on April 1, 1998, Ultrafem filed for Chapter 11 bankruptcy protection. In connection with its bankruptcy, Ultrafem sold substantially all of its assets to Akcess Pacific Group, LLC ("Akcess") pursuant to a June 12, 1998 Asset Purchase Agreement ("Purchase Agreement").

The Purchase Agreement provided that Ultrafem sold Akcess all of its "right, title and interest in and to the patents, copyrights, trademarks, service marks, and trade names . . . the material terms of which are listed on Schedule 1.1(a)." Ultrafem also sold Akcess the rights it had under its non-competition agreements.

The Purchase Agreement also specified that certain assets were excluded from the sale to Akcess. Included in Schedule 1.4 of the Purchase Agreement, titled "Excluded Assets," was the "Agreement dated as of February 8, 1996 between [Ultrafem] and ReProtect, LLC. [Ultrafem] has not made payments required thereunder for the months of March, April, May and June 1998, and [Ultrafem] is in default thereunder." Likewise, Schedule 3.6 of the Purchase Agreement, titled "Intellectual Property," lists the Agreement and noted that Ultrafem had "not made payments required thereunder for the months of March, April, May and June 1998, and [Ultrafem] is in default thereunder." Finally, in the bankruptcy court's order approving the sale of assets from Ultrafem to Akcess, the court noted that all obligations under executory contracts listed in Schedules of the Purchase Agreement were assumed and assigned by Ultrafem to Akcess. Schedule 1.3 of the Purchase Agreement, titled "Assumed Liabilities," does not list any contracts between Ultrafem and ReProtect.

Instead asserts that as of the time of Ultrafem's bankruptcy and the Purchase Agreement, Ultrafem owned patent rights under the Cup License and Gel License ("Intellectual Property Rights"), and was a party to the non-competition agreement. Instead further asserts that as part of the Purchase Agreement, Ultrafem sold these Intellectual Property Rights and non-competition agreement rights to Akcess, and that Akcess subsequently assigned the Intellectual Property Rights and non-competition agreement rights to Instead. Instead states that in 2003, ReProtect asserted for the first time that Instead did not in fact own Cup and Gel patent rights, and that ReProtect was not obligated to comply with the non-competition provision of the Agreement. Instead also states that ReProtect and the Individual Defendants have informed Instead that they will not abide by the non-competition provision.

Instead seeks a declaratory judgment that the Licenses have not been terminated (claims one and two of the complaint) and that it owns patent rights under those Licenses (claims three and four); it also seeks a declaratory judgment that it owns an undivided one-half interest in certain products and technologies related to the research and development component of the Agreement (claim five). Furthermore, Instead seeks a declaratory judgment requiring ReProtect to abide by the non-competition provision (claim six) and seeks ...


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