The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court
In this action, commenced on May 28, 2010, Plaintiff Armstrong Pump, Inc. ("Armstrong") is suing Defendant Hartman, the owner of three patents to which Armstrong has a license, for breach of contract and anticipatory breach of contract related to its intended assignment of the three patents and a pending patent application to Defendant Optimum Energy. Optimum Energy is sued for tortious interference with contract. The Court previously concluded that personal jurisdiction exists over both Defendants and that venue in this District is proper. A temporary restraining order was issued on September 10, 2010. Now before the Court are Defendants' respective motions to dismiss for failure to state a claim and Plaintiff's motion for a preliminary injunction.
In adjudicating Defendants' Motions to Dismiss, this Court assumes the truth of the following factual allegations contained in Plaintiff's complaint. See Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 740, 96 S.Ct. 1848, 1850, 48 L.Ed. 2d 338 (1976); see also, Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton Coll., 128 F.3d 59, 62--63 (2d Cir. 1997).
Armstrong is in the business of developing and manufacturing HVAC chilled water and boiler water systems, pumps, and other components ("chilled water products"). (Complaint ¶ 9.) In 2003, Armstrong commenced negotiations with Defendant Hartman for the right to use methods for sequencing chillers, pumps, fans, and other components in loop HVAC systems as disclosed in a series of patents issued to Hartman. These include U.S. Patent Nos. 5,946,926 (variable flow chilled fluid cooling system), 6,257,007B1 (method of control of cooling system condenser fans and colling tower fans and pumps), and 6,185,946 (system for sequencing chillers in a loop cooling plant and other systems that employ all variable-speed units). (¶ 12.) The negotiations culminated in a License Agreement dated February 4, 2005 ("the Agreement"). (¶ 15, Ex. A.)
The License Agreement states that "[Hartman] is the sole owner of the Licensed Technologies and the Licensed Patents and has the full right, title, interest and power to extend the rights granted hereunder." (Ex. A, § 10.1.)
The Agreement then grants to Armstrong "a license, to make, have made, use, sell, and otherwise distribute factory packaged chilled water systems, pumping and/or other mechanical products that incorporate the Licensed Technologies at the factory implementation level, and to use and otherwise practice the Licensed Technologies in Licensed Products." (§ 2.1.) Armstrong's grant is for "limited exclusive rights to the Licensed Technologies and the Licensed Patents" (§ 3.2(a)) and those "limited exclusive rights shall be worldwide . . . and expire only when this Agreement expires or is terminated according the [sic] provisions of this Agreement" (§ 3.2(b)). This limited exclusivity is "intended to protect [Armstrong] against implementations of the Licensed Technologies that would compete with their [sic] intended product offerings." (§ 3.3.) The Agreement expressly provides that as long as the license remains exclusive, Hartman will "not grant a license for factory implementation of the Licensed Technologies or the Licensed Patents as they apply to hydronic elements to any third party involved in the manufacture of pumps, and factory packaged chilled water systems, chillers, building controls or cooling towers." (§ 3.3(a).)
During the term of the Agreement, Hartman is required to "first offer to license any and all improvements in or to the Licensed Technologies to [Armstrong] for exclusive rights in the markets [Armstrong] already enjoys exclusivity, and to the extent of the existing exclusivity rights." (§ 8.) "Improvements to the Licensed Technologies" is defined as "Technologies developed after the effective date of this Agreement that will or could make the Licensed Technologies or Licensed Products more effective or valuable." (§ 1.)
The Agreement goes on to state that Hartman "has not made and will not make any agreements with or commitments to third parties that are inconsistent with the grant of rights to [Armstrong]." (§ 10.2.)
Hartman expressly retains certain rights relative to the Licensed Technologies. The Agreement provides for Hartman's retention of "full rights to grant licenses for 'field' implementation of the Licensed Technologies when such technologies . . . are not integrated into the chiller, pumping, control or tower products until they are field assembled. (§ 3.3(b).) Hartman also retains "full rights to grant licenses for implementation of the Licensed Technologies when the implementation of such Licensed Technologies do not in any way compete with" Armstrong's product offerings, one example being "the licensing of the technologies applied to variable speed DX / air cooled rooftop airconditioning systems." (§ 3.3(d).) The Agreement provides that Hartman "shall not be precluded from licensing the Licensed Technologies or the Licensed Patents to Optimum Energy Corporation or others for the purpose of incorporating the Technologies into products excluding those that include the manufacture or assembly of pumps, chillers, towers, chilled water plant controls or pumping or chiller systems that could compete with [Armstrong's] intended product offering." (§ 3.2(b).)
At about the same time Armstrong was negotiating with Hartman, so was Defendant Optimum Energy. (Complaint ¶ 24.) It sought rights to the Hartman Loop Technology for its business, which involved the provision of energy saving services, monitoring services, and redesign services in connection with pre-existing systems. (¶ 25.) This use is consistent with the rights Hartman expressly retained in the License Agreement-i.e. rights that did not compete with Armstrong's use in manufacturing and assembly of the specified products. (¶¶ 26-28.)
According to Armstrong, Optimum now is selling a controller that utilizes the Licensed Technologies to increase chilled water plant efficiency, in direct competition with its product. (¶30.) Hartman intends to assign to Optimum the patents identified in the License Agreement and a pending patent improvement application, and has advised Armstrong that he is ready to proceed with the sale. (¶¶ 31, 38, 43.) It is this imminent assignment that is at the heart of Armstrong's claims of breach of contract, anticipatory breach, and tortious interference with contract.
Specifically, Armstrong claims that such assignment will breach the License Agreement's exclusivity provisions with respect to both factory implementation of the Licensed Technologies (§§ 3.2(b), 3.3(a)), and its right of first refusal on subsequent improvements (§ 8). (Complaint ¶¶ 39, 43.) In addition, Armstrong claims the assignment will cause it to lose Hartman's unique consulting services promised in the License Agreement. (¶¶ 37, 40; Ex. A § 12.7.) Finally, Armstrong urges that the assignment would violate Hartman's promise to make no agreements with third parties that are inconsistent with the License Agreement's grant of rights to Armstrong. (¶ 35; Ex. A § 10.2.)
A. The Motions to Dismiss
Hartman and Otptimum Energy have each moved, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, for judgment on the pleadings. A Rule 12(c) motion is evaluated under the same standards that apply to a Rule 12(b)(6) motion to dismiss for failure to state a claim. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001); Caudle v. Towers, Perrin, Forster & Crosby, Inc., 580 F. Supp. 2d 273, 277 (S.D.N.Y. 2008). Thus, on a Rule 12(c) motion, the court must "accept . . . all factual allegations in the complaint [as true] and draw . . . all reasonable inferences in the plaintiff's favor." See Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008) (internal quotation marks omitted).
When a defendant tests the sufficiency of a complaint by motion, "the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'" ATSI Commc'ns, Inc. v. Shaar Fund. Ltd., 493 F.3d 87, 98 (2d Cir. 2007)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed. 2d 929 (2007)). In order to withstand dismissal, a "complaint must contain sufficient factual matter, [ ], to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 173 L.Ed. 2d 868 (2009) (quoting Twombly, 550 U.S. at 570). This "does not require heightened fact pleading of specifics. . . ." In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007). It does, however, "require enough facts to 'nudge [plaintiff's] claims across the line from conceivable to plausible.'" Id. (quoting Twombly, 550 U.S. at 557). Although all facts are accepted as true, the district court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 129 S.Ct. at 1949-50 (citations and quotations omitted).
"'[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statement or documents incorporated in it by reference.'" Int'l Audiotext Network, Inc. v. Am. Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc. v. Sum Holdings L.P., 949 F.2d 42, 47 (2d Cir. 1991)). Here, the License Agreement is attached to the Complaint and is considered along with the pleading.
2. The Breach of Contract Claim
Defendant Hartman moves to dismiss the breach of contract claim on the grounds that Armstrong has failed to allege the specific contract provisions upon which its claim is based, there is no provision in the License Agreement that limits Hartman's ability to assign his rights, and Hartman's assignment of his rights will not alter Armstrong's rights under the License Agreement.
Armstrong urges that the motion to dismiss must be denied because it has adequately met federal pleading standards, Hartman's assignment of rights to Optimum is prohibited by multiple provisions of the License Agreement, and an assignment to Optimum will permit Optimum to practice the patents in direct competition with Armstrong and also deprive Armstrong of its rights to future improvements and to Hartman's services.
To state a viable breach of contract claim, New York law requires that a plaintiff allege: (1) the existence of an enforceable agreement; (2) the plaintiff's adequate contractual performance; (3) the defendant's breach of the agreement; and (4) damages. Broughel v. Battery Conservancy, 07-CV-7755, 2010 U.S. Dist. LEXIS 25496, at *15 (S.D.N.Y. Mar. 16, 2010) (citing Advanced Mktg. Group, Inc. v. Business Payment Sys., 300 Fed. Appx. 48, 49 (2d Cir. 2008)).
Here, Armstrong's allegations, which specifically identify the provisions purportedly breached-i.e. §§3.2(b), 3.3(a), 8, 10.2 and 12.7, are sufficient to meet federal notice-pleading standards under Rule 8. See Wolff v. Rare Medium, Inc., 171 F. Supp. 2d 354, 358-59 (S.D.N.Y. 2001) (granting motion to dismiss breach of contract claim, with leave to replead, where complaint failed to provide defendant notice of contractual provision allegedly breached). However, to successfully oppose Hartman's Rule 12(c) motion, Armstrong also must have a viable breach of contract claim that survives dismissal as a matter of law. Wolff v. Rare Medium, Inc., 210 F. Supp. 2d 490, 496 (S.D.N.Y. 2002) (amended complaint dismissed as a matter of law where, inter alia, plain language of the agreement did not support existence of obligation allegedly breached by defendant).
Judgment as a matter of law on a breach of contract claim is appropriate if the contract language is unambiguous. Photopaint Techs., LLC v. Smartlens Corp., 335 F.3d 152, 160 (2d Cir. 2003). "Whether or not a writing is ambiguous is a question of law to be resolved by the courts." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Col of N.Y., 375 F.3d 168, 178 (2d Cir. 2004) (internal quotation marks omitted). Unambiguous contract language is not rendered ambiguous by the parties' advancement of competing interpretations. Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 616 (2d Cir. 2001). "Ambiguity exists where a contract term could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." World Trade Ctr. Props., L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154, 184 (2d Cir. 2003) (internal quotation marks omitted). Inasmuch as the License Agreement and intended assignment involve United States patents, this Court also will look to federal decisions interpreting similar license agreements for guidance. Each of the purported breaches is examined under these standards.
a. The Scope of Armstrong's Exclusive License
Hartman generally contends that a change in patent ownership will not affect the scope of Armstrong's rights under the License Agreement. Armstrong argues that assignment of the Licensed Patents will transfer Hartman's right to practice his inventions to Optimum, and Armstrong will thereby lose the exclusivity with regard to factory implementation promised in §§ 3.2(b) and 3.3(a) of the Agreement. (See also, § 2.1.)
"A patent 'is, in effect, a bundle of rights which may be divided and assigned, or retained in whole or part.'" Alfred E. Mann Found. for Sci. Research v. Cochlear Corp., 604 F.3d 1354, 1360 (Fed. Cir. 2010) (quoting Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed. Cir. 1991)). It is a species of property which grants "to the patentee, his heirs or assigns, [ ] the right to exclude others from using, offering for sale or selling" the invention for a period of time. 35 U.S.C. § 154(a). Where a patent owner assigns the whole of his or her patent right, or an undivided part of that right, or all rights in a specified geographic area, legal title to that whole or part of the patent is transferred to the assignee. Any less complete transfer of rights is a license, rather than ...