Ira Svendsgaard and Associates, Inc. v. Allfasteners USA, LLC

Filing 58

Memorandum Opinion and Order. Defendant's 8 Motion to Dismiss is DENIED. The new discovery deadline in 2/1/2022. Status Conference remains set for 12/1/2021 at 09:00 AM to be held telephonically before Judge Donald C. Nugent. Counsel are instructed to first initiate a conference call with all parties connected and then contact the Court. IT IS SO ORDERED. Judge Donald C. Nugent on 10/1/2021. (M,S)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

IRA SVENDSGAARD AND ASSOC.,INC.,

CASE NO.: 1:20CY328

Plaintiff,
JUDGE DONALD C. NUGENT

V.

ALLFASTENERS USA,LLC,
Defendant.

MEMORANDUM OPINION
AND ORDER

This matter is before the Court on Defendant's Motion to Dismiss Pursuant to Fed. R.

Civ. P. 12(b)(6) For Failure to State a Claim.(ECF # 8,12). Plaintiffs filed a Briefin Opposition
to Defendants motion, and Defendants filed a Reply in Support oftheir position. (ECF #23,25,
28). Subsequently, Plaintifffiled a Response to Defendant's Reply, as well as a Supplemental
Response to the Reply. (ECF #36, 55). Defendant filed a Reply in response to Plaintiff's
Supplement. (ECF #56). After careful consideration ofthe briefs and relevant law, and a review

ofthe relevant filings and proceedings in the corresponding state action, this Court finds that
Defendant's Motion should be DENIED at this time.

BACKGROUND'

Defendant AllFasteners USA,LLC ("AllFasteners") sells a line of products, the NexGen2
products, that include a blind bolt assembly product incorporating a spring and a sleeve. In
2015, AllFasteners was sued by ACME Operations, an Australian Company doing business in

the USA as Ajax Engineered Fasteners("AJAX"). The Complaint alleged that ACME
Operations manufactured and sold fasteners, including specialty high capacity blind bolt
fasteners used in the construction ofcell towers, wind turbine towers, and other steel structures.

The fasteners at issue were part ofa product group named Oneside structural fasteners and these
products incorporated the inventions in U.S. Patent Number 7,373,709("the '709 Patent"), and

were protected by that patent.^ The Complaint also alleged that the NexGen2 blind bolt assembly
infiinged upon the U.S. Patent Number 7,373,709("the '709 Patent").
ACME(dba AJAX)claimed that they bad been authorized by the owner ofthe patent,
ACME Engineered Holding Pty. Ltd., to enforce the patent against AllFasteners. The Complaint
alleged that AllFasteners bad been an authorized re-seller ofthe Oneside products; that it used

information gained through this re-seller relationship to create its own competing products, the
NexGen2 products; and,that in doing so, it infringed the '709 Patent and committed other

The facts set forth in this section are taken either from facts agreed upon by the parties,
public records from prior litigation. Any facts not already agreed upon or established in a
prior proceeding are taken from the Plaintiffs Complaint and are accepted as true for
purposes ofthis opinion only.
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Plaintiffin this case, Ira Svendsgaard and Associates, Inc., was originally the sole
distributor ofthe OneSide blind bolt. Subsequently Defendant, AllFasteners became a
second distributor for the product. (ECF #49-1).
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violations ofthe intellectual property laws. This patent claim, within the original Complaint, was
eventually dismissed without prejudice for lack ofstanding because, at the time offiling, the
Plaintiff, ACME Operations(dba AJax), did not actually own the '709 Patent nor did it have a
valid exclusive license to enforce the patent. {Specific Fasteners Pty Ltd. v. AllFasteners USA
LLC, Case No. 1:15 CV 1366, at 3-6(N.D. Ohio, May 12,2016). Claims under the Lanham Act
and for Misappropriation remained intact.
In December of2015, AllFasteners applied for a patent for its NexGen2 device. The

patent was issued as U.S. Patent 10,018,212 ("the '212 Patent") on July 10,2018.
In 2016, ACME Operations(dba"AJAX")filed a second lawsuit, alleging that the

NexGenl and NexGen2 products infiinged on the '709 Patent. {ACME Operations Pty., Ltd. v.
AllFasteners USA, LLC, Case No. 1:16 CF 2134(N.D. Ohio, August 25, 2016). This lawsuit

alleged that ACME Operations now owned the '709 Patent by means ofan assignment registered
with the USPTO,and therefore had standing to sue. Although the court docket does not show
that this case was officially consolidated with 1:15 CR 1366, it was transferred to the same judge
as a related case, the parties agreed that consolidation was appropriate, and the cases do appear to
have been mediated jointly.
In April of2017,the parties to the above cases entered into a Confidential Settlement
Agreement resolving both the 1366 and 2134 cases. The written settlement agreement included
a covenant not to sue in which ACME agreed "that they will not bring any action or proceeding

in any court... asserting therein any claims referring or relating to the NexGenl and NexGen2
devices which could have been asserted and/or included" in those prior litigations. The written
agreement also indicated that settlement was further memorialized in a meeting between the

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parties and the mediators and that there was a transcript ofthose proceedings.

In the transcript the scope of ACME's covenant not to sue is described as "anything having to do

with the production by AllFasteners, production, design or development or use of products that it
characterizes as NexGenerationl and NexGeneration 2." (ECF #12-8, at 7-8). The parties
clarified that the covenant not to sue would extend to alleged infringement under sections(b) and
(c) of28 U.S.C. §271, which expand infringement to include inducement ofinfringement and
sale ofinfringing products. (Id. at 10). The parties agreed to the mediator's characterization of
the scope ofthe covenant which he described as "anything having to do with NexGenl or
NexGen2 that either is asserted in this case or could have been asserted in this case."^

Further ACME released "any and all claims and/or causes of action which they could

have as ofthe Effective Date hereof with respect to the subject matter of[the litigations],
including but not limited to any claims and/or causes of action which were known or unknown,

asserted or could have been asserted, in any manner whatsoever in the [litigations] or otherwise
without limitation." (ECF #12,Ex. 1, at 2). The written agreement also contained a clause by

which AllFasteners release ACME and the other Plaintiffs in the litigation from any and all
claims and/or causes of action relating to the litigation which were known or unknown and could
have been asserted in that litigation. (Id.)

In 2018 AllFasteners sued ACME,as well as Ira

AllFasteners' arguments in this case assume that this covenant not to sue extends to all
future production, sales, or other potentially infringing actions involving the NexGen2
product line. Although the language ofthe written agreement and the transcribed
agreement do not unequivocally address AllFasteners future conduct relative to the
NexGen2 products, nor make any determination as to whether the NexGen2 products
actual infringe the '709 Patent,ISA does not challenge this assumption, and the Court will
therefore accept this premise for purposes ofthis opinion.
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Svendsgaard and Associates, Inc.("ISA")for patent infringement, alleging that the manufacture
and sale ofthe Oneside fasteners violated AllFasteners''212 Patent. That case remains pending

in the Central District of California." After that case was filed,ISA purchased the '709 Patent in
2019 through a public liquidation sale held in connection with ACME's volvmtary liquidation
under Australian law. ISA recorded its acquisition ofthe ownership rights at the USPTO,on or

about October 2,2019. On February 14,2020,ISA filed the instant action against AllFasteners

alleging that the NexGen2 products infringe upon the '709 Patent, which it now owns.

LEGAL STANDARD

On a motion brought under Fed. R. Civ. P. 12(b)(6), this Court's inquiry is generally

limited to the content ofthe complaint, although matters of public record, orders, items appearing
in the record ofthe case, and exhibits attached to the complaint may also be taken into accormt
without converting the motion to one for summaryjudgment. See Gavitt v. Born, 835 F.Sd 623,

640(6"' Cir. 2016). Relevant to this action, the Court may take judicial notice ofthe United
States Patent and Trademark Office's public records, as well as filings and settlement agreements

from prior litigations. Affirmative defenses may be determined on a motion to dismiss for

failure to state a claim ifthe facts establishing the defense are ascertainable from the complaint
and other documentation reviewable under Fed. R. Civ. P. 12(b)(6). Thus, under appropriate
circumstances, a court may properly determine whether claims are barred by a prior settlement

On summaryjudgment,the California court found that ISA infringed claims 1 and 2 ofthe
'212 Patent. It also, however,formd that ISA's unenforceability defenses could not be
decided on summary judgment.
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agreement on a motion to dismiss. See, e.g,. Gen. Mills, Inc. v. Kraft Foods, Glob, Inc., 487 F.3d
1368,1375 (Fed. Cir. 2007).
In evaluating a motion for dismissal under Rule 12(b)(6), the district court must "consider

the pleadings and affidavits in a light most favorable to the [non-moving party]." Jones v. City of

Carlisle, Ky.,3 F.3d. 945,947(6th Cir. 1993)(quoting Welsh v. Gihbs,631 F.2d 436,439(6th
Cir. 1980)). However,though construing the complaint in favor ofthe non-moving party, a trial
court will not accept conclusions oflaw or unwarranted inferences cast in the form offactual

allegations. See City ofHeath, Ohio v. Ashland Oil, Inc., 834 F.Supp 971,975(S.D. Ohio 1993).
The Complaint must contain "sufficient matter, accepted as true, to 'state a claim to relief that is
plausible on its face.'" Ashcroftv. Iqbal, 556 U.S. 662,678 (2009)(quoting Re//

Corp. v.

Twombly,550 U.S. 544, 570(2007).

This Court will not dismiss a complaint for failure to state a claim "unless it appears
beyond doubt that the plaintiff can prove no set offacts in support of his claim which would
entitle him to relief." Conley v. Gibson, 355 U.S. 41 (1980). In deciding a Rule 12(b)(6) motion,

this Court must determine not whether the complaining party will prevail in the matter but
whether it is entitled to offer evidence to support the claims made in its complaint. Scheuer v.
Rhodes,416 U.S. 232,236(1974).

ANALYSIS

Defendants argue that ISA's infringement claim should be dismissed for failure to state a

claim because, as an assignee of ACME Operations, it is bound by a covenant not to sue in a
prior settlement agreement between ACME Operations and AllFasteners and/or because claim

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preclusion bars the action. ISA counters that it cannot be bound by the settlement agreement

because it was not a party to the agreement, and there are questions offact as to whether all ofthe
elements of claim preclusion have been met.
A. Settlement Agreement

According to the Complaint,ISA is the assignee ofthe '709 Patent, and the assignment of
record is recorded in the United States Patent Office. (EOF #1,If 17). Whether that assignment
came directly from ACME or whether is passed first to the administrators of ACME'S insolvency
proceedings and then to ISA,a patent assignment "caimot transfer an interest greater than that
which it possesses." Datatreasury Corp. v. Wells Forgo & Co., 522 F.3d 1368,1372(Fed. Cir.
2008); see also, TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271,1275
(Fed. Cir. 2009). As a matter oflaw,"an assignee takes a patent subject to the legal

encumhrances thereon." Datatreasury at 1372.^ The assignment of rights, through a sale or
otherwise, changes the owner ofthe attendant rights, hut cannot expand those rights. See,
Epistar Corp. v. Int'l Trade Comm 'n, 566 F.3d 1321,1333(Fed. Cir. 2009). More specifically,

the assignee ofa patent is bound by authorizations issued hy the prior patent owner,including

Although ISA's purchase agreement states that Australian law applies to the agreement,
"the effect ofa transfer of title to a U.S. patent on the rights of an existing license to the
patent is governed by U.S. patent law, even if the rmderlying license agreement is
governed hy foreign law." In re Nortel Networks, Inc., 532 B.R. 494,547(Bankr. D. Del.
2015). More specifically, the question of whether a mutual release or covenant not to sue
affects an assignees patent rights is "an issue unique to patent law" and "governed by
United States federal law." Innovus Prime, LLC v. Panasonic Corp. & Panasonic Corp.
ofN Am. Inc., 2013 U.S. Dist. LEXIS 93820, at *9(N.D. Cal. July 2,2013)(citing Sky
Techs. V. SAP AG,576 F.3d 1374,1379(Fed. Cir. 2009)). Therefore, any contractual
language in the assignment agreement which purports to disclaim encumhrances cannot
override U.S. patent law, which makes clear that assignments are subject to limitations
imposed by an existing license or covenant not to sue.
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licenses, and covenants not to sue.® See, e.g., In Re Cybernetic Servs., Inc., 252 F.3d 1039,1052

(9"^ Cir. 2001); V-Formation, Inc. v. Benetton Grp., SpA, 2006 U.S. Dist. LEXIS 13352, at *27
(D. Colo. Mar. 10,2006). This is true even ifthe assignee is not aware ofthe prior authorization.
See., e.g., V-Formation at *7(holding that the bona fide purchaser protections do not apply in
this context); Boehringer Ingelheim Vetmedica, Inc. v. Merial, Ltd., 2010 U.S. Dist. LEXIS
6819, at *23(D. Conn. Jan. 14,2010).

There is no dispute that ISA is the assignee ofthe '709 Patent, and there is no dispute that
prior to the assignment, the patent become subject to a covenant not to sue All Fasteners.

Therefore, as a matter oflaw,ISA's rights in the '709 Patent are limited by the terms ofthe

covenant not to sue contained in the settlement agreement between AllFasteners and ACME.^

A license and a covenant not to sue are equivalent in purpose and legal effect; both
constitute a representation that the owner consents to its use ofthe patent to the extent
described in the agreement. See, TransCore, 526 F.3d at 1274; accord, De Forest Radio
Tel. iSc Tel. Co. v. United States, 273 U.S 236,241-42(1927).
7

The California court's decision on summaryjudgment does not contradict this holding. In
the California case,ISA was attempting to use the mutual release section ofthe prior
settlement agreement as a defense to AllFasteners claims that ISA is infringing the '212
Patent. The settlement agreement, as a whole, is a contract, and is boimd by the general
principles of contract law, which the California court applied. The mutual release clauses
are also contractual agreements to be enforced as part ofthe larger contract, and
AllFasteners has not assigned any ofits rights under the '212 Patent. As set forth above in
footnote 5, however, covenants not to sue, when applied to assigned patent rights operate
are subject to the more specific principles of U.S. patent law. Further, the California court
read the contract as limiting only claims that arose on or before the "effective date," April
4,2017. The patent AllFasteners was suing to enforce issued on July 10,2018. Therefore,
the claims AllFasteners brought against ISA under the '212 Patent necessarily arose after
the effective date ofthe settlement between ACME and AllFasteners. Further, the
California court's statement that ISA "as not a party to the 2017 Settlement Agreement"
and has not "identified anything in the 2017 Settlement Agreement or related court
proceedings that would otherwise release it from any claims," does not affect this Court's
analysis.(ECF #49-1 at 14). The statement is dicta, and is specifically based on ISA's
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This does not necessarily make this case dismissable, however. Though ISA is subject to the
terms ofthe covenant not to sue, there remain questions offact as to the scope ofthat covenant,

and whether it operates to bar some or all ofthe claims articulated in the Plaintiffs Complaint.
These determinations would be better addressed following a period of discovery, either at the
summaryjudgment stage or at trial.
B. Claim Preclusion

The Sixth Circuit test for claim preclusion has four elements:(1)a final decision on the
merits by a court of competentjurisdiction;(2)a subsequent action between the same parties or
their 'privies';(3)an issue in the subsequent action which was litigated or which should have
been litigated in the prior action; and,(4)an identity ofthe causes of action. Polymer Indus.

Prods. Co. V. Bridgestone/Firestone, 211 F.R.D. 312,318(N.D. Ohio 2002). In patent
infringement cases, the third and fourth elements are decided as a matter of Federal Circuit law.

Senju Pharm. Co. Ltd. v. Apotex, Inc., 746 F.3d 1344,1348 (Fed. Cir. 2014). In the patent
context, these two elements are satisfied ifthe same patent is involved in both suits, and the
accused products are the same or essentially the same.Id. at 1349.

Although the relevant prior cases made no determination as to the validity ofthe
plaintiff's infiingement claims, the case was settled and dismissed with prejudice. A dismissal
with prejudice, pursuant to a settlement agreement, constitutes a final decision on the merits for
purposes of claim preclusion. Migliori v. Honeywell, Inc., 2017 U.S. App. LEXIS 20396, at *8

(6"' Cir. Oct. 16, 2017);see also. Hartley v. Mentor Corp., 869 F.2d 1469,1473(Fed. Cir.
1989)(when a "patentee dismiss[es] his claim with prejudice in a stipulated judgment, such a

failure to point out any alternative argument on its own behalf.
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judgment operates as an adverse adjudication on the merits of a claim."). Further, the Defendant

in both cases is the same, and the Plaintiff in this case is the assignee ofthe '709 Patent, and
therefore, for all relevant purposes, stands in privity with the Plaintiff(s) in the first set of cases.
See, Foster v. Hallco Manufacturing Co., 947 F.2d 469, 479-480 (Fed. Cir. 1991).

With regard to the patent-specific elements, there is no dispute that the same patent is
involved in both suits. This leaves only the question of whether the accused products are the
same or essentially the same as those accused in the prior litigations. The Defendant asserts that
the accused products in this case are the essentially the same as those previously accused.
Plaintiffs have challenged this assertion. The determination ofthis question is fact specific and
carmot appropriately be decided on a motion to dismiss.

CONCLUSION

For the reasons set forth above Defendant's Motion to Dismiss is DENIED. The new

discovery deadline in February 1, 2022. Status remains set for December 1, 2021 at 9:00 a.m.. IT
IS SO ORDERED.

DONALD C. NUGEf

United States District Thdge

DATED:

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