Fight Between Two Chemical Giants Continues: Akzo Nobel’s Claim of IP Misappropriation against Dow Chemical Survives Motion to Dismiss

By Holly Vance and Stephanie S. Liu

In Akzo Nobel Coatings, Inc. v. The Dow Chemical Company, the Delaware Court of Chancery decided a dispute between two chemical companies that were parties to a joint development agreement. Akzo Nobel Coatings Inc. (“Akzo”) alleged, among other things, that The Dow Chemical Company, doing business as Dow Advanced Materials (“Dow”), wrongfully misappropriated intellectual property that belonged in part or in whole to Akzo and breached their joint development agreement. Dow moved to dismiss pursuant to Court of Chancery Rule 12(b)(6). The Court granted the motion in part and denied in part. Specifically, Akzo’s claims for declaratory judgment and breach of contract survived, but its alternative claims for breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment were dismissed.

Akzo specializes in the design, manufacture, and sale of various chemical coatings, including protective coatings for food and beverage packaging and containers. Dow develops, manufactures, and sells polymeric materials, products, and technologies, including those suitable for use in coatings for food and beverage containers. In January of 2010, the parties executed a Joint Development Agreement (“JDA”) to combine the parties’ respective areas of expertise in pursuit of the development of new protective coatings for metal food and beverage packaging containers. Depending on the resulting invention, any given project under the JDA could either be wholly owned by one of the two parties or jointly owned. Dow terminated the JDA in October of 2011, and then communicated to Akzo in May of 2012 that it intended to file two patent applications relating to potential JDA inventions. In June of 2013, Akzo filed its complaint, asserting claims for: (1) a declaratory judgment regarding Akzo’s ownership rights under the JDA; (2) breach of contract and a permanent and mandatory injunction against Dow; (3) breach of the implied covenant of good faith and fair dealing; (4) conversion; and (5) unjust enrichment. The Court reviewed the complaint under the reasonable “conceivability” standard, the governing pleading standard in Delaware to survive a motion to dismiss, which asks whether there is a “possibility” of recovery.

The Court denied Dow’s motion to dismiss Akzo’s claim for declaratory judgment of its ownership rights under the JDA. Under the JDA, ownership of JDA inventions was based on the categorization of inventions as “target-coating” (owned by Akzo), “materials” (owned by Dow), “project materials” (owned by Dow), and other (jointly owned). Akzo alleged that it owned the inventions claimed in Dow’s patent applications, or in the alternative, was a joint owner. Dow contended that the inventions were “materials” under the JDA and therefore belonged solely to Dow. In denying Dow’s motion to dismiss, the Court found that, even assuming Dow’s interpretation of the JDA was reasonable, it was also reasonably conceivable that Akzo could prove at trial that the patent applications claim non-“material” JDA inventions (which would give Akzo at least joint ownership).

The Court also denied Dow’s motion to dismiss Akzo’s breach of contract claim. The JDA imposed several obligations on the parties with respect to confidential information. Akzo alleged that Dow breached the JDA when it disclosed Akzo’s confidential information in the patent applications. Dow argued that Akzo’s allegations were so vague that they failed to place Dow on notice, thereby violating Court of Chancery Rule 8. The Court held that Delaware requires only notice pleading as to Akzo’s confidential information claims and that the determination of whether the allegedly confidential information was already in the public domain constituted a disputed issue of fact that could not be resolved on a motion to dismiss.

The Court, however, granted Dow’s motion to dismiss Akzo’s remaining claims for the breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment, finding that the JDA governed the entirety of the relationship between the parties and that these claims were duplicative of Azko’s other claims.

Akzo Nobel Coatings, Inc. v. The Dow Chemical Company

Copyright © 2024, K&L Gates LLP. All Rights Reserved.