Case: 09-50787 Document: 00511237357 Page: 1 Date Filed: 09/17/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 17, 2010
No. 09-50787
Lyle W. Cayce
Clerk
DUVAL WIEDMANN, LLC,
Plaintiff-Appellant,
versus
INFOROCKET.COM, INC., and INGENIO, INC.,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Texas
Before SMITH, WIENER, and ELROD, Circuit Judges.
JERRY E. SMITH, Circuit Judge.
DuVal Wiedmann, LLC (“DuVal Wiedmann”), appeals a summary judg-
ment on its breach-of-contract claim. We affirm the summary judgment but re-
mand for consideration of whether DuVal Wiedmann is owed royalties for one
particular period of time.
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No. 09-50787
I.
The facts, though intricate, are not in material dispute. Stephen DuVal
(“DuVal”) is the inventor of a patent (“the ‘836 patent”), issued in October 1998,
that includes a method to establish a voice telephone call after clicking a button
on a website. DuVal filed his patent application in August 1995. While the ap-
plication was pending, he filed for bankruptcy but did not list the patent applica-
tion in his schedule of assets. The bankruptcy was discharged and closed in
1998.
DuVal entered into a Patent License Agreement (“License Agreement”)
with InfoRocket.com, Inc. (“InfoRocket”), in June 2001, granting InfoRocket an
exclusive license to the ‘836 patent. Under the agreement, InfoRocket agreed to
pay DuVal quarterly royalties based on InfoRocket’s net sales of “Licensed Ser-
vices.”1 In addition, it agreed to pay DuVal a minimum annual royalty if the
quarterly royalties did not exceed a specified annual minimum. The License
Agreement’s “Termination Provision” stated: “InfoRocket will have the right to
terminate the Agreement on sixty (60) days prior written notice to DuVal.” The
“Notice Provision” provided that “[a]ll notices to be given by each party to the
other shall be made in writing by facsimile and confirmed by first-class mail ad-
dressed, respectively, to the parties . . . . Any notice shall be effective as of its
date of receipt.”
Pursuant to the License Agreement, DuVal agreed to reopen his bankrupt-
cy proceeding to amend the schedule of assets to include the ‘836 patent. The
proceeding was reopened in August 2001, and Frances Gecker was appointed as
1
The License Agreement defined “Licensed Services” as “any service provided, used,
offered for sale or imported using or facilitated by any system and/or method covered by the
claims of the Licensed Patent where such providing, using, selling, offering to sell or importing
in the absence of a right or license, would infringe the Licensed Patent.”
2
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the chapter 7 trustee. In March 2002, InfoRocket and the trustee executed an
amendment (“the Amendment”) to the License Agreement. The bankruptcy
court granted the trustee’s ratification motion, and the Amendment took effect
in April 2002.
The Amendment provided that the License Agreement “shall continue in
full force and effect” but that the terms of the Amendment shall control “[t]o the
extent that any provision of the Amendment is inconsistent with the License
Agreement.” The Amendment and License Agreement were to be read together
as the “Amended License Agreement.” As already noted, the License Agree-
ment’s Termination Provision gave InfoRocket the right to terminate on sixty
(60) days’ prior written notice to DuVal. The Amended License Agreement’s No-
tice Provision added “that copies of any notices to DuVal shall be sent to: Fran-
ces Gecker, Esquire.”
Meanwhile, InfoRocket had set about asserting its exclusive license.
Shortly after entering into the License Agreement, InfoRocket sued Keen, Inc.
(“Keen”), for infringement of the ‘836 patent. In early 2003, Keen acquired Info-
Rocket as its wholly owned subsidiary, including InfoRocket’s rights under the
Amended License Agreement. InfoRocket dismissed its action against Keen, and
Keen and the trustee entered into a “Release Agreement.” Later in 2003, Keen
changed its name to Ingenio, Inc. (“Ingenio”).
Ingenio filed a “Request for Reexamination” of the ‘836 patent with the
Patent and Trademark Office (“PTO”) on April 23, 2004. The PTO canceled 41
of the 56 original ‘836 patent claims and rejected the remaining 15 claims as “un-
patentable” in light of prior art. DuVal amended the original claims, and, in
December 2008, the PTO issued a “Reexamination Certificate” that included only
the amended claims.
On August 24, 2004, DuVal sent a letter to Ingenio’s CEO stating that the
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bankruptcy case was closed and asking that all future notices, as well as an up-
coming royalty payment, be sent directly to DuVal. An Ingenio executive for-
warded the letter to Ingenio’s counsel at Fenwick & West on August 30. That
same day, a different Ingenio executive replied to DuVal that Ingenio would send
the royalty payment to the trustee because it had not received official notice that
the bankruptcy proceeding had ended. The bankruptcy case did not end, in fact,
until September 23, 2004.
On August 31, 2004, Ingenio’s Executive Vice President, Paul Manca, sent
a letter (“the Manca Letter”) to the trustee giving notice of Ingenio’s termination
of the Amended License Agreement. On September 27, the trustee informed Du-
Val of the termination notice and sent him a copy of Ingenio’s letter, which Du-
Val received on September 30. DuVal states that he did not realize then that
Ingenio’s notice was “fatally defective” because it had been sent to the trustee
instead of him. DuVal did not come to that realization, in fact, until Decem-
ber 24, 2008, when he filed an amended complaint in this case, repudiating the
termination.
In the interim, DuVal gave every indication that he understood Ingenio’s
termination to have been effective. In March 2005, for instance, he sent a letter
to Ingenio’s CEO that stated, in relevant part: “On August 31, 2004 Ingenio sent
Ms. Gecker, the bankruptcy Trustee, notice of cancellation on InfoRocket’s li-
cense. Section 8.1 of the license provides that the license can be terminated on
60 days prior written notice. Thus the license terminated on October 31, 2004.”
Ingenio seized on DuVal’s statement that “the license terminated on Oc-
tober 31, 2004.” It sent DuVal a letter in April 2005, affirming DuVal’s state-
ment that the Amended License Agreement had been terminated. DuVal did not
respond.
In July 2005, in response to another letter from DuVal, Ingenio again ac-
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knowledged that it had terminated the Amended License Agreement effective
October 31, 2004. In anticipation of this suit, DuVal formed DuVal Wiedmann,
LLC (“DuVal Wiedmann”), and assigned all his rights under the Amended Li-
cense Agreement to that entity.
II.
In January 2008, DuVal Wiedmann sued InfoRocket and Ingenio, alleging
breach of the Amended License Agreement and failure to pay $326,707 in mini-
mum annual royalties for 2004. The complaint stated that “INGENIO exercised
its termination right by sending DuVal notice of termination on August 31, 2004.
Accordingly, the contract was terminated 60 days later, on October 31, 2004.”
DuVal Wiedmann repudiated that admission, however, in its amended
complaint, stating that the Amended License Agreement “has not been termin-
ated and minimum royalties continue to accrue.” Under the amended complaint,
DuVal Wiedmann seeks (1) declaratory judgment that InfoRocket and Ingenio
“did not terminate the Amended License by sending the August 31, 2004 letter
to the Trustee,” (2) “unpaid, due and owing minimum royalties for the years
2004-2007 under the terms of the Amended License Agreement,” and (3) “unpaid
royalties that are to become due and owing for the years 2008 and 2009.”
At his deposition, DuVal testified that as of September 30, 2004, he be-
lieved that Ingenio had successfully terminated the Amended License Agree-
ment and that he never represented otherwise to the defendants until DuVal
Wiedmann filed the amended complaint. Specifically, DuVal stated that Ingenio
“had no reason to think I didn’t consider the license terminated.”
InfoRocket and Ingenio moved for summary judgment. The district court
referred the motion to a magistrate judge (“MJ”) for a report and recommenda-
tion. The MJ, applying New York law, recommended that summary judgment
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be granted, reasoning that DuVal received “actual notice” of termination on Sep-
tember 30, 2004, when he received Ingenio’s termination letter by way of the
trustee and that he was not prejudiced by the lack of strict compliance with the
Termination Provision. The MJ interpreted the language of the Termination
Provision to create a conditional limitation rather than a condition subsequent.
Accordingly, the MJ interpreted the agreement to have terminated automatically
on November 29, 2004, sixty days after when DuVal received actual notice of ter-
mination.
Turning to the question of royalties, the MJ recommended that, based on
the doctrine of Lear, Inc. v. Adkins, 395 U.S. 653, 671-73 (1969), defendants were
“released from any obligation to pay royalties due under the Amended License
Agreement for the period between April 23, 2004 and November 29, 2004,” be-
cause they had filed a successful “Request for Reexamination” of the ‘836 patent.
The district court adopted the MJ’s recommendation and granted sum-
mary judgment. The court held that the Amended License Agreement had ter-
minated on November 29, 2004, and that under the Lear doctrine, defendants
did not accrue any royalty obligations after April 23, 2004.
III.
We review a summary judgment de novo, applying the same standard as
did the district court and viewing the evidence in the light most favorable to the
non-moving party. Bolton v. City of Dallas, 472 F.3d 261, 263 (5th Cir. 2006).
“Summary judgment is appropriate where the record demonstrates that there
is no issue of material fact and the moving party is entitled to judgment as a
matter of law.” Id. (internal citation omitted).
DuVal Wiedmann raises three issues on appeal. It first argues, contrary
to numerous previous admissions, that the Amended License Agreement was
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never terminated and that defendants continue to incur royalty obligations. It
further avers that the Lear doctrine does not apply. Finally, it asserts that the
district court failed to consider whether royalties are owed from January 1 to
April 23, 2004.
A.
The Amended License Agreement expressly provides that New York law
governs the interpretation of the agreement. Texas law favors the enforcement
of contractual choice-of-law provisions. See Int’l Interests, L.P. v. Hardy, 448
F.3d 303, 306-07 (5th Cir. 2006). Accordingly, we look to New York law to see
whether defendants provided sufficient notice of termination. The district court
relied on Suarez v. Ingalls, 723 N.Y.S.2d 380, 381 (App. Div. 2001), for the rule
that “[s]trict compliance with the contract notice provisions was not required
because the plaintiff does not claim that [it] did not receive actual notice, or was
prejudiced by the deviation.” See also Dellicarri v. Hirschfeld, 619 N.Y.S.2d 816,
817 (App. Div. 1994).
DuVal Wiedmann first argues that the language of the Termination Pro-
vision created an express condition precedent that was never performed, so the
district court erred in its reliance on Suarez and Dellicarri, because that line of
cases does not apply to conditions precedent. DuVal Wiedmann urges instead
that we look to Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660
N.E.2d 415 (N.Y. 1995), and Bausch & Lomb, Inc. v. Bressler, 977 F.2d 720 (2d
Cir. 1992).
“A condition precedent is an act or event, other than a lapse of time, which,
unless the condition is executed, must occur before a duty to perform a promise
in the agreement arises.” Oppenheimer, 660 N.E.2d at 418 (internal citations
and quotations omitted). “Express conditions must be literally performed,
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whereas constructive conditions, which ordinarily arise from language of prom-
ise, are subject to the precept that substantial compliance is sufficient.” Id.
Critically, New York courts will not read ambiguous language as creating a con-
dition precedent.2
As we have said, the Termination Provision states that “InfoRocket will
have the right to terminate the Agreement on sixty (60) days prior written notice
to DuVal.” DuVal Wiedmann argues that that language strictly required that
notice be sent to DuVal as a condition precedent to termination. We cannot
agree. Unlike the agreement in Oppenheimer, which “employed the unmistaka-
ble language of condition (‘if,’ ‘unless and until’),” id., the Termination Provision
contains no conditional language, and literal performance was therefore not re-
quired.
DuVal Wiedmann refers us to the preamble to Section 8, which provides
that, “[u]nless sooner terminated or extended as herein provided, this Agreement
shall continue in full force and effect . . . continuing until the expiration of the
Licensed Patent.” DuVal Wiedmann contends that the preamble, in combination
with Section 8.1, unambiguously established direct notice to DuVal as an express
condition precedent to termination.
DuVal’s own actions belie that point. DuVal understood the agreement to
have been terminated for over four years. The original complaint, filed by his
present attorney, stated that “INGENIO exercised its termination right by send-
ing DuVal notice of termination on August 31, 2004.” Admittedly, the provision
contains some ambiguity, but “[i]f the language is in any way ambiguous, the
law does not favor a construction which creates a condition precedent.” Ashkena-
2
Ashkenazi v. Kent S. Assocs., LLC, 857 N.Y.S.2d 693, 694 (App. Div. 2008) (“A contrac-
tual duty will not be construed as a condition precedent absent clear language showing that
the parties intended to make it a condition.”) (citation omitted).
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zi, 857 N.Y.S.2d at 694 (citation omitted).
Even when read in combination with the preamble to Section 8, the Ter-
mination Provision does not contain plain language requiring literal perfor-
mance, and, under New York law, we must “interpret doubtful language as em-
bodying a promise or constructive condition rather than an express condition.”
Oppenheimer, 660 N.E.2d at 418. We agree with the district court that “[s]trict
compliance with the contract’s notice provisions was not required,” because Du-
Val received actual notice and was not “in any way prejudiced as a result of this
minimal deviation.” Dellicarri, 619 N.Y.S.2d at 817.3
DuVal Wiedmann next argues that the Termination Provision also created
a condition subsequent, rather than a conditional limitation. It asserts that Sec-
tion 8.1 only gave Ingenio the option to terminate the agreement at the end of
the sixty-day period, an option it claims Ingenio never exercised. DuVal Wied-
mann, however, places too much weight on Section 8.1’s slender shoulders.
“[W]here a party has the option either to terminate the contract upon the
occurrence of an event or not to terminate . . . then the contract contains a con-
dition subsequent.” In re St. Casimir Dev. Corp., 358 B.R. 24, 39 (S.D.N.Y.
2007). In other words, a condition subsequent exists where “something more
than the passage of time” after a triggering event is required to effect termina-
tion. Id. at 40. In St. Casimir, the partnership agreement gave the right, “but
not the obligation,” to remove a partner on ten days’ notice. Id. at 37. Here, by
contrast, the Termination Provision did not state that InfoRocket could choose
not to terminate the agreement sixty days after providing written notice of ter-
3
Bressler does not compel a different result. That case involved a termination on two
days’ notice in contravention of the agreement’s 30-day notice period. Bressler, 977 F.2d at
727. The Bressler court held that the 30-day period was a condition precedent to termination.
Because here neither party argues that the agreement terminated earlier than 60 days after
DuVal received notice, Bressler is inapposite.
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mination. Nor did Ingenio’s notice evince its intent to terminate; rather, it stat-
ed, “Ingenio hereby provides you with notice of its termination of the License
Agreement.”
The district court correctly held that the agreement automatically termin-
ated at the end of the notice period. “First of all, this is just plain common
sense.” VNO 100 W. 33rd St. LLC v. Square One, Inc., 874 N.Y.S.2d 683, 687
(Civ. Ct. 2008). “Clearly, if the right [to terminate] exists and the notice is sent,
the [agreement] terminates.” Id. “[I]f a ‘Notice of Termination’ only provided a
‘right to terminate,’ one would expect that a detailed [agreement] would set forth
how [defendant] could then exercise this supposed [right]. Not surprisingly, the
mechanics of this secondary notice are not spelled out.” Id.
As was true for the agreement in VNO, the Amended License Agreement
provides no additional procedures to indicate that termination required “some-
thing more than the passage of time.” St. Casimir, 358 B.R. at 40. Quite to the
contrary, the Amended License Agreement’s Notice Provision explicitly provides
that “[a]ny notice shall be effective as of its date of receipt.” The district court
therefore correctly held that the Amended License Agreement terminated on No-
vember 29, 2004, sixty days after DuVal received actual notice.
B.
In Lear, 395 U.S. at 670-71, the Court overruled Automatic Radio Manu-
facturing Co. v. Hazeltine Research, Inc., 339 U.S. 827 (1950), which had held
that patent licensees were estopped from challenging the validity of their licen-
sor’s patent. Lear rejected the estoppel rule and held that a licensee may chal-
lenge the validity of the patent licensed to it. Id. It further held that, if the chal-
lenge is successful, the licensee is not obligated to pay royalties that accrue, in-
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cluding those that accrue from the date of the challenge. Id. at 671-73.4
DuVal Wiedmann argues that the Amended License Agreement was a set-
tlement agreement and that, under the rule of Hemstreet v. Spiegel, Inc., 851
F.2d 348 (Fed. Cir. 1988), Lear therefore does not apply. It further maintains
that the ‘836 patent was not invalidated because the PTO issued a reexamina-
tion certificate. In other words, DuVal Wiedmann contends that a materially
flawed patent or one that is substantively amended does not trigger Lear. Both
arguments are incorrect.
It is true that Hemstreet, 851 F.2d at 350-51, carved out an exception to
Lear in the context of settlement agreements, but nothing indicates that the
Amended License Agreement was a settlement agreement. Hemstreet involved
an explicit “settlement agreement” memorialized in a “Settlement Order.” Id.
at 349-50. DuVal Wiedmann would have us interpret the bankruptcy court’s rat-
ification of the Amended License Agreement as evidence of a settlement. But it
cannot show any discussion of a “settlement” or of the issuance of a settlement
order, or anything that was “settled” by way of the Amended License Agree-
ment.5
Relying on the PTO’s ultimate issuance of a reexamination certificate, Du-
Val Wiedmann next argues that defendants’ challenge to the ‘836 patent was ul-
timately unsuccessful and that Lear does not apply. That certificate, however,
included only amended claims.
4
See also MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118, 124 (2007) (“[I]n Lear . . .
we rejected the argument that a repudiating licensee must comply with its contract and pay
royalties until its claim is vindicated in court.”).
5
DuVal Wiedmann refers us to paragraphs 11, 12, 13, and 17 of the trustee’s Motion
to Ratify and Amend Patent License Agreement. R. 375-77. Those paragraphs do not refer
to any settlement, or even any dispute, about the validity of the ‘836 patent. Rather, those
passages merely discuss two adversary proceedings that would be rendered moot by the
Amended License Agreement.
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If claims amended during reexamination are not “identical” to the claims
in the original patent, “the patentee has no right to recover infringement damag-
es for periods prior to the date that the reexamination certificate issued.” Ten-
nant Co. v. Hako Minuteman, Inc., 878 F.2d 1413, 1417 (Fed. Cir. 1989). The Li-
cense Agreement requires defendants to pay royalties for “Licensed Services,”
which it defines as services whose provision, use, sale, or offer “in the absence
of a right or license, would infringe the Licensed Patent.” See supra n.1. Thus,
unless the amended claims are identical to those in the original patent, their use
could not infringe the Licensed Patent and therefore could not constitute Li-
censed Services.
In this context, “identical” means “without substantive change.” Id. In
Fortel Corp. v. Phone-Mate, Inc., 825 F.2d 1577 (Fed. Cir. 1987), the court faced
the sole issue of “whether the district court erred in determining that the amend-
ed claims in the reexamination certificate were not substantively identical with
the original claims, thus precluding enforcement of the amended claims for the
period before the certificate issued.” Id. at 1580. The court found it “an inescap-
able conclusion” that the amended claims were not substantively identical “upon
a mere reading of those claims.” Id. at 1580-81.
DuVal Wiedmann does not dispute that it substantively amended the few
remaining claims for which the PTO issued a reexamination certificate. Nor
does it challenge that those claims required amendment to overcome prior art.
It is “difficult to conceive” that a claim amended to avoid prior art could be sub-
stantively identical to the original claim. Laitram Corp. v. NEC Corp., 163 F.3d
1342, 1348 (Fed. Cir. 1998).
The district court correctly applied the Lear doctrine. Independently of
whether the agreement terminated on November 29, 2004, defendants did not
accrue any royalty obligations for the ‘836 patent during any time after April 23,
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2004, the date on which they filed their reexamination request.
C.
The district court did not address what royalties, if any, are owed to DuVal
Wiedmann from January 1 to April 23, 2004. DuVal Wiedmann argues that it
is owed the entire minimum annual royalty for 2004, $393,374 plus prejudgment
interest. At oral argument, DuVal Wiedmann’s counsel stated its position that
the entire minimum annual royalty would be owed even if the agreement ter-
minated only a few hours into January 1, 2004. Defendants unsurprisingly take
the opposite stance, reasoning that because the obligation to pay running royal-
ties ceased on April 23, 2004, under the Lear doctrine the obligation to pay mini-
mum annual royalties on a “deficiency basis” also ceased. Defendants urge, in
the alternative, that, at best, DuVal Wiedmann may be owed prorated pre-chal-
lenge royalties. We decline to address this issue for the first time on appeal and
instead remand it for the district court to decide.
For the reasons stated, the summary judgment is AFFIRMED. We
REMAND to the district court to determine what amount, if any, DuVal Wied-
mann is owed in royalties for January 1 to April 23, 2004, including any prejudg-
ment interest. We express no view on how that question should ultimately be
resolved.
13