Terry et al v. Hinds et al
Filing
108
MEMORANDUM DECISION and Order- granting in part and denying in part 85 Motion for Summary Judgment, granting in part and denying in part 89 Motion for Summary Judgment. See Order for details. Signed by Judge Robert J. Shelby on 9/17/14. (jmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
DOUGLAS C. TERRY, an individual,
WORLD BE FREE, LLC, and
BODYGYM d/b/a
MEMORANDUM
DECISION AND ORDER
Plaintiffs,
v.
Case No. 2:12-cv-00166-RJS
ROBERT S. HINDS, an individual,
LIFELINE INTERNATIONAL, INC., and
LIFELINE USA,
Judge Robert J. Shelby
Defendants.
Plaintiff Douglas C. Terry is the founder and owner of Plaintiff World Be Free, which
does business as BodyGym. Defendant Robert S. Hinds is the founder and president of
Defendants Lifeline International and Lifeline USA (collectively Lifeline). BodyGym and
Lifeline both market personal fitness exercise devices. In February 2013, Plaintiffs filed the
operative Complaint in this action (Dkt. 76) alleging four causes of action arising from a Release
and Settlement Agreement (RSA) entered into between Mr. Terry and Mr. Hinds in May 2007.
Plaintiffs contend that:
1. Defendants breached the terms of the RSA by manufacturing, marketing, and selling
the Lifeline Cable Bar product;
2. Defendants breached the covenant of good faith and fair dealing;
3. Plaintiffs are entitled to the entry of an order requiring Defendants to cease and desist
from manufacturing, marketing, and selling the Lifeline Cable Bar. In addition,
Plaintiffs are entitled to the entry of an order that existing Lifeline Cable Bar products
be seized and destroyed; and
4. Defendants engaged in unfair competition under the statutory and common law of the
State of Utah, including at least Utah Code Ann. §§ 13-5a-101, et seq. (2011).
The parties filed cross motions seeking summary determinations on all four causes of
action. (Dkt. Nos. 85, 89.) After careful consideration and for the reasons stated below, the
court GRANTS IN PART and DENIES IN PART both Plaintiffs’ and Defendants’ motions for
summary judgment.
BACKGROUND
I.
Facts Preceding the Lawsuit
In 2005, Mr. Terry sued Mr. Hinds in a prior action involving a dispute unrelated to the
one here presented. Mr. Terry and Mr. Hinds ultimately settled that dispute and in May 2007
entered into the RSA. (RSA, Exh. B, Dkt. 86-1; Third Amended Complaint at ¶13, Dkt. 76.)
In the RSA, Mr. Terry and Mr. Hinds agreed, in relevant part, to the following:
(1)
Mr. Terry agreed to dismiss with prejudice all claims brought by him in that action
against Mr. Hinds (RSA at ¶1);
(2)
Mr. Hinds and Mr. Terry agreed to execute and be bound by the terms and
conditions of a “Patent Assignment and License Agreement” (PALA) – which will
be discussed in more detail below (RSA at ¶2);
(3)
Mr. Hinds and Mr. Terry agreed to be named as co-inventors of U.S. Patent No.
6,988,978 (RSA at ¶3);
(4)
Mr. Hinds and Mr. Terry agreed to be named as co-inventors of U.S. Patent No.
6,860,842 (RSA at ¶4);
2
(5)
Mr. Hinds and Mr. Terry agreed to be named as co-inventors of U.S. Patent
Application No. 10/602,928; and
(6)
Mr. Terry agreed to purchase certain products from Lifeline for a total amount of
$209,008 (RSA at ¶6).
Paragraph 10 of the RSA further provided that:
The parties understand and agree pursuant to the terms and conditions of the Patent and
License Agreement attached hereto as Exhibit A and incorporated herein, by reference,
that Hinds and Lifeline on the one hand and Terry on the other shall be marketing and
selling products that are similar in appearance and function. To reduce that inherent risk
of confusion which shall result from such similarity, Hinds and Lifeline agree that their
product shall be marketing [sic] in the form similar to that as presently shown in Exhibit
C, except that such product shall not be black in color and shall not contain on its surface
any appliques, decals or other forms of illustrations or pictures depicting exercises,
exercise positions, instructions or similar information, and said bar shall exclude a
product that has ends that are designed to permit plugged cables to attach directly to the
lifting bar or a package including slidable foot straps as shown in Exhibit D attached
hereto. Said bar as shown in Exhibit C shall have ends that are designed to permit rigid
handles to attach directly to the lifting bar . . . The parties expressly agree that the bar
used by Terry shall be black or white in color and that Terry may affix to the bar by
means of applique, decal or other means any illustrations, pictures, or similar depictions
of exercises, exercise positions, instructions or similar information. Said bar as shown in
Exhibit D excludes a product that has ends that are designed to permit rigid handles to
attach directly to the lifting bar. Said bar as shown in Exhibit D has ends that are
designed to permit plugged cables to attach directly to the lifting bar.
(RSA at ¶10.)
Exhibits C and D referenced in Paragraph 10 show a bar with a so-called “pipe bowl”
design. This design has an opening shaped like a “pipe bowl” on either side of the bar where
handles or plugged cables can be inserted.
II.
Patent Assignment and License Agreement (PALA)
In accordance with Paragraphs 2 and 10 of the RSA, Mr. Terry and Mr. Hinds executed
the PALA at around approximately the same time as they entered into the RSA. (Dkt. 85 at ¶16.)
Under the PALA, Mr. Hinds assigned to Mr. Terry U.S. Patent No. 6,988,978 and U.S. Patent
3
Application No. 10/602,928. (PALA at Exh. A, Dkt. 86-1.) Mr. Terry licensed to Mr. Hinds U.S.
Patent No. 6,979,286. (PALA at Exh. B.) In addition, Mr. Terry also licensed back to Mr. Hinds
U.S. Patent No. 6,988,978 and U.S. Patent Application No. 10/602,928. Id.
On one hand, Mr. Hinds agreed “to assign, convey, sell, grant and transfer to [Mr. Terry
the] rights, title and interest of every kind and character throughout the world, including moral
rights, in and to the Assigned Patents to the full extent of its ownership or interest therein.”
(PALA at ¶2.1.) Mr. Hinds’s assignment to Mr. Terry included
all existing future domestic and foreign patent applications and registrations therefor (and
all patents that issue therefrom and all divisions, continuations, continuations-in-part,
reexaminations, substitutions, reissues, extensions, and renewals of such applications,
registrations and patents, and the right to apply for any of the foregoing); all goodwill
associated therewith; all rights to causes of action and remedies related thereto (including
. . . the right to sue for past, present or future infringement, misappropriation or violation
of rights related to the foregoing); and any and all other rights and interests arising out of,
in connection with or in relation to the Assigned Patents.
(Id.)
On the other hand, Mr. Terry granted to Mr. Hinds “a worldwide, royalty-free, fully paid
up, non-exclusive, non-transferable license.” (PALA at ¶3.1.) But, the parties agreed that “[t]he
License Grant . . . is limited to a field of use that excludes a product that has ends that are
designed to permit plugged cables to attach directly to the lifting bar and excludes a lifting bar,
or a portion of the lifting bar, manufactured in a black color.” (PALA at ¶3.2.) In addition, under
the PALA, Mr. Hinds agreed to “limit its use of the Assigned Patents to make, use, sell, offer for
sale, and import products that excludes a product that has ends that are design[ed] to permit rigid
handles to attach directly to the lifting bar.” (Id. at ¶3.2.1.)
The PALA was specifically incorporated by reference into the RSA under Paragraphs 2
and 10. By virtue of the incorporation by reference, the RSA and PALA represent a single
binding contract.
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III.
Lifeline Cable Bar
Plaintiffs allege that Defendants manufactured, marketed, and sold their Lifeline Cable
Bar device in violation of Paragraph 10 of the RSA and Paragraph 3.2 of the PALA. The
Lifeline Cable Bar is a black personal exercise lifting bar that utilizes a weight resistant and
pluggable elastic cord. In addition, the elastic cord is attached to an opening on either side of the
bar. The openings on either side of the Lifeline Cable Bar are not shaped like a “pipe bowl.”
Rather, the Lifeline Cable Bar has openings on either side of the bar shaped like a “figure 8.”
On January 8, 2013, the U.S. Patent and Trademark Office issued a patent to the
Defendants covering the “figure 8 apertures.” U.S. Patent No. 8,348,814.
IV.
Reexamination
Mr. Terry filed this action in February 2012, alleging that Defendants directly infringed
and continued to infringe at least one claim of the ’286 and ’461 patents – the ’461 patent being a
continuation of the ’928 application. (Complaint at ¶¶57-72, Dkt. 2.) The ’461 patent was
obtained from patent applications filed by Mr. Hinds, assigned to Mr. Terry, and licensed back to
Mr. Hinds as part of the RSA and PALA. The ’286 patent was licensed by Mr. Terry to Mr.
Hinds under the PALA.
Shortly prior to the commencement of this action, Defendants sought reexamination in
the USPTO of both of the ’286 and ’461 patents. Defendants sought this reexamination because
they correctly anticipated that Mr. Terry would assert claims that Defendants infringed the ’286
and ’461 patents. As a result of the reexamination, all claims of the ’461 were cancelled on
September 25, 2012. (’461 Reexam Certificate, Exh. D, Dkt. 86-4.) In addition, all claims of the
’286 patents were cancelled on March 26, 2013. (’286 Reexam Certificate, Exh. C, Dkt. 86-3.)
The parties dispute whether Defendants were aware of the invalidating prior art references
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submitted during reexamination when Defendants filed the initial patent applications that
resulted in the issuance of ’461 patent.
Plaintiffs assert that, as a result of the reexamination, they “paid in excess of $150,000 in
attorney fees to prosecute and maintain these patents.” (Terry Decl., Exh. K, Dkt. 86-11.)
V.
Damages
A.
Interrogatories
In October 2012, Plaintiffs responded to an interrogatory requesting that Plaintiffs
“[i]temize all damages that Plaintiffs allege in the First Amended Complaint that they have
suffered as a result of Defendants’ alleged breach of contract.” (Plfs.’ Response to Defs.’ First
Set of Interrogatories at 6, Exh. E, Dkt. 100-5.) At that time, Plaintiffs stated that “[a]s this case
is in its early stages and discovery is ongoing, Plaintiffs will seasonably supplement their
response to this Interrogatory at the appropriate time.” (Id.)
In December 2012, Plaintiffs supplemented their discovery responses and identified the
following damages:
Terry became aware in 2009 that Defendants were marketing and selling an exercise bar
through at least SPRI Products, Inc., in violation of Mr. Terry’s patent and contractual
rights and as a result had to engage counsel to enforce said rights through at least a cease
and desist letter and other negotiations. Plaintiffs are unaware of the volume of these
sales. Following the execution of the May 1, 2007 Release and Settlement Agreement
wherein Defendant Hinds, inter alia, assigned certain patents to Mr. Terry and agreed to
correct inventorship in favor of Mr. Terry for certain patents, Defendant Hinds thereafter
has attempted to invalidate said patents and/or related patents, including the patents
asserted in this action, after using the validity of said patents as partial consideration to
settle the 2005 lawsuit between Hinds, Terry, Lifeline International and others in
violation of, inter alia, the covenant of good faith and fair dealing. As a result, Terry has
incurred fees, including attorney fees, related to the prosecution and response to
reexamination proceedings for patents which were transferred from Defendant Hinds and
represented as valid and enforceable intellectual property. Plaintiffs have also incurred
attorney fees in connection with bringing the present action and will seek an award for
such under the asserted contracts and any applicable statute or common law. Also, as a
result of Defendants’ actions, as referenced in the First Amended Complaint, Terry’s
intellectual property has been damaged.
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(Plfs.’ Supp. Response to Defs.’ First Set of Interrogatories at 8, Exh. F, Dkt. 100-6.)
B.
Sales of the BodyGym and Lifeline Cable Bar
In January 2009, Mr. Terry commenced a lawsuit against Greer Childers. (Terry v.
Childers, Case No. A579658-B, District Court, Clark County, Nevada.) The lawsuit was based
on a dispute regarding a Joint Venture between Mr. Terry and Ms. Childers whereby Mr. Terry
and Ms. Childers agreed to work together to market the GymBar product and an improvement of
the GymBar product called the BodyGym. The lawsuit between Mr. Terry and Ms. Childers was
dismissed with prejudice in July 2011.
Defendants allege that Mr. Terry did not aggressively go forward with the sales of the
BodyGym product because of his dispute with Ms. Childers. Specifically, Defendants allege that
Mr. Terry rejected a proposed contract from the Home Shopping Network based on the dispute
with Ms. Childers. Moreover, Defendants argue that Mr. Terry did not implement a business or
marketing plan in connection with the BodyGym.
In response to Defendants’ allegation, Mr. Terry testified that he sold around 5,000
BodyGym units. (Terry Dep. on Dec. 4, 2012 at 99:14-24; 101:2-11; 103:16-20, Exh. P, Dkt. 8815.) In addition, Plaintiffs argue they would have sold more units, but for the fact that
Defendants inappropriately sold 7,777 units of the Lifeline Cable Bars in violation of the RSA
and PALA. (Inventory Sales History Report, Exh. B, Dkt. 103-2.) Plaintiffs have requested that
Defendants provide profit information for these sales of the Lifeline Cable Bar. The Defendants
objected to the request. (Defs.’ Response to Plfs.’ First Set of Interrogatories, Exh. C and D, Dkt.
103-3.)
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ANALYSIS
The parties filed cross motions seeking a summary determination as to [1] whether
Defendants breached the terms of the RSA; [2] whether Defendants breached the covenant of
good faith and fair dealing; [3] whether Plaintiffs are entitled to monetary damages and/or
specific performance; and [4] whether Defendants engaged in unfair competition. The court first
discusses the legal standard for summary judgment, and then analyzes the disputed issues in turn.
I.
Legal Standard
Rule 56(a) of the Federal Rules of Civil Procedure states that “[t]he court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” “A material fact is one that might
affect the outcome of the suit under the governing law, and a genuine issue is one for which the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Pelt v.
Utah, 539 F.3d 1271, 1280 (10th Cir. 2008) (internal quotations and citations omitted). In
making this determination, the court “view[s] the evidence and make[s] all reasonable inferences
in the light most favorable to the nonmoving party.” N. Natural Gas Co. v. Nash Oil & Gas, Inc.,
526 F.3d 626, 629 (10th Cir. 2008).
II.
Express Breach of Contract
Plaintiffs contend that the language of the RSA and PALA is unambiguous and the
Defendants breached the unambiguous and plain terms of the RSA and PALA by manufacturing,
marketing, and selling the Lifeline Cable Bar. Defendants agree that the language of the RSA
and PALA is unambiguous, but urge the court to conclude the opposite as a matter of law.
8
In resolving this dispute, the court will first apply Utah law in interpreting the terms of
RSA and PALA. The court will then determine if either party is entitled to summary judgment
under the terms of the RSA and PALA.
A.
Interpretation of the RSA and PALA
In interpreting a contract, the court looks “to the writing itself to ascertain the parties’
intentions, and [considers] each contract provision in relation to all of the others, with a view
toward giving effect to all and ignoring none.” WebBank v. Am. Gen. Annuity Serv. Corp., 54
P.3d 1139, 1144 (Utah 2002). “If the language within the four corners of the contract is
unambiguous, the parties’ intentions are determined from the plain meaning of the contractual
language, and the contract may be interpreted as a matter of law.” Id. at 1145. But “if the
language of the contract is ambiguous such that the intentions of the parties cannot be
determined by the plain language of the agreement, extrinsic evidence must be looked to in order
to determine the intentions of the parties.” Id. “When ambiguity exists, the intent of the parties
becomes a question of fact.” SME Industries, Inc. v. Thompson, Ventulett, Stainback and
Assocs., Inc., 28 P.3d 669, 674 (Utah 2001).
Here, the court agrees with the parties that the contract is not ambiguous, and the court
may determine the parties’ intentions from the plain meaning of the contract. Specifically, the
first sentence of Paragraph 10 of the RSA states that “[t]he parties understand and agree pursuant
to the terms and conditions of the Patent and License Agreement attached hereto as Exhibit A and
incorporated herein, by reference, that Hinds and Lifeline on the one hand and Terry on the other
shall be marketing and selling products that are similar in appearance and function.” It is clear
the parties recognized that since Mr. Hinds assigned certain patents to Mr. Terry, and Mr. Terry
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licensed these patents back to Mr. Hinds, Mr. Terry and Mr. Hinds would be manufacturing,
marketing, and selling products that would be similar in appearance and function.
To distinguish Mr. Terry’s products from Mr. Hinds’s competing products, the RSA
expressly limited the types of products that Mr. Hinds could manufacture, market, and sell.
Paragraph 10 of the RSA states that “[t]o reduce that inherent risk of confusion which shall result
from such similarity, Hinds and Lifeline agree that their product shall be marketed [sic] in the
form similar to that as presently shown in Exhibit C, except that such product shall not be black
in color and shall not contain on its surface any appliques, decals or other forms of illustrations
or pictures depicting exercises, exercise positions, instructions or similar information, and said
bar shall exclude a product that has ends that are designed to permit plugged cables to attach
directly to the lifting bar or a package including slidable foot straps as shown in Exhibit D
attached hereto.”
Thus, under the RSA, if Mr. Hinds wanted to manufacture, market, and sell a product
covered by the PALA, the product could not be black. Neither could the product contain on its
surface any appliques, decals or other forms of illustrations or pictures depicting exercises,
exercise positions, instructions or similar information. And, if Mr. Hinds wanted to manufacture,
market, and sell a product covered by the PALA, the product could not have ends that were
designed to permit plugged cables to attach directly to the lifting bar, nor could it utilize a
package including slidable foot straps.
B.
Express Breach of Contract Claims
Defendants argue the PALA and RSA contemplated only the delineation of the respective
rights of Mr. Terry and Mr. Hinds as to bars with “pipe bowl” ends. So, under the PALA and
RSA, Defendants argue that if Mr. Hinds made bars with “pipe bowl” ends, Mr. Hinds could not
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make a “pipe bowl” bar that is black; Mr. Hinds could not make a “pipe bowl” bar that contains
on its surface any appliques, decals or other forms of illustrations or pictures depicting exercises,
exercise positions, instructions or similar information; and Mr. Hinds could not make a “pipe
bowl” bar that was designed to permit plugged cables to attach directly to the lifting bar or a
package including slidable foot straps. But since Defendants’ Lifeline Cable Bar has “figure 8”
ends, Defendants maintain it is neither contemplated nor restricted by the PALA and RSA.
But in this case, based on a close examination of the plain language of the RSA and
PALA, the court finds that nothing in the RSA and PALA limited the agreement exclusively to
bars with “pipe bowl” ends. 1 Rather, the scope of the RSA and PALA was governed by the
assignment of the ’978 patent and the ’928 application to Mr. Terry, and the license of the ’286
patent, ’978 patent, and ’928 application back to Mr. Hinds. This is so because this exchange
created the rights that enabled both Mr. Terry and Mr. Hinds to compete in the same market, thus
requiring a delineation of products as set forth in the RSA. As part of the agreement, there was
an exchange of “all patents that issue therefrom and all divisions, continuations, and
continuations-in-part, reexaminations, substitutions, reissues, extensions, and renewals” from the
patents and patent application. The court concludes that this exchange contemplated all products
claimed by the ’286 patent, the ’978 patent, and the ’461 patent – being a continuation of the
’928 application as subsequently granted by the USPTO. (PALA ¶2.1.)
Having determined that the scope of the RSA and PALA was governed by the claims of
the ’286 patent, the ’978 patent, and ’461 patent, the court must examine whether the claims of
1
Defendants argue that the RSA was limited to “pipe bowl” bars because the RSA was confined
to bars “similar to that presently shown in Exhibit C [an exhibit showing a “pipe bowl” bar.]”
RSA at ¶10. But, the court finds that the term “similar to” does not confine the RSA to only
“pipe bowl” bars. Rather, the scope of the RSA is better defined by the assignment and license
agreement that created the rights that enabled Mr. Terry and Mr. Hinds to compete in the same
market and necessitated the delineation of products as set forth in the RSA.
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any of these patents cover the Lifeline Cable Bar. In this case, the Defendants admit that the
Lifeline Cable Bar, with its “figure 8” ends, was within the scope of the claims of the ’461
patent. 2 So, in view of the court’s finding that the PALA contemplated products covered by the
’461 patent and the Defendants’ admission that the Lifeline Cable Bar was within the scope of
the ’461 patent claims, the court grants Plaintiffs’ motion as to the express breach of contract
claims.
C.
Limitation on Damages on the Express Breach of Contract
Having concluded that Plaintiffs are entitled to summary judgment on their express
breach of contract claims, the court must determine the appropriate damages period for the
claims. Plaintiffs argue that the since the Defendants acted in bad faith by seeking reexamination
of the ’461 patent, the court should disregard the fruits of that alleged bad faith. In other words,
the court should disregard the subsequent action by the USPTO to cancel all claims of the ’461
patent, and should award damages to Plaintiffs without any limitation on the damages period.
In determining whether Defendants breached the express terms of the contract, the court
weighed heavily the fact that the USPTO granted Mr. Terry the ’461 patent as a continuation of
the ’928 application. It would be inconsistent for the court to disregard the subsequent actions
by the USPTO that cancelled all claims of the ’461 patent. In addition, in light of the fact that
the USPTO has granted Defendants a patent for the “figure 8” design, if the court were to
pretend that the ’461 patent still existed in full force, it would allow Mr. Terry to preclude the
Defendants from enjoying the benefits of their own patent on the “figure 8” design.
2
Hearing at Time Stamp 54:18 (“Mr. E. Van Camp: But the patent that [Plaintiffs] sued under
was not the one that was assigned and became the ’762 patent which covered [the bar with the
“pipe bowl” ends], the one that they sued under was the extension [’461 patent] which had
additional claims to cover [the bar with the “figure 8” ends]. Court: That’s right. Mr. E. Van
Camp: And that’s obviously where the problem came from.”).
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Accordingly, the court finds that the damages ascertainable to the express breach of
contract are limited to the time when Mr. Hinds and Mr. Terry signed the RSA in May 2007 to
the time that the ’461 patent was cancelled in September 2012.
III.
Breach of Covenant of Good Faith and Fair Dealing
Plaintiffs and Defendants both seek summary determinations regarding whether
Defendants breached the covenant of good faith and fair dealing by (1) intentionally breaching
the express terms of the RSA; and (2) seeking to invalidate the ’461 patent through
reexamination. Under Utah law, “a covenant of good faith and fair dealing inheres in most, if not
all, contractual relationships.” St. Benedict’s Dev. Co. v. St. Benedict’s Hospital, 811 P.2d 194,
199 (Utah 1991). “Under the covenant of good faith and fair dealing, each party impliedly
promises that he will not intentionally or purposely do anything which will destroy or injure the
other party’s right to receive the fruits of the contract.” Id. at 199-200. “A violation of the
covenant gives rise to a claim for breach of contract.” St. Benedict’s Dev. Co., 811 P.2d at 200.
The court examines each of the parties’ arguments in view of Utah’s law regarding the implied
covenant of good faith and fair dealing.
A.
Plaintiffs’ Allegations Regarding Express Breach of the RSA
Plaintiffs first contend that Defendants breached the covenant of good faith and fair
dealing by intentionally engaging in actions to breach the express terms of the RSA. Plaintiffs
argue that this intentional action destroyed and injured Mr. Terry’s rights to receive the benefits
of the RSA. Under Utah law, express breach of contract and breach of the implied covenant of
good faith and fair dealing are separate causes of action. The express breach of contract claims
arise from a breach of the obligations expressly promised in the contract. In contrast, the
“purpose of the good faith doctrine in contract law is to protect the reasonable expectations of the
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parties by implying terms in the agreement.” A.I. Transport, Div. of Ins. Co. of State of Pa v.
Imperial Premium Fin., Inc., 862 F.Supp. 345, 347-48 (D. Utah 1994) (emphasis added). Under
the doctrine of breach of the implied covenant of good faith and fair dealing, the court may imply
or read terms into the agreement to protect the reasonable expectations of Mr. Terry and Mr.
Hinds. Breaching these implied terms gives rise to an action for the breach of the implied
covenant of good faith and fair dealing entirely separate and apart from any breach of the express
terms of an agreement.
Here, Defendants conflate these two different causes of action by alleging that
Defendants breached the implied covenant of good faith and fair dealing by breaching the
express terms of the RSA. If the Defendants breached the express terms of the contract, that
conduct might give rise to an express breach claim. But if the Defendants breached an implied
good faith term in the contract, it gives rise only to a breach of the implied covenant of good
faith and fair dealing.
Accordingly, the court dismisses Plaintiffs’ cause of action alleging that Defendants
breached the covenant of good faith and fair dealing by intentionally breaching the express terms
of the RSA. These express breach claims are more appropriately analyzed under a theory of
express breach of contract rather than a breach of the implied covenant of good faith and fair
dealing.
B.
Plaintiffs’ Reexamination Allegations
Plaintiffs also argue that Defendants breached the covenant of good faith and fair dealing
by initiating the reexamination of the ’461 patent, a continuation of a patent application assigned
14
by Defendants to Plaintiffs under the PALA and RSA. 3 This reexamination led to the
cancellation of all the claims of the ’461 patent. In Utah, compliance with the implied covenant
of good faith and fair dealing “depends upon the agreed common purpose and justified
expectations of the parties . . . [and] good faith and fair dealing are fact sensitive concepts, and
whether there has been a breach of good faith and fair dealing is a factual issue, generally
inappropriate for decision as a matter of law.” Republic Group, Inc. v. Won-Door Corp., 883
P.2d 285, 291 (Utah Ct. App. 1994).
Here, the court finds that there are genuine disputes of material fact concerning whether
Defendants’ initiation of the reexamination of the ’461 patent constituted a breach of the
covenant of good faith and fair dealing. For example, a reasonable jury may conclude that Mr.
Terry had a justified expectation that Mr. Hinds would not seek to cancel a patent based on a
patent application that Mr. Hinds assigned to him – especially since Plaintiffs allege that Mr.
Hinds used prior art references to seek reexamination that should have been sent to the USPTO
as part of his ’928 patent application. On the other hand, a reasonable jury may conclude that
Mr. Hinds was properly justified in defending himself in any way possible once he believed Mr.
Terry would file suit against him, including seeking reexamination of the ’461 patent.
Accordingly, the court denies both Plaintiffs’ and Defendants’ summary judgment
motions on Plaintiffs’ breach of the covenant of good faith and fair dealing claim.
IV.
Damages
A.
Reasonably Ascertainable Damages
Defendants argue that Plaintiffs’ breach of contract claims should be dismissed because
Plaintiffs have not demonstrated reasonably ascertainable damages resulting from the alleged
3
It appears that Plaintiffs do not contend the Defendants breached the covenant of good faith and
fair dealing by initiating the reexamination of the ’286 patent.
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breach. But under Utah law, “it is well settled that nominal damages are recoverable upon a
breach of contract if no actual or substantial damages resulted from the breach or if the amount
of damages has not been proven.” Blair v. Axiom Design, L.L.C., 20 P.3d 388, 392-93 (Utah
2001). Thus, even if Plaintiffs are unable to prove actual or substantial damages resulting from
the breach, the Plaintiffs may nevertheless seek nominal damages to sustain a breach of contract
claim.
Moreover, the court finds that Plaintiffs have alleged at least some reasonably
ascertainable damages resulting from the breach. Specifically, Plaintiffs allege that they “paid in
excess of $150,000 in attorney fees to prosecute and maintain” the patents that Defendants
wrongfully invalidated in reexamination. (Terry Decl., Exh. K, Dkt. 86-11.)
Defendants respond that the Plaintiffs’ claim for $150,000 in attorney fees and costs was
incurred in subsequent litigation to resolve a dispute over the agreement, and therefore cannot
provide a basis for damages in a breach of contract claim. In Utah, “[a]s a general rule, legal
damages serve the important purpose of compensating an injured party for actual injury
sustained, so that she may be restored, as nearly as possible, to the position she was in prior to
the injury.” Mahmood v. Ross, 990 P.2d 933, 937 (Utah 1999). “Typically, there are two types of
damages a non-breaching party can recover in an action for breach of contract: general damages,
which flow naturally from the breach, and consequential damages, which, while not an invariable
result of breach, were reasonably foreseeable by the parties at the time the contract was entered
into.” Id.
Here, the legal costs and attorneys’ fees that the Plaintiffs seek as damages are not related
to the legal costs and attorneys’ fees incurred in this present litigation. Rather, Plaintiffs seek
damages based on the costs and fees incurred defending the patents during reexamination. If
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Defendants breached the implied covenant of good faith and fair dealing in the contract by
seeking reexamination of the patents assigned under the PALA, a reasonable jury may properly
conclude that those costs and fees are an important element to restoring Plaintiffs to the position
they were in prior to the breach of the covenant – namely, Plaintiffs would still have valid patents
without any expenditure to defend the reexamination. Thus, Plaintiffs’ claims for attorneys’ fees
and costs associated with the reexamination are appropriately included as damages in this action.
Accordingly, the court denies Defendants’ summary judgment motion for breach of
contract based on the theory that Plaintiffs have not proved reasonably ascertainable damages.
B.
Sufficiency of Damages
The court is mindful that Plaintiffs have asserted six categories of damages, and the
Defendants have at least indirectly challenged whether Plaintiffs set forth damages with
sufficiency to permit a jury to make a substantive award as to each of these categories. Indeed,
under Utah law, in order to receive damages, plaintiffs “must demonstrate the amount of
damages with sufficient certainty to permit the factfinder to make an award, although the
damages need not be proven with precision.” Turtle Management, Inc. v. Haggis Management,
Inc., 645 P.2d 667, 670 (Utah 1982).
But here, Defendants’ summary judgment arguments explicitly focus on whether
Plaintiffs have adequately asserted any claims for substantive and cognizable damages caused by
the Defendants sufficient to overcome summary judgment. Having concluded that Plaintiffs may
legally seek nominal damages if they are unable to prove actual or substantial damages, and that
at least a portion of Plaintiffs’ damages are reasonably ascertainable from the alleged breach, the
court finds that Plaintiffs have asserted damages claims sufficient at least to survive summary
judgment. Thus, the court need not determine, at this stage of the litigation, whether Plaintiffs
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set forth damages with sufficiency to permit a jury to make an award as to each separate category
of damages not specifically discussed in this Order. These disputes may be resolved as motions
in limine prior to trial, or at the close of the Plaintiffs’ evidence at trial.
C.
Specific Performance
Plaintiffs argue that since Defendants breached the contract, the court should order
Defendants to cease and desist manufacturing, marketing, and selling the Lifeline Cable Bar.
Plaintiffs further argue that the court should order Defendants to seize and destroy all Lifeline
Cable Bars in Defendants’ possession. But here, even though the court found that the Defendants
breached the express terms of the RSA, the court limited the damages for the express breach to a
time period that closed in September 2012. Accordingly, the court finds that an equitable order
for specific performance is inappropriate at this time. Nevertheless, the court must determine
whether, as a matter of law, specific performance is an appropriate remedy if the Plaintiffs
ultimately succeed on their remaining claims.
Under Utah law, “[w]hen a party seeks an order of specific performance, the contract
must clearly impose the duty sought to be enforced. . . . Indeed, for a court to order specific
performance . . . [the contract] must be sufficiently certain and definite in its terms to leave no
reasonable doubt as to what the parties intended, and no reasonable doubt of the specific thing
equity is called upon to have performed, and it must be sufficiently certain as to terms so that the
court may enforce it as actually made by the parties.” Tooele Associates Ltd. Partnership v.
Tooele City, 251 P.3d 835, 835-36 (Utah Ct. App. 2011). Thus, whether the requested cease and
desist order, or the seize and destroy order, are appropriate as a matter of law depends on
whether the contract imposed a clear duty on the Defendants to cease and desist, or seize and
destroy, the Lifeline Cable Bar if these products were found to violate the RSA.
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Here, Mr. Terry and Mr. Hinds understood that they would be manufacturing, marketing,
and selling competing products that would be similar in appearance and function. To distinguish
Mr. Terry’s products from Mr. Hinds’s products, the RSA prohibited Mr. Hinds from
manufacturing, marketing, and selling certain products that could be confused with Mr. Terry’s
products. There is no doubt that the parties intended for Mr. Hinds to cease and desist the
manufacturing, marketing, and sale of the Lifeline Cable Bar if it was found to violate the RSA.
Accordingly, the court finds that if the Plaintiffs ultimately prevail on their claims, Plaintiffs’
request for a cease and desist order is appropriate as a matter of law.
In contrast to the cease and desist order, the court does not find that the RSA imposed a
clear duty for Defendants to seize and destroy the Lifeline Cable Bar. Rather, under the RSA,
Mr. Terry agreed to purchase the lift bars in Mr. Hinds’s inventory that might violate the RSA.
The court is mindful of Plaintiffs’ concern that without a seize and destroy order, the Defendants’
product might find its way into the market. The court, however, finds that an appropriately
worded cease and desist order is sufficient to satisfy Plaintiffs’ concerns if Plaintiffs ultimately
succeed on their claims. Accordingly, the court finds that specific performance in the form of an
order to seize and destroy the Lifeline Cable Bar is improper as a matter of law.
V.
Unfair Competition
Finally, Plaintiffs claim that Defendants have engaged in unfair competition in violation
of the statutory and common law of Utah. (Dkt. 76 at ¶¶58-61.) At the hearing held on January
23, 2014, Plaintiffs admitted that they could not sustain a claim under the Utah Unfair
Competition Act or Utah common law. (Hearing at Time Stamp 1:25 (“Court: Is there still
some contention about the viability of the unfair competition claims. I’m unclear about that. Mr.
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Veverka: Your honor, we would concede that with the cancellation of the patents that that claim
is moot.”).)
Accordingly, the court grants Defendants’ motion for summary judgment as to the unfair
competition claims, and dismisses Plaintiffs’ fourth cause of action that Defendants engaged in
unfair competition under the statutory and common law of the State of Utah, including at least
Utah Code Ann. §§ 13-5a-101, et seq. (2011).
CONCLUSION
For the reasons stated, the court GRANTS IN PART and DENIES IN PART Plaintiffs’
and Defendants’ motions for summary judgment. (Dkt. 85, 89.) Specifically, the court makes
the following rulings:
1. The court GRANTS Plaintiffs’ summary judgment motion as to the claims for the express
breach of contract.
2. The court LIMITS the damages available for the express breach of contract to the time
between when Mr. Hinds and Mr. Terry entered into the RSA in May 2007 and the time
that the claims of the ’461 patent were cancelled in September 2012.
3. The court DISMISSES the Plaintiffs’ claim for the breach of the covenant of good faith
and fair dealing by intentional breach of the express terms of the contract.
4. The court DENIES both Plaintiffs’ and Defendants’ motions for summary judgment on
Plaintiffs’ claims for breach of the implied covenant of good faith and fair dealing
premised on theories other than that discussed in No. 3 above.
5. The court DENIES both Plaintiffs’ and Defendants’ motions for summary judgment on
the requested cease and desist order, but finds that, if Plaintiffs ultimately succeed on
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their claims, Plaintiffs’ request for a cease and desist order is appropriate as a matter of
law.
6. The court GRANTS Defendants’ motion for summary judgment on the requested seize
and destroy order and finds that the Plaintiffs’ requested seize and destroy order is
improper as a matter of law.
7. To the extent the parties seek a summary determination on the appropriateness of
attorneys’ fees and costs related to this litigation, the court DENIES these motions as
MOOT.
8. The court GRANTS Defendants’ motion for summary judgment on Plaintiffs’ unfair
competition claims and DISMISSES those claims.
SO ORDERED this 17th day of September, 2014.
BY THE COURT:
_________________________________
ROBERT J. SHELBY
United States District Judge
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