Gulfstream Aerospace Corp. v. Optical Air Data Sys., LLC
| Decision Date | 05 February 2021 |
| Docket Number | 1:20-cv-1033 (LMB/MSN) |
| Citation | 517 F.Supp.3d 542 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | GULFSTREAM AEROSPACE CORP., Plaintiff, v. OPTICAL AIR DATA SYSTEMS, LLC, Defendant. |
Matthew Lloyd Haws, Jenner & Block LLP, Washington, DC, for Plaintiff.
Stephen Matthew Faraci, Whiteford Taylor & Preston LLP, Richmond, VA, for Defendant.
Before the Court is plaintiff Gulfstream Aerospace Corp. ("plaintiff" or "Gulfstream")'s Motion to Confirm Arbitration Award and for Entry of Judgment Pursuant to 9 U.S.C. § 9 ("Motion to Confirm") [Dkt. No. 21] and defendant Optical Air Data Systems, LLC ("defendant" or "OADS")'s Motion to Vacate Arbitration Award ("Motion to Vacate") [Dkt. No. 6]. For the reasons that follow, plaintiff's Motion to Confirm will be granted, defendant's Motion to Vacate will be denied, the Arbitration Award will be confirmed, and judgment will be entered in plaintiff's favor.
The factual background is fully developed in the Panel's Partial Final Award [Dkt. No. 1-2] and summarized here for the purpose of providing context. OADS develops optical air data systems using Light Detection and Ranging ("LIDAR") technology and was developing a system to collect atmospheric data about an aircraft's air environment during flight by emitting laser beams through a series of laser transmitters and then measuring the light reflected back using sensors (the "OADS System"). OADS Exh. 59 [Dkt. No. 36-58] at 1. Gulfstream, a manufacturer of business jet aircraft, hoped to use OADS' technology both to replace its traditional primary air data system, which measured the speed and altitude of an aircraft in flight, and as part of a system for predictive "ride smoothing" that would recognize turbulence and automatically correct for it. OADS Exh. 58 [Dkt. No. 36-59] at 2. On August 2, 2013, OADS and Gulfstream entered into the MOA. [Dkt. No. 1-1].
Under the MOA, Gulfstream agreed to test the OADS System and, depending on the test results, Gulfstream would decide whether to proceed to a development phase of the system. [Dkt. No. 1-1] § 17.14. If, after testing, Gulfstream decided that it wanted to use the OADS System in its aircraft, Gulfstream would receive certain exclusivity and preferential-pricing rights, as well as possible royalty revenue. Id. Specifically, if Gulfstream gave notice of its intention to enter into a purchase agreement with OADS for the OADS System, Gulfstream would receive three benefits: (1) a "Right of First Offer," under which OADS would warrant that for a period of five years, it would not sell the OADS System to a third party for use in business jets unless the pricing was less favorable to the buyer than last offered to Gulfstream; (2) OADS would agree to "negotiate in good faith with Gulfstream concerning the requested purchase agreement"; and (3) any purchase order between Gulfstream and OADS would include a "most favored customer" provision in which OADS would "represent[ ] and warrant[ ] that the pricing, terms and conditions" of the agreement would "be more favorable to Gulfstream than th[ose] offered to any thirdparty ... for the sale ... of like quantities of Products for Business Jets." Id.
The MOA also provided that if Gulfstream decided to seek certification of the OADS System from the Federal Aviation Administration ("FAA") for use as a primary air data system, OADS would agree that from the date Gulfstream decided to seek certification of OADS' product until completion of final certification, OADS would not negotiate or enter into any agreement for the sale or certification of the OADS System for use in any non-Gulfstream business jet for a period not to exceed two years. Id. If Gulfstream was the first to have the OADS System certified as an air data system, OADS agreed to "pay Gulfstream a royalty of 5% of the Product(s) price ... for every Product(s) or variant or derivative of the Product(s) for Business Jets sold as a new installation" for the lesser of five years or until a $3,000,000 royalty had been paid. Id.
Upon entering the MO A, each company was to retain exclusive ownership of its own "Background IP," while granting the other party a limited license in that same intellectual property ("IP") for the duration of the program for testing and evaluation. Id. §§ 14.1; 14.3.2; 14.3.3. OADS granted to Gulfstream a "non-exclusive, worldwide, royalty free license" to use OADS' IP for purposes of the testing and evaluation process, and Gulfstream granted a similar license to OADS. Id. To the extent Gulfstream provided feedback about OADS' technology, OADS would own "all rights in and to the implementation of such Feedback within the Product(s)." Id. § 14.2.1.
Under the MOA's confidentiality provision, information could be disclosed to third parties "participating in the Aircraft program" only if those third parties had "a need-to-know in furtherance of the Aircraft program and [we]re legally bound to confidentiality obligations no less stringent than those set forth [in the MO A]." Id. § 17.5.
Two key provisions at the heart of this arbitration and litigation governed how disputes would be handled and what damages were available if the MOA were breached. First, under § 17.1, any disputes were to be resolved by arbitration, applying Georgia law.1 Second, under §§ 17.12.1 and 17.12.2, the parties agreed to waive the right to sue for various types of damages, including consequential damages. The exclusion of consequential damages and waiver of seeking such damages were printed in all uppercase text with a bolded heading as reproduced below.2
Once the MOA was executed, Gulfstream began testing the OADS system, conducting more than 100 test flights and spending over a million dollars on testing. [Dkt. No. 1-2] ¶ 40. In approximately June 2017, Gulfstream terminated the research and development program based on consistent technical errors and after ultimately concluding that the OADS technology would not work for "ride smoothing." [Dkt. No. 1-2] ¶¶ 47–51. This decision to terminate further testing ended the contractual relationship between OADS and Gulfstream. Id.
During the testing process, Gulfstream's focus shifted from evaluating OADS' System as a primary air data system toward evaluating it for predictive "ride smoothing." Id. ¶ 52. In November 2015, while evaluating that technology, Gulfstream's John Mayo ("Mayo") applied for a patent claiming a method for preemptive turbulence mitigation. Id. The application ultimately issued in February 2018 as the '926 Patent after the United States Patent and Trade Office ("USPTO") found Mayo's improvements to predictive ride smoothing eligible for patenting because they constituted an advance over the prior art regarding LIDAR technology. That prior art included U.S. Patent No. 9,026,278 (the "'278 patent"), which had been issued to OADS on May 5, 2015. Id. ¶ 53.
Before the parties entered the MOA, they were subject to a Proprietary Information Agreement. In its Motion to Vacate, OADS alleges that in June 2012, when the parties were subject to that agreement, OADS described subject matter in Mayo's presence that appears verbatim in Gulfstream's patent application and in a November 23, 2015 response to an office action.
If Gulfstream ultimately decided to incorporate the OADS technology into its aircraft, OADS would need a production partner to manufacture the OADS product on a large scale with consistent quality and reliability. Id. ¶ 41. On July 26, 2016, in a phone call between Gulfstream and L-3, Gulfstream learned that OADS had entered into an agreement with L-3 Communications Corp. ("L-3"), an established aerospace supplier with which Gulfstream had a positive business relationship. Id. The agreement granted L-3 an exclusive license for the same product that Gulfstream was testing and evaluating pursuant to the MOA. See id. ¶ 43. The L-3 license agreement caused Gulfstream to become concerned that L-3's exclusive license could conflict with Gulfstream's non-exclusive license to use OADS' IP, and also raised concerns that OADS might have licensed some of Gulfstream's IP to L-3. Id.
In the same time period, after L-3 learned about Gulfstream's MOA with OADS, L-3 became concerned that the MOA amounted to a breach of its license agreement with OADS. Id. ¶ 44. Although all three parties continued for several months to attempt to resolve any conflicts between the agreements, on November 21, 2016, L-3 terminated the L-3/OADS agreement, based on "breaches and material misrepresentations" by OADS that were purportedly "material to L-3's willingness to enter the License Agreement," and on OADS' failure to disclose the Gulfstream MOA to L-3 during L-3's due diligence. Id. ¶¶ 45–46. Gulfstream continued testing OADS' technology until it terminated the research and development program in June 2017. Id. ¶ 47.
In May 2017, OADS sued L-3 in Delaware for breach of contract and for tortious interference with OADS' MOA with Gulfstream. Optical Air Data Sys., LLC v. L-3 Commc'ns Corp., N17C-05-619 EMD CCLD (Dec. 5, 2019). On December 5, 2019, after a five-day bench trial, the Delaware court issued a decision in which it found that OADS had breached the L-3 agreement in multiple ways, including by failing to disclose the Gulfstream MOA during its contractual due diligence period with L-3, failing to disclose to L-3 another preexisting contract that OADS had entered with United Technologies ("UTAS") in 2013, and by having previously granted Gulfstream and UTAS the same or similar licenses as the exclusive license that OADS had granted to L-3.3 Id. The Delaware court also found that L-3 had breached the OADS/L-3 agreement by failing to provide OADS with notice and...
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