Razorback Alum Consults Wolverine Law To Dismiss Wildcat’s Patent Claims

Posted on | July 29, 2008 | No Comments

2008-1467 National Institute v. Ford Motor
ED/TX 08-CV-84
Judge David Folsom

The National Institute for Strategic Technology Acquisition and Commercialization ("NITSAC") appeals from Judge David Folsom’s order dismissing its complaint against Ford Motor Company. 

NITSAC is a not-for-profit organization "formed under the auspices of Kansas State University" (home of the Wildcats) for "facilitating the commercialization of new technologies, through the promotion of related research and education."  And in 2000 it received a healthy charitable donation from Ford, the assignment of four patents (U.S. Patent Nos. 5,239,955, 5,319,919, 5,469,777, and 5,554,020).  For its donation, Ford claimed a tax deduction of $26,950,000. 

In 2006, while trying to license the assigned patents, NITSAC learned that Ford had distributed the patented technology to one of its suppliers.  NITSAC granted Ford a non-exclusive license for the donated patents in April 2006, but Ford terminated that agreement several months later.  NITSAC sued Ford for patent infringement in 2008. 

Ford moved to dismiss NITSAC’s complaint, arguing that the parties’ assignment agreement released all infringement claims against Ford.  Further, Ford argued that Fed. R. Civ. P. 12(b)(6) was the appropriate vehicle for dispensing with the case because the sole issue for the Court was a question of law–the interpretation of the assignment agreement under Michigan law. 

NITSAC countered that the release language only excused Ford from liability for claims arising from NITSAC practicing the assigned patents.  NITSAC further argued that a motion to dismiss under 12(b)(6) would be inappropriate because the assignment was ambitious–and thus involved questions of fact that must be resolved under Rule 56. 

Judge Folsom agreed with Ford on both accounts.  The Court held that Ford’s motion was properly considered under Rule 12(b)(6) because the contract language was clear.  Moreover, Judge Folsom found that Ford’s position regarding a release was supported by the plain language in the assignment.  Section 3.3 of that agreement (quoted in Judge Folsom’s opinion) reads:

For its part, [NISTAC] hereby agrees to release [Ford], it [sic] officers, directors, employees and agents, and each of them, from any and all claims which [NISTAC] might otherwise have against any of them by reason of the practice of [Ford’s] Patent Rights by [NISTAC], its licensees or transferees.  

Citing Michigan law, Judge Folsom held that the term "all" means "no exceptions"–thus NITSAC had released Ford.  While NITSAC argued that the release only covered claims arising from NITSAC’s activities, the Court concluded that NITSAC’s reading would render other provisions of the assignment superfluous.  In support, Judge Folsom cited the section just before Ford’s release, Section 3.1:

[Ford] makes no warranties with respect to freedom from alleged infringement of third party patents or freedom from third party infringers, and [Ford] shall not be under any obligation to indemnify or hold harmless [NISTAC] or any licensees or transferees of [NISTAC] against such alleged infringement claims.

Because Section 3.1 addresses the very issue NITSAC claimed was covered by Section 3.3, the Court rejected NITSAC’s interpretation of the assignment agreement.  Judge Folsom then concluded his opinion with a brief but illuminating discussion of the equities:

The Court acknowledges that from NISTAC’s perspective this result appears unfair in that Ford is able to receive a benefit of a tax deduction without having to forsake use of the technology. However, NISTAC has not been deprived of its value in the patents, mainly to license the patents to anyone else, including Ford’s competitors. Moreover, NISTAC received not only rights to an entire patent portfolio, but also $184,000 to pay for the maintenance fees. Therefore, the apparent harshness of this result is significantly mitigated by the benefit that NISTAC might reap compared with the investment it has put into these patents. Moreover, after making a charitable contribution, it would be even more unfair for Ford to be hailed into court, expend significant time, resources, and money in discovery defending a patent infringement action. Thus, while the interpretation of the contract provisions is by no means easy, as a matter of law, the contract language is ambiguous as to the release.

More Reading:

Judge Folsom’s Opinion and Order

Notes:

• Judge Folsom explicitly declined to address the tax implications of the parties’ spat.
• If facing a motion to dismiss in Texas (or the Fifth Circuit), try this:  "It is recognized that a motion to dismiss under Rule 12(b)(6) is disfavored and rarely granted.  Priester v. Lowndes County, 354 F.3d 414, 418 (5th Cir. 2004)." (Page 3 of Judge Folsom’s Opinion)
• Judge Folsom is a two-time graduate of the University of Arkansas–home of the Razorbacks and the inspiration for the title of today’s post.

Counsel:

For NITSAC:  Fulbright & Jaworski, Dallas (Robert M. Chiaviello, Jr. and Brett C. Govett)

For Ford: Shook, Hardy & Bacon, Kansas City (Eric A. Buresh and Holly L. Teeter),  Parker, Bunt & Ainsworth, Tyler (Robert Christopher Bunt)

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