Software Rights Archive, LLC v. Google Inc. et al
Filing
76
RESPONSE to Motion re 66 MOTION to Dismiss for Lack of Standing filed by Software Rights Archive, LLC. (Attachments: # 1 Exhibit Declaration of Lee Kaplan 1-12, # 2 Exhibit Declaration of Lee Kaplan 13-16, # 3 Exhibit Declaration of Lee Kaplan 17-24, # 4 Exhibit Declaration of Lee Kaplan 25-36)(Kaplan, Lee) (Additional attachment(s) added on 2/3/2009: # 5 Text of Proposed Order) (ehs, ).
Software Rights Archive, LLC v. Google Inc. et al
Doc. 76
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS MARSHALL DIVISION
SOFTWARE RIGHTS ARCHIVE, LLC,
Plaintiff,
v.
§ § §
§ Civil Action No. 2:07-cv-511-TJW
GOOGLE INC., YAHOO! INC., lAC SEARCH & MEDIA, INC., AOL LLC, and L YCOS, INC.,
§ § §
§ JURY TRIAL DEMANDED
§ § §
Defendants.
PLAINTIFF'S RESPONSE TO DEFENDANTS' MOTION TO DISMISS
i. SUMMARY OF ARGUMENT .......................................................................................... 1
II. STATEMENT OF FACTS ................................................................................................. 2
A. In July 1997, Site/Tech, the undisputed owner ofthe patents-in-suit
at the time, transferred the patents to Site Tech. ..................................................... 3
B. After July 1997, Site Tech and Site/Tech merged corporate personalities. ............5 C. In September 1998, Site Tech sold and assigned the patents-in-suit to Egger, and
Site/Tech was bound by the assignment. ................................................................ 6
D. In December 2000, Site/Tech formally was merged into Site Tech and transferred all its remaining assets to Site Tech. .......................................................................6
III. ARGUMENT AND AUTHORITIES................................................................................. 7
A. Egger acquired the patents in September 1998. .......................................................7
1. Site Tech owned the patents in September 1998, having
acquired them from Site/Tech in July 1997.................................................7
a. Site Tech acquired the patents by operation oflaw. ........................7
b. Site Tech acquired the patents by written
conveyance. .................................................................................... 1 1
c. Site Tech acquired the patents by ratification. ............................... 12
2. Even assuming Site Tech did not own the patents in
September 1998, the subsidiary Site/Tech also was bound
by the assignment to Egger. . ........ ............. ........ ......... ................................ 1 3
a. Site/Tech was bound because it was the alter ego of
Site Tech. .......................................................................................13
Dockets.Justia.com
b. Site/Tech was bound to the assignment, because it
had authorized Site Tech to assign the patents to Egger in Site Tech's name. ............................................................15
(i) Site Tech had the actual authority from
Site/Tech to transfer the patents in its own
name...................................................................................1 7
(ii) Site Tech also had the ostensible or apparent
authority to transfer the patents-in-suit. .............................18
(iii) Site/Tech has ratified the 1998 and 2005
Assignments. ......................................................................2 1
B. The undisputed facts demonstrate that, at the latest, Egger acquired
the patents in December 2000................................................................................21
C. Defendants misrepresent the February 2005 Assignment from
Site/Tech to Egger.............................. ................................................ ....................24
D. Defendants' assertion that the Site Tech bankuptcy extinguished
Egger's rights to the patents-in-suit is wrong. .......................................................25
1. If Site/Tech held the patents, then bankuptcy did not defeat
Egger's rights. ............................................................................................25
2. If Site Tech held the patents, then bankuptcy did not defeat
Egger's rights. .......................................................................................... ..25
iv. CONCLUSION....................................................................................'.............................28
CERTIFICATE OF SERVICE ......................................................................................................30
PLAINTIFF'S RESPONSE TO DEFENDANTS' MOTION TO DISMISS
Plaintiff Software Rights Archive, LLC ("Plaintiff' or "SRA") files this Response to
Defendants' Motion to Dismiss, and shows the Cour as follows:
I. SUMMARY OF ARGUMENT
For nearly 10 years, no one questioned that the patents-in-suit were the property of
Daniel Egger (and, hence, the plaintiff, SRA). Now, in an effort to evade the jurisdiction of
this
Cour, the Defendants seek to bootstrap an incomplete reading of corporate documents to undo
an assignment that all parties intended, consummated, described publicly and have subsequently
ratified. Defendants' motion to dismiss consciously disregards the contemporaneous documents
demonstrating that Egger acquired the patents long before he assigned them to SRA.
Defendants' motion to dismiss should be denied.
Defendants' central contention-that Egger did not acquire the patents-in-suit before
February 2005-is not only wrong, it is contradicted by numerous company documents, sworn
SEC filings, emails, sworn declarations, and common sense. For multiple independent reasons,
Egger acquired the patents before February 2005:
. In July 1997, Site/Technologies/Inc. ("Site/Tech")l, the undisputed owner of the
patents at the time, transferred the patents to its parent company Site Technologies,
Inc. ("Site Tech")? In September 1998, Site Tech assigned the patents to Daniel
Egger through a bil of sale and assignment. Egger thus acquired the patents in
September 1998.
. Defendants claim that the true owner of not Site Tech. Defendants are wrong, but even if
the patents in September 1998 was Site/Tech,
Defendants were correct, Egger stil would have acquired the patents in September 1 998 because SitelTech was bound by
the September 1998 assignment to Egger. The assignment was executed by the CEO
1 Site/Technologies/Inc., the subsidiary, was known as "Libertech, Inc." prior to August 1996, when it was subsequently acquired by DeltaPoiut, Inc. For the sake of consistency, this brief refers to Libertech, Inc. and Site/Technologies/Ic. as "Site/Tech." 2 Site Technologies, Inc., the parent, origiually was known as "DeltaPoiut, Inc." It changed its name from
"DeltaPoiut, Inc." to "Site Technologies, Inc." in October 1997-thee months after it acquired
Site/Technologies/Inc. For the sake of consistency, this brief refers to DeltaPoiut, Inc. and Site Technologies, Inc. as "Site Tech."
1
of Site/Tech; Site/Tech was the alter ego of Site Tech; and Site/Tech had authorized Site Tech to assign the patents to Egger in Site Tech's name.
. Finally, even assuming that title was not transferred in September 1998, Egger
undoubtedly acquired the patents at the latest in December 2000. By that timeDefendants themselves admit-Site Tech would have acquired the patents from its
subsidiar Site/Tech even if it had not done so previously. Thus, by late 2000, Egger would have acquired the patents from Site Tech by operation of the after-acquired
title doctrine.
Because Egger acquired the patents before February 2005, his transfer to SRA was effective.
As a final note, Defendants falsely accuse Egger of fraud and misconduct. Defendants'
effort is irrelevant to their motion, and unavailing in any event. It is irrelevant because the
February 2005 assignment from Site/Tech to Egger has nothing to do with the chain of title in
this case. It is unavailing because that assignment, which merely fuctioned as replacement for a
lost assignment, has been fully ratified by Site/Tech. In short, Defendants' attempts to smear
Egger should be disregarded.
II. STATEMENT OF FACTS
Egger invented search engines employing link analysis, and SRA owns the patents-in-
suit. The early history ofthe patents-in-suit is undisputed. In June 1993, Egger applied for what
would become the '352 Patent. Ex. 1. In November 1993, Egger assigned the June 1993 patent
application to Libertech, Inc. ("Libertech"). Ex. 2. In May 1996, Egger and two colleagues
applied for what would become the '494 and '571 Patents. Ex. 3. In June 1996, Egger and his
colleagues assigned the May 1996 patent application to Libertech. Ex. 4. In August 1996,
Libertech changed its name to Site/Technologies/Inc. ("Site/Tech"). Ex. 5. Site/Tech was
acquired by DeltaPoint, Inc. ("DeltaPoint"), which later changed its name to Site Technologies,
Inc. and wil be referred to herein as "Site Tech."
2
A. In July 1997, SitelTech, the undisputed owner of the patents-in-suit at the time,
transferred the patents to Site Tech.
In July 1997, Site Tech acquired Site/Tech in what was intended to be a de facto merger
transaction that placed all the stock and, separately, all of the assets of Site/Tech (including the
patents-in-suit) in Site Tech. For tax reasons, the parties structured the acquisition as a stock
exchange with a distribution of assets into the parent, rather than as a formal merger. See Ex. 6
("The transaction must be structured as a stock exchange, rather than a merger, to make it
taxable."). The parties, though, also intended to merge the operations and assets of Site/Tech
into Site Tech, as confirmed by Site Tech's CEO and documents executed in connection with the
transaction. See, e.g., Ex. 7, ir 2 ("The purpose of this transaction was to merge the business of
Site/Tech into DeltaPoint, Inc."); Ex. 8 ("DeltaPoint intends to continue the business of Site after
the date hereof and integrate such business into DeltaPoints ongoing business.").
Because the paries intended to merge the operations of Site/Tech into Site Tech without
a formal merger, just three days before the acquisition, Site/Tech amended its certificate of
incorporation to make the anticipated stock exchange trigger the liquidation preferences and
distribution provisions of Site/Tech. See Ex. 10 ("In the event of ... a sale of all or substantially
all of ... the stock of the corporation, ... such event shall be treated as a liquidation ...."); Ex. 9
(SitelTech special board minutes, referencing liquidation); Ex. 6 ("This wil require an amendment to the company's articles to make it absolutely clear that an exchange is a
liquidation."). These provisions mandated "distributions to the shareholders ofthe corporation."
Ex. 10. Specifically, following payment of a sum of money to the preferred stockholders, "the
entire remaining assets and funds of the corporation legally available for distribution, if any,
shall be distributed ratably among the (preferred stockJholders .... Thereafter, any remaining
assets and funds legally available for distribution hereunder shall be distributed solely to the
3
holders of the Common Stock." Ex. 10. The stock exchange agreement prescribed that Site
Tech (then stil known as DeltaPoint) would become the sole stockholder of Site/Tech following
the stock exchange. See Ex. 11. Thus, Site/Tech's amended certificate of incorporation operated
to distribute its patents and other assets to its sole shareholder Site Tech upon consummation of
the stock exchange and subsequent stock distribution. See Ex. 7, ir 2 ("In this transaction,
DeltaPoint directly acquired all outstanding stock of Site/Tech and all of the then-existing assets
of
the company, including its patents and trademarks.").
After the acquisition, Site Tech repeatedly confirmed that it had acquired the patents from
Site/Tech. In five separate SEC filings, Site Tech reported: "On July 11, 1997, the Company
acquired the shares of Site/technologies/inc. ("Site") for an aggregate purchase price of
$638,000.... In exchange the Company's received all outstanding assets of
Site." See Exs. 12-16
(emphasis supplied). Furher, in each ofthree separate SEC fiings, Site Tech repeated six times
that it had acquired specific technologies through its acquisition of Site/Tech. See Exs. 13-15;
see also Ex. 16 (making four such statements). For example: "In July 1997, the Company
acquired Site/technologies/inc. ... pursuant to which the Company acquired, among other things,
SiteSweeper 1.0, a Web site quality control and maintenance product." Exs. 13-16. Likewise,
Site Tech updated its balance sheet to reflect its acquisition of Site/Tech's assets: "The pro forma
condensed balance sheet reflects the effects of the acquisition of Site based upon the fair market
value of the acquired assets and liabilties on July 11, 1997...." Exs. 12-16 (emphasis supplied).
Most pointedly, in a 1998 SEC filing, Site Tech reported that it had acquired the patents-in-suit
as part of the Site/Tech acquisition: "(The J V -Search technology and related patents ... was
technology that the Company acquired in the Site Tech Acquisition." Ex. 17.
4
B. After July 1997, Site Tech and Site/Tech merged corporate personalities.
Following the July 1997 acquisition, Site Tech and Site/Tech merged corporate
personalities. For starters, Site Tech changed its name from "DeltaPoint, Inc." to "Site
Technologies, Inc.," effectively adopting the persona of the de facto merged subsidiary. Ex. 7,
ir 2; Ex. 18; Ex. 23. Site Tech also adopted Site/Tech's trademarks, email addresses, web
address, and developed and sold Site/Tech's former products as its own. Ex. 7, ir 2. The
companies also merged principal offices; Site/Tech moved its principal office from North
Carolina to Site Tech's principal offce in California. Ex. 19.
Site/Tech's operations also merged into Site Tech. Ex. 7, ir 2. Site/Tech no longer
maintained adequate capitalization, having no significant assets or equity. See Ex. 20. Site/Tech
took no money in loans, and its stock structure consisted of fewer than 1,000 shares-all owned
by Site Tech. Ex. 21; Ex. 22; Ex. 7, ir 2. Site/Tech had no separate employees. Ex. 11; Ex. 7,
ir 2. Instead, all of Site/Tech's employees prior to the stock exchange either left the company or
became Site Tech employees following the stock exchange. Ex. 11; Ex. 7, ir 2. Site Tech
conducted Site/Tech's few remaining business affairs on Site/Tech's behalf. For example, Site
Tech prepared and maintained Site/Tech's tax records. Ex. 7, ir 2. Site/Tech also did not
segregate its corporate records from those of Site Tech. Ex. 7, ir 3. In fact, Site/Tech maintained
no corporate records at alL. Ex. 7, ir 3. Further, Site/Tech disregarded corporate formalities. For
example, it held no director meetings or shareholder meetings. Ex. 7, ir 3. It made no decisions,
and took no actions, separate from Site Tech. Ex. 7, ir 3. Site/Tech also engaged in no business
activity of
its own. Ex. 7, irir 2,3. It designed nothing, produced nothing, marketed nothing, and
sold nothing. Ex. 7, ir 2. It had no significant costs or revenues. Ex. 7, ir 2; Ex. 20. Indeed,
Site/Tech maintained no bank account separate from Site Tech's bank account. Ex. 7, ir 3.
Site/Tech did not segregate any assets from Site Tech's assets. Ex. 7, ir 3.
5
Finally, Site Tech exercised complete control over Site/Tech. Site Tech owned 100% of
Site/Tech's stock. Ex. 11. Site Tech's directors and officers were Site/Tech's directors and
offcers. Ex. 11, ir 5.7; Ex. 28. In short, Site Tech made all of Site/Tech's decisions and took all
of Site/Tech's actions. Site/Tech and Site Tech merged corporate personalities.
C. In September 1998, Site Tech sold and assigned the patents-in-suit to Egger, and
SitelTech was bound by the assignment.
In September 1998, Site Tech and Egger entered into a Bil of Sale, Assignment and
License Agreement ("the assignment"), to which Site/Tech also was bound, that sold and
assigned the patents-in-suit to Egger. Ex. 24. Site Tech represented to Egger that Site Tech had
specifically warranted in 1998 that it was transferring "good and marketable title," that it was the
"sole owners," and that it had "full right to convey the entire interest" in the patents. Ex. 24.
Egger executed the assignment on his own behalf. Ex. 24. Jeffrey Ait, the CEO of Site/Tech and
Site Tech, executed the assignment on behalf of both companies. Ex. 7, ir 6. Indeed, Site/Tech
had authorized Ait to assign the patents to Egger in Site Tech's name. Ex. 7, ir 6. The intent of
all parties was to transfer the patents-in-suit to Daniel Egger, who paid $100,000 for the patents-
in-suit. Ex. 7, irir 5-6. Ait later delivered the technology and physical property to Egger. Ex. 17;
Ex. 7, ir 6. Neither Site/Tech nor Site Tech thereafter represented that it owned the patents-insuit. Ex. 7, ir 6.
D. In December 2000, Site/Tech formally was merged into Site Tech and transferred all
its remaining assets to Site Tech.
In December 2000, Site/Tech formally was merged into Site Tech. Exs.29-31. Site/Tech
thereby transferred whatever assets it possessed at that point to Site Tech. Therefore, if
Site/Tech stil possessed the patents-in-suit in December 2000, Site Tech undoubtedly owned
them from that point forward. Defendants agree. See Defendants' Motion at 5, 11.
6
III. ARGUMENT AND AUTHORITIES
A. Egger acquired the patents in September 1998.
Egger acquired the patents in September 1998 in accordance with a Bil of Sale,
Assignment and License Agreement. Ex.
24.
1. Site Tech owned the patents in September 1998, having acquired them from
Site/Tech in July 1997.
Site Tech acquired the patents from Site/Tech in connection with Site Tech's July 1997
acquisition of Site/Tech. Defendants incorrectly assert that the July 1997 acquisition involved
only a stock transfer. See Defendants' Motion, at 9, n.9. To the contrary, Site/Tech also
transferred its assets, including the patents. See, e.g., Ex. 7, ir 2.
a. Site Tech acquired the patents by operation of
law.
law:
Federal Circuit law recognizes that patents can be conveyed by operation of
We conclude that the district cour's focus solely on section 261 was erroneous. the Title 35 states that "(eJvery patent shall contain a short title of Section 154 of invention and a grant to the patentee, his heirs or assigns, of the right to exclude
others from making, using, offering for sale, or sellng the invention throughout
the United States...." 35 U.S.C. § 154(a)(1) (emphasis added). As both parties note, patent ownership may be transferred by assignment, and section 261 addresses such a transfer - requiring assignments to be in writing. See 35 U.S.C. § 261. However, there is nothing that limits assignment as the only means for transferring patent ownership. Indeed, the case law ilustrates that ownership of a
patent may be changed by operation of law.
Akazawa v. Link New Tech. Intl, Inc., 520 F.3d 1354, 1356 (Fed. Cir. 2008) (emphasis omitted).
In this case, Site/Tech transferred its patents to Site Tech by operation of law through its
certificate of incorporation. Three days before the stock exchange between the two companies,
Site/Tech's board amended Site/Tech's certificate of incorporation to make the sale of
Site/Tech's stock to Site Tech a triggering event for purposes of distribution in accordance with
the company's distribution preferences: "In the event of ... a sale of all or substantially all of ...
the stock of the corporation, ... such event shall be treated as a liquidation, dissolution or winding
7
up within the meaning of this Section." See Ex. 10. The phrase "the stock of the corporation"
previously was not present in Site/Tech's restated certificate of incorporation, and had to be
added to make the upcoming stock acquisition by Site Tech a deemed "liquidation event" within
the meaning of
the certificate ofincorporation.3 See Ex. 10.
Site Tech's acquisition of Site/Tech's stock triggered a liquidation event under
Site/Tech's amended certificate of incorporation, which in tur resulted in the distribution of
Site/Tech's assets, including the patents-in-suit, to Site Tech.4 Several of Site Tech's
contemporaneous SEC fiings-all of which Defendants incorrectly and cavalierly dismiss as
"inaccurate"-eonfirm that "(iJn exchange (Site TechJ received all outstanding assets of
(Site/Tech)." See, e.g., Ex. 12.
The deemed liquidation event mandated a distribution of assets in accordance with the
liquidation preferences of the certificate of incorporation, which provided:
In the event of any liquidation, dissolution, or winding up of the corporation (or
the deemed occurrence of such event pursuant to subsection (d) below), either
voluntary or involuntary, distributions to the shareholders of
the corporation shall
be made in the following maner:
Ex. 10 (emphasis supplied). The Stock Exchange Agreement fuher provided that preferred
stock and treasury stock of Site/Tech was cancelled, leaving the common stock transferred to
Site Tech as the only stock left in the company. See Ex. 11. Since only common stock of
Site/Tech remained, § IV.(B)2b of the Amended Certificate was invoked, resulting in a
distribution of the assets to DeltaPoint, the sole common stockholder:
(b) Distribution after Payment of Liquidation Preferences. Thereafter, any
remaining assets and funds legally available for distribution hereunder shall be
3 The amendment to the certificate of incorporation ("Amended Certificate") was iucluded as an exhibit to the
purchase agreement. The Amended Certificate, with this new triggeriug mechanism, became effective on July 11, 1997-the same day Site Tech acquired Site/Tech's stock. Ex. 10.
4 On July 3, 1997, Site/Tech's Steve Mendel wrote: "The transaction must be strctured as a stock exchange, rather
than a merger, to make it taxable. This wil require an amendment to the company's articles to make it absolutely clear that an exchange is a liquidation." Ex. 6.
8
distributed solely to the holders of the Common Stock in a manner such that the remaining amount distributed to each holder of Common Stock ...
Ex. 10 (emphasis supplied). Thus, immediately after the stock exchange, Site/Tech distributed
its assets, including the patents-in-suit, to Site Tech.
A similar and recent case from this District applied the holding of Akazawa and found that legal title to patents transferred by operation of state law in a foreclosure proceeding. See
Sky Techs. LLC v. SAP AG, 2008 WL 2775487, *1 (E.D. Tex. July 15, 2008). In denying the
defendants' motion to dismiss for lack of standing, Judge Folsom held that "ownership of a
patent may be changed by operation of law." See Ex. 25, Sky Technologies LLC v. SAP AG,
Civil Action No. 2:06-CV-440 (DF), Order dated June 4, 2008, at 10. Judge Folsom further
noted that the Federal Circuit's recent holding in Akazawa rejects the argument that a writing is
required to fully transfer legal title when an operation of law conveys title. See id. at 18.
Accordingly, the Sky Technologies cour determined and found that a security agreement and
subsequent foreclosure transferred the patent by operation of law. See id.
In this case, the controlling Delaware law specifically provides that assets may be
transferred upon a distribution of the type provided in the Amended Certificate. Section 173 of
Delaware's General Corporate Law allows for the payment of dividends in kind. The statute
allows dividends to be paid "in cash, in property, or in shares of corporation's capital stock."
8 DeL. C. 1953, § 173. In this case, the patents transferred by operation oflaw.
The distribution of Site/Tech's assets to Site Tech as part of
the July 1997 transaction has
been confirmed numerous times in sworn, written certifications by Site/Tech's offcers and by
9
Site Tech (at that time stil named "DeltaPoint") in SEC filings, press releases, and in a
declaration attached to this Response:5
. "On July 1 1, 1997, the Company acquired the shares of Site/technologies/inc. ("Site") for an aggregate purchase price of $638,000.... In exchange the Company's received
all outstanding assets of Site. The Company wil record the expense related to
purchased in-process technology of approximately $500,000 during the third quarer of 1997." Ex. 12 (emphasis supplied).
. "On July 1 1, 1997, the Company acquired the shares of Site/technologies/inc. ("Site") for an aggregate purchase price of $638,000.... In exchange the Company acquired
all the outstanding shares and assets of
Site." Ex. 16 (emphasis supplied).
. "In exchange the Company acquired all the outstanding shares and assets of Site."
Ex. 13 (emphasis supplied).
. "In exchange the Company acquired all the outstanding shares and assets of Site."
Ex. 14 (emphasis supplied).
. "In exchange the Company acquired all the outstanding shares and assets of Site."
Ex. 15 (emphasis supplied).
. The SEC filings further call out specific assets that were acquired during the
acquisition: "Increase in Accounts Receivable is equal to Site's accounts receivable of $8,000 at 7/11/97 which Deltapoint acquired."; "Increase in Property and
Equipment is equal to Site's property and equipment of $67,000 at 7/11/97 which
Deltapoint acquired." Ex. 12 (emphasis supplied).
. "On September 30, 1998, (Site TechJ consummated the sale of its V-Search
technology and related patents (i.e. the PatentsJ. This was technology that the
Company acquired in the ĄSite/Tech) Acquisition. The Company sold the assets relating to V-Search in cash to Daniel Edgar (sicJ. The Company received a cash payment of$100,000." Ex. 17 (emphasis supplied).
Each of these SEC filings was certified by Jeffrey Ait, the Chief Executive Officer of both the
parent Site Tech and the subsidiary Site/Tech.6 Ex. 7, ir 6. These post-conveyance affirmations
are strong evidence of the transfer. See COR Mktg. & Sales, Inc. v. Greyhawk Corp., 994 F.
5 For example: "In July 1997, the Company acquired Site/technologies/iuc. . . . pursuant to which the Company
acquired, among other thiugs, SiteSweeper 1.0, a Web site quality control and maiutenance product." Exs.13-16. The assets were added to the balance sheet of Site Tech: "The pro forma condensed balance sheet reflects the the acquired assets and liabilities on July 11, 1997, the acquisition. . . based upon the fair market value of effects of
as if such acquisition had been consumated on June 30, 1997." Exs. 12-16.
6 The patents-in-suit were specifically listed as an asset in the schedules to the Stock Exchange Agreement. Ex.
33.
Furthermore, Site Tech's 1998 sale ofthe V-Search technology and patents to Daniel Egger is also described iu Site Tech's lO-QSB fied on September 30, 1998. Ex. 17.
10
Supp. 437, 444 (W.D.N.Y. 1998) (considering post-transaction statements as evidence of an
assignment).
Site Tech also waranted that it had legal title to the patents-in-suit in two further
documents: the 1998 Bil of Sale to Daniel Egger and the 1998 Assignment to Daniel Egger. See
Ex.
24. Both warranties fuher corroborate the SEC filings that the assets, including the patents-
in-suit, were transferred from the subsidiary to the parent in connection with the 1997
acquisition.7
b. Site Tech acquired the patents by written conveyance.
Furher, even if Section 261's writing requirement did apply, it was satisfied because the
distribution clause in the certificate of incorporation constitutes a written conveyance instrument.
The Federal Circuit has specifically stated that written transfers of patents through stock
ownership and other successorship transactions satisfy Section 261:
35 U.S.C. § 261 provides that "applications for patent, patents, or any interest
therein" are assignable "by an instruent in writing." The patent statutes allow
the instrument that assigns "any interest" to take the form of a patent license or any other written instrument that transfers patent rights. The type of written
instruent (e.g., license or assignment agreement, dissolution agreement, or
merger agreement) and the factual context in which the instrument is created is
irrelevant-this,does not provide a basis for divorcing the standing analysis from
the patent statutes.
Morrow v. Microsoft Corp., 499 F.3d 1332, 1338 n.3 (Fed. Cir. 2007) (emphasis supplied).
Here, the written instrument stated as follows:
In the event of any liquidation, dissolution, or winding up of the corporation (or
the deemed occurrence of such event pursuant to subsection (d) below), either
voluntary or involuntary, distributions to the shareholders of
the corporation shall
be made in the following maner ... any remaining assets (after satisfying
7 The 1998 Bil of Sale to Egger waranted, "Seller (Site Tech) warrants that it hereby transfers good and marketable
title to the Purchased Assets, free and clear of all liabilties, mortgages, liens, pledges, charges, security interests,
encumbrances, or title retention agreements of any kiud or nature." Ex.
24. The 1998 Assignment warranted:
"(Assignor) is the sole owner of Patent number 5,544,352," and "THE UNERSIGNED HEREBY covenants and agrees that it has full right to convey the entire interest hereiu assigned, and that it has not executed, and wil not
execute, any agreement iu conflct herewith." Ex.
24.
11
liquidated preferences J and fuds legally available for distribution hereunder shall
be distributed solely to the holders of the Common Stock...
Ex.
10.8
The patents-in-suit were transferred in 1997 from Site/Tech to Site Tech by an operation
of law endorsed by Akazawa and through the writing requirement satisfied by the distribution
clause of the certificate of incorporation as evidenced by the subsequent SEC fiing.
c. Site Tech acquired the patents by ratification.
Alternatively, Site/Tech transferred the patents to Site Tech in connection with the July
1997 acquisition by virtue of the ratification doctrine. Under this doctrine, where a board of
directors has notice of a transfer, does not object to the transfer, and retains the fruits of the
transfer, it is held as a matter of law to have approved the transfer by ratification. See Hannigan
v. Italo Petrol. Corp. of Am., 47 A.2d 169,171-72 (DeL. 1945). Here, all the parties to the July
1997 acquisition, including Site/Tech's board, intended that Site/Tech would distribute all its
assets as a dividend to the common stockholder, which was Site Tech, as part of the acquisition.
Indeed, the SitelTech board of directors amended its certificate of incorporation to achieve this
very purpose. Further, it is undisputed that Site/Tech did not object to the transfer-which is
hardly surprising, as the board members were the same for both companies-when Site Tech
repeatedly represented in public fiings that it had acquired the patents from Site/Tech. Ex. 11,
ir 5.7. Finally, it is undisputed that the Site/Tech board retained the frits of the acquisition.
Thus, the Site/Tech board ratified the July 1997 transfer of the patents from SitelTech to Site
Tech. See, e.g., CarrAmerica Realty Corp. v. Kaidanow, 321 F.3d 165, 173 (D.C. Cir. 2003)
8 General conveyances of "all assets" of a company are operative to convey patents. See, e.g., CMS Indus., Inc. v. lifter were transferred to L.P.S. Intl, Ltd., 643 F.2d 289, 292 (5th Cir. 1981) ("In February 1973, all assets of Stop Stop-Loss, Inc. (Stop-Loss) another majority-held subsidiary of SEE. It is undisputed that whatever rights iu the lifter were validly transferred to Stop-Loss."); Intel Corp. v. Broadcom, 173 F. Supp. 2d 201, patents existed iu Stop 209 (D. DeL. 2001); Surfer Internet Broadcasting of Mississippi v. XM Satellte Radio, Inc., 2008 WL 1868426, * 1 (N.D. Miss. 2008); Mechmetals Corp. v. Telex Compo Prods., Inc., 709 F.2d 1287, 1290 (9th Cir. 1983).
12
(applying Delaware law, the Court held "that the Board took necessary steps to ratify the
issuance of the shares at the December 1998 Board meeting, at least through implied
ratification. ").
2. Even assuming Site Tech did not own the patents in September 1998, the
subsidiary Site/Tech also was bound by the assignment to Egger.
Even if Defendants were correct that Site/Tech, not Site Tech, was the owner of the
patents in September 1998, it makes no difference because Site/Tech was bound to Site Tech's
September 1 998 sale and assignment to Egger.
a. Site/Tech was bound because it was the alter ego of Site Tech.
Site/Tech was bound to the 1998 Bil of Sale and Assignment because SitelTech and Site
Tech were in substance the same entity. Alter ego is determined under the law of the state of
incorporation. See Davaco, Inc. v. AZ3, Inc., 2008 WL 2243382, * 1 (N.D. Tex. May 30, 2008).
In this case, Delaware law provides that separate corporate entities wil be disregarded "in the
interest of justice, when such matters as fraud, contravention of law or contract, public wrong, or
where equitable consideration among members of the corporation require it.. .." Pauley Petrol.
Inc. v. Continental Oil Co., 239 A.2d 629,633 (DeL. 1968). Delaware applies the same factors to
determine alter ego that have been applied in the Fifth Circuit and other jurisdictions. Compare
Alberto v. Diversifed Group, Inc., 55 F.3d 201,205-06 (5th Cir. 1995) (applying Delaware alter
ego factors) and TIP Sys., LLC v. SBC Operations, Inc., 536 F. Supp. 2d 745, 754-55 (S.D. Tex.
2008) (alter ego factors applied in patent case).
Here, Site/Tech and Site Tech had an alter ego relationship after the July 1997 de facto
merger; the following factors overwhelmingly demonstrate the alter ego relationship:
. Site/Tech was wholly-owned by Site Tech. Ex. 11.
. Site Tech and Site/Tech had identical directors and officers. Id.
13
. Site Tech and Site/Tech had the same business department. Ex. 7, ir 2. Site/Tech had
no employees or operations of its own; instead, all of Site/Tech's operations were conducted through Site Tech. Id.
. Site Tech and Site/Tech fied consolidated financial statements and Site Tech filed
SitelTech's tax returns on its behalf. Id.
. Site Tech financed Site/Tech. Id. In fact, Site/Tech had negligible assets from which
to operate. See Ex. 20; Ex. 7, ir 2.
. Site Tech did not cause Site/Tech's incorporation. However, Site/Tech wholly owned
Site Tech and turned it into a shell entity after acquiring it. Ex. 11.
. Site/Tech had essentially no assets, it had no equity, it took no money in loans, and its
stock structure consisted of fewer than 1,000 shares-all owned by Site Tech. Ex. 7,
ir 2; Exs. 20-22.
. Site Tech directly employed all of Site/Tech's former employees and paid virtually all
its expenses. Ex. 7, ir 2.
. Site/Tech did not receive any independent business; its sole source of revenue in fact
was royalties paid it by Site Tech. Site/Tech had no further business-it designed
nothing, produced nothing, marketed nothing, and sold nothing. Id. It had no
significant costs or revenues. Id.
. Site Tech used, and represented that it owned, all of Site/Tech's assets. Id.
. Site/Tech had no independent daily operations; all its daily operations were assumed
by Site Tech following the stock exchange. Id.
. Site/Tech failed to observe such formalities; it neither kept separate books and
records nor held shareholder meetings nor held board meetings. Id. ir 3.
. Site/Tech's directors and offcers took orders from Site Tech and acted in Site Tech's
interest; the companies had the same directors and offcers. Ex. 11.
. The person who signed the bil of sale and assignment was Jeffrey Ait, a director and
the CEO of
both Site Tech and Site/Tech. Ex. 7, ir 1.
. Site Tech changed its name from "DeltaPoint" to "Site Technologies, Inc." to adopt
the persona of "Site/Technologies/Inc." Ex. 7, ir 2; Ex. 18; Ex. 23. Site Tech and
SitelTech employed the same website and email addresses. Ex. 7, ir 2.
. Site Tech and Site/Tech had the same ban account. Ex. 7, ir 3.
. Site Tech represented that it was liable for the debts of Site/Tech and assumed
Site/Tech's liabilities in connection with the stock exchange. Exs. 12-16.
14
. Site/Tech moved its principal office from North Carolina to Site Tech's office in
California. Ex.
19.
In short, the two entities were "one and the same." Cf Equitable Trust Co. v. Gallagher,
99 A.2d 490, 493 (DeL. 1953). Therefore, the patents-in-suit were transferred to Egger by the
1998 bil of sale and assignment, or any of the subsequent acts confirming the transfer of the
patents-in-suit to Egger.
Further, if this Court were to disregard the evidence demonstrating that the parent Site
Tech owned the patents when it sold them to Egger, finding an alter ego relationship would be
necessary to prevent an injustice to Egger. Site Tech represented and warranted to Egger that it
had and was transferring title to the patents. Ex.
24. The assignment benefited all three parties.
For Site Tech and Site/Tech, it provided $100,000 in needed funds. Ex. 17. For Egger, it
returned to him the rights to his inventions, into which he had invested his personal funds and
years of his life. The assignment also harmed no one's interests. In other words, it created net
social value. All three entities also intended the assignment-and stil intend it today. See Ex. 7,
ir 6. From 1998 to today, nobody has ever disputed the assignment, except for Defendants.
The alter ego doctrine and the interests of justice dictate that Site/Tech was bound by the
Bil of Sale and Assignment and subsequent confirmations.
b. Site/Tech was bound to the assignment, because it had authorized Site
Tech to assign the patents to Egger in Site Tech's name.
Agency principles also dictate that Site/Tech was bound by the 1998 Bil of Sale and
Assignment. Specifically, Site/Tech had authorized Site Tech to assign the patents to Egger in
Site Tech's name.
Patent assignments are subject to rules of construction that apply to contracts generally,
and the manifest intention of the parties is of primary concern in construing the assignment. See
Nicolson Pavement Co. v. Jenkins, 81 U.S. 452, 456 (1871) ("An assignment of
an interest in an
15
invention secured by letters-patent, is a contract, and like all other contracts is to be construed so
as to carry out the intention of
the paries to it."); Vaupel Textilmaschinen KG v. Meccanica Euro
Italia S.P.A., 944 F.2d 870,874 (Fed. Cir. 1991).
Jeffrey Ait, as the CEO of Site/Tech and as a director of Site/Tech, was an authorized
agent for Site/Tech. See Ex. 7, ir 6. Furhermore, Ait was explicitly authorized by both the
parent Site Tech and the subsidiary Site/Tech to sell the patents-in-suit to Daniel Egger in either
party's name. See Id. Ait regularly exercised control over the former property of the subsidiary
Site/Tech, and engaged in more than one transaction in the name of Site Tech disposing of assets
that were obtained during the acquisition of Site/Tech. See Id. As an agent of the subsidiary
Site/Tech, Ait's knowledge and his acts concerning this transaction are imputed to Site/Tech.
Because Ait's knowledge and acts are imputed to Site/Tech, Site/Tech made repeated
representations to Daniel Egger and to the public at large that the parent company Site Tech
owned the patents, and therefore had the authority to sell the patents:
. In multiple SEC filings and accounting statements, Ait represented that Site Tech,
acquired all assets, including the patents, of Site/Tech and described assets allegedly belonging to Site/Tech as assets of Site Tech. Ex. 12-16.
. Ait executed a warranty of title in the Bil of Sale indicating that the parent
corporation Site Tech owned the patents and was transferring valid title to Daniel
Egger. Ex. 24.
The actions of the agents of both Site Tech and Site/Tech also give rise to an agency
relationship between Site/Tech and Site Tech with respect to the sale of the patents-in-suit to
Egger. As such, Site/Tech would be bound to the 1998 Assignments as a party under the
doctrines of actual authority, apparent authority, and ratification.
16
(i) Site Tech had the actual authority from Site/Tech to transfer the
patents in its own name.
An agency relationship need not be an explicit agreement, but also is found when there
are facts and circumstances giving rise to a relationship that should affect the legal relations of
the parties. Under California law, an agent need not hold himself out as an agent to bind a
principaL. Porter v. Arthur Murray, Inc., 249 CaL. App. 2d 410,420 (CaL. Ct. App. 1967) ("one
may be the agent of another without holding himself out to be such agent."). Similarly, a
contract is enforceable against a principal even though the principal is not a named party to the
instrument. 9
California Civil Code § 2299 provides: "(AJn agency is actual when the agent is really
. employed by the principal."l0 Actual authority "is such as a principal intentionally confers upon
the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to
possess." CaL. Civ. Code § 2316 (2008).
Ait, the CEO and a director of the subsidiary Site/Tech as well as the parent company
Site Tech, executed a conveyance transferring the patents-in-suit to Egger. Ex. 24. This
represents an explicit written directive from an authorized agent of Site/Tech for Site Tech to
convey the patents in the name of Site Tech to Egger, thereby creating a special agency between
9 The fact that the 1998 Bil of Sale and Assignment is in the name of Site Tech is not an obstacle to applyiug
California agency law to biud Site/Tech. Sterling v. Taylor, 152 P.3d 420,430 (CaL. 2007) (omission of
the actual
owner of the properties from contract for the sale of land was permissible because a contract made iu the name of an
agent may be enforced agaiust an undisclosed principal); Sumner v. Flowers, 279 P.2d 772, 774 (CaL. Ct. App. 1955)
("'The contract of the agent is the contract of the priucipal, and he may sue or be sued thereon, though not named thereiu....,'" quotiug Ford v. Wiliams, 62 U.S. 287, 289 (1858)). California law has no prohibition agaiust allowing agents to transact in their own name iu cases of special agencies-and the agency at issue is a special agency to sell the patents-in-suit, not one of general terms. CaL. Civ. Code §§ 2297, 2322 (2008). Furthermore, when an agent is
vested with control over the propert and the right to receive payment for that propert, the
agent has "ostensible
authority to deal with the propert of his priucipal as his own," includiug transactiug in his own name. CaL. Civ. Code §§ 2026, 2069 (2008); see Pacifc Fin. Corp. v. Foust, 285 P.2d 632, 634-35 (CaL. 1955) (findiug that the
priucipal is bound under California Civil Code Section 2069 despite the agent's transacting iu his own name). Accordingly, under agency principles, Site/Tech was bound as a part to the 1998 Bil of Sale and Assignment and
transferred legal title to Daniel Egger. 10 Because Site Tech was a California company, California law applies to determiue agency. Restatement (Second)
of Conflcts of Laws § 292(2) ("local
law of the state where the agent dealt with the third person").
17
1 the entities for the purpose of selling the patents.
1 See id. § § 2297, 2299. Furthermore, Ait has
declared that it was the intent of both entities to transfer the patents to Daniel Egger and that
Site/Tech had authorized Site Tech to convey the patents to Egger in its own name through the
1998 Bil of Sale. Ex. 7, irir 6-7. As such, Site/Tech is bound as a party to the 1998 Bil of Sale
and Assignment, and the patents-in-suit were conveyed to Egger. See Kothmann Enters., Inc. v.
Trinity Indus., Inc., 394 F. Supp. 2d 923,941-42 (S.D. Tex. 2005).12
Furthermore, Site Tech owned 100% of
the outstanding stock of Site/Tech. Ex. 21; Ex.
22; Ex. 7, ir 2. Thus, Site Tech, as a 100% shareholder, had the power and authority to transfer
the assets of Site/Tech, fuher strengthening the conclusion that Site Tech was an agent for
Site/Tech. See also DeL. Code An. tit. 8, § 271(a) & (c) (2008)13 (indicating that every
corporation has the right to "lease or exchange all or substantially all of (theJ property and
assets" of
its wholly owned subsidiaries).14
(ii) Site Tech also had the ostensible or apparent authority to transfer
the patents-in-suit.
Site/Tech also is bound to the 1998 Bil of Sale and Assignment under the doctrine of
ostensible or apparent authority.
California Civil Code Section 2317 provides: "Ostensible authority is such as a principal,
intentionally or by want of ordinary care, causes or allows a third person to believe the agent to
11 At a miuimum, it would also represent a failure of ordiuary care by Site/Tech allowing Site Tech to believe it had
the authority of Site/Tech to transfer the patents to Daniel Egger, which would also create actual authority by the subsidiary for the parent to transfer the patents to Daniel Egger. 12 Courts have bound a corporation to the acts of an affiiated company if the iutent of the parties was clear. In
Kothmann Enterprises, the Court granted summary judgment in favor of the plaiutiff regardiug ownership of a patent, even though the plaiutiff had obtaiued a written assignment of rights from an affiiated corporation that did not yet possess legal title. 394 F. Supp. 2d at 941-42. The court relied on evidence that both corporations had a siugle, common owner, and it was clear from the documents that the owner intended to transfer rights in patent to legal title to the patents-iu-suit iu plaiutiff. Here, the same iutent of the parties is clear: Egger was to receive full
exchange for $100,000. See Ex. 7, ~ 6. 13 Delaware law applies because Site/Tech is a corporation duly formed and iucorporated iu Delaware.
14 Further, "the propert and assets of the corporation iuclude the propert and assets of any subsidiary of the
corporation. . ." DeL. Code Ann. tit. 8, §271(c) (2008).
18
possess." Under California law, a principal is bound by the acts of his agent, under a merely
ostensible authority, to those persons only who have in good faith, and without want of ordinary
care, incurred a liability or parted with value, upon the faith thereof. CaL. Civ. Code § 2334
(2008).
Under the doctrine of apparent authority, a principal may be bound to a contract entered
into by an actor who was not considered an agent by the principal at the time if the principal
made manifestations that would cause a third pary to reasonably believe that the actor had
15
authority to enter into the transaction.
Site/Tech's repeated representations through Ait, Site/Tech's CEO, that Site Tech owned the patents-in-suit and had the authority to transfer those patents in its name created a reasonable
belief by Egger that Site Tech had both the authority and the right to transfer the patents in its
name. Having cloaked Site Tech with the authority to sell the patents in the 1998 Bil of Sale
and Assignment, Site/Tech is bound to the 1998 Bil of Sale and Assignment. See People
Express Pilot Merger Comm. v. Texas Air Corp., 1987 WL 18450, *4 (D.N.J. 1987), affd, 958
F.2d 364 (3d Cir.), cert. denied, 506 U.S. 864 (1992) (finding that two parent companies acted
15 Restatement of Agency (Third) § 2.03 (emphasis added) provides:
Apparent authority is the power held by an agent or other actor to affect a priucipal's legal relations with third parties when a third part reasonably believes the actor has authority to act on
behalf of the principal and that belief is traceable to the priucipal's manifestations. . . . The definition in this section does not presuppose the present or prior existence of an agency
relationship as defined in § 1.01.
See also Borders Online, LLC v. State Bd. of Equalization, 129 CaL. App. 4th 1179, 1191 (CaL. Ct. App. 2005)
(priucipal is bound by agency relationship regardless of its "subjective belief'); Scholastic Book Clubs, Inc. v. State Bd. of Equalization, 207 CaL. App. 3d 734, 737-38 (CaL. Ct. App. 1989) ("based on conduct and circumstances"
agent acted with apparent authority by distributing offer sheets and forwardiug orders to priucipal); Dep't of
Banking & Fin. v. Davis, 416 N.W.2d 566, 569-70 (Neb. 1987) (undisclosed priucipal, the assignee of a mortgage, granted "the apparent authority to act as its agent" to origiual mortgagee by allowiug origiual mortgagee "to represent itself as mortgagee with full ownership of the mortgage and the secured debt and full authority to service the debt"); McDaniel v. Hensons', Inc., 493 S.E.2d 529,530 (Ga. Ct. App. 1997) Gury question whether agent had either actual or apparent authority on behalf of undisclosed priucipal iu contractiug for improvements to land owned by priucipal); Handy v. C.LT. Corp., 197 N.E. 64, 67 (Mass. 1935) (automobile dealer who was iu fact agent of undisclosed priucipal had apparent authority as to transactions iu usual and ordiuary course of busiuess conducted reasonably believed agent to be owner). with third part who
19
with apparent authority to bind their subsidiaries because, in one instance, the negotiator was
president of
both the parent and the subsidiary, and in the other, the parent and the subsidiary had
"sufficiently overlapping directorship, management, and employee staff.").
In a similar case, Regency Centers, L.P. v. Civic Partners Vista Vilage I, LLC, California
law was applied to find an implied agency relationship to manifest the parties' intentions. 2008
WL 2358860, at *13 (CaL. Ct. App. June 11,2008). In that case, Regency Centers, L.P. intended
to exercise an option granted to it by Civic, and Civic was aware of Regency Centers, L.P.'s
intentions. Id. Regency Centers, L.P. sent a letter to Civic on "Regency Centers Corporation"
letterhead, however, exercising the option in the name of "RRG" - Regency Realty Group, Inc.,
an affiliate of Regency Centers, L.P. Id. Civic argued that Regency Centers, L.P. was not a
party to the contract. Id. The trial cour disagreed, and the California Court of Appeals affrmed.
Both courts looked beyond the specific names in the contract to the intentions of the parties and
the surrounding circumstances. As the trial cour stated,
Here, RRG exercised the option RCLP had been assigned the real property, and I believe that, in effect, that would be tantamount to a typographical error.... Here, in effect, I would find that RRG was an implied agent of RCLP. There was no confusion, no surprise, no effect upon the defendants whatsoever, and otherwise, it would elevate form over substance beyond belief.
Id. Affirming the trial cour, the cour of appeals continued,
The trial court's reformation of the notice of intent to exercise the option did not change the agreement. The cour merely corrected the notice to reflect the agreement and assumption that the Regency entity which owned the interest in the company, RCLP, sent notice it intended to exercise the option.
Id. at *14. In this case, Site/Tech is bound to the Bil of Sale and Assignment under agency
principles given the authority that Site/Tech invested in Site Tech.
20
(iii) Site/Tech has ratifed the 1998 and 2005 Assignments.
Under California law, "(aJn agency may be created, and an authority may be conferred,
by ... a subsequent ratification." CaL. Civ. Code § 2307 (2008). In addition to having an agent
of the corporation signing the instrument waranting title of the patents-in-suit in the parent, Ait
(and therefore Site/Tech) physically delivered the V-Search computer code and other goods that
were the subject of the 1998 Bil of Sale to Daniel Egger, thereby evidencing a ratification by
Site/Tech of the 1998 Bil of Sale and Assignment.16 Ait also has declared that Site/Tech
believed it was bound by the 1998 Bil of Sale and Assignment and had ratified the acts of Site
Tech and the obligations of
the 1998 Bil of Sale and Assignment. Ex. 7, irir 5,6, 7. Ait also has
explicitly ratified the 1998 Assignments and the 2005 Assignment in writing. Ex. 7, ir 7; see
also SEC statements, Ex. 17. As such, Site/Tech is bound as a party to the Bil of Sale and the
Assignment, and the patents-in-suit were conveyed to Egger.
B. The undisputed facts demonstrate that, at the latest, Egger acquired the patents in
December 2000.
Site/Tech was merged into Site Tech on December 21, 2000, when it was formally
merged into Site Tech. See Exs. 29-31. This merger operated to convey any assets remaining in
I?
Site/Tech into Site Tech, including any residual rights in the patents-in-suit, if they existed.
Even Defendants explicitly concede in their Motion that the assets of Site/Tech-specifically
16 California Civil Code Section 2311 states, "RATiFICATiON OF PART OF A TRASACTiON. Ratification of part of an
iudivisible transaction is a ratification of the whole." CaL. Civ. Code § 2311 (2008); Scholastic Book Clubs, 207 CaL.
App. 3d at 737 ("By accepting the orders, the payment and shippiug the merchandise shipping the merchandise
appellant clearly and unequivocally ratified the acts of
the teachers (implied agents) and confirmed their authority as
appellant's agents or representatives.").
17 See Morrow, 499 F.3d at 1338 n.3 (Fed. Cir. 2007) ("The patent statutes allow the instrment that assigns 'any
iuterest' to take the form of a patent license or any other written instrent that transfers patent rights. The type of
written instrment (e.g., license or assignment agreement, dissolution agreement, or merger agreement) and the factual context in which the iustrment is created is irelevant-this does not provide a basis for divorciug the
standiug analysis from the patent statutes.") (emphasis supplied).
21
including the patents-in-suit-were transferred in full to Site Tech pursuant to this 2000 merger,
and resided in Site Tech as of December 2000:
. "As a consequence of the December 2000 merger documents, all the assets of (Site/TechJ - including title to the patents-in-suit - would have become the the surviving entity, (Site TechJ." Defendants' Motion, at 5.
property of
. "Furhermore, all of Libertech's property would have been subsumed by the
entity emerging from the merger, Deltapoint, a California corporation. See
CaL. Corp. Code § 1107(a) and at page 5 above. Thus, after the merger on
December 21, 2000, Deltapoint (a.k.a. Site Technologies, Inc.) would have owned the patents-in-suit." Id., at 11.
Under the longstanding doctrine of after-acquired title, where an assignor of patents later
acquires legal title to them, the patents immediately convey to the assignee upon the assignor's
subsequent acquisition of
the patents. This has been the law for well over a century. In Gottfied
v. Miler, the assignor sold the assignee a patented machine, thereby "warrant(ingJ not only the
title to the machine itself, but the right to use it." 104 U.S. 521, 527 (1881). The assignor "did
not acquire any interest in the patent until long after the date of his sale to (the assignee J,"
however. Id. The Supreme Court held that the assignor's after-acquired title inured to the
assignee. See id. The Supreme Cour held that the assignor's "previous sale to (the assigneeJ of
a machine embodying his patented invention ... estopped him from prosecuting (the assignee) for
an infringement of the patent by the use of the machine.... (The assignee J ... acquired a right to
use the machine which could not have been controverted by (the assignorJ." Id.
Similarly, in the 1951 case of Taylor Engines, Inc. v. All Steel Engines, Inc., the assignors
assigned an exclusive license to the assignee. 192 F.2d 171, 173 (9th Cir. 1951). Only later did
the assignors acquire the actual right to exclusively license the patents. Id. The Ninth Circuit
held that the assignor's after-acquired title inured to the assignee.
We ... base our decision on the broad equitable principle that where one purports, for value, to convey title to personal property which he does not own, ... (andJ the
22
grantor subsequently acquires such title to personalty(,J equity wil enforce the
grantee's interest to prevent unjust enrichment of
the grantor.
Id. at 174.
This principle has been consistently recognized. See, e.g., Brush Elec. Co. v. Cal. Elec.
Light Co., 52 F. 945, 963-64 (9th Cir. 1892) ("The sale of a patent right contains an implied
warranty as to title, and an after-acquired title obtained by the vendor inures to the vendee.");
Faulks v. Kamp, 3 F. 898,901-02 (S.D.N.Y. 1880) ("It is a familiar law, and has been for a long
time, that a warranty of title or right draws to it any after-acquired right or title of the warrantor,
and carries it to the benefit of the person to whom the warranty runs. So whatever right, if any,
the defendants acquired to the invention covered by this patent, enured directly to the benefit of
the (buyersJ."); Curran v. Burdsall, 20 F. 835, 836 (N.D. IlL. 1883) (following Gottfried and
Faulks); cf Mils Novelty Co. v. Monarch Tool & Mfg. Co., 49 F.2d 28,31 n.3 (6th Cir.) ("where
a pending- or contemplated-patent application is assigned, but later the patent somehow issues to
the inventor assignor, he would hold the legal title in trust for the earlier assignee, particularly as
the monopoly was not in existence when the first assignment was made; and there are many
cases applying this principle to rights in inventions."), cert denied, 284 U.S. 662 (1931). In 125
years, this principle has never been overruled.
Thus, even assuming this Court rejected all the previously discussed independent grounds
for finding that Site Tech transferred the patents in 1998, and instead agreed with Defendants
that Site Tech first acquired the patents in December 2000, Egger acquired the patents at that
time-over four years before he conveyed them to SRA. Site Tech had specifically warranted in
1998 that it was transferring "good and marketable title," that it was the "sole owners," and that
it had "full right to convey the entire interest" in the patents. Ex. 24. This result is consistent
with the principles of estoppel and fraud underlying the after-acquired title doctrine-were Site
23
Tech permitted to take $100,000 from Daniel Egger, warrant title and nonetheless keep title
following the merger, the result would be an injustice on the parties, and intended by none of
them. If, as Defendants assert, the 1997 acquisition itself did not convey title to Site Tech, as
intended by the offcers, directors and shareholders of Site/Tech and Site Tech, the 2000 merger
did. Upon the merger of SitelTech into Site Tech, any remaining rights in the patents-in-suit
conveyed immediately to Egger. Accordingly, Egger unquestionably obtained full legal title as
of December 2000, well before his assignment to SRA in 2005 and the filing of this lawsuit.
SRA thus has full legal standing, and Defendants' Motion should be denied.
C. Defendants misrepresent the February 2005 Assignment from SitelTech to Egger.
Defendants accuse Daniel Egger of fraud and improper intent regarding the execution of
and claimed reliance on an assignment between Site/Tech and Egger executed on February 11,
2005 (the "2005 Assignment"). As a threshold matter, this assignment is irrelevant to the issues
raised by Defendants' motion, because SRA does not rely on it to establish its chain of
title.
But moreover, the 2005 Assignment was fully approved and ratified by Site/Tech, and it
has been confirmed by Site/Tech that the 2005 Assignment fairly represented the intent of the
parties and the transaction. See Ex. 7, irir 7-8. Defendants' reckless allegations of fraud relating
to the 2005 Assignment are also directly contradicted by the sworn testimony of Christopher
Lynch, the attorney who drafted and advised Egger to execute and fie the 2005 Assignment.
Ex. 32, irir 2-6. The purose of filing the 2005 Assignment was not to correct any defect in the
name of the pary on the instruent, as Defendants erroneously allege. Id., ir 3. Neither Lynch
nor Egger recognized any defect at the time of the 2005 Assignment. Id. Rather, the 2005
Assignment was filed and recorded as replacement for the then-lost 1998 Assignment. When the
1998 bil of sale and assignment was eventually located, it was fied in July 2006. !d.
24
D. Defendants' assertion that the Site Tech bankruptcy extinguished Egger's rights to
the patents-in-suit is wrong.
Defendants appear to assert that Egger's rights to the patents-in-suit were somehow
extinguished during Site Tech's bankruptcy proceedings. This assertion also is incorrect for
multiple reasons:
i. If Site/Tech held the patents, then banptcy did not defeat Egger's rights.
Assuming that Defendants are correct that the subsidiar Site/Tech held the patents
during 1999 and through June 15, 2000, the patents were not part of the Site Tech bankptcy
estate; a wholly-owned subsidiary's property is not part of the parent's estate for bankptcy
purposes, where only the parent is in bankptcy. See In re Holywell Corp., 118 B.R. 876, 879
(S.D. Fla. 1990) ("In general, and absent unusual circumstances, the property of a debtor's
subsidiar is not considered property of the debtor by virtue of the debtor's sole ownership of
the
subsidiary."). Following the merger in December 2000, the assets of Site Tech's subsidiar
(which was not a debtor in the banptcy case) would not have become property of
the estate,
subject to the jurisdiction of the bankuptcy court. In re Network Cancer Care, L.P. 197 Fed.
Appx. 284, 285 (5th Cir. 2006) (finding that a banuptcy cour's jurisdiction is more limited
post-confirmation and generally exists for "matters pertaining to the implementation or execution
of the plan").
2. If
Site Tech held the patents, then bankuptcy did not defeat Egger's rights.
Assuming that the parent Site Tech had held the patents before bankuptcy, the 1998 sale
and assignment already had occurred and Site Tech (and SitelTech) no longer owned the patentsin-suit. In numerous contexts, from SEC filings to its banptcy schedules, Site Tech
represented that it did not own the patents, but rather, had assigned them to Daniel Egger.
Indeed, the Disclosure Statement to the Plan that Defendants rely upon to argue that the
25
bankptcy divested Egger of his ownership rights explicitly recognized the transfer to Daniel
Egger. Ex. 26; see Ex. 34 ("In September, the Company also sold its V -Search technology and
related patents."). Similarly, the Schedules did not list the patents as property of
the estate, even
though it listed nearly every other IP asset that the company owned. Ex.
35. Likewise, Site Tech
banuptcy documents expressly listed all the "core technology assets" the company owned; the
list nowhere included the patents-in-suit. Ex.
36. This fuher evidences an intent to abandon the
property to Daniel Egger. Confirmation of the plan is res judicata that the property was not in
the estate and had belonged to Daniel Egger. Furhermore, Egger, who would have been a
creditor of Site Tech's given Defendants' allegations, had no notice whatsoever that Site Tech
purortedly contested its conveyance to him-which it did not-and claimed to stil own the
patents-in-suit. The patents-in-suit were not part of Site Tech's banptcy estate.
In addition, Egger was not given notice of the bankuptcy as a creditor, and the patents
were not listed on the bankuptcy schedules as assets of the bankruptcy estate. Under those
circumstances, the bankuptcy proceeding cannot act to divest Egger of rights under the bil of
sale and assignment. It is well-settled that "the banruptcy code cannot be construed to
effectively divest someone of
property which is rightfully theirs." Curtis Mfg. Co., Inc. v. Plasti-
Clip Corp., 933 F. Supp. 107, 114 (D.N.H. 1995), rev'd on other grounds, 135 F.3d 778 (Fed.
Cir. 1998) (internal modifications omitted)~ Under 11 U.S.C. § 541, a debtor canot bring into
the estate equitable title to a patent that it does not own. See id. "Because the debtor does not
own an equitable interest in property he holds in trust for another, that interest is not 'property of
the estate.'" Begier v. IRS, 496 U.S. 53, 59 (1990); see also 11 U.S.C. § 541(d); In re Shepard,
29 B.R. 928, 932 (Bankr. M.D. Fla. 1983) ("(WJhere a debtor holds only bare legal title to
property without any equitable interest, bare legal title is all that becomes property of the
estate. ").
26
In 1999 and through June 15, 2000, Site Tech did not hold both legal and equitable title
to the patents-in-suit. Specifically, because Site Tech already had contracted and conveyed the
patents-in-suit to Egger, Site Tech had transferred equitable title to Egger. Under such
circumstances, nothing in Site Tech's banptcy proceedings could have extinguished Egger's
rights to the patents-in-suit. As one court put it, "a banuptcy court's jurisdiction (to determine
rightsJ does not extend to property that is not part of a debtor's estate." Rutherford Hosp., Inc. v.
RNH P'ship, 168 F. 3d 693, 699 (4th Cir. 1999).
Further, in their Motion, Defendants emphasize that Section 14.2 of the Plan provides
that the Debtors' assets again vested "free and clear of any liens, claims, encumbrances, Claims
of Creditors and Interests of Equity Security Holders." The relevant language provides only that
no claims or liens attach to the property itself. See In re Penrod, 50 F.3d 459, 463 (7th Cir.1995)
(holding that section 1 141 (c) covers liens and "that unless the plan of reorganization, or the order
confirming the plan, says that a lien is preserved, it is extinguished by the confirmation"); In re
Worldcom Corp., 382 B.R. 610 (Bank. S.D.N.Y. 2008) (same); In re Regional Bldg. Sys., 251
B.R. 274, 287 n.21 (Ba
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