FRAUNHOFER-GESELLSCHAFT ZUR FÖRDERUNG DER ANGEWANDTEN FORSCHUNG E. V., Plaintiff-Appellant
SIRIUS XM RADIO INC., Defendant-Appellee
from the United States District Court for the District of
Delaware in No. 1:17-cv-00184-JFB-SRF, Senior Judge Joseph F.
C. McPhie, Irell & Manella LLP, Newport Beach, CA, argued
for plaintiff-appellant. Also represented by Ben J. Yorks,
Alexis Paschedag Federico, Kamran Vakili; Alan J. Friedman,
Shulman Hodges & Bastian LLP, Irvine, CA.
Baghdassarian, Kramer Levin Naftalis & Frankel LLP, New
York, NY, argued for defendant- appellee. Also represented by
Jonathan Caplan, Shannon H. Hedvat; Paul J. Andre, Menlo
Dyk, Linn, and Taranto, Circuit Judges.
zur Förderung der an-gewandten Forschung E.V.
("Fraunhofer") sued Sirius XM Radio Inc.
("SXM") alleging infringement of claims of four of
Fraunhofer's patents. The district court granted
SXM's motion to dismiss for failure to state a claim on
the ground that it had a valid license to the
patents-in-suit. We conclude that this license defense cannot
be resolved on a motion to dismiss. We vacate the judgment,
and remand to the district court for further proceedings. We
also reverse the district court's denial of
Fraunhofer's motion for leave to amend.
is a partially state-funded non-profit research organization
headquartered in Munich, Germany. Over the past three
decades, Fraunhofer has developed and patented several
inventions related to multicarrier modulation. Multicarrier
modulation is a method for transmitting a main data stream
over multiple carrier data streams. The utilization of
multiple carrier data streams is useful in satellite-based
communication networks, where the signal quality for an
individual data stream can vary depending on the line of
sight between the satellite and the receiver.
March 4, 1998, Fraunhofer and a third party, WorldSpace
International Network Inc. ("WorldSpace"), entered
into an exclusive license agreement ("the Master
Agreement") related to Fraunhofer's multicarrier
modulation technology ("the MCM Intellectual Property
Rights"). The Master Agreement gave WorldSpace a
"worldwide, exclusive, irrevocable license, with the
right to sublicense, under the MCM Intellectual Property
Rights to make, have made, use, have used, sell or have sold
MCM Technology (and products and services incorporating or
utilizing the MCM Technology) in connection with WorldSpace
Business." J.A. 483. The Master Agreement required
WorldSpace to pay a $1 million license fee, payable in
installments, to Fraunhofer (which was fully paid by December
31, 2000) and to make other payments relating to future
patent prosecution. Section 9.5 of the Master Agreement
states that "[t]his Agreement shall be subject to,
governed by, and construed in accordance with" German
law. J.A. 488.
late 1990s, SXM began developing its Digital Audio Radio
Services ("DARS") System. SXM sought to use
Fraunhofer's MCM Technology in the DARS system. Because
Fraunhofer had already granted an exclusive license to
WorldSpace, on July 24, 1998, SXM entered into a Sub-license
Agreement with WorldSpace. The Sublicense Agreement granted
SXM a license "to use the WorldSpace Licensed Technology
[including the MCM Intellectual Property Rights] for the
development, implementation and commercialization of the [SXM
DARS] System for transmission in and over the geographic area
of the United States and its territories," J.A. 187. On
June 7, 1999, the Sublicense Agreement was amended to make
the license "irrevocable." J.A. 203.
Fraunhofer assisted SXM in developing a satellite
communication system utilizing Fraunhofer's technology.
On July 16, 1999, SXM and Fraunhofer entered into a Technical
Consulting Contract for "Fraunhofer [to] contribute to
the development of the [SXM] DARS system in the following
areas: System Engineering; Receiver development; Test
equipment development and production; [and] multimedia
adapter." J.A. 847. The Technical Consulting Contract
also confirmed that Fraunhofer and SXM understood that the
"patents related to MCM technology are exclusively
licensed to WorldSpace," and that SXM had agreed to
obtain a license from WorldSpace. J.A. 881. Pursuant to the
Technical Consulting Contract, Fraunhofer allegedly
constructed for SXM "the [SXM] DARS System . . . using
the technologies [allegedly] covered by the [patents that SXM
is now accused of infringing]." J.A. 1409.
thereafter ran into financial difficulties. On October 17,
2008, WorldSpace filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. On June 12, 2012,
WorldSpace's bankruptcy case was converted to Chapter 7.
At the bankruptcy court, WorldSpace rejected the Master
Agreement pursuant to section 365(d)(1) of the Bankruptcy
the Supreme Court's recent ruling in Mission
Products, WorldSpace's rejection was equivalent to a
breach occurring "immediately before the date of the
filing of the [bankruptcy] petition." Mission Prod.
Holdings, Inc. v. Tempnology, LLC, 139 S.Ct. 1652, 1658
(2019) (alterations in original) (quoting 11 U.S.C. §
365(g)(1)). This breach gave Fraunhofer the right to
terminate the Master Agreement. Fraunhofer did not at the
time terminate the agreement but did file an administrative
claim for amounts unpaid under the Master Agreement. Nor did
WorldSpace terminate the Sublicense Agreement. On July 13,
2009, the bankruptcy court approved a Settlement Agreement
between WorldSpace and SXM that "provided that SXM would
pay WorldSpace $298, 517 in satisfaction of all of its
obligations under the sublicense, and emphasized that the
sublicense would remain in effect." J.A. 16 (citing J.A.
219, §§ 1, 3). As a result of the Settlement
Agreement no further payments were due from SXM to WorldSpace
under the Sublicense Agreement, and there is no indication
that SXM was otherwise in breach of the Sublicense Agreement.
SXM continued to utilize the MCM technology.
October 2015, many years later, Fraunhofer sent a letter to
SXM alleging that SXM was infringing four of its patents:
U.S. Patent Nos. 6, 314, 289 ("the '289
patent"), 6, 931, 084 ("the '1084
patent"), 6, 993, 084 ("the '3084
patent"), and 7, 061, 997 ("the '997
patent") (collectively, "the
patents-in-suit"). The '289 patent describes a
multi-antenna system used to transmit and receive
multicarrier modulation signals. The '1084 patent
describes a method used to correct phase shifts that are
introduced by echoes that occur during multi-carrier
transmission. The '3084 patent describes a method for
inserting reference symbols into each carrier data stream
which are then used for coarse synchronization of carrier
signals. The '997 patent describes a method and apparatus
for fine frequency synchronization using phase shift keying.
These four patents were covered in the Master Agreement and
November 13, 2015, Fraunhofer sent a letter to WorldSpace
("Termination Letter") claiming that the Master
Agreement "was terminated in the context of the
rejection [in bankruptcy]," and "declar[ing] (in
the alternative and as a precautionary measure in case the
[Master Agreement] has remained yet unterminated) the [Master
Agreement] terminated for cause (auβerordentliche
Kündigung) under German law [and] . . . on the
basis of the provisions in Section 7.2 and 7.3 of the [Master
Agreement]." J.A. 251.
February 22, 2017, Fraunhofer sued SXM for infringement the
'289 patent, '1084 patent, '3084 patent, and
'997 patent in the United States District Court of
Delaware. SXM moved to dismiss the complaint. Fraunhofer
later sought to amend its complaint. The district court,
applying United States law, dismissed Fraunhofer's
complaint on the ground that Fraunhofer's sublicense
under the Sublicense Agreement was a complete defense to
infringement and denied Fraunhofer's motion to amend the
complaint on ground of futility.
jurisdiction over this appeal pursuant to 28 U.S.C. §
1295(a)(1). Before oral argument, we issued an order advising
that parties be prepared to address:
1. Whether the choice of law provision in Section 9.5 of the
Master License Agreement requires this court to interpret the
Master License Agreement according to German law, and to
determine the rights of SXM according to German law.
2. Whether the application of German law would result in
SXM's sublicense rights surviving contract termination of
the Master License
Agreement. See, e.g., M2Trade,
Bundesgerichtshof [BGH] [Federal Court of Justice] July 19,
2012, Entscheidungen des Bundesgerichtshofes in Zivilsachen
[BGHZ] 194, 136 (Ger.); Take Five, BGH July 19,
2012, Neue Juristische Wochenschrift Rechtsprechungs-Report
Zivilrecht [N]W-RR] 2012, 1127 (Ger.).
3. Whether this case should be remanded to the District Court
for further proceedings to address the impact of German law