The US Court of Appeals for the Eleventh Circuit affirmed a district court’s summary judgment dismissal of plaintiff’s claim that the defendant failed to provide a payment conditioned on the sale, merger or transfer of certain intellectual property since ownership was not transferred via the merger. GSE Consulting, Inc. v. L3Harris Techs., Inc., Case No. 22-10647 (11th Cir. Feb. 8, 2023) (Rosenbaum, Lagoa, Wetherell, JJ.)

L3Harris specializes in defense and information technology and until recently was known as Harris Corporation. The name change from Harris to L3Harris was the result of a reverse triangular merger it executed over 2018 and 2019 whereby its subsidiary, Leopard Merger Sub, merged with its target, L3 Technologies.

In 2008, Harris and GSE combined forces to develop an oil sands heavy oil recovery process. In addition to yielding intellectual property relating to the process’s corresponding radio frequency heating technology, the collaboration resulted in a consulting agreement that would have extended through December 31, 2022. Under the consulting agreement, GSE provided its specialized infrastructure and energy consulting services on call and assigned all its rights to intellectual property developed under the agreement to Harris. In return, GSE received base pay and the right of first refusal for 10% of the direct labor workshare of Harris’s radio frequency heating projects.

The consulting agreement also included several payment conditions to benefit GSE or mitigate its risk. GSE believed that the Harris-L3 merger triggered the following condition to the tune of $4 million:

6.b. Payments calculation for the following to be 3% of market capitalization, capped at $4M:

1. in the event the IP is sold, merged or transferred and the primary basis of the sale is not the IP.

GSE argued that the intellectual property relevant to the consulting agreement had “merged” because the Harris-L3 plan of merger addressed that intellectual property and included it in the merger. GSE therefore issued a $4 million invoice to L3Harris.

L3Harris rejected the invoice, arguing that while the plan of merger addressed the relevant intellectual property, the relevant language declared that the merger would have no effect on Harris and L3’s respective ownership interests: “all such rights will survive unchanged after the consummation of the [merger].” According to L3Harris, ownership of the relevant intellectual property did not change through the merger. Not long after rejecting GSE’s invoice, L3Harris also shut down its radio frequency heating program.

GSE subsequently filed a lawsuit alleging breach of contract, and the parties filed competing summary judgment motions. GSE maintained its position that it was owed $4 million but also argued that if the district court found the payment provision ambiguous then it should consider testimony from those who brokered the agreement demonstrating that a corporate merger was sufficient to trigger payment. L3Harris argued that the provision was unambiguous and thus Florida law prohibited considering extrinsic evidence. L3Harris also argued that its merger didn’t involve anything that triggered payment (i.e., the relevant intellectual property was not sold, merged or transferred).

The district court granted [...]

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