Opinion
17-CV-05671 -BLF
12-20-2023
VLSI TECHNOLOGY LLC, Plaintiff, v. INTEL CORPORATION, Defendant.
SUPPLEMENTAL ORDER DENYING THE PARTIES' MOTIONS FOR SUMMARY JUDGMENT ON INTEL'S LICENSE DEFENSE [RE: ECF NO. 580, 586]
Beth Labson Freeman United States District Judge
The Court recently issued an order addressing all issues raised in the parties' motions for summary judgment except for the merits of Intel's license defense. ECF No. 772. The Court denied VLSI's Motion for Summary Judgment that Intel was precluded under res judicata and collateral estoppel from bringing the license defense in light of the Federal Circuit's recent decision overturning a related Texas decision. Id. (citing VLSI Tech. LLC v. Intel Corp., No. 2022-1906, 2023 WL 8360083 (Fed. Cir. Dec. 4, 2023)). Remaining before the Court are the parties' cross motions for summary judgment on Intel's license defense. ECF No. 586 (“VLSI Mot.”); ECF No. 672 (“Intel Opp.”); ECF No. 735 (“VLSI Reply”); ECF No. 580 (“Intel Mot.”); ECF No. 677 (“VLSI Opp.”) ECF No. 710 (“Intel Reply”).
After careful consideration, VLSI's Motion for Summary Judgment on the license defense is DENIED and Intel's Motion for Summary Judgment on the license defense is DENIED.
I. BACKGROUND
A. Finjan License Agreement
hr 2012, Intel entered into an agreement with certain Finjan entities, whereby Intel received a “perpetual, irrevocable license” to “Finjan's Patents[.]” ECF No. 579-17 (“Finjan License Agreement”) § 3.1; id. § 1.10 (defining Finjan's Patents). The term “Finjan” expressly includes Finjan, Inc. and Finjan Software, Inc. (collectively, the “Finjan Parties”), and their “Affiliates.” Id. at Preamble. The term “Affiliates” is defined as “any Person that, now or hereafter, directly or indirectly through one or more entities, controls or is controlled by, or is under common control with, [a] specified Person.” Id. §1.2. The Finjan License Agreement defines “controls,” “control,” and “controlled, as “the possession, direct or indirect, of the power to direct the management and policies of a Person, whether through the ownership of any percentage of voting interests of such Person, through contract or otherwise.” Ibid. The parties do not dispute that Delaware law governs the contract. VLSI Mot. at 5; Intel Mot. at 20.
On July 24, 2020, Finjan Holdings, LLC (formerly known as Finjan Holdings, Inc.) (“FHL”), the parent company of the Finjan Parties, merged with CFIP Goldfish Holding LLC (“Goldfish”), an affiliate of several Fortress entities. ECF No. 584-4 (“FHL LLC Agreement”); ECF No. 586-12 (“Finjan-Goldfish Merger Agreement”) at 1, 13; ECF No. 586-13 (“Offer Statement”) at 10, 26; ECF No. 580-37 (Schedule Tender Offer Form for Acquiring Finjan Holdings Inc.). Intel contends that Fortress Investment Group (“Fortress”) controls FHL. Intel Mot. at 19 (citing ECF No. 584-2 (Anderson Dep.), ECF No. 584-3 (Hartstein Dep.), ECF No. 580-37 (Schedule Tender Offer Form for Acquiring Finjan Holdings Inc.), FHL LLC Agreement).
VLSI and its parent company CF VLSI Holdings LLC (“VLSI Holdings”) were created in 2016 for the purpose of acquiring and licensing a portfolio of semiconductor patents from NXP Semiconductors (“NXP”). VLSI Mot. at 2. VLSI and VLSI Holdings were capitalized by ten different investment funds managed by Fortress, with the majority investor in VLSI Holdings being Fortress Credit Opportunities Fund IV (“FCO IV”), which is a closed-end mutual fund with hundreds of investors and $1.8 billion under management as of June 30, 2022. ECF No. 586-3 (“VLSI LLC Agreement”) at VLSI-18-966DE00050646; ECF No. 586-4 (“Stolarski Decl”) ¶¶ 7, 10; ECF No. 589-2 (Zur Dep.) 119:10-25; ECF No. 589-3 (James Dep.) 131:19-132:6; ECF No. 586-7 (Stolarski Delaware Decl.) ¶ 5. VLSI is 100% owned by VLSI Holdings, which in turn is owned by 10 different investment funds (with the majority owner being FCO IV), all of which are managed by Fortress. VLSI LLC Agreement at VLSI-18-966DE00050646; Stolarski Decl. ¶ 10.
VLSI and NXP entered into a Patent Purchase and Cooperation Agreement (“PPCA”), by which VLSI purchased a group of semiconductor patents that had been developed by NXP and its predecessors, and NXP agreed to cooperate in VLSI's assertion of the NXP patents against Intel and others. In exchange, NXP received a large upfront payment from VLSI and is entitled to a share of licensing profits that VLSI obtains on the NXP patents. Stolarski Decl. ¶ 4; ECF No. 586-9 (“Stolarski 10/17/19 Dep.”) 227:24-228:20; ECF No. 586-10 (“Stolarski 7/9/20 Dep.”) 146:12-14, 148:22-149:3; ECF No. 586-11 (“PPCA”) at §§ 2.1, 7.3.
B. Procedural History and Parallel Litigation
hi October 2017, VLSI filed this action against Intel asserting several of the NXP patents. ECF No. 1. VLSI subsequently filed a separate patent infringement action against Intel on other NXP patents in the District of Delaware, as well as three more patent infringement actions against Intel on NXP patents in the Western District of Texas. VLSI Mot. at 3. The later four district court actions initiated by VLSI against Intel have already been largely resolved at the trial court level: the first Western District of Texas case resulted in a $2.18 billion jury verdict and subsequent judgment in favor of VLSI, which the Federal Circuit has recently reversed; the second Western District of Texas case resulted in a defense verdict for Intel; the third Western District of Texas case resulted in a $949 million jury verdict in favor of VLSI that is presently at the post-trial motion stage; and the Delaware suit was dismissed on December 27, 2022 by mutual agreement of the parties before any trial date had been set. Id.
Intel first asserted its license defense against VLSI on September 2, 2020 in one of the Western District of Texas actions (VLSI Technology' LLC v. Intel Corporation, No. 6:21-CV-57-ADA (W.D. Tex.)), and subsequently asserted the same license theory in the parties' District of Delaware action on September 11, 2020, in Delaware Chancery Court on January 11, 2021, and in this Coin! on December 15, 2021 (ECF No. 330-1 at 13). VLSI Mot. at 4.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate if the evidence and all reasonable inferences in the light most favorable to the nonmoving party “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.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The current version of Rule 56 authorizes a court to grant “partial summary judgment” to dispose of less than the entire case and even just portions of a claim or defense. See Fed. R. Civ. Proc, advisory committee's note, 2010 amendments; Ochoa v. McDonald's Corp., 133 F.Supp.3d 1228, 1232 (N.D. Cal. 2015).
The moving party “bears the burden of showing there is no material factual dispute,” Hill v. R+L Carriers, Inc., 690 F.Supp.2d 1001, 1004 (N.D. Cal. 2010), by “identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact.” T. W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass 'n, 809 F.2d 626, 630 (9th Cir. 1987). In judging evidence at the summary judgment stage, the Corn! “does not assess credibility or weigh the evidence, but simply determines whether there is a genuine factual issue for trial.” House v. Bell, 547 U.S. 518, 559-60 (2006). A fact is “material” if it “might affect the outcome of the suit under the governing law,” and a dispute as to a material fact is “genuine” if there is sufficient evidence for a reasonable trier of fact to decide in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
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. Celotex, 477 U.S. at 325; Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). By contrast, where the moving party does not have the bur den of proof on an issue at trial, it “must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000).
Once the moving party meets its initial burden, the nonmoving party must set forth, by affidavit or as otherwise provided in Rule 56, “specific facts showing that there is a genuine issue for trial.” Liberty Lobby, 477 U.S. at 250 (internal quotation marks omitted), hr determining whether a genuine issue of material fact exists, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255 (citation omitted). If the nonmoving party's “evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249-50 (internal citations omitted). Mere conclusory, speculative testimony in affidavits and moving papers is also insufficient to raise genuine issues of fact and defeat summary judgment. See Thornhill Publ'g Co. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). For a court to find that a genuine dispute of material fact exists, “there must be enough doubt for a reasonable trier of fact to find for the [non-moving party].” Corales v. Bennett, 567 F.3d 554, 562 (9th Cir. 2009).
III. DISCUSSION
“Under Delawar e law, the proper interpretation of language in a contract is a question of law.” Alliance Data Sys. Corp. v. Blackstone Cap. Partners VL.P., 963 A.2d 746, 759-60 (Del. Ch.), aff'd, 976 A.2d 170 (Del. 2009).
On the remaining issue on the Finjan License Agreement, the parties bring cross motions, so the Court addresses them together. Intel seeks summary judgment that VLSI is bound by the Finjan License Agreement because VLSI implicitly adopted the agreement (Intel Mot. at 20), VLSI is bound by the agreement as a Finjan Affiliate (id. at 18-20), and the Asserted Patents are “Finjan's Patents” as set forth by the agreement (id. at 19). VLSI seeks summary judgment that it is not bound by the license agreement on the grounds that it is not a party to the Finjan License Agreement (VLSI Mot. at 7-12) and the Asserted Patents are not “Finjan's Patents” (id. at 12-15).
The Court will first address whether Fortress or VLSI implicitly adopted the Finjan License Agreement. Second, the Court will address whether a party to a contract can bind a future, later-formed, non-signatory affiliate under Delaware law. Third, the Court will address whether VLSI is an affiliate with Finjan, Inc. and Finjan Software, Inc. Finally, the Court will address whether the Asserted Patents are “Finjan's Patents.”
A. Whether Fortress or VLSI Implicitly Adopted the Agreement
The Court first addresses Intel's argument that Fortress and VLSI implicitly adopted the Finjan License Agreement. “Third parties to an agreement may become parties to it, and thus bound by it, by either expressly or implicitly adopting the agreement.” Am. Legacy' Found, v. Lorillard Tobacco Co., 831 A.2d 335, 343-344 (Del. Ch. 2003), aff'd, 903 A.2d 728, 745 (Del. 2006). “The contract itself, however, must contemplate that non-signatories may adopt it” and implicit adoption typically requires “knowingly accept[ing] the benefits intended as the consideration.” Id. at 344, 349. “Courts will often find implicit adoption when a party who has received benefits of a contract then tries to avoid burdens imposed by the same contract.” In re Federal-Mogul Glob., Inc., 526 B.R. 567, 576 (D. Del. 2015). “To ratify an act, a person must ‘manifest!] assent that the act shall affect the person's legal relations' or engage in ‘conduct that justifies a reasonable assumption that the person so consents.'” You Map, Inc. v. Snap Inc., 2021 WL 106498, at *10 (D. Del. Jan. 12, 2021) (quoting Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 802 (Del. Ch. 2014)).
Intel argues that Fortress and VLSI are subject to the Finjan License Agreement because they implicitly adopted the agreement through their actions. Intel Mot. at 20; Intel Opp. at 9. Intel submits evidence in support of its argument that Fortress adopted the agreement because “(1) Fortress did due diligence on the License before the FHL acquisition; (2) Fortress made itself an affiliate of FHL through the acquisition; and (3) the License confers benefits on Fortress as an affiliate.” Intel Mot. at 20 (citing Hartstein Dep., Anderson Dep., ECF No. 584-5 (Finjan Holdings, Inc. Schedule 14D-9) 3859-60, James Dep.); see also Intel Opp. at 9. Intel then argues that “Fortress thus implicitly adopted the [Finjan License Agreement], thereby binding itself and its affiliates, including VLSI.” Intel Mot. at 20; Intel Opp. at 10.
Intel also argues that VLSI implicitly adopted the agreement because it “clearly received a benefit under the [Finjan License Agreement]: the no challenge provision, a promise that Intel states it has honored by not offensively and preemptively challenging the validity of any of Fortress's or VLSI's unasserted patents.” Intel Opp. at 9.
VLSI responds that Fortress does not own or control VLSI, that Fortress being bound would not also bind VLSI, and that “[t]he Fortress-related entities in the Finjan merger agreement expressly also declined to assume Finjan's liabilities or contracts. VLSI Opp. at 22. (citing Finjan-Goldfish Merger Agreement §§ 4.07, 10.08, 10.12(b)). VLSI further argues that it did not implicitly adopt the contract itself because VLSI did not knowingly accept a clear and tangible benefit and VLSI took no action to agree to be bound by the contract. VLSI Reply at 6-7.
The Court agrees with VLSI. Regarding Fortress's purported adoption, VLSI puts forth evidence that Fortress expressly declined to assume Finjan's liabilities or contracts, which is enough to create a disputed issue of fact and defeat summary judgment. See Finjan-Goldfish Merger Agreement §§ 4.07, 10.08, 10.12(b). Even if Intel were to show implicit adoption by Fortress, Intel points to no legal authority to support its theory that implicit adoption binds affiliates such as VLSI.
Regarding VLSI's purported implicit adoption, Intel submits no evidence that VLSI assented to being bound by the Finjan License Agreement or engaged in conduct justifying a reasonable assumption that it consented to the Finjan License Agreement. You Map, 2021 WL 106498, at *10. VLSI may have benefited from Intel's decision not to preemptively challenge unasserted patents, but Intel submits no evidence that VLSI knowingly accepted the benefits. Delaware law requires more than unilateral action by one party that may benefit another party. Am. Legacy, 831 A.2d at 343-344, 349.
The Court finds that there are disputed issues of fact on the issue of implicit adoption by either Fortress or VLSI, thus Intel's motion fails on this ground. The Court further notes that absent presentation of sufficient authority under Delaware law at trial, the issue may fail.
B. Whether a Future or Later-Formed Entity Can Become an Affiliate That is Bound by the Agreement
Second, the court addresses whether the plain language of the contract can bind VLSI even though it was not a signatory party to the Finjan License Agreement and did not exist as an entity when the Finjan License Agreement was signed.
VLSI argues that a non-signatory party generally cannot be a party to the agreement and that Intel can't carry its burden to show otherwise. VLSI Mot. at 8, 10-11 (citing Alliance Data, 963 A.2d at 760, Truinject Corp. v. Nestle Skin Health, S.A., 2020 WL 70981, at *12 (D. Del. Jan. 7, 2020), Sheehan v. AssuredPartners, Inc., No. CV 2019-0333-AML, 2020 WL 2838575, at *9 (Del. Ch. May 29, 2020), Meyers v. Quiz-Dia LLC, 2017 WL 76997, at *6 (Del. Ch. Jan. 9, 2017), Arcadia Biosciences, Inc. v. Vilmorin & Cie, 356 F.Supp.3d 379, 393 (S.D.N.Y. 2019), Kuroda v. SPJS Holdings, L.L.C, 2010 WL 925853, at *9 (Del. Ch. Mar. 16, 2010)). VLSI acknowledges that there are “narrow exceptions where non-parties can be bound to a contract, such as where a non-party later adopts or assumes the contract,” but argues that no such exception applies here. Id. at 9 (citing Am. Legacy, 831 A.2d at 344, E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediaries, S.A.S., 269 F.3d 187, 200 (3d Cir. 2001), Thomson-CSF, S.A. v. Am. Arbitration Ass 'n, 64 F.3d 773, 779 (2d Cir. 1995)). VLSI notes that it and Fortress are not signatories to the Agreement, VLSI didn't exist until four years after the Agreement was signed, and Finjan and VLSI have no ownership stake in each other. Id. at 8.
VLSI also argues that Intel is effectively arguing that VLSI and Finjan are alter egos, and that Delaware courts have rejected alter ego arguments “even when the entities are far more closely connected than are VLSI and Finjan here.” VLSI Mot. at 10-11 (citing Alliance Data, 963 A.2d at 769, Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971, at *7 (Del. Ch. Nov. 13, 2018)).
Finally, VLSI argues that Finjan never had the ability to bind VLSI to any patent license because Finjan does not own VLSI's patents. See TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1275 (“[O]m analysis begins with the premise that one cannot convey what one does not own. This principle is particularly important in patent licensing[.]”);
Intel responds that under Delaware law “non-signatories, including entities created after a contract is signed, can be bound to a contract.” Intel Opp. at 7 (citing In re Shorenstein Hays-Nederlander Theatres LLC Appeals, 213 A.3d 39, 57 (Del. 2019), Medicalgorithmics S.A. v. AMI Monitoring, Inc., 2016 WL 4401038, at *18 (Del. Ch. Aug. 18, 2016), MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *12 (Del. Ch. Dec. 30, 2010)).
The Court agrees with Intel that under Delaware law in certain circumstances, a non-signatory created after a contract is signed can still be bound by the contract. Analysis begins with Shorenstein, where the Delaware Supreme Court held that “[c]ontracts may impose obligations on affiliates” in certain contexts. 213 A.3d at 57. Although the facts in Shorenstein are complex, it is worthwhile to summarize them here. In Shorenstein, the dispute involved several parties including Nederlander of San Francisco Associates (“Nederlander”); Carole Hays and her husband, Jeffrey Hays (collectively, the “Hayses”); CSH Theatres L.L.C. (“CSH”), controlled by the Hayses.
The dispute centered around an LLC Agreement entered into between “Shorenstein Entity” and “Nederlander Entity.” Id. at 47-48. The “Shorenstein Entity” and “Nederlander Entity” were defined through a series of definitions, beginning with the preamble to the LLC Agreement:
This Plan of Conversion and Operating Agreement (the “Agreement”) of Shorenstein Hays-Nederlander Theatres LLC (the “Company”) is entered into as of November 6, 2000 by and between [CSH] (together with any Permitted Transferees, as hereinafter defined, the “Shorenstein Entity"), and [Nederlander] (together with any Permitted Transferees, the “Nederlander Entity”), as members.Id. at 48 (emphasis added). The agreement defined the term “Permitted Transferee” to include “an Affiliate of any Member,” where “Affiliate” was defined as “a Person that, directly or indirectly through one or more intermediaries. Controls, is Controlled by or is under common Control with the subject Person.” Id.
hr September 2018, Nederlander asserted a breach of contract based upon the LLC Agreement and sought a preliminary injunction in the Com! of Chancery against CSH, the Hayses, and several CSH affiliates. Id. at 42-43. The Court of Chancery found that “the Hayses and any entities they control are Affiliates and part of the Shorenstein Entity and, therefore, are bound by [the LLC Agreement]” but denied the preliminary injunction, and Nederlander appealed. Id. at 43, 51-52. On cross-appeal, CSH contended that “only formal parties-CSH and Nederlander-are bound by the terms of the LLC Agreement.” Id. at 56-57. The Delaware Supreme Court disagreed. The court looked to the plain language of the contract, which defined the term Permitted Transferees as “‘an Affiliate of any Member'-not an Affiliate of any Member who has received or will receive transferred membership interests” and held that “[c]ontracts may impose obligations on affiliates in this context.” Id. at 57.
Shorenstein also cited with approval, Id. at 57 n.86, two nonprecedential decisions of the Delaware Chancery Court that are to the same effect, describing them as involving contract provisions covering certain affiliates and non-signatories who were, or came to be, owned or under the control of a signatory party. Medicalgorithmics, 2016 WL 4401038, at *18; MicroStrategy, 2010 WL 5550455, at *12.
In MicroStrategy, MicroStrategy Inc. (“MSI”) and Acacia Research Corp. (“ARC”) entered into a settlement agreement stating in relevant part, “Acacia Entities and its Affiliates have no present plan or intent to enforce against [MSI], or a [MSI] Affiliate or Subsidiary, any patent owned, licensed, or controlled by the Acacia Entities, or any of its Affiliates as of the Effective Date.” 2010 WL 5550455, at *2. The settlement agreement defined “Affiliate(s)” as “any entity which either party, now or hereafter, directly or indirectly, owns or controls, is owned or controlled by, or is under the common control with, as the case may be.” Id. Shortly thereafter, ARC allegedly formed a subsidiary. Database Application Solutions, LLC (“DAS”) for the purpose of acquiring U.S. Patent No. 5,444,842 and pursuing MSI for infringement of it. Id. at *1, *3. MSI claimed that the patent suit “constitute[d] a breach of the Settlement Agreement.” Id. DAS argued that it was not bound by the agreement because it “was not formed until after the Effective Date” of the settlement agreement. Id. at 11. The court disagreed, holding that “[t]he phrase ‘now or hereafter' in that section unambiguously contemplates that the Agreement would apply to later acquired or formed entities owned or controlled by the parties to the Agreement.” MicroStrategy, 2010 WL 5550455, at *12; see Shorenstein, 213 A.3d at 57 n.86.
Shorenstein and MicroStrategy map directly onto the instant matter, hi Shorenstein, the LLC Agreement was between the two signatories CSH and Nederlander, “together with any Permitted Transferees” where “Permitted Transferee” “means ... an Affiliate of any Member.” Shorenstein, 213 A.3d at 51, 57; see also MicroStrategy, 2010 WL 5550455, at *2 (using the language “[t]he Acacia Entities, on behalf of themselves and then Affiliates”) (emphasis added). Both the Shorenstein and MicroStrategy courts held that the respective agreements imposed obligations on non-signatory affiliates. Shorenstein, 213 A.3d at 58; MicroStrategy, 2010 WL 5550455, at *12. Furthermore, in the Shorenstein agreement, “Affiliate” was defined as a one who “directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with the subject Person.” Shorenstein, 213 A.3d at 51, 57 (emphasis added); see also MicroStrategy, 2010 WL 5550455, at *2 (using similar “common control” language). Thus, because the Hayses controlled the signatory party CSH and other entities, the trial court in Shorenstein found, and the Supreme Court of Delaware affirmed, that the Hayses and “entities they control” were also bound by the LLC Agreement, even though the Hayses did not sign the agreement. Id. at 51, 57.
The Finjan License Agreement language and corporate relationships here are essentially the same (for this analysis only, the Court assumes that Fortress controls Finjan, which Intel must prove at trial). Like the agreement in MicroStrategy, the Finjan License Agreement was “entered into by [the Finjan Parties], each signing on then own behalf and on behalf of then respective Affiliates (collectively ‘Finjan')[.]” Finjan License Agreement at Preamble. Like the agreements in Shorenstein and MicroStrategy, the Finjan License Agreement defines “Affiliates” to include “in relation to a specified Person . . . any Person that, now or hereafter directly or indirectly through one or more entities, controls or is controlled by, or is under common control with, such specified Person.” Id. §1.2 (emphasis added). And critically, the entities at issue here have the same relative relationship as the Shorenstein entities. Like the non-signatory Hayses who controlled the signatory party CSH and other entities in Shorenstein, if it is proven that Fortress controls the signatory party Finjan and other entities, then Fortress can be bound along with other entities it controls. Thus, like the “entities [the Hayses] control,” which the Shorenstein trial corn! found were bound by the LLC Agreement, any entities controlled by Fortress are bound Finjan License Agreement.
The Finjan License Agreement also plainly states that it binds future and later-formed affiliates. Regardless of their current relationship, it is undisputed that VLSI, Fortress, and the Finjan Parties were not “Affiliates” as defined by the Finjan License Agreement at the time the agreement was signed in 2012. The parties do not dispute that VLSI did not exist as a corporate entity until 2016, and Goldfish did not acquire FHL until 2020. VLSI Mot. 12; Intel Mot. at 1920; ECF No. 580-37 (Schedule Tender Offer Form for Acquiring Finjan Holdings Inc.), hr MicroStrategy, DAS also didn't exist until after the settlement agreement was signed. 2010 WL 5550455, at *12. But the court found that the “now or hereafter . . . unambiguously contemplates that the Agreement would apply to later acquired or formed entities owned or controlled by the parties to the Agreement.” Id. The Finjan License Agreement similarly uses the “now or hereafter” language and also “unambiguously contemplates” later acquired and formed entities.
Delaware law thus allows later-formed entities to be bound. See id.
VLSI points to several cases where a non-signatory party was not bound by a contract, but they are all distinguishable. In many of VLSI's cases, the agreements at issue did not contain language binding “affiliates” like the agreements considered by the Shorenstein and MicroStrategy' courts and at issue here, hi Truinject, the court dismissed claims against non-signatory Nestle Skin Health, hie. because there was no evidence that the signing entities “had actual or apparent authority to bind Nestle Skin Health, Inc.” 2020 WL 70981, at *12 (D. Del. Jan. 7, 2020). hi Sheehan, the com! dismissed claims against non-signatory AP Inc. because the “unambiguous language” in the preamble of the agreements at issue “provide[d] that the agreements [we]re ‘entered into between [AP Virginia], a Virginia limited liability company, with its principal place of business in Lake Mary, Florida ... and [the Sheehans].”' 2020 WL 2838575, at *9. Unlike the agreement in Sheehan, the Finjan Parties signed the Finjan License Agreement “on their own behalf and on behalf of then respective Affiliates” Id. And in Alliance, the court noted that an affiliate might be bound when the contract specifically named it. 963 A.2d at 754 (“The most that ADS extracted as to Blackstone,” an affiliate of Aladdin Solutions, “in terms of the OCC approval process, was a negative covenant. In § 6.5.6, Aladdin covenanted to ‘cause [Aladdin Solutions and its affiliates] not to' take any action ‘which would reasonably be expected to prevent or materially impair or delay [the Merger].”'). In E.I. DuPont, the parties used a definition of affiliates based on “control” similar to that used by the parties in Shorenstein. E.I. DuPont, 269 F.3d at 192 n.2. But DuPont's subsidiaries did not purport to bind “Affiliates” to the arbitration clause, and the court rejected arguments that a non-signatory was bound under third-party beneficiary and agency theories. Id. at 196-97. In Kuroda, the agreement did not define “affiliates” and the court rejected arguments that a non-signatory was bound under agency and equitable estoppel theories. 2010 WL 4880659, at *3.
Meyers is distinguishable for applying New York law, but also doesn't undermine Intel's argument that the Finjan License Agreement binds affiliates, hi Meyers, the court first looked to the plain language of the agreement to see if only the entity QCE was bound by the agreement, or if its subsidiaries were bound as well. 2017 WL 76997, at *7-8 (Del. Ch. Jan. 9, 2017). “The first sentence of the Assignment Agreement state[d] that it [was] ‘by and among' the parties, including ‘QCE, LLC, a Delaware limited liability company (‘QCE') (on behalf of itself and each of its direct and indirect subsidiaries).”' Id. at *6. But the agreement was also ambiguous in that it sometimes referred to “QCE” and sometimes to “QCE, on behalf of itself and all of its direct or indirect subsidiaries.” Id. at *7-8. The corn! found at motion to dismiss that both interpretations of the contract were reasonable. Id. at *6. Like Meyers, the Finjan License Agreement incorporates “Affiliates” into the definition of “Finjan” in the preamble. See Finjan License Agreement (“[This agreement] is entered into by and between Finjan Software, Inc. . . . and Finjan, Inc. ... each signing on their own behalf and on behalf of their respective Affiliates (collectively ‘Finjan')”). But unlike Meyers, which ambiguously referred sometimes to “QCE” and other times to “QCE and its subsidiaries,” the Finjan License Agreement uses the term “Finjan” (which includes Affiliates) consistently and unambiguously throughout the agreement. Since the Finjan License Agreement's definition of Affiliates lacks the ambiguity in Meyers, the case is distinguishable.
The Court also rejects VLSI's alter ego arguments. Alliance Data, 963 A.2d at 769, Wenske, 2018 WL 5994971, at *7. Under Delaware law, affiliates do not need to be alter egos to be bound by the terms of a contract. See MicroStrategy, 2010 WL 5550455, at *11-12 (finding that plaintiffs failed to plead an alter ego theory, but still enforcing the agreement against affiliates based on the plain language of the agreement).
One case suggests a possibly different outcome under New York law. In Arcadia, the court held that under New York contract law “it is axiomatic that ‘[a] contract cannot bind a non-party unless the contract was signed by the party's agent, the contract was assigned to the party, or the signatory is in fact the alter ego of the party.'” 356 F.Supp.3d at 390 (quoting Global Entertainment, Inc. v. New York Tel. Co., No. 00 Civ. 2959 (SHS) , 2000 WL 1672327, at *7 (S.D.N.Y. Nov. 6, 2000)). The court continued that “[e]ven where an ‘agreement purport[s] to bind successors and assigns of the patties to the agreement, an assignee or successor will not be bound to the terms of a contract absent an affirmative assumption of the duties under the contract.'” Id. (quoting Amalgamated Transit Union Local 1181, AFL-CIO v. City of New York, 45 A.D.3d 788 (2nd Dep't 2007)). If the Finjan License Agreement was governed by New York law, Arcadia and Global Entertainment might require a different analysis and might necessitate a different outcome. But in light of Shorenstein's clear holding to the contrary under Delaware law, Arcadia is not persuasive.
VLSI's reliance on TransCore is also unpersuasive. VLSI argues that Finjan never had the ability to bind VLSI to any patent license for the simple reason that one caunot sell that which it does not own. VLSI Mot. at 8 (citing TransCore, 563 F.3d at 1275). But the issue here is not whether Finjan could bind VLSI, but whether Fortress exercises common control over Finjan and VLSI such that it could bind VLSI to Finjan's licenses. The Court does not read TransCore so broadly as to prohibit one entity from acquiring another such that the acquisition may affect the rights of assets of entities under its control. That said, the Court is not holding here that Intel has put forth sufficient evidence that TransCore is satisfied by the corporate relationship between the Finjan Parties, VLSI, and Fortress. As discussed infra, that is a question for the jury.
Thus, under Delaware law, the Court finds that non-signatory entities meeting the definition of “Affiliates” (as defined by the Finjan License Agreement) of the Finjan Parties can be bound by the agreement, including later acquired or formed “Affiliates.” See Shorenstein, 213 A.3d at 58; MicroStrategy, 2010 WL 5550455, at *12.
It is noteworthy that this conclusion is not novel and the language in the Finjan License Agreement appears to be relatively common. More than ten years ago the New York Law Jorunal published a comprehensive article warning of exactly this potential peril if there is a failure of due diligence by an acquiring company. See Acquisitions and IP Licenses: Looking Out for Poison Pill Affiliate, 249 N.Y. L.J. 2 (2013) (discussing the potential binding effect of licensing agreement on non-signatory affiliates).
C. Whether VLSI and Finjan are Affiliates
It is not enough that the Finjan License Agreement can bind future and later-formed affiliates. If its license defense is to succeed, Intel must also show that VLSI and the Finjan Parties are Affiliates. The Finjan License Agreement defines “Affiliates” in section 1.2: “Affiliates” shall mean in relation to a specified Person (i) any Person
that, now, or hereafter directly or indirectly through one or more entities, controls or is controlled by, or is under common control with, such specified Person, or (ii) any other Person, now or hereafter, that is deemed to be an affiliate of such specified Person under interpretations of the Exchange Act. As used in this Section 1.2, “controls”, “control” and “controlled” means the possession, direct or indirect, of the power to direct the management and policies of a Person, whether through the ownership of any percentage of voting interests of such Person, through contract or otherwise.
Finjan License Agreement § 1.2. The license defense may succeed if Intel proves that VLSI and Finjan are under common control of Fortress.
Intel argues that the term Finjan expressly includes Finjan, Inc., Finjan Software, Inc., and their Affiliates and that Fortress controls both VLSI and Finjan. Intel Mot. at 19. Intel submits evidence that Fortress exercises control over VLSI through its board of directors. ECF No. 583-4 (“Sian Dep.”) 113:4-15; ECF No. 583-6 (Zur Dep.) 30:13-18, 69:18-70:5, 124:8-125:8; ECF No. 583-5 (Shah Dep.) 50:6-10. Intel also submits evidence that Fortress implemented an independent CFO function that oversees parts of VLSI's business. ECF No. 583-7 (M. Furstein Email) at FORTRESS00050754-55; Sian Dep. 121:15-123:10; ECF No. 583-8 (S. Brogden Email) at FORTRESS-18-966DEC00000944; ECF No. 583-9 (Brogden Dep.) 41:5-21, 117:16-23; ECF No. 583-10 (VLSI Financial Statements) at FORTRESS00000619, 621. And Intel submits evidence that “Fortress also controls FHL” and FHL's parent company. Fortress employees have always constituted a majority of FHL's board since 2020, and FHL must request funding through Fortress. Anderson Dep. 43:6-13, 43:21-44:12, 45:18-22, 47:15-48:6, 51:14-52:13, 94:17-95:8; ECF No. 580-37 (Schedule Tender Offer Form for Acquiring Finjan Holdings Inc.) at 3, 8, 71-74; Hartstein Dep. 73:20-24, 82:10-20; FHL LLC Agreement at FIN0002453-54, FIN0002457-58.
VLSI responds that VLSI and Finjan are not connected. VLSI Mot. at 10 (citing Alliance Data, 963 A.2d at 769 (“Delaware law respects corporate formalities, absent a basis for veilpiercing[.]”); Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971, at *7 (Del. Ch. Nov. 13, 2018). VLSI presents evidence that VLSI and Finjan are not under common ownership or common control. VLSI Mot. at 14; VLSI LLC Agreement at -646; ECF No. 590-4 (Hartstein Dep.) at 97:9-98:5, 108:23-109:4; Stolarski Decl. ¶¶ 2-3, 7, 10; Stolarski 10/17/19 Dep. 108:10109:8; ECF No. 586-26 (Kessler Dep.) at 97:14-19. Specifically, VLSI contends that “VLSI and Finjan are run separately, with their respective day-to-day decisions made by unrelated CEOs who do not work for Fortress.” Id. (citing ECF No. 590-4 (Hartstein Dep.) at 97:9-12, 108:23-109:4; Stolarski Decl. ¶¶ 2-3; Stolarski 10/17/19 Dep. 108:10-12). VLSI argues that the fact that VLSI Holdings and the different investment entities that own Goldfish have each independently hired Fortress does not remotely show that VLSI and Finjan are under common control. VLSI Mot. at 14 (citing Amadeus Glob. Travel Distrib., S.A. v. Orbitz, LLC, 302 F.Supp.2d 329, 336-37 (D. Del. 2004), Sun Cap. Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 943 F.3d 49, 56-60 (1st Cir. 2019)). Finally, VLSI argues that even if Fortress owned VLSI and selected all of VLSI's board members, as a matter of Delaware law, that still would not be sufficient to show that Fortress controls VLSI's board. Id. (citing Klaassen v. Allegro Dev. Corp., 2013 WL 5967028, at *12 (Del. Ch. Nov. 7, 2013)).
The Court fir st addresses the meaning of “controls,” “control,” and “controlled” in the Finjan License Agreement. Alliance Data, 963 A.2d at 759-60. Under Delaware law, “where the parties define the words or terms which they intend to use, the contract will be interpreted according to such definitions if free from ambiguity.” Radio Corp, of Am. v. Philadelphia Storage Battery Co., 6 A.2d 329, 334 (1939). hr its motion, VLSI relies on authorities outside the contract for the meaning of control. VLSI Mot. at 14-15; see Amadeus, 302 F.Supp.2d 329, 336-37 (discussing control “in the context of a federal securities action”); Sun Cap. Partners, 943 F.3d at 56-60 (discussing common control under the Multiemployer Pension Plan Amendments Act on 1980); Klaassen, 2013 WL 5967028, at *12 (“in the corporate context, the fact that a stockholder appoints or elects a majority of the directors does not entitle the stockholder to control the board”). The Court finds that VLSI's definitions are not relevant, and instead applies the plain meaning of these commonly understood terms. Radio Corp., 6 A.2d at 334.
Whether VLSI and the Finjan Parties are under common control by Fortress is an issue of fact, Intel puts forth substantial evidence that Fortress controls both VLSI and Finjan through funding and board appointments. See Intel Mot. at 19 (collecting evidence). VLSI puts forth substantial evidence that VLSI and Finjan are not controlled by Fortress. See VLSI Mot. at 14-15 (collecting evidence). VLSI and Intel have both presented evidence that creates a genuine dispute of material fact. Thus, both parties' motions-VLSI's Motion for Summary Judgment that VLSI and Finjan are not affiliates, and Intel's Motion for Summary Judgment that VLSI and Finjan are affiliates-are denied. A jury must resolve this issue.
D. Whether the Asserted Patents are “Finjan's Patents”
The final piece of the license defense is whether the Asserted Patents are “Finjan's Patents” as defined in the Finjan License Agreement. For this analysis only, the Court assumes that VLSI and Finjan are affiliates, which the Court has determined (supra} depends on disputed questions of fact. If the factual question of control is resolved in VLSI's favor, this issue need not be reached.
According to the Finjan License Agreement:
“Finjan's Patents” shall mean all Patent Rights that are owned or controlled at any tune on or after November 6, 2012 by Finjan or to which Finjan has the right to grant license [Redacted] without the requirement to pay considertion [Redacted] for the grant of a license [Redacted]Finjan License Agreement at § 1.10 (emphasis in original). As discussed above, the term “Finjan” expressly includes Finjan, Inc., Finjan Software, Inc., and theft “Affiliates.” Id. at Preamble.
VLSI argues that the Asserted Patents are not “Finjan's Patents.” As a starting point, VLSI notes that the patents involved in the litigation leading up to the Finjan License Agreement were cybersecurity patents and that the NXP patents are all semiconductor patents. VLSI Mot. at 12. Hence, VLSI argues that “the plain language of the Finjan Settlement makes clear that Finjan was only gr anting Intel a license to patents owned or controlled by Finjan at the time of the agreement.” Id. at 12.
VLSI also argues that because NXP is owed profits from the license, NXP Patents are not Finjan Patents. According to VLSI, the Finjan License Agreement “expressly limits Finjan's obligation to provide Intel a license to future patents ‘to the extent that Finjan has the right to grant licenses . . . without the requirement to pay consideration [Redacted] ''' Id. at 13 (quoting Finjan License Agreement § 1.10) (emphasis added). VLSI argues that NXP is indisputably a “[Redacted] as that term is used in Section 1.10 of the Finjan Settlement and has an ongoing interest in the patents, and that “VLSI's patents cannot be licensed to Intel without VLSI being obliged to provide consideration to NXP.” Id. (citing Stolarski Decl. ¶ 4; PPCA at §§ 2.1, 7.3; Stolarski 10/17/19 Dep. 227:24-228:20; Stolarski 7/9/20 Dep. 146:12-14, 148:22-149:3).
Intel responds that the terms “Affiliate,” “Finjan,” and “Finjan's Patents” are all clearly defined in the Finjan License Agreement and that the plain language supports its argument that VLSI's patents (including the Asserted Patents) are “Finjan's Patents” as defined by the contract. Intel Opp. at 4. Intel adds that the PPCA (the mechanism by which VLSI acquired the Asserted Patents from Finjan) says nothing about any payment of consideration to NXP based on licensing of the Asserted Patents to others. Id. at 5 (citing PPCA §§ 2.1, 7.3).
The Court agrees with Intel that NXP is not a “third person” owed consideration. First, while the specific patents at issue in the Finjan-Intel settlement may have been cybersecurity patents, the plain language of the Finjan License Agreement covers “all Patent Rights that are owned or controlled ... by Finjan.” Furthermore, VLSI puts forth no evidence suggesting that the PPCA makes NXP a third person owed consideration. Section 2.1 of the PPCA titled “Transfer of Base Portfolio Patents,” says nothing about any payment of consideration to NXP based on licensing of the asserted patents to others. PPCA § 2.1. Section 7.3 of the PPCA agreement titled “Allocation of Profits” is also unhelpful. While it does contain a general profit-sharing arrangement between VLSI and NXP. NXP is entitled to a profit share of those [Redacted] Revenues only if there are any [Redacted] left after VLSI [Redacted] its [Redacted] Id. § 7.3. Nothing in the PPCA requires VLSI to maximize the license payments or royalties, or even extract any payment whatsoever from a licensee. VLSI thus has no “requirement to pay consideration” to NXP under the terms of the PPCA. Finjan License Agreement § 1.10. The Stolarski declaration and deposition testimony only summarize the PPCA, and add no additional probative evidence. Stolarski Decl. ¶ 4; Stolarski 10/17/19 Dep. 227:24-228:20 (stating that VLSI paid an upfront fee of [Redacted] and agreed an additional [Redacted] Stolarski 7/9/20 Dep. 146:12-14, 148:22-149:3 (stating that VLSI bought the patents from NXP to enforce them against Intel).
Thus, the Court concludes that patents belonging to Affiliates of Finjan, as defined by the Finjan License Agreement, are subject to the license to Intel described therein. However, the Court reiterates that it makes no finding as to whether VLSI and Finjan are Affiliates under the Finjan License Agreement, and instead leaves that question for the jury.
The Court acknowledges that in a companion case from the Western District of Texas the Federal Circuit did not find compelling Delaware authority on either side of these issues, but concluded that the license defense was not futile. VLSI, 2023 WL 8360083, at * 13. As the Federal Circuit suggested, the merits of Intel's license defense may appropriately be decided on a more developed record such as on summary judgment. Id.
Thus, by this Order, the Court only goes so far as to determine that under Delaware law, Intel's license defense may prevail if it can prove to a jury that Fortress and VLSI are “Affiliates” of Finjan under the terms of the Finjan License Agreement. That proof will be no small task for Intel, but this Order does not prejudge either party's likely success.
IV. ORDER
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. VLSI's Motion for Summary Judgment that Intel is not licensed to use the Asserted Patents is DENIED.
2. Intel's Motion for Summary Judgment that it is licensed to use the Asserted Patents is DENIED.