Court Opinion

ID: 4447497
Source: CourtListenerOpinion
Date Created: 2019-10-17 15:01:38.271987+00
Date Added: 2024-06-11T14:44:59.601445
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

    FRAUNHOFER-GESELLSCHAFT ZUR
FÖRDERUNG DER ANGEWANDTEN FORSCHUNG
                   E.V.,
            Plaintiff-Appellant

                           v.

               SIRIUS XM RADIO INC.,
                  Defendant-Appellee
                ______________________

                      2018-2400
                ______________________

    Appeal from the United States District Court for the
District of Delaware in No. 1:17-cv-00184-JFB-SRF, Senior
Judge Joseph F. Bataillon.
                 ______________________

               Decided: October 17, 2019
                ______________________

    DAVID C. MCPHIE, Irell & Manella LLP, Newport
Beach, CA, argued for plaintiff-appellant. Also repre-
sented by BEN J. YORKS, ALEXIS PASCHEDAG FEDERICO,
KAMRAN VAKILI; ALAN J. FRIEDMAN, Shulman Hodges &
Bastian LLP, Irvine, CA.

   MARK BAGHDASSARIAN, Kramer Levin Naftalis &
Frankel LLP, New York, NY, argued for defendant-
2         FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

appellee.  Also represented by JONATHAN CAPLAN,
SHANNON H. HEDVAT; PAUL J. ANDRE, Menlo Park, CA.
               ______________________

     Before DYK, LINN, and TARANTO, Circuit Judges.
DYK, Circuit Judge.
    Fraunhofer-Gesellschaft zur Förderung der an-
gewandten Forschung E.V. (“Fraunhofer”) sued Sirius XM
Radio Inc. (“SXM”) alleging infringement of claims of four
of Fraunhofer’s patents. The district court granted SXM’s
motion to dismiss for failure to state a claim on the ground
that it had a valid license to the patents-in-suit. We con-
clude that this license defense cannot be resolved on a mo-
tion to dismiss. We vacate the judgment, and remand to
the district court for further proceedings. We also reverse
the district court’s denial of Fraunhofer’s motion for leave
to amend.
                       BACKGROUND
    Fraunhofer is a partially state-funded non-profit re-
search organization headquartered in Munich, Germany.
Over the past three decades, Fraunhofer has developed and
patented several inventions related to multicarrier modu-
lation. Multicarrier modulation is a method for transmit-
ting a main data stream over multiple carrier data
streams. The utilization of multiple carrier data streams
is useful in satellite-based communication networks, where
the signal quality for an individual data stream can vary
depending on the line of sight between the satellite and the
receiver.
    On March 4, 1998, Fraunhofer and a third party,
WorldSpace International Network Inc. (“WorldSpace”),
entered into an exclusive license agreement (“the Master
Agreement”) related to Fraunhofer’s multicarrier modula-
tion technology (“the MCM Intellectual Property Rights”).
The Master Agreement gave WorldSpace a “worldwide,
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.            3

exclusive, irrevocable license, with the right to sublicense,
under the MCM Intellectual Property Rights to make, have
made, use, have used, sell or have sold MCM Technology
(and products and services incorporating or utilizing the
MCM Technology) in connection with WorldSpace Busi-
ness.”    J.A. 483.    The Master Agreement required
WorldSpace to pay a $1 million license fee, payable in in-
stallments, to Fraunhofer (which was fully paid by Decem-
ber 31, 2000) and to make other payments relating to
future patent prosecution. Section 9.5 of the Master Agree-
ment states that “[t]his Agreement shall be subject to, gov-
erned by, and construed in accordance with” German law.
J.A. 488.
    In the late 1990s, SXM began developing its Digital Au-
dio Radio Services (“DARS”) System. 1 SXM sought to use
Fraunhofer’s MCM Technology in the DARS system. Be-
cause Fraunhofer had already granted an exclusive license
to WorldSpace, on July 24, 1998, SXM entered into a Sub-
license Agreement with WorldSpace. The Sublicense
Agreement granted SXM a license “to use the WorldSpace
Licensed Technology [including the MCM Intellectual
Property Rights] for the development, implementation and
commercialization of the [SXM DARS] System for trans-
mission in and over the geographic area of the United
States and its territories,” J.A. 187. On June 7, 1999, the
Sublicense Agreement was amended to make the license
“irrevocable.” J.A. 203.
    Thereafter, Fraunhofer assisted SXM in developing a
satellite communication system utilizing Fraunhofer’s
technology. On July 16, 1999, SXM and Fraunhofer en-
tered into a Technical Consulting Contract for “Fraunhofer
[to] contribute to the development of the [SXM] DARS

    1  References to SXM in this opinion include its pre-
decessor corporations, American Mobile Radio Corporation
and XM Satellite Radio Inc.
4          FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

system in the following areas: System Engineering; Re-
ceiver development; Test equipment development and pro-
duction; [and] multimedia adapter.” J.A. 847. The
Technical Consulting Contract also confirmed that Fraun-
hofer and SXM understood that the “patents related to
MCM technology are exclusively licensed to WorldSpace,”
and that SXM had agreed to obtain a license from
WorldSpace. J.A. 881. Pursuant to the Technical Consult-
ing Contract, Fraunhofer allegedly constructed for SXM
“the [SXM] DARS System . . . using the technologies [alleg-
edly] covered by the [patents that SXM is now accused of
infringing].” J.A. 1409.
    WorldSpace thereafter ran into financial difficulties.
On October 17, 2008, WorldSpace filed a voluntary petition
for relief under Chapter 11 of the Bankruptcy Code. On
June 12, 2012, WorldSpace’s bankruptcy case was con-
verted to Chapter 7. At the bankruptcy court, WorldSpace
rejected the Master Agreement pursuant to section
365(d)(1) of the Bankruptcy Code. 2

    2    Section 365(d)(1) provides that: “[i]n a case under
chapter 7 of [the Bankruptcy Code], if the trustee does not
assume or reject an executory contract . . . within 60 days
after the order for relief, or within such additional time as
the court, for cause, within such 60-day period, fixes, then
such contract . . . is deemed rejected.” 11 U.S.C. § 365(d)(1).
    It is unclear from the district court’s decision whether
WorldSpace had also rejected the Master Agreement in an
earlier agreement approved by the bankruptcy court. See
J.A. 5 (“A settlement agreement was approved between
WorldSpace, Fraunhofer, and [Yazmi] [a third party buyer]
and it rejected the MCM license.”); J.A. 1409 n.1 (“The
agreement stated: ‘In the event that Fraunhofer and Yazmi
[the buyer] have not entered into an agreement on the go-
ing forward business arrangements as provided for in the
agreement, the license agreement will be deemed rejected.’
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.            5

     Under the Supreme Court’s recent ruling in Mission
Products, WorldSpace’s rejection was equivalent to a
breach occurring “immediately before the date of the filing
of the [bankruptcy] petition.” Mission Prod. Holdings, Inc.
v. Tempnology, LLC, 139 S. Ct. 1652, 1658 (2019) (altera-
tions in original) (quoting 11 U.S.C. § 365(g)(1)). This
breach gave Fraunhofer the right to terminate the Master
Agreement. Fraunhofer did not at the time terminate the
agreement but did file an administrative claim for amounts
unpaid under the Master Agreement. Nor did WorldSpace
terminate the Sublicense Agreement. On July 13, 2009,
the bankruptcy court approved a Settlement Agreement
between WorldSpace and SXM that “provided that SXM
would pay WorldSpace $298,517 in satisfaction of all of its
obligations under the sublicense, and emphasized that the
sublicense would remain in effect.” J.A. 16 (citing J.A. 219,
§§ 1, 3). As a result of the Settlement Agreement no fur-
ther payments were due from SXM to WorldSpace under
the Sublicense Agreement, and there is no indication that
SXM was otherwise in breach of the Sublicense Agreement.
SXM continued to utilize the MCM technology.
    In October 2015, many years later, Fraunhofer sent a
letter to SXM alleging that SXM was infringing four of its
patents: U.S. Patent Nos. 6,314,289 (“the ’289 patent”),
6,931,084 (“the ’1084 patent”), 6,993,084 (“the ’3084 pa-
tent”), and 7,061,997 (“the ’997 patent”) (collectively, “the
patents-in-suit”). The ’289 patent describes a multi-an-
tenna system used to transmit and receive multicarrier
modulation signals. The ’1084 patent describes a method
used to correct phase shifts that are introduced by echoes
that occur during multi-carrier transmission. The ’3084
patent describes a method for inserting reference symbols
into each carrier data stream which are then used for

Fraunhofer and Yazmi never entered into an agreement re-
lating to the MCM License.” (alteration in original)).
6         FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

coarse synchronization of carrier signals. The ’997 patent
describes a method and apparatus for fine frequency syn-
chronization using phase shift keying. These four patents
were covered in the Master Agreement and Sublicense
Agreement.
    On November 13, 2015, Fraunhofer sent a letter to
WorldSpace (“Termination Letter”) claiming that the Mas-
ter Agreement “was terminated in the context of the rejec-
tion [in bankruptcy],” and “declar[ing] (in the alternative
and as a precautionary measure in case the [Master Agree-
ment] has remained yet unterminated) the [Master Agree-
ment] terminated for cause (auβerordentliche Kündigung)
under German law [and] . . . on the basis of the provisions
in Section 7.2 and 7.3 of the [Master Agreement].” J.A. 251.
    On February 22, 2017, Fraunhofer sued SXM for in-
fringement the ’289 patent, ’1084 patent, ’3084 patent, and
’997 patent in the United States District Court of Dela-
ware. SXM moved to dismiss the complaint. Fraunhofer
later sought to amend its complaint. The district court, ap-
plying United States law, dismissed Fraunhofer’s com-
plaint on the ground that Fraunhofer’s sublicense under
the Sublicense Agreement was a complete defense to in-
fringement and denied Fraunhofer’s motion to amend the
complaint on ground of futility.
    We have jurisdiction over this appeal pursuant to 28
U.S.C. § 1295(a)(1). Before oral argument, we issued an
order advising that parties be prepared to address:
    1. Whether the choice of law provision in Section
    9.5 of the Master License Agreement requires this
    court to interpret the Master License Agreement
    according to German law, and to determine the
    rights of SXM according to German law.
    2. Whether the application of German law would
    result in SXM’s sublicense rights surviving con-
    tract termination of the Master License
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.           7

   Agreement. See, e.g., M2Trade, Bundesgerichtshof
   [BGH] [Federal Court of Justice] July 19, 2012,
   Entscheidungen des Bundesgerichtshofes in Zivil-
   sachen [BGHZ] 194, 136 (Ger.); Take Five, BGH
   July 19, 2012, Neue Juristische Wochenschrift
   Rechtsprechungs-Report Zivilrecht [NJW-RR]
   2012, 1127 (Ger.).
   3. Whether this case should be remanded to the
   District Court for further proceedings to address
   the impact of German law on the issues before this
   court.
Dkt. No. 49.
                       DISCUSSION
    We review the district court’s dismissal under Federal
Rule of Civil Procedure 12(b)(6) de novo. See Adams Out-
door Advert. Ltd. P’ship v. Pa. Dep’t of Transp., 930 F.3d
199, 205 (3d Cir. 2019). When conducting this inquiry, “we
accept all factual allegations in the complaint as true and
view them in the light most favorable to the plaintiff.” Um-
land v. PLANCO Fin. Servs., 542 F.3d 59, 64 (3d Cir. 2008)
(quoting Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256,
260 (3d Cir. 2006)). The issues are whether the Master
Agreement was terminated and, if so, whether that termi-
nation had the effect of terminating the sublicense. 3

   3    We note Fraunhofer’s argument that the subli-
cense itself was terminated after WorldSpace’s bankruptcy
was converted to Chapter 7. Fraunhofer argues that be-
cause the Sublicense Agreement was never expressly as-
sumed during bankruptcy proceedings, it was rejected
under 11 U.S.C. § 365(d)(1). Fraunhofer further argues
that because SXM never made an “affirmative election” of
its rights under section 365(n)(1)(B), it relinquished its
8         FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

rights under the Sublicense Agreement. Appellant’s Repl.
Br. 27. Section 365(n)(1) provides:
    If the trustee rejects an executory contract under
    which the debtor is a licensor of a right to intellec-
    tual property, the licensee under such contract may
    elect—
    (A) to treat such contract as terminated by such re-
    jection if such rejection by the trustee amounts to
    such a breach as would entitle the licensee to treat
    such contract as terminated by virtue of its own
    terms, applicable nonbankruptcy law, or an agree-
    ment made by the licensee with another entity; or
    (B) to retain its rights (including a right to enforce
    any exclusivity provision of such contract, but ex-
    cluding any other right under applicable nonbank-
    ruptcy law to specific performance of such contract)
    under such contract and under any agreement sup-
    plementary to such contract, to such intellectual
    property (including any embodiment of such intel-
    lectual property to the extent protected by applica-
    ble nonbankruptcy law), as such rights existed
    immediately before the case commenced, for—
        (i) the duration of such contract; and
        (ii) any period for which such contract may
        be extended by the licensee as of right un-
        der applicable nonbankruptcy law.
11 U.S.C. § 365(n)(1).
    This termination theory is without merit. Even if the
Sublicense Agreement had been rejected, SXM has not
elected to treat the Sublicense Agreement as terminated as
provided under section 365(n)(1)(A). To the extent that
SXM has made any election, the record shows that it has
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.               9

                               I
     We begin by addressing the issue of what law to apply
to the Master Agreement. The Master Agreement’s choice-
of-law provision states: “[t]his Agreement shall be subject
to, governed by and construed in accordance with the laws
of the Federal Republic of Germany, without giving effect
to its conflicts of law provisions.” J.A. 488. This provision
suggests that questions as to the right to terminate and the
consequences of termination on the sublicense would be de-
cided by German law. The real issue is whether foreign
law can be waived, and in this respect, we apply regional
circuit law.
    At oral argument, Fraunhofer asserted that “where
parties do not address issues of foreign law, either in the
district court, or on appeal, the appellate court will con-
sider that issue waived,” Oral Arg. at 1:30, and that even if
German law applied, “as a matter of choice of law, [a Ger-
man court] would look to U.S. law . . . to decide this issue,”
id. at 7:15. SXM asserted that the “outcome is the same”
under either German law or U.S. law. Id. at 18:40. It noted
that “German law applies to the interpretation of the Mas-
ter License Agreement,” id. at 18:50, but conceded that the
“issue was not addressed by the district court, nor was it
raised or argued by the parties,” id. at 19:20.
    Under Third Circuit law, “[t]he parties . . . generally
carry both the burden of raising the issue that foreign law
may apply in an action, and the burden of adequately

elected to “retain its rights” under the Sublicense Agree-
ment in accordance with section 365(n)(1)(B). The result
that Fraunhofer urges would be contrary to the purpose of
section 365(n), which is to “correct[] the perception . . . that
Section 365 was ever intended to be a mechanism for strip-
ping innocent licensee[s] of rights.” S. Rep. No. 100-505,
pp. 2–4 (1988).
10        FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

proving foreign law to enable the court to apply it in a par-
ticular case.” Bel-Ray Co. v. Chemrite Ltd., 181 F.3d 435,
440 (3d Cir. 1999) (citations omitted); see also Williams v.
BASF Catalysts LLC, 765 F.3d 306, 316 (3d Cir. 2014)
(“[P]arties may waive choice-of-law issues.”). “Where par-
ties fail to satisfy either burden the court will ordinarily
apply the forum’s law.” Bel-Ray, 181 F.3d at 441. Both
Fraunhofer and SXM rely on U.S. law in their briefings in
this court. At oral argument, both parties conceded that
the German law issue was never properly raised before the
district court. Therefore, we hold that U.S. law applies.
                             II
    Under U.S. law, the first question is whether the Mas-
ter Agreement was properly terminated. Fraunhofer ad-
vances four theories as to why the Master Agreement had
been terminated. The first of its theories is untenable.
Contrary to Fraunhofer’s argument, WorldSpace’s rejec-
tion of the Master Agreement in bankruptcy did not unilat-
erally terminate the Master Agreement. As noted earlier,
the Supreme Court held in Mission Prod. Holdings, Inc. v.
Tempnology, LLC, “[a] rejection breaches a contract but
does not rescind it.” 139 S. Ct. 1652, 1657–58 (2019).
Therefore, WorldSpace’s rejection does not “terminate the
contract” or “vaporize[]” SXM’s rights. Id. at 1659 (altera-
tion in original) (quoting In re Tempnology LLC, 559 B.R.
809, 822 (B.A.P. 1st Cir. 2016)). But Fraunhofer has three
other more plausible theories.
   First, Fraunhofer argues that under Mission Products,
WorldSpace’s rejection of the Master Agreement during
bankruptcy proceedings gave Fraunhofer the right to ter-
minate the Master Agreement, which it exercised its No-
vember 13, 2015, Termination Letter.
    Second, Fraunhofer argues that WorldSpace’s bank-
ruptcy proceeding created a right to terminate the Master
Agreement. Section 7.3 of the Master Agreement provides
that if any party is subjected to bankruptcy proceedings,
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.            11

the other party “may, by written notice, terminate [the
Master Agreement] immediately.” J.A. 486.
     Third, Fraunhofer directs us to section 7.2 of the Mas-
ter Agreement, which provides that if any party “substan-
tially fails to comply with any of its obligations under [the
Master Agreement] and does not remedy the failure of per-
formance within ninety (90) days after it has been notified
in writing thereof, the other party may, by written notice,
terminate this Agreement at the end of said period.” J.A.
486. Fraunhofer contends that section 7.2 authorized it to
terminate the Master Agreement because WorldSpace
failed to make required payments under section 4.2 of the
agreement.
    Section 4.2 provides that WorldSpace “shall reimburse
[Fraunhofer] for all reasonable fees and costs incurred in
connection with the preparation, filing and prosecution of
MCM Intellectual Property Rights for the countries desig-
nated by [WorldSpace].” J.A. 484. On November 4, 2010,
Fraunhofer invoiced WorldSpace for €16,024.57 in “Attor-
ney fees/Annual fees” related to the prosecution of Euro-
pean counterparts to the patents-in-suit—fees that did not
result from the “preparation, filing, and prosecution” of the
U.S. patents-in-suit and were incurred after WorldSpace
entered bankruptcy proceedings. J.A. 491. Fraunhofer as-
serts that WorldSpace’s failure to pay these fees—a default
acknowledged by WorldSpace in 2010—constituted a
breach under section 4.2, and WorldSpace’s failure to rem-
edy its breach within 90 days allowed Fraunhofer to termi-
nate the Master Agreement.
    In sum, Fraunhofer has three plausible arguments
that it had a right to terminate the Master Agreement.
However, it is unclear whether Fraunhofer, assuming that
it had a right to terminate the Master Agreement, properly
terminated the agreement. For example, it is a general
rule of contract law that a party exercising the right to ter-
minate the contract must give notice within a reasonable
12         FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

time. See, e.g., 15 Williston on Contracts § 48:7 (4th ed.
2019) (“[T]he uniformly held view [is] that if no time is
specified, notice within a reasonable time is an implied con-
dition.”); 13 Corbin on Contracts § 68.9 (2019) (discussing
notice as a condition precedent to the exercise of the power
to terminate a contract); Passaic Valley Sewerage Comm’rs
v. Holbrook, Cabot & Rollins Corp., 6 F.2d 721, 724 (3d Cir.
1925) (“It is, of course, a general principle of law that a
party who desires to rescind a contract must do so within
a reasonable time after discovering the ground for rescis-
sion.”); Westfed Holdings, Inc. v. United States, 407 F.3d
1352, 1361 (Fed. Cir. 2005) (“Implied waiver may be in-
ferred by conduct or actions that mislead the breaching
party into reasonably believing that the rights to a claim
arising from the breach was waived.”); N. Helex Co. v.
United States, 455 F.2d 546, 551 (Ct. Cl. 1972) (“As a gen-
eral proposition, one side cannot continue after a material
breach by the other (such as failure to pay), act as if the
contract remains fully in force (although stopping perfor-
mance would be fair and convenient), run up damages, and
then go suddenly to court.”).
    SXM argued before the district court that the Master
Agreement was not terminated. The district court has not
decided this issue, and neither do we. This issue must be
addressed upon remand.
                              III
    Assuming arguendo that the Master Agreement was
terminated by the Termination Letter, the second question
is whether SXM’s sublicense rights nonetheless survived.
The district court held that even if the Master Agreement
was terminated, that termination only barred WorldSpace
from granting future licenses and did not affect the subli-
cense it had already granted to SXM. “[T]he interpretation
of private contracts is ordinarily a question of state law. . .
.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 474 (1989). The parties here,
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.           13

in their invocations of U.S. law instead of German law, do
not argue for application of any particular state’s law, but
discuss U.S. law generally. Moreover, we have applied
Federal Circuit law in several circumstances where the in-
terpretation of a contract is “intimately bound up” with an
issue of patent law. 4 The question here is whether the sub-
license could survive the termination of the Master Agree-
ment, i.e., whether SXM retained a license that negates
infringement under 35 U.S.C. § 271, even after
WorldSpace’s own license rights were terminated. In the
circumstances presented, we apply Federal Circuit law
based on relevant U.S. law principles generally.
     We first note that our law does not provide for auto-
matic survival of a sublicense. The district court relied on
this court’s citations to patent treatises in Rhone-Poulenc
for the proposition “that a sublicense continues, even when
the principal license is terminated for breach of contract.”
J.A. 5–6 (citing Rhone-Poulenc Agro, S.A. v. DeKalb

    4     See Intellectual Ventures I LLC v. Erie Indem. Co.,
850 F.3d 1315, 1320 n.1 (Fed. Cir. 2017); SiRF Tech., Inc.
v. ITC, 601 F.3d 1319, 1326 (Fed. Cir. 2010) (applying Fed-
eral Circuit law to determine whether an agreement pro-
vides for automatic assignment); DDB Techs., L.L.C. v.
MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir.
2008) (similar); Rhone-Poulenc Agro, S.A. v. DeKalb Genet-
ics Corp., 284 F.3d 1323, 1328 (Fed. Cir. 2002) (holding that
“the bona fide purchaser defense to patent infringement is
a matter of federal law” and explaining role of uniformity
policy in whether state or federal law governs issues); Flex-
Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1365 (Fed. Cir. 2001)
(holding that Federal Circuit law controls when “the un-
derlying substance of [an argument as to waiver of claims
and defenses in a settlement agreement] . . . is intimately
related with the substance of enforcement of a patent
right.”).
14        FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

Genetics Corp., 284 F.3d 1323, 1332 n.7 (Fed. Cir. 2001)
(citing Ridsdale Ellis, Patent Licenses § 62 (3d ed. 1958)
and Brian G. Brunsvold & Dennis P. O’Reilley, Drafting
Patent License Agreements 37 (BNA 4th ed. 1998))). How-
ever, in Rhone-Poulenc, this court dealt with a different is-
sue, and our only conclusion was that “[t]hese treatises do
not address the operation of the bona fide purchaser rule
with respect to sublicenses and do not state or suggest that
a sublicense continues even when the principal license is
rescinded because it has been obtained by fraud.” Rhone-
Poulenc, 284 F.3d at 1332. Rhone-Poulenc does not stand
for the proposition that a district court may forgo contract
interpretation and assume that a sublicense survives by
operation of law.
    Equally, the fact that WorldSpace had continuing obli-
gations under the agreement at the time of termination
does not automatically mean that the survival of the subli-
cense upon termination of the Master Agreement was de-
pendent on the performance of those obligations under the
Master Agreement. It may be that the sublicense grant
was complete and irrevocable before the termination of the
Master Agreement. Under such circumstances the subli-
censor, at the time of the grant of the sublicense, would not
be conveying more to the sublicensee than it had received
from the master licensor. 5 Nor is this a situation in which

     5  See, e.g., TransCore, LP v. Elec. Transaction Con-
sultants Corp., 563 F.3d 1271, 1275 (Fed. Cir. 2009) (hold-
ing that “our analysis begins with the premise that one
cannot convey what one does not own,” but that “the perti-
nent question [in these contexts] is . . . what the [agree-
ment] authorizes.”). Nor is this a case where, as in Mitchell
v. Hawley, 83 U.S. 544, 550 (1873), the master licensee
(sublicensor) could not convey rights that it had not ac-
quired, i.e. the right to grant a license that extended be-
yond the term of the patent.
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.            15

the sublicensee has allegedly violated the terms of the sub-
license. In short, the survival of the sublicensee’s rights
depends on the interpretation of the Master Agreement.
    There is no provision of the Master Agreement that di-
rectly addresses the question of sublicense survival, though
we are confident that in the future, parties to license con-
tracts will resolve this issue by including contract language
specifically addressing the survival of sublicense rights. To
the extent that the language of the Master Agreement here
provides any guidance, we find it to be equivocal. Section
3.1 provides that the Master Agreement license is “irrevo-
cable,” stating that “[Fraunhofer] grants to [WorldSpace]
and its Affiliates a worldwide, exclusive, irrevocable li-
cense, with the right to sublicense, under the MCM Intel-
lectual Property Rights to make, have made, use, have
used, sell, or have sold MCM Technology (and products and
services incorporating or utilizing the MCM Technology) in
connection with WorldSpace Business.” J.A. 483.
    On the other hand, section 7.4 states that “[n]o termi-
nation or expiration of this Agreement shall effect [sic] the
rights and licenses granted to [WorldSpace] under [section
3], provided that [WorldSpace] has paid (or has agreed in
writing to pay) all of the amounts specified in [section 4] as
of the date of termination or expiration.” J.A. 486. Fraun-
hofer argues that WorldSpace has not made the required
payments so the sublicense rights are affected.
    Furthermore, section 7.5 provides that “[n]o termina-
tion or expiration of this Agreement shall prevent the con-
tinued use by customers of [WorldSpace] (or by customers
of [WorldSpace]’s Affiliates, licensees and sublicensees) of
products or services sold prior to the date of termination or
expiration.” J.A. 485. Fraunhofer argues that this provi-
sion gives rise to a negative inference that all sublicense
rights do not survive termination as to products or services
sold after the date the date of termination.
16        FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

     On its face, the Master Agreement is ambiguous as to
whether the sublicensee’s rights survive the termination of
the Master Agreement. Where, as here, a contract is am-
biguous, courts must consider extrinsic evidence of the sur-
rounding circumstances to determine the intent of the
parties. Restatement (Second) of Contracts, § 212 (“A
question of interpretation of an integrated agreement is to
be determined by the trier of fact if it depends on the cred-
ibility of extrinsic evidence or on a choice among reasona-
ble inferences to be drawn from extrinsic evidence.”); 5
Corbin on Contracts § 24.10 (2019) (“[E]xtrinsic evidence
[may] be admitted to make the court aware of the sur-
rounding circumstances.”); 11 Williston on Contracts
§ 33:42 (4th ed. 2019) (“[T]here is unanimity [among
courts] that the surrounding circumstances may be consid-
ered when an ambiguity [in a contract] does exist.”). This
issue cannot be properly resolved on a motion to dismiss
and remand is necessary to enable the parties to establish
an appropriate record and for the district court to make
necessary factual findings.
     On remand, if the district court finds that Fraunhofer
properly terminated the Master Agreement, it must also
consider extrinsic evidence from the parties to resolve this
contract ambiguity concerning the survival of the subli-
cense. The district court should consider relevant facts in-
cluding: (1) the fact that SXM had performed all its
obligations under the Sublicense Agreement at the time of
the alleged termination of the Master Agreement, (2)
Fraunhofer’s knowledge of and agreement to the terms of
the Sublicense Agreement and the amendments made to
the Sublicense Agreement, (3) whether the parties dis-
cussed SXM’s long-term reliance on the license’s validity,
(4) Fraunhofer’s own role in constructing the allegedly in-
fringing devices and the parties’ assumptions that a license
would be required for SXM’s continued use of the devices,
(5) other discussions among Fraunhofer, WorldSpace, and
SXM before and after the execution of the relevant
FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.            17

agreements that may shed light on the effect of a termina-
tion of the Master Agreement on the sublicense, and (6)
commercial practices and custom, particularly as it relates
to the default rule that should apply if the agreement re-
mains ambiguous after considering extrinsic evidence as to
the parties’ conduct. We do not limit the district court’s
consideration to these items; other evidence may well be
relevant. We need not now determine what default rule
should apply if contract interpretation does not answer the
question of sublicense survival. Although the district court
should consider extrinsic evidence, we do not preclude its
resolution of this issue on summary judgment if appropri-
ate.
    Therefore, we vacate the order dismissing the com-
plaint for failure to state a claim and remand for further
proceedings.
                             IV
    Fraunhofer argues that the district court erred by
denying Fraunhofer’s motion to amend its complaint on the
ground that SXM’s sublicense defense was a “complete de-
fense to infringement” and that “any attempt to amend the
complaint would be futile.” J.A. 7. Fraunhofer’s proposed
amendment included factual allegations as to the circum-
stances surrounding the Master Agreement and Sublicense
Agreement. J.A. 1188 (“[SXM] understood that any rights
to the [patents-in-suit] conveyed by the [Sublicense Agree-
ment] were derivative of the license rights granted from
Fraunhofer to WorldSpace under the [Master Agree-
ment].”), 1189 (“The use of the word ‘irrevocable’ in the con-
text of the [Master Agreement] and [Sublicense
Agreement] was not and is not understood to mean that the
patent rights granted thereunder could never be extin-
guished . . . .”). Fraunhofer also attached relevant docu-
ments that the district court could not otherwise have
considered on a motion to dismiss, including the Termina-
tion Letter and its technical consulting contract with SXM.
18          FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

      In the absence of any apparent or declared rea-
      son—such as undue delay, bad faith or dilatory mo-
      tive on the part of the movant, repeated failure to
      cure deficiencies by amendments previously al-
      lowed, undue prejudice to the opposing party by
      virtue of allowance of the amendment, futility of
      amendment, etc.—the leave sought should, as the
      rules require, be “freely given.”
Foman v. Davis, 371 U.S. 178, 182 (1962).
As discussed above, the district court erred by not consid-
ering extrinsic evidence of the parties’ intent—evidence
that Fraunhofer attempted to offer in its proposed
amended complaint. Under these circumstances we think
the amendment should have been allowed. Therefore, we
reverse the district court’s denial of Fraunhofer’s motion to
amend.
                         CONCLUSION
    For the foregoing reasons, we vacate the district court’s
grant of SXM’s motion to dismiss, reverse its denial of
Fraunhofer’s motion to amend and remand for further pro-
ceedings consistent with this opinion.
     VACATED-IN-PART, REVERSED-IN-PART, AND
                   REMANDED
                            COSTS
      No costs.