Opinion
Civil Action No. 01-10793-DPW
August 15, 2002
MEMORANDUM AND ORDER
Plaintiff GTE Wireless Inc. ("Wireless") brings this action for declaratory and injunctive relief on behalf of Cellco Partnership ("Cellco"), an affiliate of Wireless and its parent company Verizon Communications, Inc. ("Verizon"). Wireless seeks to enforce a covenant not to sue that was entered into as part of a settlement agreement between Cellexis International, Inc. ("Cellexis") and GTE Corporation and GTE Mobilnet Service Corporation (collectively, "GTE"). Wireless contends that the covenant not to sue bars defendant Freedom Wireless, Inc. ("Freedom") from maintaining a patent suit against Cellco currently in discovery before Judge Harrington of this District. Both sides move for summary judgment.
I. Factual Background
This litigation concerns a written settlement agreement (the "Settlement Agreement" or "Agreement") entered into by GTE, Cellexis, and the Cellexis principals in April 1996. The Agreement disposed of litigation that had been filed by Cellexis and the Cellexis principals against GTE and other defendants in the United States District Court for the District of Arizona, alleging that GTE had stolen and distributed Cellexis' trade secrets relating to prepaid cellular phone service. The Agreement, executed within a month and a half after Cellexis filed its complaint, provided that Cellexis would pay GTE $125,000 to cover legal fees and expenses and damages for business defamation, issue a public retraction, and promise not to sue GTE, its partnerships, affiliates, joint ventures, and successors over the subject intellectual property involving wireless communication technology.
On September 25, 1997, Cellexis sold its patent rights arising out of Patent Application No. 08/364,479, relating to the intellectual property at issue in the 1996 litigation and the Agreement, to defendant Freedom for $750,000. In February 1998 the U.S. Patent and Trademark Office ("PTO") issued Patent No. 5,722,067 (the "067 Patent") covering wireless communication technology to Douglas Fougnies and Dan Harned, who assigned the rights to Freedom pursuant to the 1997 sale. Defendant Fougnies owns an approximately 27% interest in Freedom and a 20-27% interest in Cellexis.
In June 1998, Freedom sent letters to several hundred companies that it considered to be infringing the claims of the '067 patent, including GTE Wireless. Counsel for GTE Wireless responded by letter stating that the Settlement Agreement precluded suit against GTE, its subsidiaries, partnerships, and affiliates.
On March 29, 2000 Freedom filed suit in the United States District Court for the Northern District of California (the "patent action") accusing several wireless communications companies including Bell Atlantic Mobile, Inc. ("BAM") and AirTouch Communications, Inc. ("AirTouch") of infringing Freedom's '067 Patent. The patent action was transferred to Judge Harrington of this District in October 2000. Though not named as a defendant, Cellco answered Freedom's original complaint on June 15, 2000, stating that it had been improperly named as BAM.
GTE Mobilnet was dissolved on June 21, 2000 and all its assets were distributed to its sole shareholder, GTE Wireless, Inc. Nine days later, the FCC approved the merger agreement of GTE Corporation and Bell Atlantic (the "merger agreement") by which GTE Corporation became a wholly owned subsidiary of Bell Atlantic, now known as Verizon. The merger triggered certain provisions of the U.S. Wireless Alliance Agreement among Bell Atlantic and Vodafone AirTouch, including the requirement that Bell Atlantic contribute all its newly acquired wireless assets to Cellco in exchange for a partnership interest in Cellco. As of July 10, 2000, Verizon subsidiaries owned 45% of Cellco, including GTE Wireless which owned 22.3% of Cellco and three other separately incorporated GTE subsidiaries that owned 8.5% of Cellco.
In December 2000, the U.S. PTO issued Patent No. 6,157,823 (the "`823 Patent") based on the same application that led to the '067 Patent. Again, the patent rights transferred by assignment to Freedom pursuant to the 1997 sale agreement. In March 2001, Freedom filed an amended complaint in the patent action asserting the additional grounds of infringement of the '823 Patent and naming Cellco as a defendant to the patent action.
GTE Mobilnet filed the instant action in the United States District Court for the District of Arizona on June 15, 2000, the same day Cellco filed its answer to the Freedom complaint and only six days before GTE Mobilnet dissolved. GTE Mobilnet then moved under Rule 25 to substitute Cellco as plaintiff, which the Arizona court denied without prejudice as part of the same order that transferred the case to this District.
At the summary judgment hearing in this matter, I granted GTE Wireless' motion to substitute as plaintiff in this case based on its representation that GTE Wireless, not Cellco, was the successor to GTE Mobilnet's interest in the Settlement Agreement. In addition, counsel for Freedom, Cellexis, Wireless, and Cellco agreed to be bound by my determination as to the application of the Settlement Agreement to the underlying patent action pending before Judge Harrington as res judicata, and to dismiss defendant Fougnies from the case. This resolution obviated the need to address on the merits defendants' Rule 12(b)(1) motion to dismiss based on a violation of Rule 17(a) and defendants' Rule 12(b)(7) motion for failure to join a party under Rule 19. I now take up the parties' cross motions for summary judgment.
II. Summary Judgment Standard
Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Such a motion may be granted only if "the evidence, viewed from the perspective most favorable to the non-movant, is so one-sided that the movant is plainly entitled to judgment, for reasonable minds could not differ as to the outcome." FHS Props. Ltd. Partnership v. BC Assocs., 175 F.3d 81, 85 (1st Cir. 1999) (internal quotation marks and citation omitted).
Issues of contract interpretation may be resolved on summary judgment if the language is unambiguous, or "`even if there is ambiguity in the language . . . [if] the evidence about the parties' intended meaning [is] so one-sided that no reasonable person could decide the contrary.'" Lohnes v. Level 3 Communications, Inc., 272 F.3d 49, 53 (1st Cir. 2001) (alteration in original) (quoting Allen v. Adage, Inc., 967 F.2d 695, 698 (1st Cir. 1992)). "Accordingly, summary judgment may lie against a party who fails adequately to support its proposed interpretation of a purportedly ambiguous contract term." Id.
III. Analysis
The central question in this dispute is whether the protections provided by the Settlement Agreement apply to an entity that at the time of the Agreement's execution in May 1996 was not affiliated with GTE, but has since become so. I look to the language of the Settlement Agreement to answer this question, and apply Arizona law as the parties contracted. See Agreement ¶ 10.13. Under Arizona law, the rules of construction governing contracts apply with equal force to settlement agreements. See Spain v. General Motors Corp., 171 Ariz. 226, 227 (Ariz.App. 1992).
Arizona law must be looked to for its definition of whether the affiliation is covered by the Agreement. However, I need not reach the issue of whether Cellco is a GTE affiliate if the Agreement does not cover future GTE affiliations.
"The object of all rules of interpretation is to arrive at the intention of the parties as it is expressed in the contract." Phelps Dodge Corp. v. Brown, 112 Ariz. 179, 181 (1975). One such interpretive rule dictates that "[t]he language of the contract is [to be] read as a whole and given a reasonable interpretation." Brown v. Ariz. Dep't of Real Estate, 181 Ariz. 320, 327 (Ariz.Ct.App. 1995). Also, words are to be given their ordinary meaning, unless otherwise indicated. Horton v. Mitchell, 200 Ariz. 523, 527 (Ariz.Ct.App. 2001). Contracts are to be construed in accordance with the parties' intent as of the time the contract was executed. Taylor v. State Farm Mutual Automobile Ins. Co., 175 Ariz. 148, 153 (1993) (in banc).
The parol evidence rule in Arizona requires that "evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. . . . [They] may be admissible, however, for purposes . . . [of] interpretation." Id. at 152 (internal quotation marks and citations omitted). In determining when parol evidence is admissible, the Supreme Court of Arizona has criticized "the often repeated and usually over-simplified construct that ambiguity must exist before parol evidence is admissible." Id. at 154. Ambiguity of meaning, in and of itself, is neither necessary nor sufficient for parol evidence to be admissible. Id. Rather, under Arizona law, "[t]he better rule is that the judge first considers the offered evidence and, if he or she finds that the contract language is `reasonably susceptible' to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties." Id.
With these rules in mind, I take up the question whether an entity that is presently a GTE affiliate is now covered by the Agreement notwithstanding the fact that it was not covered at the time the Agreement was executed.
The Agreement defines GTE as including the following:
"GTE" means and includes GTE Corporation, all of its subsidiaries, joint ventures, and affiliates and every GTE entity which is licensed to provide wireless communications services, including but not limited to GTE Mobilnet Service Corporation and GTE Personal Communication Services.
Agreement § 1.3
Wireless contends that section 1.3 of the Agreement does not contain a temporal limitation, and therefore includes within its reach any entity that meets the definition regardless of its status at the time the Agreement was executed. I find this interpretation untenable in light of applicable Arizona law and the Agreement taken as a whole.
Initially, I note that Arizona law requires that a release of liability be construed narrowly against coverage of non-parties, unless expressly named or otherwise identified. Spain, 171 Ariz. at 227. In Spain, a broadly worded release whose language clearly covered "any other person, firm or corporation . . . chargeable with . . . liability" for a particular accident, was held not to preclude plaintiff's lawsuit against General Motors for product liability in relation to the same accident. Id. Applying contract principles, the court held that in order for a non-party to benefit from the release contract, the release must be express and the non-party must be an intended third-party beneficiary, i.e. it must be "named or otherwise specifically identified." Id.
I view the covenant not to sue in the same light as the release from liability in Spain. In order for Cellco to benefit from GTE's Settlement Agreement with Cellexis, there must be evidence that, at the time the Agreement was written, the parties intended to cover Cellco, or at least to cover future GTE affiliates as a class. Plaintiff fails to present any such evidence either in the text of the Agreement or in the form of parol evidence.
I begin with the relevant text of the Agreement, undertaking to find its plain meaning in light of the entire Agreement. The text of section 1.3 which defines GTE is written in the present tense, as evidenced by the use of the phrase "is licensed." This fact suggests that for purposes of the Agreement, membership in the class of entities constituting GTE is fixed as of the day of the Agreement, rather than remaining left open to entities that might qualify under the definition at some point in the future.
Plaintiff suggests that the use of the present tense entails no temporal limitation, that it is merely a convenient and grammatically correct means of expressing a definition. GTE's argument is belied by other provisions in the definition section of the Agreement that clearly indicate when a category is intended to include future entities or events. Section 1.7 defines "intellectual property" as "rights . . . involving or arising out of wireless communication technology . . ." The phrase "arising out of" suggests that the category of rights is not limited to those that presently exist, but includes rights yet to be born. Moreover, section 1.7 continues: "For purposes of this Agreement, Intellectual Property shall not include any idea or concept developed and reduced to practice after the date of this Agreement . . . Notwithstanding the foregoing, any idea or conception related to prepaid cellular telephone technology shall be deemed to constitute Intellectual Property regardless of the date of development or reduction to practice." Thus, the parties used express language when they intended to include rights that did not yet exist but whose creation was anticipated in the future. In so doing, they carefully defined the scope of future rights to which the Agreement applies. Where no such language exists, I presume that the parties intended the Agreement to cover only those entities that existed at the time of the Agreement's execution.
GTE Wireless argues that the present tense definition of Intellectual Property included future rights, thus requiring the sentence — "Intellectual Property shall not include any idea or concept developed and reduced to practice after the date of this Agreement" — in order to limit the inclusion of future rights. This argument ignores the term "arising out of" which, while not itself a verb with a tense, has clear prospective implications that are not present in section 1.3. Moreover, the second sentence of section 1.7 cannot be read in isolation from the third. Rather, the inclusion of these last two sentences together define a set of future rights to which the Agreement does apply.
The import of section 1.3's present tense is reinforced by the fact that the Agreement also expressly includes future entities and actions where intended throughout the substantive provisions. The provisions in the Covenant Not to Sue (Section 7) and Other Covenants (Section 10) expressly cover predecessors and successors of both parties. Similarly, the parties used the future tense at various points in the Agreement. For example, section 7.1 of the Covenant Not to Sue provides that "they [Cellexis] shall not now or at any time in the future bring any Claims against GTE. . . ." These examples demonstrate the parties' awareness of verb tense and their appropriate variance of tense to express their mutual understanding. Just as courts find meaning in Congressional changes of verb tense in statutory language, see Dickerson v. New Banner Institute, Inc., 460 U.S. 103, 116 (1983) (quoting Barrett v. United States, 423 U.S. 212, 217 (1976)), I must accord the appropriate significance to the parties' use of the present tense to define GTE in section 1.3. To ignore the temporal limitation in the definition would greatly expand the scope of the Agreement beyond the parties' apparent intent.
GTE Wireless contends that GTE would never have signed an agreement that did not include future entities because it was constantly acquiring new wireless assets and wanted to guarantee that it would never again be subject to a lawsuit by Cellexis. GTE's general counsel, Richard Stimson, testified in his deposition that he "never wanted to ever, ever have to do business or have any kind of a relationship with Mr. Fougnies, Mr. Day, Cellexis . . . over the claimed intellectual property. . . ." I have no doubt that GTE desired a broadly worded agreement to protect its interests to the greatest degree possible. Yet, Mr. Stimson's statements, without language in the Agreement supporting this interpretation, do nothing to generate ambiguity as to the temporal limitations in the Agreement.
Plaintiff's construction of the Agreement would easily generate results that the parties did not intend. To afford protection under the Settlement Agreement to any entity that at some point qualifies as a GTE affiliate, joint venture, partnership, or other protected entity, would essentially give the plaintiff a right to infringe Freedom's patent in perpetuity that it can freely bestow on other entities through the formation of sophisticated financial relationships. In light of the wide range of entities covered by the Settlement Agreement, GTE Wireless's interpretation renders the Agreement tantamount to a freely assignable license to Freedom's intellectual property. This result is at odds with the national rule that "patent licenses are personal and non-transferable in the absence of an agreement authorizing assignment" and federal patent policy which "seeks to encourage the disclosure of new, useful, and non-obvious inventions by granting the inventor the exclusive right to exclude others from making, using, or selling the invention for a period of years." Rhone-Poulenc Agros v. DeKalb Genetics Corp., 271 F.3d 1081, 1088 (Fed. Cir. 2001). Absent any evidence showing that the parties agreed to this result, I am disinclined to grant the plaintiff such a broad, and potentially lucrative, construction of the Agreement.
Viewing the document as a whole, GTE Wireless's interpretation of the provisions defining "GTE" and "Parties" renders the Agreement overly expansive, even absent strategic behavior. By including future entities within the definition of GTE in section 1.3, those entities become parties under section 1.8. Viewed in combination with section 7.1, which applies to "the Parties, their predecessors, their successors . . .", the covenant not to sue extends to the predecessors and successors of future and, arguably even former, affiliates and joint partnerships. Thus, once Cellco or any other future entity satisfies the definition of GTE in section 1.3, all of its predecessors and their present and former attorneys, officers, and agents are also entitled to the benefits of the Agreement and able to enforce its provisions. See Agreement § 10.3. In light of the rapid pace of mergers and acquisitions in the telecommunications industry, particularly among wireless providers, this threatens to expand exponentially the number of entities brought within the reach of the Agreement.
Finally, I must consider GTE Wireless's contention that Richard Stimson and Cellexis' attorney, Douglas Dunipace, agreed not to attach a list of GTE Partnerships to the Agreement because the list was always changing and therefore would cease to be accurate in short order. Applying Arizona's parol evidence rule, I am to consider whether the contract language is "reasonably susceptible" to GTE's interpretation in light of this alleged fact. For the reasons stated above, I find that the language of the Agreement is unable to support such an interpretation, and accordingly deny admission of the evidence.
Having determined that the Agreement does not reach entities that became GTE affiliates after May 15, 1996, I need not address other provisions in the Agreement. GTE Wireless does not contend that Cellco is covered by the Agreement as the successor to GTE Mobilnet for purposes of section 7.1. Therefore, as a matter of law, I find that Cellco is not protected by the Agreement's covenant not to sue.
Conclusion
For the reasons set forth more fully above, I hereby DENY plaintiff's motion for summary judgment and GRANT defendant's motion for summary judgment.