Silicon Image, Inc. v. Genesis Microchip, Inc.

• Decision Date: 15 July 2003
• Docket Number: No. CIV. 3:01CV266.,CIV. 3:01CV266.
• Parties: SILICON IMAGE, INC. Plaintiff, v. GENESIS MICROCHIP, INC., and Genesis Microchip Corporation Defendants.
• Court: U.S. District Court — Eastern District of Virginia

271 F.Supp.2d 840

SILICON IMAGE, INC. Plaintiff, v. GENESIS MICROCHIP, INC., and Genesis Microchip Corporation Defendants.

No. CIV. 3:01CV266.

United States District Court, E.D. Virginia, Richmond Division.

July 15, 2003.

COPYRIGHT MATERIAL OMITTED

Terrence P. McMahon, David L. Larson, Paul Devinsky, Behrooz Shariati, Lucy H.

Koh, James J. Li, Michael North, Michael Weber, McDermott, Will & Emery, Washington, DC, Dana J. Finberg, David J. Sensenig, LeClair Ryan, Richmond, VA, for Plaintiff.

Ruffin B. Cordell, Alexander J. Hadjis, Richard G. Green, Evelyn G. Heilbrunn, Thomas M. Melsheimer, Fish & Richardson PC, Washington, DC, Hugh M. Fain, III, Spotts Fain Chappell & Anderson PC, Richmond, VA, for Defendants.

MEMORANDUM OPINION [REDACTED]

PAYNE, District Judge.

This patent infringement action is before the Court on cross-motions to enforce a settlement agreement embodied in a Memorandum of Understanding ("MOU") that was negotiated on December 17 and 18, 2002, and that was executed on December 18, 2002 by the highest ranking officers of the parties, with authority to bind their respective companies. The parties agree that the MOU is a binding agreement that contains all material settlement terms and that, at least on December 18, 2002, they intended to be bound by that agreement. Thus, there is no dispute that the parties intended to settle the pending patent litigation. Unfortunately, the parties disagree over the terms on which they reached that putative settlement. Each party offers a different interpretation of the MOU, which it urges the Court to adopt and enforce.

BACKGROUND

The Plaintiff, Silicon Image, Inc. ("Silicon," "SIMG," or "SiI"), is a member of the Digital Display Working Group ("DDWG"), which released the Digital Visual Interface, Revision 1.0 Specification ("DVI Specification") in 1999. Generally, the DVI Specification describes technology related to an all digital interface between a computer and a digital display.

The DDWG is comprised of a number of "Promoters" — companies that formulated the DVI Specification. Like other Promoters, Silicon owns a number of the patents required to create products that implement the DVI Specification, including, U.S. Patent Nos. 5,905,769 (the "'769 patent") and 5,974,464 (the "'464 patent"), the two patents at issue in this action. To promote DVI technology as an industry standard, and to allow manufacturers to produce components that comply with the standard, the DVI Specification Promoters agreed to give anyone that signed a DVI Adopters Agreement a royalty-free license to practice "Necessary Claims." Generally speaking, Necessary Claims are any Promoter-owned patent claims that one must infringe to implement and comply with the DVI Specification. The DVI Adopters Agreement refers to all other Promoter-owned patent claims as "Non-Necessary Claims," which, although potentially useful in implementing DVI, are not necessarily infringed when complying with the DVI specification. The Adopters Agreement provides no license for the Non-Necessary Claims.

In 1999, the Defendant, Genesis Microchip, Inc. ("Genesis" or "GNSS"), signed a DVI Adopters Agreement and began developing DVI receiver technology, which Genesis later incorporated in a number of its products. In April 2001, Silicon filed this action against Genesis alleging that Genesis infringed: (1) the Non-Necessary Claims of the patents-in-suit; and, (2) the Necessary Claims of the patents-in-suit by selling DVI components for use in the consumer electronics market ("DVI-CE"),¹ a field of use that the DVI Adopters Agreement license allegedly does not cover because, in Silicon's view, that license is limited to the field of personal computers and associated digital display devices.

In response, Genesis alleged that: (1) its DVI products did not infringe the asserted patent claims; (2) the asserted claims were Necessary Claims and therefore licensed; and, (3) its sales of DVI-CE products were within the scope of the DVI Adopters Agreement license. Thus, the crux of the dispute was Genesis's alleged use of Non-Necessary Claims for DVI components in the personal computer market and both Necessary and Non-Necessary Claims for DVI-CE components.

The Court stayed this action while a like proceeding between the parties progressed before the United States International Trade Commission ("ITC"). The stay was dissolved when Silicon voluntarily terminated the ITC proceeding before a hearing on the merits. Thereafter, the Court entered scheduling orders that set discovery and other deadlines, scheduled a final pretrial conference for January 7, 2003, and set trial to begin on January 17, 2003. The Court held a Markman hearing and issued a claim construction opinion on December 10, 2002. Summary judgment arguments were concluded on December 4, 2002 and, on December 16, 2002, the Court entered an order severing two claims of the '464 patent for a separate trial on April 30, 2003 and setting a discovery cut-off of February 28, 2003 on the severed claims.

On December 17, 2003, the Court advised the parties that a summary judgment opinion would be entered on the following day and suggested that further settlement discussions might be in the best interests of both parties. In a telephone conference on December 18, 2002, the parties represented to the Court that they had reached an agreement to settle the pending case, including the severed '464 claims. The parties memorialized their agreement in the MOU, which the Chairman and Chief Executive Officer ("CEO") of each company signed. (Evid. Hearing. Pl.'s Exh. 6) ("MOU § ___"). The MOU called for the parties to prepare so-called "Definitive Agreements" by December 31, 2002; but the MOU also provided that, if the parties were unable to reach Definitive Agreements by that date, the MOU would be the binding agreement until the parties signed Definitive Agreements. (MOU § 7). Accordingly, there being no Definitive Agreements by December 31, 2002, the MOU became the binding agreement. Nonetheless, in early January 2003, the parties endeavored to negotiate the Definitive Agreements envisioned by the MOU. During that process, it became apparent that the parties were not of like mind respecting the meaning of the royalty provisions in MOU Section 1, entitled "License Agreements."

The discussions and draft agreements in January also involved potential terms for inclusion in the Definitive Agreements that are not mentioned in the MOU. When the parties abandoned their efforts to reach Definitive Agreements and filed the pending motions to enforce the MOU, all potential contractual terms not appearing on the face of the MOU fell to the wayside. Briefing on the pending motions has revealed that the sole disputed issue respects the royalties in the MOU License Agreements.

Both parties agree that, under the DVI Adopters Agreement, Genesis has an existing, royalty-free license to practice Necessary Claims in the personal computer field. The parties also agree that the MOU License Agreements confer a license permitting use of: (1) DVI Non-Necessary Claims; (2) DVI Necessary and Non-Necessary Claims in consumer electronics and (3) HDMI² Non-Necessary Claims. The parties disagree, however, on the royalties payable for these new licenses.

Silicon contends that the royalty rates³ described in the MOU apply to all the DVI and HDMI transmitters and receivers that Genesis produces, whether or not those products infringe any patent claims. In Silicon's view, although the MOU license grants are limited to specific patent claims, the method of payment for those licenses is independent from those limitations, that is to say, the royalty base consists of all Genesis DVI and HDMI transmitters and receivers irrespective of infringement. Under this paradigm, when determining whether Genesis owes royalties on a particular Genesis product, it is not necessary to determine whether that product infringes a licensed Silicon patent claim. Genesis, on the other hand, asserts that the royalty base is limited to those DVI and HDMI transmitters and receivers that actually infringe the patent claims described in the MOU license grants.

On January 13, 2003, Silicon filed its Motion Re December Proceedings in which it proffered the foregoing construction of the MOU, alleged that Genesis was attempting to renege on the MOU as thus construed, and requested the Court to find that the MOU bound the parties according to Silicon's construction. On the same day, Genesis filed its Motion To Dismiss, urging its own construction of the MOU and arguing that the terms of the MOU require Silicon to dismiss the pending patent infringement action.⁴ On March 7 and 8, 2003, in accordance with the controlling law discussed below, the Court held an evidentiary hearing to resolve disputed factual issues respecting the MOU, its formation, and the conduct of the parties immediately following formation, all to the end of ascertaining whether the MOU was the product of a meeting of the minds on December 18, 2003.

On March 17, 2003, Genesis issued a press release announcing a merger with Pixelworks, Inc., a competing producer of digital display technology. That same day, Silicon moved for expedited discovery respecting the Pixelworks merger, reasserting its position that Genesis was attempting to renege on the MOU and arguing that the merger and associated negotiations might explain why Genesis had changed its position. On March 19, 2003, the Court issued an order granting the proposed limited discovery.

On March 24, 2003, Silicon too announced a corporate transaction, revealing its acquisition of TransWarp Networks ("TransWarp"), a privately held company focused on switching and storage management — product areas that are unrelated to the technology at issue in this action. On April 3, 2003, Genesis moved for expedited discovery on substantially the same basis that Silicon had sought discovery respecting the Pixelworks...