MPEG LA, L.L.C. v. Dell Global B.V.
| Decision Date | 06 March 2013 |
| Docket Number | C.A. No. 7016-VCP |
| Parties | MPEG LA, L.L.C., Plaintiff, v. DELL GLOBAL B.V. and DELL PRODUCTS, L.P., Defendants. DELL GLOBAL B.V. and DELL PRODUCTS, L.P., Counterclaim Plaintiffs, v. MPEG LA, L.L.C., Counterclaim Defendant. |
| Court | Court of Chancery of Delaware |
C. Barr Flinn, Esq., Nicholas J. Rohrer, Esq., YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Craig P. Murphy, Esq., John D. Holden, Esq., WINDELS MARX LANE & MITTENDORF, LLP, New York, New York; Attorneys for Plaintiff and Counterclaim Defendant MPEG LA, L.L.C.
Gregory P. Williams, Esq., Kevin M. Gallagher, Esq., Christopher H. Lyons, Esq., RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michael P. Kenny, Esq., Angela Payne James, Esq., Grant T. Stein, Esq., Sage M. Sigler, Esq., ALSTON + BIRD LLP, Atlanta, Georgia; Attorneys for Defendants and Counterclaim Plaintiffs Dell Global B.V. and Dell Products, L.P.
PARSONS, Vice Chancellor.
This action is before me on a motion to recognize and apply New York Civil Practice Law and Rules ("N.Y. C.P.L.R.") 3219 as substantive New York law. The plaintiff and the defendants have asserted claims based on a contract whereby the plaintiff granted the defendants licenses to a portfolio of patents. The contract provided that the defendants would maintain records and pay royalties based on a specified formula. Ultimately, a dispute arose between the parties as to whether the defendants had complied with the contract and the amount of royalties they owed under the contract.
The defendants have moved under Court of Chancery Rule 7(b) for an order recognizing and providing for the application of N.Y. C.P.L.R. 3219 as substantive law in this case. Rule 3219 provides a mechanism whereby a litigant may tender an amount to the clerk of the court that the opposing litigant may accept within a ten-day period. The claimant may withdraw the deposited money within ten days if the claimant files a statement that the withdrawal is in satisfaction of the claim. If the amount is not withdrawn and the claimant fails to obtain a more favorable judgment, the claimant is not entitled to recover interest or costs from the time of the offer.
The defendants argue that the parties to the contract selected New York substantive law as their choice of law and that conflicts-of-law principles and Delaware law, therefore, compel the application of the substantive law selected by the parties. The defendants further contend that N.Y. C.P.L.R. 3219 is substantive in nature, and that it should therefore be recognized and applied in this case. The plaintiff, on the other hand, disputes the defendants' characterization of Rule 3219, and contends that it is primarilyprocedural in nature. As such, the plaintiff avers that this Court should not apply N.Y. C.P.L.R. 3219.
For the reasons that follow, I find that Rule 3219 is procedural in nature. Therefore, I decline to apply N.Y. C.P.L.R. 3219 in this action.
Plaintiff and counterclaim defendant, MPEG LA, L.L.C. ("MPEG"), is a Delaware limited liability company that administers sublicenses granting rights under patents to manufacture and sell products.
Defendants Dell Global B.V. ("Dell Global"), a Netherlands corporation, and Dell Products, L.P ("Dell Products"), a Texas corporation, are companies that manufacture and sell consumer and other devices (collectively, "Dell").
MPEG offers the MPEG-21 Patent Portfolio License, a comprehensive and standardized license comprising 800 MPEG-2 essential patents, to companies wishing to manufacture, sell, or otherwise distribute products incorporating MPEG-2 technology to end users.
On or about December 31, 2009, MPEG and Dell Global entered into a contract (the "Contract") whereby MPEG licensed Dell Global to incorporate the patentedMPEG-2 technology into its consumer and other devices, such as personal computers with DVD or other MPEG-2 playback capacity. In exchange, Dell agreed to pay MPEG royalties for all "MPEG-2 Royalty Products" made or sold in a country that issued one or more existing MPEG-2 patents. The Contract provided that any payment received by MPEG after becoming due shall be deemed late and "bear interest, compounded monthly, at the lesser of 10% per annum or the highest rate permitted" by law.2 The Contract also required, among other things, that Dell keep and maintain records and that an audit procedure be established to verify the royalty amounts due.
MPEG alleges that Dell failed to keep and maintain accurate records and provide the designated auditor with necessary information. Plaintiff also avers that, in mid-2010, Dell Global asserted that it may have overpaid certain royalties and was entitled to a credit. A dispute between Dell Global and MPEG then ensued over whether Dell Global owed royalties to MPEG.
The Contract contains a choice of law provision that states:
7.18 Choice of Law. The validity, construction and performance of this Agreement shall be governed by the substantive law of the State of New York, United States of America, without regard to the conflict of law rules in thejurisdiction where a claim arising from this Agreement is brought.3
Section 3.7 provides for the payment of interest in the event a royalty payment is made late. The full text of that provision states:
3.7 Late Payments. Any payment required hereunder that is received by the Licensing Administrator after the date it is due pursuant to the terms of Article 3 . . . shall bear interest compounded monthly, at the lesser of 10% per annum or the highest interest rate permitted to be charged by the Licensing Administrator under applicable law.4
MPEG commenced this case on November 4, 2011 seeking to recover, among other relief, late royalty payments and contractual interest allegedly due from Dell under the Contract. MPEG amended its complaint and filed an Amended Verified Complaint on July 17, 2012. On November 8, 2012, MPEG filed a Verified Supplemental Complaint to add allegations reflecting Dell's continuing refusal to pay royalties as they became due.
On September 7, 2012, Defendants filed a motion to recognize and apply N.Y. C.P.L.R. 3219 as substantive New York law. Rule 3219 provides a mechanism whereby a litigant may tender an amount to the clerk of the court, which the other party to the litigation may accept within a ten-day period. If it is accepted, the litigation is concluded. If the tender is not accepted, the tendering party may reclaim the funds and, in certaincircumstances, any claim for interest or costs that accrued after the date of tender may be barred. After full briefing, I heard argument on Defendants' motion on November 9, 2012. This Memorandum Opinion constitutes my ruling on that motion.
Defendants argue that substantive New York law governs any dispute arising under the Contract, that N.Y. C.P.L.R. 3219 is a substantive New York law, and, therefore, that Rule 3219 must be applied in this case. Plaintiff, on the other hand, argues that N.Y. C.P.L.R. 3219 is a procedural device that has no application outside New York. Specifically, MPEG argues that it is entitled to contractual interest under all circumstances. MPEG also avers that, because Rule 3219 is procedural, and not substantive, it is not covered by the choice-of-law provision in the Contract. Finally, Plaintiff contends that Section 3219 cannot be applied without alterations that this Court lacks the authority to make.
In a case that involves issues of contract, the choice of law is determined consistent with principles articulated in the Restatement (Second) of Conflict of Laws ("Restatement (Second)").5 Issues in contract are determined by the law chosen by the parties in accordance with Restatement (Second) Section 187, entitled Law of the StateChosen by the Parties.6 That Section provides that "[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue."7
"[A]s a general rule in Delaware, when the law of a foreign state is applied to substantive issues, the law of Delaware is usually applied to procedural issues."8 The only exception to this occurs when the procedural law of the foreign state is "so inseparably interwoven with substantive rights as to render a modification of the foregoing rule necessary, lest a party be thereby deprived of his legal rights."9 In such a case, the procedural law of the foreign state will control.10 The Restatement (Second) also provides that "[a] court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case."11 The rationale behind that practice is that the "[t]heforum is more concerned with how its judicial machinery functions and how its court processes are administered than is any other state."12 Moreover, 13
Here, the parties agreed that the Contract shall be "governed by the substantive law of the State of New York."14 Under both the Contract and Delaware's conflict of law rules, therefore, this Court should apply to this dispute the substantive law of New York and any New York procedural law that is inseparably interwoven with a party's substantive rights. Consequently, the primary question before this Court is whether N.Y. C.P.L.R. 3219 is substantive or procedural.
N.Y. C.P.L.R. 3219 provides, in...
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