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Armstrong Pump, Inc. v. Hartman

United States District Court, W.D. New York

January 18, 2018

Armstrong Pump, Inc., Plaintiff,
v.
Mr. Thomas Hartman doing business as The Hartman Company and Optimum Energy LLC, Defendants.

          REPORT AND RECOMMENDATION

          Honorable Hugh B. Scott United States Magistrate Judge

         I. INTRODUCTION

         The Hon. William M. Skretny has referred this breach-of-contract case to this Court under 28 U.S.C. § 636(b). (Dkt. No. 74.) Pending before the Court are motions by plaintiff Armstrong Pump, Inc. (“Armstrong”), defendant Thomas Hartman (“Hartman”), and defendant Optimum Energy LLC (“Optimum”), for summary judgment under Rule 56 of the Federal Rules of Civil Procedure (“FRCP”). (Dkt. Nos. 290, 291, 292.) The Court held oral argument on August 10, 2017.

         In preparing this Report and Recommendation, the Court gave considerable thought to whether any of its contents should be redacted. The parties entered a joint protective order (Dkt. No. 66) to govern discovery; the protective order allowed the parties to designate discovery documents as confidential or highly confidential based on the extent to which those documents contained trade secrets or certain other proprietary information pertaining to marketing, sales, and finances. The Court has wanted to respect the sensitive nature of the parties' discovery materials and, along the way, has allowed the parties to file exhibits to motion papers under seal. At the same time, the Court has had to pay attention to two strong arguments in favor of public access to the docket. The first argument is the policy behind public access to federal court dockets:

The presumption of access is based on the need for federal courts, although independent-indeed, particularly because they are independent-to have a measure of accountability and for the public to have confidence in the administration of justice. Federal courts exercise powers under Article III that impact upon virtually all citizens, but judges, once nominated and confirmed, serve for life unless impeached through a process that is politically and practically inconvenient to invoke. Although courts have a number of internal checks, such as appellate review by multi-judge tribunals, professional and public monitoring is an essential feature of democratic control. Monitoring both provides judges with critical views of their work and deters arbitrary judicial behavior. Without monitoring, moreover, the public could have no confidence in the conscientiousness, reasonableness, or honesty of judicial proceedings. Such monitoring is not possible without access to testimony and documents that are used in the performance of Article III functions.

United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995). The second argument is a more practical distinction between the purpose of a protective order during discovery and the disclosures that inevitably must occur when a case reaches dispositive motions or trial:

Protective orders are useful to prevent discovery from being used as a club by threatening disclosure of matters which will never be used at trial. Discovery involves the use of compulsory process to facilitate orderly preparation for trial, not to educate or titillate the public. Private matters which are discoverable may, upon a showing of cause, be put under seal under Rule 26(c), in the first instance. Martindell v. International Tel. & Tel. Corp., 594 F.2d 291 (2d Cir. 1979), says no more than that.
At the adjudication stage, however, very different considerations apply. An adjudication is a formal act of government, the basis of which should, absent exceptional circumstances, be subject to public scrutiny.

Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982).

         To try to find the right balance between disclosure and redaction, the Court has considered that the parties' motions were dispositive in nature and potentially could have ended the case in whole or in part. The Court also looked ahead to what information inevitably would have to be disclosed in a trial on the ultimate merits. As the parties will see, the Court has quoted extensively from their communications and from their motion papers to capture the full detail of the arguments that they have presented. These communications, and any arguments in the motion papers, are fair game for public access. In contrast, the Court has quoted little if any technical information from the sealed documents and will leave those documents under seal at this time. As it turns out, resolving the parties' motions required some conceptual discussion of the technology in question-information probably known in the industry anyway-but did not require disclosure of algorithms, specific internal strategies, or other such sensitive information.

         As for a summary of the arguments that the parties have presented, introductions such as this typically contain some kind of short digest of the issues that were in play. With so many issues that the parties presented in their motions, an introductory summary is not possible. The reader is referred to the Background section below, with the table of contents appearing on the next page offered as guidance.

         I. INTRODUCTION ...................................................................................................................................................... 1

         II. BACKGROUND ......................................................................................................................................................... 5

         A. HVAC Technology and Initial Events ........................................................................................................... 5

         B. Negotiations Leading up to the ALA and OLA ........................................................................................... 13

         C. The ALA and Its Terms ...................................................................................................................................... 22

         D. The OLA and Its Terms ...................................................................................................................................... 26

         E. Factory Versus Field Implementation .......................................................................................................... 31

         i. Novelty of the terms .......................................................................................................................................... 32

         ii. Mutual exclusivity ............................................................................................................................................. 32

         iii. Overlap with “retrofit” and “non-retrofit” ....................................................................................................... 33

         iv. Is the Optimum product a “controller”? .......................................................................................................... 35

         v. Preparation of the Optimum product .............................................................................................................. 43

         vi. Meaning of “implement” or “implementation” ............................................................................................... 48

         F. The PPA and Its Terms ....................................................................................................................................... 50

         G. Dealings Under the Agreements ................................................................................................................... 52

         III. DISCUSSION ............................................................................................................................................................ 64

         A. Summary Judgment Generally ........................................................................................................................ 64

         B. Contract Law Generally ................................................................................................................................ 66

         C. Armstrong's Principal Claims from the Amended Complaint (Dkt. No. 55) and the Counterclaims (Dkt. No. 68) ............................................................................................................ 70

         i. Breach of Contract Against Hartman .............................................................................................................. 70

         ii. Tortious Interference Against Optimum ....................................................................................................... 116

         D. Armstrong's Declaratory Judgment Counterclaim for Patent Invalidity (Dkt. No. 68 at 9, Dkt. No. 111 at 9) .............................................................................................................. 123

         E. Optimum's Counterclaims for Declaratory Judgment (Dkt. No. 57) ................................................. 124

         F. Optimum's Argument to Limit Armstrong to Nominal Damages ......................................................... 125

         G. Armstrong's Request for an Accounting ................................................................................................ 133

         IV. CONCLUSION .................................................................................................................................................. 136

         V. OBJECTIONS .......................................................................................................................................................... 137

         II. BACKGROUND

         A. HVAC Technology and Initial Events

         This case concerns an ongoing dispute over who is allowed to market novel climate-controlled technology, and under what circumstances. The inventor in question is Hartman. “Thomas Hartman is a professional engineer, inventor, and the original owner of the three patents at issue in this case, i.e., United States Patent No. 5, 946, 926, No. 6, 257, 007 and No. 6, 185, 946 (the ‘LOOP Patents').” (Dkt. No. 294-4 at 1.) The technology in question concerns heating, ventilation and air conditioning (“HVAC”) equipment in office, industrial, and other types of buildings. The record contains a concise description of the state of HVAC technology and how Hartman changed it:

Heating, ventilating, and air conditioning (“HVAC”) systems are used in buildings to provide comfort for occupants. Commercial HVAC systems utilized in large buildings usually contain a heating system, ventilation system, cooling system, humidification system, dehumidification system, and/or air filtration system. In addition to these mechanical systems, electronic control systems manage the operation of the various mechanical systems to ensure smooth operation and to maintain desired comfort levels among all the relevant variables such as temperature, humidity, amount of fresh air, and so forth.
In the late 1990's, inventor Thomas Hartman (“Hartman”) discovered novel ways to control chilled water cooling systems. Hartman's insight countered conventional wisdom of HVAC control, but implementation of his novel control schemes results in significant efficiency gains. As a result, buildings controlled according to Hartman's invention use less energy to maintain desired comfort levels than those controlled according to traditional schemes. Hartman applied for a series of patents which claim his invention. In the ‘926 Patent, [1] issued on September 7, 1999, Hartman taught a novel use of variable flow chilled fluid cooling systems. The ‘946 Patent, [2] issued on February 13, 2001, provides a system for sequencing chillers in a loop cooling plant and other systems that employ all variable-speed units. Finally, the ‘007 Patent, [3] issued July 10, 2001, teaches a method for control of cooling system condenser fans and cooling tower fans and pumps. The systems of the three Hartman patents are marketed under the registered trademark Hartman LOOP™.
Hartman's work demonstrated that large HVAC chiller systems could be optimized for efficiency even if the individual components of the system were operated at less than their individual optimum efficiency. In other words, the LOOP Patents teach that, while conventional wisdom would suggest that each component in the loop should be operated at its own individual optimal efficiency point for the desired comfort level, Hartman realized that instead maximum system-wide efficiency can be significantly improved by monitoring the system as a whole and adjusting the individual components. The energy efficiency of the total system may be highest even where some individual components operate at less than individual peak efficiency. Thus, systems using the Hartman LOOP technology maximize their cooling efficiency even when such a system might operate one or more subcomponents at less than individual peak efficiency, providing system-wide greater energy savings and improved system performance.

(Dkt. No. 125 at 1-3; see also Dkt. No. 318 at 2 (“The Hartman patents teach that while conventional wisdom would suggest that each component in a chilled water loop should be operated at maximum efficiency to maximize the efficiency of the system as a whole, the overall efficiency can be significantly improved by monitoring the system as a whole and adjusting the individual components and in some cases to a point that is less than peak efficiency. Hartman calls this the ‘Hartman LOOP Technology.'”).) In very broad terms, buildings could acquire the LOOP Technology in two ways. “The Hartman LOOP methods could be inserted into an existing building cooling system by modifying the existing building controls (a building's computer for the control of the HVAC and other maintenance programs, sometimes called a Building Automation System-BAS) and adding new sequences that make the Hartman LOOP steps operate to efficiently run the cooling system. Or, new equipment incorporating the Hartman LOOP sequences could be added to a new or existing building cooling system, such as a new Hartman LOOP controller or building control device.” (Dkt. No. 318 at 2.)

         At this point, two companies enter the picture with their interest in marketing the LOOP Technology. One company is Optimum. “Optimum Energy LLC is a Washington limited liability company with its principal place of business located in Seattle, Washington. In mid-2006, the assets of Optimum Energy Corporation, including the Optimum License Agreement, were transferred to Optimum Energy LLC. Optimum was started in 2004 by Nathan Rothman and Jim Hanna. In about 2003, Rothman and Hanna, who were neighbors, began exploring opportunities in energy efficiency and related fields. Rothman was Optimum's President and CEO from its formation until he became Chairman and Founder in late 2010. Rothman left Optimum at the end of 2011. Jim Hanna was a co-founder of Optimum. Until he retired as an Optimum employee in 2013, Hanna's titles had included Vice President, Vice President of Product Development and Vice President of Technology. Optimum now has 58 employees. Optimum's 2016 revenue of about $8.7 million was its highest ever to date. Optimum has yet to be profitable i.e., it has not had net income, in any year of its existence.” (Dkt. No. 294-4 at 2-3.) Optimum has explained its business model as follows:

The Optimum business model was, from the outset, to implement the Licensed Technologies using a separate appliance, the Tridium JACE product, that along with Optimum's software could be integrated with the Building Automation System (BAS) (also known as the Building Management System (BMS)) as an addon to facilitate field implementation of the Licensed Technologies pursuant to Optimum's license. Optimum has consistently built its business on the concept of delivering the Licensed Technologies using an appliance, such as the Tridium JACE product, that is an add-on to the BAS/BMS and not a replacement for the chiller plant control provided by the BAS/BMS.

(Dkt. No. 294-4 at 3.)

         The other company is Armstrong. “Founded in 1934, Armstrong is a family owned business that has pioneered an uncompromising range of products for customers in residential, commercial and industrial markets. The Armstrong name has been a benchmark for quality in design, engineering and manufacturing. A significant part of Armstrong's business revolves around the development and manufacture of the highest quality HVAC chilled water and boiler water systems, pumps, and other components.” (Dkt. No. 318 at 1.) Optimum has disputed that Armstrong is a family-owned business. “Armstrong Pump, Inc., is a wholly-owned subsidiary of S.A. Armstrong, Ltd. Armstrong, which was established in 1934 as a pump manufacturer, has about 1, 000 employees throughout the world, and had 2014 revenue of over $200 million, probably about $230 million-$240 million.” (Dkt. No. 294-4 at 3.) Optimum also has disputed the association of the word “quality” with Armstrong:

Optimum disputes that Armstrong's range of products has been “uncompromising” and that the Armstrong name has been a “benchmark for quality and design in engineering and manufacturing, ” at least with respect to its products that incorporate the LOOP Technologies. For example, Armstrong's implementation of its IPC 11550 on the San Diego County Health Services project in 2007 was substandard, problematic and deficient. In an October 16, 2007 email to Peter Thomsen, and others, Armstrong's representative Steve Lewis of Vertical Systems cited “the fact that Armstrong was probably somewhat negligent in its support of the sale” and that “the county have [sic] a bad taste of Armstrong and fences need mending.” In a responding e-mail on October 17, 2007, to a number of Armstrong personnel, including Peter Thomsen, Alfred Dubier, Armstrong's Regional Sales Manager, stated that “[w]e need to resolve these issues at the earliest, Armstrong does not have a good name in the San Diego County as stated below.” In addition, Armstrong was successfully sued for breach of contract in connection with Armstrong's attempted sale and installation of an IPC 11550 in the Galleria and Tower at Erieview office building and retail mall in Cleveland, Ohio in 2009. Armstrong was found to have breached its contract of sale by not providing a functioning controller and failing to fully commission the system. (See Findings of Fact and Conclusions of Law, filed on March 29, 2013, in Armstrong Pumps Inc. v. Brewer-Garrett Company, No. 1:10cv492 (N.D. Ohio) and Satisfaction of Judgment filed by Brewer-Garrett on November 8, 2013 in that action.)
Optimum disputes that Armstrong's HVAC chilled water and boiler water systems, pumps and other components, are of the highest quality, at least with respect to its products that incorporate the LOOP Technology.

(Dkt. No. 299 at 1-2.) Armstrong has explained its interest in the LOOP Technology as follows: “While Armstrong already had control systems and plant automation as products at the time, obtaining a license to the Hartman Loop Technologies and building a business with Hartman was particularly critical to developing new business opportunities. The Hartman patents covered significant aspects of the sequencing and control of chilled water systems, providing Armstrong credibility to enter the plant automation and controller business in a differentiated fashion.” (Dkt. No. 318 at 3.) Hartman has disputed that Armstrong had control systems as products when it took an interest in the LOOP Technology:

When Brent Ross negotiated the ALA [Armstrong License Agreement, discussed infra], Armstrong did not have a “control only” product; Hartman told Charles Armstrong and Brent Ross, and all three agreed, that it would be unwise for Armstrong to attempt to be a controller manufacturer unless it added a network of thousands of technicians to service controller products. Hartman Decl. ¶ 32. Such a network would be needed because, if a controller is nonoperational, a controller customer (i.e., a business or building owner) would need to repair the controller within a matter of hours, not days, in order to avoid having its facility go “offline.” Id. Since Armstrong did not have such a network, it did not make sense for them to market a “controller only” product. Id. Thomsen's use of “control systems” is ambiguous. Armstrong did not have a control product that operated entire plants. Id. Accordingly, Mr. Thomsen appears to use the phrases “control systems” and “plant automation and controller business” to reference products that controlled a specific piece of equipment only. Id. When the ALA was being negotiated, such a control product was never referenced by Armstrong. Id. Rather, Ross discussed automation as being introduced as part of the factory assembled mechanical package that was to be Armstrong's product. Id.

(Dkt. No. 302 at 3.) Hartman's contention, in turn, is contradicted by a January 6, 2004 email message from Ross to Hartman. (Dkt. No. 292-2 at 312.) In this email message, Ross explained to Hartman that

Our development program is continuing quite fast. We are progressing in providing pumping packages in the field with more and more components. We have two variable primary pumping packages where we are providing the controls currently in submittal. We've sold these before we've standardized our offering so definitely the market is pushing us for these. We introduced two new controllers in 2003 and will be introducing at least two more in 2004.

(Id.)

         Armstrong eventually approached Hartman to express its interest in obtaining a license to use the LOOP Technology. Communications began in 2003; Armstrong considered the communications to be negotiations. (Dkt. No. 318 at 3.) Optimum disputes the use of the term “negotiations.” “First, although Armstrong began discussions with Hartman in 2003, Optimum disputes that such discussions constituted negotiations. Second, Optimum disputes the statement to the extent Armstrong is suggesting any specific manner or details about Armstrong's intention at the time with respect to expanding its product line and potential customer base and means of leveraging LOOP Technologies in Armstrong's products.” (Dkt. No. 299 at 3.) In any event, “Ross was Armstrong's director of marketing and engineering and was responsible for all marketing and all engineering in the global firm. (Ross Dep. at 8:20-9:20; Appendix Exh. G). Ross had the lead role for Armstrong in its discussions and negotiations with Hartman that resulted in the ALA. (C. Armstrong Dep. at 55:19-56:19; Appendix Exh. H) (See 7/25/14 and 9/17/15 deposition of Peter Thomsen (‘Thomsen Dep.') at 19:5-20; 20:13-19; Appendix Exh. D). Ross had the authority to negotiate agreements for Armstrong and to sign agreements for Armstrong, subject to approval from Charles Armstrong or Paul Novello, Armstrong's CFO. (C. Armstrong Dep. at 36:7-37:20; Appendix Exh. H).” (Dkt. No. 294-4 at 4.) The year 2003 also saw Optimum begin communications with Hartman. “In 2003, while pursuing due diligence about a Chinese company that specialized in optimization of HVAC equipment, Rothman and Hanna became aware of the work that had been done by Tom Hartman and contacted him. (Hanna Dep. at 15:20-16:10; Appendix Exh. E). Hartman had already deployed the LOOP Technologies at some sites in San Diego. (Hanna Dep. at 16:19-24; Appendix Exh. E). At that time, Rothman and Hanna had discussions with Hartman about forming a company with Hartman and how that might work. (Hanna Dep. at 16:11-18; Appendix Exh. E).” (Dkt. No. 294-4 at 5.) As the parties began to flesh out their interests, Rothman played the main negotiating role for Optimum. “Rothman was involved in negotiations and business dealings among Hartman, Armstrong and Optimum as far back as the summer of 2004. (Rothman Decl., ¶2; Appendix Exh. A). Among other things, Rothman met with Brent Ross of Armstrong in the summer of 2004. (Id. and Exh. A). Hartman and Rothman met with Armstrong, at Armstrong's invitation, at an Armstrong conference in Toronto in September 2004. Rothman participated at times in discussions and negotiations between Hartman and Armstrong from that time through the February 4, 2005 ALA. (Id.).” (Dkt. No. 294-4 at 6.)

         Armstrong and Hartman eventually entered a licensing agreement, the ALA, on February 4, 2005. “Optimum does not dispute that Armstrong and Hartman entered into the license agreement, referred to herein as the ‘Armstrong License Agreement' or ‘ALA' on or about February 4, 2005. Optimum disputes that the ALA was signed ‘after nearly two years at the negotiating table, ' to the extent that Armstrong is suggesting that it was two years of continuous negotiations.” (Dkt. No. 299 at 4.) On November 28, 2005, Hartman and Optimum entered their own license agreement, the Optimum License Agreement or “OLA.” The Court will discuss these two license agreements in more detail below.

         One other document is worth a brief mention. On March 26, 2004, Hartman and an Optimum predecessor called GETCO LLC signed a Binding Letter of Intent. Rothman signed as president of GETCO LLC. (Dkt. No. 292-2 at 125-27.) In the Binding Letter of Intent, Hartman used the following language to describe the scope of a potential license to GETCO LLC to use the LOOP Technology: The license would be “for the purpose of creating, marketing, promoting, selling and otherwise commercializing Products aimed at utilizing the Technology in retrofit (existing construction) applications (the ‘Retrofit Product License').” (Id. at 125.) The Binding Letter of Intent, in the next sentence, uses the same language to describe a potential license to GETCO LLC for “non-retrofit (e.g., new construction) applications.”

         B. Negotiations Leading up to the ALA and OLA

         In the months leading up to February 2005, Armstrong and Hartman began to craft a formal agreement that would give Armstrong license rights to the LOOP Technology. As Hartman has stated,

In 2004, I began negotiating with (A) Armstrong's director of marketing and engineering, Brent Ross, and (B) Optimum's founder, President and CEO, Nathan Rothman. Both Armstrong and Optimum were fully aware of each other. In fact, all three parties negotiated the method of dividing the Licensed Technologies as between Armstrong and Optimum. Optimum knew that I intended to grant a license to Armstrong for certain rights and Armstrong knew that I was licensing different rights to Optimum, and would eventually partner with Optimum and ultimately intended to sell the patents to Optimum.
Neither Armstrong nor Optimum objected to the existence of the other party, or their proposed role, during the negotiation of their respective license agreements. Both parties understood that I sought multiple licensees in order to bring the Licensed Technology to market in the most comprehensive and efficient manner possible, by providing Armstrong and Optimum with mutually exclusive rights.
It was critical that the Licensed Technologies be available from at least two sources (i.e., Optimum and Armstrong) because much of the market would require competitive bids that prevented sole-source products (i.e., products that were only available from one source). Messrs. Ross and Rothman were well aware of this “competition” that would exist between them. The goal was to provide all potential customers with a solution that included the Licensed Technologies, even if a particular licensee's offering was not ideal for a given customer.

(Dkt. No. 290-2 at 3-4.) Armstrong has disputed what it considers merely Hartman's opinion about the importance of having two or more sources to supply the HVAC market. Brent Ross from Armstrong has asserted the following:

Paragraph 10 of Hartman's Declaration asserts that it was “critical” that the Hartman LOOP technology be available from two or more sources. This is merely Hartman's opinion. Armstrong's preference was to have all the exclusive rights in the technology. Accordingly, Armstrong never believed that competition for the Hartman LOOP was in any way “critical.” Hartman made it clear early on that an exclusive license with all the rights to Armstrong was not going to happen. Eventually, Hartman insisted on dividing the rights between: 1) a project specific license for the Hartman LOOP customized program for a specific building site; 2) field implementation performed in the field at the building site; and 3) producing products or “product sizing” the technology in a factory setting. For Armstrong, this was not a preferred separation of rights but it is what Hartman insisted on. Prior to the separation of field and factory markets, Hartman used the terms “retrofit” and “new construction” as a separation of the market and the same terms were used by the parties even after the field and factory terms arose in the license agreement, and retrofit and new construction were removed.

(Dkt. No. 303 at 308.) Armstrong has elaborated further as follows:

Several emails between Hartman and Armstrong's Brent Ross exist during the time period of the license negotiations. Optimum can point to not one that references an alleged “requirement” for multiple parties or competitive bidding. Hartman's May 3, 2017 declaration merely sets forth an opinion, and that opinion was not even expressed at the time of the negotiations. Hartman's opinion had no role in the development of the Armstrong license or any of its terms or clauses. Brent Ross' Declaration (Declaration of Brent Ross in Support of Plaintiff's Opposition to Defendants Hartman and Optimum Motions for Summary Judgment dated June 16, 2017 (“Ross Declar.”)) directly addresses the newly alleged “required competitive bidding” opinion. (Ross Declar. ¶¶ 12, 19, and 23). Armstrong desired exclusive rights to use the patents, all of the rights. Hartman was not willing to exclusively license to Armstrong all the rights. Obviously, Armstrong did not believe competitive bidding was at all required or even desirable. Hartman's Declaration and Optimum's statements reflect today's opinion, not even an opinion expressed contemporaneously with the license or any negotiations. This opinion from Hartman's and Optimum's Statement of Facts should be given no weight at all.

(Dkt. No. 303 at 8.) Hartman countered by pointing to the following email message that he sent to Ross on January 24, 2005:

From our two perspectives and understanding of the legal language, we believe it [the draft ALA] to be a reasonable description of how we have agreed upon various issues involved in this effort to license and “productize” Hartman LOOP™ technologies in chiller plant systems. It does address the “prepackaged” versions of the technology and assign those rights to Armstrong for new chiller plants in which the technology is included with some of the equipment being supplied. It also outlines the rights of Optimum for retrofit applications in which mechanical equipment already exists. This agreement leaves open the possibility for engineers or contractors to “field implement” the technologies using conventional methods of implementation (installing the sequences as part of the installation or retrofit on a one-at-a-time custom programming basis) by licensing the technologies directly from me or whomever I may assign the task of organizing such support, which is a path I would like to minimize over the next few years.

(Dkt. No. 319 at 437.) “This paragraph outlines three possible methods of implementation of the Licensed Technologies: (1) Armstrong's factory (‘prepackaged versions . . . in which the technology is included with some of the equipment being supplied'; (2) Optimum's field (‘retrofit applications in which mechanical equipment already exists'); and (3) ‘conventional methods of implementation' for one-at-a-time projects specifically licensed by Hartman. Hartman Decl. ¶ 31. The fact that the conventional ‘one-at-a-time custom programming basis' method was retained by Hartman is demonstrated by the fact that this e-mail states that it would be used ‘by licensing the technologies directly from me [Hartman].' Id.” (Dkt. No. 302 at 8.)

         As some of the above language already demonstrates, two related topics dominated the negotiations: whether Optimum would be allowed to compete against Armstrong; and whether the two companies that wanted to use the LOOP Technology, Armstrong and Optimum, would be assigned to different types of projects. For example, the Binding Letter of Intent mentioned above made reference to “retrofit” and “non-retrofit” projects. Hartman has described the history of the retrofit and non-retrofit designations as follows:

Hartman admits that the original division of license rights was between retrofit (Optimum) and non-retrofit (Armstrong). Hartman Decl. ¶ 33. Armstrong, however, wanted to participate in the retrofit market (i.e., existing plants or systems) to the extent that new equipment was needed (i.e., replacing existing equipment or an expansion that required new equipment). Id. As a result, Brent Ross and Hartman agreed to the “Field Implementation” and “Factory Implementation” division of rights, which allows Armstrong to participate in retrofit projects when new mechanical equipment is required. Id. The parties operated under this division of rights for years until Hartman announced his intent to sell the LOOP Patents to Optimum, which resulted in Armstrong taking adversarial positions that departed from the ALA language. Id.

(Dkt. No. 302 at 4.)

         A number of communications circulated among the parties before the final licensing agreements fell into place. Hartman prepared a first draft agreement that he sent to Armstrong on February 2, 2004. (Dkt. No. 319 at 329.) The original draft would have given Armstrong exclusive right to use the LOOP Technology for the manufacture of pumps or pumping systems. (Dkt. No. 319 at 331.) Around March 1, 2004, Armstrong proposed expanding the licensing rights to include chillers[4] as well as pumps. (Dkt. No. 319 at 338.) Armstrong also wanted exclusivity as against all other manufacturers. (Dkt. No. 212-1 at 8; see also Id. at 33 (representing that it was in the final stages of becoming “the exclusive manufacturer supplier” while also describing contract negotiations with Hartman as “frustrating”).) On April 22, 2004, Hartman expressed doubt to Armstrong that they had “a meeting of the minds on the terms for such an agreement.” (Dkt. No. 319 at 349.) Hartman elaborated on his concerns in an email message dated April 26, 2004 which apparently repeated details from a message dated April 9, 2004. (Dkt. No. 319 at 351.) The concerns continued on May 25, 2004, when Hartman summarized to Armstrong that “[w]e now have an agreement with a startup company [i.e., Optimum] that intends to package integrated controls and VFDs[5] to apply Hartman LOOP technologies to new and existing plants. Because this company does not intend to sell chillers, pumps, or any other equipment beyond VFDs and controls, I think that it will be straightforward to place a suitable boundary such that Armstrong will not be closed to any opportunities based on this current agreement, but instead may find even more willing participants for the delivery model Armstrong has developed.” (Dkt. No. 319 at 355 (emphasis added).) Armstrong seemed frustrated with Hartman's attempts to balance his relationships with it and Optimum; Ross wrote on May 25, 2004 that “I'm having a tough time with Hartman and this agreement. I've persuaded him to deal first with the large issues as he's been very concerned about the what if scenario's associated with any changes to the wording of his original agreement.” (Dkt. No. 319 at 358.) The parties started to approach mutual understanding around June 1, 2004; among other points, Armstrong acknowledged the possibility of letting Optimum have a license. (Dkt. No. 319 at 366.) On June 18, 2004, however, Hartman continued to express concern to Armstrong that negotiations were taking longer than expected. (Dkt. No. 319 at 369.) As much as Armstrong wanted access to the LOOP Technology, Hartman proposed delaying the introduction of the technology to Armstrong equipment for a year and letting Optimum supply controllers for Armstrong equipment while a licensing agreement took shape. (Id.) Hartman also put Armstrong on notice that his thoughts about long-term ownership of the patents were evolving:

I originally thought Armstrong would be in the role of our partner in exploiting these technologies. Because this has not developed as I wished and because of the increased complexity of this agreement, I am at this time considering having [Optimum] become that partner and take assignment of the patents and if we can agree, [Optimum] may become the Licensor for this agreement. In this case, all rights to the licenses not specifically transferred to Armstrong under this agreement would remain with [Optimum].

(Id. at 373; see also Id. at 173-74.) On August 17, 2004, Armstrong wrote that projects under an agreement could refer to the technology generally; the exact source of a controller could be determined later, though “one source supply will be a trend in the future.” (Dkt. No. 319 at 377.) On September 13, 2004, Hartman responded to Ross with several comments. (Dkt. No. 319 at 106.) Hartman had a concern that Ross wanted to give Armstrong exclusive rights to manufacture both pumps and “factory packaged systems, ” as if those systems would not include pumps. Hartman tried to clarify what Armstrong's role would be under any agreement. “What this exclusivity is not intended to permit is for Armstrong to purchase equipment[, ] install the controls with LOOP technologies[, ] and resell it, with the controls as the main Armstrong value added product.” (Id.) Hartman can be seen here viewing distinctions between Armstrong and Optimum from the perspective of the equipment itself-pumps and chillers versus controllers. Hartman did not want Armstrong selling controllers alone. Also, Hartman clarified that he did “not intend that the Optimum product would never be implemented in new installations. Optimum agrees to make no proposals for new plants or plants that will have much of their equipment replaced without first contacting Armstrong. If Armstrong declines to pursue the project, or if the Owner turns down the Armstrong solution, then Optimum would be free to pursue such a new plant.” (Id.) Negotiations took a step backward in October 2004, when Hartman wrote that too many extensive revisions were occurring to provisions to which the parties already had agreed. (Dkt. No. 319 at 413.) Around late November 2004, Armstrong revisited the issue of license exclusivity and expressed concern “that we're not competing tomorrow with a factory implemented product from Johnson controls, Honeywell etc.” (Dkt. No. 212-1 at 35 / Dkt. No. 319 at 429.) Armstrong acknowledged that the parties had not yet reached a meeting of the minds on the scope of Armstrong's rights. (Id.) Hartman responded that he understood Armstrong's concerns but that “we have to be careful to ensure we don't in any way limit Optimum Energy Corp's ability to make and market their controls product that incorporates Hartman LOOP technologies.” (Id.) On January 24, 2005, just days before the parties signed the agreement, Hartman wrote to Ross with the following description of what mutual understanding the parties still had not reached about how the ALA actually would operate:

The agreement does not, however, include practical direction in so far as how these various applications of the technology would actually take place, nor does it precisely define the limits of each possible method of implementation. I see this as a potential problem, but also as an enormous opportunity for us to cooperate and support one another. To start, I have made a decision to focus my support of the technology on Armstrong and Optimum, and not on individual engineers, contractors or others[.] However, I am concerned that in this industry where substitutes are common and many do not hesitate to make exaggerated claims regarding the level of performance they can attain, manufacturers, controls contractors, etc. may leverage our promotion of the Hartman LOOP technologies to persuade owners to use some other optimization scheme if these technologies are not readily available to any and all projects. And I am concerned that we would then be creating our own competition. To avoid this possibility I would like Armstrong and Optimum to develop clear understandings of the roles of each and to work together to be sure Hartman LOOP™ technologies are supported by one of the two entities throughout the many twists and turns projects may take, and throughout the changes that may take place in this industry over the term of this agreement.

(Dkt. No. 319 at 437.)

         The parties have different perspectives as to what division of the HVAC market actually occurred or was intended. Armstrong has pointed to Rothman's focus on retrofit projects and has inferred that he focused on retrofit projects because the ALA prohibited him from engaging in other projects. (See Dkt. No. 318 at 5.) Optimum has disputed Armstrong's interpretation of Rothman's comments. (See Dkt. No. 299 at 7.) Optimum also has elaborated on its view of market division:

Optimum disputes that the “Field Implementation” and “Factory Implementation” language was used in the Armstrong License Agreement and Optimum License Agreement to “divide the market”. Hartman intended, and Armstrong and Optimum acknowledged, that there could be competition between Optimum and Armstrong for the same project. (See 5/5/17 Optimum SOF ¶¶64- 71). The ALA and OLA therefore did not divide the potential market but rather divided the license rights according to the method of implementing the LOOP Technologies. Optimum also disputes that the definitions of “Field Implementation” and “Factory Implementation” differed between the Armstrong License Agreement and Optimum License Agreement, as evidenced by the stated definitions as well as their use in the Armstrong License Agreement and Optimum License Agreement.

(Dkt. No. 299 at 6-7.)

         The Court should make note of one other significant conflict in the record-whether the parties intended that Armstrong would be allowed at some point to sell a controller with LOOP Technology as a stand-alone product. As noted above, Hartman never wanted or intended Armstrong to have the ability to sell just a controller. In Hartman's view, “Armstrong would have to include their integrated mechanical products as a part of their implementation and would have a competitive advantage only when such new or replacement mechanical products were also required as part of the retrofit.” (Dkt. No. 354 at 5.) Armstrong vehemently has argued otherwise:

The Patents licensed to Armstrong in the ALA specifically refer to building controls, means for control, and controllers like the Armstrong IPC 11550 controller product. Dkt. No. 303 at pages 282-283 (at ¶7). The Exhibit B to the ALA explicitly requires applying a Hartman LOOP logo to “System Controllers incorporating Licensed Technologies.” At least that part of the text of the ALA makes it very clear that controllers, such as the Armstrong IPC 11550, were intended by all parties to be licensed to Armstrong and be part of the “Licensed Products.”
Armstrong's documents and meetings at the time the ALA was finalized and signed show that Armstrong specifically intended to make and sell a standalone controller product as well as sell controllers with other equipment, like Armstrong pumps. Dkt. No. 303 pages 294-319 (Ex. C) at ARM00035766 (page 295). Specifically, Armstrong's management listed as a “Project Goal” the “stand alone offering” of a controller as one of the intended products from the Hartman LOOP technology. Id. at ARM0035766 (page 295). Thus, Armstrong's explicitly expressed goal on entering the ALA was to develop the “Integrated Plant Controller” [IPC] product line, which “will incorporate the patented control philosophies of the Hartmann[sic] Loop.” Id. at ARM0035765 (page 294). This contemporaneous document, dated October 2004 to March 2005, manifestly demonstrates Armstrong's intent to produce a Hartman LOOP controller and sell them as a stand-alone product under the terms of the ALA. Id.

(Dkt. No. 353 at 8; see also Dkt. No. 303 at 295 (“The project goal is to have a target market coordinated release for IPC as a stand alone offering, and as a sub-component of an IPP chiller plant on a skid for April 2005 and July 2005 respectively. This must include: a demonstration of the proto-type in a simulation manner, a sales plan agreed by COB global, a service support mechanism / infrastructure.”); id. at 309 (“Hartman is well aware that Armstrong's IPC product, later called the IPC 11550, was never a piece of mechanical equipment. Marketing materials for the IPC 11550, which is a computer-based controller not mechanical equipment, were freely available at industry conferences and on Armstrong's website. In fact, Hartman participated in the development of Armstrong's IPC product as a consultant to Armstrong. No. one in the industry would refer to the IPC 11550 as mechanical equipment. Again, any suggestion from Hartman or others that Armstrong's rights are somehow limited to the Hartman LOOP incorporated into ‘mechanical equipment' is plainly wrong.”).)

         C. The ALA and Its Terms

         As noted above, Hartman and Armstrong entered the ALA on February 4, 2005. (Dkt. No. 292-2 at 2-12 and passim.) The ALA contains several provisions that relate to the claims and counterclaims in this case. The first paragraph identified Hartman as the “Licensor” and Armstrong as the “Licensee.” (Dkt. No. 292-2 at 2.) In Section 1, the parties defined “Licensed Technologies” as “any or all of the technologies described and claimed in the Patents.” (Id.) The parties defined “Factory Implementation” as “implementing the Licensed Technologies into chiller, pumping, control systems and/or tower products as a part of the factory production process.” The parties defined “Field Implementation” as “implementing the Licensed Technologies into the chiller, pumping, control systems and/or tower products after the products have been delivered to the site.” Section 2.1 gave Armstrong its primary license rights and reads as follows in its entirety:

Licensor hereby grants to Licensee a license, to make, have made, use, sell, and otherwise distribute factory packaged chilled water systems, pumping and/or other mechanical products that incorporate the Licensed Technologies at the factory implementation level, and to use and otherwise practice the Licensed Technologies in Licensed Products.

(Dkt. No. 292-2 at 3.) Section 3.2(b) addressed exclusivity and reads in its entirety as follows:

Licensor shall not grant a license for the Licensed Technologies or the Licensed Patents to any other manufacturer or assembler of pumps or for cooling systems and equipment that employ chilled water distribution; provided, however, that Licensor shall not be precluded from licensing the Licensed Technologies or the Licensed Patents to Optimum Energy Corporation or others for the purpose of incorporating the Technologies into products excluding those that include the manufacture or assembly of pumps, chillers, towers, chilled water plant controls or pumping or chiller systems that could compete with the Licensee's intended product offering. Licensee's limited exclusive rights shall be worldwide, begin [sic] on the date of this Agreement and expire only when this Agreement expires or is terminated according to the provisions of this Agreement.

(Id. at 4.) Section 3.3, titled “Limited Exclusivity Defined, ” added more language to the exclusive nature of Armstrong's license. The opening paragraph to Section 3.3 stated that the limited exclusivity “is intended to protect Licensee against implementations of the Licensed Technologies that would compete with their intended product offerings. Such offerings include factory integrated chiller, pumping or cooling tower equipment with controls wherein the basis of the system is chilled water cooling systems, or pumping systems.” (Id. at 5.) Section 3.3 contained five subsections that further explained the nature of Armstrong's limited exclusivity:

a. As long as the license grant remains exclusive, Licensor shall not grant a license for factory implementation of the Licensed Technologies or the Licensed Patents as they apply to hydronic elements to any third party involved in the manufacture of pumps, any factory packaged chilled water systems, chillers, building controls or cooling towers.
b. During the exclusive license grant period, Licensor shall retain full rights to grant licenses for “field” implementation of the Licensed Technologies when such technologies are applied to the hydronic systems but are not integrated into the chiller, pumping, control or tower products until they are field assembled.
c. Licensee has no rights granted under this agreement to “field[”] implementation of the Licensed Technologies (e.g. implementing the Licensed technologies without an integrated equipment/control package). However, for special circumstances, Licensee may apply to Licensor for permission to implement a field level implementation, the licensed terms of which shall be determined on a case by case basis.
d. During the exclusive license grant period, Licensor shall retain full rights to grant licenses for implementation of the Licensed Technologies when the implementation of such Licensed Technologies do not in any way compete with the product offerings of the Licensee. Examples are the licensing of the technologies applied to variable speed DX / air cooled rooftop air conditioning systems and the control of condenser fans of air cooled chillers.
e. During the exclusive grant period, Licensor shall be diligent in referring to the Licensee all potential applications the Licensor learns about that require new chillers or pumps. Only if Licensee declines to pursue such projects, or the Owner declines Licensee's proposed solution will Licensor permit other potential licensees over which Licensor exerts control to pursue such projects.

(Id. at 5.)

         Section 8, titled “Improvements, ” reads as follows:

Licensor shall have no obligation under this Agreement to develop any Improvements to the Licensed Technologies. However, any such improvements that the Licensor may develop within the next two (2) years from the date hereof to the Licensed Technologies shall be deemed included within the Licensed Technologies subject to the terms of this Agreement. Following such two-year period and providing. the Licensee continues to meet the minimum annual license fee in 3.2a, Licensor shall first offer to license any and all improvements in or to the Licensed Technologies to the Licensee for exclusive rights in the markets the Licensee already enjoys exclusivity, and to the extent of the existing exclusivity rights. Licensee and Licensor shall negotiate in good faith the license fee and terms of such license. If Licensor and Licensee are unable to negotiate a mutually acceptable license fee and terms, then, during the Term and prior to Licensor accepting any offer to license any improvements to any third party, Licensor shall offer Licensee the right to license such improvements at a license fee and upon such terms that are no less favorable than those offered by or to Licensor.

(Id. at 8.) Meanwhile, Section 10.2, titled “No Inconsistent Agreements; No. Infringement, ” to find certain rights and obligations as follows:

Licensor has not made and will not make any agreements with or commitments to third parties that are inconsistent with the grant of rights hereunder. Licensor is not aware of any infringing use of the Licensed Technologies by third parties or any claim that the Licensed Technologies and/or the Licensed Patents infringe upon the rights of any third party. Furthermore, Licensor is not aware of any challenge or threatened challenge of the Licensed Patents.

(Id. at 9.)

         Section 12 of the ALA contained several provisions grouped together as “General Terms.” Among these provisions, Section 12.1 was titled “Entire Agreement/Modification” and reads as follows:

This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, and unless otherwise provided in this Agreement, no modification or waiver of any of the provisions, or any future representation, promise, or addition, shall be binding upon the parties unless made in writing and signed by both parties.

(Id. at 10.) Section 12.3 set forth that the ALA “shall be binding upon and enure to the benefit of the parties hereto and their successors; provided, however, that this Agreement and the license granted hereunder shall not be assignable by Licensee except to a parent, subsidiary or affiliate of Licensee . . . .” (Id.) Section 12.4 contained a severability provision: “If any provision, term, condition, covenant, restriction, or other portion of this Agreement shall be held to be invalid, illegal, or unenforceable by any court of competent jurisdiction, the remaining portion shall remain in force and effect.” (Id.) Section 12.10 contained a choice of law provision that placed the ALA under New York law.

         D. The OLA and Its Terms

         As stated previously, on November 28, 2005, Hartman and Optimum signed the OLA. (Dkt. No. 292-2 at 131 and passim.) Like the ALA, the OLA contained a number of provisions, several of which affect the pending motions. The fourth recital at the beginning of the OLA stated that Optimum “wishes to obtain Hartman's assistance in developing and implementing products and/or services that incorporate the technologies disclosed in Hartman's patents.” (Dkt. No. 292-2 at 131.) Section 1.5 defined “Factory Implementation” as “implementation into chiller, pumping, and control systems and/or tower products as a part of the original factory production process.” (Id. at 132.) Section 1.6 defined “Field Implementation” as “implementation into chiller, pumping, and control systems and/or tower products after the products have been delivered to the site where they will be used for HVAC purposes. Field Implementation and Factory Implementation shall be construed as mutually exclusive.”

         Before proceeding to other provisions of the OLA, the Court should pause to consider a point that Armstrong made in its motion papers. “The language dividing the potential market segments written into both the Armstrong License Agreement and the Optimum license agreement differ from the Retrofit/Non-Retrofit language used in the LOI [Binding Letter of Intent]. Both of the license agreements use ‘Field Implementation' and ‘Factory Implementation' to divide the market. However, the definitions of these two terms differ between the two license agreements. Kulik Decl. Exh. A and D.” (Dkt. No. 318 at 5.) Responding to the point about discrepancies in definitions in the ALA and OLA, “Optimum . . . disputes that the definitions of ‘Field Implementation' and ‘Factory Implementation' differed between the Armstrong License Agreement and Optimum License Agreement, as evidenced by the stated definitions as well as their use in the Armstrong License Agreement and Optimum License Agreement.” (Dkt. No. 299 at 6-7.) As for Hartman's response, “[t]he language of the license agreements speak for themselves, but they contain consistent definitions of field and factory. As noted above, the retrofit/non-retrofit distinction had been proposed during negotiation of the ALA, but Armstrong wanted some retrofit rights, which caused the parties to adopt the field/factory distinction instead.” (Dkt. No. 302 at 6.) The Court will address the significance of any differences later, but for the sake of clarity, a side-by-side comparison of the definitions in the ALA and OLA is useful:

Term

ALA

OLA

Factory Implementation

Implementing the Licensed Technologies into chiller, pumping, control systems and/or tower products as a part of the factory production process.

Implementation into chiller,

pumping, and control systems and/or tower products as a part of the original factory production process.

Field Implementation

Implementing the Licensed Technologies into the chiller, pumping, control systems and/or tower products after the products have been delivered to the site.

Implementation into chiller, pumping, and control systems and/or tower products after the products have been delivered to the site where they will be used for HVAC purposes. Field Implementation and Factory Implementation shall be construed as mutually exclusive.

         Section 2.1 of the OLA gave Optimum a “worldwide, irrevocable, sublicensable, transferable, and exclusive license under the Loop Patents to make, have made, use, offer for sale, sell and import products and equipment (Loop Products), and to render services to customers, all in connection with Field Implementations, the only exception being DX Equipment per Section 3.” (Dkt. No. 292-2 at 133.) Under Section 2.2, Optimum was “not permitted under this Section 2, with the exception of that DX Equipment covered under Section 3, to make, have made, use, offer for sale, sell, or import any products for Factory Implementations.” (Id.) Under Section 2.7, “Hartman will not grant any license under the Loop Patents to any third party to permit Field Implementation of the Loop Products so long as the grant of this Section 2 remains exclusive, except as provided in Section 2.8 [a provision not relevant to the parties' motions].” (Id. at 134.) Section 2.9 explained that the limited exclusivity of Section 2.7 “is intended to protect OEC against implementations of Loop Products that would compete with OEC's intended product offerings. Such offerings include Field Implementation of the licensed technologies as applied to existing chiller plants or systems.”

         Section 3 generally gave Optimum an exclusive license for DX equipment, defined back in Section 1.3 as “‘direct expansion' cooling equipment covered by a Loop Patent, i.e., a packaged air-conditioning system that employs refrigerant coils exposed to air for cooling and heat rejection, commonly referred to as ‘rooftop units, ' ‘heat pumps, ' ‘PTACS, ' and ‘unitary air conditioners.' DX Equipment stands in contradistinction to chilled-water or other fluid-based cooling systems generally of the type described in the Loop Patents.” (Id. at 131.) In Section 11.2, Hartman promised that he made no inconsistent agreements or commitments with anyone else. (Id. at 140.) Section 12.5 was a severability provision. (Id. at 141.) Section 12.11 placed the OLA under Washington state law. (Id. at 142.)

         A few points are worth noting for the sake of the record; the Court will address them later if it decides that they affect the outcome of the pending motions. First, the OLA lacks the referral obligation that appears in Section 3.3(e) of the ALA. Next, Section 2.1 of the OLA lacks the clause (in italics below) that composes the second half of its analog in the ALA:

ALA

OLA

Section 2.1

Licensor hereby grants to Licensee a license, to make, have made, use, sell, and otherwise distribute factory packaged chilled water systems, pumping and/or other mechanical products that incorporate the Licensed Technologies at the factory implementation level, and to use and otherwise practice the Licensed Technologies in Licensed Products.

Subject to all of the other terms and conditions of this Agreement, Hartman hereby grants to OEC a worldwide, irrevocable, sublicensable, transferable, and exclusive license under the Loop Patents to make, have made, use, offer for sale, sell and import products and equipment (Loop Products), and to render services to customers, all in connection with Field Implementations, the only exception being OX Equipment per Section 3.

         Hartman is the common denominator between the ALA and the OLA, and he played a substantial role in the negotiations for each document. (See Dkt. No. 293 at 2-3 (“The license agreements and the Field/Factory division of rights to the Licensed Technologies were the product of substantial negotiations between myself, Brent Ross (Armstrong), and Nathan Rothman (Optimum) starting in 2004.”).) Hartman thus would have been aware that one company had a provision “to use and otherwise practice the Licensed Technologies in Licensed Products” while the other did not. The reason for this difference is not clear, but the Court will address that later if necessary.

         Finally, Optimum has offered the following perspective on the scope of its rights under the OLA compared to the scope of Armstrong's rights under the ALA:

Pursuant to the OLA, Optimum received greater license rights than did Armstrong in at least three respects. (Rothman Decl., ¶8; Appendix Exh. A). First, Optimum received “the right to sublicense its rights under the Loop Patents.” (OLA, § 2.3) Armstrong does not have such sublicensing rights. Armstrong's sublicensing rights are limited to the right to sublicense to Armstrong's parent or sister companies owned in whole or controlling part by Armstrong. (Rothman Decl., ¶19; Appendix Exh. A) (ALA, § 2.2).
Second, Optimum received an exclusive license under the LOOP Patents with respect to DX Equipment. (OLA, § 3.1). Armstrong has absolutely no rights with respect to the DX Equipment and the related market. (Rothman Decl., ¶10; Appendix Exh. A).
DX Equipment is air conditioning equipment that is air cooled as opposed to water cooled. DX is short for Direct Expansion which means that the refrigerant expands (and produces a cooling effect) in a coil that is in direct contact with the conditioned air that will be delivered to the space. DX Equipment is usually packaged as a unit and range in size from one-half refrigeration ton window units to as much as 150 refrigeration ton big boxes, which are usually installed on top of single or multiple story buildings less than 100, 000 square feet in size. (Rothman Decl., ¶11; Appendix Exh. A).
Third, Optimum received a license not just with respect to the three LOOP Patents, but also with respect to six additional patents, referred to in the OLA as the “Equipment Patents.” (OLA, § 1.4). (Rothman Decl., ¶12; Appendix Exh. A).
The Equipment Patents license gives Optimum rights with respect to patents incorporated in products referred to as TRAV, the Self-Ranging Valve, and Uniterm. (OLA, §§ 1.13, 1.15, 1.16). These products are used in that part of the building air conditioning system which controls the delivery of conditioned supply air to the occupied spaces in heating or cooling mode. (Rothman Decl., ¶13; Appendix Exh. A).
TRAV is short for Terminal Regulated Air Volume and is a control strategy for the equipment that controls air flow in the air distribution ductwork. While the LOOP Patents relate to the chilled water plant (i.e. the chillers, pumps and cooling towers) which makes the cold water that is circulated around the building, TRAV relates to the control of the air being blown through the duct work and over radiators and out into spaces in the building. (Rothman Decl., ¶14; Appendix Exh. A).
The Self-Ranging Valve adds an additional control element to the flow of water throughout the system. Uniterm is an individual comfort device that can be part of the overall system. (Rothman Decl., ¶15; Appendix Exh. A).
Armstrong did not obtain a license with respect to the six Equipment Patents or obtain any rights with respect to the DX Equipment, TRAV, the Self-Ranging Valve, or Uniterm. (Rothman Decl., ¶16; Appendix Exh. A).

(Dkt. No. 294-4 at 9-10.)

         E. Factory Versus Field Implementation

         Understanding the parties' attempted distinction between factory implementation and field implementation is important because the distinction appears in many of the arguments that the parties have made. The parties themselves have made statements about the importance of the distinction. “The distinction between Field Implementation and Factory Implementation is central to the ALA and the OLA.” (Dkt. No. 293 at 2; see also Dkt. No. 294-3 at 26 (“The Factory/Field Implementation distinction, however, is critical to correctly interpreting §3.2(b) and §3.3(d) of the ALA . . . .”).)

         i. Novelty of the terms

         One factor that has affected the ability to understand the distinction is the novelty of the terms themselves. Armstrong expert John Conover (“Conover”), an engineer who worked nearly 40 years in the HVAC industry, has offered the following comment about factory implementation and field implementation:

I note that in my experience the term “implementation” is not used in the industry. Rather, the familiar terms of the industry for bringing products or technology to this marketplace would be factory installed or field installed or factory integrated or field integrated, all of which have understood meanings in the field.

(Dkt. No. 317-1 at 5.)[6] Hartman has attacked Conover's commentary about the term implementation:

Conover's acknowledgment that the contract terms do not have a common meaning in the industry confirms that he has no ability to speculate as to the meaning of defined terms adopted by the parties in the ALA. Nor is Hartman's reference to “retrofit” in e-mails relevant (absent a finding of ambiguity), and, as discussed above (see ¶¶ 12-13, 18 above), the industry term “retrofit” was not mutually exclusive of the contract terms used because retrofit is a project with existing mechanical equipment. These terms (“Field Implementation” and “Factory Implementation”) have customized meanings that the parties operated under for nearly five years until Hartman announced that he was selling the LOOP Patents to Optimum. Id.; Docket No. 293 ¶ 19.

         (Dkt. No. 302 at 9.)

         ii. Mutual exclusivity

         Another factor affecting the novelty of the terms is whether the terms were intended to be mutually exclusive. Optimum has pointed out that “[t]he Optimum License Agreement expressly provided that ‘Field Implementation and Factory Implementation shall be construed as mutually exclusive.' (OLA §1.6).” (Dkt. No. 294-3 at 25.) No. such provision appears in the ALA; with Hartman as the common denominator between the two agreements, the Court cannot discern whether Hartman intended mutual exclusivity in one agreement and not the other.

         iii. Overlap with “retrofit” and “non-retrofit”

         Another factor to consider when assessing the terms factory implementation and field implementation is the extent to which those terms overlap with the concept of retrofit versus non-retrofit projects. Rothman offered some commentary on this subject during his deposition:

Q. So back at this timeframe, according to this paragraph I just pointed you to, OEC's initial focus was the retrofit market as opposed to the new construction market.
Do-do you recall why the retrofit market was the focus?
A. No, I don't. I mean, specifically why? I don't recall. New construction, you gotta wait for the building to be finished and everything. And retrofit is an existing building and, therefore, the sales cycle would be shorter is all I can think of.
And our particular-this is 2005. This is after all the agreements, I believe, were in place.
Q. I'm sorry.
Were you- A. I'm thinking to myself out loud.
Q. Okay.
So I thought maybe there was another reason that you recall focusing on the retrofit market.
A. Well, our license at that time was for implementation in-in the field. And therefore, the building would have to be built for us to put our product on the equipment.

(Dkt. No. 357 at 7-8.). Rothman's discussion of “focusing” on retrofit projects does not necessarily mean that he felt obligated to stay only with those projects. Rothman's testimony that he focused on retrofit projects because of the restriction to field implementation could suggest that “implementing the Licensed Technologies into the chiller, pumping, control systems and/or tower products after the products have been delivered to the site” was easiest to understand and to carry out within the context of retrofit projects. Nonetheless, the parties' supplemental briefing of December 21, 2017 has persuaded the Court that any use of the term “retrofit” after 2005 was informal shorthand for the general characteristics of a proposed project and not a formal attempt to delineate segments of the market. As Hartman has explained,

Early on, as both Armstrong and Optimum became aware of each other and the markets they each aspired to serve, we had employed the common industry terms “retrofit” and “new” (or sometimes “non-retrofit”) to delineate the market focus of each of the firms. Optimum's focus was on retrofit applications (e.g. chiller plants already assembled and operating), while Armstrong's focus was on new plants. But Armstrong also wanted the ability to sell their pumping systems beyond new plants. Existing chilled water plants require new equipment from time to time to replace old equipment and/or to expand the capacity of the plant. While simply applying optimization to a chilled water plant is considered a retrofit, replacement and upgrades of equipment in an operating plant as Armstrong intended are also considered retrofits. And Armstrong wanted to have access to retrofit projects that required new equipment. In addition, both firms wanted to have some level of exclusivity for their product offerings. It became clear to all of us that any delineation of markets using new and retrofit terminology would not be suitable.
As I explained in my deposition, I discussed this issue informally with both Mr. Rothman and Mr. Ross. We all agreed that exclusivity should relate to how the technologies would be applied and not to the type of project involved. As a result, each firm could offer its solution for any project, but would be protected in so far as how they implemented the Hartman LOOP.

(Dkt. No. 354 at 4.) Armstrong did not directly address this point in its supplemental briefing, but Optimum agreed with Hartman:

In identifying the parties' intent, it is imperative to reject any attempt to use the contract language to divide the relevant license rights into “retrofit” vs. “new construction.” That potential retrofit/new construction division of the parties' rights was considered-and absolutely rejected-by all parties. As the Court recognized, Armstrong wanted “to participate in the retrofit market as well” as new construction. (Dkt. No. 324 at 5). It was Optimum's plan, once it became established, to enter the new construction market for all its products. (Dkt. No. 299 at 7, ¶20; Rothman Dep. at 41:11-42:14; 6/21/17 Opt. App., Exh. C). The retrofit/new construction division was therefore expressly rejected so that both Armstrong and Optimum had the license right to offer their respective method of implementation to both new construction and retrofit projects, depending on the project and the end user's desires and preferences, i.e., whether the customer wanted a factory implemented solution (Armstrong) or a field implemented solution (Optimum). For his part, Hartman repeatedly emphasized that he wanted to ensure that two competing bids could be made on as many projects as possible, because so much of the relevant market required competitively bid projects. Optimum's LOOP product offering did not compete directly with Armstrong's LOOP product, because once a customer settled on a method of implementation, based on its preference, it could only use one or the other of the two licensee's LOOP products.

(Dkt. No. 355 at 7-8.)

         iv. Is the Optimum product a “controller”?

         Yet another factor that arose in the motion papers concerned the nature of Optimum's product-how and when the product did what it did. According to Optimum, “[t]he Licensed Technologies manifest in algorithms that determine the optimal sequences of all the equipment (chillers, pumps and cooling towers) in the chiller system. (Rothman Decl., ¶36; Appendix Exh. A).” (Dkt. No. 294-4 at 11.) Optimum's choice of the word “manifest” suggests that it considers its product to be only the abstract software code that is designed with the LOOP Technology in mind. Optimum does not consider its product to include any physical device within which its software code would have to operate to be of any use. “Optimum disputes the statement that the Optimum ‘product' is a controller or building control device or Tridium JACE. Optimum's product is the Optimum LOOP Solution (among others), not the controller or device that enables the solution. (Erpelding Dep. at 41:21-42:4; 6/21/17 Opt. App., Exh. F).” (Dkt. No. 299 at 16.) Armstrong has rejected this Cartesian mind/body duality; it has contended that Optimum's product is not a product at all without its accompanying physical device and that the combined software with a physical device makes Optimum's product a “controller” that is set up in a factory setting:

Q. Okay.
You mentioned two things in that answer that I'm not sure I know what they are. What is a commissioning wizard?
A. That's-it's just basically a-think of a-it's just a function of the AX software that does what's necessary to make-that's what I referred to when we commissioned the JACE prior to shipment.
So in that step I was referring to, there's another function called “station transfer, ” so it's just a drop-down menu that says “station transfer, ” and then you select the file that you want to transfer to that JACE and it does it.
Q. Okay.
Did you say it was a function of the AX software?
A. Yes.
Q. And that's Niagara AX?
A. Yes.
Q. Okay.
So the commissioning wizard is part of the Niagara platform that is loaded onto the JACE?
A. Correct.
Q. Thank you. Okay.
I think the other part, station transfer, you also-you just explained. The station transfer is what happens when using the commissioning wizard; is that correct?
MR. WHITE: Object to the form.
THE WITNESS: So no. The commissioning wizard commissions the JACE and makes it-that's-that's one thing to make the JACE functional, so once the JACE is functional, you can program anything you want onto it.
What we're doing in step 8 is we're just doing a station transfer, which is-it doesn't put any of the base software on the controller. That's already been configured and-and working. We're just transferring the program to do the optimization.
BY MR. KULIK:
Q. Okay.
So the OptimumLOOP program?
A. Correct.
Q. Okay.
Is that what it's called?
MR. WHITE: Object to the form.
THE WITNESS: I mean, it's referred-it's-I call it the optimization software.

(Dkt. No. 292-2 at 341-42.) The “Step 8” in the exhibit quoted above refers to part of a sequence of events that Optimum used to bring its product into full use. (Id. at 343-44.) “OLC” in this document means “Optimum LOOP Controller.” Step 6 in the sequence consists of, “Configure and Ship OLC-Once Optimum Energy receives the IP address required for remote connection, we will configure and ship the OLC.” (Id. at 343.) Step 8 consists of, “Install the OLC-After the OLC is powered up and connected to the network, notify DE. Optimum Energy will verify the remote connection and load the software into the controller.” (Id.) The excerpt and the sequence that Armstrong included in its motion papers suggest subtleties that complicate the distinction between factory implementation and field implementation. From the above information, Optimum's product is useless without some kind of physical device that houses it and that is separate from any physical device already in an existing HVAC system. (See Dkt. No. 299 at 16 (“Although the device is mandatory as an enabler of Optimum's solution, Optimum does not market the device or quote the device separately . . . . Optimum does not dispute that the JACE that employs the LOOP Technologies are kept in Optimum's facility and preconfigured by Optimum to add software operating systems.”) (emphasis added).) In other words, Optimum does not go to an existing HVAC system, open up whatever device is already controlling that system, delete the existing software in that device, and then install its own. Additionally, the above information confirms that something is happening at Optimum's office or factory before the product reaches its destination. Something is being installed at the factory level that is mandatory to making Optimum's product useful. Perhaps contrary to Armstrong's representation, however, there is more to the story. Delivery of Optimum's product entails not just one but two levels of software installation. Some sort of base software is installed immediately to allow for remote connections from the HVAC facility back to Optimum's office or factory. The actual optimization software then is downloaded to the HVAC facility remotely from Optimum's office or factory.

         The Court will consider later whether the definitions of factory implementation and field implementation ever contemplated such a nuanced, multi-step delivery process.

         Meanwhile, Optimum has disputed that whatever happens at its office or factory during its multi-step sequence would constitute ...


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