Free Appendix - District Court of Delaware - Delaware

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ATTORNEYS' EYES ONLY system that Contec used in connection with the remote control units accused in the Action that required the user to input "setup" codes for different appliances, both of which (i) and (ii) refer to the specific methodology employed in remote control units sold prior to this time and that were at issue in this litigation."

1. 1

Summary of Arguments Relating to Contec's Entitlement to Indemnification from Remote Solution

A.

Contec's Statement Contec is Entitled to Indemnification Based on the Crystal Clear Indemnification Provision in the Parties' 1999 Agreement.

The parties' 1999 Agreement indisputably requires Remote Solution to indemnify Contec against patent infingement claims directed to the products Remote Solution manufactured

under the Agreement, including those brought by Philips and UEI.~ Specifically, Section 3(c) requires Remote Solution to defend Contec against "any suit or proceeding" based on a claim that "the ~roducts" manufactured by Remote Solution and sold to Contec under the Agreement "constitute an infringement" of a patent. (Fact No. 103). Section 1(a) defines "Products" as the "RCU's [remote control units] designed andlor manufactured and sold by Seller [Remote Solution] to Purchaser [Contec] pursuant to this Agreement." (Fact No. 8). Section l(a) additionally specifies that Remote Solution was to design those products "in accordance with such specifications" provided by Contec. (Id.)(emphasis added). Remote Solution manufactured and sold to Contec, pursuant to the 1999 Agreement, remote control units that See Statement of Contec Corporation Regarding Its Bases for Relief ("Contec's Statement"), pp. 2-4; Contec's Reply Brief in Support of its Statement Regarding its Bases for Relief ("Contec's Reply"), pp. 2-7. References to Fact No. -refer to the enumerated paragraphs in the "Undisputed and Disputed Facts" section above.

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Philips and UEI claimed infkinged their respective patents. Contec was accordingly entitled, under Section 3(c), to indemnification from Remote Solution against those claims. In its Objection to Fact No. 28, Remote Solution asserts that "Remote Solution understood the indemnity provision to apply only to infringement claims arising from elements originating from Remote Solution, and not Contec." It is however black letter law that a party's subjective intent, such as Remote's Solution's here, is irrelevant where, as here, the terms of a contract are clear.4 The plain terms of the 1999 Agreement should be enforced as written. Contec is entitled to indemnification.

Remote Solution's Arguments that the Indemnification Provision is Unenforceable Are Completely Without ~ e r i t . ~
Remote Solution argues that Contec cannot enforce the provisions of Section 3(c) because Contec was negligent in providing specifications that gave rise to infringement allegations. Specifically, it argues that an indemnity agreement "will not be deemed to

See, e.g., Cusano v. Horipro Entm 't Group, 30 1 F. Supp. 2d 272,277 (S.D.N.Y. 2004) ("When the terms of a contract are clear, the secret or subjective intent of the parties is irrelevant.") (citing Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997)); Sparaco v. Lawler, Matusky, Skelly Eng'rs, LLP, 60 F. Supp. 2d 247, 256 (S.D.N.Y. 1999) ("as the parties' subjective intent is irrelevant and the words of the contract are unambiguous, I can resolve this dispute by construing the contract."); N. Y. State Teamsters Council Health and Hosp. Fund v. Perfection Oil Co., No. 95-CV-125, 1998 WL 315096, at *4 (N.D.N.Y. Jun. 11, 1998) ("Because the Court finds the contract to be unambiguous, extrinsic evidence of the parties' subjective intent is irrelevant and unnecessary for the Court to consider.") (citing Kinek v. Paramount Communications, Inc., 22 F.3d 503 (2d Cir. 1994)); First Montauk Sec. Corp. v. Menter, 26 F. Supp. 2d 688, 689 (S.D.N.Y. 1998) ("it is hornbook law that the uncommunicated subjective intent of a party is irrelevant in interpreting a contract."); Padovano v. Vivian, 629 N.Y.S.2d 844, 846 (App. Div. 1995) ("Extrinsic evidence of plaintiffs' uncommunicated subjective intent is irrelevant."); Hudson-Port Ewen Assocs., L.P. v. Kuo., 566 N.Y.S.2d 774, 777 (App. Div. 1991) ("Since the only extrinsic evidence asserted as the basis for creating a factual issue consists of defendants' uncommunicated subjective intent, summaryjudgment is appropriate."). The parties did not exchange their respective argument summaries before submitting this Joint Statement. Contec may accordingly seek the opportunity to respond to any new arguments raised by Remote Solution.

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ATTORNEYS' EYES ONLY indemnify a party for its own negligent acts unless the contract demonstrates an 'unmistakable intent' to indemnify the negligent party."6 The only supposedly negligent act that Remote Solution identifies is Contec's failure to do an investigation into possible patent infringement claims before providing specifications to Remote Solution. (See Fact No. 27). Remote Solution argues, alternatively, that Contec's entitlement to indemnification may be barred as a result of Contec's "own intentional, reckless or grossly negligent conduct." (Opp., p 13). Remote Solution does not however identify any specific acts by Contec that would constitute such conduct. Its arguments fail for the following reasons: 1. Remote Solution's arguments are nothing more than a bald attempt to rewrite an

agreement that it no longer wishes to abide by. Remote Solution knew when it entered into the
r)

1999 Agreement that Contec would be providing specifications for the products it would be manufacturing. Section l(a) expressly stated that Contec would be providing such specifications. (See Contec's Statement, pp. 2-3; Contec's Reply, pp. 2-3; Fact No. 8). It had nevertheless plainly and indisputably agreed, in Section 3(c), to indemnify Contec against "any" patent infringement claims directed at those products. (Fact No. 10). Thus, as between Contec and Remote Solution, the parties had agreed to allocate the risk of patent infringement claims to Remote Solution. Yet now Remote Solution seeks to add a contingency to the 1999 Agreement

-namely, that Remote Solution is only required to live up to its indemnification obligations
under Section 3(c) if Contec performed an investigation into possible infringement claims before providing its specifications to Remote Solution. This makes no sense. No such requirement is found in the 1999 Agreement and Remote Solution never asked for such an investigation before

See Brief of Remote Solution Co., Ltd. in Opposition to Contec Corporation's Claim for Relief ("Opp."), p. 9.

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undertaking any work under the Agreement. (Fact No. 28). Remote Solution cannot add that requirement now. Moreover, it was Remote Solution's responsibility, not Contec's, to conduct such an investigation if it deemed one necessary to live up to its indemnification obligations under the Agreement. Contec's initial order for the RT-U49C, one of the devices later accused of infringement, was quite clear -Contec was to provide a sample of its existing RT-U49C and Remote Solution was to develop the software and mold for a duplicate of that model. (See Fact Nos. 14-17). In the letter conveying that order, Contec expressly told Remote Solution that "[tlhe development of the above software and mold is intended to develop a potential secondary source for [Contec'sl RT-U49C production." (See Fact No. 17). The letter also stated that the order is "~overned the 1999 Agreement, which includes its indemnification provisions. by" (Id.). Remote Solution thus knew precisely what the task before it was and what its obligations were. If it had an issue with carrying out any of its obligations under the Agreement in view of that task, the time for Remote Solution to raise it was then. It is simply preposterous for Remote Solution to claim now that the indemnification clause is unenforceable due to Contec's failure to conduct an investigation when 2 was the party responsible for defending against infringement claims under the Agreement and it had itself failed to conduct any such investigation after receiving specifications from Contec. (See Fact No. 28).

2.

Courts and the U.C.C. have recognized the power of parties to enter into precisely

the m e of indemnification agreements at issue here -i.e., one requiring a manufacturer to indemnify a buyer against all patent infringement claims, including claims directed at features required by a buyer's specifications. (See Contec's Reply, p. 3). This is exactly what the parites did here -they expressly agreed that Remote Solution would indemnify Contec against

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patent claims directed at the Products. Neither the case law nor the U.C.C. requires the buyer to do an investigation into potential infringement claims, as Remote Solution asserts, in order to enforce such an agreement

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'See Fact Nos. 44 and 45. Remote Solution argues in its objection to Fact No. 45 that the
search method offered by some of the other manufacturers was different than Contec's namely, in that they required the user to repeatedly press a key in order to sequence through the codes whereas in the method offered by Contec the user held a key down continuously and the sequence of codes was automatically transmitted. However, as the District of Delaware held in an earlier litigation involving Philips' '359 patent, the '359 claims also cover repeatedly pressing a key to sequence through the codes. Philips Elecs. N. Am. Corp. v. Universal Elecs., Inc., 930 F . Supp 986,999 @. Del. 1996) (holding that ''the words 'transmitting in sequence a plurality of response command signals' in claims 1 and 6 [of the '359 patent] should not be construed to provide for an automatic transmitting of a plurality of response command signal. Rather, these words are broad enough to include a user transmitting in sequence one at a time a plurality of response command signals ...."). Thus, the distinction Remote Solution seeks to draw between the search method offered by Contec and the methods offered by other companies is meaningless.

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Although Remote Solution has not seen Contec's argument, it will now address some of the defenses hinted at by Contec in its objections to certain factual statements.'' First, Contec

attempts to argue that the infringement actions did not arise from its specifications, but from Remote Solution's allegedly independent action in designing the software which implemented the programming methods. Any such argument is specious. First, Philips did not assert any software claims. Indeed, there are none identified in the patents. (Finger Decl. Ex. A). Moreover, the U.S. District Court entered a consent judgment against Contec for infringement of the method claims, not any software claims. (Id. Ex. H).~' Contec has stipulated that it supplied

Any failure of Remote Solution to respond to any arguments set forth by Contec are not to be deemed a concession of the correctness of those arguments, but only a failure to anticipate such arguments.

l8

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the specifications for the methods that users could use to program the universal remote controls to recognize and operate various appliances, and that Remote Solution followed those specifications without modification. Philips did not make any claims against either Contec or Remote Solution for anything other than what Contec instructed Remote Solution to do, plain and simple, and Contec's efforts now to deny that fact are shameless and desperate.20 Remote Solution set forth earlier in this argument how Remote Solution copied the device, including the microprocessor and database provided by Contec, as Contec had requested. Contec cannot now attempt to get around its own wrongdoing by finessing the infringement claim, and denying that it was the source of the infringing "functionality."

Put another way, the autoscan method involves searching through a stored library of codes to find a code whichoperates a specific appliance, When a specific appliance responds t o a specific code, that code is then stored in memory for later commands to insure that the appliance responds to the remote control. (See Finger Decl. Ex. A). It does not matter how the microprocessor achieves that result. If source code for various universal remote controls was all written differently, but effectuated the units' searching for, finding and storing a code applicable to a particular appliance, then they would all infringe the method patent, irrespective of the process used to perform the method.
A universal remote control could not operate according to the specifications provided by Contec through its sample instruction manual (i.e., by holding down a button until the appliance is recognized), unless the remote control device searched for a stored codes in the manner described above. Thus, for Remote Solution to copy the "functionality" exactly, it had to copy the method. Contec has not identified to Remote Solution any other way the "functionality" could be copied exactly.

Contec also refers to Remote Solution's answers to contention interrogatories referring to software codes. However, the legal positions set forth in that contention was rejected by the District Court, which found that the universal remote control units infringe the '359 patent, and so the contention interrogatory responses have been deemed incorrect as a matter of law, and are not binding on Remote Solution. Contec has included in the stipulation of facts that the issue of claim construction is currently on appeal. If Contec believes that the appeal is material to its argument, then the arbitration should be stayed pending a decision in that appeal.

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