II. The Eastern District Litigation
Based on its pre-suit investigation, Loral genuinely believed that certain companies were using CCDs that infringed on the patents-in-suit. It then hired the law firm of Wiley, Rein & Fielding ("Wiley Rein") to enforce its rights in the patents-in-suit.
One of Wiley Rein's attorneys, James Wallace, was informed that MacPherson had advised Loral that licenses to the patents-in-suit had been issued but had expired; Wallace knew MacPherson to be an experienced semiconductor lawyer. Based on these representations and others by Wahl and Karambelas, Wallace concluded that there was no deficiency in the pre-suit investigation.
Accordingly, on September 12, 1991 Loral filed the complaint initiating the Eastern District Litigation. The complaint named MEI and Matsushita Electronics Corporation of America (a wholly owned subsidiary of MEI) (collectively, the "Eastern District Matsushita defendants") and various entities that had purchased CCDs from MEC, alleging that they were manufacturing or using CCDs that infringed the patents-in-suit.
On the same day it filed the complaint in the Eastern District Litigation, Loral sent letters to each of the named defendants, informing them of the case and inviting them to engage in "discussions of possible license arrangements" in order to avoid the expense of litigation.
A. The Eastern District Matsushita Defendants Proffer A "Sublicense"
On September 27, 1991, MEI's Intellectual Property Center in Japan wrote to Morton Amster ("Amster") and Michael Berger ("Berger"), counsel for the Eastern District Matsushita defendants, of the possible existence of an "old, expired" letter agreement that might be relevant to the patents-in-suit. At this point, neither Amster nor Berger knew if any sublicense, in fact, existed. Amster, however, recognized that "if indeed there was a license... there could be a huge economic advantage to MEC if they could get that license confirmed quickly and then turn around and tell everyone in the industry... that we are a license source for their CCDs"; Amster recognized that the Eastern District Litigation presented an opportunity for MEC to prove that its CCDs were licensed and thus to convince potential customers to purchase CCDs from it.
Roughly one month later, Amster received documents which MEI claimed established MEC's sublicense. On October 30, 1991, Amster and Berger telephoned Loral Corporation General Counsel Michael B. Targoff ("Targoff") and told him that MEC had a sublicense from N.V. Philips Gloeilampenfabriken ("Philips") pursuant to (1) a 1969 agreement between Fairchild and Philips (the "Technical Exchange Agreement") whereby the signatories cross-licensed to each other hundreds of patents, including the patents for the patents-in-suit and (2) a letter agreement dated December 15, 1969 (the "December 15, 1969 Letter Agreement") between Philips and MEC.
By letter that same day, Amster confirmed his conversation with Targoff and elaborated on the basis for the claimed sublicense. Specifically, Amster explained: CCDs manufactured by MEC were sold to MEI and other Eastern District Litigation named defendants; MEC was a joint venture between Philips and MEI; Fairchild and Philips concluded two broad cross-licensing arrangements involving semiconductor technology, including the November 1969 Technical Exchange Agreement;
and the December 15, 1969 Letter Agreement gave MEC a sublicense to the patents-in-suit as an affiliated company. Additionally, Amster told Targoff that Philips notified Fairchild, by letter dated April 3, 1970 (the "Designation Letter"), that it had designated MEC a Philips' affiliate pursuant to the Technical Exchange Agreement. Amster did not, however, attach to his letter any of the documents that he referenced.
Next, on November 6, 1991, Amster and Berger met with Targoff and furnished only the Technical Exchange Agreement (with the financial terms redacted) and the Designation Letter, which was not on letterhead and was undated. They directed Targoff to certain provisions in the Technical Exchange Agreement and stated their conclusion that it, along with the Designation Letter, proved that MEC had a sublicense to the patents-in-suit.
From Amster's perspective, MEC had supplied Targoff at this point with enough information to prove the existence of a sublicense to the patents-in-suit; he stated at trial that the two documents he provided were a "slam dunk" that clearly showed the sublicense. He expected Targoff to trust his November 6, 1991 representation that MEC was sublicensed to use the patents-in-suit and believed that Targoff did not necessarily need to see all of the relevant, authentic documents: "I think when lawyers who have been around this business for 35, 40 years say something on behalf of a client and their credibility is at stake that serious lawyers on the other side ought to respect that and I thought that Mr. Targoff full well understood that we would not misrepresent knowingly what we understood to be the agreement between two major companies to counsel for another company."
B. Loral Remains Unconvinced That MEC Has A Sublicense
From Loral's viewpoint, the Eastern District Matsushita defendants' warranties and representations were not enough to convince it that others could legally use the patents-in-suit.
In fact, the two documents produced on November 6, 1991 bolstered Loral's belief that a sublicense never existed or had expired. First, the Designation Letter does not, alone and on its face, grant MEC a sublicense, but instead terms it an "affiliate." It reads in its entirety:
We herewith have pleasure in designating Matsushita Electronics Corporation of Osaka as Affiliated Company owned for less than 50% and qualifying under the last sentence of Section 2 b) of Article 1 of the Technical Exchange Agreement between our two companies dated November 1, 1969.