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Kapsch Traffic Com IVHS, Inc. v. Florida Department of Transportation

Florida Court of Appeals, First District

June 4, 2018

Kapsch Traffic Com IVHS, Inc., Appellant,
v.
Florida Department of Transportation, Florida Turnpike Enterprise, Neology, Inc., and Smartrac, N.V., Appellees.

         Not final until disposition of any timely and authorized motion under Fla. R. App. P. 9.330 or 9.331.

          On appeal from the Circuit Court for Leon County. Terry P. Lewis, Judge.

          Philip J. Padovano of Brannock & Humphries, Tallahassee; Kelly Overstreet Johnson and Russell B. Buchanan of Baker Donelson Bearman Caldwell & Berkowitz, PC, Tallahassee, for Appellant.

          Marc Peoples, Assistant General Counsel, Tallahassee, for Appellees Florida Department of Transportation and Florida Turnpike Enterprise; W. Douglas Hall and Peter D. Webster of Carlton Fields, Tallahassee, for Appellees Neology, Inc., and Smartrac, N.V.

          PER CURIAM.

         This case came before the trial court on the parties' cross-motions for summary judgment. The parties were then-and still are-fully in agreement regarding the material facts. They disagree, however, as to the legal conclusions to be drawn from the undisputed facts. The matter, therefore, was appropriately disposed of by summary judgment. On appeal, Kapsch TrafficCom IVHS, Inc. ("Kapsch") argues that the trial court erred in not granting summary judgment in its favor. We disagree and affirm.

         This case centers on a patent license agreement ("Agreement") entered into between the Florida Turnpike Enterprise acting on behalf of the Florida Department of Transportation (collectively, "FDOT"), and Neology, Inc. and its parent company, Smartrac, N.V. (collectively, "Neology"). Under the terms of the Agreement, FDOT paid $7 million to Neology for the nonexclusive right to use technology owned by Neology, namely, Neology's patented 6C technology. The 6C technology would allow FDOT's automated toll collection "readers" to communicate not just with Florida's Sun Pass® system transponders, but with all transponders or "tags" on passing vehicles from any state, in order to assess a toll.[1]

         Kapsch filed suit in the trial court claiming the license agreement was illegal because FDOT failed to follow the competitive bidding process dictated by section 287.057, Florida Statutes. That section applies when a state agency seeks to procure "commodities" or "contractual services" costing more than $35, 000. § 287.057(1), Fla. Stat. (referencing the "threshold amount provided for CATEGORY TWO in s. 287.017"). The trial court expressly noted that Kapsch did not contend that the Agreement is one for services, and it duly observed that nothing in the agreement requires Neology to deliver a commodity.

         Kapsch argued that a patent license is a "commodity" because it is a type of intangible personal property, and "personal property" is specifically listed in the definition of "commodity" in section 287.012(5), Florida Statutes. It also attempted to place the license agreement within the purview of Article IX of the Uniform Commercial Code ("UCC"), as codified in section 679.1021, Florida Statutes, because, in a UCC comment, "general intangibles" are defined as a residual category of personal property, including, for example, a license for the use of intellectual property; hence, a patent license. The trial court rejected both contentions. It observed that "[t]he definitions and comments in Article IX of the UCC [] serve a different purpose than those in section 287.057." It further explained that "[i]f such a broad, sweeping interpretation were given to the term 'personal property' urged by [Kapsch], there would be no reason to list the several examples in [section 287.012(5)]. The term 'personal property' would necessarily include all others."

         Instead, the trial court was "more persuaded" by the cases cited by FDOT and Neology describing "the nature of a nonexclusive patent license as a covenant not to sue or a grant of immunity from suit for patent infringement, " thereby giving the licensee, FDOT, no property right in the patent itself. See Gen. Talking Pictures Corp. v. W. Elec. Co., 304 U.S. 175, 181 (1938) (citation omitted) (holding that a company was "a mere licensee under a nonexclusive license, amounting to no more than 'a mere waiver of the right to sue'"); U.S. Philips Corp. v. Int'l Trade Comm'n, 424 F.3d 1179, 1189 (Fed. Cir. 2005) ("A nonexclusive patent license is simply a promise not to sue for infringement."); Pub. Varieties of Miss., Inc. v. Sun Valley Seed Co., 734 F.Supp. 250, 252 (N.D. Miss. 1990) ("A license merely grants a party permission to do something which would otherwise be unlawful; it grants immunity from suit rather than a proprietary interest in the patent."); see also TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1275 (Fed. Cir. 2009) ("[A] patentee, by license or otherwise, cannot convey an affirmative right to practice a patented invention by way of making, using, selling, etc.; the patentee can only convey a freedom from suit."); W. Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 117 (2d Cir. 1930) (citations omitted) ("In its simplest form, a license means only leave to do a thing which the licensor would otherwise have a right to prevent. Such a license grants to the licensee merely a privilege that protects him from a claim of infringement by the owner of the patent monopoly. . . . He has no property interest in the monopoly of the patent, nor any contract with the patent owner that others shall not practice the invention.").

         The trial court then turned to the actual wording of the Agreement between Neology and FDOT. In Article 2.1, the Agreement grants FDOT "a nonexclusive, perpetual, nontransferable, license under [the] respective Patent Rights." Applying the logic of the foregoing federal decisions, the trial court concluded "as a matter of law" that "the Agreement does not constitute a purchase of personal property, tangible or intangible. It merely gives FDOT permission to use the 6C technology patented by Neology without risking liability to Neology for patent infringement." The trial court went on to explain that even were the license to be considered a form of personal property, "its very nature makes it impossible to be procured by competitive bid. The right to use technology protected by a particular patent can only be obtained from the patent owner. No amount of competitive bidding can change that."[2]

         Lastly, the trial court addressed Kapsch's claim that paragraph 2.8 of the Agreement, which gave FDOT a credit equal to $7 million-the amount of the license fee-against future purchases of products from Neology, brings the agreement within the purview of section 287.057. However, as the trial court determined, that issue is moot due to the fact that FDOT and Neology voluntarily amended the license agreement prior to the instant suit being filed to remove paragraph 2.8 from the Agreement. The Agreement contains a severability clause in paragraph 7.8 that permitted the severance of the credit clause without affecting the rest of the Agreement. This is so because, as the trial court rightly decided, paragraph 2.8 "did not go to the essence of the agreement." See, e.g., Lamaritata v. Lucas, 823 So.2d 316, 316 n.3 (Fla. 2d DCA 2002) (applying the severability clause to sever the unenforceable portion of the contract, while the remainder of the contractual provisions remained valid and in force); Brevard Cty. Bd. of Cty. Comm'rs v. Williams, 715 So.2d 1100, 1101-02 (Fla. 1st DCA 1998) (holding that the invalid provision of a settlement agreement should have been severed pursuant to the severability clause rather than declaring the entire agreement unenforceable). New Prod. Corp. v. City of N. Miami, 241 So.2d 451 (Fla. 3d DCA 1970) (holding that "the obligation to perform certain covenants in addition to conveyance of the property (which are for the benefit of the purchaser) are severable, " and, "even though the covenants may not be performed or would be illegal they are not integral parts of the contract and the purchaser may require specific performance of the remaining valid portions of the agreement").

         Here, it bears repeating that no factual dispute exists regarding FDOT's prime motivation to enter into the Agreement. It desired to obtain a patent license, not to purchase commodities or services from Neology. Therefore, the credit provision was properly severed from the Agreement.

         Based upon the foregoing discussion and the trial court's well-reasoned analysis, we hold that summary final judgment was properly entered in ...


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