Opinion ID: 719608
Heading Depth: 3
Heading Rank: 1

Heading: The Evidence of a Contract for Reasonable Royalties

Text: 130 Brine argues that summary judgment was appropriate because Rule's testimony showed that there was an agreement for Brine to pay Rule only the fixed monthly payments that Brine made over the years (Defendants' brief on appeal at 1), and that the only evidence supporting plaintiff's claim for additional 'reasonable royalties' was his testimony that he subjectively understood the word 'royalty' to require the payment of something more than fixed monthly compensation--a subjective understanding which he admitted he never conveyed to the defendants (id. at 2). These contentions, which were accepted by the district court (see, e.g., Tr. 206 (Unfortunately, Mr. Rule[ ] had more thoughts about what he was doing than he was expressing ... to the Brines or Brine was expressing to him ....)), simply do not take the record in the light most favorable to Rule, for Rule repeatedly testified, both in deposition and at the summary judgment hearing, that William Brine told him that Brine would pay him fair or equitable royalties. 131 For example, Rule testified at the summary judgment hearing that at his first meeting with the Brines, William Brine, when suggesting monthly payments, 132 said, we'll pay you a fair royalty, we'll keep track of it and you'll get a fair royalty amount or reasonable or equitable, whatever word was used then to describe the royalty amount that I would receive. 133 (Tr. 15 (emphases added).) Describing that meeting in his deposition, Rule similarly had testified that 134 Bill Brine said to me that because they could not keep track of the inventory exactly, that they would pay me reasonable royalties for anything that I or that they produced. 135 (Tr. 121 (emphases added).) 136 At the hearing, Rule testified that in a subsequent meeting with the Brines, when he expressed concern over the patent-assignment agreements' provision that he was to be paid a dollar plus good and valuable consideration, 137 Bill Brine said, we promised you a fair royalty, you will get a fair royalty amount on this. 138 (Tr. 20 (emphasis added).) This paralleled his deposition description of Brine's response to that concern: 139 Bill Brine ... said, ... we are going to give you what we said in the first meeting, which was reasonable royalties. 140 (Tr. 122 (emphasis added).) 141 When asked in his deposition whether the precise phrase reasonable royalty had been used, Rule responded that the word royalties had been used, but that he wouldn't say 'reasonable.'  Defendants rely heavily on the nonuse of the exact word reasonable (see, e.g., Tr. 74 (Q. Mr. Rule, it's correct they never used the words 'reasonable royalties' with you, is this correct?); Tr. 75 (Q. Yes or no, they did not use the word 'reasonable'?)). However, Rule pointed out in his deposition that more than a decade had passed since the conversations at issue, that he could not remember the exact words spoken, and that he was paraphrasing. At the hearing, Rule testified that if William Brine did not use the precise word reasonable, he used 142 a word similar to that. I'm not a tape recorder that I recall the exact words of a conversation that took place 16 years ago, but I certainly remember there was a word fair, there was a word equitable, a word in there that indicated to me that I would get a fair royalty, whatever that may be. 143 (Tr. 74 (emphases added).) A rational jury could well infer that Brine had promised fair and equitable royalties and that this meant, and was reasonably understood by Rule to mean, reasonable royalties. 144 The district court's findings that the only 'royalties' ever expressly discussed by the parties were the fixed monthly payments, and that there [wa]s no evidence of any agreement to pay the plaintiff a 'royalty' in addition to the fixed monthly compensation he received, either overlooked or discredited Rule's testimony, inter alia, that William Brine said that Brine would be able to figure out later on what a royalty would be, and we'll pay you a fair royalty, we'll keep track of it and you'll get a fair royalty amount. A jury crediting that testimony could well find that William Brine's statement that Brine would keep track of it and pay Rule a fair royalty amount meant, and was reasonably understood by Rule to mean, that the uniform monthly sums would constitute an advance on royalties rather than his entire royalty entitlement. Though Rule also answered negatively the court's questions as to whether defendants told him that they would set up a royalty account for him or keep a record of sales for the royalties, the jury could conclude that negative responses to those precisely focused questions are not irreconcilably inconsistent with Brine's having made a statement that it would keep track sufficiently to figure out later what would be a fair royalty and pay Rule accordingly. 145 Further, though the court inferred that the parties agreed that Rule would be entitled to receive only the fixed monthly sums that Brine actually sent him, a rational jury could infer that Brine's repeated assurances that the monthly sums it sent Rule were fair (see, e.g., Tr. 130 (THE COURT: The $200 figure, didn't they tell you that was a fair royalty? THE WITNESS: Yes, at that time they did, yes.); Tr. 48 (as to the $675 figure, Peter said the sales are okay, you are getting what you deserve, you are getting what is fair)) constituted acknowledgement by Brine that, under the parties' agreement, the payment of fair royalties was required. The jury could also infer that Rule's innocent assumptions that Brine's representations were truthful did not constitute a modification of the contract. 146 Finally, we note that the district court also found that Brine owed Rule nothing for the period after 1990 because the agreement between Rule and Brine was terminable at will. We cannot uphold this ruling for two reasons. First, it assumes that there was an agreement other than the patent-assignment agreement, a proposition that the jury is free to reject. Second, it depends on the view that Rule's status was that of a Brine employee, for while an employment contract that lacks an express duration creates a relationship that is terminable at will, see Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 333, 514 N.Y.S.2d 209, 211, 506 N.E.2d 919 (1987), that principle is not generally applicable outside the realm of employment. In other contexts, [i]n the absence of an express term fixing the duration of a contract, the courts may inquire into the intent of the parties and supply the missing term if a duration may be fairly and reasonably fixed by the surrounding circumstances and the parties' intent, Haines v. City of New York, 41 N.Y.2d 769, 772, 396 N.Y.S.2d 155, 157, 364 N.E.2d 820 (1977). In the patent context, for example, if a contract for royalties does not expressly define the period during which royalty payments are required, the implied period may last for the life of the patent. See Sproull v. Pratt & Whitney Co., 108 F. 963, 964-65 (2d Cir.1901); cf. 6 Ernest B. Lipscomb III, Walker on Patents § 20:45 (3d ed. 1987) (Apart from any express provision in the license agreement, if the licensee exercises the rights granted him under the license, he is liable during continuance of the license for the stipulated royalty.). The jury could easily infer that Rule was not Brine's employee, from, inter alia, the evidence (a) that he was a full-time employee of the New York schools at which he coached lacrosse; (b) that Brine never furnished Rule with Form W-2's, which the law requires an employer to give to its employees and which Brine did furnish to its employees; and (c) that Brine's records described its payments to Rule not as salary but as royalties. The jury could well infer that Rule, who had had no contact with Brine or the Brines prior to his first invention, did not assign his patent rights to Brine with the understanding that Brine could stop paying him whenever it wished. 147 In sum, in light of the passages of Rule's testimony quoted above, the court's inference that the parties agreed that Rule would be entitled to receive only the fixed monthly payments that Brine made is hardly the only inference that is permissible. To be sure, there was also evidence--perhaps as much or more--to support that inference. But the decisions as to how to weigh the evidence, what testimony to believe, and which of competing inferences to draw are to be made by the jury after trial. The jury, of course, is free to view the evidence in the light least favorable to Rule. The court, on Brine's summary judgment motion, was not. Taking the evidence in the light most favorable to Rule, the jury could permissibly find that the parties agreed that, in exchange for Rule's assignments to Brine, Brine would pay Rule reasonable royalties and that there was no agreement that the monthly sums that Brine sent constituted the fair and equitable amounts that Brine had promised to pay.