## United States Court of Appeals for the Federal Circuit

2006-1569, -1606

GENERAL MILLS, INC., Plaintiff-Appellant,

v.

KRAFT FOODS GLOBAL, INC. Defendant-Cross Appellant.

Ronald J. Schutz , Robins, Kaplan, Miller & Ciresi L.L.P., of Minneapolis, Minnesota, argued for plaintiff-appellan t. With him on the brief was, David P. Swenson , Sang Young A. Brodie , and David B. Zucco

. Holly A. Harrison , Sidley Austin LLP, of Chicago, Illinois, argued for defendant cross-appellant. With her on the brief was Julie K. Potter . Of counsel on the brief was Tara C. Norgard , Carlson Caspers Vandenburg & Lindquist P.A., of Minneapolis, Minnesota. Appealed from: United States Distric t Court for the District of Minnesota Judge Joan N. Ericksen

## United States Court of Appeals for the Federal Circuit 2006-1569, -1606
GENERAL MILLS, INC., Plaintiff-Appellant,

v. KRAFT FOODS GLOBAL, INC., Defendant-Cross Appellant.

__________________________ DECIDED: May 16, 2007

__________________________ Before BRYSON, Circuit Judge , CLEVENGER, Senior Circuit Judge , and LINN, Circuit Judge. LINN, Circuit Judge

. General Mills, Inc. (“General Mills”) appeals from a final judgment by the United States District Court for t he District of Minnesota dism issing its claim for patent infringement against Kraft Foods Global, Inc. (“Kraft”), on the ground that the claim is barred by a covenant not to sue that General Mills granted to Kraft’s predecessor in interest, the Farley Candy Company (“Farle y”). Kraft cross-appeals, challenging the district court’s decision to treat its countercl aim to General Mills’ original complaint as having been abandoned after General Mills filed an amended complaint. Because Kraft became the successor to Farley’s rights under the covenant not to sue before commencing the allegedl y infringing activities and did not lose that status during the period at issue on appeal , and because the district court did not abuse it s discretion in deeming Kraft’s counterclaim to have been a bandoned, we affirm as to both appeals.I. BACKGROUND A. Facts General Mills sells rolled food items underthe brand name Fruit by the Foot®, and it owns U.S. Patent Nos. 5,284,667 (“R olled Food Item Fabricating Methods”) and 5,723,163 (“Rolled Food Item”). In 1995, General Mills sued Farley for infringement of these patents, a dispute that General Mills and Farley resolved through a settlement agreement (hereinafter, “t he Settlement Agreement”). 1 The Settlement Agreement required Farley to pay General Mills a lump sum in exchange for the grants by General Mills of a release of its patent claims and a covenant not to sue Farley for past, current, or future infringement. “Farle y” is defined in Article 1.6 of the Settlement Agreement to mean “Farley Candy Company and it s Affiliates, including, witho ut limitation, all parent corporations, subsidiaries, heirs, executors, administrators, and co rporate predecessors and successors .” (Emphasis added.) The covenant not to sue, which was attached as Exhibit B to the Settlement Agreement, also contains language defin ing the “Releasee” as including Farley and its “successors.” The Settlement Agreement also contains two provisions, Articles 8.3 and 8.4, that define limiting conditions to the a ssignment or transferof rights under the Agreement to another party by Farley (or it s successors, pursuant to Article 1.6 and the language of the covenant):

1 Because the Settlement Agreement was attached to General Mills’ amended complaint, we may consider its terms despite the fact that the trial court entered judgment after granting a motion to dismiss under Fed. R. Civ. P. 12(b)(6). We recite the remainder of the fa cts as General Mills alleges t hem, and we assume them to be true for purposes of this decision. See Holden Farms, Inc. v. Hog Slat, Inc. , 347 F.3d 1055, 1059 (8th Cir. 2003); Hair v. United States , 350 F.3d 1253, 1256 (Fed. Cir. 2003).
2006-1569, -1606 28.3 Except as expressly provided in Article 8.4 herein, neither this Agreement nor any rights grant ed hereunder may be assigned or otherwise transferred by either General Mills or Farley, norshall the same inure to the benefit of any trustee in bankruptcy, receiver or other successor of such party, whether by operation of law orotherwise, nor, except as expressly provi ded in Article 8.4 herein, shall any rights herein be or become in any way directly or in directly transferable or available to, or divisible or capable of being shared with, any third party, without the prior written consent of the other party, and any assignment, transfer or other disposition without such prior written consent shall be null and void. 8.4 Notwithstanding any provision of this Agreement to the contrary, Farley may assign the entirety of t heir non-divisible respective rights and obligations under this Agreement, pr ovided that all of the following conditions are satisfied: a. Farley must transfer its entire rolled food product business, including without limitation all asse ts, good will, and trademarks to the party to whom the rights and ob ligations are being assigned; and b. Farley must provide General Mills with sixty (60) days written notification prior to the transfer ofrights and obligations under this Agreement; and c. the party receiving the right s and obligations from Farley must not have been charged with infri ngement by written notification or initiation of litigation by General Mills of any of G eneral Mills’ Patents and Applications, as those terms are def ined herein, prior to General Mills receiving written notificat ion from Farley pursuant to Article 8.4(b). In 2001, through a series of intermedi ate transactions, Kraft succeeded to the business of Farley. At the time of these tr ansactions, Kraft and Farley complied with the requirements of Articles 8.3 and 8.4. (We refe r to these transactions collectively as “the Farley transaction.”) General Mills concedes that by virtue of the Farley transaction in 2001, Kraft stepped into Farley’s shoes and became Farley’s successor. See Oral Arg. at 02:35–02:45, available at http://www.cafc.uscourts.gov/oralarguments/mp3/06- 1569.mp3; see also Amended Complaint ¶ 15; Br. fo r Appellant at 20–21. In 2002, Kraft “sold and transferred Farleyassets, including the Farley trademark and goodwill, to a s ubsidiary of Catterton Partners .” Amended Complaint ¶ 16. Because this appeal is from the grant of a motion to dismiss, the details of this

2006-1569, -1606 3transaction are not in the record, but it app ears to be undisputed that Kraft retained at least some portion of the original Farley a ssets and of Farley’s rolled food business, although General Mills characte rizes the assets that Kraft sold to Catterton as “substantial” and “important.” Br. for Appellant at 3; Repl. Br. for Appellant at 13. (We refer to this transaction as “the Catterton transaction.”) After a few years of what General Mills al leges to be infringing activity, in 2005, Kraft sold the remainder of its rolled food business and purported to transfer whatever rights it had under the Settlem ent Agreement to Kellogg Company. (We refer to this transaction as “the Kellogg transaction.”) Gener al Mills does not allege that Kraft engaged in infringing activities after the Kell ogg transaction; this appeal concerns acts of alleged infringement only during the period bet ween the Catterton transaction and the Kellogg transaction. B. Procedural History General Mills brought this acti on in the United States Dist rict Court for the District of Minnesota on June 24, 2005, alleging infringement of t he two patents listed above. On September 14, 2005, Kraft filed an answer and a counterclaim alleging that General Mills breached the Settlement Agr eement by filing suit. General Mills replied to Kraft’s counterclaim, and Kraft moved for summary judgment. Subsequently, on December 2, 2005, General Mills filed an amended complain t in which it reasserted the patent infringement claim from the or iginal Complaint and asserted a new breach of contract claim of its own, on the gr ounds that Kraft breached the Se ttlement Agreement when it engaged in the Kellogg transaction.

2006-1569, -1606 4The amended complaint, unlike the original complaint, attached the Settlement Agreement as an exhibit. Relying on the Se ttlement Agreement, Kra ft moved to dismiss both counts of the amended compla int under Fed. R. Civ. P. 12(b)(6). Kraft never answered the amended complaint or reasserted its counterclaim. After full briefing, the district court granted Kraft’s motion to dismiss and dismissed General Mills’ patent infringement claim. General Mills, Inc. v. Kraft Foods Global, Inc. , No. 05-CV-1253 (D. Minn. June 28, 2006) (Dckt. No. 110) (“ Dismissal Opinion ”). Exercising its discretion under 28 U.S.C. § 1367(c)(3), the district c ourt then declined to ex ercise jurisdiction over General Mills’ st ate-law contract claim and enter ed judgment in favor of Kraft. After the entry of judgment, Kraft wrote to the district court and sought guidance as to how it should proceed with its counterclai m. The district co urt construed Kraft’s letter as a motion to alter or amend the j udgment and denied the moti on, explaining that because Kraft did not reassert its countercl aim in response to the amended complaint, no counterclaim was pending w hen the district court ent ered judgment and that the judgment was therefore final and complete. General Mills, Inc. v. Kraft Foods Global, Inc. , No. 05-CV-1253 (D. Minn. Ju ly 5, 2006) (Dckt. No. 114). General Mills appeals. Kraft cross-appeals, alleging that the district court erred by failing to rule on its counterclaim. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1). II. DISCUSSION A. Standard of Review and Choice of Law “The question of whether a Rule 12(b)(6) motion was properly granted is a purely procedural question not pertaining to patent law, to which this court applies the rule of

2006-1569, -1606 5the regional . . . circuit,” in this case the Eighth Circuit. C&F Packing Co. v. IBP, Inc. , 224 F.3d 1296, 1306 (Fed. Cir. 2000) . The Eighth Circuit “review[s] de novo the district court’s grant of a motion to dismiss pursuant to Rule 12(b)(6), accepting all factual allegations in the complaint as true and granting every reasonab le inference in favor of the nonmovant.” Knieriem v. Group Health Plan, Inc. , 434 F.3d 1058, 1060 (8th Cir. 2006). The Settlement Agreement provides in Article 8.9 that it is to be interpreted under Minnesota law. General Mills concedes this point, but then argues that under federal law, patent licenses (such as, in its view , the Settlement Agreem ent) are personal and non-transferable. However, wh at our case law recognizes is the “need for a uniform national rule that patent licenses are personal and non-transferable in the absence of an agreement authorizing assignment .” Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp. , 284 F.3d 1323, 1328 (Fed. Cir. 2002) (emphasis added). Thus, we reject General Mills’ argument and construe the Settlement Agreement, including its assignment provisions, under Minnesota law. In so doing, we do not decide the scope of the rule articulated in Rhone-Poulencin other contexts where the parties have not agreed to their own assignment pr ovisions or where other sour ces of law, such as the Bankruptcy Code, might trump or dinary contract provisions. See Everex Sys, Inc. v. Cadtrak Corp. (In re CFLC, Inc.) , 89 F.3d 673, 676, 679 (9th Cir. 1996) (applying federal patent law rather than state co ntract law to the question of whether “applicable law” excused the patentee from recognizing an assignment of rights that was otherwise permissible under the bankruptcy laws ( quoting 11 U.S.C. § 365(c)(1)(A))).

2006-1569, -1606 6B. Kraft’s Status as Successor to Farley As mentioned above, General Mills c oncedes that Kraft became Farley’s successor by virtue of the Farley transac tion. General Mills does not allege infringement prior to the Farley transaction or between the Farley transaction and the Catterton transaction. Rather , General Mills argues that “[t]he Catterton Transaction divested Kraft of any rights it might hav e had under the Settlement Agreement, because without the Farley assets that were sold to Catterton Partners, Kr aft cannot be ‘Farley’ under the Settlement Agreemen t.” Amended Complaint ¶ 18. The part of the Settlement Agreement fr om which General Mills derives this argument is Article 8.4, which requires th at Farley (including its successors, under Article 1.6) “must transfer its entire rolled food business” if it wishes to assign its rights under the Settlement Agreement without General Mills’ consen t. Article 8.4, General Mills argues, “makes certain that the Farl ey Agreement remains with Farley’s entire rolled-food business.” Br. for Ap pellant at 18. However, as the district court correctly recognized, the Settlement Agreement speaks only to the assignment of rights: “[n]either article [8.3 or 8.4] addresses Fa rley’s retention of th e Settlement Agreement and sale of other assets.” Dismissal Opinion , slip op. at 5. Because the Catterton transaction did not purport to assign Kraft’ s rights under the Settlement Agreement, the restrictions imposed by Arti cle 8.4 simply do not apply. Nor does any other provision of the Settlement Agr eement bar Farley from retaining its rights under t he agreement when it transfers parts of its rolled food business. As mentioned, Genera l Mills does not dispute that pursuant to Article 8.4, Kraft became Farley’s successor before the Catterton transaction. Accordingly, the

2006-1569, -1606 7question is not whether Kraft complied with t he conditions necessary for it to become Farley’s successor. The question is wh ether the Settlement Agreement imposed conditions on Kraft’s continui ng entitlement to the cov enant not to sue. Although General Mills and Farley coul d have agreed to impose on Fa rley or Farley’s successor ongoing obligations such as the re tention of specified assets, they did not do so. There is simply nothing in the contra ct that requires Kraft to retain all or any particular assets of the Farley business to preserve Kraft’s status as successor. General Mills nonetheless argues t hat general principles of successorship prevent Kraft from continuing as “Farley” or a “successor” once it had sold off assets that were part of the original Farley busin ess in the Catterton transaction. For General Mills to prevail, Kraft’s ri ghts under the agreement must have either (1) terminated by operation of law at the time of the Catte rton transaction, or (2) been transferred from Kraft to Catterton by operation of law or by the terms of the Catte rton transaction. We are not persuaded that either of these eventualities has occurred. The limited authority that G eneral Mills cites in support of the first possibility serves only to support Kraft’s position. At least in the context of insurance contracts, Minnesota courts avoid construing contracts so as to forfeit a party’s rights “unless such an intent is manifest in ‘c lear and unambig uous’ language.” Nathe Bros. v. Am. Nat’l Fire Ins. Co. , 615 N.W.2d 341, 344 (Minn. 2000) . We have taken a similarly dim view of purported forfeitures of patent ri ghts, as have other courts. See Stark v. Advanced Magnetics, Inc. , 29 F.3d 1570, 1573 (Fed. Cir . 1994) (“‘[F]orfeitures are never favored. Equity always leans against them, and only decrees in their favor when there is full, clear and strict proof of a l egal right theret o.’”) (quoting Henderson v. Carbondale Coal

2006-1569, -1606 8& Coke Co. , 140 U.S. 25, 33 (1891)); Tol-O-Matic, Inc. v. Pr oma Produkt-Und Marketing Gesellschaft m.b.H. , 945 F.2d 1546, 1554 (Fed. Cir. 1991) (“Forfeiture is not favored as a remedy for actions not show n to be culpable.”) (quoting Jones v. New York Guaranty & Indemnity Corp. , 101 U.S. (11 Otto) 622, 628 (1879), for its statement that “equity abhors forfeitures”); United Mfg. & Serv. Co. v. Holwin Corp. , 187 F.2d 902, 905 (7th Cir. 1951) (“Our courts generally take a st rict view on attempted revocations or forfeitures of license agreements. T he court dislikes forfeitures.”). See generally Corbin on Contracts § 39.10 (2006) (stating that “[c]ourts do not favor forfeitures” and noting that even “express conditions ‘subsequent’ will be regarded with disf avor if they are such as to cause a forfeiture, that is, if they permit a party to keep benefits received under the contract without giving their agreed equ ivalent”). In this case, as discussed above, General Mills can point to no provision of the Se ttlement Agreement that the Catterton transaction might breach, much less one that would result in Kraft forfeiting all of its ongoing rights under the contract. Indeed, General Mills concedes that the Catterton transaction was permitted under the Settlement Agreement. See Oral Arg.,
supra , at 02:50–03:05. As a result, there is no basis for concluding that Kraft’s rights under the agreement were termi nated by operation of law at the time of the Catterton transaction. As to the second possibility—that Cattert on became Farley’s successor after the Catterton transaction and divested Kraft of that status—General Mills does not even make this argument. The record contains no allegations as to what law controls the Catterton transaction or what assets, aside fr om Farley’s goodwill and trademarks, Kraft transferred to Catterton. However, we note that the general rule of co rporate law is that

2006-1569, -1606 9a transaction involving a transfer of property“from one corporation to another without consolidation or merger, does no t include a transfer of all t he powers or immunities of the selling corporation.” Vi ctoria A. Braucher et al., 15 Fletcher Cyclopedia of the Law of Private Corporations § 7085 (rev. ed. 1999); see also J.F. Anderson Lumber Co. v. Myers , 206 N.W.2d 365 (Minn. 1973) (citing 15 Fletcher Cyclopedia of Corporations § 7122 for the “general rule” that “where one com pany sells or transfers all its assets to another company, the purchasing company is not liable for t he debts and liabilities of the transferor” absent a merger, a consolid ation, or certain other conditions not applicable here). Here, not only did the Catte rton transaction not involve a merger or consolidation, but there is not even an allegation that Catte rton acquired the entirety of Farley. Indeed, had Kraft not retained at least some part of Farley’s rolled food business after the transaction, General Mills could not have alleged infringement. There is simply no basis from which we might conclude that any one other than Kraft succeeded to Farley’s rights under the Settl ement Agreement, at least until the Kellogg transaction. There is also no merit to General Mills ’ argument that the Catterton transaction excused General Mills’ oblig ation to perform under the Settlement Agreement pursuant to the doctrine of impossibility. It is true that after the Catterton transaction, Kraft no longer owned the Farley name and all of Farley’s assets. But this fact did not prevent General Mills from affording Kraft the same rights under the Settle ment Agreement that it had possessed since the Farley transaction. In the other direction, Kraft’s only obligation that the Catterton transaction mi ght possibly interfere with—the requirement in Article 8.4 that Farley “transfer its ent ire rolled food product business”—applies only

2006-1569, -1606 10when Farley or its successor purports to assign its rights under the Settlement Agreement. At the time of t he Catterton transaction, no one alleges that this occurred. Accordingly, we hold that at least until the Kellogg tran saction, Kraft was entitled to the protection of Farley’s covenant not to sue, and the district court properly dismissed General Mills’ patent in fringement claim against Kraft. 2 In so holding, we express no opinion as to whether the Kell ogg transaction could or did comply with the Settlement Agreement, whether Kraft “transfer[ red] [either Kraft’s or Farley’s] entire rolled food business” in the Kellogg transac tion, or whether Kellogg became Farley’s successor. We need not reach these issues because Kraft’s allegedly infringing activities ceased with t he Kellogg transaction. C. Kraft’s Counterclaim On cross-appeal, Kraft challenges the distri ct court’s holding that “Kraft did not have a counterclaim pending when judgment was entered.” General Mills, Inc. v. Kraft Foods Global, Inc. , 05-CV-1253 (D. Minn. July 5, 2006) (order in response to Kraft’s letter of June 30, 2006, construed as a “request for permission to file a motion to reconsider,” see D. Minn. L.R. 7.1(g)) (Dckt. No. 114) . As the district court observed, Kraft had filed a counterclaim to General Mills’ original comp laint, but that complaint was superseded by General Mills’ amended complain t, and at the time the district court entered judgment, Kraft had not filed an ame nded answer re-pleading the counterclaim. Id. However, Kraft argues th at its counterclaim remained extant at least until the deadline for filing an amended answer, and that this deadline had not yet passed when the district court enter ed judgment. According to Kraft, Kra ft’s timely filing of a motion to

2 General Mills does not challenge on a ppeal the district court’s decision to decline jurisdiction over its breach of contract claim.
2006-1569, -1606 11dismiss under Fed. R. Civ. P. 12(b)(6) toll ed the deadline for filing a responsive pleading until 10 days after the motion was ruled upon. The relevant tolling provision is found in Fed. R. Civ. P. 12(a)(4)(A). Although neither party cites authority that constr ues Rule 12(a)(4)(A)—and we have found none ourselves—by the terms of that rule, the fi ling of a motion to dismiss does not extend the time for filing an answer to an amended co mplaint, at least in the circumstance here where the time for responding to the original complaint has already run. Rule 12(a)(1)– (3) sets forth the deadlines for answering original complaints and cross-claims under various circumstances. Rule 12(a)(4) then pr ovides that “[u]nless a different time is fixed by court order, the service of a motion permitted under this rule [including a Rule 12(b)(6) motion to dismiss] alters these periods of time ” so as to extend the deadline until a motion is ruled upon. Fed. R. Civ. P. 12(a)(4) (emphasis added). However, the time for answering an amended complaint is not one of “these peri ods of time.” Rather, the deadline for responding to an amended complaint is established separately under Rule 15: “A party shall plead in response to an amended pleading within the time remaining for response to the original plea ding or within 10 days after service of the amended pleading, whichever period may be the longer, unless the court otherwise orders.” Fed. R. Civ. P. 15(a). Thus, because no time “remain[ed] for response to the original pleading” when General Mills filed its am ended complaint, Kraft had only 10 days after service of the amended complaint—not 10 days after the dist rict court’s ruling on the motion to dismiss—to file an answer and counterclaim or take such other action as may have

2006-1569, -1606 12been permitted to protect its interests. 3 Because Kraft did not do so before its deadline had passed, the district cour t did not abuse its discreti on in finding that Kraft had abandoned its counterclaim. See Johnson v. Berry , 228 F. Supp. 2d 1071, 1079 (E.D. Mo. 2002) (holding that a counterclaim was abandoned when the de fendant failed to respond to an amended complaint). III. CONCLUSION For the foregoing reasons, the judgm ent of the district court is AFFIRMED

.

3 Kraft’s 10-day deadline to plead in response to the amended complaint was extended by approximately one month— from December 16, 2005, to January 17, 2006—by a stipulation approved by the district court on December 14, 2005. General Mills, Inc. v. Kraft Foods Global, Inc. , No. 05-CV-1253 (D. Minn. Dec. 14, 2005) (agreed order) (Dckt. No. 43). The exte nsion of time altered Kraft’s deadline to “respond to the Amended Complaint,” id. , but does not affect our analysis.
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