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My First Shades v. Baby Blanket Suncare

United States District Court, E.D. New York

December 21, 2012

MY FIRST SHADES and Venetian Holdings, LLC, Plaintiffs,
v.
BABY BLANKET SUNCARE and the Mercer Group, Ltd., Defendants.

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[Copyrighted Material Omitted]

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Philip M. Weiss, Weiss & Weiss, Jericho, NY, for Plaintiffs.

Thomas M. Furth, Kudman Trachten Aloe, LLP, New York, NY, Matthew B. Walters, Scott R. Brown, Hovey Williams LLP, Overland Park, KS, for Defendants.

MEMORANDUM & ORDER

MARGO K. BRODIE, District Judge:

Plaintiffs My First Shades (" MFS" ) and Venetian Holdings, LLC (" Venetian" ) bring the above-captioned action against Defendants Baby Blanket Suncare and The Mercer Group, LTD (" Mercer" ) claiming patent infringement, fraud, unfair competition and dilution and injury to business reputation. [1] Mercer moved for summary judgment against MFS as to the patent infringement claim on the grounds that MFS has no standing and moved to dismiss Plaintiffs' fraud claim on the ground that it is not properly pled. The Court heard argument on December 12, 2012, as well as sworn testimony from Kevin Tilton. For the reasons set forth below, Mercer's motion for summary judgment and its motion to dismiss are denied.

I. Background

MFS is a producer and maker of children's sunglasses. (Compl. ¶ 12.) At the commencement of the litigation, Venetian was the holder of United States patents, Nos. D485,291 and D485,293 (the " Patents" ). (Def. 56.1 ¶ 4; Pls. 56.1 ¶ 4.) The Patents were assigned to Venetian by inventor, Lillian Paolino, on March 1, 2007. (Def. 56.1 ¶ 6; Pls. 56.1 ¶ 6.) SLP Enterprises LLC (" SLP" ) was a limited liability corporation whose principals were Lillian Paolino, Steven Paolino (husband of Lillian Paolino), and Kevin Tilton. (Testimony of Kevin Tilton (" Tilton Test." ) 19:4-24:8, 30:23-43:7, 45:25-49:1.) Prior to the assignment of the Patents to Venetian, SLP had the exclusive license to the Patents. ( Id. )

On March 1, 2007, the board of SLP, by board resolution (" Board Resolution" ), agreed to sell all of its interests and property to David Scheinberg. ( Id.; Furth Decl. Ex. G (Minutes of Manager and Members Meeting Amending the Operating Agreement of SLP for the Sale of the Company).) The Board Resolution states in pertinent part: " RESOLVED, that the Sale of [SLP] and it's [sic] Assets to David Scheinberg is hereby approved[.]" The Board Resolution was signed by Lillian Paolino, Kevin Tilton, and Stephen Paolino. [2]

SLP's sale to David Scheinberg/Newco Inc. (" Scheinberg" ) occurred pursuant to a Purchase and Sale Agreement (" Agreement" ). (Furth Decl. Ex. E. (Purchase and Sale Agreement).) The parties to the Agreement were Stephen Paolino, Kevin Tilton and SLP on behalf of the " Seller" and Scheinberg on behalf of the " Purchaser." (Def. 56.1 ¶ 10.) The Agreement

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provided for partial payment at the time of the sale and a promissory note (" Note" ) to be paid over a period of time.[3] The Agreement also provided that the Note would contain a provision giving the sellers the right to retain the use of Patents and to void all rights of the purchasers in the Patents if they failed to make the necessary payments pursuant to the Note for a 90-day period.

Specifically, Paragraph 3(B) of the Agreement provided in pertinent part:

IT IS SPECIFICALLY AGREED THAT SAID NOTE SHALL CONTAIN A PROVISION THAT IN THE EVENT NO PAYMENT IS MADE ON THE NOTE FOR NINTY [sic] (90) DAYS, THE SELLER HEREIN SHALL HAVE THE ABSOLUTE AND IMMEDIATE RIGHT TO REGAIN THE USE OF ALL INTELLECTUAL PROPERTY INVOLVED IN THIS SALE, ALL RIGHTS INVOLVING THE TRANSFER OF OWNERSHIP OF SAID INTELLECTUAL PROPERTY TO THE PURCHASERS WILL BE DEEMED NULL AND VOID, AND THE SELLERS SHALL RETAIN ALL OWNERSHIP AND USE RIGHTS TO SAID INTELLECTUAL PROPERTY.

(Def. 56.1 ¶ 20; Furth Decl. Ex. E) (emphasis in original). The Note provided for 60 monthly payments commencing on July 1, 2007 and ending on June 1, 2012. (Def. 56.1 ¶ 18; Pls. 56.1 ¶ 18.) All payments had not been made on the Note at the filing of the action, but the Note has since been fully paid. (Def. 56.1 ¶ 18; Pls. 56.1 ¶¶ 18-19; Scheinberg Decl. ¶¶ 2-3.)

In addition to providing for the reversion of all rights to the sellers if the purchasers failed to pay pursuant to the Note, the Agreement created certain restrictions on the Patents until the Note was fully paid. Paragraph 2(D) of the Agreement states in pertinent part:

Not withstanding [sic] anything else in this Agreement, all Intellectual Property being sold herein, as specifically noted on Exhibit " A" , will continue to be owned by the Sellers IN THEIR INDIVIDUAL CAPACITY OR THROUGH A THIRD PARTY until the Note is fully paid and/or satisfied. Until that time the Purchaser shall have a full and complete License to use said Property as it were their own except that they cannot sell, transfer, SUB LICENSE or encumber it in ANY way. All fees involving said Property will be paid by Seller and, upon presentment of proof of payment to Purchaser, be reimbursed by Purchaser to Seller within 10 days.
Purchasers agree, prior to their paying off the Note and gaining full ownership of the intellectual property, that they will not file for any additional Patent or Trademark that is based on any of the intellectual property that forms the basis of this Agreement without the written consent of the Sellers.... It is further agreed that Purchaser, prior to paying off the Note and obtaining full ownership of the intellectual property, shall take no actions or be involved in any litigation involving the validity of said Patent, Trademark or License without the written approval of the Sellers.

(Def. 56.1 ¶ 17; Pls. 56.1 ¶ 17; Furth Decl. Ex. E) (emphasis in original).

In a letter dated March 3, 2008 from Stuart S. Perry, Esq. to Robert Sylvor, Esq., MFS [4] received permission to commence

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litigation if it hired a particular attorney and agreed to pay the costs and expenses associated with the litigation. (Pls. 56.1. ¶ 17; see also Tilton Test. 43:21-45:24, 49:13-55:16.) The letter provides in pertinent part, " [m]y clients will happily Consent to your taking whatever steps necessary to protect the Patents and Trademarks under [certain conditions]." (Pls. 56.1. ¶ 17; Furth Decl. Ex. F. (Perry Mar. 03, 2008 Letter).) The first provision required no action on the part of MFS; under it, Venetian agreed to open a new corporation to handle the assets of Venetian. (Furth Decl. Ex. F.) The last two ...


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