Intervisual Communications v. Volkert

John Volkert, the president of One-Up, Inc. (collectively, Volkert) (defendants) owned patents that covered pop-up advertising devices and methods for making pop-ups. In October 1991, Volkert entered into a license agreement with Intervisual Communications, Inc. (Intervisual) (plaintiff), which was in the business of marketing advertising devices. Under the agreement, Intervisual obtained the exclusive right to use and market Volkert’s patents, in exchange for Volkert’s receipt of annual royalties on the sale of any products that used Volkert’s patents. Volkert also agreed to contribute his time and expertise to Intervisual, and Intervisual agreed to pay $50,000 for Volkert’s consulting services, a $100,000 advance against future royalty payments, an annual license fee of $5,000, and annual royalties based on a percentage of sales. The parties could terminate the agreement for specified reasons. After signing the agreement, Volkert was consistently displeased with Intervisual for marketing and selling other products in addition to those that practiced Volkert’s patents. The 1991 license agreement was twice amended, and as amended, Volkert received another advance royalty payment of $50,000 and a considerable reduction in the amount of time he was required to devote to consulting. The royalty rates were also modified in a manner favorable to Volkert. In 1992, Intervisual sold over $2 million in patented pop-ups. In 1996, Volkert asserted that Intervisual had failed to use its best efforts to market and sell patented pop-up products. Volkert accordingly terminated the license agreement and granted a nonexclusive license to a third party. Intervisual sued Volkert, seeking a declaratory judgment that Intervisual did not breach the exclusive license agreement with Volkert.