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Applied Technology, Inc v. J.R. Clancy

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK


May 12, 2011

APPLIED TECHNOLOGY, INC., PLAINTIFF,
v.
J.R. CLANCY, INC., DEFENDANT.

The opinion of the court was delivered by: Hon. Glenn T. Suddaby, United States District Judge

MEMORANDUM-DECISION and ORDER

Currently before the Court, in this breach-of-contract action filed by Applied Technology, Inc. ("Plaintiff") against J.R. Clancy, Inc. ("Defendant"), are (1) Defendant's motion for partial summary judgment on Plaintiff's First Cause of Action and a portion of Plaintiff's Second Cause of Action, and (2) Plaintiff's cross-motion for partial summary judgment on its First Cause of Action. (Dkt. Nos. 13, 15.) For the reasons set forth below, Defendant's motion for partial summary judgment on Plaintiff's First Cause of Action is denied; Plaintiff's cross-motion for partial summary judgment on its First Cause of Action is granted; and Defendant's motion for partial summary judgment on a portion of Plaintiff's Second Cause of Action is granted.

I. RELEVANT BACKGROUND

A. Plaintiff's Claims

Generally, Plaintiff's Complaint alleges that Defendant breached a licensing agreement ("Agreement") entered into between the parties on December 11, 2003, which permitted Defendant to manufacture and sell winches using technological information relating to Plaintiff's patented motorized winch for raising and lowering theater scenery (the "Winch"). (See generally Dkt. No. 1 [Plf.'s Compl.].)*fn1 More specifically, Plaintiff's Complaint alleges as follows.

Under the Agreement, Defendant agreed to pay Plaintiff a license fee of $20,000 per year for five years, with the first installment of $20,000 having been already paid, and subsequent installments due on September 1st of each year, commencing September 1, 2004, and continuing until September 1, 2007, unless the Final Agreement had earlier been terminated in accordance with its terms. (Id.) Defendant also agreed to pay Plaintiff a 5% royalty on the net sales price of each "winch" embodying Plaintiff's technology and sold by Defendant, with a $200 minimum per winch. (Id.) Defendant had the right to terminate the Agreement after the Third Contract Year (which ended on September 1, 2006), on sixty days written notice to Plaintiff. (Id.) On September 30, 2005, before the end of the Third Contract Year, Defendant purported to terminate the Agreement, asserting that no royalties were payable or would become payable in the future under the Agreement, because the PowerLift® product that it was selling to customers was not a "winch" within the meaning of the Agreement. (Id.) Because Defendant's effort to terminate the Agreement before the end of the Third Contract Year was ineffective, Defendant was required to make a license payment to Plaintiff in the amount of $20,000 on September 1, 2006. (Id.) In addition, Defendant is obligated under the Agreement to pay royalties on sales of its PowerLift® winches since October 2004. (Id.)

Based on these factual allegations, Plaintiff asserts two causes of action against Defendant: (1) a cause of action for breach of contract arising from Defendant's nonpayment of the Agreement's fourth annual $20,000 license fee allegedly due on September 1, 2006; and (2) a cause of action for breach of contract arising from Defendant's nonpayment of contractual royalties on sales of its PowerLift® winches allegedly due since October 2004. (Id.) Familiarity with the factual allegations in Plaintiff's Complaint supporting these two causes of action is assumed in this Decision and Order, which is intended primarily for review by the parties. (Id.)

B. Parties' Motions for Partial Summary Judgment

Generally, in support of its motion for partial summary judgment, Defendant argues as follows: (1) Plaintiff's First Cause of Action for breach of contract (arising from Defendant's nonpayment of the Agreement's fourth annual license fee allegedly due on September 1, 2006) should be dismissed as a matter of law because Defendant properly terminated the Agreement at the end of the Third Contract Year, which the Agreement unambiguously defined as August 31, 2006; and (2) Plaintiff's Second Cause of Action for breach of contract (arising from Defendant's nonpayment of contractual royalties on the sale of its PowerLift® winches allegedly due since October 2004) should be dismissed to the extent that it is premised on any sales occurring after Defendant terminated the Agreement, because that termination extinguished any contractual obligation of Defendant to pay future such royalties. (See generally Dkt. No. 13, Attach. 3 [Def.'s Memo. of Law].)

Generally, in opposition to Defendant's motion for partial summary judgment, and in support of its own cross-motion for partial summary judgment on its First Cause of Action, Plaintiff argues as follows: (1) not only should judgment not be entered in Defendant's favor on Plaintiff's First Cause of Action, but judgment should be entered in Plaintiff's favor on that cause of action because, as a matter of law, Defendant did not terminate the Agreement until after the end of the Third Contract Year, based on the admissible record evidence; and (2) judgment should not be entered in Defendant's favor on the relevant portion of Plaintiff's Second Cause of Action because, even if Defendant did terminate the Agreement after the end of the Third Contract Year, Plaintiff is entitled to contractual royalties thereafter due to Defendant's continued manufacturing and selling of PowerLift® winches embodying Plaintiff's patented technology, given that (a) any such use of the technology violated Section 6 of the Agreement (labeled "License fees and Royalties," which constituted the only basis for Defendant's right to use the technology at issue, and/or (b) the constituted manufacture and sale violated Section 10 of the Agreement (entitled, "Confidentiality / Non-Disclosure"), which survived the Agreement's termination. (See generally Dkt. No. 15, Attach. 3 [Plf.'s Opp. Memo. of Law].)*fn2

Generally, in its reply, Defendant argues as follows: (1) Plaintiff has failed to adduce admissible record evidence creating a genuine dispute of material fact regarding whether Defendant provided the requisite notice to terminate the Agreement in sufficient time for termination to occur at the instant the Third Contract Year ended; (2) after Defendant terminated the Agreement, Defendant's contractual duty to pay Plaintiff royalties for the future use of Plaintiff's patented technology evaporated; and (3) Plaintiff may not now hinge that contractual duty on Section 10 of the parties' Agreement given that (a) Plaintiff did not assert a claim for breach of Section 10 in its Complaint, and (b) the confidential information in question has been in the public domain since at least October 2004. (See generally Dkt. No. 17 [Def.'s Reply Memo. of Law].)

C. Undisputed Material Facts

Generally, the material facts giving rise to this action are undisputed by the parties. (Compare Dkt. No. 13, Attach. 4 [Def.'s Rule 7.1 Statement] with Dkt. No. 14 [Plf.'s Rule 7.1 Response and Rule 6.1 Counter-Statement].) In addition, most of the handful of factual disputes encountered by the parties may be avoided by a strict adherence to the undisputed record evidence. (Compare Dkt. No. 13, Attach. 4, ¶¶ 8, 12, 13 [Def.'s Rule 7.1 Statement] with Dkt. No. 14, ¶¶ 8, 12, 13 [Plf.'s Rule 7.1 Response and Rule 6.1 Counter-Statement].) More specifically, the undisputed material facts of this case are as follows.

On July 23, 2003, Defendant paid $20,000 to Plaintiff as its first annual license fee payment under the terms of an interim license agreement while the Agreement was being finalized by the parties. On December 11, 2003, the parties executed the Agreement, which was entitled "Final Technology Transfer and License Agreement."

Paragraph 13.6 of the Agreement provided that "[t]his Agreement attached hereto contain [sic] the entire agreement between the parties with respect to the subject matter of this Agreement and supercedes [sic] all prior agreements and undertakings between the parties relating to same, including the Interim Agreement." Paragraph 6.1 of the Agreement provided that Defendant would pay Plaintiff annual license fees of $20,000 per contract year for a period of five years, unless the Agreement was terminated earlier. Paragraph 6.1 of the Agreement further provided that Defendant had previously paid Plaintiff the first installment of $20,000, and that the four remaining installments of $20,000 would be payable on September 1 of each following year, commencing September 1, 2004, and continuing until September 1, 2007. Paragraph 1.1 of the Agreement provided that a "contract year" under the Agreement was a twelve month period beginning September 1 and ending on August 31. Paragraph 6.2 of the Agreement provided that Defendant would pay Plaintiff royalties in an amount equal to the greater of 5% of the net sales price or $200 minimum for each "Winch" sold by Defendant, as that term was defined in the Agreement. Paragraph 6.3 of the Agreement provided that "Earned Royalties shall be due and payable within forty five days at the end of each calendar quarter during the term of this agreement, based on Licensee's Net Sales of all Winches during such quarter." (Dkt. No. 13, Attach. 2, at 14 [emphasis added].) Paragraph 7.3 of the Agreement provided that Defendant "may terminate this Agreement, upon 60 days written notice to [Plaintiff] . . . without cause, any time after the Third Contract Year." (Id. at 14-15 [emphasis added].)

On September 3, 2004, Defendant sent a check for $20,000 for payment of the second annual license fee due under the Agreement. On September 30, 2005, Defendant sent a check for $20,000 for payment of the third annual license fee due under the Agreement. Along with that check, Defendant sent Plaintiff a letter that stated as follows, in pertinent part:

As explained in previous correspondence, we are not using the Technical Information and Licensed Technology that you provided under the agreement. In the past Contract Year there were no Net Sales of the Winch as defined in the Agreement, thereby no Earned Royalties are payable under Paragraph 6.2 of the Agreement.

Since we are not utilizing the technology and associated rights we are exercising our rights pursuant to Paragraph 7.3(a) of the Agreement, by providing written notice that the Agreement is terminated effective 60 days from the date of this letter. Based on this notice of the termination of the Agreement, the enclosed payment will be the final payment made thereunder. (Dkt. No. 13, Attach. 2, at 25 [emphasis added].) On August 31, 2006, the Third Contract Year ended. At no point on or after September 1, 2006, did Defendant send Plaintiff a check for $20,000 as payment of any license fees for the Fourth Contract Year.

II. RELEVANT LEGAL STANDARDS

A. Legal Standard Governing Motions for Summary Judgment

Because the parties to this action have demonstrated, in their memoranda of law, an accurate understanding of the legal standard governing motions for summary judgment, the Court will not recite that well-known legal standard in this Decision and Order, but will direct the reader to the Court's decision in Pitts v. Onondaga County Sheriff's Dep't, 04-CV-0828, 2009 WL 3165551, at *2-3 (N.D.N.Y. Sept. 29, 2009) (Suddaby, J.), which accurately recites that legal standard.

B. Legal Standards Governing Plaintiff's Claims

Because the parties to this action have demonstrated, in their memoranda of law, an accurate understanding of the relevant points of law contained in the legal standards governing Plaintiff's claims in this action, the Court will not recite, in their entirety, those legal standards in this Decision and Order, which is intended primarily for the review of the parties. (See generally Dkt. No. 13, Attach. 3 [Def.'s Memo. of Law]; Dkt. No. 15, Attach. 3 [Plf.'s Opp. Memo. of Law]; Dkt. No. 17 [Def.'s Reply Memo. of Law].)

III. ANALYSIS

A. Plaintiff's First Cause of Action (Arising from Defendant's Nonpayment of the Agreement's Fourth Annual $20,000 License Fee Allegedly Due on September 1, 2006)

As stated above in Part I.B of this Decision and Order, Defendant argues thatPlaintiff's First Cause of Action for breach of contract (arising from Defendant's nonpayment of the Agreement's fourth annual license fee allegedly due on September 1, 2006) should be dismissed because Defendant properly terminated the Agreement at the end of the Third Contract Year, which the Agreement unambiguously defined as August 31, 2006.

As stated above in Part I.C. of this Decision and Order, Paragraph 7.3 of the Agreement provided that Defendant "may terminate this Agreement, upon 60 days written notice to [Plaintiff] . . . without cause, any time after the Third Contract Year." (Dkt. No. 13, Attach. 2, at 14 [emphasis added].)

As an initial matter, the Court finds that "60 days written notice" term in Paragraph 7.3 of the Agreement is ambiguous in that it could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire Agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.*fn3 More specifically, the "60 days written notice" term is ambiguous as to whether (1) Defendant has to wait until the Third Contract Year has ended before it gives its 60 days written notice of termination to Plaintiff, or (2) Defendant may give that notice before the Third Contract Year has ended, provided that the 60-day period ends after the Third Contract Year has ended.*fn4 Because the Court finds the existence of this ambiguity to be immaterial to the conclusion drawn by the Court in Part III.A. of this Decision and Order (which results from a flaw that the Court perceives in Defendant's argument), the Court will assume--for purposes of Part III.A. of this Decision and Order only--that the "60 days written notice" term has the latter meaning.*fn5

The flaw that the Court perceives in Defendant's argument is that the argument hinges on Defendant's ability to terminate the Agreement "at" the end of the Third Contract Year. Under the Agreement, Defendant could not terminate the Agreement "at" the end of the Third Contract Year. Rather, Defendant could do so only "after" the end of the Third Contract Year.*fn6

Furthermore, the Third Contract Year did not end until August 31, 2006, ended.*fn7 As a result, the earliest that Defendant could have terminated the Agreement was the start of September 1, 2006 (i.e., immediately after the end of August 31, 2006), the same instant at which Defendant incurred another $20,000 license fee.*fn8

For these reasons, Defendant's motion for partial summary judgment on Plaintiff's First Cause of Action is denied; and Plaintiff's cross-motion for partial summary judgment on its First Cause of Action is granted.

B. Relevant Portion of Plaintiff's Second Cause of Action (Arising from Defendant's Nonpayment of Contractual Royalties on Sale of Its PowerLift® Winches Allegedly Due Since October 2004)

As stated above in Part I.C of this Decision and Order, Defendant argues that Plaintiff's Second Cause of Action for breach of contract (arising from Defendant's nonpayment of contractual royalties on the sale of its PowerLift® winches allegedly due since October 2004) should be dismissed to the extent that it is premised on any sales occurring after Defendant terminated the Agreement, because (1) that termination extinguished any contractual obligation of Defendant to pay future such royalties, and (2) Plaintiff may not now hinge that contractual duty on Section 10 of the parties' Agreement given that (a) Plaintiff did not assert a claim for breach of Section 10 in its Complaint, and (b) the confidential information in question has been in the public domain since at least October 2004.

For the reasons articulated by Defendant in its memoranda of law, the Court agrees with Defendant. (Dkt. No. 13, Attach. 3, at 12-13 [attaching pages "8" and "9" of Def.'s Memo. of Law]; Dkt. No. 17, at 7-10 [attaching pages "4" through "7" of Def.'s Reply Memo. of Law].) Under the circumstances, Plaintiff cannot sue for contractual royalties allegedly accruing after the Agreement was terminated by Defendant.*fn9 As Defendant correctly argues, the parties' agreement was essentially one in which Plaintiff agreed not to sue Defendant for infringement during the pendency of the contractual period; the Agreement having now been terminated, if Defendant uses Plaintiff's patented technology, Plaintiff's cause of action would be for patent infringement, not breach of the Agreement's royalties section.*fn10

The Court acknowledges Plaintiff's argument that Defendant's duty to pay the royalties in question (i.e., the contractual royalties accruing due to Defendant's use of technological information relating to Plaintiff's patented winch after Defendant effectively terminated the parties' agreement) arises from the fact that Defendant's continued usage of technological information violates the Agreement's confidentiality section (i.e., Section 10 of the Agreement). However, the Court is not persuaded by that argument for two alternative reasons.

First, Plaintiff has not pled facts plausibly suggesting that its breach-of-contract claim for nonpayment of royalties under the royalty section of the Agreement (i.e., Section 6 of the Agreement) is premised on Defendant's post-termination use of confidential information, in violation of the confidentiality section of the Agreement (i.e., Section 10 of the Agreement). (See generally Dkt. No. 1 [Plf.'s Compl.].) For example, conspicuously absent from Plaintiff's Complaint is any factual allegation plausibly suggesting that, after Defendant effectively terminated the Agreement, Defendant either (1) disclosed to any third party any "proprietary and non-public information, records, devices, methods and processes, including the Technical Information . . . relating to [the] Agreement," or (2) failed to "return to [Plaintiff] confidential information . . . [in Defendant's] possession, . . . [which was] not . . . in the public domain or . . . generally known to the public . . . ." (Id.) Moreover, the Court agrees with Defendant that any such claim is futile to the extent that it is premised on the disclosure of "information, devices, methods and processes" that was (or could be) easily acquired or copied from Defendant's PowerLift® product, because Plaintiff has pled facts plausibly suggesting that Defendant started selling its PowerLift® product, which "embodies" that information, in "October 2004." (Id. at ¶¶ 24, 25, 28.)*fn11

Second, even if Plaintiff had stated such a claim, the case that Plaintiff cites in support of its argument (that a breach of a contract's confidentiality clause could give rise to the payment of contractual royalties) is inapposite. The case that Plaintiff cites involved a contract that (arguably) expressly provided that a licensee could continue to use a licensor's product after the contract terminated.*fn12 That is not what Section 10 of the Agreement in question provides.*fn13 Indeed, Section 6 of the Agreement rather clearly limits the payment of royalties to the duration of the contract.*fn14

For each of these alternative reasons, Defendant's motion for partial summary judgment is granted on the relevant portion of Plaintiff's Second Cause of Action (i.e., that portion premised on any sales occurring after Defendant terminated the Agreement). Having said that, the Court hastens to add that, because it has found the "60 days written notice" term of Paragraph 7.3 to be ambiguous (for the reasons stated above in Part II.A. of this Decision and Order), a genuine dispute of material fact exists as to whether the date of termination was September 1, 2006, or October 31, 2006 (i.e., 60 days after September 1, 2006).*fn15 As a result, while Defendant is not responsible for any royalties after October 31, 2006, the issue of whether Defendant is responsible for royalties between September 1, 2006, and October 31, 2006, survives as part of the sole remaining claim in this action (i.e., Plaintiff's Second Cause of Action to the extent that it is premised on any sales occurring after "October 2004," and before Defendant terminated the Agreement).

ACCORDINGLY, it is

ORDERED that Defendant's motion for partial summary judgment on Plaintiff's First Cause of Action (Dkt. No. 13) is DENIED, and Plaintiff's cross-motion for partial summary judgment on its First Cause of Action (Dkt. No. 15) is GRANTED; and it is further

ORDERED that Defendants' motion for partial summary judgment on a portion of Plaintiff's Second Cause of Action (Dkt. No. 13) is GRANTED, such that Plaintiff's Second Cause of Action is DISMISSED to the extent that it is premised on any sales occurring after Defendant terminated the Agreement.

Syracuse, New York


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