Taiwan Semiconductor Manufacturing Company Limited v. Longhorn IP LLC

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 TAIWAN SEMICONDUCTOR Case No. 23-cv-04265-PCP MANUFACTURING COMPANY 8 LIMITED, ORDER DENYING MOTION TO 9 Plaintiff, DISMISS 10 v. Re: Dkt. No. 90 11 LONGHORN IP LLC, et al., Defendants. [12] 13 In this contract dispute, plaintiff Taiwan Semiconductor Manufacturing Company 14 (“TSMC”) brings claims against defendants Longhorn IP LLC and Hamilcar Barca IP LLC arising 15 out of a patent acquisition agreement between the parties. TSMC seeks declaratory relief, specific 16 performance, and damages to recover on a license allegedly owed under that agreement and for 17 defendants’ breach of a standstill provision. Alternatively, TSMC seeks a declaration of non18 infringement of certain patents-at-issue. 19 Defendants move to dismiss plaintiffs’ entitlement-to-license claims (counts 1–4) and 20 breach-of-standstill claims (counts 6–7) under Rule 12(b)(6), contending that these counts in 21 TSMC’s complaint fail to state valid causes of action. For the following reasons, the Court denies 22 defendants’ motion to dismiss. 23 BACKGROUND1 24 TSMC is a Taiwanese company that describes itself as “the world’s largest semiconductor 25 company by market cap.” Dkt. No. 85-4, Compl. ¶¶ 14–15. Defendant Longhorn IP LLC (LIP) is 26 a limited liability company incorporated and headquartered in Texas that describes itself as a [27] 1 “major player in the Intellectual Property world.” Id. ¶¶ 20, 39. Hamilcar is also a limited liability 2 company incorporated and headquartered in Texas. Id. ¶ 24. LIP Founder, CEO, and President Mr. 3 Fekih-Romdhane is Hamilcar’s sole member according to TSMC. Id. ¶ 25. On information and 4 belief, TSMC asserts that LIP and its affiliates engage in a “patent acquisition, licensing, and 5 assertion scheme run and managed by Mr. Fekih-Romdhane.” Id. ¶¶ 39–40. 6 TSMC’s complaint alleges that in December 2019, LIP’s portfolio company Katana 7 Silicon Technologies LLC commenced a patent infringement suit against TSMC in the Western 8 District of Texas. Compl. ¶ 57. In early 2020, TSMC, Katana, and another LIP affiliate, Carthage 9 Silicon Innovations LLC, agreed to a term sheet. Id. ¶ 58. Subsequently, TSMC, Katana, and 10 subsidiaries of each entered into a licensing agreement. Id. ¶ 59. Per the terms of that license 11 agreement, TSMC agreed to pay Katana a specified amount that was subject to “a 20% income tax 12 that [would] be withheld on the payment by TSMC.” Id. ¶ 60.2 TSMC entered into a similar 13 licensing agreement with Carthage that included the same tax withholding provision. Id. Mr. 14 Fekih-Romdhane signed these agreements on behalf of Katana and Carthage, respectively. Id. 15 ¶ 61. 16 In March 2020, pursuant to the earlier term sheet, TSMC, LIP, and their respective 17 affiliates entered into the contract at issue in this case, memorializing an agreement to collaborate 18 on acquiring patents of mutual interest to the parties. Compl. ¶ 63; Dkt. No. 85-5, Intellectual 19 Property Collaboration and Services Agreement (“Agreement”). 20 Section 2 of the Agreement includes a standstill provision requiring the parties, including 21 their affiliates, to “forego initiating any proceedings or assertions” involving certain patents, 22 technology, or services provided by TSMC. That provision states in full: [25] 26 2 See Compl. ¶ 60. (“Katana will be responsible for any duties, taxes, and levies resulting from the payment hereunder including a 20% income tax that will be withheld on the payment by TSMC 27 under this Agreement (‘Withholding Tax’). TSMC will deduct such Withholding Tax from the 2. STANDSTILL [1] 2.1 During the Standstill Period (defined below), each Party agrees to 2 forego initiating any proceedings or assertions involving the LIP Patents and technology or services that are provided by TSMC 3 including, but not limited to, judicial or administrative proceedings, in any jurisdiction including, but not limited to, the U.S. District 4 Courts, the Internal Trade Commission, the U.S. Patent and Trademark Office, the U.S. Customs and Border Protection Agency, 5 and similar judicial or administrative entities worldwide. The Standstill Period starts on the Effective Date and terminates three (3) 6 years from the Effective Date at midnight Eastern Standard Time on March 13th, 2023. For purposes of this Agreement, the Parties further 7 agree to toll the running of any applicable statute of limitations on any claim or cause of action involving the LIP Patents which the Parties 8 have or may have against one another, whether known or unknown, that are based upon any law, statute, rule, or regulation, or any rule or 9 regulation of any governing body or organization, including but not limited to any patent infringement action or invalidity proceeding that 10 could be filed under the laws of the United States during the Standstill Period. [11] 2.2 If the Parties agree to the Contribution ( defined below) and seek 12 to close on 50% or more of the Offered Portfolios presented by LIP to TSMC or if LIP fails to present at least two (2) Offered Portfolios 13 during the initial Standstill Period of three (3) years, the Parties agree to extend the Standstill Period for an additional two (2) years to 14 terminate at midnight Eastern Standard Time on March 13th, 2025. 15 Agreement § 2. 16 The Agreement also includes provisions related to “Intellectual Property Collaboration” 17 laying out three primary conditions that, when satisfied, entitle TSMC to a license to patents: 18 3.1 LIP represents, warrants, and agrees that it will employ commercially reasonable efforts to identify and present to TSMC’s 19 designated outside counsel Offered Portfolios. 20 3.2 Upon LIP presenting an Offered Portfolio, the Parties shall enter into good faith negotiations to determine, within thirty (30) days, 21 TSMC’s interest and TSMC’s contribution amount for LIP to bid and compete with other potential buyers interested in purchasing the 22 Offered Portfolio (the "Contribution"). 23 3.3 Should the Parties agree on the Contribution: 24 3.3.1 TSMC shall promise to pay the Contribution if LIP acquires all of the Patents in the Offered Portfolio; [25] 3.3.2 LIP shall, upon purchase of the Offered Portfolio, 26 receive sole right, title and ownership of the Patents within the Offered Portfolio; [27] Portfolio and the Parties shall execute a license agreement in 1 the form and under the same terms of the Katana License Agreement within seven (7) days of TSMC's receipt of such 2 written notice. 3 Agreement § 3. 4 The Agreement further specifies: “Should the Parties have agreed to the Contribution and 5 seek to close fewer than 50% of the Offered Opportunities at the end of the initial Standstill Period 6 at midnight Eastern Standard Time on March 13th, 2023, each Party reserves the right to terminate 7 this Agreement.” Agreement § 3.6. In relevant part, the Agreement also includes a choice of law 8 and forum-selection clause, whereby the parties agree that California provides the governing law 9 and that any disputes will be brought in federal or state court in Santa Clara County. Id. § 5.1. 10 On November 8, 2021, LIP brought to TSMC certain patents belonging to MediaTek, 11 another semiconductor company, and sought a contribution for LIP’s acquisition of those patents. 12 Compl. ¶ 75. LIP sent an email to TSMC with a term sheet pursuant to the Agreement asking for a 13 fixed sum “in a single lump sum payment” and requesting that TSMC “notify LIP by end 14 November 23, 2021 (CST), if TSMC wishes to make the Contribution.” Id. ¶ 76. LIP stated further 15 that “[i]f TSMC opts to make the Contribution, LIP shall provide written notice to TSMC upon 16 execution of the patent purchase agreement,” and “[u]pon receiving the written notice, TSMC and 17 LIP shall execute a license agreement within seven (7) days for the Offered Portfolio.” Id. 18 On November 19, 2021, LIP presented TSMC with a revised offer: “a TSMC Contribution 19 of [the fixed sum] …in exchange for a license to the Offered Portfolio and the transfer (at LIP’s 20 election) of one of the Offered Portfolio patent families to TSMC.” Compl. ¶ 77. TSMC alleges 21 that on November 23, 2021, TSMC accepted that offer. Id. ¶ 78. Later that same day, Mr. Fekih22 Romdhane responded to the email on behalf of LIP, stating: “This is exciting. We already 23 communicate[d] with the broker and we are working on a binding term sheet. We will let u know 24 [a]bout the progress ASAP.” Id. ¶ 79. 25 On December 26, 2021, LIP, through Hamilcar, acquired a portfolio of patents from 26 MediaTek. Compl. ¶¶ 80–81. On February 1, 2022, after learning about the acquisition, TSMC 27 sent an email to LIP asking it to “send over a copy of the definitive agreements related to purchase 1 TSMC’s payment of [the fixed sum] to LIP and close the Contribution.” Id. ¶ 82. Mr. Fekih2 Romdhane responded to the email disputing that the parties reached agreement on the 3 contribution, stating: 4 We agreed to a contribution of [the fixed sum] … net of foreign taxes. Your client (according to you) insisted on withholding foreign taxes 5 on that contribution, which will result in a [20%] loss on the acquisition end. [6] 7 Id. ¶ 83. 8 On February 17, 2022, TSMC disputed Mr. Fekih-Romdhane’s characterization of their 9 last call and asserted that “[t]he contribution agreed to by TSMC and LIP is clear from our 10 communications and is not ‘net of foreign taxes’ as you suggested.” Compl. ¶ 84. On May 13, 11 2022, TSMC sent a letter to LIP informing it that “TSMC stands ready to proceed with payment of 12 the Contribution” and “placed [the fixed sum] in a Depository Account with Citibank.” Id. ¶ 85. 13 LIP did not provide TSMC with a license agreement. Id. ¶ 86. 14 In April 2023, Mr. Fekih-Romdhane sent TSMC a letter on behalf of LIP and Hamilcar 15 identifying three of Hamilcar’s patents acquired from MediaTek in December 2021. Compl. ¶¶ 89, 16 92. The letter notified TSMC it may be infringing and inducing infringement of methods claimed 17 in these patents. Id. ¶¶ 90–92. LIP and Hamilcar offered to provide TSMC with claim charts “if 18 TSMC entered into a ‘confidentiality agreement’” confirming that “the information will be treated 19 as privileged settlement information under Fed. R. Evid. 408.” Id. ¶ 93. 20 TSMC responded to that letter on May 16, 2023, stating: 21 Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) and Longhorn IP LLC (“LIP”) entered into the Intellectual Property 22 Collaboration and Services Agreement on March 13, 2020 (the “Agreement”) (attached). Under the terms of the Agreement, LIP agreed 23 to employ commercially reasonable efforts to identify and present patents of interest to TSMC and engage in good faith negotiations to 24 determine TSMC’s interest in and contribution amount to acquire any offered portfolios. If the parties agreed on TSMC’s contribution amount 25 for a portfolio and LIP acquired the portfolio, then the Agreement required LIP to execute a license with TSMC in the form and under the 26 same terms of the Patent License and Settlement Agreement between Katana Semiconductor Technologies LLC and TSMC (the “Katana 27 License”). 1 On June 28, 2023, LIP replied to TSMC’s response arguing that the parties never reached 2 agreement on a contribution amount and again asking TSMC to enter into a confidentiality 3 agreement for purposes of sharing claim charts. Compl. ¶ 95. 4 On these facts, TSMC commenced this action alleging breach of contract and seeking 5 declaratory relief, specific performance, and damages under the Agreement. In the alternative, 6 TSMC seeks declarations of non-infringement with respect to the patents-at-issue. The defendants 7 now move to dismiss counts 1–4 and 6–7 of the complaint pursuant to Federal Rule of Civil 8 Procedure 12(b)(6), contending that TSMC fails to state a cause of action for breach of contract 9 under any of these counts. 10 LEGAL STANDARD 11 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of 12 the claims. Dismissal is proper where the complaint does not state a plausible claim upon which 13 relief can be granted. “A claim has facial plausibility when the plaintiff pleads factual content that 14 allows the court to draw the reasonable inference that the defendant is liable.” Ashcroft v. Iqbal, [15] 556 U.S. 662, 678 (2009). Legal conclusions “can provide the framework of a complaint” but 16 “must be supported by factual allegations.” Id. at 679 . The Court must “accept all factual 17 allegations in the complaint as true and construe the pleadings in the light most favorable to the 18 nonmoving party.” Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028 , 1029–30 (9th Cir. 2009). 19 ANALYSIS 20 At their core, counts 1–4 and 6–7 all contend that LIC and Hamilcar breached their 21 contractual obligations to TSMC under the Agreement. Under California law, the elements for 22 breach of contract are “(1) the existence of the contract, (2) plaintiff’s performance or excuse for 23 nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. 24 Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011). 25 I. Counts 1–4 Plausibly Allege Claims for Entitlement to a License. 26 LIC and Hamilcar first seek to dismiss Counts 1–4 on the ground that TSMC is unable to 27 establish that the parties reached agreement on the contribution amount pursuant to Section 3 of 1 responds that the terms of the parties’ Agreement required the withholding of taxes from any 2 contribution amount and the parties therefore reached a mutual meeting of the minds with respect 3 to TSMC’s contribution when TSMC accepted defendants’ November 23, 2021 offer. The parties’ 4 dispute therefore ultimately turns upon the meaning of their contractual agreement. If TSMC is 5 correct, then an agreement was reached on November 23, 2021. If not, there was no agreement. 6 The nature of the parties’ dispute bears on the scope of the Court’s powers on a motion to 7 dismiss. A contract “must be so interpreted as to give effect to the mutual intention of the parties 8 as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Cal. Civ. 9 Code § 1636. “Where contract language is clear and explicit and does not lead to absurd results, 10 we ascertain intent from the written terms and go no further.” Ticor Title Ins. Co. v. Emp. Ins. of 11 Wausau, 40 Cal. App. 4th 1699, 1707 (1995). In that circumstance, a court “may resolve 12 contractual claims on a motion to dismiss because the terms of the contract are unambiguous.” 13 Williams v. Apple, Inc., 449 F. Supp. 3d 892 , 908 (N.D. Cal. 2020) (cleaned up). What the parties 14 “intended by an ambiguous contract,” however, “is a factual determination.” Id. (citing Untied 15 States v. Plummer, 941 F.2d 799, 803 (9th Cir. 1991)). “Where the language leaves doubt as to the 16 parties’ intent, the motion to dismiss must be denied.” Monaco v. Bear Stearns Residential Mortg. 17 Corp., 554 F. Supp. 2d 1034, 1040 (C.D. Cal. 2008) (cleaned up). 18 A contract is ambiguous where “reasonable people could find its terms susceptible to more 19 than one interpretation.” Tanadgusix Corp. v. Huber, 404 F.3d 1201, 1205 (9th Cir. 2005). Here, 20 TSMC and the defendants have each proffered reasonable interpretations of the disputed term. The 21 Agreement defines “Contribution” in subsection 3.2 of the Agreement as “TSMC’s contribution 22 amount for LIP to bid and compete with other potential buyers interested in purchasing the 23 Offered Portfolio (the ‘Contribution’).” The parties here both agree on the total amount at issue. 24 See Compl. ¶¶ 75–78. The disputed question is whether, in the context of the Agreement and the 25 circumstances of this case, that amount was subject to tax withholding. 26 TSMC argues that the parties understood that the contribution amount would be subject to 27 tax withholding considering the Agreement’s acknowledgement under subsection 3.3.3 that “the 1 License Agreement,” which included a tax withholding provision. On that ground, TSMC argues, 2 the parties had a meeting of the minds on the contribution amount when they agreed to the fixed 3 sum. 4 By contrast, defendants argue that the fixed sum contribution must be net of tax 5 withholding because TSMC’s interpretation effectively reduces that amount to by 20%. On that 6 ground, defendants assert, the parties never had a meeting of the minds and could not have reached 7 agreement on a contribution that would trigger any further obligations under Section 3. 8 Defendants argue further that the parties’ email exchange “proves” that “there was no meeting of 9 the minds on the Contribution Amount” and thus “there was no deal.” Dkt. No. 85-18, at 15–16. 10 “According to the February 2022 emails,” defendants emphasize, “LIP ‘agreed to a contribution of 11 [the fixed sum] … net of foreign taxes,’ while TSMC ‘insisted on withholding foreign taxes on 12 that contribution, which [would] result in a [20%] loss on the acquisition end.’” Id. at 16. 13 Considering the Agreement as a whole and in the context in which the disputed term was 14 negotiated, the Court finds that TSMC and the defendants each provide reasonable interpretations 15 and the language at a minimum “leaves doubt as to the parties’ intent.” Monaco, 554 F. Supp. 2d 16 at 1040 . What the parties’ specific intent was and whether the parties in fact had a meeting of the 17 minds are factual matters not appropriate for resolution on a motion to dismiss. Because TSMC 18 has sufficiently pleaded a cause of action for breach of contract entitling it to a license under the 19 Agreement, the Court denies the defendants’ motion to dismiss claims 1–4. 20 II. Counts 6–7 Plausibly Allege Claims for Breach of the Agreement’s Standstill Provision. [21] 22 LIC and Hamilcar seek to dismiss counts 6–7 on the ground that defendants’ April 2023 23 letter is not an “assertion” that would violate the plain terms of Section 2.1’s standstill provision. 24 Here too, TSMC and the defendants each proffer reasonable interpretations of the disputed 25 standstill provision. That provision provides that during the identified standstill period: 26 [E]ach Party agrees to forego initiating any proceedings or assertions involving the LIP Patents and technology or services that are provided 27 by TSMC including, but not limited to, judicial or administrative Trademark Office, the U.S. Customs and Border Protection Agency, 1 and similar judicial or administrative entities worldwide. 2 Agreement § 2.1. 3 The parties primarily dispute the contractual meaning of “assertions” and whether 4 defendants’ April 2023 letter amounted to an “assertion” under that provision. (The parties agree 5 that the letter does not constitute a “proceeding”.) TSMC argues that the plain and ordinary 6 meaning of “assertion” along with its established meaning in the patent context “bars assertive 7 conduct” like the letter at issue “that may precede a judicial proceeding.” Dkt. No. 85-19, at 22– 8 25. According to TSMC, the defendants’ contention that the prohibited “assertion” is limited to in9 court or judicial proceedings is not only illogical but would also render “assertion” superfluous 10 and contravene the express purpose of the Agreement. See id. at 23–24. 11 By contrast, the defendants interpret the language “initiating any proceedings or 12 assertions” as only “refer[ring] to initiating legal actions … ‘in any jurisdiction.’” Dkt. No. 85-18, 13 at 18. Because sending a “private letter” is not a legal action initiated in a particular jurisdiction, 14 which they argue is required by the provision, their letter did not violate its terms. See id. The 15 defendants contend that their April 2023 amounts only to a “notice letter, sent privately from 16 Longhorn to TSMC,” which “bears no resemblance to ‘any proceedings or assertions’” prohibited 17 under the provision. Id. 18 Contrary to defendants’ assertion, the scope of conduct prohibited under this provision is 19 not so clear and unambiguous as to be susceptible to resolution on a Rule 12(b)(6) motion. The 20 Court need only conclude at this stage that “reasonable people could find its terms susceptible to 21 more than one interpretation.” Tanadgusix, 404 F.3d at 1205 . TSMC’s and defendants’ respective 22 interpretations leave sufficient “doubt as to the parties’ intent” with respect to what conduct 23 violates the standstill provision. Monaco, 554 F. Supp. 2d at 1040 . For the same reason stated 24 above, the parties’ specific intent with respect to this provision presents a factual matter not 25 appropriate for resolution on a motion to dismiss. 26 Because TSMC has sufficiently pleaded a cause of action for breach of this provision of 27 the Agreement, the Court denies the defendants’ motion to dismiss claims 6–7. 1 CONCLUSION 2 For the foregoing reasons, the defendants’ motion to dismiss claims 1—4 and 6-7 is denied. [3] 4 IT IS SO ORDERED. 5 Dated: June 14, 2024 May be~ [7] P. Casey Pitts 8 United States District Judge [11] a 12 © [16] it Z 18