Louis J. KELLER and Cyril N.

Keller, Appellees,
v.
CLARK EQUIPMENT COMPAN, and Clar! E"uip#en$, A.%., Appellan$s.
CLARK EQUIPMENT COMPAN, Appellan$,
v.
Louis J. KELLER and Cyril N. Keller, Appellees.
&'( ).*d '*+,
*'- U...P.Q. (+(
)a/$s0
(,1 pa$en$ 2 pa$en$ 3or $4e 1 54eel loader6 5as applied 3or 7y $4e Kellers, 8ran$ed on ',9:9:;.
*(; pa$en$ 2 pa$en$ 3or a sel3 propelled loader 54i/4 5as developed 7y $4e Kellers 54en $4ey 5ere
under $4e e#ploy o3 Melroe.
In June *', '-:*, $4e Kellers and Cli33ord Melroe si8ned $4e do/u#en$s 3or $4e desi8n pa$en$
appli/a$ion and $4e assi8n#en$ o3 pa$en$ o5ners4ip $o $4e /o#pany. T4e desi8n pa$en$
appli/a$ion 5as 3iled on July *(, '-:*, and su7se"uen$ly 5as issued on May *', '-:1, as U...
Pa$en$ No. <'-(,*(;
''& pa$en$ 2 i$ 5as $4e /o#ple$ed pa$en$ appli/a$ion and assi8n#en$ o3 pa$en$ do/u#en$s $o Louis
Keller and Cli33ord Melroe in O/$o7er, '-:*.
Keller and Melroe pro#p$ly si8ned $4e appli/a$ion and re$urned i$ $o .5indler. T4ey never
e=e/u$ed or re$urned $4e do/u#en$ assi8nin8 $4e pa$en$ $o $4e /o#pany6 4o5ever .5indler 3iled
$4e appli/a$ion 3or $4e #e/4ani/al pa$en$ on $4e 3our>54eel loader on O/$o7er *1, '-:*>>
appro=i#a$ely $4ree 5ee!s a3$er $4e one>year 3ilin8 deadline.
T4e pa$en$ o33i/e issued U... Pa$en$ No. 1,*1',''& ?''& pa$en$@ on January '(, '-::. I$ 5as a
#e/4ani/al pa$en$ in/ludin8 ei84$een /lai#s 54i/4 5as en$i$led A$ra/$or ve4i/le and drive
$4ere3or.A I3 $4e ''& pa$en$ 4ad 7een $i#ely 3iled, i$ 5ould 4ave e=pired on January *(, '-+1.
T4e par$ies $4en en$ered in$o an a8ree#en$ 54ere7y $4e Kellers 5ould 8ive Melroe e=/lusive ri84$s $o
#anu3a/$ure produ/$s 3allin8 under pa$en$ (,1. In re$urn Melroe paid *.(B $4e pri/e o3 ea/4 uni$ sold
as royal$y $o $4e Kellers. ?'-(- a8ree#en$@
T4e '-:1 a8ree#en$ /on$ained $5o prin/ipal /4an8es. )irs$, $4e Kellers 8ran$ed $4e /o#pany an
e=/lusive ri84$ $o #a!e and sell loaders e#7odyin8 $4e inven$ion /lai#ed in $4e ''& pa$en$
appli/a$ion, as 5ell as $4e (,1 pa$en$ re3erred $o in $4e '-(- a8ree#en$. .e/ond, Melroe a8reed $o
pay royal$ies $o $4e Kellers pursuan$ $o a 3i=ed ra$e, ra$4er $4an $4e per/en$a8e #e$4od u$iliCed in $4e
'-(- a8ree#en$.
Melroe /on$inued $o pay royal$ies $o $4e Kellers under $4e '-:1 a8ree#en$ un$il Au8us$, '-:-.
On Au8us$ '', '-:-, Clar! and Melroe en$ered in$o a pur/4ase o3 asse$s a8ree#en$. T4e
a8ree#en$ provided $4a$ Melroe, in e=/4an8e 3or ;&(,,,, s4ares o3 Clar!Ds vo$in8 /o##on s$o/!,
5ould /onvey $o Clar! all o3 MelroeDs asse$s, e=/ep$ as spe/i3i/ally e=/luded in $4e a8ree#en$.
T4e a8ree#en$ 3ur$4er provided $4a$ Clar! 5ould assu#e all o3 MelroeDs lia7ili$ies, o7li8a$ions,
and /ovenan$s e=/ep$ as spe/i3i/ally e=/luded in $4e a8ree#en$. Pursuan$ $o $4is pur/4ase
a8ree#en$, Clar! /on$inued $o pay $4e Kellers royal$ies under $4e '-:1 Melroe a8ree#en$.
T4e par$ies $4en en$ered in$o ano$4er a8ree#en$ in '-&', $4is $i#e $4e royal$y ra$e 5as /4an8ed, 5i$4
Clar! a8reein8 $o pay $4e Kellers E'( 3or ea/4 Fo7/a$ i$ sold and E', per loader sold 7y a su7>
li/ensee. Clar! /on$inued $o #a!e royal$y pay#en$s under $4e '-&' a8ree#en$ un$il appro=i#a$ely
$4e se/ond "uar$er o3 '-&*.
.o#e$i#e around '-&*, Clar! s$opped pay#en$ o3 royal$ies $o $4e Kellers 7e/ause o3 in3rin8e#en$
issues $4a$ 7e8an in '-:' a33e/$in8 Clar!Gs $ies 5i$4 /er$ain o$4er su7>li/ensees.
O5a$onna and Case $4rea$ened $o /ease li/ense pay#en$ $o Clar!, pro#p$in8 $4e la$$er $o s$op
payin8 Royal$ies $o $4e Kellers.
Clar! 3iled sui$ in /our$ $o 4ave $4e pa$en$s de/lared as null and void, 54ile on /oun$er/lai# $4e
Kellers ?'@ sou84$ royal$ies due 3ro# Clar! under $4e '-&' royal$y a8ree#en$ 5i$4 $4e Kellers and
under /er$ain su7li/ense /on$ra/$s 7e$5een Clar! and o$4ers, and ?*@ alle8ed $4a$ Clar! or i$s
prede/essor in in$eres$, Melroe, 4ad ne8li8en$ly 3ailed $o /o#ply 5i$4 $4e re"uire#en$s o3 1( U...C. H
',*?7@ 7y ne8le/$in8 $o 3ile a pa$en$ appli/a$ion 3or $4e ''& pa$en$ 5i$4in $4e one>year period a3$er $4e
inven$ion 4ad 7een o33ered 3or sale.
On July *(, '-&1, $4e Kellers 3iled a separa$e a/$ion a8ains$ Clar!. T4e la5sui$ alle8ed $4a$ Clar! and
i$s 54olly>o5ned .5iss su7sidiary, Clar! E"uip#en$ A.%. ?CEA%@, 4ad 3ailed $o a//oun$ 3or and pay
royal$ies due pursuan$ $o a li/ense a8ree#en$ 7e$5een $4e Kellers and CEA%, 54i/4 na#ed CEA%
as an e=/lusive li/ensee under /er$ain 3orei8n pa$en$s /orrespondin8 $o $4e li/ensed pa$en$s in $4e
a8ree#en$ 5i$4 Clar!.
In a Mar/4 1,, '-+', de/ision, $4e dis$ri/$ /our$ 4eld $4e (,1 pa$en$ did no$ /over any produ/$ #ade
or sold 7y Clar!, and a//ordin8ly, /on/luded $4a$ Clar! 5as no$ lia7le $o $4e Kellers under $4e '-&'
royal$y a8ree#en$ 3or any royal$ies 5i$4 respe/$ $o $4a$ pa$en$. On $4e KellersD ne8li8en/e /lai#,
4o5ever, $4e dis$ri/$ /our$ 4eld $4a$ Melroe ne8li8en$ly 3ailed $o 3ile $4e appli/a$ion 3or $4e ''& pa$en$
in a $i#ely #anner. T4e /our$ /on/luded $4a$ pursuan$ $o $4e pur/4ase o3 asse$s a8ree#en$ 7e$5een
Clar! and Melroe, Clar! e=pressly assu#ed MelroeDs $or$ lia7ili$y arisin8 3ro# $4e la$e 3ilin8 o3 $4e ''&
pa$en$. Al$erna$ively, $4e /our$ 4eld $4a$ Clar! 5as lia7le 3or MelroeDs ne8li8en/e under $4e de 3a/$o
#er8er do/$rine. )inally, $4e /our$ /on/luded $4a$ $4e KellersD da#a8es /onsis$ed o3 all $4e royal$ies
$4ey 5ould 4ave re/eived i3 $4e ''& pa$en$ 4ad no$ 7een adIud8ed invalid. Clar! no5 appeals 3ro#
$4is Iud8#en$.
Issue0 Is Clar! lia7le 3or MelroeGs o7li8a$ion $o $4e KellersJ >K es
Leld0
T4e /ase involves $4e lia7ili$y o3 a pur/4aser o3 $4e asse$s o3 a /orpora$ion 3or a /lai# o3 ne8li8en/e
7ased on a pre>a/"uisi$ion /lai#.
T4e dis$ri/$ /our$ 3ound $4a$ Louis Keller 5as 4ired 3or 4is inven$ive a7ili$ies.
T4us, a7sen$ any e=press or i#plied a8ree#en$ 7y $4e par$ies $o $4e /on$rary, Melroe 5ould 4ave
7een $4e e=/lusive o5ner o3 $4e ''& pa$en$ under N.<.Cen$.Code H 1;>,*>''. T4e dis$ri/$ /our$,
4o5ever, 3ound $4a$ Melroe indeed agreed to recognize that the Kellers retained an
ownership interest in the 117 patent and never claimed sole ownership.
The Court concluded that the claim had been expressly assumed by the contract and ruled
alternatively, that North a!ota would recognize the de "acto merger doctrine under the
circumstances o" the ac#uisition in this case$
T4e dis$ri/$ /our$ 4eld $4a$ Clar! 5as lia7le 3or MelroeDs ne8li8en/e under $4e de 3a/$o #er8er
do/$rine.
T4e Cour$ o7served $4a$ $4ere are 3our ele#en$s $o 7e #e$ 3or a de 3a/$o #er8er $o e=is$0
Con$inui$y o3 asse$s, #ana8e#en$, personnel and opera$ions
Con$inui$y o3 s4are4olders 54i/4 resul$s 3ro# $4e pur/4asin8 /orpora$ion payin8 3or $4e a/"uired
asse$s 5i$4 i$s s4are o3 i$s o5n s$o/!s,
T4e seller /eases opera$ions, li"uida$es, and dissolves as soon and as le8ally and pra/$i/ally
possi7le, and
T4e pur/4asin8 en$i$y assu#es $4e o7li8a$ions o3 $4e seller ne/essary 3or $4e unin$errup$ed
/on$inua$ion o3 7usiness opera$ions.
T4e /our$ pri#arily 7ased $4is 3indin8 on $4e '-:1 a8ree#en$ in 54i/4 Melroe a8reed $o pay royal$ies
$o $4e Kellers on $4e ''& pa$en$ appli/a$ion in e=/4an8e 3or an e=/lusive li/ense.
$4e 3a/$ $4a$ Melroe, and su7se"uen$ly Clar!, paid royal$ies $o $4e Kellers on $4e ''& pa$en$ 3or
over nine years is in/onsis$en$ 5i$4 Clar!Ds presen$ /lai# $4a$ $4e Kellers did no$ 4ave any
o5ners4ip in$eres$ in $4a$ pa$en$. A//ordin8ly, $4e dis$ri/$ /our$ did no$ err in 3indin8 $4a$ $4e
plain$i33s 4ad su/4 a pro$e/$a7le in$eres$ and $4a$ Melroe /onse"uen$ly 4ad a du$y $o 3ile $4e
appli/a$ion 3or $4e ''& pa$en$ in a $i#ely #anner.
T4e dis$ri/$ /our$ properly re/o8niCed $4a$ in '-:- MelroeDs /on$in8en$ lia7ili$y $o $4e Kellers 5as
already in e=is$en/e 7e/ause $4e ne8li8en$ /ondu/$ 4ad o//urred in '-:*. T4e '-:- pur/4ase
a8ree#en$ de#ons$ra$es $4a$ Clar! /onsidered su/4 /on$in8en$ lia7ili$ies $o 7e Ae=is$in8 and
ou$s$andin8A o7li8a$ions sin/e i$ lis$s several /on$in8en$ de7$s 54i/4 Clar! a8reed $o pay i3 MelroeDs
lia7ili$y 3or $4e# 5as es$a7lis4ed a3$er $4e a8ree#en$ 5as /losed.
Moreover, 7e/ause $4e Kellers 5ere /on$inuin8 $o re/eive royal$ies a$ $4e $i#e o3 $4e /losin8, and
Melroe $4us 4ad no reason $o 7elieve $4a$ $4e Kellers 5ould asser$ $4eir /on$in8en$ ne8li8en/e
/lai#, the "ailure o" the 1%&% purchase agreement to list the Kellers' claim as a contingent
liability evinces no intention to exclude that liability "rom those assumed by Clar!$