* Concurring in the judgment only.



### IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 11-41408

TEKELEC, INC., Plaintiff - Appellee

v. VERINT SYSTEMS, INC., Defendant - Appellant

Appeal from the United States District Court for the Eastern District of Texas

Before HIGGINBOTHAM, ELROD, and HAYNES, * Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: This appeal arises out ofa contract dispute between Verint Systems, Inc. (“Verint”) and Tekelec, Inc. (“Tekelec”). The district court awarded summary judgment to Tekelec and denied Verint’s cross-motion for summary judgment. We affirm. United States Court of Appeals Fifth Circuit 

### F I L E D February 13, 2013 Lyle W. Cayce ClerkNo. 11-41408

1 See Appendix, No. 1. 2 I. The facts of this case begin with a patent dispute between two corporate entities not direc

tly involved in this appeal, Blue Pumpkin Software, L.L.C. (“Blue Pumpkin”), and IEX Corporation (“IEX”). In 2001, IEX—which was, at the time, a wholly owned subsidiary ofTekelec—filed suit against Blue Pumpkin for allegedly infringing U.S. Patent No. 6,044,355 (the “‘355 Patent”). In 2005, Blue Pumpkin commenced its own infringement action against IEX. In April 2006, Blue Pumpkin and IEX executed the Blue Pumpkin/IEX Settlement & Cross-License Agreement (“Blue Pumpkin/IEX Agreement”) to resolve their ongoing patent dispute. 1 Under Section 2 of the Agreement, entitled “Settlement and Dismissal of Litigations,” Blue Pumpkin and IEX agreed to settle the two pending infringement actions between them. The only condition to settlement
was Blue Pumpkin’s payment ofan $8,250,000 lump sum fee, on or before April 7, 2006. Under Section 6.1.2, which creates the right to payment that Tekelec seeks to enforce in this appeal, Blue Pumpkin agreed that beginning on April 1, 2007, it would make six annual payments of $500,000 to IEX (the “Section 6.1.2 Payments”). The Payments are listed under the heading “License Fee/Balancing Payment.” No provision of the Blue Pumpkin/IEX Agreement makes the settlement set forth in Section 2 contingent on Blue Pumpkin’s timely tender of the Section 6.1.2 Payments. Finally, under Section 4.3, IEX granted Blue Pumpkin an “irrevocable, perpetual” license in its‘355 Patent. However, under Section 4.3.5, IEX reserved the right to terminate the license “upon Blue Pumpkin’s failure to make any of the payments set forth in Section 5.1.2" (the “Termination Provision”). As there is no Section 5.1.2 in the Agreement, and as Section 5 contains no reference toNo. 11-41408

2 See Appendix, No. 2. 3 payments, the parties presumably intended the Termination Provision to refer to the aforementioned Section 6.1.2 Payments. In accordance with the terms of the Blue Pumpkin/IEX Agreement, Blue Pumpkin timely paid IEX the initial settlement fee of$8,250,000, and pursuant to Section 2 ofthe Agreement, the parties dismissed their infringement actions with prejudice. Shortly after Blue Pumpkin and IEX executed the Agreement, Tekelec sold IEX to NICE Systems, Inc. (“NICE”)—an entity not party to this appeal—in a stock purchase agreement. However, under the separate Assignment of Royalty Rights Agreement (“Royalty Assignment Agreement”), executed at the same time NICE finalized its acquisition of IEX, IEX assigned its right to the six Section 6.1.2 Payments to Tekelec. 2 In the instrument of assignment, IEX al so promised that it “would not terminate the [Blue Pumpkin/IEX Agreement] without [Tekelec’s] written permission,” and that it would “provide reasonable assistance to [Tekelec] to facilitate the resolution of any failure of Blue Pumpkin” to timely make any of the six Section 6.1.2 Payments due under the Blue Pumpkin/IEX Agreement. At some point after IEX assigned its right to the Section 6.1.2 Payments to Tekelec but before the first payment came due, Witness Systems, Inc.—also not a party tothisappeal—assumed all ofBlue Pumpkin’s rights and obligations under the Blue Pumpkin/IEX Agreement, including the license in IEX’s ‘355 Patent as well as the obligation to make the six Section 6.1.2 Payments to Tekelec. In accordance with its obligations, Witness timely made the first $500 ,000 payment to Tekelec on April 1, 2007. In May 2007, Verint, the appellant in this case, acquired Witness, assuming all of its rights andNo. 11-41408

3 See Appendix, No. 3.

4 See Appendix, No. 4. 4 obligations under the Blue Pumpkin/IEX Agreement. 3 On April 1, 2008, Verint timely made the second $500,000 payment to Tekelec. At this time, Verint was embroiled in its own patent dispute with NICE, involving five separate infringement actions and dozens of patents. In August 2008, Verint and NICE entered into the Verint/NICE Settlement Agreement and Covenant Not toSue (“Verint/NICE Settlement”) to resolve their ongoing patent disputes on a global, portfolio-wide basis. 4 Both parties recited that they were entering intothe Settlement to“compromise, settle, discharge, and resolve, fully and finally,” all claims for patent infringement then pending or assertable between them. In furtherance ofthis objective, NICE agreed, both on behalf of itself and its subsidiaries, not to initiate or prosecute any infringement actions against Verint on any and all patents then held by NICE or its subsidiaries (the “Covenant N ot to Sue”). The Covenant Not to Sue would begin on August 1, 2008 and terminate on a patent-specific basis, as set f orth in the Settlement. Moreover, NICE agreed, both on behalf of itself and its subsidiaries, that “any royalties or other patent damages that may have otherwise accrued” against Verint during the pendency of the Covenant Not to Sue on any and all patents held by NICE or its subsidiaries “shall not accrue as to [Verint]” (the “NonAccrual Clause”). Verint made mirror-image promises to NICE. On April 1, 2009—eight monthsafter the effectivedateoftheVerint/NICE Settlement—Verint timely made the third $500,000 Section 6.1.2 payment to Tekelec. However, after that date, Verint made no further payments, claiming that the Non-Accrual Clause in the Verint/NICE Settlement extinguished its obligations toTekelec. Tekelec sued Verint for breach in the Eastern District ofNo. 11-41408

5 Jenkins v. Cleco Power, LLC, 487 F.3d 309, 313 (5th Cir. 2007).

6 SeeWestlake Petrochems., L.L.C. v. United Polychem, Inc., 688 F.3d 232, 238–39 (5th Cir. 2012) (citing Martin v. Martin, 326 S.W.3d 741, 747 (Tex. App. 2010)). Texas law governs the enforceability and interpretation of the Blue Pumpkin/IEX Agreement, for two independently sufficient reasons. First, “[w]e apply Texas law to the enforcement of settlement agreements in Texas diversity cases.” SeeCavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 266 (5th Cir. 2005). Second, the Agreement designates Texas law as controlling. We give effect to such a choice-of-law provision unless a party can show that it is “unreasonable under the circumstances.” Ginter ex. rel. Ballard v. Bletcher, Prendergast & Laporte , 536 F.3d 439, 449 (5th Cir. 2008). 5 Texas. In its answer, Verint counterclaimed to recover the April 1, 2009 payment, which it alleged it had made in error. The district court awarded summary judgment to Tekelec, denied Verint’s cross-motion for summary judgment, and ordered Verint to pay up. Verint appeals.

II. Verint claims that Tekelec lacks constitutional standing to enforce its right to the remaining three Section 6.1.2 Payments, offering three related theories
as to why it is not party to an enforceable agreement with Tekelec. Though couched in terms ofArticle III, Verint’s theories of non-liability really go to the merits of whether an enforceable agreement exists, and we address them as such. Because this case is before us on the parties’ cross motions for summary judgment, we review de novo, asking whether the evidence leaves no genuine issue as to any material fact and shows that Tekelec is entitled tojudgment as a matter of law. 5 The enforceability of a contract is a legal question that is proper subject matter for summary judgment. 6 Verint first argues that IEX assigned to Tekelec only the “limited and discrete right toreceive” theSection 6.1.2 Payments, not the power toenforcethe Payments as against Blue Pumpkin or its assigns. But under Texas law, a promise to pay becomes binding if it meets certain formation requirements Verint does not challenge here; there is no additional requirement that theNo. 11-41408

7 Seegenerally 49 D AVID R. D OW & C RAIG SMYSER, T EXAS PRACTICE SERIES: CONTRACT L AW § 1 (West 2012) (surveying the requirements for contract formation).

8 See, e.g., Thweattv. Jackson, 838 S.W.2d 725, 728 (Tex. App. 1992) (“[I]t is axiomatic that an assignee . . . stands in the shoes of the assignor and obtains the rights, title, and interest that the assignor had at the time ofthe assignment. Moreover, the assignee of a debt ordinarily obtains all remedies which were available to the assignor against the debtor for the enforcement of the obligation.”).

9 Thweatt, 838 S.W.2d at 728.

10 Bif ano v. Young, 665 S.W.2d 536, 539 (Tex. App. 1984) (emphasis in original) (citations omitted); see al so McCarty v. Montgomery, 290 S.W.3d 525, 534 (Tex. App. 2009) (holding that in order for a termination provision to be construed as the exclusive remedy, it must contain either language making termination the“sole” or “exclusive” remedy, or language expressly limiting remedies to a discrete number of choices). 6 promise be accompanied by an express grant of enforcement authority, either when first made to the promisee, 7 or when assigned by the promisee to a third party. 8 As IEX validly assigned its right to the Section 6.1.2 Payments to Tekelec, and as Tekelec thereby “stepp[ed] into [IEX’s] shoes” with respect to Blue Pumpkin’s promise tomake the Payments, 9Tekelechasthe right toenforce the Payments against Blue Pumpkin’s successor Verint. Verint next suggests that IEX itself did not have the right to enforce the Section 6.1.2 Payments, and that Tekelec, as assignee, can have no greater rights than IEX. Verint apparently reasons that because the Termination Provision in the Blue Pumpkin/IEX Agreement gave IEX the right to terminate Verint’s license in the ‘355 Patent ifBlue Pumpkin or its assigns failed to timely tender the Section 6.1.2 Payments, the Termination Provision was necessarily IEX’s exclusive remedy for nonpayment. But as Tekelec points out in its brief, this argument “misses the obvious additional enforcement right inherent with any contract: the right to sue for breach.” Under Texas contract law, “[a] construction which renders [a] specified remedy exclusive should not be made unless the intent of the parties that it be exclusive is clearly indicated or declared.” 10 In this case, there is no language in the Blue Pumpkin/IEXNo. 11-41408

11 See, e.g., Nat’l Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (“[W]e must give [a contract’s] wordstheir plain meaning, without inserting additional provisionsinto the contract.”). Though the Agreement does give IEX the right to terminate the license in the ‘355 Patent if B lue Pumpkin or its assigns fail to timely make the Section 6.1.2 Payments, nothing in the Agreement gives IEX a unilateral right to terminate. 7 Agreement that suggests—let alone “clearly indicate[s]” —that theTermination Provision was toserve as IEX’s exclusive remedy for nonpayment. IEX retained the right to sue for nonpayment, and Tekelec succeeded to that right by virtue of the assignment. Finally, Verint claims that “IEX retained the right to terminate the [Blue Pumpkin/IEX Agreement],” and that “it would be entirely inconsistent to allow Tekelec to sue for the non-payment of royalties that IEX was entitled to extinguish.” Verint points to no specific provision in the Blue Pumpkin/IEX Agreement that gives IEX the unilateral right to terminate the Agreement; rather, it argues that under the separate Royalty Assignment Agreement between IEX and Tekelec, IEX promised that it would not terminate the Blue Pumpkin/I EX Agreement. Verint reasons that unless IEX had a unilateral termination right, “there would have been no reason for Tekelec and IEX to include the non-termination covenant in the Royalty Assignment Agreement.” Verint’s argument is flawed, for three reasons. First, the Royalty Assignment Agreement is extrinsic evidence that cannot be used to prove that IEX has a unilateral termination right never mentioned in the Blue Pumpkin/IEX Agreement. 11 Second, the non-termination provision in the Royalty Assignment Agreement is not rendered superfluous if IEX lacks an affirmative termination right, as the provision still protects Tekelec from the risk that IEX could terminate the Agreement without an affirmative right to do
so (which might excuse Blue Pumpkin or its assigns from making the Section 6.1.2 Payments to Tekelec). Third, even assuming that IEX does have the unilateral right to extinguish the Section 6.1.2 Payments, that right is notNo. 11-41408

1 2 Boudreaux v. Unionmutual Stock Life Ins. Co. of Am., 835 F.2d 121, 123 (5th Cir. 1988).

13 Transource Int’l, Inc. v. Trinity Indus., Inc., 725 F.2d 274, 289 (5th Cir. 1984).

14 Verint’s construction of the Settlement on this point is correct, but requires a close reading of the contract. The Non-Accrual Clause extinguishes all “royalties or patent damages” that “would haveotherwiseaccrued against Verint [during the term ofthe Covenant Not to Sue] with respect to the NICE Patents [and] the Non-Asserted Nice Patents.” Section 3.4 defines “Non-Asserted NICE Patents” to include “any patent . . . owned or controlled by VERINT or a Subsidiary,” and Section 5.1 specifies that the Covenant Not to Sue commences on August 1, 2008. Section 3.1 defines the term “Subsidiary” in a manner that includes IEX, a wholly-owned subsidiary of NICE. IEX owns the ‘355 Patent. 8 “inconsistent” with Tekelec’s right to enforce the Payments against Verint unless IEX actually extinguished the Payments

—the central issue disputed in this
case. So long as IEX has not extinguished the Payments, Verint’s obligation to make the Payments remains, as does Tekelec’s right to sue for nonpayment.

III. Having determined that Tekelec has the power to enforce the Blue Pumpkin/IEX Agreement against Verint, we turn to Verint’s claim that the subsequent Verint/NICE Settlement extinguished its obligation to make the disputed Section 6.1.2 Payments. We again apply the same summary judgment standard as the district court. The interpretation ofan unambiguous contract is
a legal question that can be properly decided on summaryjudgment. 12 However, if a contract’s terms are ambiguous, summary judgment is generally inappropriate. 13 Verint’s argument is relatively simple: Under the Non-Accrual Clause of the Verint/NICE Settlement, NICE agreed, on behalf of IEX, to extinguish all “royalties or other patent damages that may have otherwise accrued” against Verint on IEX’s ‘355 Patent at any point after August 1, 2008 and throughout the pendency of the Covenant Not to Sue. 14 According to Verint, the parties to the Blue Pumpkin/IEX Agreement intended the Section 6.1.2 Payments toserveNo. 11-41408

15 AsVerint observes, theAgreement provides that the only condition to the settlement of past claims is Blue Pumpkin’s timely payment ofthe initial $8,250,000 lump sum; nothing in the Agreement makes the settlement contingent on Blue Pumpkin’s tender of the Section 6.1.2 Payments. Moreover the Agreement ties the Section 6.1.2 Payments to Blue Pumpkin’s (nowVerint’s) license in IEX’s ‘355 Patent by giving IEX the right to terminate the license if Blue Pumpkin (nowVerint) fails to timely make any of the Section 6.1.2 Payments. Finally, the Agreement sets forth the Payments under the heading “License Fee/Balancing Payment.” 9 as “royalties” for Blue Pumpkin’s (and eventually Verint’s) license in IEX’s ‘355 Patent. Consequently, Verint reasons, because the last four Section 6.1.2 payments “accrued” after August 1, 2008, NICE has, on behalf of IEX, extinguished Verint’s obligation to make those payments. Tekelec disagrees, urging that the parties to the Blue Pumpkin/IEX Agreement did not intend the Section 6.1.2 Payments to serve as “royalties” for the ‘355 Patent, but merely as a deferred component ofthe price Blue Pumpkin paid tosettle IEX’s claimsfor past infringement. According to Tekelec, “Verint’s argument that the up-front $8.25 million constituted the consideration for the settlement and release, and that the [Section 6.1.2 Payments] were tied only to the continuing license tothe [‘355 Patent], has no basis or support from the plain language of the [A]greement.” Perhaps Verint is correct that the parties to the Blue Pumpkin/IEX Agreement intended the Section 6.1.2. Payments to serve as fees for the license in IEX’s ‘355 Patent, 1 5 but this argument misses the point. The principal question presented by this appeal is not whether the Payments serve as “ro yalties” in some abstract, economic sense, but whether they fall within the scopeofthe “royaltiesor other patent damages” extinguished by the Non-Accrual Clause in the subsequent Verint/NICE Settlement. We think they do not.No. 11-41408

16 See, e.g., United States Fid. and Guar. Co. v. Goudeau, 272 S.W.3d 603, 606 (Tex. 2008) (“Under the traditional canon of construction noscitur a sociis (‘a word is known by the company it keeps’), each of the words used [in the insurance contract at issue] here must be construed in context.”); seealso 11 R ICHARD A. L ORD, WILLISTON ON CONTRACTS § 32:6 (4th ed. 1999 & Supp. 2009) (“The context and subjec t matter of a contract may indicate that an ordinary word or phrase has an unusual meaning in a given sentence.

. . . The ancient maxim noscitur a sociissummarizes the rule ofboth language and lawthat the meaningsofparticular words may be indicated or controlled by associated words.”).

17 E.g., Cherokee Water Co. v. Freeman, 33 S.W.3d 349, 355 (Tex. App. 2000) (“Where the words used have a technical or legal meaning and there is nothing in the deed, when construed as a whole, to show that any other meaning was intended, they will be given their legal meaning.”); seealso L ORD, supra note 16, at § 32:4 (“Technical terms or words ofart will be given their technical meaning [unless] the circumstances or context show that the parties intended a [different] meaning.”).

18 Under § 284, courts are empowered to award a patent holder “damages adequate to compensate for [an] infringement, but in no event less than a reasonable royalty for the use made ofthe invention by the infringer, together with interests and costs as fixed by the court.” See 35 U.S.C. § 284. “Reasonable royalty” awards under § 284 are distinguishable from contractual royalty arrangements, both practically and conceptually. As a practical matter, § 284 awards are court-mandated, not bargained for. As a conceptual matter, courts have acknowledged that “[t]he setting ofa reasonable royalty after infringement cannot be treated

. . . as the equivalent ofordinary royalty negotiations among truly ‘willing’ patent owners and licensees,” as “[t]hat view would . . . make an election to infringe a handy means for competitors to impose a ‘compulsory license’ policy upon every patent owner.” See Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1158 (6th Cir. 1978). 10 Under Texas law, the words of a contract must be read in context, 16 and technical or legal terms of art must be given their technical or legal meaning. 17 Here, the Non-Accrual Clause extinguishes “royalties or other patent damages that may have otherwise accrued” against Verint on all patents held by NICE and its subsidiaries during the pendency of the Covenant Not to Sue. We read the qualifying phrase “or other patent damages” to indicate that the term “royalties” refers not to Verint’s contractually bargained-for payment obligations under Section 6.1.2 of the Blue Pumpkin/IEX Agreement, but to the courtordered “reasonable royalties” that serve as the generally accepted measure of patent damages under 35 U.S.C. § 284. 1 8 Our reading is bolstered by the immediately succeeding phrase “that may have otherwise accrued,” which reinforces the conc

lusion that the phrase “royalties or other patent damages”No. 11-41408

19 See College Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 148 F.3d 1343, 1354 (Fed. Cir. 1998) (“[U]nder the federal patent law, damages begin to accrue at the time that the alleged infringer receives notice of infringement, either through a marked product or directly from the patentee.”).

20 See 12 R ICHARD A. L ORD, WILLISTON ON CONTRACTS § 36:16 (4th ed. 1999 & Supp. 2009) (“A covenant not to sue for a limited time does not suspend or affect in any other way the covenantor’s right to sue, [and] the covenantee’s only remedy is by an action for damages for breach ofthe covenant.”); CoreLabs., Inc. v. Hayward-WolffResearch Corp., 136A.2d 553, 571 (Del. 1958) (holding that the effect of a covenant not to sue for a limited period of time was merely “to postpone [the patent holder’s] claim against [the defendant] for infringement” until the covenant expired); seealso Samsung Elecs. Co., Ltd. v. Rambus, Inc., 440 F. Supp. 2d 495, 504 (E.D. Va. 2006) (“If [the patent-holder] breached the covenant not to sue by asserting an infringement claim . . . , its suit would not fail for lack ofjurisdiction. Whether the covenant not to sue could be pleaded as an affirmative defense, i n addition to forming the basis for a breach of contract action, would have to be litigated.”); cf. Robert H. Mnookin et al., “HardBargaining” and “Over-Lawye ring”: Common Pitfalls in Constructing a Deal , 18 A L TERNATIVES TO H IGH COST L ITIG

. 171 (2000) (observing that transactional attorneys often “waste the client’s time and money by focusing on small or unlikely risks that do notjustify contractual planning.”). 11 refers not to the fixed Section 6.1.2 Payments, but to the potential patent damages a court might find accrued against Verint on patents held by NICE or its subsidiaries during the pendency of the Covenant Not to Sue. 1 9 In the absenc e of the Non-Accrual Clause, NICE could conceivably recover such accrued damages by breaching the Covenant or suing after the Covenant expired. 20 Even if we were presented with the question of how to characterize the Section 6.1.2 Payments in the abstract, the Payments do not present in the most
common form of “royalty.” We can assume without deciding that the parties to the Blue Pumpkin/IEX Agreement intended the Payments to serve as fees for the license in IEX’s ‘355 Patent. But a “royalty” is generally defined as a payment that fluctuates with the licensee’s actual usage of the licensor’s intellectual property, such as a payment based on the number of patentedNo. 11-41408

21 See, e.g., B LACK ’S L AW D ICTIONARY 1356 (8th ed. 2004) (defining “royalty” as “a payment made to an
. . . inventor for each copy ofa work or article sold under a
. . . patent.”); MERRIAM WEBSTER’S COLLEGIATE D ICTIONARY 1021 (10th ed. 1996) (defining “royalty” as “a payment made to an author or composer for each copy ofa work sold or to an inventor for each article sold under a patent.”); A MERICAN H ERITAGE COLLEGE D ICTIONARY 1190 (3d ed. 1993) (defining “royalty” as (i) “a share of the profit paid to a writer or composer out ofthe proceeds resulting from the sale or performance of his or her work” or (ii) “a share in the proceeds paid to an inventor or a proprietor for the right to use his or her invention or services.”).

22 Seegenerally Morton I. Kamien & Yair Tauman, FeesVersus Royaltiesand thePrivate Value of a Patent, 101 Q. J. E CON . 471 (1986). 12 articles sold. 21 A fixed-fee licensing arrangement such as the one at issue here is conceptually distinct from a royalty. 22 Because we conclude that Verint’s fixed, contractual payment obligations under the Blue Pumpkin/IEX Agreement unambiguously fall outside of the scope ofthesubsequentVerint/NICE Settlement’s boilerplate Non-Accrual Clause, we need not consider Tekelec’s alternative argument that the disputed payments “accrued” prior to the August 1, 2008 effective date of the Verint/NICE Settlement.

IV. We AF FIRM the district court’s grant of summary judgment to Tekelec and denial of Verint’s cross-motion for summary judgment.Appendix — Chart of Relevant Parties and Agreements

13 Verint (Appellant) Tekelec (Appellee)

Blue Pumpkin NICE

IEX BP/IEX Agreement (4/6/06) V/N Settlement (8/1/08)

Verint assumes Blue Pumpkin’s rights and obligations under BP/IEX Agreement, incl. license in ‘355 Patent and obligation to make the five remaining Section 6.1.2 Pay ments (~5/07) IEX assigns its right to the six Section 6.1.2 Payments to Tekelec (7/6/06)

‘355 Patent IEX grants Blue Pumpkin a license in ‘355 Patent and Blue Pumpkin agrees to make the six Section 6.1.2 Pay ments NICE and Verint reach global settlement of their patent disputes and NICE agrees to

Non-Accrual Clause



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