Unova, Inc. v. Acer Incorporated and Acer America Corporation, and Apple Computer Inc., Gateway Inc., Fujitsu Ltd., and Fujitsu Pc Corporation, and Hewlett-Packard Company, and Nec Corporation and Nec Computers Inc.
Docket: 03-1244
Court: Court of Appeals for the Federal Circuit; March 30, 2004; Federal Appellate Court
Unova, Inc. appeals a summary judgment from the United States District Court for the Central District of California, which favored Hewlett-Packard Company. The court ruled that a settlement agreement between Unova and Compaq Computer Corporation released Hewlett-Packard from liability regarding patent infringement of Unova's smart battery technology. The essential components of the settlement included mutual releases, covenants not to sue, and licenses, particularly highlighting that section 3.1 released Compaq and its "parents" from liability for infringement. After Hewlett-Packard acquired Compaq, Unova filed suit against Hewlett-Packard for infringement. The district court concluded that the release in the settlement agreement applied to Hewlett-Packard as Compaq's parent and was broad enough to encompass actions before and after the settlement date. The court also determined that the release was not limited to Compaq-branded products. Consequently, the judgment was entered in favor of Hewlett-Packard, with the court retaining jurisdiction to address attorney fees and costs. On appeal, the Federal Circuit reversed the district court's decision, stating that the Unova-Compaq settlement agreement did not release Hewlett-Packard from liability.
Unova appealed a district court's summary judgment ruling in favor of Hewlett-Packard (HP), asserting that the court erred in applying California law regarding the interpretation of their settlement agreement with Compaq. The appellate court reviews summary judgment de novo, meaning it applies the same legal standard as the district court. Summary judgment is permissible when no genuine material fact issues exist, and all evidence must be viewed favorably towards the non-moving party.
Unova contends that California law strongly presumes against extending release benefits to third parties, which HP failed to counter by proving that Unova and Compaq intended to release HP from liability for patent infringement. Unova highlights specific provisions of the settlement, arguing that the release does not protect HP from pre-parental liability or non-Compaq-branded products, and indicates that the parties' intentions at the time of the settlement did not align with benefiting HP.
In contrast, HP argues that the district court's ruling should be upheld, citing California law that allows for broad releases without a presumption against third-party beneficiaries. HP maintains that the settlement's release provision explicitly covers it as Compaq's parent and is not restricted to Compaq-branded products.
Ultimately, the appellate court agrees with Unova, determining that the district court incorrectly granted summary judgment to HP because the Unova-Compaq settlement agreement does not release HP from liability regarding the smart battery patents. The court emphasizes that settlement agreements are interpreted based on mutual intentions at the time of contracting, according to California law, and the language within the contract should be clear and explicit without leading to absurd conclusions. The court will consider the overall context of the contract and the circumstances surrounding its creation to ascertain the parties' true intentions.
California courts require that a third party's rights under a release agreement must reflect the intent of the contracting parties to benefit that third party, with the burden on the third party to demonstrate such intent. This intent must be evident in the contract's language, although evidence of the parties' circumstances and negotiations is admissible in interpreting the contract. In assessing the settlement agreement between Unova and Compaq, it is concluded that they did not intend to release Hewlett-Packard from liability for any infringement that occurred before Hewlett-Packard became Compaq's parent. The release language indicates that Unova released Compaq, its parents, and subsidiaries from claims related to any infringement events up to May 4, 2001. Since Hewlett-Packard was not Compaq's parent on that date, it does not benefit from the release. Although Hewlett-Packard contends that interpreting "parents" to mean only those existing at the time would render the term meaningless, the interpretation aligns with the plain language of the release and the context of the agreement, which does not imply future parents. Therefore, Hewlett-Packard remains liable for infringement of Unova's smart battery patents prior to its acquisition of Compaq.
The interpretation of the release provision in the settlement agreement indicates that Unova did not release Hewlett-Packard (HP) from liability for patent infringement related to the Smart Battery Patents. Key provisions, specifically sections 4.1 and 4.3, establish that Unova cannot sue Compaq or its subsidiaries for infringement by Compaq-branded products and grants them a perpetual, royalty-free license under those patents. However, these benefits do not extend to HP concerning non-Compaq-branded products. The agreement suggests that it would be inconsistent for Unova to release HP from liability for past infringements while retaining the right to sue for future infringements after HP became Compaq's parent, as no such intent is expressed in the agreement.
Further supporting this interpretation, section 5.4 indicates that if Unova entered a more favorable third-party license with HP, Unova would need to compensate Compaq for the difference, implying that Unova and Compaq did not intend for the settlement to benefit HP. Additionally, the context of the settlement—stemming from Unova and Compaq's own patent infringement claims, while HP was involved in separate litigation—reinforces that Unova and Compaq likely did not wish to release HP from infringement liability.
The document concludes that there is no need to consider extrinsic evidence regarding the intent of the parties, as the settlement agreement clearly indicates that Unova and Compaq did not aim to release HP from liability. Under California law, the parties' intent should be determined primarily from the written agreement, and HP cannot rely on external evidence to assert a release that is not explicitly stated in the agreement itself.
Hewlett-Packard argues against Unova's entitlement to partial summary judgment on the issue of release based on two main points. First, HP claims there are genuine issues of material fact regarding whether certain accused products qualify as "Compaq Products." However, the court finds that the release provision does not cover Hewlett-Packard, Compaq's future parent, thus making further consideration of product classification unnecessary. Second, HP seeks additional discovery under Federal Rule of Civil Procedure 56(f) related to negotiations of the Unova-Compaq settlement. The court denies this request, asserting that the sought evidence would not alter the determination regarding the release's intent as detailed in the settlement agreement, consistent with established legal precedent.
Consequently, the court concludes that the Unova-Compaq settlement does not release Hewlett-Packard from liability for infringement of Unova's smart battery patents, granting summary judgment in favor of Unova on HP's affirmative defense of release. The decision of the district court is reversed and remanded for further proceedings. The ruling is limited solely to the release provision’s effect on Hewlett-Packard's liability, with no commentary on other aspects of the settlement agreement. HP's position that California law allows broad releases and that the release applies to it as Compaq's parent is noted, but ultimately, the court's interpretation of the release does not support HP's claims.
The district court incorrectly granted Hewlett-Packard's motion for summary judgment, as the Unova-Compaq settlement agreement did not release Hewlett-Packard from liability for infringement of smart battery patents. Under California contract law, the mutual intention of the parties at the time of contracting guides interpretation, with clear contract language taking precedence. For third-party releases, California courts require the third party to demonstrate the contracting parties' intent to release them, which must be evident in the contract terms. Moreover, the context and negotiations surrounding the contract can be considered.
Analyzing the settlement agreement as a whole indicates that Unova and Compaq did not intend to release Hewlett-Packard from liability for pre-acquisition actions. The release provision specifies that Unova released Compaq and its subsidiaries from claims related to prior acts of infringement, but since Hewlett-Packard was not Compaq's parent at the time of the release (May 4, 2001), it does not benefit from this release. Hewlett-Packard contends that interpreting "parents" to refer only to Compaq's existing parents would make the term meaningless, as Compaq had no parents at the time of the agreement.
The release provision in the settlement agreement between Unova and Compaq is interpreted based on its plain language and the authors' intent. Written in the present tense, it explicitly states that Unova releases Compaq and its subsidiaries but does not extend this release to Compaq's future parents, as they did not modify the term "parents" to include future entities. Consequently, since Hewlett-Packard became Compaq's parent nearly a year after the settlement, it is not shielded from liability for infringing Unova's smart battery patents.
The interpretation aligns with the overall structure of the settlement, particularly the covenant-not-to-sue and license provisions, which apply only to Compaq-branded products. As such, Hewlett-Packard does not benefit from these provisions for non-Compaq-branded products. Furthermore, section 5.4 indicates that if Unova grants a more favorable license to Hewlett-Packard, it must compensate Compaq, suggesting that Unova and Compaq did not intend for the settlement to benefit Hewlett-Packard.
The context of the settlement indicates that it was designed to resolve Unova and Compaq's cross-claims, with Hewlett-Packard's actions being unrelated to that litigation, further supporting the conclusion that no release from liability was intended for Hewlett-Packard.
Unova and Compaq did not intend to release Hewlett-Packard from liability for past infringement of smart battery patents during their unrelated litigation settlement. The settlement agreement, interpreted as a whole, clearly demonstrates this intent, rendering extrinsic evidence unnecessary for its interpretation. Under California law, the parties' intent must be evident within the agreement itself, and Hewlett-Packard cannot use extrinsic evidence to claim a release from liability absent such intent in the agreement.
Additionally, Hewlett-Packard raised two arguments against Unova's motion for partial summary judgment. First, it argued there are genuine material facts regarding whether certain products are "Compaq Products," but this point is moot since the release provision does not extend to future entities like Hewlett-Packard. Second, it sought further discovery under Federal Rule of Civil Procedure 56(f) about the settlement negotiations, but this request was denied as the evidence would not affect the summary judgment outcome.
Consequently, it was concluded that the Unova-Compaq settlement does not release Hewlett-Packard from liability for patent infringement, granting Unova summary judgment on the release defense and leading to a reversal and remand for further proceedings consistent with this ruling.
Apple Computer Inc., Gateway Inc., Fujitsu Ltd., Fujitsu PC Corporation, NEC Corporation, and NEC Computers Inc. are not involved in this appeal. Unova accused infringement of eight patents, including U.S. Patent 6,252,380, which is related to the '340 patent and classified as a smart battery patent under the Unova-Compaq settlement agreement. Hewlett-Packard contends that section 6.3 of the settlement indicates that Unova and Compaq aimed to preserve the rights of Compaq's future parent companies under the release provision. The interpretation of the release provision aligns with section 6.3, ensuring that the release granted to Compaq by Unova persists through any sale or merger, allowing Compaq to retain the benefits of this release. The appeal focuses solely on whether the release provision of the Unova-Compaq settlement frees Hewlett-Packard from liability for infringement in the current lawsuit, and the court does not address the implications of other provisions of the settlement agreement on Hewlett-Packard's liability.
