Toshiba Corporation v. American Media International, LLC

Filing 35

OPINION AND ORDER: re: 25 MOTION for Judgment on the Pleadings. filed by Toshiba Corporation. Toshiba/s July 13 Motion, which is treated as a motion for summary judgment, is granted in the principal amount of $468,139.70. Toshiba shall submit a proposed judgment that includes a calculation of the appropriate interest and costs no later than September 14, 2012. (Signed by Judge Denise L. Cote on 9/4/2012) (pl)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
TOSHIBA CORPORATION,
:
:
Plaintiff,
:
:
-v:
:
AMERICAN MEDIA INTERNATIONAL, LLC,
:
:
Defendant.
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:
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12 Civ. 800 (DLC)
OPINION AND ORDER

APPEARANCES:
For the plaintiff:
Carey Ramos
Quinn Emanuel Urquhart & Sullivan LLP
51 Madison Avenue, 22nd Floor
New York, NY 10010
For defendant:
Robert J. King, III
Darrell A. Fruth
Brooks, Pierce, McLendon, Humphrey & Leonard LLP
PO Box 26000
Greensboro, NC 27420
Joseph French
French & Casey LLP
29 Broadway, 27th Floor
New York, NY 10006
DENISE COTE, District Judge:
Toshiba Corporation (“Toshiba”) brings this action against
American Media International LLC (“AMI”) asserting breach of a
contract for royalties in connection with the production and
licensing of certain DVD products.
1

AMI has counterclaimed,

asserting its own claims of breach of contract and violation of
the duty of good faith and fair dealing.

On July 13, 2012,

Toshiba moved for judgment on the pleadings with respect to its
breach of contract claims pursuant to Rule 12(c), Fed. R. Civ.
P., and for dismissal of AMI’s counterclaims pursuant to Rule
12(b)(6).

For the reasons that follow, the motions, which are

treated as motions for summary judgment, are granted.

BACKGROUND
The following facts are undisputed.

Toshiba, a Japanese

corporation with its principal place of business in Tokyo, is an
international electronics firm that, as relevant here, serves as
the authorized licensor for a group of companies known as the
DVD Patent Licensing Group (the “Licensing Group”) that owns
numerous patents essential for the manufacture of DVD products.
AMI is a limited liability company established under the laws of
Nevada with its principal place of business in North Carolina
that produces and sells DVDs.
In February 2004, Toshiba and AMI executed a contract and
accompanying letter agreement (collectively, the “Agreement”)
that granted AMI the right to manufacture, import and offer for
sale DVD products using the Licensing Group’s proprietary
technology.

The Agreement, which was retroactively effective to
2

January 1, 2004, had two principle components.

First, in

exchange for Toshiba’s releasing it from “any and all claims of
infringement of the DVD Patents . . . for the period prior to
the Effective Date” of the Agreement, AMI agreed to pay back
royalties in amounts that varied from $0.75 to $0.05 depending
on the date of infringement (the “Back Royalties”).

Second, AMI

agreed on a going-forward basis to report and pay royalties to
Toshiba in the amount of $0.05 per disc that AMI produced.
Under the Agreement, royalty reports were to be made on a semiannual basis and payments were due 90 days after the conclusion
of each reporting period; any late payment was subject to a twopercent-per-month interest rate.

The Agreement obligated AMI

“to keep accurate books with respect to sales, other transfers,
and royalties, and to permit Licensor to audit those books no
more than once annually” (the “Audit Clause”).

The Agreement

also included the following “Most Favored Rates (MFR) Clause:”
[Article] 6.1 Except as provided in Article 6.1.1 of
this Agreement, in the event that Licensor grants a
DVD Patent license to another party with royalty rates
more favorable than those set forth in . . . Exhibit
3, whether or not such more favorable royalty rates
are on terms and conditions that are different from
those set forth herein, Licensor shall send written
notice to Licensee specifying the more favorable
royalty rates and any terms and conditions that are
different from those set forth herein within thirty
(30) days of the granting of DVD Patent License
providing for such more favorable royalty rates.
Licensee shall be entitled to an amendment of this
Agreement to the extent of providing for royalty rates
3

as favorable as those available to such other party
within thirty (30) days of receipt of such written
notice from Licensor by sending written notice to
Licensor requesting such amendment; provided, however,
Licensee also agrees to be bound by any terms and
conditions under which such more favorable royalty
rates are made available to such other party,
including any additional benefits to Licensor that may
be included among the terms and conditions
corresponding to such royalty rates. Any amendment
made pursuant to this Article 6.1 shall be effective
as of the date it is made, and such more favorable
royalty rates shall not be retroactively applicable in
favor of Licensee, and shall not be a basis for
claiming any refund of royalties paid prior to such
effective date.
6.1.1
6.1.1.2

Article 6.1 shall not apply to:
Determination by Licensor of back
royalties owed by a Licensee;

Article 6.4 of the Agreement provided that any dispute between
the parties “arising out of or in connection with the
interpretation or execution of [the] Agreement” would be
litigated in New York and would be governed by New York law.
It appears that AMI initially complied with its reporting
and payment obligations.

In March 2006, however, AMI failed to

make the payment due for the July to December 2005 reporting
period.

Indeed, despite continuing to submit reports in which

it calculated and reported the royalties it owed, AMI failed to
make any payments to Toshiba for the twelve semiannual periods
extending from July 1, 2005 through June 30, 2011.

Throughout

2008 and again in late-2011, Toshiba sent AMI numerous e-mails
in an effort to obtain payment of the outstanding royalty
4

balance, which came to total $468,139.70 based on the rate fixed
by the Agreement and exclusive of interest.

AMI never suggested

in response to these communications that it was entitled to a
more favorable royalty rate or that Toshiba had failed to
perform its obligations under the Agreement.
Also during the relevant period, Toshiba posted on its
website and sent form letters on three different occasions to
existing licensees, including AMI, offering reduced royalty
rates.

In a letter dated March 1, 2005, Toshiba offered to

reduce the royalty rate applicable to AMI from $0.05 to $0.045;
a letter of January 25, 2008 offered a rate of $0.04; and a
letter of December 20, 2011 offered a further-reduced rate of $
0.0375 to licensees whose accounts were not overdue.

AMI never

responded to any of these offers and, indeed, continued to
report its royalty obligations using a rate of $ 0.05 per disc.
Having failed to obtain payment from AMI, Toshiba commenced
this action on February 1, 2012.

On March 15, AMI filed an

answer in which it denied liability and asserted counterclaims
for breach of contract and breach of the implied duty of good
faith and fair dealing.

After Toshiba moved to dismiss the

counterclaims as inadequately pled, AMI filed an amended answer
on April 25 (“Amended Answer”).

The Amended Answer acknowledged

that AMI had entered into the Agreement with Toshiba, that it
5

had submitted royalty reports for the July 2005 - June 2011
period, and that it had failed to pay the royalties calculated
in the reports.

AMI denied, however, that Toshiba’s complaint

accurately described the rates due under the Agreement.

AMI

asserted eight defenses to Toshiba’s breach-of-contract claim
and re-pled its own breach-of-contract and good-faith-and-fairdealing counterclaims.

In support of its counterclaims, AMI

made the following assertions:

If Toshiba licensed its patented DVD technology at
royalty rates more favorable than the rates in the
License Agreement, Article 6.1 of the License
Agreement required Toshiba to notify AMI and make
those more favorable rates available to AMI. Toshiba
has not provided such notice to AMI, and has not
offered AMI the opportunity to pay lower rates.
Competitors of AMI sell DVD disks at prices below the
price AMI could profitably sell DVD disks under the
terms of the License Agreement. At these prices, AMI
could not cover the raw material costs and the royalty
set forth in the License Agreement. AMI, therefore,
is informed and believes that Toshiba provided more
favorable licensing arrangements to other parties
without making these more favorable terms available to
AMI, in breach of Article 6.1 of the License
Agreement.
[ . . . ]
Based on the competition AMI is encountering in the
market place described in Paragraph 6 and the fact
that Toshiba did not audit AMI’s books, among other
things, AMI is informed and believes that AMI’s
competitors are underreporting sales and therefor
[sic] paying effective royalty rates that are less
than the royalty rates set forth in the License
6

Agreement. This outcome—which destroys the benefits
AMI negotiated for in Article 6.1 of the License
Agreement—results from Toshiba’s failure to audit the
books of its licensees (i.e. AMI’s competitors).
The Court held a conference pursuant to Rule 16, Fed. R.
Civ. P., on May 4, 2012.

At the conference it was agreed that

the parties would confer regarding any targeted discovery that
was necessary to established any reduced-rate offers that
Toshiba had made to licensees after the date of the Agreement.
The parties agreed that Toshiba would immediately produce
documentation reflecting any offers to license DVD technology to
third parties at rates lower than those paid by AMI since the
signing of the Agreement.

Toshiba’s commitment to produce these

materials was memorialized in a May 15 letter to AMI.

Enclosed

with the May 15 letter were copies of offer letters sent to all
licensees, including AMI, in 2005, 2008, and 2011, informing
them of the rate adjustments described above.

Counsel for

Toshiba affirmed that, “[a]side from these three offers,” the
company “has never offered a lower rate to any disc replicator
licensee for DVD-ROM Discs/Video Discs, and has never agreed to
allow such licensee to pay a lower rate.”

At no point

thereafter did AMI request any additional discovery.
As noted, Toshiba filed the instant motion on July 13,
2012.

With the motion, Toshiba filed a declaration of Naoto

Tsushima, the Group Manager of the Licensing Operations Group
7

for Toshiba (the “Tsushima Declaration”).

Appended to the

Tsushima Declaration were, inter alia, copies of twelve royalty
reports that AMI submitted to Toshiba between February 2006 and
December 2011.

Each of these reports calculated the amount due

using a royalty rate of $0.05 per disc.

Toshiba’s 2005, 2008,

and 2011 letters offering royalty reductions to existing
licensees were also included as exhibits to the Tsushima
declaration.

AMI filed an opposing brief but offered no

documents or testimonial evidence.

The motion became fully

submitted on August 3, 2012.

DISCUSSION
Toshiba’s motion for judgment on the pleadings is premised
on AMI’s admission that it has failed to make royalty payments
for the July 2005 to June 2011 period.

AMI does not dispute

that it failed to pay Toshiba royalties, but it argues that
Toshiba’s motion relies inappropriately on the Tsushima
Declaration and that, in any event, further discovery is
necessary to determine whether Toshiba performed under the
contract and the appropriate level of damages.
I.

Legal Standard
“‘If, on a motion under Rule 12(b)(6) or 12(c), matters

outside the pleadings are presented to and not excluded by the
8

court, the motion must be treated as one for summary judgment
under Rule 56.’”

Hernandez v. Coffey, 582 F.3d 303, 307 (2d

Cir. 2009) (quoting Fed. R. Civ. P. 12(d)).

A district court

must ordinarily give notice to the parties before converting a
motion to dismiss into a motion for summary judgment, but a
party “is deemed to have notice that a motion may be converted .
. . if that party should reasonably have recognized the
possibility that such a conversion would occur.”

Sira v.

Morton, 380 F.3d 57, 68 (2d Cir. 2004) (citation omitted); see
also Hernandez, 458 F.3d at 307.

Here, AMI devotes a

significant portion of its opposition brief to arguing that by
relying on the Tsushima Declaration and exhibits attached
thereto, Toshiba was, in effect, “pursuing a motion for summary
judgment in the guise of a motion for judgment on the
pleadings.”

Having itself characterized Toshiba’s application

as a motion for summary judgment, AMI can hardly object if it is
treated as such.
Summary judgment may not be granted unless all of the
submissions taken together “show that there is no genuine issue
as to any material fact and that the movant is entitled to
judgment as a matter of law.”

Fed. R. Civ. P.

56(c).

The

moving party bears the burden of demonstrating “the absence of a
Celotex Corp. v. Catrett, 477

genuine issue of material fact.”
9

U.S. 317, 323 (1986).

In making this determination, the court

must “construe all evidence in the light most favorable to the
nonmoving party, drawing all inferences and resolving all
ambiguities in its favor.”

Dickerson v. Napolitano, 604 F.3d

732, 740 (2d Cir. 2010).
Once the moving party has asserted facts showing that the
non-movant's claims cannot be sustained, the opposing party must
“set out specific facts showing a genuine issue for trial,” and
cannot “rely merely on allegations or denials” contained in the
pleadings.

Fed. R. Civ. P. 56(e); see also Wright v. Goord, 554

F.3d 255, 266 (2d Cir. 2009).

“A party may not rely on mere

speculation or conjecture as to the true nature of the facts to
overcome a motion for summary judgment,” as “[m]ere conclusory
allegations or denials cannot by themselves create a genuine
issue of material fact where none would otherwise exist.”

Hicks

v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted).
Rule 56(d), Fed. R. Civ. P., prescribes the procedures that
a party opposing summary judgment must follow in order to assert
that “it cannot present facts essential to justify its
opposition.”1

1

Under the rule, a party requesting further

As part of the 2010 amendments to Rule 56, discussion of the
procedure for seeking additional discovery in response to a
motion for summary judgment was moved from subdivision (f) to
subdivision (d). The Advisory Committee Notes state that the
10

discovery in order to defeat a motion for summary judgment must
file an affidavit describing: (1) what facts are sought and how
they are to be obtained; (2) how these facts are reasonably
expected to raise a genuine issue of material fact; (3) what
efforts the affiant has made to obtain them; and (4) why the
affiant's efforts were unsuccessful.
F.3d 236, 244 (2d Cir. 2004).

Gualandi v. Adams, 385

“The failure to file an affidavit

under Rule 56[(d)] is itself sufficient grounds to reject a
claim that the opportunity for discovery was inadequate.”

Di

Benedetto v. Pan Am World Service, Inc., 359 F. 3d 627, 630 (2d
Cir. 2004) (citation omitted).

“A reference to Rule 56[(d)] and

to the need for additional discovery in a memorandum of law in
opposition to a motion for summary judgment is not an adequate
substitute for a Rule 56[(d)] affidavit.”

Paddington Partners

v. Bouchard, 34 F.3d 1132, 1137 (2d Cir. 1994).

Even if a

proper affidavit is filed, a court can reject a request for
further discovery “if it deems the request to be based on
speculation as to what potentially could be discovered.”

Id. at

1138; see also National Union Fire Ins. Co. of Pittsburgh, PA.
v. Stroh Companies, Inc., 265 F.3d 97, 117 (2d Cir. 2001).

“A

bare assertion that the evidence supporting a plaintiff's

new subdivision (d) “carries forward without substantial changes
the provisions of former subdivision (f).”
11

allegation is in the hands of the defendant is insufficient to
justify a denial of a motion for summary judgment under Rule
56[(d)].”
II.

Id. (citation omitted).

Toshiba’s Breach-of-Contract Claim
Toshiba is entitled to judgment in its favor on its breach

of contract claims.

“Under New York law, a breach of contract

claim requires proof of (1) an agreement, (2) adequate
performance by the plaintiff, (3) breach by the defendant, and
(4) damages.”

Fischer & Mandell, LLP v. Citibank, N.A., 632

F.3d 793, 799 (2d Cir. 2011).

As related above, the undisputed

evidence establishes that a valid contract exists, that Toshiba
performed its obligations under the Agreement by granting AMI a
patent license, and that AMI failed to pay royalties for the use
of Toshiba’s patents, and that as a result Toshiba was denied
royalty income to which it was entitled.
In resisting entry of judgment, AMI argues primarily that a
dispute exists as to whether Toshiba adequately performed its
obligations under the Agreement.

Specifically, as suggested

above, AMI maintains that Toshiba has failed to comply with the
MFR Clause by offering other licensees royalty rates lower than
those paid by AMI, without offering those same rates to AMI.
Although the Amended Answer suggests that if Toshiba were found
to have violated the MFR Clause, the Court would be required to
12

“[d]eny any recovery to Toshiba and dismiss all of Toshiba’s
claims,” that is not the case.
Under New York law, “[a] party's obligation to perform
under a contract is only excused where the other party's breach
of the contract is so substantial that it defeats the object of
the parties in making the contract.”

Frank Felix Associates,

Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997).
In this case, while it may be true that the MFR Clause was an
important reason that AMI agreed to pay the particular royalty
rate that it did, it cannot be maintained that the clause was
the reason that AMI agreed to pay any royalties at all.

The

essential “object of the parties in making the contract” was
undisputedly the exchange of licenses for some amount of
compensation, and given that during the relevant period AMI
reported that it had produced and sold over 8 million DVDs using
the Licensing Group’s proprietary technology, AMI cannot
credibly claim that a breach of the MFR Clause, if one occurred,
would excuse it of any obligation whatsoever to pay.
AMI’s defense based on the implied covenant of good faith
and fair dealing is equally unavailing.

AMI appears to assert

that, by failing to audit the books of its licensees, Toshiba
violated the spirit of Agreement -- allowing licensees to
underreport their sales and, in effect, pay a reduced per disc
13

royalty rate.

New York law implies a covenant of good faith and

fair dealing “pursuant to which neither party to a contract
shall do anything which has the effect of destroying or injuring
the right of the other party to receive the fruits of the
contract.”

Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400,

407 (2d Cir. 2006) (citation omitted).

The implied covenant,

however, “can only impose an obligation consistent with other
mutually agreed upon terms in the contract.

It does not add to

the contract a substantive provision not included by the
parties.”

Broder v. Cablevision Sys. Corp., 418 F.3d 187, 198–

99 (2d Cir. 2005) (citation omitted).

AMI’s argument would

effectively convert the Audit Clause from a right of the
licensor to be exercised at its discretion to an obligation.
That understanding of the Agreement cannot be squared with the
permissive terms in which the Audit Clause is framed.
Although AMI’s Answer asserts a number of additional
defenses to liability, neither the Answer nor AMI’s brief in
opposition to the instant motion sets forth the factual basis
for these defenses or discusses their legal elements.

It is

well settled, that “issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived.”

Tolbert v. Queens Coll., 242 F.3d 58, 75 (2d

14

Cir. 2001).

Thus, in light of the foregoing analysis, Toshiba

is entitled to judgment in its favor.
III.

AMI’s Breach-of-Contract Counterclaim
In addition to asserting Toshiba’s alleged violation of the

MFR Clause as a defense to liability, AMI has filed a
counterclaim for breach of contract.2

Although, as discussed, a

violation of the MFR Clause, if proven, would not allow AMI to
escape its obligation to pay royalties for its use of the
Licensing Group’s proprietary technology, it might entitle AMI
to an offset against the royalty rate specified in the Agreement
and therefore bear on the amount of damages to be awarded to
Toshiba.

But AMI has introduced no evidence tending to suggest

that such a violation occurred.

To the contrary, the documents

produced during the targeted discovery period following the
initial pretrial conference establish that Toshiba offered its
DVD licensees royalty rates lower than those paid by AMI on only
three occasions -- in March 2005, January 2008, and December
2011.

On each occasion, the reduced rates were offered to AMI

as well, but AMI, for whatever reason, failed to accept them.

2

Although AMI has also asserted a counterclaim based on the
implied covenant of good faith and fair dealing, as has already
been explained, that argument is rooted in an erroneous
understanding of the Agreement.
15

In an effort to avoid the conclusion that Toshiba complied
with the MFR Clause, AMI speculates that Toshiba’s document
production was incomplete and failed to reflect licenses granted
to other DVD producers on more favorable terms than those
offered to AMI.

To support this claim, AMI notes that the

Tsushima Declaration and its supporting exhibits do not reflect
that Toshiba notified other licensees of the Back Royalty rates
that Toshiba offered to AMI as part of the 2005 Agreement.

AMI

maintains that, under the MFR Clause, which is incorporated in
the contracts of all licensees, Toshiba was required to make
such a notification, although it acknowledges that “these more
favorable rates may not be retroactively applied.”

Based on

this reading of the Clause, AMI speculates from Toshiba’s
failure to notify other licensees of the Back Royalty rates
offered to AMI that, in other instances, Toshiba may have
violated the Clause in ways that were prejudicial to AMI.
misreads the Agreement.

AMI

It clearly states that “Article 6.1

shall not apply to . . . determination by Licensor of back
royalties owed by a Licensee,” and, crucially, Article 6.1
contains both the notification and rate-modification
requirements upon which AMI relies.

Thus, contrary to AMI’s

assertion, this incident does not suggest that Toshiba has

16

violated the MFR Clause in its dealings with AMI or any other
licensee.
Unable to present (or even allege) facts to support its
claim that Toshiba has violated the MFR Clause, AMI contends
that it is entitled to further discovery in order “to determine
the extent of Toshiba’s compliance with its obligations and
therefore the amount owed in royalties.”

But AMI was provided

with an opportunity for just such discovery following the May
2012 conference and never raised with the Court Toshiba’s
refusal to provide it with any discovery it sought.

Moreover,

even now, AMI has not made a targeted request for additional
discovery or otherwise complied with the requirements of Rule
56(d).

As noted, “[t]he failure to file an affidavit under Rule

56[(d)] is itself sufficient grounds to reject a claim that the
opportunity for discovery was inadequate.”
3d at 630 (citation omitted).

Di Benedetto, 359 F.

There is therefore no basis to

find that additional discovery would materially advance AMI’s
counterclaims.

The undisputed record evidence, as reflected by

AMI’s own royalty reports, demonstrates that AMI is indebted to
Toshiba for $468,139.70 in overdue royalty fees, plus interest
at the contractually specified rate.

17

CONCLUSION
Toshiba/s July 13 Motion/ which is treated as a motion for
summary judgment/ is granted in the principal amount of
$468/139.70.

Toshiba shall submit a proposed judgment that

includes a calculation of the appropriate interest and costs no
later than September 14/ 2012.

SO ORDERED:
Dated:

New York/ New York
September 4/ 2012

United S

18

Judge