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Decco U.S. Post-Harvest, Inc. v. Mirtech, Inc.

Court of Chancery of Delaware

November 28, 2018

DECCO U.S. POST-HARVEST, INC., Petitioner,
v.
MIRTECH, INC., Respondent, and ESSENTIV LLC, Nominal defendant.

          Date Submitted: September 11, 2018

          Brock E. Czeschin, Sara C. Hunter, Angela Lam, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; John M. Williamson, Rajeev Gupta, Karthik Kumar, FINNEGAN, HENDERSON, FARABOW, GARRET & DUNNER, LLP, Washington, D.C.; Counsel for Petitioner.

          Glenn A. Brown, REAL WORLD LAW, P.C., Wilmington, Delaware; Counsel for Respondent.

          MEMORANDUM OPINION

          LASTER, V.C.

         1-Methylcyclopropene ("1-MCP") is a gas used to delay the ripening of fruit and other produce. MirTech, Inc. claimed to own intellectual property rights in 1-MCP.

         In April 2016, MirTech and Decco U.S. Post-Harvest, Inc. ("Decco") established a joint venture to commercialize products based on 1-MCP. As the vehicle for their venture, they formed a Delaware limited liability company called Essentiv LLC (the "Company"). As part of the business arrangement, MirTech granted the Company a license to use its intellectual property rights in 1-MCP.

         Non-party AgroFresh Inc. disputed whether MirTech owned any intellectual property rights in 1-MCP. In September 2017, MirTech settled litigation brought by AgroFresh. In the settlement agreement, MirTech agreed that AgroFresh owned the intellectual property rights which MirTech had licensed to the Company.

         After learning of this development, Decco brought this proceeding to dissolve the Company. Decco proved at trial that it is not reasonably practicable for the Company to carry on its business given that MirTech has agreed that it does not own the intellectual property rights the Company was created to commercialize.

         Based on the evidence presented at trial, the Company is dissolved. Francois Girin is appointed as receiver to wind up the Company's affairs.

         I. FACTUAL BACKGROUND

         The factual record in this case is mercifully sparse. Trial lasted only one day. The parties submitted just eleven joint exhibits. They presented live testimony from two fact witnesses, lodged two depositions, and consented to the use of one affidavit. The parties proved the following facts by a preponderance of the evidence.

         A. Mir And AgroFresh Develop 1-MCP Technologies.

         In 1996, Edward Sisler and Sylvia Blankenship patented 1-MCP.[1] At the time, Nazir Mir was studying how to extend the shelf life of apples using modified atmosphere packaging.[2] As part of his research, he began experimenting with 1-MCP technologies.[3]

         In late 2009, Mir entered into discussions with AgroFresh about using 1-MCP in modified atmosphere packaging.[4] One of Mir's contacts at AgroFresh was Lynn Oakes, who will re-emerge in the story later after moving over to Decco.[5]

         Through his entity, MirTech, Mir entered into an interim consulting services agreement with AgroFresh dated January 1, 2010. The agreement called for joint ownership of "any and all inventions conceived or reduced to practice jointly by the [p]arties."[6]

         In May 2011, MirTech and AgroFresh replaced the interim agreement with a commercial agreement and a consulting agreement. These agreements granted AgroFresh sole ownership over the parties' joint inventions.[7]

         While working with AgroFresh, Mir developed "RipeLock," a modified atmosphere package that used 1-MCP.[8] Mir also developed technology underlying what became U.S. Patent Numbers 8822382, 8802140, 9394216, and 9561894.[9] This decision refers to this intellectual property collectively as the "RipeLock Patents."

         B. The Letter Of Intent

         By October 2014, Oakes had moved to Decco from AgroFresh. Decco's primary business involves the post-harvest treatment and packaging of produce.[10] Decco hired Oakes to develop its apple storage business.[11]

         On October 18, 2014, Oakes met with Mir during a meeting of the Produce Marketing Association in Anaheim, California.[12] Oakes discussed Decco's interest in using 1-MCP for the long-term storage of produce.[13] Within a few days, Mir had entered into a confidentiality agreement with Decco.[14]

         Over the next several weeks, Mir had a series of meetings with members of Decco management including Francois Girin, Decco's Chief Executive Officer.[15] The discussions revolved around a potential partnership between MirTech and Decco that would develop post-harvest packaging solutions using 1-MCP.[16] During their initial meeting, Mir informed Girin that MirTech had partnered with AgroFresh to produce RipeLock.[17] Mir did not provide Decco with, and Decco did not ask to see, any of the agreements that Mir or MirTech had with AgroFresh.[18]

         On November 30, 2014, Decco and MirTech executed a letter of intent for a joint venture involving the '382 Patent, the '140 Patent, their child applications, and U.S. Provisional Patent Application 32077867.[19] The '382 Patent and the '140 Patent were part of the RipeLock Patents.[20] Although Provisional Patent Application '867 was not specifically identified as a RipeLock Patent, Mir testified that this patent application related to the '216 Patent, which was one of the RipeLock Patents.[21] The letter of intent documented the parties' plan "to collaborate in the assessment of the right to practice, ability to register, biological performance, manufacturing cost and commercialization potential of MirTech's 1-MCP 'MPM' technology . . . and other related technologies."[22]

         The letter of intent identified three overarching tasks for the joint venture: (i) secure the legal rights of the listed patents; (ii) coordinate research, regulatory approvals, and other pre-commercial activity; and (iii) commercialize the developed technology.[23] To facilitate the third task, MirTech would "grant [an] exclusive license to NewCo to use its patents related to 1-MCP technologies and operate as an independent entity."[24]

         C. The Company And Its Governing Documents

         On April 19, 2016, Decco and MirTech formed the Company.[25] Its operating agreement became effective on June 30, 2016 (the "LLC Agreement").[26] Decco and MirTech were the only two members of the Company. Each held a 50% member interest.[27]

         The LLC Agreement established a manager-managed structure under which management of the Company was "vested in a Management Committee composed of two members, each of whom shall be a 'Manager.'"[28] The LLC Agreement specified that one manager would be Decco's CEO and the other would be MirTech's President.[29] The only individuals who ever held these positions were Girin and Mir.[30] The LLC Agreement required both managers to be present for a quorum to exist and the consent of both managers for any action that required manager approval.[31]

         Section 3.1 of the LLC Agreement identified the Company's purpose (the "Purpose Clause"). It provided as follows:

The intention of the Members in forming the Company is to conduct and coordinate all activities related to chemistry and biology R&D, collaboration with universities and government researchers, regulatory support and registration filings, manufacturing, supply chain activities, strategic marketing and marketing communications related to 1-MCP Products (the "1-MCP Business"). . . .
The 1-MCP Business does not include, and Decco and the Company acknowledge and agree that MirTech may independently pursue, any technology and business related to flexible packaging for, or in combination with, 1-MCP or relating to microwavable cooking or both ("MirTech Excluded Business").
In addition to the 1-MCP Business, Decco and MirTech intend for the Company to be the vehicle for development of other technologies proposed by MirTech as well as possibly by Decco . . . from time to time as set forth in Section 6 [(the "Non-1-MCP Business")] below.[32]

         The Purpose Clause thus specified that the Company would be pursuing the 1-MCP Business and not the MirTech Excluded Business. At the same time, the Purpose Clause held out the possibility that the Company might in the future pursue a Non-1-MCP Business.

         To facilitate the Company's potential pursuit of a Non-1-MCP Business, Section 6 of the LLC Agreement gave Decco a right of first refusal over any non-1-MCP products that MirTech developed, other than the MirTech Excluded Business.[33] In Section 6.1, MirTech agreed to provide Decco with written notice of any technology that MirTech developed. After receiving notice, Decco had sixty days to determine whether it wanted to pursue commercialization of the technology through the Company. If Decco exercised its option, then the parties would have 120 days to negotiate a definitive agreement. If Decco did not exercise its right of first refusal, or if the parties could not reach a definitive agreement, then MirTech and Mir would be "free to contract with one or more third parties to license or otherwise commercialize the new technology."[34]

         To ensure that the Company could pursue the 1-MCP Business, the LLC Agreement required that MirTech develop and license exclusively to the Company all of the "Licensed Technology."[35] The LLC Agreement defined "Licensed Technology" as

(i) "patents U.S. 8822382 and U.S. 880140, its child applications, and patents which may be granted from United States Patent Application 13/969, 393, filed August 16, 2013, Provisional Patent application 62077867 dated November 10, 2014, and Non-provisional patent application 1476004 dated May 29, 2015, and all technologies described in such patents and patent applications, "
(ii) the "know-how and trade secrets for processing and forming products incorporating 1-MCP that meet the impurity standards of U.S. EPA," and
(iii) "all rights granted in the License Agreement as it may be amended from time to time."[36]

         Patents '382 and '140 were RipeLock Patents.[37] Patent Application '393 became Patent '894, which was a RipeLock Patent.[38] Patent Application '004 became the '216 Patent, which was a RipeLock Patent.[39] Provisional Patent '867 related to the '216 Patent, bringing it within the ambit of a RipeLock Patent.[40]

         In the LLC Agreement, however, MirTech represented that it owned the Licensed Technology and that "neither Rutgers University nor any other person has any right, title or interest in the Licensed Technology."[41] MirTech further represented that it "owns the Licensed Technology free and clear of all claims, mortgages, leases, loans and encumbrances."[42] MirTech made additional representations regarding its ownership of the Licensed Technology in the Licensing Agreement, which the LLC Agreement incorporated by reference "for the benefit of Decco."[43] The LLC Agreement provided that MirTech's representations "shall survive the execution, delivery, and performance of this Agreement and shall in no way be affected by any investigation of the subject matter thereof."[44]

         D. The AgroFresh Litigation

         In the summer of 2016, the Company began selling TruPick, a product that utilized metal organic framework technology to deliver 1-MCP gas to fruit. The Company never commercialized any other product.[45]

         On August 3, 2016, AgroFresh filed suit in the United States District Court for the District of Delaware against Mir, MirTech, Decco, the Company, and their affiliates. In its complaint, AgroFresh claimed to own the RipeLock Patents, which the Company had used to develop TruPick.[46] The District Court bifurcated the case so it could first determine who owned the '216 Patent.[47]

         On June 30, 2017, the District Court ruled that AgroFresh was the sole owner of the '216 patent.[48] Put differently, the TruPick technology belonged to AgroFresh.[49] A few days later, Mir and Girin agreed on behalf of the Company as its managers to stop all commercial activity related to TruPick.[50]

         On September 15, 2017, Mir entered into a settlement agreement with AgroFresh, which called for entry of a final judgment by consent (the "Final Consent Judgment").[51] In the Final Consent Judgment, Mir and MirTech agreed to the entry of judgment against them on twenty different counts of wrongdoing, including claims for fraud, fraudulent inducement, constructive fraud, unfair competition, willful infringement of patent, and misappropriation of trade secrets.[52] Mir and MirTech "agreed to disclose to AgroFresh all inventions, discoveries, or improvements (whether patentable or not) related to [1-MCP] . . ., along with all lab books and other documents concerning such inventions, discoveries or improvements."[53] Mir and MirTech formally acknowledged and agreed that "all such inventions, discoveries, and/or improvements have been automatically assigned to AgroFresh."[54]

          On September 18, the District Court approved the Final Consent Judgment and entered it as an order.[55] The Final Consent Judgment established that AgroFresh owned the RipeLock Patents that ...


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