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Implied Contract Found in Mass. Tech Deal
The National Law Journal
November 03, 2009
Digital Vision
A federal appeals court recently ruled that technology purchase deals include an implied contract under Massachusetts state law requiring buyers to make reasonable efforts to develop and promote the technology. The case could encourage similar cases to be brought in the state, which is a center for high technology.
Judge Timothy Dyk of the U.S. Court of Appeals for the Federal Circuit, who heard the case while sitting by designation in the 1st Circuit, penned the Oct. 29 panel ruling in Sonoran Scanners Inc. v. PerkinElmer Inc.
"We conclude that under Massachusetts law the Purchase Agreement contains an implied contractual term that required PerkinElmer to use reasonable efforts to develop and promote Sonoran's technology," Dyk wrote.
PerkinElmer bought Sonoran's computer-to-plate printing technology for $3.5 million, plus payouts for five years based on sales, under a 2001 asset purchase agreement. The company also hired Sonoran founder Joseph Donahue, but laid him off in October 2004 after selling the Sonoran business unit. Sonoran claimed PerkinElmer didn't make invest in the business because it let go of Sonoran's sales chief and assigned a Perkins sales person with no relevant experience to lead Sonoran's sales part-time.
Dyk partially reversed the District of Massachusetts' summary judgment ruling for PerkinElmer and asked the lower court to consider whether the contract required PerkinElmer "to use reasonable efforts to develop and promote Sonoran's technology."
On the other hand, Dyk upheld the lower court's summary judgment rulings for PerkinElmer on Sonoran's and Donahue's claims of breach of contract, breach of the implied covenant of good faith and fair dealing for the asset purchase and employment agreement, and violations of the Massachusetts consumer protection law through unfair or deceptive conduct.
The ruling gives sellers the right to claim the purchaser has a duty to make reasonable efforts to market and use the technology or product, said Sonoran's lawyer Edward T. Dangel III of Boston-based Dangel and Mattchen. "In the absence of explicit language in contracts, it would give the sellers the opportunity to litigate that issue," Dangel said.
PerkinElmer's attorney, Boston Day Pitney partner Jonathan Handler, referred calls to the company.
PerkinElmer's general counsel, Joel Goldberg, said in a statement that the company is pleased that the 1st Circuit agreed that there was no breach of express contract, breach of the implied covenant of good faith and fair dealing, or unfair trade practices.
According to Goldberg, PerkinElmer also believes the 1st Circuit's decision "misconstrues Massachusetts precedent and is at odds with the weight of decisions from around the country."
"We are considering our options for resolving this one remaining claim, including seeking further appellate review," Goldberg stated.
The ruling is probably going to be viewed as a "litigation promoter," said Bob Friedman, a business litigation partner at Boston-based Burns & Levinson, who isn't involved in the case. "It's hard to apply a general rule, except that the 1st Circuit seemed to expand the situations where they're willing to apply the reasonable efforts standard [to an asset purchaser]."
Courts in California, which also generates copious technology deals, have long recognized the same rule, said Richard Cauley, a Mountain View, Calif.-based litigation partner at Wang, Hartmann, Gibbs & Cauley of Newport Beach, Calif.
"In both Massachusetts and California, it is implied in every contract," said Cauley, who is also not involved in the case.
