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BSC Associates, LLC v. Leidos, Inc.

United States District Court, N.D. New York

February 17, 2015

BSC ASSOCIATES, LLC, Plaintiff,
v.
LEIDOS, INC., Defendant

Page 320

For Plaintiff: ALBERT J. MILLUS, JR., ESQ., OF COUNSEL, HINMAN, HOWARD & KATTELL, LLP, Binghamton, New York.

For Defendant: KEVIN R. PUVALOWSKI, ESQ., RENA ANDOH, ESQ., OF COUNSEL, SHEPPARD MULLIN RICHTER & HAMPTON LLP, New York, New York.

Page 321

MEMORANDUM-DECISION AND ORDER

Mae A. D'Agostino, United States District Judge.

I. INTRODUCTION

On April 18, 2014, Plaintiff commenced this action in New York State Supreme Court, Broome County, alleging that Defendant failed to pay licensing fees for the use of flight simulator software provided to Defendant by Plaintiff's predecessor-in-interest, Binghamton Simulator Company, Inc. (" Binghamton Simulator" ), as was required by a subcontract between Binghamton Simulator and Defendant. Plaintiff seeks monetary damages. See Dkt. No. 1 at 7-13.[1] Defendant removed the action to this Court on May 30, 2014. Id. at 1-4. Presently before the Court is Defendant's motion to dismiss Plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) or, in the alternative, to compel arbitration. Dkt. No. 4. Plaintiff has opposed the motion. See Dkt. No. 9.

II. BACKGROUND[2]

At an unknown point in time prior to April 21, 2010, Defendant agreed to design and manufacture a helicopter flight simulator for the U.S. Army. See Dkt. No. 5 at ¶ 5.[3] Pursuant to that agreement, Defendant and Binghamton Simulator entered into a subcontract agreement effective April 21, 2010 (the " Subcontract" ), in which Binghamton Simulator agreed, inter alia, to provide Defendant with previously developed flight simulator software (the " Software" ). See id. at ¶ ¶ 8-9.

Binghamton Simulator developed certain portions of the Software under the U.S. Government's Small Business Innovation Research (" SBIR" ) Program and developed other portions entirely at its own expense. Id. at ¶ 9. The Software consisted of twelve modules. Id. at ¶ 12. Two of the Software modules were developed pursuant to the SBIR Program and were therefore entitled to certain intellectual property rights and protections. Id. at ¶ 13.

The Subcontract contained a provision on intellectual property rights, which provides as follows:

Notwithstanding, any other provision herein, Buyer and Seller shall each retain ownership of, and all rights, title and interest in and to, their respective, pre-existing Intellectual Property. This subcontract will incorporate the standard DFARS clauses regarding rights in Intellectual Property to include technical data and computer software.
The Seller agrees that it will provide the government with Unlimited Rights in all technical data, computer software (including source code), and computer software documentation that is developed under the NCM3 Program. The Seller further agrees that all technical data, computer software, and computer software documentation delivered under this Agreement and not described below shall be delivered with Unlimited Rights as that term is defined at DFARS clause 252.227-7013 and DFARS clause 252.227-7014.
Any previously developed technical data, computer software, or computer

Page 322

software documentation developed by the Seller with mixed funding, including any and all legacy system intellectual property developed by the Seller with mixed funding, will be provided to the Government with not less than Government Purpose Rights as that term is defined at DFARS clause 252.227-7013 and DFARS clause 252.227-7014. The Seller will try to secure the maximum level of rights for all intellectual property identified and acquired in performance of the NCM3 Program. The Buyer must approve any technical data, computer software, or computer software documentation that the contractor proposes to provide with other than Unlimited Rights. Technical data, computer software, and computer software documentation that the parties agree will not be delivered with Unlimited Rights must then be incorporated into this Agreement below. Specially negotiated license agreements must be attached to this Agreement by Supplemental Agreement.

Dkt. No. 5-1 at § 18.0.

Pursuant to the Subcontract, Defendant agreed to purchase single-use license pay royalties for the Software for each simulator unit at varying prices per unit. Dkt. No. 5 at ¶ 14. The license fee per unit was set at $144,755 for the original unit, $124,200 for the second unit, and $90,000 for any subsequent units. Id.

Binghamton Simulator performed its obligations under the Subcontract for the first flight simulator unit, and Defendant paid the license fee of $144,755. Id. at ¶ 15. The parties subsequently amended the Subcontract to include a subcontract for a second simulator unit. Id. The second subcontract provided for a license fee for the Software in the previously negotiated amount of $124,000. Id. In or around August 2011, prior to completion of the second simulator unit, Defendant terminated the second subcontract for convenience. Id. at ¶ 16. Nonetheless, Defendant paid Binghamton Simulator the $124,000 license fee provided for by the second subcontract. Id. The funds used to pay the license fees for the first two simulator units originated with the U.S. Government. Id. at ¶ 17.

Defendant provided the U.S. Army with at least sixteen additional flight simulator units, each of which incorporated the Software. Id. at ¶ 18. Defendant failed to pay Binghamton Simulator license fees for the additional units. Id. The U.S. Army's position is that it acquired the Software in its entirety with " Government Purpose Rights" rather than SBIR rights, and therefore, the Government has refused to pay any further license fees. Id. at ¶ ¶ 19-20. Based on the Army's position, Plaintiff alleges that when Defendant delivered the Software to the Army as part of the flight simulators, Defendant failed to ensure that Binghamton Simulator's SBIR rights were recognized and protected. Id. at ¶ 21. In any event, Defendant refused to pay Binghamton Simulator any additional license fees. See id. at ¶ 20.

In January 2012, at a sale conducted by Binghamton Simulator's primary secured lender under Uniform Commercial Code (" U.C.C." ) Article 9, BSC Partners, LLC (" BSC Partners" ) purchased all of Binghamton Simulator's personal and intellectual property, including the Software and Binghamton Simulator's claims against Defendant. Id. at ΒΆ 22. In or around February 2014, ...


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