Leviton Mfg. Co. v. Pass & Seymour, Inc.

• Decision Date: 25 August 2017
• Docket Number: 17–cv–46 (BMC)
• Parties: LEVITON MANUFACTURING CO., INC., Plaintiff, v. PASS & SEYMOUR, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

264 F.Supp.3d 421

LEVITON MANUFACTURING CO., INC., Plaintiff,

v.PASS & SEYMOUR, INC., Defendant.

17–cv–46 (BMC)

United States District Court, E.D. New York.

Signed August 25, 2017

Filed August 29, 2017

Larry Lee Shatzer, II, Stephen G. Nagy, Pro Hac Vice, Strain PLLC, Washington, DC, Thomas J. McGowan, Meltzer, Lippe, Goldstein & Breitstone, LLP, Mineola, NY, for Plaintiff.

Brigid Morris, Calvin Eugene Wingfield, Jr., Mark J. Abate, Goodwin Procter LLP, New York, NY, for Defendant.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

Before me is plaintiff Leviton Manufacturing Co., Inc.'s ("Leviton") motion for judgment on the pleadings as to defendant Pass & Seymour's ("P & S") affirmative defense of patent misuse in this breach of contract action with underlying patent infringement issues. The primary questions on the motion are (a) whether a settlement and licensing agreement between the parties arising from a prior litigation precludes defendant from asserting the defense of patent misuse in this action; and (b) if it does not, whether res judicata nevertheless bars the assertion of that defense. I conclude that the language of the contract does not preclude the defense, and because the claim that plaintiff asserts in this action is different than the claim it asserted in the prior action, the defense is not barred by res judicata , even though the proof required to establish the defense may be the same or similar to what it would have been if the defense had been raised in the prior action. There is an alternative effort by plaintiff to reach the merits of the patent misuse defense, but that also fails. Accordingly, plaintiff's motion for partial judgment on the pleadings, dismissing the patent misuse defense, is denied.

BACKGROUND

In 2012, Leviton sued P & S alleging infringement of three patents—Nos. 7,463,124 (the " '124 patent"), 7,737,809 (the " '809 patent"), and 7,764,151 (the " '151 patent"). Leviton Mfg. Co., Inc. v. Pass & Seymour, Inc., No. 12–cv–2257 (the "prior case"). The allegedly infringing device at issue in the prior case (and in this one) was a ground circuit fault interrupter ("GCFI"), which is the mechanism in an electrical circuit that cuts off electricity in the event of a short circuit or other malfunction. The infringing product in the prior case was referred to as P & S's "1596 model GFCI."

The parties settled the prior case pursuant to a Settlement and License Agreement dated December 10, 2012 (the "Agreement"). As its name implies, the Settlement and License Agreement included a licensing scheme under which P & S would pay royalties to the extent it sold devices that fell within five of Leviton's patents. The Settlement and License Agreement also provided for an Order of Dismissal in the prior case, with the Court retaining jurisdiction to enforce the Settlement and License Agreement, which was entered.

The current dispute is over P & S's sales of its "1597 model GFCI," an allegedly different device that P & S began selling in 2015. Leviton has sued for breach of the Settlement and License Agreement because P & S is not paying royalties for its sales of the 1597 model, but whether there was a breach will turn on whether the 1597 model falls within Leviton's patents such that it would be infringing if not for the license granted to P & S in the Settlement and License Agreement.

In its answer to the complaint, P & S asserted numerous affirmative defenses, including patent misuse. The defense as pled has two closely related components. First, P & S asserts that Leviton has used threats and lawsuits to coerce companies, including P & S, into paying royalties based on invalid patents. Second, it asserts that Leviton has used "serial litigation," to browbeat licensees into ever-expanding licenses and thereby impermissibly broaden the scope and its patents and unlawfully monopolize the market for GCFIs.

Leviton has moved for partial judgment on the pleadings, seeking dismissal of this defense. It argues that: (a) the defense of patent misuse falls within the release provision of the Settlement and License Agreement and is therefore precluded; (b) even if the Settlement and License Agreement does not bar assertion of patent misuse, the doctrine of res judicata does; and (c) even if the defense is not barred, it fails on the merits.

DISCUSSION

I

Leviton first contends that under the § 2.13 of the Settlement and License Agreement, P & S released its patent misuse defense. Section 2.13 states that P & S "releases and forever discharges Leviton ... from any claims known or unknown that were or could have been raised in and which relate to or arise in any way from" the prior case. Leviton is wrong.

"[A] release—like any contract—must be construed in accordance with the intent of the parties who executed it." Golden Pac. Bancorp v. F.D.I.C., 273 F.3d 509, 515 (2d Cir. 2001). "[D]eference is to be paid to the plain meaning of the language of a decree and the normal usage of the terms selected." United States v. Broad. Music, Inc., 275 F.3d 168, 175 (2d Cir. 2001). "Where the language of the release is clear, effect must be given to the intent of the parties as indicated by the language employed." Wang v. Paterson, No. 07 Civ. 2032, 2008 WL 5272736, at *4 (S.D.N.Y. Dec. 18, 2008) (internal quotation marks omitted); see also Peterson v. Regina, 935 F.Supp.2d 628, 635 (S.D.N.Y. 2013) ("[C]ourts must look to the language of a release—the words used by the parties—to determine their intent, resorting to extrinsic evidence only when the court concludes as a matter of law that the contract is ambiguous."). Under New York law, " ‘a release that is clear and unambiguous on its face and which is knowingly and voluntarily entered into will be enforced.’ " Loccenitt v. Pantea, No. 12 Civ. 1356, 2014 WL 7474232, at *2 (S.D.N.Y. Dec. 29, 2014) (quoting Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 463 (2d Cir. 1998) ).

The Settlement and License Agreement does not define the word "claim," but its meaning is clear enough. It is a "demand or request for something considered one's due." Oxford Living Dictionary, https://en.oxforddictionaries.com/definition/claim (last visited August 21, 2017). It can be used in arguments, personal relationships, business, or law. However used, it means that someone is asking for money, property or other consideration to come their way.

But a claim is not an affirmative defense. Indeed, in law, a claim is the opposite of an affirmative defense, that is, an affirmative defense is a means to defeat or avoid a claim. The Federal Rules of Civil Procedure clearly distinguish between a claim and an affirmative defense. Compare Fed. R. Civ. P. 8(a)with Fed. R. Civ. P. 8(c). And it is of course common for contracting parties or settling litigants to prohibit the assertion of one, some, or all affirmative defenses should there be subsequent litigation between them. See, e.g., Braintree Labs., Inc. v. Breckenridge Pharm., Inc., 688 Fed.Appx. 905, 909–10 (Fed. Cir. 2017) (waiving all defenses except noninfringement); Hugler v. First Bankers Trust Servs., Inc., No. 12-cv-8649, 2017 WL 1194692, at *7 (S.D.N.Y. March 30, 2017) (waiving untimeliness defense). Indeed, the very suggestion of "releasing an affirmative defense" is dissonant, for it is a claim, under its many synonymous variations, that gets released, not an affirmative defense. A more common phrase for the relinquishment of affirmative defenses is to waive them.

The parties, who were both represented by counsel, understood these basic principles when they signed the Settlement and License Agreement. When they wanted to refer to affirmative defenses, they knew how to do so and did so expressly. In § 3.1 of the Settlement and License Agreement, the parties agreed that "[n]othing in this Agreement shall prevent P & S ... from raising any and all affirmative defenses, claims, and counterclaims ... if Leviton should bring any claim of infringement ... against P & S...."

Leviton attempts to turn the parties' recognition of the separate treatment of claims and defenses on its head, arguing that the only instance in which P & S can assert an affirmative defense is where Leviton has sued for infringement—and the instant claim is for breach of the Settlement and License Agreement, not infringement. In ruling on the parties' prior cross-motions for partial judgment on the pleadings, I agreed with Leviton that its claim should be characterized as one for breach of contract, rather than for patent infringement, even though the Court must construe Leviton's patents and determine whether the 1597 model would infringe to decide the merits of the claim.

However, I made that determination solely for the purpose of construing the effect of § 3.3 of the Settlement and License Agreement on this lawsuit. That section imposes a penalty (as I so held, not liquidated damages), in the event that P & S challenges the validity of Leviton's patents in an infringement action. It remains the fact that there is nothing in the Settlement and License Agreement waiving (or "releasing") any affirmative defense. P & S's express reservation of its right to assert defenses in an infringement action does not mean that it waived defenses as to any other claim that Leviton might bring that involves infringement-like issues.

If Leviton wanted the release to preclude P & S from raising particular issues and defenses no matter what the context, it should have drafted the release to say so. It did not, and the Settlement and License Agreement does not prohibit P & S from raising patent misuse in this case.

II

Leviton alternatively contends that P & S's patent misuse defense is barred by res judicata based on the Order dismissing the prior action pursuant to the Settlement and License Agreement. The deficiencies of this argument seem straightforward. It fails for two reasons.

First, the Supreme Court has exempted the defense of patent misuse from the usual rules of res judicata on the ground...