WASHINGTON — A simple agreement designed to resolve a law firm’s conflict of interest is being interpreted as an absurdly broad licensing agreement that gives mobile giant Ericsson discounts that only small startups can dream of.
So argued Tensegrity Law Group partner Matthew Powers to the U.S. Court of Appeals for the Federal Circuit on Thursday in a dispute over 4G wireless technology.
“This case involves a very narrow agreement designed to solve a very narrow problem,” Powers argued on behalf of publicly traded IP licensing company Wi-LAN.
The problem was a conflict of interest by Wi-LAN litigation counsel McKool Smith. But a federal judge has interpreted the deal to resolve the conflict as “an essentially royalty-free license” on all of Wi-LAN’s patents, now and in the future.
Powers faced tough questioning in Wi-LAN USA v. Ericsson, 13-1485. But Ericsson’s counsel, Holland & Knight partner Joshua Krumholz, got a rougher ride, especially when he argued that the license agreement “could not be clearer.”
“There is nothing at all clear about this document, so please do not say that again,” Judge Kimberly Moore told him.
Ottawa-based Wi-LAN began bringing lawsuits over four patents related to high-speed packet access, or HSPA, in 2006. During license negotiations, Ericsson complained that Wi-LAN had retained McKool Smith, Ericsson’s former counsel in disputes over similar technology. To resolve the conflict, the parties agreed that Wi-LAN would not sue Ericsson over the four patents, that McKool Smith could continue representing Wi-LAN against other entities, and that the law firm would pay Wi-LAN $100,000, according to case filings.
But they did not stop there. They also drafted a convoluted “most favored licensee” agreement that would be triggered “in the event that Wi-LAN owns or controls the licensing of patents not already addressed under this agreement” and related to HSPA.
U.S. District Judge Leonard Davis of Texas ruled the provision was meant to be triggered only if Wi-LAN sued Ericsson over its original four HSPA patents. But U.S. District Judge Donald Middlebrooks of Florida interpreted it more expansively, ruling that the provision became enforceable when Wi-LAN sued over new 4G patents it acquired in 2009. Wi-LAN would have to license all of its patents to Ericsson on the same terms it does to BelAir Networks, a Canadian Wi-Fi company with only a tiny fraction of Ericsson’s annual revenues, Middlebrooks ruled.
Both decisions were before the Federal Circuit on Thursday. Judge Kathleen O’Malley cut to the heart of the problem. “This is a poorly written agreement,” she told Powers.
“It’s an astonishingly poorly written agreement, on both sides,” agreed Powers, who just joined Wi-LAN’s team a few months ago.
The drafting is so bad, the judges suggested, there must be some backstory on what it really means. “Give me a plausible explanation,” Judge Evan Wallach asked at one point.
Powers said there is “clear and unambiguous” extrinsic evidence that would explain it, apparently a declaration from a person involved in the negotiations.
But because neither trial judge relied on that evidence, the appellate judges sounded reluctant to embrace it. Instead, Moore suggested, Powers might be stuck with the language of the contract. “I understand why it would be absurd for one to enter into such an agreement,” Moore said. “But nonetheless, here we are.”
“Nonetheless, here we are,” Powers agreed.
When it was his turn, Krumholz said his client hadn’t proffered extrinsic evidence because the contract language was clear. That drew a round of hostile fire from the judges, causing Krumholz to respond “respectfully” or “with respect” at least five times.
The judges strongly suggested that because the agreement is drafted in the present tense, it’s a reach to say that it covers patents acquired in the future. Krumholz disagreed, arguing that the phrase “if it rains” is in the present tense, “but everyone understands you’re talking about the future.”
“It does convey the future,” he insisted, as Wallach quietly shook his head.
By the end of the argument, the judges sounded poised to send both cases back to their respective trial courts with instructions to consider extrinsic evidence.
That may be a partial victory for Powers, but there was a saving grace for Krumholz.
“I assume you did not write this, is that correct?” Moore asked.
“That is correct,” Krumholz affirmed.
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