Court: District Court, D. Delaware; June 30, 2017; Federal District Court
On August 3, 2016, AgroFresh Inc. filed a complaint against several defendants, including Dr. Nazir Mir and Mir-Tech, Inc., stemming from a failed business relationship. The complaint includes claims related to intellectual property ownership, breach of contract, tortious conduct, and patent infringement. Specifically, count I addresses whether MirTech was required to disclose and assign rights to U.S. Patent No. 9,394,216 (the '216 patent) to AgroFresh, while count IV alleges fraudulent inducement by Dr. Mir and MirTech concerning an agreement extension in October 2015. In October 2016, the parties moved to bifurcate counts I and IV to clarify issues and facilitate resolution, a motion the court granted, leading to a bench trial from March 20-22, 2017.
AgroFresh, based in Illinois and a leader in post-harvest technology, primarily utilizes a-cyclodextrin to stabilize 1-MCP, a key component in its business. MirTech, a New Jersey corporation owned by Dr. Mir, is involved in post-harvest technology, particularly in conjunction with AgroFresh. The complaint highlights prior collaborations between AgroFresh and Dr. Mir on 1-MCP applications, leading to negotiations in late 2009 for developing technology that merges AgroFresh’s expertise with Mir’s Modified Atmospheric Package (MAP) technology.
Dr. Mir expressed his commitment to prioritize a partnership over his existing ventures, leading to the establishment of an interim Consulting Services Agreement (CSA) effective January 1, 2010. This CSA outlined services related to the research and development of combination technologies, particularly concerning modified atmospheric packaging (MAP) and ethylene inhibitors like 1-methylcyclopropene (1-MCP) for produce. Ownership of inventions was delineated: each party would retain ownership of inventions developed solely by them, while jointly conceived inventions would be co-owned. Dr. Mir was required to promptly disclose these inventions to Dow’s representative.
Subsequent formal agreements, a Commercial Agreement and a Consulting Agreement, were signed in May 2011 with a retroactive effective date of January 1, 2011. Key provisions included Dr. Mir's obligation to provide various services actively and responsively during the agreement's term. In exchange for compensation, MirTech assigned all proprietary rights related to U.S. Patent Application No. 61/284899 and other relevant patents to AgroFresh. Additionally, for the duration of the agreement and two years post-termination, MirTech and its employees agreed not to engage in activities deemed detrimental to the Product's development or enter conflicting relationships.
MirTech is obligated to promptly notify AgroFresh of any inventions or improvements related to the Products during the Agreement's term. MirTech automatically assigns all rights to these Improvements, including patent rights and other intellectual property, to AgroFresh without additional cost, and must execute necessary documents for the assignment. MirTech will appoint Dr. Nazir Mir as a consultant to conduct ongoing research and development on combination technology, specifically involving modified atmosphere packaging (MAP) and compounds that inhibit ethylene response, such as 1-methylcyclopropene (1-MCP), for use on bananas and other produce. Products resulting from this technology are collectively defined as "Products," with potential expansion through mutual written agreement.
AgroFresh compensates Dr. Mir with a $300,000 annual salary to prevent him from seeking other income sources during commercialization efforts. As Products achieve commercial success, Dr. Mir is entitled to the greater of his salary or a royalty based on sales percentages. However, prior to a 2015 extension, he had not received royalties solely for MAP or 1-MCP. The Consulting Agreement initially ran from January 1, 2011, to December 31, 2013, during which Dr. Mir collaborated with AgroFresh to expand the application of 1-MCP to new crops, aiming to commercialize the RipeLock™ technology by 2014. Dr. Mir interacted frequently with AgroFresh employees and accessed company facilities and information, receiving support from AgroFresh's chemists for his research. The R&D efforts focused on integrating MAP with the SmartFresh™ delivery system through tailored package designs, involving numerous trials on bananas and other crops, described collectively as the MAP-1MCP combo without being limited to SmartFresh.
In July 2013, the parties extended the Consulting Agreement until December 31, 2014. By fall 2013, Dr. Mir and his team at Rutgers University began working on encapsulating 1-MCP within β-cyclodextrin, which was unrelated to the RipeLock technology. Dr. Mir sought a separate confidentiality agreement with AgroFresh prior to disclosing these developments. The discussions included various applications and formulations of 1-MCP, focusing on methods of treatment for produce and encapsulants, particularly those involving cyclodextrin.
In December 2013, Dr. Mir presented a patent application related to hydrocolloid systems aimed at controlling gas release from alpha cyclodextrin, intending to create a non-phytotoxic water-based 1-MCP formulation. MirTech claims Dr. Mir introduced a polymerized beta-cyclodextrin invention during this presentation, asserting that 1-MCP was stabilized through adsorption on the polymer's exterior. However, Dr. Mir’s notes from the meeting only referenced encapsulation, and he later acknowledged uncertainty about whether the 1-MCP was encapsulated or adsorbed in his modified polymer.
The court concluded that Dr. Mir did not present his invention as claimed by MirTech during the December meeting, although it acknowledged that the presentation included 1-MCP information outside the RipeLock context. AgroFresh believed the presentation fell within the scope of their agreements, while Dr. Mir did not. There was no notification from AgroFresh regarding any breach of the agreements related to Dr. Mir's patent filing or the technology discussed.
From January 2013 to December 2014, AgroFresh showed no interest in the β-cyclodextrin and 1-MCP concepts presented by Dr. Mir, as they did not meet commercial needs. The parties continued their work on RipeLock and related commercialization efforts. AgroFresh received one patent in August 2014 related to the combination technology, with Dr. Mir as a listed inventor. In contrast, Dr. Mir was independently pursuing patents and filed two in August and September 2014, which were variations of the hydrocolloid systems discussed with AgroFresh, keeping the company informed of his progress. AgroFresh did not express interest in or claim ownership of Dr. Mir's independent work. In July 2014, the Consulting Agreement was extended again to December 31, 2015, and in October 2014, Dr. Mir reached out to inquire about AgroFresh's interest in his intellectual property, indicating his preference to collaborate with them despite receiving offers from other parties.
Dr. Mir disclosed only hydrocolloid patents to AgroFresh by December 2013. By October 2014, he reviewed a confidentiality agreement from Decco and expanded its scope to encompass all relevant information developed by MirTech over three years in the 1-MCP field. In November 2014, he signed a letter of intent with Decco for a strategic alliance regarding the commercialization of MirTech technologies, particularly U.S. Provisional Patent Application 62077867 related to the '216 patent. This agreement mandated confidentiality for the MOF provisional application and required Decco to pay Dr. Mir a $250,000 advance on future royalties from products utilizing the MOF technology, while granting NewCo exclusive rights to the '216 patent and technology shared with AgroFresh.
From January to December 2015, Dr. Mir worked with Decco to finalize the MOF technology, leading to the '216 patent and the registration of the product TruPick. On June 1, 2015, they confirmed the completion of Phase I activities, resulting in another $250,000 payment to Dr. Mir as an advance on royalties. Throughout 2015, while under contract with AgroFresh, Dr. Mir did not disclose his involvement with Decco or the MOF technology, taking measures to maintain secrecy. Decco advised him to create a public perception of focusing solely on modified beta-cyclodextrin patents, aware of Dr. Mir's anxiety regarding potential repercussions from AgroFresh. Meetings between Dr. Mir and Decco were held discreetly, and he only mentioned MOFs in the final version of a USDA grant proposal.
Despite testifying that he had no concerns about his connections with AgroFresh, evidence suggests otherwise. In July 2015, a second AgroFresh patent was issued with Dr. Mir listed as an inventor, noting a synergistic effect of certain compounds for extending shelf life in avocados. Around this time, he sought an extension of his Consulting Agreement with AgroFresh to secure a guaranteed salary rather than relying solely on royalties. Following these developments, Decco portrayed Dr. Mir as shifting his focus entirely from AgroFresh, while he simultaneously expressed respect for AgroFresh and support for RipeLock Technology.
In October 2015, Dr. Mir and Decco completed a Term Sheet granting Decco exclusive rights to source 1-MCP and related technologies from NewCo. On October 7, 2015, they submitted a registration packet for TruPick to the EPA. Concurrently, Dr. Mir was negotiating a Third Extension of his Consulting Agreement with AgroFresh. On October 9, Zettler from AgroFresh provided a modified Consulting Agreement with a revised definition of "Product" to include products developed using MAP or MAP-1-MCP technologies. Dr. Mir subsequently added clarifications to ensure that the sales and marketing of 1-MCP alone were excluded from this agreement. On October 28, he proposed language to prevent any claims between the parties regarding 1-MCP applications, which Zettler ultimately accepted on October 29.
Dr. Mir continued negotiations for the Third Extension while working with Decco and did not inform AgroFresh about his activities with Decco until after the signing. Zettler later stated that he would not have signed the Third Extension had he known about Dr. Mir’s involvement with Decco in developing a competitive product. AgroFresh continued to pay Dr. Mir until his dealings with Decco became known in July 2016.
From January to July 2016, following Dr. Mir’s trip to India, AgroFresh representatives met with him to discuss a potential distributorship, recognizing him as a potential competitor. Dr. Mir did not disclose the '216 technology at this meeting, only mentioning interest from producers including Decco without committing to anyone. In April 2016, Decco advanced its New Partnership Platform for 1-MCP technologies, and in May, the '216 patent application was published. By June 2016, AgroFresh believed the only competing patent activity from Dr. Mir was from 2013. Dr. Mir denied any relationship with Decco when questioned by Zettler. On June 27, 2016, both Dr. Mir and Decco received EPA approval for TruPick, a significant milestone that surprised AgroFresh. The following day, Dr. Mir disclosed the '216 patent technology to Zettler, who was taken aback and was asked for AgroFresh's interest in the MOF technology within a week.
Dr. Mir's trial testimony regarding a potential collaboration with AgroFresh, Decco, and MirTech lacks supporting contemporary documentation. The existing term sheet granted Decco exclusive rights to the MOF technology, while Decco held the product registration for TruPick, not Dr. Mir or MirTech. On June 30, 2016, Dr. Mir and MirTech entered a consulting agreement with Essentiv LLC, a joint venture with Decco, to work on 1-MCP products. AgroFresh was still assessing Dr. Mir's proposal as of July 5, 2016. On July 11, 2016, Decco/Essentiv announced the US EPA registration of TruPick, utilizing Dr. Mir's MOF technology for postharvest freshness management. The court determined that the MOF technology is separate from the β-cyclodextrin technology disclosed to AgroFresh in December 2013, with Dr. Mir not revealing the MOF technology or his relationship with Decco until mid-2016. The MOF technology, an alternative stabilization method for 1-MCP, could substitute for SmartFresh when used with a MAP bag.
The court found the agreements clear and unambiguous, interpreting them based on their plain meaning. Delaware courts favor a straightforward reading, only identifying ambiguity when multiple reasonable interpretations arise. Section 12.1 of the Agreements required MirTech to notify AgroFresh about any inventions or modifications related to the Products. The term "related to" was interpreted broadly to encompass any technology improvements, including the MOF technology disclosed in the '216 patent, which enhances 1-MCP stabilization beyond the a-cyclodextrin method used in SmartFresh. The Agreements’ provisions support a broad interpretation of Section 12.1, indicating that Dr. Mir's obligations extend to all relevant technological advancements.
Dr. Mir's exclusive agreement with AgroFresh includes substantial compensation and a broad non-compete clause, indicating a clear intention to restrict his involvement in post-harvest technology. The Agreements require Dr. Mir to confirm no conflicts with third parties. The court interprets the term 'related to' in its broadest sense, rejecting Dr. Mir's argument that independent sales of components would not fall under this umbrella. The technology is essential to the combination of 1-MCP and MAP, establishing its relation to the overall product.
Despite the court's determination that the Agreements are not ambiguous, consideration of extrinsic evidence further supports AgroFresh's claim that the '216 patent technology was assigned to them under Section 12.1. Dr. Mir's representations to the U.S. government, where he acknowledged that the '216 patent technology is directly related to the RipeLock technology, reinforce this connection. His presentation to AgroFresh in December 2013 about 1-MCP-stabilizing concepts aligns with this interpretation, as both parties recognized the significance of these delivery systems to the RipeLock combination.
Dr. Mir’s proposal of the 'related to' language in Section 12.1 is noteworthy, as it reflects his understanding of the scope of assignment related to the Product. The court finds that the deletion of an additional clause does not limit the meaning of 'related to,' and the agreement appropriately confines Section 12.1 to the inventions pertinent to the Product. Section 12.1 stipulates that MirTech automatically assigns all rights to improvements to AgroFresh without additional costs.
The assignment of rights is effective upon the creation of the 'inventions, discoveries, improvements, or other modifications.' Defendants have claimed waiver as an affirmative defense, which under Delaware law requires proof of knowledge of all material facts, intent to waive, and a willingness to refrain from enforcing contractual rights. This intention must be clearly evidenced in the record. Although AgroFresh's actions in December 2013 could be construed as a waiver regarding ideas presented at that meeting, it did not waive its rights to the MOF technology, which had not been disclosed until June 28, 2016. Dr. Mir's failure to disclose the MOF technology means AgroFresh could not have waived rights to technology that was not yet in existence. The presentation of one idea by Dr. Mir did not grant him unrestricted rights to other undisclosed technologies. The Agreements did not require AgroFresh to take proactive measures to preserve its rights during the December meeting. Furthermore, Dr. Mir's communication in December 2013 could have led AgroFresh to expect ongoing compliance regarding new developments. The court ruled that the waiver defense fails due to the existing non-waiver provision in the Agreements, which Delaware courts uphold as protecting against the unintended loss of contractual rights due to a party's conduct. The AgroFresh representatives at the December 2013 presentation were not involved in drafting the Agreements and were not designated to receive notifications as per the Agreements.
Amendments to the Agreements were not established through the parties' conduct, as Delaware courts are hesitant to recognize such modifications when an express clause requires written amendments. Although parties can waive the "no oral amendment" clause, this waiver is not applicable when written amendments have been executed. The parties' actions indicated no intent to modify this clause, as evidenced by three written extensions of the Consulting Agreement and one written amendment to the Commercial Agreement, demonstrating their understanding of how to properly execute amendments.
Dr. Mir's affirmative defense of estoppel was not proven by clear and convincing evidence. To establish estoppel, Dr. Mir needed to show that Agro-Fresh's conduct led him to change his position detrimentally, without knowledge of the true facts, and that he reasonably relied on Agro-Fresh's conduct. Delaware law generally rejects claims of equitable estoppel based on oral statements, especially when the terms of the agreement are clear and require written amendments. Dr. Mir was aware of the Agreements' provisions and admitted that nothing required Agro-Fresh to assert ownership rights over the technology, which had already been assigned to it. Furthermore, Dr. Mir did not inform Agro-Fresh about the MOF technology until June 2016, undermining any claim of reliance on Agro-Fresh’s conduct or statements.
Regarding the Third Extension, courts typically respect the effective date of agreements and do not apply them retroactively unless explicitly stated.
Contractual terms can be effective prior to execution if such coverage is explicitly stated in the contract. In the absence of a clear earlier effective date or intent for retroactivity, courts typically do not recognize retroactive modifications. The case of Sec. Watch, Inc. v. Sentinel Sys. Inc. illustrates this principle, as the court declined to apply a merger clause retroactively due to a lack of indication from the agreement's provisions.
The Third Extension lacks an earlier effective date and does not express a clear intention for retroactive application, unlike previous agreements that specifically included retroactive language. The execution of the CSA and the original Agreements both included retroactive provisions, and the Second Extension explicitly stated it was retroactive. However, the Third Extension is only effective from October 28, 2015, onward and focuses on future activities, as shown by the use of future tense language regarding certain activities not violating the terms.
Additionally, the Third Extension applies only to "1-MCP alone," which is defined as the ethylene-inhibiting compound itself, and does not encompass delivery products containing 1-MCP. During negotiations, the exclusion of "1-MCP-related products" reinforced that the Third Extension does not apply to these items. Lastly, to establish fraudulent inducement, a party must demonstrate: (1) a false representation, (2) knowledge of its falsity, (3) intentional inducement, (4) reasonable reliance, and (5) damages.
A party must disclose information that, if not revealed, would render its statements misleading. In the context of Dr. Mir's dealings with AgroFresh and Decco, he had a duty to disclose critical information, including his ongoing collaboration with Decco on the TruPick product and the significant value of the MOF technology, which he attributed $100 million in EBITDA. Despite having completed substantial work with Decco and receiving $250,000, Dr. Mir misled AgroFresh by claiming he had not found a party for commercialization and suggested he had disclosed all relevant patents. He also misrepresented his commitment to AgroFresh while planning to terminate his agreements to pursue a new venture with Decco. His failure to disclose these material facts breached his obligations under the agreements with AgroFresh, which included a duty to promptly inform them of any improvements related to the products. The lack of disclosure was significant enough that AgroFresh would have likely terminated his consultancy had they been aware of his actual intentions. Consequently, a contract can be rescinded for failing to disclose essential facts pertinent to the transaction.
Dr. Mir was obligated to disclose critical information regarding the MOF technology, the ’216 patent, his activities with Decco, and his plans to cease collaboration with AgroFresh, as these facts were essential to the Third Extension transaction. The court found that Dr. Mir actively concealed his work with Decco, which constitutes fraud through deliberate concealment or failure to disclose material facts. His involvement in a competitive technology was crucial to the transaction, as he intended to induce reliance on his misrepresentations, leading to damages for AgroFresh. The court emphasized that reasonable reliance considers what a reasonable person would find significant in making transactional decisions. Dr. Mir fostered a trust-based relationship during negotiations, which led AgroFresh to enter into the Third Extension based on his falsehoods. The agreements clearly state that all improvements related to the Product, including the ’216 patent technology, are assigned to AgroFresh. Consequently, Dr. Mir fraudulently induced AgroFresh to execute the Third Extension without disclosing pertinent information, resulting in the rescission of the agreement. The court ruled in favor of the plaintiff on counts I and IV of the complaint, directing the clerk to enter judgment accordingly. Additionally, the document references the context of initial negotiations involving Dow Chemical Company, emphasizing the importance of intellectual property assignments in the collaborative relationship with Dr. Mir and AgroFresh.
Dr. Mir did not discover metal-organic framework (MOF) technology for stabilizing 1-MCP until between May 2014 and May 2015, as evidenced by his separate provisional application filed in November 2014, which did not claim priority to earlier patent applications related to p-cyclodextrin presented in December 2013. AgroFresh's Mark Zettler indicated in October 2014 that they intended to pursue the patents but had not discussed compensation. Zettler later informed Dr. Mir in late 2014 or early 2015 that he was free to seek commercial partnerships for the December 2013 technology, provided he returned to AgroFresh for collaboration. The terms "MOF technology" and "the 216 patent technology" are used interchangeably throughout the document. Dr. Mir’s collaboration with AgroFresh on the RipeLock technology was noted as "related research" in a grant proposal, describing MOF technology as an improvement to AgroFresh's existing encapsulation methods. AgroFresh paid Dr. Mir over $1.8 million in salary, although the RipeLock product was not commercially successful by 2016. Importantly, Dr. Mir did not disclose his prior relationship and collaborations with Decco, including a $250,000 payment and anticipated consulting fees, until July 2016. Evidence cited by Dr. Mir regarding the December 2013 technology is deemed irrelevant, as the court found it distinct from the technology covered by the '216 patent. His request for a confidentiality agreement for the December meeting does not impact the existing agreements' clarity or suggest any different understanding between the parties.
Dr. Mir did not inform AgroFresh about the specifics of his presentation prior to seeking a confidentiality agreement, nor did he clarify his reasons for needing such an agreement. As a result, the execution of the agreement does not indicate a mutual understanding between the parties. Dr. Mir claimed that clause 12.1 should only pertain to the Product, and the court concluded that striking clause (b) effectively narrowed the provision to inventions related to the Product. Dr. Mir's later testimony cannot alter the original meaning of the Agreements. The ideas from a December 2013 meeting are not relevant in this phase of the case, and the court refrains from addressing them. The existence of an estoppel defense is questionable, especially in light of an automatic assignment provision in the agreement, as supported by precedent (DDB Techs. L.L.C. v. MLB Advanced Media, L.P.). Although the Agreements specifically define 1-MCP as a gas, a delivery system for 1-MCP is considered related to the technology, thus falling within the broader terms of clause 12.1. The court recognizes that the long-standing commercial partnership between the parties established a duty to disclose information, supported by case law indicating that such a duty may arise from customary dealings. Dr. Mir had been under contract with AgroFresh for over five years and had consistently stressed the importance of transparency in their relationship.
