National Pasteurized Egg v . Davidson CV-07-103-JL 1/14/11

UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

National Pasteurized Eggs, LLC

v. Civil N o . 07-cv-103-JL Opinion N o .

L . John Davidson

MEMORANDUM ORDER

This is a dispute over the ownership of patents, and patent

applications, for processes for pasteurizing chicken eggs,

principally U.S. Patent N o . 6,692,784, which the parties refer to

as “the Jumbo.” The plaintiff, National Pasteurized Eggs, LLC

(“NPE”), traces its claimed ownership to certain 2001 agreements

between the defendant, L . John Davidson, and the now-defunct

company he founded, Pasteurized Eggs Corporation (“PEC”). NPE

says those agreements assigned the rights in the Jumbo to PEC.

After PEC declared bankruptcy in 2002, NPE purchased its

assets in a sale approved by the Bankruptcy Court. The court

recognized, however, that title in the patents was “disputed and

subject to the competing claims of [PEC] and Davidson” and

therefore authorized PEC to convey simply “all legal and

equitable rights [it] has to claim ownership” in the patents,

“subject only to the competing claims of Davidson.” In re Pasteurized Eggs Corp., N o . 02-13086 (Bankr. D.N.H. July 2 5 ,

2003). Subsequently, the United States Patent and Trademark

Office awarded Davidson a patent on the Jumbo, naming him the

sole inventor. U.S. Patent N o . 6,692,784 (issued Feb. 1 7 , 2004).

NPE now seeks a declaratory judgment that it is “the

rightful owner of the Patent Rights conveyed by the Bankruptcy

Court Order,” including the Jumbo. While acknowledging that

those rights were conveyed “subject to” Davidson’s claims, NPE

says he can no longer assert them because, among other reasons,

the statute of limitations on any claim he had against PEC for

breaching the contracts of assignment has expired. The parties

have cross-moved for summary judgment on this issue, see Fed. R.

Civ. P. 5 6 , with Davidson arguing that it is NPE’s claim to

ownership of the Jumbo that is time-barred, because NPE failed to

bring that claim within three years of when the patent issued.

In support of his own motion for summary judgment, Davidson

further argues that his agreements with PEC actually gave

ownership of the Jumbo to him. NPE has also moved to dismiss

Davidson’s counterclaim for a declaratory judgment as to “the

nature of the claims set forth” in the Jumbo, arguing that it

fails to present a justiciable case or controversy.

This court has jurisdiction over this action between NPE, a

limited liability company with no New Hampshire members, and

2 Davidson, a New Hampshire citizen, under

(a)(1)

(diversity). Following oral argument, the parties’ cross-motions

for summary judgment are denied, but NPE’s motion to dismiss

Davidson’s counterclaim is granted.

I. Background

A. The Jumbo application

In early 2002, Davidson filed an application for a patent on

the Jumbo with the United States Patent and Trade Office. U.S.

Patent Application N o . 10/084,444 (filed Feb. 2 8 , 2002). The

application listed both Davidson and one Myron A . Wagner as

inventors. See

. Subsequently, on April 9, 2002,

Davidson and Wagner executed a “Memorandum of Understanding” that

Davidson owned all of the inventiveness claimed in the

application aside from specified claims. Wagner also assigned

his inventions improving pasteurized eggs to PEC, in an

assignment reciting a “Date of Signing” of February 2 5 , 2002, but

bearing a handwritten date on the signature line of April 1 0 ,

2002, i.e., the day after his agreement with Davidson.

The application for the Jumbo identifies itself as a

“continuation-in-part” of a prior application, U.S. Patent

Application N o . 09/954,462 (filed July 1 1 , 2000), which had since

been granted, U.S. Patent N o . 6,322,833 (issued Nov. 2 7 , 2001).

3 And the application for the ‘833 patent identified itself as a

“division” of a yet-prior application, U.S. Patent Application

N o . 08/962,766 (filed Nov. 3 , 1997), which had also since been

granted, U.S. Patent N o . 5,843,505 (issued Dec. 1 , 1998). 1 All

of the patent applications, as well as the ‘833 and ‘505 patents,

named Davidson as the inventor.

B. Davidson’s agreements with PEC

Effective January 1 , 2001, Davidson had assigned his

ownership of the ‘505 patent to PEC, a Delaware corporation with

its principal place of business in Laconia, New Hampshire. PEC

was formed that same day, as part of a transaction to fund the

operations of entities Davidson had founded to develop egg

pasteurization technology. PEC purchased the assets of those

entities, and Davidson was elected the chairman of PEC’s board.

Initially, Davidson’s employment with PEC was governed by a

letter agreement, effective January 2 2 , 2001. In relevant part,

this agreement provided that “inventions, improvements,

1 “A continuation-in-part application is an application that has some subject matter in common with the parent but also has new subject matter . . . . A divisional application is a continuing application that is based on a parent application and has the same specification except that the claims differ.” Herbert F. Schwartz, Patent Law and Practice § 2.III.D.6.c, at 26-27 (5th ed. 2006) (emphases omitted).

4 developments, methods, processes, and ideas (“Inventions”) . . .

conceived, developed or reduced to practice (. . . or which

ha[ve] been the subject of a patent application) prior to January

1 , 2001 shall be [PEC’s] exclusive property as against” Davidson,

who would “upon [PEC’s] request . . . execute all documents

reasonably necessary to assign [his] right, title, and interest

in any such Invention.” The agreement further provided that

“Inventions conceived, developed or reduced to practice on or

after January 1 , 2001, will be owned by” Davidson, but obligated

him to offer PEC an exclusive license to any such invention.

Davidson and PEC later assented to a “Global Settlement

Memorandum,” effective September 2 1 , 2001. According to

Davidson, he and PEC entered into this settlement largely to

resolve litigation between them arising out of the company’s

purported termination of his employment. The Global Settlement

Memorandum provided that the parties’ then-existing “Employment

Agreement will be cancelled by mutual consent” and that a “new

5 agreement will be substituted therefore [sic].”2 Paragraph 1 of

the Global Settlement Memorandum stated, in relevant part, that

b. Patents and all other intellectual property applied for prior to January 1 , 2001, shall be owned by PEC . . . .

c. New patents or intellectual property (“Inventiveness”) developed prior to January 1 , 2001 (“Old Inventiveness”), including a method for extending the shelf life of pasteurized eggs by treatment with antibacterial agents, shall be the property of PEC . . . .

d. Inventiveness developed by [Davidson], whether in combination with Old Inventiveness or prior inventiveness, which results in protection from new patents or patent applications providing broader or improved protection, on or subsequent to January 1 , 2001 (“New Inventiveness”) shall be considered the property of [Davidson] . . . .

The memorandum required Davidson “to offer New Inventiveness

to PEC for exclusive license,” the terms of which would require

it to pay him royalties and bear the costs of obtaining any

patents.

2 For purposes of the summary judgment motions, the parties agree that the Global Settlement Memorandum amounts to a binding and enforceable agreement, notwithstanding that (1) it purports merely to “summarize[] the provisions to be included” in documents, yet to be drafted, that will themselves “effectuate” those provisions and (2) no copy bearing any signature on behalf of PEC has been located at present. While NPE argued in its objection to Davidson’s summary judgment motion that this second deficiency prevented him from obtaining summary judgment based o his interpretation of the memorandum, NPE backed off from that position at oral argument, explaining that it merely harbored “concerns” about the document’s authenticity.

6 The memorandum also required PEC to make certain payments to

Davidson, including: more than $530,000 in the form of a

promissory note to mature no later than April 3 0 , 2002; at least

$100,000 in reimbursement for legal expenses incurred in his

lawsuit against PEC; and $17,500 in consulting fees each month

through at least the end of 2002. Davidson alleges that PEC

failed to make these payments and perpetrated other breaches of

the Global Settlement Memorandum.

C. The PEC bankruptcy

Later in 2002, PEC filed for bankruptcy protection. In re

Pasteurized Eggs Corp., N o . 02-13086 (Bankr. D.N.H. Oct. 5 ,

2002). PEC filed a disclosure statement in support of a proposed

reorganization plan on February 3 , 2003. As Davidson points out,

the disclosure statement acknowledged “a prepetition breach by

[PEC] of the Global Settlement Agreement” that had jeopardized

its “ability to continue using certain intellectual property,”

including the Jumbo, and explained that PEC and Davidson had

“agreed to settle and resolve” that dispute, among others,

through a “mutually acceptable written settlement agreement.”

That agreement was to make Davidson the owner of the Jumbo “and

any improvements and new inventions conceived of at any time

relating to pasteurized eggs,” but would provide PEC an

7 “exclusive worldwide license” in that intellectual property, with

specified royalties due to Davidson.

While Davidson argues that such an agreement was reached,

his only evidence of that, aside from the disclosure statement,

is a memorandum from Arthur Blasberg, Jr., one of PEC’s

directors, dated January 1 6 , 2003.3 This memorandum, marked “For

Discussion,” refers to a conversation among Blasberg, Davidson,

and others “regarding IP,” i.e., “the so-called ‘Jumbo’ patent

application, US 5,843,505, PCT/US 02-05771.” As Davidson points

out, that is not the correct number of the Jumbo patent—-which

had yet to issue at that point—-but it is in fact the correct

number of the Jumbo’s internationally formatted patent

application. The memorandum states that Davidson “is the owner

of US 5,843,505 and PCT/US 02-05771 with the exception of those

claims credited to” Wagner, but that PEC “will have an exclusive

‘Right of First Refusal’ for a global and perpetual license” on

that intellectual property, on condition that PEC’s

reorganization plan provided for certain payments to Davidson.

3 The memorandum purports to “clarify (and in some cases expand on) Jim’s earlier memo, dated January 1 0 , 2003, regarding IP.” It appears that “Jim” is James H . Rand, another PEC director. While Davidson has submitted an e-mail from Rand bearing that date, it makes no reference at all to intellectual property or any other subject discussed in Blasberg’s memorandum. Nor does the letter from Davidson to Rand, dated January 1 0 , 2003, to which Davidson says Rand’s e-mail was a reply.

8 The memorandum further states that PEC “will support

Davidson in his engaging” patent counsel, and there is some

evidence that subsequently occurred. There is no other evidence,

though, that either PEC or Davidson ever manifested its assent to

the terms set forth in Blasberg’s memorandum. Davidson later

filed an amended application for the Jumbo deleting all claims to

which Wagner, in his agreement with Davidson, see Part I.A,

supra, had retained any claim to co-inventorship. Amendment to

U.S. Patent Application N o . 10/084,444 (filed Mar. 2 4 , 2003).

As NPE points out, the disclosure statement PEC originally

filed in the Bankruptcy Court contains a “disclaimer” that “as to

contested matters . . . , [it] shall not constitute or be

construed as an admission of any fact or liability, stipulation

or waiver, but rather as a statement made in settlement

negotiations” (capitalization omitted). NPE further points out

that PEC soon filed an amended disclosure statement noting, as to

Davidson’s interest in any intellectual property, only that he

had “reserved the right to assert claims against the patents

issued to him and against certain additional inventions which are

subject to a patent pending proceeding.” PEC later withdrew its

disclosure statement altogether, after the official committee of

its unsecured creditors moved to convert the reorganization

proceedings to a liquidation.

9 To that end, PEC entered into an asset purchase agreement

with NPE providing for the conveyance of “all of [PEC’s] right,

title and interest in all of [its] real and personal property,”

including “Intellectual Property” set forth in an attached

schedule. The schedule listed the then-pending application for

the Jumbo, among other patents, applications, and trademark

registrations. NPE moved the Bankruptcy Court for approval of

the sale, but Davidson objected to holding a hearing on that

motion and, eventually, to the motion itself, on the grounds that

he was “the owner of and has exclusive rights to a substantial

portion of the patents and patent applications” listed on the

schedule, including the Jumbo. Davidson argued that PEC had “no

rights under the Global Settlement Agreement and the Employment

Agreement by virtue of its failure to perform.”

A few days later, Davidson commenced an adversary proceeding

against PEC in the Bankruptcy Court, seeking a declaratory

judgment that he was the “sole and exclusive owner” of the

disputed intellectual property, including the Jumbo patent

application. Davidson v . Pasteurized Egg Corp. (In re

Pasteurized Egg Corp.), N o . 02-13068 (Bankr. D.N.H. July 8 ,

2003). Consistent with his allegations here, Davidson claimed

that “PEC’s multiple breaches of the [Global Settlement

Memorandum] relieved him of . . . any obligation to assign

10 further intellectual property interests to PEC.” Inconsistent

with his allegations here, however, Davidson also stated that the

settlement referred to in PEC’s disclosure statement “was at no

point in time consummated.”

In the meantime, PEC had submitted an amended version of the

asset purchase agreement, dividing the subject intellectual

property into two separate schedules, 1.24A and 1.24B. The

amended version provided that the intellectual property listed on

schedule 1.24A “shall be sold to [NPE] free and clear of all

Liens and property interests . . . asserted by” Davidson, but

that the intellectual property on schedule 1.24B “shall be sold

to [NPE] subject only to any Liens and property interests

asserted by” Davidson. The Jumbo appeared on schedule 1.24B.

When both NPE and PEC filed responses to Davidson’s

objection to the motion to approve the sale, each drew a

distinction between the intellectual property listed on schedules

1.24A and 1.24B. NPE explained that “PEC [was] not attempting to

sell Davidson’s purported ownership interest” in the property

listed on schedule 1.24B but conveying it “only to the extent of

[PEC’s] interest therein, and expressly subject to any claims of

Davidson” so that his “ownership rights, if any, are fully

preserved, and will be determined in a subsequent adversary

proceeding. In the meantime, the sale can be approved.”

11 Similarly, PEC’s filing claimed exclusive ownership of the

property listed on schedule 1.24A, but acknowledged a “legitimate

dispute” with Davidson as to the ownership of the property listed

on schedule 1.24B. Invoking the Bankruptcy Court’s authority to

approve the sale of the debtor’s property even when it was “the

subject of a bona fide dispute,” PEC asked the court to allow the

sale of its assets to NPE under the revised asset purchase

agreement. That approach, PEC urged, would allow the sale to

proceed while ensuring that Davidson’s “alleged interests will

pass through [the bankruptcy] proceedings unaffected.”

The Bankruptcy Court did exactly that. In an order

“partially resolving the sale motion,” the court noted that

Davidson’s objection raised many difficult legal and factual

issues” as to ownership of the Jumbo patent application, which

were “not insubstantial and not without some factual predicate.”

In re Pasteurized Egg Corp., N o . 02-13086, slip o p . at 8 (Bankr.

D.N.H. July 1 5 , 2003). Yet the court could not resolve those

issues “within the time frame [in] which the Court must rule on

the Sale Motion” because deciding “the extent of the Debtor’s

interest in property is a lengthy and time consuming undertaking”

that “may only be made in an adversary proceeding.” Id. at 5 .

Instead, the court ruled that it would “only approve the Sale

Motion with language that will preserve the ability of NPE and

12 Davidson to pursue a decision on the merits of any dispute over

the ownership of the [Jumbo] patent application, and the

prosecution of such application, in any appropriate forum(s).”

Id. at 8 . The court did, however, rule that “all of Davidson’s

rights under the . . . ‘505 Patent belong to” PEC, and would

therefore pass to NPE, by virtue of his January 1 , 2001,

assignment of those rights. Id. at 1 0 .

The Bankruptcy Court later issued an order granting the

motion to approve the sale. In re Pasteurized Egg Corp., N o . 02-

13086, slip o p . at 8 (Bankr. D.N.H. July 2 5 , 2003). This order

stated that PEC had “good, valid and marketable title to” the

property listed on schedule 1.24A, including the ‘505 patent, as

to which it was “the specific finding of [the] Court that

Davidson previously assigned all of his rights . . . to [PEC],

which rights shall pass to NPE as the result of the Closing.”

Id. at 2-3. But, as to the property listed on schedule 1.24B,

the order provided that

title in said assets is disputed and subject to the competing claims of [PEC] and Davidson. Accordingly, [PEC] is authorized to convey to NPE all legal and equitable rights [PEC] has to claim ownership in the assets listed on Schedule 1.24B[], subject only to the competing ownership claims of Davidson.

Id. at 3 . The closing on the asset purchase agreement took place

in August 2003.

13 D. Issuance of the Jumbo patent

In the meantime, in July 2003, PEC had petitioned the USPTO

for a variety of relief as to the Jumbo patent application,

including the reinstatement of Wagner’s claims, the reinstitution

of him to co-inventor status, and permission to direct the

prosecution of the application. PEC explained that Davidson had

refused to cooperate with it in prosecuting the applications

based on his position that he was its sole owner, despite, among

other claimed evidence of PEC’s “proprietary interest,” the

employment and global settlement agreements, as well as the

assignment of Wagner’s interest to PEC.

Davidson then filed a complaint against NPE in this court,

seeking a declaratory judgment that he owned, inter alia, the

Jumbo application. Davidson v . Nat’l Pasteurized Eggs, LLC, N o .

03-377 (D.N.H. Aug. 2 7 , 2003). He claimed that PEC, and hence

NPE, had no rights to the application through any assignment from

either Wagner (because the application no longer incorporated any

of his inventiveness) or Davidson (because PEC had breached the

employment agreement and the Global Settlement Memorandum).

The USPTO subsequently denied the relief sought by PEC,

ruling that its rights in that application had been extinguished

by the deletion of Wagner’s claims. Ultimately, the USPTO

14 granted the application, resulting in a patent naming Davidson as

the sole inventor. U.S. Patent N o . 6,692,784 (issued February

1 7 , 2004). The patent claims, inter alia, a “method of

pasteurizing in-shell chicken eggs” by placing them in fluid

heated to different specified temperatures, removing them after a

specified reduction in their bacterial concentration, and

contacting them with an antibacterial agent after they cool.

Just before the issuance of the patent, Davidson filed a

stipulation dismissing his action against NPE in this court,

without prejudice. There is no evidence that Davidson and NPE

had any contact again until more than three years later, just

before NPE commenced this action against Davidson on April 6,

2007. NPE alleges that, in the weeks prior to that filing,

Davidson “asserted that he owns and controls” the rights to

certain patents, including the Jumbo, “in contravention of his

obligations” under the employment and Global Settlement

Memorandum and the Bankruptcy Court’s order granting the sale

motion. NPE alleges that Davidson has thus jeopardized several

of its pending international patent applications “derived from”

those patents.

15 II. The cross-motions for summary judgment

A. Applicable legal standard

Summary judgment is appropriate where the “pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to a judgment as a matter of law.”

Fed. R. Civ. P. 56(c)(2). Under this rule, “[o]nce the moving

party avers an absence of evidence to support the non-moving

party’s case, the non-moving party must offer ‘definite,

competent evidence to rebut the motion.’” Meuser v . Fed. Express

Corp.,

0 7 , 515 (1st Cir. 2009) (quoting Mesnick v . Gen.

Elec. Co.,

(1st Cir. 1991)).

Where, however, “the party moving for summary judgment bears

the burden of proof on an issue, he cannot prevail unless the

evidence that he provides on that issue is conclusive.” EEOC v .

Union Independiente de la Autoridad de Acueductos y

Alcantarillados de P.R.,

9 , 55 (1st Cir. 2002)

(quotation marks omitted). This standard applies both to NPE’s

motion for summary judgment, since it bears the burden of proving

its claim for a declaratory judgment of ownership, see Cardinal

Chem. C o . v . Morton Int’l, Inc.,

3 , 95 (1993), and to

Davidson’s arguments that the claim is barred by the statute of

limitations or the doctrine of laches, which are affirmative

16 defenses placing the burden of proof on the party asserting them,

see Fed. R. Civ. P. 8(c)(1).

In ruling on a motion for summary judgment, the “court must

scrutinize the record in the light most flattering to the party

opposing the motion, indulging all reasonable inferences in that

party’s favor.” Mulvihill v . Top-Flite Golf Co.,

5 , 19

(1st Cir. 2003). On cross-motions for summary judgment, “the

court must consider each motion separately, drawing inferences

against each movant in turn.” Merchants Ins. C o . of N.H., Inc.

v . U.S. Fid. & Guar. Co.,

, 7 (1st Cir. 1998)

(quotation marks omitted).

B. Analysis

1. NPE’s motion for summary judgment

NPE seeks summary judgment “on the ground that Davidson has

no claim” to the Jumbo and related international patent

applications. NPE argues that, through the Bankruptcy Court’s

order approving PEC’s asset sale, that intellectual property was

“conveyed by PEC to NPE, subject only to the competing claims of

Davidson, and any competing ownership claims [he] might once have

had based on a breach of contract theory are now time-barred.”

Specifically, NPE asserts that, “[i]f PEC breached one of

its contracts with Davidson,” e.g., the employment agreement or

17 the Global Settlement Memorandum, “and Davidson could establish

entitlement to the [Jumbo] as a remedy,” he was obligated to

bring suit for that remedy within three years of the alleged

breach. See

, I (“all personal

actions . . . may be brought only within 3 years of the act or

omission complained of”). 4 This period has long expired, NPE

says, in light of Davidson’s allegations that PEC breached those

agreements “immediately” after entering into them in 2001.

This argument is fundamentally inconsistent with the nature

of statutes of limitations, which cannot be used “as a means of

obtaining affirmative relief.” Guild v . Meredith Vill. Sav.

Bank,

5 , 27 (1st Cir. 1980) (applying New Hampshire

law). As the court of appeals recognized in Guild, “[i]t is

axiomatic that the statute of limitations is a shield, not a

sword. At both the federal and state levels it has long been

established that the statute is available only as a defense and

not as a cause of action.”

(citing Fowler v . Taylor,

(1952)). Thus, the court ruled that the plaintiffs,

4 The parties agree that New Hampshire law governs the statute of limitations issue. See Bd. of Trs. of Leland Stanford J r . Univ. v . Roche Molecular Sys, Inc.,

3 2 , 846 (Fed. Cir. 2009) (“Stanford”) (applying state statute of limitations to claim for declaratory judgment of ownership), cert. granted,

(U.S. Nov. 1 , 2010) (granting certiorari on an unrelated question).

18 successors to a borrower’s rights in property he had pledged as

collateral for his yet-unpaid debt to the defendant, could not

obtain ownership of the property from the defendant on the theory

that the limitations period had expired on any claim by the

defendant to recover on the debt. See

NPE, as the successor to PEC’s rights in the Jumbo under its

agreements with Davidson allegedly assigning those rights,

likewise cannot obtain ownership of the Jumbo against him on the

theory that the limitations period has expired on any claim by

him for PEC’s breach of those agreements. NPE cannot use the

statute of limitations to secure substantive rights that it does

not already possess, as the successor to PEC’s interest in its

agreements with Davidson or otherwise. See

NPE insists that it is not using the statute for that

purpose, but merely to get a declaration of its “non-liability”

to Davidson on his claim that PEC breached its agreements with

him because that claim is now time-barred. First of all, though,

that characterization of NPE’s sought-after relief is flatly

inconsistent with its amended complaint, which states that “NPE

seeks a declaratory judgment of rightful ownership” of the Jumbo,

and prays for a declaration that NPE “owns all right, title and

interest in the Jumbo.” NPE’s motion for summary judgment and

supporting memoranda repeatedly ask for precisely the same relief

19 on the theory that “Davidson’s claims to ownership are barred by

the applicable statute of limitations.” So this is plainly not

an action for declaratory relief “based on the statute of

limitations applying to the defendant’s prospective claim.”

Indeed, that relief, if granted here, would not establish NPE’s

ownership of the Jumbo, which is the matter in controversy. It

would establish only that NPE cannot be held liable to Davidson

on any claim that PEC breached its agreements with him, which

does not appear to be in controversy at all.

An essential premise of NPE’s statute of limitations

argument, in fact, is that Davidson did not accuse PEC of

breaching the agreements at any point between the dismissal of

his August 2003 suit against NPE in this court and the filing of

his answer and counterclaim in this matter. That distinguishes

the case on which NPE principally relies for the proposition that

“a declaratory judgment plaintiff can obtain relief based on the

statute of limitations applying to a defendant’s prospective

claim.” Luckenbach Steamship C o . v . United States,

(2d Cir. 1963). There, as NPE recognizes, the plaintiff sought

“a declaration that it is not liable to the defendant on a claim

which has been asserted, but on which the defendant has failed to

bring suit.”

(emphasis added). As the same court

that decided Luckenbach explained in a later decision, a

20 plaintiff may thus use the statute of limitations as the basis of

a declaratory judgment action brought “to fend off an actively

pursued claim of the defendant,” but may not “extend the

intrinsically defensive doctrine beyond its confines” as the

“aggressor” against a defendant who has himself “done nothing

concrete to change the basic relationship between the parties.”

118 E . 60th Owners, Inc. v . Bonner Props., Inc.,

0 0 ,

204 (2d Cir. 1982); see also City of S t . Paul, Alaska v . Evans,

(9th Cir. 2003) (describing the Luckenbach

decision as “permitting [plaintiff] to seek a declaratory

judgment of non-liability in response to [a] claim”).

By NPE’s own account, Davidson has played just such a

passive role here, at least since he voluntarily dismissed his

lawsuit against NPE from this court in August 2003. Moreover,

while that action asserted PEC’s alleged breach of the

agreements, viz., its non-payment, it did not do so as a basis

for NPE’s liability to Davidson in damages, but only as a basis

for a declaration that he owned the Jumbo notwithstanding those

agreements. Because Davidson has never sought to hold NPE liable

for breaching the agreements, it would have no basis for seeking

a declaration of its non-liability to him, whether by virtue of

the statute of limitations or otherwise--and, again, that is

plainly not the relief NPE is seeking here anyway.

21 Davidson i s , of course, asserting PEC’s breach of the

agreements as a defense to NPE’s claim of ownership in this

action, and at oral argument NPE took the position that the

statute of limitations should “at least” prevent him from doing

that because, again, more than three years have passed since any

alleged breach. But, as Luckenbach itself recognizes, “[t]he law

is well settled that limitations do not usually run against a

defense.”

n.3.

As the Supreme Court has held, “a defense arising out of

some feature of the transaction upon which the plaintiff’s action

is grounded survives the expiration of the period of limitation

that would otherwise bar the [defense] as an independent cause of

action.” Beach v . Ocwen Fed. Bank,

1 0 , 415 (quotation

marks omitted). The Court explained that “the object of a

statute of limitation in keeping stale litigation out of the

courts would be distorted if the statute were applied to bar an

otherwise legitimate defense to a timely lawsuit, for limitation

statutes are aimed at lawsuits, not at the consideration of

particular issues in lawsuits.”

. Worse still,

this approach “would provide an incentive to delay bringing some

claims until a defense would be time-barred,” so as “to permit a

party to place a question before a court and then prevent the

22 opposing party from disputing issues lying at the foundation of

the claim.” 118 E . 60th Owners, 677 F.2d at 203.

In light of this authority, there is no merit to NPE’s

argument that Davidson’s failure to sue it or PEC for breach of

the agreements allegedly effecting the assignment of the Jumbo

somehow prevents him from raising those breaches as a defense to

NPE’s claim that those very agreements gave it sole ownership of

the Jumbo. See Merrell v . Renier, N o . 06-404,

, at

*2 (W.D. Wash. Jan. 2 2 , 2007) (ruling that the statute of

limitations did not preclude defendant from raising plaintiff’s

breach as a defense to a contract claim).

Nor is there any merit to NPE’s suggestion that the

Bankruptcy Court’s order approving the sale of PEC’s assets

somehow obligated Davidson to sue to establish his ownership of

the Jumbo. While the order authorized PEC “to convey to NPE all

legal and equitable rights [PEC] has to claim ownership in the

assets listed on Schedule 1.24B” of the asset purchase agreement,

including the Jumbo, it expressly preserved “the competing

ownership claims of Davidson” to those assets. That was not

tantamount to a ruling that the sale would give NPE sole

ownership of the schedule 1.24B assets, either automatically or

unless Davidson brought a timely claim contesting ownership.

23 To the contrary, the Bankruptcy Court ruled not only that

Davidson had raised legitimate issues as to his ownership of the

Jumbo application, but that the court would “only approve the

Sale Motion with language that will preserve the ability of NPE

and Davidson to pursue a decision on the merits of any dispute

over the ownership of the [Jumbo] patent application” (emphasis

added). NPE does not explain how this ruling, which preceded the

ultimate approval of the asset sale, would have obligated

Davidson to sue to establish his ownership against NPE--any more

than it would have obligated NPE to sue Davidson to establish its

ownership against him.5 Again, the Bankruptcy Court’s order

sought to preserve each party’s right to bring such an action,

not to condition or limit that right--as starting the running of

a limitations period on the action necessarily would.

Moreover, in seeking approval of the proposed sale, NPE told

the Bankruptcy Court that PEC was “not attempting to sell

Davidson’s purported ownership interest” in the property listed

on schedule 1.24B but conveying it “only to the extent of [PEC’s]

5 In its reply brief in support of its summary judgment motion, NPE suggests that the Bankruptcy Court’s order amounted to “notice” of NPE’s claim to the Jumbo that required Davidson to sue it within the next three years on pain of losing his ownership interest. This “notice” theory is also the central premise of Davidson’s statute of limitations defense against NPE, which the court rejects for the reasons explained infra.

24 interest therein,” while PEC explained that Davidson’s claim to

that property would “pass through the [bankruptcy] proceedings

unaffected.” It is difficult, if not impossible, to reconcile

these statements with NPE’s position here that the order

essentially gave it presumptive ownership of the Jumbo and other

schedule 1.24B assets against Davidson, so that his failure to

bring suit alleging otherwise within the next three years would

itself settle what PEC acknowledged was a “legitimate dispute”

over which of them owned those assets.6

If NPE were correct, then Davidson’s interest in the Jumbo

did not in fact pass through the PEC bankruptcy “unaffected,” but

encumbered by what would in essence be a springing executory

interest in favor of NPE. That is plainly neither what PEC and

NPE asked the Bankruptcy Court to d o , nor what it did. NPE’s

statute of limitations arguments do not entitle it to summary

judgment on its ownership claim or any defense to it based on

6 Because NPE and its predecessor-in-interest, PEC, made these statements in successfully obtaining the Bankruptcy Court’s approval of the asset sale over Davidson’s objection, NPE is likely judicially estopped from arguing to the contrary in this litigation. See, e.g., Perry v . Blum, ___ F.3d ___,

, at *5-*8 (1st Cir. Oct. 1 , 2010). The court need not resort to that doctrine, however, to reject NPE’s argument that the sale order had any effect on Davidson’s rights to the Jumbo.

25 PEC’s alleged breach of its agreements with Davidson.7 Its

motion for summary judgment is denied.

2. Davidson’s motion for summary judgment

a. Statute of limitations

As noted at the outset, Davidson also invokes the statute of

limitations in moving for summary judgment against NPE, arguing

that it failed to sue him within three years of the 2004 issuance

of the Jumbo patent naming him as the sole inventor.8 This

development, Davidson explains, amounted to a “claim of ownership

to the Jumbo Patent in derogation of NPE’s alleged rights,”

obligating NPE to “challenge Davidson’s ownership” within the

next three years. Because NPE failed to do s o , Davidson asserts,

the statute of limitations bars it “from enforcing whatever

rights, if any, it may possess in the Jumbo Patent and its

foreign counterparts.”

7 Because NPE does not seek summary judgment against this defense on any other basis, this court expresses no view on its merits other than that the statute of limitations does not bar it. 8 NPE had argued that Davidson failed to raise the statute of limitations in his answer, but eventually did not object to his motion to amend his answer to add the defense. The court takes this as a withdrawal of any argument based on Davidson’s initial failure to raise a limitations defense.

26 In line with its rejection of NPE’s limitations argument,

however, this court simply cannot conclude that ownership of a

patent can be settled in this fashion. Davidson simply assumes,

without any supporting authority or developed argument, that the

limitations period on a claim for ownership of a patent starts to

run when the plaintiff is put “on notice” that the defendant

asserts a right to the patent in question. The weakness in that

argument is obvious. Anyone can send a letter t o , say, Google,

claiming that he owns its patents--thus putting Google “on

notice”--and it is surely not the case that, if Google does not

respond by filing suit within the applicable limitations period,

title to its patents is lost to the letter-writer.9

Admittedly, there is some case law (though not cited on this

point by either party) which appears to hold that the limitations

9 When confronted with this hypothetical at oral argument, counsel for Davidson dismissed it because “Google owns the patents.” But that is precisely the court’s point: alleged ownership cannot ripen into actual ownership simply by virtue of a failure to respond to the allegation. It should also be noted that the hypothetical is not far-fetched by any means: successful businesses often receive correspondence from so-called “patent trolls” claiming that they are the rightful owners of technology the business uses or sells, and demanding license fees or royalties. See, e.g., Daniel J. McFeely, An Argument for Restricting the Patent Rights of Those Who Misuse the U.S. Patent System to Earn Money Through Litigation, 40 Ariz. S t . L.J. 289 (2008). This court is not aware of any authority that, by deciding not to dignify such demands with a response, the businesses imperil their patent portfolios.

27 period on a claim for ownership of a patent does indeed begin to

run when the plaintiff receives notice of the defendant’s adverse

claim. See Stanford,

(applying California

l a w ) ; Kimberly Corp. v . Hatley Pen Co.,

9 4 , 301 (9th

Cir. 1956) (same). These cases, however, did not apply New

Hampshire law, nor do they even mention the fundamental problem

just outlined, so this court has no reason to think the New

Hampshire Supreme Court would follow them.10 Indeed, if those

decisions are correct, they effectively mean that “title to a

patent can be acquired through adverse possession,” which, as one

federal court recently noted, is a proposition unknown to the law

at present.11 Picture Patents, LLC v . Terra Holdings LLC, Nos.

10 There does not appear to be any decision from the New Hampshire Supreme Court, or from this court, discussing this or any remotely analogous issue. But it should be noted that, under New Hampshire law, the limitations period begins running upon “the act or omission complained o f , except . . . when the injury . . . could not reasonably have been discovered” at that point, in which case the period starts running when “the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the injury.”

, I . One of the problems with the argument that the defendant’s mere claim to ownership starts the limitations period on the plaintiff’s ownership action is that the adverse claim itself does not necessarily cause “injury” to the plaintiff. Here, for example, NPE alleges that Davidson’s claim to sole ownership of the Jumbo did not start harming NPE until that claim jeopardized some of its related international patent applications—-at which point NPE promptly commenced this action against Davidson. 11 It should also be noted that “notice” of an adverse claim alone does not establish adverse possession under New Hampshire

28 07-5465, 07-5567,

, at *3 n.1 (S.D.N.Y. Dec. 3 ,

2008) (citing McFeely, supra, 40 Ariz. S t . L.J. at 3 1 8 ) .

Furthermore, even if the limitations period does begin to

run when the plaintiff is put “on notice” of the defendant’s

adverse claim, Davidson has not established that the issuance of

the Jumbo patent accomplished that sort of notice to NPE. First,

Davidson (who, again, bears the burden of proving his statute of

limitations defense, see Part II.A, supra) has not come forward

with any evidence that NPE knew, at any point three years or more

before it brought this lawsuit, that the patent for the Jumbo had

in fact issued. Second, even if NPE did come to know during that

period that a patent for the Jumbo had issued naming Davidson as

the inventor, that does not amount to notice that he was claiming

to be the owner of the patent—-which, as he acknowledges, is not

the same as the being the inventor.

As this court recently explained, “[i]nventorship is the

‘question of who actually invented the subject-matter claimed in

a patent,’ whereas ownership is the ‘question of who owns legal

law, which requires the adverse claimant to make open and continuous use of the property, and to do so for much longer than three years. See, e.g., Burke v . Pierro,

0 4 , 512 (2009). This is yet another reason to disbelieve that New Hampshire law would bar a plaintiff’s action for ownership of a patent merely because three years have passed since he first knew the defendant claimed to own the patent instead.

29 title to the subject-matter.’” Fin Brand Positioning, LLC v .

Take 2 Dough Prods., Inc.,

, 10 (quoting Beech

Aircraft Corp. v . EDO Corp.,

(Fed. Cir.

1993)). Since ownership of the patent “‘initially vests in the

inventor, who may then . . . transfer that right to another,’” a

determination of inventorship may settle disputes over ownership.

(quoting Beech Aircraft,

). But that is not

always the case, see id. at 10-12, and it is not the case here.

NPE does not dispute Davidson’s claim that he invented the Jumbo;

instead, it disputes his claim that he continues to own the Jumbo

notwithstanding his agreements with PEC allegedly assigning his

ownership—-which, of course, he had acquired in the first place

by virtue of his inventorship. S o , when the USPTO issued a

patent on the Jumbo naming Davidson as the inventor, that

development was in no way adverse to (and, indeed, was perfectly

consistent with) NPE’s claim to ownership of the Jumbo. It

follows that issuance of the Jumbo patent did not start the

limitations clock on NPE’s claim for ownership, even assuming

that (1) NPE knew of that development more than three years prior

to its commencement of this action and (2) the statute starts to

run against an ownership action upon the defendant’s adverse

claim, despite the problems with that theory just discussed.

30 Davidson also makes an alternative statute of limitations

argument that, similar to NPE’s, attempts to reframe this

ownership dispute as a breach of contract action. Davidson

argues that, because NPE derives its claimed ownership of the

Jumbo from PEC’s rights under its employment and global

settlement agreements with Davidson, which “the parties appear to

acknowledge . . . [were] breached at the inception,” NPE needed

to bring its ownership claim within the next three years.

What “the parties appear to acknowledge,” though, is that

PEC breached the employment and global settlement agreements, by

failing to make the required payments and the like--not that

Davidson did. Davidson does not explain why PEC’s breach of the

agreements would start the limitations period on its claim

against him to enforce them. In any event, as NPE points out,

its claim is that it owns the Jumbo because Davidson made the

employment and global settlement agreements--which effected an

assignment of the Jumbo--not because Davidson breached those

agreements. As the court already explained in rejecting NPE’s

similar limitations argument, while the agreements, and the

effect of PEC’s breach of them, are central to this case, this is

not an action for breach of contract in the sense that one party

is trying to hold the other liable for failing to perform under

31 their agreement. Davidson’s statute of limitations arguments do

not entitle him to summary judgment.12

b. Other arguments

Davidson also seeks summary judgment on several other

grounds: (1) that NPE’s claim is barred by laches, (2) that,

under the Global Settlement Memorandum, the Jumbo amounts to “New

Inventiveness” which “shall be considered the property of”

Davidson, and (3) that, in any event, PEC and Davidson agreed in

2003 that he owned the Jumbo, as evidenced by the memorandum by

Blasberg, see Part I.C, supra. To start with, though, Davidson

raised each of these arguments for the first time in his 25-page

reply memorandum in support of his summary judgment motion,

omitting them from his 11-page opening memorandum. This court

ordinarily disregards arguments raised for the first time in

reply, see, e.g., Doe v . Friendfinder Network, Inc.,

8 8 , 303 n.16 (D.N.H. 2008) (citing L.R. 7.1(e)(1)), and is

particularly inclined to do so here, where Davidson’s counsel’s

12 Insofar as Davidson suggests, in his reply memorandum in support of his summary judgment motion, that the statute started running against NPE’s ownership action upon his claims to the Jumbo in both the Bankruptcy Court and the action he filed against NPE in this court, that argument is rejected because (1) it was raised for the first time in reply, see infra, and (2) it depends on the notion that a claim for ownership of a patent accrues upon notice of an adverse claim to i t , which this court cannot accept, for the reasons just explained.

32 repeated difficulties in complying with the local rules have

unnecessarily consumed the resources of both NPE and the court,

see Order of June 9, 2010. In any event, each of these arguments

raises a number of disputed factual issues that cannot be

resolved on summary judgment.

i. Laches

Under New Hampshire law, “laches will constitute a bar to

suit only if the delay is unreasonable and prejudicial.” In re

Est. of Laura,

2 8 , 635 (1997) (quotation marks

omitted). Davidson—-who, again, bears the burden of proving

laches, an affirmative defense, see Part II.A, supra—-has not

conclusively shown that any delay by NPE in bringing this action

was either unreasonable or prejudicial.

Davidson’s argument that the delay was unreasonable relies

solely on the proposition that NPE “brought its claims . . .

outside the statutory period of limitation,”13 but that

13 Indeed, relying on federal case law, Davidson argues that this fact gives rise to a presumption that the delay was unreasonable and prejudicial, relieving him of the burden of proving those elements. As NPE points out, however, federal law does not govern Davidson’s laches defense here: because, as Davidson acknowledges, state law governs NPE’s ownership claim, see, e.g., HIF Bio, Inc. v . Yung Shin Pharms. Indus. Co.,

(Fed. Cir. 2010), state law governs Davidson’s laches defense to that claim as well, see 4 Charles Alan Wright et a l . , Federal Practice & Procedure § 1045, at 191 (2d ed. 2002); see also note 4 , supra. In any event, even if federal law

33 proposition is incorrect, as just discussed. And Davidson’s

argument that the delay was prejudicial relies on the “belie[f]”

of his long-time personal assistant that he will not “be able to

effectively function as a witness” in this matter, because

“prompt and clear memory under pressure of time to respond” is

“beyond [his] current capabilities.” There are numerous problems

with this argument, but for present purposes it suffices to say

that, as Davidson acknowledges, NPE holds a different view of his

faculties “based on [its] limited experience and contact with

him,” creating a genuine issue of fact for trial (at which the

court intends to allow Davidson to testify without any undue

“pressure of time to respond”). Davidson is not entitled to

summary judgment on the strength of his laches defense.

ii. The Global Settlement Memorandum

Davidson’s argument that the Global Settlement Memorandum

actually gave ownership of the Jumbo to him relies on the

provision that “‘New Inventiveness’” shall be considered the

property of” Davidson. The memorandum defines “New

Inventiveness” as “Inventiveness developed by [Davidson], whether

in combination with Old Inventiveness or prior inventiveness,

did apply, Davidson has not shown that NPE brought this action outside of the limitations period, as just discussed.

34 which results in protection from new patents or patent

applications providing broader or improved protection, on or

subsequent to January 1 , 2001.” Davidson argues that, under this

definition, his ownership of the Jumbo “depends only upon whether

it contains new processes or intellectual property” (which is how

the memorandum defines “Inventiveness”), which he says it does,

based on his contemporaneous correspondence with patent counsel.

But even assuming this reading of the memorandum is correct

(which NPE vigorously disputes, and which the court need not

decide at the moment), Davidson has not come forward with any

admissible evidence showing that, on or subsequent to January 1 ,

2001, he in fact developed any processes or intellectual property

that are, to use (but not to adopt) his phrase, “contained” in

the Jumbo. The documents he cites address that point

elliptically at best and, as NPE points out, are inadmissible

hearsay anyway because they consist of letters written by

Davidson himself.14 See Fed. R. Evid. 801(c). “It is black-

letter law that hearsay evidence cannot be considered on summary

judgment.” Davila v . Corporacion P.R. Para La Difusion Publica,

(1st Cir. 2007). As a result of this shortcoming

14 For reasons that are not apparent to the court, Davidson has not submitted any testimony discussing his alleged development of the new inventiveness embodied in the Jumbo.

35 (leaving aside any others for the moment), Davidson is not

entitled to summary judgment based on his interpretation of the

Global Settlement Memorandum.

iii. The alleged 2003 agreement

Nor is Davidson entitled to summary judgment based on his

alleged agreement with PEC that he was the owner of the Jumbo, as

evidenced by Blasberg’s January 2003 memorandum. Among other

problems with this theory: (a) the memorandum actually says that

Davidson owns the ‘505 patent, not the Jumbo patent (which had

yet to issue at that point), and Davidson’s unauthenticated claim

that Blasberg intended to say otherwise at best leaves a factual

dispute on this issue, (b) the memorandum is marked “For

Discussion,” calling into question whether it was intended as a

formal offer, and Davidson has not adduced any other evidence on

that point, and (c) Davidson himself stated in his adversary

complaint against PEC in the Bankruptcy Court that this agreement

“was at no point in time consummated.”

III. NPE’s motion to dismiss Davidson’s counterclaim

As noted at the outset, NPE has moved to dismiss Davidson’s

counterclaim for a declaratory judgment as to “the nature of the

claims set forth” in the Jumbo, arguing that it fails to present

a justiciable case or controversy. Davidson alleges that “a real

36 and present controversy exists as to whether or not portions of

the claims set forth in the ‘Jumbo’ patent are either independent

or dependent claims and what portion, if any, of the ‘Jumbo’

patent is within the public domain.” This is s o , Davidson says,

because NPE’s counsel told him at some point that a certain claim

set forth in the Jumbo patent “is a claim dependent on the

precise art described in the ‘Jumbo’ [p]atent and that the art

described in said claim is not independent and i s , therefore, in

the public domain and available to NPE.”

The court cannot claim to understand this allegation

completely. Regardless, the court does not believe that, simply

because a party asserts that a certain claim in a patent is

invalid--if that is even in fact what Davidson is alleging NPE to

have done—-a justiciable controversy exists regarding the

validity of that claim as a matter of patent law. Indeed, even

“[a] vague and inspecific desire to practice an invention if a

patent should turn out to be invalid”--which Davidson has not

alleged NPE to harbor—-is not enough to make out a justiciable

claim for declaratory relief as to the validity of the patent.

Windsurfing Intl. Inc. v . AMF Inc.,

(Fed. Cir.

1987) (internal quotation marks and bracketing omitted).

In any event, while the voluminous briefing and other

materials submitted on the parties’ cross-motions for summary

37 judgment do not reveal the relevance of this alleged public

domain argument to the ownership of the Jumbo, the court will

certainly decide that issue, and any other issue as to the scope

of the patent, if necessary to resolve the ownership question.

S o , even if Davidson’s counterclaim does not fail to present a

justiciable case or controversy, it is moot anyway. NPE’s motion

to dismiss the counterclaim is granted.

IV. Conclusion

For the foregoing reasons, NPE’s motion for summary

judgment15 is DENIED, and Davidson’s motion for summary judgment16

is DENIED, but NPE’s motion to dismiss17 is GRANTED.

SO ORDERED.

/ s e p h N.'Laplante Jo nited States District Judge

Dated: January 1 4 , 2011

cc: D. William Toone, Esq. Peter G. Callaghan, Esq. L . John Davidson, pro se

15 Document n o . 6 5 . 16 Document n o . 7 9 . 17 Document n o . 5 2 .

38