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Paramount Technical Products, Inc., a South Dakota Corporation v. Gse Lining Technology, Inc., a Delaware Corporation, Formerly Known as Gundle Ventures, Inc. Gundle/slt Environmental, Inc., a Delaware Corporation, Formerly Known as Gundle Environmental Systems, Inc. Pg Technology Co., a South Dakota General Partnership

Citations: 112 F.3d 942; 42 U.S.P.Q. 2d (BNA) 1637; 1997 U.S. App. LEXIS 8858Docket: 96-3334

Court: Court of Appeals for the Eighth Circuit; April 29, 1997; Federal Appellate Court

Narrative Opinion Summary

In this case, Paramount Technical Products, Inc., a holder of patents for moisture barrier technology, sought a declaratory judgment from the Eighth Circuit to determine whether a proposed transaction would trigger an automatic termination clause in a licensing agreement. The dispute arose when Paramount learned of a proposed sale of PG Technology, a partnership entity involved in the licensing agreement, to CETCO, a competitor. The licensing agreement contained a provision that licenses would automatically terminate if control or use of the patents fell to an entity outside the original agreement parties without Paramount's consent. The defendants argued that the proposed transaction would not lead to termination, asserting that the licensing and partnership agreements should be interpreted together. However, the district court ruled in favor of Paramount, concluding that the transaction would indeed trigger the automatic termination clause due to the transfer of control to CETCO, a non-party to the licensing agreement. The court's decision was based on the broad language of the termination provision, which was designed to protect Paramount's patent interests. The judgment was affirmed on appeal, emphasizing the necessity of Paramount's consent for any changes in control or use of the licensed patents.

Legal Issues Addressed

Automatic Termination Clause in Licensing Agreements

Application: The court determined that the automatic termination clause would be activated due to a proposed transfer of control or use of the licenses to an entity not party to the original agreements.

Reasoning: The district court ruled in favor of Paramount, stating the automatic termination clause would be activated by the transaction.

Consent Requirement for Transfer of Control

Application: The court emphasized that any transfer of control or use of the patents to a non-party without Paramount's consent would lead to automatic termination of the licenses.

Reasoning: Section 2.03 of the licensing agreement stipulates that licenses terminate automatically if control or use falls to anyone other than the parties without Paramount's consent.

Effect of Partnership Structure Changes on Licensing Rights

Application: The court rejected the argument that changes in partnership structure, allowing new partners, would not affect the licensing rights or trigger termination.

Reasoning: The original licensing agreement explicitly identifies the partnership entities—Paratech and GSE Lining—as parties, implying that new partners do not gain licensing rights.

Interpretation of Licensing and Partnership Agreements

Application: The defendants contended that the licensing and partnership agreements should be interpreted together, but the court found that the licensing agreement's termination provisions were distinct and enforceable.

Reasoning: The defendants appealed, claiming the court erred by not interpreting the licensing and partnership agreements in conjunction.