Opinion
Civil Action No. 91-1720 (Ref: No. 04-1558) SECTION "L" (3).
December 22, 2004
ORDER REASONS
Pending before the Court is the Defendant Saucony's Motion for Summary Judgment Dismissing the Complaint. The matter came before the Court with oral argument on December 8, 2004, at 9:00 a.m. For the following reasons, the Motion for Summary Judgment is GRANTED in part and DENIED in part.
I. BACKGROUND
Plaintiff, Hockerson-Halberstadt, Inc. ("HHI") originally filed suit in May 1991 alleging patent infringement against Nike, Reebok, and various other footwear companies and distributors. Hyde Athletic Industries ("Hyde"), now known as Saucony, Inc., was named as a defendant in that suit. In December 1991, HHI and Hyde entered into a Patent License Agreement settling the patent infringement claims against Hyde and granting Hyde a license under United States Letters Patent Nos. 4,322,895 and 4,259,792. The license provides:
commencing with, but not before the date upon which a final judgment holding one or more claims of the HHI PATENTS valid, is entered from which no appeal has been taken in the CIVIL ACTIONS HYDE shall pay HHI, as a royalty, $0.25 (twenty five cents) for each pair of shoes that would otherwise infringe either or both of the HHI PATENTS.
Saucony admits that it has not paid any royalties to HHI since this License Agreement was instituted. On June 3, 2004. Plaintiff Hockerson-Halberstadt, Inc. ("HHI") brought this action against Defendant Saucony for declaratory relief, breach of contract, and patent infringement. This case was consolidated with lead case, #91-1720.
HHI's declaratory judgment action is based on a Consent Decree entered on January 30, 1992, dismissing the patent infringement actions against HHI and Nike. HHI seeks a declaration that the January 30, 1992 Consent Decree is a final judgment that satisfies the suspensive condition set forth in the Patent License Agreement with Hyde. The breach of contract claim hinges on the outcome of the declaratory judgement action. If the suspensive condition in the license agreement was satisfied by the consent decree, then HHI claims that Hyde breached the Patent License Agreement by not paying royalties to HHI. Lastly, HHI argues in the alternative, that the Defendant is liable for patent infringement because the license agreement was forfeited by the Defendant's refusal to pay royalties. Saucony responded to HHI's complaint by filing a counterclaim asserting that HHI breached the Patent License Agreement by failing to provide Saucony with a copy of each license that HHI entered into with third parties.
II. DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Defendant Saucony moves for summary judgment pursuant to Federal Rule of Civil Procedure 56. The Defendant argues that HHI's breach of contract claim is barred by the ten-year prescriptive period set forth in Louisiana Civil Code Article 3499 because the royalties became due on July 31, 1993 and HHI did not file its breach of contract complaint until June 3, 2004. The Defendant also claims that HHI's patent infringement claim is barred by the license agreement. Finally, because HHI's breach of contract and patent infringement claims are barred, the Defendant moves the Court to dismiss HHI's claim for declaratory relief as moot.
HHI responds that its breach of contract claim has not prescribed for several reasons. HHI first argues that the Defendant either interrupted or suspended the running of prescription by refusing to address the royalty dispute until after the reexamination of the patent concluded in 1995. In the alternative, HHI claims that each royalty payment was a distinct obligation for which a separate prescriptive period applies. Therefore, not all of HHI's claims for royalties have prescribed, if any. In yet another alternative argument, HHI asserts that the Defendant's breach of contract constituted a continuous breach for which prescription did not begin to run until the Defendant's obligation to pay royalties expired in 1999 when the patents expired. Lastly, HHI argues that the license was terminated by the Defendant's refusal to pay royalties, thus, HHI's patent infringement claim cannot be barred by the license agreement. Ultimately, HHI asserts that there are several material facts at issue regarding the nature and timing of the Defendant's breach, whether that breach constituted a termination of the license by the Defendant, and/or whether HHI could or did reasonably regard the agreement as dissolved. HHI reasons that whether the declaratory action is moot depends upon the Court's ruling on the prescription issues.
LAW AND ANALYSIS
Summary judgment will be granted only if the pleadings, depositions, answers to interrogatories, and admissions, together with affidavits show that there is no genuine issue as to any material fact and that the defendant is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. When considering a motion for summary judgment, the Court must "review the facts drawing all inferences most favorable to the party opposing the motion." General Universal Systems, Inc. v. Lee, 379 F,3d 131, 137 (5th Cir. 2004). If the party moving for summary judgment demonstrates the absence of a genuine issue of material fact "the nonmovant must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial." Willis v. Roche Biomedical Laboratories, Inc., 61 F.3d 313, 315 (5th Cir. 1995).
A. Prescription
Summary Judgment is appropriate if the movant demonstrates that the plaintiff did not file suit before the applicable prescriptive period had run. St. Martin, et al. v. Quintana Petroleum Corp., et al., 1999 WL 232635 (E.D.La. 4/19/99). Breach of contract claims are subject to a ten-year liberative prescription period, pursuant to La.C.C. art. 3499. See Allen v. Corollo, 674 So.2d 283 (La.App. 1 Cir. 1996). The burden of proving prescription is usually on the party pleading prescription. Ford Motor Credit Co. v. Bower, 589 So.2d 571, 574 (La.App. 1st Cir. 1991). However, if it is obvious from the face of the petition that the claim has prescribed, then the burden shifts to the claimant to prove interruption or suspension of prescription, or that the claim otherwise has not prescribed. Id.
On February 20, 1992, the Defendant received notice of HHI's consent decree with Nike, which HHI claims triggered the Defendant's obligation to pay royalties under the License Agreement. The parties seem to agree that, if the consent decree did trigger the Defendant's obligation to pay royalties, then the first payment was due on July 30, 1993, thirty days after HHI provided the Defendant with a list of allegedly infringing products. Therefore, HHI's claim for breach of contract arose on July 31, 1993 and, on its face, the breach of contract claim prescribed ten years later on July 31, 2003. HHI did not file suit against the Defendant until almost a year later, on June 3, 2004. The burden, then, shifts to HHI to demonstrate why the claim has not prescribed. HHI provides four possible reasons why the breach of contract claim has not prescribed: 1) the Defendant agreed to interrupt prescription; 2) the Defendant's actions suspended prescription; 3) each quarter royalty payment was a separate obligation with its own prescriptive period; and 4) the Defendant breached a continuing duty and prescription did not begin to run until the last breach of the duty occurred, namely, when the last royalty payment became due in 1999.
1. Reasons #1 #2: Interruption and Suspension of Prescription
HHI's first argument is that the Defendant agreed to interrupt or at least suspend prescription. Under certain scenarios identified in the Louisiana Civil Code, prescriptive periods can be interrupted and prescription begins to run anew on the last day of interruption. Prescription is interrupted by filing suit, La.C.C. art, 3462, or by acknowledging the right of the person against whom prescription has commenced, La.C.C. art. 3464. There are also situations in which prescription is suspended and the period of suspension is not counted toward the accrual of prescription. Legislative causes of suspension include suspension in favor of minors during minority in actions to annual testaments and actions for rescission of a partition, La.C.C. art. 3497. Lastly, contra non valentem is a judicially-created cause of suspension by which prescription running against a party is suspended during the time in which that party cannot file suit. See Terrebonne Parish School Bd. v. Mobil Oil Corp., 310 F.3d 870 (5th Cir. 2002). HHI has not shown that any of the causes for interruption or suspension of prescription apply in this case.
In a May 3, 1994 letter to the Defendant, HHI notified the Defendant that there had been an amendment to the Hockerson patent and that it was currently under re-examination. (Plaintiff's Exhibit A). The letter also requested that the Defendant state its position regarding the royalty payments owed under the license. (Plaintiff's Exhibit A). The Defendant responded in a letter dated July 28, 1994 that, until HHI received a reexamination certificate, the Defendant "consider[ed] it to be inappropriate to demand royalties for shoes that infringe claims that [HHI knows] are invalid." (Plaintiff's Exhibit B). HHI believes that the Defendant's letter induced HHI not to take action and indicated the Defendant's agreement to postpone resolution of the royalty payments until completion of the patent reexamination. HHI reasons that, because the reexamination certificate was issued on August 8, 1995, that is the earliest date on which prescription could have began running. Thus, according to HHI, the June 3, 2004 breach of contract complaint was filed within the ten-year prescriptive period.
The Defendant's letter to HHI does not fall under any of the legislatively or judicially created causes of interruption nor suspension of prescription. The Defendant's letter clearly is not an acknowledgment of Saucony's debt to HHI. Rather, the letter indicated the Defendant's belief that it did not believe that any royalties were owed to HHI. Furthermore, the doctrine of contra non valentem is only applicable where: (1) there was some legal cause that prevented the courts from acting on the Plaintiff's action; (2) there was some condition connected with the contract or proceedings that prevented the plaintiff from filing suit; (3) the defendant has done some act to prevent the plaintiff from availing itself of the cause of action; or (4) the cause of action is not known or reasonably knowable by the plaintiff. Terrebonne Parish School Bd., 310 F.3d at 884, FN 37. HHI has not shown that any of these situations are applicable to this case. The Defendant's letter did not tie the hands of HHI and prevent HHI from suing the Defendant for not agreeing to pay royalties. Furthermore, HHI was not "ignorant of the facts upon which [its] cause of action [was] based." Knippers v. Lambard, et al., 620 So.2d 1368, 1371 (La.App. 2d Cir. 1993). HHI was aware of all of the facts relevant in determining that HHI potentially had a claim against the Defendant for breach of contract. Though HHI might have believed that the Defendant would begin making royalty payments once the reexamination certificate was issued, that belief is not sufficient to interrupt or suspend prescription.
2. Reason #3: Separate Obligations
HHI argues that each royalty payment was a separate obligation with its own prescriptive period commencing when that specific royalty payment became due. The parties agree that the License Agreement required royalties to be paid within thirty (30) days of the end of each quarter, if any royalties were owed for that quarter. The patent expired on July 27, 1999, at which time royalty payments were no longer required each quarter. It is HHI's position that HHI's claim has not prescribed for royalty payments due between June 3, 1994 (ten years before this suit was filed) and July 27, 1999.
Louisiana Civil Code Article 1807 provides that "[a]n obligation is conjunctive when it binds the obligor to multiple items of performance that may be separately rendered or enforced. In that case, each item is regarded as the object of a separate obligation." Under Louisiana law, when sums of money are due periodically, such as rental payments when there is no acceleration provision, "prescription runs separately for each installment or rental payment owed." 5 La. Civ. L. Treatise, Law of Obligations § 8.14 (2d ed. 2001). The Defendant argues that, if any breach of contract occurred, it would have occurred on July 30, 1993 when the Defendant first failed to pay royalties. The Defendant points to what it describes as "a long line of cases holding that the statute of limitations begins to run from the first refusal to pay on a contract." (Defendant's Supplemental Reply Memorandum in Support of Its First Motion for Summary Judgment Dismissing the Complaint at 4). However, none of the cases to which the Defendant refers is from this jurisdiction nor are any on point for the case at hand. For instance, the Defendant cites Dinerstein v. Paul Revere Life Insurance Co., 173 F.3d 826, 828 (11th Cir. 1999), in which an insured claimed that his insurer paid him less in monthly disability payments than the amount to which he was entitled. The Eleventh Circuit held that, under Florida law, the insured's claim was a claim for breach of contract, accruing on the date that the insurer reduced payments, rather than a claim on a debt payable in installments. Id. To reach this conclusion, the Eleventh Circuit relied on a Florida Supreme Court decision, which held that a breach of contract claim on an insurance contract accrues on the date the contract is breached. Id., citing, State Farm Mut. Auto. Ins. Co. v. Lee, 678 So.2d 818, 821 (Fla. 1996). Therefore, the Eleventh Circuit was specifically dealing with insurance contracts under Florida law. Even apart from the fact that the Eleventh Circuit was applying Florida law, Dinerstein is distinguishable from the instant case because Dinerstein involved disability payments which were owed to the insured each month. In the instant case, the Defendant was not obligated to pay royalties each quarter. Instead, there could be quarters in which the Defendant owed no royalties to HHI because the Defendant did not sell any shoes that came within the scope of HHI's patents that quarter. Furthermore, the amount owed at the end of a quarter could vary, depending upon the number of shoes sold.
The License Agreement in the instant case sets forth multiple separate obligations by requiring that a distinct royalty payment be made each quarter. Therefore, as HHI suggests, each royalty payment has its own ten-year prescriptive period that commenced when that payment became due thirty days after the end of the applicable quarter. HHI is correct that, because HHI filed suit on June 3, 2004, its claim has not prescribed with respect to those royalty payments that became due any time from June 3, 1994 to July 27, 1999 when the patent expired. However, HHI's claims for any royalty payments that were due on July 31, 1993 and up to June 2, 1994 are prescribed.
3. Reason #4: Continuing Duty
In the alternative, HHI claims that the Defendant had a continuing duty to pay royalties during the life of the License Agreement. Therefore, the HHI argues that, as with the doctrine of continuing tort, prescription did not begin to run until the last royalty payment duty was breached in 1999. Under the theory of continuing tort, when the cause of a plaintiff's injury is a continuous action by the defendant, prescription begins to run from the day the damage was completed. In re Medical Review Panel for Claim of Moses, 788 So, 2d 1173, 1183 (La. 2001); See also Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 885-886 (5th Cir. 2002). HHI argues that the Defendant committed a continuous breach by never paying royalties to HHI. However, Louisiana courts have explained that "the continuous conduct contemplated in a continuing tort must be tortious and must be the operating cause of the injury." Id. (emphasis added). In the instant case, HHI's claim arises under contract and not tort. Therefore, it is questionable whether the theory of continuing tort can apply. See Wagner v. Meeks, 730 So.2d 1058, 1061 (La.App. 1 Cir. 1999) (refusing to apply continuing tort theory to an action not arising in tort). Regardless of whether continuing tort can apply to a breach of contract claim, the Defendant did not owe a continuing duty to HHI. Rather, as previously explained, the License Agreement set forth independent duties to pay royalties that arose each quarter if the Defendant had produced infringing shoes that quarter. Therefore, the prescriptive periods began to run for each royalty payment when that royalty payment became due and not when the patent expired.
B. HHI's Patent Infringement Claim
Under the Federal Rules of Civil Procedure, parties may plead claims or defenses in the alternative. Fed.R.Civ.P. 8(e)(2). Some federal case law suggests that a plaintiff-licensor may bring a suit for both patent infringement and breach of the license agreement. Logan Farms v. HBH, Inc., 282 F.Supp.2d 776, 789 (applying Louisiana law), citing, C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 880-881 (Fed. Cir. 1983) (allowed a patent licensee to bring a federal declaratory judgment action to declare a patent subject to a license invalid while that license is still in effect; includes dicta suggesting that a licensee's failure to pay royalties is a material breach that leaves him open to a patent infringement suit). Though HHI ultimately may not be able to recover under both claims, HHI is not prohibited from pleading both claims in it's complaint. Therefore, the Defendant can only succeed on summary judgment regarding HHI's patent infringement claim if the Defendant can show that there is no genuine issue as to any material fact and that the defendant is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56.
When all inferences are drawn in a manner most favorable to HHI, there are material facts at issue that preclude summary judgment. The Defendant argues that the Patent License Agreement bars HHI's patent infringement claim. However, in the Defendant's answer to HHI's complaint, the Defendant denies that HHI is entitled to a declaration that the suspensive condition triggering the Patent License Agreement has been satisfied. Therefore, whether the license was ever triggered is still at issue. If HHI were to fail on its declaratory judgment action because the suspensive condition was never satisfied, then HHI's only remedy is in its claim of patent infringement. In short, whether or not the license agreement ever went into effect is an issue of material fact that will determine whether HHI's patent infringement claim is barred. Consequently, the Defendant is not entitled to a judgment as a matter of law at this time.
C. HHI's Declaratory Judgment Action
The Defendant argues that because HHI's breach of contract and patent infringement claims are barred, HHI's claim for declaratory relief should be dismissed as moot. However, HHI's breach of contract claim is only prescribed as to those royalty payments allegedly due on July 31, 1993 and up to June 2, 1994. Furthermore, it is premature for the Court to dismiss HHI's patent infringement claim as not barred by the License Agreement. Therefore, HHI's declaratory judgment action is not denied as moot.
III. CONCLUSION
For the foregoing reasons, Defendant Saucony's Motion for Summary Judgment Dismissing the Complaint is GRANTED in part and DENIED in part.
Specifically, the motion for summary judgment dismissing HHI's claim for royalties that were due on July 31, 1993 and up to June 2, 1994 is GRANTED in favor of the Defendant. The Defendant's motion for summary judgment dismissing HHI's claim for royalty payments that became due any time from June 3, 1994 to July 27, 1999 is DENIED. The Defendant's motion for summary judgment dismissing HHI's patent infringement claim is DENIED. The Defendant's motion for summary judgment dismissing HHI's declaratory judgment action is DENIED.