Industrial Heat Say Rossi Lawsuit ‘Without Merit’ (Triangle Business Journal)

Quote from Thomas Clarke

I just don't like speculating

For someone averse to speculating, you sure are doing a whole lot of it!

Martin Tornberg wrote this on Lewans blog today. It is a pretty good legal assessment of the situation. I would think he wouldn't mind me posting it here:

The most plausible explanation I can think of is that [lexicon]IH[/lexicon] plans on making the case in court that Leonardo Corp and Rossi “have repeatedly breached their agreements”, as [lexicon]IH[/lexicon] put it in their press release. That most likely means Section 13, Covenants and Agreements, starting on P. 9 of the License Agreement, most likely including 13.1, which stipulates that “Rossi will provide ongoing training and support to the Company [[lexicon]IH[/lexicon]] in the use of the Plant and the production of the E-Cat Products….and to the extent reasonably requested by the Company to enable it to utilize the E-Cat IP, operate the Plant and produce the E-Cat Products.” In practice, Rossi likely kept everything under his own control and did not keep [lexicon]IH[/lexicon] fully educated with respect to the details of all of the trouble-shooting that took place during the 1-year test. Basically, Rossi did not provide [lexicon]IH[/lexicon] with everything that it needed to be able to produce and operate an E-Cat on its own. As a result, [lexicon]IH[/lexicon] was not able to independently recreate (“substantiate”) the results that Rossi was achieving during the 1-year test.

Rossi’s motivation for not working more closely with [lexicon]IH[/lexicon], not bringing them more fully up to speed, and not sharing all of his latest tweaks and fixes with them was most likely that he felt that they were not acting in his interests and he didn’t trust them. For example, he delivered the E-Cat to them in August, 2013 (and they knew for months that it was coming), yet even a year later, they had still not started the agreed upon 1-year test and didn’t do so until Rossi himself took the initiative to arrange a customer, a location, and certifications. In addition, they started filing their own patents and investing in Rossi’s competitors. As a result, it would have been understandable for Rossi to suspect (correctly or incorrectly) that [lexicon]IH[/lexicon] may have been trying to obtain as much info / IP from him as possible and utilize that info / IP on their own and/or in conjunction with other LENR companies that [lexicon]IH[/lexicon] had invested with.

Martin Tornberg

In my view, the License Agreement was flawed from the beginning by creating a conflict of interest between Rossi and [lexicon]IH[/lexicon]. The main conflict arises from Section 13.4 (“After Acquired/Developed Assets, Intellectual Property Rights”), which stipulates, in the 1st half, that any refinements or upgrades that Rossi makes to the E-Cat are also covered under the agreement, and, in the 2nd half, that after the agreement, both parties can do their own research and “all inventions, discoveries, concepts, ideas, information and anything else that the Company [[lexicon]IH[/lexicon]], its sublicensees, or any of their affiliates, makes or develops which relate to the E-Cat IP or are useful in the business….[etc etc]…shall remain the property of the Company (or such sublicensee or affiliate if so agreed by the Company)”.

This 2nd half of Section 13.4 is problematic because with this in place, [lexicon]IH[/lexicon] felt that it was well within their rights to not only fully utilize all E-Cat IP developed by Rossi, but also to build upon that IP themselves as well, file their own patents, and attempt to improve on Rossi’s technology independently of Rossi. If Rossi did not want them doing this, then arguably he should not have agreed to this in the first place – or he should have demanded an equity stake in [lexicon]IH[/lexicon] to keep their interests aligned. Of course, it is understandable that Rossi, not being a lawyer himself, may not have thought of this at the time and may have been eager to get the money that [lexicon]IH[/lexicon] was offering him ($1.5 million upfront plus $10 million upon 24-hour Validation plus $89 million after the 1-year test, which Rossi had been led to believe would take start right after the E-Cat was delivered in 2013, as stipulated in the Agreement prior to it being amended to allow for a later start date).

Once the agreement was signed and the E-Cat was delivered to [lexicon]IH[/lexicon] in 2013, [lexicon]IH[/lexicon] had an incentive to reverse engineer the E-Cat and start doing its own work in-house and via other partners. It also had an incentive to delay the 1-year test, so that it could a) delay paying $89 million to Rossi, and b) have more time to develop its own IP independent of Rossi.

Rossi, on the other hand, had 2 somewhat conflicting incentives:1) to fulfill the obligations of the Agreement sufficiently to collect the $89 million or at least a decent portion of it, and2) to divulge as little as possible to [lexicon]IH[/lexicon] about the ongoing refinements to the E-Cat (enhancements to the IP), in order to make sure that he stays ahead of [lexicon]IH[/lexicon] in the race to develop LENR-related IP, given that [lexicon]IH[/lexicon] was also engaged in its own research separate from Rossi, and given that Rossi had no ownership stake in [lexicon]IH[/lexicon].

The real mystery in all of this is why no one realized in the first place that the License Agreement was flawed and created a conflict of interest. The Agreement should have given Rossi a substantial ownership interest in [lexicon]IH[/lexicon], and it should probably also have given [lexicon]IH[/lexicon] a meaningful ownership interest in Leonardo, thereby creating a better alignment of interests. From Rossi’s standpoint, the Agreement shouldn’t have allowed Mr. Darden and Cherokee Investments to take the E-Cat IP and develop it on their own, independently of Rossi, via a company that Rossi did not have any economic interest in ([lexicon]IH[/lexicon]). Rossi signed away more than he intended to in Paragraph 13.4, resulting in a conflict between Rossi and [lexicon]IH[/lexicon].