In Re: Spansion, Inc. v.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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Nos. 11-3323 & 11-3324
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In re: SPANSION, INC., et al.,
Reorganized Debtors
SPANSION, INC., SPANSION TECHNOLOGY LLC,
SPANSION LLC, CERIUM LABORATORIES LLC
and SPANSION INTERNATIONAL, INC.,
Appellants
_______________________
On Appeal from the United States District Court
for the District of Delaware
D.C. Civil Action Nos. 10-cv-00252 & 10-cv-00554
(Honorable Robert B. Kugler)
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Argued November 14, 2012
Before: SCIRICA, FISHER and JORDAN, Circuit Judges.
(Opinion Filed: December 21, 2012)
MICHAEL R. LASTOWSKI, ESQUIRE (ARGUED)
Duane Morris
222 Delaware Avenue, Suite 1600
Wilmington, Delaware 19801
Attorney for Appellants
JOHN C. O'QUINN, ESQUIRE (ARGUED)
Kirkland & Ellis
655 15th Street, N.W., Suite 1200
Washington, D.C. 20005
Attorney for Appellee,
Apple Inc.
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OPINION OF THE COURT
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SCIRICA, Circuit Judge.
In November 2008 Spansion filed a patent infringement complaint over its flash
memory products against Samsung and Apple with the International Trade Commission
(ITC). In a letter agreement dated February 10, 2009 between Spansion and Apple,
Spansion agreed to dismiss the ITC action against Apple and promised to refrain from
filing future actions related to those patents. In exchange, Apple agreed to not disbar
Spansion as a supplier, and to consider Spansion for future products if certain conditions
were met. On March 1, 2009, Spansion filed for Chapter 11 bankruptcy in the
Bankruptcy Court for the District of Delaware. Under 11 U.S.C. § 365(a), Spansion
moved to reject the letter agreement as an executory contract. The Bankruptcy Court
granted the motion, and on September 1, 2009 it issued an order stating that “the
Agreement… is hereby rejected; and further ordered that … this Order upon Apple, Inc.
shall constitute adequate written notice of termination thereof.” Apple then filed under 11
U.S.C. § 365(n) electing to retain its rights under the agreement, contending the agreement
was a license.
Spansion moved to enforce the September Order arguing it terminated the
agreement. Apple moved under FRCP 60(b) to clarify the Order, positing termination
was never at issue and that Spansion did not request termination as relief. The September
Order had adopted Spansion’s sample order language virtually unchanged, and there was
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no discussion before the Bankruptcy Court on the question of termination. Accordingly,
the Bankruptcy Court amended its order to “provide that such order is without prejudice
on the issue of whether… [the] agreement has been or can be terminated by Spansion.”
The Bankruptcy Court denied Apple’s § 365(n) election, finding the agreement was not a
license, so § 365(n) did not apply.
Apple appealed the Bankruptcy Court’s denial of its § 365(n) notice and Spansion
cross-appealed its grant of Apple’s 60(b) motion. The District Court of Delaware held
the agreement was a license because it was a promise not to sue, and held § 365 permits
Apple to retain its rights under the patent license. The District Court further found the
Bankruptcy Court did not abuse its discretion in granting the Rule 60(b) motion.
Spansion appeals from the District Court judgment, but contends we do not have
jurisdiction over the appeal because the District Court remanded to the Bankruptcy Court.
I
A
“The courts of appeals shall have jurisdiction of appeals from all final decisions,
judgments, orders, and decrees entered” by district courts with appellate jurisdiction over
bankruptcy court decisions. 28 U.S.C. § 158(d). Finality is often assessed differently in
the bankruptcy context because the bankruptcy court continues to determine the
disposition of the debtor’s other assets, even when there is a final order involving one of
those assets. We consider several pragmatic factors to determine whether we have
jurisdiction, including: “the impact upon the assets of the bankrupt estate, the necessity
for further fact-finding on remand, the preclusive effect of our decision on the merits on
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further litigation, and whether the interest of judicial economy would be furthered.” In re
Meyertech, 831 F.2d 410, 414 (3d Cir. 1987).
Determining whether the letter agreement is a license and whether there was a
valid § 365(n) election impacts Spansion’s patent assets. No other fact-finding is
necessary to resolve whether the agreement was a license or whether the § 365(n)
election was valid. Furthermore, our decision on the merits will have preclusive effect on
further litigation, because the state law termination issue is predicated on a valid § 365(n)
election. Determination of the license issue also impacts the Bankruptcy Court’s
interpretation of state contract law, because the ability to terminate contracts at will can
be limited by federal intellectual property law. See, e.g., Rano v. Sipa Press, Inc., 987
F.2d 580, 585-85 (9th Cir. 1993) (finding licensing agreements without a stated duration
not terminable at will, because under federal law copyrights expire after 35 years,
creating an end date to the licensing contract).
Judicial economy favors jurisdiction. The validity of the license and the amended
order leaves open the question whether Apple may continue to use Spansion’s patented
products, and whether Apple could be subject to further patent litigation by Spansion. The
interests of judicial economy would be served by resolving the status of the letter agreement.
B
“We exercise plenary review of an order issued by a district court sitting as an
appellate court in review of the bankruptcy court.” In re CellNet Data Sys., Inc., 327
F.3d 242, 244 (3d Cir. 2003). Legal conclusions are reviewed de novo and the
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bankruptcy court’s findings of fact are reviewed for clear error. In re Exide Techs., 607
F.3d 957, 962 (3d Cir. 2010).
“We review a district court’s denial of a Rule 60(b) motion for abuse of
discretion.” Reform Party of Allegheny Cnty. v. Allegheny Cnty. Dep’t of Elections, 174
F.3d 305, 311 (3d Cir. 1999). An abuse of discretion may be found when “the district
court’s decision rests upon a clearly erroneous finding of fact, an errant conclusion of law
or an improper application of law to fact.” Int’l Union, UAW v. Mack Trucks, Inc., 820
F.2d 91, 95 (3d Cir. 1987).
II
A
The District Court upheld the Bankruptcy Court’s judgment to amend the
September Order under Rule 60(b)(6). Rule 60(b)(6) provides relief from judgment for
“any [] reason that justifies relief.” Fed. R. Civ. P. 60(b)(6). The rule seeks “to strike a
proper balance between the conflicting principles that litigation must be brought to an end
and that justice must be done.” Boughner v. Sec’y of Health, Educ. and Welfare, 572 F.2d
976, 977 (3d Cir. 1978). Accordingly, “Rule 60 is to be liberally construed in order that
judgments will reflect the true merits of a case.” 11 Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 2852 (3d ed. 2012). A Rule 60(b)(6) motion is
generally reserved for extraordinary circumstances where extreme and unexpected hardship
will result absent relief. Budget Blinds, Inc. v. White, 536 F.3d 244, 255 (3d Cir. 2008).
The termination issue was not before the Bankruptcy Court, not considered by the
Bankruptcy Court, and not adjudicated by the Bankruptcy Court. Spansion provided no
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evidence or argument in support of termination. Accordingly, the Bankruptcy Court
amended its order to reflect the fact that it made no determination on the termination
issue. Ordering relief the court did not intend to grant is an extraordinary circumstance.
The Bankruptcy Court did not abuse its discretion in correcting this error by granting the
Rule 60(b) motion.
B
“[A] license … [is] a mere waiver of the right to sue by the patentee.” De Forest
Radio Tel. & Tel. Co. v. United States, 273 U.S. 236, 242 (1927) (quotations omitted). A
license need not be a formal grant, but is instead a “consent[] to [the] use of the patent in
making or using it, or selling it … and a defense to an action for a tort.” Id. at 241. The
Court of Appeals for the Federal Circuit explained that the inquiry focuses on what the
agreement authorizes, not whether the language is couched in terms of a license or a
covenant not to sue; effectively the two are equivalent. TransCore, LP v. Elec.
Transaction Consultants Corp., 563 F.3d 1271, 1275-76 (Fed. Cir. 2009).
In the letter agreement, Spansion promised “to dismiss the ITC action against
Apple, and [to] not re-file the ITC action or another action related to one or more of the
same patents against Apple.” This was a promise not to sue Apple for its use of
Spansion’s patented products. Accordingly, as the District Court found, the letter
agreement is a license. Since all the evidence before the Bankruptcy Court showed the
agreement was a license, the District Court properly held the Bankruptcy Court finding
was clear error.
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C
After a debtor rejects a contract under § 365(a), section 365(n) allows the holder
of an intellectual property license to elect to retain its rights under the contract. 11 U.S.C.
§ 365(n)(1)(B). The Bankruptcy Court denied Apple’s § 365(n) election because of the
“cessation of business between Spansion and Apple” after Spansion moved to reject the
agreement. But § 365(n)(1)(B) allows a licensee “to retain its rights… as such rights
existed immediately before the case commenced.” 11 U.S.C. § 365(n)(1)(B), see also 2
William L. Norton Jr., Norton Bankruptcy Law & Practice 3d § 46:57 (“The rights which
may be retained are those existing ‘immediately before the case commenced.’”).
Accordingly, cessation of business after Spansion filed for bankruptcy is irrelevant to the
§ 365(n) analysis. Since the letter agreement was a license, Spansion’s rejection of the
license under § 365(a) triggered Apple’s right to elect to retain its licensing rights under
§ 365(n).
III
For the foregoing reasons, we will affirm the judgment of the District Court.
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