General Mills, Inc. v. Kraft Foods Global, Inc.

• Decision Date: 16 May 2007
• Docket Number: No. 2006-1569.,No. 2006-1606.,2006-1569.,2006-1606.
• Citation: 487 F.3d 1368
• Parties: GENERAL MILLS, INC., Plaintiff-Appellant, v. KRAFT FOODS GLOBAL, INC., Defendant-Cross Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

487 F.3d 1368

GENERAL MILLS, INC., Plaintiff-Appellant, v. KRAFT FOODS GLOBAL, INC., Defendant-Cross Appellant.

No. 2006-1569.

No. 2006-1606.

United States Court of Appeals, Federal Circuit.

May 16, 2007.

Ronald J. Schutz, Robins, Kaplan, Miller & Ciresi L.L.P., of Minneapolis, MN, argued for plaintiff-appellant. With him on the brief was, David P. Swenson, Sang Young A. Brodie, and David B. Zucco.

Holly A. Harrison, Sidley Austin LLP, of Chicago, IL, argued for defendant cross-appellant. With her on the brief was Julie K. Potter. Of counsel on the brief was Tara C. Norgard, Carlson Caspers Vandenburg & Lindquist P.A., of Minneapolis, MN.

Before BRYSON, Circuit Judge, CLEVENGER, Senior Circuit Judge, and LINN, Circuit Judge.

LINN, Circuit Judge.

General Mills, Inc. ("General Mills") appeals from a final judgment by the United States District Court for the District of Minnesota dismissing its claim for patent infringement against Kraft Foods Global, Inc. ("Kraft"), on the ground that the claim is barred by a covenant not to sue that General Mills granted to Kraft's predecessor in interest, the Farley Candy Company ("Farley"). Kraft cross-appeals, challenging the district court's decision to treat its counterclaim to General Mills' original complaint as having been abandoned after General Mills filed an amended complaint. Because Kraft became the successor to Farley's rights under the covenant not to sue before commencing the allegedly infringing activities and did not lose that status during the period at issue on appeal, and because the district court did not abuse its discretion in deeming Kraft's counterclaim to have been abandoned, we affirm as to both appeals.

I. BACKGROUND

A. Facts

General Mills sells rolled food items under the brand name Fruit by the Foot®, and it owns U.S. Patent Nos. 5,284,667 ("Rolled Food Item Fabricating Methods") and 5,723,163 ("Rolled Food Item"). In 1995, General Mills sued Farley for infringement of these patents, a dispute that General Mills and Farley resolved through a settlement agreement (hereinafter, "the Settlement Agreement").¹ The Settlement Agreement required Farley to pay General Mills a lump sum in exchange for the grants by General Mills of a release of its patent claims and a covenant not to sue Farley for past, current, or future infringement. "Farley" is defined in Article 1.6 of the Settlement Agreement to mean "Farley Candy Company and its Affiliates, including, without limitation, all parent corporations, subsidiaries, heirs, executors, administrators, and corporate predecessors and successors." (Emphasis added.) The covenant not to sue, which was attached as Exhibit B to the Settlement Agreement, also contains language defining the "Releasee" as including Farley and its "successors."

The Settlement Agreement also contains two provisions, Articles 8.3 and 8.4, that define limiting conditions to the assignment or transfer of rights under the Agreement to another party by Farley (or its successors, pursuant to Article 1.6 and the language of the covenant):

8.3 Except as expressly provided in Article 8.4 herein, neither this Agreement nor any rights granted hereunder may be assigned or otherwise transferred by either General Mills or Farley, nor shall the same inure to the benefit of any trustee in bankruptcy, receiver or other successor of such party, whether by operation of law or otherwise, nor, except as expressly provided in Article 8.4 herein, shall any rights herein be or become in any way directly or indirectly transferable or available to, or divisible or capable of being shared with, any third party, without the prior written consent of the other party, and any assignment, transfer or other disposition without such prior written consent shall be null and void.

8.4 Notwithstanding any provision of this Agreement to the contrary, Farley may assign the entirety of their non-divisible respective rights and obligations under this Agreement, provided that all of the following conditions are satisfied:

a. Farley must transfer its entire rolled food product business, including without limitation all assets, good will, and trademarks to the party to whom the rights and obligations are being assigned; and

b. Farley must provide General Mills with sixty (60) days written notification prior to the transfer of rights and obligations under this Agreement; and

c. the party receiving the rights and obligations from Farley must not have been charged with infringement by written notification or initiation of litigation by General Mills of any of General Mills' Patents and Applications, as those terms are defined herein, prior to General Mills receiving written notification from Farley pursuant to Article 8.4(b).

In 2001, through a series of intermediate transactions, Kraft succeeded to the business of Farley. At the time of these transactions, Kraft and Farley complied with the requirements of Articles 8.3 and 8.4. (We refer to these transactions collectively as "the Farley transaction.") General Mills concedes that by virtue of the Farley transaction in 2001, Kraft stepped into Farley's shoes and became Farley's successor. See Oral Arg. at 02:35-02:45, available at http://www.cafc.uscourts.gov/oralarguments/mp3/06-1569.mp3; see also Amended Complaint ¶ 15; Br. for Appellant at 20-21.

In 2002, Kraft "sold and transferred Farley assets, including the Farley trademark and goodwill, to a subsidiary of Catterton Partners." Amended Complaint ¶ 16. Because this appeal is from the grant of a motion to dismiss, the details of this transaction are not in the record, but it appears to be undisputed that Kraft retained at least some portion of the original Farley assets and of Farley's rolled food business, although General Mills characterizes the assets that Kraft sold to Catterton as "substantial" and "important." Br. for Appellant at 3; Repl. Br. for Appellant at 13. (We refer to this transaction as "the Catterton transaction.")

After a few years of what General Mills alleges to be infringing activity, in 2005, Kraft sold the remainder of its rolled food business and purported to transfer whatever rights it had under the Settlement Agreement to Kellogg Company. (We refer to this transaction as "the Kellogg transaction.") General Mills does not allege that Kraft engaged in infringing activities after the Kellogg transaction; this appeal concerns acts of alleged infringement only during the period between the Catterton transaction and the Kellogg transaction.

B. Procedural History

General Mills brought this action in the United States District Court for the District of Minnesota on June 24, 2005, alleging infringement of the two patents listed above. On September 14, 2005, Kraft filed an answer and a counterclaim alleging that General Mills breached the Settlement Agreement by filing suit. General Mills replied to Kraft's counterclaim, and Kraft moved for summary judgment. Subsequently, on December 2, 2005, General Mills filed an amended complaint in which it reasserted the patent infringement claim from the original Complaint and asserted a new breach of contract claim of its own, on the grounds that Kraft breached the Settlement Agreement when it engaged in the Kellogg transaction.

The amended complaint, unlike the original complaint, attached the Settlement Agreement as an exhibit. Relying on the Settlement Agreement, Kraft moved to dismiss both counts of the amended complaint under Fed.R.Civ.P. 12(b)(6). Kraft never answered the amended complaint or reasserted its counterclaim. After full briefing, the district court granted Kraft's motion to dismiss and dismissed General Mills' patent infringement claim. General Mills, Inc. v. Kraft Foods Global, Inc., No 05-CV-1253, 2006 WL 1795142 (D.Minn. June 28, 2006) (Dckt. No. 110) ("Dismissal Opinion"). Exercising its discretion under 28 U.S.C. § 1367(c)(3), the district court then declined to exercise jurisdiction over General Mills' state-law contract claim and entered judgment in favor of Kraft.

After the entry of judgment, Kraft wrote to the district court and sought guidance as to how it should proceed with its counterclaim. The district court construed Kraft's letter as a motion to alter or amend the judgment and denied the motion, explaining that because Kraft did not reassert its counterclaim in response to the amended complaint, no counterclaim was pending when the district court entered judgment and that the judgment was therefore final and complete. General Mills, Inc. v. Kraft Foods Global, Inc., No. 05-CV-1253 (D.Minn. July 5, 2006) (Dckt. No. 114).

General Mills appeals. Kraft cross-appeals, alleging that the district court erred by failing to rule on its counterclaim. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

II. DISCUSSION

A. Standard of Review and Choice of Law

"The question of whether a Rule 12(b)(6) motion was properly granted is a purely procedural question not pertaining to patent law, to which this court applies the rule of the regional . . . circuit," in this case the Eighth Circuit. C&F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1306 (Fed. Cir.2000). The Eighth Circuit "review[s] de novo the district court's grant of a motion to dismiss pursuant to Rule 12(b)(6), accepting all factual allegations in the complaint as true and granting every reasonable inference in favor of the nonmovant." Knieriem v. Group Health Plan, Inc., 434 F.3d 1058, 1060 (8th Cir. 2006).

The Settlement Agreement provides in Article 8.9 that it is to be interpreted under Minnesota law. General Mills concedes this point, but then argues that under federal law, patent licenses (such as, in its view, the Settlement Agreement) are personal and non-transferable. However, what our case law recognizes is the "need for a uniform national rule that patent licenses are personal and non-transferable in the absence of an agreement authorizing assignment." Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., ...