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International Business Machines Corp. v. United Microelectronics Corp.

United States District Court, S.D. New York

September 7, 2017

INTERNATIONAL BUSINESS MACHINES CORP., Plaintiff,
v.
UNITED MICROELECTRONICS CORP., Defendant.

          OPINION & ORDER

          WILLIAM H. PAULEY III, UNITED STATES DISTRICT JUDGE.

         International Business Machines Corporation (“IBM”) brings this breach of contract action against United Microelectronics Corporation (“UMC”) seeking approximately $10 million in damages. UMC moves to dismiss IBM's Complaint for failure to plead a condition precedent under Rule 9(c). IBM moves separately for summary judgment. For the reasons that follow, UMC's motion to dismiss is denied, and IBM's motion for summary judgment is granted.

         BACKGROUND

         The gravamen of IBM's Complaint is that UMC failed to make a $10 million “amendment” payment in breach of a 2013 Technology Licensing Agreement (the “2013 Agreement”).

         I. The 2013 Agreement

         The 2013 Agreement amends a previous licensing agreement between the parties in which IBM granted UMC a technology license to manufacture silicon wafers (the “Technology License”) at facilities located in the United States, Japan, Singapore, and Taiwan. In June 2013, following UMC's request to expand the geographic scope of the Technology License to the People's Republic of China (“China”), the parties entered into the 2013 Agreement.

         A. Majority Owned Subsidiary and Named Facility

         Under the 2013 Agreement, the Technology License may only be sub-licensed to what the agreement defines as a Majority Owned Subsidiary-a company in which UMC maintains at least a 60% interest and a Chinese government agency owns the remaining 40%. (Reply Declaration of Salvatore P. Tamburo, ECF No. 49, Ex. A (the “2013 Agreement”), § 1.19.) The 2013 Agreement further provides that the silicon wafers must be manufactured at a Named Facility-a wafer semiconductor fabrication facility located in China owned and controlled by the Majority Owned Subsidiary-that UMC must identify to IBM. (2013 Agreement, § 1.19B.)

         B. Parties' Obligations

         Under the 2013 Agreement, IBM agreed to amend the parties' previous licensing agreement and granted a non-exclusive, perpetual, and irrevocable Technology License for use in China. (2013 Agreement, § 3.) Use of such license, however, was conditioned on performance by UMC. The 2013 Agreement sets forth UMC's obligations in the following terms:

Anytime between January 1, 2015 and December 31, 2015 inclusive, [UMC] will pay IBM the fee set forth in Section 4.1A and simultaneously therewith provide notice to IBM of the name of the sole Majority Owned Subsidiary and the name and location of the sole Named Facility. Upon receipt of such payment and notice by IBM, [UMC] will have the rights associated with such Majority Owned Subsidiary and Named Facility granted under this Agreement.

(2013 Agreement, § 2A; see also § 4.1A.)

         The $10 million payment represented “consideration for the licenses and other rights granted for the Named Facility, ” and could be paid anytime between January 1, 2015 and December 15, 2015.[1] (2013 Agreement, § 4.1A.)

         C. Alleged Breach

         In June 2013, the parties executed the 2013 Agreement. However, IBM alleges that UMC paid nothing for the Technology License during the relevant period. (Compl., ¶ 15.) As the payment deadline prescribed in the 2013 Agreement drew near, IBM contacted UMC seeking payment. UMC responded that it had no obligation to pay. It further advised IBM that “it could not obtain the required government regulatory approvals to perform the contract in [China] and that therefore, in its view, it had no obligation to make” payment. (Compl., ¶ 15.) In July 2016, after the parties engaged in contractually mandated pre-suit negotiations that failed to resolve the dispute, IBM filed this action. (Compl., ¶¶ 17-20.)

         DISCUSSION

         I. UMC's ...


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