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Maxtech Consumer Products, Ltd. v. Chervon North America Inc.

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

July 1, 2019

MAXTECH CONSUMER PRODUCTS, LTD., AND INSTY-BIT LLC, Plaintiffs,
v.
CHERVON NORTH AMERICA INC., TECHTRONIC INDUSTRIES CO. LTD., MILWAUKEE ELECTRIC TOOL CORPORATION, AND TECHTRONIC POWER TOOLS TECHNOLOGY LIMITED, Defendants.

          MEMORANDUM OPINION AND ORDER

          JOHN J. THARP, JR. UNITED STATES DISTRICT JUDGE.

         Plaintiff Maxtech Consumer Products, Ltd. (“Maxtech”) and defendant Chervon North America, Inc. (“Chervon”) entered into a joint venture under which Chervon agreed to sell products using Maxtech's intellectual property. That joint venture fell apart, however, shortly after Chervon informed Maxtech that the purposes of the joint venture could no longer be accomplished and that all joint venture projects would “be suspended.” Maxtech filed suit alleging that Chervon wrongfully terminated the joint venture. Chervon now moves to dismiss Maxtech's amended complaint, arguing that Maxtech conflated its breach of contract and anticipatory repudiation theories of relief and failed to state a claim under either theory. But it is Chervon, not Maxtech, that has conflated applicable legal standards, specifically the pleading standards under state and federal law. Federal pleading standards govern here, and under those standards Maxtech has stated a plausible claim for relief. Chervon's motion to dismiss the amended complaint is therefore denied.

         BACKGROUND[1]

         Maxtech designs, manufactures, and owns intellectual property for hand tools and power tool accessories. On January 6, 2017, Maxtech entered into a Joint Venture Agreement with Chervon under which Maxtech granted Chervon an exclusive license to manufacture and sell power tools and accessories using Maxtech's intellectual property, including U.S. Patent No. 6, 561, 523 B1 (the “'523 patent”). First Supplement to Chervon's Mot. to Dismiss, Ex. A, Joint Venture Agreement, ECF No. 28-1.[2] Chervon and Maxtech agreed to participate in the joint venture for a term of ten years unless it was terminated earlier in accordance with the terms of the Joint Venture Agreement. Chervon was required under the Joint Venture Agreement to pay Maxtech a substantial licensing fee in two equal installments, with the first installment to be paid immediately and the second to be paid by March 2018. Chervon was also required to provide sales and production services for the joint venture, pay Maxtech a royalty on net sales, share a portion of its profits with Maxtech, and keep the books of account for the joint venture. If a party breached the Joint Venture Agreement and did not cure the breach within sixty days (or an otherwise reasonable time) of receiving notice of the breach, then the non-breaching party could terminate the Agreement.

         Sometime after Maxtech and Chervon executed the Joint Venture Agreement, Chervon entered into a settlement agreement in unrelated litigation involving two other companies, one of which was Techtronic Industries Co. Ltd. (“TTI”). That settlement agreement allegedly required Chervon to “abandon its right to exclusivity on the ‘523 patent and related technology, a right which was a key part of the Joint Venture Agreement.” Am. Compl. ¶ 24, ECF No. 11.[3] Accordingly, on January 4, 2018, Chervon's President and CEO Bill Boltz sent an email to Maxtech's CEO Kailash Vesudeva stating in relevant part:

According to the recent settlement agreement between TTI and Chervon, Chervon is required to provide a copy of Section 22 of the agreement to Maxtech.
With respect to the notice that needs to be provided to Maxtech by January 6th, regarding changes to our business agreement, Chervon is making the following changes through this notice to modify our current agreement.
1. All current Chervon and Maxtech projects will be suspended and the monthly service fee will not be paid after the first 12 months have been completed.
2. Chervon will provide consent that Maxtech may revoke the termination of their license agreement with TTI and TTI may continue as a non-exclusive licensee under the Intsy-Bit license through the duration of all Intsy-Bit Patent Rights.
3. Since the original purpose of the exclusive license arrangement between Chervon and Maxtech cannot be achieved, Chervon is now proposing the following 2 options:
1. Option 1: Chervon will pay the second . . . installment to Maxtech, in exchange, Maxtech will pay to Chervon the lump sum royalties received from TTi for the future license till the end of duration of the patents or the end of agreement between Chervon and Maxtech, whichever is earlier.
2. Option 2: Maxtech will keep all lump sum and royalties received from TTi for the future license, while Chervon will not pay the second . . . installment.
If Maxtech will agree to either option, Chervon will not claim back the first [installment] paid last year.

Mot. to Dismiss, Ex. B, Email from Boltz to Vasudeva dated Jan. 4, 2018, ECF No. ...


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