Plastronics Socket Partner, Ltd. et al. v. Dong Weon Hwang, HiCon Co., Ltd. et al.
Docket No. 2020-1739, -1781 (https://cafc.uscourts.gov/opinions-orders/20-1739.OPINION.1-12-2022_1892222.pdf) (Non-Precedential)
DYK, HUGHES, STOLL
January 12, 2022
Brief Summary: DC award of breach of contract damages to inventor affirmed; award to Plastronics reversed due to four-year statute of limitations in Texas. Summary: Plastronics and HiCon (including Hwang) each appealed DC award of damages to both parties under breach of contract claims relating to a license semiconductor chip testing devices (“H-Pins”). Hwang began working for Plastronics in 2004 after moving from Korea to Texas and filed a Korean patent application directed to H-Pins “around the time he started at Plastronics”. In 2005, Hwang and Plastronics executed a Royalty Agreement under which Plastronics agreed to fund commercial development and patent applications, and to pay a 3% royalty “after all non-recurring capital costs” in exchange for “the joint right to practice the technology cover by the H-Pin patents worldwide except in Korea and agreed to share royalties he was paid from third parties” (paying “royalties for the sale of H-Pins separately and also for the sale of H-Pins with sockets”). The parties also agreed not to “grant a license for the patents covering the ‘H-Pin Project’ without approval from the other party”. “In 2008, Hwang left Plastronics Socket, founded HiCon in Korea, and licensed his Korean patent to HiCon—allegedly without the required consent from Plastronics Socket”. In 2012, Plastronics “created Plastronics H-Pin through a divisive merger under Texas law and assigned all rights and obligations under the Royalty Agreement to Plastronics H-Pin”. Plastronics H-Pin “produced the HPins and sold them to Plastronics Socket as its sole customer” and “itself made no socket sales and received no payments on socket sales” but “all the liabilities under the Royalty Agreement were allocated to Plastronics H-Pin”. Plastronics eventually “sold over $65 million worth of sockets with H-Pins, accounting for more than half of its revenue, and did not pay Hwang royalties allegedly in violation of the agreement.” After a jury trial, and under Texas contract law, the DC awarded Plastronics over $600,000 for Hwang’s breach and Hwang over $1.3 million for Plastronics’ breach. Plastronics appealed the DC’s denial of attorney’s fees and the damages award to Hwang, and Hwang appealed the damages award to Plastronics. In this appeal, Plastronics argued that only Plastronics H-Pin was liable and the FC panel considered “whether the Texas divisive merger statute permits Plaintiffs to avoid liability for sales of sockets with H-Pins under the Royalty Agreement by assigning the liability for royalty payments to a new subsidiary that does not sell such sockets while Plastronics Socket continues to sell the sockets.” The FC panel wrote that “[a]t least in part, the merger appears related to avoiding licensing payments”, the objective being to “[s]pin off all the H-pin business into an entity and sell at cost to Plastronics as a master distributor, therefore never worrying about royalties [to Hwang].” The FC panel explained that “[u]nder general contract law principles, the assignment of rights through mergers cannot adversely affect the rights of parties contracting with the entities undergoing the mergers, i.e., obligors” which is consistent with Texas law. Therefore, the FC panel found “that the Texas divisive merger statute does not enable an entity to eliminate royalty payments due under a contract with the predecessor entity” and that Plastronics “is liable for the royalty payments.” The damages award to Hwang was therefore affirmed. The FC panel also found Hwang to be correct that his breach had occurred ten years prior while Texas has a “four-year statute of limitations [that] bars the claim.” The FC panel therefore reversed the damages award to Plastronics.