WiAV Solutions Inc. v. HTC Corporation

Background

WiAV brought this diversity contract action against HTC. The parties’ 2009 Contract transferred certain voice-coding patent rights to HTC. HTC agreed to pay WiAV $5 million in three installments, which HTC made. The Contract also required HTC to make additional “Conditional Payments” when a “Triggering Event” occurred, including when HTC granted a covenant not to sue, released rights, or transferred rights under the covered patents to a third party.

The Contract set the Conditional Payments at $4 million for the first and second Triggering Events, $3 million for the third, and $3.5 million for the fourth and fifth. After five such payments, no further Conditional Payments would be due. If fewer than three Triggering Events occurred before June 1, 2015, HTC was required to transfer the patent rights to an entity designated by WiAV’s president.

WiAV alleged that HTC licensed the patent rights to Microsoft Corporation, Telefonaktiebolaget LM Ericsson, Apple Inc., and others without making the required Conditional Payments. WiAV also alleged that HTC failed to pay maintenance fees for a Chinese patent, causing the patent to expire. It asserted that the expiration both created a Triggering Event and separately breached HTC’s obligation to pay maintenance fees.

HTC’s Motion and Claim Preclusion Defense

HTC moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim. HTC argued that the claims involving Microsoft, Ericsson, Apple, and other possible licensees were barred by claim preclusion, also called res judicata, because a New York state court had dismissed similar claims in 2016.

The court rejected HTC’s claim-preclusion argument at this stage for the alleged Ericsson and 2015 Apple licenses because WiAV alleged those agreements occurred after the 2013 state-court action began. The court also found no evidence that the alleged Microsoft agreement existed before the state case began; WiAV alleged that it learned about that agreement in 2018. The court explained that claims based on later events generally are not barred by an earlier judgment.

The court found it premature to decide whether claims involving unspecified “other agreements” were barred. The record did not establish when those agreements occurred or whether WiAV could previously have discovered them.

Analysis of the Contract Claims

The court applied New York law. To state a breach-of-contract claim, WiAV had to allege an agreement, its own adequate performance, HTC’s breach, and damages.

The court held that WiAV adequately pleaded a claim based on the alleged Microsoft license. The complaint alleged that Microsoft told WiAV’s related entity that Microsoft had obtained a license for a significant portion, if not all, of the covered patent rights, and that Microsoft obtained those rights through HTC. At the motion-to-dismiss stage, the court was required to accept those factual allegations as true. HTC’s motion was therefore denied as to HTC’s argument that WiAV had not adequately pleaded a Triggering Event involving Microsoft.

The court dismissed the theory that HTC’s failure to pay Chinese-patent maintenance fees was itself a Triggering Event. The Contract referred to HTC granting a covenant not to sue to a third party. The court defined a covenant not to sue as an agreement not to bring an action to enforce a legal right. It concluded that, even assuming HTC failed to pay the maintenance fees and the Chinese patent expired, that failure did not show that HTC agreed with another party not to sue.

The court reached a different result on WiAV’s separate maintenance-fee theory. The Contract required HTC to comply with provisions of the earlier Skyworks-WIAV Agreement, which required the assignee of the patent rights to assume WiAV’s obligation to pay one-half of the maintenance fees. The court held that HTC had assumed that obligation and that WiAV adequately pleaded HTC breached it by failing to pay the maintenance fees for the Chinese patent.

Disposition

The court dismissed WiAV’s breach-of-contract claim to the extent it was based on the argument that HTC’s failure to pay Chinese-patent maintenance fees created a Triggering Event. Defendant HTC’s motion to dismiss was otherwise denied. The court directed the Clerk of Court to terminate the motion.