United States Court of Appeals for the Federal Circuit
2008-1502
COREBRACE LLC,
Plaintiff-Appellant,
v.
STAR SEISMIC LLC,
Defendant-Appellee.
Charles L. Roberts, Workman Nydegger, of Salt Lake City, Utah, argued for
plaintiff-appellant. With him on the brief were L. David Griffin, Matthew A. Barlow, and
Chad E. Nydegger. Of counsel on the brief was Mark E. Wilkey, Core-Brace, LLC, of
West Jordan, Utah.
H. Dickson Burton, TraskBritt, PC, of Salt Lake City, Utah, argued for defendant-
appellee. With him on the brief were Brick G. Power, and Casey K. McGarvey.
Appealed from: United States District Court for the District of Utah
Judge Dale A. Kimball
United States Court of Appeals for the Federal Circuit
2008-1502
COREBRACE LLC,
Plaintiff-Appellant,
v.
STAR SEISMIC LLC,
Defendant-Appellee.
Appeal from the United States District Court for the District of Utah in
Case No. 2:08-CV-11, Judge Dale A. Kimball.
____________________________
DECIDED: May 22, 2009
____________________________
Before LOURIE, FRIEDMAN, and PROST, Circuit Judges.
LOURIE, Circuit Judge.
CoreBrace LLC (“CoreBrace”) appeals from the judgment of the United States
District Court for the District of Utah dismissing its claims for breach of a patent license
agreement and for patent infringement. See Corebrace LLC v. Star Seismic LLC, No.
2:08-cv-11, 2008 U.S. Dist. Lexis 55471 (D. Utah July 18, 2008). Because the court did
not err in concluding that Star Seismic LLC’s (“Star’s”) license to make, use, and sell the
patented product carried with it an implied license to have the product made by a third
party, we affirm.
BACKGROUND
CoreBrace owns U.S. Patent 7,188,452 (“the ’452 patent”), which is directed to a
brace for use in the fabrication of earthquake-resistant steel-framed buildings. On June
10, 2007, Star and the inventor of the ’452 patent entered into a “Non-Exclusive License
Agreement” (“License”), by which Star received a license under the ’452 patent; the
inventor later transferred his interest to CoreBrace. The License grants Star a
nonexclusive right to “make, use, and sell” licensed products. It does not explicitly
provide a right to have the licensed product made by a third party. The License does
state that Star may not “assign, sublicense, or otherwise transfer” its rights to any party
except an affiliated, parent, or subsidiary company. It also reserves to CoreBrace “all
rights not expressly granted to [Star].” However, it provides that Star owns any
technological improvements “by a third party whose services have been contracted by
[Star].”
Star used third-party contractors to manufacture licensed products for its own
use. CoreBrace contends that such use of third parties was a breach of the License
because Star lacked the right to have a third party make products for Star. On January
4, 2008, CoreBrace sent a letter to Star stating that the License was terminated. The
License provides that it can be terminated if it is breached, after written notice of the
breach and after a thirty-day opportunity to cure. CoreBrace has not alleged that it
provided notice of a breach or that it gave Star thirty days to cure such breach.
On January 4, 2008, the same day that it sent the termination letter, CoreBrace
sued Star for breach of the License due to Star’s use of third-party contractors and for
patent infringement based on Star’s use of patented products under a terminated
License. Star moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure
to state a claim, and the district court granted Star’s motion. The court held that Star did
not breach the License by having third-party contractors make the licensed products.
2008-1502 2
According to the court, under Carey v. United States, 326 F.2d 975 (Ct. Cl. 1964), a
patent licensee’s right to “make” an article includes the right to engage others to do all
of the work connected with its production. The court also relied on similar reasoning in
Advanced Micro Devices, Inc. v. Intel Corp., 885 P.2d 994 (Cal. 1994). The court
further reasoned that, even when a license prohibits sublicensing, as in this case, “have
made” rights are granted unless they are expressly prohibited. The court distinguished
Intel Corp. v. U.S. International Trade Commission, 946 F.2d 821 (Fed. Cir. 1991), as a
case that was primarily about “foundry” rights, or a licensee’s rights to make a product
and sell it under a third party’s name, and as having been based on the parol evidence
of the parties’ intent in that case not to grant such foundry rights. The court also
examined the License and, based on its apparent acknowledgement of third-party
manufacturers, concluded that nothing in the License precluded Star from having a third
party manufacture the licensed product for Star. Thus, the court held that Star had the
right to have a third party manufacture the licensed product for it.
The court then held that, even if Star had breached the License, CoreBrace did
not properly terminate it because CoreBrace failed to follow the License’s termination
provisions. CoreBrace had conceded that it had not followed the termination provisions,
but had argued that Star’s breach of the License was incurable, so notice was not
required prior to termination. According to the court, however, Star’s alleged breach
was not incurable, as CoreBrace could have notified Star that it should make the
product itself, cease using a third party, or have the third party obtain a license. Such
action, according to the court, would not have been impossible or futile. Furthermore,
the court found that the alleged breach did not frustrate the purpose of the License, as
2008-1502 3
the inventor collected a royalty from Star on each product, no matter who manufactured
it. Thus, according to the court, CoreBrace should have followed the prescribed
procedure for terminating the License, and the failure to properly terminate it meant that
Star retained its rights under the License.
Finally, the court held that, because the License was neither breached nor
terminated, Star could not have infringed the patent under which it was licensed.
CoreBrace timely appealed the district court’s dismissal. We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(1).
DISCUSSION
CoreBrace argues that the district court erred in holding that the License was not
breached. The License reserves to CoreBrace all rights not expressly granted, and,
according to CoreBrace, the district court found that “have made” rights were not
expressly granted. CoreBrace also asserts that “have made” rights are not inherent in
the right to make, use, and sell, as a licensee can make the product itself rather than
having it made by a third party. Thus, CoreBrace argues that Star did not have the right
to have a third party make the products.
CoreBrace also argues that the court improperly distinguished Intel and relied on
Advanced Micro and Carey to hold that a prohibition on “have made” rights must be
explicit. According to CoreBrace, in Intel, this court held that “have made” rights were
restricted by the reservation of rights clause in the license. CoreBrace asserts that
Advanced Micro is inapposite because the ruling was on appeal from an arbitrator.
CoreBrace also argues that Carey is inapposite because the exclusive license in that
2008-1502 4
case granted the right to sublicense, which, according to CoreBrace, includes the right
to “have made.”
Finally, CoreBrace argues that, although certain provisions in the License
mention “third parties,” the License also mentions specific third parties, not including
third-party manufacturers. Thus, according to CoreBrace, the License would have
mentioned third-party manufacturers if the parties had intended for such manufacturers
to be permitted. Although the License mentions third parties in general whose services
have been contracted for by Star, CoreBrace argues that those third parties might be
architects, contractors, or others with a connection to Star, rather than manufacturers.
Star responds that the grant of a right to “make, use, and sell” inherently includes
the right to have others make the product, as the Court of Claims held in Carey. Star
also asserts that the facts of Intel differ from this case, as the question in Intel was
whether the licensee could operate as a foundry, i.e., make the product for a third party
and sell it under the third party’s name. Moreover, according to Star, the decision in
Intel was based on strong parol evidence and applied the law of a different circuit.
Furthermore, Star argues that the California Supreme Court later concluded in
Advanced Micro that “have made” rights are included in a license to “make, use, and
sell” unless they have been expressly excluded.
Star also argues that the License specifically provides that Star may contract with
third parties to exercise its rights, which necessarily includes contracting with third-party
manufacturers. Moreover, according to Star, the License requires Star to provide its
supply and service contracts for inspection, implying that such supply and service
contracts, including manufacturing contracts, are permissible.
2008-1502 5
We conclude that in granting the 12(b)(6) motion the district court correctly
determined that Star was entitled to have contractors make the licensed product and did
not breach the patent license in doing so. “The question . . . whether a Rule 12(b)(6)
motion was properly granted is a purely procedural question not pertaining to patent
law, to which this court applies the rule of the regional [] circuit,” in this case the Tenth
Circuit. Gen. Mills, Inc. v. Kraft Foods Global, Inc., 487 F.3d 1368, 1373 (Fed. Cir.
2007) (quotation marks omitted). “Because the sufficiency of a complaint is a question
of law, [the Tenth Circuit] review[s] de novo the district court’s grant of a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), applying the same
standards as the district court.” Sunrise Valley, LLC v. Kempthorne, 528 F.3d 1251,
1254 (10th Cir. 2008) (quotation marks omitted). “A complaint is subject to dismissal for
failure to state a claim if the allegations, taken as true, show the plaintiff is not entitled to
relief.” Jones v. Bock, 549 U.S. 199, 215 (2007). The appropriate law for construing
the terms of a contract is the law of the jurisdiction identified in the contract, in this case
Utah law. See Rash v. J.V. Intermediate, Ltd., 498 F.3d 1201, 1206 (10th Cir. 2007).
Star did not breach the License by contracting with third parties to have the
licensed products made for it. The right to “make, use, and sell” a product inherently
includes the right to have it made by a third party, absent a clear indication of intent to
the contrary. No Utah Supreme Court case has addressed the scope of a right to
“make, use, and sell” a product. However, “[w]here the state’s highest court has not
addressed the issue presented, the federal court must determine what decision the
state court would make if faced with the same facts and issue.” Id. at 1206 (quotation
marks omitted). Utah follows general principles of contract law, which we will apply
2008-1502 6
here. See Cent. Fla. Invs., Inc. v. Parkwest Assocs., 40 P.3d 599, 605 (Utah 2002).
Under Utah law, “we first look to the plain language within the four corners of the
agreement to determine the intentions of the parties, and we attempt to harmonize the
provisions in the . . . agreement.” Id. In addition, other courts have addressed the
scope of the right to “make, use, and sell” a product, and we will look to them to guide
our decision.
In Carey, the Court of Claims, one of our predecessor courts, whose decisions
bind us, see South Corp. v. United States, 690 F.2d 1368, 1370-71 (Fed. Cir. 1982),
held that a license to “produce, use, and sell” a product inherently includes the right to
have it made by a third party. The court stated that a license to produce, use, and sell
“is not restricted to production by the licensee personally or use by him personally or
sales by him personally. It permits him to employ others to assist him in the production,
and in the use and in the sale of the invention. Nor need he take any personal part in
the production.” Carey, 326 F.2d at 979. Thus, “his license permits him to engage
others to do all the work connected with the production of the article for him.” Id.; see
also Advanced Micro, 885 P.2d at 1009 n.15 (“‘[H]ave-made’ rights—the right of a
licensee to have a chip made for it by a third party foundry—were not expressly
excluded under the 1982 contract, and in the absence of any finding by the arbitrator we
cannot say they were not included in the contractual right to make and sell a licensed
product.”). Thus, one of our predecessor courts and the California Supreme Court have
both persuasively held that a “have made” right is implicit in a right to make, use, and
sell, absent an express contrary intent. We consider that the Utah Supreme Court
would therefore likely arrive at the same conclusion were it to consider the issue.
2008-1502 7
CoreBrace argues that the situation in Carey was different from the situation in
this case because that license was exclusive and included a right to sublicense, which
itself would inherently include a right to have the product made. We disagree. The
court in Carey did not base its conclusion on exclusivity or the right to sublicense, but
the right to “produce, use, and sell.” The court specifically stated that “[a] licensee
having the right to produce, use and sell might be interested only in using the article or
in selling it; in order to use it or sell it, the article must be produced; to have it produced,
his license permits him to engage others” to produce it for him. Carey, 326 F.2d at 979.
None of that logic relies on the licensee’s right to sublicense; in other words, a right to
have made is not a sublicense, as the contractor who makes for the licensee does not
receive a sublicense from the licensee. See Cyrix Corp. v. Intel Corp., 77 F.3d 1381,
1387-88 (holding that Cyrix’s exercise of its expressly granted “have made” rights did
not amount to a sublicense). The contractor cannot make or use for anyone other than
the licensee or sell to third parties. Similarly, regarding the distinction between having
an exclusive and nonexclusive license, a nonexclusive licensee who could make, use,
and sell would still be entitled to have a product made for itself by another party in order
to use or sell the product without making it, even if the patent owner granted other
licenses. The distinction between an exclusive license and a nonexclusive license has
no relevance to how a licensee obtains the product it is entitled to make, use, and sell.
Thus, the logic of the holding in Carey is not limited to exclusive licenses or licenses
that include a right to sublicense.
We also agree with Star that Intel is inapposite to this case. Intel was a special
facts case. There, Intel sued Atmel for patent infringement, as Atmel was using Sanyo,
2008-1502 8
a licensee, as a foundry for an allegedly infringing product of Atmel’s design, i.e., Atmel
had Sanyo manufacture the product, and Atmel sold it under Atmel’s own name. Atmel
argued that Intel’s license to Sanyo included foundry rights, which would have allowed
Atmel to sell the licensed product under its own name because it was manufactured by
Sanyo. Intel, 946 F.2d at 826. Thus, the sole issue was whether the license to Sanyo
granted such foundry rights. In determining that Sanyo did not have the right under the
license to act as a foundry, we discussed two provisions of the license, a reservation of
rights clause and Intel’s grant to Sanyo of the right to make, use, and sell only “Sanyo”
products. Id. at 826 n.9. We determined that Sanyo had no foundry rights under the
contract, holding that the addition of the word “Sanyo” to limit the products covered
under the license was intended to exclude foundry rights. Id. at 826-28. Otherwise, it
would be tantamount to granting Sanyo a right to sublicense, a right it did not have. All
Sanyo had was the right to manufacture for its own purposes.
In determining that the “Sanyo” limitation excluded foundry rights, we addressed
“have made” rights. Unlike in this case, both parties in Intel agreed that Sanyo’s license
excluded “have made” rights. Id. at 287. However, the parties disputed the textual
source for such exclusion: whether it was the “Sanyo” limitation or the reservation of
rights clause. Atmel argued that the “Sanyo” limitation was intended to exclude only
“have made” rights, rather than foundry rights. Id. The administrative law judge of the
International Trade Commission found that “have made” rights were excluded, not
because of the “Sanyo” limitation, but because of the reservation of rights clause. Id. at
827-28. After first acknowledging the administrative law judge’s reasoning, we stated
another reason for denying “have made” rights, viz., that “have made” rights were also
2008-1502 9
precluded by the “Sanyo” limitation, as were foundry rights. Id. at 828. Thus, we did not
base our holding in Intel on a determination that the reservation of rights clause
precluded “have made” rights, but instead on a determination that the entire contract,
including the “Sanyo” limitation, precluded “have made” rights. Because Intel was a
case about foundry rights, rather than “have made” rights, and because our holding
relied on the “Sanyo” limitation, we do not find Intel persuasive or controlling in this
case. Instead, the Carey holding and reasoning control here.
CoreBrace argues that the reservation of rights clause in the License precludes
an interpretation that the License includes “have made” rights. According to CoreBrace,
because the License reserves to CoreBrace “[r]ights not expressly granted to [Star],” the
License could not have implicitly granted “have made” rights to Star. We disagree.
Because the right to “make, use, and sell” a product inherently includes the right to have
it made, “have made” rights are included in the License and not excluded by the
reservation of rights clause. A grant of a right to “make, use, and sell” a product,
without more, inherently includes a right to have a third party make the product. A clear
intent shown in a contract to exclude “have made” rights can negate what would
otherwise be inherent. In this case, however, CoreBrace has failed to show a clear
intent to exclude “have made” rights from the License. In fact, other provisions of the
License appear to contemplate that Star may have the product made by a third party.
For example, the License provides that Star owns any improvements to the technology
“by a third party whose services have been contracted by [Star].” Although, as
CoreBrace argues, that third party might be other than a manufacturer, nothing in the
License precludes it from being a third-party manufacturer. In fact, a likely party to
2008-1502 10
improve the licensed technology is the manufacturer, so a third party who improves the
technology is likely to be a third-party manufacturer. Similarly, the License requires Star
to allow an “audit of its books and records relating to manufacturing . . . [and] supply
contracts.” Those provisions indicate that the parties contemplated that third parties
might manufacture the licensed products and supply them to Star.
Most importantly, nothing in the License indicates an intent to exclude “have
made” rights. CoreBrace argues that the License’s provision requiring Star to indemnify
CoreBrace for all claims “arising out of [Star’s] manufacture” demonstrates an intent that
no third party manufacture the products. According to CoreBrace, if “have made” rights
had been intended, the License would have required indemnification for all claims
arising out of third parties’ manufacture as well. However, that vague reference does
not show a clear intent to exclude “have made” rights, especially in light of the
provisions indicating that third parties might be involved in supplying goods and
improving the technology in order for Star to exercise its rights under the License.
CoreBrace has not pointed to any provision in the License that shows a clear intent to
exclude “have made” rights from its grant.
We therefore hold that Star did not breach the License by contracting with third
parties to have the licensed products made for its own use. As for CoreBrace’s
argument that the district court erred in holding that CoreBrace had failed to adequately
terminate the License, the issue is moot because the license was not breached.
CoreBrace was not entitled to terminate the license, and thus the License has not been
terminated. Thus, Star cannot have infringed CoreBrace’s patent under which it was
licensed.
2008-1502 11
We have considered CoreBrace’s remaining arguments and find them
unpersuasive.
CONCLUSION
Accordingly, the judgment of the district court dismissing the case for failure to
state a claim is affirmed.
AFFIRMED
2008-1502 12