Texas Instruments v. Hyundai Electronics Indus.

• Decision Date: 04 February 1999
• Docket Number: No. 2:98CV225 TH.,No. 2:98CV224 TH.,No. 2:98CV73 TH.,No. 2:98CV223 TH.,No. 2:99CV1 TH.,No. 2:98CV74 TH.,No. 2:98CV77 TH.,2:98CV73 TH.,2:98CV74 TH.,2:98CV77 TH.,2:98CV223 TH.,2:98CV224 TH.,2:98CV225 TH.,2:99CV1 TH.
• Citation: 42 F.Supp.2d 660
• Parties: TEXAS INSTRUMENTS, INC., Plaintiff, v. HYUNDAI ELECTRONICS INDUSTRIES, CO. LTD., Hyundai Electronics America, Inc., and Hyundai Semiconductor America, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Texas

42 F.Supp.2d 660

TEXAS INSTRUMENTS, INC., Plaintiff, v. HYUNDAI ELECTRONICS INDUSTRIES, CO. LTD., Hyundai Electronics America, Inc., and Hyundai Semiconductor America, Inc., Defendants.

No. 2:98CV73 TH.

No. 2:98CV74 TH.

No. 2:98CV77 TH.

No. 2:98CV223 TH.

No. 2:98CV224 TH.

No. 2:98CV225 TH.

No. 2:99CV1 TH.

United States District Court, E.D. Texas, Marshall Division.

February 4, 1999.

COPYRIGHT MATERIAL OMITTED

Kenneth Robert Adamo, Jones Day Reavis & Pogue, Jay Carl Johnson, Texas Instruments Incorporated, Dallas, Carl R Roth, Law Office of Carl R Roth, Marshall, Barry Satine, Jones Day reavis & Pogue, Michael Covino, Jones Day Reavis & Pogue, New York, NY, for Texas Instruments Incorporated, plaintiffs.

Thomas John Ward, Brown McCarroll & Oaks Hartline, Longview, David J Beck, Beck Redden & Secrest LLP, Houston, TX, George Marcus Schwab, Mark T Jansen, Roger Cook, Townsend & Townsend & Crew, San Francisco, CA, Kenneth L Nissly, Thelen Reid & Priest LLP, San Jose, CA, for Hyundai Electronics Industries Co. Ltd., Hyundai Semiconductor America, Inc., Hyundai Electronics America, Inc., defendants.

Elizabeth Ellen Mack, Locke Purnell Rain Harrell, Dallas, TX, Anthony de Alcuaz, Howard Rice Nemerowski Canady, Palo Alto, CA, for Nikon Precision Inc., movant.

Roderick M. Thompson, Pillsbury Madison & Sutro, San Francisco, CA, for DNS Electronics, LLC.

MEMORANDUM AND OPINION ORDER

HEARTFIELD, District Judge.

Before this court is Plaintiff Texas Instruments Incorporated's Motion for Partial Summary Judgment and Memorandum in Support Thereof¹ [83, 84, and 85 of 2:98-cv-74] and Defendant Hyundai's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment² [67 of 2:98-cv-73]. Having considered the motions, the replies, the sur-replies, the arguments of counsel, and the pleadings on file, this Court hereby GRANTS Plaintiff Texas Instruments Incorporated's Motion for Partial Summary Judgment and Memorandum in Support Thereof [83, 84, and 85 of 2:98-cv-74] and DENIES Defendant Hyundai's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment [67 of 2:98-cv-73].

1. The Extensive History Between Texas Instruments and Hyundai

A. Texas Instruments and Hyundai — The Parties Forge a Relationship

As stated earlier, this lawsuit represents merely the tip of the litigation iceberg between Texas Instruments and Hyundai. In order to rule on the parties' summary judgment motions, it is incumbent upon this Court to track the events between Hyundai³ and Texas Instruments, Incorporated ("Texas Instruments") that led up to this pivotal point in Marshall, Texas.⁴ First of all, these parties are not strangers to the Eastern District of Texas, Marshall Division. In September 1992, Texas Instruments filed a patent-infringement lawsuit against Hyundai in this very Court. However, on April 26, 1993, Texas Instruments and Hyundai settled that lawsuit by entering into a patent cross-license agreement.⁵ The fifty-five (55) page agreement — aptly titled the "License Agreement" — granted Hyundai freedom to use certain Texas Instruments patents (even those issued after the effective date of the license) around the world. It also granted Texas Instruments similar freedom to use Hyundai's patents around the world. Pursuant to the License Agreement, Hyundai agreed to pay Texas Instruments royalties subject to specified caps. Although both parties were able to come to terms with the fifty-five page contract, all good things must come to an end.

The License Agreement consists of two "periods." Under Article 5.1 of the agreement, the "First Period" ended on December 31, 1995. License Agreement at 29 Under Article 5.2 of the license agreement, the "Second Period," the current period in dispute, began on January 1, 1996 and terminates either upon December 31, 2000 or when "cumulative worldwide sales of ROYALTY BEARING PRODUCTS"⁶ reaches three billion eight hundred ninety-five million and one hundred thousand U.S. dollars (U.S.$3,895,100,000) (the "sales cap").⁷ License Agreement at 30. Obviously, December 31, 2000 is not here. Thus, the crux of the present dispute is whether Hyundai's cumulative worldwide sales of semiconductive elements and semi-conductive apparatus (other than discrete devices) for the period commencing on January 1, 1996, have indeed reached the sales cap of $3,895,100,000.⁸ Regardless of the amount of sales to date, Texas Instruments and Hyundai realized the need to begin license renewal negotiations.

B. Renewal Negotiations — Friendly Discussions Begin

1. The Fundamentals of Semiconductor Chip Patent Negotiations

On May 15, 1997, Texas Instruments and Hyundai began renewal negotiations with the exchange of their "proud lists." Apparently, "proud lists" are representative lists of patents that each company believes are particularly applicable to its negotiating partner's business and products.⁹ Well, why not just list the specifically covered patents and be done with it? Welcome to the wild world of semiconductor technology patent negotiations. Semiconductor devices are tiny silicon chips about one-half the size of a thumbnail which contain over sixty million transistors. These chips are now manufactured with tolerances between electrical circuits as close as .18 microns.¹⁰ They can literally store an encyclopedia of information. However, it is exceedingly difficult to determine whether a semiconductor chip infringes upon any patent without "reverse engineering" the device — a costly and time-consuming endeavor. Moreover, semiconductor chips are easily transferrable and difficult to track. Finally, large companies like Texas Instruments and Hyundai have thousands of patents around the world, with so many patents worldwide, it is quite possible for Texas Instruments and Hyundai to have multiple patents maturing and expiring every day.¹¹ Thus, parties like Texas Instruments and Hyundai when drafting a license agreement do not negotiate a single contract for a single patent for a single product. For although such a highly specified endeavor would undoubtedly yield certainty as to which patent is covered by the contract, it would not provide the expansive patent coverage sought by both parties. So, parties like Texas Instruments and Hyundai turn to broad, portfolio-like cross-license agreements such as the one currently in dispute before this Court In order to accommodate the large size of companies and the fluid nature of semiconductor patent technology, these cross-license agreements usually include patents that come into existence after execution of the contract. By using this expansive cross-license agreement procedure, mammoth companies like Texas Instruments and Hyundai avoid the costly and inefficient endeavor of a patent-by-patent licensing scheme.¹²

2. Standstill Agreements Extend License Negotiations

So, beginning in March of 1997, Texas Instruments and Hyundai agreed to conduct license renewal negotiations without resort to litigation through a "standstill agreement" that would expire in mid-February 1998. Texas Instruments argued that the License Agreement terminated in late 1997 when, according to Dataquest's¹³ calculations, the sales cap had been reached. On January 20, 1998 during a negotiation session, Hyundai proffered its argument why it believed (and continues to believe) the sales cap has in fact not been reached. Hyundai argued (for the first time according to Texas Instruments) that not all of its sales are to be counted in calculating the sales cap Specifically, Hyundai argued that the License Agreement provided that only products covered by the claim of a Texas Instruments patent count toward the sales cap. In essence, Hyundai told Texas Instruments that "royalty bearing products" (products which count toward the sales cap) were limited to products which practice a Texas Instruments patent, in force at the time the product is sold, in the country in which the sale occurs (the "TI Countries"). Hyundai conceded that TI Countries included the United States, Canada, and several European countries¹⁴ which it "credited" to the sales cap calculation. Through the end of April of 1998, Hyundai credited $3,002,140,000 in sales in these "TI countries" toward the sales cap calculation, thereby placing Hyundai roughly $900,000,000 under the sales cap. But these were not all of Hyundai's sales. Hyundai argued that the following countries were (and still are) "Non-TI Countries" whose sales are not applicable to the sales cap calculation: Australia, Brazil, China, Hong Kong, India, Israel, Korea, Malaysia, Philippines, Malta, Russia, Singapore, Thailand, Turkey, and Taiwan.¹⁵ Under Hyundai's interpretation of the License Agreement, Texas Instruments would not receive credit toward the sales cap calculation for products sold in these "Non-TI Countries." However, had Hyundai included all of these "Non-TI Countries" in its calculation of the sales cap, then, by its own calculations under its own interpretation of the License Agreement, its total worldwide sales of royalty bearing products would have been $4,521,528,000 by April 1998 — far over the termination cap of $3,895,100,000.¹⁶ At Hyundai's request, Texas Instruments agreed to two extensions to this standstill agreement. On May 1, 1998 the last extension to the standstill agreement expired. Negotiations had failed.¹⁷ C. A Global Litigation War

Since negotiations failed, Texas Instruments and Hyundai turned to the courts; in fact, they turned to a myriad of courts across this nation and around the world.

1. United States Litigation — The American Offensive

May 1, 1998 was a busy day for the parties' attorneys, for both Texas Instruments and Hyundai filed lawsuits on this day. On May 1, 1998 Texas Instruments filed three patent suits against Hyundai in two judicial districts. In the Eastern District of Virginia, Texas Instruments filed Case No. 98-627-A.¹⁸ asserting synchronous dynamic random access memory ("DRAM")...