Smartmatic Int'l Corp. v. Dominion Voting Sys. Int'l Corp.
| Decision Date | 01 May 2013 |
| Docket Number | C.A. No. 7844-VCP |
| Parties | SMARTMATIC INTERNATIONAL CORPORATION, ET AL., Plaintiffs, v. DOMINION VOTING SYSTEMS INTERNATIONAL CORPORATION, ET AL., Defendants. DOMINION VOTING SYSTEMS INTERNATIONAL CORPORATION, ET AL., Counterclaim-Plaintiffs, v. SMARTMATIC INTERNATIONAL CORPORATION, ET AL., Counterclaim-Defendants. DOMINION VOTING SYSTEMS INTERNATIONAL CORPORATION, ET AL., Third-Party Plaintiffs, v. SMARTMATIC TIM CORPORATION, Third-Party Defendant. |
| Court | Court of Chancery of Delaware |
Raymond J. DiCamillo, Esq., Kevin M. Gallagher, Esq., RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Bruce D. Oakley, Esq., Aaron R. Crane, Esq., HOGAN LOVELLS US LLP, Houston Texas; Attorneys for Plaintiffs and Counterclaim-Defendants Smartmatic International Corporation and Smartmatic USA Corporation, Plaintiff Smartmatic International Holding B.V., and Third-Party Defendant Smartmatic TIM Corporation.
R. Judson Scaggs, Jr., Esq., Megan Ward Cascio, Esq., Matthew R. Clark, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Richard A. Johnston, Esq., Peter C. Mulcahy, Esq., WILMER CUTLER PICKERING HALE AND DORR LLP, Boston, Massachusetts; Attorneys for Defendants Dominion Voting Systems International Corporation, Dominion Voting Systems Corporation and Dominion Voting Systems, Inc.
PARSONS, Vice Chancellor.
The motion before me presents the narrow issue of whether the term "in the United States," as used in an October 2009 license agreement, includes Puerto Rico. The license agreement grants the plaintiffs a worldwide (other than the United States and Canada) nonexclusive license to certain technology the defendants developed related to automated voting machines. The agreement's noncompetition provision prohibited the plaintiffs from selling the licensed products "in the United States." The plaintiffs attempted to sell such products in Puerto Rico. In response, the defendants purported to terminate the license agreement for breach of the noncompetition provision. The defendants also ceased performing their obligations under the agreement. This lawsuit followed.
The motion before me is the plaintiffs' motion for partial summary judgment on the meaning of the term "in the United States." For the reasons stated in this Memorandum Opinion, I find that the license agreement is ambiguous and that the ambiguity cannot be resolved on the limited record before me. I therefore deny the plaintiffs' motion.
There are three plaintiffs in this action: Smartmatic International Corporation, a Barbados corporation; Smartmatic USA Corporation, a Delaware corporation; and Smartmatic International Holding B.V, a Netherlands corporation (collectively, "Smartmatic" or "Plaintiffs").
There are two sets of defendants. The first set includes: Dominion Voting Systems International Corporation, a Barbados corporation; Dominion Voting Systems, Inc., a Delaware corporation; and Dominion Voting Systems Corporation, a Canadian corporation (collectively, "Dominion" or "Defendants"). The remaining defendant, Iron Mountain Intellectual Property Management, Inc., a Delaware corporation, did not brief the motion before me.
In their Answer, Verified Counterclaim, and Third-Party Complaint, Defendants asserted claims against a third-party defendant, Smartmatic TIM Corporation, a Philippines corporation.
In October 2009, Dominion granted Smartmatic a worldwide (except for the United States and Canada) nonexclusive license to certain precinct count optical scan ("PCOS") voting systems that Dominion had developed (the "License Agreement" or the "Agreement"). The License Agreement granted Smartmatic rights to certain patents and patent applications that Dominion owned or controlled (the "Licensed Patent Rights") and to "all know-how, trade secrets, methodologies and other technical information owned or possessed by Dominion" (the "Licensed Technology").1 The License Agreement contains a noncompetition provision. This provision limits Smartmatic'srights to develop, market, or sell2 products that embody the Licensed Technology (the "Licensed Products"). The noncompetition provision, discussed in detail infra, restricts Smartmatic's right to sell both Licensed Products (i.e., Dominion PCOS voting systems) and non-Dominion PCOS voting systems. These restrictions apply differently in different parts of the world. The section of the noncompetition provision that gives rise to this dispute is Section 3.4(b), which states in relevant part that "Smartmatic shall not develop, market or sell any Licensed Product in the United States."3
When the parties entered into the License Agreement, Dominion intended to focus its efforts on Canada and the United States.4 Smartmatic would focus on emerging international markets.5 In fact, before entering the License Agreement and based on prior agreements with Dominion, Smartmatic contracted with the Republic of the Philippines to provide certain technology and services to modernize and automate the Philippines' national elections.6
The parties' relationship hit a snag in June 2011 after the Puerto Rico State Elections Commission issued a request for proposals. The Commission sought to acquireproducts to implement a uniform electronic vote-counting system using optical scanning voting technology like Dominion's. Both Smartmatic and Dominion submitted bids. On May 23, 2012, Dominion notified Smartmatic by letter that Smartmatic was in breach of the License Agreement because it submitted a bid to the Government of Puerto Rico to sell Licensed Products "in the United States" in violation of Section 3.4(b). Dominion also purported to terminate the agreement as a result of Smartmatic's alleged breach.7 In a May 24 response, Smartmatic rejected Dominion's termination as invalid because Puerto Rico is not "in the United States." The parties now contest, among other things, the validity of Dominion's purported termination. Since the termination, Dominion has not performed its obligations under the License Agreement.
Smartmatic filed a complaint and a motion for expedited proceedings on September 6, 2012. Dominion filed an answer and counterclaims on October 12. On October 29, Plaintiffs moved for partial summary judgment on the issue of whether Puerto Rico is "in the United States" for purposes of the License Agreement. Defendants responded to Smartmatic's motion by requesting in their answering brief that the Court deny the motion and instead declare "that[:] (i) Puerto Rico is 'in the United States' for the purposes of the non-competition provisions in the License Agreement; (ii)Smartmatic violated the relevant non-competition provision by competing against Dominion and/or marketing Dominion's voting systems in Puerto Rico; (iii) Dominion was entitled to terminate the license agreement as a result of such competition; and (iv) Dominion validly terminated the license agreement."8 Although Defendants did not cross move for partial summary judgment, they requested the opportunity to submit a cross motion if the Court finds it necessary. I do find Defendants' request for summary declaratory relief to be overly broad, but I do not consider it productive for Defendants to cross move for partial summary judgment at this time.9 Smartmatic understandably has briefed and argued only the issue that is the subject of their motion for partial summary judgment.10 Thus, I will treat the motion before me and Dominion's response as the equivalent of a cross motion for partial summary judgment on the issue of whether Puerto Rico is "in the United States" for the purposes of the noncompetition provision in the License Agreement.
The validity of Dominion's purported termination of the License Agreement depends on the resolution of this threshold issue. Whether the License Agreementproperly was terminated will affect whether Dominion owes Smartmatic continuing obligations under the Agreement. Moreover, such obligations are important to other claims the parties have against each other that are not relevant to the motion now before me.
The parties argued Plaintiffs' motion on December 21, 2012. Shortly after the argument, I requested that the parties submit additional briefing to address whether, in construing the License Agreement, I should consider the fact that, under 35 U.S.C. § 100(c), Dominion's United States patents would apply to actions taken by Smartmatic in Puerto Rico. The parties completed briefing on this issue on January 14, 2013. This Memorandum Opinion constitutes my ruling on Plaintiffs' motion for partial summary judgment.
Both parties argue that the License Agreement is unambiguous and should be interpreted in their favor. Smartmatic asserts that the ordinary meaning of "in the United States" does not include Puerto Rico. In support of this assertion, they rely on dictionary definitions, case law, and statutes that explicitly distinguish between Puerto Rico and the United States. Plaintiffs also argue that because the term at issue appears in the License Agreement's noncompetition provision, it should be construed narrowly.
Dominion counters that the ordinary meaning of "in the United States" includes Puerto Rico. To support their interpretation, Defendants assert that Puerto Rico is considered to be part of the United States under most federal laws. They also rely on language in the noncompetition provision to demonstrate that the parties specificallyaddress the question of competition "in the United States," in Section 3.4(b), and "in any country other than the Unites States," in Section 3.4(c). Dominion argues that because Puerto Rico is not a "country other than the United States," it must be included in the contract language "in the United States." Thus, according to Defendants, the plain language of the License Agreement demonstrates the parties' intent that the term "in the United...
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