Revolution Retail Systems, LLC v. Sentinel Technologies, Inc.

In 2011, Vector proposed a term sheet to acquire Tidel and its subsidiary,

Revolution. Tidel‟s majority stockholder, however, had high expectations for

Revolution‟s business prospects, and Tidel‟s Board rejected Vector‟s offer. Vector later

offered to acquire only Tidel, which Tidel accepted. Tidel and Revolution formally were

separated into two independent entities as part of that transaction, with Tidel‟s former

majority stockholder retaining majority control of Revolution. On November 2, 2011,

the Tidel and Revolution parties executed a series of agreements governing their

relationship moving forward. These agreements included the Securities Purchase

Agreement, the Manufacturing Services Agreement (the “Manufacturing Agreement”),

the Cross License Agreement, and the Administrative Services Agreement (the “Services

Agreement”). Section 7.9 of the Securities Purchase Agreement contains Non-Competition and

Non-Solicitation provisions delineating two otherwise competitive businesses in which

Tidel and Revolution each would operate, respectively and exclusively, until the end of a

Non-Competition Period.2 The Non-Competition Period was to last through the later of:

(1) the date that was three years from the Securities Purchase Agreement‟s Closing

Date—i.e., November 2, 2014; or (2) the termination of the Manufacturing Agreement by

its terms.3 Through Section 7.9, the parties exchanged broad reciprocal covenants not to

compete in each other‟s specifically delineated and defined “Competitive Business.”

Revolution promised Tidel in Section 7.9(a) that, during the Non-Competition Period, it

would not “directly or indirectly . . . engage in or propose to engage in the business of

developing, marketing, manufacturing or selling equipment or cash management systems

or equipment that have a selling price of less than $35,000 per unit . . . ,” defined as a

“Sentinel Competitive Business.”4 By a corresponding covenant in Section 7.9(c), Tidel

promised that it would not “directly or indirectly . . . engage in or propose to engage in

the business of developing, marketing or manufacturing systems that have a selling price

of $35,000 or more per unit . . . ,” defined as a “Revolution Competitive Business.”5

After making the permitted calculations and adjustments for inflation as of November

2014, a “Revolution Competitive Business” would comprise cash management systems

developed, marketed, or manufactured by Tidel to have a selling prSimilar to the Non-Competition provisions, the parties also exchanged reciprocal

covenants not to, “drectly or indirectly,” “call on” or “solicit” each other‟s customers

during the Non-Competition Period in connection with each other‟s Competitive

Business.6

The Manufacturing Agreement set forth the terms under which Tidel would

continue manufacturing Revolution‟s products and permitted the parties to terminate the

agreement by its terms. Revolution had certain exclusive ownership rights in and to

intellectual property, including software and Solidworks drawings, used in the systems

assembled under the Manufacturing Agreement and Services Agreement.7 The

Manufacturing Agreement restricted each party‟s use of the other‟s “Confidential

Information,” which each party agreed not to use except “as necessary to perform its

obligations and exercise its rights under this Agreement . . . .”8 The Manufacturing

Agreement‟s “term” is prescribed in Section 11 of that agreement.9 The parties‟

obligations respecting Confidential Information expressly survived the end of the term,

and each agreed that at the end of the term it would “promptly deliver” “all copies” of

“any of the other party‟s proprietary information in its possession, including but not



6 Id. § 7.9(d). 7 JX 4, 5. 8 JX 4 § 9(a); JX 5 § 6. 9 “The term of this [Manufacturing] Agreement shall commence as of the date hereof and shall continue until the fifth (5th) anniversary of the date hereof unless earlier terminated pursuant to the terms of this Section 11.” JX 4 § 11(a).

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limited to, Confidential Information . . . .”10 On February 15, 2014, pursuant to the terms

of the Manufacturing Agreement, Tidel provided Revolution one year advance notice that

it was terminating that agreement and the corresponding Non-Competition Period on

February 15, 2015.11

The Services Agreement set forth the terms under which Sentinel (through Tidel)

would provide certain administrative services to Revolution in part by sharing employees.

To that end, Exhibit A to the Services Agreement set forth the names of Sentinel

employees and a percentage of time that each employee would allocate to Sentinel for

2012 and 2013.12 The Services Agreement contained mutual obligations relating to

Confidential Information that were similar to those in the Manufacturing Agreement and

survived the Services Agreement‟s September 30, 2013 expiration.13

The Cross License Agreement addressed each party‟s ability to use certain

intellectual property rights owned by Revolution and used by Tidel in the ordinary course

of its business as of November 2, 2011, defined and referred to as “Other Licensed

Intellectual Property.”14 On September 5, 2014, however, Revolution and Tidel executed



10 JX 4 § 11. 11 Defs.‟ Answer to First Am. Verified Compl. & Am. Counterclaim ¶ 9, Docket Item (“D.I.”) 74. 12 See JX 5, Exh. A (including Levenick, Flynt Moreland, and CFO Galgano, among others). For the avoidance of doubt, Exhibit B set forth the names of individuals whose time was allocated to Revolution entirely. JX 5, Exh. B. 13 JX 5, §§ 3, 6. 14 JX 6.

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a “release” in which the parties agreed, among other things, that the term Other Licensed

Intellectual Property, as used in the Cross License Agreement, included “certain design,

development and engineering documents and models that are marked or otherwise

designated as Tidel documents” that “[Revolution] and Tidel share . . . .”15

2. The Software License Agreement enables collaboration

Vector continued to operate Tidel and Revolution with overlapping boards,

officers, and employees, including CEO Levenick and CFO Galgano, during 2012 and

2013. Levenick and Moreland, Tidel‟s Executive Vice President of Engineering and IT,

conceived of the Series 5 cash management system, a predecessor to the R50 that is at the

center of this dispute, in either late 2012 or early 2013. The Inflation Adjusted Price Line

was in effect at that time, and as long as Tidel and Revolution were subject to it, neither

could fully meet the business requirements of certain customers who: (1) needed cash

management systems both above and below the price line; and (2) desired a common

interface for their cash management systems. The parties, through Levenick and

Moreland, identified a need to work together to provide a solution for those customers or

risk losing them to a competitor who could.16 Thus, the parties executed the Software

and Cross License Agreement in March 2013 (the “Software License Agreement”) to



15 DX 100 § 1 (and first WHEREAS); JX 6 § 2.3. 16 The idea for a software license arose from the desire for Revolution and Tidel to get 100% of the sales to Wal-Mart and Walgreens, with Revolution getting a “90/10” split of Wal-Mart and Tidel getting a “90/10” split of Walgreens. Tr. 6768, 73, 74 (Levenick).

11

enable Tidel to sell products below the price line using the same user interface software

that Revolution installed in products it sold above the price line. Levenick and Landry

described the Software License Agreement, executed on March 29, 2013, as part of the

parties‟ collaborative business relationship.

3. Tidel and Revolution’s relationship sours

The Services Agreement expired by its terms on September 30, 2013. Beregovsky

and Tidel confirmed with Revolution that the “[t]wo years are up . . . ,” the Services

Agreement was completed, and Tidel had “compli[ed] [with] all Revolution divestiture

elements.”17 Later that month, Levenick and Moreland agreed on the coin sorter

capacities necessary on Tidel‟s Series 5 to get Walgreens‟ business below the price line.18

Levenick wrote to Fujitsu, a vendor, to request help with targeting Tidel‟s Series 5 at a

“mid-tier” retail market, explaining Tidel and Revolution‟s price line collaboration and

how the software license fits into it.19

On November 11, 2013, Levenick made a presentation regarding the proposed

Series 5 specifications, functionality, and “$35k” price for approval by Tidel‟s Board.20



17 PX 57; Tr. 746 (Galgano). 18 DX 47-49. 19 DX 54 (Levenick asking Fujitsu for a price reduction on its 750 recycling platform for Tidel‟s use in a recycler for “mid-tier” retail customers like Whole Foods, Wal-Mart, and Walgreens); Tr. 80-83 (Levenick explaining his request for Fujitsu to reduce the price of its 750 model from $15,000 to $11,000); DX 51 (Levenick informing Beregovsky that he had “been hammering Fujitsu *HARD* for pricing reductions on their recyclers which we may use in the Series 5 system”). 20 DX 52, 55.

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Thus, the Series 5 would target a market with a higher price point than Tidel‟s Smart

Safes, which were priced around $5,000.21 Several days later, Beregovsky, Landry,

Galgano and Darren Taylor, Tidel‟s Executive Vice President of Global Business

Development—without then-CEO Levenick—discussed a Bank of America/G4S

opportunity for “thousands” of Series 5 sales, agreed to accelerate the development of

two different versions of the Series 5—a “mid next year” version at approximately 30%

gross margins and a “further version” with a new coin sorter at approximately 40% gross

margins, complained about the $36,000 “sales price” restriction, and agreed upon the

need to negotiate raising the price line to “get much higher margins.”22 In that same

conversation, Taylor suggested that Tidel should leverage Revolution‟s dependence on

their manufacturing relationship to negotiate an increase in the price line.23 Within a

month, Beregovsky and Tidel replaced Levenick as CEO with Landry, and Revolution‟s

Board replaced Levenick with Mike Hudson, Revolution‟s former General Manager.24

Later, Beregovsky directed Tidel‟s management to find a way to “get much higher

margins . . . ,” because “[w]hen we go and sell Tidel, we will obviously tout our high-end



21 Tr. 759 (Landry). 22 PX 62 at 3 (confirming that the differences between the two versions related primarily to the coin sorter and note recycler). 23 Id. at 2. 24 Tr. 87, 89-90 (Levenick); JX 5, Exh. B.

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product and its growth potential. However, if that product is the lowest margin product

in our line-up, it detracts a lot from the message.”25

On January 28, 2014, Tidel and Revolution met at Tidel‟s invitation, and Taylor,

Landry, and Moreland requested: (1) Revolution‟s consent to use Revolution‟s “coin

sorter” intellectual property for a Series 5 “pilot” “whilst [they] develop [their] final

Series 5 product”; and (2) an increase in the price line to $42,500 to achieve the margins

normally expected from a product.26 The parties met again on February 14, 2014 and

Tidel renewed its request for Revolution‟s support in commencing the proposed product

development, but Revolution declined. Immediately thereafter, Tidel canceled the

Manufacturing Agreement—effective, by its terms, February 15, 2015. According to

Landry, Tidel terminated the Manufacturing Agreement in part because of its small

margins and the disruption it caused to Tidel‟s core business.27 Tidel earned a profit

margin of 7% on the contract manufacturing service that it performed exclusively for

Revolution, as opposed to a higher average profit margin on other products.28 The

contract was likely to be both a drain and a distraction: if Revolution became successful



25 PX 62. According to Landry, Beregovsky directed his communication to Taylor and was “always banging on [Tidel] about gross margins.” Tr. 445, 499 (explaining that Beregovsky and Vector “had a false sense of what gross margins could be . . . [and] wanted to see more money quick,” and “were used to 80 percent gross margin businesses . . .”). 26 DX 63; Tr. 499 (Landry). 27 Tr. 849 (Taylor). 28 Tr. 428 (Landry).

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and required Tidel to manufacture many units, it would drain Tidel‟s resources; if

Revolution was not successful, the contract still would distract Tidel from its core

business with wider profit margins.29

4. Tidel prepares itself to be sold and tests the R50 product market

On March 10, 2014, Tidel began referencing the Series 5 as the “R50” when

providing preliminary technical specifications. Those specifications included Tidel‟s

plan to “[u]se the Glory Mach 6” coin sorter, which processes coins twice as fast as the

Glory Mach 3.30 Tidel continued, however, to refer to the R50 as the Series 5 for several

months, as described below. On May 13, 2014, Tidel‟s Board voted to approve a

“company sale process” with a Series 5 plan indicating a “$35k-$45k price range.”31

Later that month, Taylor sought Moreland‟s assistance in pricing the Series 5 assuming

the slower Glory Mach 3 coin sorter.32 Tidel hired Harris Williams, an investment bank,

to help prepare and market Tidel for sale.33 Harris Williams conducted a market study

and prepared several business plans, including a Series 5 business plan, which

Defendants referred to as sell-side documents.34



29 Tr. 429 (Landry); Tr. 850 (Taylor). 30 DX 75 (Glory Mach 6 processes 3,000 coins per minute); DX 85 (Glory Mach 3 processes 1,500 coins per minute) 31 DX 81. 32 PX 89. 33 Tr. 450 (Landry). 34 Tr. 451-52.

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In June and July 2014, Galgano, Taylor, and Landry began communicating about

achieving higher gross margins for the Series 5 with “new pricing.”35 Taylor wrote, for

example: “It would be interesting to see what the higher price would be . . . with a Mach

6 [coin sorter and] . . . [s]tandardization across all coin lines.”36 Taylor continued: “I

think we could get a higher price maybe? I can ask G4S and Armaguard their thoughts

on a higher price for higher spec . . . .”37 Specifically, on June 9, 2014, Taylor contacted

one of Brink‟s customers in the United States regarding a Series 5 sales opportunity and

advised them that “[n]ote and coin recycling will be $40k.”38 On June 19, 2014, Taylor

confirmed that pricing for the Series 5 would be $40,000 in FY15 and $41,875 in FY16

and beyond.39 Then, in a “Tidel Series 5 Business Draft Plan-Draft Version x-05” dated

June 27, 2014, Tidel indicated the Series 5 will use a “Mach 3 Coin Sorter,” have a “unit

MSRP of $40k,” and have “planned MSRP increases to $41,875.”40

On July 21, 2014, Taylor and Landry discussed new gross margins “if we go to

Mach 6, with new pricing,” and Taylor proposed a Series 5 with a “higher price for a



35 DX 90. 36 Id. 37 Id. 38 JX 15. 39 JX 16. 40 PX 94.

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higher spec . . .” using a “Mach 6 [coin sorter] over a Money Controls sorter . . . .”41 That

same day, Taylor relayed that information to G4S and Armaguard in separate emails,

saying, “[w]e have a working market price of $40k and are planning on using a Mach 3

sorter, if we switched to a Mach 6 to allow quicker fill time etc. and increased the price to

$42.5k(ish) what would your thoughts be?”42 Then, on July 24, Galgano told Harris

Williams that “[w]e need to change Series 5 price to $42500.”43 A sales strategy

overview titled “Tidel Strategy Overview-July 2014 Update” indicated that Tidel

“expect[ed] to sell the Series 5 for ~$42,500 and generate ~40% gross margin[s],” “[t]o

be released [January 2015],” and “to fill a void in market solutions between smart safes

and high end recyclers currently available.”44 Galgano and Taylor drafted the Tidel

Strategy Summary at the direction of Tidel‟s Board using a $42,500 price45 for two

purposes: (1) “commercialization” of the R50 by Tidel; and (2) use in connection with

the potential sale of the company.46 Tidel‟s Board, through Beregovsky, oversaw efforts



41 DX 90. 42 DX 91; PX 106-107. 43 JX 17. 44 PX 97; DX 92. A Series 5 business plan dated July 23, 2014 also states that, “[f]or Tidel, the Series 5 will move us upstream into . . . larger, higher cash volume retail formats with a more complex, higher price point solution.” DX 92 at TIDEL00012220. 45 Tr. 769 (Galgano); PX 123. 46 Tr. 771-72 (Galgano discussing dual purposes); see also Tr. 769 (Management prepared the plan “so a potential buyer coming in would see [they] had a proper business strategy and that it would help [them] sell the company . . . .”).

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during July and August 2014 to draft a “Series 5 Business Plan” for the same two

purposes.47

Additional documents corroborated the move to a higher price point through the

fall. On August 18, 2014, a Series 5 business plan stated that the “Series 5 will be priced

at $42.5k” in 2015, the Mach 3 coin sorter will change to a Mach 6 coin sorter, and the

planned price will increase to $44,375 in 2016.48 Tidel also began using the R50 name

consistently around this time. On November 5, 2014, a Tidel Board deck indicated that

the R50 formally would launch January 2015 and “utilize . . . Mach 6” with a price

“TBD.”49 At the same time, however, a “Confidential Information Memorandum,”

which was one of Tidel‟s sell-side documents created for a potential transaction with

Graham Partners, described the R50 and promoted its business case using a $42,500 list

price.50 Taylor and Landry discussed similar pricing on November 13, 2014 when they

told one of Brinks‟s U.S. customers that the R50‟s price point is $42,50051 and told G4S



47 DX 116; Tr. 772, 765-66 (Galgano). The Series 5 Business Plan stated that it “will incorporate the Mach 6 Coin Sorter,” and “will be priced at an [average selling price] of $42.5k . . . .” DX 116. It further confirmed “discussions with several major retailers . . .” and a January 2015 “official launch” and provided average selling price projections beginning at $42,500 in 2015 and increasing to $44,375 throughout the period from 2016 to 2019. Id. 48 DX 97 at 4, 13; DX 116. 49 DX 104. 50 PX 7 at 25, 42. 51 DX 105.

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it will be $41,250 per device.52 Later, on December 2, 2014, Taylor advised another

customer that the “National Pricing Quote” for “high volume” R50 purchases is $46,250

and that price “would be honored from the first unit.”53

Tidel debuted and promoted the R50 at trade shows beginning in January 2015.

On January 11, 2015, Tidel exhibited the R50 at the National Retail Federation trade

show.54 On January 27, 2015, Tidel listed the R50 at $46,000 in a price comparison with

competitor systems,55 and Taylor and Galgano quoted a “sale price” for G4S of

$41,250.56 Tidel exhibited the R50 again at the National Grocer‟s Association trade

show on February 9, 2015.57 On February 12, 2015, Galgano confirmed the R50 in

Tidel‟s budget “@ $42,500” “sale price.”58

The Non-Competition Period ended three days later on February 15, 2015.



52 JX 18. 53 DX 107-108. 54 DX 133 ¶ 34. 55 PX 185. 56 DX 117. 57 PX 199. 58 PX 192. Taylor admitted that he engaged in soliciting and marketing activities and sales efforts in connection with the R50 between June 2014 and February 15, 2015. Tr. 931. During those efforts, Taylor indicated, offered, quoted, or proposed to current and prospective customers of both Revolution and Tidel prices for the R50, variously, at: “mid $40‟s” (PX 163); $42,500 (DX 105); $41,250 (DX 117, JX 18); “region of $40k” (DX 83); $46,000 (PX 185); and $46,260 (DX 107).

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5. Vector sells Tidel to Graham Partners Graham Partners acquired all of Tidel‟s stock on February 26, 2015.59 Rob

Newbold, a managing principal at Graham Partners, explained that the main driver of

Graham Partners‟s investment in Tidel was its Smart Safe product lines, not the R50.60

According to Newbold, Graham Partners viewed Tidel‟s Series 3 as a lower-end version

of the Series 4 because it has fewer bells and whistles and sold for a lower price point.

Graham Partners viewed the R50 as a different type of machine because it was a cash

recycler, rather than a Smart Safe, and, as such, sold for a significantly higher price point.

Newbold expressed his understanding that the R50 was designed to sell to a different set

of customers, such as larger retailers than the fast food restaurants and convenience stores

that purchase Smart Safes. Further, Newbold understood that the distribution channels

for recyclers were different because the armored car companies like Brinks tended to be

the dominant path to market for Smart Safes, but not for recyclers.61

C. Procedural History

Revolution commenced this breach of contract action against Defendants, Sentinel

Technologies, Inc., Tidel, Inc., and Tidel Engineering L.P., on February 2, 2015, seeking

initially a temporary restraining order and preliminary injunction. Revolution later

withdrew that application in deference to sworn affidavits submitted on behalf of



59 Tr. 535 (Landry). 60 Tr. 782. 61 Tr. 783-86.

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Defendants by Landry, Galgano, and Moreland.62 Revolution‟s Amended Complaint

seeks injunctive, declaratory, and monetary relief related to alleged breaches of five

contracts, including: (1) non-competition and non-solicitation provisions of the Securities

Purchase Agreement; and (2) confidentiality provisions in the Manufacturing Agreement,

Services Agreement, and Software License Agreement. Revolution also seeks a

declaration that the Software License Agreement terminated effective February 15, 2015.

Tidel filed its Answer to the First Amended Verified Complaint and Amended

Counterclaims on March 13, 2015, denying Revolution‟s claims. Through its Amended

Counterclaims, Tidel seeks a declaratory judgment that the license Revolution granted

Tidel in the Software License Agreement is perpetual, or, in the alternative, extends for at

least the length of the twenty-year license fee period.

After granting a motion to expedite, I conducted a four-day trial in this matter on

June 2 through 5, 2015. I heard post-trial arguments on August 20, 2015.

D. Parties’ Contentions

Revolution argues that the parties agreed to restrictive covenants that were

“necessary” and “reasonable in all respects” as part of a business-to-business sale of

securities in November 2011, which Tidel breached by: (1) engaging directly in the

business of developing and marketing the R50 during the Non-Competition Period at

selling prices above $37,030; and (2) engaging, or proposing to engage, directly and



62 Certain sworn statements in the Moreland affidavit were recanted during discovery and at trial.

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indirectly, in the business of developing and marketing the R50 as a “turnkey” cash

management system priced above the price line.

Tidel denies that it ever breached the Securities Purchase Agreement by

developing or pricing the R50 to be sold above the price line. Instead, Tidel contends

that its representatives engaged in permitted price negotiations and preliminary market

research and that its efforts to sell itself, including production of certain sell-side

documents, did not violate the Securities Purchase Agreement. Alternatively, Tidel avers

that the non-competition provision of the Securities Purchase Agreement, as interpreted

by Revolution, is unreasonable and does not advance legitimate economic interests and,

therefore, is unenforceable.

Tidel also argues that the plain language of the Software License Agreement

establishes a perpetual and irrevocable license and that, to the extent extrinsic evidence is

admissible, it supports such an interpretation. Revolution disagrees, arguing that the

circumstances surrounding the Software License Agreement‟s formation, such as the

parties‟ then-collaborative relationship, establish that the duration of the license granted

was limited in scope by the term of the Manufacturing Agreement. Revolution contends,

therefore, that Tidel‟s license to use Revolution‟s software under the Software License

Agreement terminated on February 15, 2015.

Revolution also avers that several of the contracts between Revolution and Tidel

obligated Tidel not to use Revolution‟s confidential information other than for purposes

of fulfilling contractual obligations to Revolution. In that regard, Revolution emphasizes

that Moreland admitted at trial that Tidel used Revolution‟s confidential information,

22

including Revolution‟s software and Solidworks files, to develop the R50 and its

numerous parts, including the top cover, the coin return bin, various mounting brackets,

and the door stop.

Tidel contends that Revolution failed to satisfy its burden of proving the elements

of its misappropriation of confidential information claim because Tidel reserved the right

to use two of the four Solidworks models in question, a third was dropped from the final

production version, the shapes of the parts were driven primarily by functionality, and

Revolution offered no evidence quantifying the time or money that Tidel allegedly saved

by relying on the Solidworks models.

Finally, both parties dispute whether and to what extent the other is entitled to

shift its fees under Texas law.

II. ANALYSIS

A. Legal Standard

Plaintiffs, as well as Counterclaim-Plaintiffs, have the burden of proving each

element, including damages, of each of their causes of action against each Defendant or

Counterclaim-Defendant, as the case may be, by a preponderance of the evidence.63

Proof by a preponderance of the evidence means proof that something is more likely than



63 In re Genelux Corp., -- A.3d ---, 2015 WL 6393840, at *19 (Del. Ch. Oct. 22, 2015).

23

not.64 “By implication, the preponderance of the evidence standard also means that if the

evidence is in equipoise, Plaintiffs lose.”65

B. Tidel Breached the Securities Purchase Agreement

To prevail on a breach of contract claim, Revolution must prove: (1) the existence

of a contract; (2) the breach of an obligation imposed by that contract; and (3) damages

suffered as a result of that breach.66 Texas law is in accord.67 Delaware law adheres to

an objective theory of contracts, under which a court will not consider extrinsic evidence

“to interpret the intent of the parties, to vary the terms of the contract or to create an

ambiguity” when the relevant contract terms are unambiguous.68 Contract terms are not



64 Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010) (quoting Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at *17 (Del. Ch. Oct. 23, 2002)). 65 2009 Caiola Family Tr. v. PWA, LLC, 2015 WL 6007596, at *12 (Del. Ch. Oct. 14, 2015); OptimisCorp v. Waite, 2015 WL 5147038, at *55 (Del. Ch. Aug. 26, 2015). 66 VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003) (citing Winston v. Mandor, 710 A.2d 835, 840 (Del. Ch. 1997)); Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1995 WL 662685, at *7 (Del. Ch. Nov. 2, 1995); Goodrich v. E.F. Hutton Gp., Inc., 542 A.2d 1200, 1203-04 (Del. Ch. 1988); WRIGHT & MILLER, 5 FEDERAL PRACTICE AND PROCEDURE CIVIL § 1235 (3d ed. 2015). 67 Sharifi v. Steen Auto., LLC, 370 S.W.3d 126, 140 (Tex. App. 2012) (“A successful breach of contract claim requires proof of the following elements: (1) a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach.” (citing Petras v. Criswell, 248 S.W.3d 471, 477 (Tex. App. 2008))). 68 Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473, at *2 (Del. Ch. Nov. 8, 2007) (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1128,

24

ambiguous merely because the parties to the contract disagree on their meaning;69 rather,

the Court “stand[s] in the shoes of an objectively reasonable third-party observer,” and

determines whether the contract language is unmistakably clear.70 The interpretation of a

contract is a question of law.71 If there is more than one reasonable construction of

contractual language, then the contract is ambiguous.72 Contractual language, however,

“is not ambiguous simply because the parties disagree on its meaning.”73 Instead, the

court will apply standard principles and canons of construction in construing the contract.

To be enforceable, Revolution must establish by clear and convincing evidence

that the non-competition provision at issue is: (1) reasonable in geographic scope and

temporal duration; (2) advances a legitimate economic interest; and (3) survives a balance



1232-33 (Del. 1997)). The Securities Purchase Agreement is governed by Delaware law. The other four relevant agreements are subject to Texas law. 69 Id. 70 Seidensticker, 2007 WL 4054473, at *2 (quoting Dittrick v. Chalfant, 2007 WL 1039548, at *4 (Del. Ch. Apr. 4, 2007)). 71 See, e.g., Seidensticker, 2007 WL 4054473, at *2 (citing HIFN, Inc. v. Intel Corp., 2007 WL 1309376, at *9 (Del. Ch. May 2, 2007)); see also AHS N.M. Hldgs., Inc. v. Healthsource, Inc., 2007 WL 431051, at *3 (Del. Ch. Feb. 2, 2007) (“Under general principles of contract law, interpretation of contractual language is purely a question of law.”). 72 VLIW Tech., 840 A.2d at 615 (“Ambiguity exists „when the provisions in controversy are reasonably or fairly susceptible of different interpretations.‟” (quoting Vanderbilt Income & Growth Assocs. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996))). 73 E.I. du Pont de Nemours & Co., Inc. v. Allstate Ins. Co., 693 A.2d 1059, 1061 (Del. 1997).

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of the equities.74 Tidel contends that Section 7.9 is unenforceable because the scope of

the non-compete provision is unreasonable and Revolution failed to prove otherwise by

clear and convincing evidence. A “less searching” inquiry into the enforceability of

restrictive covenants is contemplated, however, where, as here, sophisticated parties

contract to exchange securities.75 Further, Tidel affirmed that “the restrictions contained

in this Section 7.9 are reasonable in all respects (including, without limitation, with

respect to the subject matter, time period and geographical area) . . . ,” and “necessary” to

protect each parties‟ securities and goodwill.76 Each party represented that it “would not

have consummated the transactions . . . without the restrictions contained in this Section

7.9.”77 The evidence demonstrates, therefore, that Section 7.9 advances legitimate

economic interests of not only Revolution but also Tidel—i.e., “we, on the Tidel side,

were also concerned about Revolution competing with Tidel and about Revolution

having a lot of knowledge about Tidel‟s systems.”78 The corporate history of Revolution



74 Concord Steel, Inc. v. Wilm. Steel Processing Co., 2008 WL 902406, at *4 (Del. Ch. Apr. 3, 2008). 75 Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *19 (Del. Ch. July 22, 2015). 76 JX 3 § 7.9(i). 77 Id. 78 Tr. 717-18 (Beregovsky). Beregovsky‟s testimony comports with the actions of Tidel‟s owners both before and after Vector: in both contexts, the owners viewed the Smart Safe and recycler businesses as separate economically. For the owner who sold Tidel to Vector, that distinction justified forming Tidel Revolution to keep the recycler business separate from Tidel‟s Smart Safe business. For Graham Partners, the distinction justified purchasing Tidel based on its Smart Safe

26

alone justifies the price line: Revolution was formed to develop the higher-priced recycler

market without competing for Tidel‟s resources or dragging down its revenues, and

Tidel‟s prior owner negotiated the price line to protect its business decision to keep

Revolution instead of selling it to Vector. Thus, I conclude that Revolution proved by

clear and convincing evidence that the restrictive covenants at issue in Section 7.9 of the

Securities Purchase Agreement are enforceable.79

This Court has observed that where “[r]estrictive covenants are carefully

negotiated,” “our law requires that the unambiguous terms be given effect.”80 Where a

party negotiates for a contractual restriction, “it is stuck with that,” and “cannot, as an „oh

by the way,‟” claim that a broader or lesser restriction must apply.81 Tidel failed to

advance a convincing argument that the relevant language in Section 7.9 is ambiguous.82

Thus, the parties are bound by the unambiguous negotiated language of the mutual

business alone and without regard for Vector‟s then-ongoing efforts to develop a recycler to capture that market. 79 I therefore reject Tidel‟s argument that balancing the equities “overwhelmingly” tilts in its favor because Revolution seeks only the “illegitimate benefit” of protecting itself from competition with Tidel through “a non-compete of infinite duration and boundless scope . . . .” Revolution seeks only to enforce the full scope and duration of the same mutually applicable competitive restrictions it honored to Tidel‟s benefit. 80 Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1024 (Del. Ch. 2006). 81 Id. at 1025. 82 In response to Revolution‟s arguments that certain of Tidel‟s acts during the NonCompetition Period constituted breaches, Tidel avers that its actions were permitted by Section 7.9. I address this argument infra.

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covenants and provisions to which they agreed in November 2011. In Section 7.9(c) of

the Securities Purchase Agreement, Tidel covenants not to compete with Revolution

during the Non-Competition Period as follows:

During the Non-Competition Period, Buyer [Tidel] agrees, on behalf of itself and its Affiliates, including the Company [Sentinel] and its Subsidiaries, that it shall not, anywhere in the world, directly or indirectly, either for itself or for any other Person (i) own, operate, manage, control, engage in, participate in, invest in, permit its name to be used by, act as consultant or advisor to, render services for (alone or in association with any Person) or otherwise assist in any manner, any Person that engages in or owns, invests in, operates, manages or controls any venture or enterprise which directly or indirectly engages or proposes to engage in the business of developing, marketing, or manufacturing systems that have a selling price of $35,000 or more per unit (or a selling price in a foreign currency of $35,000 or more per unit based upon applicable foreign exchange rates) (which such selling price shall be adjusted throughout the NonCompetition Period for inflation in the applicable geographic location of the purchaser) (a “Revolution Competitive Business”).83

The competitive restrictions contained in Section 7.9 are expansive, evidencing an

attempt to cover every conceivable escape route for potentially competitive conduct.

These restrictions include far more than verifiable sales; they encompass almost all other

aspects of potentially competitive business activity in which Tidel and Revolution engage

regularly, i.e., designing, developing, marketing, and manufacturing cash management

systems. Accordingly, Section 7.9 prohibited both Tidel and Revolution from “the

business of developing, marketing or manufacturing systems” with a selling price above

83 JX 3 § 7.9(c).

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or below, as the case may be, the Inflation Adjusted Price Line. This restriction applied

whether Tidel or Revolution was: engaging in such business; proposing to engage in it;

investing in it; undertaking it for itself or for any other person; otherwise assisting

investing in, or controlling, in any manner any person, venture, or enterprise engaging in

it or proposing to engage in it; calling on, soliciting or serving customers or other

business relations in connection with it, or interfering in any way with the relationships

involving customers or other business relations in connection with it.84 Though its

language is expansive, I conclude that an objectively reasonable third-party observer

would find that Section 7.9‟s meaning is plain: there can be no running start.

Tidel seeks to rewrite the covenant to prohibit only the actual sale of a cash

management system above the price line during the Non-Competition Period, but such a

construction relies upon an untenable use of the term “selling price” and creates an

absurd result that eviscerates most of Section 7.9‟s restrictions. Specifically, Tidel argues

that it could not have breached the non-competition provision because it never sold a

product with a “selling price” above the Inflation Adjusted Price Line during the Non

Competition Period, and the Securities Purchase Agreement not only allowed Tidel to

sell itself but contemplated such a sale expressly. Instead, Tidel insists that it engaged in

price negotiations permitted by the Securities Purchase Agreement, assembled sell-side

documents advertising the sale of itself as a going concern on the assumption that its non



84 See e.g., JX 3 § 7.9(a)-(d).

29

competition obligations expired by their terms upon a change of control, and solicited its

own customers with respect to the R50 only at a price below the price line.

Tidel‟s tortured interpretation of Section 7.9 ignores that provision‟s plain

language. For example, Tidel denies breaching Section 7.9, stating, “Revolution

presented no evidence that [Tidel] ever sold or agreed to sell the R50 above the [price

line] . . . ;”85 “Landry regularly sought and obtained board approval to continue the R50

project consistent with the agreed price restriction . . . ;”86 and Tidel “has [only] ever

agreed to sell the R50 . . . below the cap,” “has only ever formally quoted [a price of

$37,030] to prospective buyers for the R50 . . . ,” and “has [only] ever accepted purchase

orders for the R50 [at] $37,030.”87 Section 7.9, however, prohibits far more than selling,

agreeing to sell, quoting formally, and accepting purchase orders for products above the

price line. The provision also applies to far more conduct than mere board approval of

products above the price line.

Nonetheless, Tidel further contends that Section 7.9 permitted Taylor‟s

negotiations and market research regarding the R50 at prices above the price line.88

Instead, according to Tidel, Taylor provided “anticipated” and “indicated” price points

85 Defs.‟ Answering Br. 27. 86 Id. at 28. 87 Id. at 27-28. 88 Tidel argues that the inclusion of the modifier “selling” in Section 7.9(c) suggests that the use of other price quotations that would not qualify as “selling prices” is permitted under the agreement and that the agreement does not prohibit “market research” or internal, financial modeling.

30

for the R50 between $40,000 and $46,250 as a negotiating tactic, intending to pull

potential buyers up to a final price equal to or just below the price line—i.e., $37,030.

Alternatively, Tidel argues that Taylor‟s discussions with G4S and Armaguard regarding

a “working market price of $40k . . . using a Mach 3 sorter” and an increased price of

“$42.5k (ish)” with a Mach 6 sorter were nothing more than preliminary market research

to verify the pricing assumptions contained in the sell-side documents prepared for

potential buyers of Tidel.89 I do not find Tidel‟s careful parsing of its previous statements

convincing.

The documentary and testimonial record adduced at trial demonstrates by a

preponderance of the evidence that Tidel breached Section 7.9 through a combination of

direct and indirect conduct through internal and external communications.90 Tidel



89 At trial, Landry asserted that such conduct was not impermissible because it was merely educating and informing others that Taylor had validated the R50‟s $42,500 market price through informal communications with potential customers. Tr. 545 (“It was designed to inform them about the product and the market, etc. It had a suggested average selling price in here of $42,500 . . . .”); Tr. 546 (“This is to give them a flavor of what the market looks like.”). 90 Plaintiffs also alleged that Tidel breached the applicable Non-Solicitation provision in Section 7.9. That provision states, in pertinent part:

During the Non-Competition Period, neither Buyer [Tidel] not the Company [Sentinel] or their respective Subsidiaries shall, in each case directly or indirectly through another person, . . . (iii) call on, solicit or service any customer, supplier, licensee, licensor, franchisee or other business relation of [Revolution] in connection with a Revolution Competitive Business, or in any way interfere with the relationship between any such customer, supplier, licensee or business relationship and [Revolution] (including, without

31

undertook, directly and indirectly, to assist and advise others, and to both engage in, and

propose to engage in, the development, marketing, and manufacturing of the enhanced

Series 5 that became the R50 at per unit selling prices above the Inflation Adjusted Price

Line. I find unpersuasive Tidel‟s argument that the R50 cannot be proven to “have a

selling price” above the price line because Tidel never actually sold an R50 at any price

during the Non-Competition Period.

I conclude that Tidel breached Section 7.9 based on the following facts that were

proven at trial by a preponderance of the evidence. For the most part, Smart Safes and

recyclers sell in different markets to different customers at price points that diverge

widely. After Tidel and Revolution separated, however, the parties identified a market

broader than their respective areas of expertise which neither could capture fully without

crossing the price line and competing directly with the other. Rather than negotiating to

eliminate the price line and compete openly for this middle market, the parties agreed to

extend their collaborative relationship by negotiating the Software License Agreement

and otherwise leaving the price line dichotomy in place.



limitation, inducing such person to cease doing business with [Revolution] or making any negative statements or communications about [Revolution], the Sellers, or any of their respective Affiliates) . . . .”

JX 4 § 7.9(d) (emphasis added). Revolution alleges that Tidel‟s above-the-priceline price negotiations and marketing efforts with certain of Revolution‟s customers also breached the Non-Solicitation provision. Tidel disagrees, arguing that both are permitted. I conclude that Revolution‟s claims with respect to both provisions stand or fall together.

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In his final months as CEO of Tidel around November 2013, Levenick, who had

presided over both Tidel and Revolution and was familiar with the agreements governing

their relationship, remained committed to respecting the price line. Others, however,

grew impatient with the price line‟s restrictions and perceived a need to negotiate an

increase allowing Tidel to earn higher margins. Beregovsky, Taylor, Galgano, and others

exchanged a series of emails in mid-November that reflected Tidel‟s desire to move

towards, or beyond, the price line. On November 14, 2013, Taylor recounted a

conversation with Bank of America in which he described plans to launch a solution “mid

next year” with gross margins in the low- to mid-30% range and to develop a further

version for the end of next year in the 40% gross margin range.91 Beregovsky responded,

asking, “[w]hat‟s preventing us from getting to higher [gross margins] for such a high

value product that‟s unique in the market? Is that the selling price?”92 In a later email on

the same thread, Beregovsky explained his concerns with the Series 5‟s gross margins,

saying, “[i]f this recycler is truly a unique product with significant potential and if we

can‟t charge a high equipment price because of the non compete, then we need to get

much higher margins via recurring services revenue. . . . When we go and sell Tidel, we

will obviously tout our high-end product and its growth potential.”93 Tidel further

demonstrated its desire to develop and manufacture cash management systems above the



91 PX 62 at 3. 92 Id. at 2. 93 Id. at 1.

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price line when it asked Revolution to increase it to $42,500 to “achieve the margins . . .

normally expected from a product . . .” both on January 28, 201494 and February 14,

2015.95

Although Tidel had evidenced a desire to develop and manufacture cash

management systems above the price line as early as November 2013, I conclude that the

earliest date by which Revolution proved by clear and convincing evidence that Tidel

breached the Securities Purchase Agreement was March 10, 2014. On that date, Tidel

produced preliminary R50 technical specifications using the Glory Mach 6 and “R50”

name for the first time.96 Even though Tidel continued to use the “Series 5” name for

most, if not all, of the rest of 2014, I find that this document manifests a breach of

Section 7.9, as it proves Tidel had moved forward with plans to develop a high-end

product having a “higher spec” with a selling price above the price line.97

Furthermore, because Tidel‟s Board did not decide to put Tidel up for sale until

May 2014, I conclude that its efforts to develop and market the R50 to support such a

94 DX 63. 95 DX 69. 96 DX 75. In contrast to Series 5 specifications developed before Tidel fired Levenick, this document evidences Tidel‟s plan to develop the R50 with a coin recycler capable of processing 25,900 coins at a speed of 3,000 coins per second. Cf. DX 47 (determining that the Series 5 would have a capacity of 16,950 coins); Tr. 530 (Landry testifying that he laughed at 240 coins per second processing speed planned for the Series 5). 97 Accordingly, I also conclude that Tidel breached the non-solicitation provision in Section 7.9(d) when it marketed the Series 5 or R50 to or engaged in pricing negotiations with Revolution‟s customers above the price line. See supra note 90.

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sale, including Taylor‟s “preliminary market research” and the sell-side documents

developed by Harris Williams, also breached Section 7.9. As I discussed above, Section

7.9 prohibited Tidel not only from selling cash management systems above the price line,

but also from developing or marketing such systems during the Non-Competition Period.

In other words, Tidel could not prepare to sell cash management systems above the price

line during the Non-Competition Period so that it could begin competing on the first day

after its expiration. This, however, is exactly what Tidel did—both directly, beginning in

March 2014, and indirectly, beginning in May 2014. Tidel argues that, because it

contemplated a stock sale and would be the same “person” both before and after a change

of control, Plaintiffs‟ argument that Tidel‟s selling efforts were undertaken for another

person is wrong. I need not decide that issue, however, because I conclude that Tidel‟s

efforts during 2014 to develop and market the R50 for sale above the price line breached

Section 7.9 regardless of whether it did so for itself or another person, such as an

investor.98

C. The Implied Covenant of Good Faith and Fair Dealing

Revolution argues, in the alternative, that the implied covenant of good faith and

fair dealing disproves Tidel‟s theory that the R50 did not have, and could not have had,

an offending “selling price” in violation of the price line because not a single R50 was



98 Galgano conceded that the business plans and strategy documents prepared as part of the sell-side documents, which indicated a planned average selling price of $42,500 for the Series 5 in 2015, also were created for the commercial purpose of Tidel bringing the Series 5 to market itself. Tr. 762, 765-66, 772.

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sold at any price during the Non-Competition Period. According to Revolution, Tidel‟s

theory would permit the “development, marketing or manufacturing” of systems having

no price at all during the Non-Competition Period, the “shelv[ing]” of those systems until

after the Non-Competition Period expires, and the sale of those systems at prices above

the price line. Tidel responds that the implied covenant doctrine “is not a panacea for the

disgruntled litigant,” and it “cannot be invoked where the contract itself expressly covers

the subject at issue, as is the case here.99 I agree with Tidel‟s statement of the law, but, as

held above, disagree that the contract permitted Tidel‟s conduct. Tidel also is correct that

“[p]arties have a right to enter into good and bad contracts, [and] the law enforces

both.”100 In any event, because Revolution prevailed on its claim to enforce Section 7.9

of the Securities Purchase Agreement, I need not reach its claim for breach of the implied

covenant of good faith and fair dealing claim based on the same underlying conduct.

D. The Software License Agreement “Term” Is At Least Twenty Years

The parties ask the Court to determine the duration of Tidel‟s ability to exercise

the license grant contained in Section 2.1 (the “Grant Section”) of the Software License

Agreement by interpreting the word “Term” and the prepositional phrases “during the

Term” as used therein,101 and granting a declaratory judgment reflecting the Court‟s

determination. The Software License Agreement is governed by Texas law. Under



99 Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *10 (Del. Ch. May 7, 2008). 100 Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010). 101 JX 8.

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Texas law, “[t]he primary concern of a court in construing a written contract is to

ascertain the true intent of the parties as expressed in the instrument.”102 Courts will

construe ambiguous contracts as a matter of law.103 A contract is unambiguous if it “can

be given a certain or definite legal meaning or interpretation.”104 “Whether a contract is

ambiguous is a question of law for the court to decide by looking at the contract as a

whole in light of the circumstances present when the contract was entered.”105 A contract

must be construed from a utilitarian standpoint, bearing in mind the particular business

activity sought to be served, and avoiding a construction that is unreasonable, inequitable,

and oppressive.106 Once pertinent rules of construction are applied, if the contract can be

given definite or certain legal meaning, then it is unambiguous and should be construed

by the court as a matter of law.107

Tidel argues that the plain language of the Software License Agreement

unambiguously grants Tidel a perpetual license. Section 2.1 states that “Revolution

hereby grants to Tidel a non-exclusive, perpetual, irrevocable, sublicensable,



102 Nat’l Union Fire Ins. Co. of Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). 103 Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). 104 Id. 105 Nat’l Union Fire Ins. Co., 907 S.W.2d at 520. 106 Frost Nat’l Bank v. L & F Distrib., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (citing Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)). 107 Id.

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transferrable and fully paid-up license to use, copy, display publically [sic], modify,

create derivative works of, sell, and distribute the Licensed Software . . . during the

Term.”108 The “perpetual” and “irrevocable” language appears again in Section 2.2, in

which Tidel grants Revolution a perpetual and irrevocable cross-license to use any

modifications or enhancements Tidel makes to Revolution‟s software.109 Section 4.1

implies that “the license grant in the Licensed Software from Revolution to Tidel shall

continue on a royalty free basis” for an open-ended amount of time after the twenty-year

License Fee Period defined therein.110 Section 8.1 corroborates the perpetual and

irrevocable nature of the license granted by the Software License Agreement, stating that

“[n]either party shall have the right to terminate this Agreement for any reason

whatsoever, including for breach hereof.”111 Section 8.3 states further that the

bankruptcy of either party “shall not be a basis for termination or cancellation of the

licenses granted in this Agreement.”112

The ordinary meaning of the word “Term,” however, indicates a limited and finite

duration. The Grant Section indicates plainly that Tidel‟s right to exercise the license

grant exists only “during the Term.” Even though “Term” is capitalized in that section



108 JX 8 § 2.1. 109 Id. § 2.2. 110 Id. § 4.1. 111 Id. § 8.1. 112 Id. § 8.3.

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and elsewhere, it is undefined. Texas law presumes that parties intend an undefined term

to have its plain, generally accepted meaning.113 The word “term” means “a fixed period

of time,”114 or “a period of time to which limits have been set.”115 In other words, by its

plain meaning, a “Term” cannot be perpetual. Instead, “Term” and “during the Term,”

used in the context of the software license “grant,” create a period of limited duration

during which the Software License Agreement would be in effect and enable the grantee

to exercise the license.116 The relevant language of the grant states:

Subject to the terms and conditions of this [Software License] Agreement, Revolution hereby grants to Tidel a nonexclusive, perpetual, irrevocable, sublicensable, transferrable and fully paid-up license to use, copy, display publically [sic], modify, create derivative works of, sell, and distribute the Licensed Software and Other Licensed Intellectual Property in the Territory during the Term. Such license expressly includes the right to make, have made, use, offer to sell, sell and import Licensed Products that use the Licensed Software and/or Other Licensed Intellectual Property in the Territory during the Term.117



113 Epps v. Fowler, 351 S.W.3d 862, 866 (Tex. 2011) (citing Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005)). 114 Term, BLACK‟S LAW DICTIONARY (10th ed. 2014). 115 Term, DICTIONARY.COM, http://dictionary.reference.com (last visited Oct. 29, 2015). 116 See Johnson v. United States, 559 U.S. 133, 139 (2010) (observing that context determines the meaning of a word with multiple meanings, but that courts do not force term-of-art definitions into contexts where they plainly do not fit) (citing Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307 (1961)). 117 JX 8 § 2.1.

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Furthermore, the ordinary meaning of “Term” does not specify or inform the

temporal limit of duration of “during the Term”; instead, it denotes a limited scope of

duration without indicating the actual temporal limit of that duration. Under Texas law:

The words of a legal instrument are simply indices to external things, and words always need interpretation. It is always necessary to determine their association with external objects, and all circumstances should be considered that go to make clear the sense in which they were used, i.e., their association with things.118

“Where a question relating to the construction of a contract is presented . . . [courts] are

to take the wording of the instrument, considering the same in light of the surrounding

circumstances, and apply the pertinent rules of construction thereto and thus settle the

meaning of the contract.”119

In the context of contract construction, evidence of the surrounding events at the

time of the parties‟ agreement is not impermissible parol evidence; rather, it is used to

define the meaning of the words the parties chose to document their agreement.120 Texas

law permits all writings that pertain to the same transaction to be considered together,

even if they were executed at different times and without express reference to one



118 Stewart v. Selder, 473 S.W.2d 3, 7 (Tex. 1971) (quoting WIGMORE ON EVIDENCE § 2470 (3d ed. 1940)) (emphasis added). 119 City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 519 (Tex. 1968). 120 See Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731 (Tex. 1982).

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another.121 Accordingly, the duration of the “Term” and the legal effect of “during the

Term” in the Grant Section may be construed by reference to the context of the parties‟

collaborative business relationship, including consideration of all of the 2011

Agreements, as well as the circumstances that led to the Software License Agreement.

The Software License Agreement was part of a series of contracts governing the

parties‟ “continuing collaboration,” including the parties‟ sharing of intellectual

property.122 The non-competition provisions contained in the Securities Purchase

Agreement, however, precluded the parties from servicing unilaterally certain customers

who might prefer a full price spectrum of products. In or around fall 2012, Revolution

began actively looking for a solution for those customers who wanted cash management

systems with common software interfaces at price-points both above and below the

line.123 A proposed solution emerged that would enable Tidel to license Revolution‟s

software for systems in which a customer required a common interface, thereby making it

easier for Tidel to acquire the “below-the-line” component of a Revolution customer‟s

business, and vice versa for similarly situated Tidel customers who needed “above-the

line” systems.124



121 DeWitt Cty. Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999); Bd. of Ins. Comm’rs v. Great So. Life Ins. Co., 239 S.W.2d 803, 809 (Tex. 1951). 122 Tr. 526 (Landry); DX 126 ¶ 4 (Landry Aff.). 123 See, e.g., Tr. 61, 69, 81 (Levenick); Tr. 524 (Landry). 124 See, e.g., Tr. 63-64, 67, 73, 77 (Levenick); Tr. 524 (Landry).

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Levenick communicated this solution to one of Revolution‟s vendors, Fujitsu, to

encourage them to work with Tidel to meet the “below the line” needs of Revolution‟s

customers who were “already using Revolution‟s product (Whole Foods), or are in final

evaluations with Revolution (Wal-Mart), but need a smaller less costly unit for a segment

of their stores.”125 On Tidel‟s behalf, Levenick sought to “make this solution viable . . .

[and] to hit a price point in the market . . . ,” because Fujitsu note recyclers were “already

integrated into the Revolution platform [and] no additional software work would be

required for Series 5.”126 As further evidence of the collaborative purpose of the

Software License Agreement, the parties discussed providing Kmart, historically a

Revolution customer, with “a common user interface” for Tidel‟s below-the-line systems

that would provide “benefits in training [and] staff movement between stores . . . .”127

Revolution argues that, in light of Texas contract law principles and considering

the Software License Agreement‟s context and the particular collaborative business

purposes it was designed to achieve, the word “Term” means a finite timeframe

connected with, and dependent upon, the parties‟ contract-based manufacturing

relationship. Therefore, Revolution argues, when the term of the Manufacturing



125 DX 54. 126 Id. ¶ 2; Tr. 80-83 (Levenick). The evidence suggests that the Fujitsu note recyclers used in Revolution‟s product were higher performance and higher priced components than what Tidel contemplated using for the Series 5. Levenick apparently was encouraging Fujitsu to lower its price to achieve a higher sales volume. 127 PX 48.

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Agreement ended on February 15, 2015, and the price line restrictions of the Non

Competition Period also ended, there no longer was any reason for the license grant to

continue. By extension, then, Revolution posits that “during the Term” limits the

duration of Tidel‟s rights to exercise a license to Revolution‟s software to a period that

coincides with the termination of the Manufacturing Agreement.

In response, Tidel argues that Revolution‟s interpretation of the Software License

Agreement should be rejected as unreasonable. I agree. “An ambiguity arises only after

the application of established rules of construction leaves an agreement susceptible to

more than one meaning. Further, for an ambiguity to exist, both potential meanings must

be reasonable.”128 There is no reasonable reading of the Software License Agreement

that would incorporate by reference the meaning of the word “term” as used in the

Manufacturing Agreement. The parties executed the Manufacturing Agreement more

than a year earlier; it bears no relation to the cross-licensing of intellectual property; and

the Software License Agreement makes no reference to it. Revolution fails to offer any

explanation for why the “Term” in the Software License Agreement should correspond

with the (undefined) “term” as used in the Manufacturing Agreement and not the defined

“Term” of the Cross License Agreement, which the parties also executed in November

2011. Further, Revolution provides no reasonable explanation for linking the “Term” of

an agreement that is expressly non-terminable by either party with the term of an



128 DeWitt Cty. Elec. Co-op., 1 S.W.3d at 100.

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agreement that was terminable by Tidel on one year‟s notice. To do so would render

meaningless the “non-terminable” provisions of the Software License Agreement.

In addition, I reject the way in which Revolution has sought to rely on parol

evidence to give context to the Software License Agreement.129 Extrinsic evidence is

inadmissible to “contradict or vary the meaning of the explicit language of the parties‟

written agreement.”130 Revolution‟s argument relies in part on Levenick‟s subjective

intent with respect to the “Term” of the Software License Agreement. Specifically,

Levenick testified that Revolution‟s board would not have agreed to authorize Tidel to

exercise for an unlimited duration the license grant to its software, considering the

potentially limited term of the parties‟ collaborative relationship and the restrictive

covenants.131 According to Levenick, this is why “during the Term” was included in the

language of the Grant Section.132 That is, at the end of the Term, each party would have

the independent ability (unrestricted by any price line covenant) to develop, market, and

manufacture cash management systems both above and below the price line for a

customer needing the same and each party could provide that customer a common user

interface for systems developed along the full price spectrum, using its own software.133



129 See Nat’l Union Fire Ins. Co., 907 S.W.2d at 520. 130 Id. at 521. 131 Tr. 78. 132 Tr. 77. 133 DX 133 ¶ 125 (acknowledging that Tidel has its own software and user interface for its products).

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Even if Levenick believed the agreement was to operate the way he explained,

however, case law and contract law are clear that the subjective intent of a party is not

controlling. What matters is what a reasonable person reading the contract objectively

would think it means. Revolution attempts to skirt the parol evidence rule by couching

its proffered evidence of Levenick‟s intent as indicia of the “circumstances” surrounding

the execution of the Software License Agreement, which Revolution argues is “not

impermissible parol evidence” under Texas law. But, the Court in Sun Oil stated that

“circumstances” excluded “oral statements by the parties of what they intended [the

contract] to mean.”134 Thus, to the extent Revolution‟s evidence of the “circumstances”

consists of Levenick‟s testimony about what he intended, that constitutes impermissible,

subjective, parol evidence. Finally, the Software License Agreement contains a merger

clause that precludes the admission of Revolution‟s proffered evidence.135 Where a

contract contains a merger clause, “it will be enforced as written and cannot be added to,

varied, or contradicted by parol evidence.”136

By contrast, Tidel argues strenuously that, because the Software License

Agreement is itself perpetual, it therefore grants to Tidel a perpetual license to create

Licensed Units. Revolution disagrees, arguing that such a construction defies plain



134 Sun Oil, 626 S.W.2d at 731 n.5. 135 JX 8 § 10.11. 136 ISG State Operations, Inc. v. Nat’l Heritage Ins. Co., 234 S.W.3d 711, 719 (Tex. App. 2007).

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language and dishonors basic contract principles. Under the Grant Section, Licensed

Units sold by Tidel during the Term would be licensed in perpetuity. Tidel‟s contention

that the duration of the “Term” is perpetual and the phrase “during the Term” means “in

perpetuity,” however, defies both the common meaning and the common usage of the

word “term” in the context of the Grant Section. Tidel would have “Term,” i.e., a word

meaning a limit of duration, mean the same as “perpetual,” i.e., a word indicating

limitless duration. Tidel‟s construction would negate the very existence of the

prepositional phrase, “during the Term”—used four separate times—in the Grant

Sections of the Software License Agreement. Tidel‟s construction also would render

superfluous the words “Term” and phrases “during the Term” and “for the Term” as used

throughout the agreement in Sections 2.1, 2.2, 6.1, and 10.3.

Tidel also insists that the Software License Agreement is itself perpetual and,

therefore, grants to Tidel a perpetual license to create Licensed Units. This argument

overlooks the legal distinction between a perpetual license and a perpetual agreement.

An agreement granting a perpetual and irrevocable license of intellectual property rights

in software is distinguishable from the scope and duration of an agreement which

provides a grant of rights to exercise such a license.137 Furthermore, Texas law disfavors

perpetual agreements. As a matter of Texas law, which is in accord with Delaware law,



137 See Vance v. Casebolt, 841 P.2d 394, 400 (Colo. Ct. App. 1992) (noting distinction between the term of a license and the term of the license agreement itself).

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if the Court determines that the “Term” of the Software License Agreement itself was

drafted to be perpetual, then the agreement is terminable at will by either of the parties.138

Moreover, the agreement cannot be read in harmony, as a whole, if Tidel‟s

argument is accepted. For example, Section 9.1 contemplates expressly that the parties‟

obligations may be “terminated by the termination or expiration of this Agreement . . .,”

and Section 10.3 indicates that certain confidentiality obligations of the parties continue

by agreement only, “for the Term and for a period of seven (7) years thereafter . . . .”139

Accordingly, Tidel‟s argument would render the language of Sections 9.1 and 10.3

meaningless or superfluous. Texas law does not permit a court to adopt such an

interpretation of a contract.140 Sections 2.1, 2.2, 6.1, 8.1, 9.1, and 10.3, independently

and collectively, are harmonious and effective only if the Software License Agreement is

not a contract of perpetual duration.

Texas law construes the words of a legal instrument based on “their association

with things.”141 To my mind, the word “Term” in the context of the Software License

Agreement more likely than not operates as an analog to the “Term” defined in the Cross



138 See Delta Servs. & Equip., Inc. v. Ryko Mfg. Co., 908 F.2d 7, 9-10 (5th Cir. 1990); Clear Lake City Water Auth. v. Clear Lake Util. Co., 549 S.W.2d 385, 390 (Tex. 1977); SHA, LLC v. Nw. Tex. Healthcare Sys., Inc., 2014 WL 31420, at *3 (Tex. App. Jan. 3, 2014); accord Silver Lake Office Plaza, LLC v. Lanard & Axilbund, Inc., 2014 WL 5953778, at *8 (Del. Super. Jan. 17, 2014). 139 JX 8. 140 See Coker, 650 S.W.2d at 393. 141 Stewart, 473 S.W.2d at 7 (quoting WIGMORE ON EVIDENCE § 2470 (3d ed. 1940)).

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License Agreement that relates to patents and related proprietary rights.142 There,

“Term” means the period of time on a country-by-country basis from the Effective Date

until there are no longer any Valid Claims under any of the Licensed Patents.143

Although the Software License Agreement concerns Licensed Software and not Licensed

Patents, I interpret the Term of the Software License Agreement similarly to derive its

meaning from the parties‟ rights to use the Licensed Software for the life of the

intellectual property subject to the license.144 In other words, I interpret the word “Term”

and phrase “during the Term” based on their association with external objects, namely the

intellectual property rights underlying the Licensed Software.

Because the record on this issue is not well-developed, I take judicial notice of

Federal copyright law to ascertain evidence of what the law considers the reasonable

duration of copyrights, such as those underlying the Licensed Software at issue here.

According to 17 U.S.C. § 302(a), “[c]opyright in a work created on or after January 1,

1978, subsists from its creation and, except as provided by the following subsections,



142 JX 6 (recitals explaining that Tidel and Revolution each desire to license their respective patents and other proprietary rights to the other). 143 JX 6 § 1. In addition, “Valid Claim” is defined to mean a claim in any unexpired and issued Licensed Patent that has not been disclaimed, denied, or admitted to be invalid or unenforceable or revoked or held invalid or unenforceable by a final unappealable decision of a court of competent jurisdiction or government agency and that would be infringed in the applicable country by the using, making, having made, offering for sale, selling, or importing of such Licensed Product, but for the license granted to the other Party under this Agreement. Id. 144 “Where the duration of a contract is not expressly prescribed, a reasonable time will be inferred.” Beago, 619 S.W.2d at 295.

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endures for a term consisting of the life of the author and 70 years after the author‟s

death.”145 I need not determine more definitely the duration of the copyrights underlying

the Licensed Software, nor do I need to determine the duration of the “Term” to an exact

number of years. Rather, I conclude that the duration of the “Term” at issue in the

Software License Agreement is more likely than not tied to the life of the intellectual

property rights associated with the Licensed Software.

Because the “Term” of the Software License Agreement is not defined and that

appears to be the product of inartful drafting, the Term of the agreement could be

considered ambiguous. That is, one reasonably could argue that the Term is a relatively

short period, as Revolution does, while another reasonably could argue that a relatively

long Term was intended, as Tidel does in contending the Term is either “perpetual” or at

least twenty years. To the extent the Term of the Software License Agreement is

ambiguous, I can consider any relevant extrinsic evidence in determining its meaning.146

Having reviewed the extrinsic evidence in this case, I conclude that it supports a finding

that the parties intended to grant, to the extent possible, a perpetual, irrevocable license

for Tidel to use Revolution‟s software. Every person involved with drafting the Software

License Agreement agreed that the software license was intended to be perpetual,



145 17 U.S.C. § 302(a). 146 Nat’l Union Fire Ins. Co., 907 S.W.2d at 520 (“If, however, the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous. . . . Only where a contract is first determined to be ambiguous may the courts consider the parties‟ interpretations . . . and admit extraneous evidence to determine the true meaning of the instrument.” (internal citations omitted)).

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irrevocable, and non-terminable—except Levenick. As the CEO of both Tidel and

Revolution, Levenick “dictated the terms under which [the agreement] would be

constructed” to Taylor (Tidel‟s Executive Vice President of Global Business

Development), Galgano (CFO of both Tidel and Revolution), and Hudson (Revolution‟s

General Manager).147 Galgano and Taylor testified that the instructions they received

from Levenick were clear: to create a perpetual license for Tidel to use Revolution‟s

software that could never be terminated.148 The attorneys who drafted the contract

confirmed to Galgano that the “[software] license is already perpetual and irrevocable

and the agreement cannot be terminated for any reason, even for breach.”149 Levenick

himself agreed with these terms in March 2013.150 Landry and Beregovsky confirmed

that Levenick reported to the board in March 2013 that he had secured a perpetual license

for Tidel to use Revolution‟s software.151

Levenick is the only person who contends otherwise, yet his ex post explanation of

why the “Term” of the Software License Agreement is coextensive with the

Manufacturing Agreement is not credible. The Manufacturing Agreement was scheduled



147 Tr. 155 (Levenick). 148 Tr. 730 (Galgano); Tr. 897 (Taylor). 149 DX 33, 35; DX 36 (Galgano instructing the attorneys, “[w]e would like to add language that basically says that nothing can really break this. . . . And so long as Tidel pays the $250/unit . . . Tidel always has its right to use the license.”). 150 DX 37 (Levenick replying to the exchange, “Yes.”). 151 Tr. 421 (Landry); Tr. 705 (Beregovsky).

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to end by its terms on November 2, 2016 at the latest, and did not contain any provision

that contemplated an extension or renewal. Thus, the Software License Agreement

would have ended automatically on November 2, 2016, with no chance of renewal. That

is not what Levenick told the board or anybody else. Indeed, Beregovsky testified that he

never would have approved the R50 without Levenick‟s assurances that the Software

License Agreement was perpetual.152 Accordingly, even assuming it is relevant, I do not

consider reliable Levenick‟s testimony that, as a 20-year veteran CEO of a successful

cash management system company, he sought and obtained board approval to invest

heavily in a new product with an untested market relying on software that Tidel would

lose the rights to use in as early as three years.

In Texas, contracts without a definite term of duration remain enforceable.153

“When the duration of a contract is not expressly prescribed, a reasonable time will be

inferred.”154 Tidel argues that, if the Court determines that the term of the Software

License Agreement is not perpetual, then the license granted by Revolution to Tidel

should extend for not less than twenty years from the date the Software License

Agreement was executed. This twenty year period corresponds to the length of time

during which Tidel must pay Revolution a one-time license fee of $250 for every unit



152 Tr. 706. 153 O’Farrill Avila v. Gonzalez, 974 S.W.2d 237, 244-45 (Tex. App. 1998). 154 Marshall v. Marshall, 735 S.W.2d 587, 592 (Tex. App. 1987); Beago v. Ceres, 619 S.W.2d 293, 295 (Tex. App. 1981).

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sold within that period that uses Revolution‟s software.155 “When it appears . . . that an

agreement is necessarily limited as to duration by the happening of any one of several

contingencies, this ascertainable contingency determines the duration” of a contract

without an express term.156 The Software License Agreement contains an ascertainable

contingency or event: the expiration of the twenty-year License Fee Period. Tidel argues

that that contingency should set the term of the agreement absent an enforceable

“perpetual” term.

I do not agree entirely with Tidel‟s argument, but conclude that, because no

evidence was presented on the duration of the “Term” in years other than approximately

two years, twenty years, or in perpetuity, it is reasonable to infer that the “Term” here

extends for at least twenty years.157 In this respect, I have not relied on Tidel‟s argument

that the License Fee Period—as an “ascertainable contingency”—alone determines the

155 See JX 8 § 4.1. 156 Marshall, 735 S.W.2d at 592. 157 I also consider unpersuasive Revolution‟s argument that construing the Term and the License Fee Period to have the same meaning would render one or the other of those separately defined terms meaningless or redundant because I do not accord those two terms the same meaning. Nor do I reach Revolution‟s argument that Texas law does not permit perpetual agreements; I have not construed the Software License Agreement to be perpetual.

For the reasons stated in this section and section II.G infra, I reject wholesale Revolution‟s request for a permanent injunction prohibiting Tidel from any further use of Revolution‟s software and ordering the return of all source code and software documentation in Tidel‟s possession, custody or control, as well as the removal of the software from any Tidel unit into which it has been installed and the recall of any units using Revolution‟s software that have been deployed to or piloted with third parties.

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duration of the “Term” in concluding that a Term exceeding twenty years is appropriate.

Instead, I conclude that the “Term” extends for the life of the intellectual property

underlying the Licensed Software and draw an inference from the relatively lengthy

terms of copyrights, of which I take judicial notice, and the twenty-year License Fee

Period specified in the agreement that, in this instance, the “Term” lasts for at least

twenty years.

Revolution protests that a construction of the Software License Agreement

requiring Revolution to honor the one-time, per unit License Fee at the “family business

member price” of $250, even after the familial relationship was destroyed and devolved

into direct business competition, would be oppressive at its core. I disagree. Revolution

agreed to that license fee in the Software License Agreement.158 Furthermore, the

evidence shows that Levenick viewed Tidel and Revolution‟s family relationship through

rose-colored glasses. The twenty year $250 per unit License Fee Period supports my

view that Levenick more likely than not envisioned the parties‟ collaboration continuing

indefinitely. That is what the parties bargained for and is effectively what the parties

obtained—even when it cuts both ways. For example, Tidel has convinced this Court

that the Software License Agreement grants a license that cannot be terminated and

extends for a Term of at least twenty years. Yet, Section 2.2 of the same agreement

creates an arguably iron-clad cross-license that requires Tidel to share any modifications



158 JX 8 § 4.1.

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it makes to the Licensed Software with Revolution during the same Term. The parties

also must live with that provision.

E. Tidel Misused Revolution’s Confidential Information

The Manufacturing Agreement, Services Agreement, and Cross License

Agreement each contained confidentiality provisions obligating Tidel not to use

Revolution‟s confidential information other than for purposes of fulfilling contractual

obligations to Revolution.159 The Manufacturing Agreement defines Confidential

Information to include, among other things:

As used herein, “Confidential Information” means . . . any and all technical or business or financial information, . . . in whatever form or medium (regardless of whether tangible, intangible, visual or oral), . . . trade secrets, works of authorship, software programs, software source documents, software architecture, algorithms, formulae, ideas, techniques, know-how, processes, inventions, apparatuses, equipment, models, information related to current, future and proposed products and services, research, experimental work, development, design details, specifications and engineering information, procurement, purchasing and manufacturing requirements, costs, pricing . . . and any physical manifestations of Confidential Information (such as notes, reports, memoranda, etc.).160



159 JX 4 § 9(f) (Each party agrees to “use the other party‟s Confidential Information only as necessary to perform its obligations and exercise its rights under this [Manufacturing] Agreement . . . .”); JX 5 § 6 (Each party agrees to “use the other party‟s confidential or proprietary information only as necessary to perform its obligations and exercise its rights under this [Administrative Services] Agreement . . . .”); JX 6 § 9.3 (Each party agrees that it “will not use any Confidential Information except for the limited purposes set forth in this [Cross License] Agreement . . . .”). 160 JX 4 § 9(e).

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In addition, the Cross License Agreement defines, with some exceptions, Confidential

Information as “all information and data, regardless of form, including a formula, pattern,

compilation, program, method, technique, process, material, physical or chemical

structure or activity, design, [or] source code . . . proprietary to the disclosing Party or its

Affiliates . . . .”161

Revolution complains that Tidel impermissibly has used Confidential Information

in developing two aspects of the R50: (1) its parts; and (2) its software. Moreland

admitted that Tidel used Revolution‟s Confidential Information, including its Solidworks

files, to develop the R50 and several of its parts, including the top cover, the coin return

bin, various mounting brackets, and the door stop.162 I held above that Tidel‟s

development of the R50 breached Section 7.9 of the Securities Purchase Agreement. In

addition, it is clear that Tidel‟s development of the R50 was not in the performance of its

obligations or exercise of its rights under the Manufacturing, Services, or Cross License

Agreements. Accordingly, I conclude that Tidel misused Revolution‟s Confidential

Information in breach of these agreements.

Tidel argues that it reserved its right to use the top cover and door stop models

under the September 2014 release, as evidenced by the fact that they were stamped with a



161 JX 6 § 1. 162 Tr. 673-78.

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Tidel Engineering legend.163 I disagree. Section 1 of that release stated that “Tidel and

[Revolution] hereby agree that Documents created prior to November 2, 2011 are “Other

Intellectual Property” within the meaning of the Cross License Agreement and each

party‟s rights with respect to such Documents are covered by the Cross License

Agreement.”164 In Section 2 of the release, Tidel released Revolution of liability with

respect to, and granted to, Revolution the right to use and license certain additional

engineering documents and drawings created pursuant to the November 2, 2011

Manufacturing Agreement, but clarified that such release and right to use was not a

trademark license with respect to any Tidel trademarks incorporated in or appearing on

documents or drawings created before or after the parties entered into the Manufacturing

Agreement. Because the documents and drawings that form the basis for Revolution‟s

claims in this action were created before November 2, 2011,165 the plain language of the

September 2014 release dictates that they are “Other Intellectual Property” within the

meaning of the Cross License Agreement, which agreement also specifies the rights of

the parties with respect to those part designs. In particular, Tidel had undertaken that it

would not use Revolution‟s “Other Intellectual Property” except in the performance of its

obligations or exercise of its rights under the Cross License Agreement, as well as the



163 DX 100 § 1 (and first WHEREAS). 164 Id. § 1. 165 DX 144 at 6 (top cover file created March 5, 2008), 8 (coin return bin files created August 17, 2011), 10-11 (mount bracket files created July 30, 2007 and March 5, 2008), 12 (door stop file created June 23, 2010).

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Manufacturing and Services Agreements. Therefore, Tidel‟s use of the parts models in

developing the R50 with a selling price above the price line breached the confidentiality

provisions and use limitations in those agreements, and the September 2014 release

provided no safe harbor in that regard.

Tidel contends that the door stop is not at issue because Tidel replaced that part

with one of a different design for the production version of the R50.166 Nonetheless,

Moreland admitted to using the door stop model in the R50 prototype designs,167 which,

as discussed below, would be in violation of Revolution‟s contract rights.

Finally, Tidel avers that Revolution presented no evidence that Tidel benefited in

any way from the use of the four models. But, Tidel‟s own expert, Paul Terpstra,

quantified the amount of time (eight to twelve hours) and the value of his time ($80 to

$90 per hour) that it would have taken for him to create the Tidel parts from scratch as

opposed to using Revolution‟s confidential drawings. This translates into a range of

damages from $640 to $1,080.168 Terpstra admitted that he also would need models of

the pieces with which those parts interface,169 and Tidel admits that its engineers had



166 Defs.‟ Answering Br. 46; see also Tr. 1011 (Terpstra) (Tidel‟s expert testifying that “[t]here are no features in common between the [Tidel and Revolution doorstop] models”). 167 Tr. 647 (“The door stop is the part that we use[d] for the prototypes but we‟re not using [it] in our production equipment.”). 168 Tr. 1046. 169 Tr. 1041.

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access to all of Revolution‟s drawings in the development of the R50.170 These

admissions support a reasonable inference that Tidel used Revolution‟s confidential

information not only for specific parts, but also for the full benefit of all the Revolution

drawings that they needed for interfacing pieces. I conclude, therefore, that Revolution

proved that Tidel breached the confidentiality provision in the Manufacturing Agreement

and that it is entitled to damages and a permanent injunction based on this breach, as

discussed in greater detail infra.

Next, Revolution argues that its software is also confidential information and

seeks $2 million in damages arising from Tidel‟s alleged misuse of that software in

connection with its development of the R50. Having construed both the Software

License and the Securities Purchase Agreements above, I reject Revolution‟s argument

that Tidel breached the applicable confidentiality provisions by installing the Licensed

Software into R50 systems for the following reasons. First, whether the software at issue

was “Confidential Information” under the Manufacturing, Services, or Cross License

Agreements is irrelevant, because the Software License Agreement expressly governs

Tidel‟s right to use the Licensed Software and in that respect superseded those prior

agreements. Second, the Software License Agreement does not limit Tidel‟s use of the

Licensed Software; in fact, the Grant Section allows Tidel “to use, copy, display

publically [sic], modify, create derivative works of, sell, and distribute the Licensed



170 Tr. 807 (Powers).

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Software and Other Licensed Intellectual Property in the Territory during the Term.”171 I

held above that the “Term” did not expire with the Manufacturing Agreement, but has a

duration of at least twenty years from the inception of the Software License Agreement

on March 29, 2013. Therefore, Tidel had the right to use the Licensed Software. Finally,

because the parties intended the Inflation Adjusted Price Line to terminate with the

Manufacturing Agreement and that agreement in fact terminated on February 15, 2015,

and the parties agreed in the Software License Agreement that the License Fee Period

would be twenty years, I conclude that the parties intended the $250/unit “brother-in

law” License Fee to continue after their collaborative business relationship terminated.

Therefore, I reject Revolution‟s contention that they are entitled to $2 million in damages

based on Tidel‟s alleged misuse of the Revolution software.172



171 JX 8 § 2.1. 172 I also find that Revolution failed to prove any misuse of the software because Revolution failed to prove that an enforceable contract prevented Tidel from using the software in an R50 developed for sale above the price line. Absent the Software License Agreement, Tidel could not have used the software beyond what was necessary to fulfill its obligations to Revolution under Section 9(f) of the Manufacturing Agreement. But the Software License Agreement granted Tidel the right to use the software outside its performance of its obligations under the Manufacturing Agreement. Revolution has not satisfied its burden of proving otherwise. In fact, the evidence supports a finding that use of the Revolution software in a Tidel Series 5 or R50 system would not mean, in and of itself, that the system was being developed to have a selling price above the Inflation Adjusted Price Line.

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F. Revolution is Entitled to Relief for Tidel’s Breaches

1. Tidel’s breach of the Securities Purchase Agreement

a. Permanent injunction

Revolution proved entitlement to a permanent injunction of limited duration for

Tidel‟s breach of the Securities Purchase Agreement. To obtain a permanent injunction,

Revolution must show: (1) actual success on the merits; (2) irreparable harm; and (3) a

balance of the equities favoring such relief.173 To show that it is entitled to specific

performance of a covenant not to compete, Revolution must prove the same elements by

clear and convincing evidence.174 For the following reasons, I conclude Revolution has

met these burdens.

Revolution proved a breach of Section 7.9 by Tidel‟s development of the R50 with

a “new [gross margin] if we go to Mach 6 with new pricing.”175 Revolution proved that

the breach commenced on March 10, 2014—promptly after Tidel terminated the

Manufacturing Agreement. By July 2014, Landry and Taylor openly had communicated

Tidel‟s new philosophy of a “higher price for a higher spec” regarding the development

of the R50.176 Taylor brazenly called upon two of Revolution‟s own customers



173 Kan-Di-Ki, 2015 WL 4503210, at *25; Concord v. Wilm. Steel Processing Co., 2009 WL 3161643, at *10-11 (Del. Ch. Sept. 30, 2009). 174 Kan-Di-Ki, 2015 WL 4503210, at *25. 175 DX 90. The Mach 6 is a higher performance component than what Levenick had proposed for the Series 5 or R50 before his termination. 176 DX 90; PX 106-107.

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concerning the new specification and increased price to “$42.5k (ish).” And Galgano

reiterated the “new pricing” plan days later: “We need to change Series 5 price to

$42500 . . . .”177 By August 2014, internal Tidel documents were approved by the Board,

declaring that “[t]he Series 5 [R50] will be priced at an [average selling price] of $42.5k

. . . .”178 Therefore, I conclude that Revolution has shown by clear and convincing

evidence that Tidel developed and marketed the Series 5—later renamed the R50—with a

selling price above the Inflation Adjusted Price Line at least as early as March 10, 2014.

As to irreparable harm, this Court may rely upon enforceable contractual

affirmations of the existence of such harm.179 Here, the Securities Purchase Agreement

provides that “[e]ach Party recognizes and affirms that in the event of breach by it of any

of the provisions of this Section 7.9, money damages would be inadequate and the other

Parties would have no adequate remedy at law.”180 The parties‟ arm‟s length agreement

concerning the inadequacy of a legal remedy satisfies the irreparable harm requirement

for injunctive relief,181 and the trial record reflecting the nature and extent of Tidel‟s

breaches further supports such a finding.



177 JX 17. 178 Tr. 769 (Galgano). 179 See Kan-Di-Ki, 2015 WL 4503210, at *26. 180 JX 3 § 7.9(h). 181 Hough Assocs., Inc., 2007 WL 148751, at *18.

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Balancing the equities also favors issuance of injunctive relief similar in scope and

duration to that sought by Revolution. Plaintiff is entitled to the full and fair benefit of its

bargain, i.e., fair competition resulting from a clean start. Revolution proved that Tidel

jumped the starting gun by impermissibly developing and marketing an R50 having a

higher specification and suitable for sale above the price line months before the Non

Competition Period ended on February 15, 2015. Tidel, therefore, “is in a particularly

poor position to object that . . . [it] will suffer restraint greater than that to which [it]

agreed.”182 In other words, balancing the equities requires returning Tidel to the starting

line to remedy its calculated false start, so that Revolution receives the contractual

protection for which it bargained.183

Here, I look to Section 7.9 itself as “the most appropriate caliper for measuring

and defining an appropriate remedy, including its duration.”184 The parties agreed to

remedy a proven violation by “extension of the Non-Competition Period . . . equal to (i)

the length of the violation of this Section 7.9 plus (ii) the length of any court proceedings



182 Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Price, 1989 WL 108412, at *5 (Del. Ch. Sept. 13, 1989). 183 Wal-Mart Stores, Inc. v. Mullany, C.A. No. 6050-VCL, at *78 (Del. Ch. Dec. 15, 2010) (TRANSCRIPT) (observing that balance of the equities would favor enforcement of non-competition agreement where one party took a “calculated risk” that the other would not seek to enforce its right). 184 All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *12 (Del. Ch. Aug. 9, 2004); Tristate Courier & Carriage, Inc. v. Berryman, 2004 WL 835886, at *14 (Del. Ch. Apr. 15, 2004).

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necessary to stop such violation.”185 Therefore, Section 7.9(h) provides a basis for

granting an injunction with duration equal to the number of days between March 10,

2014 and the date of the issuance of an injunction in this litigation. An appropriate

injunction is being entered concurrently with this Memorandum Opinion on October 30,

2015. Therefore, the length of the injunction will be for 599 days, i.e., approximately

twenty months.

Revolution seeks an injunction enforcing the terms of Section 7.9(c), and then

some—i.e., Revolution requests that I enjoin Tidel from:

. . . anywhere in the world, directly or indirectly, either for itself or for any other Person, owning, operating, managing, controlling, engaging in, participating in, investing in, permitting its name to be used by, acting as consultant or advisor to, rendering services for (alone or in association with any Person) or otherwise assisting in any manner, any Person that engages in or owns, invests in, operates, manages or controls any venture or enterprise which directly or indirectly engages or proposes to engage in the business of developing, marketing, or manufacturing the R50 cash management system or any alternative configuration of the R50 under any name.186

Revolution argues that an injunction permitting Tidel to continue selling the R50,

as long as it does so below the price line, would be inequitable. I agree, but only to the

extent the R50 meets the higher specification Tidel effectively adopted on or about

March 10, 2014 or otherwise is developed for higher performance than the Series 5 as it



185 JX 3 § 7.9(h). 186 Pl.‟s Reply Br. 24.

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existed in December 2013. As discussed above, the plain language of Section 7.9(c)

prohibits not only selling cash management systems above the price line, but even

developing such systems. The right determines the remedy. Here, I consider the

appropriate remedy to be an injunction remedying Tidel‟s breach of Section 7.9, which I

concluded stemmed from its developing and marketing of a higher performance cash

management system with a selling price above the Inflation Adjusted Price Line. That is,

had Tidel complied with the bargained-for restriction, the R50 in its latest iterations

would not exist. Therefore, I conclude that Revolution is entitled to an injunction similar

to the one it seeks. I find, however, that, in at least one respect, Revolution‟s proposed

injunction is too broad.

That aspect relates to the specifications for the R50. Before March 2014, Tidel

had expended substantial time and resources developing a Series 5 machine, which it

later referred to as the R50, with a lesser specification. As noted in Revolution‟s Reply

Brief, by December 2013, Levenick and Moreland had developed the Series 5 to have a

selling price below the price line using a coin recycler that could process up to 16,950

coins at a speed of 240 coins per second.187 Then, first in January and again in February

2014, Tidel sought Revolution‟s consent to use Revolution‟s coin sorter intellectual

property in support of its development of a more advanced product and to increase the

price line to enable it to do so. The March 10 document is the next manifestation of

Tidel‟s impermissible plans to develop a product with a selling price above the price line.

187 Pl.‟s Reply Br. 4.

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Accordingly, Revolution is entitled to an injunction restricting Tidel‟s marketing or sale

of any cash management system utilizing a note recycler and a coin recycler together

with technical specifications materially more advanced than the December 2013 Series

5—which I conclude was the last “version” of the R50 permitted by the Securities

Purchase Agreement.188 The injunction will not preclude Tidel from using the software

subject to the Software License Agreement.

b. Damages

Revolution, however, is not entitled to the monetary damages it seeks for Tidel‟s

breaches of the Securities Purchase Agreement. To prove damages, Revolution “must

show both the existence of damages provable to a reasonable certainty, and that these

damages flowed from the defendants‟ violation of the contract.”189 Revolution alleged

two bases for monetary relief: a lost profits theory and an unjust enrichment theory. Both

fail for the following reasons.

Revolution alleged that it is entitled to monetary damages of at least $89,487, or

the expected profit on nine R50 units. Revolution‟s argument lacks a factual or legal

basis. As a factual matter, Revolution does not explain why it is entitled to lost profits

relating to nine R50 machines and the record is devoid of evidence that Revolution lost



188 For the avoidance of doubt, this relief does not impinge from Tidel‟s rights with respect to subsections (x) and (y) of Section 7.9(c) to develop products with a note recycler but not a coin recycler, or a coin recycler without a note recycler, consistent with the terms therein. 189 LaPoint v. AmerisourceBergen Corp., 2007 WL 2565709, at *9 (Del. Ch. Sept. 4, 2007).

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any sales, much less nine units. As a legal matter, “[c]ontract damages . . . should not act

as a windfall.”190 Here, there has been no showing that Revolution‟s alleged lost profits

are likely to equal Tidel‟s profits on the nine R50‟s. The proper measure of Revolution‟s

damages, if any, would be the sales that Revolution purportedly lost as a result of Tidel‟s

breaches of the Securities Purchase Agreement—about which no evidence was produced

at trial. In fact, Brian McCabe of G4S testified that the opposite was true: even while

testing the R50, G4S pursued aggressively the adoption of Revolution‟s products in the

marketplace, including Series 7000 and Series 8000 recyclers.191

Revolution‟s lost profits theory also fails because it is inherently speculative.192

Delaware courts have held that “measuring money damages for an unproven technology”

is a “nearly impossible task” because “such damages are likely to be merely

speculative.”193 Here, Revolution‟s expert‟s damages model assumed that Revolution

was entitled to damages because the R50 would replace the Revolution 7000 on a one-to

one basis, but the expert admitted he had no way to confirm that.194 Nor did he offer an

opinion as to whether Revolution even would make these projected sales as opposed to



190 Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 146 (Del. 2009). 191 McCabe Dep. 19-20. 192 See Fletcher Int’l, Ltd. v. Ion Geophysical Corp., 2013 WL 6327997, at *17 (Del. Ch. Dec. 4, 2013). 193 Amaysing Techs. Corp. v. Cyberair Commc’ns, Inc., 2004 WL 1192602, at *5 (Del. Ch. May 28, 2004). 194 Tr. 357 (Bell).

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some competitor other than Tidel.195 Revolution has identified no sales, customers, or

goodwill that it lost as a result of Tidel‟s breaches or any reasonable basis for inferring

that it would have suffered any such losses. Therefore, Revolution has failed to prove

that it has lost or will lose a single sale of the Revolution 7000 to the R50.

Revolution‟s unjust enrichment theory fares no better because it is precluded by

Revolution‟s own allegation that Tidel breached the Securities Purchase Agreement. A

“claim for unjust enrichment is not available if there is a contract that governs the

relationship between the parties that gives rise to the unjust enrichment claim.”196 “When

the complaint alleges an express, enforceable contract that controls the parties‟

relationship . . . a claim for unjust enrichment will be dismissed.”197 I therefore deny

Revolution‟s request for damages arising out of Tidel‟s breach of the Securities Purchase

Agreement.

2. Tidel’s misuse of Revolution’s Confidential Information

Revolution proved that it is entitled to damages arising from Tidel‟s breach of the

Manufacturing, Services, and Cross License Agreements. In awarding Revolution

damages on its misuse of confidential information claim, however, I am mindful that the

amount of time Tidel saved by misusing Revolution‟s drawing, rather than the total

amount of time it would have taken Tidel to create the parts from scratch, is a more



195 Tr. 374. 196 Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 891 (Del. Ch. 2009). 197 Id. (internal citation omitted).

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appropriate measure of damages. Accordingly, I award Revolution only $640, which is

the low end of the range provided by Terpstra.

Revolution also proved entitlement to a permanent injunction preventing Tidel

from using Revolution‟s Confidential Information that remains in Tidel‟s possession and

requiring Tidel to return promptly “all copies” of Revolution‟s Solidworks models,

drawings, or documents. As set forth above, to prove entitlement to a permanent

injunction, Revolution must show: (1) actual success on the merits; (2) irreparable harm;

and (3) a balance of the equities favoring such relief.198 Revolution proved Tidel

breached several confidentiality provisions by clear and convincing evidence. Further,

this Court has long recognized that the impermissible use of proprietary and confidential

information constitutes irreparable harm.199 Finally, Tidel argues that injunctive relief is

unwarranted, but provides no basis for balancing the equities in its favor. Therefore, I

conclude Revolution is entitled to a permanent injunction enjoining Tidel from breaching

the confidentiality provisions of the Manufacturing, Services, and Cross License

Agreements and requiring Tidel promptly to return Revolution‟s confidential

information.



198 Kan-Di-Ki, 2015 WL 4503210, at *25; Concord, 2009 WL 3161643, at *10-11; Webb v. Glenbrook Owners Ass’n, Inc., 298 S.W.3d 374, 384 (Tex. App. 2009). 199 See, e.g., Am. Totalisator Co. v. Autotote Ltd., 1983 WL 21374, at *5 (Del. Ch. Aug. 19, 1983); W.L. Gore & Assocs., Inc. v. Wu, 2006 WL 2692584, at *13-14 (Del. Ch. Sept. 15, 2006).

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G. Tidel is Entitled to Relief

Entitlement to declaratory relief under Delaware law requires: (1) a controversy

involving the rights or other legal relations of the party seeking relief; (2) a controversy

in which the claim of right or other legal interest is asserted against one who has an

interest in contesting the claim; (3) the controversy must be between parties whose

interests are real and adverse; and (4) the issue involved in the controversy must be ripe

for judicial determination.200 Texas law is in accord.201 Neither party disputes the

existence of these elements. I also conclude independently that this controversy involves

the rights of the parties seeking relief, both parties have an interest in contesting each

others‟ claims, the controversy is between parties whose interests are real and adverse,

and the issues are ripe for judicial determination.

Tidel proved entitlement to a declaratory judgment that: (1) the license granted to

Tidel under the Software License Agreement as it relates to individual licensed products

or systems licensed during its Term is perpetual; (2) the “Term” during which Tidel has

the right to use the license granted by the Software License Agreement is not limited or

terminated by the termination of the Manufacturing Agreement; and (3) the “Term” of



200 Marshall v. Hill, 93 A.2d 524, 525 (Del. 1952). 201 Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex. 1995) (“A declaratory judgment is appropriate only if a justiciable controversy exists as to the rights and status of the parties and the controversy will be resolved by the declaration sought . . . . „To constitute a justiciable controversy, there must exist a real and substantial controversy involving genuine conflict of tangible interests and not merely a theoretical dispute.‟” (internal citations omitted)).

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the Software License Agreement extends at a minimum for a period of twenty years from

the date the agreement was executed, March 29, 2013. Tidel also is entitled to a

permanent injunction enjoining Revolution from representing in the marketplace or

elsewhere that Tidel or any of its affiliates do not have a valid license to the Licensed

Software.

H. Attorneys’ Fees

Texas law mandates the award of attorneys‟ fees for breach of contract—even if

the contract is silent as to an award of fees.202 To recover for attorneys‟ fees under

Section 38.001, “a party must (1) prevail on a cause of action for which attorneys‟ fees

are recoverable, and (2) recover damages.”203 A trial court “does not have the discretion

to deny fees altogether if they are proper under section 38.001.”204 The claimant must

show (1) it pled for attorneys‟ fees; (2) it has a claim against the defendant for which

attorneys‟ fees are recoverable under the statute; (3) it was represented by an attorney; (4)

the opposing party is an individual or corporation; (5) the claimant presented its claim to

the opposing party; (6) the opposing party did not tender payment within thirty days



202 TEX. CIV. PRAC. & REM. CODE ANN. §§ 38.001-.006 (West 2015); see also Ventling v. Johnson, 2015 WL 2148056, at *8 (Tex. May 8, 2015); 1/2 Price Checks Cashed v. United Auto Ins. Co., 344 S.W.3d 278 (Tex. 2011). 203 Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997). 204 Graybar Elec. Co. v. LEM & Assocs., 252 S.W.3d 536 (Tex. App. 2008); see also Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 201 (Tex. 2004).

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following presentment; (7) the claimant prevailed on the claim; and (8) the claimant

incurred reasonable attorneys‟ fees.205

The Texas Uniform Declaratory Judgments Act (the “Texas UDJA”) also allows a

discretionary award of attorneys‟ fees.206 As permitted under the Texas UDJA,207 both

parties seek this Court‟s declaration of their respective rights, status, legal relations,

obligations, and interests in and under the Software License Agreement as well as the

Court‟s construction of the Software License Agreement. To the extent the Court awards

a party declaratory relief concerning the Software License Agreement, that party is

entitled to an award of costs and reasonable and necessary attorneys‟ fees as are equitable

and just.208

Revolution seeks an award of reasonable attorneys‟ fees for prevailing on its

claims for damages against Tidel for breach of the Manufacturing, Services, and Cross

License Agreements. Further, Revolution represents that it can make the necessary

showing required by Section 38.001(8).

Tidel challenges Revolution‟s entitlement to attorneys‟ fees on two bases. First,

Tidel argues that, under Texas law, limited partnerships are not subject to Section

205 TEX. CIV. PRAC. & REM. CODE ANN. §§ 38.001(8), 38.002 (West 2015); 1/2 Price Checks Cashed, 344 S.W.3d at 383; Great Am. Ins. v. N. Austin MUD, 908 S.W.2d 415, 427 n.10 (Tex. 1995). 206 TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 2015); Barshop v. Medina Cty. Underground Water Conserv. Dist., 925 S.W.2d 618, 637 (Tex. 1996). 207 TEX. CIV. PRAC. & REM. CODE ANN. §§ 37.001-.011 (West 2015). 208 TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 2015).

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38.001.209 In support, Tidel asserts that the two corporate defendants in this case,

Sentinel Technologies, Inc. and Tidel, Inc., are holding companies against which no

claims were pursued and no evidence was introduced at trial supporting the notion that

either had any involvement in the transactions, events, or occurrences on which

Revolution‟s claims are based. Thus, according to Tidel, because the only entity alleged

to have committed any wrongdoing, Tidel Engineering, L.P., is a limited partnership not

subject to Section 38.001, Revolution is not entitled to an award of its attorneys‟ fees and

expenses. Second, even if I award Revolution its fees, Tidel avers that they must be

reasonable in relation to the benefit achieved.

Revolution prevailed on its misuse of confidential information claims and I

awarded it money damages, but only of a minimal amount. Assuming Revolution can

make the required showings under Section 38.001(8), I conclude Revolution is entitled to

an award of its reasonable attorneys‟ fees for prevailing on those claims. Tidel‟s

argument that Revolution is not entitled to recover its attorneys‟ fees because Section

38.001 does not apply to limited partnerships is clever, but I reject it under the

circumstances here. On February 14, 2014, Tidel Engineering, L.P., acting through

Landry as its President and CEO, gave Revolution notice of Sentinel, Inc.‟s termination



209 See Fleming & Assocs., L.L.P. v. Barton, 425 S.W.3d 560, 576 (Tex. App. 2014); see also Ganz v. Lyons P’ship, L.P., 173 F.R.D. 173, 176 (N.D. Tex. 1997) (interpreting Texas Civil Practice Remedies Code to preclude recovery of attorneys‟ fees from limited partnerships).

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of the Manufacturing Agreement.210 Furthermore, on September 5, 2014, Landry, in

these same capacities, executed a release of rights under the Manufacturing Agreement,

an agreement to which Sentinel, Inc. was a party. Tidel, Inc. also was a party to the

Manufacturing Agreement. I conclude, therefore, that both Sentinel, Inc. and Tidel, Inc.,

as Defendants and as entities that were involved with the operative documents on

Revolution‟s claim for contract damages are liable under Section 38.001 to Revolution

for its reasonable attorneys‟ fees incurred in connection with the breach of contract

claims referenced above.

As to Tidel‟s argument that the fee award must be reasonable in amount in relation

to the benefit achieved, I have determined that a cap is appropriate based on the minimal

damages awarded. Specifically, Revolution is entitled to recover its attorneys fees and

expenses on this claim upon submission of appropriate documentation, but the total

amount may not exceed $25,000.

Both parties seek attorneys‟ fees arising from their claims for declaratory relief

pursuant to Section 37.009. As previously noted, Tidel prevailed on its claims for

declaratory relief in every respect. The Software License Agreement‟s plain language

states that the licenses granted thereunder are perpetual; I held that the “Term” during

which the Software License Agreement permitted Tidel to use that license is not limited

or terminated by the termination of the Manufacturing Agreement; and I determined that

the “Term” extends at least twenty years from the date the Agreement was executed—

210 DX 133 ¶ 9.

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and probably longer. By contrast, I did not grant Revolution any declaratory relief

whatsoever with respect to any of its claims arising from contracts governed by Texas

law. Therefore, I award Tidel its reasonable attorneys‟ fees incurred in achieving the

declaratory judgment it sought.

For the foregoing reasons, Plaintiff, Revolution, is entitled to a permanent

injunction based on Defendants‟ breaches of the Securities Purchase Agreement (Count I), a permanent injunction and limited money damages for Defendants‟ breach of the confidentiality and non-use provisions in the Manufacturing, Services, and Cross License Agreements (Count III), and no more than $25,000 of its reasonable attorneys‟ fees in prevailing on its damages claim under Count III. I further hold that Defendants are entitled to a judgment declaring their rights with respect to the Software License Agreement (Count I), a permanent injunction in connection with the same (Count II), and their reasonable attorneys‟ fees arising therefrom. In all other respects, the requests for relief from both Revolution and Defendants are denied. An implementing order accompanies this Memorandum Opinion.