Devlin v. Ingrum
| Decision Date | 17 April 1991 |
| Docket Number | No. 90-7046,90-7046 |
| Citation | 928 F.2d 1084 |
| Parties | Brian R. DEVLIN, Plaintiff-Appellant, v. Jerry G. INGRUM and International Integrated Systems, Inc., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
D. Charles Holtz, Wilkins, Druhan, Ollinger & Holtz, Mobile, Ala., for plaintiff-appellant.
Robert T. Meadows, Walker, Hill, Adams, Umbach & Meadows, Opelika, Ala., for defendants-appellees.
Appeal from the United States District Court for the Middle District of Alabama.
Before CLARK and BIRCH, Circuit Judges, and HENDERSON, Senior Circuit Judge.
In this contract case, coinventors of a patented device for detecting residue in beverages disagree as to whether they formed a contract regarding their rights and interests in the device. If their agreement is enforceable, then they contest the meaning of certain terms. Following a nonjury trial, the district court concluded that the parties had not entered into a binding contract. Our review of the record reveals that the parties did enter into a valid contract. We, therefore, reverse and remand this case to the district court to determine a disputed, ambiguous contract term and to ensure that the coinventors' rights have been transferred properly.
Plaintiff-appellant Brian R. Devlin, a Canadian citizen residing in Alabama, and defendant-appellee Jerry G. Ingrum, both engineers in optical technology, worked for the same employer from 1976 to 1980. In 1984, Devlin formed Advanced Integrated Systems, Inc. (AIS), an Alabama corporation, as the marketing and sales agent for Phoenix Technology, Inc. (Phoenix), a manufacturer of optical instruments. In 1985, Devlin established another Alabama corporation, Roxburgh Corporation (Roxburgh). Devlin was the sole stockholder in AIS and Roxburgh. He agreed that Ingrum could work as a contract salesman for AIS in 1986.
In May, 1986, Phoenix began working with the "Company" 1 to develop a device to detect residue in nonalcoholic beverages. Although the Company was interested in a device that AIS was marketing for Phoenix, that device did not meet the Company's requirements. Because of differences over commissions, AIS and Phoenix ceased doing business in October, 1986.
Thereafter, Devlin and Ingrum began work to create the device desired by the Company. Devlin refused to make Ingrum an AIS stockholder. 2 Subsequently, Devlin agreed to Ingrum's suggestion that a separate corporate entity be formed to do business as "Advanced Integrated Systems, Inc.," to be distinguished from and with no liability to AIS, the corporation in which Devlin was the sole stockholder. Devlin and Ingrum also incorporated defendant-appellee International Integrated Systems, Inc. (IIS), which did business under the name "Advanced Integrated Systems, Inc." Devlin was president and Ingrum was secretary of IIS. Initially, 45% of the IIS stock was issued respectively to Roxburgh and Ingrum and the remaining shares were held in treasury. Within a year, the 10% interest was issued to another individual.
In their effort to expedite the development of the device, Devlin and Ingrum involved another corporation to assist with the technology. Ingrum assumed communication and coordination responsibilities with this corporation, and Devlin and Ingrum communicated less frequently. The Company lost interest in the project, and it appeared that litigation might be necessary in order to compel the Company to fulfill its commitments to IIS.
To protect themselves, Devlin and Ingrum signed a general description of the device as coinventors on April 10, 1987. 3 In September, 1987, the other IIS stockholder and Ingrum removed Devlin as president of IIS and replaced him with Ingrum, who became the only officer, director or stockholder of IIS negotiating with the Company. In November, 1987, Ingrum informed Devlin that IIS had reached a tentative resolution with the Company, and he mailed to Devlin a preliminary draft of the proposed settlement and release agreement. The Company was to pay $175,000 for an exclusive, worldwide license to utilize the device in the limited field of use of nonalcoholic beverages for three years.
On November 21, 1987, Devlin wrote Ingrum concerning the "need to finalize contractually our arrangements in terms of, division of [the Company] royalties and other monies owing and also my future participation with IIS." Plaintiff's Exhibit 16 at 1 (emphasis added). Since Devlin and Ingrum under the auspices of IIS had completed production of the device requested by the Company, Devlin designated the manner of disbursement of his share of the Company payments after satisfying costs and obligations, and stated their need to provide for distribution of their proceeds. 4 Regarding his involvement in IIS, Devlin specifically states: "Concerning my future participation in IIS, I would rather not continue and am quite prepared to either sell my stock to you or to the company." Id. at 2. Based upon his research and that of others, Devlin also states his belief that the residue detection device is "absolutely patentable" in generic terms and for specific applications. Id.
Ingrum discussed Devlin's memorandum with his brother Charles Ingrum, an attorney residing in Alabama. Thereafter, Ingrum sent his brother an undated letter regarding the preparation of an agreement to protect both Devlin and Ingrum. He sent a copy of this letter to Devlin. Informing his brother that Devlin desired to terminate his participation in IIS, Ingrum states that
[W]e have essentially agreed as follows:
1. IIS will pay to Advanced Integrated Systems his [Devlin's] portion of the distributions from the initial payments due from [the Company]; a copy of the accounting has been forwarded to him for review.
2. IIS will pay to Roxburgh corporation his interests in the future royalties and or license fees as follows:
a. $202,500.00 lisense [sic] fee for each year [the Company] elects to extend their exclusive license beyond the three year period granted under the IIS/[Company] agreement b. Royalty payments per residue detector as follows:
Instrument 51100 $ 675.00
Instrument 101200 $1350.00
Instrument 201 and up $2250.00
These payments are subject to maintaining at least one patent claim in the country of manufacture, use, or sale; therefore Roxburgh will be required to contribute its pro-rata share of the patent costs; funds will be retained for the USA, and probably the Common Market; certainly Germany.
3. IIS will pay AIS 25% of the net profit from any development contracts from [another company which desired to use the device for alcoholic beverages and was the only other prospective customer] and 12.5% on sales to [that company].
4. Rosburgh [sic] Corporation will assign to IIS its 450 shares in IIS, and Brian [Devlin] agrees to a non-competitive arrangement for as long as any portion of the agreement is in effect.
Please realize this is not an adversarial type agreement and that you are not representing me against Brian, but is being done to protect us both against future unknowns, so please use your good judgment in seeing that we are both protected.
Plaintiff's Exhibit 18 at 1-2 (emphasis added).
On December 2, 1987, Ingrum mailed an accounting to Devlin. This accounting lists under receivables the initial $175,000 to be paid by the Company. A payable account of $6,000 is shown for patent reserve and net distributions of $30,211.25 each to Devlin and Ingrum. The amount of $15,000 was to be retained for contingencies.
On behalf of IIS, Ingrum executed a Settlement and Release Agreement (Agreement) with the Company on December 11, 1987. The Agreement refers to IIS, an Alabama corporation doing business as AIS, as "IIS/AIS," which is defined to include "each of its predecessors, successors, and assigns, and each of its ... past and present ... officers, directors [and] shareholders...." Plaintiff's Exhibit 15 at 11. The stated purpose of the Agreement is "to release fully and unconditionally any and all claims" that the Company and IIS had or may have against each other arising from their dispute concerning the parties' respective commitments to compensate and to develop, test and commercially produce the residue detection device as well as the related industrial and intellectual property rights covering the hardware and software. Id. at 1. As consideration for the release, the Company agreed to pay $75,000 upon execution of the Agreement and incremental payments totalling $100,000 within five months pending delivery and successful functioning of the residue detection device.
In return, IIS purports to grant to the Company "a worldwide, irrevocable, exclusive license" to use and sell the device "in the field of non-alcoholic beverages" from January 1, 1988 until December 31, 1990, with the option to extend the exclusive license annually from January 1, 1991 through December 31, 1997, upon payment of $450,000 per year. Id. at 3-4. Without renewal, the Company would have a nonexclusive license, limited to the nonalcoholic beverage field of use. The Company also agreed to pay graduating royalties up to $5,000 for each device "covered by one or more valid claims of a valid and enforceable patent owned or controlled by IIS/AIS in the country of manufacture, sale or use of each such Residue Detection Device." Id. at 5. During the Company's period of exclusivity, if IIS/AIS makes the device available to any third party for a use similar to that licensed to the Company, such use would "be subject to a paid up license by any such third party restricting use of such device in the field of nonalcoholic beverages." Id. at 7.
Regarding the technology ownership, the key Agreement provision precluding transfer of rights states as follows:
Except for licenses granted by IIS/AIS to COMPANY, all rights, titles and interests in and to technology related to the pre-prototype device including any patent, trademark,...
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