Paramount Technical Products, Inc. initiated a declaratory judgment action to determine whether a proposed transaction would activate an automatic termination clause in a licensing agreement. Paramount, which holds patents for moisture barrier technology, sought to prevent GSE Lining Technology, Inc., Gundle/SLT Environmental, Inc., and PG Technology Co. from selling partnership interests and corporate stock to an outside entity not included in the original 1989 licensing and partnership agreements. The defendants counterclaimed, asserting that the licenses should not terminate as the agreements must be read together. The district court ruled in favor of Paramount on cross motions for summary judgment, a decision affirmed by the Eighth Circuit.
The original patent owners, Bryan and Patrick McGroarty, had established Paramount and Paratech, Inc. for manufacturing moisture barriers. They entered into two contracts with Gundle/SLT Environmental, Inc. and its subsidiary, GSE Lining Technology, to form PG Technology Co. for manufacturing moisture barriers in Spearfish, South Dakota. A Joint Licensing and Development Agreement granted PG Technology licenses to the patents, stipulating that the licenses would automatically terminate if control or use shifted to parties outside the agreement without Paramount's consent. PG Technology utilized these patents for the product Gundseal, sold exclusively to GSE Lining and Paramount.
Subsequent changes occurred, notably the McGroartys' sale of Paramount's stock to RPM, Inc. and an assignment of patent rights back to Paramount, leaving only Paramount, Gundle Environmental, and PG Technology as the original parties involved in the licensing agreement. Despite these changes, the structure of PG Technology remained intact, with the McGroartys retaining ownership of Paratech.
In December 1994, PG Technology admitted a new partner when Paratech, owned by the McGroartys, sold 99.999% of its 50% interest in PG Technology to GSE International, a subsidiary of Gundle Environmental. The partnership agreement was amended to include GSE International, resulting in three partners: Paratech (.0005% interest), GSE Lining (50% interest), and GSE International (49.9995% interest). Paratech retained ownership but granted Gundle Environmental an option to purchase all its shares. A triggering event for the lawsuit occurred in January 1996 when Paramount learned of a proposed sale of PG Technology to CETCO, a competitor. Gundle Environmental and PG Technology signed a letter of intent to sell their partnership interest to CETCO, which would also acquire Paratech’s interest, allowing CETCO to own 100% of PG Technology. Paramount was asked to confirm that the transaction would not affect its licensing agreement with PG Technology but refused, arguing the transaction would violate section 2.03 of the agreement and automatically terminate the licenses. Paramount sued for a declaration of automatic termination, claiming CETCO's involvement would allow it to control the patents. Gundle Environmental, GSE Lining, and PG Technology denied that the licenses would terminate and counterclaimed, proposing a complex transaction involving the sale of Paratech stock to CETCO and a transfer of partnership interests, ultimately leading to Paratech owning the majority interest in PG Technology and becoming a wholly-owned subsidiary of CETCO.
The district court granted Paramount’s motion for summary judgment, determining that the automatic termination clause in the licensing agreement would be triggered by the proposed transaction. Gundle Environmental, GSE Lining, and PG Technology appeal this decision, contending that the district court improperly interpreted the partnership and licensing agreements as separate documents rather than reading them together. They argue that the transaction would only affect the ownership structure of PG Technology's partner, Paratech, without changing control of the licenses, which would remain with PG Technology as a party to the licensing agreement.
The court applies de novo review for summary judgment and emphasizes that contracts must be interpreted to reflect the parties' intentions as expressed in their language, considering the documents as a whole, especially when executed simultaneously by similar parties. When contract language is unambiguous, it is given its plain meaning.
The appellants assert that the partnership agreement allows for the addition of new partners, and the licensing agreement does not explicitly state that such changes would lead to termination of the licenses. However, Section 2.03 of the licensing agreement specifies that licenses terminate automatically if control or use shifts to anyone not a party to the agreement without Paramount's consent. This provision is designed to protect Paramount’s interests in its patents and licenses.
The partnership agreement does permit changes in partnership composition, but it does not extend the licensing agreement's party status to new partners. The licensing agreement refers specifically to the original partners, indicating that any new partners do not automatically acquire rights under that agreement. If control were to shift to a non-party like CETCO due to a change in partnership, Paramount's consent would be necessary to prevent automatic termination, which was not given. The appellants maintain that the described transaction only alters stock ownership of Paratech, but the court's interpretation of the agreements suggests otherwise.
Control of the licenses remains with the partnership, which is a party to the licensing agreement; therefore, the termination clause does not apply in this instance. Although the transaction was not presented to the district court, it is noted that it would likely result in license termination. The court may choose not to consider new arguments raised on appeal, but it has the discretion to do so. The licensing agreement does not indicate that termination can be avoided if the licenses technically remain with the original parties; instead, it stipulates that licenses will terminate if control or use is transferred to a non-party. The agreement reflects an understanding that Gundle and Paramount entities owned PG Technology, the user of the patents, and mandates Paramount's consent for changes regarding control or use of the patents. Despite Paramount not being a partner, it signed on behalf of PG Technology. Under the new proposed transaction, Paratech would become a wholly-owned subsidiary of CETCO, giving CETCO control over the partnership and the licenses. This change in control, despite the licenses remaining with the partnership, would trigger automatic termination of the licenses under the agreement. Without this termination, a competitor could gain rights to use the patents without Paramount's consent. The broad language of the licensing agreement specifies that licenses will terminate if control or use shifts to a non-party. Both the licensing and partnership agreements were executed simultaneously and must be read together; however, neither allows for new partners or entities gaining control of a partner to be considered parties to the licensing agreement. Consequently, any proposed transactions would transfer control or use of the patents to a non-party, resulting in automatic license termination. The district court's judgment is affirmed, making it unnecessary to address whether the transactions would assign the licenses to CETCO or if such an assignment would breach federal patent law.
