Last week, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung E.V. v. Sirius XM Radio Inc., No. 2018-2400 (Oct 17, 2019).
Fraunhofer had sued Sirius for infringement of four Fraunhofer patents related to multicarrier modulation, which is a method for transmitting a main data stream over multiple carrier data streams for improved signal quality. Sirius asserted it held a license to the asserted patents, and moved to dismiss. Fraunhofer sought to file an amended complaint presenting extrinsic evidence relevant to the license defense. The district court granted Sirius’s motion to dismiss, and denied Fraunhofer’s motion to amend on futility grounds. Fraunhofer appealed.
On appeal, the Federal Circuit first addressed choice of law. Sirius’s license defense relied on a sublicense it took under a master exclusive license agreement between Fraunhofer and a third party, WorldSpace. The master agreement provided that it is governed by German law. The Court determined, however, that the parties waived application of German law by neglecting to address it their arguments. Accordingly, U.S. law applied. The Court next addressed whether, under U.S. law, the master agreement between Fraunhofer and WorldSpace had been properly terminated. In 2012, during bankruptcy proceedings, WorldSpace rejected the master license agreement pursuant to § 365(d)(1) of the Bankruptcy Code. Noting that the rejection itself does not terminate the license, in view of the Supreme Court’s decision in Mission Prod. Holdings v. Tempnology, LLC, the Federal Circuit instructed the district court, on remand, to determine whether the master license agreement was terminated. Next, the Court addressed whether, assuming the master license agreement was terminated, Sirius’s sublicense rights nonetheless survived. The Court explained there is no rule that sublicenses automatically survive. The Court further explained, however, that the mere fact WorldSpace had ongoing obligations to Fraunhofer under the master agreement does not mean the sublicense grant to Sirius had not become complete and irrevocable before the termination of the master agreement. This determination, the Court stated, depends on interpretation of the master agreement. Because the terms of the master agreement were ambiguous, necessitating consultation of extrinsic evidence, the Court held the issue could not properly be resolved on a motion to dismiss. The Court, therefore, vacated the dismissal order and remanded the case to the district court.