Opinion
Case No. 99-CV-75354
December 9, 2002
I. Introduction
This is a breach of contract and patent case, which the Court has previously described as "imaginatively pled and defended" and which has generated a considerable amount of paper. The motions to be described are no exception. In its present configuration, plaintiffs, Venture Industries Corp., (Venture), Vemco, Inc., Patent Holding Company, and Larry J. Winget (collectively, Venture) are suing defendants, Autoliv, ASP, Inc. (Autoliv, ASP), Autoliv, Inc. (Autoliv) (collectively, defendants) for actions arising out of a 1995 settlement regarding a dispute involving the manufacturing and supply of particular air bag covers, as well as the ownership and use of patents for air bag covers.
The defendants in this case have changed over time. Venture also sued Morton International, Inc. (Morton), however, the Court dismissed it as a party by order dated May 31, 2002. The Court dismissed Autoliv, Inc. as a party on May 31, 2002, but reinstated it by order dated November 29, 2001.
On February 16, 2000, Venture filed a First Amended Complaint asserting the following claims: (1) fraudulent inducement and misrepresentation; (2) breach of contract; (3) termination and cancellation of contract; (4) accounting; (5) correction of inventorship; (6) declaratory judgment of patent unenforceability; (7) declaratory judgment of equitable license; (8) declaratory judgment of patent infringement; (9) misappropriation of trade secrets; (10) unjust enrichment; and (11) unfair competition. The general thrust of the complaint is that defendants materially breached the settlement agreements failing, inter alia, to allow Venture to quote or meet target prices on defendants' air bag cover business, both domestically and abroad, and that defendants awarded air bag cover business to other suppliers, have failed to pay Venture royalties, and have improperly used Venture's patented air bag technology.
After a series of motions to dismiss filed by defendants, the Court dismissed Count 1, combined Count 2 with Count 3, and stayed Counts 5, 6, 7 and 9 (the patent claims) pending arbitration. Thus, the only counts remaining and not stayed are:
(2) breach of contract
(4) accounting
(8) declaratory judgment of patent infringement
(9) misappropriation of trade secrets
(10) unjust enrichment
(11) unfair competition
Now before the Court are defendants' motion to dismiss Count 10 and defendant's motion to dismiss Count 11, filed separately. For the reasons which follow, the motions are DENIED WITHOUT PREJUDICE.
II. Factual Background A. Events prior to 1995
Morton was a "tier one" supplier of supplemental restraint systems, i.e. air bag systems, to the automotive industry. Venture is a custom molder of plastic products, including air bag covers, and is known as a "tier two" supplier of components for air bag systems. In March of 1990, Morton solicited Venture to assist in designing and manufacturing air bag covers, including the development of a thermoplastic molded air bag cover. Venture developed the thermoplastic molded air bag cover (hereinafter referred to as air bag covers) as requested. Morton apparently indicated its willingness to enter into a multi-year purchase order with Venture for the air bag covers, but apparently reneged on promises to Venture. Morton applied for several patents regarding air bag technology.
As explained more fully below, Morton has been restructured; Morton's automotive safety products division was spun off and eventually became Autoliv.
B. The 1995 lawsuit and settlement 1.
On March 30, 1995, Venture sued Morton, asserting claims for (1) correction of inventorship, (2) patent invalidity and enforceability, (3) misappropriation of trade secrets, (4) unjust enrichment, (5) breach of contract, and (6) fraud, and (7) unfair competition. On May 10, 1995, Morton asserted a counterclaim for declaratory judgment, claim and delivery, and other relief. This action will be referred to as the 1995 lawsuit.
This case was styled Venture Ind. Corp. v. Morton International, Inc., 95-CV-71521.
2.
On December 31, 1995, Venture and Morton settled their dispute by signing several documents, including a Settlement Agreement And Mutual General Release, a Supply Agreement, and a Cross-License Agreement (collectively referred to as the Settlement Contract). The Cross License Agreement and the Supply Agreement were attached as Exhibits A and B, respectively, to the Settlement Agreement. The relevant portions of the Settlement Contract will be set forth, infra. As part of the Settlement Contract, Morton paid Venture approximately $350,000 as "Settlement of Past Due Sums." Thereafter, Venture sold air bag covers to Morton as provided in the Supply Agreement and the parties used the air bag technology as permitted under the Cross-License Agreement.
C. The restructuring of Morton
After the Settlement Contract, Morton began restructuring by (1) creating a new company called New Morton International, Inc., (New Morton), and (2) transferring its salt and specialty chemical business plus $750,000 to New Morton, (3) exchanging shares of Morton for New Morton on a one-to-one basis, and (4) renaming New Morton as Morton International, Inc.
In 1996, Morton (which now consisted mainly of its automotive safety products division) merged with Autoliv AB, a Swedish company. Defendant Autoliv, Inc. is the successor company of that merger. The automotive safety products division was spun off to a subsidiary, defendant Autoliv, ASP.
E. The fall-out after the Settlement Contract
On August 10, 1999, Venture, through counsel, sent a document entitled Notice to Void, Nullify and Terminate Agreement to Autoliv, ASP. The document generally states that Morton, and its successors, Autoliv, ASP, materially breached the provisions of the Settlement Contract and demands that Autoliv, ASP (1) cease and desist from using any or all of the patents or other intellectual property rights of Venture; (2) that Autoliv ASP notify Venture of its unconditional agreement to pay Venture certain said amounts for each air bag cover sold. The document also states that Autoliv, ASP has breached the Settlement Contract and lists various grounds, which include failing to follow the bidding and award process and failing to reimburse Venture for material changes required for various orders. The document states that the Settlement Contract is was void, nullified, and terminated as of May 1, 1997.
F. Venture's lawsuit
On November 3, 1999, Venture filed a complaint against defendants regarding the 1995 Settlement Contract. On February 16, 2000, Venture filed its First Amended Complaint, noted above.
III. Motion to Dismiss
When analyzing a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court must take a plaintiff's well-pleaded allegations as true. Miree v. DeKalb County, 433 U.S. 25, 27 n. 1 (1977). "[W]hen an allegation is capable of more than one inference, it must be construed in the plaintiff's favor." Sinay v. Lawson Sessions Co., 948 F.2d 1037, 1039-40 (6th Cir. 1991). "A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984).
IV. Analysis A. Count 10 — Unjust Enrichment 1. Parties' arguments
Defendants argue that count 10 is preempted by federal patent law and precluded by the parties' express contract and the Michigan Uniform Trade Secret Act (UTPA). Venture is essentially claiming that defendants have unlawfully used technology belonging to Venture. Thus claim therefore rests on a determination of who owns the technology. Questions of inventorship and ownership are expressly reserved for the patent law aspect of this case. Moreover, to the extent that Venture is claiming that Autoliv ASP unlawfully used Venture's technology, their only remedy is for breach of contract. Finally, to the extent that Venture claims that Autoliv ASP or Autoliv, Inc. unlawfully used or disclosed trade secrets in using the technology, Venture's sole remedy is under Count 9 — misappropriate of trade secrets.
Venture argues that defendants misunderstand the scope of its unjust enrichment claim — the claim includes defendants' unjust enrichment by use of Venture's unpatented technology. Moreover, defendants' motion is not ripe until the arbitrators have determined the scope of the patents at issue. Venture also says that the technology at issue is numerous trade secrets and confidential techniques that have not been patented. State law remedies, such as unjust enrichment, for misuse of trade secrets are not displaced by patent law. Finally, the unjust enrichment claim is not precluded by UTPA as the conduct at issue occurred before its effective date. It is also not precluded by the Cross-License Agreement because Venture is entitled to alternative pleading.
2. Conclusion
The real problem here is that Venture has not pled this claim with the particularly necessary for the complex nature of this case. Venture's unjust enrichment claim reads in toto:
The Autoliv Defendants have received a benefit from VENTURE by access to an commercialization of the new technology created by VENTURE in development of the thermoplastic molded and painted air bag cover, including substantial cost savings accruing from the conversion of the air bag covers from urethane RIM molding to thermoplastic injection molding.
Defendants are correct that to the extent that Venture is asserting a claim for unjust enrichment for the "new technology" that is patented, such a claim must be dismissed in favor of the patent laws. See Bonito Boats, Inc. v. Thunder Craft Boats, 489 U.S. 141, 167 (1989). Defendants are also correct that Venture's claim is encompassed within Count 9 — misappropriation of trade secrets. Venture's argument that defendants' use of the trade secrets also constitutes unjust enrichment is simply duplicative to its claim for misappropriation of trade secrets.
However, Venture's argument that the motion is premature because the scope of the patents has yet to be determined in arbitration has some merit. This argument presupposes three categories of claims:
1. TRADE SECRET CLAIM
2. PATENT CLAIM
3. UNJUST ENRICHMENT CLAIM
The question is what part of the technology outside of trade secrets and related to unpatented technology, if anything, is left to the realm of unjust enrichment? This can only be determined after the patent claims, including issues of inventorship and enforceability, are resolved. If the patents are not owned by Venture and/or are determined to be unenforceable, Venture presumably would be able to claim that defendants have been unjustly enriched by using the technology. However, at this time, Venture's unjust enrichment claim appears quite speculative.
Finally, defendants' arguments as to the application of UTPA and the existence of an express contract lack merit. UTPA, by its terms, does not in itself preclude a claim for unjust enrichment, a quasi-contract remedy. See M.C.L. § 445.1908(2)(a). Moreover, while the existence of an express contract precludes a claim for unjust enrichment, Venture is entitled to alternative pleading. Even though defendants admit to the existence of a contract [the Cross License Agreement], it has yet to be determined what is the scope of the contract, whether the contract is enforceable, and whether the contract has been breached.
In the end, the better course is to deny the motion to dismiss Count 10 without prejudice to the right to renew it following the completion of the patent arbitration. At that time, Venture must plead its unjust enrichment claim with more particularly.
B. Count 11 — Unfair Competition 1. Parties' Arguments
Defendants argue that Venture has not stated a claim for unfair competition because the complaint is devoid of any allegations of unfair competition. Venture does not allege that defendants interfered with its business relationship or otherwise unfairly competed. Venture simply alleged that defendants breached agreements and have failed to compensate it for the technology defendants incorporated into their own products. Defendants also argue that count 11 is redundant and should be dismissed under Fed.R.Civ.P. 12(f). Defendants further argue that count 11 is preempted by patent law or by UTPA.
Venture argues that defendants also misunderstand the scope of its unfair competition claim. Venture says that the complaint, with its attached documents, sets forth numerous instances of defendants' bad-faith dealing that comprise a deliberate pattern of unfair competition independent from patent law issues of ownership and infringement . . . Specifically, Venture says that its unfair competition claim is not based on patent infringement, "but rather on the facts surrounding Morton/Autoliv's conduct in not abiding by the 1995 Settlement Agreement." Venture goes on to say that Autoliv has a "long pattern of [I departures from `good faith and honest fair dealing'. . . through its misuse of the merger to obtain access to Venture's technology and the ensuing, intentional, bad faith non-performance under the Settlement Agreement, has wrongfully disseminated the benefits of venture's investment to the detriment of Venture's competitive position in the air bag cover business."
Venture further argues that the motion, as is the motion to dismiss Count 10, is premature because the scope of the patented technology has yet to be determined.
2. Conclusion
Venture's unfair competition claim reads in toto:
Plaintiffs adopts and incorporate by reference the aforestated allegation of the Complaint.
The conduct of the Autoliv Defendants, as pleaded herein, constitutes unfair competition under Michigan law.
The Autoliv Defendants are liable to plaintiffs for unfair competition.
Regardless of the merits of defendants' arguments, again the real problem is the lack of specificity. Simply incorporating the allegations in the complaint is not sufficient in a complex case such as this where there is an overlapping of claims. The claim, currently plead, is inadequate. Before the Court can make a determination of the viability of the claim, Venture must replead it with specificity. Venture's statements in its brief as to the scope of the claim do appear to overlap and be subsumed within its patent, breach of contract, and misuse of trade secrets claims. Unless Venture can convince the Court that its unfair competition claim relates to conduct that is truly distinct from the conduct which forms the basis of its other claims, the unfair competition claim is unlikely to survive.