940 F.3d 1372
Fed. Cir.2019Background
- Fraunhofer, a German research org., granted WorldSpace an exclusive, worldwide, irrevocable license (Master Agreement, German law) to multicarrier modulation (MCM) patents; WorldSpace could sublicense.
- SXM obtained a sublicense from WorldSpace in 1998–1999 to use MCM technology for its DARS system; the sublicense was later amended to be “irrevocable.”
- WorldSpace entered bankruptcy (filed 2008; converted to Chapter 7 in 2012) and rejected the Master Agreement in the bankruptcy proceedings; a 2009 settlement preserved SXM’s sublicense and discharged its payment obligations to WorldSpace.
- In 2015 Fraunhofer sent a termination letter asserting the Master Agreement was terminated (alternatively terminated under German law), then sued SXM in 2017 for infringement of four patents covered by the Master Agreement and sublicense.
- The district court applied U.S. law and dismissed Fraunhofer’s complaint under Rule 12(b)(6), holding SXM had a valid license defense; it also denied Fraunhofer leave to amend. The Third Circuit reviewed de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for Master Agreement interpretation | Master Agreement's German-law clause not properly raised below; U.S. law should apply or German courts would look to U.S. law | German-law clause governs interpretation | Court: Parties failed to prove foreign law; apply U.S. law (Third Circuit rule) |
| Whether Master Agreement was terminated | Fraunhofer: WorldSpace’s bankruptcy rejection + contractual termination provisions (§7.2, §7.3) and November 2015 letter terminated the agreement | SXM: Rejection is a breach, not rescission; termination disputed and unresolved | Court: Termination is factbound; cannot resolve on 12(b)(6); remand for factual findings |
| If Master Agreement terminated, do SXM’s sublicense rights survive? | Fraunhofer: Contract language (e.g., §7.4, §7.5) and unpaid obligations mean sublicense did not survive termination | SXM: Sublicense was complete, irrevocable, and survived termination; settlement/performances support survival | Court: Contract ambiguous; survival depends on extrinsic evidence; issue not resolvable on motion to dismiss; remand to develop record |
| Denial of leave to amend | Fraunhofer: Proposed amendment added extrinsic facts and documents showing termination circumstances and should be allowed | SXM: Amendment would be futile because sublicense is a complete defense | Court: District court erred; amendment should have been allowed (no futility shown) |
Key Cases Cited
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (rejection in bankruptcy effects a breach but does not rescind/terminate the contract)
- Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323 (Fed. Cir. 2002) (discusses limits of treatises on sublicense survival and bona fide purchaser defense)
- Bel‑Ray Co. v. Chemrite Ltd., 181 F.3d 435 (3d Cir. 1999) (parties must raise and prove foreign law for court to apply it)
- Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 (1989) (contract interpretation ordinarily governed by state law)
- Foman v. Davis, 371 U.S. 178 (1962) (leave to amend should be freely given absent reasons like futility)