United States District Court, S.D. New York
Robert A. Horowitz, Lauren B. Grassotti, Justin A. MacLean, GREENBERG TRAURIG, LLP, New York, NY, Michael J. Schaengold, Paul F. McQuade, GREENBERG TRAURIG, LLP, Washington, D.C., for plaintiffs.
Jonathan G. Graves, COOLEY LLP, Reston, VA, Erin M. Estevez, COOLEY LLP, Washington, DC, Celia Goldwag Barenholtz, COOLEY LLP, New York, NY, for defendant.
OPINION & ORDER
DENISE COTE, District Judge.
This lawsuit arises from a dispute between a licensor of a patented camouflage pattern and its former licensee. The pleadings include the licensor's claims for breach of contract and counterclaims seeking a declaration that plaintiffs' patents in the camouflage pattern are invalid.
This Opinion addresses two pending motions. On April 3, 2015, plaintiffs Crye Precision LLC ("Crye Precision") and Lineweight LLC ("Lineweight") (collectively "Crye") moved pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss eight of the twelve counterclaims asserted by defendant Duro Textiles, LLC ("Duro"). Crye's motion became fully submitted on May 1 and is granted. Among other things, Duro has failed to plausibly plead that plaintiffs' patents are invalid or to plead with particularity that Crye engaged in inequitable conduct.
On April 24, Duro moved pursuant to Fed.R.Civ.P. 12(b)(1) to dismiss two of the four causes of action asserted in Crye's Complaint. Duro's motion became fully submitted on May 15 and is granted in part. Crye's claim for unjust enrichment is barred by 28 U.S.C. § 1498(a). Crye's claim for breach of contract is not barred by Section 1498(a) to the extent that Crye is pursuing a claim for damages as opposed to injunctive relief.
The following facts are drawn from the pleadings and the documents attached thereto. See Yung v. Lee, 432 F.3d 142, 146 (2d Cir. 2005). For purposes of ruling on Duro's motion, those facts are construed in favor of Crye. See Conyers v. Rossides, 558 F.3d 137, 143 (2d Cir. 2009) ("Where, as here, the case is at the pleading stage and no evidentiary hearings have been held, ... in reviewing the grant of a motion to dismiss under Rule 12(b)(1) we must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the plaintiff's favor." (citation omitted)). For purposes of ruling on Crye's motion, they are viewed in the light most favorable to Duro. See Keiler v. Harlequin Enters. Ltd., 751 F.3d 64, 68 (2d Cir. 2014) (noting that when deciding a motion to dismiss under Rule 12(b)(6), a court must "accept all factual allegations (but not legal conclusions) as true and draw all reasonable inferences in favor of the [nonmovant]").
I. MULTICAM and Crye's Licensing
Over a decade ago, Crye developed a camouflage pattern known as MULTICAM for use on fabric. Crye claims proprietary rights in the color palette, shapes, and placement of shapes in MULTICAM. MULTICAM is the subject of at least one U.S. design patent, Design Patent No. D592, 861 ("861 Patent").
Crye licenses printers to print and sell MULTICAM on fabric that is sold to companies that manufacture uniforms and other equipment in fulfillment of orders placed by or on behalf of the U.S. Department of Defense ("Government Sales"). Crye also licenses printers to print and sell MULTICAM on fabric that is sold to companies that manufacture uniforms and other equipment for commercial sale ("Commercial Sales").
In 2006, U.S. Army Special Operations units adopted MULTICAM. In 2010, MULTICAM was selected as the standard issue camouflage pattern for all U.S. soldiers deployed to Afghanistan.
In 2008, Crye and Duro entered into a two-year license agreement. This agreement granted Duro the exclusive right to print and sell MULTICAM products in the United States in connection with both Government Sales and Commercial Sales.
In 2010, the U.S. Army insisted that Crye license additional printers to print MULTICAM for Government Sales. In response, Crye developed a network of printers, including Duro, which it appointed for two-year terms as non-exclusive licensees authorized to print and sell MULTICAM products in connection with Government Sales. Duro remained Crye's exclusive licensee for Commercial Sales.
II. Crye's 2012 Agreement with Duro
Subsequently, in a 2012 agreement ("2012 Agreement"), Crye appointed Duro for another two-year term as a non-exclusive licensee authorized to print and sell MULTICAM products in connection with Government Sales. Duro retained exclusive rights with respect to Commercial Sales. Pursuant to Section 3(h) of the 2012 Agreement, Duro agreed not to "make any products that are similar to MULTICAM through color palette, pattern or arrangement or placement of any elements incorporated in MULTICAM." Pursuant to Section 7(c), Duro further agreed that it would not "at any time during or after this Agreement" commit "any act or assistance to any act, which may infringe or lead to the infringement of any of Crye's proprietary rights."
According to Section 14(g), Duro acknowledged that any breach of its obligations under the 2012 Agreement "with respect to the proprietary rights or confidential information of Crye will cause Crye irreparable injury for which there are inadequate remedies at law, and therefore Crye will be entitled to equitable relief in addition to all other remedies provided by this Agreement or available at law." And pursuant to Section 9(f), Duro's obligations under Sections 3, 7, and 14 (among others) "shall survive termination or expiration of this Agreement."
III. Events After the Expiration of the 2012 Agreement
In 2014, upon expiration of the 2012 license agreements with its various licensees, Crye entered into new non-exclusive license agreements with various printers. Under the new agreements, Crye authorized its licensees to print and sell MULTICAM products in connection with both Government Sales and Commercial Sales (Duro no longer retained exclusive rights with respect to Commercial Sales). Duro rejected the new license agreement. After efforts to negotiate a new license agreement with Duro failed, Crye formally notified Duro that the 2012 Agreement had expired as of April 10, 2014.
Around May 2014, the U.S. Army announced its intention to switch the standard issue camouflage pattern from MULTICAM to a camouflage pattern known as Scorpion W2. According to Crye, Scorpion W2 uses MULTICAM's color palette, shapes, and placement of shapes, and its overall appearance is virtually indistinguishable from MULTICAM's.
Beginning in late 2014 or early 2015, Duro began printing and selling Scorpion W2 fabric for, and with the authorization and consent of, the U.S. Government. Because Scorpion W2 fabric is a product "similar to MULTICAM through color palette, pattern or arrangement or placement of any elements incorporated in MULTICAM, " Crye alleges that Duro's printing and sale of Scorpion W2 fabric breaches Sections 3(h) and 7(c) of the 2012 Agreement.
IV. Crye's Original Action
Crye filed a complaint dated November 11, 2014 in this Court in case number 14cv9012 (DLC). That complaint was directed at Duro's printing and sale of MULTICAM fabric after the expiration of the 2012 Agreement and included claims for breach of contract, trademark infringement, and patent infringement. The patent infringement claim was directed exclusively to Duro's Commercial Sales of MULTICAM and explicitly excluded Duro's Government Sales.
According to Crye, having received assurances from Duro that it did not print any MULTICAM fabric after expiration of the 2012 Agreement and that any sales of MULTICAM fabric after expiration of that agreement were consistent with its rights upon termination of the agreement, on January 12, 2015, Crye amended its complaint to eliminate claims related to the printing of MULTICAM fabric (except to recover unpaid license fees) and instead focused on Duro's sales of Scorpion W2 in alleged breach of Section 3(h) of the expired 2012 Agreement. According to Crye, because Crye's understanding was that Duro was printing and selling Scorpion W2 only for the U.S. Government, Crye elected not to include a claim for patent infringement in its amended complaint, presumably because Crye was aware that such a claim would be barred by 28 U.S.C. § 1498(a) ("Section 1498"), discussed below.
On January 29, 2015, Duro filed a motion to dismiss Crye's amended complaint pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. Duro's motion was premised on the ground that pursuant to Section 1498, Crye's claims directed to Duro's manufacture and sale of Scorpion W2 products for the benefit of the Government could be brought only against the Government in the Court of Federal Claims. Duro also moved to dismiss on the ground that Crye had failed to plead sufficient facts to support its allegations of diversity jurisdiction.
As Crye advised in a February 5 letter, it appeared based on Duro's affidavit submitted in support of the motion to dismiss that there was not complete diversity of citizenship between the members of plaintiff and defendant limited liability companies. On February 17, Crye filed a notice of voluntary dismissal without prejudice.
V. Crye's Current Action
Crye filed the instant Complaint, dated February 17, 2015, in New York state court. Like the amended complaint in the original action, Crye's Complaint is directed primarily at Duro's printing and sale of Scorpion W2 fabric in alleged breach of Section 3(h) of the 2012 Agreement. According to Crye, in light of Duro's representation in its motion to dismiss the original action that all of its sales of Scorpion W2 fabric were Government Sales, the Complaint does not include a claim for patent infringement.
Crye's Complaint pleads four causes of action. The First and Fourth relate to Duro's sales of Scorpion W2 fabric. Crye's First Cause of Action is for breach of contract and alleges that, since 2014, Duro has fulfilled or intends to fulfill orders of Scorpion W2 fabric for Government Sales, in violation of the 2012 Agreement, specifically Sections 3(h) and 7(c), the obligations of which survived the 2012 Agreement's expiration. Crye seeks injunctive relief pursuant to Section 14(g) of the 2012 Agreement. Crye's Fourth Cause of Action is for unjust enrichment owing to Duro's sale of Scorpion W2 fabric without Crye's authorization, and requests restitution.
The Second and Third Causes of Action, both for breach of contract, relate to Duro's sales of MULTICAM. The Second Cause of Action alleges that Duro has not responded to Crye's request to inspect Duro's books and records, as provided for in the 2012 Agreement. And the Third Cause of Action alleges that Duro has not made payments on outstanding invoices in violation of a provision that accelerated all outstanding invoices ...