Opinion ID: 153734
Heading Depth: 2
Heading Rank: 1

Heading: The Ambiguity of the License Agreement

Text: 12 Both parties initially argue that the License Agreement is unambiguous, and that the clear language of the Agreement supports their respective interpretations. In considering the Agreement, we keep in mind that patent license agreements are to be construed according to the general principles of contract interpretation and construction. Cardinal of Adrian, Inc. v. Amerock Corp., No. 76-70868, 209 U.S.P.Q. (BNA) 724, 729, 1980 WL 30270 (E.D.Mich. Sept. 8, 1980) (citing 4 Anthony Will Deller, Deller's Walker on Patents, § 421 (1965)), aff'd, 698 F.2d 1218 (6th Cir.1982). 2 However, inasmuch as the License Agreement involves an invention described in a United States patent, the court also will look to federal decisions interpreting similar license agreements for guidance. See MGA, Inc. v. LaSalle Machine Tool, Inc., 148 Mich.App. 350, 384 N.W.2d 159, 161 (1986). Because the determination of whether a contract provision is ambiguous is a question of law, Teton Exploration Drilling, Inc. v. Bokum Resources Corp., 818 F.2d 1521, 1526 (10th Cir.1987), we review the district court's determination the contract was ambiguous de novo. 13 Under Michigan law, an agreement is considered ambiguous when its language is susceptible to more than one reasonable interpretation. See SSC Assocs. Ltd. Partnership v. General Retirement Sys. of Detroit, 192 Mich.App. 360, 480 N.W.2d 275, 277 (1991); Auto Owners Ins. Co. v. Zimmerman, 162 Mich.App. 459, 412 N.W.2d 925, 927 (1987). If an agreement is ambiguous, extrinsic evidence to aid in interpretation or construction of the agreement is admissible. In re Woodcock, 45 F.3d 363, 366 (10th Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 97, 133 L.Ed.2d 52 (1995). 14 Webb argues that the License Agreement unambiguously grants Mid-West only a license for the United States '570 patent--not a license to use the invention in countries covered by any of Webb's foreign patents. Webb relies on language in the first recital clause of the License Agreement stating that WEBB is the owner of United States Patent No. 4,616,570 hereinafter referred to as the Licensed Patent. Furthermore, the Agreement neither refers to nor identifies any foreign rights or patents. Finally, the License Agreement refers to the Licensed Patent eleven times throughout its text. 3 Therefore, under Webb's interpretation, because the parties did not explicitly contract for a worldwide license, any corresponding patents Webb holds in foreign countries prohibit Mid-West from using the wide dog technology there. 15 Mid-West similarly seizes particular language in the License Agreement to support its argument that the Agreement unambiguously grants it a worldwide license to make, use or sell the technology patented under the '570 patent. First, Mid-West argues that the Agreement contains no express territorial restrictions limiting where Mid-West can make, use or sell the wide dog technology. Second, Mid-West argues that the Agreement's reference to the U.S. patent is only to describe the technology being licensed--not the particular patent being licensed. Specifically, the Agreement's grant clause provides that Webb is licensing to Mid-West a license to manufacture, use and sell, or have manufactured for use and sale by MID-WEST, power and free conveyor systems incorporating any invention disclosed and claimed in the Licensed Patent, any such conveyor system being hereinafter referred to as a Licensed System. License Agreement p 2 (emphasis added). Consistent with this clause, the second recital clause provides that MID-WEST desires a nonexclusive license to practice the inventions disclosed and claimed in the Licensed Patent and WEBB is willing to grant such a license to MID-WEST. (emphasis added.) 16 Federal case law interpreting similar language in other license agreements is sparse, and provides minimal guidance to us in resolving any ambiguity. Webb relies on Cold Metal Process Co. v. United Engineering & Foundry Co., 235 F.2d 224 (3d Cir.1956). There, a 1927 contract granted United the right to make, use and sell rolling mills under Cold Metal's U.S. Patent. Id. at 229. The court held that: 17 in the absence of any express provision to the contrary, the right thus granted by the contract must be construed to have had the same territorial limitation in its scope as in the case of a patent, that is, the right did not extend beyond the territorial limits of the United States. 18 Id. In reaching this holding, the court cited no authority other than a reference to a United States statute, 35 U.S.C. § 154, which provides: 19 Every patent shall grant [the patent owner] for the term of seventeen years the right to exclude others from making, using, or selling the invention throughout the United States. 20 Mid-West relies on Kabushiki Kaisha Hattori Seiko v. Refac Tech. Dev. Corp., 690 F.Supp. 1339 (S.D.N.Y.1988). There, the license agreement granted Hattori a license to make, have made, use, have used, sell and have sold products coming within the scope of U.S. Patent Nos. 3,855,783. Id. at 1341 (emphasis added). 4 The court first noted that the language of the granting paragraph include[d] no terms of geographical restriction limiting to the United States Hattori's right to sell. Id. at 1342. The court then decided that the agreement unambiguously granted Hattori a right to sell the patented inventions that was geographically unrestricted, rejecting Refac's argument that United States patents protect the right only to make, use or sell products within the United States. Id. at 1343. The court rested its decision on the definition of scope of a patent: 21 A patent's scope, as is well established in patent law, refers not to the geographical area within which the patent provides protection, but to the nature of the products covered by the patent's claims. The term scope of a patent has been defined as follows: 22 The boundaries or limits of the invention protected by the patent, which are not matters of metes and bounds and can never be defined in the definite sense employed in thinking of physical things, but must be determined by methods based upon established principles of patent law. 23 Id. (citing Black's Law Dictionary (5th ed. 1979) (emphasis added in opinion)). The court concluded that Refac has pointed to nothing within the confines of the Agreement to warrant hesitation in concluding that the phrase 'within the scope of U.S. Patent,' as used in the Agreement, carries its usual meaning. Therefore, that phrase does not geographically limit the license granted. Id. (omission in original). 5 24 Considering the language of the License Agreement, we believe that the Agreement is ambiguous as it could be interpreted to support either party's interpretation. Its references to a specific U.S. patent supports Webb's argument that it only grants a license to use the patent's technology in the United States. 6 However, the lack of any territorial restriction and the Agreement's granting language that the license covers the inventions disclosed and claimed in the Licensed Patent supports Mid-West's argument that the Agreement grants Mid-West a license to use the wide dog technology anywhere in the world with the reference to the United States patent only to describe the technology being licensed. Furthermore, we do not believe that the two decisions cited by the parties clear up the ambiguity. Cold Metal involved a license agreement granted expressly under a United States patent; there, the subject matter of the license agreement clearly was the United States patent itself, not the technology described in the patent. And although the language of the agreement in Kabushiki--which licensed products coming within the scope of a United States patent--seems similar to the language in the present Agreement licensing the inventions disclosed and claimed in a United States Patent, the License Agreement's numerous references to the Licensed Patent adds ambiguity to the present License Agreement and distinguishes this case from Kabushiki. Therefore, because we believe the License Agreement fairly could support both Webb's and Mid-West's interpretations, we will look to the evidence in the record and determine whether the district court's determination of the parties' intentions regarding the license's geographic scope at the time the Agreement was drafted was clearly erroneous.