Intermec IP Corp. v. Transcore, LP
| Decision Date | 16 August 2021 |
| Docket Number | C. A. N20C-03-254 PRW CCLD |
| Parties | INTERMEC IP CORP., and INTERMEC TECHNOLOGIES CORP., Plaintiffs-Counterclaim Defendants, v. TRANSCORE, LP, and TRANSCORE HOLDINGS, INC., Defendants-Counterclaim Plaintiffs |
| Court | Delaware Superior Court |
Submitted: August 5, 2021
Upon Plaintiffs-Counterclaim Defendants Intermec IP Corp. and Intermec Technologies Corp.'s Motion to Dismiss GRANTED IN PART, DENIED IN PART.
Upon Plaintiffs-Counterclaim Defendants Intermec IP Corp. and Intermec Technologies Corp.'s Motion for Judgment on the Pleadings, DENIED.
Upon Defendants-Counterclaim Plaintiffs TransCore, LP and TransCore Holdings, Inc.'s Motion for Judgment on the Pleadings, GRANTED IN PART, DENIED IN PART.
Steven L. Caponi, Esquire, Matthew B. Goeller, Esquire, K&L Gates LLP, Wilmington, Delaware; Michael S. Nelson, Esquire Jessica L.G. Moran, K&L Gates LLP, Pittsburgh Pennsylvania. Attorneys for Plaintiffs-Counterclaim Defendants Intermec IP Corp. and Intermec Technologies Corp.
Jason A. Cincilla, Esquire, Howard P. Goldberg, Esquire, Tye C. Bell, Esquire, Manning Gross + Massenburg LLP, Wilmington, Delaware, Stephen E. Baskin, Esquire, Peter Schmidt, Esquire, King & Spalding LLP, Washington, D.C. Attorneys for Defendants-Counterclaim Plaintiffs TransCore, LP and TransCore Holdings, Inc.
Plaintiffs Intermec IP Corp. and Intermec Technologies Corp. (collectively, "Intermec") and defendants TransCore, LP and TransCore Holdings, Inc. (collectively, "TransCore" or the "Company") are counterparties to a cross-license (the "License"). The License permits each party to commercialize the other's intellectual property without fear of infringement claims. In exchange, TransCore agreed to pay Intermec royalties on its sales revenue quarterly at fixed percentages. Intermec may verify the accuracy of TransCore's payments through an independent audit of the Company's quarterly reports. For those rights, Intermec agreed not to deploy TransCore's intellectual property in certain markets. This dispute concerns TransCore's payments and quarterly reports and Intermec's audit and the limits imposed on Intermec's use.
Following an audit, Intermec learned TransCore had been underpaying. So Intermec demanded the deficiency. The Company disagreed with the auditor's analysis and refused. Intermec let the discrepancy slide for almost three years and then sued. Now, it seeks breach-of-contract damages and certain declarations. The Company attacks the breach allegations as time-barred and unsupported, and insists the controversies underlying the proposed declarations are moot.
Though Intermec maintains TransCore has paid too little, the Company contends it has paid too much. Intermec's audit prompted TransCore to investigate its own records more closely. After that, TransCore determined it had been making royalty payments on non-royalty-bearing assets. As a separate result of its search, TransCore discovered Intermec allegedly has been using the Company's intellectual property in a contractually-forbidden manner. Now, invoking express, implied, and quasi-contractual theories, the Company counterclaims for its mistaken debits, which Intermec says it has no duty refund, and for misuse, which Intermec denies.
The parties have cross-moved for judgment on the pleadings as to Intermec's claims and Intermec has moved to dismiss TransCore's counterclaims. Resolution of those motions turns on the proper interpretation of various License provisions. Based on the License's terms, TransCore can't pursue an express breach-of-contract or unjust enrichment claim for overpayment, or an implied covenant claim for misuse. To that extent, Intermec's dismissal motion is GRANTED. But TransCore can pursue an implied covenant claim for overpayment and an express breach-of-contract claim for misuse. Intermec's dismissal motion against those is DENIED.
Turning to the parties' cross-motions, the Court concludes, at this stage, the provisions undergirding Intermec's breach-of-contract claim are subject to more than one reasonable interpretations. At the pleadings stage of a contract dispute, the Court can't choose between reasonable, but differing, interpretations of ambiguous language. Discovery that may illuminate the parties' mutual intent is therefore warranted. Accordingly, the Court DENIES both parties' motions as to Intermec's breach-of-contract claim. As a result, the Company's statute of limitations defense must be deferred until the parties establish the only reasonable reading of the License provisions governing that defense's viability.
Intermec's declaratory count can be decided now, however. Two of the proposed declarations must be dismissed as moot and the last, as duplicative. Accordingly, TransCore's motion against Intermec's declaratory count is GRANTED and Intermec's cross-motion thereon is DENIED.
Intermec and TransCore produce Radio Frequency Identification ("RFID").[1]RFID originated during World War II.[2] Then, standard issue radar could not distinguish allied planes from enemy ones. So, to avoid friendly fire, military scientists created prototypical RFID: a call and response system.[3] Using this system, pilots communicated an identifying signal through an airborne transmitter to a transponder back at base that, in turn, decoded the greeting and noted false alarms.[4] In other words, vintage RFID functioned like barcode, scanning aircraft and classifying its allegiance.
RFID survived the battlefield with its barcode function intact. But its primary purpose has been retooled. Now, RFID manufacturers offer tracking solutions to shipping, healthcare, security, and pharmaceutical industries.[5] End users purchase modern RFID to monitor portable assets, to authorize personnel, to manage supply chains, and to ferret out counterfeit inventory and other contraband.[6]
Together with technological advancements, today's RFID also consists of parts more valuable than the whole. That means RFID's symbiotic components, known as "ASICs, "[7] "Inserts, "[8] "Printers, "[9] "Readers, "[10] and "Tags, "[11] are individually-patentable. That also means RFID is controlled by private patent owners. Hewing to a competitive market, patent holders have an economic incentive to exclude rivals and often press, to that end, infringement litigation. But because monopolism could have the counterproductive effect of deadlocking RFID's innovation, competitors have entered into cross-licensing agreements through which they share patent ownership in exchange for royalties and related privileges.[12] As a result, cross-license counterparties bargain for the right to infringe each other's patents and agree, thereby, to replace federal remedies with contractual ones.[13]
Against this background, Intermec and TransCore executed the License about thirteen years ago.[14] The License covers hundreds of the parties' RFID patents (collectively, "Licensed Patents" and where appropriate, "Intermec Licensed Patents" or "Company Licensed Patents")[15] and contains definitions and terms governing royalty payments, quarterly reports, audits, and market restrictions.
Under the License, the parties' Licensed Patents are defined as those "that are owned by or licensed . . . to [Intermec or the Company and] that are necessary or useful for designing, developing, processing, manufacturing or selling RFID" ASICs, Inserts, Printers, Readers, and Tags.[16] Those components are defined collectively as "[Intermec or Company] Licensed Products."[17] More important, Licensed Products are Licensed Products only to the extent that, "but for" the License, their sale or transfer "would infringe one or more . . . [Intermec or Company] Licensed Patents."[18]
That matters, for two reasons. First, Intermec granted the Company permission to integrate "Intermec Licensed Patents, . . . [in order] to make, . . . use, lease, offer to sell, sell, service, export and import Licensed Products."[19] So Intermec allowed the Company to appropriate Intermec Licensed Patents in a way that, without the License, would amount to patent infringement. Consistent with the infringement disclaimer's purpose, and cooperative innovation generally, the parties declared the Company's authority to do so would terminate, in pertinent part, "upon the expiration" of Intermec Licensed Patents.[20]
Second, the Company's royalty obligations are tied to Licensed Products. Under Section 3.0 (the "Payment Provision"), the Company must pay Intermec:
a running royalty of [(i)] 2.5% on the Net Sales Value of any Licensed RFID ASICs . . .; [(ii)] 3.0% on the Net Sales Value of any Licensed Tags [and/or] Inserts . . .; and [(iii)] 7.0% on the Net Sales Value of any Licensed Readers.[21]
Those royalty duties accrue as soon as the Company "becomes entitled to receive consideration for Licensed Product[s]"[22] and must be discharged no later than "30 days following the end of the quarter in which such royalties accrue."[23] So the Company must pay Intermec royalties quarterly and at fixed percentages only on the Net Sales Value of intellectual property transactions that would have, but for the License, infringed Intermec Licensed Patents.
Given the quarterly deadlines, TransCore must submit quarterly reports to Intermec "30 days after the close of each quarter" "whether or not there are any royalties due."[24] The quarterly reports must, among other things, reflect TransCore's financial performance disclose its royalty calculation methodologies, and show, in balance-sheet form, how TransCore computed the...
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