Opinion
Case No. 22-cv-03041-JSC
2023-04-17
SCRAMOGE TECHNOLOGY LIMITED, Plaintiff, v. APPLE, INC., Defendant.
Drew B. Hollander, Pro Hac Vice, Brett E. Cooper, Pro Hac Vice, Jonathan Randy Yim, Pro Hac Vice, BC Law Group, P.C., New York, NY, Seth Raymond Hasenour, Pro Hac Vice, BC Law Group, P.C. a Professional Corporation, Austin, TX, Brian D. Ledahl, Christian W. Conkle, James Milkey, Jonathan, Ma, Marc A. Fenster, Reza Mirzaie, Russ August & Kabat, Los Angeles, CA, John Francis Petrsoric, Pro Hac Vice, BC Law Group, P.C., Westport, CT, for Plaintiff. Alton Luther Absher, III, Pro Hac Vice, Andrew W. Rinehart, Pro Hac Vice, Kilpatrick Townsend & Stockton LLP, Winston-Salem, NC, Amanda N. Brouillette, Pro Hac Vice, Kilpatrick Townsend and Stockton LLP, Atlanta, GA, J. Stephen Ravel, Kelly Ransom, Kelly Hat Hallman LLP, Austin, TX, Kasey Koballa, Pro Hac Vice, Kilpatrick Townsend and Stockton LLP, Raleigh, NC, Mansi Hasendra Shah, Kilpatrick Townsend & Stockton LLP, Menlo Park, CA, Rishi Gupta, Steven David Moore, Sarah F. Glendon, Kilpatrick Townsend & Stockton LLP, San Francisco, CA, Christopher P. Schaffer, Kilpatrick Townsend & Stockton, San Diego, CA, for Defendant.
Drew B. Hollander, Pro Hac Vice, Brett E. Cooper, Pro Hac Vice, Jonathan Randy Yim, Pro Hac Vice, BC Law Group, P.C., New York, NY, Seth Raymond Hasenour, Pro Hac Vice, BC Law Group, P.C. a Professional Corporation, Austin, TX, Brian D. Ledahl, Christian W. Conkle, James Milkey, Jonathan, Ma, Marc A. Fenster, Reza Mirzaie, Russ August & Kabat, Los Angeles, CA, John Francis Petrsoric, Pro Hac Vice, BC Law Group, P.C., Westport, CT, for Plaintiff. Alton Luther Absher, III, Pro Hac Vice, Andrew W. Rinehart, Pro Hac Vice, Kilpatrick Townsend & Stockton LLP, Winston-Salem, NC, Amanda N. Brouillette, Pro Hac Vice, Kilpatrick Townsend and Stockton LLP, Atlanta, GA, J. Stephen Ravel, Kelly Ransom, Kelly Hat Hallman LLP, Austin, TX, Kasey Koballa, Pro Hac Vice, Kilpatrick Townsend and Stockton LLP, Raleigh, NC, Mansi Hasendra Shah, Kilpatrick Townsend & Stockton LLP, Menlo Park, CA, Rishi Gupta, Steven David Moore, Sarah F. Glendon, Kilpatrick Townsend & Stockton LLP, San Francisco, CA, Christopher P. Schaffer, Kilpatrick Townsend & Stockton, San Diego, CA, for Defendant.
ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT
[Redacted] Re: Dkt. Nos. 126, 157 JACQUELINE SCOTT CORLEY, United States District Judge
Scramoge Technology Ltd. sues Apple, Inc. for infringing its patents. (Dkt. No. 12.) Before the Court are the parties' cross-motions for summary judgment on the issue whether Apple has a license to the five patents-in-suit, (Dkt. Nos. 126, 157, 159, 162), and related motions to file under seal, (Dkt. Nos. 125, 137, 148, 156, 158, 161). After carefully considering the briefing, and with the benefit of oral argument on April 13, 2023, the Court DENIES Apple's motion, GRANTS Scramoge's cross-motion, and GRANTS in part the sealing motions as set forth below. The summary judgment record is insufficient to support a finding that Apple has a license to the patents-in-suit.
Record citations are to material in the Electronic Case File ("ECF"); pinpoint citations are to the ECF-generated page numbers at the top of the documents.
The patents are U.S. Patent Nos. 9,806,565; 9,843,215; 9,997,962; 10,622,842; and 10,804,740. (Dkt. No. 12 ¶ 1; see Dkt. No. 45.)
BACKGROUND
This motion is about the relationship between two non-parties to this case, LG Electronics Inc. and LG Innotek, Ltd. Each of those non-parties dealt separately with the two parties here.
In [Redacted] Apple and LG Electronics entered into a patent [Redacted] license agreement for [Redacted]. The Agreement "refer[s] to [LG Electronics] along with its Affiliates as 'LGE.' " (Dkt. No. 125-5 at 3.) In part, the 2017 Agreement granted Apple a license to certain patents owned or controlled by "LGE . . . and its Affiliates." (Id. at 6.)
[Redacted] (Id. at 3.)
[Redacted] (Id. at 5.) In addition to granting Apple a license to LG Electronics and its Affiliates' patents, the Agreement granted what is known as a springing license to patents transferred in the future:
[Redacted] (Id. at 7.) When the [Redacted], Apple and LG Electronics entered into another agreement [Redacted]. (Dkt. No. 125-7.) The [Redacted] (Id. at 10.)
In 2021, LG Innotek transferred certain patents to Scramoge. (Dkt. No. 125-8.) Now, Scramoge contends Apple is infringing Scramoge's patents, while Apple asserts its Agreements with LG Electronics give Apple a license to the patents.
DISCUSSION
I. LICENSE
A license is an affirmative defense to patent infringement. Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 878 (Fed. Cir. 1995). It is the alleged infringer's burden to establish a license exists. Id. Thus, to prevail on summary judgment, Apple must establish that undisputed evidence compels the conclusion there was a license. See Evanston Ins. Co. v. Atain Specialty Ins. Co., 254 F. Supp. 3d 1150, 1155 (N.D. Cal. 2017) ("Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986))). Scramoge, to prevail on its own motion, must establish there is insufficient evidence to conclude there was a license. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548; Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) ("[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits.").
Delaware law governs interpretation of the Agreements. (See Dkt. No. 125-5 at 16; Dkt. No. 125-7 at 20.) The law "places great weight on the plain terms of a disputed contractual provision." Cox Commc'ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752, 760 (Del. 2022).
[W]e interpret clear and unambiguous terms according to their ordinary meaning. We do not consider extrinsic evidence unless we find that the text is ambiguous. Ambiguity is present only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.Id. (cleaned up). This rule refers to evidence about what the contract terms mean. As a matter of contract interpretation, courts look to extrinsic evidence of meaning only if the terms are ambiguous. But the rule does not refer to sufficiency of the evidence or a moving party's summary judgment burden: as a matter of civil procedure, courts must determine whether the evidence shows the contract terms have been met. See, e.g., eCommerce Indus., Inc. v. MWA Intel., Inc., No. CV 7471-VCP, 2013 WL 5621678, at *25 (Del. Ch. Sept. 30, 2013) (concluding "MWA has not shown by a preponderance of the evidence that either ECI or DGI exercised control over Tech AnyWare [as an Affiliate] within the meaning of the Agreement," because "[t]he record shows [the sole member of Tech AnyWare's LLC] alone directs the management and policies of Tech Any Ware").
A. Apple's Motion
Apple contends the undisputed evidence shows LG Innotek is an "Affiliate" of LG Electronics such that the Agreements' springing license provision gives Apple a license to patents that LG Innotek transferred. [Redacted] (Dkt. No. 125-5 at 3.) [Redacted]
[Redacted] (Id.) Apple contends it has established as a matter of law that LG Electronics meets the Agreements' [Redacted]. Thus, it does not rely on LG Electronics' ownership of voting securities in LG Innotek, which the parties seem to agree is 40.8%, to establish control under the Agreements' first definition. (See Dkt. No. 125-6 at 12.)
On the summary judgment record, Apple's only evidence as to [Redacted] is a set of consolidated financial statements on LG Electronics' website. The statements represent they were prepared by an auditor on behalf of LG Electronics "in accordance with International Financial Reporting Standards [IFRS] as adopted by the Republic of Korea." (Id. at 4.) The statements list LG Innotek as a "Subsidiary" of LG Electronics and list the "Basis of control" as "De-facto control." (Id. at 12.) The statements note:
Although [LG Electronics] owns less than half of the voting rights of LG Innotek Co., Ltd. which is an intermediate parent company of its subsidiaries, [LG Electronics] is deemed to have control over LG Innotek Co., Ltd. due to the size and dispersion of holdings of the other shareholders and their voting patterns at previous shareholders' meetings . . . . [LG Electronics] has the substantial power to direct the relevant activities and is exposed to variable returns.(Id. at 20 nn. 1, 3.) Scramoge objects to the statements on several grounds.
1. Admissibility
The statements' contents are hearsay because they are offered for the truth that LG Electronics has control over LG Innotek due to the dispersion and voting patterns of LG Innotek's shareholders and has power to direct its relevant activities. See Fed. R. Evid. 801(c), 802. The contents may be hearsay within hearsay to the extent they are the auditor's report of LG Electronics' own assertion that it has control over LG Innotek. At the summary judgment stage, although Apple may rely on evidence in inadmissible form, it must establish the contents are admissible. See Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003). For example, in Fraser, the defendant bank made a hearsay objection to the plaintiff's diary, attached to her deposition.
The contents of the diary are mere recitations of events within Fraser's personal knowledge and, depending on the circumstances, could be admitted into evidence at trial in a variety of ways. Fraser could testify to all the relevant portions of the diary from her personal knowledge. Fed. R. Evid. 602. If she forgets the exact dates or the details of the event, she may be able to use the diary to refresh her recollection. Fed. R. Evid. 612 . . . . If the diary fails to refresh her recollection, she might still be able to read the diary into evidence as a recorded recollection under Fed. R. Evid. 803(5).Id. at 1037.
Because the diary's contents could be presented in an admissible form at trial, we may consider the diary's contents in the Bank's summary judgment motion.
Apple has not established the statements' contents could be presented in an admissible form at trial. It invokes the business records exception, Fed. R. Evid. 803(6), but has not satisfied that hearsay exception. That exception requires, among other things, that "(A) the record was made at or near the time by—or from information transmitted by—someone with knowledge," and (D) that the knowledge and the other requirements are shown "by the testimony of the custodian or another qualified witness, or by a certification that complies with Rule 902(11)." Fed. R. Evid. 803(6)(A), (D). Other than the name of the auditing entity, which appears on the statements themselves, Apple offers no evidence about which LG Electronics and auditor personnel were involved in recording the statements, or which documents and data they reviewed about the relationship between LG Electronics and LG Innotek. See Paddack v. Dave Christensen, Inc., 745 F.2d 1254, 1258-59 & n.7 (9th Cir. 1984) (noting audit reports may be admissible as business records, but must be sufficiently trustworthy and reliable: "A contrary interpretation would allow any firm to produce 'business records' that would be automatically admissible."). That it is unclear whether the statements contain hearsay or hearsay within hearsay, as noted above, illustrates the problem. These are not "technical defects . . . easily remedied at trial"; they "affect the substantive contents of the asserted facts." Toro-Aire, Inc. v. Fed. Ins. Co., No. CV085784SVWJTLX, 2009 WL 10671437, at *8 & n.13 (C.D. Cal. Oct. 1, 2009) (considering, at summary judgment, business records showing "there was some water leakage at the Hospital" because "technical requirements of admissibility," including "lay[ing] a foundation as to whether these records are kept in the ordinary course of business," could be remedied at trial).
There is also no evidence suggesting anyone from the auditor or LG Electronics would appear at trial; Apple represented at oral argument that its Agreement with LG Electronics does not have a cooperation clause. And it is undisputed the auditor and LG Electronics are beyond this Court's subpoena power; indeed, Scramoge unsuccessfully attempted to obtain discovery from them through the Hague Convention. Apple refers to a case in which a statement "result[ing] from a financial statement audit conducted in accordance with regular audit procedures" was admissible as a business record. S.E.C. v. Jasper, 883 F. Supp. 2d 915, 924 (N.D. Cal. 2010), amended, No. C 07-06122 JW, 2010 WL 8898216 (N.D. Cal. Nov. 5, 2010), aff'd, 678 F.3d 1116 (9th Cir. 2012). But that does not help Apple meet its evidentiary burden to show the statements here in fact resulted from such procedures and could be admissible at trial under an exception to the hearsay rule.
At bottom, Apple says the Court must throw Scramoge out of court based on an unexplained opinion in a non-party's translated financial statement downloaded from the internet, and without anything more. The Federal Rules of Evidence do not support that proposition.
2. Sufficiency
For related reasons, apart from their admissibility, the statements do not meet Apple's burden to conclusively establish LG Electronics controlled LG Innotek within the meaning of the Agreements. Nothing in the record suggests the auditor's opinion that LG Electronics [Redacted]. (Dkt. No. 125-6 at 20.) The statements note they were prepared "in accordance with" IFRS, (id. at 4), which define "control" as the investor entity having "(a) power over the investee"; "(b) exposure, or rights, to variable returns from its involvement with the investee"; and "(c) the ability to use its power over the investee to affect the amount of the investor's returns." (Dkt. No. 126-10 at 8.) That language is different from the Agreements' second definition of control, and there is nothing in the record to connect the dots as to how the IFRS definition necessarily, or even potentially, meets the Agreements' definition. Apple has not cited a case suggesting the two definitions match.
At most, the statements might show LG Electronics held itself out to investors as having the power to direct LG Innotek's activities due to the dispersion and voting patterns of LG Innotek's shareholders. But the Agreements do not [Redacted] (Dkt. No. 125-5 at 3.) Apple has not offered any evidence of instances where [Redacted] Cf. eCommerce Indus., 2013 WL 5621678, at *25 (interpreting agreement defining control as "power to direct or cause the direction of management or policies" and considering evidence of who set the putative affiliate's budget; hired, fired, and supervised employees; set salaries; and entered agreements and attended trade shows on behalf of the putative affiliate). Thus, Apple's contention that "the mere fact" LG Electronics "included" LG Innotek in the consolidated financial statements "is an admission of control" is neither here nor there. (Dkt. No. 158-3 at 15-16.) LG Electronics' own bare assertion or admission of control is not enough under the Agreements' definition of control. There is simply no evidence in the record of any actual management or policies or LG Electronics' role in either.
Apple's concern that the Court's holding will disrupt licensing practice is untethered to the law of contracts and evidence. Apple does not cite any case that has allowed a licensee to defeat a patent infringement suit brought by a non-party to the license based on such a thin record.
* * *
Accordingly, Apple has not met its summary judgment burden on the affirmative defense of a license. The evidence does not establish, as a matter of undisputed fact, that Apple had a license because LG Innotek is an Affiliate of LG Electronics within the meaning of the Agreements. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548.
B. Scramoge's Motion
Scramoge has met its respective burden on Apple's license defense. There are no genuine disputes of fact as to LG Electronics' [Redacted] LG Innotek. (Dkt. No. 125-5 at 3.) Rather, there is insufficient evidence in the summary judgment record for a reasonable trier of fact to conclude LG Innotek is an Affiliate of LG Electronics under the Agreements' second definition of control. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Apple's citation to Del. Code § 203 does not create a dispute of fact. This provision of Delaware law defines "control" as:
the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary . . . .Del. Code § 203(c)(4). First, Section 230 does not dictate the meaning of "control" under the Agreements because they expressly define that term. See Cox, 273 A.3d at 760. Apple cites In re Asian Yard Partners for the proposition that Delaware courts look to Section 230, but there the agreement did not define "affiliate" and, thus, the court looked to the "generally prevailing meaning of the term." No. 95-333-PJW, 1995 WL 1781675, at *4, 16-20 (Bankr. D. Del. Sept. 18, 1995). Second, even if Section 230 were a relevant gloss on the Agreements' definition of "control," there is insufficient evidence to create a dispute of fact as to LG Electronics' "power to direct or cause the direction of the management and policies of" LG Innotek. Del. Code § 203(c)(4). There is insufficient evidence in the record of LG Electronics actually playing a role, or having the ability to play a role, in any LG Innotek management or policies. Cf. Asian Yard, 1995 WL 1781675, at *16 (noting officer's "undisputed" "management control" of both putative affiliates). Apple's citations to minority shareholder cases are similarly beside the point. E.g., Solomon v. Armstrong, 747 A.2d 1098, 1116 n.53 (Del. Ch. 1999). The Agreements' [Redacted]. (Dkt. No. 125-5 at 3.)
Apple's urging at oral argument that the Court allow it to take discovery to establish the admissibility of LG Electronics' financial statements is too little, too late. Apple chose to bring its summary judgment motion on its license affirmative defense without first conducting discovery. Nonetheless, the Court gave the parties the opportunity to take discovery relevant to the summary judgment motion. (Dkt. No. 142.) Apple simply chose not to. Apple's lament that Scramoge did not tell Apple it objected to the admissibility of the financial statements is puzzling. When was Scramoge supposed to tell Apple it objected other than in its opposition to Apple's motion? And, Scramoge's cross-motion for summary judgment squarely challenged the statements' admissibility. (Dkt. No. 157.) At that point, if Apple believed it did not have the opportunity to conduct discovery needed to defend Scramoge's cross-motion, it could have filed a Rule 56(d) declaration. See Fed. R. Civ. P. 56(d). It did not.
* * *
In sum, Apple's motion for summary judgment is DENIED and Scramoge's cross-motion is GRANTED.
II. SEALING
There is a presumption of public access to judicial records and documents. Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597, 98 S.Ct. 1306, 55 L.Ed.2d 570 (1978). Courts generally apply a "compelling reasons" standard when considering motions to seal, recognizing that "a strong presumption in favor of access is the starting point." Kamakana v. City & County of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (cleaned up). Civil Local Rule 79-5 supplements the "compelling reasons" standard. Exeltis USA Inc. v. First Databank, Inc., No. 17-cv-04810-HSG, 2020 WL 2838812, at *1 (N.D. Cal. June 1, 2020).
Apple has not established compelling reasons to seal the identities of LG Electronics and LG Innotek or the contours of Apple's license defense, which have already been made public in a letter of request under the Hague Convention. (Dkt. No. 144 at 3-4.) Thus, the words "Affiliate" and "control" are not sealed and the Agreements' definition of "Person" (provision 1.15) is not sealed. (Dkt. No. 125-5 at 5.) However, Apple has established compelling reasons to otherwise seal the Agreements themselves and the provisions at issue. See, e.g., Bunsow De Mory LLP v. N. Forty Consulting LLC, No. 20-CV-04997-JSC, 2020 WL 7872199, at *1 (N.D. Cal. Sept. 21, 2020) ("Confidential business information in the form of license agreements, financial terms, details of confidential licensing negotiations, and business strategies satisfies the 'compelling reasons' standard." (cleaned up)). Thus, the Agreements' definition of "Affiliate" (provision 1.1), including both definitions of "control," is sealed; the springing license (provision 2.4) is sealed; and the dates and durations of the Agreements are sealed. (Dkt. No. 125-5 at 3, 7.) Similarly, Scramoge has established compelling reasons to seal the purchase agreement that transferred the patents to Scramoge and the portions of briefs, exhibits, and other filings that contain terms from the purchase agreement.
Accordingly, the pending motions to file under seal related to material Apple has designated confidential are GRANTED in part. (Dkt. Nos. 125, 148, 156, 158, 161.) The pending motion to file under seal related to material Scramoge has designated confidential is GRANTED. (Dkt. No. 137.) On or before April 24, 2023, Apple shall refile the documents previously filed under seal with redactions limited to material the Court has found sealable. Additionally, Apple shall file a version of this Order with proposed redactions limited to material the Court has found sealable.
CONCLUSION
Apple's motion for summary judgment is DENIED. Scramoge's cross-motion for summary judgment is GRANTED. On the summary judgment record before the Court, no reasonable trier of fact could find Apple has a license to the patents-in-suit based on the [Redacted] between Apple and LG Electronics.
The Court will hold a further case management conference on June 1, 2023 at 1:30 p.m. via Zoom video. An updated joint case management statement is due one week in advance.
This Order disposes of Docket Nos. 125, 126, 137, 148, 156, 158, 161.
IT IS SO ORDERED.