Ultratec, Inc. et al v. Sorenson Communications, Inc. et al

Filing 352

OPINION AND ORDER re #87 Motion for Partial Summary Judgment filed by CapTel, Inc., Ultratec, Inc.; #79 Motion for Partial Summary Judgment filed by Sorenson Communications, Inc., CaptionCall, LLC. Plaintiffs' motion for summary judgment on defendants' counterclaim of breach of contract is granted. Defendants' motion for summary judgment on their "defense" of breach of contract is denied. Plaintiffs' motion for summary judgment on defendants' affirmative defenses of patent misuse, unclean hands and equitable estoppel is denied. Defendants' motion for summary judgment on their affirmative defenses on adequacy of plaintiffs' relief at law (the "eBay requirements") and judicial, promissory and equitable estoppel is denied. Signed by District Judge Barbara B. Crabb on 8/28/14. (jat)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ULTRATEC, INC. and CAPTEL, INC.,
OPINION AND ORDER
Plaintiffs,
13-cv-346-bbc
v.
SORENSON COMMUNICATIONS, INC.
and CAPTIONCALL, LLC,
Defendants.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ULTRATEC, INC. and CAPTEL, INC.,
OPINION AND ORDER
Plaintiffs,
14-cv-66-bbc
v.
SORENSON COMMUNICATIONS, INC.
and CAPTIONCALL, LLC,
Defendants.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - In these civil actions, plaintiffs Ultratec, Inc. and CapTel, Inc. contend that
defendants Sorenson Communications, Inc. and CaptionCall, LLC have infringed various
patents of plaintiffs. Defendants have filed a counterclaim in which they contend that
plaintiffs breached their contract with the Federal Communications Commission and that
defendants have the right to sue on the breach because they are among the intended

1

beneficiaries of that contract. The parties have filed various motions in both cases related
to this alleged contract.
In case no. 13-cv-346-bbc, plaintiffs have moved for summary judgment on
defendants’ counterclaim of breach of contract; in case no. 14-cv-66-bbc, plaintiffs have
moved to dismiss the contract counterclaim.

The undisputed facts presented in the

pleadings and attachments to the pleadings are sufficient to decide both motions. I conclude
that even if a contract existed, it did not obligate plaintiffs to license their patents to
defendants; therefore, defendants were not intended third party beneficiaries. I will dismiss
defendants’ counterclaim for breach of contract with prejudice in both cases.
Furthermore, in case no. 14-cv-66-bbc, plaintiffs have moved to dismiss three more
of defendants’ counterclaims that relate to the purported contract: 1) promissory estoppel;
2) fraud; and 3) a counterclaim under Wis. Stat. § 100.18. Defendants have withdrawn the
third counterclaim, Dfts.’ Br., dkt. #49, at 2, n.2, so it will be dismissed with prejudice.
Finally, I conclude that on the facts alleged, defendants cannot state claims for promissory
estoppel or fraud, so these counterclaims will be dismissed from case no. 14-cv-66-bbc with
prejudice.
With respect to case no. 13-cv-346-bbc, plaintiffs have moved for summary judgment
on defendants’ affirmative defenses of 1) patent misuse; 2) unclean hands; and 3) equitable
estoppel. Dkt. #87. Defendants have filed cross motions for summary judgment on similar
grounds, contending that plaintiffs are not entitled to injunctive relief on the basis of 1) the
adequacy of plaintiffs’ relief at law (which defendants frame as failure to meet the “eBay

2

requirements”); 2) judicial, promissory and equitable estoppel; and 3) plaintiff Ultratec’s
purported contract with the Federal Communications Commission. Dkt. #79. All of these
issues pertain to Ultratec’s purported contract with the commission. Although defendants
frame some of these defenses as barring plaintiffs’ claims, I conclude that they all arise in
equity and have to do with the type of relief available to plaintiffs. Because the extent to
which plaintiffs are entitled to relief has not been determined yet, it is premature to consider
the question of what relief is available to plaintiffs. Therefore, I am denying the motions
without prejudice, except the part of defendants’ motion that frames the contract claim as
an affirmative defense. Because I am granting plaintiffs’ motion on the merits of defendants’
contract claim, I am denying that aspect of defendants’ motion.
From the parties’ pleadings, attachments to pleadings and proposed findings of fact,
I find the following facts are undisputed for the purpose of deciding these motions.

UNDISPUTED FACTS
Plaintiff Ultratec, Inc. is a supplier of telecommunication devices for the deaf and
hard of hearing.

It owns a number of patents for services and devices related to

telecommunication for the deaf and hard of hearing. Plaintiff CapTel, Inc. is a “sister
company” to Ultratec. It licenses some of these patents and operates certain systems for
captioning telephone conversations. One of those systems is internet-based captioned
telephone services, in which conversations between deaf or hard of hearing users and hearing
users are captioned by call assistants using an internet connection.

3

Defendants Sorenson Communication, Inc. and CaptionCall, LLC, design,
manufacture and market communication products and services to deaf and hard of hearing
individuals, including products using internet-based connections.
Under the Americans with Disabilities Act of 1990, disabled telephone users cannot
be required to pay for the costs of relaying or captioning calls.

Thus, the Federal

Communications Commission reimburses the costs for qualifying telecommunications relay
services for the disabled. Ultratec petitioned the commission to approve internet-based
captioned telephone services as a technology qualified for reimbursement. In 2006, Ultratec
wrote to the commission, memorializing its commitment to license its patents related to this
type of technology, stating that “Ultratec Inc., the inventor of captioned telephone VCO
[voice carry over], has licensed its technologies at reasonable rates since captioned telephone
service first became available over five years ago and will continue to license its technologies,
including technologies relating to IP [internet protocol] captioned telephone, going forward.”
Dfts.’ Ans., dkt. #43, 14-cv-66-bbc, exh. A, at 1.
In 2007, the commission issued a declaratory ruling in which it granted Ultratec’s
request to include internet-based captioned telephone services under the relay services
funding. The ruling did not mandate use of this technology or require users to make
purchases from Ultratec. All companies taking part in the relay services funding programs
have to be certified and meet the commission’s standards, but companies may use a variety
of types of technology to participate. The commission “condition[ed] [its] approval on
Ultratec’s representation that it will continue to license its captioned telephone technologies,

4

including technologies relating to IP CTS [captioned telephone service], at reasonable rates.”
In re Telecommunications Relay Services and Speech-to-Speech Services for Individuals with
Hearing and Speech Disabilities, Internet-based Captioned Telephone Service, No. 03-123,
22 FCC Rcd 379, Federal Communications Commission (January 11, 2007), Dfts.’ Ans.,
dkt. #43, 14-cv-66-bbc, exh. B, at 1.
In its 2007 ruling, the commission also discussed a 2003 declaratory ruling in which
Ultratec petitioned the commission to recognize captioned telephone service as a form of
relay service that could receive funding. The commission noted that in the previous ruling
it had
recognized that Ultratec’s captioned telephone service was provided only via
proprietary equipment and technology, and that Ultratec was the only
company offering consumers any type of captioned telephone service.
Therefore, to avoid authorizing a particular proprietary technology, rather
than a particular functionality or service, the Commission defined captioned
telephone service as “any service that uses a device that allows the user to
simultaneously listen to, and read the text of, what the other party has said,
on one standard telephone line.” [In re Telecommunications Relay Services,
and Speech-to-Speech Services for Individuals with Hearing and Speech
Disabilities, No. 98-67, 18 FCC Rcd 16121 (Aug. 1, 2003)] The Commission
added that “TRS providers, therefore, that may choose to offer captioned
telephone . . . service are not bound to offer any particular company’s service.”
[Id.]
Id. at 5-6.
In 2008, Ultratec’s president and chief executive officer, Robert Engelke, emailed a
representative of Sprint, discussing licensing terms. Engelke he stated that his understanding
of the requirements from the commission were that Ultratec “make the Captel technologies
available to legitimate TRS providers under reasonable terms and conditions.” Decl. of

5

Jessica Quon, dkt. #85, 13-cv-346-bbc, exh. #31, at 3. Engelke went on to say that he was
concerned that if the company did not offer a license to Sprint, it might “seriously injure
[Ultratec’s] credibility with the FCC and kill [its] chances of getting Captel made a
permanent, required TRS service.” Id. He drafted a similar email around the same time in
which he stated that it was a “necessity that Ultratec offer to make its Captel technologies
available to legitimate TRS providers under reasonable terms and conditions.” He went on
to say that Ultratec had “no choice” but to offer its licenses to company X “or get into
serious trouble with the FCC which would be a big mistake.” Id., exh. #32, at 1.
Plaintiffs have licensed other providers but have not licensed or offered to license
their patents to defendants. Defendants have not sought a license from plaintiffs outside
this litigation.

OPINION
A. Counterclaim of Breach of Contract Asserted in Both Cases
Defendants assert a counterclaim of breach of contract in both lawsuits. Plaintiffs
have moved to dismiss the breach of contract counterclaim in case no. 14-cv-66-bbc and for
summary judgment on the contract counterclaim in case no. 13-cv-346-bbc. In deciding the
motion to dismiss, I have considered only defendants’ pleadings and the documents they
attached to their answer. Burke v. 401 N. Wabash Venture, LLC, 714 F.3d 501, 505 (7th
Cir. 2013) (“‘[D]ocuments attached to a motion to dismiss are considered part of the
pleadings if they are referred to in the plaintiff's complaint and are central to his claim.’

6

These documents may be considered by a district court in ruling on the motion to dismiss
without converting the motion into a motion for summary judgment.”) (quoting McCready
v. eBay, Inc., 453 F.3d 882, 891 (7th Cir.2006)). In deciding the motion for summary
judgment, I have considered the parties’ pleadings, proposed findings of fact and the exhibits
of the Ultratec’s letter to the Federal Communications Commission, the commission’s 2007
declaratory ruling and two emails from Robert Engelke.

1. Choice of law
The parties have not made clear whether federal or state law applies to the breach of
contract counterclaim. In their argument in support of their motion for summary judgment,
plaintiffs state summarily that “federal common law and general contract principles of
contract law control the interpretation of the alleged contract.” Plts.’ Br., dkt. #90, at 18.
Without explanation, they cite cases that apply federal common law when a federal
governmental entity is a party to the alleged contract. Priebe & Sons, Inc. v. United States,
332 U.S. 407, 411 (1947); Long Island Savings Bank v. United States, 503 F.3d 1234, 1245
(Fed. Cir. 2007); Smith v. Central Arizona Water Conservation District, 418 F.3d 1028,
1034 (9th Cir. 2005). However, in their motion to dismiss (filed later), plaintiffs cite only
an opinion from this court interpreting Wisconsin law. In other sections of their briefs on
both motions, defendants and plaintiffs cite law without explanation from the Court of
Appeals for the Seventh Circuit, the Court of Appeals for the Federal Circuit and from
district courts applying state law. In their motion for summary judgment on the contract

7

as an “affirmative defense,” dkt. #79, defendants say that either Wisconsin law or federal
common law may apply to this situation but that both sets of laws lead to the same
conclusion.
I conclude that defendants are correct on their last point. Because the standards
under Wisconsin law and federal common law are substantially similar and lead to the same
conclusion, I have considered both.

2. Existence of a contract
Defendants say that the Federal Communications Commission and Ultratec entered
into a contract and that defendants are the intended third party beneficiary of that contract.
They compare this situation to the one in Apple, Inc. v. Motorola Mobility, Inc.,
11-cv-178-bbc, 2011 WL 7324582 (W.D. Wis. June 7, 2011) and Apple, Inc. v. Motorola
Mobility, Inc., 886 F. Supp. 2d 1061, 1084 (W.D. Wis. 2012), in which this court held that
a company entered into a contract with a standards setting organization. Defendants say
that the FCC acted like a standards setting organization that made Ultratec agree to its
policies in exchange for membership into the group. In standards setting organizations,
companies receive the benefits of participating in the development of standards for certain
types of technologies on the condition that they license their patents on “fair, reasonable and
nondiscriminatory terms” or on “reasonable and nondiscriminatory terms” (often referred
to as FRAND or RAND terms).
Courts have found that these arrangements constitute contracts in which competitors

8

are intended third party beneficiaries. Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 885
(9th Cir. 2012) (finding existence of contract where “Motorola made promises to the ITU
to license its standard-essential patents worldwide to all comers. In exchange, it received the
benefit of having its patents implicated in the standards.”); Microsoft Corp. v. Motorola,
Inc., 854 F. Supp. 2d 993, 999 (W.D. Wash. 2012) (“The court agrees with Microsoft that
through Motorola’s [RAND] letters to [SSOs], Motorola has entered into binding
contractual commitments to license its essential patents on RAND terms.”); Realtek
Semiconductor Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1006 (N.D. Cal. 2013) (“Similar
to the situation in Motorola, the defendants are contractually obligated under their Letters
of Assurance to the IEEE to license the [patents] on RAND terms . . . . ”).
In this case, defendants say that the FCC and Ultratec entered into a contract when
the commission offered its approval to fund internet-based captioned telephone services on
the condition that Ultratec “continue to license its captioned telephone technologies,
including technologies relating to IP CTS, at reasonable rates.” Ultratec accepted that offer
by receiving compensation under the interstate relay services fund and the two exchanged
consideration when Ultratec received funds and the commission expanded services available
to the deaf and hard of hearing. Kamikawa v. Keskinen, 44 Wis. 2d 705, 710, 172 N.W.2d
24, 26 (1969) (“The basic elements of a contract, of course, are an offer, an acceptance, and
consideration.”). See also Suess v. United States, 535 F.3d 1348, 1359 (Fed. Cir. 2008)
(“The requirements for a contract between the United States and a private party are (1)
mutuality of intent to contract, (2) consideration, (3) lack of ambiguity in offer and

9

acceptance, and (4) authority on the part of the government agent entering the contract.”).
I am skeptical about defendants’ argument that the arrangement between the FCC
and Ultratec constitutes a contract. Unlike private standards setting organizations, the
commission is a governmental entity and decisions or rules made by the government are not
often contracts, even when they appear to be. For a contract to exist, the governmental
entity must have the authority to enter into the contact, Suess, 535 F.3d at 1359, and there
must be clear evidence that it intended to create a contract rather than to promulgate
policies and regulations. Mola Development Corp. v. United States, 516 F.3d 1370, 1378
(Fed. Cir. 2008) (“‘An agency’s performance of its regulatory or sovereign functions does not
create contractual obligations.’ Rather, ‘there must . . . be a clear indication of intent to
contract and the other requirements for concluding that a contract was formed.’”) (quoting
D & N Bank v. United States, 331 F.3d 1374, 1377-78 (Fed. Cir. 2003)) (internal citations
omitted) (ellipses in original). The parties do not develop their arguments on either element.
Nevertheless, I need not reach the question whether the contract exists. Even if I assume
that it does, I conclude that the purported contract did not require plaintiff Ultratec to
license its patents to defendants and that defendants were not intended third party
beneficiaries to the purported contract.

3. Contract terms
Defendants vacillate in characterizing the contract between the commission and
Ultratec.

In their pleading in the 14-cv-66-bbc case, defendants say that “Ultratec

10

represented to the FCC on November 27, 2006 that it would continue to license ‘its
technologies, including technologies relating to IP captioned telephone’ at reasonable rates,”
Dfts.’ Ans., dkt. #43, at ¶ 137, and that the commission represented in its declaratory ruling
that it would condition its approval on Ultratec’s agreement to license. Id. at ¶ 141.
Defendants attach the 2006 letter and the commission’s declaratory ruling to their answer.
In the 13-cv-346-bbc case, defendants argue that the agreement arose from the parties’
“course of dealing,” but they cite the commission’s declaratory ruling and plaintiffs’ letter
to the commission as evidence of the parties’ intentions. Thus, I turn to these documents
for evidence of the alleged contract’s terms.
In the letter, Ultratec memorializes its communication with the commission in which
it said that it has licensed its patents on reasonable terms and would continue to do so:
“Ultratec Inc., the inventor of captioned telephone VCO, has licensed its technologies at
reasonable rates since captioned telephone service first became available over five years ago
and will continue to license its technologies, including technologies relating to IP captioned
telephone, going forward.” Dfts.’ Ans., dkt. #43, exh. A, at 1. In turn, the commission
“condition[ed] [its] approval on Ultratec’s representation that it will continue to license its
captioned telephone technologies, including technologies relating to IP CTS, at reasonable
rates.” Dfts.’ Ans., dkt. #43, exh. B, at 1. However, defendants do not cite anything in this
exchange to the effect that plaintiff Ultratec promised to license its patents on a
nondiscriminatory basis.
In the “FRAND” and “RAND” decisions cited by defendants, the policies to which

11

the parties agreed stated explicitly that the parties were required to license their standards
setting patents on “fair, reasonable and nondiscriminatory terms.”

E.g., Realtek

Semiconductor Corp., 946 F. Supp. 2d at 1001 (“Agere submitted Letters of Assurance, as
required by the IEEE Standards Board Bylaws, stating that it ‘is prepared to grant a license
to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on
reasonable terms and conditions to comply with the [Proposed] IEEE Standard.’”). See also
Microsoft Corp., 854 F. Supp. 2d at 996 (holding that parties must point to specific terms
and explain their argument for contract interpretation before court can conclude that RAND
terms apply to contract). Only the term “reasonable” can be found in the documents making
up the purported contract in this case.
This is the end of defendants’ argument on plaintiffs’ motion to dismiss in 14-cv-66bbc. Defendants say only that the letter and declaratory ruling (which they attach to their
pleading) constitute the contract and bind Ultratec to license its patents to defendants.
Because it is plain from the alleged agreement that it does not bind Ultratec to that
requirement, plaintiffs’ motion to dismiss must be granted. Burke, 714 F.3d at 505.
With respect to the motion for summary judgment, defendants go beyond the letter
and declaratory ruling. They argue that parties’ true intentions can be found in an email
sent by Robert Engelke, Ultratec’s president and CEO, in which Engelke says that “in order
to get the FCC to OK . . . IP Captel, CTI had to promise the FCC that we would ‘. . . make
the Captel technologies available to legitimate TRS Providers under reasonable terms and
conditions’ . . .” (Defendants do not identify what Engelke was quoting.) Defendants say

12

this means that plaintiffs intended to enter into a contract that required them to offer
unlimited licenses, but their argument fails for two reasons. First, Engelke did not say “all
legitimate TRS providers”; he said merely said “legitimate TRS providers.” Thus, I cannot
say as a matter of law that his interpretation was that Ultratec must offer its licenses to all
providers; it is equally possible that he meant that Ultratec must offer licenses to certain
“major” providers or to a sufficient number of providers, which may or may not include
defendants.
Second, defendants’ argument rests on an email sent more than a year and a half after
the commission’s decision to approve Ultratec’s petition, which was the final step in
determining the terms of the parties’ alleged contract (the final moment of mutual assent
between the parties). Even if Engelke’s opinion could be said to represent Ultratec’s position
in 2008, this subsequent interpretation cannot serve as evidence of what the parties intended
when they formed their agreement.

(The parties dispute whether and how the parol

evidence rule should be applied in this case. Even if I assume the email is not parol evidence,
an email drafted months after the mutual assent of the parties is not significant evidence of
the parties’ intent.)
I note that defendants discuss in other sections of their brief an email sent by Engelke
around the same time as the above email, in which Engelke says that Ultratec may get into
“serious trouble” with the commission if it does not offer its licenses to Sprint. This email
is of no help to defendants. For one, it represents a much-later interpretation of the alleged
contract. Furthermore, the email still does not express the view that Ultratec had to license

13

its patents to all companies; rather Engelke appears to mean that Ultratec should offer
licenses to that particular relay services provider. I conclude that defendants have failed to
prove that Ultratec was not bound to license its patents to all providers or to defendants.
4. Intended third party beneficiary
Even if I were to conclude that Ultratec was bound to offer its licenses to all
providers, defendants would still have to show that they are intended third party
beneficiaries. Because it is questionable whether defendants have alleged sufficient facts to
support a finding in their favor on this point and because I conclude that plaintiffs’ motion
to dismiss must be granted on other grounds, this part of my opinion applies only to the
summary judgment motions filed in case no. 13-cv-346-bbc. I conclude that defendants have
not shown that they are intended third party beneficiaries of any contract between plaintiffs
and the FCC.
Under Wisconsin and federal common law, a party may be an intended third party
beneficiary when the contract expressly says so or when there is an implied intent to benefit
a third party directly. Glass v. United States, 258 F.3d 1349, 1354 opinion amended on
other grounds on reh’g, 273 F.3d 1072 (Fed. Cir. 2001) (“In order to prove third party
beneficiary status, a party must demonstrate that the contract not only reflects the express
or implied intention to benefit the party, but that it reflects an intention to benefit the party
directly.”); Mercado v. Mitchell, 83 Wis. 2d 17, 28, 264 N.W.2d 532, 538 (1978) (“The
general rule on third-party beneficiaries in Wisconsin is that one claiming such status must
show that the contract was entered into by the parties directly and primarily for his benefit.

14

The benefit must be more than merely incidental to the agreement.”). (I note that plaintiffs
argue that contracts with governmental entities have a presumption against the presence of
intended third party beneficiaries. Defendants dispute this argument. However, they lose
even if I apply the more liberal standard set forth above, which does not require a special
showing in governmental contracts.)
In this case, the FCC stated that it “condition[ed] [its] approval on Ultratec’s
representation that it will continue to license its captioned telephone technologies, including
technologies relating to IP CTS, at reasonable rates.” Dfts.’ Ans., dkt. #43, exh. B, at 1.
The FCC is a governmental entity whose purpose includes the protection and furtherance
of the public interest. It approves relay services technology for funding so that technology
can be offered at no cost to the deaf and hard of hearing.

In that context, avoiding

monopolies and encouraging competition will result in more effective technology for the deaf
and hard of hearing, at least in theory. Competitors in the marketplace may benefit from
these policies, but defendants have offered no evidence that they are intended third party
beneficiaries of the FCC’s efforts to improve technology for the deaf and hard of hearing.
On the other hand, standards setting organizations, like those discussed in Apple,
Inc., 886 F. Supp. 2d at 1084, are private organizations organized specifically for the
purpose of developing standards and fostering competition among technology companies,
so it stands to reason that they intend to benefit competing companies. Moreover, standards
setting organizations mandate the use of certain patented technologies to even enter the
marketplace. At times, the FCC mandates the use of standard technologies as well, but it

15

did not do so in this case. By contrast, the FCC did not impose a requirement that all
companies wanting to provide services qualifying for relay services funding had to adopt a
certain type of technology; rather, the commission merely added another technology to the
list that qualified for reimbursement.

Interested companies did not have to use the

technology covered by Ultratec’s patents in order to provide technology qualifying for relay
services funding.

Indeed, the commission added competitors to the marketplace by

approving new technology, rather than limiting competition by setting a standard. Thus, the
commission did not need to protect potential competitors in the same way standards setting
organizations do, making it less likely that competitors are intended beneficiaries in this
context.
I conclude that even if a contract existed between plaintiffs and the FCC, the contract
did not obligate plaintiffs to license their patents to defendants. Defendants were not
intended beneficiaries. Thus, plaintiffs are entitled to summary judgment on defendants’
breach of contract counterclaim in case no. 13-cv-346-bbc.

B. Counterclaims Asserted only in Case No. 14-cv-66-bbc
Relying on arguments similar to their breach of contract counterclaim, defendants
assert promissory estoppel and fraud counterclaims.

Because I conclude that plaintiff

Ultratec did not promise the FCC that it would license its patents to defendants or on a
nondiscriminatory basis, defendants have no basis for contending that they were misled and
that their reliance was justifiable.

Therefore, plaintiffs’ motion to dismiss these

16

counterclaims must be granted.
Again, the parties do not explain the appropriate choice of law, but they apply
Wisconsin law. I will do the same. FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 283
(7th Cir. 2002) (in absence of any discussion of choice of law issues by parties, court applies
law of forum state).

1. Promissory estoppel
Under Wisconsin law, a claim of promissory estoppel requires parties to allege that
the answers to the following questions are yes: “(1) Was the promise one which the
promisor should reasonably expect to induce action or forbearance of a definite and
substantial character on the part of the promisee? (2) Did the promise induce such action
or forbearance?

(3) Can injustice be avoided only by enforcement of the promise?”

Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683, 698, 133 N.W.2d 267, 275 (1965).
Inherent in these elements is the requirement that the accused party actually broke the
alleged promise and that the suing party’s reliance on the broken promise was justifiable.
Matter of Alexander's Estate, 75 Wis. 2d 168, 183, 248 N.W.2d 475, 484 (1977).
Defendants’ counterclaim fails on these grounds.
Defendants’ position is that Ultratec promised the FCC that it would license its
patents but failed to do so; Ultratec’s promise induced them to develop and market internetbased captioned telephone services; defendants believed that the technology was not covered
by plaintiffs’ patents and, if it was, they would be able to receive licenses. They allege that

17

they relied on Ultratec’s 2006 letter to the FCC. However, the letter states simply that
Ultratec “has licensed its technologies at reasonable rates since captioned telephone service
first became available over five years ago and will continue to license its technologies,
including technologies relating to IP captioned telephone, going forward.” Dfts.’ Ans., dkt.
#43, exh. A, at 1. The only promise contained in this text is that Ultratec will license its
patents to some companies. Ultratec did not promise that it would license its patents on a
nondiscriminatory basis to any company who did (or did not) ask for a license. Defendants
acknowledge that plaintiffs have licensed the technology to some companies.

Thus,

defendants have failed to allege facts to support its contention that Ultratec has broken its
promise.
Furthermore, defendants do not explain how they came to know about the 2006 letter
and its contents. Even in those situations in which third parties have the right to enforce
a contract, they must show that they knew about the contractual promise before they
undertook the actions that led to their damages. Hoffman, 26 Wis. 2d at 699, 133 N.W.2d
at 275 (“Ordinarily only the promisee and not third persons are entitled to enforce the
remedy of promissory estoppel against the promisor. However, if the promisor actually
foresees, or has reason to foresee, action by a third person in reliance on the promise, it may
be quite unjust to refuse to perform the promise.”) (citing 1A Corbin, Contracts, p. 220, sec.
200). Defendants could not have relied on plaintiffs’ alleged misrepresentation if they did
not know of the letter until after they undertook their allegedly infringing activities.
Nevertheless, even if I assume that defendants actually relied on the letter, they have

18

not alleged that their reliance was justifiable. Matter of Alexander’s Estate, 75 Wis. 2d at
183, 248 N.W.2d at 484 (“[I]t is an accepted rule of law that a party’s reliance must be
justifiable or reasonable.”). Ultratec did not promise to license any of its competitors or say
that it would do so proactively. Consequently, it was neither reasonable or justifiable for
defendants to develop and market an entire line of products and services in reliance on
Ultratec’s vague and general statement to a third party that it would license its patents.
Because defendants have not stated a claim and defendants have not taken advantage of
their opportunity to propose additional facts, I will dismiss the claim with prejudice.

2. Fraud
Plaintiffs have moved to dismiss defendants’ fraud counterclaim in case no. 14-cv-66bbc on grounds similar to those raised in the preceding section. “At common law [in
Wisconsin], a plaintiff alleging fraud must prove: 1) a representation of material fact; 2) the
representation’s falsity; 3) the intent to deceive (or reckless disregard for truth or falsity); 4)
intent to defraud or to induce action; 5) justifiable reliance by the deceived party.” State v.
Abbott Laboratories, 2012 WI 62, 341 Wis. 2d 510, 541-42, 816 N.W.2d 145, 161.
Defendants say that Ultratec misrepresented its past conduct and future intentions to the
Federal Communications Commission in its 2006 letter when it stated that it had licensed
its patents and would continue to do so. Defendants argue that this misrepresentation
induced them to develop and market the technology that plaintiffs now say infringes their
patents.

19

Once again, defendants fail to allege the falsity of this representation and the
reasonableness of their reliance.

As discussed in the preceding section on promissory

estoppel, Ultratec’s statements in the 2006 letter were not misrepresentations. Furthermore,
for the same reasons discussed above, defendants have not alleged facts showing that they
were justified in relying on Ultratec’s statements.

Therefore, I am dismissing this

counterclaim with prejudice.

3. Claim under Wis. Stat. § 100.18
Defendants have advised the court that they are withdrawing this claim. Dfts.’ Br.,
dkt. #49, at 2, n.2.

C. Affirmative Defenses in Case No. 13-cv-346-bbc
The parties have filed cross motions for summary judgment on defendants’
affirmative defenses relating to the alleged contract between Ultratec and the Federal
Communications Commission. These affirmative defenses include: 1) patent misuse; 2)
unclean hands; 3) judicial, promissory and equitable estoppel; and 4) the adequacy of relief
at law for plaintiffs (which defendants frame as failure to meet the “eBay requirements”).
According to defendants, most of these defenses relate only to the question whether
plaintiffs are entitled to injunctive relief.
However, with respect to unclean hands and patent misuse, defendants contend that
these defenses bar plaintiffs’ claims. It is true that these defenses can bar the enforceability of

20

plaintiffs’ patents. See, e.g., State v. Kaczmarski, 2009 WI App 117, 320 Wis. 2d 811, 823,
772 N.W.2d 702, 708 (“‘Before a court may deny a plaintiff relief in equity upon the “clean
hands” doctrine, it must clearly appear that the things from which the plaintiff seeks relief
are the fruit of [his or her] own wrongful or unlawful course of conduct.’”) (quoting S & M
Rotogravure Service v. Baer, 77 Wis. 2d 454, 467, 252 N.W.2d 913 (1977)) (emphasis
added); C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998) (“Patent
misuse arises in equity, and a holding of misuse renders the patent unenforceable until the
misuse is purged; it does not, of itself, invalidate the patent.”).
However, the basis for these defenses is plaintiffs’ alleged misconduct in promising
to license its patents in exchange for the FCC’s approval of internet-based captioned
telephone services. With respect to patent misuse, defendants also discuss a noncompete
clause in plaintiffs’ licensing agreements as a basis for misconduct. In either case, the alleged
misconduct does not have to do with the granting of the patents but rather with plaintiffs’
licensing of the patents. Therefore, the question is not the scope or validity of the patents
but whether plaintiffs should have licensed the patents. This question goes to whether
plaintiffs can request injunctive relief or whether they must settle for licensing fees. Because
this question has to do only with the type of relief available to plaintiffs and the extent of
plaintiffs’ relief has not yet been determined, summary judgment on these defenses is
premature. Therefore, the motions will be dismissed without prejudice with respect to these
issues.

ORDER
21

IT IS ORDERED that
1. Plaintiff Ultratec, Inc.’s and CapTel Inc.’s motion to dismiss defendants Sorenson
Communication, Inc’s and CaptionCall, LLC’s counterclaims of breach of contract,
promissory estoppel, fraud and claim under Wis. Stat. § 100.18, filed in case no. 14-cv-66bbc, dkt. #45, is GRANTED. The counterclaims are DISMISSED from that case.
2. Plaintiffs’ motion for summary judgment on defendants’ counterclaim of breach
of contract filed in case no. 13-cv-346-bbc, dkt. #87, is GRANTED and this claim is
DISMISSED.
3.

Defendants’ motion for summary judgment on their “defense” of breach of

contract filed in case no. 13-cv-346-bbc, dkt. #79, is DENIED.
4. Plaintiffs’ motion for summary judgment on defendants’ affirmative defenses of
patent misuse, unclean hands and equitable estoppel in case no. 13-cv-346-bbc, dkt. #87,
and defendants’ motion for summary judgment on their affirmative defenses on adequacy
of plaintiffs’ relief at law (the “eBay requirements”) and judicial, promissory and equitable
estoppel in case no. 13-cv-346-bbc, dkt. #79, are DENIED.
Entered this 28th day of August, 2014.

BY THE COURT:
/s/
BARBARA B. CRABB
District Judge

22