Free Appendix - District Court of Delaware - Delaware

Case 1:06-cv-00004-SLR

Document 12-13

Filed 03/01/2006

Page 1 of 3

ATTORNEYS

AT

LAW

David L. Finger, Resident, Wilmington Office: One Commerce Center, 1201 Orange St., Suite 725 Wilmington, Delaware 19801-1 155 Ph: (302) 884-6766 ( Fax: (302) 984-1294 E-mail: [email protected] www.delawgroup.com

March 29,2005

Via overniyht courier David W. Plant, Esq. 1451 Little Sunapee Road New London, NH 03257
Re:

Contec Corporation v. Remote Solution Co., Ltd. Arbitration No. 50 T 133 00325 03

Dear Mr. Plant:

I write to ask the Arbitrator to accept this letter to respond briefly to new points raised by Contec for the first time in its reply memorandum.
The crux of Contec's argument regarding the indemnity language is that Section 3(c) of the Agreement constitutes a disclaimer of the warranty of non-infkingement under U.C.C. $2213(c), and so somehow negates Contec's obligation to use more specific language to indicate that it intended to include indemnity for its own negligence or fault and precludes Remote Solutionfrom arguing to the contrary. This argument erroneously conflates the concepts of warranty and indemnity' an approach which has been rejected by New York courts.
A disclaimer of warranty frees the disclaimer of any liability to the other contracting party. For example, if Remote Solutionwere to make a claim against Contec Corporation for breach of the warranty of non-hfihgement, and if a court or an arbitrator were to conclude that Section 3(c) constitutes a vaIid disclaimer under New York law, including intentional andlor negligent conduct (an issue the Arbitrator is not being asked to decide currently), then Contec would be fiee from obligation to Remote Solution arising from infringement.

By contrast, indemnity assumes that Contac has liability to a third party to whom no warranty was given, but seeks to shift that liability to Remote Solution as the purported indemnitor. The two concepts are distinct.

In Alger v. Abele Tractor & Equipment Co., Inc., 460 N.Y.S.2d 202 (N.Y.A.D. 3rd Dep't 1983), the defendant filed a third-party agent Sperry Rand Corporation for indemnity in connection with claims of negligence and strict products liability. Sperry Rand claimed that it has no duty to indemnify because it had disclaimed any warranties. The Court affirmed the decision of the trial court refusing to apply the disclaimer to a claim of indemnification,stating "[tJhis language is only a disclaimer of wananties. It contains no reference to negligence." Id. at 203.

Case 1:06-cv-00004-SLR

Document 12-13

Filed 03/01/2006

Page 2 of 3

David W. Plant, Esq. March 29,2005 2

Similarly, in Haynes v. Kleinwefers and Lembo Corp., 921 F.2d 453 (2nd Cir. 1990) (attached to Remote Solution's Compendium of Decisions at Tab I), W.R. Grace and Co. sought to avoid an indemnity claim by pointing to a disclaimer of warranties. The Second Circuit rejected ,this argument, stating that "Section 2-3 16 [of New York's Uniform Commercial Code] relates to disclaimers for goods sold, not to indemnification.'' Id. at 458. The lesson of these cases is that indemnity and warranties are distinct and unrelated concepts, and any purported disclaimer of the wananty of non-inhgement does not determine the rights of the parties on questions of indemnity. Contrary to Contec's assertion, Remote Solution is not arguing that Contec cannot contract for indemnification for its own negligent patent infringement. Rather, Remote Solution is stating that, based on the requirements of applicableNew York law, Contec failed to do so here, and only contracted for indemnification relating to liability resulting fiom Renote Solution's own independent infringement (of which there was none in this case). Contec has not offered any authority on point in support of its arguments nor any authority contradicting Remote Solution's arguments. Second, Contec argues that the rule regarding construction of indemnity agreements does not apply here because patent infringement is not a tort, but a strict liability offense. First, "[i]nfringement, whether direct or contributory, is essentially a tort...." Carbice Corp. of America v. American Patents Development Corp., 293 U.S. 27,33 (1931). Second, New York applies its law of indemnityto strict liability claims. E.g., Altman v. Strong's Marineland, 580 N.Y .S.2d 425 (N.Y.A.D. 2nd Dep't 1992);Fendley v. Power Battery Co., 561 N.Y.S.2d 760 (N.Y.A.D. 1stDep't 1990). Cf: Gray Manufacturing Co. v. Pathe Indsutries, Xnc., 305 N.Y.S.2d 794 (N.Y.A.D. 1st Dep't 1969), af d, 260 N.E.2d 821 (N.Y. 1970) (applying New York indemnity law to claim of f indemnification for antitrust action) (appended to Contec's compendium at tab 10). Whether or not proving negligence is necessary in patent infringement, it remains relevant in determining entitlement to indemnification. Third, to correct a mis-impression, Remote Solution is not seeking a hearing on "willfblness," as that term is used in patent law. Willfulness goes to the issue of liability to the patentee and is based on what the infringer knew as of the time the infkkger had knowledge of the patent. Remote Solution argues that, in light of is stipulation to a court order finding hfXngement (notwithstanding Contec's current disingenuous attempt to disavow it), the issue is what Contec knew or shouldhave known and did or did not do before instructing Remote Solutionto manufacture remote control units incorporating infringing elements. Fourth, Contec claims that it had no legal duty to determinewhether its specifications were infringing. However, an "indemnitee has a duty to act reasonably under all the circumstances so as to protect the indemnitor against liability." American Export Isbrandtsen Lines, Inc. v. U.S., 390 F.Supp. 63'68 (S.D.N.Y. 1975).

Case 1:06-cv-00004-SLR

Document 12-13

Filed 03/01/2006

Page 3 of 3

David W. Plant, Esq. March 29,2005 3

Finally, I am compelled to respond to Contec's suggestion that Remote Solution engaged in "sham" litigation over arbitrability by not disclosing the General Agreement for the Trade. This is a document which, unfortunately, both parties had overlooked previously. It is improper to suggest wrongdoing on the part of Remote Solution when both parties with equal knowledge and opporhinity to address the document simply overlooked it.
As always, I am available at your convenience to answer any questions.

Very truly yours,

cc:

Kemeth L. Stein, Esq. (via overnight courier)