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Mirion Technologies (Canberra), Inc. v. Sunpower, Inc.

United States District Court, S.D. Ohio, Eastern Division

November 5, 2017

Mirion Technologies (Canberra), Inc., Plaintiff,
v.
Sunpower, Inc., Defendant.

          OPINION AND ORDER

          JAMES L. GRAHAM United States District Judge.

         This contract dispute is before the court on the motion of plaintiff Mirion Technologies (Canberra), Inc. for a preliminary injunction. Mirion alleges that it entered into a supply agreement with defendant Sunpower, Inc., whereby Sunpower would produce and supply cryocoolers, a device used in nuclear radiation detectors. Mirion asserts that it placed a valid purchase order for 250 cryocoolers but Sunpower breached the agreement by refusing to fill the purchase order.

         Mirion seeks a preliminary injunction requiring specific performance of the supply agreement, such that Sunpower would be ordered to manufacture 250 cryocoolers and supply them to Mirion. The court conducted an evidentiary hearing on September 25, 2017. For the reasons that follow, the motion for a preliminary injunction is denied.

         I. Background

         A. The Parties and their Products

         Mirion is a Delaware corporation based in Connecticut which offers products and support services for the nuclear energy industry. Among other things, Mirion manufactures radiation detection instruments and offers radiation monitoring systems. The president of Mirion's Spectroscopy Division is Sheila Webb, who formerly served as vice president of engineering at Canberra Industries, Inc.

         Mirion acquired Canberra in July 2016. Canberra manufactures high-purity germanium detectors, an instrument described by Webb as the most sensitive type of sensor available for detecting radioisotopes. Canberra also manufactures cryostats, which is a device that can be used on radiation detectors in order to maintain extremely low temperatures.

         Webb testified that a germanium crystal inside a high-purity germanium detector needs to be kept at a temperature of about negative 296 degrees Fahrenheit. This is accomplished in one of three ways: (1) a dewar, or open-mouth container, filled with liquid nitrogen and having a lead shield at the mouth; (2) an electrically-cooled system; or (3) a hybrid cooler having a closed system with a container of liquid nitrogen, which, as it evaporates, is condensed by a cryocooler. The drawback of the dewar method is that the liquid nitrogen supply needs to be replenished. The drawback of the electrically-cooled method is the need for a constant power supply. Webb testified that the hybrid method is viewed as the best solution because it recirculates liquid nitrogen and can operate without a power supply for a period of several days.

         Mirion and Canberra produce and sell a hybrid cooler called the Canberra Cryo-Cycle II. The Cryo-Cycle II is a cryostat and is comprised three basic parts: a cryocooler, a container holding about 22 liters of liquid nitrogen and electrical components which connect the cryostat to a germanium detector. The Cryo-Cycle II keeps the detector at the temperature required for it to operate. According to Webb, there are several other manufactures of hybrid coolers, but Sunpower is not one of them.

         Sunpower is an Ohio corporation based in Athens, Ohio. It manufactures CryoTel GT cryocoolers. A cryocooler is a small electrical device that performs a cooling function in certain kinds of radiation detectors, including in high-purity germanium detectors. Sunpower is owned by AMETEK, Inc., which is a global manufacturer of electronic instruments and electromechanical devices.

         Webb testified that there are only a handful of manufacturers in the world who produce high-purity germanium detectors. One of those entities is ORTEC, Inc., which is owned by AMETEK. Germanium detectors are sold to various interests associated with the nuclear energy industry, including nuclear power plants and laboratories, research facilities and other entities in the governmental, military, energy and educational sectors. Webb testified that Mirion/Canberra and AMETEK/ORTEC each have nearly a 50% share of the market for high-purity germanium detectors that use hybrid coolers.

         B. Prior Relationship Between the Parties

         The relationship between Canberra and Sunpower began in 2004, when the companies worked together to develop a hybrid cryostat with a cryocooler for a military customer.

         Canberra and Sunpower entered into a formal supply agreement in 2011, pursuant to which Sunpower agreed to supply CryoTel GT cryocoolers to Canberra for two years. Canberra used the cryocoolers in its Cryo-Cycle II cryostats.

         In November 2012, at Sunpower's request, the parties agreed to terminate the supply agreement effective April 2013. In January 2013, it was announced that AMETEK had acquired Sunpower. Negotiations to reach another supply agreement in 2013 failed.

         C. Canberra's Attempts to Obtain Alternative Cryocoolers from 2013 to 2017

         In late 2012 or early 2013, Canberra identified other suppliers from which it could obtain cryocoolers. Canberra narrowed its search to Honeywell Hymatic, Thales Cryogenics and Twinbird Corporation. None of these suppliers made a cryocooler that could be taken “off the shelf” and “dropped into” Canberra's Cryo-Cycle II. Thus, Canberra would have to engage in a process of working with the supplier to make engineering and design changes to the cryostat and cryocooler.

         Canberra chose to work with Twinbird to develop a cryocooler, largely because Twinbird was the least expensive option. Together the companies worked on research and development for about 18 months. However, Twinbird never produced a cryocooler which met all of Canberra's technical requirements. These requirements related to physical size, cooling capacity, efficiency, noise level, vibration level, reliability and price.

         When it entered into its dealings with Twinbird, Canberra still had an inventory of Sunpower cryocoolers remaining from the 2011-2013 supply agreement. This inventory lasted for a period of several months, during which Canberra was able to sell the Cryo-Cycle II. Once Canberra ran out of its inventory of Sunpower cryocoolers in mid-2013, it was unable to sell the Cryo-Cycle II.

         After the efforts with Twinbird failed, Canberra considered Thales again. But Canberra determined that Thales had too high of an engineering cost for development and too high of a per-unit price for its cryocooler.

         Canberra then turned to Lihan, a company in China which produced a cryocooler that was close to the size and technical specifications needed by Canberra. After a short development period, Lihan was able to produce a cryocooler that met Canberra's requirements in all regards except for its failure rate. Canberra began selling the Cryo-Cycle II with the Lihan cryocooler in December 2014.

         From early on, Canberra believed that the Lihan cryocooler had a high failure rate. Canberra and Lihan engaged in extensive engineering and quality control efforts to address the failure rate. Despite those efforts, Canberra continued to find that the Lihan cryocooler was less reliable than the Sunpower cryocooler.[1] Canberra offered a five-year prorated warranty (the longest warranty in the industry) for the Cryo-Cycle II cryostats it sold with Lihan cryocoolers.

         Mirion/Canberra continues to this day to sell the Cryo-Cycle II with Lihan cryocoolers in them. Webb testified that whenever a customer reports a failure or a claim under the warranty, Mirion/Canberra sends a service team to the site to replace the cryocooler with another Lihan cryocooler.

         D. Renewed Efforts to Negotiate with Sunpower

         With changes occurring at both Canberra and AMETEK/Sunpower (Canberra was acquired by Mirion in mid-2016 and there were management changes at AMETEK) Webb decided in February 2017 that it would be a good time to reach out to Sunpower to see if it would be willing to enter into a supply agreement.

         Sunpower was receptive to Mirion's interest in reestablishing a contractual relationship. On May 22, 2017 Mirion submitted a purchase order for one demonstration model of the CryoTel GT cryocooler. Mirion's tests of the demo model confirmed that the Sunpower cryocooler could be dropped into the Cryo-Cycle II and that it met all of Mirion's specifications.

         E. Collateral Talks with Thales

         Mirion reached out to Thales in early 2017 as well. According to Webb, she knew there would be “some risk” to dealing with Sunpower, which was owned by a competitor. And in any event, Mirion wanted to avoid having to rely upon a single source for cryocoolers.

         In February 2017, Thales did not have a cryocooler that could be dropped into the Cryo-Cycle II, so any further dealings with Thales would require research and development efforts on both sides. While negotiations with Sunpower progressed, Mirion was “still talking to Thales.” Even so, Mirion viewed Sunpower as the best option because of the research and development costs associated with Thales.

         F. The Supply Agreement and Ensuing Purchase Order

         On June 16, 2017, Mirion and Sunpower entered into a Supply Agreement, under which Sunpower agreed to supply CryoTel GT cryocoolers to Mirion for a three-year period whenever Mirion submitted a purchase order. The parties agreed that the per-unit cost of the cryocoolers would be $9, 835. For orders of 1 to 10 cryocoolers, Sunpower agreed to make delivery in 6 weeks. For quantities greater than 10 cryocoolers, the parties would determine a mutually agreeable delivery schedule. The cryocoolers came with a two-year warranty.

         Alec Bounds, Mirion's chief procurement officer, negotiated the Supply Agreement on behalf of Mirion. Bounds testified that he and Jim Wade, his point of contact at Sunpower, discussed and agreed to a “ramp-up schedule” on June 7, 2017, prior to the signing of the Supply Agreement. The ramp-up schedule provided a forecast of the number of cryocoolers that Mirion would want supplied each month. The schedule accommodated Mirion's transition away from Lihan and provided Sunpower with time to increase production in order to meet Mirion's supply demand. Under this schedule, Sunpower would supply a smaller number of units in the first few months of the Agreement and then increase production, such that Sunpower would supply 110 units in the first six months of the Agreement and 20 units per month for several additional months.

         On or about June 23, 2017, Wade called Bounds and communicated that Mirion should place a “large” purchase order soon. On that same day, individuals at AMETEK/Sunpower emailed ...


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