UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

SRAM, LLC, )

)

Plaintiff, ) No. 12 C 03629

)

v. )

) Judge Edmond E. Chang

HAYES BICYCLE GROUP, INC., )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Plaintiff SRAM, LLC seeks to recover damages stemming from Defendant Hayes

Bicycle Group, Inc.’s purported infringement of one of SRAM’s patents, numbered

6,217,049 B1 (‘049 Patent). R. 50, Second Am. Compl.1

 SRAM moves for partial

summary judgment on the issue of whether Hayes is bound by the Settlement and

License Agreement (call it the “Settlement Agreement” for convenience) executed by

SRAM and another company, Answer Products, Inc., whose obligations SRAM believes

Hayes has taken on. R. 63, Pl.’s Mot. Partial Summ. J. On the other side of the same

coin, Hayes moves to dismiss Count 1 of SRAM’s complaint, which seeks to enforce the

Settlement Agreement against Hayes. R. 68, Def.’s Mot. Dismiss. For the reasons

discussed below, the Court concludes that Hayes is bound, as a matter of law, by the

terms of the Settlement Agreement, and grants SRAM’s motion for partial summary

judgment. The Court also concludes that SRAM has set forth sufficient facts in its

1

The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a)

because the action involves the determination of the infringement of a United States Patent. 

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complaint to state a claim, and, consequently, denies Hayes’s Motion to Dismiss Count

1 of the Second Amended Complaint.

I. 

In deciding SRAM’s motion for summary judgment, the Court views the evidence

in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd.

v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In deciding Hayes’ Motion to Dismiss,

the Court accepts the complaint’s factual allegations as true and draws reasonable

inferences in SRAM’s favor. Ashcroft v. al–Kidd, ––– U.S. ––––, 131 S. Ct. 2074, 2079

(2011). Although the parties disagree on many of the specific details, the following facts

are limited to those necessary to deciding these motions, and are not in dispute (except

as specifically noted). 

In 2003, SRAM2

 sued Answer over Answer’s alleged infringement of two patents

held by SRAM: Patent Nos. 5,934,697 (‘697 Patent) and the ‘049 Patent. R. 74, Ex. 1,

Complaint. Before any formal discovery took place, however, SRAM and Answer

entered into the Settlement Agreement and filed a stipulation of dismissal. R. 74, Ex.

4, Settlement and License Agreement; R. 74, Ex. 5, Notice of Filing of Stipulation of

2

As Hayes points out, “SRAM Corporation,” the party referenced in the 2003 lawsuit and

the Settlement Agreement, bears a different name to the party involved in the present

litigation, “SRAM, LLC.” See R. 80, Memorandum in Opposition to SRAM’s Motion for Partial

Summary Judgment (hereinafter Opp’n Mem.) at 13. The Declaration of Michael J. Hickey,

submitted by SRAM in support of its Motion for Partial Summary Judgment, establishes that

SRAM, LLC is the successor-in-interest to SRAM Corporation. R. 65-1, Hickey Decl. ¶ 3;

Hickey Decl. Ex. A at 1; Hickey Decl. Ex. F at 3; Hickey Decl. Ex. G at 2, 3. Because there is

no legal significance to SRAM’s name change, and because SRAM Corporation’s assignment

of the ‘049 Patent to SRAM, LLC is a matter of public record, see Fed. R. Evid. 201(b)(2);

Denius v. Dunlap, 330 F.3d 919, 926-27 (7th Cir. 2003), the Court will refer to both SRAM

Corporation and SRAM, LLC as “SRAM” for the sake of simplicity.

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Dismissal. Among the terms of the Settlement Agreement were that Answer could not

challenge the validity of the ‘049 Patent, and that Answer would pay SRAM royalties

on the sale of any ‘049 Patent-infringing products. Settlement Agreement §§ 7.1, 7.4.

The extent to which Answer was prohibited from challenging the patents is disputed

by the parties. See infra Part III.A.5. 

Soon thereafter, Answer entered into a Loan and Security Agreement with a

financing company called Guaranty Business. In that agreement, Answer pledged, as

collateral, a collection of its assets related to the design and production of suspension

forks and their components for use in bicycles. R. 65-1, Ex. I, Secured Party Asset

Purchase Agreement. Answer defaulted on this loan, and voluntarily surrendered the

collateral to Guaranty as part of a transaction whereby Guaranty sold those same

assets to HB Bicycle Components, LLC. R. 74, Ex. 7, Settlement and Voluntary

Surrender Agreement. At the time of this sale, HB Bicycle’s sole member was

Defendant Hayes. R. 65, Pl.’s Statement of Facts (Pl.’s SOF) ¶ 20. Around six days

after this acquisition, HB Bicycle changed its name to HB Suspension Products, LLC

(there is no legal significance to HB’s name change, so both HB Bicycle and HB

Suspension will be referred to as “HB” throughout this opinion). Pl.’s SOF ¶ 27. In

2007, HB paid SRAM some royalty payments on the sale of products that potentially

infringed the ‘049 Patent, pursuant to the terms of the Settlement Agreement. R. 96-1,

Ex. J, Campbell Dep. at 96:7-97:15. HB later transferred all of its assets to its sole

member, Defendant Hayes, on January 1, 2009. Pl.’s SOF ¶¶ 28-29.

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In 2012, SRAM sued Hayes, alleging both that Hayes has sold products that

infringe the ‘049 Patent and that Hayes has not paid royalties on these products since

2007, in violation of the Settlement Agreement. Second Am. Compl. SRAM has moved

for partial summary judgment on the issue of whether Hayes is bound by the terms of

the Settlement Agreement, and conversely, Hayes has moved to dismiss SRAM’s claim

that Hayes is bound by the Settlement Agreement.

II.

Summary judgment must be granted “if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). A genuine issue of material fact exists if “the

evidence is such that a reasonable jury could return a verdict for the nonmoving party.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In evaluating summary

judgment motions, courts must view the facts and draw reasonable inferences in the

light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007).

The Court may not weigh conflicting evidence or make credibility determinations,

Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 704 (7th Cir. 2011), and must

consider only competent evidence of a type otherwise admissible at trial, Gunville v.

Walker, 583 F.3d 979, 985 (7th Cir. 2009). The party seeking summary judgment has

the initial burden of showing that there is no genuine dispute and that they are

entitled to judgment as a matter of law. Carmichael v. Village of Palatine, 605 F.3d

451, 460 (7th Cir. 2010); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986);

Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008). If this burden is met, the adverse

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party must then “set forth specific facts showing that there is a genuine issue for trial.”

Anderson, 477 U.S. at 256.

In evaluating a motion to dismiss, the Court must accept as true the complaint’s

factual allegations and draw reasonable inferences in the plaintiff’s favor. al-Kidd, 131

S. Ct. at 2079. Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally

need only include “a short and plain statement of the claim showing that the pleader

is entitled to relief.” This short and plain statement must “give the defendant fair

notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks and citation omitted).

The Seventh Circuit has explained that this rule “reflects a liberal notice pleading

regime, which is intended to ‘focus litigation on the merits of a claim’ rather than on

technicalities that might keep plaintiffs out of court.” Brooks v. Ross, 578 F.3d 574, 580

(7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)). “A

motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim

upon which relief may be granted.” Hallinan v. Fraternal Order of Police Chi. Lodge

No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[W]hen ruling on a defendant’s motion to

dismiss, a judge must accept as true all of the factual allegations contained in the

complaint.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Twombly, 550 U.S. at

555–56); McGowan v. Hulick, 612 F.3d 636, 638 (7th Cir. 2010). “[A] complaint must

contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,

550 U.S. at 570). These allegations “must be enough to raise a right to relief above the

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speculative level.” Twombly, 550 U.S. at 555. The allegations that are entitled to the

assumption of truth are those that are factual, rather than mere legal conclusions.

Iqbal, 556 U.S. at 678–79.

III.

A. SRAM’s Motion for Partial Summary Judgment

SRAM’s motion boils down to one question: has Section 8.5 of the Settlement

Agreement—the assignment provision of the agreement—been satisfied so as to validly

transfer the Settlement Agreement’s rights, and their accompanying obligations, to

Hayes? To answer this question, the Court will examine the Settlement Agreement

between SRAM and Answer, as well as the agreements passing the property from

Answer to Guaranty to HB. These agreements are governed either by Illinois or by

California law.

Illinois follows the “four corners” rule of contract interpretation. Under this

common-law rule of contract interpretation, “a court initially looks to the language of

a contract alone. If the language of the contract is facially unambiguous, then the

contract is interpreted by the trial court as a matter of law without the use of parol

evidence.” Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 884 (Ill. 1999)

(citations omitted). But if “the trial court finds that the language of the contract is

susceptible to more than one meaning, then an ambiguity is present.” Id. Only where

an ambiguity is present may extrinsic evidence be admitted to aid the trier of fact. Id.

California law is somewhat more permissive with respect to extrinsic evidence: so long

as the evidence “is relevant to prove a meaning to which the language of the

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instrument is reasonably susceptible,” it should be admitted by the court, even if the

meaning of a written instrument is “plain and unambiguous on its face.” Pac. Gas &

Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644 (Cal. 1968)

(considering and rejecting the four corners rule). The determination of whether a

written contract is ambiguous under California law is, nevertheless, a question of law

that must be decided by the court. Brant v. Cal. Dairies, Inc., 48 P.2d 13, 16 (Cal.

1935); Gardiner v. Gaither, 329 P.2d 22, 27 (Cal. Dist. Ct. App. 1958)ifornia.

1. The Settlement Agreement

By its terms, the Settlement Agreement is governed by Illinois law. Settlement

Agreement § 8.2. As explained below, because the assignment provision of the

Settlement Agreement is unambiguous, no extrinsic evidence will be considered in

interpreting that provision. Air Safety, 706 N.E.2d at 884. In full, the assignment

provision, Section 8.5, reads:

The license and covenant not to sue granted in this Agreement is personal

to Answer and shall not be assigned or transferred, in whole or in part,

by Answer or by operation of law without the prior written consent of

SRAM; provided, however, that Answer may transfer or assign its rights

under this Agreement in connection with the merger, sale or transfer of

all or substantially all of (i) its stock or (ii) its assets related to its design

or production of suspension forks and their components for use in

bicycles.

Settlement Agreement § 8.5 (emphases added). This section reads like a general rule

(SRAM’s consent is needed for an assignment) with an exception (Answer may assign

its rights in connection with an all-stock or all-asset transfer). One part of Hayes’s brief

seems to accept that interpretation, but another part of the brief describes the

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assignment provision as requiring two conditions on transfers. For example, Hayes

argues at one point that “SRAM imposed two conditions before the personal license

could be transferred to a third party:” First, “prior written consent of SRAM is required

before the [Settlement] Agreement can be assigned or transferred by Answer or by

operation of law”; second, “Answer, not the other party, may transfer or assign its

rights under this Agreement in connection with the merger, sale or transfer of all or

substantially all of its stock or its assets.” R. 73, Mem. Support Hayes’s Mot. Dismiss

at 5. Earlier in its same brief, however, Hayes appears to contradict this, stating that

“[o]nly in the event of a merger, sale, or transfer of all or substantially all of Answer’s

stock or assets is Answer permitted to assign or transfer the [Settlement] Agreement

without SRAM’s written consent.” Id. That construction—the general rule of consent

unless there is an all-stock or all-asset transfer—is the only reasonable way to read the

plain language. Section 8.5 does not require that SRAM must give written consent and

Answer must transfer substantially all of its stocks or suspension-fork assets before

Answer’s rights may be transferred or assigned.3

 Rather, Section 8.5’s use of a

semicolon and the phrase “provided, however, that” means that these two terms

function in the alternative: either Answer may assign the license and covenant not to

sue with SRAM’s written consent (even if that transfer is unaccompanied by other

assets), or Answer may assign “its rights under this Agreement” so long as that

3

Because consent is not needed for an assignment where there is an all-asset transfer,

the letter that Hayes supplemented into the record, R. 140, does not impact this decision,

which is based on the transfer, not consent.

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transfer is accompanied by substantially all of its stock or suspension-fork assets (even

if SRAM does not consent to that transfer). Settlement Agreement § 8.5. No evidence

in the record suggests that SRAM has given its written consent. So the issue is

whether Answer has validly transferred its rights along with substantially all of its

stock or pertinent assets.

Looking more closely at this part of Section 8.5, there are three conditions that

must be satisfied in order to effectuate a transfer of the Agreement’s rights without

SRAM’s written consent: (1) The transfer must be made by Answer or its assignee

(“Answer may . . .”); (2) the transfer must be made in connection with a merger, sale,

or transfer; and (3) that merger, sale, or transfer must include substantially all of

Answer’s stock or suspension fork-related assets. Id. (emphasis added). First, because

the provision notes that Answer may transfer or assign its rights, an asset transfer

effectuated by theft would not fulfill this condition; were the license somehow to come

into the possession of another party without Answer’s consent, involvement, or

knowledge, then Answer would not have transferred the license. A closer question is

whether a transfer effectuated by court order, say, through bankruptcy, could satisfy

Section 8.5. The phrase “Answer may” implies that the transfer must spring from

Answer rather than some other agent, and it implies some agency in the decision on

Answer’s part.4

 Second, Answer may only transfer its rights under the Agreement in

4

The Court accepts, to a limited extent, the construction of “Answer may” proposed by

Hayes: this provision “is permissive rather than mandatory” and Answer may therefore choose

not to transfer its rights and obligations under the Settlement Agreement along with the rest

of its assets. Mem. Support Hayes’s Mot. Dismiss at 5 n.5. But that language does not purport

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connection with a merger, sale, or some other transfer. This condition is broad and selfevident, as it only requires Answer’s transfer to have some “connection with” whatever

“merger, sale, or transfer” is being undertaken. Id. Finally, the transfer provision

requires that the rights under the Agreement be passed along with substantially all

of either Answer’s stock or its suspension fork-related assets. This condition is likewise

self-evident: even if Answer wanted to transfer the covenant without SRAM’s written

permission, Answer cannot do so unless it also transfers substantially all of its stock

or relevant assets. Id.

With this in mind, this Court turns to consider whether the assignment

clause—Section 8.5—of the Settlement Agreement was satisfied for each of the steps

by which the Agreement ultimately passed to Hayes.

2. The Transfer from Answer to Guaranty

On November 2, 2006, Answer entered into an agreement to voluntarily

surrender its collateral, including its bicycle suspension assets, to Guaranty. 

Voluntary Surrender Agreement at 1. Unlike the Settlement Agreement, the Voluntary

Surrender Agreement is, by its terms, governed by California law. Voluntary

Surrender Agreement§ M.15. The language of the Voluntary Surrender Agreement is,

in all ways relevant to the question at hand, unambiguous, and neither Hayes nor

to authorize, as Hayes seems to argue, Answer to transfer some of its rights under the

Settlement Agreement—such as its right to produce Royalty Products under the Agreement

without fear of suit from SRAM—without also transferring its accompanying obligations—such

as its obligation not to challenge the validity of the ‘049 Patent. Indeed, the rights under the

agreement are conditioned on the corresponding obligations. 

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SRAM provides any facts that cast the Agreement in a different light. Pac. Gas & Elec.

Co., 442 P.2d at 644; Brant, 48 P.2d at 16; Gardiner, 329 P.2d at 27.

The Voluntary Surrender Agreement meets the three requirements of Section

8.5 and therefore effectuates a transfer of the Agreement’s rights from Answer to

Guaranty. First, Answer’s voluntary surrender of its assets meets whatever agency

requirement may be read into Section 8.5 of the Settlement Agreement. The Voluntary

Surrender Agreement notes in several places that the assets are being surrendered

voluntarily. E.g., Voluntary Surrender Agreement § M.3(a), (b). The applicable

California loan-default statute, California Commercial Code § 9609, permits the

passing of assets either by judicial process, Cal. Com. Code § 9609(b)(1), or by the

parties’ own actions, Cal. Com. Code § 9609(b)(2). As the Voluntary Surrender

Agreement unambiguously reflects, Answer transferred its assets to Guaranty

voluntarily, under Cal. Com. Code § 9609(b)(2). Therefore, even if Answer must

exercise some agency in transferring the Settlement Agreement, it did so here by

electing to surrender its assets to Guaranty.5

On the second requirement for assignment under Section 8.5, Answer’s

voluntary surrender of the collateral in connection with its default constitutes a

5

As will be discussed in greater detail later, there is no genuine ambiguity about what

is being transferred from Answer to Guaranty: the Voluntary Surrender Agreement references

the Asset Purchase Agreement, which provides a list of the assets transferred from Answer to

Guaranty to HB, including, crucially, “general intangibles (including all patents, trademarks,

trade secrets, and know-how and all rights to use of same, including, without limitation, rights

granted by SRAM . . . ).” Asset Purchase Agreement § 1.1. Thus, the Court concludes that there

is no genuine dispute of material facts with respect to this issue: Answer has transferred the

rights provided by the Settlement Agreement to Guaranty through the Voluntary Surrender

Agreement.

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“transfer or assign[ment]” made in connection with a “merger, sale or transfer” of its

assets. Settlement Agreement § 8.5. Although these assets were passed in connection

with Answer’s loan default, the transfer still fits comfortably within the requirement

that the assets be “transferred or assigned” in connection with a “merger, sale or

transfer”; Answer’s voluntary surrender of these assets pursuant to its contractual

credit obligations is no less a transfer of the assets then the voluntary surrender of the

assets pursuant to any other contractual obligation. 

The third and final requirement for assignment is also met. The transfer in

question involved all of Answer’s stock and substantially all of its assets. Specifically,

Recital M.3 of the Voluntary Surrender Agreement states that the collateral to be

surrendered “shall include 100% of the issued and outstanding capital stock of

Answer.” Voluntary Surrender Agreement § M.3(a). Moreover, Recital J of the

Voluntary Surrender Agreement states that “HB Bicycle Components, LLC (the

‘Buyer’) has agreed to purchase the assets of Answer through a private sale (the

‘Private Sale’) conducted by GBCC.” Voluntary Surrender Agreement § J. Although the

specific list of the assets surrendered from Answer to Guaranty and then sold to HB

is redacted, revealing only that the rights associated with the patent in

question—Patent ‘049—were transferred, the Secured Party Asset Purchase

Agreement between Guaranty and HB nevertheless provides a sufficiently detailed and

complete list of the assets transferred to HB. That list indicates that the assets include,

at the very least, substantially all of Answer’s assets related to its suspension-fork

business. Asset Purchase Agreement § 1.1. For example, in addition to the rights

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associated with the specific patent at issue, other assets listed in the Asset Agreement

include the “Debtor’s complete inventory of raw materials, supplies, work in process,

finished goods and parts . . . used in or related to the Business,” “[a]ll of the property

which is or has been used by Debtor in . . .the Business,” all dealer and customer lists

and rights, “[a]ll customer contracts of Debtor which Purchaser elects to assume

relating to the Business,” and “[a]ll accounts” and accounts receivable held by the

Debtor at the time of the surrender. Asset Purchase Agreement § 1.1(c), (d), (g), (j), (k). 

To summarize, the Voluntary Surrender Agreement and the Asset Purchase

Agreement show that Answer effectuated a transfer of all or substantially all of its

stock and assets to Guaranty. Therefore, along with the rights provided by the

Settlement Agreement—including the right to produce Royalty Products that infringe

the ‘049 Patent without fear of suit—Guaranty assumed the Settlement Agreement’s

obligations. 

3. The Transfer from Guaranty to HB

Immediately after the transfer of assets from Answer to Guaranty, Guaranty

sold all of Answer’s assets to HB. See Asset Purchase Agreement. Like the Voluntary

Surrender Agreement, the Asset Purchase Agreement is governed by California law.

Asset Purchase Agreement § 8.6. The language of the Asset Purchase Agreement is,

in all ways relevant to the present motions, unambiguous, and neither Hayes nor

SRAM provide any facts that cast the Agreement in a different light. Pac. Gas & Elec.

Co., 442 P.2d at 644; Brant, 48 P.2d at 16; Gardiner, 329 P.2d at 27 .

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Like the Voluntary Surrender Agreement, the Asset Purchase Agreement meets

the three requirements of Section 8.5 of the Settlement Agreement and therefore

effectuates a transfer of Answer’s rights under the Settlement Agreement from

Guaranty to HB. Hayes’s arguments to the contrary are rejected. First, Hayes contends

that this sale did not fulfill the terms of the Settlement Agreement because “Answer

[did not] transfer or assign its rights under this Agreement.” R. 73, Def.’s Mot. Dismiss

Br. at 8. According to Hayes, because Answer was not party to the Asset Purchase

Agreement, and “because Guaranty Business did not succeed Answer for the purpose

of conducting Answer’s ongoing business operations”—“Guaranty Business merely

collected the collateral pledged by Answer to collect some of the money Answer owed

under the Credit Agreement”—the Settlement Agreement could not have been satisfied

with respect to the Asset Purchase Agreement. Id. But Answer did not need to be a

party to the Asset Purchase Agreement: as previously discussed, Answer had already

assigned all of its rights (and obligations) associated with the Settlement Agreement

to Guaranty through the Voluntary Surrender Agreement. Among the rights assigned

to Guaranty is that provided by Section 8.5: the right to assign the license or covenant

not to sue, as well as all other rights under the Agreement. Settlement Agreement §

8.5. Because Answer validly assigned its rights, Guaranty took on the power to exercise

its newly-possessed right to assign the Settlement Agreement (and the Agreement’s

accompanying rights and obligations)—so long as, of course, the other conditions of

Section 8.5 are met. The Settlement Agreement cannot reasonably be read to limit the

assignment of the rights under the Agreement to one assignment, exclusively by

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Answer and not an assignee. The section must instead be construed to mean that

Answer, or its assignee, may transfer the license and covenant not to sue. Just look at

the section of the Settlement Agreement immediately before Section 8.5: “Unless

otherwise restricted herein, this Agreement shall be binding upon and inure to the

benefit of and be enforceable by the parties hereto and their respective successors and

assigns.” Settlement Agreement § 8.4. Because Guaranty was properly Answer’s

assignee, and because Guaranty exercised its agency in selling Answer’s assets to HB,

the Asset Purchase Agreement satisfies the agency requirement of Section 8.5

(“Answer may . . . .”). 

The second assignment requirement is met: the transfer of Answer’s assets from

Guaranty to HB constitutes a “transfer” in connection with the “sale” of those assets. 

Settlement Agreement § 8.5. Indeed, Hayes does not dispute that the Asset Purchase

Agreement transferred Answer’s assets and that this transfer was made in connection

with the sale of the assets. 

The third assignment requirement is also satisfied: the transfer in question

involves all of Answer’s stock and substantially all of its assets related to bicycle

suspensions. In fact, the Asset Purchase Agreement transferred the exact same assets

as did the Voluntary Surrender Agreement. Indeed, the two agreements reference each

other—they were executed simultaneously—and together the agreements effectuate

a transfer from Answer to HB. See Asset Purchase Agreement; Voluntary Surrender

Agreement. 

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Because the Asset Purchase Agreement constitutes a transfer of all of Answer’s

stock and substantially all of its relevant assets to HB pursuant to a sale, the Section

8.5 conditions were met, and the rights associated with the Settlement Agreement

were validly assigned from Guaranty to HB.6

4. The Transfer from HB to Hayes

At the time that Guaranty transferred Answer’s assets to HB, which was a

limited liability company, Defendant Hayes was the sole member of HB. Pl.’s SOF ¶ 20.

Several years later, on January 1, 2009, HB transferred all of its assets to Hayes and

HB was liquidated. Id. ¶¶ 28-29. 

The transfer from HB to Hayes also meets the requirements of Section 8.5 of the

Settlement Agreement and therefore effectuates a transfer of the license and covenant

not to sue from Guaranty to HB. As the valid assignee of Answer’s rights, HB had the

6

Hayes also asserts that “HB [Bicycle] acquired the option to pursue only the assets it

elected to pursue,” and that because it did not pursue the Settlement Agreement, it cannot be

bound by its terms. Opp’n Mem. at 6. This argument finds no support in either the terms of the

Asset Purchase Agreement or Hayes’s own actions. First, the Asset Purchase Agreement does

not say that it is an option contract rather than an ordinary sale. To the contrary, Article 1,

Section 1.1 of the agreement, labeled “Purchase and Sale,” notes that “Seller hereby sells,

transfers and delivers to Purchaser all of the right, title and interest of Debtor.” Asset

Purchase Agreement § 1.1 (emphasis added). Even drawing all reasonable inferences in favor

of Hayes, this Agreement cannot be construed to mean anything other than what it plainly

states: that HB purchased all of Answer’s assets. Id. Because Hayes has submitted no extrinsic

evidence that casts this language in a different light, the Court reads the Asset Purchase

Agreement to mean what it unambiguously says: that HB received from Guaranty all of

Answer’s relevant assets, including the Settlement Agreement. Second, even if the Court were

to conclude that HB must affirmatively elect to assume the rights granted by SRAM to Answer,

it appears that HB did exactly this by making a royalty payment to SRAM in 2007. Campbell

Dep. 96:7-97:15. Contrary to Hayes’s protestations, see Opp’n Mem. at 4, the fact that a later

re-design of its suspension forks lessened the need for HB to make further payments to SRAM,

does not mean that HB did not assume the Settlement Agreement. Hayes has introduced no

evidence, and has made no argument, to show that its 2007 royalty payment was made for any

other purpose. No reasonable jury could find otherwise.

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right to transfer the Settlement Agreement. HB’s transfer of its assets to Hayes

constituted a “transfer” that HB voluntarily made. Id.; see Settlement Agreement § 8.5.

And the transfer from HB to Hayes included all of HB’s assets, which, in turn, included

all of Answer’s assets that had been possessed by Guaranty, Pl.’s SOF ¶¶ 28-29,

including all of Answer’s stock and substantially all of its assets. Therefore, HB’s

transfer of all of its assets to Hayes included 100% of the stock formerly belonging to

Answer, as well as substantially all of the relevant assets formerly possessed by

Answer. Id. HB’s transfer of its assets to Hayes therefore met the Section 8.5

conditions, and validly assigned Answer’s rights and obligations to Hayes.

5. The No-Challenge Provision in the Settlement Agreement

Having concluded that Answer’s rights and obligations were validly assigned to

Hayes, it is time to consider whether the Settlement Agreement prevents Hayes from

challenging the validity of the ‘049 Patent. The unambiguous language of the

Agreement dictates the answer: yes. Section 7.5 of the Settlement Agreement says:

Assistance and Cooperation. Should SRAM be involved in litigation against a

third-party with respect to the ‘049 Patent, Answer agrees to cooperate with

SRAM in the prosecution of such action, but at no expense to Answer, and

Answer shall not be entitled to any recovery, or portion thereof obtained as a

result of such litigation. Answer agrees not to take any action whatsoever to

attack the validity or enforceability of any of the ‘049 Patent or ‘697 Patent, or

cooperate in any such attack by another party other than through compliance

with a lawfully issued subpoena.

Settlement Agreement § 7.5 (emphasis added). Hayes thinks that the no-challenge

provision applies only to suits where a third party is litigating against SRAM.

Specifically, Hayes asserts that Section 7.5 “is limited to Answer’s ‘assistance and

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cooperation’ in the circumstances where ‘SRAM [would] be involved in litigation

against a third-party with respect to the ‘049 Patent.’ . . . [I]t is not a broad prohibition

that prevents Answer from challenging the validity of the ‘049 Patent under any other

circumstances . . . .” Def.’s Mot. Dismiss Br. at 12-13. This is not, however, a reasonable

interpretation of the Agreement’s text. Notably, the provision states that “Answer

agrees not to take any action whatsoever to attack the validity or enforceability of any

of the ‘049 Patent or ‘697 Patent, or cooperate in any such attack by another party

other than through compliance with a lawfully issued subpoena.” Settlement

Agreement § 7.5 (emphasis added). By separating the first half of the sentence—which

unambiguously prohibits Answer from challenging the ‘049 Patent—from the second

part of the sentence with the alternating coordinating conjunction “or,” the Agreement

divides the sentence into independent and separate parts: Answer may not attack the

validity of the ‘049 Patent and Answer may not cooperate in an attack by another party

against the ‘049 Patent. This language specifically, clearly, and unambiguously

prohibits Answer and its assigns from challenging the ‘049 Patent under all

circumstances. See Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1364 (Fed. Cir. 2001);

see also Air Safety, Inc., 706 N.E.2d at 884. Because Hayes is bound by the terms of the

Settlement Agreement, including the no-challenge provision, Hayes cannot challenge

the validity of the ‘049 Patent, even as a defense to the present lawsuit. Settlement

Agreement §§ 7.5, 8.5. That means that SRAM’s motion for partial summary judgment

is granted.

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B. Motion to Dismiss

In light of the grant of partial summary judgment in SRAM’s favor, it should

come as no surprise that Hayes’s motion to dismiss is denied. SRAM’s complaint set

forth more than enough factual material, accepted as true, to “state a claim to relief

that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal quotation marks and

citation omitted). And, as discussed above, the summary judgment briefing and factual

record now have demonstrated that summary judgment on this issue—that Hayes is

bound by the Settlement Agreement and cannot challenge the ‘049 Patent—must be

entered in SRAM’s favor.

ENTERED:

 s/Edmond E. Chang 

Honorable Edmond E. Chang

United States District Judge

DATE: September 26, 2013

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