Rossi v. Darden developments - Part 1

I don't think the the actual composition of the fuel is nearly as important as Rossi's long and exhaustive experience in the treatment and pre-processing of the fuel. Rossi has said on at least one occasion that the "production of powders" is one of the most demanding aspects of his technology. We know that he doesn't make his own nickel powder from scratch. He buys powder and then performs processes upon it. My thinking is that the various steps in the processing of the powder is more or less an "art" that can easily be screwed up. I think there are steps that are important before the powder is ever placed in the active reactor and important considerations after the powder has been placed in the active reactor. I think most of this know how is getting hydrogen to go into one of the fuels (the nickel) that really, really does not want to absorb hydrogen. Just mixing some ingredients together haphazardly may not work (at least not consistantly) even if you follow everything written in his patents.

My thinking is that learning the above above "art" of nickel hydrogenation is not too difficult -- if you are willing to put in the time and effort. Basically, I agree that Rossi did not want his technology taking too seriously by the world, because of its simplicity. If you're willing to do the work to learn how to get hydrogen in, you can reproduce the Rossi Effect. This made him paranoid. However, there were real competitors out to figure out his technology so he had a right to be.

I think it is like giving the typical housewife a set of tools and a set of cliffnotes on how to change out an engine. Or, you could replace a housewife with a non-mechanically inclined person like myself. The notes may give her the basic directions, but she won't have the experience and skills to do the job either without help, without doing additional research, or without taking a long period of time. I've learned the hard way that even replacing a single electronic circuit board buried deep in the dash of a car -- even with precise instructions given online -- can be an exhaustively stressful task.

This seems to have been neglected in the blizzard of filings. Rossi filed Document 0056.0_Rossi_Motion_to_Dismiss, September 29, 2016. This is an attempt to dismiss the counterclaims filed by Industrial Heat in Document 50, the "Second Amended Answer etc."

0068.0_IH_Response_Opposing_Rossi_MTD.pdf was filed October 17, 2016, with a note "Replies due by October 27." So Rossi may reply to this. Otherwise the Judge will rule at some point, she can take her time. I don't think a hearing will be scheduled ... but maybe.

From Document 50, page 51:

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... after numerous attempts, both with and without Rossi’s involvement, Counter-Plaintiffs have been unable, using the transferred E-Cat IP, to replicate the results included in the Evaluation Report purportedly certifying that Validation was achieved from April 30 to May 1, 2013, or otherwise generate measureable excess energy.
97. Only one of three conclusions can be drawn from the foregoing facts: 1) Leonardo and Rossi did not transfer and deliver all E-Cat IP to Counter-Plaintiffs; 2) Validation was never achieved and Penon’s reported COP calculations were false; or 3) both.
98. Each of these scenarios leads to only one conclusion: Leonardo and Rossi breached the terms of the License Agreement, either by not achieving Validation, not transferring or delivering all of the E-Cat IP to Counter-Plaintiffs, or both.

The Rossi claim:

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1. Count I: Breach of Contract
a. IH Lacks the Requisite Standing:

... on or about April 29, 2013 IH assigned all of its “rights, title and interest” in the License Agreement to IPH.

Hence, the argument goes, IH isn't owed jack. There are so many things crazy about this that I'm not going to bother with much detail. Rossi sued IH for performance on an agreement, worked with IH for years after that assignment, which was purely formal, a license being held by a wholly-owned subsidiary set up for that purpose, IH paid the bills, etc., and now Rossi claims they have no rights, and, here, specifically, his alleged failure to actually transfer the IP, essential to the core of the agreement, is to be without consequence, even though utterly necessary for IH to be able to raise the funds he is claiming they owed and didn't pay?

Even if the argument were valid in some way -- it isn't -- there would then be estoppel. He took their money in exchange for specific consideration: the 1 MW plant ($1.5 million), full disclosure of the IP, and assistance in making working devices (($10 million), and continued to work with them into 2016.

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b. Count I Fails to State a Cause of Action for Breach of Contract

... the Defendants fail to allege
that Plaintiffs did not comply with this provision. [to provide the IP] (DE:50, ¶¶93-99). In fact, rather than alleging that Plaintiffs have breached §3.2(b) of the License Agreement, because they cannot, Defendants merely suggest that one might conclude that Defendants’ failed attempts to replicate Plaintiffs work could be explained if Defendants were not provided all of the E-Cat IP.

Hey, that's correct! The claim that Rossi did not provide the IP is an inference. It is based on a series of facts that are alleged, that create a suspicion that the IP transferred simply doesn't work, and that the appearances that it did work -- as in the Validation test -- may have been created fraudulently. Annesser goes on:

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Notwithstanding Defendants untenable and conclusory allegation that “only one of three conclusions can be drawn,” logic dictates that additional conclusions could just as easily be drawn from the same set of alleged facts which do not constitute a breach of the License Agreement by the Plaintiffs.

"Just as easily" is conclusory, eh? The Rossi complaint here is that the statement is logically flawed. What if IH had said, instead, "We can reasonably conclude that one of three possibilities is true...."? IH is saying that looking at all the evidence, and they allege plenty, considering the effort that they put into attempting to make working devices per Rossi's instructions, no other conclusion is reasonable. And then this becomes a question of fact, which if it might be possible to establish by a best construction of what has been presented as evidence, cannot be dismissed.

Annesser also brings in an irrelevant argument:

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Furthermore, despite Defendants’ allegation they have been unable to “generate measureable excess energy”, Defendants freely acknowledge that numerous third parties have been successful in generating an energy multiplier (COP) ranging from COP 2.6 to COP 10.85. (DE:50, ¶57, 58, 68).

Whether or not other tests showed excess energy does not bear on the IH experience. It is possible that Rossi could establish at trial that others succeeded, as evidence that the IH failure was not his responsibility, but, again, that would be a factual issue. Rossi was obligated to transfer the IP to Industrial Heat. Perhaps he made those other tests work and the situation here was similar to what he claimed about Hydro Fusion: deliberate failure.

¶57 refers to the Validation Test, not a "third party" test in any way. That was positively deceptive. ¶58 is the "independent professors" test, the first report, done in Rossi's facility in Ferrara, Italy. ¶68 is the Lugano report. All these involved Rossi's participation. When IH refers to being unable to confirm heat, they mean independently, without Rossi participation in the actual testing.

It is very clear that the essence of the Agreement was to enable Industrial Heat to make working devices, to be able to affirm to possible sublicensees and investors that the technology worked -- necessary to be able to raise the funds for an $89 million payment --, yet, remarkably, Rossi did not allege that he satisfied this essential condition in his Complaint. The Complaint is focused entirely on the "Guaranteed Performance Test," as if IP transfer were not relevant, and only the technical detail of an "ERV report" mattered.

(And there was much opinion on Planet Rossi that this was open and shut: if the "ERV Report" was positive, IH had to pay, period.)

I predict that this part of the Motion will fail completely.

Industrial Heat asserts that they haven't been able to produce any measurable excess heat utilizing the IP that was transferred.

I would love to know about the true extent of their testing. My guess is that this will be be considered highly confidential. Here is a total hypothetical thought that may or may not have any validity -- just wild conjecture of one possibility.

It seems to me that from a purely capitalistic business perspective, it would make sense for them to only perform "official" testing (the tests they would be willing to tell others about) specifically by the exact letter of the patents and papers Rossi supplied them. My gut feeling is that the experience required to replicate (do to all the factors involved) is not easily transferred via a patent document. Having such tests fail would be a good hedge in case they ever went to court. They could say that they never were able to replicate using the IP transferred. If Rossi had been totally open, honest, and convincing with the one year test (or whatever it was), these failed tests wouldn't have really mattered. But they suspected that they would not pay because of Rossi's erratic behavior or his lack of honesty, the failed test results would come in very handy.

The smart thing to have done (although maybe not the most honest) would be to set up a research project in another lab that would be totally off the record. In the tests performed in this lab, they would actually go beyond the letter of the patents and any other documentation Rossi provided. By varying different parameters and running an extensive series of tests, they would be much more likely to figure out how to produce the effect. If these tests were successful, they could transfer the know how to the "official" project at a later date.

Having an "official" set of test results and a non-official set of test results would be logical. This is similar to how some politicians operate.

Again, I'm not saying they did the above. There is really no way of knowing. There are too many possibilities. They could have ran some quick tests and just gave up. That is equally or even more possible.

From the Second Amended Answer, etc., p. 52

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COUNT II: BREACH OF CONTRACT (Various Provisions in the License Agreement)
Confidentiality (paragraphs 101-110)
Failure to Assign Licensed Patents (paragraphs 111-114)
Failure to Inform/Consult on Patent Applications (paragraphs 115-120)
Covenant Not to Compete (paragraphs 121-125)
Failure to Pay Taxes (paragraphs 126-133)

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Rossi's motion:

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Count II of Defendants’ Second Amended Counterclaim asserts that Plaintiffs have breached the License Agreement by
(a) breaching the confidentiality provisions therein;
(b) failing to assign licensed patents to IPH;
(c) failing to consult with IH or IPH regarding all Patent Applications;
(d) violating the alleged covenant not to compete, and
(e) failing to pay taxes.
See (DE:50, ¶¶100-133). Despite the fact that Count II of the Second Amended Counterclaim is replete with misstatements and factual inaccuracies, Plaintiffs only seek dismissal of claims (d) and (e) above for the reasons set forth below.

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So as to (d), Rossi asserts:

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Notably, Defendant IPH has not alleged, nor can it, that Plaintiffs have undertaken any activity whatsoever in competition with Defendant IPH within the Defendants limited geographic territory.

The IH Count is not asserted with specificity, but the Rossi statements could certainly raise concern that there has been a violation. As written, the non-compete agreement appears to be more restrictive than might have been the intention. However, there is also a right of first offer that may apply. The essence here is that Rossi is engaged in business, from his public statements, that might be in violation of the Agreement. My sense is that IH can assert this, based on the evidence they provided. They don't have to give more evidence than that at this point. "Within the ... limited geographic territory" is not the only issue.

I was tempted to consider otherwise, but I predict that this will fail to be dismissed. It is possible that the Judge will require more specificity.

As to (e), this was raised in detail in the Motion to Strike, and rejected there. The tax issue is raised as part of a general claim of Rossi inattentiveness to agreement provisions. That is, Count II alleges a series of violations of the agreement, showing a pattern of violations. If there was a failure to remain current with tax obligations, there was a violation; that it was later remedied, if it was, does not change that. While it might be minor, these violations required IH attention, creating a burden.

There is an obvious irony here. IH is claiming damages for failure to handle patent applications properly, for technology that it is claiming does not work. This is common legal practice, claiming both sides. These are alternate claims, in fact. The patent issue asserts damage if the patents have value (which could license sale value). If they are worthless, IH may have been harmed in that way. Probably not both!