Citations
- 42 F. Supp. 2d 660
Full opinion text
MEMORANDUM AND OPINION ORDER
HEARTFIELD, District Judge.
Before this court is Plaintiff Texas Instruments Incorporated’s Motion for Partial Summary Judgment and Memorandum in Support Thereof [83, 84, and 85 of 2:98-cv-74] and Defendant Hyundai’s Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment [67 of 2:98-cv-73], Having considered the motions, the replies, the sur-replies, the arguments of counsel, and the pleadings on file, this Court hereby GRANTS Plaintiff Texas Instruments Incot'porated’s Motion for Partial Summary Judgment and Memorandum in Support Thereof [83, 84, and 85 of 2:98-cv-74] and DENIES Defendant Hyundai’s Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment [67 of 2:98-cv-73].
1. The Extensive History Between Texas Instruments and Hyundai
A. Texas Instruments and Hyundai — The Parties Forge a Relationship
As stated earlier, this lawsuit represents merely the tip of the litigation iceberg between Texas Instruments and Hyundai. In order to rule on the parties’ summary judgment motions, it is incumbent upon this Court to track the events between Hyundai and Texas Instruments, Incorporated (“Texas Instruments”) that led up to this pivotal point in Marshall, Texas. First of all, these parties are not strangers to the Eastern District of Texas, Marshall Division. In September 1992, Texas Instruments filed a patent-infringement lawsuit against Hyundai in this very Court. However, on April 26, 1993, Texas Instruments and Hyundai settled that lawsuit by entering into a patent cross-license agreement. The fifty-five (55) page agreement — aptly titled the “License Agreement” — granted Hyundai freedom to use certain Texas Instruments patents (even those issued after the effective date of the license) around the world. It also granted Texas Instruments similar freedom to use Hyundai’s patents around the world. Pursuant to the License Agreement, Hyundai agreed to pay Texas Instruments royalties subject to specified caps. Although both parties were able to come to terms with the fifty-five page contract, all good things must come to an end.
The License Agreement consists of two “periods.” Under Article 5.1 of the agreement, the “First Period” ended on December 31, 1995. License Agreement at 29 Under Article 5.2 of the license agreement, the “Second Period,” the current period in dispute, began on January 1, 1996 and terminates either upon December 31, 2000 or when “cumulative worldwide sales of ROYALTY BEARING PRODUCTS” reaches three billion eight hundred ninety-five million and one hundred thousand U.S. dollars (U.S.$3,895,100,000) (the “sales cap”). License Agreement at 30. Obviously, December 31, 2000 is not here. Thus, the crux of the present dispute is whether Hyundai’s cumulative worldwide sales of semiconductive elements and semi-conductive apparatus (other than discrete devices) for the period commencing on January 1, 1996, have indeed reached the sales cap of $3,895,100,000. Regardless of the amount of sales to date, Texas Instruments and Hyundai realized the need to begin license renewal negotiations.
B. Renewal Negotiations — Friendly Discussions Begin
1. The Fundamentals of Semiconductor Chip Patent Negotiations
On May 15, 1997, Texas Instruments and Hyundai began renewal negotiations with the exchange of their “proud lists.” Apparently, “proud lists” are representative lists of patents that each company believes are particularly applicable to its negotiating partner’s business and products. Well, why not just list the specifically covered patents and be done with it? Welcome to the wild world of semiconductor technology patent negotiations. Semiconductor devices are tiny silicon chips about one-half the size of a thumbnail which contain over sixty million transistors. These chips are now manufactured with tolerances between electrical circuits as close as .18 microns. They can literally store an encyclopedia of information. However, it is exceedingly difficult to determine whether a semiconductor chip infringes upon any patent without “reverse engineering” the device — a costly and time-consuming endeavor. Moreover, semiconductor chips are easily transferra-ble and difficult to track. Finally, large companies like Texas Instruments and Hyundai have thousands of patents around the world, with so many patents worldwide, it is quite possible for Texas Instruments and Hyundai to have multiple patents maturing and expiring every day. Thus, parties like Texas Instruments and Hyundai when drafting a license agreement do not negotiate a single contract for a single patent for a single product. For although such a highly specified endeavor would undoubtedly yield certainty as to which patent is covered by the contract, it would not provide the expansive patent coverage sought by both parties. So, parties like Texas Instruments and Hyundai turn to broad, portfolio-like cross-license agreements such as the one currently in dispute before this Court In order to accommodate the large size of companies and the fluid nature of semiconductor patent technology, these cross-license agreements usually include patents that come into existence after execution of the contract. By using this expansive cross-license agreement procedure, mammoth companies like Texas Instruments and Hyundai avoid the costly and inefficient endeavor of a patent-by-patent licensing scheme.
2. Standstill Agreements Extend License Negotiations
So, beginning in March of 1997, Texas Instruments and Hyundai agreed to conduct license renewal negotiations without resort to litigation through a “standstill agreement” that would expire in mid-February 1998. Texas Instruments argued that the License Agreement terminated in late 1997 when, according to Dataquest’s calculations, the sales cap had been reached. On January 20, 1998 during a negotiation session, Hyundai proffered its argument why it believed (and continues to believe) the sales cap has in fact not been reached. Hyundai argued (for the first time according to Texas Instruments) that not all of its sales are to be counted in calculating the sales cap Specifically, Hyundai argued that the License Agreement provided that only products covered by the claim of a Texas Instruments patent count toward the sales cap. In essence, Hyundai told Texas Instruments that “royalty bearing products” (products which count toward the sales cap) were limited to products which practice a Texas Instruments patent, in force at the time the product is sold, in the country in which the sale occurs (the “TI Countries”). Hyundai conceded that TI Countries included the United States, Canada, and several European countries which it “credited” to the sales cap calculation. Through the end of April of 1998, Hyundai credited $3,002,140,000 in sales in these “TI countries” toward the sales cap calculation, thereby placing Hyundai roughly $900,000,000 under the sales cap. But these were not all of Hyundai’s sales. Hyundai argued that the following countries were (and still are) “Non-TI Countries” whose sales are not applicable to the sales cap calculation: Australia, Brazil, China, Hong Kong, India, Israel, Korea, Malaysia, Philippines, Malta, Russia, Singapore, Thailand, Turkey, and Taiwan. Under Hyundai’s interpretation of the License Agreement, Texas Instruments would not receive credit toward the sales cap calculation for products sold in these “Non-TI Countries.” However, had Hyundai included all of these “Non-TI Countries” in its calculation of the sales cap, then, by its own calculations under its own interpretation of the License Agreement, its total worldwide sales of royalty bearing products would have been $4,521,-528,000 by April 1998 — far over the termination cap of $3,895,100,000. At Hyundai’s request, Texas Instruments agreed to two extensions to this standstill agreement. On May 1, 1998 the last extension to the standstill agreement expired. Negotiations had failed. C. A Global Litigation War
Since negotiations failed, Texas Instruments and Hyundai turned to the courts; in fact, they turned to a myriad of courts across this nation and around the world.
1. United States Litigation — The American Offensive
May 1, 1998 was a busy day for the parties’ attorneys, for both Texas Instruments and Hyundai filed lawsuits on this day. On May 1, 1998 Texas Instruments filed three patent suits against Hyundai in two judicial districts. In the Eastern District of Virginia, Texas Instruments filed Case No. 98-627-A. asserting synchronous dynamic random access memory (“DRAM”) patents against Hyundai’s DRAM products that continue to be at issue in litigation between NEC and Hyundai in that court. On that same day, Texas Instruments filed two more patent suits against Hyundai in this Court. In Case No. 2:98-cv-73 Texas Instruments asserted memory process and structure patents against Hyundai. In Case No. 2:98-cv-74 Texas Instruments asserted manufacturing process patents against Hyundai.
On that same busy day — May 1, 1998— Hyundai filed a declaratory judgment action in the Southern District of New York (Case No. 98 Civ. 3118) (the “New York Action”). In the New York Action, Hyundai sought a defensive declaration that the License Agreement had not terminated; and, as a result, it was not infringing upon Texas Instruments’ patents. On May 6, 1998 Hyundai struck back. First, Hyundai filed two patent infringement actions against Texas Instruments, both in the Eastern District of Virginia (Case Nos. 98-647-A and 98-648-A). On that same day, Hyundai filed yet another pair of patent infringement actions against Texas Instruments — one in this Court (Case No. 2:98-cv-77), and one in the District of Delaware (Case No. 1:98-251). Finally, Hyundai’s guns have once again fired in this Court — this time with Case No. 2:99-cv-1 against (none other than) Texas Instruments. Hyundai tells this Court it filed these cases because it “could not allow itself to be put at a strategic disadvantage while TT filed patent actions in well-recognized rapid jurisdictions such as the Eastern District of Virginia.” Hyundai’s Motion, for Summary Judgment at 9.
2. Foreign Litigation — The International Campaign
Texas Instruments and Hyundai did not confine their dispute to the United States courts; in fact, the Texas Instruments and Hyundai litigation landing crafts washed lawyers upon foreign shores around the world. First red-light stop was in the Netherlands where, on May 1, 1998, Texas Instruments sued Hyundai and several other entities for patent infringement in Case No. 98/2175 Next beach-head was in England where, on May 5, 1998, Texas Instruments sued Hyundai Electronics UK Ltd. for patent infringement in Case No. CH 1998 T. No. 2532. The litigation forces then landed in Japan where, on May 6, 1998, Texas Instruments sued Hyundai Electronics Japan K.K. for patent infringement in Case No. (Yo) 22075. Next, the forces moved into Germany, where, on May 12, 1998, Texas Instruments sued Hyundai Electronics Deutschland GmbH and H.K. Yoo, Managing Director of Hyundai Electronics Deutschland GmbH for patent infringement in Case No. 4 0 166/98. Finally, the Texas Instruments contingent marched into France where, on May 15, 1998, it sued Hyundai Electronics UK Ltd. and Hyundai Electronics Industries Company, Ltd, alleging patent infringement in Case No. 98/10908.
The Netherlands, England, Japan, Germany, France — all of these countries share one commonality via this litigation; the license issue. In each of these countries Hyundai has challenged jurisdiction based upon their “TI Country Concept” interpretation of the License Agreement. Moreover, Hyundai has requested each of these courts to defer to this Court’s ruling on the contract issue. Of course, this Court can not “bind” these foreign courts with its license determination (nor would it presume to do so). Nevertheless, with the trial of ’ Texas Instruments’ first patent infringement case nearing, the time has come for this Court to rule on the license issue. This Court remains ever mindful of the implications its decision may have on the foreign litigation and will endeavor to perform an adequate analysis of the license issue. This Court now turns to the summary judgment standard and then, alas, to the license issue currently before it.
2. Summary Judgment Standard
Rule 56(b) of the Federal Rules of Civil Procedure states: “A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought may, at any time, move with or without supporting affidavits for a summary judgment in the party’s favor as to all or any part thereof.” Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), cert. denied, 484 U.S. 1066, 108 S.Ct. 1028, 98 L.Ed.2d 992 (1988). Furthermore, Rule 56(c) states, in part: “The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Thus, summary judgment is proper when, after a reasonable period for discovery, one party is unable to show a genuine issue as to a material fact on which he will bear the burden of proof at trial, provided that judgment against him is appropriate as a matter of law. Nebraska v. Wyoming, 507 U.S. 584, 589, 113 S.Ct. 1689, 123 L.Ed.2d 317 (1993); Celotex, id. The moving party need not negate the elements of the non-moving party’s case. Id. at 323, 106 S.Ct. 2548; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc) (citing Celotex, id., and Lujan v. National Wildlife Fed’n., 497 U.S. 871, 888, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)). Rather, the moving party need only “demonstrate the absence of a genuine issue of material fact.” Cel-otex, id.
The non-moving party does not overcome the absence of a genuine issue of material fact by simply “creating some metaphysical doubt as to the material facts,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), by making “conelusory allegations,” Lujan, supra at 871-73, 110 S.Ct. 3177, by presenting “unsubstantiated assertions,” Little, supra at 1075, or by proffering only a “scintilla” of evidence. Id. When the non-moving party fails to make a sufficient showing on an essential element of his case, the moving party is entitled to a judgment as a matter of law. Ibid. Nonetheless, when considering a motion for summary judgment, the trial court must construe all evidence in the light most favorable to the non-moving party and resolve all doubts against the moving party. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992), cert. denied, — U.S. -, 118 S.Ct. 1560, 140 L.Ed.2d 792 (1998).
Both Texas Instruments and Hyundai urge this Court to adopt differing interpretations of the License Agreement — a fifty-five page contract they entered into on April 26, 1993. Under Article 9.10 of that agreement, the parties agreed that New York law shall apply to the License Agreement’s construction, interpretation, and application. Interpretation of a contract, including the question of whether the contract is ambiguous, is a question of law. Reid v. State Farm Mut. Auto. Ins., 784 F.2d 577, 578 (5th Cir.1986). Summary judgment is particularly appropriate in cases where the language of a contract is unambiguous and only the interpretation of the contract in light of state substantive law is in dispute. Burns v. Exxon Corp., 158 F.3d 336 (5th Cir.1998); Bartle v. Travelers Ins. Co., 171 F.2d 469, 471 (5th Cir.1948). This interpretation by the court “includes a determination as to a contract’s facial ambiguity.” Id. Nonetheless, ambiguity of a contract does not preclude a summary judgment ruling by the court.
Summary judgment is appropriate in a contract interpretation dispute whenever there is no genuine issue of fact, a situation that obtains not only when the language is unambiguous, but also when the language is ambiguous and there is relevant extrinsic evidence, but the extrinsic evidence creates no genuine issue of material fact and permits interpretation of the agreement as a matter of law.
NYCAL Corp. v. Inoco PLC, 988 F.Supp. 296, 299 (S.D.N.Y.1997) (footnote and citations omitted).
3. Compliance With Local Rule CV-56
Before this Court even gets into the text of their briefs, the parties have managed to raise a significant controversy. Hyundai urges this Court to dismiss Texas Instruments’ motion (in its entirety) since Texas Instruments’ motion “fails to submit a ‘Statement of Material Facts’ as required under Local Rule CV-56(a).” Hyundai’s Opposition to Texas Instruments Incorporated’s Motion for Partial Summary Judgment (“Hyundai’s Opposition Brief’) at 5. Local Rule CV-56(a) reads, in part: “The text of a motion or an appendix thereto must include a ‘Statement of Material Facts.’ ” See Local Rule CV-56 (a). Local Rule CV-56(b) reads, in part: “Any party opposing the motion should serve and file a response that includes in the text of the response or as an appendix thereto, a ‘Statement of Genuine Issues.’ ” Id. at CV-56(b). Finally, Local Rule CV-56(c) reads, in part: “In resolving the motion for summary judgment, the court will assume that the facts as claimed and supported by admissible evidence by the moving party are admitted to exist without controversy, except to the extent that such facts are controverted in the ‘Statement of Genuine Issues’ filed in opposition to the motion, as supported by proper summary judgment evidence.” Id. at CV-56(c). Initially, Texas Instruments failed to submit a “Statement of Material Facts” in compliance with these local rules. However, after Hyundai made the afore-men-tioned argument that Texas Instruments therefore admitted Hyundai’s “undisputed” statement of genuine issues, Texas Instruments separately filed its “Statement of Genuine Issues.” Furthermore, Texas Instruments included, in its Brief of Texas Instruments Incorporated’s in Support of its Motion for Summary Judgment, identified factual and legal issues, together with supporting record citations raised by Hyundai’s motion. See Texas Instruments Statement of Genuine Issues at 1. While Texas Instruments’ may have technically satisfied the local rule (and this Court makes no finding that is has), the simultaneous supplementation of the record with a “Statement of Genuine Issues” appears to render this skirting of the local rule harmless in this particular case. However, this case is a complex patent infringement lawsuit involving highly complicated semi-conductor technology; moreover, it involves complex contract issues touching on litigation now pending in other cases in this Court, in other courts in this nation, and in foreign courts around the world. In complex cases like these, mere technical compliance with Local Rule CV-56 simply fails to aid the Court in resolution of the issues before it. Although Texas Instruments should have initially filed its “Statement of Material Facts,” this Court finds that its reply brief, coupled with the supplementation of the record with a “Statement of Genuine Issues,” renders this skirting of the local rule harmless. No prejudice was occasioned upon Hyundai, particularly since the parties’ motions involve mostly legal and not factual issues.
4. Article 5.2(A)(ii) of the License Agreement — The Center of the Dispute
Texas Instruments argues the License Contract has terminated; Hyundai says it has not. Thus, this Court begins its analysis with the “Term & Termination” Article of the License Agreement. Article 7.1 reads, in part:
Except as otherwise provided in Article 7, this Agreement and the license granted pursuant hereto shall remain in force until December 31, 2000; unless the Second Period terminates according to (ii) of Article 5.2(A), in which case this Agreement and the licenses granted pursuant hereto shall terminate upon termination of the Second Period, provided, however, any obligation on the part of HEI to pay to TI any sums under Article 5.2(B) of this Agreement, shall survive such termination.
License Agreement at 39 (emphasis added).
Article 5.2(A)(ii) of the License Agreement is the tinderbox that ignited this global litigation war between Texas Instruments and Hyundai. It’s what this fight is all about. Article 5.2(A) reads, in its entirety:
In consideration for the licenses granted hereunder by TI to HEI during the period (“Second Period”) commencing' on January 1,1996, and ending upon the first to occur of:
(i) December 31, 2000; or
(ii) HEI’s cumulative worldwide sales of ROYALTY BEARING PRODUCTS during the Second Period reaching an amount equal to the product of one and one-tenths (1.1) multiplied by three billion five hundred forty one million United States dollars (U.S.$3,511,000,000);
HEI shall pay to TI royalties in United States dollars, at a rate of eight percent (8%) of the NET SALES BILLED of all ROYALTY BEARING PRODUCTS used, leased, sold or otherwise disposed of by HEI or its SUBSIDIARIES, during each calendar year of the Second Period, the amount payable, in each calendar during the Second Period, not to exceed the following annual maximum amounts:
Year Annual Maximum
1996 U.S. $15,000,000
1997 U.S. $15,000,000
1998 U.S. $17,000,000
1999 U.S. $18,000,000
2000 U.S. $18,000,000
License Agreement at 30 (considerable emphasis added). This is the “sales cap” provision. ■ Texas Instruments says the sales cap has been reached and the contract has terminated. Hyundai says the opposite — that the sales cap has not been reached and thus the contract was still in effect when Texas Instruments filed its initial patent infringement lawsuits. The answer lies in the proper, interpretation of this provision.
5. Applicable State Contract Law Subject to Federal Patent Laws
As previously stated, pursuant to Article 9.10 of the License Agreement, the parties agreed that New York law shall apply to the License Agreement’s construction, interpretation, and application. Thus, this Court must apply New York substantive law in performing its summary judgment analysis of the License Agreement. Although Texas Instruments and Hyundai stipulated in the License Agreement that New York law would govern the construction, interpretation, and application of the License Agreement, New York law may not preempt or violate federal patent laws which remain the supreme law of the land. Fantastic Fakes v. Pickwick Intern., 661 F.2d 479, 483 (5th Cir., Unit B 1981) ,(“A choice of law provision, therefore, merely designates the state whose law is to be applied to the extent its use is not preempted by nor contrary to the policies of the 1909 and 1976 Copyright Acts”); see also Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964). With this limitation in mind, this Court now visits New York contract law.
6. The License Agreement is Unambiguous
A Texas-size review of New York contract law reveals a considerable amount of similarity between the sister states. The Western District of New York aptly captured New York contract law relating to interpretation:
When considering the construction of a contract, the court “should accord that language its plain meaning giving due consideration to ‘the surrounding circumstances [and] apparent purpose which the parties sought to accomplish.’ ” Only where the language at issue is unambiguous may the court construe it as a matter of law. Whether an ambiguity exists in a contract is a question of law to be resolved by the court. The Second Circuit has made it clear, however, that if the contract is found to be ambiguous, a motion for summary judgment—much less a motion to dismiss—on a breach of contract claim is improper.
OnBank & Trust Co. v. FDIC, 967 F.Supp. 81, 90 (W.D.N.Y.1997) (citations omitted).
Under New York law, the initial question before this Court is whether the disputed language of the License Agreement—specifically Article 5.2(A)(ii)—is unambiguous. Chimart Associates v. Paul, 66 N.Y.2d 570, 573, 498 N.Y.S.2d 344, 489 N.E.2d 231, 234 (N.Y.1986). Contract language is unambiguous when it has a “definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion.” Tucker Leasing Capital Corp., 833 F.Supp. 948, 955 (E.D.N.Y.1993) (citations omitted).
An ambiguous term, on the other hand, is one capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.
Curry Rd. Ltd. v. K Mart Corp., 893 F.2d 509, 511 (2nd Cir.1990) (quoting Eskimo Pie v. Whitelawn Dairies, 284 F.Supp. 987, 994 (S.D.N.Y.1968)). Both Texas Instruments and Hyundai offer different interpretations of Article 5.2(A)(ii) of the License Agreement. However, unambiguous contractual language does not become ambiguous simply because the parties to the litigation offer different interpretations. Metropolitan Life Ins. Co. v. RJR Nabisco, 906 F.2d 884, 889 (2nd Cir.1990). Moreover, both Texas Instruments and Hyundai agree that the License Agreement is unambiguous. In the deposition of Texas Instruments’ corporate representative, Mr. Richard Donaldson, the following exchange took place: “Q: [by Mr. T. John Ward]: Well, I’m wanting to know what TI’s position is without regard to what Hyundai’s position is. Is the agreement ambiguous or unambiguous? A: [by Mr. Richard Donaldson]: That the agreement as a whole is not ambiguous.” Hyundai’s Motion for Summary Judgment, Exhibit C (Donaldson Depo.) at 44:1-9. In its brief “Hyundai agrees with TI that the License Agreement is unambiguous.” Id. at 20. Furthermore, this License Agreement is a fully integrated contract. The final provision of the License Agreement, Article 9.15, contains a typical integration clause:
This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter of this Agreement and merges all prior discussions between them. Neither of the parties shall be bound by any modification of this Agreement, other than as expressly provided in this Agreement or as duly set forth on or subsequent to the date hereof in writing and signed by a duly authorized representative of both parties.
License Agreement at 54 (emphasis added). Finally, this Court agrees with the parties that the language of the License Agreement is unambiguous. The License Agreement is a fully integrated contract that has definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis for a difference of opinion. In short, the License Agreement is fully integrated and unambiguous.
7. Interpretation of the Unambiguous License Agreement — Extrinsic Evidence Not Permissible Under New York Law
Once an integrated contract is found to be unambiguous on its face, its interpretation is a function for the Court and is properly decided on summary judgment. Chimart, supra at 572, 498 N.Y.S.2d 344, 489 N.E.2d 231 Both Texas Instruments and Hyundai contend that the disputed sales cap provision unambiguously supports them interpretation. So, this Court must now interpret the “unambiguous” Article 5.2(A)(ii) sales-cap provision of the License Agreement. Texas Instruments has proffered a considerable amount of extrinsic evidence in support of its interpretation of the License Agreement. Hyundai has objected to this extrinsic evidence and argues that this Court may not consider it in its analysis. The question, then, becomes this: Applying New York law, may this Court consider extrinsic evidence in its interpretation of the unambiguous License Agreement? No, it may not.
New York law does not permit a court to consider extrinsic evidence in the interpretation of an unambiguous contract. The Court of Appeals of New York has consistently held that “[interpretation of an unambiguous contract provision is a function for the court, and matters extrinsic to the agreement may not be considered when the intent of the parties can be gleaned from the face of the instrument.” Chimart, supra at 572-73, 498 N.Y.S.2d 344, 489 N.E.2d 231 (emphasis added) (quoting Teitelbaum Holdings v. Gold, 48 N.Y.2d 51, 56, 396 N.E.2d 1029, 1034, 421 N.Y.S.2d 556, 561 (1979); Rainbow v. Swisher, 72 N.Y.2d 106, 109, 527 N.E.2d 258, 259-60, 531 N.Y.S.2d 775, 776-77 (1988)) (“Where, as here, the contract is clear and unambiguous on its face, the intent of the parties must be gleaned from within the four comers of the instrument, and not from extrinsic evidence ” (emphasis added)); Express Ind., and Terminal Corp. v. New York State Dept. of Transp., 252 A.D.2d 376, 676 N.Y.S.2d 62 (N.Y.App.Div.1998) (“It is settled that where a contract is straightforward and unambiguous, its interpretation presents a question of law for the court, to be made without resort to extrinsic evidence ” (emphasis added)); see also Metropolitan Life Ins. v. RJR Nabisco, supra (“The parties’ rights under an unambiguous contract should be fathomed from the terms expressed in the instrument itself rather than from extrinsic evidence as to terms that were 'not expressed or judicial views as to what terms might be preferable” (emphasis added)).
Texas Instruments argues that certain eases support its position that New York contract law permits the consideration of extrinsic evidence in this Court’s interpretation of the unambiguous License Agreement. However, upon closer analysis, the cases cited by Texas Instruments reveal interpretations of ambiguous contractual language — not unambiguous contractual language. See Alexander & Alexander Services v. These Certain Underwriters at Lloyd’s, London, 136 F.3d 82, 86 (2nd Cir.1998) (“Exclusion E is fraught with ambiguities .... The district court erred in granting summary judgment to Lloyd’s on the ground that Exclusion E unambiguously excluded all relevant coverage”); On-Bank, supra at 90 (“In the case at bar, I find that the Agreement is ambiguous ..see also, Garza v. Marine Transp., Lines, Inc., 861 F.2d 28, 27 (2nd Cir.1988) (“We believe that the red-letter clauses are ambiguous as a matter of law ... ”); see also, Asheville Mica Co. v. Commodity Credit Corp., 335 F.2d 768, 770 (2nd Cir.1964) (“The provision in question is not wholly unambiguous ... ”); Marvel Entertainment Group, Inc. v. Young Astronaut Council, 747 F.Supp. 945, 948 (S.D.N.Y.1990) (“If ambiguities in the document prevent a firm conclusion that it is a release, additional evidence may be considered to resolve this issue.”); Wing Ming Properties (U.S.A.) Ltd. v. Mott Operating Corp., 148 Misc.2d 680, 561 N.Y.S.2d 337, 340 (Sup.1990), aff'd, 79 N.Y.2d 1021, 594 N.E.2d 921, 584 N.Y.S.2d 427 (1992) (“If ambiguities exist in either the language employed or the intent and circumstances surrounding its execution, extrinsic evidence may be offered ... ”); In re Rudolph’s Will, 123 N.Y.S.2d 731, 733 (Sur.1953) (examining extrinsic evidence where the language of a decedent’s will failed to define the term “children”). Indeed, the cases cited by Texas Instruments support the exclusion of extrinsic evidence in this Court’s interpretation of the unambiguous License Agreement. Natwest USA Credit Corp. v. Aleo Standard Corp., 858 F.Supp. 401, 413 (S.D.N.Y.1994) (“When a written contract is clear and unequivocal, its meaning must be determined by its contents alone, without resort to extrinsic evidence ...” (emphasis added)); Alexander & Alexander, supra at 86 (“If the court finds that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without the aid of extrinsic evidence" (emphasis added)); Garza, supra at 26-27 (“In the absence of ambiguity, the effect of admitting extrinsic evidence would be to allow one party ‘to substitute his view of his obligations for those clearly stated ’ ” (emphasis added)) (quoting Eskimo Pie Corp., supra at 994; Wing Ming Properties Ltd., supra at 340 (“Interpretation of contracts is generally considered a matter of law to be determined by the court provided that the document is clear and explicit in its terms and can be construed through an analysis of the four comers of the document ” (emphasis added)).
Moreover, specific provisions of the License Agreement militate against the admission of extrinsic evidence for interpretive purposes. First, the License Agreement is a fully integrated contract. See Integration Clause, supra at 21. Furthermore, another provision of the License Agreement weighs against the admission of extrinsic evidence for interpretive purposes. Article 9.9 of the License Agreement states:
No oral explanations or oral information by either party hereto shall alter the meaning or interpretation of this Agreement. No modification, alteration, addition or change in the terms thereof shall be binding on either party unless reduced to writing and executed by a duly authorized representative of each party.
License Agreement at 54 (emphasis added). Thus, both New York law and specific provisions of the License Agreement militate against any admission of extrinsic evidence for interpretation of the unambiguous License Agreement.. Hyundai’s objection to Texas Instruments’ proffer of extrinsic evidence for the interpretation of the License Agreement (the objection that strikes at the key issue before this Court) is hereby SUSTAINED. This Court will not consider any extrinsic evidence for its interpretation of the License Agreement.
8. Interpreting the License Agreement
How does this Court “interpret” a contract under New York law? “In a contract action, the court’s general objective should be to give effect to the intentions of the parties in entering into the agreements.” Metropolitan Life Ins. Co., supra at 889 (citing Hartford Accident & Indemnity Co. v. Wesolowski, 33 N.Y.2d 169, 171-72, 305 N.E.2d 907, 910, 350 N.Y.S.2d 895, 898 (N.Y.1973); Morlee Sales Corp. v. Manufacturers Trust Co., 9 N.Y.2d 16, 19, 172 N.E.2d 280, 282, 210 N.Y.S.2d 516, 518 (N.Y.1961); and S. Williston, 4 Williston on Contracts § 600 at 280 (3d ed.1961)). Since this Court can not consider any extrinsic evidence in its interpretation of the unambiguous License Agreement, it must interpret the contract in accordance with the intentions of the parties gleaned from the unequivocal language contained within the four corners, of that fifty-five-page agreement. Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548, 658 N.E.2d 715, 720, 634 N.Y.S.2d 669, 674 (1995) (clear and complete writings should be enforced according to their terms). The law favors an interpretation which is supported by the agreement as a whole and does not render any of its provisions illusory or meaningless. Ronnen v. Ajax Elec. Motor Corp., 88 N.Y.2d 582, 584, 671 N.E.2d 534, 536, 648 N.Y.S.2d 422, 424 (1996) (“We have long and consistently ruled against any construction which would render a contractual provision meaningless or without force or effect”) Although this Court must disregard extrinsic evidence during its interpretation of the License Agreement, it may not simply turn a blind eye to the logical implications of the interpretation it makes. “A contract must be construed, if possible, to avoid an interpretation that will result in an absurdity, an injustice or have an inequitable or unusual result.” Natwest USA Credit Corp., 858 F.Supp. 401, 413 (S.D.N.Y.1994); see also Smith v. Brown & Jones, 167 Misc.2d 12, 633 N.Y.S.2d 436, 442 (N.Y.Sup.Ct.1995) (citations omitted) ( A contract should be given a fair and reasonable interpretation based upon its language, in light of the purposes sought to be attained by the parties. An unreasonable interpretation or an absurd result should be avoided”).
Thus, under New York contract law, this Court’s objectives are roughly threefold: 1) give effect to the intentions of Texas Instruments and Hyundai (gleaned from within the four corners of the License Agreement); 2) interpret the language of the License Agreement so as to harmonize the contract’s provisions without rendering any of them illusory or without effect; and 3) avoid an interpretation that leads to an absurdity, injustice, or inequity.
9. Article 5.2(A)(ii)—The Sales Cap Provision
Once again, Article 5.2(A)(ii) is the sales cap provision. It’s what this fight is all about. Although it has already been quoted in its entirety, the sales cap portion of Article 5.2 deserves revisiting yet again:
Article 5.2(A)(ii) In consideration for the licenses granted hereunder by, TI to HE I during the period (“Second Period”) commencing on January 1, 1996, and ending upon the first to occur of:
(i) December 31, 2000, or
(ii) HEI’s cumulative worldwide sales of ROYALTY BEARING PRODUCTS during the Second Period reaching an amount equal to the product of one and one-tenths (1.1) multiplied by three billion five hundred forty one million United States dollars (U.S.58,511,000,000) ...
License Agreement at 30 (considerable emphasis added). Section (A)(ii) of Article 5.2 is the unambiguous sales cap provision of the License Agreement that this Court must interpret for the parties. Texas Instruments says cumulative worldwide sales have reached the sales cap and the contract has terminated. Hyundai says the opposite—that cumulative worldwide sales have not reached the sales cap and that it was still licensed when Texas Instruments filed its patent infringement lawsuits (thereby violating the agreement and terminating its rights).
Obviously, in order to determine whether the sales cap has been reached, this Court must define “royalty bearing products.” Once the Court determines what “royalty bearing products” are, only simple arithmetic remains to see if the sales cap has indeed been triggered. Article 1.21 of the License Agreement defines “royalty bearing products.” It reads, in its entirety:
1.21 “ROYALTY BEARING PRODUCTS” means items (c) and (d) set forth in Article 1.20, however, ROYALTY BEARING PRODUCTS shall not mean SEMICONDUCTIVE ELEMENTS, or SEMICONDUCTIVE APPARATUS, which are discrete devices such as transistors, photo transistors, diodes and SCRs.
License Agreement at 12. The language of this provision refers to yet another provision. That is, in order to define “royalty bearing products” this Court must now look to “items (c) and (d) set forth in Article 1.20.” Id. Article 1.20 reads, in its entirety:
1.20 “LICENSED PRODUCTS” means any of the following items (a)— (h) and parts thereof covered by any claims(s) of HEI PATENTS, HEI— PARTICIPATION PATENTS, TI PATENTS, or TI-PARTICIPATION PATENTS:
(a) SEMICONDUCTIVE MATERIAL
(b) JUNCTION MATERIAL
(c) SEMICONDUCTIVE ELEMENTS
(d) SEMICONDUCTIVE APPARATUS
(e) TEST EQUIPMENT AND SYSTEMS
(f) PERSONAL COMPUTERS
(g) PERIPHERAL DEVICES
(h) GRAPHICS DISPLAY SYSTEMS
LICENSED PRODUCTS does not include: (i) DEFORMABLE DEVICES; (ii) DMD SYSTEMS; (iii) HETERO-JUNCTION BIPOLAR TRANSISTORS; or (iv) MONOLITHIC UN-COOLED DETECTORS.
License Agreement at 11 (emphasis added). So here are the arguments. Texas Instruments says that Article 1.21 defines “royalty bearing products” by incorporating only “semiconductive elements” and “semiconductive apparatus”—that is, incorporating only “items (c) and (d) set forth in Article 1.20” and not all of Article 1.20. Hyundai disagrees. It argues that Article 1.21 defines “royalty bearing products” by incorporating all of Article 1.20— that is, incorporating “items (c) and (d) set forth in Article 1.20.” Why does it matter? Because if Hyundai’s interpretation is correct (if all of Article 1.20 is incorporated into the definition of “royalty bearing products”), then Article 1.20’s prefatory language is also incorporated into the definition of “royalty bearing products.” As a result, the “covered by” language makes it into the definition of “royalty bearing products.” thereby requiring each royalty bearing product to be “covered by” a claim of a Texas Instruments patent or Texas Instruments Participation Patent. It is upon this cross-referencing and incorporation that Hyundai bases its “TI Country Concept” interpretation of the License Agreement; that is, the only products which count toward the sales cap calculation are products which are “covered by” a Texas Instruments patent — products that practice a Texas instruments patent, in force at the time the product is sold, in the country in which the sale occurs. All other countries, according to Hyundai, are “Non-TI Countries” which do not count toward the sales cap calculation since those particular products are not “covered by” valid patents in those individual countries.
Before delving into the particulars and losing the forest for the trees, this Court must first make a general observation about the License Agreement itself. Although the “sales cap’ provision is the focus of this Court’s attention, there are in fact two “cap” provisions: a “sales cap” provision and a “royalty cap” provision. As previously mentioned, the sales cap provision lies in Article 5.2(A)(ii) and is the focus of this Court’s attention. Once it is triggered, the contract terminates and Hyundai is no longer licensed to use Texas Instruments’ products without infringement. Under the License Agreement, Hyundai agreed to pay Texas Instruments “royalties” for the use of Texas Instruments’ products. The calculation of royalties owed by Hyundai expressly depends on the amount of “royalty bearing products.” However, the amount of royalties per year is “capped” — that is, although Hyundai must periodically pay a certain amount of royalties, that amount shall not exceed a specific amount set for each year. Part of the confusion lies in the interplay of these facets of the contract, particularly since the “sales cap” itself lies within the “Royalties” article (sales-cap provision 5.2(A)(ii) lies within “Royalties” Article 5). The dynamics of the sales cap and royalty provisions will prove crucial to a proper interpretation of the License Agreement.
10. Harmonizing Article 5.2(A)(ii) With the Whole License Agreement
A. Articles 1.10, 1.11,1.20 and 1.21 — Definitions, Cross-References, and Incorporation
At the outset, this Court notes that Article 1.21, the article defining “royalty bearing products,” references “items (c) and (d) set forth in Article 1.20.” License Agreement at 12 Rather than simply say “semi-conductive elements” and “semiconductive apparatus,” the parties chose to say “items (c) and (d) set forth in Article 1.20.” Article 1.20 is the “Licensed Products” article. The parties chose to reference “semicon-ductive elements” and “semiconductive apparatus” set forth in Article 1.20 (the “Licensed Products” provision) even though “semiconductive elements” and “semicon-ductive apparatus” are themselves defined in Articles 1.10 and 1.11, the provisions that define “semiconductive elements” and “semiconductive apparatus.” License Agreement at 6-8.
Thus, in Article 1.21 the parties initially chose “items (c) and (d) set forth in Article 1.20” instead of simply saying “semicon-ductive elements” and “semiconductive apparatus” which are specifically defined in Articles 1.10 and 1.11 of the License Agreement. At first glance, this suggests a meaning for “semiconductive elements” and “semiconductive apparatus” altogether different than those definitions specifically provided in the License Agreement. However, in the same Article — Article 1.21 — the parties later chose to simply say “semiconductive elements” and “semicon-ductive apparatus,” thereby explicitly relying upon Articles 1.10 and 1.11 which specifically define those terms. If this Court were to adopt Hyundai’s interpretation of that provision, the definition of “royalty bearing products” would abound in complicity and inequity.
Here is what would happen to Article 1.21 (the article defining “royalty bearing products”) were this Court to adopt Hyundai’s interpretation. Article 1.21 would initially include only licensed semiconduc-tive elements and semiconductive apparatus as “royalty bearing products” applicable to the sales cap calculation. However, in the same breath, Article 1.21 would exclude both licensed and non-licensed semiconductive elements and semiconduc-tive apparatus “which are discrete devices such as transistors, photo transistors, diodes and SCRs” (regardless of whether they are “licensed” or not) from the sales cap calculation. License Agreement at 12. “Semiconductive elements” and “semicon-ductive” apparatus would take on different meanings in the same calculation, thereby warping the math in favor of Hyundai. The net result would be that Hyundai would be required to include only “licensed” semiconductive elements and sem-iconductive apparatus toward the sales cap calculation, while it could simultaneously exclude all semiconductive elements and semiconductive apparatus which are discrete devices from the same calculation. All of this results, of course, from the differing definitions of “semiconductive elements” and “semiconductive apparatus” within Article 1.21 defining royalty bearing products. .
So what if Article 1.21 replaced “semi-conductive elements” and “semiconductive apparatus” with its previously employed “items (c) and (d) set forth in Article 1.20?” That is, what if Article 1.21 used consistent terminology throughout its royalty-bearing-product definition? This would harmonize the article, and provide consistency to Article 1.21, but it would not solve the problem of Article 1.20’s incorporation. If this Court were to adopt Hyundai’s interpretation, it would have to rewrite Article 1.21 so that it read: “ ‘ROYALTY BEARING PRODUCTS’ means LICENSED PRODUCTS provided for in items (c) and (d) set forth in Article 1.20...” (emphasis added to show additional language required for Hyundai’s in-. terpretation). In fact, the parties used this precise language when they intended for “items (c) and (d) set forth in Article 1.20” to be “LICENSED PRODUCTS” In two articles — Articles 1.3 and 3.9 — the parties actually said “LICENSED PRODUCTS provided for in items (c) and (d) only, of Article 1.20.” See Articles 1.3, 3.9, License Agreement at 4, 25. By simply referencing “items (c) and (d)” the parties did not intend to incorporate by reference all of Article 1.21 into the definition of royalty bearing products. Had the parties intended royalty bearing products to mean licensed semiconductive elements and semiconductive apparatus other than discrete devices, they would'have simply said so like they did in Articles 1.3 and 3.9 of the License Agreement. Hyundai’s interpretation renders the “LICENSED PRODUCTS” language in these provisions meaningless. Simply put, Hyundai’s “TI Country Concept” interpretation does overall violence to the License Agreement.
K Article 5 in its Entirety — Royalties for Nothing, Chips for Free
Once again, Article 5, entitled “Royalties,” contains within it both of the “caps” — the sales cap and the royalties cap. Hyundai cautions this Court not to confuse the sales cap provision with the royalty cap provision. Mindful of this warning, the Court nonetheless notes that a single definition of “royalty bearing products” applies to numerous provisions dealing with both the sales cap (Article 5.2(A)(ii)) and royalty calculations. That is, the License Agreement sprinkles the same term — royalty bearing products— throughout provisions of Article 5 that deal with calculation of both the sales cap and the payment of royalties. See License Agreement, Articles 5.1(b) and (c), 5.2(A) (ii), 5.S, and 5.6. Thus, the interpretation of “royalty bearing products” necessarily implicates both the sales cap provision and provisions relating to the calculation of royalties.
If royalty bearing products are indeed only “licensed” products (products that practice a Texas Instruments patent, in force at the time the product is sold, in the country in which the sale occurs), then under the License Agreement Hyundai has committed itself to paying millions of dollars for Texas Instruments products that are in fact not “licensed.” Here is why. Articles 5.1(b), 5.1(c), and 5.2 provide mechanisms for calculating the royalties that Hyundai owes Texas Instruments for the sale of its products under the License Agreement Each provision contains identical language for making the royalty calculation: “eight percent (8%) of the NET SALES BILLED of all ROYALTY BEARING PRODUCTS used, leased, sold or otherwise disposed of by HEI or its SUBSIDIARIES...” See Articles 5.1(b), 5.1(c), and 5.2, License Agreement at 29-30. In order for Texas Instruments to establish just one of its products as a royalty bearing product under Hyundai’s interpretation of that term, Texas Instruments would have to study the patent laws of the country in which the sale is made by Hyundai, file a patent-infringement lawsuit against Hyundai on that single product, and win a verdict of infringement against Hyundai under the patent laws of that particular country for that particular product. Notwithstanding the extraordinary time and expense involved in such an endeavor, what does all of that achieve? Well, Texas Instruments inches toward the sales cap and gets a few extra bucks in royalties since it has now “established” this single product as a “licensed” product “covered by” the claim of a Texas Instruments Patent or Texas Instruments Participation Patent. The only way the parties could establish “royalty bearing products” to determine royalties would be through product-by-product, patent-by-patent, country-by-country litigation. In order to reach the sales cap provision and reap the rewards of its royalties, Texas Instruments would literally have to file (and win) a patent-infringement lawsuit for each product for each country where Hyundai is selling that particular Texas Instruments product. This global litigation war would turn into a litigation holocaust — with the bulk of the fighting going on in a New York federal court.
An even more bizarre result occurs from Hyundai’s “TI Country Concept.” Under Hyundai’s “TI Country Concept” interpretation of the License Agreement, Texas Instruments would have to prove up each “licensed product” as a product that practices a Texas Instruments patent, in force at the time the product is sold, in the country in which the sale occurs — a product “covered by” a valid Texas Instruments patent or Texas Instruments Participation Patent. So what is Hyundai licensed to sell under the License Agreement? By Hyundai’s interpretation, nothing until Texas Instruments takes a patent infringement verdict against Hyundai on that particular product under the patent laws of the country in which Hyundai’s sale occurs. The License Agreement, then, actually licenses nothing. Hyundai is not “licensed” under the License Agreement until Texas Instruments brings, and wins, a patent infringement lawsuit against Hyundai on a Texas Instruments product for the eountay in which the particular product was sold — ’thereby proving it is “covered by” a valid Texas Instruments patent and, consequently, a “licensed product.” By simply executing the License Agreement Hyundai agreed to pay 58,400,000.° Article 5.1, License Agreement at 29. So, what Hyundai urges this Court to hold is that the License Agreement provides mechanisms whereby it pays millions of dollars for products that it is probably (absent litigation) not even licensed to use. That is, this fifty-five page License Agreement actually licenses nothing until the parties battle each other in court. It gets worse.
In footnote thirty-nine, this Court began with a simple example of Hyundai’s “TI Country Concept” interpretation of the License Agreement. Now, this Court will take that simple example and show how the “TI Country Concept” interpretation of the License Agreement devolves into a legal nightmare. Okay, say that Hyundai makes a DRAM (“dynamic random access memory”) product in Korea — under Hyundai’s interpretation, a “Non-TI Country.” That DRAM made in Korea (incidentally, Hyundai’s home) is not “covered by” a valid, Korean-issued Texas Instruments patent and thus is not licensed under the License Agreement. Hyundai then sells that DRAM to a Taiwanese personal computer (“PC”) manufacturer, “Tai-PC, Mfg.,” which incorporates it into a PC in Taiwan, another “Non-TI Country” under Hyundai’s interpretation. Thus, the DRAM remains unlicensed. If Tai-PC, Mfg. then sells its PC containing the unlicensed DRAM to Compaq in the United States, it is still unlicensed. Plowever, Tai-PC, Mfg. and Compaq are subject to actions in the United States for direct infringement; and Hyundai itself, if it knew or had reason to know the DRAM was ultimately bound for the United States, would be subject to suit for inducing infringement. The License Agreement would not protect Hyundai because it only protects Hyundai for making, using, selling, or importing products into the United States. In this particular example, Hyundai did not make the DRAM in the United States, did not use it in the United States (Compaq did), did not sell it in the United States (Tai-PC, Mfg. and Compaq did), and did not import it into the United States (Tai-PC, Mfg. and Compaq did). The License Agreement simply does Hyundai no good. Similarly, Hyundai’s United States License cannot be used vicariously by either Tai-PC, Mfg. or Compaq since, by definition, they are not Hyundai and the license only covers Hyundai. Under Hyundai’s theory, the DRAM was never licensed to Plyundai. The net result of all this is a random mix of licensed and unlicensed Hyundai products, whereby the unlicensed products, if brought in indirectly from “Non-TI Countries,” would subject Hyundai to claims of inducing infringement.
Before this Court departs Article 5, it must visit a few of its other provisions. Hyundai directs this Court to Article 5.3 which holds, in part, “Royalties shall not be due from HEI for, and HEI’s cumulative worldwide sales of ROYALTY BEARING PRODUCTS specified in (ii) of Article 5.2(A) shall not include, any ROYALTY BEARING PRODUCTS (i) the manufacture, use, lease, importation, sale or other disposal of which is not licensed hereunder...” License Agreement at 31. Hyundai says this provision “clearly requires sales counted toward the sales cap to be sales of LICENSED PRODUCTS.” Hyundai’s Opposition Brief at 16 (Hyundai’s emphasis). First, note the sleight of hand — “LICENSED PRODUCTS” appears nowhere in that provision. Apparently, Hyundai is seizing upon the “licensed hereunder” language and re-writing it to “clearly” read “LICENSED PRODUCTS” (which is specifically defined in Article 1.20). Once again, “LICENSED PRODUCTS” is itself defined in article 1.20. Had the parties wanted to draft this provision so as to support Hyundai’s “TI Country Concept,” they would have simply added “LICENSED PRODUCTS” to that provision so that it read: “ROYALTY BEARING PRODUCTS that are LICENSED PRODUCTS specified in (ii) of Article 5.2(A) ....” This they did not do. Moreover, this Court notes that Article 5.3, like many other provisions of the License Agreement, refers to “HEI’s cumulative worldwide sales of ROYALTY BEARING PRODUCTS.” License Agreement at 31. Had the parties intended for cumulative worldwide sales to be restricted to licensed products, they would have simply said: “cumulative worldwide sales of ROYALTY BEARING PRODUCTS that are LICENSED PRODUCTS.” Once again, this they did not do.
One final provision of Article 5 deserves visiting. Article 5.4 reads, in its entirety: The parties acknowledge that the royalty rates specified in Article 5, the method for calculation of royalties, and the method of payment of royalties under this Agreement, take into consideration
(1) the value of the licenses granted to HEI and TI under this Agreement, and (2) the administrative convenience of the parties hereto.
License Agreement at 32 (emphasis added).
Of particular interest to this Court is the “administrative convenience” language employed by the parties. Hyundai argues, and this Court concedes, “that Article 5.4 expressly and exclusively addresses ‘the royalty rates set forth in Article 5, the method for calculation of royalties, and the method for calculation of royalties. ’ ” Hyundai’s Opposition Brief at 23 (emphasis added). Thus, Hyundai argues, Texas Instruments can not employ this language to support its interpretation of the sales cap since this particular provision is devoted strictly to royalties. The first warning by Hyundai to this Court was not to confuse the sales cap and the royalty cap. This was good advice; and this Court has not confused the sales cap with the royalty cap. However, now Hyundai wards this Court off of language simply because it relates to royalties and not the sales cap calculation. This is not such good advice. The sales cap provision and royalty calculation provisions have a common bond— the term “royalty bearing products.” Interpretation of the term “royalty bearing products” necessarily implicates Articles 5.1, 5.2 (including the sales cap and royalty calculation provisions), 5.3 (the provision Hyundai urges this Court to disregard), and 5.6 of the “Royalties” Article. Indeed, the term “royalty bearing products” appears throughout the License Agreement no less than twenty times. Due to its ubiquitous presence throughout the License Agreement, the term “royalty bearing products” necessarily implicates interpretation of the entire contract — sales cap and royalty calculations alike.
Since interpretation of royalty bearing products expressly implicates calculation of royalties in Article 5, the “TI Country Concept” interpretation of royalty bearing products that leads to administrative inconvenience would cut against the express intention of the parties contained within Article 5.4. Product by product, patent by patent, country by country determination of royalty bearing products, and consequently, calculation of royalties owed by Hyundai, can hardly be called administratively convenient, In fact, Hyundai’s “TI Country Concept” interpretation of the License Agreement is an administrative nightmare. Moreover, Hyundai’s “TI Country Concept” leads to yet another bizarre result. Under both Article 5.1 and 5.2 royalty calculation provisions, Hyundai’s royalties owed under the contract are “eight percent (8%) of the NET SALES BILLED of all ROYALTY BEARING PRODUCTS used, leased, sold or otherwise disposed of by HEI or its SUBSIDIARIES.” License Agreement at 29-30. However, under Hyundai’s “TI Country Concept” interpretation of the License Agreement, there are no “royalty bearing products” until Texas Instruments wins a verdict of infringement against Hyundai on that product, on that particular patent, under the patent laws of the particular country in which that product was sold (abbracadabbra — now it is a royalty bearing product). So, under Hyundai’s theory, it owes Texas Instruments no royalties since, technically, there are no royalty bearing products until Texas Instruments proves them up by piece-meal litigation; and, under the very terms of the contract, it has automatically paid millions of dollars for nothing. Moreover, Hyundai would never really know which of Texas Instruments’ products it is “licensed” to use under the License Agreement since its “TI Country Concept” requires litigation to establish what is “covered by” the contract. Finally, since Texas Instruments has to prove up (by litigation) each product as a royalty bearing product before it counts against Hyundai under the sales cap provision, Hyun