Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_13-cv-05962/USCOURTS-cand-4_13-cv-05962-21/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 28:1331 Fed. Question: Anti-trust

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United States District Court 

Northern District of California 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

NETLIST, INC.,

Plaintiff, 

VS. 

DIABLO TECHNOLOGIES, INC., 

Defendant. 

Case No.: 13-cv-5962 YGR 

ORDER REGARDING PROFFERS AND 

EXTRINSIC EVIDENCE RELATED TO 

CONTRACT INTERPRETATION 

On January 26, 2015, Diablo Technologies, Inc. (“Diablo”) submitted its Motions In Limine 

to Exclude Certain Evidence and Testimony (Dkt. No. 303-9). Diablo’s second motion in limine 

(MIL No. 2) sought to exclude: “(1) Netlist’s current interpretation of the Supply Agreement; (2) 

post-contract emails confirming Netlist’s alleged understanding of the Supply Agreement; and (3) 

Chuck Hong’s (or any other Netlist witness) testimony that Netlist’s interpretation of the Supply 

Agreement conforms to the industry standard for supply agreements.” (Id. at 6.) Diablo contends 

that each of these categories of evidence is inadmissible extrinsic evidence. 

In the course of oral argument on the proper scope of extrinsic evidence to be admitted, the 

Court inquired of the parties as to which terms, if any, in the contract at issue they contend are 

ambiguous or the proper subject of extrinsic evidence as to their meaning. The parties have now 

submitted proffers and responses and the Court has heard additional argument. Diablo has identified 

five terms as ambiguous and the proper subject of extrinsic evidence, and Netlist, while maintaining 

that the Supply Agreement is not ambiguous, identified one provision as a possible subject of 

extrinsic evidence. 

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The Court has carefully reviewed the parties’ submissions and re-reviewed the language of 

the Supply Agreement in light of the parties’ arguments. The Court finds that Diablo’s proffers do 

not establish that the identified terms of the Supply Agreement are reasonably susceptible of the 

meanings Diablo asserts. Consequently, their meanings are not the proper subject of extrinsic 

evidence. 

In light of Netlist’s position in its proffer, and the Court’s determination that no party has 

identified any terms the Court considers ambiguous, the Court ORDERS that neither party may offer 

extrinsic evidence as to the meaning or proper interpretation of the Supply Agreement. While the 

parties may offer evidence on whether the terms of the agreement were performed or breached, 

evidence offered solely for purposes of defining the terms therein will not be permitted. 

Finally, based on the foregoing, the Court ORDERS that Diablo’s MIL No. 2 is DENIED AS 

MOOT. The Court’s reasoning follows: 

I. APPLICABLE LEGAL PRINCIPLES 

Under California law, “[t]he test of admissibility of extrinsic evidence to explain the meaning 

of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, 

but whether the offered evidence is relevant to prove a meaning to which the language of the 

instrument is reasonably susceptible.” Pac. Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging 

Co., 69 Cal. 2d 33, 37 (1968). If a contract is “reasonably susceptible” to the meaning claimed, any 

relevant evidence may be offered so that “the Judge be placed in the position of those whose 

language [s]he is to interpret.” Cal. Civ. Pro. Code § 1860. 

The Court engages in a two-step process to determine whether to admit extrinsic evidence. 

First, the court “provisionally receives (without actually admitting) all credible evidence concerning 

the parties’ intentions to determine ‘ambiguity,’ i.e., whether the language is ‘reasonably susceptible’ 

to the interpretation urged by a party.” Winet v. Price, 4 Cal. App. 4th 1159, 1165 (1992). “If in 

light of the extrinsic evidence the court decides the language is ‘reasonably susceptible’ to the 

interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting 

the contract.” Id.; see also Pacific Gas & Elec. Co., 69 Cal. 2d at 40 (“If the court decides, after 

considering this evidence, that the language of a contract, in the light of all the circumstances, ‘is 

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fairly susceptible of either one of the two interpretations contended for...’ extrinsic evidence relevant 

to prove either of such meanings is admissible.”); see also F.B.T. Prods., LLC v. Aftermath Records, 

621 F.3d 958, 963 (9th Cir. 2010). In other words, evidence is only admissible for contract 

interpretation purposes to the extent it is relevant to proving a meaning to which the disputed 

provision is reasonably susceptible. Skilstaff, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1015 (9th 

Cir. 2012); Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 39-40 

(1968). 

Further, in contracts between two parties within an industry, “particular expressions may, by 

trade usage, acquire a different meaning in reference to the subject matter of a contract...and parol 

evidence is admissible to establish the trade usage even though the words in their ordinary or legal 

meaning are entirely unambiguous. Hayter Trucking, Inc. v. Shell W. E&P, Inc., 18 Cal. App. 4th 1, 

15 (1993). 

Where the interpretation of contractual language turns on a question of the credibility of 

conflicting extrinsic evidence, interpretation of the language is not solely a judicial function...it is 

the jury’s responsibility to resolve any conflict in the extrinsic evidence properly admitted to 

interpret the language of a contract. Morey v. Vannucci, 64 Cal. App. 4th 904, 912-13 (1998). “The 

court must settle the proper interpretation of a contract as a matter of law even when conflicting 

inferences can be drawn from undisputed extrinsic evidence, or where that extrinsic evidence renders 

the contract language susceptible to more than one reasonable interpretation.” F.B.T. Productions, 

LLC v. Aftermath Records, 827 F.Supp.2d 1092, 1102 (C.D. Cal. 2011). It is only where there is a 

conflict in the admissible and relevant extrinsic evidence that a “jury must resolve the factual 

conflict.” Id. When there is a conflict in the extrinsic evidence, the California courts have suggested 

that the proper procedure would be for the trial court to require the jury to make special findings on 

the disputed subjects of extrinsic evidence, and then base its interpretation of the contract on those 

findings. Id. citing Med. Operations Mgmt., Inc. v. Nat'l Health Labs., Inc., 176 Cal. App. 3d 886, 

892, n. 4 (1986). 

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Here, the Court is at the first step of the process: looking to the proffered evidence to 

determine whether there is any ambiguity in the contract language such that the contract is 

reasonably susceptible to the interpretation urged by the proffering party. 

II. THE PARTIES’ PROFFERS 

Netlist argues that the Supply Agreement is clear, but that Section 7(a) might potentially be 

susceptible of more than one meaning if read in isolation. Section 7(a) reads: 

(a) Diablo. All rights, title and interest in and to the design and development of 

the Diablo Standard Register and Diablo’s Implementation of the Netlist 

Chipset; and any improvement, update, modification or additional parts thereof, 

and all of Diablo’s Intellectual Property Rights embodied in the Diablo Standard 

Register, shall at all times remain the sole and exclusive property of Diablo. For 

purposes of this Agreement, “Implementation” shall mean the development of a 

silicon chip set using the Netlist Technology (including without limitation the 

packaging) which will meet Netlist’s Architecture requirements. 

(Supply Agreement §7(a).) Essentially, Netlist offers an argument that, if the Court were to find 

some ambiguity in section 7(a), pre-contractual negotiation evidence and post-contractual evidence 

arising when Diablo sought to renegotiate the agreement, along with proposed testimony about the 

negotiations and common industry practice, show what the parties meant in Section 7’s division of 

their respective intellectual property rights. It is this evidence that is the subject of Diablo’s MIL No. 

2. 

 Diablo’s proffer identifies several terms it contends are ambiguous and the proper subject of 

extrinsic evidence in order to determine their meaning: 

(1) “database design technology” from the definition of “Netlist Technology” in 

section 1 of the Supply Agreement; 

(2) “with DxD/LRD physically enabled” from the definition of “Netlist Chipset” 

in section 1; 

(3) “DDR3 industry standard register derivative of Netlist Chipset with either or 

both of DxD/LRD functionality physically disabled” from the definition of 

“Diablo Standard Register” in section 1; 

(4) “system architecture,” which appears in section 7(b), the “Intellectual Property 

Rights, Netlist” provision; and 

(5) “competitive to” from section 8 concerning Confidential Information. 

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Though the terms Diablo identifies appear in other sections of the Supply Agreement, all but Term 5 

bear on the meaning of the one provision identified by Netlist, section 7(a), as indicated by the 

bolded terms that follow: 

(a) Diablo. All rights, title and interest in and to the design and development of 

the Diablo Standard Register and Diablo’s Implementation of the Netlist 

Chipset [Term 2]; and any improvement, update, modification or additional 

parts thereof, and all of Diablo’s Intellectual Property Rights embodied in the 

Diablo Standard Register [Term 3], shall at all times remain the sole and 

exclusive property of Diablo. For purposes of this Agreement, 

“Implementation” shall mean the development of a silicon chip set using the 

Netlist Technology [Term 1] (including without limitation the packaging) 

which will meet Netlist’s Architecture [Term 4] requirements. 

(Supply Agreement §7(a), emphasis and cross-reference supplied.) Thus, the Court looks first to the 

potential ambiguity of the terms identified by Diablo, and then turns to the question of whether 

section 7(a) is reasonably susceptible to more than one meaning before determining whether the 

extrinsic evidence proffered by Netlist should be excluded. 

II. DOCUMENTS AND POTENTIAL TESTIMONY IDENTIFIED BY DIABLO IN ITS PROFFER 

A. Term 1: “database design technology” 

The term “database design technology” appears in the “Definitions” section of the Supply 

Agreement and is used to describe the meaning of the term “Netlist Technology.” It reads: 

“Netlist Technology” shall mean Netlist’s patented and trade secret-protected 

Rank Multiplication/Load Rank Multiplication technology (“DxD/LRD”), 

including without limitation its “know-how” and database design technology, 

developed prior to the Effective Date and provided to Diablo. 

(Supply Agreement §1, term at issue bolded.) 

 Diablo proposes that the term should mean “electronic circuit design files.” To support its 

construction, Diablo proffers (i) the testimony of its Vice President of Business Development, Cedric 

Paillard, to the effect that the parties understood the term to have this meaning, and (ii) the Statement 

of Work (“SOW”) attached to the Supply Agreement, which states that Netlist would be providing 

the “existing reference design database” to Diablo to complete its implementation. Further, Diablo 

proposes that Paillard testify that he never received “database design technology” and only “the rank 

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multiplication and the load reduction was delivered to Diablo.” (Diablo Proffer, Dkt. No. 369, at 

3:8-13 [C. Paillard Depo. at 95:16-23].) 

 The Court finds that Diablo’s proffer fails to demonstrate that the term “database design 

technology” is reasonably susceptible of the narrow meaning it seeks to impose. Read in the context 

of the Supply Agreement, the “database design technology” appears to be one example (i.e., 

“including without limitation”) of Netlist’s “patented and trade secret-protected Rank Multiplication 

/Load Rank Multiplication technology.” (Supply Agreement §1.) Whatever relevance Paillard’s 

testimony might have to issues of Netlist’s performance, it does not bear on the meaning of this 

contract term. Further, testimony that is offered purely to establish one party’s unexpressed 

subjective understanding of a term’s meaning is inadmissible for purposes of contract interpretation. 

Winet, 4 Cal.App.4th at 1165-67. 

 The proffer does not establish that the term is reasonably susceptible of a different meaning. 

The Court finds that extrinsic evidence on the meaning of this term is not admissible. 

B. Term 2: “with DxD/LRD physically enabled” 

This term appears in section 1 of the Supply Agreement as the contract’s definition of 

“Netlist Chipset.” That section reads: 

“a DDR3 proprietary chip set solution consisting of a DDR3 standard register 

(with DxD/LRD physically enabled) and [a] set of isolation devices utilizing the 

Netlist Technology for use in Netlist RDIMM products implemented in OEM 

server systems developed under this Agreement in accordance with the 

Specification” 

(Supply Agreement §1, term at issue bolded.) 

 Diablo contends that the term “with DxD/LRD physically enabled” means “capable of 

actually performing both DxD and LRD functionalities.” Diablo argues that: (i) documentary 

evidence will show that DxD and LRD are two separate functions and this provision refers to them 

as a single package, i.e. “DxD/LRD;” (ii) Netlist witness Jim Perrott will testify that “physically 

enabled” means “functional,” leading to the conclusion that the Netlist Chipset must be able to 

perform both functionalities. Diablo also offers various dictionary definitions of the meaning of 

“enabled” and “enable.” 

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 Nothing about Diablo’s proffer indicates that the term “with DxD/LRD physically enabled” is 

ambiguous. The testimony of Perrott cited by Diablo makes clear that he was offering his own 

interpretation of the meaning of a different but related term, “physically disabled”: 

Q. Okay. What was your understanding as to what “physically disabled” means, 

same clause? 

A. I would just be interpreting it. 

Q. Please. 

A. It’s either enabled or disabled. Functional or not functional. 

(Diablo Proffer at 4:6-8, citing J. Perrott Depo. Tr. at 81:13-18, emphasis supplied.) 

 The parties apparently agree, as stated on the record at the hearing, that the word “physically” 

means that there is an actual, physical (not merely functional) aspect required to “enable” the 

DxD/LRD functionality. Diablo’s proposed construction—“capable of actually performing both 

DxD and LRD functionalities”—ignores the word “physically.” Thus, the construction Diablo offers 

creates more ambiguity than it dispels. Consequently, the Court will not admit extrinsic evidence on 

the meaning of “with DxD/LRD physically enabled.” 

C. Term 3: “DDR3 industry standard register derivative of Netlist Chipset with 

 either or both of DxD/LRD functionality physically disabled” 

The next term Diablo identifies is the entire definition in the contract of “Diablo Standard 

Register” or “Register” which reads: 

‘Diablo Standard Register’ or ‘Register’ shall mean a DDR3 industry standard 

register derivative of Netlist Chipset with either or both of DxD/LRD 

functionality physically disabled. 

(Supply Agreement §1, phrase at issue bolded.) Here, Diablo argues that the provision should be 

construed to mean “A chip or chipset containing: (1) an RD incapable of performing DxD; and/or (2) 

a set of IDs incapable of performing LRD.” Diablo argues that its proposed construction is 

supported by documentary and testimonial evidence, in addition to the ordinary meaning of 

“derivative.” “DxD” and “LRD” refer to two separate functions: rank multiplication and load 

reduction, respectively. Diablo argues that “when either of them is functionally disabled and thus 

incapable of performing their designed functionality, then, consequently, the chipset is physically

incapable of performing both DxD/LRD functionalities together.” (Proffer at 6:2-5, emphasis 

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supplied.) Diablo further argues that the words “derivative of the Netlist Chipset” supports an 

interpretation of the Diablo Standard Register as “having an RD chip and/or an ID chip.” In support 

of this interpretation of the contract provision, Diablo cites (i) dictionary definitions of “derivative,” 

(ii) provisions of the Copyright Act, 17 U.S.C. Code section 101 concerning “derivative work,” and 

(iii) anticipated testimony of Paillard to the effect that Netlist agreed that Diablo could use both the 

RD and ID chips to demonstrate its expertise in implementing the DxD/LRD functionalities to future 

customers. 

 The dictionary and statutory definitions do not aid Diablo here. Having re-reviewed the 

actual language of the Supply Agreement, the argument that the Diablo Standard Register (a “DDR3 

Standard register”) is “derivative” of the Netlist Chipset (which contains both RD and ID chips), 

does not lead logically to the conclusion that Diablo Standard Register could contain both chips. 

 With respect to Paillard’s testimony, Diablo’s permission to use RD and ID to “demonstrate” 

the DxD/LRD functionality is apparently in dispute. Moreover, even if it were not, the ability to 

demonstrate the work Diablo performed under the Supply Agreement to a potential customer does 

not support Diablo’s construction of “Diablo Standard Register” or evidence Diablo’s ownership of 

the intellectual property rights to a “chipset” [or standard register] with both RD and ID components. 

 Finally, the very testimony Diablo cites in its proffer indicates that the RD chip is 

synonymous with the “register” component of the Netlist Chipset. (See Diablo Proffer at 5:19-27.)1

 

The language of the Supply Agreement limits the Diablo Standard Register to the “register” portion 

of the Netlist Chipset, and does not mention the “set of isolation devices” or ID chip portion of the 

Netlist Chipset defined in section 1. Thus, read in the context of the other contract terms and the 

proffered testimony, the definition Diablo offers is not supported by the evidence. In short, Diablo’s 

 1

 The Diablo Proffer at 5:19-27 reads: “M. Martinez Depo. at 123:12-23 [Q: Can you define 

what ID stands for in this context? A: The ID stands for the iSwitch and the ASIC stands for the – 

the register or the logic that goes onto the register that supports DxD. Q: Okay. So in terms of the 

proper nomenclature, ASIC is the register – is the register. And that’s the DxD? A: Yes. Q: Okay. 

And then the ID is the iSwitch and that’s the LRD? A: Yes.); id. at 207:10-13 (Q: Okay. And the ID, 

again, was the iSwitch or the LRD, right? A: Yes.); id. at 208:2-19 (Q: Okay. And then what about 

the LRD function? A: Well, the LRD function is the buffers, the LRD . . . the iSwitches. Q: Which is 

the ID? A: Right...Q: Are there any other functions it could do besides buffering? A: Oh, yeah. I 

mean, Dr. Lee is more the expert on this, but ... there’s a lot of functions to the – to the buffer.).” 

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proffer does not show that the provision at issue is reasonably susceptible to the interpretation it 

urges. 

D. Term 4: “system architecture” 

The next term identified by Diablo is “system architecture,” which appears in section 7(b) of 

the Supply Agreement: 

(b) Netlist. All rights, title and interest in and to the design and development of 

the underlying Architecture of the Netlist Chipset, the Netlist Technology and all 

Intellectual Property Rights embodied in the Netlist Technology, any 

improvement, update, modification or additional parts thereof, shall at all times 

remain the sole and exclusive property of Netlist. For purposes of this 

Agreement, “Architecture” shall mean system architecture with regard to Load 

Reduction and Rank Multiplication modules and DIMM topology. 

(Supply Agreement §7(b), term at issue bolded.) 

Diablo contends that “system architecture” should be read to mean “the way in which the 

parts of a system are organized.” Diablo proffers the testimony of Diablo witnesses Paillard and 

Amer that the parties understood “system architecture” to be the two documents Netlist provided to 

Diablo by email on April 12, 2008, as well as the Netlist power point presentation made on or about 

April 22, 2008, which provided the initial proposal for the organization of SDRAMs, Isolation 

Devices, and ASIC of the chipset, and used block diagram organizations to illustrate the system 

architecture of the chipset. (Diablo Proffer at 8:10-21, citing Trial Exh. 026 and 028 [specification 

for the ID and RD], 032 [Netlist presentation re: specifications and additional know-how].) Diablo 

also proffers unspecified “drafting history of the Agreement” it contends will show that “system 

architecture” means the organization of the parts of the chipset whereas “implementation” relates to 

how the parts or components of the system are implemented in circuits, as well as a dictionary 

definition of “architecture.” 

First, the latter part of the proffer is too vague and circular to be meaningful. Diablo asserts, 

summarily, that there is some evidence that supports the parties’ agreement that there was distinction 

between organization and implementation, without more. Diablo, in an attempt to contrast 

“organization” with “implementation,” defines “implementation” as “how [parts] are implemented.” 

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The remainder of the proffer is nothing more than an indication that three proposed trial 

exhibits will establish the details of the “system architecture.” The proffer of evidence does not 

suggest that the term “system architecture” requires the construction Diablo offers. 

E. Term 5: “competitive to” 

This term appears in Section 8(a) of the Supply Agreement regarding “Nondisclosure and 

Nonuse” of the other party’s Confidential Information, which states, in part: 

“For purposes of clarification, the Netlist Technology is the Confidential 

Information of Netlist and may not be used for any purpose other than as set 

forth in this Agreement, including without limitation use of such Netlist 

Technology to develop a chip competitive to the Netlist Chipset.” 

(Supply Agreement §8(a), term at issue bolded.) 

 Diablo contends the term “competitive to” should be construed to mean “a market substitute 

for.” Diablo again proffers the testimony of Paillard to the effect that he sought the ability to 

demonstrate Diablo’s expertise in implementing the DxD/LRD functionalities in both the RD and ID 

chips to future customers, and Netlist agreed “with the caveat that Diablo was not allowed to sell a 

chipset that performed DxD/LRD functionalities to Netlist’s competitors, which would compete with 

the Netlist Chipset.” (Diablo Proffer at 9:18-19.) Diablo contends that Paillard will also testify that 

Netlist was amenable to Diablo developing “a chipset derived from the Netlist Chipset so long as 

DxD/LRD functionalities were physically disabled.” (Id. at 9:20-22.) Diablo also intends to offer 

the testimony of Diablo expert Paul Tiech that “complementary products” do not compete. 

 In addition, Diablo cites the recent O’Bannon decision for the proposition that, in 

determining competition for purposes of antitrust law, the product market is the “pool of goods or 

services that enjoy reasonable interchangeability of use and cross-elasticity of demand.” O’Bannon v. 

NCAA, 7 F. Supp. 3d 955, 986 (N.D. Cal. 2014) (citing to Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 

1062 (9th Cir. 2001)). 

 Nothing in Diablo’s proffer suggests that “competitive to” is susceptible of different 

meanings such that the Court must interpret it in order for the jury to be able to determine if this 

provision is breached. To the contrary, the evidence concerns the legal question of whether certain 

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products or actions were “competitive to” the Netlist Chipset, not the meaning of the words 

“competitive to.” 

CONCLUSION 

None of the evidence proffered by Diablo is admissible to prove the meaning and scope of 

the identified terms of the Supply Agreement. The Court does not find, based on either party’s 

proffer, that extrinsic evidence is needed to interpret the meaning of the Supply Agreement’s terms. 

Although some of the evidence identified by both parties in their proffers might be admissible for 

other purposes, it will not be admitted to establish the meaning of the terms of the agreement. 

Thus, the Court ORDERS: 

 (1) The evidence identified in Diablo’s Proffer is not admissible for the purpose of 

establishing the meaning of the terms of the Supply Agreement; 

 (2) in the absence of a further proffer and leave of Court, neither party may offer extrinsic 

evidence as to the meaning or proper interpretation of the Supply Agreement; and 

 (3) Diablo’s Motion in Limine No. 2 is DENIED AS MOOT.

IT IS SO ORDERED. 

Dated: March 10, 2015 

______________________________________ 

HON. YVONNE GONZALEZ ROGERS

UNITED STATES DISTRICT JUDGE

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