[00:00:32] Speaker 02:
Okay, our final case this morning is number 17, 1682, Alex Sam, Inc.

[00:00:37] Speaker 02:
versus Wild Card Systems, Inc., Mr. Gresham.

[00:00:43] Speaker 02:
Mr. Gresham, before we start the clock, why is it that the district court decision here is marked confidential?

[00:00:50] Speaker 02:
I mean, surely it has all sorts of material in it which is not confidential.

[00:00:55] Speaker 01:
I think that's a good question.

[00:00:57] Speaker 01:
It was filed under seal and then marked confidential, and your Honor is

[00:01:02] Speaker 01:
is correct that there are plenty of material in the decision, the order, that is not confidential.

[00:01:11] Speaker 03:
Is there anything in the order that is confidential?

[00:01:17] Speaker 01:
There are some issues regarding the terms of the license agreement itself, that if those are set out specifically, they're not really set out specifically in terms of

[00:01:30] Speaker 01:
royalty payments, I don't believe, or anything that would be confidential from that standpoint.

[00:01:37] Speaker 01:
Who asked that this be filed under seal?

[00:01:41] Speaker 02:
The appellees did.

[00:01:46] Speaker 02:
Well, Mr. Borning, can you tell us why you asked to have this done under seal?

[00:01:53] Speaker 00:
Your Honor, with respect to the confidential information, we did try to reach an agreement with Alex Sam to

[00:02:00] Speaker 00:
substantially reduced the amount of confidential information in the Chewin Appendix, but we were not able to reach an agreement.

[00:02:10] Speaker 02:
Okay.

[00:02:11] Speaker 02:
Why don't we start the clock again at 15 minutes.

[00:02:16] Speaker 02:
Okay, Mr. Gresham.

[00:02:17] Speaker 01:
May it please the Court.

[00:02:20] Speaker 01:
This is a breach of contract case arising out of Florida law filed in Florida State Court.

[00:02:28] Speaker 01:
that has found its way before your honors.

[00:02:32] Speaker 01:
I suppose because the word patent was implicated and thus the district court found that there was federal subject matter jurisdiction over the claims in this case.

[00:02:46] Speaker 01:
The district court erred in a couple of respects.

[00:02:49] Speaker 01:
I'll spend the initial part of my argument and the bulk of my argument on the jurisdictional issues

[00:02:56] Speaker 01:
It's undisputed that federal law did not create the cause of action.

[00:03:03] Speaker 01:
It is a state law breach of contract claim.

[00:03:06] Speaker 02:
But under the Holmes fix, a counter-claim that raises a patent issue is within the district court's original jurisdiction and then within the removal jurisdiction.

[00:03:18] Speaker 02:
It doesn't have to be a compulsory counter-claim, right?

[00:03:22] Speaker 02:
Well, it does have to be a compulsory counsel.

[00:03:24] Speaker 02:
Not only for our jurisdiction, not for the district court's.

[00:03:26] Speaker 01:
Well, that is true.

[00:03:28] Speaker 01:
However, if it's a permissive counterclaim, then there must be a jurisdictional basis separate and apart.

[00:03:35] Speaker 01:
In other words, a federal question.

[00:03:37] Speaker 04:
But doesn't the Supreme Court's decision in the China defense Moravsky make clear that a declaratory judgment action

[00:03:44] Speaker 04:
I think in that case, non-infringement, but I can't think why non- why invalidity would be any different, is a claim arising under federal law because you look at the threatened patent owners conduct.

[00:04:01] Speaker 04:
Why doesn't, why isn't that sufficient to establish the district court's jurisdiction and then our jurisdiction is a separate question?

[00:04:09] Speaker 01:
Okay, yes.

[00:04:10] Speaker 01:
And I was about to get to that.

[00:04:13] Speaker 01:
There's a two-pronged assessment here of federal subject matter jurisdiction.

[00:04:17] Speaker 01:
The first is, does the claim itself, the breach of contract claim, arise under federal law?

[00:04:23] Speaker 04:
I'm ignoring that.

[00:04:24] Speaker 04:
You don't have to get to that if the counterclaim is sufficient.

[00:04:27] Speaker 01:
Well, you have to get to it in terms of whether there is a remand, whether it is supplemental jurisdiction that allows it to be in front of the federal court, or whether it should be remanded.

[00:04:42] Speaker 01:
the district court completely skipped over whether the breach of contract claim arises under Federal law, and went straight to the 1454, saying that because there's a counterclaim that the appellee say is compulsory, and she made no... Can you start with, let's first ask the question, does the counterclaim arise under Federal law within the scope of Murawski?

[00:05:12] Speaker 01:
Okay.

[00:05:12] Speaker 01:
There are two considerations for the counterclaim.

[00:05:16] Speaker 01:
The first is whether the police had standing to bring the counterclaim in the first place.

[00:05:20] Speaker 01:
There has to be an injury, in fact, something concrete, something real to base the counterclaim on.

[00:05:27] Speaker 01:
There is no such thing here.

[00:05:28] Speaker 01:
There's a breach of contract claim.

[00:05:30] Speaker 01:
There's no infringement claim.

[00:05:32] Speaker 01:
If infringement had been asserted, threatened under the totality of the circumstances under MedImmune,

[00:05:38] Speaker 01:
had been something that could be real, then it would be a different analysis.

[00:05:43] Speaker 02:
However, if you- Well, that's a metamune argument.

[00:05:45] Speaker 02:
Put that to one side for the moment.

[00:05:47] Speaker 02:
Let's assume that there was an actual controversy with respect to the infringement.

[00:05:53] Speaker 02:
This is a counterclaim, even if it's not compulsory, that creates district court jurisdiction under those circumstances, right?

[00:06:05] Speaker 01:
It would be a permissive counterclaim.

[00:06:07] Speaker 01:
Therefore, there would have to be a separate basis for jurisdiction.

[00:06:13] Speaker 01:
You don't have diversity of parties here.

[00:06:16] Speaker 01:
You'd have to find a federal question separate and apart.

[00:06:20] Speaker 02:
If there's a counterclaim which arises under the patent law, the district court has jurisdiction, right?

[00:06:28] Speaker 01:
That is correct, if it arises under patent law.

[00:06:32] Speaker 01:
If it does.

[00:06:32] Speaker 02:
The counterclaim arises under patent law, doesn't it?

[00:06:35] Speaker 01:
Well, you can't just make the leap saying that it claims invalidity, therefore it arises under the patent law.

[00:06:43] Speaker 01:
You have to go through the steps to determine, is there an actual case in controversy?

[00:06:49] Speaker 01:
The district court said no.

[00:06:50] Speaker 01:
She linked the counterclaim to the termination paragraph of the license agreement.

[00:06:58] Speaker 01:
And then once she determined that the license agreement had been terminated, she found no independent basis for the counterclaim.

[00:07:04] Speaker 01:
and then dismissed it as such.

[00:07:06] Speaker 01:
There's also whether the transaction and occurrence is the same that the counterclaim arose out of.

[00:07:18] Speaker 01:
Did it arise out of the same transaction and occurrence as the subject matter of the claim?

[00:07:24] Speaker 01:
No.

[00:07:25] Speaker 01:
The claim is a breach of contract claim.

[00:07:27] Speaker 01:
There are elements to breach of contract.

[00:07:30] Speaker 01:
The question here is whether the appellees failed to pay

[00:07:34] Speaker 01:
the royalties that Alexum claims that they're owed.

[00:07:37] Speaker 01:
Under an infringement claim, that implicates prior art and claim construction and those sorts of things.

[00:07:44] Speaker 01:
It's a totally different set of circumstances, set of facts.

[00:07:49] Speaker 01:
Also, for there to be a compulsory counterclaim here, you have to look at whether it serves a useful purpose.

[00:07:58] Speaker 02:
In this case... Yeah, but under cargo chemical, I think is the right case.

[00:08:03] Speaker 02:
We're supposed to defer to the 11th Circuit's judgment about that, about whether it's repulsory, right?

[00:08:09] Speaker 01:
Well, that is true.

[00:08:10] Speaker 01:
But if you look at the 11th Circuit's order, it's very similar to the district court's order in that there's no analysis of whether there's an actual case in controversy.

[00:08:21] Speaker 01:
Does it arise out of the same set of facts as the claim?

[00:08:27] Speaker 01:
There is no analysis whatsoever relative to whether the

[00:08:32] Speaker 04:
But we do have to follow the 11th Circuit unless the compulsory counterclaim is implausible, clearly wrong.

[00:08:41] Speaker 04:
I think it's Christiansen maybe that maybe says that so that we don't have independent judgments and a ping pong process that follows.

[00:08:51] Speaker 04:
So why isn't it plausible to say

[00:08:55] Speaker 04:
You brought a contract action.

[00:08:57] Speaker 04:
You're going to want damages going, perhaps you don't deny this, I think, beyond the date of the complaint.

[00:09:05] Speaker 04:
Those damages will be accumulating until such time as the contract is terminated.

[00:09:10] Speaker 04:
Invalidity judgment will, under the terms of the contract, terminate the contract and thereby cut off, as I think you agree in your brief, the amount of damages that might be recovered even in this case.

[00:09:25] Speaker 04:
Why is that not, does that not satisfy the logical relation test for compulsory counterclaims, or at least plausibly do so?

[00:09:34] Speaker 01:
Well, because infringement has not been asserted.

[00:09:38] Speaker 01:
There's been no threat of infringement.

[00:09:40] Speaker 04:
Invalidity... Invalidity terminates the contract, does it not?

[00:09:45] Speaker 01:
It does.

[00:09:45] Speaker 04:
Okay.

[00:09:46] Speaker 04:
So forget about infringement.

[00:09:47] Speaker 01:
Okay.

[00:09:48] Speaker 01:
Well, but the language of the termination provision, which the district court relied on in terms of attaching federal subject matter jurisdiction to the counterclaim,

[00:10:03] Speaker 01:
says that this agreement shall remain in full force and effect unless the claims of the licensed patents are held invalid or unenforceable by a court of competent jurisdiction.

[00:10:16] Speaker 01:
The district court took that as an invitation to say that you could attack the validity of the patents as a way to terminate the agreement.

[00:10:26] Speaker 01:
The licensing agreement was put in place to resolve the case for controversy, not to create

[00:10:32] Speaker 01:
a case for controversy, which is exactly what the district court allowed here.

[00:10:37] Speaker 02:
I have a difficulty in seeing how this is really different from metamune.

[00:10:43] Speaker 01:
Well, it's different because the language of the complaint is different and the language of the contract is different.

[00:10:56] Speaker 01:
The complaint has one line in the entire

[00:11:01] Speaker 01:
complaint that references the patents.

[00:11:06] Speaker 01:
It says the license agreement details the obligations of the parties with respect to the patents owned by Alexa.

[00:11:14] Speaker 01:
That's it.

[00:11:15] Speaker 01:
Sections three, paragraphs three and four of the license agreement detail what is covered, what the covered processes are, the covenant not to sue provision,

[00:11:27] Speaker 01:
The most favored nations provision, the timing and reports section of the agreement, all refer to paragraphs three and four.

[00:11:35] Speaker 01:
They do not refer to the patents.

[00:11:38] Speaker 01:
So one way to look at this is if the patents did not exist, the court could still interpret this contract in the plain language that it's written and determine what's covered, what, if any, royalties are due to be paid, that sort of thing.

[00:11:56] Speaker 01:
So you can't overlook the claim itself to attach.

[00:12:00] Speaker 02:
That may be true in terms of the definition of what the royalties are being paid on, not relating strictly to whether the patents would have been infringed.

[00:12:11] Speaker 02:
But the contract still says it's terminated if the patents are invalid.

[00:12:18] Speaker 02:
And in Medellin, the Supreme Court said that you can have a declaratory judgment action to determine

[00:12:25] Speaker 02:
in validity under circumstances like that.

[00:12:28] Speaker 01:
Well, invalidity, though, is an affirmative defense to an infringement allegation.

[00:12:35] Speaker 01:
We have nothing that even hints of infringement in this case.

[00:12:39] Speaker 02:
But there's still a controversy about whether the contract should be treated as terminated because the patent's invalid.

[00:12:47] Speaker 01:
But it does not provide a sword for the licensee to attack the validity of the patent.

[00:12:55] Speaker 02:
In fact, the Metamune sort of says it does.

[00:12:59] Speaker 01:
Well, Metamune sort of says that it does.

[00:13:02] Speaker 01:
The facts are different in Metamune.

[00:13:04] Speaker 01:
The Supreme Court has also held that a third party in Lear, in fact, the Supreme Court said that a third party, that a licensee could stop paying royalties if a third party attacks and seeks invalidity and is successful over the basis of the patents.

[00:13:25] Speaker 01:
not the licensee that and I believe that that I don't believe the party's ever meant to create this sword when they're trying to resolve the conflict.

[00:13:36] Speaker 01:
This is a settlement and license agreement where the parties are dismissing with prejudice all their claims or potential claims arising out of that occurrence.

[00:13:46] Speaker 01:
If we go down this road where this counterclaim is deemed to be compulsory,

[00:13:51] Speaker 01:
Then it opens the door for these attacks on license agreements by licensees, and every breach of contract case is going to end up before Your Honors, whether it was well pleaded under the State law of the forum where it was filed, the State courts, or not.

[00:14:08] Speaker 01:
So it would upend the well pleaded complaint rule if the plaintiff is not the master of his complaint.

[00:14:14] Speaker 01:
If there are no allegations of infringement, patents are not implicated in any way.

[00:14:20] Speaker 01:
There's no need to

[00:14:21] Speaker 01:
construe the claims there.

[00:14:24] Speaker 01:
And in fact, the Gun v. Minton case is instructive on this, where they were, it was a, granted it was a legal malpractice case, but it was much more detailed in terms of patent issues.

[00:14:36] Speaker 01:
It was a patent issue that was asserted.

[00:14:38] Speaker 01:
It was patent law that was applied.

[00:14:40] Speaker 01:
It was a case within a case, patent case.

[00:14:43] Speaker 01:
And yet the Supreme Court says the patents were only indirectly involved in this matter.

[00:14:50] Speaker 01:
And the state court is completely capable of handling these issues here as well.

[00:14:56] Speaker 01:
The state court is completely competent to handle these.

[00:15:00] Speaker 04:
So in your view that the breach of license agreement should go forward in the Florida state court, the other side could, in that form, assert invalidity as a trigger for terminating the contract or could not?

[00:15:19] Speaker 01:
I don't think so.

[00:15:20] Speaker 01:
I don't think invalidity is a compulsory counterclaim under a breach contract claim.

[00:15:25] Speaker 02:
Well, that's not the question.

[00:15:27] Speaker 04:
That's not the question.

[00:15:27] Speaker 02:
In Florida court.

[00:15:29] Speaker 01:
In Florida court?

[00:15:30] Speaker 04:
Yes.

[00:15:31] Speaker 01:
I think they asserted an affirmative defense, and I believe that they could assert the affirmative defense, and it would accomplish.

[00:15:37] Speaker 04:
So the Florida court in Florida is, at that point, going to decide the validity of the patent?

[00:15:41] Speaker 01:
I don't think the, well, they could.

[00:15:45] Speaker 01:
They could.

[00:15:46] Speaker 01:
And the Supreme Court has said that there

[00:15:48] Speaker 01:
entitled to do that.

[00:15:49] Speaker 01:
The state courts are entitled to do that.

[00:15:52] Speaker 01:
Well, there's no binding precedent on a state court.

[00:15:56] Speaker 01:
A state court can determine patent issues, patent defenses, patent claims, and make a ruling on it.

[00:16:03] Speaker 01:
If it's a federal court, it follows to other federal courts.

[00:16:06] Speaker 01:
If it's a state court, and the Grable case talked about this, the Gunn v. Minton case talks about this, where a state court is completely the appropriate forum

[00:16:18] Speaker 01:
for state issues to be resolved, even if they implicate patent issues, such as here, invalidity.

[00:16:27] Speaker 01:
OK, do you want to save the remainder of your time?

[00:16:29] Speaker 02:
Yes, sir.

[00:16:29] Speaker 02:
Thank you.

[00:16:34] Speaker 00:
Mr. Barney.

[00:16:38] Speaker 00:
Thank you, honor.

[00:16:38] Speaker 00:
May it please the court?

[00:16:39] Speaker 00:
I'll jump right into the jurisdictional issue.

[00:16:43] Speaker 00:
The district court properly exercised subject matter jurisdiction over this case for two independent reasons.

[00:16:47] Speaker 00:
The most straightforward of these, as you've locked on to, is that Fidelity asserted a counterclaim of declaratory judgment of patent invalidity, which triggered the removal of authority under 28 USC 1454.

[00:17:00] Speaker 00:
Under the Holmes group fix, 1454 is amended to allow removal to federal court whenever any party asserts a claim for relief arising under an act of Congress relating to patents.

[00:17:10] Speaker 00:
And that includes counterclaims.

[00:17:12] Speaker 00:
Fidelity's counterclaim clearly arose under the Patent Act, because the patent act

[00:17:17] Speaker 00:
Act is the sole source that establishes the requirement for patent eligibility.

[00:17:21] Speaker 00:
And in fact, Fidelity's counterclaims specifically cited the 35 USC sections 101, 102, 103, 112, and 135 as the basis for the claim.

[00:17:31] Speaker 04:
And then you rely, I take it, on Borowski for the essential next step that asserting an invalidity, making an invalidity assertion, even though there's no cause of action for that in Title 35, nevertheless arises under Title 35.

[00:17:48] Speaker 00:
Absolutely, Your Honor.

[00:17:50] Speaker 00:
And it arises under Title 35 for the reason that you just mentioned that the Patent Act is the sole source for determining whether a patent is or is not valid.

[00:18:00] Speaker 00:
Now, putting the best sort of face or characterization on what Alex Ham is arguing, if you look at their gray brief, I think they probably stated it as clearly as anywhere else.

[00:18:10] Speaker 00:
They're arguing that the counterclaim did not arise under patent law, but instead arose under the license agreement.

[00:18:17] Speaker 00:
But there doesn't seem to be any legal support for that theory.

[00:18:20] Speaker 00:
A cause of action doesn't arise under a private agreement between two parties.

[00:18:24] Speaker 00:
It arises under a statute or under the common law.

[00:18:27] Speaker 00:
In other words, private parties cannot get together and create their own cause of action that doesn't already exist somewhere in the law.

[00:18:34] Speaker 00:
And here, the only source of a law that supports a counterclaim for patent invalidity is the Patent Act and Act of Congress.

[00:18:40] Speaker 00:
Now, Alex M. also argues that our invalidity counterclaim couldn't invoke federal jurisdiction because it wouldn't have defeated all claims for damages.

[00:18:49] Speaker 00:
It would only defeat claims for damages going forward.

[00:18:52] Speaker 04:
But again, 1454 does not require that a counterclaim be capable of defeating all claims, all of the claims for damages.

[00:19:15] Speaker 04:
In this action we will not seek any relief as to what happens September 2nd and 4th.

[00:19:23] Speaker 04:
You have a contract that terminates only prospectively.

[00:19:27] Speaker 04:
Why in that situation would this be a compulsory kind of

[00:19:32] Speaker 00:
Your Honor, under that factual scenario, which of course is not this factual scenario... Well, their complaint really doesn't speak to this.

[00:19:38] Speaker 04:
So when I was spinning out a theory of, we're going to seek damages past September 1st, in my hypothetical, and then you can respond to that by saying, we're going to cut that off by getting a November 1st ruling of invalidity.

[00:19:57] Speaker 04:
Their complaint, as far as I can tell, is bare bones on it.

[00:20:01] Speaker 00:
It's generic on that, so it presumably seeks all damages.

[00:20:05] Speaker 00:
To respond to your hypothetical, which, to be honest with you, Your Honor, I did not consider before standing up here today.

[00:20:11] Speaker 00:
But under that hypothetical, I think it might be possible that there wouldn't be a case or controversy for an invalidity counterclaim because they've disclaimed any damages going forward.

[00:20:19] Speaker 00:
And under this Studial Genchel case, that might give grounds for a court to say there's not a case or controversy for an invalidity counterclaim.

[00:20:31] Speaker 00:
But those aren't the facts of this case.

[00:20:33] Speaker 00:
In this case, they claim generic damages, which includes damages going forward through trial and prejudgment interest and everything else.

[00:20:40] Speaker 00:
And as Your Honor has noted under that scenario, especially where the license agreement itself includes a validity clause that would terminate the agreement if the claims are rendered invalid, that does create a case of controversy for a declaratory judgment of patent and validity.

[00:21:00] Speaker 00:
Now, Alex Salmon has also argued that our claim for patent invalidity should have been precluded by res judicata.

[00:21:10] Speaker 00:
But as we explained in our briefing, res judicata is an affirmative defense to a cause of action.

[00:21:14] Speaker 00:
It is not jurisdictional.

[00:21:15] Speaker 00:
It does not affect the jurisdiction over that cause of action.

[00:21:19] Speaker 00:
Now, if I can just turn for a moment to this court's jurisdiction.

[00:21:24] Speaker 00:
This court has jurisdiction because Fidelity's invalidity counterclaim was compulsory.

[00:21:29] Speaker 00:
and this court has jurisdiction under the home group fixed to 28 USC 1295.

[00:21:35] Speaker 00:
This court uses the logical relationship test to determine if a counterclaim is compulsory and I think the most clear explanation I can provide is that the license agreement included a validity provision that would result in termination of the patents were held invalid.

[00:21:48] Speaker 00:
And so clearly there was a logical relationship between the two claims because a successful counterclaim of patent invalidity would terminate the agreement

[00:21:56] Speaker 00:
and reduce the amount of damages recoverable under Alex Sam's contract claim.

[00:22:01] Speaker 00:
And so I think that's the clearest explanation.

[00:22:05] Speaker 00:
But in addition to that, both claims, both the contract claim and the invalidity counterclaim, required an assessment of patent claim scope.

[00:22:12] Speaker 00:
And so it was logical to perform that analysis in the same case rather than.

[00:22:16] Speaker 02:
Why didn't you argue that we should defer to the alignment circuit?

[00:22:21] Speaker 00:
on the compulsory counterclaim, Your Honor, because this Court had a footnote in the Vermont V MPHJ case that seemed to imply that going forward, after the Holmes Group fix, that this Court would apply its own test for compulsoriness.

[00:22:40] Speaker 00:
I agree with you that, but for that footnote, that you should defer to the Eleventh Circuit's ruling on whether an Eleventh Circuit counterclaim was compulsory, but I was

[00:22:50] Speaker 00:
But the footnote gave me pause as to whether this court was now going to impose its own independent compulsory test.

[00:22:58] Speaker 00:
So that's the answer, Your Honor.

[00:23:01] Speaker 00:
With respect to the other ground, I would say that both claims also involved an assessment of patent claim scope.

[00:23:10] Speaker 00:
So it was logical to perform that analysis within the same case to avoid inconsistent results.

[00:23:15] Speaker 00:
and to preserve judicial economy.

[00:23:17] Speaker 04:
I guess I was not at all sure about the proposition, which I don't think is necessary to your argument, that just taking the affirmative contract claims and ignoring everything else, that those would be claims that in order to adjudicate

[00:23:36] Speaker 04:
it would require a patent determination because the agreement is written to define the subject matter of what you can and cannot do in terms that do not incorporate the patent definitions and claims.

[00:23:59] Speaker 00:
Yes, Your Honor.

[00:24:00] Speaker 00:
You're correct.

[00:24:00] Speaker 00:
That particular point does not apply or it's not necessary for the finding on the compulsory counterclaim issue.

[00:24:06] Speaker 00:
It is necessary under alternative argument that there was a rising under jurisdiction under the gun test.

[00:24:12] Speaker 00:
But to answer your question directly, the license agreement was a settlement of a patent infringement lawsuit.

[00:24:17] Speaker 00:
And the license agreement does state that this is a license of patents.

[00:24:21] Speaker 00:
And even the grant clause, Article 3, says that there's a grant of a license under the patents for the following activities.

[00:24:29] Speaker 00:
The activities, though, are described

[00:24:31] Speaker 00:
in terms that use claim terms.

[00:24:33] Speaker 00:
They use claim terms such as transaction and prepaid phone card and other terms that come from the claims.

[00:24:39] Speaker 00:
And it's our position that in order to construe that, to determine whether a product was in or out of that grant clause, you would actually have to construe those claim terms as a matter of law.

[00:24:51] Speaker 00:
And I understand there might be a difference of opinion about that.

[00:24:54] Speaker 00:
That is our position on that.

[00:24:56] Speaker 00:
But you're absolutely right.

[00:24:57] Speaker 00:
It has nothing to do, it's not required

[00:25:00] Speaker 00:
to make a finding that the counterclaim is compulsory given this court jurisdiction under 1295.

[00:25:04] Speaker 03:
Excuse me, a question about the merits?

[00:25:07] Speaker 00:
Yes, Your Honor.

[00:25:10] Speaker 03:
Why is it that the district court was right, in your view, that there was actually a termination in this case, given that the language of the termination clause

[00:25:25] Speaker 03:
requires not only an announcement of a termination by one of the parties, but also another condition in this case, a breach, an actual breach, not simply a claim of breach.

[00:25:37] Speaker 03:
So why is there a termination as opposed to, for example, an anticipatory repudiation?

[00:25:43] Speaker 00:
There's two reasons.

[00:25:43] Speaker 03:
First of all... One of the reasons you're going to tell me is because the Seventh Circuit says it's true.

[00:25:49] Speaker 00:
Let's take... I'll do that one second, but I have another reason.

[00:25:52] Speaker 00:
The other reason, putting aside what Florida law says, and I think it's very clear for a lot, it wasn't the Seventh Circuit visit interpreting... There were a lot of cases to keep coming back to the Lugas case, which, by the way, was a unilateral right of termination.

[00:26:05] Speaker 03:
So that seems to me not to help you much with respect to the question of troubling me.

[00:26:10] Speaker 03:
So I didn't see anything else in Florida law except the Indian River case, which you didn't cite, but was cited in Aaronson that gives any support to this proposition.

[00:26:20] Speaker 00:
Your honor, the first thing I would mention is if you look at paragraph 11, the termination clause of the agreement, it actually talks about, it uses the phrase alleged, alleged, alleged breaching party.

[00:26:41] Speaker 03:
But before it says that, it says if either party breaches any provision of the SLA.

[00:26:48] Speaker 03:
That would seem to me the really operative language.

[00:26:50] Speaker 03:
So don't you need to show in order to have a termination that there was an actual breach, adjudicated either by a court or perhaps in some kind of agreed upon resolution scheme that the parties had decided.

[00:27:07] Speaker 03:
But just as a matter of contract interpretation,

[00:27:10] Speaker 03:
I'm not seeing why there's a termination when one of the conditions of the termination, i.e.

[00:27:16] Speaker 03:
breach, has not actually been shown to exist.

[00:27:19] Speaker 00:
Well, again, I would point to the word alleged.

[00:27:22] Speaker 00:
I understand your point that that doesn't refer back to the previous clause, but it does use the word alleged, which I think suggests that the parties understood that this would be an allegation of breach.

[00:27:32] Speaker 00:
I'm now forced to go back to Florida law, Your Honor, even though you didn't want to hear about it.

[00:27:36] Speaker 03:
No, I'm happy to hear about Florida law, but Florida law as filtered by the Seventh Circuit is not, to me, as satisfactory as giving me something that's actually coming, that's Florida law coming from Florida law.

[00:27:49] Speaker 00:
Well, I can talk to the Lugas case.

[00:27:50] Speaker 00:
The Lugas case

[00:27:51] Speaker 00:
The question here, the Lucas case involved a similar situation.

[00:27:55] Speaker 03:
Yeah, but that was an agreement in which the termination could be unilaterally invoked, right?

[00:28:03] Speaker 00:
But it required a condition precedent.

[00:28:04] Speaker 00:
It required that there was a sale of property.

[00:28:08] Speaker 00:
And the dispute was whether that condition precedent had occurred.

[00:28:11] Speaker 00:
And the court said, essentially, it doesn't matter whether it occurred or not, because you terminated the license.

[00:28:17] Speaker 00:
Now the only question is whether that termination was wrongful.

[00:28:19] Speaker 00:
The same thing here.

[00:28:20] Speaker 00:
There's a condition precedent required.

[00:28:22] Speaker 00:
That's a breach.

[00:28:23] Speaker 00:
We say we didn't breach.

[00:28:24] Speaker 00:
They say we did breach.

[00:28:25] Speaker 00:
And so there's a dispute just like there was in Lugas.

[00:28:28] Speaker 00:
And Florida law says there is a termination because they sent us a notice of termination.

[00:28:33] Speaker 00:
And the only question now is whether that condition precedent actually occurred, which would make the termination either wrongful or not wrongful.

[00:28:40] Speaker 00:
And so I disagree a little bit that Florida law is not on point here.

[00:28:42] Speaker 00:
I think the Lugas case is on point.

[00:28:44] Speaker 03:
It seems curious, as far as a pretty big stake.

[00:28:47] Speaker 03:
And contracts, there are a lot of contracts out there.

[00:28:50] Speaker 03:
It seems odd to me that all we have on this fairly basic question of what happens to end a contract that invokes this notion of termination when one of the conditions has not been satisfied is this one intermediate appellate court decision plus the Seventh Circuit case.

[00:29:11] Speaker 03:
But you didn't find anything else out there, I take it.

[00:29:13] Speaker 00:
Your honor, I think the Seventh Circuit case applying Florida law is directly on point.

[00:29:18] Speaker 00:
It's a very strongly analogous case involving a patent issue with similar facts, and I would submit the facts are even stronger there because in that case, the licensee actually tendered a royalty payment after termination, which was accepted in cash by the

[00:29:34] Speaker 00:
by the licensed court, whereas here we tendered payments that were essentially not cashed until the last minute just before filing suit.

[00:29:40] Speaker 00:
But even then, they found it was terminated.

[00:29:42] Speaker 02:
For this Florida law here, in this respect, is consistent with general law, isn't it?

[00:29:48] Speaker 02:
With the general approach to terminations?

[00:29:50] Speaker 00:
Your Honor, I believe it is.

[00:29:53] Speaker 00:
This is the general course of how contracts normally go.

[00:29:56] Speaker 00:
There's an allegation of breach.

[00:29:58] Speaker 00:
and the parties usually don't agree that there's been a breach.

[00:30:00] Speaker 00:
That's not something parties usually agree to.

[00:30:02] Speaker 03:
But doesn't that usually fall under the rubric of anticipatory repudiation?

[00:30:06] Speaker 00:
It could if the licensee agreed that there was going to be a breach and was willing to essentially repudiate the contract.

[00:30:15] Speaker 02:
But I don't think it's, I think it's a garden for identification if they weren't relying on the termination clause.

[00:30:20] Speaker 02:
But if they rely on the termination clause,

[00:30:23] Speaker 02:
then it's treated as a wrongful termination, but still effective.

[00:30:26] Speaker 00:
Still effective.

[00:30:27] Speaker 00:
Absolutely, Your Honor.

[00:30:30] Speaker 00:
Unless Your Honors have any additional questions.

[00:30:35] Speaker 02:
Thank you, Mr. Borne.

[00:30:37] Speaker 02:
Mr. Gresham?

[00:30:43] Speaker 01:
Just a couple of quick points.

[00:30:46] Speaker 01:
On page 45 of the record, the district court

[00:30:52] Speaker 01:
said, defendants have filed their invalidity declaratory action as a counterclaim to an action for breach of contract of an underlying settlement agreement, circumstances distinguishable from the offensively filed actions that other courts have determined sufficiently satisfy the case or controversy requirement.

[00:31:13] Speaker 01:
Mr. Barney was correct, there's no legal precedent for that and yet that's what the district court ruled was that the

[00:31:20] Speaker 01:
terminate the language in the termination provision relative to the the license agreement terminating if the patents are found to be invalid was the basis for the allowing the compulsory counterclaim to fall under federal subject matter jurisdiction.

[00:31:37] Speaker 02:
I see that I'm... Thank you Mr. Gresham.

[00:31:40] Speaker 02:
Thank you.

[00:31:40] Speaker 02:
Thank you Mr. Barney.

[00:31:42] Speaker 02:
The case is submitted.

[00:31:42] Speaker 02:
That concludes our session for this morning.

[00:31:49] Speaker ?:
All rise.