# TK Holdings Inc.

> United States Bankruptcy Court, D. Delaware · June 18, 2020

URL: https://www.frixlaw.com/law-library/cases/10455944

## Case

- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** June 18, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re: Chapter 11

TK HOLDINGS INC., et al.,
Case No. 17-11375
Debtors.
Jointly Administered
Adv. Pro. No. 18-50274
Automotive Coalition for Traffic Safety, Inc.

Plaintiff,

v.

Joseph J. Farnan, Jr., not individually but solely
as Trustee of the Reorganized TK Holdings Trust,
and Joyson Safety Systems Acquisition, LLC,

Defendants.

MAYER BROWN LLP BENESCH, FRIEDLANDER, COPLAN
James R. Ferguson, Esq. & ARONOFF LLP
Melissa A. Anyetei, Esq. Stephen M. Ferguson, Esq.
71 S. Wacker Drive 222 Delaware Avenue, Suite 801
Chicago, Illinois 60606 Wilmington, Delaware 19801

KLEHR HARRISON HARVEY BROOKS KUSHMAN P.C.
BRANZBURG LLP Frank A. Angileri, Esq.
Richard M. Beck, Esq. Linda D. Mettes, Esq.
Sally E. Veghte, Esq. Robert C.J. Tuttle, Esq.
919 N. Market Street, Suite 1000 Amy C. Leshan, Esq.
Wilmington, Delaware 19801 1000 Town Center, 22nd Floor
Southfield, Michigan 48075
Morton R. Branzburg, Esq.
1835 Market Street, Suite 1400 Attorneys for Defendant Joyson Safety
Philadelphia, Pennsylvania 19103 Systems Acquisition LLC

Attorneys for Plaintiff Automotive
Coalition for Traffic Safety, Inc.
OPINION1

Before the Court are cross-motions for summary judgment in this Adversary Proceeding.
The dispute centers on ownership of certain patents rights (the “Patent Assets”)2. Automotive
Coalition for Traffic Safety (“ACTS” or the “Plaintiff”) brought an adversary proceeding against
Chapter 11 debtor, TK Holdings Inc. (hereinafter, “Takata”) seeking a declaratory judgment that
certain Patent Assets are not the property of the bankruptcy estate because they belong to ACTS.
Takata contends that the Patent Assets belong to it and may thus be sold and transferred to Joyson
Safety Systems Acquisition LLC (“Joyson”) under the terms of Takata’s Fifth Confirmed
Amended Joint Chapter 11 Plan of Reorganization (the “Plan”).3 For the reasons that follow, the
Court finds that under the terms of the contract executed by the parties, the Patent Assets are the
property of ACTS, not Takata, and therefore were not transferred to Joyson under Takata’s Plan.
Summary Judgment will be entered in favor of ACTS, and Takata’s cross-motion will be denied.

1 This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of
Bankruptcy Procedure 7052. To the extent that this Court's authority is determined to be within the parameters of 28
U.S.C. § 157(c)(1), this Opinion and the accompanying Order shall be deemed to be the Court's proposed findings of
fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 9033.
2 ACTS’ Complaint defines the “Patent Assets” as: (a) U.S. Provisional Patent Application No. 61/451,082, filed on
March 9, 2011 (“the ‘082 Application”); (b) U.S. Patent Application No. 13/415,767, filed March 8, 2012, which
matured into U.S. Patent No. 8,479,864; (c) U.S. Patent No. 8,479, 864, which issued July 9, 2013 (“the ‘864 Patent”);
(d) International (PCT) Patent Application No. PCT/US2012/028295, filed March 8, 2012 (“PCT ‘295”); (e) European
Patent Application No. 12754647.1, filed March 8, 2012 (“EP ‘647”); (f) Japanese Patent No. JP6121916 (B2), filed
March 8, 2012 and issued April 7, 2017; (g) Chinese Patent Nos. CN103476623, filed March 8, 2012 and issued
November 9. 2-16 and (h) any and all other U.S. or foreign patents or patent applications which claim benefit of the
foregoing patents and/or patent applications.
3 Findings of Fact, Conclusions of Law, and Order Confirming the Fifth Am. Joint Chapter 11 Plan of
Reorganization of TK Holdings Inc. and its Affiliated Debtors, Feb. 21, 2018, Docket No. 2120 (“Order Confirming
Plan”).
I. BACKGROUND
A. General

Prior to commencing these Chapter 11 proceedings, Takata was a leading global developer
and manufacturer of automotive safety and non-safety systems, including airbags and seat-belts.4
The record reflects that, among other products, Takata manufactured airbag inflators containing
phase-stabilized ammonium nitrate (“PSAN”), which had the potential to rupture upon airbag
deployment, causing death and serious injury to automobile occupants. In response to multiple
reports of injuries caused by PSAN inflators in vehicles, the National Highway Traffic Safety
Administration (“NHTSA”) initiated the largest product recall in U.S. history.
Takata filed for Chapter 11 protection on June 25, 2017. Takata’s Plan was structured
around a sale of substantially all of its assets to Joyson. Included in that proposed sale were the
Patent Assets at issue here. ACTS timely filed a Limited Objection to confirmation of Takata’s
proposed plan (the “Objection”).5 As described more fully below, ACTS objected to the proposed
sale of U.S. Provisional Patent Application No. 61/451,022 (the “082 Application”) and certain

other patents and patent applications, contending that these Patent Assets were the property of
ACTS, not Takata, and thus could not be sold to Joyson under the Plan. To resolve ACTS’
Objection in advance of the confirmation hearing, the parties agreed that the Plan could be
confirmed and the question of ownership of the Patent Assets would be reserved for later
disposition. In a nutshell, the parties carved the Patent Assets out of the sale to Joyson; if Joyson
prevails here, it will be the owner of the Patent Assets. If ACTS prevails, then it is the owner and
the Patent Assets will not have been sold and transferred under the Plan.

4 As the instant dispute between these parties has little to do with the circumstances leading to Takata’s collapse, the
Court provides here only the most general overview of these otherwise enormously complex Chapter 11 proceedings.
5 Limited Objection to Confirmation of the Third Am. Joint Chapter 11 Plan of Reorganization of TK Holdings Inc.
and its Affiliated Debtors, Feb. 6, 2018, Docket No. 1948.
The Court entered an order confirming Takata’s Plan on February 21, 2018.6 As noted,
the Order confirming the Plan specifically preserved ACTS’ Objection until a later hearing date
and did not include the Patent Assets in the sale.7
ACTS filed a Complaint and commenced this Adversary Proceeding against Takata

seeking a declaration that ACTS owns the Patent Assets and further seeking an injunction barring
Takata from selling the Patent Assets in its bankruptcy case.8 Takata has responded and asserted
in its Answer that the Patent Assets are property of Takata’s bankruptcy estate, are not owned by
ACTS and were properly sold and transferred to Joyson under the Plan.
B. The Patent Assets
ACTS partnered with NHTSA in 2008 to develop a new alcohol detection system that
would help prevent alcohol-impaired driving. The research program, called the Driver Alcohol
Detection System for Safety (“DADSS”), was to proceed in two phases. Phase I of the project
contemplated the development of a touch-based alcohol detection sensor (the “Sensor”) to measure
a driver’s blood alcohol level from the driver’s fingertip. During Phase II, the Sensor would be

further developed so that it could be incorporated into a motor vehicle. ACTS hired TruTouch
Technologies, Inc. (“TruTouch”) to develop the sensor for Phase I of the project, which concluded
in late 2010. For Phase II, ACTS required that TruTouch partner with an automobile manufacturer
to develop a product that could operate reliably in an automobile.
ACTS issued a Request for Proposal9 (“RFP”), and the record reflects that TruTouch
contacted Takata representatives to partner with Takata on the project and utilize Takata’s deep

6 Order Confirming Plan, Docket No. 2120.
7 Order Confirming Plan, Docket No. 2120 at ¶ 97.
8 Adversary Proceeding No. 18-50274; Docket No. 1. A stipulation was entered between ACTS, Joseph Farnan, Jr.
solely as Trustee of the Reorganized TK Holdings Trust as successor in interest to Defendant TK Holdings, Inc. and
Joyson on May 15, 2018. Order Approving Stipulation, Docket No. 34.
9 App. to Opening Br. in Support of Def. Joyson Safety Systems Acquisition LLC’s Mot. for Summ. J. A265, May
23, 2019, Docket No. 95.
experience in the development and manufacture of automobile devices and systems. Takata
investigated the potential partnership with TruTouch and identified certain deficiencies in
TruTouch’s model. One area of concern was the inability to ensure that the driver, and not a
passenger, was the one touching the sensor. Because the whole purpose of the project was to

develop a product that would determine whether a driver was under the influence of alcohol and
prevent him from operating the vehicle, it was essential that an inebriated driver is not able to
circumvent the system by having a sober passenger engage the sensor.
Engineers at Takata used existing Takata technology and capacitive seat sensors to
develop an anti-circumvention mechanism that addressed the perceived inadequacy in TruTouch’s
model. Takata entered into a Memorandum of Understanding with TruTouch on December 17,
2010 and responded to ACTS’ RFP on February 9, 2011. ACTS replied to Takata’s proposal and
invited it to present its proposal at a meeting to be held on March 10, 2011.
In connection with that invitation, ACTS also requested further information on the anti-
circumvention mechanism. Takata filed the ‘082 Application on March 9, 2011 (one day prior to

its scheduled meeting with ACTS) and attended the meeting on March 10, 2011. During that
meeting Takata presented a PowerPoint and explained that it had a “proprietary method” to solve
the circumvention problem. It explained that its “proprietary method” of detecting passengers for
airbag deployment could be modified to determine whether a person touching a sensor was a driver
or a passenger. ACTS selected Takata for Phase II of the project and maintains that Takata’s
proposed method was a “key consideration” in ACTS’ decision to award Phase II to Takata. The
parties commenced a negotiation period that lasted approximately five months and eventually
signed a contract on September 1, 2011 (the “Agreement”). The Agreement includes certain
provisions that are at the center of the dispute.
The first relevant provision of the Agreement is Section 13(a)(i), which governs ownership
of technology created pursuant to the Agreement. That section provides as follows:
ACTS owns, and shall continue to own, all worldwide rights, title, and interest in
and to all Work Product (including all Intellectual Property Rights therein) which
is developed under this Agreement.10

Accordingly, the definition of “Work Product” also plays a major role in the Court’s determination
of this dispute. “Work Product” is defined under the Agreement as:
[A]ny and all Deliverables, inventions, improvements, technology, software,
hardware, modifications, enhancements, derivatives, translations, compositions,
discoveries, data, know-how, processes, methodologies, formulas, designs,
drawings, data, information, or works or authorship which are or were, after
February 9, 2011, developed, discovered, invented, authored or first used or
reduced to practice by Subcontractor, Tier Two Subcontractor, or any Third Party
Contractor, whether alone or jointly with ACTS or any third party, in connection
with this Agreement, in the course of performing Services or otherwise for or on
behalf of ACTS.11

The parties also disagree over whether the Patent Assets constitute “Background IP” and
are therefore the property of Takata. “Background IP” is defined under the Agreement as:
[A]ll software, hardware, technology, inventions, improvements, modifications,
enhancements, derivatives, compositions, discoveries, Intellectual Property,
processes, methodologies, formulas, designs, drawings, data, translations, know-
how, or works of authorship (whether in draft or final form and whether in written,
electronic or other format) in which a Party or any Third Party Contractors owns
any proprietary right anywhere in the world, and which was acquired, licensed,
developed, discovered, invented, authored, or first reduced to practice by such Party
or any Third Party Contractor, alone or jointly with others, (i) prior to the Initial
Signing Date, or (ii) outside of the scope of the Services of this Agreements not
within the Field and without funding by ACTS, and in each case is listed on
Schedule C. The term “Background IP” does not include any Third-Party IP or
Work Product.12

10 App. to Opening Br. in Support of Def. Joyson Safety Systems Acquisition LLC’s Mot. for Summ. J. A081, May
23, 2019, Docket No. 95.
11 App. A081, Docket No. 95, (emphasis added).
12 App. to Opening Br. in Support of Def. Joyson Safety Systems Acquisition LLC’s Mot. for Summ. J. A081, May
23, 2019, Docket No. 95.
The parties filed and fully briefed cross motions for summary judgment, each asserting
ownership of the Patent Assets.13 The Court heard oral argument and took the matter under
advisement. This matter is ripe for disposition.
II. JURISDICTION, VENUE AND LEGAL STANDARD

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b)(1). Venue
is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding under
28 U.S.C. § 157(b)(2)(A), and (O).
Federal Rule of Civil Procedure 56(a) provides that “[t]he court shall grant summary
judgment 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). An issue of material
fact is genuine only “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).
The purpose of summary judgment is “to isolate and dispose of factually unsupported
claims or defenses.” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The movant bears

the burden of establishing the absence of a genuine issue of material fact. Id. at 322-23. If the
movant is successful, the burden then shifts to the respondent to establish that summary judgment
is not warranted. Matsushita Elec. Indus. Co., v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
The opposing party must produce specific facts that establish the existence of a genuine dispute.
Id. at 587. It is not sufficient to defeat a motion for summary judgment for the respondent to merely
allege a factual dispute. Anderson, 477 U.S. at 247-48.

13 Def. Joyson Safety Systems Acquisition LLCs Mot. for Summ. J. May 23, 2019, Docket. No. 93; Pl. Automotive
Coalition for Traffic Safety, Inc.'s Mot. for Summ. J. July 15, 2019, Docket No. 112.
Further, the Court must view all facts and draw all inferences in favor of the respondent.
Id. at 261 n.2; Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508, 512 (3d Cir. 1994). A motion for
summary judgment may only be denied “[w]here the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party.” Matsushita, 475 U.S. at 587 (citation

omitted). Therefore, the Third Circuit Court of Appeals has held that “in all cases summary
judgment should be granted if, after drawing all reasonable inferences from the underlying facts
in the light most favorable to the nonmoving party, the court concludes that there is no genuine
issue of material fact to be resolved at trial and the moving party is entitled to judgment as a matter
of law.” Petruzzi’s IGA Supermarkets v. Darling-Del. Co., 998 F.2d 1224, 1230 (3d Cir. 1993).

III. THE PARTIES’ POSITIONS
Takata maintains that it is the presumptive owner of the Patent Assets and that ACTS bears
the burden of proof in overcoming that presumption. First, Takata takes the position that the Patent
Assets were not “Work Product” developed “for or on behalf of ACTS” under the Agreement
because Takata filed the ‘082 Patent Application on March 9, 2011, five months prior to signing
the Agreement with ACTS, so that it could not have developed the invention under the Agreement.
Second, ACTS directed Takata that Takata was not authorized to begin work until Takata received
a signed, authorized contract. Third, the Agreement between ACTS and Takata does not address
anti-circumvention technology, and instead only focused on the blood alcohol sensor. Finally,

Takata contends that the Patent Assets are by nature public information and therefore cannot be
considered “Confidential Information” under the Agreement.
In response, ACTS asserts that it is the owner of the Patent Assets. It alleges that the plain
language of the Agreement expressly provides that ACTS is the owner of any “Work Product,”
which includes inventions resulting from work done for or on behalf of ACTS after February 9,
2011. First, the invention in dispute was devised after February 9, 2011 because Takata filed its
Patent Application on March 10, 2011. Under applicable law, an “invention” requires both
“conception” and a “reduction to practice,” each of which occurs as a matter of law when an
inventor files an application. Second, ACTS argues that the invention falls under the “Work

Product” definition which encompasses work that was done prior to the signing date of the
Agreement because Takata invented the device “for or on behalf of ACTS.” Third, Takata
developed the invention for ACTS because ACTS stressed to Takata that Takata’s proposed
system would need an anti-circumvention component and that this component would be critical to
the project. Finally, ACTS contends that Takata effectively acknowledged that the Patent Assets
were “Work Product” “for or on behalf of ACTS” because Takata did not include the Patent Assets
in its schedules as Background IP.
IV. DISCUSSION

The Agreement provides that the “Subcontract shall be governed by and construed and
enforced solely and exclusively in accordance with the laws of the state of New York . . ..” When
interpreting a contract under New York law, “the words and phrases in a contract should be given
their plain meaning, and the contract should be construed as to give full meaning and effect to all
of its provisions.” See Chesapeake Energy Corp., 773 F.3d 110, 113-14 (2d Cir. 2014) (citations
omitted). Another longstanding rule in contract interpretation is that “a reading of the contract
should not render any portion meaningless.” See Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 834
N.Y.S.2d 44, 865 N.E.2d 1210, 1213 (2007). When the terms of a contract are clear and
unambiguous, the court will use the four corners of the agreement to determine the parties’ intent.
See In re Am. Home Mortg. Holdings, Inc., 390 B.R. 120, 135 (Bankr. D. Del. 2008) (citations
omitted).
For purposes of summary judgment, the dispute in this matter centers on the ownership of
the Patent Assets. To answer that question, the Court looks to the Agreement between the parties
and specifically to the seven-month look-back period contemplated by Section 13(a)(1), the
definition of “Work Product,” and what was excluded as “Background IP.”

Typically, the effective date of a contract is the date the parties signed the Agreement.
Here, however, the Agreement between Takata and ACTS contemplated an effective date that was
almost seven months prior to the date the parties signed the Agreement. As noted earlier, the “Work
Product” definition in the Agreement included an effective date of February 9, 2011. Anything
created on or after February 9, 2011 for or on behalf of ACTS thus was intended to become the
property of ACTS.
a. The Invention is Work Product because it was completed as a matter of law after the
February 9, 2011 effective date
Under the Agreement, “Work Product” has two requirements; (1) that the invention be
developed, discovered, invented, authored or first used or reduced to practice after February 9,

2011 and (2) that the work was done “in connection with this Agreement in the course of
performing services, or otherwise for or on behalf of ACTS.”
Takata asserts that its invention does not fall under “Work Product” because its anti-
circumvention invention was neither developed under the Agreement nor “for or on behalf of
ACTS.” Takata notes that it filed its patent application and thus completed the invention as a matter
of law more than five months before the Agreement was signed. Takata explains that an invention
is deemed a “constructive reduction to practice” and therefore complete as a matter of law when a
patent applicant files a patent application. Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 66 (1998).
Takata filed its patent application on March 9, 2011, which was before the date the parties signed
the Agreement on September 1, 2011. Takata argues the invention was completed when it filed
the application on March 9, 2011 and therefore could not have been developed “under the
Agreement.” However, Takata fails to address the February 9, 2011 date contained in the “Work

Product” definition. Takata and ACTS spent approximately five months negotiating the terms of
Agreement and included an effective date of February 9, 2011 in the definition of Work Product.
Under the Agreement, ACTS owns all “Work Product.” Anything that was “developed,
discovered, invented, authored or first used or reduced to practice” after February 9, 2011 falls
within this definition. The Agreement is unambiguous and therefore provides that ACTS owns the
Patent Assets because the Patent Assets were “developed, discovered, invented, authored or first
used or reduced to practice” on March 10, 2011, which is after the February 9, 2011 effective date.
b. The Patent Assets are Work Product because they were developed “for or on behalf of
ACTS”
The record reflects that Takata understood that ACTS was interested in anti-circumvention
and that the anti-circumvention component was crucial for the project.14 Back in December 2010,

Takata had initially invested $500,000 into TruTouch so that the two parties could work together
to fulfill the DADSS/ACTS contract that was awarded to TruTouch.15 Takata then submitted a
response to ACTS’ Request for Proposal for the development of a touch-based alcohol detection
system. ACTS sent a reply back to Takata on February 28, 2011 stating that the proposed system

14 White Tr. 78:3 – 78:8, Docket No. 95.
15 Opening Br. in Supp. of Def. Joyson Safety Systems Acquisition LLC’s Mot. for Summ. J., Automotive Coalition
for Traffic Safety, Inc., v. Joseph J. Farnan., and Joyson Safety Systems Acquisition LLC, Docket No. 94 at 8 (“Takata
Opening Brief”) (“TruTouch had contacted TKH because, for Phase II of the DADSS program, ACTS required it to
partner with an established auto industry manufacturer to improve vehicular suitability of TruTouch’s bulky BAC
sensor . . . ”); White Tr. 32:13 – 33:8, Docket No. 95.
would need to contain an anti-circumvention component.16 Takata then made a presentation to
ACTS on March 10, 2011 proposing that Takata’s airbag detection system could be modified and
used with a touch-based alcohol detection system. Therefore, Takata was aware that ACTS
required an anti-circumvention component as early as February 28, 2011, months before the parties

signed into the Agreement.
Takata argues that its engineers came up with the anti-circumvention idea in November
2010 when Takata initially contacted TruTouch, before ACTS had sent out its Request for
Proposal.17 This may be true, but it does not answer the question whether the technology was
developed for or on behalf of ACTS. When Takata initially contacted TruTouch, Takata was
aware that TruTouch had partnered with ACTS.18 Takata reviewed the model that TruTouch was
developing for ACTS before Takata decided to invest in TruTouch.19 Takata identified a potential
inadequacy in the TruTouch model and engineers at Takata used existing Takata technology and
capacitive seat sensors to develop an anti-circumvention mechanism to address that inadequacy.20
Takata proposed the anti-circumvention component to TruTouch in 2010, knowing that TruTouch

was developing the model for ACTS. Therefore, the record supports the Court’s conclusion that
the Patent Assets were developed “for or on behalf of ACTS.”
c. The Patent Assets were developed under the agreement
Section 13(a)(i) of the Agreement specifically states that ACTS owns all Work Product
which is “developed under this Agreement.” As discussed above, the Court has determined that

16 Takata Opening Br. Docket No. 94 (“Question 2 was a three-part invitation to address tampering, circumvention
and interferants in a commercial implementation.”).
17 White Tr. 38:14 – 38:19, Docket No. 95.
18 White Tr. 26:12 – 28:1, Docket No. 95.
19 White Tr. 30:5 – 31:8, Docket No. 95.
20 White Tr. 41:22 – 44:22, Docket No. 95.
the Patent Assets constitute Work Product under the definition provided in the Agreement. Now,
the Court further determines that the Patent Assets were developed under the Agreement.
Takata first argues that the Patent Assets were completed as a matter of law when it filed
the Patent Application on March 9, 2011. Second, it argues that it was not authorized to begin

work on behalf of ACTS until it received a duly authorized contract and that ACTS acknowledges
that Takata proposed a proprietary method for the circumvention aspect of the sensor. Third,
Takata contends that developing anti-circumvention was not a requirement under the Agreement
and was not included in the Vehicle Integration Requirements under any Statement of Work
(“SOW”). Fourth, none of Takata’s deliverables contained any anti-circumvention technology, and
last, Takata argues that its invention is “Background IP,” which Takata owns.
ACTS challenges Takata’s assertions by first arguing that Takata did not have a working
model of the invention when it filed the Patent Application. Second, ACTS argues that the SOW
involved the blood alcohol sensor and that the sensor incorporated an anti-circumvention
component. The overall objective of the SOW was a system that would only measure the driver’s

blood alcohol content. Third, a mock-up vehicle that Takata provided lacked an operable blood
alcohol sensor but did have an anti-circumvention component. Fourth, the parties always
understood that the system would include an anti-circumvention element. Finally, Takata failed to
claim the Patent Assets as “Background IP” in the Agreements.
The Court focuses on the Agreement and the SOWs agreed to by the parties and concludes
that the Patent Assets were developed under the Agreement and therefore belong to ACTS. The
first agreement was signed on September 1, 2011 and an amended agreement was signed on March
31, 2014. There were also various SOWs which were incorporated the Agreements.
The “Objectives” sections of the 2011 SOW and the 2013 SOW state as follows:
The overall objective of this Phase II effort is to develop the proof-of-principle
prototype (POP Prototype) developed in Phase I for implementation and integration
into a research vehicle. When implemented, the subsystem shall only measure the
driver’s BAC21 in the vehicle cabin environment and output a measurement to the
display as per the vehicle integration requirements in Appendix A.22

The SOW from 2013 has the same language, “. . . the subsystem shall only measure the driver’s
BAC.”23
Although Takata is correct that the words “anti-circumvention” or “anti-spoofing” are not
included in the Agreements or the accompanying SOWs, the SOWs do contemplate the
anticircumvention concept by stating that the subsystem shall “only measure the driver’s BAC.”
The Court interprets this to mean that only the driver, and not a passenger or other person, will
have their BAC measured. In other words, the driver will not be able to circumvent the system by
having a passenger touch the sensor.
Next, the Court focuses significant attention on what was not included as Background IP
in the Agreement’s schedules. In Takata’s Opening Brief, it concedes that it “. . . did not list the
Patent Assets as Background IP subject to Section 13.b of the Agreement” because the Agreement
did not involve developing anti-circumvention technology. However, as noted above, the record
reflects that anti-circumvention was contemplated in the SOWs and was a central feature of the
project.
As revealed in the deposition testimony of Mr. White, Takata understood that the anti-
circumvention component was crucial for the project. Takata knew as of February 28, 2011 that
ACTS required an anti-circumvention component in the system that Takata proposed. Takata then

21 App. to Opening Br. in Support of Def. Joyson Safety Systems Acquisition LLC’s Mot. for Summ. J. A669, May
23, 2019, Docket No. 95 (emphasis added).
22 App. A669, Docket No. 95.
23 App. A833, Docket No. 95.
filed its Patent Application on March 9, 2011. Takata admitted in its Opening Brief that its anti-
circumvention invention was “valuable” and that it filed that Patent Application to “preserve
TKH’s ownership before presenting the invention at the March 10 meeting.” Takata took steps in
March 2011 to patent its invention but failed to include the invention and the accompanying patent

as Background IP in two separate instances.
The Patent Assets were not listed in the 2011 Agreement and were not again not included
in the 2014 amendment to the Agreement. In the 2014 amendment to the Agreement, anything that
was to be classified as Background IP had to be listed on Schedule C, “. . . and in each case is
listed on Schedule C.” Takata had the opportunity during the initial drafting of the 2011
Agreement and the 2014 amending of the Agreement to simply include the Patent Assets on the
designated schedule but did not do so.
VI. Conclusion
ACTS originally partnered with TruTouch to develop Phase I of its project. In 2010, Takata
invested into TruTouch, and in 2011, Takata was selected by ACTS for Phase II of the project.

Takata filed its Patent Application on March 9, 2011 and entered into the Agreement with ACTS
on September 11, 2011 after spending a few months negotiating the Agreement’s terms.
These sophisticated parties and their professionals entered into the Agreement that defines
an effective date for Work Product as of February 9, 2011. The Agreement further delineates that
ACTS would own any Work Product developed for or on behalf of ACTS on or after February 9,
2011. The Court finds no genuine dispute of material fact as to the terms of the contract and the
consequences of its application. The patent application was filed on March 9, 2011, which
consequently puts the development of the Patent Assets after the February 9, 2011 Work Product
timeframe. Further, the Patent Assets were developed “under the Agreement.” The Court does not
consider it necessary to consider the remainder of the parties’ arguments.
For the foregoing reasons, the Court finds that there are no genuine disputes of material
fact and grants ACTS’ motion for summary judgment. Takata’s Cross-Motion for summary
judgment is denied. The parties are requested to submit a proposed form of order consistent with
the reasoning stated above within fourteen days of the date hereof.

Dated: June 18, 2020 _ □ a
Wilmington, Delaware ~ ie □□ <A [ x a
United States Bankruptcy Judge

16

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10455944. Public record. Not legal advice.