Software Rights Archive, LLC v. Google Inc. et al
Filing
118
SUR-REPLY to Reply to Response to Motion re 66 MOTION to Dismiss for Lack of Standing filed by Software Rights Archive, LLC. (Attachments: # 1 Exhibit Table of Exhibits, # 2 Exhibit Exhibit 1, # 3 Exhibit Exhibit 2, # 4 Exhibit Exhibit 3, # 5 Exhibit Exhibit 4, # 6 Exhibit Exhibit 5, # 7 Exhibit Exhibit 6, # 8 Exhibit Exhibit 7, # 9 Exhibit Exhibit 8, # 10 Exhibit Exhibit 8, # 11 Exhibit Exhibit 10, # 12 Exhibit Exhibit 11, # 13 Exhibit Exhibit 12, # 14 Errata Exhibit 13, # 15 Exhibit Exhibit 14, # 16 Exhibit Exhibit 15, # 17 Exhibit Exhibit 16, # 18 Exhibit Exhibit 17, # 19 Exhibit Exhibit 18, # 20 Exhibit Exhibit 19, # 21 Exhibit Exhibit 20, # 22 Exhibit Exhibit 21, # 23 Exhibit Exhibit 22, # 24 Exhibit Exhibit 23, # 25 Exhibit Exhibit 24, # 26 Exhibit Exhibit 25, # 27 Exhibit Exhibit 26, # 28 Errata Exhibit 27)(Duvvuri, Narasa)
IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS MARSHALL DIVISION
SOFTWARE RIGHTS ARCHIVE, LLC
v.
Civil Case No. 2:07-cv-511 (CE)
OGLE INC., YAHOO! INC., lAC SEARCH & MEDIA, INC., AOL, LLC, AND LYCOS, INC.
GO
FILED UNDER SEAL
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO
DISMISS FOR LACK OF STANDING
..
EXHIBIT 11
TABLE OF CONTENTS
TABLE OF CONTENTS............................................................................................................... I
i. SUMMARy.....................................................;.................................................................1
II. ARGUMENT ............................................................................... ......................................4
A. The 1997 Stock EJlchange Agreement Did Not Transfer The
Patents~In-Suit From Siteflech To The Stock Purchaser, Site Tech........................................................................................................................4
1. Síte Tech Did Not Receive The Patents-In-Suit By
Operation Of Law. .....................................................................................4
2. The Stock Exchange Agreement Did Not Cause a De
Jure or De Facto Merger Between Siterrech And Síte Tech In 1997. ...........................................................................................11
3. Siterrech Did Not Transfer the Patents To Site Tech Via
Written Conveyance Under § 261............................................................12
4. Siterrech Did Not Ratify An Assignment To Site Tech..........................13
B. The Doctrnes Of Alter Ego, Agency, And Ratification Did Not
Convey The Patents-In-Suit To Egger.................................................................14
1. The Patent Laws Require A Written Patent Assignment
From The True Patentee, Siterrech, And None Exists............................l4
2. Site/Tech Was Not The Alter Ego Of Site Tech. .....................................15
3. Site Tech Was Not Siterrech's Agent For Conveying
Patent Rights. ...... .....................................................................................18
C. No Equitable Principle Conveyed the Patents-In-Suit To Egger
After Site Tech Filed For Bankruptcy. ................. ....... .... ....... ........... ............ ......23
l. The Rejection Of The 1998 Bil Of Sale During The
Bankrptcy Proceedings Relieved Site Tech Of Any Obligation To Transfer The Patents-In-Suit............................................23
2. Contrary To SRA's "Res Judicata" Forfeiture Theory,
The Bankruptcy Court. .......... ..................... ................. .............................. ......25
The Patents Remain Subject To The Jurisdiction Of
3. Because The After-Acquired Title Doctrine Does Not
Cause "Immediate" And Automatic Transfers, Title Remains With Site Tech. .........................................................................27
REPL Y IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Page i FILED UNDER SEAL
4. Unclean Hands And Other Equitable Defenses Bar Any
Equitable Remedy Under The After-Acquired Title
Doctrine....... .... .......... .... ..... ...... ... ....... ..... ................ .................... ..... ........28
D. The August 2008 Assignment Also Does Not Convey Rights To
The Patents-In-Suit. .........................................................;...................................30
III. CONCLUSION ................................................................................................................30
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF STANDING Pa.ge ii FILED UNDER SEAL
....
TABLE OF ABBREVIATIONS
For the ease of the Court, Defendants have adopted Plaintiff's abbreviations for the
corporate entities Site Technologies, Inc. (aka Deltapoint, Inc.) and SiterrechnologieslInc. (aka
Ubertech, Inc.). These and other abbreviations are summarized below:
AitDepo.
Deltapoint
Deposition of Jeffrey Franklin Ait on September 30, 2008 (Rp. Ex. 2)
Deltapoint, Inc. (later known as Site Technologies Inc., a California coiporation) Delaware General Corporations Law
DGeL
Egger
Depo.
Deposition of Daniel Egger on October 2, 2008 (Rp. Ex. I) Libertech, Inc. (later known as Siteffechnologies/Inc., a Delaware coiporation)
Deposition of J. Chnstopher Lynch on October 1,2008 (Rp. Ex. 3)
Libertech
Lynch Depo.
Mot.
Opp.
Mot. Ex.
Defendants' Brief in Support of their Motion to Dismiss (Docket No. 66)
SRA's Brief in Opposition to Defendants' Motion to Dismiss (Docket No. 76)
An exhibit attached to Defendants' Motion to Dismiss
An exhibit attiiched to the Declaration of Lee L. Kaplan submitted with in Opposition SRA's Brief
Opp.Ex._
Rp.Ex._
Site Tech
An exhibit attached to ihis Reply
Site Technologies Inc., a California coiporation, (formerly known as Deltapoint)
SitefechnologieslInc., a Delaware corporation, (formerly known as
Siteffech
SRA
i 997 Stock Exchange
Libertech)
Plaintiff Software Rights Archive, LLC
Stock Exchange Agreement between Deltapoint, Inc. and Site/TechnologieslInc. dated July i J, i 997 (Mot. Ex. 6)
Agreement
1998 Bil of Sale
2005 Assignment
2008 Assignment
Bil of Sale, Assignment and License Agreement Between Site Technologies,
Inc. and Daniel Egger dated September 16, 1998 (Mot. Ex. 10)
Assignment from SiteffechnologieslInc. to Diiniel Egger dated February I i, 2005 (Mot. Ex. 14) Assignment from Site Technologies, Inc. to Daniel Egger dated August l3,
2008 (Rp. Ex. 5)
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DlSMISS FOR LACK OF STANDING Page iii FlLED UNDER SEAL
I. SUMMARY
SRA never owned the patents-in-suit and thus has no standing to sue Defendants. SRA
claims that its rights in the patents trace back to the 1998 Bil of Sale from Site Tech to Egger
(who then purported to assign his rights to SRA in 2005). But SRA does not dispute that
SitelTech, the record title holder to the patents, was not a party to the 1998 Bil of Sale. SRA
also implicitly concedes that there is no written instrument specifically transferring title to the
patents from SitelTech to Site Tech prior to the 1998 Bil of Sale. Thus, because Site Tech did
not own the patents, Egger obtained no rights by this contract.
Because of this fatal flaw, SRA now offers a litany of legal theories to excuse the broken
chain of title. Yet, SRA, through its own actions, has twice conceded that the 1998 Bil of Sale
failed to transfer anything. First, in 2005, Egger, his lawyer, and SRA recognized that Egger
needed to take title from Site/Tech and thus that the 1998 Bill of Sale by Site Tech (rather than
SitelTech) was defective. Undeterred by their lack of authority to act for Site Tech, Egger and
his lawyer proceeded to manufacture a new instrument - the fraudulent 2005 Assignment (Mot.
Ex. 14) - which Egger signed as Siterrech's "President" even though Egger himself admits that
he was not Siteflech's President in 2005 and that Siteflech had since ceased to exist.) This was no isolated act. After Defendants fied this motion, Egger and SRA persuaded
Jeffrey Ait, the former CEO of Site Tech, to likewise go beyond Ail's authority and execute
another assignment again purporting to convey the patents to Egger (the 2008 Assignment).
They did so even though the Bankruptcy Court of the Northern District of California retains
jurisdiction over the assets of Site Tech and Siterrech and even though Ait had no authority to
bind Site Tech - his status as the responsible person for the Site Tech estate ended long ago in
2004, and Ait conceded that he was not Site Tech's CEO in 2008.2
i Egger Depo at 63: 1-3. (Rp. Ex i). During Egger's deposition, Siicrrech was referred 10 as "Slash." ¡d. ai 27:2.5. 2 Aii Depo. at 134:14.19; 166:35-167:7. (Rp. Ex 2).
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Pa.ge I FlLED UNDER SEAL
As a consequence of these events, there are now three documents that purportedly
conveyed the patents to Egger- the 1998 Bit of Sale, the 2005 Assignment, and the August
2008 Assignment. None was effective:
A. The 1998 Bil of Sale. SRA relies On the 1998 Bil of Sale (Mot. Ex. 10) to
evidence Egger's alleged receipt ofthe patents-in~suit from Siterrech, a Delaware
corporation (aka Libertech), in 1998, even though Site/Tech was not a party to the
1998 agreement and even though Site/Tech never assigned its rights to Site Tech, a
California corporation, in a writing. SRA offers three theories for why the 1998
Bill of Sale was effective despite the absence of
the patent owner as a pary. (Opp.
at 1-2). Each theory fails.
i. Site Tech did not obtain the patents by operation of law in 1997. SRA
argues that Site Tech obtained the patents by operation of law when it purchased Siterrech's stock in 1997. However, Delaware law does not "operate" to vest property as SRA posits.
2. Site Tech's actions did not bind Sitelech. SRA claims that the doctrines of alter ego, agency, and ratificatiOn transferred Site/Tech's title to the patents. But Site Tech was neither Siterrech's alter ego nor its agent, and SitelTech never ratified the J 998 Bit of Sale. Furthermore these equitable and common cannot circumvent the statutory requirement that a patent law doctrines conveyance be in writing.
3. The doctrine of after-acquired title does not help Egger. SRA theorizes
that, under the doctrine of after-acquired title, legal title to the patents "immediately" transferred to Egger when Siterrech and Site Tech merged. Critically, SRA ignores that the bankruptcy proceedings extinguished Egger's alleged right to specific performance. Moreover, the doctrine of afteracquired title does not "immediately" transfer title and is eviscerated by
Egger's unclean hands. .
B. The 2005 Assignment. SRA now attempts to wash its hands of the purported 2005
Assignment from Siterrech to Egger. (Opp. at 24; Mot. Ex. 14). This is
unsurprising, as the document falsely identifies Egger as Siterrech's "President"
and both Egger and his attorney knew this representation to be inaccurate.3 Egger
;l Egger Dcpo. ai 84:4-1 J: Lynch Dcpo. ai 140:5-8. (Rp. Ex. 3).
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF ST ANDlNG Page 2 FILED UNDER SEAL
and his attorney now claim that they prepared and recorded the assignment merely
to provide "public notice" of Egger's ownership - not to prove that the patents
were actually conveyed to Egger.4 But Egger made no such distinction when he
fied the 2005 Assignment with the Patent Office.
In fact, the law firm that Egger hired informed him that the 2005
assignment was "necessary to establish a clear chain of title" from Siterreeh to
Egger. (Rp. Ex. 4). Thus, the 2005 Assignment evidences Egger's own belief
that,
as late as 2005, he owned nothing, and that he needed to take title from Site/Tech,
rather than its parent, Site Tech. Moreover, the 2005 Assignment - which Egger
himself signed - asserts that "Siterrechnologies/lnc . . . is the owner of the
patent(s)." Egger and SRA cannOt plausibly deny that Siterrech continued to own
the patents after the i 998 Bil of Sale.
C. The 2008 Assignment. Finally, in August 2008, Egger belatedly tried to obtain yet
another assignment purporting to assign Site Tech's remaining interests in the
patents to himself. (Rp. Ex. 5). However, Site Tech had long since ceased to
operate, and the signing officer, Jeffrey Aii, had long been relieved of his authority
to act for Site Tech.5 As a result, this third document is no more effective than the
other two.
In short, no written document conveyed the patents-in-suit to Egger. SRA advances
various theories about the i 997 Stock Exchange Agreement, but these are wrong
as a matter of
law. Its remaining theories require the court to ignore the Patent Law's requirement for a written
transfer and respect for the corporate form of the patentee, Siterrech. SRA would disregard that
settled law On the ground that Siterrech was a shell company. However, the facts prove
Siterrech was not a shell, and Ait, the former President of SitelTech, acknowledged this at
4
Egger Depo. al 121: 11-22.
:; Aii Depo. ai 166:25.167:7.
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deposition.6 Consequently, the 1998 Bil of Sale gave Egger no rights to the patents-in-suit, and
SRA obtained none froID Egger. Plaintiff SRA has failed to meet its burden of establishing
standing to sue. See Lujan v. Defenders ofWUdlife, 504 U.S. 555, 560 (1992).
II. ARGUMENT
A. The 1997 Stock Exchange Agreement Did Not Transfer The Patents~ln~Suit
From SiteJech To The Stock Purchaser, Site Tech.
1. Site Tech Did Not Receive The Patents~In~Suit By Operation Of
Law.
SRA incorrectly argues that SítelTech's Certificate ofIncorporation (Opp. Ex. 10)
transferred the patents to Site Tech "by operation of law" as a consequence of Site Tech's
acquisition of Siterrech stock. SRA relies upon a single clause in the Certificate - Art. IV.B.2.b
(the "Liquidation Preference"). This clause states that, when it is triggered, "any remaining
assets and funds (of Siterrech) . . . shall be distributed among the (stockholders of Siterrech)."
SRA erroneously theorizes that Site Tech's stock acquisition invoked the Liquidation Preference
and caused this clause to automatically vest all of SitelTech's property in Site Tech. This theory
fails. because there is no law in "operation."
8. The Liquidation Preference Does Not Vest Property "By
Operation of Law."
SRA argues that the Liquidation Preference conveys property "by operation ofIaw."
However, there is no underlying law in "operation." The Supreme Court has held that a transfer
"by operation of law" only occurs if
the transaction "mechanism is entirely statutory, effecting
an automatic transfer without any voluntary action by the parties." United States v. Seattle-First
Natl Bank, 321 U.S. 583, 588 (1944). Delaware also follows this rule.? In Pioneer National
Títle Insurance Co. v. Child, Inc., 401 A.2d 68, 70 (DeL. i 979), the Delaware Supreme Court
held that an assignment or transfer "by operation of law" only occurs "by the mere
application. . . of
the established rules oflaw, without the act or cooperation of that person," and
6 Aii Depo. at 110:8-14. During Aii's deposition. Sìie/Tech was refelTed 10 as "Slash:'
7 Delaware law controls as SitelTech was a Delaware corpoi'alion at the time of the stock exchange agreement. SRA
likewise relies upon Delaware law. Opp. at 9.
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applied the rule to reject an alleged transfer of a claim by "operation of law" between a
corporation and its successor.
Delaware does have laws that vest property by operation of law, such as its version of the
UCC foreclosure law.s However, Siterrech's Liquidation Preference does not invoke any of
these laws, and SRA does not rely on them. As its name suggests, the Liquidation Preference is
intended primarily for distributions in a "liquidation, dissolution, or winding up." The Delaware
laws that pertain to dissolution, DGCL §§ 275-2851 do not automatically vest property. Rather
they call on dissolving corporations to actively administer their assets. DGCL § 278 is
ilustrative: it continues the existence of dissolved corporations so that they may "gradually. . .
dispose of and convey their property, . . . discharge their liabilities and. . . distribute to their
shareholders any remaining assets." 9 This process necessarily involves voluntary acts. For
example, the statute does not require any particular party to be vested with the corporation's
property and expressly pennits its disposal generally.tO Thus, Delaware's dissolution laws
cannot convey property "by operation of
law." See Seattle-First Natl Bank, 321 U.S. at 588.
SRA relies on Delaware's dividend law, DGCL § 173, as the operative law. (Opp. at 9).
But DGCL § 173 cannot vest property "by operation of law." DGCL § 173 simply provides that
no corporation shall pay dividends except in accordance with the Delaware statute, particularly
DGCL § i 70, which provides that "directors. . . niay declare and pay dividends" if certain
8 Delaware's version ofUCC § 9-617 reads: uA secured pariy's disposition of coUateral after default:. . . transfers
to a transferee for value aU of the debtor's rights in the collateraL" Del. Code Ann. tit. 6, § 9.617 (emphasis added). Its I1rger law, DGCL § 259(a). states that uall property, real, personal and mixed (of the disappearing
corporation in Ihe merger), and all debts due. . . shall be vested in the corporation surviving or resulting.'''
(emphasis added). See also DGCL § 292 ("Trustees. . . shall, upon Iheir appointment. . . be I'wed by operatioii act or deed, Wilh.the title of the corporation to all of its property.") (emphasis added). 9 See also DGCL § 279 (requiring that the corporation "appoint. . . trustees. . . to take charge of the corporation's
of law aiid without aiiy
property. . . . and to do all other acts. . . necessary for the final settlement"); DGCL § 280(e) (providing for a successor entiiy Uto (inier alia) dispose of and convey the property of the dissolved corporation"); DGCL § 281 (peimitling exercise of Uthe judgment of directors" in paying for claims out of corporate assets before any distribution of remaining assets).
III See e.g., Storm Waterproofing Corp. I'. L. Soiiiieborn SOliS, IIIC., 3 i F.2d 992, 994 (D. DeL. i 929) (permitting
dissolving company under predecessor staiiie to DGCL § 278 to sell a tnidemark asset to a third party).
REPL Y IN SUPPORT OF DEFENDANTS' MOTION TO DiSMISS FOR LACK OF STANDING Page 5 FILED UNDER SEAL
financial tests are met.1J (emphasis added). Dividends therefore are discretionary and entirely
dependent on voluntary acts - specifically, a declaration of a dividend by the board of directors,
followed by actual payment of the dividend by the corporation.12 See Gabell & Co., Inc. Profit
Sharing Plan v. Liggett Group, Inc., 444 A.2d 261, 264 (DeL. Ch. 1982) ("A
decision to declare a
dividend is a matter ordinarly addressed to the discretion of the Board of Directors."). Thus, §
173 and Delaware's dividend statutes cannot be the law "in operation" according to Seattle-First
National Bank. Because no law operated to automatically vest Siterrech's property in Site Tech,
SRA's argument that the Liquidation Preference vested the patents "by operation law" fails.
b. Even if
There Were Operative Law, Sitefech Never
Penormed The Statutory Acts Required To Cause A
Distribution.
Even if one were to assume that Delaware law could somehow "operate" to transfer the
patents to Site Tech, Siterrech never performed the legal acts required to transfer its property.
Distributions under Delaware corporate law require affirmatìve acts as a matter of law.
Dividends and dissolutions are no exception. With respect to dividends, DGCL §§ 170, 173 and
213 require a declaration of the board, a determination of which stockholders are entitled to
receive the dividend by setting a formal record date, and affirmative action to actually make the
dividend payment. 13 Siterrech did not take these steps. With respect to dissolutions, DGCL §§
275 and 278 require board and stockholder approval of the dissolution and the filing of a
certificate of dissolution with the Delaware Secretary of State. Thereafter, either a court
proceeding occurs orthe board of directors adopts a "plan of distribution" pursuant to § 281 (b)
of the DGCL that provides for noticing claimants, the paying off the corporation's liabilties, and
ii DGCL § 173 requires that "(n)o corporation shall pay dividends except in accordance with this chapter," and thus
invokes § 170. which provides thai a board may declare and pay dividends but restricts dividends to monies
payable "( 1) out of surplus, . . . or (2) . . . OUI of its net profits."
12 See also
Drexler, Black & Sparks, Delaware Corporation Law & Practice § 20.02 (2007) ("Specific board action exercising the board's discretionary power to declare a dividend is essential to the creation of an enforceable obligation by the corporation to pay dividends to stockholders:'). Nor is there any evidence that the required voluntary acts, such as a board declaration and payment, took place. Indeed, the payment of a patent as dividend
would require a wrìuen assignment. 35U.S.C. § 261.
13 See Drexler. Black & Sparks, Delaware Corporation Law & Practice § 20.02 (2007).
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF STANDING Page 6 FILED UNDER SEAL
only then distributing any remaining funds or assets to the stockholders. Again, Siterrech did
not take these steps. Delaware law is straightforward - distributions do not occur unless the
corporation takes affrmative steps required by statute. Under the law that SRA alleges was in
operation to transfer the patents, Siterrech never took the statutorily required steps to effect a
conveyance.
c. The Liquidation Preference Is Not Self-Executing As A Matter
Of Contract Interpretation.
SRA's argument also fails as a matter of contract interpretation.14 First, the absence of
language mandating automatic action precludes the Liquidation Preference's prospective term
("shall be distributed") from being construed as self-executing. The Delaware Chancery Court
reached this same conclusion in Pharm-Eco Lab., Inc., v. Immtech Intl, Inc., No. Civ. AJ 8246,
2001 WL 220698 (DeL. Ch. Feb. 26, 2001). The contract in Pharm-Eco stated that "upon
completion of (lmmtech's) IPO . . . Pharm-Eco wil grant or assign to Immtech . . . an exclusive
worldwide license." ¡d. at *2 (emphasis added). The court rejected the argument "that the Letter
Agreement's provision requiring (Pharm-Eco) to grant or assign a license to Immtech was self-
executing upon the occurrence of the IPO." Jd. at *6. It explained:
Eco was obligated to take specifc action to grant or assign the
(TJhe natural inference one draws fl'm the language is that Pharm-
Exclusive License upon completion of the IPO. If it were otherwise, one would eJlpect that the Letter Agreement would state that upon completion ofthe IPO, all ofPharm-Eco's rights under the 1993 Letter Agreement would be automatically assigned to Immtech.
/d. at *7 (emphasis added). Like the license grant in Pharni-Eco, Siterrech's Liquidation
Preference does not state that its assets would be automatically assigned to stockholders.
Consequently it is not self-executing, but merely pl'spective. Siterrech knew how to use such
self-executing language since Article 3(a)(iii) in its Articles of Incorporation, for example, called
for preferred shares to "automatically convert." (Rp. Ex. 6 at 6).
14 A corporation's certificate of incorporation is a contract between the corporatioii and its stockholders and "general
rules of contract interpretation apply to its terms." Set! Staal' Surgical CO. I'. Waggoner. 588 A,2d i i 30, I i 36 (DeL. 1991); ac('rd Waggoner 1'. Lasier, 58 i A,2d 1 i 27, i i 34 (DeL. 1990); Ellngwood 1'. Wolfs Head Oil Ref Co., 38
A.2d 743 (DeL. 1944); Lawson
I'. Household Fiii. Corp.. 152 A. 723, 727 (DeL. 1930).
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Page 7 FILED UNDER SEAL
Even apart from the contractual
language, the Federal Circuit has held that a prospective
agreement to assign an invention cannot serve as a present assignment suffcient to confer standing to sue. See Arachnid, Inc. v. Merit Indus., 939 F.2d 1574, 1580-81 (Fed. Cir. 1991). In
Arachnid, a consulting agreement provided that "any inventions conceived" during the
consultancy "shall be the property of (Arachnid), and all rights thereto wil be assigned by (the
consultant) to (Arachnid)." Id. at 1576 (emphasis added). The Federal Circuit held that this
language did not constitute a present assignment of rights to the patented invention and thus did
not clothe plaintiff with standing to sue. /d. at 1580-81. As in Pharm-Eco and Arachnid, the
Liquidation Preference's directive that Siterrech's assets "shall be distributed" did not constitute
a present assignment and thus did not actually transfer those assets.
Moreover, Siterrech was not obliged to transfer any specific property under this clause.
In fact, the Liquidation Preference, at most, was an obligation to distribute "an amount"
corrsponding to the corporation's "remaining assets." The Liquidation Preference nowhere
required that any specific property be transferred. Rather, its language (e.g., "remaining")
contemplated disposing of corporate property to raise funds and then distributing the proceeds of
such funds (i.e., distributing an "amount"). Thus, there was no absolute requirement that
corporate property be distributed "in kind," and hence cannot be regarded as automatically
vesting the corporate property with the stockholders.
d. SRA's Reliance On Akazawa And Sky Tech Is Misplaced.
SRA cites two cases as allegedly obviating the need for a written assignment from
. Site/Tech to Site Tech, but neither case applies here.
The first case - Akazawa v. Link New Technology International, Inc., 520 F.3d l354
(Fed. Cir. 2008) - concerned a disputed conveyance under Japanese intestacy law. Contrary to
SRA's reading of Akazawa, the Federal Circuit held that a written instrument might be
necessary, depending on the facts of the case. The court stressed that, if Japanese law provided
for administration of a decedent's estate, "a written assignment in accordance with § 26 i may
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then be necessar to convey the patent from the estate to (the) heirs." ¡d. at 1358. The court
expressly distinguished situations where the law automatically vests property in the heirs (as in
H.M. Stickle v. Heublein, Inc., 716 F.2d 1550 (Fed. Cir. 1983)) from situations requiring
administration of an estate. See Akazawa, 520 F.3d at 1356, 1358. Here, as demonstrated above,
no law automatically vests property under the Liquidation Preference. At a minimum,
administrative acts (that did not occur here) would have been required to dispose of Siterrech's
assets under the Liquidation Preference and Delaware law. See DGCL §§ 278-281. Thus, the
situation here is akin to the one that the Federal Circuit in Akazawa contemplated would require a written assignment, and so Akazawa actually undermines SRA's position that none is needed.
SRA's other case - Sky Technologies, LLC v. SAP AG ("Sky Tech"), Case No. 2:06-cv-
440 (DF), (E.D. Tex. August 25, 2008) (Opp. Ex. 25) - also does not support finding a valid
transfer of the patents from Siterrech to Site Tech.15 Sky Tech involved an underlying state law
that expressly vested property with a successful bidder in a public auction. The court found the
transfer to the successful bidder to be valid because the auction triggered a state foreclosure law
that directly vested the auctioned property in the purchaser. Id. at *18. The court emphasized
that the operative state law expressly stated that the "disposition (i.e., the public auction)
transfers. . . all of debtor's rights in the collateraL." Mass. Ann. L. ch. 106 § 9-617(a) (emphasis
added). Sky Tech thus turned on a statute that automatically transfers property. As discussed
above, the deemed liquidation event invoked by SRA did not trigger any such law and so Sky
Tech does not support SRA's position.
e. The Circumstances Of The 1997 Stock Exchange Agreement
Further Belie SRA's Position.
The circumstances surrounding 1997 Stock Exchange Agreement also do not support
SRA's position that this Agreement transferred
all Siteffech assets to Site Tech. First, Siterrech
15 The Federal Circuit recently granted an interlocutory appeal in Sky Tech. Fed. Cir. Case No. 2008-1606. The
Easteii District of
Texas (Judge Folsom) has stayed the case pending the outcome.
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actually retained
assets fotlowing the stock exchange according to its tax returs and Jeffrey Ait,
16
Siterrech's former President.
Second, Ait testified that the former owners of Siterrech rejected Site Tech's (then
Deltapoint s) offer to buy Siterrech' s assets because they "wanted to get rid of all liabilities as
well as all assets."17 Thus the ownerS of Siterrech sold the entire company, i.e., as a full-fledged
entíty compnsing all its liabilties together with its assets. Likewise, Site Tech maintained
Siterrech as a separate legal entity in order to insulate itself from potential
liabilties. Ait
testified that "We kept a legal entity in place as a Delaware corporation because. . . we wanted
to protect the public corporation from any liabilities that might arse out of (Siterrech).,,18 Since
Siterrech's liabilties were not transferred into Site Tech pursuant to the 1997 Stock Exchange
Agreement, its assets also did not transfer. Delaware liquidation law requires that an asset
transfer to stockholders cannot be accomplished until liabilities are addressed, and, not until
December 2000 did this deliberate separation end when the two companies merged and the
surviving company expressly assumed responsibility for Site/Tech's liabilties. (Mot. Ex. 12).
Third, there is no evidence that the parties intended to cause an asset transfer by
amending the Articles ofIncorporation for Siterrech. Rather, the
aricles were amended so that
the
preferred shareholders of Siterrech could receive a preferential payment in the 1997 Share
Exchange Agreement. 19 Unless the articles were amended to define a share exchange as a
liquidation event,the preferred shareholders had no right to the preferred payment that they
received in the i 997 Share Exchange Agréement.2o It was for this reason that the parties
amended the Articles of Incorporation to define a share exchange as a liquidation event.
16 See Ait Depo. at 79:12-)6 (fiing of
tax returns after stock exchange); ¡d. at 81:11-19; 82:8-21 (continuing to pay salaries after stock exchange); ¡d. at 85:5-94:18; 110:4-7 (continuing to file tax returns, retain assets, pay rent and pay salaries after stock exchange). See also Rp. Exs. 7-8. 17 Ait Depo. at 78:16-21.
IS !d. at 109:2-10.
I~Rp. Ex. 6.
201d.
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The simple fact remains that there is no evidence that Siterrech transferred all its
property to its Site Tech pursuant to the 1997 Stock Exchange Agreement. As explained above,
the evidence shows that Siterrech retained assets and that Siterrech continued as a separate
corporate entity until December 2000.21
2. The Stock Exchange Agreement Did Not Cause a De Jure or De Facto
Merger Between Siteffech And Site Tech In 1997.
SRA alludes to a "de facto merger transaction" between Siterrech and Site Tech (Opp. at
3-6), but the patents could not have transferred to Site Tech by virtue of a de facto merger since
Delaware courts have applied "de facto mergers" in only very limited circumstances not present
here.22 Moreover, Delaware courts have explicitly rejected characterizing stock exchanges as de
facto mergers that result in the automatic transfer of assets. For instance, in Orzeck v. Englehart,
195 A.2d 375, 377 (DeL. i 963), the Delaware Supreme Court found that a stock exchange was
not a de facto merger and did "nothing more" than make the purchasing corporation the
stockholder of the other corporation. In emphasizing this point, the court stated:
(TJhe purchasing corporation is not the owner of the assets of the other corporation, but is merely a stockholder. . .. Nor do the
corporate identities (merge J b~ reason solely of the purchase by
one of all of the other's stock. 3
¡d. (Emphasis added). Here, Siterrech and Site Tech intentionally structured the transaction as a
stock exchange so that SitelTech's sellers could declare a tax loss, and so that Site Tech would
be insulated from Siteflech's Iiabilties.24 Under Delaware law, this transaction was not a
merger, and cannot be so characterized to erodethe distinctiveness of Siterrech as a separate
legal entity from Site Tech. Absent a de jure merger, Siterrech's assets remained squarely with
21 See supra note 16.
22 See Balotti & Finkelstein, Delaware Law of Corporations and Business Organizations§ 9.3. Under Delaware law,
the rare cases acknowledging defacto mergers typícally have involved ilegal asset sales See Heilbrul1l v. Sun CJiem. Corp., 150 A.2d 755, 758 (DeL. 1959). No asset sale occlJn'ed here, however.
23 Likewise, Findanque v. Am. Maracaibo Co., 92 A.2d 31 i (DeL. Ch. 1952). held thal the acquisition of all the
outstanding stock by a corporation of another corporation did not result in a de facto mergeí" of the two
corporations, for the reason that ownership of stock in one corporation by another does not create an identity of interest between the two corporations and make one the owner of the property of the other. See also Owl Fumigating Corp. v. Cal. Cyanide Co., 24 F.2d 718 (D. DeL. 1928).
2~ See supra note 18.
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Pa~e 1 i FILED UNDER SEAL
Siterrech until its December 2000 merger into Site Tech. Thus, Siterrech continued to be the
title holder of the patents-in-suit well after the 1997 Stock Exchange Agreement.
Notably, the filing of merger papers in December 2000 undermines any claim that a
merger, whether de facto or de jure, occurred earBer. There would have been no need for the
December 2000 merger if the companies had merged earlier. The continued separateness of the
two corporate identities also is reflected by the fact that, after the 1997 Stock Exchange
Agreement, Siterrech continued to maintain a separate office, hold assets in its name, pay
salares to its employees, and pay taxes.25
3. Sitelech Did Not Transfer the Patents To Site Tech Via Written
Conveyance Under § 261.
SRA also relies on Siterrech's Certificate of Incorporation to purportedly satisfy 35
U.S.c. § 26l 's requirement that an assignment of a patent be evidenced by "an instrument in
writing." As SRA notes, the Federal Circuit recently observed in a footnoted dictum that § 26l
"allow(s) the instrument that assigns 'any interest' to take the form of a patent license or any
other written instrument that transfers patent rights." See Morrow v. Microsoft Corp., 499 F.3d
l332, 1338 n.3 (Fed. Cir. 2007) (emphasis added). For the reasons explained above, however,
Site/Tech's Certificate of Incorporatiun is not a "written instrumenT that transfers patent rights."
It did not invoke any law that automatically vests property. It did not mention (let alone
automatically effect) the conveyance of any specific property much less the corporation's
patents. At most, it was a prospective agreement to allocate value (rather than property), and
thus did not constitute an assignment under Arachnid. Consequently, the Certificate of
Incorporation does not satisfy § 26I's writing requirement.26
25 Ait Depo. at 87:10-88:5; 110:4-7. These facts also confirm ihat SílelTech was notliquidaied in July 1997. 26 The cases cited in footnote 8 of SRA's opposítion (Opp. at 12) do not address the situatíon here. In CMS
Industries, ihere was noihíng in the opinion to suggest that the asseltransfer from one subsidiary to another
subsidiary was not accomplíshed pursuant to a valid wriuen assignment. See generally CMS Indus., Inc. v. L.P.S.
Int', Ltd.. 643 F.2d 289 (51h CiT. 1981). In Intel Corp., the court expressly recognized thai the patents were
transferred by a written document recorded at
the patent offce. See Imel CO/po v. Broiidcom Corp., 173 F. Supp.
2d 201, 209 (D. DeL. 2001). Surfer Internet concemed a motìon 10 transfer and the opinìon did not address
whether or not there was a valid iransfer of patent rights. See generally Siifer hitemet Broad. oJ Mi.~s. v. XM
Satellte Radio. Inc.. No. 4:07-CV -034, 2008 WL 1868426 (N.D. Miss. April 24, 2008). And in Meclimetals,
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Page 12 FlLED UNDER SEAL
4. Sitelech Did Not Ratify An Assignment To Site Tech.
SRA argues that Siterrech ratified a transfer of the patents from Siterrech to Site Tech.
According to SRA, ratification occurs "where a board of directors has notice of a transfer, does
not object to a transfer, and retains the fruits of the transfers." (Opp. at i 2). The premise of this
argument is that there was an actual "transfer," since SRA does not suggest that ratification can
be used to circumvent the writing requirement of 35 U .S.C. § 26 i. As discussed above,
however, there was no such ''transfer'' of the patent rights and no assignent that complied with
§ 261. Consequently there was nothing for Siterrech to "ratify" in connection with Site Tech's
acquisition of Siterrech stock.27 Thus, SRA's ratification argument fails.
Furtermore, SRA has failed to point to any affirmative act by Siterrech, let alone a
writing, in which Siterrech specifically ratified the conveyance of the patents prior to this
litigation.28 Siterrech did not, in fact, convey all its property to Site Tech as it continued to have
its own North Carolina offce and assets after the agreement. Also, according to Ait, Site/Tech
was continued as a separate entity to prevent its liabilties from reaching Site Tech.29 These facts
further demonstrate that there was no ratification.
Conclusion: Contrary to SRA's argument, the Liquidation Preference in Siterrech's
Articles of Incorporation failed to convey the patents from Site/Tech to Site Tech. Thus, Site Tech did not have any rights to the patents-in-suit when it entered into the 1998 Bil of Sale with
Egger.
there was no indication that the transfer of patent rights was nOt done via a valid written assignment. See
Meclimerals Corp. v. Telex Computer Prods., Inc., 709F.2d 1287, 1290 (9th CiT. 1983).
27 There is no ev,idence (hat, at the time the alleged transfer occurred, that Siterrech retained any fruits of the
alleged transfer. Under SRA's theory, Silerrech would have been gulled of all its assets, and left with liabilities.
28 Ratification is an act that occurs after the alleged transaction, but in its brief, (Opp. at 12), SRA emphasizes the
acts of Sitellech's pre-acquisition board in amending Sitellech's aricles of incorporation as amounting to a ratification. Even so. this board (acting before (he aiieged transaction) never acted to ratify any acquisition-related transfer of any specific property (let alone the patents) out of SitelTech. All the pre-acquisition boar did was to sell out its shares in SitelTech and obtain preferential payment for its preferred shareholders. These acts before the
alleged transaction are also distinguishable from CartAmérica Realt)' Corp. \1. Kaidanow. 32 I F.3d 165, 173 (D.C.
Cir. 2003), where the board passed a resolution specifically ratifying the disputed transaction. 29 Aii Depo. at 109:2-10.
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF STANDING Pagc 13 FILED UNDER SEAL
B. The Doctrines or Alter Ego, Agency, And Ratification Did Not Convey The
Patents-In-Suit To Egger.
Unable to show that Site Tech owned the patents when it purported to assign them to
Egger in i 998, SRA claims that the 1998 Bil of Sale bound Siterrech, the tre owner of the
patents, under the alter ego doctrine and agency and ratification principles. For the reasons
below, SRA is again wrong.
1. The Patent Laws Require A Written Patent Assignment From The
True Patentee, Siteffech, And None Exists.
As an initial matter, for there to be an assignment of patent rights, the owner of the patent
must deliver title to the assignee by way of a written instrment. See 35 U.S.C. § 261. This
provision sets fort a bright line rule that protects the issue of ownership from being clouded by
parol evidence. Indeed, the Federal Circuit has consistently held that the writing requirement
cannot be evaded, as only a writing provides the requisite "certainty" that a transfer has occurred.
See Enzo APA & Son, lnc. v. Geapag AG, l34 F.3d i 090, 1093 (Fed. CiT. 1998). The court
explained that absent a writing, "lpJarties would be free to engage in revisionist history,
circumventing the certainty provided by the writing requirement of section 26 i." !d.
To support its alter ego, agency, and ratification arguments, however, SRA offers exactly
the type of parol evidence that the Federal Circuit found to undermine the certainty of § 26 i .
Specifically, SRA offers declarations prepared expressly for this litigation, rather than any
. assignment by SitefTech itself. But, as detailed below, there is a wealth of other evidence that
controverts SRA's claim that Site Tech was Siterrech's agent or that Siterrech was a "shell
company." Among other things, Siterrech's own tax returns show that Site/Tech was a separate
business entity that reported its own income and losses. One need not balance all of this parol
evidence, as one thing remains certain: no written conveyance ever transferred the patents-in-suit
from Siterrech.
Nonetheless, on the basis of its controverted evidence, SRA asks this Court to ignore the
fact that Siterrech, the actual patentee in ) 998, was not a party to the i 998 Bil of Sale. The case
law and patent statutes do not permit SRA to disregard the corporate form in this manner. A
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patentee's owner is not a legally equivalent of the patentee. See e.g., Lans v. Digital Equip. Corp., 252 F.3d 1320, 1328 (Fed. Cir. 2001)~ Mot. at 10. As the Federal Circuit explained in
Lans, the sole owner of a patentee does not have standing to assert the patentee's patent. As a result, Site Tech clearly lacked standing to assert Siterrech's patents in 1998. It is axiomatic that a pary cannot grant another more rights than it has. See TM Paténts,
L.P. v. lntl Bus. Machs. Corp., 121 F. Supp. 2d 349, 365 (S.D.N.Y. 2000). Since Site Tech
itself lacked standing to sue in i 998, it could not have assigned this right to Egger (or any
subsequent assignee), and thus the 1998 Bil of Sale between Site Tech and Egger could not have
conferred standing on Egger, nor SRA.
2. SiteIech Was Not The Alter Ego Of Site Tech.
SRA argues that Siterrech's separate corporate identity should be disregarded under
Delaware's alter ego law. (Opp. at 13-15). Under Delaware law, however, "(i)t is only the
exceptional case where a court wil disregard the corporate form." Sears, Roebuck & Co. v.
Sears plc, 744 F. Supp. 1 297, 1305 (D. DeL. i 990). To prove Siterrech was an alter ego of Site
Tech, SRA must show that: (i) Siterrech and Site Tech operated as a single economic entity; and
Oi) an overall element of fraud or injustice is present. In re Foxmeyer Corp., 290 B.R. 229, 235.
236 (Bankr. D. DeL. 2003) ("The requisite injustice or unfairness is also not simple in nature but
rather something that is similar in nature to a fraud or sham. . . fraud or something líke it is
required.") (emphasis in original); see also Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 (2nd Cir.
1995). Neither element is present here.
Not A Single Economic Unit. To demonstrate that the two companies allegedly operated
as a single economic unit, SRA emphasizes that Siterrech was wholly-owned by Site Tech and
had the same directors and officers. (Opp. at J 3- i 4). These factors are insufficient to establish
alter ego status under Delaware law. See Mabon, Nugent & Co. v. Tex. Am. Energy Corp., Civ.
A. No. 8578, 1990 WL 44267, at *5 (DeL. Ch. April 12, 1990) (refusing to apply the alter ego
doctrine based "merely on a showing of common management of the two entities" or "a showing that the parent owned all the stock of the subsidiary").
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF STANDING Pa.ge 15 FILD UNDER SEAL
SRA also claims that Siterrech had "essentially no assets" or "employees or operations
of
its own." (Opp. at 14). However, Siterrech's 1998 and 1999 tax returns controvert these
claims. (Rp. Exs. 7_8).30 According to these tax returns, Siterrech had its own assets, eared
$18,920 and $50,381 from its business activities in 1998 and 1999 respectively,31 declared
$581,668 and $36,167 in losses in those two years, and paid $88,000 in annual employee
salares.32 Moreover, Siterrech retained offces and three employees in North Carolina after it
became Site Tech's subsidiary,33 and also released a software product under its name.34 These
facts demonstrate that Siterrech continued as an independent business after the 1997 stock
exchange agreement and prove conclusively that Siterrech was not Site Tech's alter ego. This
independence is also consistent with Aits testimony, quoted above (see fn. i 8), that Siterreeh
was maintained as a separate entity to insulate Site Tech from Siterrech's liabilities.
SRA's claim that Site/Tech was a "shell entity" of Site Tech is also wrong. (Opp. at 14).
Ait set the record straight at his deposition, testifying that Siterrech was not a shell entity after
its acquisition by Site Tech:
entity, under the definition that you just told me, and I mean this respectfully, Slash (i.e., SitelTech) was not a shell entity at leastin 1998, you would agree with that; right, and the same in 1999; correct? A: Okay.35
Q: So you would agree under your own definition of shell
In tight of all this evidence, SRA cannot show that Siterrech and Site Tech operated as a single
economic entity.
No Fraud Or Injustice. Even if Siterrech and Site Tech were
a single economic entity
(which they were not), SRA's alter ego argument stil fails because these companies were not
30 !d. ai 85:5-20. 31 Rp. Exs. 7-8; Aii Depo. aI88:20-22, 89:22-24. 32 Rp. Exs. 7-8. 33 Aii Depo. at 81 :11-19; 82:8-21. 3~ See Mol. Exs. 7-8.
35 Ail Depo. ail 10:8-14. During Ait's deposiiion, Siterrcch was referred to as "Slash." ¡d. ai 15:5-9.
REPL Y IN SUPPORT OF DEFENDANTS' MOTION TO DlSMISS FOR LACK OF ST ANDlNG Page i 6 FlLED UNDER SEAL
used to perpetrate a fraud or injustice. Under Delaware law, the alter ego doctrine applies only
where a corporation uses its al1eged alter ego to
perpetrate "fraud or similar injustice." See, e.g.,
Wallace ex reL. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175,
1184 (DeL. Ch. 1999) ("Piercing the corporate veil under the alter ego theory 'requires that the
corporate strcture cause fraud or similar injustice.' Effectively,the corporation must be a sham
and exist for no other purpose than as a vehicle for fraud."); In re Foxmeyer, 290 B.R. at 236.
Here, there is no evidence that Site Tech and Site/Tech intentionally used their corporate
structure to defraud Egger. When Site Tech purchased all shares in Siterrech, it maintained
Site/Tech as a separate entity for legitimate tax. and liabilty purposes - not to perpetrate a fraud
or injustice on Egger.36 See Sears, 744 F. Supp. at 1305 (desire to benefit from Delaware tax law
does not evidence fraudulent intent for purposes of alter ego theory).
That Egger might have had a breach of contract claim against Site Tech for its failure to
convey title to the patents-in-suit does not demonstrate the necessary fraud or injustice. See
Mobil Oil Corp. v. Linear Films, Inc., 7 I 8 F. Supp. 260, 268 (D. DeL. 1989) (cause of action for
breach of contract or tort "does not supply the necessary fraud or injustice" to pierce corporate
veil). As a former offcer of SitelTech and stockholder at the time of the 1997 stock exchange
agreement, Egger was (or should have been) familar with Siterrech's status as a Site Tech
subsidiary after the stock exchange was concluded?7 Given this knowledge, Egger cannot claim
to have been "defrauded" for alter ego purposes. See Harper v. Del. Valley Broadcasters, lnc.,
743 F. Supp. 1076, 1086 (D. DeL. 1990) (finding no alter ego liabilíty where party advancing
theory was former director and officer of one of the companies and familar with their corporate
structure).
Moreover, the Patent Office records at the time of the 1998 Bil of Sale indicated that
Libertech (i.e., Sitelech) was the owner of the patents-in-suit, not Site Tech. (Mot. Exs. 3-4).
36 See Opp. at 3 ("For tax reasons, the parties structured the acquisition as a stock exchange with a distribution of
37 Egger Depo. at
assets into the parent, rather than liS a formal merger."). 12:22-13:4; 28:4-16.
REPLY IN SUPPORT OF
DEFENDANTS' MOTION TO
DlSMISS FOR LACK OF STANDlNG Page 17
FILED UNDER SEAL
,'. .
Egger therefore was on constructive notice that Site Tech did not own the patents in 1998. This,
too, weighs against a finding of "fraud or simílar injustice." See Hauspie v. Stonington Partners,
Inc., 945 A.2d 584, 586 (DeL. 2008) (a fraud claim requiresjustijiable reliance by the alleged
victim upon a false representation). In short, neither of the two factors required for finding Site
Tech and Site/Tech to be alter egos is present here.
SRA Is Not Entitled To Raise An Alter Ego Claim. SRA alleges that Site Tech was
generally Siterrech's alter ego, but SRA has no standing to bring an alter ego claim against Site
Tech in view of Site Tech's bankrptcy. A debtor's claims against its alleged principal are
property of the bankruptcy estate, and thus can only be asserted by the debtor acting as trustee
under 11 U.S.C. § 1107. See, e.g., In re Davey Roofing, Inc., 167 B.R. 604, 608 (Bankr. C.D.
Cal. 1994) ("(T)hese alter ego claims are property ofthe bankrptcy estate, and. . . Debtor's
creditors are barred
from bringing stich claims.") (emphasis added). Thus, once Site Tech filed
for bankruptcy, only Site Tech itself could have brought an alter ego claim alter ego claim based
on contracts arising before the bankruptcy. Accordingly SRA is not the proper party to assert
this claim now.
3. Site Tech Was Not Site/Tech's Agent For Conveying Patent Rights.
Relying on California law, SRA also contends that Egger obtained title from the 1998
Bil of Sale because Site Tech acted as Siterrech's actual or apparent agent and because
Sitefech also ratified the assignment. (Opp. at 15-21). As shown below, these arguments fail
because Siterrech never made Site Tech its agent to dispose of its patents, nor did it ever
represent as much.
Equal Dignity Rule. Under California law, an agent must be authonzed in writing in
order to enter into cOntracts that are required by law to be in writing On behalf of a principaL.
Specifcally, CaL. Civ. Code § 2309 ("the equal dignity rule") provides that "an authority to enter
into a contract required by law to be in writing can only be given by an instrument in writing."
35 U .S.C. § 26 i requires that patent assignments be in writing and thus is the equivalent of the
statute offrauds for patent rights. Therefore, for Site Tech to have been Site/Tech's agent in
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Pa~e 18 FILED UNDER SEAL
executing patent assignments, SRA must identify a writing that appoints Site Tech as Siterrech's
agent. It failed to do so.
The purpose behind the equal dignity rule is to prevent paries from evading statutory
writing requirements and thus applies here. The Federal Circuit itself ha~ adopted this principle,
holding that "virtual assignments" must be in writing, like true assignments, so as to satisfy the
degree of "certainty" required by § 261. Enzo APA 134 F.3d at 1093. The equal dignity rule
provides this certainty and thus bars SRA's agency arguments, whether based on actual or
apparent agency.
No Actual Authority. SRA's claim that Site Tech was Siterrech's actual agent is also
not supported by the facts. Under California law, "the significant test of an agency relationship
is
the principal's right to control the activities of the agent." CenterPoint Energy, Inc. v.
Superior Court, 157 CaL. App. 4th 1101, 1 i 18 (CaL. Ct. App. 2007); accord Malloy v. Fong, 232
P.2d 241, 249 (CaL. 1 95 i). Here, SRA has produced no evidence that Siterrech (the supposed
principal) could control the activities of Site Tech (the supposed agent). To the contrary, SRA
contends that the supposed agent, Site Tech, totally controlled the principal, Site/Tech, because
Site Tech took over Siterrech's daily operations, controlled Siterrech's officers, and fied
Site/Tech's tax returns on its behalf. (Opp. at l4). There is no evidence supporting the converse
- that Siterrech, as principal, controlled Site Tech, as agent. As a result, Site Tech could not
have been Síterrech's actual agent.38 See Kaplan v. Coldwell Banker
Res. Affliates, Inc., 59
CaL. App. 4th 741, 746 (CaL. Ct. App. 1997) (finding absence of agency because alleged
principal "did not control or have the right to control (the allegedagentsJ business activities.").
38 Because Site Tech was 1101 Siteffech's agent, SRA's argument made in the agent's name is simply irrelevant. See Opp. at
that an agent may bind its principal 17, fn. 9. In all
to a contract the cases SRA cites to supporlthis
argument, there was an acknowledged agency relationship. See Sterling v. Taylor, 152 P,3d 420, 430 (CaL. 2007) ("Defendants. . . do not dispute Taylor's authorization to act as SMC's agent"); Sumner v. Flowers, 279 P.2d 772,
773 (CaL. Ct. App. 1955) ('Miss Flowers' position as confidential secretary and agent
to Furnish was known and
recognized as such"); Pac. Fiii. Coip 1'. Foust, 285 P.2d 632, 633-34 (CaL. 1955) (''The inal court found. . . that Universal gave to Lonnie's authority to sell the cars. . . . There can be no doubt as to the suffciency of the
evidence to support
the findings on factorship (agency) issue,").
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SRA incorrectly asserts that Siterrech should be bound by Site Tech's claims to own the
patents. The claims of ownership upon which SRA relies all were made on behalf of Site Tech,
not SitelTech. (See Opp. at 16; Opp. Exs. 12~16, 24). Under Delaware law, an
offcer who signs
a document on behalf of one company does not bind every other company for whom he or she is
an officer, even if the two companies are parent and subsidiary. Cf United States v. Bestfoods,
524 U.S. 51, 69 (1988) ("(D)irectors and officers holding positions with a parent and its
subsidiar can and do 'change hats' to represent the two corporations separately, despite their
common ownership."). As a result, Aits remarks on behalf of Site Tech (aka Deltapoint)while wearing his "Deitapoint hat" - cannot be imputed to or bind Siterrech,39
SRA also improperly relies upon DGCL § 271
(a) & (c) as authorizing Site Tech to
transfer íts subsidiary's (Siterrech's) property. DGCL § 271 simply has no applicátion here.
First, the statute only applies when a parent company sells "all or substantially all of its property
and assets.,,40 Here, there was no sale of any assets of the parent company, and so the statute
does not apply. Second, even if § 271 did apply, it would require the approval of the parent's
stockholders for the asset sale. There is no evidence that the approval of Site Tech's
stockholders was obtained here. Third, the statute also does not change the fact that the assets of
the subsidiary are stil
legally owned by the subsidiary alone. See Orzeck, 195 A.2d at 377
("(T)he purchasing corporation is not the owner of the assets of the other corporation (that was
purchased), but is merely a stockholder."). Thus, § 271 also does not change the fact that no sale
can occur unless the subsidiary does in fact convey the assets. In sum, contrary to SRA's
39 SRA claims that the racis here are similar to ihose in Kathman Enters., Inc. 1'. Trinity Indus.. Inc., 394 F. Supp. 2d
923,941-42 (S.D. Tex. 2005). In Kothiian, however, the true owner of the patent assigned the patent. See id. at
94 I -42 ("It is undisputed that ISC held valid legal title to the '003 Palent on October 30. 2000, when Kothman
(ISC's owner) signed the document."). The Court merely refused to recognize language in the assignment that purported to make the assignment effective as of a date earlier than it was signed. /d. Here, by contrast, Site Tech
did not own the patents when it purprtedly assigned them to Egger in i 998. See RAD Data Commc'ns. Inc. v.
Patton Elecs. Co., 882 F.Supp. 351, 353 (S.D.N.Y. 1995) (finding no assignment because assignor had no rights
on slated execution date and rejecting argument based on "intent" of
paries).
40 See Gimbel v.Signal Companies, Inc., 316 A.2d 599. 605 (DeL. Ch. 1974) (holding that by negative implication
"( a) sale of less than all or substantially all assets is not covered" by § 27 i).
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF ST ANDlNG Pa~e 20 FlLED UNDER SEAL
argument, § 271 does not generally authorize a parent to sell the assets of its subsidiary and does not apply to the alleged sale of the patents in September 1998.
No Apparent Authority. SRA' s argument that Site Tech was Siterrech' s apparent agent
is also wrong, and bared by the equal dignity rule. To create apparent authority, the principal
must "cause(J a third person to believe another to be his agent who is not realty employed by
him." CaL. Civ. Code § 2300. There is no evidence that Siterrech caused Egger or anyone else
to believe that Site Tech was Siterrech's agent for disposing of its patent rights. Egger testified
that he knew at the time that he was dealing with Site Tech: "I knew that I was dealing with
Delta Point (aka Site Tech), of course.',4J
Furthermore, SRA has contended that Siterrech did not undertake any corporate actions
after its acquisition by Site Tech in 1997. (Opp. at l4). If so, Siterrech did nothing to make
Egger believe that Site Tech was Siterrech's agent. See Emery v. Visa Jntl Servo ASS'I1, 95 CaL.
App. 4th 952, 961 (CaL. Ct. App, 2002) ("Ostensible authority must be based on the acts or
declarations of the principal and not solely upon the agents conduct."). Moreover, SRA cannot
point to any action that Sifeffech itself
took to convince anyone that Site Tech was Siterrech's
agent for sellng the patents. Absent such action, Site Tech cannot be deemed Siterrech's
apparent agent.42
No Ratification. SRA also incorrectly claims that Siterrech created an after-the-fact
agency relationship through the ratification doctrine. (Opp. at 21). As an initial matter, there
41 Egger Depo. at 91:20-92:1. 42 SRA cites the unpublished Regency Ceiiers case, Opp. at 20, but this decision is inapplicable for many reasons.
First, the decision concerned a dispute over an option to be an interest in a company (Vista Village LLC). and thus the disputed contract was not required to be in writing. See Regency Centers v. Civic Partners Vista Vilage I,
LLC, No. G038095, 2008 WL 2358860, ai *3 (CaL. App. 41h Dis!. June I I. 2008). Moreover, unlike the
circumstances here, aJlthe elements of an "implied agency" were present See, e.g., id. at *14 (noting ihatihere was no dispute that the parties understood that the agent exercised the option on behalf of the principal), Further, SRA's contention that "California law was applied ¡in Regency) to find an implied agency relationship to manifest
the paries intentions" is wrong since Regency court explicitly rejected applying California law and applied
Delaware law instead. See id. (finding that "Defendants' reliance on (California law) is inapt"). SRA's other cited case, People Express Pilot. also is distinguishable for at least the same reasons; it did not concern an agreement required to be in writing. it did not apply California law, and it did not involve facts where the principal took no action. See People Express Pilot Merger Comii. v. Tex. Air Corp., Civ. A. No. 87-I 155,1987 WL 18450, at *4
(D.N.J. Oct 14, 1987).
REPLY IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING Page 21 FILED UNDER SEAL
was no effective transfer of rights pursuant to the 1998 Bil of Sale, and therefore no transfer for
She/Tech to ratify. Under California law, the ratification doctrne requires that the principal
have the abilty to create
an actual agency relationship. See CaL. Civ. Code § 2312 ("A
ratification is not valid unless, at the time of ratifying the
act done, the principal has power to
confer authority for such an act"); accord 2B CaL. Jur. 3d Agency § 74 ("(A)n effective
ratification requires that the principal possess the power to authorize the agent's unauthorized
act, both at the time the act is done and at the time of ratifcation."). As discussed above,
Siterrech lacked authority to make Site Tech its agent because Siterrech had no abilty to
control Site Tech. Thus, Sherrech could not have "ratified" Site Tech's purported sale of the
pàtents to Egger in 1998 after-the-fact. See Lindsay-Field v. Friendly, 36 CaL. App. 4th 1728,
1736 (CaL. Ct. App. 1995) ("The principal cannot ratify if the principal lacks power to confer
authority.,,).43
As a result of the December 2000 merger between Siterrech and Site Tech, Site Tech became the owner of the patents-in-suit. While SRA argues that Site Tech also ratified the i 998
Bil of Sale and the fraudulent 2005 Assignment concocted by Egger in 2008, this argument
caries no weight. The evidence that SRA offers in support of this alleged ratification are the
Declaration of Ait (Opp. Ex. 7) and the 2008 Assignment (Rp. Ex. 5), signed by Ait. These
documents prove nothing, however, as Ait had no authority to act or speak on Site
Tech's behalf
after the bankrptcy proceeding concluded on January 6,2004.44
Conclusion: For the reasons above, Egger did not obtain the patents-in-suit pursuant to
the doctrines of alter ego, agency, and ratification. Furthermore, even assuming that Egger could
43 By contrast, the lone case that SRA cites in support of its ratification argumenl - Scholastic Book Clubs, 111c I'.
State Rd. of Equalii,alion, 207 CaL. App. 3d 734 (CaL. Ct. App. 1989) - involved a principal (Scholastic) that did have the power to authorize other parties (various teachers) tö act as its agents at all relevant times. See id. at 737 ("The teachers are obviously not acting under anyone else's authority, and once they undertake to act, they are obviously acting under appellant's (Scholastic's) authority."). In addition, thepnncipal received payments, i.e.. the fruits of the teachers' acts, id. at 738.whereas here there is no. evidence that Siteffech received any benefit. 44 See supra at 28; Ait Depo. at 134: 14- I 9; see also Article 7.3 of the Plan provided that "( t)he Responsible Person
shaii be discharged from all duties and responsibilties of the Plan upon the issuance of the final decree." (Rp. Ex. 9). Moreover, Ait had not even seen the 2005 Assignment when he allegedly ratified it. Ait Depo. at 168:7-14.
REPLY IN SUPPORT OF DEFENDANTS' MOTJON TO DISMISS FOR LACK OF STANDING Page 22 FILED UNDER SEAL
..'.
have raised a claim against SitelTech (while it existed) under the doctrines of agency, alter ego,
and ratification to obtain a written assignment or a final, written judgment delivering title, Egger
never did so prior to Site Tech's bankrptcy. 45 As a result, title to the patents remained squarely
with SitelTech until its merger with Site Tech in December 2000 while the bankrptcy
proceedings were pending. As e)(plained below, Site Tech's bankrptcy bars Egger from
subsequently attempting to procure title from Site Tech.
C. No Equitable Principle Conveyed the Patents-In-Suit To Egger After Site Tech Filed For Bankruptcy.
SRA furter alleges that it obtained title to the patents-in-suit when Site Tech and SitelTech merged in December 2000 based on the doctrne of after-acquired title. (Opp. at 21-
24). Thistheory also fails for the reasons set forth below.
1. The Rejection Of The 1998
Bil Of Sale During The Bankruptcy Proceedings Relieved Site Tech Of Any Obligation To Transfer The Patents~ln-Suit.
SRA's after-acquired title argument ignores that, on February 2, i 999, Site Tech fied a
petition for relief under Chapter 11 of the Bankruptcy Code in the Northern District of
California. (Rp. Ex. 10). Assuming that the i 998 Bil of Sale obligated Site Tech to transfer the
patents-in-suit to Egger, that obligation remained unperformed since Site Tech could not have conveyed to Egger what it did not own and thus Egger could not have received title to the
patents. When Síte Tech fied for bankruptcy, its unperformed obligations became "executory
obligations" and the 1998 Bil of Sale became an "executory contract" subject to rejection by the
trustee or debtor-in-possession.46
Section 365 of the Bankruptcy Code governs the treatment of executory contracts and the obligations of parties to such contracts.47 The Supreme Court has held that the commencement
45 Egger did obtain such a document, allegedly from Site Tech, in August 2008. That alleged assignment is
discussed below. See supra at 30.
46 Under ii 4 of the 1998 Bil of Sale, for example, both parties had continuing obligations, among other things. to
defend and indemnify the other party. Mol. Ex. 10. 47 Subject to bankruptcy court approval, § 365 provides the trustee or the debtor.in possession wìth the option of
"assuming" or "reject
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