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Eastman Kodak Co. v. Altek Corp.

United States District Court, S.D. New York

March 29, 2013

EASTMAN KODAK COMPANY, Plaintiff,
v.
ALTEK CORPORATION, Defendant

Page 343

[Copyrighted Material Omitted]

Page 344

For Plaintiff: Robert J. Gunther, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, New York, New York; Michael J. Summersgill, Jordan L. Hirsch, Jonathan W. Woodard, Wilmer Cutler Pickering Hale & Dorr LLP, Boston, Massachusetts.

For Defendant: Michael Heafey, Morvarid Metanat, Orrick, Herrington & Sutcliffe LLP, Menlo Park, California; Lisa Simpson, Orrick, Herrington & Sutcliffe LLP, New York, New York.

OPINION

Page 345

DENISE COTE, United States District Judge.

OPINION & ORDER

Plaintiff Eastman Kodak Company (" Kodak" ) brings this action to recover royalties it claims are owed pursuant to a patent licensing agreement with defendant Altek Corporation (" Altek" ). On February 1, 2013, both parties moved for partial summary judgment on the issue of interpretation of the term " open market price" in the licensing agreement. In addition, Kodak moved for summary judgment on the issue of the validity of the licensing agreement. For the following reasons, the plaintiff's motion is granted and the defendant's motion is denied.

BACKGROUND

The following facts are undisputed unless otherwise noted. Kodak is a picture and printing company that owns and licenses an extensive portfolio of digital camera patents. Altek is a Taiwanese company that manufactures digital cameras. Kodak and Altek entered into a patent license agreement in July 2004 (" PLA" ). The PLA was signed by Altek's President Alex Hsia (" Hsia" ) on July 1 and Kodak's Senior Vice President Willy Shih

(" Shih" ) on July 14. Under the PLA, Altek is granted a " non-exclusive, non-transferable license" to use Kodak's entire digital camera patent portfolio. The PLA permits Altek to use Kodak's patents in order to make and sell two types of digital cameras. Specifically, the PLA describes the sale of digital cameras branded with Altek's own tradename (" Altek Branded Licensed Products" ), and digital cameras that Altek sells as an Original Equipment Manufacturer to commercial customers and which bear the tradename of the customer (" OEM Licensed Products" ).

Altek does not presently sell Altek Branded Licensed Products and it does not sell digital cameras directly to the retail market.[1] Instead, Altek operates principally by manufacturing cameras for third parties in accordance with the third parties' specifications. The third parties then distribute the digital cameras to consumers either directly or through distribution channels. For the purposes of this Opinion, the Court will refer to the market in which Altek directly sells its products as the " wholesale market."

Altek's royalty payments to Kodak are calculated on the basis of Altek's " Net Sales" of its OEM Licensed Products and Altek Branded Licensed Products. Section 1.13(b) defines Altek's Net Sales of OEM Licensed Products in two ways, depending on whether the sale was at arms length or not.

(1) In the case of an arms length sale or other disposal of an OEM Licensed Product which is made with Altek's components and/or third party components purchased in an arms length sale, Net Sales shall mean the total net revenue received by Altek and its Subsidiaries resulting from the sale or placement of such OEM Licensed Product whether through purchase, lease or other commercial transaction to Altek's or Altek's Subsidiaries'

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OEM customers, less any Deductions. Components purchased or acquired by Altek or a Subsidiary from an OEM customer for use in manufacturing an OEM Licensed Product for said customer shall be valued for the purpose of royalty determination, at a price equivalent to an arms length transaction purchased from such OEM customer.

(2) In the case of a sale or disposal of an OEM Licensed Product which has not been sold in an arms length transaction, Net Sales shall mean Altek's open market price for such OEM Licensed Product in the country of sale on the date when such sale occurred less any Deducations or, alternatively, if there is no open market price, an imputed price determined on a commercially reasonable basis to be no less than the price of commercially available Digital Cameras in the country of sale which are in respect of features and functions equal or substantially equivalent to Altek's OEM Licensed Product.

(Emphasis supplied.) In other words, if the sale was not in an " arms length transaction," then Net Sales is defined as Altek's " open market price."

The PLA contemplates that Altek will " pay a royalty on all Digital Cameras sold or transferred by Altek or a [sic] Altek Subsidiary to a third party" subject to certain exceptions. One such exception is the exception for Altek's sales of " Contract Assembly Digital Camera[s]." Section 4.14 of the PLA provides the relevant exception:

This paragraph is intended to exclude from OEM Licensed Products those Digital Cameras that Altek makes or sells on a " contract assembly" basis, as defined below. For purposes of this Agreement a Digital Camera is a " Contract Assembly Digital Camera" if and only if the Net Sales collected or received by Altek for said Digital Cameras is less than fifty-percent (50%) of the open market price, or if there is no open market price a commercially reasonable price, of Digital Cameras which are in respect of features and functions equal or substantially equivalent to said Digital Camera. . . .

The PLA was expressly made subject to approval of Altek's Board of Directors. The condition of board approval is referenced twice in the PLA. The first page of the PLA provides:

WHEREAS, Kodak and Altek each represents that it is fully authorized to deal generally with and to make this Agreement respecting the subject matter hereof, subject only to the approval of Altek's Board of Directors in accordance with the provisions set forth below, and the parties desire to enter into this Agreement on the terms hereinafter set forth.

(Emphasis supplied.) Subsequently, in Article IX of the PLA, the parties agreed that

[t]his Agreement is made subject only to the approval of Altek's Board of Directors in accordance with the by-laws of the corporation. Such Board approval shall not be unreasonably withheld, nor shall it be delayed beyond June 30, 2004 local time.

The parties dispute whether formal board approval was ever obtained from Altek's board. In particular, Altek's corporate representative testified that, for some reason, no one at Altek remembered to send the final version of the PLA to Altek's board for approval. Kodak contends that, by signing the PLA after the deadline for obtaining board approval as described in the PLA had passed, Altek

Page 347

impliedly represented that it had necessary board approval. Kodak relies as well on the undisputed facts that between 2004 and 2011, Altek paid royalties to Kodak; that the PLA was amended twice in 2006; and that Altek submitted to an audit of its royalty payments in 2010.

On January 12, 2012, Kodak filed its complaint against Altek asserting causes of action for breach of contract and declaratory judgment of Altek's obligations under the PLA. On June 25, the Court endorsed the parties' proposed schedule for targeted fact discovery. Under this scheduled, the parties were permitted to take discovery relating to the validity of the PLA, the proper interpretation of " open market price" as that term is used in the " Contract Assembly" exception of Section 4.14 of the PLA, and the negotiation of section 4.14 and other sections of the PLA, among other issues. The parties served their cross-motions for partial summary judgment on February 1, 2013. These motions were fully submitted on February 26. Redacted versions of the parties' motion papers were filed on the Electronic Case Filing system in February.

DISCUSSION

A motion for summary judgment may be granted only if the submissions of the parties, taken together, " show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In deciding whether a party is entitled to summary judgment the Court " must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor." Sologub v. City of New York, 202 F.3d 175, 178 (2d Cir. 2000). When, as here, the parties present cross-motions for summary judgment, " the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Heublein Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). The substantive law governing the case will identify those issues that are material, and " only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1987). Thus, in order to decide whether to grant summary judgment, this Court must determine (1) whether a genuine factual dispute exists based on the admissible evidence in the record, and (2) whether the facts in dispute are material based on the substantive law at issue.

I. Choice of Law

In a case grounded in diversity jurisdiction, a federal court " must apply the choice of law analysis of the forum state." GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., Inc., 449 F.3d 377, 382 (2d Cir. 2006). New York courts will honor a choice of law clause found in the parties' contract unless " the most significant contacts with the matter in dispute are in another state." Cap Gemini Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360, 365 (2d Cir. 2003). Furthermore, where the parties' briefs assume New York law controls, this constitutes their implied consent to the application of New ...


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