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Akzo Nobel Coatings Inc. v. The Dow Chemical Co.

Court of Chancery of Delaware

June 5, 2015

AKZO NOBEL COATINGS INC., Plaintiff,
v.
THE DOW CHEMICAL COMPANY, (doing business as DOW ADVANCED MATERIALS), Defendant.

Submitted: January 13, 2015

Michael P. Kelly, Esq., Daniel J. Brown, Esq., Daniel M. Silver, Esq., McCARTER & ENGLISH, LLP, Wilmington, Delaware; Michael D. Loughnane, Esq., KENYON & KENYON LLP, New York, New York; Attorneys for Plaintiff.

Rodger D. Smith, II, Esq., Leslie A. Polizoti, Esq., Ryan D. Stottmann, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; David Lender, Esq., WEIL, GOTSHAL & MANGES LLP, New York, New York; Attorneys for Defendant.

MEMORANDUM OPINION

PARSONS, Vice Chancellor.

This is a dispute between two chemical companies that were parties to a joint development agreement. The plaintiff alleges, among other things, that the defendant breached the joint development agreement and wrongfully misappropriated intellectual property that belongs in part or in whole to the plaintiff. The defendant has moved to dismiss. For the reasons that follow, the motion to dismiss is granted in part and denied in part. Specifically, the plaintiff's claims for breach of contract and misuse of its confidential information survive, but its alternatively pled claims for breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment are dismissed.

I. BACKGROUND[1]

Plaintiff, Akzo Nobel Coatings Inc. ("Akzo"), is a Delaware corporation with its principal place of business in Strongsville, Ohio. Akzo specializes in the design, manufacture, and sale of various chemical coatings, including protective coatings for food and beverage packaging and containers. Defendant, The Dow Chemical Company, doing business as Dow Advanced Materials ("Dow"), is a Delaware corporation with its principal place of business in Philadelphia, Pennsylvania. Among other things, Dow develops, manufactures, and sells polymeric materials, products, and technologies, including those suitable for use in coatings for food and beverage containers.

On January 25, 2010, the parties executed a Joint Development Agreement ("JDA").[2] The provisions of the JDA are analyzed in detail in Section III.A infra. In general and simplified terms, the purpose of the JDA was to combine the parties' respective areas of expertise in pursuit of the development of new protective coatings for metal beverage and food packaging containers. The resulting output of any given project under the JDA could be owned wholly by one of the two parties, depending on whether it was a Target-Coating, [3] which would be owned by Akzo, or a Material or Project Material, either of which would belong to Dow. Any other output not falling into those specific categories would be jointly owned. The Complaint also alleges that, in the course of pursuing the various projects begun under the JDA, Akzo disclosed confidential information to Dow.

On or about October 24, 2011, Dow provided Akzo with a notice of termination. The JDA, by its own terms, terminated ninety days later.[4] On or about May 18, 2012, Dow communicated to Akzo that it intended to file two patent applications relating to potential JDA-Inventions (the "Patent Applications"). The Complaint alleges that the Patent Applications disclose "coating compositions, applications and forming coated containers or closure devices, "[5] including Akzo's confidential information regarding "polyolefin dispersions, acrylic latex emulsions and the use of phenol formaldehyde."[6]Akzo objected to Dow's proposed Patent Applications on or about June 12, 2012. According to Akzo, Dow did not cooperate with Akzo to determine the appropriate manner to proceed with the Patent Applications; instead, it acted unilaterally, in violation of the JDA. Dow modified the Patent Applications to some extent before they were to become public in or around mid-December 2013.

Akzo filed its Complaint on June 20, 2013. The Complaint consists of five Counts, asserting claims for: (1) a declaratory judgment regarding Akzo's ownership rights under the JDA; (2) breach of contract and a permanent and mandatory injunction against Dow, requiring Dow to transfer the appropriate ownership rights associated with the Patent Applications to Akzo; (3) breach of the implied covenant of good faith and fair dealing; (4) conversion; and (5) unjust enrichment. Dow moved to dismiss the Complaint pursuant to Court of Chancery Rule 12(b)(6). After full briefing, I heard argument on January 13, 2015 (the "Argument") and took the matter under advisement.

II. STANDARD OF REVIEW

Pursuant to Rule 12(b)(6), this Court may grant a motion to dismiss for failure to state a claim if a complaint does not assert sufficient facts that, if proven, would entitle the plaintiff to relief. "[T]he governing pleading standard in Delaware to survive a motion to dismiss is reasonable 'conceivability.'"[7] That is, when considering such a motion, a court must "accept all well-pleaded factual allegations in the Complaint as true . . . draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[8] This reasonable "conceivability" standard asks whether there is a "possibility" of recovery.[9] The court, however, need not "accept conclusory allegations unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-moving party."[10] Moreover, failure to plead an element of a claim precludes entitlement to relief and, therefore, is grounds to dismiss that claim.[11]

Generally, the court will consider only the pleadings on a motion to dismiss under Rule 12(b)(6). "A judge may consider documents outside of the pleadings only when: (1) the document is integral to a plaintiff's claim and incorporated in the complaint or (2) the document is not being relied upon to prove the truth of its contents."[12]

III. ANALYSIS

At its core, this case concerns the meaning of the JDA. The interpretation of a contract is a question of law.[13] "[D]efendants are not entitled to dismissal under Rule 12(b)(6) unless the interpretation of the contract on which their theory of the case rests is the 'only reasonable construction as a matter of law.'"[14] If there is more than one reasonable construction of contractual language, then the contract is ambiguous.[15] But, contractual language "is not ambiguous simply because the parties disagree on its meaning."[16] Instead, the court will apply standard principles and canons of contract interpretation in construing the contract. I begin with the JDA's terms, briefly describe Dow's patent claims, and then analyze the five Counts in the Complaint.

A. The JDA

The JDA sought to combine Dow's expertise in polymeric materials and products with Akzo's expertise in protective coatings for metal beverage and food packaging containers. To that end, the parties attempted to set forth in the JDA the terms of their underlying rights and obligations. Various addenda to the JDA defined the scope and goals of the specific joint projects that the parties undertook. Numerous provisions from the JDA, which is governed by Delaware law, [17] are pertinent to this dispute.

1. Ownership provisions

Section 5.2 defines the parties' respective ownership rights as to JDA-Inventions. A JDA-Invention is

any invention, whether patentable or unpatentable, that is:
(a) a new Material (e.g., a new Project Material), and/or
(b) a new article (e.g., a new Target-Coating) having a new structure and/or composition, and/or
(c) any new method or apparatus for manufacturing Materials or Products, and/or
(d) any new end-use for a Material or Product,
which is first actually reduced to practice by a Party . . . alone or with others, and which reduction to practice occurs both during the Project Period and as a result of work performed in connection with that project.[18]

Akzo "owns those JDA-Inventions that are specific to: (1) the Target-Coating, (2) methods or apparatus for fabricating the Target-Coating, and (3) uses of the Target Coating."[19] Dow, on the other hand, "owns those JDA-Inventions that are specific to: (1) Materials and Project Materials, (2) methods or apparatus for manufacturing Materials and/or Project Materials, and (3) uses of Materials, and/or Project Materials."[20]Everything not falling into one of these categories is jointly owned by Dow and Akzo. For jointly owned inventions, neither party independently "may use for itself or license, assign, transfer, or otherwise grant third parties any rights . . . without the other Party's prior written consent, which shall not be unreasonably withheld."[21]

To prevail on its motion to dismiss, Dow must show that it is not reasonably conceivable that the items claimed in the Patent Applications could be anything other than a Material or a Project Material. Stated differently, if it is reasonably conceivable that the Patent Applications claim something other than a Material or a Project Material-e.g., a Product, a Target Coating, or, potentially, something that does not fall within one of the other specified categories[22]-the motion to dismiss will be denied.

As Section 5.2 shows, the JDA contemplates three categories of potential JDA-Inventions: Materials or Project Materials, Target Coatings, and Products. The ...


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