Hildebrand v. Wilmar Corp.

          REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION TO DISMISS (DKT. #20)

          N. Reid Neureiter, United States Magistrate Judge

         This matter comes before the Court on Defendant's Motion to Dismiss. (Dkt. #20.) Plaintiff filed a response. (Dkt. #22). Defendant filed a reply. (Dkt. #24). Judge Moore referred the Motion to me on March 18, 2019. (Dkt. #29). I heard argument from the Parties on April 12, 2019. Having reviewed the briefs, relevant caselaw, and considered the arguments of the Parties, I recommend that the Motion to Dismiss be DENIED.

         I. FACTUAL BACKGROUND

         This is a lawsuit brought by a patent holder, David L. Hildebrand, against an alleged patent infringer/licensee, Wilmar Corporation (“Wilmar”), for unpaid royalties and for an accounting.

         In 2009, Mr. Hildebrand filed suit in this District against this same defendant, Wilmar, for infringement of U.S. Patent No. 5, 737, 981 (the “‘981 Patent”). See Hildebrand v. BJ's Tools, et al., No. 09-cv-00349-REB-MEH (D. Colo. Feb. 19, 2009). The ‘981 Patent covers special reverse-threaded sockets intended to assist in extracting hard to remove (think “stripped”) nuts. Wilmar allegedly sold the products using the patented technology as an “Emergency Lug Nut Remover Socket Set.”

         Mr. Hildebrand's 2009 lawsuit was settled via a Settlement Agreement dated March 2, 2009 (the “Settlement Agreement”), signed by Mr. Hildebrand, as Patent Owner, and Nevil Hermer, as President of Wilmar Corporation. (Dkt. #2.) The Settlement Agreement was attached, under restriction, to the Complaint in this case. (Id.)

         Material terms of the Settlement Agreement included the following:

(1) Wilmar agreed to pay Hildebrand a lump sum of $25, 000 “for past and current infringing acts.”

(2) Hildebrand agreed to grant Wilmar a non-exclusive license “to any future and-or continued sale of Products covered” under the ‘981 Patent.

(3) In consideration for the license, Wilmar agreed to pay an “ongoing royalty in the amount of 15% of the Gross Selling Price of Products sold and covered” by the ‘981 Patent. (Id. at 2.) Importantly, Wilmar also agreed to continue to pay Hildebrand “an ongoing reduced royalty/fee of 5% following the expiration of the [‘981] Patent, under the terms of” the Agreement. (Id. at 4) (emphasis added).

(4) The royalties were to be paid quarterly, and “be accompanied by a report of the gross sales of Products sold during the quarter being reported.” (Id.)

(5) The Agreement was to terminate thirty days after Wilmar's certification that it had decided to stop selling products embodying the ‘981 Patent. (Id. at 5.)

         Mr. Hildebrand alleges that the post-expiration payments were intentional, and designed to make up for taking a lower royalty during the patent's pendency. As alleged in the Complaint, Mr. Hildebrand “accepted significantly less for lost profits during the term of the patent in exchange for payments to be paid after the expiration of the patent.” (Dkt. #3 at ¶ 7.)

         In 2017, Mr. Hildebrand, pro se, filed a second suit against Wilmar, Hildebrand v. Wilmar Corporation, No. 17-cv-02821-PAB-SKC (D. Colo. Nov. 22, 2017), purportedly seeking damages for patent infringement. In truth, the claims in that case were very similar to the claims being asserted in this case with the Settlement Agreement being mentioned, and Mr. Hildebrand asserting that he had “not received proper compensation” or “accounting reports as agreed upon.” See Compl., No. 17-cv-02821-PAB-SKC (Dkt. #1 at 3). But that case was treated by this Court as a patent infringement case, rather than a breach of contract case, and was eventually ...