Intermec, Inc. v. International Business Machines Corporation, No. 2:2011cv00165 - Document 237 (W.D. Wash. 2014)
Court Description: ORDER denying 216 Motion for Partial Summary Judgment; granting 219 Motion for Summary Judgment. Authorized by Judge Barbara J. Rothstein.(GC)
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Intermec, Inc. v. International Business Machines Corporation Doc. 237 1 2 3 4 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 5 6 7 8 9 CASE NO. 11-165-BJR INTERMEC, INC., MEMORANDUM ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Plaintiff, v. 10 11 12 INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. 13 This contractual dispute is before the Court on remand from the Ninth Circuit Court of 14 15 Appeals. The only remaining issues in this case are Defendant International Business Machines 16 Corporation’s (“IBM”) breach of contract counterclaims and Plaintiff Intermec, Inc.’s 17 (“Intermec”) defense that many of these claims are time-barred by the contract’s four-year 18 limitations provision. IBM has moved for summary judgment on the grounds that the contract 19 20 unambiguously required Intermec to pay IBM certain Minimum fees once the contract ended. (Doc. No. 219). Intermec does not dispute that it breached its contractual obligation by not 21 22 23 paying these Minimum fees. However, Intermec moves for partial summary judgment on the grounds that a majority of these Minimum fees were due before the contract period ended and 24 are now time-barred. (Doc. No. 216). After reviewing the briefs and all other relevant material 25 properly before the Court, the Court will GRANT IBM’s motion for summary judgment and will DENY Intermec’s motion for partial summary judgment. 1 Dockets.Justia.com I. 1 BACKGROUND A. The Parties’ Agreement 2 In 1997, IBM entered into an agreement (the “Agreement”) with Intermec concerning 3 4 IBM’s radio frequency identification device (“RFID”) patents. 1 (Doc. No. 219 at 5). Under the 5 Agreement, IBM assigned Intermec the right to license its RFID patents to third parties. (Id). In 6 return, Intermec agreed to pay IBM for each license in the following way: 7 For a period commencing on the Effective Date and continuing until April 15, 2008, for each bare Patent license granted by [Intermec] to a third party . . . , [Intermec] shall pay to IBM the greater of: (i) forty percent (40%) of any royalty paid in cash or cash equivalent(s) by such third party to [Intermec] pursuant to any license granted under the Patents, or (ii) $100,000.00 . . . per Patent up to a maximum of $500,000.00. 8 9 10 11 (Agreement, “Fees for Licenses,” Section 10.3.1). 12 Both parties agree that the Agreement required Intermec to pay IBM at least $100,000 13 14 per patent/up to $500,000 per license (the “Minimum”). However, the parties disagree about 15 when this Minimum amount became due. 16 17 18 According to IBM, the Minimum amount became due at end of the contract period. (Doc. No. 232). IBM asserts that Section 10.3.1 required Intermec to pay IBM 40% royalty fees each quarter and then account for the “shortfall,” if any, between the royalty fees paid and the 19 Minimum amount owed on April 15, 2008. (Id.). Intermec counters that the Minimum amount 20 21 was due immediately after the quarter in which the license was issued, i.e. Intermec must pay the 22 Minimum amount immediately and then account for any surplus royalty profits at the end of 23 each quarter. This disagreement is significant because Section 19.8 of the Agreement provides 24 25 1 In 1997, Intermec’s corporate name was UNOVA. While the relevant documents reference UNOVA, both parties agree that for the purposes of this case UNOVA and Intermec’s contractual rights and obligations are the same. (See Doc. No. 219 at 5). 2 1 2 3 that “[n]either party may bring an action . . . arising out of performance of this Agreement more than four years after the cause of action has accrued.” (Agreement, Section 19.8). Two additional provisions of the Agreement are relevant for the purposes of this 4 memorandum opinion. Section 10.4.1 provides that Intermec must prepare a report every quarter 5 detailing the amount of royalties owed to IBM under Section 10.3.1. Section 10.4.2 states that 6 “[a]ll payments due under [Section 10.3.1] shall be due . . . within 60 days after the conclusion of 7 each Calendar Quarter.” 8 9 10 B. Rapid Start Licenses In 2005, Intermec began issuing licenses called “Rapid Starts” to third parties. (Doc. No. 11 216 at 7). Rapid Starts licenses contained RFID patents acquired from IBM under the 12 Agreement. (Doc. No. 197). Therefore, Rapid Starts were subject to Section 10.3.1 of the 13 Agreement. (Doc. No. 219 at 7). From 2005 to April 2008, Intermec paid IBM 40% of its Rapid 14 Starts royalty income every quarter, as required under Section 10.3.1. (Id. at 6). However, 15 Intermec did not pay IBM the Minimum amount at the end of the quarter in which each license 16 17 18 was issued, nor did it account for any “shortfalls” at the end of the contract period. Instead, in April 2008, shortly before the contract period ended, Intermec announced a 19 new interpretation of the contract: the Rapid Starts licenses were actually “products,” not 20 licenses, and were governed by Section 10.2.1, which required only 5% royalty fees and no 21 22 Minimum amounts. (Doc. No. 219 at 9). When the contract period ended, IBM demanded Intermec pay the difference between the royalty payments and the Minimum amounts required 23 24 25 under Section 10.3.1. Intermec, in turn, sent IBM an invoice demanding a refund for the difference between the 40% Rapid Start royalty payments it made pursuant to Section 10.3.1 and 3 1 2 the 5% payments it claimed were actually due under the Section 10.2.1 of the Agreement. (Doc. No. 197 at 2). IBM refused to provide a refund. C. Procedural History 3 4 5 6 On January 31, 2011, Intermec filed a complaint in the Western District of Washington against IBM. (Doc. No. 1). Intermec asserted that IBM was only entitled to 5% in royalty fees, not 40%, and, therefore, Intermec had overpaid IBM by “at least $1,699,377.93.” (Id. at para. 7 20). On February 22, 2008, IBM filed a counterclaim against Intermec, arguing that Intermec 8 9 owed IBM roughly $8 million in “shortfall” fees under Section 10.3.1. (Doc. No. 18 at 11). 10 Intermec and IBM each moved for partial summary judgment, arguing that the Rapid 11 Starts were governed by Section 10.2.1 and 10.3.1, respectively. (Doc. No. 55). The district 12 court ruled in Intermec’s favor, holding that Section 10.2.1 governed the Rapid Start licenses, i.e. 13 Intermec only owed IBM 5% royalty fees and no Minimum amounts. (Doc. No. 90)(Judge 14 Coughenour presiding). 2 15 On March 29, 2012, the jury returned a verdict in Intermec’s favor. (Doc. No. 159). On 16 17 November 10, 2012, IBM appealed the district court’s partial summary judgment ruling to the 18 Ninth Circuit Court of Appeals. (Doc. No. 186). The Court of Appeals reversed, holding that 19 the Rapid Starts licenses were governed by Section 10.3.1. (Doc. No. 197 at 3). It remanded the 20 case for adjudication of IBM’s counterclaims and “any defenses that [Intermec] had properly 21 pleaded.” (Doc. No. 197 at 3). 22 After the mandate was issued, both parties again moved for summary judgment. IBM 23 24 25 asserts that, since the Court of Appeals found that the Rapid Starts licenses are governed by 2 IBM also argued that Intermec’s claims were time-barred under the Agreement’s four-year four provision because Intermec’s cause of action accrued when it made the first alleged overpayment. The district court also found that Intermec’s claims were not time-barred because Intermec’s claim did not accrue until it demanded a refund in April 2008. 4 1 2 Section 10.3.1, there can be no dispute that Intermec breached the contract by failing to pay the Minimum amounts when the contract ended. Intermec’s partial motion for summary judgment 3 asserts that the Rapid Starts licenses were due at the end of the quarter in which they were 4 issued, not at the end of the contract period. Since most of the Rapid Starts licenses were issued 5 more than four years before IBM filed its counterclaims, Intermec contends that most of IBM’s 6 counterclaims are time-barred. 7 II. LEGAL STANDARD 8 “The court shall grant summary judgment if the movant shows that there is no genuine 9 10 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. 11 R. Civ. P. 56(a). The moving party bears the burden of demonstrating the absence of a genuine 12 issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court “should 13 review all of the evidence in the record . . . [and] draw all reasonable inferences in favor of the 14 nonmoving party.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). A 15 genuine issue for trial exists if “the evidence is such that a reasonable jury could return a verdict 16 17 for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, 18 “[t]he mere existence of a scintilla of evidence” in support of a nonmoving party’s position is not 19 sufficient to create a genuine issue of material fact. Anderson, 477 U.S. at 252. 20 21 22 III. DISCUSSION Intermec did not oppose IBM's arguments that Intermec breached its contractual obligations to pay the Minimum amounts. Therefore, the only remaining issues in this case are 23 24 whether any of IBM’s counterclaims are time-barred and what damages are appropriate. 25 5 A. IBM’S COUNTERCLAIMS ARE NOT TIME-BARRED 1 According to Intermec, most of IBM’s counterclaims are time-barred. (Doc. No. 216). 2 3 Section 19.8 of the Agreement provides that “[n]either party may bring an action . . . arising out 4 of performance of this Agreement more than four years after the cause of action has accrued.” 5 (Agreement, Section 19.8). A breach of contract action accrues at the time the breach occurs. 6 Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (N.Y. 1993). 3 Here, Intermec sold 7 Rapid Starts licenses between 2005 and April 15, 2008. However, IBM did not bring its 8 9 counterclaims until February 22, 2011. Therefore, the question presented is whether each 10 Minimum amount was due at the end of the quarter in which any Rapid Starts license was sold or 11 whether the Minimum amounts were not due until the end of the contract period, April 15, 2008. 12 i. Until the End of the Contract Period 13 14 15 16 The Agreement Unambiguously States that the Minimum Payment Is Not Due Summary judgment is only proper in contract disputes if the language of the contract is “wholly unambiguous.” Mellon Bank, N.A. v. United Bank Corp. of New York, 31 F.3d 113, 115 (2d Cir. 1994). A contract is ambiguous if it is susceptible to more than one reasonable 17 interpretation. Id. 18 IBM asserts that the Agreement unambiguously required Intermec to pay the 40% royalty 19 20 fees on a quarterly basis and then account for any “shortfall” at the end of the contract period. 21 IBM provides three arguments in support of this interpretation. 22 23 24 According to IBM, the language in Section 10.3.1 clearly leaves Intermec’s obligation to pay the Minimum amount for each license open until April 15, 2008. Section 10.3.1 provides that Intermec’s obligation to pay at least the Minimum amount spanned “a period commencing 25 on the Effective Date and continuing until April 15, 2008.” Since the payment period continues 3 Both parties agree that New York law applies to this issue. 6 1 2 3 until the contract period ends, IMB argues, Intermec could fulfill its contractual obligations by paying the Minimum amount at any point within this period, i.e. until April 15, 2008. IBM contends that the absence of quarterly reporting and payment requirements for the 4 Minimum amounts shows that the Minimum amounts are not due quarterly, but rather are due at 5 the end of the contract period. According to IBM, the Agreement’s silence on this issue is 6 especially significant because two sections of the Agreement – Section 10.4.1 and Section 10.4.2 7 – explicitly set out quarterly reporting and payment requirements for the royalty fees. IBM 8 9 10 further asserts that, in the absence of quarterly payment requirements, the Minimum amounts were to be due on the only other date-certain in Agreement: April 15, 2008. 11 According to IBM, the order in which the payment obligations are listed – 40% royalty 12 fee payments first and Minimum amounts second – also shows that royalty fees were due at the 13 end of each quarter and the Minimum amounts were due later. Since the only two dates in the 14 Agreement are the ends of each quarter and the end of the contract, IBM argues, the royalties 15 must be paid on the earlier date (each quarter’s end) and the Minimum amounts on the later date 16 17 18 19 20 21 22 (the end of the contract period). Intermec offers three points in rebuttal to IBM’s interpretation; none of which are persuasive. Intermec asserts that the “[f]or a period commencing . . . until April 15, 2008” language implies that all payments, including the Minimum amount, must be made “in” the contract period. (Doc. No. 229 at 9). However, nothing in the contract suggests that all payments must 23 24 25 be made “in” the contract period: the relevant language is “for,” not “in.” Furthermore, Section 10.4.2, which requires all payments due under Section 10.3.1 to be paid no later than 60 days 7 1 2 3 after they are due, specifically contemplates that the last payment will be made outside the contract period. Intermec also contends that IBM’s interpretation could lead to absurd results. (Doc. No. 4 229 at 10). According to Intermec, if Intermec issued a license for which it never received any 5 royalties, IBM would have to wait until the end of the contract period before collecting any 6 payment for that license. (Id.). A contract should not be interpreted so as to produce an 7 absurdity, i.e. defeat the purpose of the contract or render any provision meaningless. Saffire 8 9 10 Corp. v. Newkidco, LLC, 286 F. Supp. 2d 302, 308 (S.D.N.Y. 2003). However, the mere fact that the Agreement might not be optimal in certain circumstances is not an absurd result. 11 Intermec also advances a different interpretation of the Agreement: each Minimum 12 amount is due at the end of the quarter in which it was issued. The Court finds this interpretation 13 unreasonable. According to Intermec, Section 10.4.2 states that all Minimum fees, including the 14 Minimum amount, are due at the end of each quarter. Section 10.4.2 provides that “[a]ll 15 payment due under Articles 10.2 and 10.3 shall be due . . . within 60 days after the conclusion of 16 17 each Calendar Quarter.” This provision clearly requires that all payments “due” under Section 18 10.3.1 must be made within 60 days after the end of each quarter. However, this provision has 19 no bearing on when payment becomes “due” under 10.3.1; it only discusses when something that 20 has already become due under Section 10.3.1 should be paid. Moreover, this interpretation 21 22 would conflict with the sequence of payment clearly set out in Section 10.3.1. Under Intermec’s interpretation, the payments due under part (i) would be due, if at all, after the payments under 23 24 25 part (ii) have been made. Accordingly, the Court finds that the Agreement unambiguously states that the Minimum amount became due on April 15, 2008. 8 ii. 1 Until the End of the Contract Period 2 3 Extrinsic Evidence Unambiguously Shows that the Minimum Payment Is Not Due Even if the Agreement were ambiguous, extrinsic evidence confirms that the parties intended and understood that the Minimum amount became due at the end of the contract period. 4 5 6 If a court finds that a contract is ambiguous, it may look to extrinsic evidence to determine the parties’ intent. New Windsor Volunteer Ambulance Corps, Inc. v. Meyers, 442 F. 3d 101, 111 7 (2d Cir. 2006); Time Warner Cable v. City of New York, 943 F. Supp. 1357, 1390 (S.D.N.Y. 8 1996)(finding parties’ interpretation of the contract prior to litigation “compelling” evidence of 9 intent). 10 The record reflects that Intermec’s corporate officers testified that they understood that 11 the Minimum amount was due at the end of the contract period. (Doc. No. 219, Ex. E, Trial 12 13 Testimony of Comparone at 164:2-22)(shortfall due to IBM if Intermec did not “meet that 14 threshold by 2008, April 14th”). Furthermore, Intermec’s records listed the Minimum amount 15 owed for each Rapid Starts license as a future liability, noting that the Minimum amount was not 16 due until April 2008. (Id. at 168:4-25); see also Doc. No. 219, Ex. F., at IN-IBM0024673 17 (“when licenses expire in 2008, if haven’t paid $500K per licensee to IBM, must make up the 18 shortfall”). Intermec did not in any way addresses these issues about the parties’ pre-litigation 19 understanding. See Fed. R. Civ. P. 56 (e). Accordingly, the Court finds that, even if the 20 21 22 Agreement were ambiguous, the extrinsic evidence, viewed in the light most favorable to Intermec, unambiguously confirms IBM’s interpretation of the Agreement. 23 24 25 9 For the reasons set forth above, the Court finds that IBM’s breach of contract claims 1 2 3 accrued on April 15, 2008. Since IBM brought all of its breach of contract counterclaims on February 22, 2011, all the counterclaims are timely. 4 4 B. IBM IS ENTITLED TO EXPECTATION DAMAGES AND PREJUDGMENT INTEREST 5 Since IBM’s counterclaim is timely and all other aspects of liability have been 6 7 determined, the only remaining issue is damages. 8 Under New York law, the proper measure of damages for breach of contract is “the 9 amount necessary to put the plaintiff in as good a position as he would have been if the defendant 10 had abided by the contract.” W. Geophysical Co. of Am. v. Bolt Associates, Inc., 584 F.2d 1164, 11 1172 (2d Cir. 1978). 12 IBM provides a detailed calculation of the amount Intermec was obligated to pay under 13 14 the Agreement. (Doc. No. 219 at 15). Intermec does not object to any component of this 15 calculation. The Court, finding that IBM’s calculation accurately represents the amount IBM 16 would have been paid had Intermec performed under the Agreement, finds that IBM is entitled to 17 $5,237,159.77. 18 The Court further finds that IBM is entitled to 10% in prejudgment interest on this 19 amount as provided in Section 10.4.5 of the Agreement. 20 21 22 23 24 25 4 Intermec asserts that there is an issue of material fact as to which Rapid Start licenses are “bare Patent” licenses and, therefore, subject to Section 10.3.1. The Court of Appeals specifically held that “the plain meaning of the language of the Agreement obligates Intermec to pay IBM fees for the Rapid Start Licensing Agreements under Section 10.3.1 of the Agreement.” (Doc. No. 197 at 2; Doc. No. 232 at 12). Thus, this issue has already been decided. 10 1 2 IV. ORDER For the foregoing reasons, IT IS HEREBY ORDERED that: 3 (1) Intermec’s Motion for Partial Summary Judgment is DENIED, (Doc. No. 216); 4 (2) IBM’s Motion for Summary Judgment is GRANTED, (Doc. No. 219); 5 (3) Judgment shall be entered in favor of IBM and against Intermec in the amount of 6 $5,237,159.77 plus 10% prejudgment interest (to be calculated in accordance with 7 Section 10.4.5 of the Agreement); and 8 9 (4) The parties are to meet and confer regarding the calculation of prejudgment interest in 10 this matter and, if possible, submit an agreed upon calculation to the Court. The 11 parties shall notify this Court within 10 days of the entry of this Order as to the status 12 of their discussions regarding the calculation. 13 14 15 16 17 18 So ordered. Dated this 18th day of November, 2014. 19 20 21 Barbara J. Rothstein United States District Judge 22 23 24 25 11
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