Parental Guide of Texas, Inc. v. Thomson, Inc.

United States Court of Appeals for the Federal Circuit
05-1493
PARENTAL GUIDE OF TEXAS, INC.,
Plaintiff-Appellant,
v.
THOMSON, INC.,
Defendant-Appellee.
G. Donald Puckett, Monts & Ware LLP, of Dallas, Texas, argued for plaintiff-
appellant. With him on the brief was Brent N. Bumgardner. Of counsel was Mark
William Born, of Austin, Texas.
Karl L. Mulvaney, Bingham McHale LLP, of Indianapolis, Indiana, argued for
defendant-appellee. With him on the brief was David O. Tittle. Of counsel on the brief
were Joy M. Soloway, E. Lee Haag, and Andrew P. Price, Fulbright & Jaworski L.L.P.,
of Houston, Texas; and Richard A. Huser and Meggan L. Ehret, Thomson Inc., of
Indianapolis, Indiana.
Appealed from: United States District Court for the Eastern District of Texas
Judge T. John Ward

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United States Court of Appeals for the Federal Circuit
05-1493
PARENTAL GUIDE OF TEXAS, INC.,
Plaintiff-Appellant,
v.
THOMSON, INC.,
Defendant-Appellee.
___________________________
DECIDED: April 21, 2006
___________________________
Before RADER, Circuit Judge, CLEVENGER, Senior Circuit Judge, and DYK, Circuit
Judge.
CLEVENGER, Senior Circuit Judge.
Plaintiff-appellant Parental Guide of Texas, Inc. (Parental Guide) appeals the
decision of the United States District Court for the Eastern District of Texas granting
summary judgment to Defendant-appellee Thomson, Inc. (Thomson). Parental Guide of
Texas, Inc. v. Thomson, Inc., No. 2:03-CV-22 (E.D. Tex. Jan. 20, 2005) (Summary
Judgment). The court held that Thomson did not owe Parental Guide a contingent
payment under the Release and License Agreement (the Agreement) that had settled a
previous patent infringement suit between the parties. Because we agree with the
district court that there was no "Litigation Royalty" "expressly determined in the Lawsuit
in accordance with the law applicable to 35 U.S.C. § 284," such that Thomson is not
obligated to pay a contingent payment under the Agreement, we affirm.

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I
In a previous lawsuit, Parental Guide sued Thomson and several other parties,
including Mitsubishi Digital Electronics America, Inc., and Mitsubishi Electric and
Electronics USA, Inc. (collectively, Mitsubishi), for patent infringement. Parental Guide
and Thomson reached a settlement and entered into the Agreement, under which
Thomson made a damages payment of $4 million. In addition, the Agreement provided
that if Parental Guide obtained a "Favorable Termination" of the lawsuit, Thomson
would pay a contingent payment based upon a "Litigation Royalty." Specifically, the
Agreement obligated Thomson to pay:
(a) a nonrefundable damages payment of Four Million dollars ($4,000,000)
within seven (7) business days after the Effective date; and
(b) a contingent payment in accordance with the following:
(i) if and only if there is a Favorable Termination of the Lawsuit, an
amount equal to
(i) 60% of the Litigation Royalty multiplied by 16,000,000
units, less
(ii) the payment made pursuant to paragraph 3(a); or
(ii) if and only if all defendants in the Lawsuit settle with Parental
Guide before any Favorable Termination of the Lawsuit, Thomson
will pay no further royalty.
A "Favorable Termination" was defined as:
either (a) a final, irrevocable and nonappealable judgment and/or order in
the Lawsuit, which holds (specifically or to the effect) that claims of the
'964 Patent are valid, enforceable and infringed by accused television sets
that were manufactured and sold by an active defendant in the Lawsuit, or
(b) settlement agreements are reached with all remaining defendants in
the case before the expiration of thirty (30) days after the United States
District Court for the Eastern District of Texas renders its final judgement,
provided however that at least one defendant must have remained in the
lawsuit as of the date of such judgment.
In addition, the "Litigation Royalty" was defined as:
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the lowest per unit reasonable royalty, if any, as expressly determined in
the Lawsuit in accordance with the law applicable to 35 U.S.C. § 284, by
the final, irrevocable, and nonappealable order in the Lawsuit.
Finally, the contingent payment was capped at $6,500,000.
By October 31, 2002, Mitsubishi was the only remaining defendant in the lawsuit;
all the other defendants had settled. Mitsubishi filed an offer of judgment pursuant to
Fed. R. Civ. P. 68 (the Rule 68 offer), which Parental Guide accepted. Rule 68 provides
that, up to 10 days before trial begins, a defendant may offer to allow judgment to be
taken against him for a specified sum. If that offer is accepted within 10 days, and the
offer and acceptance are filed with the court, "the clerk shall enter judgment." Fed. R.
Civ. P. 68. However, if the offer is not accepted, and the judgment finally obtained by
the offeree is not more favorable than the offer, the offeree must pay the costs incurred
after the making of the offer.
Pursuant to the Rule 68 offer, and Parental Guide's acceptance of that offer, the
Court entered Final Judgment. The Final Judgment stated:
U.S. Patent No. 4,605,964 is valid and enforceable. Mitsubishi accused
televisions, as identified by Plaintiff Parental Guide, infringe U.S. Patent
No. 4,605,964. A royalty rate under 35 U.S.C. 284 of $1.15 per television
shall apply to all accused televisions sold after the filing of this lawsuit and
projected to be sold through the expiration of U.S. Patent No. 4,605,964
on August 12, 2003 and that units sold and projected to be sold during this
period will total approximately 955,000 televisions. The total Judgment
award shall be in the amount of $1,098,250.
On November 15, 2002, Mitsubishi filed a notice of appeal with this court. However,
that same day, Mitsubishi and Parental Guide reached an agreement whereby the
parties entered into a "Covenant not to Sue," Parental Guide released Mitsubishi from
the claims that had been brought in the lawsuit, and Mitsubishi agreed to satisfy the
judgment by providing Mitsubishi product, valued at retail price, in lieu of cash.
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Mitsubishi abandoned its appeal and Parental Guide filed a "Satisfaction of Judgment"
with the Court. The Final Judgment thus became irrevocable and nonappealable.
Two months later, in January 2003, Parental Guide made a demand on Thomson
for a contingent payment. Parental Guide argued that it had obtained a "Favorable
Termination" of the lawsuit via the Final Judgment with Mitsubishi and that as a result,
under the Agreement, Thomson was required to pay royalties to Parental Guide.
Thomson refused to make a contingent payment and filed an action for declaratory
judgment against Parental Guide in the District Court for the Southern District of
Indiana. Thomson argued that the Rule 68 offer and acceptance constituted a
settlement, such that Parental Guide had settled the patent case with all defendants
before a "Favorable Termination" occurred under the Agreement. Further, Thomson
argued that that royalty rate contained in the Rule 68 offer, and incorporated into the
Final Judgment, was not a "Litigation Royalty" under the terms of the Agreement, such
that no contingent payment was owed. In response, Parental Guide filed an action for
breach of contract in the District Court for the Eastern District of Texas. Thomson
asserted a counterclaim for declaratory relief. The Indiana action was stayed to allow
the case to proceed in the Eastern District of Texas.
The parties filed cross-motions for summary judgment in the district court for the
Eastern District of Texas. The district court denied Parental Guide's motion and granted
Thomson's motion, holding that Thomson did not owe any contingent payment because
no "Litigation Royalty" had been "expressly determined . . . in accordance with the law
applicable to 35 U.S.C. § 284" in the preceding lawsuit. Summary Judgment at 6-12.
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Parental Guide initially appealed to the United States Court of Appeals for the
Fifth Circuit. However, Thomson moved to transfer the case to this court, arguing that
because the Agreement expressly refers to the patent statute, 35 U.S.C. § 284, the
court must determine what the parties meant by reference to that statute, and that the
case thus falls within this court's appellate jurisdiction. The Fifth Circuit granted
Thomson's motion to transfer to this court.
Under law of the case principles, if we, "the transferee court[,] can find the
transfer decision plausible, [our] jurisdictional inquiry is at an end." Christianson v. Colt
Indus. Operating Corp., 486 U.S. 800, 818 (1988). We have jurisdiction over cases
where patent law is a necessary element of one of the well-pleaded claims. Id. at 809.
Because Parental Guide's claim for breach of the Agreement requires determining what
the parties meant by reference to section 284 of the patent statute, we find that the Fifth
Circuit's decision to transfer the case to this court is at least plausible, and our
jurisdictional inquiry is at an end. Thus, we have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
II
This court reviews the district court's grant of summary judgment under the law of
the regional circuit. Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178,
1191 (Fed. Cir. 2004). Thus, we review the district court's decision to grant summary
judgment de novo, using the same standard applied by the district court. Hall v.
Gillman, Inc., 81 F.3d 35, 36 (5th Cir. 1996). Summary judgment is properly granted
when, viewing the evidence in the light most favorable to the non-movant, the record
indicates that there is "no genuine issue as to any material fact and that the moving
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party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
III
This case turns upon interpreting the Agreement between Parental Guide and
Thomson. Contract interpretation is a matter of state law. Power Lift, Inc. v.
Weatherford Nipple-Up Sys., Inc., 871 F.2d 1082, 1085 (Fed. Cir. 1989). The district
court applied Texas law in interpreting the Agreement, and the parties agree that Texas
law governs the contract. Thus, we will also apply Texas law in interpreting the
Agreement.
Under Texas law, the primary concern in construing a written contract is to
ascertain the true intentions of the parties as expressed in the instrument. R & P
Enters. v. LaGuarta, Gavrel & Kirk, lnc., 596 S.W.2d 517, 518-19 (Tex. 1980) (citing
Citizens Nat'l Bank in Abilene v. Tex. & Pac. Ry. Co., 150 S.W.2d 1003 (Tex. 1941)).
Thus, the court is concerned with the objective intent evidenced by the language, as
opposed to the subjective intent of the parties. Sun Oil Co. (Del.) v. Madeley,
626 S.W.2d 726, 731 (Tex. 1981). The court should examine and consider the entire
writing in an effort to harmonize and give effect to all the provisions of the contract,
Univ. C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 158 (Tex. 1951), and no single
provision taken alone will be given controlling effect, Myers v. Gulf Coast Minerals
Mgmt. Corp., 361 S.W.2d 193, 196 (Tex. 1962).
Whether a contract is ambiguous is a question of law. Friendswood Dev. Co. v.
McDade & Co., 926 S.W.2d 280, 282 (Tex. 1996). A contract is ambiguous when its
meaning is uncertain and doubtful or is reasonably susceptible to more than one
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interpretation. Heritage Res., Inc. v. Nationsbank, 939 S.W.2d 118, 121 (Tex. 1996).
However, if a contract is worded in such a manner that it can be given a definite or
certain legal meaning, then it is not ambiguous. Friendswood Dev. Co., 926 S.W.2d at
282 (citing Nat'l Union Fire Ins. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)).
An unambiguous contract will be enforced as written. Sun Oil Co., 626 S.W.2d at 728.
IV
In granting Thomson's motion for summary judgment, the district court held that
Thomson did not owe any contingent payment to Parental Guide because no "Litigation
Royalty" had been "expressly determined . . . in accordance with the law applicable to
35 U.S.C. § 284" in the preceding patent infringement lawsuit. Summary Judgment at
6-12. In their briefs to this court, the parties spent much time arguing other grounds
upon which this court could rule; the parties analyze, for example, whether a Rule 68
judgment constitutes a settlement of a case and whether Parental Guide achieved a
"Favorable Termination" of the lawsuit. However, we need not reach these arguments,
as we agree with the district court that there is no "Litigation Royalty" as it is defined in
the Agreement.
As Parental Guide concedes in its briefs to this court, the parties, in drafting the
Agreement, utilized terms of art of patent law. In particular, the parties defined
"Litigation Royalty" as "the lowest per unit reasonable royalty, if any, as expressly
determined in the Lawsuit in accordance with the law applicable to 35 U.S.C. § 284."
Section 284 of the patent statute provides that "[u]pon finding for the claimant, the court
shall award the claimant damages adequate to compensate for the infringement, but in
no event less than a reasonable royalty for the use made of the invention by the
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infringer." 35 U.S.C. § 284 (2000) (emphasis added). Section 284 contemplates that
the amount of damages will be determined in one of two ways. Either damages are
found by a jury, or "[w]hen the damages are not found by a jury, the court shall assess
them." Id. (emphasis added). Thus, section 284 provides that "[t]he court may receive
expert testimony as an aid to the determination of damages or what royalty would be
reasonable under the circumstances." Id. (emphasis added). Accordingly, the district
court found that "[b]y its express reference to the statute, the agreement . . .
contemplates that the court shall 'assess' or determine those damages in the absence
of a jury finding." Summary Judgment at 8 (emphasis added).
In addition, as both parties recognize, a "reasonable royalty" rate under section
284 is calculated with reference to the long list of factors outlined in Georgia-Pacific
Corp. v. U.S. Plywood Co., 318 F. Supp. 1116, 1120 (S.D.N.Y.1970), modified and aff'd,
446 F.2d 295 (2d Cir.), cert. denied, 404 U.S. 870 (1971). Dow Chem. Co. v. MEE
Indus., Inc., 341 F.3d 1370, 1382 (Fed. Cir. 2003) (“[T]he district court should consider
the so-called Georgia-Pacific factors in detail, and award such reasonable royalties as
the record evidence will support.”) (citation omitted). Accordingly, the district court
found that the reference to section 284 in the definition of "Litigation Royalty" was "a
specific and unambiguous reference to . . . the Georgia Pacific factors." Summary
Judgment at 7. Thus, by referencing section 284, the Agreement unambiguously
contemplated that a "Litigation Royalty" would be a reasonable royalty that was
determined by a judge or a jury through the express application, by the judge or jury, of
the Georgia Pacific factors.
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However, under Rule 68, the terms of a judgment are agreed upon by the
parties; the court has no input or discretion to alter or modify any of the terms.
Ramming v. Natural Gas Pipeline Co. of Am., 390 F.3d 366, 370-71 (5th Cir. 2004); see
also Fed. R. Civ. P. 68 ("If . . . the offer is accepted, either party may then file the offer
and notice of acceptance together with proof of service thereof and thereupon the clerk
shall enter judgment.") (emphasis added). Indeed, the court has no role in the entry of
judgment on a Rule 68 offer. Rather, as the district court noted, the entry of judgment
"is generally a ministerial act and can be performed by the clerk without any input from
the court or a jury." Summary Judgment at 9; see Ramming, 390 F.3d at 370-71
(quoting Webb v. James, 147 F.3d 617, 621 (7th Cir. 1998) ("Rule 68 operates
automatically, requiring that the clerk 'shall enter judgment' upon the filing of an offer,
notice of acceptance and proof of service. This language removes discretion from the
clerk or the trial court as to whether to enter judgment upon the filing of the accepted
offer."); Perkins v. U.S. West Commc'ns., 138 F.3d 336, 338 (8th Cir. 1998) ("Rule 68
leaves no discretion in the district court to do anything other than enter judgment once
an offer of judgment has been accepted.")).
In this case, the parties agreed to a royalty rate in the Rule 68 offer and
acceptance. That agreed-upon royalty rate was entered into a Rule 68 judgment by the
clerk of the court. Neither a jury nor the court made an express determination of a
reasonable royalty, nor did a jury or the court undertake an evaluation of the Georgia
Pacific factors. Indeed, the court did not "award" damages under section 284, but
rather entered a judgment in which the parties agreed to certain damages. As such, the
district court correctly interpreted the Agreement and held that there was no "Litigation
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Royalty" "expressly determined . . . in accordance with the law applicable to 35 U.S.C.
§ 284."
On appeal, Parental Guide argues that the existence of a "Litigation Royalty" is
not a condition precedent to the obligation to pay a contingent payment and that
Thomson thus owes a contingent payment even if there was no "Litigation Royalty"
determined in the lawsuit. However, the Agreement only requires Thomson to pay a
sum based upon a "Litigation Royalty;" the Agreement does not provide for any other
form of payment or any other method of computing a payment. Further, under Texas
law, "[i]n order to make performance specifically conditional, a term such as 'if,'
'provided that,' 'on condition that,' or similar phrase of conditional language must
normally be included." Criswell v. European Crossroads Shopping Ctr., Ltd.,
792 S.W.2d 945, 948 (Tex. 1990). Indeed, the Agreement defined a "Litigation Royalty"
as a "reasonable royalty, if any, expressly determined . . . in accordance with the law
applicable to 35 U.S.C. § 284." J.A. 46 (emphasis added). Thus, if there is no
reasonable royalty expressly determined in accordance with the law applicable to
35 U.S.C. § 284, there is no "Litigation Royalty," and if there is no "Litigation Royalty,"
there can be no contingent payment.
If the parties had wished that any royalty rate determined in the lawsuit, such as
the agreed-upon royalty rate of the Rule 68 judgment, could be used to compute a
contingent payment, it would have been a matter of the utmost simplicity to write
language in the Agreement that provided for a royalty rate not burdened by the
requirements of section 284. However, the parties chose to refer to section 284 in
defining the royalty upon which a contingent payment would be based. As no royalty
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was expressly determined by either a judge or a jury through the application of the
Georgia Pacific factors, there is no "Litigation Royalty" on which to base a contingent
payment. Thus, Thomson does not owe Parental Guide any contingent payment under
the Agreement. We agree with the district court and thus affirm the grant of summary
judgment for Thomson.
AFFIRM
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