Lead Opinion
In this case we review the district court’s interpretation of a most favored licensee (“MFL”) clause in a license agreement which allows Plaintiff-Appellee JP Morgan Chase Bank, N.A. (“JPMC”) to use Defendant-Appellant DataTreasury Corporation’s (“DTC”) patented check processing technology. The negotiated license agreement granted JPMC unlimited use of the patented technology both as to time and volume of use for a lump sum, which JPMC paid in installments under the agreement. In its suit against DTC for breach of contract, JPMC invoked its rights under the MFL clause based on DTC’s granting a similar unlimited license to another entity for a lesser lump sum than JPMC paid. We agree with the district court that after comparing these two lump-sum license agreements, the later agreement is indeed more favorable, and JPMC therefore is entitled to a refund from DTC for the difference between the amount it paid for its license and the lesser
I. Factual background and procedural history
DTC holds several patents applicable to еlectronic check-processing systems. In the late 1990s, the head of DTC reportedly met with several banks to discuss the use of DTC’s patented technology, but the banks declined and instead created their own check-processing system. DTC sued JPMC and several other banks, including Bank One Corporation (“BOC”), which soon merged into JPMC, alleging willful patent infringement. Facing substantial potential liability (in DTC’s estimation, a nine-figure amount and perhaps treble that for willful infringement), JPMC was the first bank to reach a settlement agreement with DTC in 2005.
As part of the settlement, JPMC entered into a consent judgment in which it admitted the patents were valid and enforceable and that JPMC had infringed them. It also entered into a license agreement permitting JPMC unlimited use of DTC’s patented technology going forward. To protect JPMC from the risk that DTC would enter into a more favorable license with a later settling defendant, the license agreement included a most-favored licensee (“MFL”) clause (also referred to as a most favored nations, or “MFN,” clause), which forms the basis for this dispute. The settlemеnt allowed both DTC and JPMC to avoid the risks and costs of litigation, drastically reduced JPMC’s potential liability, and paved the way for DTC to settle with the other banks. DTC later obtained several hundred million dollars through the various settlements.
In the district court’s superseding memorandum opinion and order in this case, entered February 5, 2015, it set out the relevant facts more fully as follows:
On June 28, 2005, JPMC and BOC each entered into settlement agreements with DTC resolving patent infringement claims arising from certain of DTC’s patents. The parties also entered into the License Agreement, allowing JPMC to use DTC’s patents for a total consideration of $70 million. Although the $70 million altogether was a lump-sum payment for unlimited use of DTC’s patents and not a “running royalty” paid peruse, the parties agreed to payment in installments: $25 million in 2005 under the BOC Settlement and Release Agreement; $5 million in 2005 under the JPMC Settlement and Release Agreement; and $5.5 million each year from 2006 to 2011, with a final $7 million payment in 2012. Together, these payments are the full consideration for JPMC’s use of DTC’s patents.1
Section 10.8 of the License Agreеment provided that breaches of the agreement by either party generally could be cured, “other than the failure of JPMC to make the payments required by the Settlement and Release Agreement between DTC and JPMC,” which breach “shall result in a termination of the licenses and rights granted to JPMC and its Subsidiaries in this Agreement.” Thus, JPMC committed to pay the entire $70 million royalty from the outset and could not decide to stop paying even if it no longer desired to use DTC’s patents. Under the unambiguous terms of the License Agreement, JPMC was required to pay the full $70 million or
Section 9 of the License Agreement contains the MFL at issue, which states:
9. Most Favored Licensee
If DTC grants to any other Person a license to any of the Licensed Patents, it will so notify JPMC, and JPMC will be entitled to the benefit of any and all more favorable terms with respect to such Licensed Patents. JPMC agrees that $.02 to $.05 per Transaction is a reasonable royalty under the license granted herein, and JPMC makes no representation as to what pro-rata share of such royalty is attributable to any portion or sub-part of such Transaction. The notification required under this Section shall be provided by DTC to JPMC in writing within thirty (30) days of the execution of any such third party license and shall be accompanied by a copy of the third party license agreement, which may be redacted by DTC if necessary to comply with any judicial order or other confidentiality obligation. The MFN shall be applied within thirty (30) days from the date this provision is recognized in accordance with Section 10.7.
Section 10.1 requires notices to be by fax and express delivery to both JPMC’s Office of General Counsel and to outside counsel at Skadden, Arps, Slate, Meagher & Flom LLP (Skadden). Section 10.7 is a choice of law and forum clause requiring that the License Agreement be construed under Texas law, and that jurisdiction and venue exist solely in the United States District Court for the Eastern District of Texas, Texarkana Division.
After entering into the License Agreement, DTC separately entered into several other licensing agreements (the Subsequent Licenses) involving the same patents but at different lump sum price terms. Notably here, оn October 1, 2012, DTC entered into such a license agreement with non-party Cathay General Bancorp (Cathay). The lump sum price term for Cathay’s sole use (i.e., not extending to any after-acquired entities) was $250,000. However, as discussed below, the full consideration under the Cathay license also required additional payments under an established formula for any additional entities Cathay acquired later. No such provision exists in the JPMC-DTC License Agreement. On November 29, 2012, JPMC filed the instant lawsuit for breach of contract against DTC, alleging that DTC had failed to notify JPMC of the Subsequent Licenses and that “many of the Subsequent Licenses were granted on terms substantially more favorable than those afforded to JPMC.” Complaint at 4. Of note, the Cathay license agreement had not been noticed to JPMC, but was produced after JPMC initiated this lawsuit. In its instant motion for summary judgment, JPMC seeks the benefit of the isolated price term granted to Cathay, and summary judgment on DTC’s affirmative defenses and counterclaims. To obtain that benefit, JPMC contends that its $70 million lump-sum price term must be retroactively replaced with Cathay’s $250,000 lump-sum price term and the balance refunded. JPMC also moved to dismiss DTC’s counterclaims. DTC has filed three cross-motions for partial summary judgment on: (1) its affirmative defense of the statute of limitations; (2) its affirmative defense of waiver; and (3) the applicability of the MFL clause and finding of no breach as to certain claims. The Court takes up all of the cross-motions together.
With respect to damages, the district court concluded, in an issue of first impression, that the broadly worded MFL clause in JPMC’s lump-sum license agreement gave JPMC the right to incorporate the more favorable terms in the Cathay lump-sum license agreement because both licenses were for unlimited use but the Cathay license cost far less.
The district court reasoned that in retroactively replacing the terms of the JPMC license with the more favorable terms of the Cathay license, it must also apply the Cathay license terms requiring an additional license payment of up to $250,000 for each after-acquired entity. Because the record did not show JPMC’s acquisitions since 2005 or what use those entities, if any, made of the patents, the district court denied summary judgment and invited the parties to address the issue of damages later.
Thereafter, the parties filed an agreed stipulation on June 2, 2015, under which DTC stipulated that it “is unable to raise a genuine dispute as to any material fact controverting that the Court has found that JPMC is entitled to the $250,000 price term of the Cathay License.” DTC also stipulated that it is unable to raise a genuine issue of material fact that, under the terms of the Cathay license, JPMC would owe an additional $250,000 for each of three entities it had acquired after 2005: Bank of New York, Washington Mutual, and Bear Steams. Finally, DTC stipulated that “[i]n light of the foregoing, DataTreasury is unable to raise a genuine dispute as to any material fact controverting JPMC’s claim of $69 million in damages and that JPMC is entitled to judgment as a matter of law regarding damages.”
DTC’s stipulations meant that, under the terms of the Cathay license, JPMC would owe $250,000 for the lump-sum unlimited-use license as well as $250,000 for each of the three entities it had acquired since 2005. Accordingly, the district court entered a final judgment the same date in favor of JPMC in the amount of $69 million (the $70 million JPMC paid under its original license less the $1 million total it owed under the retroactively applied terms of the Cathay license). DTC timely filed a notice of appeal.
II. Applicable Law
A. Jurisdiction and standard of review
The district court had jurisdiction ovеr this diversity action pursuant to 28 U.S.C.
We review the district court’s judgment de novo, applying the same Rule 56 standards the district court applied.
B. Contract interpretation rules
The parties agree that Texas law applies to this dispute. The Fifth Circuit has summarized Texas’s rules for contract interpretation as follows, citing opinions of the Texas Supreme Court:
Our first task is to determine whether the contract is enforceable as written, without resort to parol evidence. The primary objective of the reviewing court is to ascertain the intentions of the parties as expressed in the contract. To achieve this objective, the court should examine the entire contract in order to “harmonize and give effect to all of its provisions so that none will be rendered meaningless.” A contract is unambiguous if it can be given a definite or certain legal meaning. Ambiguity does not arise because of a “simple lack of clarity,” or because the parties proffer different interpretations of the contract. Rather, a contract is ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent canons of construction. If the contract is ambiguous, courts may consider parol evidence for the purpose of ascertaining the parties’ intent.10
The parol evidence rule is particularly important to this appeal because nearly all of DTC’s arguments — and several of the dissent’s points of contention — depend on parol evidence, not on the plain language of the MFL clause.
C. MFL clauses, royalties, and the licenses at issue
This dispute concerns an MFL clause, particularly DTC’s primary contention that, as a matter of law, an MFL clause cannot be applied retroactively, i.e., to obtain a refund of amounts previously paid.
It is first necessary to distinguish among the different types оf royalties available under a license, as the district court explained:
“Rate” often designates a percentage of selling price, or a “running royalty.” See Rambus Inc. v. Hynix Semiconductor Inc.,2008 WL 2795135 , at *4-6 (N.D.Cal. July 15, 2008). But a royalty rate simply “means the compensation paid by the licensee to the licensor for the use of the licensor’s patented invention.” Hazeltine Corp. v. Zenith Radio Corp.,100 F.2d 10 , 16 (7th Cir.1938). Therefore, a lump-sum license also states a royalty rate, in the amount of the lump sum. Cardinal of Adrian,208 U.S.P.Q. at 822-23 ; 2 Jay Dratler, Licensing of Intellectual Property, § 9.02[1] (“A ‘royalty rate’ may include the right to a fully paid-up license for a lump sum or a lump sum per unit time”) (footnotes omitted). Thus, a lump-sum licensee pays a paid-up sum for unlimited use of the patent at the single price*1012 instead of a discrete amount for each successive use, as under a running royalty.11
The distinction between running royalties and paid-up lump-sum royalties is central to this case. It is certainly true that a licensee invoking an MFL clause may not obtain a refund of amounts paid under a previously applicable running royalty, and there are a great number of cases applying that rule.
The risk that others will receive more favorable license terms is a substantial threat to any licensee that relies extensively on licensed rights in a competitive environment. As a result, many licenses contain provisions designed to ensure that this does not occur and to guarantee access by one licensee to more favorable terms granted to later licensees. Described as “most-favored” clauses, these contract provisions vary greatly and provide for any number of different conditions on which they are triggered and for a variety of different remedies in the event of a later, more favorable li-
cense, ranging from automatic adjustment of the original license to refund of overages previously paid.13
It is common for such a clause to “require the licensor to аdvise the licensee of any license on more favorable terms and grant the licensee the option to elect those terms.”
[a] patent licensee’s breach of contract damages for a licensor’s failure to provide information necessary for the licensee’s exercise of a most-favored-licensee provision includes recovery of royalties that the licensee paid in ignorance of its rights as a result of the failure of the licensor to give notice that it had granted other licenses on more favorable terms.15
The licenses granted to JPMC and Cathay are identical in most respects. Both are paid-up lump-sum licenses granting unlimited use of the patent. That is to say, neither of the licenses involves periodic royalty payments covering discrete periods of time or per-transaction royalty payments; neither is subject to any cap on the number of transactions; and neither has language tying the lump-sum payment for the unlimited license to either the anticipated number of transactions or the asset size of the licensee.
III. Analysis
A. The MFL clause applies retroactively and permits refunds.
DTC primarily argues that the MFL clause cannot apply retroactively, only prospectively from the date thе new terms are recognized, citing what it calls the forward-looking language of the MFL clause (e.g., “The MFN shall be applied ... ”). DTC claims that the clause allows JPMC to escape only future payments still owed under the license at the time the MFL clause is recognized.
DTC’s argument is based on the MFL clause’s silence regarding retroactivity, but that silence favors JPMC. The major problem with DTC’s interpretation is that it would render the MFL clause effectively meaningless, in this case and in other cases involving two otherwise paid-up lump-sum licenses, differing only in the total license cost. Under DTC’s interpretation, once the first licensee had fully paid its license fee (even if it paid the full amount at the outset), it could receive no practical benefit from invoking the MFL clause.
JPMC made the final installment payment on its $70 million paid-up lump-sum license in 2012 prior to DTC granting Cathay an unlimited-use license for $250,000. Under DTC’s interpretation of the MFL clause, refunds would be precluded. Thus, although the MFL clause would, by its plain terms, allow JPMC to apply the benefit of the terms of the Cathay licensе, the substitution of terms would mean nothing because JPMC could never get back its $69 million overpayment under the newly applicable terms. Indeed, under DTC’s interpretation, if JPMC had simply made a single $70 million payment in 2005 rather than spreading that amount out over several years of installment payments, JPMC never would have been able to invoke the MFL clause to obtain a better price term.
As the dissent argues, DTC’s prospective-only interpretation would not render the MFL clause wholly without meaning because it might still give JPMC some relief — -the ability to skip future payments' — if DTC entered into a more favorable license before JPMC finished paying. But DTC’s interpretation finds no support in the plain language of the MFL clause or in the nature of JPMC’s payment obligation. As we explained above, although the $70 million payment was broken into scheduled installments, it was treated as a single amount in every material way. JPMC’s failure to make any payment would terminate the entire license; it was required to pay the full amount or lose any benefits thereunder. DTC’s interpretation, then, arbitrarily treats as divisible the fundamentally indivisible $70 million payment for the paid-up lump-sum license. The $70 million was effectively an indivisi
We conclude DTC’s interpretation reaches an unreasonable result. Thus, it does not satisfy Texas law for contract interpretation. The district court reached the same result for similar reasons:
The most favored running royalty licensee initially holds the most favorable “rate” when it obtains its license. The initial rate becomes less favored when the licensor later grants a lower rate elsewhere. It is only then that the opportunity to use the patent at a more favorable rate develops (and the most favored licensee becomes disadvantaged). Thus, the damage to the most favored licensee with a running royalty can only occur prospectively. Accordingly, prospective-only modifications to a. running royalty rate guarantee most favored licensee status in that situation. On the other hand, a lump-sum license is not metered by usage, because a lump sum license purchases unlimited use for a sеt price. When the patent holder grants a subsequent licensee a lower lump sum, the most favorable rate becomes the lower, lump-sum amount. However, the disadvantage imposed on the most favored licensee cannot be cured with a substituted running royalty rate going forward because there is no running royalty structure to the license. Therefore, the logic supporting a prospective-only modification under a running royalty license is inapplicable to a lump-sum situation. There would be no purpose to a most favored licensee clause in a lump-sum license if the most favored licensee could not obtain a more favorable, later-granted lump-sum rate. Here, in what appears to be an issue of first impression, the parties contemplated the MFL clause to apply where a lump-sum payment could be replaced by a more favorable lump-sum payment. Certainly, the MFL clause simply states, “If DTC grants to any other Person a license to any of the Licensed Patents, it will so notify JPMC, and JPMC will be entitled tо the benefit of any and all more favorable terms with respect to such Licensed Patents.” If JPMC were to be denied the ability to substitute a later-granted, more favorable payment term, it would render the MFL clause meaningless. The Court, however, must give meaning to the unambiguous terms of the contract. Bituminous Cas. Corp. v. Maxey,110 S.W.3d 203 , 208-09 (Tex. App.-Houston [1st Dist.] 2003, pet. denied) (“Terms in contracts are given their plain, ordinary and generally accepted meaning unless the contract itself shows that particular definitions are used to replace that meaning.”). Therefore, where a licensee with a most favored licensee clause seeks to replace what has become a less-favored lump-sum license payment with a later-granted, more favorable lump-sum payment, the only way to give meaning to the MFL clause is by retroactive substitution of the payment term. That is the outcome of the parties’ contract here.16
Under Texas law, common sense, the plain language of the MFL clause, and the commentary quoted above, we conclude that the district court correctly held that the MFL clause requires the court to apply the MFL clause retroactively and grant a refund.
We also conclude that DTC has failed to cite any analogous contrary authority. For example, DTC cites Davis v. Blige,
Even less persuasive is DTC’s reliance on the district court’s opinion in Epic for the proposition that “a licensee is not entitled to credit for royalty payments made prior to the making of an election” of a more favorable license term under an MFL clause.
In Epic, the plaintiff-licensee, Epic, had a license to use the patent of the defendant-licensor, Allcare, which required annual running royalty payments as well as additionаl per-unit royalties for usage exceeding an annual threshold.
At the time Epic formally invoked the clause, it had already paid $204,080 under its running royalty license and attempted simply to pay the difference between that amount and the $350,000 lump-sum license. Allcare rejected the offer, and Epic eventually sued. By the time the case came up for decision on summary judgment, Epic had paid Allcare a total of $538,295.88 in running royalties under its existing license, plus another $197,406.14 in an escrow account pending resolution of the dispute.
The district court concluded that the competitor’s $350,000 paid-up lump-sum license was indeed more favorable, so Epic was entitled to switch over to that royalty scheme as of October 2001, when it formally invoked the MFL clause.
As noted, DTC claims Epic stands for the proposition that a licensee may never get a refund of any royalties paid before an election under an MFL clause, but Epic is factually distinguishable and its holding not nearly so broad as DTC asserts. In Epic, the court held that Epic could not obtain a refund for the running royalties it had paid under its initial license. Notably, all of the cases cited in Epic for that proposition also involved the payment of running royalties under the initial license as well,
More relevant here is the fact that the district court award Epic a refund of amounts paid in excess of $350,000 from the time it switched to a paid-up lump-sum license. The key point is that once Epic made its election, all of its payments were deemed to be made under a paid-up lump-sum license, not a running royalty license. If those payments had still been considered running royalties, they would have remained nonrefundable under the case law cited by the district court, but they were now considered payments on a paid-up lump-sum license. The only way to ensure that Epic obtained the benefit of its new paid-up lump-sum license was to refund the amount of the overpayment.
Neither the parties nor this court can find a single MFL clause case involving a switch from an initial paid-up lump-sum license to a later more favorable paid-up lump-sum license, as is present in this case. Even though the issue appears to be one of first impression in caselaw, it is аctually simpler than most MFL clause cases. First, DTC has never cited any authority holding that amounts paid for a paid-up lump-sum license are nonrefundable, only cases stating that running royalties are nonrefundable. As noted, Epic plainly allowed the refund of amounts paid under the paid-up lump-sum license, which were not considered running royalties.
Second, two paid-up lump-sum licenses are much closer to an apples-to-apples comparison than a running royalty license and a paid-up lump-sum license (as in Epic) or two running royalty licenses with incommensurable terms. The biggest material difference between two paid-up lump-sum licenses is the total cost. An MFL clause would mean virtually nothing if it did not allow the earlier licensee to obtain a lower license cost, which in turn means nothing if the earlier licensee cannot receive a refund in the amount of the overpayment.
In sum, DTC’s interpretation leads to an unreasonable result, and it has not cited any apposite legal authority in support of that interpretation. The district court correctly held that the MFL clause may be applied retroactively and that JPMC is entitled to a refund for the amount it overpaid under the retroactive terms of the Cathay license, i.e., $69 million.
B. The MFL clause does not permit an analysis of different licenses based on check volume.
Next, DTC argues that the district court erred by not considering the different levels of usage by JPMC and Cathay. DTC claims the MFL clause ties the total cost of the JPMC license to a per-transaction royalty estimate, based on the second sentence of the MFL clause: “JPMC agrees that $.02 to $.05 per Transaction is a reasonable royalty under the license granted herein, and JPMC makes no representation as to what pro-rata share of such royalty is attributable to any portion or sub-part of such Transaction.”
the second sentence of the MFL clause unambiguously provides JPMC’s representation of a reasonable royalty rate in exchange for inclusion of the MFL clause. See Frost Nat’l Bank v. L & F Distribs., Ltd.,165 S.W.3d 310 , 312 (Tex.2005) (encouraging courts to consider the business purpose a contract serves). The second sentence has no bearing here and neither party has argued otherwise.24
DTC does assert on appeal that the second sentence limits application of the MFL clause by creating a per-transaction rate, but it has no support for that point. First, there is no question that the license at issue is a paid-up lump-sum license which allows unlimited use. It does not include a per-transaction royalty. As other courts have explained, “there is no basis in fact for the conversion of a lump sum rate of royalty into a rate of per cent of selling price royalty,”
Second, even if there were a factual basis for calculating the effective running royalty rate of the lump-sum royalty at issue here, it would be far from two to five cents per transaction. DTC claims JPMC processes approximately five billion check images each year. At two cents per transaction, JPMC’s running royalty would amount to approximately $100 million per year. Considering JPMC entered into the license agreement in 2005, the total amount JPMC would have paid by 2012 under a per-transaction royalty agreement presumably would have exceeded $1 billion even at two cents per transaction, more than an order of magnitude greater than what it paid for the lump-sum license permitting unlimited use.
If anything, the presence of the “$.02 to $.05 per Transaction” clause undermines DTC’s position. It indicates that the parties expected the MFL to apply to pricing terms in future licenses; if they thought about the possibility that some contracts could employ a running royalty method of payment, presumably they also anticipated the possibility that future сontracts could use a lump-sum-payment method, as their contract in fact did. It is not entirely evident why the individual parties agreed to include the “$.02 to $.05 per Transaction” clause. JPMC contends it was designed to benefit DTC in other litigation, which DTC strongly disputes. Nevertheless, given the difficulties inherent in comparing lump-sum payments to running royalties, the purpose likely was to set a rate that JPMC would consider reasonable (i.e. not more favorable) in any running royalty contracts that DTC made. Obviously, the agreement already provided a point of comparison for lump-sum agreements — the $70 million fee.
Third and finally, there is no language in any relevant document (the settlement agreements, the JPMC license, or the Cathay license) explaining how the parties arrived at the lump-sum amounts paid by either JPMC or Cathay. Given that the
This result is required by the plain language of the contract, but it could have been avoided with more careful drafting by DTC, as the district court explained:
Having considered these problematic issues, the Court notes that Professor Dratler discusses ways to improve an MFL clause:
Case law suggests two ways to improve the standard, broadly-drafted clause. The first is to make specific provision for situations that experience has shown are most likely to cause difficulties. The most common of these are infringement settlement licenses, cross-licenses, and lump-sum licenses and volume or production limits....
A second means of reducing the risk of most-favored-licensee clause from the licensor’s standpoint is to require the favored licensee to accept all the terms of any later license, good and bad, as a condition of receiving the benefit of any more favorable terms. Although the law generally requires this in any event, explicit contractual language to that effect may avoid unnecessary litigation.
2 Jay Dratler, Licensing of Intellectual Property, § 9.05[l]-[2] (2014) (footnotes omitted, bolded emphasis added); cf, Federal Judicial Center, Manual for Complex Litigation, Fourth, at § 13.23 (2004), which states:
[MFL] сlauses have several drawbacks]: (1) the potential liability under them is indeterminate, making them risky; (2) the additional recovery they may produce for some plaintiffs without any effort by their attorneys makes it difficult to fix fees; and (3) the factors that induce parties to settle with different parties for different amounts, such as the time of settlement and the relative strength of claims, are nullified. Such clauses can provide an incentive for early settlement as well as an obstacle to later settlements. To limit their prejudicial impact, such clauses should terminate after a specified length of time (to prevent one or more holdouts from delaying final implementation), impose ceilings on payments, and allow flexibility to deal with changed circumstances or with parties financially unable to contribute proportionately. The judge may have to consider voiding or limiting them if enforcement becomes inequitable. If this determination involves disputed questions of fact, an evidentiary hearing and possibly additional discovery may be necessary.
(Footnotes omitted.) Here, the MFL clause was sparsely defined, very broadly worded, contained no specific limitations or provisions for difficult situations, included no language of termination, and appears not to have contemplated the effect of a later license agreement, particularly one based on a lump-sum payment of the type at issue here. The impact of a less than well-defined MFL clause is clearly seen in this litigation.28
We fully agree. The potential problems with a broadly worded and open-ended MFL clause (most of which affect the li-censor), are fairly obvious, and the means of avoiding potential problems as experienced above are simple. DTC failed to
C. DTC’s affirmative defenses are not viable.
DTC asserts three affirmative defenses, none of which is viable. First, DTC asserts that JPMC’s lawsuit is barred by the four-year statute of limitations, despite the fact that JPMC brought it less than two months after DTC entered into the Cathay license, as the district court noted.
Second, DTC argues that JPMC waived its right to enforce the MFL clause by making the final installment payment under the $70 million lump-sum license without reserving any rights after it suspected DTC had breached. JPMC made the final installment payment months before DTC executed the Cathay license, and DTC points to no evidence that JPMC waived the Cathay breach. All of DTC’s evidence of alleged waiver dates from prior to execution of the Cathay license, as the district court explained in full.
Third and finally, DTC asserts the defense of equitable estoppel, which is virtually a restatement of its other two defenses. DTC argues that JPMC should be estopped from asserting the breach of contract claim against DTC because JPMC made the final payment required under the contract without informing DTC of its intent to sue and without reserving any rights. As the district court pointed out, “DTC cites no authority, nor is the Court aware of any, that JPMC can be estopped from a breach of contract claim just because it satisfied its contractual obligations.”
Even if DTC could assert equitable estoppel, it has failed to prove the necessary element that it “detrimentally relie[d] on the representation.”
IV. Conclusion
We affirm the district court’s final judgment for the reasons set out above and for the reasons set out in the district court’s careful memorandum opinion and order.
AFFIRMED.
Notes
. JP Morgan Chase Bank, N.A. v. DataTreasury Corp.,
. Id. at 647-48 (citations and footnotes omitted).
. Id. at 649-51.
. Id. at 652-53.
. Id. at 653.
. Id. at 654-55.
. Id. at 656-58.
. Berquist v. Washington Mut. Bank,
. Morgan v. Plano Ind. Sch. Dist.,
. McLane Foodservice, Inc. v. Table Rock Restaurants, L.L.C.,
.
. See, e.g., Rothstein v. Atlanta Paper Co.,
. 2 Information Law § 11:104 (database updated November 2015) (emphasis added); see also John Gladstone Mills III et al., 5 Pat. L. Fundamentals § 19:21 (2d ed.) ("The purpose of a most-favored licensee clause is to protect a licensee from a competitive disadvantage resulting from more favorable terms granted to another licensee.”).
. Melvin F. Jager, Licensing Law Handbook § 10:14 (database updated September 2015).
. 69 C.J.S. Patents § 516 (footnotes omitted; citing Epic,
.
. Epic,
. See generally Epic,
. Id. at *6.
. Id. (citing Rothstein,
. Id.
. See Rothstein,
.
. Id. at 649.
. Hazeltine,
. Studiengesellschaft,
. Hazeltine,
.
. Id. at 658.
. Id. at 656-57.
.Id. at 657.
. Id. (citing Trudy’s Texas Star, Inc. v. City of Austin,
.
Concurrence Opinion
concurring in part and dissenting in part:
Texas contract law directs courts to “ascertain and give effect to the parties’ intentions as expressed in” the contract at issue, “bearing in mind the particular business activity sought to be served” and “avoidfing] when possible and proper a construction which is unreasonable, inequitable, and oppressive.” Frost Nat’l Bank v. L & F Distribs., Ltd.,
If DTC grants to any other Person a license to any of the Licensed Patents, it will so notify JPMC, and JPMC will be entitled to the benefit of any and all more favorable terms with respect to such Licensed Patents. JPMC agrees that $.02 to $.05 per Transaction is a reasonable royаlty under the license granted herein. The MFL shall be applied within thirty (30) days from the date this provision is recognized....
In light of the prospective language of the MFL clause, case law interpreting similar language, and the implausibility that the parties would have agreed to MFL language that functions as JPMC argues, I would hold — consistently with every other court to have interpreted a similar clause — that JPMC is not entitled to recoup sums paid before DTC granted any lower-priced license.
We have addressed a similarly worded clause before and reached a conclusion opposite to that which the majority reaches today — indeed, at oral argument, JPMC conceded that the reasoning behind the only Fifth Circuit authority in this area was “troubling” for its position. In Roth-stein v. Atlanta Paper Co., Rothstein licensed its bottle-carrier patent to Atlanta in exchange for a three-percent royalty on Atlanta’s sales.
Atlanta shall be entitled to be in as favorable a position as any other manufacturer or seller of bottle carriers, wherefore any more favorable terms of conditions as to royalties that have been or hereafter may be granted to others who are licensed under said patent auto*1021 matically shall become available to Atlanta. ...
Id. at 92. About three years later, Atlanta asked about the terms of a settlement involving the same patent and learned that Rothstein had granted a competitor a paid-up license for $8,000. Atlanta “claimed [the right to] identical treatment with the result that it would be refunded all sums theretofore paid as royalty over and above $8,000.” Id. at 93. This court held that Atlanta was entitled to a prospective license for $8,000, with credit for sums paid after the second license was granted, but rejected the argument that Atlanta could recover all royalties it paid in excess of $8,000 since the beginning of its own license, including before the second license was granted. Id. at 96. We held that “[t]he only reasonable construction” of the MFL clause was that it did “not operate retrospectively.” Id. We also suggested that the evident purpose of the clause— preventing Atlanta from being at a “competitive disadvantage” — -was consistent with prospective application because “there was a built-in gap until others were licensed.” Id.
Citing Rothstein, a district court applying Texas law recently reached the same conclusion analyzing a similar MFL clause that read in relevant part:
If after the Effective Date, Licensor shall enter into a License Agreement with any third party in the same Field of Use as Licensee ... on financial terms that are more favorable to such Third Party Licensee than the financial terms set forth in this Agreement, Licensee shall be entitled to substitute the financial terms of such Third Party License for the counterpart or equivalent terms herein....
Epic Sys. Corp. v. Allcare Health Mgmt. Sys., Inc., No. 4:02-CV-161-A,
The majority justifies a different result here, reasoning that because JPMC did not pay a running royalty rate, applying a later-granted license’s price term retroactively to the beginning of JPMC’s license is necessary to avoid making the MFL clause “effectively meaningless.” As a corollary, the majority deems inapposite the many cases holding that a most-favored licensee cannot recoup payments made before the subsequent license was granted. I perceive two problems.
I.
First, whatever the case might be with a different license granted in exchange for a single lump-sum payment, this MFL clause would not be “meaningless” if it only applied prospectively. Unlike some MFL clauses that are limited to price terms, this one entitled JPMC to “the benefit of any and all more favorable terms” in any subsequent license. See 1 Alan S. Gutterman, Going Global § 13:66 (2015) (noting that “the scope of [an] MFL clause usually extends to all other material conditions,” not just the royalty rate); cf. Epic,
Because of this pаyment structure, which is evident from the face of the contract, applying this MFL clause prospectively (as has every other court to consider an MFL clause) would entitle JPMC to substantial cost benefits based on any licenses granted in the first seven years of the
Reading the MFL clause’s language in the context of the rest of the contract thus shows that DTC’s interpretation is reasonable. And though consideration of parol evidence would not be permitted if the contract at issue were facially susceptible to only one reasonable meaning, see id., post-contracting events in this case are illustrative. In January 2006, DTC granted NCR Corporation a license for $2.85 million. At that point, JPMC had $40 million in scheduled payments remaining. If the parties had then applied the MFL clause, JPMC instead would have been entitled to a license going forward for $2.85 million in additional payments — saving the bank over $37 million. The clause, interpreted prospectively, would have provided similar price protection based on dozens of other licenses DTC granted be
II.
Second, in its attempt to give meaning to the MFL clause, the majority renders effectively meaningless the contract’s consideration terms. It is undisputed that, at the time JPMC obtained its nonexclusive license, DTC planned to grant other licenses. A press release announcing JPMC’s settlement and license — issuance of which was a term of the parties’ agreement— mentioned other pending lawsuits involving the same patents and warned that “a complaint for infringing DTC’s patents should be interpreted as a formal invitation to either license or litigate.” Over the course of the next eight years, DTC granted almost fifty other licenses covering the same patents, one for just $39,500. Only one of these subsequent licenses cost half as much as JPMC’s, and over a dozen cost less than $100,000. It strains credulity that, given this business plan, DTC negotiated such a sizable and carefully structured payment plan with JPMC, the bulk of which would amount to nothing more than a loan — to be repaid within thirty days — as soon as DTC granted a less expensive license, no matter that the subsequent license covered a shorter time span of use.
In this regard, it is important to remember what DTC was selling: the right to use certain technology during the finite terms of its patents. It appears that the two patents named in JPMC’s license agreement are set to expire in June 2016 and March 2017, respectively. See U.S. Patent. No. 5,910,988; U.S. Patent No. 6,032,137. JPMC, which acquired a license in June 2005, bought the right to use that technology for more than seven years longer than did Cathay, which acquired its license in October 2012.
III.
The majority opinion endorses JPMC’s theory that the MFL clause in this manifestly nonexclusive license agreement unambiguously gave JPMC the right to pay nothing for its use of the subject patents during the period between the grant of its license and DTC’s last grant of a lower-priced license, however many years later that might come. Put differently, JPMC’s theory is that this MFL clause gave it the right to pay the same amount for a much longer (and thus much more valuable) license. This interpretation, at odds with the clause’s prospective language and our case law interpreting a similar clause, strongly discourages licensing, especially to small competitors, as a licensor that had granted one non-running-royalty license
No contractual text requires, and no pri- or case even suggests, this result, which could not have been the рarties’ mutual intention at the time of contracting. Further, a reasonable alternative construction exists: that the MFL clause gave JPMC the benefit of more favorable nonprice terms for the duration of its license, and— like the clause excusing the bank from further payments after a final judgment of patent invalidity — protected JPMC with regard to more favorable price terms during the seven years over which it made payments. Accordingly, I would reverse the district court’s holding that the MFL clause unambiguously entitled JPMC to a refund of nearly all payments it made since the beginning of its license.
. To the extent JPMC made payments in excess of a more favorable license after it was granted, it would be entitled to recover those overages. See Epic,
. Even if JPMC's and Cathay’s licenses are extended — which JPMC suggests is possible, but does not contend actually has happened or will happen — JPMC will still have gotten over seven more years of licensed use of the technology than Cathay.
. I concur in parts III.B and III.C of the majorily opinion.