America's Collectibles Network, Inc. v. The Genuine Gemstone Company Limited
Filing
108
MEMORANDUM OPINION: Genuine Gemstone's motion to dismiss for lack of standing [R. 55 ] is Granted. Genuine Gemstone's motion for summary judgment [also R. 55 ] is Denied as Moot. ACN's motion for leave to file a Surreply [R. 95 ] is Denied as Moot. This case will be dismissed in its entirety. Signed by District Judge Pamela L Reeves on 4/23/15. (JBR)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
America’s Collectibles Network, Inc.
Plaintiff/Counterdefendant,
v.
The Genuine Gemstone Company, Ltd.,
Defendant/Counterplaintiff.
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No.: 3:13-CV-335-PLR-HBG
Memorandum Opinion
America’s Collectibles Network (“ACN”), who claims to own U.S. Patent No. 8,370,211
(the “211 Patent”), has brought this action against the Genuine Gemstone Company for allegedly
infringing upon the 211 Patent. In response, Genuine Gemstone contends that it, in fact, is the
rightful owner of the 211 Patent, and that ACN lacks standing to assert infringement.
On June 18, 2010, The Colourful Company Group acquired Gems TV (UK) Ltd—the
then owner of the 211 Patent—through a share purchase agreement. After the transaction was
completed, Gems TV (UK)’s former director, Anthony Hillyer, signed a document purportedly
assigning Gems TV (UK)’s interest in the patent to a US affiliate that was not part the sale.
ACN traces its chain of title back to that assignment. If the assignment was valid, as ACN
contends, then ACN is the rightful owner of the 211 Patent, and this suit may proceed. On the
other hand, if the assignment was invalid as the defendant claims, then ACN is not the rightful
owner of the 211 Patent, and it lacks standing to assert its infringement claim.
After being served, Genuine Gemstone filed a counterclaim seeking a declaration that it
had not infringed upon the 211 Patent, that the 211 Patent is invalid, that the 211 Patent is not
directed to eligible subject matter, and that the plaintiff lacks standing to assert infringement
because it does not own the 211 Patent. Genuine Gemstone has moved for summary judgment
on its counterclaim. Alternatively, it has moved to dismiss ACN’s complaint under Federal Rule
of Civil Procedure 12(b)(1) for lack of standing. The issues have been extensively briefed, and
are now ripe. For the reasons that follow, Genuine Gemstone’s motion to dismiss will be
granted. Its motion for summary judgment will be denied as moot.
I.
When a defendant challenges subject-matter jurisdiction under Federal Rule of Civil
Procedure 12(b)(1), the plaintiff bears the burden of proving that the court has jurisdiction.
Madison-Hughes v. Shalala, 80 F.3d 1121, 1130 (6th Cir. 1996). A Rule 12(b)(1) motion may
challenge the sufficiency of the complaint itself, in what is known as a facial attack, or it may
challenge the factual existence of subject-matter jurisdiction, which is known as a factual attack.
United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). In ruling on a facial attack, the court
accepts as true the allegations of the complaint and construes them in a light most favorable to
the plaintiff. DLX v. Kentucky, 381 F.3d 511, 516 (6th. Cir. 2004). On the other hand, when
faced with a factual attack, the court does not presume that the complaint’s allegations are true,
and it may resolve factual disputes when necessary. Madison-Hughes v. Shalala, 80 F.3d at
1130.
This case involves a factual attack. Genuine Gemstone contends that ACN does not own
the 211 Patent, and therefore lacks standing to assert infringement claims. Accordingly, ACN’s
allegations are not presumed to be true, and this Court must resolve whatever factual disputes are
necessary to determine if the plaintiff has standing.
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II.
While both parties have alleged numerous facts, some of which are disputed, and some of
which are not, the facts necessary to resolve this matter are fairly straightforward. Prior to June
18, 2010, Gems TV (UK) Ltd., a British company, was a wholly-owned subsidiary of Gems TV
Holdings Ltd., a Cayman Islands company. At that time, Gems TV (UK) owned multiple
patents, including the 211 Patent. On May 5, 2010, Gems TV (UK) agreed to assign one of its
other patents (the “Other Patent”) to Gems TV Holdings. [R. 60-3, Fudger Aff. Ex. 3, Page ID
830]. A week later, on May 12 2010, Gems TV (UK) entered into a share purchase agreement
with the Colourful Company Group Limited (also a British company) whereby the Colourful
Company would purchase Gems TV (UK), in its entirety, as a going concern.
The share purchase agreement prohibited Gems TV (UK) from granting, modifying,
agreeing to terminate, or permitting the lapse of any of its intellectual property rights prior to
completion of the sale without first obtaining written consent from the Colourful Group. [R. 737, Share Purchase Agreement, Page ID 1363]. Likewise, Gems TV (UK) was forbidden from
entering into any agreement relating to any such intellectual property rights without the
Colourful Group’s written consent. [Id.].
Gems TV (UK) and the Colourful Group set June 18, 2010, as the completion date for the
sale. On that date, Gems TV (UK) held an “Extraordinary General Meeting” of the shareholders
at 3:00 a.m. UK time to complete the sale. The purpose of the early meeting and completion was
to ensure that “all Friday’s trading belongs to [the Colourful Group] and . . . [the new directors of
Gems TV (UK)] have control of Gems UK by start of play that day.” [R. 73-12, Bennett
Affidavit, Page ID 1419]. As part of the transaction, and also to ensure that control of the Gems
TV (UK) was in the hands of its new directors by the start of business on the completion date,
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Anthony Hillyer entered into a compromise agreement and resigned as a director of Gems TV
(UK) effective at 6:45 a.m. UK time the morning of the completion.
The sale was completed by 7:13 a.m. UK time on June 18, 2010, when counsel for Gems
TV Holdings Ltd emailed counsel for the Colourful Company to say “Congratulations – we have
now completed on the share sale, and Coloured Rocks is now the beneficial owner of Gems [TV]
(UK).” [R. 73-15, Bennett Affidavit Ex. 22, Page ID 1430]. Shortly thereafter, Daniel Thong,
an associate of Jason Choo (the chairman of Gems TV Holdings) who worked on the sale sent an
email to Anthony Hillyer, Jason Choo, and Richard Fudger (the financial director of Gems TV
(UK) both before and after the sale) informing them that assignment of the 211 Patent had been
“overlooked.”
Counsel for the Colourful Group was not copied.
Mr. Thong attached an
addendum to the email purportedly transferring the 211 Patent from Gems TV (UK) to Gems TV
Holdings, and asked Anthony Hillyer to execute and return it. [R. 60-3, Fudger Affidavit, Ex. 3,
Page ID 830]. Mr. Hillyer did so sometime after 8:00 a.m. UK time on June 18, 2010.
ACN’s purported ownership of the 211 Patent at present day is based on tracing its chain
of title back to the addendum executed by Mr. Hillyer after completion of the Gems TV (UK)
sale. If the 211 Patent was not transferred to Gems TV Holdings, ACN has no claim to
ownership of the 211 Patent and no standing to assert infringement against Genuine Gemstone.
III.
This case revolves around whether or not the addendum Mr. Hillyer executed is valid. It
is not. The Gems TV (UK) sale was completed by 7:13 a.m. the morning of June 18, 2010.
Anthony Hillyer had previously executed a compromise agreement and resigned as a director of
Gems TV (UK) effective at 6:45 a.m. that day. When Mr. Hillyer executed the addendum to
assign the 211 Patent sometime after 8:00 a.m. on June 18, 2010, ownership of the 211 Patent
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(along with the rest of Gems TV (UK) had already been transferred to the Colourful Group, and
Mr. Hillyer had resigned from his position as director of Gems TV (UK) Ltd. Mr. Hillyer clearly
lacked the authority to transfer Gems TV (UK)’s intellectual property at the time he executed the
addendum. The addendum is, therefore, invalid.
ACN nevertheless offers several arguments for the validity of the assignment. First,
ACN claims that, while the addendum was executed after the actual Completion, it is still valid
because it was signed on the Completion Date; second, ACN argues that Mr. Hillyer did not
know he lacked the authority to execute the addendum; third, ACN claims that the parties
intended all along for the 211 Patent to be transferred to Gems TV Holdings and not included in
the Gems TV (UK) sale, and that the contract should be interpreted to reflect the parties’ intent;
and finally, ACN contends that Genuine Gemstone should be estopped from claiming ownership
of the 211 Patent.
i.
Completion and Mr. Hillyer’s Authority to assign the 211 Patent
ACN argues that the addendum was signed on the Completion Date and is therefore
valid, regardless of the actual time of Completion. This position is unsupported. The timing of
Completion for the Gems TV (UK) sale was carefully planned, and though ACN attempts to
obfuscate the difference between “Completion” and “Completion Date,” these two defined terms
are not the same. The Completion of the transaction occurred at some point on the Completion
date. The Extraordinary General Meeting of the shareholders commenced at 3:00 a.m. UK time
to ensure that the transaction was complete by the opening of business later that morning so that
“all [the day’s] trading belongs to [The Colourful Group] and [the new directors] have control of
Gems UK by start of play that day.” The transaction was not structured so that the new officers
would have control beginning at 12:00 a.m. on June 19 (the day after the Completion Date); it
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was structured to be complete early in the morning with ownership and control fully transferred
to the Colourful Group.
While Mr. Hillyer undisputedly signed the addendum on the
Completion Date, the Completion itself had already occurred, Gems TV (UK) belonged to the
Colourful Group, Mr. Hillyer had resigned, and new directors had taken control. It would not
have mattered whether Mr. Hillyer signed the addendum five minutes after Completion (and still
on the Completion Date) or a month later, the result would have been the same.
ACN also claims that Mr. Hillyer was unaware that he lacked the authority to execute the
addendum and bind Gems TV (UK). That could be true. Mr. Hillyer may have believed he was
acting on behalf of Gems TV Holdings when he signed the addendum, and he also may have not
understood that his employment with Gems TV (UK) had already been terminated, but his
subjective beliefs as to his authority or lack thereof does not change the fact that he no longer
worked for Gems TV (UK) and could not bind the company. 1 It is clear from the contract
documents and the undisputed timing of the Completion and execution of the addendum that Mr.
Hillyer no longer had the authority to bind Gems TV (UK), and the addendum is invalid.
ii.
The Parties’ Intent
To avoid this result, ACN argues that the construction of contracts under English law is
governed by the “objective” principal whereby the terms of a contract are determined by what a
reasonable person would take the parties to have intended. ACN claims that “there can be no
question what a reasonable person would have believed the parties intended [in this case] – [that]
the [211 Patent] was to be owned by Gems TV Holding after the sale of [Gems TV (UK)] to
Colourful Group.” [R. 77, Plaintiff’s Response, Page ID 1494].
In support of this contention, ACN asserts that everyone connected with the transaction
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The parties strenuously dispute whether Mr. Hillyer was or was not aware that the sale had completed. Resolution
of that dispute is unnecessary because it would not change the result.
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has admitted that the sale was only for the UK business and that it had no relation to Gems TV
America. This does not advance ACN’s case. The 211 Patent is an American patent, but Gems
TV (UK) owned it. The 211 Patent belonged to the “UK business” and had to relation to Gems
TV America or any other entity owned by Gems TV Holding. A share purchase of the UK
business would include all property belonging to the UK business, including the 211 Patent.
The only time the US patents came up in negotiating the sale, according to ACN, was in
the context of what Gems TV (UK) was not going to receive as part of the sale. Because the sale
took the form of a stock purchase agreement, instead of an asset sale, Gems TV (UK) and all of
its assets as a going concern would become property of the Colourful Group. Only those assets
transferred from Gems TV (UK) to another entity prior to the sale would not go to the Colourful
Group. In an effort to show that the 211 Patent was meant to be transferred out of Gems TV
(UK) and not included in the sale, ACN points to a March 19, 2010, email from Mr. Choo to
Steve Bennett (of the Colourful Group) containing a number of discussion points about the
transaction. Paragraph 8 of that email read as follows:
There is a patent filed in the USA by Gems UK which is currently being assigned
to Gems TV Holdings Ltd as this is part of the IP going to JTV. The UK patent
pending will still be in Gems UK when you buy it however. What is being
transferred is only the USA filing. This is more just for your information.
According to ACN, the US patent to which Mr. Choo refers is the 211 Patent. Mr. Bennett
replied to the email and responded to each of the discussion points except for paragraph 8. ACN
considers Mr. Bennett’s failure to respond or deny Mr. Choo’s assertion as evidence of his
agreement that the 211 Patent was to be transferred to Gems TV Holdings.
This line of
reasoning is not supported by the record.
There is reason to believe that the US patent referenced by Mr. Choo is for the Other
Patent that Gems TV (UK) agreed to assign to Gems TV Holdings on May 5, 2010, just before
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the parties entered into the share purchase agreement. This conclusion is supported by the
language in the share purchase agreement prohibiting the subsequent transfer of intellectual
property, including the 211 Patent. To transfer the 211 Patent from Gems TV (UK) to Gems TV
Holdings, Gems TV (UK) would have needed to obtain written permission from the Colourful
Group, a fact not alleged by ACN. ACN admits that the patents were never mentioned in the
negotiations again.
Though not part of the negotiations, ACN contends that a circular distributed to Gems
TV (UK)’s shareholders for approval of the sale to the Colourful Group acknowledged the
transfer of the 211 Patent. The circular does reference payments made from Gems TV (UK) to
Gems TV Holdings that would include information technology systems relating to the reverse
auction television and internet-based sales as well as relevant intellectual property and copyrights
associated with North America. This reference is too vague to conclude that Gems TV (UK) and
the Colourful Group shared a common understanding that the 211 Patent would be going to
Gems TV Holdings.
ACN’s intent argument, which is almost entirely based on Mr. Choo’s discussion-points
email and an unspecific reference in a circular sent to Gems TV (UK)’s shareholders, is simply
too weak to show a common intent and override the fact that Mr. Hillyer lacked the authority to
transfer the 211 Patent.
iii.
Estoppel
Finally, ACN claims that Genuine Gemstone should be estopped from contesting the
validity of the transfer because Genuine Gemstone did not prosecute the 211 Patent after
Completion. The estoppel argument fails under both English and US law. Under English law,
for an estoppel of convention to arise, there must be a common assumption shared between the
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parties to a transaction. [R. 94, Wardell Opinion, Page ID 1976 (citing Amalgamated Investment
& Property Co Ltd v. Texas-Commerce International Bank Ltd [1982] QB 84 at 122)]. As
discussed above, ACN has not proven a shared intent or understanding relating to the 211 Patent.
Under US law, ACN must establish that Genuine Gemstone, through misleading conduct,
led ACN to reasonably infer that it did not intend to bring an ownership claim against ACN.
A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1041-43 (Fed. Cir. 1992).
Misleading conduct based on inaction “must be combined with other facts respecting the
relationship or contacts between the parties to give rise to the necessary inference that the claim
against the defendant is abandoned.” Id. at 1042. Apart from its inaction, there is no evidence of
such conduct on the part of Genuine Gemstone, who apparently did not learn about the Patent
until receipt of a demand letter from ACN in June 2013.
To be clear, this Court is not holding that Genuine Gemstone is the lawful owner of the
211 Patent. This opinion only considers whether ACN has met its burden of establishing
standing. Because ACN has not done so, this Court is without subject-matter jurisdiction.
Genuine Gemstone’s counterclaims relating to infringement, validity, and patent eligibility are
moot, and will be dismissed as such.
IV.
For the foregoing reasons, Genuine Gemstone’s motion to dismiss for lack of standing
[R. 55] is Granted. Genuine Gemstone’s motion for summary judgment [also R. 55] is Denied
as Moot. ACN’s motion for leave to file a Surreply [R. 95] is Denied as Moot. 2 This case will
be dismissed in its entirety.
2
ACN seeks leave to file a surreply addressing issues relating to Mr. Hillyer’s understanding of his authority and the
timing of the Completion that were first raised in the defendant’s reply. Because a finding relating to Mr. Hillyer’s
subjective beliefs is not necessary in determining whether he had the authority to bind Gems TV (UK), the Court did
not consider any of the parties’ arguments relating thereto.
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IT IS SO ORDERED.
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UNITED STATES DISTRICT JUDGE
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