Citations
- 375 F. Supp. 3d 915
Full opinion text
Honorable Thomas M. Durkin, United States District Judge
Jonathan Barney, through his company PatentRatings, LLC, created and patented a database and computer program (the PatentRatings "system") for analyzing and evaluating patents. Ocean Tomo, LLC, provides financial services and consulting related to intellectual property, including patent analytics. In 2004, the parties reached agreements providing for (1) licensing the PatentRatings system to Ocean Tomo; (2) giving Ocean Tomo an ownership interest in PatentRatings; and (3) giving Barney an ownership interest in, and a management position with, Ocean Tomo. The relationship among the parties soured, giving rise to amendments to the agreements in 2007, and eventually this litigation in 2012.
The case proceeded to a bench trial beginning on June 26, 2017. The were 16 trial days through July 28, 2017, at which point the Court's and the parties' schedules required that the trial be continued indefinitely. The trial resumed on April 23, 2018 and the parties completed their presentation of evidence on April 27, 2018. A total of 13 witnesses testified, including one who was called twice, and two who were called three times each. Post-trial briefing was completed on August 17, 2018. Considering: (1) this case is eight and half years old; (2) during the course of the case, the parties briefed five pre-trial motions resulting in five memorandum opinions; (3) the parties briefed motions in limine and Daubert motions; (4) the Court received evidence over 21 bench trial days; and (5) the Court has reviewed 380 pages of post-trial briefing (not to mention several hundred pages of exhibits), the Court has determined that closing arguments are unnecessary. The parties had more than sufficient opportunity to raise any claims and make any supporting arguments in their post-trial briefs (as well as periodic interim arguments by counsel throughout the trial proceedings). And of course, closing arguments are not a vehicle to expand the evidentiary record.
This memorandum sets forth the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a). These findings are based on the documentary evidence and trial testimony. They are also based on the Court's credibility determinations after observing witnesses testify. All findings are by a preponderance of the evidence unless otherwise noted.
Background: The Relevant Agreements and a Timeline of the Disputes
A. Initial Agreements
Barney developed a computer program that uses regression analysis to measure the strength and quality of a patent relative to a database of information about patents that Barney compiled. See R. 412 ¶ 3; R. 396 ¶ 25. In 2004, Ocean Tomo approached Barney and his company PatentRatings to license this system. R. 412 ¶ 4; R. 416 ¶ 4. That year and early the following year, the parties entered into the following agreements: (1) a license agreement and subsequent amendment; (2) an equity exchange agreement; (3) a letter agreement; and (4) an employment agreement. R. 412 ¶ 4; R. 416 ¶ 4. The equity exchange agreement provided that Ocean Tomo would own 25% of PatentRatings, Barney would own about 6.8% of Ocean Tomo, and Barney would be employed as a manager of Ocean Tomo. R. 412 ¶ 6; 414 ¶ 6. The license agreement provided that Ocean Tomo would pay PatentRatings "any revenues received by [Ocean Tomo] ... for access and use of PatentRatings Analysis." R. 403-9 at 5 (§ 4.3). The letter agreement specified that PatentRatings "products will not be utilized by [Ocean Tomo's] expert services practice." R. 411-179 at 1.
B. 2007 Amendment and Note
Ocean Tomo was disappointed with the performance of the PatentRatings system and its profitability. See R. 414 ¶ 36. Barney was concerned that Ocean Tomo was failing to account properly for royalty-bearing revenues. See R. 412 ¶ 18. As a result, the parties amended the royalty terms in 2007. The 2007 amendment provides that Ocean Tomo will pay "25% of any revenues ... collected solely from External Data Sales," and "13.25% of any revenues ... collected solely from External Data Usage." R. 412-3 at 2 (§ 4.3(a), (b) ). This is the current royalty provision.
On the same day the parties signed the amendment, PatentRatings signed a $ 1.5 million promissory note in Ocean Tomo's favor. See R. 412-15. Since the inception of the parties' business relationship, Ocean Tomo had spent money to improve the performance of the PatentRatings system. See R. 412 ¶¶ 16-17; R. 416 ¶¶ 16-17. The note was intended to reflect that PatentRatings had an obligation to repay these improvement expenses. See R. 412 ¶ 17; R. 416 ¶ 17. The amendment also provided that the parties agreed that "any Revenues owed to [PatentRatings] pursuant to ... the [2004 license agreement] that have accrued since the [effective date of the 2004 license agreement] have been credited to [PatentRatings] as reflected in the Principal amount of the Note." R. 412-3 at 3 (§ I). The parties refer to this provision as the "true-up."
C. Disputes Over Specific Clients and Transactions
Despite reaching agreement on the 2007 amendment and note, the parties' relationship continued to deteriorate. A number of disputes arose or came to a head in 2010 regarding specific clients and transactions.
In January 2010, Barney raised concerns regarding the structure of a potential deal with a French bank. See R. 414 ¶¶ 74-78; R. 420 ¶¶ 74-78. By February 2011, Ocean Tomo came to believe that the deal failed because Barney told the bank that he and Ocean Tomo were disputing the scope of the license agreement. See R. 414 ¶¶ 76-77. During this same time period, the parties also argued over their respective client relationships with Boeing and the proper allocation of revenues from those relationships. See R. 412 ¶¶ 62-64; R. 416 ¶¶ 62-64.
In February 2010, Ocean Tomo entered into a memorandum of understanding with a Japanese company called NTT to create a Japanese patent rating system based on the PatentRatings system. R. 412 ¶ 82; R. 416 ¶ 82. Barney and PatentRatings initially approved of the deal. See R. 412 ¶ 83; R. 416 ¶ 83. But by January 2011, disputes had arisen between Ocean Tomo and Barney regarding the allocation of revenues under the license and operating agreements generally (which the Court describes further below). This led Barney to seek to restructure the potential deal with NTT. See R. 412 at 24-25. The negotiations between Ocean Tomo and Barney regarding NTT became hostile. See, e.g. , R. 411-48 at 2. Additionally, both Ocean Tomo and Barney separately had negotiations with NTT that upset the other and are the basis for their dueling claims of tortious interference filed in this case. By October 2012, NTT finally scuttled the deal due to the unresolved disputes between Ocean Tomo and Barney. See, e.g. , R. 403-20.
In August 2010, another quarrel erupted between Ocean Tomo and Barney over characterization of profits from the $ 10 million sale of Ocean Tomo's intellectual property auction business to a company called ICAP. Specifically, they disputed whether Ocean Tomo's operating agreement required the profits from the sale to be split pro rata among ownership. See R. 412 at 33-34. Ocean Tomo ultimately determined that the operating agreement permitted Ocean Tomo's founder, majority owner, and CEO-James Malackowski-to receive a greater share of the sale profits, thus decreasing Barney's share by $ 133,156, relative to a straight pro rata allocation. See R. 412 ¶ 114; R. 416 ¶ 114.
D. Revenue Disputes, Arbitration, and Audit
These client and transaction specific disputes occurred in the context of Ocean Tomo's continuing unhappiness with its financial arrangement with PatentRatings and the money it was investing in the PatentRatings system. See R. 412 at 7-8. In January 2011, Ocean Tomo requested that PatentRatings: (1) pay for future improvements; (2) assume as debt all past payments by Ocean Tomo for improvements (presumably meaning those incurred since the 2007 note and "true-up"); and (3) defer royalties until the debt was repaid. See R. 412 ¶ 28; R. 416 ¶ 28. When PatentRatings refused this request, Ocean Tomo demanded in February 2011 that they resolve the dispute through arbitration. See R. 411-129; R. 411-24; R. 412 ¶ 29; R. 416 ¶ 29. Barney resigned from Ocean Tomo that same month, although he continues to own part of the company. The arbitrator eventually denied Ocean Tomo's claims on May 25, 2012.
Discovery during the arbitration proceeding revealed evidence that Ocean Tomo's "valuation" group was using the PatentRatings system. Barney testified that this surprised him because he considered the "valuation" group to be part of "expert services," and in the 2004 letter agreement Ocean Tomo had agreed not to use the PatentRatings system to provide "expert services." See R. 412 ¶ 32. Based on the documents produced in the arbitration discovery, PatentRatings demanded royalty payments on "several" engagements, by letter dated January 26, 2012. See R. 412-16. Ocean Tomo initially refused, but eventually paid $ 14,423.31 on February 24, 2012. R. 412 ¶ 36; R. 416 ¶ 36.
Discovery of these unpaid royalties led PatentRatings to engage an auditor on March 7, 2012 and demand an audit pursuant to the license agreement. See R. 412 ¶ 40. The license agreement gives PatentRatings the right
to inspect or audit [Ocean Tomo's] records from time to time, provided, however, that reasonable notice thereof will be given and that [PatentRatings] will conduct any such inspection or audits during normal business hours and only to the extent necessary to determine or verify any royalty payments ... and [PatentRatings] agrees not to conduct more than one such inspection or audit in each calendar year.
R. 403-9 at 6 (§ 4.5(c) ). Ocean Tomo insisted that the audit be conducted on a sampling basis, although nothing in the agreement requires it. R. 412 ¶ 41; R. 416 ¶ 41. Ocean Tomo initially agreed to produce documentation regarding 25 client engagements.
The auditor determined Ocean Tomo had failed to pay royalties on one of the 25 client engagements in the amount of $ 6,625. R. 411-71 at 16. Having found unpaid royalties in the first sample, the auditor requested documentation for an additional 25 engagements. Id. at 17. Ocean Tomo agreed to produce only an additional 16. Id. In this second sample, the auditor found another two engagements with unpaid royalty-bearing work in the amount of $ 11,639.07. Id. at 18. Ocean Tomo then agreed to produce the "deliverables" for the highest 20 billing clients, while refusing to provide documentation for (1) matters for which there was no deliverable, and (2) matters for which a royalty was paid. See R. 419-4 at 2. Defendants objected that this documentation would be insufficient to test the accuracy of Ocean Tomo's royalty payments. See R. 434-99. The parties did not reach agreement on further production of records.
In addition to analyzing whether Ocean Tomo failed to pay royalties on the sample engagements, the auditor reviewed the documentation for the royalties Ocean Tomo had paid from 2008 through 2011. This auditor determined that Ocean Tomo had underpaid royalties on those engagements by $ 31,565.18. See R. 411-71 at 11-14.
Lastly, the auditor found that for certain clients, the revenue Ocean Tomo reported for purposes of determining royalties owed to PatentRatings was less than the total revenue received from the client. See R. 411-71 at 14. Ocean Tomo's records for these clients contained "notations that only a portion of the invoice was to be treated as royalty bearing." Id. The auditor reported his findings in a document dated May 14, 2014. For purposes of the May 2014 audit report, the auditor relied on Ocean Tomo's representations that this invoice splitting was proper.
But in this litigation, Defendants claim that Ocean Tomo's "split billing" practice violates the license agreement. Defendants reengaged the auditor to prepare an expert report for this case. See R. 411-146. Although the expert asserts that his report does not make "legal conclusions" nor render a "legal opinion," see id. at 8, he reached his conclusions by interpreting and applying the relevant provisions of the license agreements, the meanings of which are hotly contested by the parties in this case. The expert concluded that Ocean Tomo owes PatentRatings $ 2,044,413 in unpaid royalties. See id. at 20.
E. Lawsuits and Disputes about Hardware
About a year after Barney resigned from Ocean Tomo, in the midst of the arbitration proceedings, and about five weeks before Barney engaged the auditor, Ocean Tomo filed a complaint against Barney in Illinois state court on January 27, 2012. R. 1-2. Ocean Tomo alleged that Barney had improperly copied Ocean Tomo's confidential information and trade secrets from the laptop computer Ocean Tomo had issued to him. Ocean Tomo claimed that by copying and retaining the data, Barney: (1) breached his fiduciary duty to Ocean Tomo; (2) breached his employment agreement with Ocean Tomo; (3) violated the federal Computer Fraud and Abuse Act; (4) violated the Illinois Trade Secrets Act; and (5) violated Illinois conversion law. See R. 1-1. Ocean Tomo also claimed that Barney breached Ocean Tomo's Computer Asset Policy Agreement by allegedly wiping the laptop's memory.
On October 9, 2012, Ocean Tomo sought leave to file an amended complaint in state court adding a claim of tortious interference regarding the NTT deal and adding PatentRatings as a defendant with respect to that new claim. See R. 1-3. Defendants appeared in the case shortly thereafter and removed the case to this Court on October 19, 2012. R. 1. Defendants filed counter-claims on November 16, 2012, for: (1) breach of the operating agreement with respect to allocation of the ICAP deal profits; (2) breach of the license agreement; (3) tortious interference with the NTT deal; and (4) violation of the federal Computer Fraud and Abuse Act for improperly disconnecting and retaining the servers containing the PatentRatings system. See R. 12.
In amended pleadings, Defendants added a claim for fraudulent inducement with respect to the 2007 amendment and note. See R. 84. Ocean Tomo filed second, third, and fourth amended complaints, see R. 83; R. 176; R. 396, which did not materially change the claims at issue in the case.
Findings of Fact and Conclusions of Law on the Parties' Claims
While several iterations of the pleadings have been filed in the case, these findings address the claims for which the parties specifically seek relief in their post-trial briefs. Any other claims are waived.
Ocean Tomo claims: (1) breach of fiduciary duty (with respect to both (i) the information on Barney's laptop computer and (ii) the NTT deal); (2) violation of the Illinois Trade Secrets Act (laptop); (3) breach of Barney's employment agreement (laptop and NTT deal); (4) conversion (laptop); (5) violation of the Computer Fraud and Abuse Act (laptop); (6) breach of Ocean Tomo's Computer Asset Policy Agreement (laptop); (7) tortious interference (NTT deal); and (8) the patents at issue are invalid, as an affirmative defense to Defendants' claim for breach of the license agreement.
Defendants make the following counter-claims: (1) fraudulent inducement (with respect to the 2007 amendment and note); (2) breach of the license agreement (for non-payment of royalties, along with various other allegations); (3) tortious interference (with the NTT deal); (4) breach of the operating agreement (with respect to allocation of the ICAP deal profits); (5) violation of the Computer Fraud and Abuse Act (with respect to the PatentRatings servers); (6) breach of the supplemental license agreement; and (7) declaratory judgments that the license agreement and the supplemental license agreement are terminated (based on allegations addressed below). Barney also seeks relief in the form of forcing Ocean Tomo to repurchase his Ocean Tomo shares pursuant to 805 ILCS 180/35-1(a)(5). Some of the parties' claims overlap factually, and some of the claims also serve as defenses. The Court addresses them accordingly in the following order:
I. Fraudulent Inducement
A. Reliance
B. Fraud and Intent
II. Breach of the License Agreement: Royalties
A. Split Billing
B. "Facilitates"
C. Pre-2007 Amendment
D. Post-December 2012 Royalties
E. OPERS
III. The NTT Deal
A. Ocean Tomo's Claims
1. Tortious Interference
2. Breach of the Employment Agreement
3. Breach of Fiduciary Duty
B. Defendants' Claim for Tortious Interference
IV. Breach of the Operating Agreement
A. The ICAP Deal
B. Board Resolutions
C. Denial of Access to Records
V. Violation of the Illinois Trade Secrets Act
VI. Violation of the Computer Fraud and Abuse Act
A. Ocean Tomo's Claim
B. Ocean Tomo's Additional Related Claims
C. Defendants' Claim VII. Breach of the Supplemental License Agreement
VIII. Declaratory Judgment that the License Agreement is Terminated
A. Branding
B. Ocean Tomo Ratings
C. Royalty Audit
D. Materiality
E. Termination of the Supplemental License Agreement
F. Patent Validity
IX. Buy Out
X. Attorneys' Fees
I. Fraudulent Inducement
Defendants claim that Ocean Tomo fraudulently induced Barney to agree to the 2007 amendment and note. Barney testified that James Malackowski-Ocean Tomo's founder, majority owner, and CEO-made the following statements about potential unpaid royalties that Barney relied upon in signing the 2007 amendment and note, which Defendants contend were false:
(1) "the [Ocean Tomo] groups called Expert Services, Appraisals, Investments, Risk Management, and/or Corporate Finance 'did not use the PatentRatings [system] to deliver products and services to external clients' ";
(2) "there was no use of the [PatentRatings] System beyond (a) use in the Analytics group and (b) use that Barney was aware of through his work in [Ocean Tomo's PatentRatings] group"; and
(3) "all the revenues that would be royalty-bearing had been reported to [PatentRatings] at that point, or that [Barney] was aware of them through [his] work in the PatentRatings Group."
R. 412 at 56 (citing Barney's trial testimony).
"In Illinois, fraudulent inducement requires proof of five elements: (1) a false statement of material fact; (2) known or believed to be false by the person making it; (3) an intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance." Hoseman v. Weinschneider , 322 F.3d 468, 476 (7th Cir. 2003). These elements must be proven by clear and convincing evidence. See id.
A. Reliance
The parties focus their arguments on: whether Defendants have proven that Malackowski actually made the three statements; whether they were false; whether they were made with the intent to induce; and whether they caused damages. In three sentences, Ocean Tomo also argues that Defendants have failed to prove the reliance element of their fraudulent inducement claim because they contend that past royalty disputes-the subject matter of the allegedly false statements-were not Barney's focus during negotiation of the 2007 amendment and note. See R. 416 at 60.
The parties, however, have overlooked the significance of the "true-up" provision, included in the 2007 amendment, to the reliance element of Defendants' fraudulent inducement claim. A fraudulent inducement claim alleges that a defendant orally misrepresented a certain fact in order to induce the plaintiff to perform some action. Here, Barney alleges that Ocean Tomo misrepresented what revenues had been reported, in order to induce Barney to agree to the amended royalty provisions and to take on the debt memorialized by the note. (Although Malackowski's first two alleged misrepresentations do not directly mention disclosure of royalty-bearing revenues, Defendants concede that these representations were only relevant to determining the "specific amount of accrued royalties in mind that were being credited against the loan balance" in the 2007 note. R. 412 at 56.)
The problem with Defendants' argument is that they expressly affirmed in writing-i.e., in the "true-up" provision-that Malackowski's alleged misrepresentations were true. In the true-up provision, Barney-on behalf of PatentRatings-"agreed" that the principal amount of the note "reflected" that "any revenues owed to [PatentRatings]" up to that point in time had "been credited to [PatentRatings]." R. 412-3 at 3 (§ I). This is not a representation by Ocean Tomo on which Defendants relied. Rather, it is a representation made by Defendants that any royalties they were owed had already been accounted for. This representation implies that Defendants had satisfied themselves that this accounting was accurate, and implicitly waives any claims that the $ 1.5 million note amount failed to account for additional royalties owing.
Agreement to the true-up itself cannot be the action that was induced, because the true-up by its own terms ratifies the alleged misrepresentations. By agreeing to the truth of what Defendants now allege to have been misrepresentations, Defendants expressly disclaimed reliance on the misrepresentations. See Rissman v. Rissman , 213 F.3d 381, 384 (7th Cir. 2000) ("[It is] a doctrine long accepted in this circuit: that a person who has received written disclosure of the truth may not claim to rely on contrary oral falsehoods.").
Generally, when parties intend to disclaim reliance on prior oral representations they include a "no-reliance" clause in a contract. "[S]uch 'no-reliance' or 'disclaimer of reliance' clauses serve a legitimate purpose in closing a loophole in contract law' by heading off a suit for fraud used as a device for trying to get around the limitations that the parol evidence rule and contract integration clauses place on efforts to vary a written contract on the basis of oral statements made in the negotiation phase." Judson Atkinson Candies, Inc. v. Kenray Assocs., Inc. , 719 F.3d 635, 640 n.2 (7th Cir. 2013). In other words, such a provision negates the reliance element of a fraudulent inducement claim. See Vigortone AG Prod., Inc. v. PM AG Prod., Inc. , 316 F.3d 641, 645 (7th Cir. 2002) ("Since reliance is an element of fraud, the clause, ... precludes a fraud suit[.]"). Sometimes such clauses do not use the word "reliance" in particular, but generally disclaim prior oral representations. See Rissman , 213 F.3d at 383-84 (citing One-O-One Enters., Inc. v. Caruso , 848 F.2d 1283, 1285 (D.C. Cir. 1988) (the contract stated that it "supersedes any and all previous understandings and agreements") ); see also Boscia v. Monroe/Wabash Dev., LLC , 2011 WL 10069624, at *4-5 (Ill. App. Ct. 1st Dist. May 31, 2011) ("no salesperson or employee of seller has authority to ... make any representation or agreement not expressly contained in this purchase agreement or any exhibits attached hereto, and only those expressly contained herein shall be binding upon seller, or in any way affect the validity of this purchase agreement or form any part hereof. Purchaser acknowledges that, except as expressly stated herein, no representations have been made by seller, its agents or employees, in order to induce the purchaser to enter into this purchase agreement.").
The amended license agreement does not contain an express no-reliance clause, and the true-up does not generally disclaim reliance on prior oral representations. Rather, it is limited to the specific issue of the note's accounting of outstanding royalty payments. But that is the point: a claim of fraudulent inducement cannot be based on an alleged misrepresentation that is expressly disclaimed by the terms of the contract. The purpose of a fraudulent inducement claim is to permit a party to a contract to bypass the parol evidence rule and argue that the counter-party made a false oral representation that was not reflected in the contract itself. See Judson Atkinson Candies , 719 F.3d at 640 n.2. Here by contrast, the contract's express terms provide that Defendants agreed that the note amount accounts for any potential royalties owed. If the contract's express terms address the claim at issue, not even a fraudulent inducement theory permits the Court to look past the contract's express terms. This Court reached a similar conclusion in a previous case. See In re Kindra Lake Towing, L.P. , 2016 WL 3227303, at *2 (N.D. Ill. June 13, 2016) (finding that a contract provision which specifically agreed that no representation had been made on a certain issue (i.e., the "seaworthiness" of a ship) precluded a claim of reliance for purposes of a fraudulent inducement claim).
Defendants could have memorialized Ocean Tomo's representations about royalties in the contract, and then sued for breach of contract if those representations turned out to be false. Or, if Defendants were uncertain that the note reflected all royalties owing, and were in fact relying on Malackowski's oral representations, they could have signed the note but not included the true-up in the license agreement amendment, thereby preserving a fraudulent inducement claim. Instead, Defendants affirmed the truth of the facts (allegedly misrepresented by Malackowski) underlying the true-up provision and agreed that the amount of the note covered "any " royalties that might have been owing. This representation by Defendants serves to disclaim any reliance on prior representations by Ocean Tomo that might have otherwise formed the basis of a fraudulent inducement claim.
B. Fraud and Intent
In the alternative, even if the "true-up" did not disclaim reliance on representations regarding royalties owing, Defendants have failed to point to evidence indicating fraud or fraudulent intent sufficient to meet their burden. All three of Malackowski's alleged misrepresentations concerned Ocean Tomo's use of the PatentRatings system and royalties paid. For the Court to find that these statements were false, there must be clear and convincing evidence that Ocean Tomo intentionally failed to pay royalties on profits from client engagements that should have been royalty bearing; whether because the PatentRatings system was used by an Ocean Tomo group Barney understood was not using the PatentRatings system, or because Ocean Tomo hid the use of the PatentRatings system in some way and did not report the revenue to Defendants. But Defendants cite only eight engagements prior to the 2007 amendment on which they allege royalties were owed and not paid. See R. 430 at 7 (citing R. 419-10 (DX591) (Defendants' expert's demonstrative); R. 346 at 227 (2832:5-9) (DX591 shows the engagements "that still remain in the analysis from pre-2007 based on Mr. Barney's representation that they were not a part of his understanding of the true-up at the time") (expert testimony) ).
Ocean Tomo asserts that its total number of client engagements is 550. See R. 416 at 55. Even if only a portion of that 550 were active before 2007, eight is too small a percentage to indicate by clear and convincing evidence that Ocean Tomo intended to deceive Defendants about the royalty revenue they were owed.
Moreover, even assuming that Malackowski made the statements Barney attributes to him, Defendants have failed to produce any evidence that Malikowski knew the statements were false when he made them. The only evidence Defendants cite on this point are ten lines of Malackowski's trial testimony about the relationship between Ocean Tomo's "Expert Testimony" and "Valuation" groups. See R. 412 at 57-58 (citing R. 386 at 187 (3569:4-13) ). The parties hotly contest the relationship between the "Expert Testimony" and "Valuation" groups and whether the use of the PatentRatings system by one or the other violates the license agreement. The Court addresses below whether Ocean Tomo's interpretation and application of the royalty provisions in the license agreement constitutes a breach of contract. But merely identifying a dispute about contractual terms does not demonstrate fraudulent intent by a preponderance of the evidence, let alone the clear and convincing evidence standard applicable here.
Lastly, to the extent Defendants contend that certain use of the PatentRatings system after execution of the 2007 amendment and note demonstrates that Malackowki's alleged statements were false, the Court rejects this reasoning. The alleged misrepresentations are retrospective. The 2007 amendment sets forth new provisions regarding royalty-bearing use of the PatentRatings system. Even if Barney believed that Malackowski's statements were intended to explain the intent of the parties behind the 2007 amendment, royalty payments after the 2007 amendment were controlled by the amendment's express terms. Royalty payments governed by the 2007 amendment cannot be evidence of whether a statement about royalty payments made before the 2007 amendment were false.
For these reasons, the Court finds for Ocean Tomo on Defendants' fraudulent inducement claim.
II. Breach of the License Agreement: Royalties
Defendants claim that Ocean Tomo failed to pay royalties in violation of the license agreement by: (1) improperly determining that only a percentage of certain client revenues were attributable to use of the PatentRatings system and paying royalties only on that lesser amount-what the parties have referred to as "split billing"; and (2) improperly categorizing some uses of the PatentRatings system as non-royalty-bearing because they did not "facilitate" the client deliverable that generated the revenue. On the assumption that Defendants' interpretation of the royalty provision in the 2007 amendment is correct, Defendants' expert found $ 3,692,388 royalties "owing," with $ 1,647,975 "payments received," leaving a deficiency of $ 2,044,413. R. 411-146 at 20. Ocean Tomo argues that the expert's opinion is faulty because: (1) the expert improperly included royalties incurred prior to the 2007 note and "true-up"; (2) Defendants' interpretations of the royalty provision in the 2007 amendment are incorrect; and (3) the expert improperly included royalties incurred after December 2012 when Ocean Tomo first asserted that the patents underlying the PatentRatings system are invalid.
The 2007 amendment requires Ocean Tomo to pay royalties in the amount of:
(a) 25% of any revenues ... actually collected by [Ocean Tomo] solely from External Data Sales ...; and
(b) 13.25% of any revenues ... actually collected by [Ocean Tomo] solely from External Data Usage ....
R. 412-3 at 2 (§ 4.5). "External Data Sales" and "External Data Usage" are defined terms that describe different ways Ocean Tomo might use the PatentRatings system to serve clients:
"External Data Sales" means any sale of PatentRatings Analysis by [Ocean Tomo] such as in the form of patent due diligence reports, patent score reports, patent scores, research maps, automated reports, data subscriptions, equity research reports or the like that are actually delivered to [Ocean Tomo's] external clients or customers. For the avoidance of doubt, "External Data Sales" shall not mean the internal use of PatentRatings Analysis by [Ocean Tomo], even if such internal use facilitates the provision or sale of consulting, auction or other services or products to [Ocean Tomo's] clients or customers.
"External Data Usage" means any usage or inclusion of PatentRatings Analysis or any derivative thereof by [Ocean Tomo], which facilitates the provision of information or reports actually delivered to [Ocean Tomo's] external clients or customers as part of [Ocean Tomo's] consulting services such as currently used by its practice unit presently known as the "Analytics Practice Group." For the avoidance of doubt, "External Data Usage" shall not mean the internal use of PatentRatings Analysis such as currently used by [Ocean Tomo] as part of its services presently known as Expert Services, Appraisals, Investments, Risk Management, and/or Corporate Finance. For the avoidance of doubt, "External Data Sales" shall not include [Ocean Tomo's] Analytics services directed towards tax advice, general strategy advice or similar advice that does not report, rely on nor consider PatentRatings Analysis.
R. 412-3 at 2 (§ 4.5) (emphasis added).
A. Split Billing
Ocean Tomo contends that the term "solely from" permits it to split revenue into that which is "solely from" External Data Sales or External Data Usage, and thus is royalty-bearing, and that which is derived from Ocean Tomo's work that did not involve the PatentRatings system, and thus is not royalty-bearing. Defendants, by contrast, argue that "the total revenue collected from a client engagement involving an External Data Sale [or]
an External Data Usage" is royalty-bearing. R. 412 at 40. The Court disagrees with Defendants' interpretation of this provision, as it is at odds with the plain language of the agreement.
Defendants argue that the words " 'solely from' ... convey only that 'External Data Sales' and 'External Data Usage' are mutually exclusive," and they "do not support dividing engagements into royalty-bearing and non-royalty-bearing portions." R. 430 at 25-26. But the word "solely" is not necessary to establish the "mutual exclusivity" of "External Data Sales" and "External Data Usage." That they are mutually exclusive is readily apparent because they are defined terms in the agreement. The provision could have omitted the word "solely" and simply provided that royalties are a percentage of revenue "from External Data Usage" and "from External Data Sales," and achieved the same expression of "mutual exclusivity." Since it was unnecessary to use the word "solely" to express the "mutual exclusivity" of the definitions, the word "solely" must have some more substantive meaning to the terms of the contract. Otherwise, the word "solely" is surplusage.
Defendants also argue that the "broad" language used in the definition of "External Data Usage" indicates that royalties are intended to be "based on the revenues for the entire engagement." R. 412 at 41. But to the extent the language in the definition of "External Data Usage" can be characterized as "broad," it does not refer to the portion of revenue that is royalty-bearing. Rather, the definition of "External Data Usage" is focused on the type of client deliverable that is royalty-bearing-i.e., certain "information or reports actually delivered to ... external clients." R. 412-3 at 2. The definition does not address whether the total revenue from a client engagement involving a client deliverable that meets the definition of "External Data Usage" is royalty-bearing, or whether only the portion of the revenue directly attributable to "External Data Usage" client deliverable generates royalties.
Defendants argue further that Ocean Tomo's interpretation of the royalty provision cannot be correct because "the 2007 [license agreement amendment] contains no provision on how to determine what subset of revenue collected from a client engagement is subject to a royalty." R. 412 at 41. Defendants point out that "the words 'subset,' 'apportion,' 'divide,' 'separate,' 'portion,' 'split,' or 'rate card,' do not appear anywhere in the contract." Id. This may be true. But, in a provision the parties do not address, the 2007 amendment gives Ocean Tomo the discretion "to charge reasonable fees to its clients and customers for access and use of PatentRatings Analysis." R. 412-3 at 1 (§ 4.2). That section of the 2007 amendment provides further that "[s]uch reasonable fees will be no less than the lowest fee charged by [Ocean Tomo] for the same or similar products or services." Id. This provision makes it clear that Ocean Tomo had discretion (within certain parameters) to set the price charged for use of the PatentRatings system in client engagements. The Court sees no reason why these prices should not be understood to corollate to the revenue collected "solely from" "External Data Sales" or "External Date Use." Thus, while Defendants may be correct that the license agreement does not establish a detailed plan for apportioning royalty-bearing and non-royalty-bearing revenue, it addresses such apportionment through the parameters placed on Ocean Tomo's discretion to price the use of the PatentRatings system in client engagements.
Lastly, Defendants argue that Ocean Tomo did not consistently follow its split billing practice, and that this is evidence that Ocean Tomo did not genuinely believe that the split billing practice was the proper interpretation of the contact. It is unnecessary to delve into this argument, however, because it is based on evidence beyond the express terms of the contract. It is only proper to consider such extrinsic evidence if the contract terms are ambiguous. The Court finds no such ambiguity. And in any event, an inconsistent course of conduct is unlikely to satisfy Defendants' burden of proof.
For these reasons, the Court finds that Ocean Tomo's split billing practice did not violate the license agreement.
B. "Facilitates"
The parties also dispute what type of use of the PatentRatings system is royalty-bearing. The provisions of the license agreement relevant to this dispute are the definitions of "External Data Sales" and "External Data Usage" cited above. See R. 412-3 at 2 (§ 4.5).
There can be no dispute that the express terms of the 2007 amendment provide that "External Data Usage" is "use" of the PatentRatings system which "facilitates the provision of information or reports ... [to] clients or customers." The parties dispute whether it is possible for Ocean Tomo to have used the PatentRatings system to create a client deliverable without that use "facilitating" the client deliverable. See R. 412 at 44-46; R. 416 at 47-49. Defendants argue that "any" use of the PatentRatings system during the course of a revenue-generating client engagement should be understood to have "facilitated" the generation of revenue from that engagement. See R. 412 at 45 ("Therefore, 'internal use' means use that is unrelated to a revenue-generating client engagement, such as for prospecting auction attendees, screening patents offered for sale, and preparing for televised interviews."). But this interpretation contradicts the definition's express terms. "External Data Usage" is "any usage ... which facilitates." Clearly, the definition is distinguishing between use that facilitates and use that does not facilitate. If the parties intended any use to be royalty-bearing they could have simply used the word "use" and not further narrowed the royalty-bearing use to use that "facilitates." Hence, Defendants' argument that revenue from any use is royalty-bearing is fundamentally at odds with the express terms of the 2007 amendment. This is a sufficient basis alone to reject this aspect of Defendants' claim and find for Ocean Tomo.
Even if it were necessary to further address Defendants' claim, investigation into the parties' intent regarding the meaning of the term "facilitate" does not change the outcome. Such investigation, of course, begins with the meaning of the word "facilitate." It is not defined in the license agreement. The Oxford English Dictionary defines "facilitate" to mean: "To make (an action, process, etc.) easy or easier; to promote, help forward; to assist in bringing about (a particular end or result)." See www.oed.com (last visited Mar. 14, 2019). But this dictionary definition is no help in determining, in this particular case, what "use" the license agreement envisions as "facilitating" a client deliverable. Thus, although the word "facilitate" has a commonly known dictionary definition, it is "susceptible to more than one meaning"-in other words, it is ambiguous-in the context of the license agreement. See Gallagher v. Lenart , 226 Ill.2d 208, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007). This ambiguity permits the Court to review "extrinsic evidence to ascertain the parties' intent." Id. Extrinsic evidence might include prior oral negotiation or subsequent course of conduct. See Air Safety, Inc. v. Teachers Realty Corp. , 185 Ill.2d 457, 236 Ill.Dec. 8, 706 N.E.2d 882, 885 (1999) ; Elda Arnhold & Byzantio, L.L.C. v. Ocean Atl. Woodland Corp. , 284 F.3d 693, 701 (7th Cir. 2002) ("When considering extrinsic evidence, the factfinder should focus, in descending order of importance, on: (1) the parties' negotiations over the contract at issue; (2) their course of performance; (3) their prior course of dealing; and (4) trade usage in the relevant industry.").
The evidence presented at trial on this issue consisted solely of Barney's and Malackowski's testimonies. Neither witness pointed to particular prior negotiations or subsequent course of conduct that would elucidate what the parties meant by "facilitate." Rather, each witness simply testified to their interpretation of the contract. Barney's testimony was particularly unhelpful because he asserted that "any" use constituted "facilitation." See R. 340 at 204-05 (1894:22-1895:2) (according to "the 2007 amendment .... if the engagement uses the PatentRatings analysis in any way, we get paid the [13.25] percent," including when an "IPQ score [is] slipped into this big report") (emphasis added); R. 342 at 115 (2074:9-15) ("facilitates" includes any use that generated revenues, and only excluded "internal use ... that doesn't result in direct revenues to Ocean Tomo but is merely ... marketing [etc.]"); R. 340 at 212 (1902:7-10) ("Let's just agree that we'll just set a flat rate and apply that rate to any engagement that uses, relies upon or, you know, considers the PatentRatings analysis.") (emphasis added); see also id. at 206-07 (1896:13-1897:3); R. 389 at 43-45 (4132:23-4134:14). As discussed, this is an interpretation contrary to the contract's express terms which the Court rejects.
Although Malackowski's testimony concurred with the Court's finding that not all "use" constitutes "facilitation," his testimony also offered no help in determining which uses in particular constitute "facilitation." See, e.g. , R. 386 at 240-41 (3449:16-3450:11). Nevertheless, the Court found Malackowski's description of the impractical economic consequences of Defendants' interpretation of the royalty provision to be credible and persuasive. According to Malackowski, paying PatentRatings 13.25% of the revenue from an entire engagement would amount to about "half" of the profit margin, which he described as "economic suicide." See id. at 241 (3450:8-11). In light of this entirely reasonable testimony regarding the economics of the business, Barney's testimony appears even more self-serving and less credible.
Defendants concede that, considered in isolation, their interpretation of "facilitation" puts Ocean Tomo in a difficult economic position. They argue, however, that Ocean Tomo's association with PatentRatings produced "tens or hundreds of thousands of dollars" of revenue "at little or no expense," and generated valuable, but "less easily measurable ... publicity" which was recovered through royalties. R. 412 at 45-46. It is plausible that Ocean Tomo might have considered the value of its relationship with PatentRatings in this way and baked it into the royalty rates. But the Court finds it unlikely that such a consideration would go unmentioned in the agreements establishing the parties' business relationship. For what is a relatively simple licensing agreement and partnership, Ocean Tomo and PatentRatings signed many detailed agreements. If the publicity and high revenue produced with low expenses generated by PatentRatings were a consideration, the Court would expect to see it in the license agreement.
At bottom, the Court does not believe that Ocean Tomo would have agreed to pay such a high royalty rate for the totality of the engagement fee on "any" use of the PatentRatings system, even if the use was minimal or incidental. For these reasons, the Court finds that Defendants have failed to meet their burden of proof, and so Court must find for Ocean Tomo on this aspect of Defendants' claim for breach of the license agreement.
C. Pre-2007 Amendment: The Note and True-Up
In addressing Defendants' fraudulent inducement claim, the Court has already explained that the "true-up" served to disclaim any unpaid royalties incurred prior to the execution of the 2007 amendment and note. For this reason, any such royalties should not have been included in the expert's damages calculation.
* * * *
Therefore, for these reasons discussed in the forgoing sections II.A, II.B, and II.C, the Court finds that Defendants have failed to prove their claim for breach of the license agreement and for unpaid royalties by a preponderance of the evidence.
D. Post-December 2012 Royalties
Ocean Tomo argues that the relevant patents are invalid so that it does not have to pay royalties after December 2012 when it first raised the invalidity defense. Defendants of course dispute this claim and argue that the parties' contract is not merely a patent license-which invalidity would undermine-but a contract for use of the PatentRatings system, which is not dependent on the validity of the associated patents. See R. 420 at 65-67.
The Court's finding for Ocean Tomo on Defendants' claim for breach of the license agreement changes the posture of Ocean Tomo's invalidity defense. It is unnecessary for the Court to reach the issue of patent validity as a defense to Defendants' particular arguments because the Court has rejected them on the merits.
It would be necessary to address Ocean Tomo's invalidity defense if Defendants alleged that Ocean Tomo failed to pay royalties for reasons other than the parties' disputes over the proper interpretation of the license agreement's royalty provisions. Of particular concern to the Court with respect to the need to address the invalidity defense, is the possibility that Ocean Tomo stopped paying royalties altogether at some point as an aspect of this litigation. In such a scenario, the Court's rejection of Defendants' interpretation of the royalty provisions would not necessarily absolve Ocean Tomo of the obligation to make up those payments, in which case it would be necessary to address Ocean Tomo's invalidity defense. But according to Defendants' expert's report, Ocean Tomo continued to make royalty payments through the time during which Defendants allege Ocean Tomo earned royalty-bearing revenue. The report shows that Ocean Tomo last incurred royalties in the quarter ending in April 2016. See R. 411-135 at 4. (Some of these royalties might be rejected in accordance with the Court's interpretation of the royalty provisions. Nevertheless, this is the last time period for which Defendants seek royalties.) The report also shows that Ocean Tomo paid royalties the following quarter ending in July 2016. See id. at 5. In other words, Defendants do not claim that any royalties accrued after Ocean Tomo's last royalty payment. On the basis of this analysis, the Court understands that Defendants do not seek any unpaid royalties that are not within the scope of the Court's rejection of Defendants' interpretation of the royalty provisions in the license agreement.
Additionally, Defendants' expert conceded that if the Court rejected Defendants' interpretation of the royalty provisions the remaining royalties accrued would be approximately $ 1.33 million. See R. 434-47 at 1 (line A). Defendants' expert also determined that Ocean Tomo paid royalties of approximately $ 1.64 million. See R. 411-135. In other words, with the Court rejecting Defendants' claim for breach of the license agreement, Defendants' expert report shows that Ocean Tomo has over-paid royalties. The only reason to address Ocean Tomo's patent validity defense would be to save it from liability for unpaid royalties. Since the Court has determined (using Defendants' calculations) that no royalties are unpaid, it is unnecessary to determine whether the patents at issue are valid.
E. OPERS
Defendants' arguments for breach of the license agreement addressed above in sections II.A-D were generally relevant to multiple client engagements. In addition to those generally applicable arguments, Defendants argue that Ocean Tomo failed to pay royalties for one client engagement-an entity known as OPERS-in violation of the license agreement for reasons particular to that engagement. Unlike the generally applicable arguments, Defendants do not claim that Ocean Tomo misinterpreted the license agreement's royalty provision with respect to OPERS. Rather, Defendants contend that Ocean Tomo incorrectly determined that the OPERS engagement was covered by a different royalty provision in the supplemental license agreement, and so did not pay royalties under the license agreement for that reason.
To address this argument, it is necessary to understand the relationship between the license agreement, the supplemental license agreement, and the 2007 amendment to the license agreement. The original 2004 license agreement included a carve-out for rights PatentRatings had previously granted to a company called Rosebay, of which Barney is the majority owner. See R. 345 at 96 (2452:21). That carve-out consisted of an agreement by Ocean Tomo not to use the PatentRatings system "to conduct or assist others to conduct securities pricing analysis of any publicly held companies or to buy or sell securities in any publicly held companies for its own accounts or the accounts of others based thereon." R. 403-9 at 4 (§ 3.2(c) ). The rights to those uses were reserved to Rosebay.
In 2006, Rosebay agreed to "ease the restrictions on [Ocean Tomo]" intended to protect Rosebay's rights. See R. 403-13 at 1 (preamble). This allowed Ocean Tomo and PatentRatings to enter a supplemental license agreement permitting Ocean Tomo to use the PatentRatings system for the uses that had previously been prohibited by the carve-out in the license agreement. The supplemental license agreement defined these newly permitted uses as: "creating or managing public securities investment funds and accounts for Persons; or creating or managing a public stock index; selling securities-related information to third-party investment analysts; and generally engaging in the buying, selling and trading of any security." Id. at 2 (§ 1, definition of "OT Near Exclusive Field of Use"). The supplemental license agreement included a royalty provision that specifically applied to these uses of the PatentRatings system.
The next year, when Ocean Tomo and PatentRatings amended the license agreement, they apparently sought to acknowledge the separate royalty provision in the supplemental license agreement for uses that had previously been reserved to Rosebay by the carve-out. To that end, they included a section in the amendment providing "that the accumulation and payment of royalties owing to [PatentRatings] as a result of any and all revenue generated by [Ocean Tomo] or its Affiliates from using PatentRatings Analysis to engage in the buying, selling and trading of any securities is governed by the [supplemental license agreement]." R. 412-3 at 2 (§ F (4.7) ) (emphasis added).
Defendants focus on this language in the 2007 amendment to argue that since the OPERS engagement did not involve Ocean Tomo buying, selling, or trading securities, it is governed by the license agreement, not the supplemental license agreement. See R. 412 at 50. The problem with Defendants' argument is that the 2007 amendment incompletely describes the scope of the supplemental license agreement. The 2007 amendment notes that royalties from buying and selling securities are covered by the supplemental license agreement. This is true. But the scope of the supplemental license agreement (and hence the reach of its royalty provision) is broader. As reviewed above, the supplemental license agreement also covers "selling securities-related information to third-party investment analysts." It makes sense for the supplemental license agreement to have such a scope, since the intention of the agreement was to fill the Rosebay carve-out in the original license agreement, which had prohibited Ocean Tomo from using the PatentRatings system both (1) to "conduct securities pricing analysis," and (2) to "buy or sell securities in any publicly held companies." Since it is only under the terms of the supplemental license agreement that Ocean Tomo can use the PatentRatings system for the former-i.e., to conduct securities analysis-it makes sense that any royalties owed for that kind of use of the PatentRatings system are governed by the supplemental license agreement.
Ocean Tomo argues further that the OPERS engagement falls squarely within the supplemental license agreement's scope covering "selling securities-related information to third-party investment analysts." Ocean Tomo relies on the OPERS engagement letter which describes the service to be provided as "provision of information pertaining to investment strategies." R. 411-65 at 2 (p. 1, preamble). There can be no genuine dispute that the service described in the OPERS engagement letter constitutes "selling securities-related information to third-party investment analysts," which is covered by the supplemental license agreement. Therefore, Ocean Tomo's failure to pay royalties under the license agreement (as amended) is not a violation of the license agreement, and Defendants' claim for breach of the license agreement on the basis of the OPERS engagement fails.
III. The NTT Deal
Defendants and Ocean Tomo accuse each other of tortiously interfering with the NTT deal. Ocean Tomo also claims that Barney's conduct with respect to NTT breached (1) his employment contract with Ocean Tomo and (2) his fiduciary duty to Ocean Tomo.
The NTT deal concerned use and sub-licensing of the PatentRatings system. The parties' rights to the PatentRatings system are governed by the license agreement. The license agreement distinguishes between the rights to what are defined as "PatentRatings Tools" and "PatentRatings Analysis." "PatentRatings Tools" means the:
technology, know-how, software (computer algorithms, techniques, for statistically analyzing, rating, mapping and valuing patents and/or other intellectual property assets, and including any documentation and research relating to such software) and other ... intellectual property [owned by PatentRatings] relating to the foregoing (including the PatentRatings Patents, PatentRatings Copyrights and PatentRatings Marks).
R. 403-9 at 3 (§ 1.11). "PatentRatings Analysis" is:
any information or report including or using the data output of one or more PatentRatings Tools, including patent rating reports ..., portfolio mapping analysis, strategic analysis and recommendations, and patent valuation.
R. 403-9 at 2 (§ 1.7). The license agreement further provides that PatentRatings Analysis:
shall not include delivery or sublicensing of the PatentRatings Tools, including any formulas, software or algorithms, nor shall it include delivery or sublicensing of all or substantially all of the data underlying or produced by the PatentRatings Tools.
Id.
PatentsRatings licensed different rights to Ocean Tomo with respect to "PatentRatings Analysis" and "PatentRatings Tools." PatentRatings granted Ocean Tomo:
a limited exclusive ... worldwide ... license to:
(a) reproduce, install, and use the PatentRatings Tools and Improvements at Licensed Sites for [Ocean Tomo's] internal use only and for the other uses expressly permitted herein, and
and
(b) distribute, sell, license or other [sic] transfer for use (or offer to sell, license or otherwise transfer for use), and display PatentRatings Analysis to third parties for a fee.
R. 403-9 at 3-4 (§ 3.1). The rights to PatentRatings Tools are limited:
The licensed rights granted above under [section (a) ] shall be exclusive to [Ocean Tomo] ... for the specific business of IP Merchant Banking ....
"IP Merchant Banking" means merchant banking services with intellectual property being the secured or target asset underling one or more merchant banking services ....
Id. at 4 (§ 3.1) and 2 (§ 1.4). The rights to PatentRatings Analysis are also limited:
The licensed rights granted above under [section (b) ] shall be exclusive to [Ocean Tomo] ... for the unique products and services developed by or for [Ocean Tomo] incorporating PatentRatings Analysis.
Id. at 4 (§ 3.1). The license agreement further limits the rights in general:
neither [Ocean Tomo], nor any Affiliate of [Ocean Tomo], will make, cause to be made, or assist others to make any statistical patent analytics tools, patent ratings or associated products that are derivative of, or substantially similar to the PatentRatings Tools or the PatentRatings Analysis.
Id. at 7 (§ 6.1). Additionally, the agreement prohibits Ocean Tomo from sublicensing its rights without PatentRatings's consent. See id. at 4 (§ 3.2(a) ).
A. Ocean Tomo's Claims
1. Tortious Interference
Tortious interference requires a plaintiff to prove by a preponderance of the evidence: "(1) a reasonable expectancy of entering into a valid business relationship, (2) the defendant's knowledge of the expectancy, (3) an intentional and unjustified interference by the defendant that induced or caused a breach or termination of the expectancy, and (4) damage to the plaintiff resulting from the defendant's interference." Adelman-Reyes v. St. Xavier Univ. , 500 F.3d 662, 667 (7th Cir. 2007) (quoting Anderson v. Vanden Dorpel , 172 Ill.2d 399, 217 Ill.Dec. 720, 667 N.E.2d 1296, 1299 (1996) ). Ocean Tomo contends that Barney intentionally interfered with the NTT deal by (1) telling NTT that Ocean Tomo had no right to develop a Japanese patent ratings system, and (2) negotiating a sublicense from PatentRatings to NTT excluding Ocean Tomo. See R. 414 at 65. Ocean Tomo argues that Barney's actions "cannot be justified as reasonable in light of the [license agreement]," which gives Ocean Tomo "broad worldwide exclusive rights." Id.
Ocean Tomo's argument is undermined by its concession that it "is not allowed to sublicense the PatentRatings Tools to a third party." R. 414 at 6. Presumably for that reason, from the beginning of the NTT deal negotiations, the parties contemplated that PatentRatings would have to be a party to the deal with NTT because it involved licensing of PR Tools. See R. 411-198 at 1 ("including know-how"). There is no dispute that Barney, as the owner of PatentRatings, was involved in the negotiations with NTT from the beginning. Ocean Tomo claims that Barney "raised issues that frustrated the process." R. 414 at 26 (¶ 129). But these issues concerned Barney's willingness to make an agreement with Ocean Tomo to sublicense to NTT. The license agreement provided Barney the right not to agree. (As will be discussed below, the Court rejects Ocean Tomo's argument that Barney's status as an Ocean Tomo officer imposed upon him a fiduciary duty to agree.)
Ocean Tomo frequently emphasizes that it had an "exclusive, world-wide" license, but ignores the fact that its license for PatentRatings Tools is limited to "internal use" and does not permit it to provide PatentRatings Tools to third parties. Presumably PatentRatings retained the right to determine who licenses PatentRatings Tools and on what terms. In light of this right, Ocean Tomo never explains why it was impermissible for Barney to engage with NTT about the terms of a deal that required licensing use of PatentRatings Tools-especially in the context of Ocean Tomo's prior and related negotiations.
Ocean Tomo argues that the supplemental license agreement extended its PatentRatings license to its "affiliates," which would include the joint venture entity it intended to form with NTT. Maybe so. But Ocean Tomo does not contend that the deal with NTT would have made NTT an affiliate. And to the extent Ocean Tomo intended to u