Anderson v. TOL, Inc.

• Decision Date: 28 February 2013
• Docket Number: Case No. 3:12–cv–01312.
• Citation: 927 F.Supp.2d 475
• Parties: Lloyd Randall ANDERSON, Plaintiff, v. TOL, INC., Defendant.
• Court: U.S. District Court — Middle District of Tennessee

927 F.Supp.2d 475

Lloyd Randall ANDERSON, Plaintiff,

v.TOL, INC., Defendant.

Case No. 3:12–cv–01312.

United States District Court,

M.D. Tennessee,

Nashville Division.

Feb. 28, 2013.

Lucas R. Smith, Paige Waldrop Mills, Bass, Berry & Sims, Nashville, TN, for Plaintiff.

Stephen H. Price, Stites & Harbison, PLLC, Nashville, TN, Daniel M. Cislo, Sean D. O'Brien, Cislo & Thomas, LLP, Santa Monica, CA, for Defendant.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

Plaintiff Lloyd Randall Anderson has filed a Motion for Temporary Restraining Order and Preliminary Injunctive Relief (“Motion for Preliminary Injunction”), to which the defendant, TOL, Inc. (“TOL”), filed a Response in opposition (Docket No. 23), and Anderson filed a Reply (Docket No. 34). TOL has filed a Motion to Dismiss or Transfer (Docket No. 16), to which Anderson filed a Response in opposition (Docket No. 26), and TOL filed a Reply (Docket No. 40). Anderson has also filed a Motion for Leave to File Motion for Partial Summary Judgment (Docket No. 33), to which TOL has filed a Response in opposition (Docket No. 41).

On February 7, 2013, the court held a preliminary injunction hearing (“PI Hearing”). At the conclusion of that hearing, the court ruled from the bench and issued a preliminary injunction against TOL and Overbreak, LLC. This Memorandum further explains the court's reasoning for that decision. Furthermore, for the reasons explained herein, the Motion to Dismiss or Transfer and the Motion for Leave to File a Motion for Partial Summary Judgment will both be denied without prejudice.

BACKGROUND

I. Factual Background¹

This case involves claims by an inventor, Lloyd Randall Anderson, who claims that TOL is liable to him for patent infringement,breach of contract, and fraud. Anderson was the inventor of patented technology for rigid helium balloons that Overbreak, LLC (“Overbreak”) utilized to create a popular children's toy called the “HoverDisc.”

On February 25, 2002—before Anderson had applied for any patents concerning the rigid helium balloons—Anderson filed a voluntary petition for Chapter 13 Bankruptcy. See In Re Anderson, No. 3:02–bk–02305 (Bankr.M.D.Tenn. Feb. 25, 2002) (“Bankruptcy Case”).²

On February 5, 2003, Anderson filed Articles of Organization for “PhoenixArts, LLC” (“PhoenixArts”), a Tennessee limited liability company for which Anderson served as the President and sole owner. ( See O'Brien Decl. II, at Ex. 1 (pp. 10–11); Anderson Decl. ¶ 4; Verified Compl. ¶ 14). On February 14, 2003, Anderson filed a patent application with the United States Patent and Trademark Office (“USPTO”) in his own name, seeking a patent for his rigid helium balloon invention (hereinafter, “838 Patent Application”). ( See Verified Compl., Ex. B, at p. 1.) On February 22, 2003, PhoenixArts entered into a License Agreement with Overbreak, in which PhoenixArts purported to license the 838 Patent Application and all related applications and patents to Overbreak, in return for Overbreak's promise to pay PhoenixArts royalties based on its “Net Sales” of the HoverDisc. (Docket No. 5 (filed under seal) (“License Agreement”).) The USPTO ultimately issued the 838 Patent in Anderson's name on December 9, 2003 (“838 Patent”). (Verified Compl., Ex. B, at p. 1.)

On August 19, 2003, Anderson filed a follow-on patent application (“151 Patent Application”), which the USPTO granted and issued on May 29, 2007 (“151 Patent”).( Id., Ex. B, at p. 12.) On November 12, 2003, Anderson applied for a patent related to the 838 Patent (hereinafter, “487 Patent Application”), which the USPTO granted and issued on February 6, 2007 (“487 Patent Application”). ( Id.)

Anderson has claimed that he orally conveyed to PhoenixArts the right to sub-license the Patents—including, apparently, the right to sub-license Anderson's interest in the Patent Applications while they were pending. ( See Docket No. 19, Anderson Decl. ¶¶ 4–5; PI Hearing Transcript at 35:16–25; 98:24–99:5; Verified Compl. ¶¶ 14–16.) Anderson has not stated when he entered into this alleged oral licensing agreement with PhoenixArts. Anderson did not disclose the Patent Applications or the Patents at any time during the five-year duration of his Chapter 13 bankruptcy plan.

At any rate, pursuant to the License Agreement, Overbreak began manufacturing and selling HoverDiscs, which became a popular children's toy. (Sieling Decl. I ¶ 4; Sieling Decl. II ¶ 4.) Overbreak remitted approximately $1.5 million in royalties to Anderson through 2007. ( Id.) ³ However, between 2005 and 2007, Anderson complained to Overbreak that it was failing to pay him sufficient royalties by improperly deducting non-allowable expenses from the quarterly payments, in violation of the License Agreement. (Sieling Decl. I ¶ 4; Verified Compl. ¶¶ 23–32 (with associated exhibits); PI Hearing Exs. 2–7; PI Hearing Transcript 47:5–48:10, 49:16–56:9.) It does not appear that Overbreak seriously disputes that, under the letter of the License Agreement, the expenses were not allowable. ( See, e.g., PI Hearing, Ex. 5 (2/21/07 Letter from Elizabeth Risha to Paige Mills); PI Hearing Transcript 156:9–14; 157:2–5.) Although Overbreak never paid the disputed amounts, Anderson did not pursue the dispute any further, at least at the time. The parties vigorously dispute whether a March 1, 2007 demand letter sent by Anderson's counsel on his behalf terminated the License Agreement. ( See PI Hearing Ex. 7.)

In the interim, several relevant events occurred. First, beginning in 2004, Overbreak procured foreign patents in Anderson's name in at least four foreign jurisdictions (collectively, “Foreign Patents”). (PI Hearing Ex. 1; PI Hearing Transcript 44:9–46:19.) However, without notice to PhoenixArts as required by the License Agreement, Overbreak permitted the Foreign Patents to expire, with no prospect of re-filing. ( Id.) It appears that Anderson did not disclose the Foreign Patents in the Bankruptcy Case. Second, PhoenixArts was administratively dissolved under Tennessee law on September 17, 2004, was reinstated on October 27, 2004, and was again administratively dissolved (for the second and last time) on August 19, 2005. (O'Brien Decl. II, Ex. 1 (p. 9).)

On June 15, 2007, Overbreak entered into an “Assignment of Rights” with TOL, a company consisting of the same shareholders, officers, assets, and operations as Overbreak. (Sieling Decl. II ¶ 5; Docket No. 28, Ex. A.) That assignment conveyed only Overbreak's rights—not Overbreak's liabilities—and did not reference the License Agreement, let alone purport to comply with certain specific conditions of assignment set forth therein.⁴ Overbreak did not obtain Anderson's approval for this purported assignment. (PI Hearing Transcript 60:19–61:3.)

Unbeknownst to Anderson, Overbreak (and later TOL) continued to manufacture and sell HoverDiscs after March 2007, albeit in limited quantities. (Sieling Decl. I ¶ 6; PI Hearing Transcript 143:12–22.)

Anderson received his bankruptcy discharge on April 10, 2007, having completed the payments under his Chapter 13 Plan, and, on August 7, 2007, the bankruptcy court closed the Bankruptcy Case. (O'Brien Decl. II, Ex. 2.) Under the Plan, Anderson had paid to the Trustee, for the benefit of his creditors, $27,705. ( Id.)

In approximately June 2012, Anderson, believing that he possessed unfettered ownership of the Patents, approached TOL (among other toy manufacturers) to explore the possibility of re-launching the HoverDisc. (PI Hearing Transcript at 64:25–67:5.) Anderson claims that, during these negotiations, TOL essentially acknowledged that it did not have any rights under the License Agreement and required a license from Anderson before proceeding with a new product launch in early 2013. ( Id. at 69:10–70:1.) However, TOL asserts that it was simply seeking to revise and update the existing License Agreement during its negotiations with Anderson. ( See, e.g., id. at 148:19–21; 175:22–177:13.)

In any event, after the parties had agreed on potential terms for a new license agreement, Anderson backed out of the prospective deal. ( See PI Hearing Exs. 9 (draft Letter of Intent) and 12 (10/16/12 email from Anderson to Sieling); PI Hearing Transcript 70:2–3 and 74:8–21.) However, upon receiving Anderson's communication of withdrawal from the new licensing agreement, TOL responded by claiming that it had rights in the Patents all along and would proceed with its plans to re-launch the HoverDisc in early 2013. (PI Hearing Ex. 13; PI Hearing Transcript 75:3–15.)

On December 20, 2012, Anderson filed this lawsuit, claiming that TOL was liable for breach of contract, fraud, and patent infringement, for which Anderson sought immediate injunctive relief in the form of a temporary restraining order (“TRO”) and/or a preliminary injunction.⁵ On December 20, 2012, the court held a hearing (“TRO Hearing”) and denied the request for a TRO. On February 7, 2013, the court conducted the PI Hearing, at the conclusion of which the court enjoined TOL and/or Overbreak from continuing to manufacture, market, and sell the HoverDisc.⁶

ANALYSIS

The parties vigorously dispute various basic facts of this case, including whether Anderson and/or TOL are parties to the License Agreement, whether Anderson owns the Patents, and whether and when the License Agreement terminated. The court's consideration of some of these disputes impacts both the jurisdictional analysis (with respect to TOL's Motion to Dismiss or Transfer) and the merits of the underlying claims (with respect to Anderson's request for a preliminary injunction).

I. Parties to the License Agreement and Ownership of the Patents

The original License Agreement was made between PhoenixArts as “Licensor” and Overbreak as “Licensee.”

The License Agreement permitted Overbreak to assign the agreement to a third party under either of two circumstances: (1) with the explicit consent of PhoenixArts (License Agreement ¶ 29), or (2) without PhoenixArts'...