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McNamee v. Minxray, Inc.

United States District Court, N.D. Illinois, Eastern Division

December 6, 2017

MINXRAY, INC., Defendant.


          Honorable Edmond E. Chang, United States District Judge.

         Plaintiff G. Michael McNamee filed this suit against Defendant MinXray, Inc., alleging two breach of contract claims centered around agreements for the licensing and manufacture of various portable x-ray technologies.[1] R.1, Compl. ¶¶ 17-23.[2] MinXray now brings a motion to dismiss Count One of McNamee's complaint for failure to state a claim. R. 7, Mot. to Dismiss. For the reasons that follow, MinXray's motion to dismiss is denied.

         I. Background

         When evaluating a motion to dismiss, courts must “accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor.” Roberts v. City of Chi., 817 F.3d 561, 564 (7th Cir. 2016). McNamee is an inventor of portable x-ray and imaging equipment. Compl. ¶ 8. MinXray makes, sells, and distributes portable x-ray and imaging products. Id. In 2006, McNamee and MinXray entered into an agreement, Compl. Exh. 1, 2006 Agreement, to keep certain proprietary information confidential while they explored a possible business relationship. Id. ¶¶ 5-6. That agreement defined “proprietary” information as information given by McNamee to MinXray about McNamee's suppliers, his trade secrets, formulas, product plans, specifications, trademarks, copyrights, and other intellectual property information. Id. ¶ 6. The Agreement also specifically defined proprietary information to include information related to “a Mobile Digital X-ray Unit, ” known by the acronym “MDX.” Id. The definition explained that MDX is “a portable stand designed to mount to a portable x-ray generator with any digital radiology detector plate and any laptop computer.” Id.

         The 2006 Agreement further stated that McNamee would own outright any products developed from the proprietary information given to MinXray, and that MinXray would not be entitled to any royalty, commission, or payment for sale of those products without McNamee's consent. Compl. ¶ 6. According to the complaint, over the next two years, McNamee gave MinXray a few different types of proprietary information, specifically information about: (i) MDX; (ii) “portable housings for digital imaging equipment, ” called a “Digital Imaging Housing Package” (DIHP); (iii) the design, making, and selling of direct radiography (DR) portable and mobile equipment; and (iv) the design, making, and selling of “portable and mobile medical equipment in general.” Id. ¶ 7.

         On May 15, 2008, McNamee and MinXray formed the business relationship contemplated by the 2006 Agreement, signing a new contract called “License and Consulting Service Agreement.” Compl. ¶ 8; R. 1, Compl., Exh. 2, 2008 Agreement. The new agreement granted MinXray a license to make and sell McNamee's “DIHP” (Digital Imaging Housing Package) invention and gave McNamee royalties for each sale. 2008 Agreement. McNamee alleges that starting from the date of the 2008 Agreement through May 15, 2015, MinXray designed, made, or sold five products that incorporated his DIHP technology: CMDR-1S, CMDR-2S, MDRK-2, CMDR-2SLW, and Integris. Compl. ¶ 9. MinXray paid McNamee royalties for three of these products, but did not pay McNamee royalties for CMDR-2SLW or Integris because it disputed that those products were covered by the 2008 Agreement. Id. ¶¶ 10, 12-13.

         In July 2015, McNamee wrote to MinXray, asserting a right to receive royalties for CMDR-2SLW and Integris, and requesting MinXray's sales records for both of those products. Compl. ¶ 11. Believing that CMDR-2SLW and Integris used his DIHP technology, McNamee repeatedly wrote to MinXray asking for royalties. Id. ¶ 14. MinXray refused to turn over the sales records, maintaining that it had paid royalties on all products covered by the 2008 Agreement, and arguing that CMDR-2SLW and Integris models “do not incorporate the technology developed by [McNamee] under our agreement.” Id. ¶¶ 12, 15-16.

         In bringing this suit, McNamee alleges two breach of contract claims. Compl. ¶¶ 17-23. Count One arises out of the 2006 Agreement. Id. ¶¶ 17-20. Assuming for the purpose of this count that the CMDR-2SLW and Integris models do not use McNamee's DIHP technology, McNamee alleges that these two products are based on other proprietary information (such as information relating to the Mobile Digital X-Ray Unit and “mobile medical equipment utilizing [direct radiography]”) that McNamee provided to MinXray under the 2006 Agreement. Id. ¶ 18. In “designing, manufacturing, and/or selling” CMDR-2SLW and Integris based on McNamee's proprietary information, MinXray allegedly breached the 2006 Agreement. Id. ¶¶ 19-20.

         In the alternative, McNamee alleges that CMDR-2SLW and Integris do incorporate the DIHP technology and are thus covered by the 2008 Agreement. Compl. ¶¶ 21-23. Because MinXray has not paid royalties on these two products, McNamee contends that MinXray has breached the 2008 Agreement and owes him a $2, 500 royalty payment for each sale of the relevant products between May 2008 and May 2015, and for any sale thereafter (because a royalty-free license to sell that was to be granted to MinXray by McNamee in 2015 is now allegedly null and void). Id. ¶ 23.

         MinXray initially brought a motion to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6), Mot. to Dismiss, arguing that neither count adequately stated a claim, but later withdrew its motion as against the second count (breach of 2008 Agreement). MinXray also withdrew one aspect of its argument against the first count (breach of 2006 Agreement). See R. 18, 5/17/17 Letter by MinXray, Inc.; see also R. 20, 5/18/17 Letter by McNamee.3 This Opinion addresses the remaining argument in the dismissal motion.

         II. Standard of Review

         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This statement must “give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The Seventh Circuit has explained that this rule “reflects a liberal notice pleading regime, which is intended to ‘focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court.” Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema NA., 534 U.S. 506, 514 (2002)).

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). “[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). Factual allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555; see also E.E.O.C v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007). Factual allegations-as opposed to mere legal conclusions-are entitled to the assumption of truth. Iqbal, 556 U.S. at 678-79. “A pleading that offers ‘labels and conclusions' or a ‘formulaic recitation of the elements of a cause of action will not do.'” Id. at 678 (2009) (quoting Twombly, 550 U.S. at 555).

         III. ...

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