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Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung E.V. v. Sirius XM Radio Inc.

Patent Sublicense Does Not Automatically Survive Principal License’s Termination

Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung E.V. v. Sirius XM Radio Inc., __ F. 3d __, 2019 WL ___ (Fed. Cir. Oct. 17, 2019) (DYK, Linn, Taranto) (D. Del.: Bataillon) (2 of 5 stars)

Fed Cir vacates Rule 12(b)(6) dismissal and reverses denial of Fraunhofer’s motion for leave to amend its complaint. The district court erred in determining that a previous sublicense conferred to SXM a complete defense to Fraunhofer’s patent infringement claims. U.S. law controls the contract interpretation inquiry due to the parties’ not arguing otherwise to the district court, notwithstanding a contract provision seeming to call for application of German law. The opinion notes that Fraunhofer had various paths by which it could terminate a key contractual relationship. The district court had not determined whether Fraunhofer had actually terminated; it reasoned (wrongly) that SXM’s sublicense rights would survive regardless. The Fed Cir reserves for remand the question of whether Fraunhofer actually terminated. As to whether SXM’s sublicense rights would survive termination, Federal Circuit law applies because “the interpretation of [the] contract is ‘intimately bound up’ with an issue of patent law.” Op. at 13 (quoting Intellectual Ventures, 850 F.3d 1315 (Fed. Cir. 2017)). Federal Circuit law does not provide for automatic survival of sublicense rights notwithstanding termination of a principal license. Rhone-Poulenc, 284 F.3d 1323 (Fed. Cir. 2001), on which the district court relied, is not contrary because it was addressing a separate question of survival of sublicense rights where the principal license was obtained by fraud. Thus, “the survival of the sublicensee’s rights depends on the interpretation of the Master Agreement.” Op. at 15. The contract is ambiguous; resort to extrinsic evidence will be necessary, so remand is appropriate. Id. at 16.

The district court also erred in denying Fraunhofer’s motion to amend its complaint with factual allegations bearing on interpretation of the agreement. “Under the circumstances we think the amendment should have been allowed,” and it is reversed. Op. at 18.

KEYWORDS: CONTRACT INTERPRETATION; SUBLICENSE; MOTION TO AMEND