Eastman Kodak Company v. Kyocera Corporation
Filing
137
DECISION AND ORDER denying 105 Motion for Partial Summary Judgment. Signed by Hon. Charles J. Siragusa on 10/22/12. (KAP)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
__________________________________________
EASTMAN KODAK COMPANY,
Plaintiff
DECISION AND ORDER
-vs10-CV-6334 CJS
KYOCERA CORPORATION,
Defendant
__________________________________________
APPEARANCES
For Plaintiff:
Paul J. Yesawich, III, Esq.
Neal L. Slifkin, Esq.
Laura W. Smalley, Esq.
Harris Beach LLP
99 Garnsey Road
Pittsford, New York 14534
Robert D. Cultice, Esq.
Michael J. Summersgill, Esq.
Jordan L. Hirsch, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
For Defendant:
Charles L. Kerr, Esq.
Morrison & Foerster
1290 Avenue of the Americas, 40th Floor
New York, New York 10104
David C. Doyle, Esq.
William V. O’Connor, Esq.
Greg Reilly, Esq.
Morrison & Foerster LLP
12531 High Bluff Drive, Suite 100
San Diego, California 92130
1
INTRODUCTION
This is an action for breach of contract. Now before the Court is Plaintiff’s motion
(Docket No. [#105]) for partial summary judgment as to liability. The application is denied.
BACKGROUND
Unless otherwise noted, the following are the undisputed facts of this case, viewed
in the light most-favorable to Kyocera, the non-moving party. The reader is presumed to
be familiar with prior Decisions and Orders of this Court which discuss some of the
underlying facts. See, Decision and Order dated April 14, 2011 [#48]; Decision and Order
dated September 17, 2012 [#131] (Hon. Marian W. Payson, United States Magistrate
Judge).
On August 21, 2002, Eastman Kodak Company (“Kodak”) and Kyocera Corporation
(“Kyocera”) executed the subject Patent Licensing Agreement (“PLA”). At the same time,
the parties executed a side letter, between Kodak’s Senior Vice President, Willy Shih, and
Kyocera’s Director, Deputy General Manager, Yoshihiko Nishikawa, clarifying a portion of
the PLA. (Hereinafter, “the Side Letter”).
The PLA covers both Digital Cameras and Integrated Digital Cameras.1 Integrated
Digital Cameras are “multi-function devices” such as cell phones that include a camera.
The subject dispute is limited to royalties on such Integrated Digital Cameras, and
specifically, on camera phones.
The PLA includes the following “Definitions” and
1
At oral argument, Kodak’s counsel argued that the PLA actually covers a third category as well,
which is “stand alone camera modules” which have all the “functionality” of a Digital Camera as defined in
the PLA, which are sold prior to being installed into an integrated device. As discussed further below, the
Court does not find that to be a plausible reading of the PLA, but to the extent that it is, it would not be
unambiguous.
2
provisions:
1.2 ‘Digital Camera’ shall mean a portable, self-contained device utilizing an
Area Image Sensor having at-least three hundred thousand (300,000) pixels,
as well as electronics and optical elements that captures [sic] still or motion
images of visible radiation and (a) records a digital signal representing such
images on a Removable Digital Storage Media or (b) stores at least two such
images in internal memory.
***
1.7 ‘Integrated Digital Camera’ shall mean an integrated, non-separable,
self-contained Multi-Function Device that utilizes an Area Image Sensor
which Sensor has greater than three hundred thousand (300,000) pixels as
well as electronics and optical elements that captures still or motion images
of visible radiation and (a) records a digital signal representing such images
on a Removable Digital Storage Media or (b) stores at least two such images
in internal memory.
***
1.11 ‘Licensed Products’ shall mean (i) Digital Camera(s) . . . and (ii) for
repair or replacement purposes only components of a Digital Camera . . .
and (iii) Integrated Digital Camera(s) including without limitation modules
that function as Digital Cameras, which modules are to be incorporated into
Integrated Digital Camera’s [sic] but excluding . . . portions of the Integrated
Digital Camera exclusively performing non-camera functions, as those
functions are described in the definition of a Multi-Function Device herein,
e.g. a voice transmitting/receiving cell phone (hereinafter “Non-Camera
Portions”) . . . .
***
1.15 ‘Multi-Function Device’ shall mean a device that performs as a fully
functional stand-alone consumer electronic device providing substantial noncamera functions in addition to those typically provided by a digital camera.
Examples of such stand-alone consumer electronic devices providing
substantial non-camera functions include, but are not limited to a voice
transmitting/receiving cellular telephone.
1.16 ‘Net Sales’ in this Agreement shall be determined based on whether a
Digital Camera enters the consumer market as a Kyocera Branded Licensed
Product or an OEM Licensed Product as defined below.
3
(cont.)
Kyocera Branded Licensed Product
In the case of an arms length sale or other disposal of a Kyocera Branded
Licensed Product, Net Sales shall mean the total net revenue received by
Kyocera and its Subsidiaries resulting from the sale or placement of such
Kyocera Branded Licensed Product whether through purchase, lease or
other commercial transaction . . . .
***
OEM Licensed Product
In the case of an arms length sale or other disposal of a OEM Licensed
Product, and which is made with (a) Kyocera’s components and/or (b) third
party components purchased in an arms length sale, Net Sales shall mean
the total net revenue received by Kyocera and its subsidiaries resulting from
the sale or placement of such OEM Licensed Product whether through
purchase, lease or other commercial transactions . . . .
***
2
Integrated Digital Camera Product
As to Integrated Digital Camera [sic], it is understood by the parties that
Kyocera, currently through its Optical Equipment Division, sells or disposes
of a Digital Camera in the form of a module which is to be incorporated into
an Integrated Digital Camera either by a Kyocera Subsidiary or a third party
or Kyocera’s other division. It is, therefore, agreed by the parties hereto that
only with respect to Integrated Digital Cameras, Net Sales shall be the sale
price of the Digital Camera in the form of a module sold or disposed of by
Kyocera to a Kyocera Subsidiary or third party or to another Kyocera division
with respect to the sale of digital camera modules prior to the integration of
the Digital Camera in the form of a module into the Integrated Digital
Camera, less any Deduction.
In the case where the sale or disposal of a Digital Camera in the form of a
2
The Court believes from a plain reading of the PLA that “Net Sales” of the subject camera
phones is determined by this paragraph of the PLA. At oral argument, Kodak’s counsel argued that the
first paragraph of § 1.16, entitled “Kyocera Branded Licensed Products,” determines “Net Sales” for such
devices, and that the subject paragraph entitled “Integrated Digital Camera Product” actually does not
refer to Integrated Digital Camera Products, notwithstanding its heading, but only refers to “stand alone”
Digital Camera modules that are sold by Kyocera prior to being installed in an Integrated Digital Camera
Product. The Court does not find such argument plausible. In any event, to the extent that Kodak’s
counsel is correct, such fact would only increase the ambiguity of the PLA.
4
module to be incorporated into an Integrated Digital Camera has not been
sold in an arms length transaction to a Kyocera Subsidiary or a non-affiliated
third party or to another Kyocera division with respect to the sale of digital
camera modules, the Net Sales shall mean Kyocera’s open market price to
a non-affiliated third party for such Digital Camera in the form of a module on
the date when such sale occurred less any Deductions or, alternatively, if
there is no open market price, an imputed price determined on a
commercially reasonable basis to be no less than the price of a commercially
available Digital Camera in the form of a module which are [sic] in respect of
features and functions equal or substantially equivalent to Kyocera’s digital
camera module.
***
1.17 ‘OEM Licensed Product’ shall mean Licensed Product sold or
otherwise disposed of under a tradename or trademark that is owned by a
third party.
***
4.2 . . . [I]t is agreed that Kyocera shall pay to Kodak a commuted royalty
of two and one-half percent (2.5%) of the worldwide Net Sales of all Kyocera
Branded Licensed Products. It is further agreed that Kyocera shall pay to
Kodak a commuted royalty of three percent (3%) of the worldwide Net Sales
of all OEM Licensed Products.
***
4.7 This Agreement is intended to capture the internal transaction business
model of Kyocera as it exists on the Effective Date of this Agreement,
wherein all Digital Cameras and Digital Cameras in the form of modules to
be incorporated into Integrated Digital Cameras manufactured by Kyocera
or a Kyocera Subsidiary are sold or otherwise disposed of by Kyocera or a
Kyocera Subsidiary to any third party or Kyocera retail Subsidiary in any part
of the world.
***
4.8 Kyocera warranties that all Digital Cameras and Digital Cameras in the
form of modules to be incorporated into Integrated Digital Cameras sold or
disposed of by Kyocera or its Subsidiaries before or during the term of this
Agreement have been or will be manufactured by Kyocera or [sic] Kyocera
manufacturing Subsidiary and sold by Kyocera or a Kyocera Subsidiary.
***
9.4 This Agreement which shall be governed by the substantive laws of New
5
York State . . . constitutes the entire Agreement between the parties with
respect to the subject matter hereof. Any modification of this Agreement
shall be set forth in writing and duly executed by both parties.
(emphasis added).
As mentioned earlier, when the parties executed the PLA, they also signed the Side
Letter, which states, in pertinent part:
This letter confirms the following understanding reached between Kyocera
and Kodak regarding the sales price of digital camera modules sold by your
Optical Equipment Division to the Communication Equipment Division for
incorporation into a multifunction integrated digital camera.
When the Optical Equipment Division sells digital camera modules to both
the Communication Equipment Division and to any third party, the sales price
used for determining the applicable royalty due Kodak on the digital camera
modules sold to the Communication Equipment Division shall be the ‘Net
Sales’ as defined in Paragraph 1.16 of the PLA. In the event, however, the
Optical Equipment Division before selling digital camera modules to any third
party initially sells such modules only to the Communication Equipment
Division, the sales price used for determining the applicable royalty due
Kodak shall be one hundred ten percent (110%) of the internal sales price
to the Communication Equipment Division.
(Side Letter dated signed August 21, 2002).
For several years after the execution of the PLA, Kyocera paid royalties to Kodak
for Integrated Digital Cameras, based on the sales price of the “camera modules” that, at
all relevant times, it manufactured for use in camera phones. It is undisputed that such
“camera modules” do not meet the full definition of a “Digital Camera” contained in PLA §
1.2. That is, Kyocera’s “camera modules” are not, in and of themselves, fully functioning
digital cameras. Instead, such modules work together with other components of the
camera phone that are shared between the phone and camera aspects of the integrated
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device, such as the image processor, liquid crystal display (“LCD”), internal memory, power
management circuit, and keypad.3
On June 22, 2010, Kodak commenced this action, alleging that Kyocera breached
the PLA with regard to Integrated Digital Cameras, by paying royalties based on Net Sales
of its “camera modules,” rather than on “all portions of its products that contribute to
specifically defined ‘Digital Camera’ functionality.” Complaint [#1] ¶ 5. Kodak alleges that,
Kyocera has paid royalties on only some of the components involved in
Digital Camera functionality and has failed to pay royalties on the other
components that indisputably contribute to Digital Camera functionality. This
is a direct breach of the [PLA] and has resulted in a significant underpayment
of royalties due.
Id. As this statement indicates, Kodak insists that Kyocera must pay royalties on every
part of its camera phones that contribute to the picture-taking function, including those that
are not part of Kyocera’s “camera module.” On this point, Kodak relies largely on the
PLA’s definition of “Licensed Products,” set forth above, which, in pertinent part, excludes
only those “portions of the Integrated Digital Camera exclusively performing non-camera
functions.”
“Kyocera maintains, by contrast, that the PLA’s definition of ‘Net Sales’ limits its
royalty payments to the camera module.” Eastman Kodak Co. v. Kyocera Corp., No. 10CV-6334 CJS, 2012 WL 4103811 at *6 (W.D.N.Y. Sep. 17, 2012) (Payson, M.J.). In that
regard, Kyocera states that royalties are based on “Net Sales,” and PLA § 1.16, defining
3
Kodak argues that, at some point in time, Kyocera actually did make a “Digital Camera in the
form of a module,” which, under its interpretation of the PLA, means a module, designed to be later
installed into a multi-function device, that by itself meets the PLA’s definition of a “Digital Camera.” In that
regard, Kodak relies solely on the deposition testimony of Kyocera’s 30(b)(6) witness, Hiroo Iwabu, which
is somewhat equivocal on that point when viewed in its entirety. Iwabu Dep. p. 148. However, Kyocera
adamantly maintains that it never manufactured such a module, and that in fact, no company ever has.
7
such “Net Sales” for Integrated Digital Camera Products, is specifically based on the sales
price of Kyocera’s camera modules. Kyocera indicates that even though the PLA uses the
phrase “Digital Camera in the form of a module,” it refers to Kyocera’s camera modules,
which do not, by themselves, satisfy the definition of a “Digital Camera” set forth in PLA §
1.2. Kyocera disagrees with Kodak’s argument that such modules must satisfy the
definition of “Digital Camera” found in § 1.2 of the PLA. Kyocera states, on that point that
the PLA does not specifically define the term “Digital Camera in the form of a module,” and
that the PLA uses that term interchangeably with other terms, such as “modules that
function as Digital Cameras,” § 1.11, and “digital camera modules,” § 1.16. Kyocera further
maintains that its interpretation is supported by the Side Letter, which uses the term “digital
camera module” in reference to PLA § 1.16, and never uses the term “Digital Camera in
the form of a module.” Kyocera argues, therefore, that it has not breached the PLA, since
it has paid royalties based on the sales price of its camera modules, as required by the
PLA.
Following pretrial discovery, Kodak filed the subject motion for partial summary
judgment as to liability. Kodak contends that the PLA unambiguously supports its position,
as a matter of law. Kyocera opposes the application, and contends that the PLA is “riddled
with ambiguity.”4 On October 4, 2012, counsel for the parties appeared before the
undersigned.
4
See comments of David C. Doyle, Esq. during oral argument.
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ANALYSIS
Rule 56
Summary
judgment may not be granted unless "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A party seeking summary judgment
bears the burden of establishing that no genuine issue of material fact exists. See, Adickes
v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). “[T]he movant must make a prima facie
showing that the standard for obtaining summary judgment has been satisfied.” 11
MOORE’S FEDERAL PRACTICE, § 56.11[1][a] (Matthew Bender 3d ed.).
The underlying facts contained in affidavits, attached exhibits, and depositions, must
be viewed in the light most favorable to the non-moving party. U.S. v. Diebold, Inc., 369
U.S. 654, 655 (1962). Summary judgment is appropriate only where, "after drawing all
reasonable inferences in favor of the party against whom summary judgment is sought, no
reasonable trier of fact could find in favor of the non-moving party." Leon v. Murphy, 988
F.2d 303, 308 (2d Cir.1993).
This contract action is governed by the substantive law of New York State, which
is well settled.
Under New York law, the fundamental objective of contract interpretation is
to give effect to the expressed intentions of the parties. In a dispute over the
meaning of a contract, the threshold question is whether the contract is
ambiguous. Whether a written contract is ambiguous is a question of law for
the court. Ambiguity is determined by looking within the four corners of the
document, not to outside sources. Contract language presents no ambiguity
where it has a definite and precise meaning, unattended by danger of
misconception in the purport of the contract itself, and concerning which
9
there is no reasonable basis for a difference of opinion. But, the language
of a contract is ambiguous if it is capable of more than one meaning when
viewed objectively by a reasonably intelligent person who has examined the
context of the entire integrated agreement.
In determining whether a contract is ambiguous, the court must read the
integrated agreement as a whole. If the document as a whole makes clear
the parties' over-all intention, courts examining isolated provisions should
then choose that construction which will carry out the plain purpose and
object of the agreement.
Eastman Kodak Co. v. Asia Optical Co., Inc., No. 11 Civ. 6036(DLC), 2012 WL 917393 at
*3-4 (S.D.N.Y. Mar. 16, 2012) (citations and internal quotation marks omitted).
Under New York law, where a contract is ambiguous, summary judgment cannot be
granted. See, Bonnant v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 467 Fed.Appx. 4, 7
(2d Cir. Mar. 8, 2012) (“In a contract dispute, generally, a motion for summary judgment
may be granted only when the contract language is wholly unambiguous and conveys a
definite meaning.”) (citation and internal quotation marks omitted).
Furthermore, “[u]nder New York law, instruments executed at the same time, by the
same parties, for the same purpose and in the course of the same transaction will be read
and interpreted together.” Carvel Corp. v. Diversified Management Group, Inc., 930 F.2d
228, 233 (2d Cir. 1991).
Accordingly, in considering whether the subject PLA is
ambiguous, the Court must examine both the PLA and the Side Letter which was executed
the same day, since the Side Letter specifically addresses and clarifies part of the PLA,
involving “the sales price of digital camera modules sold by [Kyocera’s] Optical Division
to [its] Communication Equipment Division for incorporation into a multifunction integrated
digital camera.” With these general principles established, the Court will consider the
10
merits of Kodak’s motion for partial summary judgment.
Kodak contends that the PLA is unambiguous, and can be only interpreted to mean
that Kyocera must pay royalties on “the full digital camera portion” of its camera phones,
meaning every part that performs “camera functions.” Kodak maintains that Kyocera must
pay a royalty on such parts, even if those parts are also involved in performing non-camera
functions. On that point, Kodak relies on PLA § 1.11, “Licensed Products,” which includes,
as licensed products, “modules that function as Digital Cameras,” but excludes “portions
of the Integrated Digital Camera exclusively performing non-camera functions.”
Kyocera disagrees, but has not cross-moved for summary judgment, since it
maintains that the PLA is ambiguous. In that regard, Kyocera relies on that portion of PLA
§ 1.16 that specifically deals with “Net Sales” of Integrated Digital Camera Products.
According to Kyocera, this section clearly indicates that Net Sales are based on sales of
its “camera modules.”
In the Court’s view, the PLA is ambiguous. The subject dispute is over the amount
of royalties to be paid to Kodak, and such royalties are based on Net Sales, as defined in
PLA § 1.16. Significantly, the relevant portion of that section begins by reciting that
Kyocera “currently, through its Optical Equipment Division, sells or disposes of a Digital
Camera in the form of a module.” (emphasis added). The section then goes on to agree
that “Net Sales” of Integrated Digital Camera Products are the sales of those very “Digital
Cameras in the form of a module.” However, the PLA does not define the term “Digital
Camera in the form of a module.” The PLA also uses terms such as “digital camera
module,” while the Side Letter, which specifically pertains to § 1.16, never uses the term
“Digital Camera in the form of a module,” but instead, uses the term “digital camera
11
modules.” At the time the PLA was executed, Kyocera manufactured a “digital camera
module.” On these facts, it could reasonably be understood that the parties intended that
Net Sales of Integrated Digital Camera Products would be based on sales of Kyocera’s
“digital camera modules,” without regard to whether such modules meet the PLA’s
definition of a “Digital Camera.” Since the PLA is ambiguous, the Court cannot grant
summary judgment.
CONCLUSION
For all of the foregoing reasons, Plaintiff’s motion for partial summary judgment
[#105] is denied.
SO ORDERED.
Dated:
Rochester, New York
October 22, 2012
ENTER:
/s/ Charles J. Siragusa
CHARLES J. SIRAGUSA
United States District Judge
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