## Facts

- ZippySack LLC and its licensee, LF Centennial Limited (together, “ZippySack”), owned patents covering a children’s specialty bedsheet that zips up rather than being tucked and folded.
- Ontel Products Corporation (“Ontel”) sold a competing product, “ZipIt Friends,” which ZippySack alleged infringed its patents.
- In 2015, ZippySack sued Ontel for patent infringement in federal court; the parties settled and stipulated to dismissal with prejudice.
- Under the settlement, Ontel agreed to stop producing ZipIt Friends and was permitted to sell only its “existing inventory,” which Ontel believed to be approximately 80,000 units, and to provide monthly reports on its sell-off progress.
- Shortly after the dismissal, Ontel discovered that its 80,000-unit figure had excluded mail-order inventory that was tracked separately from retail inventory, allegedly due to an internal miscommunication.
- Ontel notified ZippySack that it actually had 119,432 units remaining and stated it intended to sell off that amount under the settlement.
- ZippySack rejected any increase above 80,000 units, treated the 80,000 figure as a fixed settlement term, and demanded that units above 80,000 be destroyed or sold outside the United States and Canada.
- In January 2016, ZippySack filed a new lawsuit asserting breach of the settlement agreement (and reasserting patent infringement) and moved to enforce the settlement agreement as written.
- Ontel opposed enforcement, arguing (among other things) that there was no justiciable controversy because it had not yet sold more than 80,000 units and that its undercount was a unilateral mistake warranting relief from the 80,000-unit limit.

## Issues

1. Whether an Article III case or controversy existed to adjudicate enforcement of the settlement agreement before Ontel completed sales exceeding 80,000 units.
2. Whether Ontel could avoid or revise the settlement’s 80,000-unit sell-off limit based on unilateral mistake regarding its inventory count.

## Decision

- The court granted ZippySack’s motion to enforce the settlement agreement.
- The court held that a justiciable controversy existed because the parties had an immediate, concrete dispute about their respective rights and obligations under the settlement.
- The court enforced the settlement’s 80,000-unit sell-off limit as a binding, unambiguous contractual term.
- The court rejected Ontel’s unilateral-mistake defense and dismissed the case.

## Legal Principles

- A federal court may resolve a real, immediate dispute over contractual rights and obligations through declaratory or coercive relief; a party need not first breach an agreement to create a justiciable controversy (consistent with MedImmune principles).
- Settlement agreements are contracts; when their terms are clear and unambiguous, courts apply them as written under the governing state contract law (here, Illinois law).
- Under Illinois law (and consistent with Restatement (Second) of Contracts § 153), unilateral mistake generally does not justify rescission or reformation unless the mistaken party meets demanding requirements, including that enforcement would be unconscionable and that the mistake was not caused by the party’s lack of due care.
- Internal miscalculations and breakdowns in communication within a company ordinarily remain the responsibility of the party that made the error, particularly when the party had the ability to verify the facts before agreeing to a fixed settlement term.

## Conclusion

ZippySack LLC v. Ontel Products Corp. enforced a patent-settlement agreement limiting Ontel’s post-settlement sales of ZipIt Friends to 80,000 units, finding an Article III controversy based on the parties’ present dispute over the settlement’s meaning and rejecting Ontel’s claim that an inventory undercount was a unilateral mistake warranting relief from the agreed-upon cap.


ZippySack LLC v. Ontel Products Corp., 182 F. Supp.3d 867 (2016)