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Eastman Kodak Company v. Asia Optical Co.

March 16, 2012

EASTMAN KODAK COMPANY, PLAINTIFF,
v.
ASIA OPTICAL CO., INC., DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge:

OPINION & ORDER

Plaintiff Eastman Kodak Company ("Kodak") brings this action to recover royalties it claims it is owed pursuant to a patent licensing agreement with defendant Asia Optical Company, Inc. ("AO"). On December 16, 2011, Kodak moved for partial summary judgment on the issue of whether the licensing agreement between the parties requires AO to pay Kodak royalties on AO's digital camera sales to Fujifilm ("Fuji").*fn1 Kodak's motion is granted.

Background

The following facts are undisputed unless otherwise noted. Kodak has more than 1,000 patents related to digital camera technology. It licenses its patents to digital camera manufacturers, including both companies that market digital cameras under their own brand name and companies that primarily assemble cameras for sale under other companies' brand names. AO, a Taiwan corporation, is the latter type of company. In April 2009, Kodak and AO entered a licensing agreement whereby Kodak licensed its full set of digital camera patents to AO and AO agreed to pay royalties on the sales of certain digital cameras it manufactured.

Two documents must be considered to analyze the scope of the licensing agreement between the parties. The first, a Patent License Agreement ("PLA") signed by the parties on April 9, 2004, licenses Kodak's digital camera patents to AO in exchange for royalties on sales of digital cameras manufactured by AO and incorporating Kodak patents. The second, an April 9, 2004 letter (the "Side Letter"), discusses the PLA and describes, inter alia, circumstances under which AO may not be required to pay Kodak a royalty on cameras it manufactures using Kodak patents.

Under § 4.2 of the PLA, AO is required to "pay Kodak . . . a second commuted royalty on the worldwide Net Sales of all OEM Licensed Products."*fn2 The PLA defines "OEM Licensed Product"*fn3 as "Licensed Product sold or otherwise disposed of under tradename or trademark that is owned by a third party."*fn4 In exchange for AO's promise to pay royalties, Kodak granted AO a right to use its "Kodak Patents" in manufacture and sales of digital cameras. The PLA defines "Kodak Patents" as "all classes or types of patents . . . in all countries of the world which are owned or licensable by Kodak or its Subsidiaries during the term of this Agreement." The PLA specifies six patents, but notes that it is not limited to these patents. The list of specified patents includes U.S. Patent 5,016,107 (the "'107 Patent").

Section 5.6 of the PLA provides: In the case where Digital Cameras are sold by Asia Optical to an existing Kodak licensee under the Digital Camera Portfolio, and sold under that licensee's Trademark or Tradename, then it shall be presumed that Asia Optical shall be responsible for the royalty payment to Kodak for those Digital Cameras under this Agreement. However, if the existing licensee elects to pay Kodak, and pays Kodak in full, for Digital Cameras made and provided by Asia Optical[,] those Digital Cameras shall not be included in calculating Net Sales under this Agreement so long as that licensee pays in full Kodak royalties under its Agreement with Kodak. Asia Optical shall indicate on its royalty report the model Digital Cameras excluded from royalties due under this clause and the name of the existing Kodak Licensee responsible for payment of the royalty. (Emphasis added). "Digital Camera Portfolio" is not a defined term in the PLA.

Finally, the PLA is an integrated agreement. It provides that the document "constitutes the entire Agreement between the parties with respect to the subject matter hereof. Any modification of this Agreement shall be set forth in writing and duly executed by both parties."

The parties made a written modification that same day. On April 9, 2004, the parties executed the Side Letter.*fn5 The first section of the Side Letter states: "The purpose of this letter is to clarify some of the language in Kodak's standard [PLA] as it pertains to Asia Optical, Inc." The Side Letter proceeds through ten bolded subheadings, addressing various provisions of the PLA. The fifth section of the Side Letter provides:

5. Which Licensee is obligated to pay the royalty? Kodak's policy is that the brand owner, if licensed, has the first option to pay the royalty or to transfer the royalty payment obligation to its supplier, if such supplier is licensed. This option is set forth in Paragraph 5.6. Almost all licensed brand owners have chosen to pay the royalty themselves. Upon request, Kodak, [sic] will provide Asia Optical with a list of licensed brand owners who pay Kodak the royalty for all their branded product sales. If the brand owner does not exercise the option to pay the royalty, a supplier who is the Original Design Manufacturer (ODM) has the responsibility to pay the royalty. Pure contract assembly without design responsibility, or simple provision of parts does not obligate Asia Optical to pay a royalty. (Emphasis added). In its final section, titled "Name of Licensees", the Side Letter states: "Kodak's current camera-selling licensees are Olympus, Sanyo, Konica (including Minolta, Casio Ricoh, Kyocera, and Samsung." It does not list Fuji as a current licensee.

Through an agreement dated April 21, 1995 (the "Fuji Agreement"), Kodak granted Fuji a license to two specific digital camera patents and an option to license a third. One of the two Kodak patents licensed in the Fuji Agreement is the '107 Patent, designated in the agreement as the "Kodak Licensed Detachable Memory Cartridge Patent".*fn6 Sections 3.1 and 3.2 of the Fuji Agreement grant Fuji a license to the '107 Patent, the other specific digital camera patent licensed to Fuji, and their "Corresponding Patents". Section 1.8 defines "Corresponding Patents" as "all patents and examined applications which are based on and claim all or part of the same subject matter disclosed and claimed by" the specific patents licensed or optioned through the Fuji Agreement. The Fuji Agreement was not royalty-bearing, and did not require Fuji to make any payment to Kodak in connection with the licensed Kodak patents.

In approximately 2005, after Kodak and AO signed the PLA, AO began making digital cameras as an OEM for Fuji. AO has made no royalties payments to Kodak on its OEM digital camera sales to Fuji.

Discussion

Summary judgment may not be granted unless all of the submissions taken together "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination, the court must view all facts "in the light most favorable" to the nonmoving party. ...


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