This case arises from a patent license agreement between Nano-Proprietary, Inc. (“Nano”) and Canon, Inc. (“Canon”). Canon went into business with Toshiba, Inc. (“Toshiba”) and formed a joint venture-SED, Inc. (“SED”). Believing that SED used Canon’s license in violation of the patent license agreement, Nano sued Canon in federal district court. The district court found that Canon materially breached the patent license agreement via an impermissible sublicense to SED, such that Nano was entitled to terminate the agreement. The issue of damages was tried before a jury, which found that Nano was not entitled to any damages based on the value of a prospective license. We AFFIRM in part and REVERSE in part.
I.
Nano is a Texas-based corporation that conducts nanotechnology research and owns field emission display (“FED”) patents. FED is relevant to the development of flat-panel television technologies. Canon, a Japanese corporation, produces, inter alia, copiers, printers, and cameras. In 1997, Canon began discussions with Toshiba, another Japanese corporation and leading television manufacturer, about joint development of FED televisions.
In December 1998, Nano and Canon began negotiations regarding licensing Nano’s FED patents. During these negotiations, Canon did not mention its ongoing discussions with Toshiba. On March 26, 1999, Nano and Canon executed a patent license agreement (“PLA”) that granted Canon and its subsidiaries a nonexclusive license to Nano’s FED patents. 1 Canon paid a one-time lump sum of $5,555,555.55 and received a “fully paid-up, worldwide, royalty-free, irrevocable, perpetual, nonexclusive license (without the right to subli-cense)” that “shall continue in full force and effect until expiration of the last to expire of the LICENSED PATENTS.” The PLA further provided that it “shall be construed by and interpreted in accordance with the laws of the state of New York, United States of America, exclusive of its choice of law provisions.”
On June 9, 1999, Canon and Toshiba executed a written Joint Development Agreement and began joint research and development work in Japan with the companies having equal control. In 2004, Canon and Toshiba began discussions about forming a joint venture. According to Canon, “[bjoth 50/50 ownership and Canon-majority ownership were discussed, and Canon explained that, if it owned a majority, then the joint venture would be licensed as a Canon Subsidiary.” On September 14, 2004, Canon and Toshiba executed a Joint Venture Agreement (“JVA”) providing that, at all times, Canon’s shares in SED must exceed Toshiba’s shares by one share.
2
The JVA provided that many important governance matters “shall require the prior written agreement of both
On April 11, 2005, Nano filed suit against Canon and Canon USA (who is not a party to this appeal) asserting: (1) Canon materially breached the PLA by subli-censing its patents to SED/Toshiba; and (2) Canon tortiously interfered with Nano’s prospective business relations (specifically, its prospective license with SED/Toshiba). In addition, Nano sought a declaratory judgment that SED did not qualify as a subsidiary under the PLA. 4 In October 2005, the district court dismissed Nano’s count for tortious interference with prospective business relations pursuant to Federal Rule of Civil Procedure 12(b)(6). In April 2006, Nano amended its complaint, adding claims that Canon committed fraud during the PLA negotiations and seeking rescission of the PLA. Canon moved for partial summary judgment on Nano’s breach of contract and declaratory judgment claims on the ground that SED qualified as a Canon subsidiary, which the district court denied. The district court found that SED was not a subsidiary of Canon because Canon did not hold a majority of “stock conferring the right to vote at general meetings” and, alternatively, because the court declined on equitable grounds “to recognize a corporate fiction designed for the sole purpose of evading Canon’s contractual obligations.” Nano-Proprietary, Inc. v. Canon Inc., No. A-05CA-258-SS, slip op. at 10-11 (W.D.Tex. Nov. 14, 2006). Specifically, the district court found that Canon’s agreement “not to use its majority share to outvote Toshiba on matters governed by the” JVA meant that Canon “does not hold a majority of ‘stock conferring the right to vote at general meetings.’ ” Id. at 10.
On December 1, 2006, Nano informed Canon that it was terminating the PLA. Canon disputed Nano’s right to terminate and informed Nano that its purported termination was ineffective. Nonetheless, Canon began to restructure SED to be 100% owned by Canon and informed both Nano and the district court of this restructuring. On January 12, 2007, Canon and Toshiba executed a Stock Transfer Agreement, and on January 29, Canon bought all of Toshiba’s stock in SED for approximately $83 million — the same amount that Toshiba had originally paid. Immediately thereafter, Canon moved for summary judgment that SED, in its new structure, was a Canon subsidiary. Nano moved for summary judgment regarding whether Canon had breached the PLA and whether its termination of the PLA was effective. On February 22, 2007, the district court granted Nano’s motion, finding that: (1) SED in its original form was not a Canon subsidiary; (2) Canon had materially breached the PLA because creating SED “was effectively an attempt to sublicense its rights to the Nano patents”; (3) Nano
From April 30 to May 3, 2007, Nano’s remaining fraud and damages claims were tried before a jury. At the close of Nano’s evidence, Canon moved for judgment as a matter of law on the fraud claim, and Nano voluntarily dismissed its fraud claim. The damages claim went to the jury, and it returned a verdict that Nano had not sustained any “damages from Canon’s conduct in addition to the termination of the patent license agreement and retention of the $5.5 million purchase price.” Thus, Nano took nothing further as a result of the jury trial. 5 Canon timely appealed from the district court’s summary judgment orders, and Nano timely cross-appealed various trial rulings and the dismissal of its tor-tious interference with prospective business relations claim.
II.
The district court’s grant of summary judgment is reviewed
de novo. Gonzalez v. Denning,
III.
Nano argued before the district court that Canon breached the PLA when it permitted SED to use the licensed patents. Because of this breach, Nano sought termination of the PLA and damages based upon the value of a prospective license with SED.
6
The district court granted the former, and the jury denied the latter. Canon argues here that the district court erred in its underlying finding of breach and in permitting Nano to terminate the PLA. Specifically, Canon argues that the district court erred by finding that: (1) SED was not a subsidiary of Canon under the PLA, such that SED was not entitled to use of the licensed patents; (2) SED’s use of the licensed patents was an impermissible sublicense constituting breach of the PLA; and (3) Nano was entitled to terminate the PLA notwithstanding that the PLA granted a
In its order of February 22, 2007, the district court found that Nano’s termination of the PLA was effective because,
inter alia,
Nano could not be adequately compensated through damages and Canon’s breach was willful and intentional. Canon first argues that the district court erred because, under New York law, termination requires a material breach,
see Cary Oil Co. v. MG Ref. & Mktg., Inc.,
Canon next argues that, based upon the plain language of the PLA, Nano’s termination was improper because the PLA granted an “irrevocable,” “fully paid-up,” and “perpetual” license. We agree. Under New York law, “words and phrases used by the parties must ... be given their plain meaning.”
Brooke Group Ltd. v. JCH Syndicate 488,
Nano responds that under well-established principles of contract law, where a party commits a material breach the non-breaching party is entitled to terminate the agreement.
See, e.g., Olin Corp. v. Cent. Indus., Inc.,
IV.
Canon next argues that SED in its restructured, 100% Canon-owned form qualifies as a subsidiary under the PLA. Because Canon now owns all of the “stock conferring the right to vote at general meetings,” “has the right to elect the majority of the board of directors,” and has the right to “appoint or remove management,” we agree that SED qualifies as a subsidiary under the definition provided in Section 1.3 of the PLA. As a result, SED’s use of the FED patents is permissible under its current ownership structure.
V.
We now turn to Nano’s cross-appeal. Nano argues that: (1) the district court erred by prohibiting Nano’s damages expert from presenting his opinion on the amount of damages Nano suffered; (2) the district court erred in excluding evidence of Canon’s $83 million buyout of Toshiba; (3) the district court’s jury instructions regarding damages were erroneous; and (4) the district court erred in dismissing Nano’s claim for tortious interference with prospective business relations. We find that Nano’s arguments lack merit and affirm the district court’s judgment regarding the cross-appeal in all respects.
A. Nano’s Damages Expert
At trial, after Nano voluntarily dismissed its fraud claim, the only remaining issue was the amount of Nano’s damages resulting from Canon’s breach of the PLA. Nano presented an expert witness, Dr. James Koch, who intended to present testimony regarding the value of the purported lost license based upon a buyer-seller convergence model that measures the value of the lost license from three perspectives: the buyer (Canon, Toshiba, or SED), the seller (Nano), and the market (relying upon fluctuations in Nano’s stock price over several years).
At trial, Dr. Koch-in describing how he calculated the value of the lost license from Nano’s perspective-relied upon an internal Canon document that Nano never saw during negotiations. This document was a confidential document between Canon and Toshiba that projected future sales for SED. The district court precluded Dr. Koch from testifying based upon this document because Nano had no evidence that the document would ever have been available to Nano. Dr. Koch, however, was allowed to rely upon this document to testify as to the lost asset’s value from Canon’s perspective. Furthermore, Dr. Koch was allowed to testify about movements in Nano’s stock price between 1997 and 2006, but the district court did not permit him to testify about the purported relationship between those fluctuations and the value of the lost asset because it found such testimony was wholly speculative.
Regarding Canon’s internal document, Nano argues that, under New York law, determining the fair market value of the lost asset requires that both parties have “reasonable knowledge of relevant facts.”
Schonfeld,
Regarding the stock market testimony, after reviewing the record, we find that the district court properly precluded testimony about a correlation between fluctuations in Nano’s stock and any lost license as too speculative.
B. Evidence of Canon’s $83 Million Buyout of Toshiba
During trial, Nano sought to introduce evidence that Canon paid approximately $83 million to Toshiba and agreed to indemnify Toshiba in January 2007 when SED was restructured as a 100% Canon-owned subsidiary. This was the same amount that Toshiba originally paid for its shares of SED. Nano sought to introduce this figure as evidence of the value of its lost license to SED. The district court refused, finding that any correlation between the $83 million and the value of a license was speculative. The district court noted that the $83 million figure could have merely reflected the amount Toshiba paid into the joint venture and was not tied to the value of a license.
Nano argues that the district court used the wrong legal standard when it stated: “I don’t have any independent evidence that would lean more to one side than the other; therefore, it’s just rank speculation. ...” Nano argues that it should not be required to produce “independent” evidence. Although the district court’s statement is poorly worded, taken in the context of several pages of trial transcript, the court was saying that Nano did not produce evidence to support its claim that $83 million represents the value of the lost license. We find that the district court did not use an improper legal standard.
Furthermore, Nano argues that the $83 million figure is not speculative because it represents the “best evidence” of the value of the license.
See Schonfeld,
C. Jury Instructions Regarding Contract Damages
The district court instructed the jury that the only question before it was “whether Nano sustained damages as a result of Canon’s breach of the 1999 patent licensing contract in addition to its retaining the $5.5 million purchase price of the license and terminating the contract.”
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Nano argues that the jury instructions were erroneous because under New York law: (1) termination of the PLA was not
We need not decide this issue because, as discussed in Part III,
supra,
we find that Nano is not entitled to damages based on the value of a prospective license because it did not prove such damages “with reasonable certainty.”
Schonfeld,
D. Tortious Interference with Prospective Business Relations
The district court dismissed Nano’s tortious interference claim, finding that Nano “did not identify a contract that was reasonably likely to occur.”
Nano-Proprietary, Inc. v. Canon Inc.,
No. A-05CA-258-SS, slip op. at 9 (W.D.Tex. Oct. 14, 2005). The district court noted that “Texas courts have held that to establish a reasonable probability of entering into a contractual relationship, ‘[m]ore than mere negotiations must have taken place.’ ”
10
Id.
at 9-10 (quoting
Milam v. Nat’l Ins. Crime Bureau,
This Court previously noted that “[t]he Texas Supreme Court has not yet set out all the elements of a tortious interference with a prospective business contract or relations claim, and the appellate courts have not been uniform in their characterization of such actions.”
Apani Sw., Inc. v. Coca-Cola Enters., Inc.,
Accordingly, Nano is correct that — under one line of cases — it need not identify a specific contract that would have occurred. However, the “business relationship” versus “contractual relationship” dis
VI.
In light of the foregoing, we affirm the district court’s judgment insofar as it denied damages to Nano and dismissed Nano’s tortious interference with prospective business relations claim. We reverse the district court’s judgment insofar as it found that Nano’s termination of the PLA was effective and denied that SED in its restructured form is a subsidiary of Canon. Therefore, we AFFIRM in part and REVERSE in part.
Notes
. "A nonexclusive license grants merely a privilege of protection from infringement claims by the owner of the patent monopoly. The licensee has no property interest in the patent monopoly ... [and] the licensor may freely license others....” 60 Am.Jur.2d Patents § 1045 (2008).
. Both Canon and Toshiba paid 50,000 yen per share, with Toshiba spending approximately $83 million in total.
. These matters included: issuing new stock, medium and long-term business plans, business tie-ups with important third parties, annual budgets, borrowing and issuing of corporate bonds, capital subscription, disposing of important assets, installation and closing of key sites, lawsuits, contracts with Canon and/or Toshiba, and important equipment investment.
. Section 1.3 of the PLA defines "subsidiary” in pertinent part as "any corporation [that] ... owns or controls directly or indirectly more than fifty percent (50%) (by nominal value or number of units) of the outstanding stock conferring the right to vote at general meetings.”
. In its May 4, 2007, Order, the district court stated: ”[H]ad the jury reached any other conclusion, [Canon] would have been entitled to judgment notwithstanding the verdict. [Nano] wholly failed to provide competent evidence of damages, and any award would have been entirely speculative.”
Nano-Proprietary, Inc. v. Canon Inc.,
No. A-05-CA-258-SS, slip op. at 3,
. Although Nano technically sought rescission in its amended complaint, the district court properly noted that termination, not rescission, is at issue in this case.
. We note that there is disagreement amongst leading licensing treaties on this issue. Compare Raymond T. Nimmer & Jeff Dodd, Modem Licensing Law § 9:16 (2006) (“We understand these terms [irrevocable or perpetual] to mean that ... the license cannot be terminated by the licensor or otherwise ended except for breach by the licensee.") (emphasis added) with Roger M. Milgrim, Milgrim on Licensing § 27.02 (2008) (“Often a license is of such critical value to an enterprise or an undertaking that the prospective licensee may seek to make the license irrevocable despite nonpayment or other material breach.... There are a variety of ways of achieving irre-vocability. The simplest is to simply provide that: The license conferred under this Agreement shall be perpetual and irrevocable.").
. Accordingly, the jury instruction form provided: "Do you find by a preponderance of the evidence that Nano sustained damages from Canon's conduct in addition to the termination of the patent license agreement and retention of the $5.5 million purchase price?” (emphasis added). If the jury answered "Yes,” it was next asked: "What amount of money, if any, beyond the $5.5 million which Plaintiff has been allowed to retain and the termination of the license agreement, would fairly and reasonably compensate Plaintiff for its damages from Canon’s conduct.” (emphasis added). The jury answered "No” to the first question, so it did not reach the second question.
. We note that Nano does not contest the jury’s finding of no damages. To the extent a complaint is made, it is with respect to the district court’s jury instructions.
. Although the PLA provides that it “shall be construed by and interpreted in accordance with the laws of the state of New York,” the parties do not dispute that Texas law governs Nano's tortious interference with prospective business relations claim.
See Thompson & Wallace of Memphis, Inc. v. Falconwood Corp.,