the work under the Grant and, on July 12, 2001, EMCC applied for a Phase II grant (“Grant
Proposal IT”). On or about June 6, 2001, EMCC began exploring the possibility of a strategic
partnership with Fortune Brands, Inc. to make commercial use of certain Grant-related
intellectual property by creating commercial products from such intellectual property.

Also on June 6, 2001, Dancor’s attorney sent Jennings a letter (the “Attorney Letter”)
describing Jennings’s obligations under the NDA, Consulting Agreement and a third agreement,
Amended and Restated Assignment of Royalty Agreement, dated July 15, 1998. The Attorney
Letter demanded that, among other things (1) Jennings maintain the confidentiality of Dancor’s
information and (2) disclose to Dancor any “inventions” conceived or reduced to practice by
Jennings during the consulting relationship, including EMCC’s work under the Grant. The
Attorney Letter included in its demand any Grant-related work and inventions. The Attorney
Letter also describes Jennings’s breach of other obligations under the agreements and demands

that Jennings comply with such obligations.

Motion to Dismiss

Dancor moves this Court to dismiss the Complaint for failure to state a claim on which
declaratory relief can be granted. Dancor claims that the Complaint fails to allege an actual,
justiciable controversy or cause of action between the parties. The test of justiciability in a
declaratory judgment action is whether there is a “substantial controversy between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.” Vickers v. Henry County Sav. & Loan Ass’n, 827 F.2d 228 (7" Cir. 1987)

(quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941)).


remain in effect contemporaneously, then Dancor may well be able to make a broad claim to
ownership of Grant-related intellectual property. Indeed, it may turn out that EMCC ran afoul of
the Federal statutory guidelines that it seeks to use as a refuge from Dancor’s claims. On the
other hand, a contrary interpretation would indicate more limited rights for Dancor.

For the foregoing reasons, defendants’ motion to dismiss action for declaratory judgment
for failure to present a justiciable controversy [18-1] is DENIED and plaintiffs’ motion for

summary judgment under Federal Rule of Civil Procedure 56 [11-1] is DENIED.

ENTER:

James B. Zagel
United States Distrist Jud,

DATE: Nuada 2% 2002

01c6077mtd-msj.wpd 9


review, whether any inventions will be conceived or reduced to practice, how any patent claims
will compare to the prior art and whether any patent will ultimately be granted.

It is true that neither party, nor this Court, knows how these 25 events will be resolved but
Dancor misplaces its focus by concentrating on these events. The dispute before me is not
concerned with the issues raised by the 25 events — this is for the U.S. Patent and Trademark
Office (the “PTO”) to decide if and when it becomes appropriate for it to do so. While it remains
to be seen whether the intellectual property will result in any inventions when and if it is reduced
to practice, in focusing on that issue, Dancor skips over the threshold question that is
immediately and properly before me: the relative ownership rights as between the parties.

I find the more limited question of the relative ownership rights, and the events and
circumstances surrounding this question, to be sufficiently concrete and definite to meet the
standard for a justiciable controversy. Moreover, it bears noting that Dancor’s arguments that the
intellectual property is not identified with sufficient particularity falls a bit flat considering that,
in its Attorney Letter, Dancor did not consider such intellectual property too nebulous to demand
its assignment.

Finally, although they do not warrant granting Dancor’s motion to dismiss, the questions
that Dancor raises about the particular identities of the inventors and the elements of any patent
claim certainly warrant further inquiry. These are issues that are properly addressed in discovery,
which is also the appropriate time to develop a more specific understanding of the precise nature

of the Grant-related intellectual property.


The adverse legal interests are evident in the competing claims to ownership of the
intellectual property that EMCC created in connection with the Grant. EMCC claims that such
intellectual property, by the terms of the Grant, vests solely in EMCC. Conversely, Dancor
claims that any intellectual property created in connection with the Grant is subject to the terms
and conditions set forth in the Agreements and, in its Attorney Letter, Dancor demands that such
intellectual property be delivered and assigned to Dancor.

The immediacy and reality of the controversy is evidenced by the problems EMCC is
having, and will continue to have as long as the issue of ownership is unresolved, as it seeks to
make commercial use of the Grant-related intellectual property. It has already experienced the
first of these difficulties in its attempt to enter into an agreement with Fortune, Inc. to make
commercial use of the Grant-related intellectual property and to further develop such Grant-
related intellectual property in its Grant Proposal II. As long as Dancor asserts some ownership
in the intellectual property, as it did in its Attorney Letter, this clouded title will prevent EMCC
from making any use of such intellectual property with a third party and represents a “continuing
harm” such that a claim for a declaratory judgment is appropriate.'

Dancor also advances the argument that Jenner and EMCC fail to particularly identify,
distinctly claim or define the intellectual property in question. Dancor identifies 25 events that it
argues are contingent future events the resolution of which is important to determine this claim.
Included in this list is whether the National Science Foundation (“NSF”), the entity that made the

Grant, knows “what the invention is,” whether future grant proposals will merit a favorable

‘ This continuing harm is also what is lethal to Dancor’s ripeness and mootness

arguments,


to the Grant award. Plaintiffs even make the bold assertion that the presence of Dancor in the
Grant process would have vitiated the Grant, thus proving, in plaintiffs’ eyes, that Dancor
intellectual property could not have been involved. Plaintiffs fail to take into account that it
might not have adequately disclosed its Dancor-related obligations to the NSF in the Grant
application process. This case will hinge on the facts and circumstances surrounding the
formation of the relationship between Dancor and Jennings and then on the facts and
circumstances surrounding whether a legal relationship exists between Dancor and EMCC.

The Jennings Letter is called a “smoking gun” by Dancor and its existence is questioned
by plaintiffs. Its existence and meaning is a crucial fact in dispute between the parties and will
go a long way towards shedding light on the nature and character of the relationship between
Dancor and EMCC. If EMCC indeed assumed all obligations of Jennings, then this would
presumably include all obligations under the Consulting Agreement, the NDA and the Royalty
Agreement. This being the case, then Dancor may be able to prove its allegation that EMCC is
an alter ego of Jennings and, consequently, Dancor may have a claim to that portion of the Grant-
related intellectual property that derived from intellectual property developed in connection with
the three agreements.

Which brings me to the second crucial dispute about the nature of the contracts between
the parties - the relationship of the NDA to the Consulting Agreement. If, as plaintiffs contend,
the Consulting Agreement supersedes the NDA, then Jennings (or BMCC, depending on the
outcome of the dispute over the Jennings Letter discussed above) would have much more limited
obligations to Dancor in connection with any intellectual property developed under the

Consulting Agreement. If, as Dancor contends, the NDA and the Consulting Agreement were to


*Rgyrute Order Fagan (06097)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

James B. Zagel

Sitting Judge if Other
than Assigned Judge

CASE NUMBER 01 C 6077 DATE 3/28/2002
CASE EVANSTON MATERIALS vs. DANCOR, INC.
TITLE

[In the following box (a) indicate the party filing the motion, e.g... plaintiff, defendant, 3rd party plaintilY, and (b) state brieily the naaoee
of the motion being presented]

MOTIOD

DOCKET ENTRY:

(1) Oo Filed motion of [ use listing in “Motion” box above.] :
i
(2) im Brief in support of motion due
(3) oa Answer brief to motion due. . Reply to answer brief due____ H
'
(4) oO Ruling/Hearing on set for at i
(5) Oo Status hearing[held/continued to] [set for/re-set for} on__ set for at
(6) a Pretrial conference(held/continued to} [set for/re-set for]on setfor at
(7) a Trial[set for/re-set for] on at
(8) a] {Bench/Jury trial] [Hearing] held/continued to at
(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) OlGeneral Rule 21 COFRCP41(a)(1) CFRCP41 (a2)
ao [Other docket entry} Motion (11-1) for summary judgment and motion (18-1) to dismiss is
denied. Motion (17-1) to amend briefing is granted.

a1) @f [For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document !

Number

No notices required suber of notices .

Notices mailed by judge's staff. APR 02 2002

Notified counsel by telephone. | ——_ dae docked
Y | Docketing to mail notices.

Mail AO 450 form. docketing deputy initials H

Copy to judge/magistrate judge. :

courtroom ee SEE LL dae ated wre
bw deputy's
initials

Date/time'received in! <3
central Clerk’s Office

extn leptin



Motion for Summary Judgment

Plaintiffs move for summary judgment and a finding that they are the rightful owners of
Grant-related intellectual property. Summary judgment is appropriate if, after drawing all
reasonable inferences in favor of the nonmoving party, this Court concludes there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(c); Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 320 (7th Cir.
1992). In other words, the question is "whether the evidence presents a sufficient disagreement
to require submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2509-10
(1986).

Here, there are at least two genuine issues of material fact that present a sufficient
disagreement about the evidence to require that I deny plaintiffs’ motion for summary judgment.
The first two factual disputes are about documents allegedly passed between the parties that will
likely do much to define the rights of each side with respect to the intellectual property in
question. Plaintiffs would have me believe that this matter is simply an interpretation of the
Federal statute that administered the program that made the Grant to EMCC. In plaintiffs’ view,
Dancor is precluded from asserting any ownership interest in the Grant-related intellectual
property because EMCC developed the Grant-related intellectual property in connection with a
Federal program that is subject to various statutes that set forth ownership as between the NSF
and EMCC, as grantee.

What plaintiffs fail to consider is how Dancor’s prior relationship with Jennings and

EMCC impacts, or may impact, EMCC’s ownership right in intellectual property developed prior


executed contemporaneousely and each remained in effect during the term of the consulting
relationship between Dancor and Jennings.

In 2000, Jennings formed EMCC for the purpose of obtaining research funding from
Federal small business grants, specifically Small Business Innovation Research grants pursuant
to 15 U.S.C. §638. On or about June 8, 2000, EMCC applied for the Grant for a project entitled
“A Superior Corrosion Resistant Undercoating for Vapor Deposited Hard Coatings.” The Grant
was awarded on December 1, 2000. Jennings acted as the Principal Investigator for EMCC
under the Grant. The conditions of the Grant provide that EMCC, as grantee, retains all right,
title and interest to any Grant-generated invention or discovery of EMCC (not including that
developed by EMCC’s subcontractor), subject to the Federal government's right to have a non-
exclusive, irrevokable, non-transferable, paid-up license to such Grant-generated invention.

Dancor alleges that on June 13, 2000, in between EMCC’s application for the Grant and
NFS’s award of it to EMCC, Jennings sent Dancor a letter, signed byJ ennings (the “Jennings
Letter’), which advised that, as of June 30, 2000, Jennings would be doing business as EMCC
and instructed that all payments formerly made payable to Jennings be made payable to EMCC.
Dancor quotes the Jennings Letter as stating that “[a]ll former commitments agreed to by
Hamlin Jennings will be assumed by EMCC. We look forward to the continued successful
development of the Vitriseal.” Jennings and EMCC claim that they do not remember writing or
sending the Jennings Letter.

On March 31, 2001, Dancor and Jennings (either individually, or as President of EMCC,
depending on whether EMCC assumed all of Jennings’s obligations under the agreements

between the parties) terminated the consulting relationship. On June 30, 2001, EMCC completed


Because each motion requires me to construe the facts in the light most favorable to the non-
movant, I will lay out the pertinent facts, indicating which facts are in dispute, and I will address
the import and impact of any disputes in my specific discussion of each motion.

In January 1997, Jennings and Dancor executed a Non-Disclosure and Invention
Assignment Agreement (the “NDA”) and a Consulting Agreement. The NDA provided, in
pertinent part, for (1) confidential treatment of certain information, (2) a prohibition on
Jennings’s ability to use certain information for commercial purposes to benefit any entity
besides Dancor and (3) the assignment of ownership to Dancor of any “Company Inventions”
created by Jennings during the term of the agreements and for one year thereafter if developed as
aresult of Dancor’s information. “Company Inventions” was defined broadly as any invention
that relates to Dancor’s business, projects or products, results from work performed by Jennings
for Dancor or results, at least in part, from the use of Dancor’s time, materials, facilities or trade
secrets. The NDA also provided that Jennings would assist in perfecting, affirming, maintaining
and recording Dancor’s ownership of such Company Inventions.

The Consulting Agreement set forth the terms of the multi-year relationship between
Dancor and Jennings. It provided, among other things, for the scope of work to be performed
and the fees to be paid. It also specified that during the term of the Consulting Agreement,
Jennings would not “engage in any activity competitive with and/or adverse to Dancor’s
business” as described therein. Jennings and EMCC contend that the NDA and the Consulting
Agreement were signed at different times and that the Consulting Agreement was meant to

replace the NDA. It is Dancor’s contention that the Consulting Agreement and the NDA were


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

EVANSTON MATERIALS CONSULTING
CORPORATION, an Illinois corporation,
and

HAMLIN JENNINGS, PH.D., an individual
Illinois resident,

Plaintiffs,
, No. 01 C 6077
v. Judge James B. Zagel
DANCOR, INC., VITRISEAL, INC, a DOCKETED

Delaware corporation, and

APR @ 2 2002
LIQUITEK ENTERPRISES, INC., a
Nevada Corporation,

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiffs Evanston Materials Consulting Corporation (“EMCC”) and Hamlin Jennings,
Ph.D. seek a declaratory judgment that EMCC owns certain intellectual property developed in,
and inventions arising from, a grant issued pursuant to the National Science Foundation Small
Business Innovation Development Act (the “Grant”). Defendants Dancor, Inc. a/k/a Vitriseal,
Inc. and Liquitek Enterprises, Inc. (together, “Dancor”) move to dismiss pursuant to Fed. R. Civ.
Pro. 12(b)(1), 12(b)(6) and 57 for failure to present a justiciable controversy. EMCC and
Jennings move for summary judgment pursuant to Fed. R. Civ. Pro. 56.

In ruling on Dancor’s motion to dismiss, I must accept as true all well-pleaded factual
allegations and draw all reasonable inferences in favor of EMCC and Jennings and, in ruling on

the plaintiffs’ motion for summary judgment, I must construe all facts in favor of Dancor.