New York Appeals Court Overturns Lower Court Order that Samsung Pay $115 Million to MPEG LA for Wrongfully Terminating a Patent Pool Agreement

Abstract

A New York state appellate court overturned a trial court's order that Samsung pay MPEG LA $115 million in a dispute over whether Samsung wrongfully terminated agreements governing a patent pool for licensing ATSC standard patents to companies implementing the ATSC standard. The appellate court found the provisions of the agreements, when read together, provided Samsung with the right to unilaterally terminate its rights and obligations under the agreements.

Background

MPEG LA administered and licensed a pool of patents that covered the Advanced Television Systems Committee (ATSC) standard. Samsung and other patent owners in the pool licensed their ATSC standard patents to each other and to MPEG LA under four agreements that permitted MPEG LA to license the patents in the patent pool:

1. The patent owners in the pool entered into an agreement among themselves─an Agreement Among Licensors (AAL)─that required the patent owners enter into a separate licensing agreement with the pool's licensing administrator MPEG LA, and grant MPEG LA a license to grant sublicenses. Patent owners were the only signatory to that agreement to that agreement.
   
   
2. The patent owners each granted MPEG LA a license to sublicense their ATSC patents, as required by the AAL.
   
   
3. The patent owners and MPEG LA entered into an agreement─a Licensing Administrator Agreement (LAA)─governing MPEG LA's rights and obligations as the patent pool licensing administrator.
   
   
4. The parties agreed on a Patent Portfolio License (PPL), used by MPEG LA to sublicense the patents in the pool to implementers of the ATSC standard.

In 2015, Samsung sent MPEG LA notices that it was terminating its participation in the pool pursuant to termination provisions in the agreements. In response, MPEG LA sued Samsung for breach of contract. In addition to seeking money due under the agreements, MPEG LA also asked the court to declare that Samsung needed to participate in the pool and comply with the agreements at least until January 1, 2017. The New York trial court found Samsung improperly attempted to terminate the agreements and ordered that Samsung pay MPEG LA
$115 million.

The Appellate Court Decision

 The New York State appellate court reversed the decision of the trial court and overturned the award, finding that MPEG LA had standing to sue as a third-party beneficiary of the agreements, but that Samsung could unilaterally terminate the agreements.

Relying on principles of contract interpretation, the appellate court examined the agreements to understand the obligations and intentions of the parties. Two of the agreements had termination provisions and the parties disputed how they should be interpreted.

One of the agreements─the agreement among licensors (AAL)─provided that each patent owner could terminate no less than its agreement with the other licensors (AAL), its agreement with the licensing administrator (LAA), and the administrator's right under a provision of the agreement among licensors to grant additional sublicenses under its patents. The agreement among licensors prohibited the patent owners from terminating the agreement for the first five years of the agreement (2007 to 2012), and then provided a schedule that allowed the patent owners to subsequently terminate the agreements by paying early termination penalties for terminating during the next four years (2013-2016).

A second agreement─the licensing administrator agreement (LAA)─provided that after January 1, 2017, each patent owner could terminate no less than its agreement with the other licensors (AAL), its agreement with the licensing administrator (LAA), and the administrator's right under a provision of the agreement among licensors to grant additional sublicenses under its patents. The licensing administrator agreement also provided for other methods of termination, including a finding by two-thirds of the pool that MPEG LA was in breach, insolvent, or in liquidation.

MPEG LA challenged Samsung's ability to terminate the agreement, arguing the agreements prohibited Samsung from exercising its termination right, so Samsung had a continuing obligation to the agreements governing the pool until at least January 1, 2017. The Appellate Court disagreed, interpreting the agreements together and finding that the licensing administrator agreement allowed Samsung's termination after January 1, 2017 without financial consequences, while the agreement among licensors permitted Samsung to terminate before January 1, 2017, subject to certain termination penalties.

Under MPEG LA's interpretation, there would be no circumstance under which Samsung could terminate the agreements pursuant to the agreement among licensors. MPEG LA relied on other provisions of the licensing administrator agreement regarding termination due to the removal of MPEG LA as the licensing administrator, but the appellate court rejected that notion, finding that those sections required a two-thirds vote of the parties, making it implausible for Samsung to exercise its unilateral and bargained-for early termination right under the agreement among licensors. The appellate court also reasoned that if the agreement among licensors required separate termination of the licensing administrator agreement, and the licensing administrator agreement could not be terminated before 2017, the early termination penalties under the agreement among licensors would never apply, rendering those provisions superfluous. Thus, MPEG LA's interpretation of the agreements failed to give meaning to all of the provisions in the agreements.

The appellate court also rejected MPEG LA's arguments that Samsung did not properly terminate the agreements based on counsel's representations in the lower court, because the letters of record unequivocally terminated the relevant agreements. The court also rejected MPEG LA's argument that the patent portfolio license was not properly terminated because Samsung failed to pay certain royalties, explaining that paying royalties accrued before termination was not a condition to termination, but instead was an obligation that survived termination.

Strategy and Conclusion

Entering into multiple agreements can raise questions as to how the terms of the agreements may affect each another. Courts will attempt to interpret the language of related license agreements to provide meaning to all provisions of those agreements and to reject interpretations that render terms superfluous or meaningless.

The MPEG LA decision can be found here.