Hedeen International LLC v. Zing Toys Inc et al

Filing 38

ORDER signed by Chief Judge William C Griesbach on 11-4-14 denying 16 Motion to Dismiss. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
HEDEEN INTERNATIONAL, LLC,
d/b/a FUN CITY USA,
Plaintiff,
v.

Case No. 14-C-304

OZWEST, INC, ZING TOYS, INC., and
PETER CUMMINGS,
Defendants.

ORDER DENYING DEFENDANT’S MOTION TO DISMISS

Plaintiff Hedeen International, LLC filed this action asserting claims for unpaid royalties
against defendants OzWest, Inc., and others. After OzWest filed a motion to dismiss, Plaintiff filed
an amended complaint and I denied the motion to dismiss on mootness grounds. OzWest has now
filed a new motion to dismiss the amended complaint. For the reasons given below, the motion will
be denied.
I. Failure to Plead “Claims”
The amended complaint pleads no “claims,” in the traditional sense. Typically a complaint
will assert causes of action like “breach of contract,” “unjust enrichment,” or “negligence,” or else
it will allege violations of specific statutes. Here, by contrast, the amended complaint sets forth
some ten pages of facts, including the existence of various inventions and a royalty agreement, but
does not state any specific legal causes of action. OzWest argues that the failure to plead claims
requires dismissal.
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted

as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citation omitted). Iqbal, and its predecessor case Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007), created a plausibility standard that requires courts to apply a somewhat heightened
standard of scrutiny to a complaint’s factual allegations. But those cases did not alter the landscape
in terms of pleading law. It remains true that the Federal Rules have abandoned the phrase “cause
of action” in favor of the more generic term “claim for relief,” which entails pleading factual
material that would warrant a finding of liability. Id.; see also 5 C. Wright & A. Miller, Federal
Practice and Procedure § 1216 (3d ed. 2004). As the Seventh Circuit noted in Hatmaker v.
Memorial Medical Center, “[a]lthough . . . Twombly and . . . Iqbal require that a complaint in
federal court allege facts sufficient to show that the case is plausible ..., they do not undermine the
principle that plaintiffs in federal courts are not required to plead legal theories.” Thus, although
OzWest’s desire to learn the exact legal theories underlying the claims brought against it is
understandable, nothing in the Rules requires that level of legal pleading. Here, the gist of the
complaint can readily be discerned. The complaint suggests “breach of contract and related
misconduct for unpaid royalties” (ECF No. 14 at 1) and then alleges both that a contract existed and
that the Defendants violated that contract by not paying royalties. This is enough to at least survive
a motion to dismiss based on Fed. R. Civ. P. 8.
II. Preemption
OzWest also argues that to the extent any claims are stated, they are preempted by federal
patent and copyright law. According to the complaint, OzWest licensed Plaintiff’s idea of a
“Backfire Football,” also known as an Off the Wall Ball and other names. OzWest also sublicensed
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the invention to other toy companies, including Defendant Zing. Eventually, OzWest and / or Zing
began selling a number of toys that used the concept of Plaintiff’s licensed invention. In addition,
an individual affiliated with both OzWest and Zing filed for and obtained a patent that copied
important parts of the licensed toy. The royalties soon dried up, with the explanation being that
Zing, the sublicensee, believed its products had been sufficiently altered such that they no longer
fell under the license agreement. (ECF No. 14 at ¶¶ 15-35.) Plaintiff asserts that it is due royalties
on all of the toys it has identified on the grounds that the license agreement covers “items which
have structural design as defined above” and that the term Licensed Product “shall be liberally
construed.” (ECF No. 14-1.) In other words, the parties dispute whether the new products are
covered by the original license agreement.
OzWest argues that the Plaintiff’s claim is preempted by federal patent law because Plaintiff
is attempting to enforce patent-like rights when the toys in question were in the public domain and
therefore not patentable. But the Supreme Court has upheld private licensing agreements even when
the Patent and Trademark Office denied issuance of a patent. In Aronson v. Quick Point Pencil Co.,
440 U.S. 257, 262 (1979), the Court found that “State law is not displaced merely because the
contract relates to intellectual property which may or may not be patentable.” There, the licensee,
who wished to get out from the agreement, argued that the agreement contravened federal patent
principles that foster open exchange of public domain ideas not patented. The Court disagreed,
noting that “[e]nforcement of the agreement does not withdraw any idea from the public domain.”
Id. Citing Aronson, the Third Circuit has found that “one who acquires a secret formula or a trade
secret through a valid and binding contract ... [may not] escape from an obligation to which he
bound himself simply because the secret is discovered by a third party or by the general public.”)
Nova Chemicals, Inc. v. Sekisui Plastics Co., Ltd., 579 F.3d 319, 328-29 (3d Cir. 2009) (citation
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omitted). The point of these cases is that parties may agree to license ideas or technology even of
the material is not patentable, and such agreements do not violate or infringe on any federal patent
principles.
Ultra-Precision Mfg., Ltd. v. Ford Motor Co. is not to the contrary. 411 F.3d 1369, 1380
(Fed. Cir. 2005).1 There, a plaintiff sued on an unjust enrichment theory after Ford Motor Company
used one of its ideas, which was in the public domain. The Federal Circuit found the claim
preempted because it contradicted federal patent law principles. Specifically, the plaintiff was
attempting to obtain through an equitable common law theory what it did not obtain through patent
law. “If Ultra–Precision's unjust enrichment claim were available, a would-be inventor need not
satisfy any of the rigorous standards of patentability to secure a perpetual patent-like royalty under
state law based on the use of an unpatented idea.” Id. at 1381. Here, by contrast, we do not have
a theory based on unjust enrichment but a claim based on an explicit contract voluntarily entered
into by two entities. Upholding the contract would merely enforce the contractual rights the parties
had entered into; it would not create a generalized, patent-like right to receive royalties from
complete strangers who might use the idea in the future. In Ultra-Precision, any member of the
public would open himself up to quasi-patent infringement merely by using ideas in the public
domain, whereas here any liability is due solely to the parties’ voluntary decision to enter into a
licensing agreement. OzWest is correct that to the extent the Plaintiff is attempting to obtain patentlike relief outside of the contract, he would likely be barred by preemption. But that is a question
for another day.

1

In its reply brief, OzWest concedes that Aronson solves the preemption problem, at least
with respect to any contractual claims, so I address the issue only briefly.
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III. Conclusion
For the reasons given above, the motion to dismiss is DENIED. The clerk will place the
case on the calendar for a telephonic scheduling conference.

SO ORDERED this 4th day of November, 2014.
/s William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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