Cricut v. Enough For Everyone et al

Filing 261

MEMORANDUM DECISION AND ORDER - Plaintiff's 184 Motion for Partial Summary Judgment is GRANTED. Defendant's 182 Motion for Partial Summary Judgment is DENIED. It is further ORDERED that the parties participate in a settlement conference with a magistrate judge, and the Court will refer this matter to a magistrate judge to conduct the conference in a separate order. Signed by Judge Ted Stewart on 6/5/2024. (mh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

v.

MEMORANDUM DECISION AND
ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL SUMMARY
JUDGMENT AND DENYING
DEFENDANT’S MOTION FOR PARTIAL
SUMMARY JUDGMENT

ENOUGH FOR EVERYONE, INC., a
Nevada corporation, and DESIRÉE
TANNER, an individual,

Case No. 2:21-CV-00601-TS-DAO

CRICUT, INC., a Delaware corporation,
Plaintiff,

Defendants.

District Judge Ted Stewart

This matter is before the Court on the parties’ cross motions for partial summary
judgment. Plaintiff Cricut, Inc. seeks summary judgment on (1) a portion of Plaintiff’s
declaratory judgment cause of action; and (2) Defendants’ counterclaims for breach of contract,
breach of the implied covenant of good faith and fair dealing, and abuse of process. 1 Defendant
Enough for Everyone seeks summary judgment on (1) Plaintiff’s unjust enrichment, money had
and received, and overpayment/recoupment causes of action; and (2) Defendants’ breach of
contract counterclaim. 2 For the reasons discussed below, the Court will grant Plaintiff’s Motion
and deny Defendant’s Motion.
I. BACKGROUND
This case involves unjust enrichment and other claims relating to a royalty agreement
originally between Plaintiff Cricut, Inc. (“Cricut”) (formerly known as “Provo Craft”) and

1

Docket No. 184, at 1.

2

Docket No. 182, at 1.

Defendant Desiree Tanner (“Tanner”), and later revised to be between Cricut and Defendant
Enough for Everyone (“EFE”) (collectively, “Defendants”).
In 2005, Cricut and Tanner entered into an agreement (the “2005 Agreement”) wherein
Cricut would pay Tanner royalties on the revenue earned from specified products in exchange for
Tanner’s intellectual property rights. 3 In 2007, Cricut, Tanner, and EFE entered into a new
agreement (the “2007 Agreement”) that “supersede[d] and replace[d] the 2005 [] Agreement.” 4
Tanner is the founder and sole shareholder, officer, and employee of EFE. Cricut alleges that a
key reason for amending the 2005 Agreement was that Tanner had formed EFE to collect her
patent royalties. 5
Cricut stopped making payments to EFE in 2021 and brought this action against Tanner
and EFE on October 13, 2021, seeking declaratory judgment that Tanner and EFE are not
entitled to royalty payments and asserting claims for unjust enrichment, money had and received,
and overpayment. 6 Defendants assert counterclaims for breach of contract, breach of the
covenant of good faith and fair dealing, accounting, and abuse of process.
Cricut filed its Motion for Partial Summary Judgment on September 21, 2023, arguing
that it is entitled to summary judgment because the royalties were intended for payment on
products covered by now-expired patents. 7 Cricut asks the Court to enter declaratory judgment as
follows: “(1) under the Brulotte Rule, Cricut owes no royalty payments under the 2007
Agreement on any revenues earned after May 29, 2021[,] when the last of the Design Patents on

3

See Docket No. 184-1.

4

Docket No. 183-1, at 1.

5

Docket No. 184, at 2.

6

See Docket No. 2.

7

Docket No. 184, at 1–3.
2

the Design Inventions expired; (2) any and all agreement provisions to the contrary are
unenforceable; (3) Cricut’s non-payment on October 12, 2021, was not a breach of the 2007
Agreement; and (4) Cricut does not need to make any future royalty payments to Defendants.” 8
Further, Cricut requests summary judgment on Defendants’ counterclaims for breach of contract,
breach of the implied covenant, and abuse of process. 9 On October 19, 2023, EFE filed its
Response. 10 Cricut filed its Reply on November 2, 2023. 11
EFE filed its Motion for Partial Summary Judgment on September 21, 2023, arguing the
royalties are due for non-patent rights, and Cricut breached the 2007 Agreement by failing to
make payments due under Section 3.3 beginning in October 2021. 12 EFE requests summary
judgment on Cricut’s unjust enrichment, money had and received, and overpayment/recoupment
claims, as well as EFE’s claim for breach of contract against Cricut. 13 On October 19, 2023,
Cricut filed its Response. 14 EFE filed its Reply on November 2, 2023. 15
Resolution of the parties’ Motions and the claims at issue revolve around whether the
royalty agreements at issue award royalties, at least in part, for products covered by the nowexpired design patents in which Tanner was a named inventor.

8

Id. at 36.

9

Id.

10

Docket No. 191.

11

Docket No. 200.

12

Docket No. 182, at 1–2.

13

Id. at 1.

14

Docket No. 192.

15

Docket No. 199.
3

II. STANDARD OF REVIEW
Summary judgment is appropriate “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.” 16 In
considering whether a genuine dispute of material fact exists, the Court determines whether a
reasonable jury could return a verdict for the nonmoving party in the face of all the evidence
presented. 17 The Court is required to construe all facts and reasonable inferences in the light
most favorable to the nonmoving party. 18
III. DISCUSSION
Brulotte Public Policy and Application
The purpose of patent law is to promote and incentivize invention by allowing an
inventor to have a monopoly on a manufactured product or process for a certain amount of
time. 19 “A patent empowers the owner to exact royalties as high as he can negotiate with the
leverage of that monopoly.” 20 Consequently, the Supreme Court “has carefully guarded” a
patent’s expiration date, declining to enforce laws and contracts “that restrict free public access
to formerly patented . . . inventions.” 21 “[A]ny attempted reservation or continuation in the

16

Fed. R. Civ. P. 56(a).

17

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924
F.2d 182, 183 (10th Cir. 1991).
18

See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Wright v. Sw. Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).
19

See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 230–31 (1964); Scott Paper Co.
v. Marcalus Mfg. Co., 326 U.S. 249, 255–56 (1945).
20

Brulotte v. Thys Co., 379 U.S. 29, 33 (1964).

21

Kimble v. Marvel Ent., LLC, 576 U.S. 446, 451–52 (2015).
4

patentee . . . after the patent expires, whatever the legal device employed, runs counter to the
policy and purpose of the patent laws.” 22
In Brulotte, the Supreme Court held that “a patentee’s use of a royalty agreement that
projects beyond the expiration date of the patent is unlawful per se.” 23 The Brulotte Court
emphasized the point that patent owners cannot use their monopoly “leverage to project those
royalty payments beyond the life of the patent” 24 because “[t]he exaction of royalties for use of a
machine after the patent has expired is an assertion of monopoly power in the post-expiration
period when . . . the patent has entered the public domain.” 25
In Kimble v. Marvel Entertainment, LLC, Justice Kagan explained, “[t]he [Brulotte]
decision is simplicity itself to apply. A court need only ask whether a licensing agreement
provides royalties for post-expiration use of a patent. If not, no problem; if so, no dice.” 26
Courts “have applied the Brulotte rule to preclude the payment of royalties beyond the
expiration date of patents under so-called ‘hybrid’ agreements encompassing inseparable patent
and non-patent rights.” 27 In Pitney Bowes, Inc. v. Mestre, the Eleventh Circuit addressed the
applicability of Brulotte to hybrid agreements. 28 The plaintiff entered several agreements with
the patent holder of certain paper handling machines “to pay royalties at the same rate and on the

22

Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 256 (1945).

23

Brulotte, 379 U.S. at 32.

24

Id. at 33.

25

Id.

26

Kimble, 576 U.S. at 459.

27

Kimble v. Marvel Enters. Inc., 727 F.3d 856, 862 (9th Cir. 2013); see also Boggild v.
Kenner Prods., 776 F.2d 1315, 1319–20 n. 5 (6th Cir. 1985) (applying Brulotte to a hybrid
agreement); Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1372 (11th Cir. 1983) (holding that
Brulotte was applicable to hybrid agreements concerning patent and trade secret rights).
28

701 F.2d at 1370–73.
5

same basis after the patents expired that it paid while the patent was in effect.” 29 The court found
that the agreement at issue on appeal “licensed both patent rights and trade secrets and thus was a
‘hybrid’ agreement.” 30 Despite the plaintiff’s argument that Brulotte was not applicable because
“the royalty payments in that case were solely for patent rights[,]” 31 the court held that Brulotte
was applicable to hybrid agreements. 32 The argument that Brulotte is inapplicable to hybrid
agreements “ignores the facts of Brulotte” because the licenses there were for “use” as well as
patent rights, and “the Court cut off both the patent and non-patent royalties.” 33
The Supreme Court has clarified that “post-expiration royalties are allowable so long as
[they are] tied to a non-patent right.” 34 But there must be a way to “distinguish between preexpiration and post-expiration royalties.” 35 While the Court in Kimble held that the agreement at
issue was barred by Brulotte, the Court also provided an example of a permissible hybrid
agreement covering both patent and trade secret rights that set a 5% royalty during the patent
period and a 4% rate thereafter. 36
2007 Agreement
Cricut argues that it should be granted summary judgment because the parties’ 2007
Agreement, at least in part, provided royalties in exchange for Defendants’ patent rights.
Therefore, they argue the Brulotte rule applies, and its obligation to pay the royalties expired

29

Id. at 1373.

30

Id. at 1370.

31

Id. at 1371.

32

Id.

33

Id. at 1371–72.

34

Kimble, 576 U.S. at 454.

35

Meehan v. PPG Indus., Inc., 802 F.2d 881, 886 (7th Cir. 1986).

36

Kimble, 576 U.S. at 454.
6

when the seven design patents expired. 37 Cricut points to Section 3.1 of the 2007 Agreement,
which specifies the products for which EFE will receive royalties. 38 Section 3.3 then identifies
the products covered by the agreement, which includes both products covered by the design
patents at issue (Cricut electronic cutting machines and Circuit cutting cartridges) and products
that are not (Cuttlebug machines, Cuttlebug die cast dies, and Cuttlebug plastic embossing
folders). 39 Cricut also notes Section 5.1 of the 2007 Agreement, in which Tanner assigns her
intellectual property rights to Provo Craft in exchange for payment of royalties. 40 Section 5.1
provides that the assignment of the intellectual property rights was “without the necessity of any
further consideration or action on the part of Provo Craft or [EFE] other than payment by Provo
Craft of the Royalties and Consulting Fees as required by this Agreement.” 41 “In other words,”
Cricut argues, “the Section 3.3 Royalties were the consideration for the assignment of
Intellectual Property Rights, which included, at least in part, patents.” 42
EFE argues that the royalties provided for in the 2007 Agreement are tied to a non-patent
right: that is, royalties were meant to be paid based on the branding of the products rather than in
exchange for the transfer of patent rights to Cricut. EFE gives the example of royalty payments
made based upon the sale of five cutting machines that are not covered by any of the design
patents on which Tanner was named as a co-inventor. 43 According to EFE, the royalties were

37

Docket No. 184, at 22–23.

38

Docket No. 183-1 ¶ 3.1.

39

Id. ¶ 3.3.

40

Id. ¶ 5.1.

41

Id.

42

Docket No. 184, at 24.

43

Docket No. 182, at 11.
7

provided based on Tanner’s involvement in the development of certain products, 44 and “this case
does not involve payments for the use of any patent, whether expired or not.” 45 As such, EFE
argues, the exception to the Brulotte rule applies: “post-expiration royalties are allowable so long
as tied to a non-patent right—even when closely related to a patent.” 46
EFE compares this case to Zimmer Biomet Holdings, Inc. v. Insall, 47 wherein the court
held that the Brulotte rule did not apply to an agreement that had been amended to “tie[] payment
to [plaintiff’s] decision to market certain components as part of the [brand].” 48 In support of this
point, EFE argues that the 2007 Agreement does not “provide[] royalties for post-expiration use
of a patent” 49 because “the 2007 Agreement does not prevent Cricut ‘from using [the Design
Patents] or tie royalties to those patents, but rather requires and ties payment to [Cricut’s]
decision to market certain [machines and cartridges] as part of the [CRICUT] family.” 50
Therefore, EFE concludes, the 2007 Agreement must be for royalty payments based on
“branding.”
There is no evidence before the Court that either EFE or Tanner had a role in the
branding of Cricut machines. Because neither EFE nor Tanner have shown they contributed
anything of value to Cricut’s branding beyond the contributions to the design patents, it does not
follow that EFE is entitled to royalties based on Cricut’s use of its own branding. Moreover,

44

Docket No. 183-1 ¶ 3.1.

45

Docket No. 182, at 16.

46

Kimble, 576 U.S. at 454.

47

No. 22 CV 2575, 2023 WL 2895749 (N.D. Ill. Apr. 11, 2023).

48

Id. at *6.

49

Kimble, 576 U.S. at 459.

50

Docket No. 199, at 18.
8

there is no evidence presented here that the parties entered the 2007 agreement to “decouple[] the
royalty from [the design] patents,” as there was in Zimmer. 51
EFE’s arguments also ignore the parties’ prior dealings. Under the 2005 Agreement,
Tanner agreed to engage in consulting services, which included developing products, and agreed
to transfer her patent rights to Cricut in exchange for royalty payments on certain agreed-upon
products. 52 In exchange, Cricut agreed to pay Tanner both a consulting fee and a royalty for the
sale of certain products, only some of which were covered by the design patents where Tanner
was a named inventor. 53 Although the 2007 Agreement says that it supersedes and replaces the
2005 Agreement, the two must be read in conjunction. 54 The primary purpose of the 2007
Agreement was to allow for the royalty payments initially set out in the 2005 Agreement to be
paid to EFE, rather than Tanner. 55
Therefore, the 2007 Agreement is best classified as a hybrid agreement that covers both
patented and non-patented rights. The 2007 Agreement provided that the royalties paid in
exchange for Tanner’s patent rights be paid to EFE rather than Tanner on products covered by
the design patents at issue, such as the Cricut-branded electronic cutting machines and Cricutbranded cutting cartridges, as well as products that were not covered by the design patents, like

51

Zimmer, 2023 WL 2895749, at *6.

52

Docket No. 183-2 ¶¶ 3.1–3.4, 6.1.

53

Id. ¶ 3.2, Schedule B.

54

SCO Grp., Inc. v. Novell, Inc., 578 F.3d 1201, 1211 (10th Cir. 2009) (“Where ‘two
contracts are made at different times, [but where] the latter is not intended to entirely supersede
the first, but only modif[y] it in certain particulars[,] [t]he two are to be construed as parts of one
contract, the later superseding the earlier one wherever it is inconsistent therewith.’”) (quoting
Hawes v. Lux, 294 P. 1080, 1081 (Cal. Dist. Ct. App. 1931)).
55

Docket No. 183-1 ¶ 5.1.
9

the Cuttlebug-branded machines, Cuttlebug-branded die cast dies, and Cuttlebug-branded plastic
embossing folders. 56
Hybrid agreements like the 2007 Agreement are permissible so long as there is some way
to distinguish between the patented and non-patented rights. 57 In Kimble, the Supreme Court
gave examples of hybrid agreements that could operate around the constraints of Brulotte. “A
licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20year patent term, but to amortize that amount over 40 years.” 58 Alternatively, “a license
involving both a patent and a trade secret can set a 5% royalty during the patent period (as
compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret
alone).” 59 However, because “[the Supreme] Court has carefully guarded [the patent] cut-off
date,” 60 a hybrid agreement without a similar distinction between pre- and post-expiration
royalties may still be subject to the Brulotte rule.
Here, there is nothing to distinguish the royalty rates received by EFE after the design
patents expire. The 2007 Agreement makes clear that the royalty payments portion of that
agreement remains in effect perpetually, and the rates remain the same. 61 As such, the Brulotte
rule is applicable, and Cricut was not required to pay Defendants a royalty after the last design
patent expired.

56

Id. ¶ 3.1; Docket No. 184, at 23.

57

Kimble, 576 U.S. at 454.

58

Id.

59

Id.

60

Id. at 451.

61

Docket No. 183-1 ¶ 7.1.
10

The Court finds that Cricut is entitled to summary judgment on its request for declaratory
relief because the Brulotte rule is applicable, and the post-expiration royalty payments are
unlawful per se. Cricut is also entitled to summary judgment on Defendants’ breach of contract,
breach of the implied covenant of good faith and fair dealing, and abuse of process
counterclaims. Because the royalty agreement became invalid after the expiration of the last
patent, Cricut did not breach the contract by discontinuing payments pursuant to the invalidated
royalty agreement after the last patent expired. Similarly, Cricut did not breach its implied
covenant of good faith and fair dealing in its obligations to EFE because its discontinuation of
the royalty payments was based on the invalidation of the royalty agreement once the last patent
expired.
Additionally, Cricut “paid all amounts due under the 2007 Agreement[,] including the
payment due with respect to the calendar quarter ending June 30, 2021.” 62 Defendants’ abuse of
process counterclaim fails because Cricut was within its rights to discontinue the royalty
payments and initiate this action to seek repayment of payments made after the invalidation of
the agreement when the last design patent on which royalty payments were based expired on
May 29, 2021. 63
IV. CONCLUSION
It is therefore
ORDERED that Plaintiff’s Motion for Partial Summary Judgment (Docket No. 184) is
GRANTED. It is further

62

Docket No. 54 ¶ 93.

63

Id. ¶ 44.
11

ORDERED that Defendant’s Motion for Partial Summary Judgment (Docket No. 182) is
DENIED. It is further
ORDERED that the parties participate in a settlement conference with a magistrate
judge, and the Court will refer this matter to a magistrate judge to conduct the conference in a
separate order.
DATED June 5, 2024.
BY THE COURT:
___________________________________
TED STEWART
United States District Judge

12