Buckhorn Inc. v. Orbis Corp., 091913 FEDFED, 2012-1643

Docket Nº:2012-1643
Opinion Judge:O'Malley, Circuit Judge.
Party Name:BUCKHORN INC., AND SCHOELLER ARCA SYSTEMS, INC., Plaintiffs-Appellees, v. ORBIS CORPORATION, Defendant-Appellant, and ORBIS MATERIAL HANDLING INC., AND DOES 1 - 6, Defendants.
Attorney:Paul Grandinetti, Levy & Grandinetti, of Washington, DC, argued for plaintiffs-appellees. Gaspare J. Bono, McKenna Long & Aldridge LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Stephen M. Chippendale and John W. Lomas, Jr.
Judge Panel:Before Rader, Chief Judge, O'Malley, and Reyna, Circuit Judges.
Case Date:September 19, 2013
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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BUCKHORN INC., AND SCHOELLER ARCA SYSTEMS, INC., Plaintiffs-Appellees,

v.

ORBIS CORPORATION, Defendant-Appellant,

and

ORBIS MATERIAL HANDLING INC., AND DOES 1 - 6, Defendants.

No. 2012-1643

United States Court of Appeals, Federal Circuit

September 19, 2013

This disposition is nonprecedential.

Appeal from the United States District Court for the Southern District of Ohio in No. 08-CV-0459, Judge Timothy S. Black.

Paul Grandinetti, Levy & Grandinetti, of Washington, DC, argued for plaintiffs-appellees.

Gaspare J. Bono, McKenna Long & Aldridge LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Stephen M. Chippendale and John W. Lomas, Jr.

Before Rader, Chief Judge, O'Malley, and Reyna, Circuit Judges.

O'Malley, Circuit Judge.

Defendant ORBIS Corporation ("ORBIS") appeals the decision of the United States District Court for the Southern District of Ohio denying its motion for fees, costs, reasonable attorney fees, and expenses. In denying the motion, the district court found that a settlement and license agreement's fee provision did not apply when Plaintiffs allegedly had "no knowledge of the [settlement and license agreement] at the time the litigation was initiated." Further, the district court stated that it would be unconscionable to require Plaintiffs to pay fees and costs under that settlement and license agreement.

On appeal, ORBIS challenges the district court's rulings regarding the applicability and unconscionability of the fee-shifting provision in the settlement and license agreement. For the reasons below, we reverse the district court's denial, and remand for further proceedings.

Background

In 1990, Plaintiff-Appellee Schoeller Arca Systems, Inc.'s ("Schoeller") predecessors-in-interest, Xytec Plastics, Inc. and Perstorp Xytec, Inc. (collectively, "Xytec") filed a patent infringement action regarding certain bulk containers against ORBIS's predecessor-in-interest, Ropak Corporation ("Ropak"). In 1992, Xytec entered into a settlement and license agreement ("Ropak-Xytec Agreement") with Ropak.1 The Ropak-Xytec Agreement resolved the on-going litigation and provided Ropak with a license to four patents, including U.S. Patent No. 4, 967, 927 ("the '927 patent") along with any corresponding divisional, continuations, continuations-in-part, extensions, or reissues. One of the corresponding child patents of the '927 patent is U.S. Patent No. 5, 199, 592 ("the '592 patent").

In addition to the licensing provisions, the Ropak-Xytec Agreement included a fee-shifting provision titled "Resolution of Future Disputes" that states:

In any litigation based on a controversy or dispute arising out of or in connection with this Agreement or its interpretation, the prevailing party shall be entitled to recover all fees, costs, reasonable attorney's fees, and other expenses attributable to the litigation.

Joint Appendix ("J.A.") at A951. The Ropak-Xytec Agreement also contained a provision governing the transfer of the rights granted:

ROPAK agrees that, unless it receives the express written consent of XYTEC, it will not assign, sub-license, or transfer by way of acquisition or any other transaction or restructuring which would result in the transfer of the Licensed Rights to any entity who manufactures or sells material handling products except in connection with the sale or merger of substantially all of ROPAK with another such entity. This provision expressly and specifically prohibits ROPAK from selling, or in any other way divesting itself of all, or substantially all, of its non-material handling business, and then executing the transfer described above. As to a transfer of rights to any entity which at the time of the transfer does not compete with XYTEC in the material handling market, no such written consent is required, provided that the transfer of these rights includes a transfer of substantially the entirety of ROPAK's material handling business.

Id.

In 2000, Ropak transferred its entire materials handling business, including its rights under the Ropak-Xytec Agreement, to Linpac Materials Handling, Inc. ("LMH"). In 2006, ORBIS acquired LMH. After the acquisition, LMH changed its name to Orbis Corporation Material Handling, Inc. ("OMH").

In 2007, Schoeller licensed several patents, including the '592 patent, to Myers Industries, Inc. ("Myers"). This license agreement permitted Myers to commence infringement actions relating to the licensed patents. It also allowed Myers to transfer its rights or obligations under the agreement to a subsidiary without notice to Schoeller. Plaintiff-Appellee Buckhorn Inc. ("Buckhorn") is a wholly-owned subsidiary of Myers.

In 2008, Plaintiff Buckhorn sued Defendants ORBIS, OMH, and Does 1 through 6 (collectively, "Defendants") for infringement of the '592 patent. Defendants moved to dismiss the initial complaint for lack of standing as Buck-horn was only a licensee, not the patent owner. To prevent dismissal for lack of standing, Buckhorn joined the patent owner, Schoeller, through the filing of an amended complaint. In their answer, ORBIS and OMH asserted their rights under the Ropak-Xytec Agreement as an affirmative defense. In particular, the eleventh affirmative defense2 regarding OMH stated:

Because Orbis Material Handling, Inc. f/k/a Linpac Materials Handling, Inc. is a successor-in-interest to Ropak Corporation, a licensee of U.S. Patent No. 4, 967, 927 and its progeny, of which U.S. Patent No. 5, 199, 592 is one, under a Settlement and License Agreement dated September 15, 1992 between Ropak Corporation and Xytec Plastics, Inc. and Perstorp Xytec, Inc., Orbis Material Handling, Inc. f/k/a Linpac Materials Handling, Inc. has been licensed and permitted and is licensed and permitted to make, use and sell products in the United States and throughout the world covered under U.S. Patent No. 5, 199, 592 for the duration of the patent.

Answer to Amended Complaint at 10–11, Buckhorn Inc. v. Orbis Corp., No. 3:08-CV-0459 (S.D. Ohio Oct. 2, 2009), ECF 22.

On December 31, 2009, OMH merged into ORBIS, thereby purporting to transfer all of OMH's assets to ORBIS, including its rights under the Ropak-Xytec Agreement. On April 6, 2010, the '592 patent expired.

On November 22, 2011, the district court granted ORBIS's motion for partial summary judgment regarding its affirmative license defense, which resolved most of the Plaintiffs' infringement suit in ORBIS's favor. In granting the motion, the district court found that ORBIS was licensed as the successor-in-interest to rights under the Ropak-Xytec Agreement for the '592 patent and that the transfer of those rights to ORBIS was consistent with the transfer provision of the Ropak-Xytec Agreement. The district court then dismissed Buckhorn's complaint for patent infringement with prejudice for lack of standing, which resolved the remainder of the case in ORBIS's favor. The district court entered judgment for ORBIS, and deemed ORBIS the prevailing party. Plaintiffs chose not to appeal those decisions.

ORBIS then timely moved for fees and costs from Schoeller pursuant to the fee-shifting provision of the Ropak-Xytec Agreement. The district court denied ORBIS's motion, stating that this "case cannot be a litigation based on a controversy or dispute arising out of or in connection with the License when Plaintiffs clearly had no knowledge of the License at the time the litigation was initiated." J.A. at A22. The district court also found that enforcing the fee-shifting provision would be unconscionable.

ORBIS appeals that ruling to this Court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

Discussion

I. Standard of Review

Generally, interpretation of a settlement agreement is not an issue unique to patent law, even if arising in the context of a patent infringement suit. Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed. Cir. 1999) (citations omitted). For issues not unique to patent law, we apply the law of the appropriate regional circuit.

As the Ropak-Xytec Agreement expressly states that the agreement shall be governed by and construed under the laws of the State of California, this Court, as would the United States Court of Appeals for the Sixth Circuit, applies...

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