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Rnc Systems, Inc v. Modern Technology Group

March 19, 2012

RNC SYSTEMS, INC., PLAINTIFF,
v.
MODERN TECHNOLOGY GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Jerome B. Simandle

OPINION

SIMANDLE, Chief Judge:

I. INTRODUCTION

This matter is before the Court on Plaintiff RNC Systems Inc.'s motion for partial summary judgment [Docket Item 91] and Counterclaim Defendant RNC Systems Inc.'s motion for summary judgment dismissing Counterclaim Plaintiff Modern Technology Group, Inc.'s counterclaims and third party complaint [Docket Item 94.] Opposition was filed to both motions and the court heard oral argument on February 6, 2012.

For the reasons discussed herein, the Court will grant Plaintiff RNC Systems Inc.'s motion for partial summary judgment as to the narrow legal issue of whether royalty payments were due under the parties' Licensing Agreement. The Court will also grant in part and deny in part Counterclaim Defendant RNC Systems Inc.'s motion for summary judgment dismissing the counterclaim and third party complaint.

II. BACKGROUND

The instant action arises from a Technology License and Service Agreement between RNC Systems Inc. ("RNC") and Modern Technology Group, Inc.'s ("MTG") which was entered into on December 6, 2003. (Pl.'s Ex. C)(hereinafter "License Agreement"). The Licensing Agreement involves two different technology products to be used in the limousine industry: "Limo Touch" and "Multiplex System." (License Agreement 1.9) Both technologies relate to the secondary power system added by limousine builders to provide power for additional components such as TVs, refrigerators, retractable dividers, sound equipment and decorative lighting.

Prior to the Limo Touch technology and the Multiplex System, a master control panel known as Mastrcon was developed in 1993 by Charles Dickens. (Pl.'s Ex. D, Deposition of Charles Dickens, "Dickens Dep.," at 44-45). MTG marketed and sold Mastrcon to the limousine industry and Dickens, through his company Mastrcon, Inc., manufactured the Mastrcon units, drop-shipped them as they were sold by MTG, and was responsible for any subsequent warranty and service issues. (Statement of Facts ¶ 9.)

In 2003, Tiffany Coach Works, Inc. ("Tiffany"), MTG's largest overall customer, was installing Mastrcon units in the limousines it manufactured. (Statement of Facts ¶ 10.) Tiffany introduced RNC to MTG in an attempt to have the two companies partner on the design, manufacture and sale of a new technology to replace Mastrcon. (Statement of Facts ¶ 13.) However, RNC and MTG could not reach an agreement. Thereafter, RNC continued to work on a design and prototype for Tiffany of a new technology. (Statement of Facts ¶ 14.)

In 2003, Tiffany provided RNC with funding to develop Limo Touch, a master control system that used new multi-layer printed circuit board technology. (Statement of Facts ¶ 11.) RNC successfully developed the Limo Touch technology in 2003. (Statement of Facts ¶ 11.) Limo Touch was developed to compete with and replace Mastrcon. (Statement of Facts ¶ 12.)

In December 2003, RNC and MTG were able to reach a consensus and executed the License Agreement at issue in this case. The License Agreement addresses two different technologies, the Limo Touch technology discussed above and a new technology still in development called Multiplex. At the time of the agreement, Eric Alpert, MTG's President, knew that Limo Touch had not yet been tested in the field. (Pl.'s Ex. E, Dep. of Eric Alpert, "Alpert Dep.," at 113-114). Alpert also knew that Multiplex, the new master control panel technology, was not developed when the License Agreement was executed. (Alpert Dep. at 113.) Despite the intention of the parties, Multiplex was never successfully developed by RNC.

In May, 2004, production of Limo Touch was transferred from RNC's facilities in California to MTG's facilities in New Jersey. (Statement of Facts ¶ 26.) MTG continued its distribution relationship with Mastrcon, Inc. through January 1, 2005, at which time it entered a Corporate Assignment Buy-Out and Employment Agreement with Mastrcon, Inc. and Charles Dickens. (Statement of Facts ¶ 28.) In January 2005, following MTG's buyout of Mastrcon, Inc., production of Mastrcon was transferred from Mastrcon, Inc.'s facility in Virginia to MTG's facility in New Jersey. (Statement of Facts ¶ 30.) Although MTG is seeking to design a replacement system, MTG continues to manufacture and sell Limo Touch and Mastrcon products. (Statement of Facts ¶ 33.)

During the past eight years, the parties have had regular disputes. (Statement of Facts ¶ 34.) RNC filed the instant action in February 2008. The Amended Complaint alleges claims for breach of contract, breach of good faith and fair dealing, fraud, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, and interference with prospective economic advantage against MTG and its President Eric Alpert. The Amended Complaint also seeks a declaration that the License Agreement is terminated. [Docket Item 6.] MTG filed a counterclaim and third party complaint. MTG alleges counterclaims for fraud in the inducement, breach of contract, and unfair competition in violation of the Lanham Act against RNC as well as fraud in the inducement and unfair competition in violation of the Lanham Act against Philip Franklin and Eric Campos, officers of RNC. MTG also seeks declaratory relief that the License Agreement remains in full force and effect. [Docket Item 22.]

III. STANDARD OF REVIEW

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is "material" only if it might affect the outcome of the suit under the applicable rule of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment will not be denied based on mere allegations or denials in the pleadings; instead, some evidence must be produced to support a material fact. Fed.R.Civ.P. 56(c)(1)(A); United States v. Premises Known as 717 S. Woodward Street, Allentown, Pa., 2 F.3d 529, 533 (3d Cir. 1993). However, the Court will view any evidence in favor of the nonmoving party and extend any reasonable favorable inferences to be drawn from that evidence to that party. Hunt v. Cromartie, 526 U.S. 541, 552 (1999).

Where the nonmoving party bears the burden of persuasion at trial, the moving party may be entitled to summary judgment merely by showing that there is an absence of evidence to support an essential element of the nonmoving party's case. Fed.R.Civ.P. 56(c)(1)(B); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

IV. RNC'S MOTION FOR PARTIAL SUMMARY JUDGMENT

A. Background

RNC's motion for partial summary judgment seeks damages for MTG's failure to pay royalties on its sale of the Limo Touch product from October 2008 to the present. RNC maintains that MTG's failure to pay royalties constitutes a breach of the License Agreement. The License Agreement provides definitions for "Licensed Products" and "Licensed Technology." The License Agreement also provides a provision for the payment and calculation of royalties. The parties dispute the interpretation of these definitions and their impact on MTG's obligation to pay royalty fees to RNC. The main provisions at issue state: 4.1. Royalty Payments. In consideration of the license rights granted by RNC to MTG hereunder, MTG shall pay to RNC for Licensed Products sold in the Territory within the Field, royalties of fifteen percent (15%) of Gross Revenues during each calendar month ("Royalties") payable within seven (7) business days after the end of such calendar month.

1.9. "Licensed Products" means products, also known as "Limo Touch", that incorporate, use or employ the Licensed Technology and that the manufacture, use, sale or other disposition of which would, but for the license granted hereunder infringe the Intellectual Property Rights or Know-How in Licensed Technology. The Parties agree that Licensed Products shall be limited to the following products:

(a) The existing RNC P9600 "Limo Touch" single-controller system and all it's developed control modules; and

(b) The Multiplex Controller Product currently under development, which is deemed by the Parties to be limited in scope to: (I) The Master Control Module; (ii) The Switched-Output Slave Modules; (iii) The HV AC (Fan) Slave Modules; (iv) The Audio-Video Power Slave Modules; and (v) Associated driver and passenger compartment control panels, whether based on capacitive sensing as the existing control panels in 1.9(a) above, or the anticipated graphics touch screen control panel products.

4.3. Minimum Guarantee Royalty Payment. From the beginning of the second year in this Agreement, MTG will guarantee a payment of Royalties in the amount of at least twelve thousand five hundred dollars ($12,500) per calendar month (the "Monthly Guarantee Royalty Payment"); provided, however, MTG's obligation to guarantee a payment of the Monthly Guarantee Royalty Payment is subject to (I) RNC's obligation to repay all Advanced Royalties paid by MTG to RNC, as set forth in Subsection

4.2(c), and (ii) MTG's sale of one thousand (1,000) units of Limo Touch systems per twelve (12) calendar months (with appropriate accounting done at the end of such twelve (12) calendar months period). (Pl's Ex. C., License Agreement.) RNC maintains that MTG was required to pay royalties for the sale of Limo Touch products pursuant to the express terms of the License Agreement.

MTG argues that it did not owe any royalties for selling the Limo Touch technology by narrowly reading the definition of Licensed Technology in Section 1.5 to exclude the Limo Touch product because the Limo Touch software does not relate to the Multiplex Modular System Technology. Section 1.5 states:

1.5. "Licensed Technology" means the RNC's proprietary electrical system relating to its Multiplex Modular System technology, including all Intel1ectual Property Rights inherent therein and appurtenant thereto and all associated Know-How, together with all Technology Updates provided to MTG hereunder and any Licensee Modifications to any of the foregoing. (Pl's Ex. C., License Agreement.) MTG argues that the Limo Touch product did not relate to the Multiplex system and does not contain intellectual property inherent or appurtenant to the Multiplex System. Therefore, MTG argues that the Limo Touch product is not "Licensed Technology" under the License Agreement.

MTG further points to the deposition of Philip Franklin, president of RNC, and characterizes Franklin's testimony as an admission that MTG did not owe royalty payments for the use of RNC's "Limo Touch" technology. (Def.'s Ex. C, Deposition of Philip Franklin, ("Franklin Dep.") at 79:6-83:12). The relevant portion of Franklin's deposition states:

Q. Would you agree with me that the license agreement is structured around the Multi-Plex or not? * * *

A. It isn't. It is, in my mind, structured around the 9600 line [Limo Touch], the single-piece controller and the Multi-Plex controller.

Q. Do you know what it is that you licensed to Mr. Alpert? Mr. Alpert's company [MTG].

A. From a legal standpoint or in general?

Q. No - well, whatever standpoint you want.

A. The Limo Touch name, the look and feel.

Q. The Limo Touch name, look and feel? That's what you licensed?

A. Yes, of the passenger panel.

Q. And you didn't license Multi-Plex?

A. Again from a legal standpoint, I don't know if you can license something that doesn't exist.

Q. Well, we're in a lawsuit. So what we have to do with, unfortunately, is legal definitions.

A. Well, let me ask it this way: If it had been produced, then yes, it would have been covered by the agreement, absolutely.

Q. But because it never was produced, it's not part of the agreement?

A. I don't know from a legal standpoint. I'm not an attorney.

Q. Well, but what I'm asking you is, what did you think that you licensed? And you told me, the look, touch, feel - Limo Touch look, touch, feel.

A. If we're still not talking from a legal standpoint, then I think we did license the single-piece controller, the single control board, and the Multi-Plex system.

Q. Do you know for sure whether or not that's what you licensed?

A. I believe we did, yes.

Q. You believe that's what you did?

A. Yes.

Q. Why do you believe that?

A. Because it's spelled out in the agreement.

Q. Where?

A. But again -Q. Show me. You got it. Show me.

A. 1.9 [of the License Agreement], I believe. A and B. * * *

Q. It says [reading]: Licensed products means products also known as Limo Touch that incorporate, use or employ the licensed technology and that the manufacture, use, sale and the disposition of which would, with the licensed granted hereunder, infringe the intellectual property rights or know-how of in-license technology. Do you see that sentence?

A. Yes. Q. Would you agree with me that 1.9 incorporates the definition of "licensed technology"?

A. Yes.

Q. Let's go up to Licensed Technology which is Paragraph

1.5.

A. Yeah.

Q. Licensed Technology [reading]: Means the RNC proprietary electrical system relating to its Multi-Plex modular system technology, including all intellectual property rights inherent herein and appurtenant thereto and all associated know-how together with all technology updates ...


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