Property, intangible

When you see “slip it in” in an email about contract negotiations, it’s a good bet it’s not going to go well for the person trying to “slip it in.” Especially when their goal is to do it “nebulously.”

The transaction was, to the defendant Mitel Networks, a vanilla domain name sale. However, the plaintiff’s real desire was to acquire a block of 65,536 IPv4 addresses – the domain name was just a front.

The plaintiff Colocation America used a broker, Corey Allen Kotler, who approached Mitel Networks about purchasing the domain name “gandalf.ca.” Mitel Networks had acquired the domain name out of bankruptcy. The IP addresses were unrelated to the domain name, other than it looks like the IPv4 addresses were acquired at the same time. After Mitel Networks agreed to the domain name purchase, Kotler said in an email to Colocation, “I would write it [the purchase agreement] up for the domain and somehow slip in the IPV4.” He later said the same day

Is there a way to slip it in nebulously? i.e. “… and should any potential intellectually [sic] properties or scenarios that may be associated at a future point in time.”

He then amended Mitel Networks’ draft domain name purchase agreement, which in final form said:

For good and valuable consideration, payable as more particularly described herein, Mitel hereby agrees to quit claim to INTELLECTUAL PROPERTY PURCHASER any of Mitel’s right, title and interest in and to the Domain Name <gandalf.ca> and the registration thereof, together with the goodwill of the business connected with and symbolized by such Domain Name[,] and the associated IPv4 134.22.0.0/16 and any associated trade dress, or other intellectual property intellectual property [sic] rights relating thereto, to the extent any such rights exist. The quit claim transfer and assignment shall take effect as set forth herein upon INTELLECTUAL PROPERTY PURCHASER’S making the payment as provided for herein.

The bracketed comma is one that was in the original draft but did not survive through to the final executed copy. During negotiations Mitel Networks’ outside counsel highlighted “IPv4 134.22.0.0/16” and commented “What is this?” Kotler didn’t respond. Mitel Networks’ outside counsel asked Mitel Networks’ vice president of business strategy about it and subsequently felt comfortable having the domain name assignment agreement executed.

After the agreement was signed, Colocation asked for the transfer of the IPv4 address block (even before the domain name). Mitel Networks’ counsel responded “there appears to be a miscommunication that needs to be worked out first” (undoubtedly with her heart in her throat). And we have a lawsuit.

It’s a straight contract interpretation case. The suit is under Arizona law, which is very generous on its view of how to construe a contract:

A contract should be read in light of the parties’ intentions as reflected by their language and in view of all the circumstances. Evidence of the parties’ negotiations, prior understandings, and subsequent conduct may be considered to determine the parties’ intent and to interpret the meaning of provisions in the contract.

Important in this situation,

Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

Restatement (Second) of Contracts § 201(2).

Starting with the actual words of the agreement, the parties had two different interpretations. Mitel Networks contended that “together with the goodwill of the business connected with and symbolized by such Domain Name and the associated IPv4 134.22.0.0/16 and any associated trade dress” meant Mitel Networks was quit claiming the goodwill of the business connected with the associated IPv4 addresses and associated trade dress. Colocation contended that it meant that Mitel Networks was quit claiming the goodwill of the business plus the associated IPv4 134.22.0.0/16 addresses plus any associated trade dress.¹

The court agreed with Mitel Networks, relying on the agreement as a whole. The court recited the many places in the agreement that referred only to an assignment of a domain name – the preamble, the provisions for transfer, the warranty, and a non-disparagement provision, plus the IPv4 block was not associated with the gandalf.ca domain name.

As to the rule of contruction on the meaning when the parties understand the agreement differently, “This case is a poster child for the rule of § 201(2) of the Restatement”:

Mitel Networks had no reason to know that Colocation interpreted the Domain Name Assignment Agreement as an agreement to transfer IPv4 addresses. Colocation had reason to know Mitel Networks interpreted the Domain Name Assignment Agreement as an agreement to assign a domain name and not as an agreement to transfer IPv4 addresses. Although Ahdoot hired Kotler to acquire the IPv4 134.22.0.0/16 addresses, Kotler intentionally misled Mitel Networks by offering only to buy a domain name. Kotler told Ahdoot and Seligman, “I would write it up for the domain and somehow slip in the IPV4.” Kotler asked, “Is there a way to slip it in nebulously?” Then Kotler suggested slipping the IPv4 addresses in “nebulously,” using words almost identical to the language he used in his email to Whittington: “any potential intellectually [sic] properties or scenarios that may be associated at a future point in time.”

Moreover, IPv4 addresses were never mentioned before Colocation offered and Mitel Networks accepted the offer of $10,000 for the assignment of a domain name. It would not have been reasonable for Colocation to expect Mitel Networks to add to the deal the transfer of 65,536 IPv4 addresses of value far greater than $10,000 without any additional consideration. That further proves that Colocation knew that Mitel Networks did not intend to transfer the IPv4 addresses.

…Colocation’s objective from the outset was to acquire the IPv4 addresses. But it purported to negotiate only for a domain name without ever leveling with Mitel Networks. Colocation not only had “reason to know” Mitel Networks attached a “different meaning” to their agreement, it created and promoted that different meaning on the part of Mitel Networks. Thus, the Domain Name Assignment Agreement must be interpreted in accordance with the meaning attached by Mitel Networks, that is, as an agreement to assign a domain name and goodwill and not as an agreement to transfer IPv4 addresses.

The court granted summary judgment in Mitel Networks’ favor.

Colocation Am. Corp. v. Mitel Networks Corp. No. CV-17-00421-PHX-NVW (D. Ariz. June 14, 2018)

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