Co2 Techs., Inc. v. Paper–Pak Indus

• Decision Date: 20 December 2011
• Docket Number: No. 4:11–cv–203 RP–CFB.,4:11–cv–203 RP–CFB.
• Citation: 830 F.Supp.2d 656
• Parties: CO2 TECHNOLOGIES, INC., Plaintiff, v. PAPER–PAK INDUSTRIES, Defendant.
• Court: U.S. District Court — Southern District of Iowa

830 F.Supp.2d 656

CO2 TECHNOLOGIES, INC., Plaintiff,

v.PAPER–PAK INDUSTRIES, Defendant.

No. 4:11–cv–203 RP–CFB.

United States District Court, S.D. Iowa,Central Division.

Dec. 20, 2011.

Timothy J. Zarley, Zarley Law Firm PLC, Des Moines, IA, for Plaintiff.

Joseph R. Dosch, Kevin M. Fee, Savan N. Vaghani, Sidley Austin LLP, Chicago, IL, Mark McCormick, David Wayne Nelmark, Belin McCormick, P.C., Des Moines, IA, for Defendant.

ORDER

ROBERT W. PRATT, District Judge.

Currently before the Court is a motion to dismiss filed by Defendant Paper–Pak Industries (“PPI”) on October 28, 2011. Clerk's No. 25. Plaintiff CO2 Technologies, Inc. (“CO2”) filed a response in opposition to the motion on November 17, 2011. Clerk's No. 30. PPI filed a reply on December 2, 2011. Clerk's No. 37. CO2 filed a sur-reply on December 12, 2011. Clerk's No. 38–1. ¹ The matter is fully submitted.

I. FACTUAL & PROCEDURAL BACKGROUND

On June 1, 2005, PPI and CO2 entered into an agreement (hereinafter “the Agreement”) “related to CO2's proprietary technology and related ingredients that are effective in enhancing shelf life and limiting microbial growth with respect to various foods and other organic goods, including meat and poultry products.” Second Am. Compl. ¶ 13. Subject to certain restrictions, the Agreement grants PPI “a worldwide right and license to use the Technology and the Ingredients in the Meat and Poultry Market ... such license shall be exclusive (later amended to non-exclusive) for the Meat and Poultry Market in the U.S. and nonexclusive for the remainder of the world.” Id. ¶ 14; see also Clerk's No. 22–1 at 1 (Agreement ¶ 2).

The Agreement defines “Technology” and “Ingredients” as follows:

Technology and Ingredients Defined. Licensor represents and warrants that It owns, or has the right to operate under and grant rights with respect to, the patents, related know-how and other technology described in Schedule A (the “Technology”). Licensor further represents and warrants that it owns, or otherwise has the right to make, use and sell (and to grant rights to make, use and sell) the products incorporating the Technology also described in Schedule A (the “Ingredients”).

Clerk's No. 22–1 at 1 (Agreement ¶ 1). Schedule A describes the following “Technology” and “Ingredients”:

Technology: the technology covered by the claims of U.S. Patents 6,340,654 and 6,797,235 and the related proprietary know-how.

Ingredients:

Citric Acid

Cinnamic Acid

Calcium Carbonate Sodium Bicarbonate

Id. at 4.

Additionally, the Agreement states:

Notwithstanding the parties' respective rights under this license Agreement, both Licensor and Licensee are entering into this License Agreement fully committed to work diligently and in good faith to support Licensee's efforts to develop the relevant markets for “active pads”. In this spirit, Licensor and Licensee agree to refrain from any actions which would substantially inhibit the ability of either party from gaining the benefit from this License Agreement. Without limiting the generality of the foregoing, Licensee will respect the restrictions and other provisions set forth in Schedule B; and Licensor will not sell the Ingredients nor license the Technology(other than pursuant to obligations to the Existing Customers as defined in Schedule B) to any third party for use in the Meat and Poultry Market unless and until this License Agreement is terminated as provided herein.

Id. at 2 (Agreement ¶ 4(c)) (nonstandard punctuation in original). The Agreement also contains an integration clause providing that it “constitutes the entire agreement of the parties with respect to the subject matter hereof and may only be changed by written agreement signed by both parties.” Id. at 3 (Agreement ¶ 8).

In an August 21, 2005 email to the CO2 Board of Directors, Ron Jensen (“Jensen”) stated, on behalf of PPI, that “[w]hile we do have constituents in our offering that are in addition to CO2's, none of these constituents have in any way impeded the launch of the CO2 constituent.” Second Am. Compl. ¶ 20. In a January 16, 2006 email to CO2 President Wes Boldt (“Boldt”), Jensen stated that “[a]s of today, we have 33 supermarket trials ongoing in January and February. These include some of the biggest players in the industry. All of these pads use CO2 constituent.” Id. ¶ 21.

In February 2006, the parties agreed to modify certain terms of the Agreement in order to, inter alia, convert the license, which originally was an exclusive license, into a non-exclusive license. See Clerk's No. 22–1 at 7. On June 21, 2007, Jensen sent a letter to Boldt stating that PPI “has devoted considerable resources and funds to the development of the market for our ULTRA ZAP® XTENDAPAK active pad, which is the sole product we sell using your [CO2's] active CO2 generating ingredient.” Id. ¶ 22.

However, on February 4, 2011, “Charles Ruggiero, on behalf of [PPI] stated that ‘the XtendaPak ^TM product line does not use any technology covered by the ... Agreement’ and stated that ‘[w]e will need to address the return of past payments made by PPI to your client [i.e., CO2].’ ” Id. ¶ 23. Around this same time, PPI began “manufacturing and selling pads containing the licensed Technology and Ingredients without CO2's consent to the produce industry and without paying a royalty for pads sold to the Meat and Poultry Industry.” Id. ¶ 25.

II. LAW AND ANALYSIS

To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In reviewing a complaint, a court must “accept as true all of the factual allegations contained in the complaint,” and must draw “all reasonable inferences ... in favor of the plaintiff.” Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir.2008) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A viable complaint must include “enough facts to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 570, 127 S.Ct. 1955).

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the “grounds” of his “entitle[ment] to relief” requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.

Twombly, 550 U.S. at 570, 127 S.Ct. 1955. “The plausibility standard requires a plaintiff to show at the pleading stage that success on the merits is more than a ‘sheer possibility.’ It is not, however, a ‘probability requirement.’ ” Braden v. Wal–Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir.2009) (quoting Iqbal, 129 S.Ct. at 1949).

In Ashcroft v. Iqbal, the Supreme Court described a “two-pronged approach” for evaluating complaints challenged under Rule 12(b)(6). Iqbal, 129 S.Ct. at 1949–50. First, a court should divide the allegations between factual and legal allegations; factual allegations should be accepted as true, but legal allegations should be disregarded. Id. Second, the factual allegations must be parsed for facial plausibility. Id. at 1950. “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.” Id. at 1949.

A. Count 1

In Count 1, CO2 alleges that PPI:

has breached, beginning in at least February of 2011, and continues to breach, the valid and enforceable ... Agreement of June 1, 2005, at least by manufacturing and selling pads containing the licensed Technology and Ingredients without CO2's consent to the produce industry and without paying a royalty for pads sold to the Meat and Poultry Industry in violation of paragraphs 2 and 3 of the ... Agreement.

Second Am. Compl. ¶ 25. PPI argues that Count 1 should be dismissed “to the extent it is based on allegedly unauthorized sales” because “[t]he primary alleged conduct about which Count 1 complains—selling licensed technology outside the meat and poultry industry—does not breach any section of the Agreement.” Def.'s Br. at 1, 7 (Clerk's No. 28–1).

In support of this argument, PPI notes that the Agreement contains no express “restriction on using the covered technology outside the meat and poultry markets.” Id. at 7 (internal quotation marks omitted). CO2 does not seriously dispute this contention; however, it argues that it is still entitled to bring a claim for breach of contract. See Pl.'s Br. at 5 (Clerk's No. 30). Specifically, CO2 argues that in the Agreement, it “granted much more than a patent license,” including “the right to use proprietary know-how related to the patents and other technology.” See id. According to CO2, “[i]n contrast to a license dealing solely with a patent, when the license is based upon a grant of technical information and the licensee exceeds the terms of the grant, the appropriate remedy is a suit for breach of contract based on an implied covenant not to do so.” Id. (citing Eli Lilly & Co. v. Emisphere Techs., Inc., 408 F.Supp.2d 668 (S.D.Ind.2006) (comma omitted)).

In response, PPI argues that “the mere fact that the Agreement mentions ‘know-how’ ... does not trump the well-established rule against reading nonexistent covenants into a license agreement.” Def.'s Reply at 4 (Clerk's No. 37). PPI asserts that “[c]ourts will only imply covenants into an integrated contract ‘when the implied term is not inconsistent with some express term of the contract, and where there arises from the language of the contract itself ... an inference that it is absolutely necessary[ ] to introduce the term to effectuate the intention of the parties.’ ” ² Def.'s Br. at 8 (quoting

B & J Mfg. Co. v. Hennessy Indus., Inc., No. 73 C 2174, 1976 WL 21072, at *3 (N.D.Ill. Oct. 19, 1976) (ellipsis in...