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General Patent Corporation v. Wi-Lan Inc.

November 22, 2011

GENERAL PATENT CORPORATION, PLAINTIFF,
v.
WI-LAN INC., GLADIOS IP INC., AND PAUL J. LERNER, ESQ., DEFENDANTS.



The opinion of the court was delivered by: John F. Keenan, United States District Judge:

OPINION & ORDER

Before the Court is Plaintiff General Patent Corporation's (GPC) application for a preliminary injunction against Wi-Lan, Inc. ("Wi-Lan"), Gladios IP, Inc. ("Gladios"), and Paul J. Lerner, Esq. ("Lerner" and collectively, "Defendants"). The Court held an evidentiary hearing from November 8-10, 2011. On November 14, 2011, the Court vacated the Temporary Restraining Order and denied Plaintiff's application for a preliminary injunction, for the reasons stated below.

I. Background

A. The Parties

The following allegations are drawn from the Plaintiff's Complaint, unless otherwise noted.*fn1 GPC is a patent licensing and enforcement firm headquartered in New York. It partners with inventors, universities, and small patent owners to license and enforce patents. In addition, GPC manages and finances patent licensing campaigns in return for a share of the licensing revenues or an ownership interest in the patents. According to GPC, this business model differs from that of many other patent enforcement companies: while other patent enforcement companies purchase patents from patent holders, GPC partners with patent holders. Further, GPC's Chief Executive Officer Alexander Poltorak ("Poltorak"), states that GPC holds "carefully honed and confidential business strategies" that are vigorously safeguarded. To that end, GPC requires its employees to execute confidentiality and non-compete agreements. (Poltorak Decl. ¶ 18).

Wi-Lan is a publicly traded Canadian corporation that develops, protects, and licenses patents through the acquisition of those patents. Gladios was formed in November 2010 as a subsidiary of Wi-Lan. Its business approach is similar to that of GPC, in that Gladios protects patents by partnering with patent owners, instead of acquiring the patents.

Lerner joined GPC in 1999 as General Counsel and has also served as Senior Vice President. From 2000, Lerner was a member of the GPC Board of Directors and Executive Committee. In 2004, Lerner signed a non-competition agreement with GPC, which stipulated that he would be precluded from working for any of GPC's competitors for one year after the termination of his employment, should Lerner be terminated for cause. (Forman Aff. Exh. 5). In February 2010, Poltorak and Lerner discussed his departure from GPC; nevertheless, Lerner continued to work at GPC through August 31, 2011. After leaving GPC, he joined WiLan, announced in a press release issued by Wi-Lan on September 11, 2011.

B. Negotiations Between GPC and Wi-Lan

In April 2010, GPC retained investment banking firm Houlihan Lokey Capital, Inc. ("Houlihan") to seek strategic partners to invest in or acquire GPC. Houlihan approached WiLan, among other firms, about this potential acquisition. WiLan expressed interest in the investment, noting that GPC's unique business model would help the newly created Gladios excel in the industry.

In the subsequent months, Wi-Lan evaluated the possible acquisition of GPC, and GPC furnished detailed information about its business model. GPC and Wi-Lan executed a Confidentiality and Non-Solicitation Agreement on November 16, 2010. The Agreement provided that (1) the information Wi-Lan obtained from GPC would be used only to evaluate the proposed transaction, and (2) Wi-Lan would not solicit GPC's employees for a two-year period from the date of the agreement. (Silver Decl. Exh. J).

On April 8, 2011, Wi-Lan made an offer to acquire GPC. A non-binding Term Sheet, executed on April 29, 2011, permitted Wi-Lan access to more of GPC's records so that Wi-Lan could conduct due diligence. (Poltorak Decl. ¶ 42). Wi-Lan executives spent three days in GPC's offices, evaluating records and earnings forecasts.

On June 16, 2011, one week prior to the scheduled closing, Wi-Lan informed GPC that it would not be proceeding with the acquisition. The proposed transaction was officially cancelled on June 19, 2011. (Id. ¶¶ 46-50).

C. Lerner's Employment and Termination

Before Lerner's final departure from GPC on August 31, 2011, Poltorak and Lerner drafted a Separation Agreement. During the drafting process, Lerner emailed Poltorak a series of recitals, which included that his "employment with GPC was terminated on March 2, 2010" and that "it is agreed that Lerner's termination was for the convenience of GPC and without cause." (Silver Decl. Exh. N). In response to these recitals, Poltorak wrote in an email to Lerner that the statements "captured the essence ...


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