United States: License Defense Fails Due To Interpretation Of License Agreement's Provisions On Commercialization And Importation

Authored by Stephen E. Kabakoff, D. Brian Kacedon and John C. Paul

Abstract

A licensee did not prove it was entitled to summary judgment on its license defense because it had not proven it had met the license agreement's "commercialization requirement" for Licensed Products or that the license agreement included a right to import the accused products.

Future Link acquired patents originally owned by Philips and asserted that Intel's products infringed those patents. In response, Intel asked a Delaware court to find Intel's products were licensed under a prior license agreement between Intel and Philips.

In Intel Corp. v. Future Link Systems, LLC, the court analyzed the scope of several provisions in the license agreement and found Intel had not proven its products were licensed because Intel had not shown its products satisfied a "commercialization requirement" in the agreement, and had not shown it had been granted a right to import the accused products.

Background

In a cross-license agreement dating back to 1990, Philips granted Intel a non-exclusive license under certain "Philips Patents" to "make, to have made, to use, to lease, and to sell or otherwise dispose of" semiconductor products described in the agreement. The license did not, however, grant Intel a right to import products into the U.S. In 2006, Philips spun off its semiconductor business, including related patents and products, to NXP Semiconductors. NXP assigned some of the Philips patents to another entity, which later assigned them to Future Link.

The Intel/Philips license agreement included several definitions and provisions pertaining to what was covered by the license. For example, the agreement identified certain processes and technology that were expressly not covered by the license agreement. It also contained a requirement that Intel's circuitry products were only licensed if a "commercialization" requirement was satisfied by a member of a defined "Philips Group of Companies." In addition, the agreement included an anti-assignment provision in which neither party could assign its patent rights if the assignment would "adversely affect" the rights and licenses granted to the other party.

In 2014, Intel filed a declaratory judgment action in Delaware district court seeking, among other things, a summary judgment finding that its products were licensed under the Intel/Philips agreement. Applying New York law, as required by a choice-of-law provision in the license agreement, the court analyzed the scope of several definitions and provisions and found Intel had not proven its license defense under the standards for summary judgment.

The Intel Decision

The court analyzed several provisions of the Intel/Philips license agreement in reaching its conclusion. Among the provisions it considered, the court discussed the commercialization, importation, and anti-assignment provisions in its summary-judgment decision.

The Intel/Philips agreement required commercialization of Philips' patented circuitry by a member of the "Philips Group of Companies" as a condition for any Intel products with that circuitry to be licensed. Future Link argued that Intel had to prove its products and Philips' products contained "identical" circuitry for Intel to satisfy the commercialization requirement of the license agreement. While the court disagreed with that position, it found Intel needed to show every element of Future Link's asserted patent claims covered the Philips and Intel products, even though the license agreement itself did not expressly specify such a claim-mapping requirement.

The court concluded Intel's license defense was deficient because Intel had not mapped the product structures and functionalities to every element of Future Link's asserted patent claims. Had Intel done so to support the license defense, it would essentially have been admitting infringement. However, the court noted that discovery was still ongoing, and that Intel could maintain its non-infringement defense in the alternative, despite an apparent inconsistency with its license defense.

The court also found Intel's license defense deficient because it was not clear if the license grant in the Intel/Philips license agreement should be interpreted to include a right of importation into the United States. The license agreement did not expressly grant a right to "import" products, but the court found the parties nevertheless may have intended to include this right in view of extrinsic evidence, including previous cross-license agreements between Philips and Intel. If a right to import Intel products was not included within scope of the license grant, Future Link could argue the importation of Intel's products into the United States would constitute patent infringement.

The parties also disputed the meaning of the anti-assignment clause in the Intel/Philips agreement. Future Link argued the assignment of patents from Philips to NXP violated the anti-assignment clause because the spun-off NXP entity was no longer part of the "Philips Group of Companies" subject to the license agreement, and therefore, the license agreement must be deemed terminated due to the assignment to NXP before Future Link acquired its patents. The court disagreed, finding that the anti-assignment clause only prevented assignments that would "adversely affect" the rights and licenses granted to the other party, and that the assignment to NXP did not violate the anti-assignment clause because it did not extinguish or otherwise change the rights and licenses granted to Intel.

Strategy and Conclusion

This case illustrates how disputes arise over the meaning of provisions in patent license agreements—in this case, disputes dealing with commercialization, anti-assignment restrictions, and importation rights. It also demonstrates how the presence or absence of details and examples about the intentions of the parties may impact whether disputes arise and whether they may be resolved on summary judgment—if, of course, the parties are willing and able to negotiate and agree to such details and examples.

Further Information The Intel opinion can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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