Free Memorandum - District Court of Arizona - Arizona

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PETER E. HEUSER, admitted pro hac vice ELIZABETH A. TEDESCO, admitted pro hac vice Kolisch Hartwell, P.C. 200 Pacific Building, 520 SW Yamhill Street Portland, OR 97204 Telephone: (503) 224-6655 Facsimile: (503) 295-6679 [email protected] [email protected] DANIEL R. MALINSKI (#005911) Burch & Cracchiolo, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Telephone: (602) 274-7611 Facsimile: (602) 234-0341 [email protected] Attorneys for Plaintiffs Richard G. Krauth and R.M. Wade & Co.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA ) ) No.04-544 PHX PGR ) ) Plaintiffs, ) ) v. MEMORANDUM IN SUPPORT OF ) PLAINTIFFS' MOTION FOR ) Phelps Dodge Corporation, a New York SUMMARY JUDGMENT THAT NO ) corporation; Phelps Dodge Bagdad Inc., a PURPORTED SETTLEMENT ) Delaware corporation; Phelps Dodge Chino AGREEMENT IS ENFORCEABLE ) Inc., a Delaware corporation; Phelps Dodge Morenci Inc., a Delaware corporation; Phelps ) Dodge Sierrita Inc., a Delaware corporation; ) ) Phelps Dodge Tyrone Inc., a Delaware corporation; and Phelps Dodge Miami Inc., a ) ) Delaware corporation, ) ) Defendants. Richard G. Krauth, an individual; and R.M. Wade & Co., an Oregon corporation,

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TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF ARGUMENT __________________________ 1 FACTUAL BACKGROUND ______________________________________________ 2

A. After The Action Is Stayed Pending Reexamination Of The Patents-In-Suit, The Parties Begin To Negotiate A Settlement _____________________________________________________ 2 B. Plaintiffs Assert That If They Receive A Favorable Result In The Reexamination Before The Agreement Is Executed, The Settlement Would Be Off; The Parties Disagree As To Whether There Is A Binding Agreement_______________________________________________ 2 C. Although Plaintiffs Receive A Favorable Office Action Before The Agreement Is Executed, Phelps Dodge Argues That Plaintiffs Have Already Formed Three Binding Settlement Agreements _____________________________________________________________ 3

III.

LEGAL ARGUMENT ___________________________________________________ 4

A. To Spare Courts The Burden Of Resolving Highly Factual Disputes Relating To The Existence And Terms Of Inter-Party Agreements, Rule 80(d) Requires That Agreements Be Written __________________________________________________________________________ 5 B. Because The Parties Disagreed Several Times As To Whether A Binding Agreement Was Formed, The Existence And Terms Of Any Purported Settlement Agreement Are Disputed, And Rule 80(d) Applies _____________________________________________________________ 6 C. Because No Purported Agreement Includes Written Terms And Plaintiffs' Written Assent, No Such Agreement Is Binding ________________________________________________ 7
1. None of the oral "agreements" are binding under Rule 80(d) ______________________________7 2. Because plaintiffs indicated only that they would assent to the final draft agreement, once it was executed, that purported settlement agreement is likewise not binding _________________________8

D. Because There Is No Signed Writing Under The Arizona Statute of Frauds, There Can Be No Enforceable Agreement_________________________________________________________ 10

IV.

CONCLUSION________________________________________________________ 14

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TABLE OF AUTHORITIES

Aero Bolt and Screw Company of Cal., Inc. v. Iaia, 180 Cal.App.2d 728 (1960)........................ 13 Bishop v. Norell, 353 P.2d 1022 (Ariz. 1960) .............................................................................. 13 Byrd v. Blue Ridge Rural Electric Cooperative., Inc., 356 U.S. 525 (1958).................................. 5 Canyon Contracting Co. v. Tohono O'Odham Housing Authority, 172 Ariz. 389, 837 P.2d 750 (App. 1992) ........................................................................................................... 1, 5, 6, 7, 9, 10 Celotex Corp. v Catrett, 477 U.S. 317, 325 (1986) ........................................................................ 5 Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938)....................................................................... 4 Gate-way, Inc. v. Hillgren, 82 F.Supp. 546 (S.D. Cal. 1949)....................................................... 13 Hackin v. Rupp, 9 Ariz. App. 354, 452 P.2d 519 (1969)............................................................ 1, 8 Hays v. Fischer 161 Ariz. 159, 777 P.2d 222 (App. 1989) ............................................................ 6 In re Beverly Hills Bancorp, 649 F.2d 1329 (9th Cir. 1981).......................................................... 4 Lamle v. Mattel, Inc., 394 F.3d 1355 (Fed. Cir. 2005) ................................................................. 13 Lyons Enterprises, Inc. v. Custer, 168 Ariz. 439, 814 P.2d 780 (App. 1991) ...................... 6, 9, 10 Mission v. Mt. Sinai Congregation, 276 P. 930 (Wyo. 1929) ...................................................... 11 Schick Service, Inc. v. Jones, 173 F.2d 969 (9th Cir. 1949) ......................................................... 13 Solaia Tech. LLC v. ArvinMeritor, Inc. et al., 2006 U.S. Dist. LEXIS 11347 (N.D. Ill. March 16, 2006) ................................................................................................................................... 11, 12 Sun Studs, Inc. v. Applied Theory Associates, Inc., 772 F.2d 1557 (Fed. Cir. 1985) ................... 13 Statutes 35 U.S.C. § 154............................................................................................................................. 11 A.R.S. § 44-101 .................................................................................................................. 2, 10, 11 Other Authorities 83 C.J.S. Stipulations § 4 ................................................................................................................ 1 Restatement (Second) of Conflict of Laws §§ 6 (1989) ........................................................... 4, 12 9 Williston on Contracts § 41:1 (4th ed. 2005)...........................................................11 Rules Fed. R. Civ. P. 56(c) ....................................................................................................................... 5 Ariz R. Civ. P. 80(d)........................................................................................1,5

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I.

INTRODUCTION AND SUMMARY OF ARGUMENT Plaintiffs Richard G. Krauth and R.M. Wade & Co. and defendants Phelps Dodge

Corporation, et al. (collectively, "Phelps Dodge") dispute whether there is a binding settlement agreement in this action. Phelps Dodge argues in its recently filed Motion for Summary

Judgment Enforcing Settlement Agreement that voicemail, email and drafts of an agreement can be pieced together to form an enforceable settlement contract. Plaintiffs argue that the nine month settlement negotiations between the parties were just that: negotiations, and that plaintiffs made clear that they did not intend to be bound by any agreement until it was executed. As the Court mentioned in a scheduling conference in December, "this is a most unusual set of circumstances" in which the Court is asked to evaluate a settlement agreement where "there are genuine issues of material fact based on caveats entered into with attorneys" and questions about "whether or not there were reservations attached to the settlement agreement."1 This dispute has indeed become very complicated, involving already much of the Court's time and the parties' time, significant resources, and may possibly be the source of a separate trial--all because there is no integrated, executed writing memorializing the terms of settlement and the parties' assent to that settlement. But a controlling Arizona statute is directed to this very dilemma. Arizona Rule of Civil Procedure 80(d) provides that "[n]o agreement between parties or attorneys in any matter is binding if disputed, unless it is in writing, or made orally in open court, and entered in the minutes." Ariz. R. Civ. P. 80(d). This rule, which is unambiguously applicable to settlement agreements, was created to relieve courts of the necessity of determining highly factual disputes as to the existence and terms of such agreements, "which it has been said are often more perplexing than the case itself." Hackin v. Rupp, 9 Ariz. App. 354, 356, 452 P.2d 519, 521 (1969), citing 83 C.J.S. Stipulations § 4; Canyon Contracting Co. v. Tohono O'Odham Housing Authority, 172 Ariz. 389, 391, 837 P.2d 750, 752 (App. 1992). Here, because the existence of the purported settlement agreement is undoubtedly in dispute, and because there is simply no writing evidencing plaintiffs' assent to any settlement agreement, no agreement is enforceable under Rule 80(d).

1

See Statement of Facts in Support of Plaintiffs' Motion that No Purported Settlement Agreement is Enforceable ("SOF") at ¶ 16.

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Likewise, the Arizona statute of frauds also prevents the formation of a settlement contract absent an agreement "in writing and signed by the party to be charged." A.R.S. § 44101. Any purported settlement agreement would come within the statute of frauds as "an agreement which is not to be performed within one year from the making thereof" because the patent licenses and covenants not to sue last for the life of the patents: here, for at least four years. For this reason too, no purported settlement agreement is enforceable, and plaintiffs are entitled to judgment as a matter of law. FACTUAL BACKGROUND A. After The Action Is Stayed Pending Reexamination Of The Patents-In-Suit, The Parties Begin To Negotiate A Settlement

Plaintiffs moved to stay this litigation pending the result of Patent and Trademark Office ("PTO") reexamination of the patents-in-suit and, on August 16, 2004, the Court issued the stay. Plaintiffs filed the Request for Reexamination on September 30, 2004. [SOF ¶ 1]. In January 2005, the parties began to discuss settling the lawsuit, knowing that the claims of the patents-in-suit could be invalidated, narrowed, or affirmed by the PTO. [Id. at ¶ 2]. After the parties determined the basic value of a license to the patents-in-suit in mid-January 2005, they began to circulate drafts of the agreement. [Id.] Often several weeks or more passed between the time counsel for each party reviewed a draft and the time a revised draft was submitted to the other party. [Id.] B. Plaintiffs Assert That If They Receive A Favorable Result In The Reexamination Before The Agreement Is Executed, The Settlement Would Be Off; The Parties Disagree As To Whether There Is A Binding Agreement

By April 2005, the parties began to recognize that the PTO might issue its determination regarding the reexamination of the patents-in-suit before the negotiations were complete and the agreement was finalized. [Id. at ¶ 3]. Accordingly, during telephone conversations on April 5, 2005 and May 10, 2005, counsel for plaintiffs, Peter E. Heuser (hereinafter "Heuser"), informed counsel for Phelps Dodge, C. Mark Kittredge (hereinafter "Kittredge"), that if the PTO's determination was favorable to plaintiffs, it would change the direction of the settlement negotiations entirely. [Id. at ¶¶ 3-5]. Heuser's recollection that these statements were made on April 5, 2005 and May 10, 2005 is supported by contemporaneous email to plaintiffs, which were produced to Phelps Dodge. [Id.] Although Kittredge believes the conversation took place
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during "late summer of 2005," Phelps Dodge agrees that "Heuser told Kittredge that if the PTO issued a favorable office action before the written settlement agreement was signed, then he thought his clients' position would be that all bets would be off." [SOF ¶ 6]. Kittredge has no notes, emails or other memoranda to help him place the date. [Id.] In interrogatory responses, Phelps Dodge describes "one subsequent telephone conversation" in which "Heuser and Kittredge acknowledged they would like to finalize the settlement documentation before the Patent Office issues an Office Action to avoid any dispute as to whether a binding settlement agreement already existed." [Id. at ¶ 7]. Heuser's May 10, 2005 email to plaintiffs confirms that Heuser and Kittredge "agreed that a mess could be avoided" if Kittredge got back to plaintiffs soon with information necessary to finalize the settlement agreement so that it could be executed. [Id. at ¶ 5]. In June 2005, the parties continued to discuss material terms of settlement, including the breadth of plaintiffs' representations and warranties relating to noninfringement, and whether the agreement would include a license under an additional patent, U.S. Patent No. 6,817,548 ("the `548 patent"), owned by Wade. [Id. at ¶8]. The parties spent the next several months

negotiating these provisions and a related exhibit directed to which models of emitters Phelps Dodge would be permitted to use in light of the `548 patent. [Id. at ¶ 9]. The parties were still negotiating this aspect of the agreement in the first few weeks of October 2005 until they reached a final draft of an agreement. [Id.] C. Although Plaintiffs Receive A Favorable Office Action Before The Agreement Is Executed, Phelps Dodge Argues That Plaintiffs Have Already Formed Three Binding Settlement Agreements

On October 19, 2005, Kittredge reported that Phelps Dodge had signed the agreement. [SOF ¶ 12]. Plaintiffs had not signed it. [Id.] On October 20, 2005, plaintiffs received an Office Action from the PTO confirming the validity of both patents-in-suit. [Id. at ¶ 13]. Heuser called Kittredge that day and informed him that the patentability of all claims had been confirmed. [Id.] As confirmed by Heuser's contemporaneous email to plaintiffs, Heuser stated that the parties always knew this result was a possibility. [Id.] Heuser reminded Kittredge that plaintiffs had always maintained that the agreement needed to be executed before plaintiffs received a favorable ruling from the PTO or the parties would be back to negotiation. [Id.] Kittredge acknowledged that Heuser said this, but asserted Phelps Dodge's position that the parties had a
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deal that just needed to be confirmed in writing. [Id.] As the conversation concluded, as Phelps Dodge's interrogatory responses state, "Heuser and Kittredge agreed that they wanted to resolve the issue of the disputed settlement" before proceeding with other aspects of the case. [Id.] On January 23, 2006, Phelps Dodge filed a motion for summary judgment to enforce the purported settlement agreement. That Motion argues that the final draft of the settlement

agreement should be enforced against plaintiffs, even though they did not execute it, because Heuser indicated that plaintiffs were "ready to sign" and that, with a certain revision, he would "have [his] clients...sign the agreement." [Defendants' Motion for Summary Judgment

Enforcing Settlement Agreement ("Defendants' Motion") at 3-4]. Recent discovery also reveals that Phelps Dodge contends that two earlier oral "agreements" are enforceable. [SOF ¶¶ 14, 15]. First, Phelps Dodge contends that the parties formed an oral agreement to settle the action on January 12, 2005 when Kittredge responded that the terms in Heuser's January 11, 2005 voicemail were acceptable to Phelps Dodge. [Id. at ¶ 14]. Second, Phelps Dodge contends that the parties "modified" that January 2005 oral agreement on April 5, 2004 when they agreed in principle that the settlement agreement would include some form of intellectual property right under another patent owned by plaintiffs. [Id. at ¶ 15]. Because none of these purported agreements comply with Arizona Rule of Civil Procedure 80(d) or the Arizona statute of frauds, A.R.S. § 44-101, plaintiffs ask the court to grant its Motion for Summary Judgment that No Purported Settlement Agreement is Enforceable. III. LEGAL ARGUMENT Questions regarding the formation, enforceability and interpretation of the purported settlement agreements--as contracts (or, here, purported contracts)--are governed by state law. In re Beverly Hills Bancorp, 649 F.2d 1329, 1332-33 (9th Cir. 1981). This principle is in keeping with Arizona's strong interest in the resolution of controversies within its borders. See Restatement (Second) of Conflict of Laws §§ 6, 188 (1989). Indeed, Phelps Dodge applied Arizona contact law to its own analysis of the purported settlement agreement in its Memorandum in Support of Summary Judgment Enforcing Settlement Agreement. See also Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938); Byrd v. Blue Ridge Rural Electric Cooperative., Inc., 356 U.S. 525 (1958) (federal courts should apply state procedural rules that are substantive in nature and do not conflict with any Federal Rule of Civil Procedure).
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Summary judgment is appropriate where, as here, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v Catrett, 477 U.S. 317, 325 (1986). Because Arizona Rule of Civil Procedure 80(d) requires that both the terms and the assent of the parties to any disputed settlement agreement be written, and because the Arizona statute of frauds requires a signed writing for any agreement that cannot be completed within one year, plaintiffs are entitled to summary judgment that there is no binding settlement agreement. A. To Spare Courts The Burden Of Resolving Highly Factual Disputes Relating To The Existence And Terms Of Inter-Party Agreements, Rule 80(d) Requires That Agreements Be Written

As set forth above, Rule 80(d) provides that "[n]o agreement between parties or attorneys in any matter is binding if disputed, unless it is in writing, or made orally in open court, and entered in the minutes." Ariz. R. Civ. P. 80(d). This rule unambiguously applies to settlement agreements. Canyon Contracting Co. v. Tohono O'Odham Housing Authority, 172 Ariz. 389, 391, 837 P.2d 750, 752 (App. 1992). Rule 80(d) applies to negate a purported agreement when an agreement is "disputed" but not "in writing." Ariz. R. Civ. P. 80(d). In applying this rule, courts first look to find "a genuine dispute over whether the parties entered into a final settlement agreement." Canyon, 172 Ariz. at 392, 750 P.2d at 753. Second, for the agreement to be binding, courts require that the

manifestation of assent, as well as the terms of the agreement, be written. Id. at 392-93, 750 P.2d at 753-54. In Hackin v. Rupp, 9 Ariz. App. 354, 452 P.2d 519 (1969), the court observed, The rule requiring stipulations to be reduced to writing was adopted to prevent fraudulent claims of oral stipulations, and to prevent disputes as to the existence and terms of agreements and to relieve the court of the necessity of determining such disputes, which it can be said are often more perplexing than the case itself. The time of the court should not be taken up on controversial matters of this character. Id. at 355-56, 452 P.2d at 520-21 citing 83 C.J.S. Stipulations § 4. See also Canyon, 172 Ariz. at 393, 837 P.2d at 754; Lyons Enterprises, Inc. v. Custer, 168 Ariz. 439, 441, 814 P.2d 780, 782 (App. 1991) (both citing Hackin re same). Many states have adopted some variant of Rule 80(d) under the same rationale, several of which explicitly require that writings must be executed to be binding. Because
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"the policy behind Rule 80(d) is to relieve the trial court from having to resolve factual disputes as to the existence and terms of a settlement agreement, the requirements of the rule must thus be strictly construed." Canyon, 172 Ariz. at 393, 837 P.2d at 754. As discussed below, because the existence of a settlement agreement is disputed here, and because there is no writing to which the parties manifested assent, there can be no binding agreement. B. Because The Parties Disagreed Several Times As To Whether A Binding Agreement Was Formed, The Existence And Terms Of Any Purported Settlement Agreement Are Disputed, And Rule 80(d) Applies

Because, at several points during the settlement negotiation, the parties openly disagreed as to whether a settlement agreement had been formed, the existence and terms of any purported settlement agreement is undoubtedly disputed, and Rule 80(d) applies. In Hays v. Fischer, the attorneys for the parties went back and forth with settlement proposals and ultimately finalized the terms of settlement with their clients' full authorization, and without any contingencies. Hays v. Fischer 161 Ariz. 159, 777 P.2d 222 (App. 1989). When plaintiff became dissatisfied with the terms of settlement after they had been agreed upon, but before signing the agreement, the court held that Rule 80(d) was inapplicable because "the existence of the settlement agreement and its terms are not in dispute." Id. at 166, 777 P.2d at 229. Neither party wavered in its belief that an agreement was formed until after all terms were agreed upon. See id. By contrast, in Canyon Contracting, Rule 80(d) applied where plaintiff "consistently disputed the existence of a final settlement agreement, maintaining instead that the agreement was only tentative and that its form was that of a settlement proposal to which final assent had not been given." Canyon Contracting Co. v. Tohono O'Odham Housing Authority, 172 Ariz. 389, 391, 837 P.2d 750, 752 (App. 1992). Although the attorneys' letters and representations to the court "might [have] support[ed] an inference that the matter had been settled," because that inference was contradicted by questions regarding the parties "intent to be bound by the terms of the unexecuted settlement agreement," the court held that the agreement must be in writing. Id. at 392, 837 P.2d at 753. Here, Phelps Dodge has conceded that the existence of a binding settlement agreement is disputed. In response to interrogatories, Phelps Dodge recounts a conversation in which Heuser
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asserted that "if the PTO issued a favorable Office Action before the written settlement agreement was signed, then he thought his clients' position would be that all bets would be off" and Kittredge responded by stating that "defendants believed they already had a binding settlement agreement." [SOF ¶ 6]. Phelps Dodge also admits to a later conversation in which "Heuser and Kittredge acknowledged they would like to finalize the settlement documentation before the Patent Office issues as Office Action to avoid any dispute as to whether a binding settlement agreement already existed." [Id. at ¶ 7]. Heuser recalls the conversations took place on April 10, 2005 and May 10, 2005, and also remembers that Heuser and Kittredge "agreed that a mess could be avoided" if the agreement could be finalized and executed before the reexamination results were issued. [Id. at ¶¶ 3-5]. Furthermore, during the October 20, 2005, telephone conversation during which Heuser and Kittredge discussed the result of the reexamination, Phelps Dodge acknowledges that "Heuser and Kittredge agreed that they wanted to resolve the issue of the disputed settlement before they proceeded with any other aspect of the case and that they would so inform the court." [Id. at ¶ 11 (emphasis added)]. Accordingly, this is not a case like Hays where the parties had settled and assented to all terms before one party changed its mind. Rather, as in Canyon,

plaintiffs made clear during the process of negotiation their belief that no binding settlement yet existed and Phelps Dodge made its contrary position known as well. Accordingly, the Court should apply Rule 80(d). C. Because No Purported Agreement Includes Written Terms And Plaintiffs' Written Assent, No Such Agreement Is Binding

In order to "effectuate Rule 80(d)'s policy of avoiding difficult issues of proof in the context of enforcing settlement agreements," both "the manifestation of assent, as well as the terms of the agreement, must be in writing." Canyon Contracting Co. v. Tohono O'Odham Housing Authority, 172 Ariz. 389, 393, 837 P.2d 750, 754 (App. 1992). Because no purported agreement contains both written terms and a written manifestation of assent, no agreement can be binding pursuant to Rule 80(d). 1. None of the oral "agreements" are binding under Rule 80(d)

Phelps Dodge contends that the parties formed a binding oral settlement agreement on January 12, 2005 when Kittredge told Heuser that Phelps Dodge would agree to the proposed $*** paid up license to the patents-in-suit, that the agreement was orally modified in April 2005
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when the parties agreed to terms relating to the `548 patent, and that the final draft of the settlement agreement merely "memorialized" the prior oral agreements. [SOF ¶¶ 13, 14].

Notwithstanding the fact that--as detailed in the concurrently filed Opposition to Phelps Dodge's Motion for Summary Judgment Enforcing Settlement Agreement--the terms of the "memorializing" document vary significantly from Heuser's January 11, 2005 proposal and took nine months to develop, Rule 80(d) plainly stands to bar oral "agreements" of the kind Phelps Dodge hopes to enforce. There is simply no written record of the terms of what Phelps Dodge holds out as the January 2005 oral agreement, and certainly not any written record of assent by plaintiffs. The policy underlying Rule 80(d) is in fact directed to a situation such as this, where a party asserts that a transcript of a voicemail proposing several terms to initiate settling a patent dispute, and leaving out several other terms, is an enforceable settlement agreement. Notably, when Heuser followed up with a written draft of an agreement including these terms, his email stated, "As I indicated to you, neither of my clients has seen this document, so this should not be considered an offer that is in condition to be accepted." [Id. at ¶ 2]. It is undisputed that there is no written manifestation of plaintiffs' assent to the January 2005 "oral agreement." Even worse, Phelps Dodge appears to rely solely on Kittredge's recollections of or notes from an April 5, 2005 telephone conversation with Heuser as evidence of a "modification" to the January oral agreement relating to the `548 patent. [Id. at ¶15]. The only written terms that followed were debated for another six months and incorporated in their final form into a draft that was never signed by plaintiffs. Because such evidence of oral "agreements" is inherently unreliable, Rule 80(d) provides that no such agreement--or, here, purported agreement--is binding. See Hackin v. Rupp, 9 Ariz. App. 354, 356, 452 P.2d 519, 521 (1969) ("The rule requiring stipulations to be reduced to writing was adopted to prevent fraudulent claims of oral stipulations."). 2. Because plaintiffs indicated only that they would assent to the final draft agreement, once it was executed, that purported settlement agreement is likewise not binding

Because, at most, Plaintiffs indicated that they would assent to the terms of the purported settlement agreement once it was executed, Plaintiffs cannot be bound by any agreement that was not executed. In Canyon, there was "a detailed draft agreement and several letters outlining the
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terms of an agreement," but because there was no writing to evidence plaintiff's assent to those terms, the agreement was not binding pursuant to Rule 80(d). 172 Ariz. at 393, 837 P.2d at 754. Lyons Enterprises, Inc. v. Custer, 168 Ariz. 439, 814 P.2d 780 (App. 1991), is also instructive. There, after plaintiff filed an action to halt a trustee's sale of property, the parties came to an agreement in principle and filed a written stipulation with the court that a settlement had been reached but would be documented later. Id. at 440, 814 P.2d at 781. A detailed draft of an agreement was circulated three times for review and comment, with the signatures to be provided by the parties and not their counsel. Id. Cover letters sent by defendant's attorney revealed that the agreement was close to being finalized and signed, but defendant had not seen one exhibit to the agreement setting forth the financing terms of the transaction. Id. After circulating the third draft, plaintiff wanted the settlement to be final. Id. When plaintiff realized defendant would not sign the document, plaintiff filed a motion for summary judgment enforcing the settlement agreement, arguing that the parties had reached a settlement but that defendant had impermissibly changed its mind. Id. Defendant argued that when it finally received the exhibit containing the financing terms, the terms were unacceptable. Id. at 440-41, 814 P.2d at 781-82. Defendant had "refused to sign the agreement because it believed the agreement was contingent upon an agreement with [a third party] about financial arrangements." Id. at 441, 814 P.2d at 782. Nonetheless, the trial court granted plaintiff's motion to enforce the agreement. On appeal, the court pointed out that the record revealed "an arguable basis" for defendant's assertions, and that "in order to determine not only that the parties reached an agreement but the terms of the agreement, the trial court would have to resolve the factual dispute between the parties regarding the contingency of [defendant's] agreement with [the third party]." Id. The court stated, "This is precisely what Rule 80(d) was designed to avoid." Id. Accordingly, it held that the trial court erred in failing to conclude that Rule 80(d) prevented enforcement of the alleged agreement. The present case bears a striking resemblance to Lyons. Here too, the parties reached an agreement in principle as to several important terms and their attorneys circulated several drafts to be signed by the parties. [SOF ¶ 2]. Here also, plaintiffs have asserted--and Phelps Dodge does not dispute that plaintiffs asserted--that their assent to the agreement was contingent on the agreement being executed before a favorable ruling arrived from the PTO. [Id. at ¶¶ 3-5].
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Determining whether plaintiffs' belief was reasonable, or legally supportable, or whether an agreement was actually formed, would require, as in Lyons, "resolv[ing] the factual dispute between the parties regarding the contingency" of plaintiffs' agreement. See 168 Ariz. at 441, 814 P.2d at 782. As in Lyons, this is precisely what Rule 80(d) was designed to avoid. Id. Accordingly, there is no enforceable agreement. Like Canyon, here there is no written expression of the parties' assent to the terms of the purported settlement agreement. At most, Heuser stated that plaintiffs were "ready to sign" the proposed agreement and that plaintiffs would assent to the terms of the agreement assuming a favorable PTO ruling did not issue before the agreement was executed. [Defendants' Motion at 3-4]. This is simply insufficient written assent under Rule 80(d). Because "[t]he time of the court should not be taken up on controversial matters of this character," Hackin v. Rupp, 9 Ariz. App. 354, 356, 452 P.2d 519, 521 (1969), the Court should decline to enforce any purported settlement agreement between the parties. D. Because There Is No Signed Writing Under The Arizona Statute of Frauds, There Can Be No Enforceable Agreement

There is also no enforceable contract for settlement because such a settlement would come within the Arizona statute of frauds, and there is plainly no signed agreement to satisfy the statute. Arizona Revised Statute Section 44-101 provides, "No action shall be brought in any court in the following cases unless the promise or agreement upon which the action is brought, or some memorandum thereof, is in writing and signed by the party to be charged, or by some person by him thereunto lawfully authorized." A.R.S. § 44-101 (emphasis added). The

purported settlement agreement is within this rule as "an agreement which is not to be performed within one year from the making thereof," (see A.R.S. § 44-101(5)), because it contains a license to three patents with remaining terms of well longer than one year and includes the following covenants: 2c. Krauth and Wade and each of them covenant and agree that they will never assert any claim against any of the Phelps Dodge Companies of their Affiliates for direct, induced, indirect, or contributory infringement under any existing patent, patent application or invention conceived of or owned by either Krauth or Wade prior to the date of this Agreement on account of the design, manufacture, making, having made, or use of any product of any process covered by the Patents, with the exception of the `548 Patent.
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2d. Krauth and Wade and each of them covenant and agree that they will never assert any claim against any of the Phelps Dodge Companies of their Affiliates for direct, induced, indirect, or contributory infringement of the `548 Patent: (i) based on activities that occurred prior to the date of this Agreement; or (ii) for use of any of the products described and depicted in Exhibit C.... [SOF at ¶ 11 (referring to Heuser Declaration attaching final draft of the proposed agreement)]. Under the purported agreement, Phelps Dodge would receive a "perpetual" license to the patents-in-suit and to the `548 patent as to the emitters listed in Exhibit C. [Id.] Plaintiffs would also forbear from suing Phelps Dodge for infringement of these patents during their remaining terms. [Id.] The patents-in-suit will expire April 9, 2008 and July 9, 2008, while the `548 patent will expire September 5, 2021. See 35 U.S.C. § 154. These permissions and obligations, by their terms, last longer than one year. Courts have confirmed that a covenant not to sue for infringement of a patent whose remaining term is longer than a year comes within the statute of frauds. See Solaia Tech. LLC v. ArvinMeritor, Inc. et al., 2006 U.S. Dist. LEXIS 11347 (N.D. Ill. March 16, 2006), citing 9 Williston on Contracts § 41:1 (4th ed. 2005) ("[A]n oral contract to forbear bringing suit on a certain claim for more than a year has been held unenforceable"). See also Mission v. Mt. Sinai Congregation, 40 Wyo. 297, 304 276 P. 930, 932 (1929) ("Some courts have attempted to distinguish between an agreement to do a thing and an agreement not to do a thing for a certain definite time more than a year. But the better and more logical reasoning is, we think, to the effect that any such claimed distinction is unsubstantial."). In Solaia, patent infringement

plaintiffs attempted to enforce a settlement agreement based on unsigned drafts of a settlement agreement and the representations in "cover letters" and emails by the parties' counsel. Solaia, 2006 U.S. Dist. LEXIS 11347 at *49-50. The court found that the purported agreement was unenforceable for the "independent reason" that it contained a covenant not to sue for the term of the patent-in-suit which was covered by the Illinois statute of frauds as an "agreement that is not to be performed within the space of one year from the making thereof." Id. at *42-50.

Furthermore, despite the fact that the parties exchanged over a dozen drafts of an agreement, and correspondence by the parties' counsel indicated assent to the "essential settlement components" of the agreement, these were insufficient to show a signed writing satisfying the statute of frauds. Id. at *49-50.
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In its Motion for Summary Judgment, Phelps Dodge cites the Restatement (Second) of Contracts for the proposition that a covenant to forbear or refrain from exercising a right is not within the one-year provision of the statute of frauds. [Defendants' Motion at 7 citing

Restatement (Second) of Contracts § 130 cmt. b ill. 9]. The Restatement illustrates the point with reference to employment contracts and covenants not to compete: "A sells his grocery business to B [with] A orally agreeing not to engage in the grocery business in the same town for five years. The contract is not within the one-year provision of the Statute, since A's death within one year will give B the equivalent of full performance." Restatement (Second) of Contracts § 130 cmt. b ill. 9. In such situations, however, the right that the party refrains from exercising is tied to their individual performance of a profession. By contrast, the right to sue for patent infringement can be exercised by anyone with an ownership interest in the patent. If Krauth were to die within one year, his wife or another named successor named in his will would have the right to sue Phelps Dodge for infringement of the patents-in-suit and the `548 patent. If he died without a will, the right to sue on these patents would pass as personal property through intestate succession. Without citing any authority, Phelps Dodge also asserts in its Motion for Summary Judgment that a fully paid-up license for patent rights does not fall within the statute of frauds because the patent could theoretically be invalidated within one year. Notwithstanding the fact that, practically speaking, bringing a patent through trial or through a PTO reexamination to the point of invalidation will invariably take more than a year,1 there is ample authority for the proposition that contracts pertaining to patent rights come within the statute of frauds where the remaining life of the patent is more than one year. See Sun Studs, Inc. v. Applied Theory Associates, Inc., 772 F.2d 1557, 1563 (Fed. Cir. 1985) (rejecting argument that patent license could be performed within one year because licensee could go out of business or because the patents could be invalidated within that time, and holding that the statute of frauds applies to "oral agreements which grant a license under a patent who remaining term is more than one year"); Schick Service, Inc. v. Jones, 173 F.2d 969, 975-77 (9th Cir. 1949) (holding that an

Here, the reexamination lasted more than a year and ended in a first Office Action validation of all of the claims of the patents-in-suit. If a party received a first Office Action indicating that the claims would be invalidated, such a party would take several additional months or even a year arguing the PTO's rejections before the patent would be invalidated. Page 12 MEMORANDUM SUPPORTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT THAT NO PURPORTED SETTLEMENT AGREEMENT IS ENFORCEABLE

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agreement for 1.5% royalty for a patent license up to $250,000, followed by a 1% royalty thereafter, was within the statute of frauds, even though the licensee could theoretically make the $250,000 payment and then cease manufacturing the licensed product within one year); Gateway, Inc. v. Hillgren, 82 F.Supp. 546, 554 (S.D. Cal. 1949) (holding that a one-time payment license for rights in a subsequently issued patent was within the statute of frauds); Aero Bolt and Screw Company of Cal., Inc. v. Iaia, 180 Cal.App.2d 728, 740, 125 U.S.P.Q. 545, 551 (1960) (citing California treatise for the proposition that "an oral promise to manufacture a patented device for the duration of the patent is unenforceable, since it is one which is obviously not performable within the space of a single year"). Accordingly, an agreement containing a covenant not to sue and a license as to three patents, each with a remaining term of more than one year, is within the statute of frauds and must be "in writing and signed by the party to be charged" pursuant to Arizona Revised Statute Section 44-101. Phelps Dodge can provide no evidence that plaintiffs signed the final draft of the agreement. Despite the authorities cited in Phelps Dodge's Motion that an email signature is no less a signature than a hand-written one, there is no law for the proposition that an attorney's emailed statement that his clients are "ready to sign" is equivalent to receiving the written signatures of the parties to the agreement. See Lamle v. Mattel, Inc., 394 F.3d 1355, 1362 (Fed. Cir. 2005) (stating that an email by employee of party may satisfy the California statute of frauds "assuming that there was a binding oral agreement") (emphasis added); Bishop v. Norell, 88 Ariz. 148, 151, 353 P.2d 1022, 1025 (1960) (holding that "any of the known modes of impressing a name on paper" is sufficient signature by "person to be charged" provided it is "done with the intention of signing"). Phelps Dodge likewise cannot argue that an earlier draft of the purported agreement, mistakenly signed by plaintiffs, can be enforced against plaintiffs because Kittredge's own voicemail concedes that there was no mutual assent as to the early September 2005 draft. [SOF ¶ 10]. Therefore, because no purported settlement agreement will satisfy the statute of frauds, plaintiffs' Motion for Summary Judgment should be granted.

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IV.

CONCLUSION Because the existence of a settlement agreement is undoubtedly disputed by the parties,

Rule 80(d) applies to prevent the formation of any "oral agreement" and to render the final draft of a settlement agreement unenforceable where plaintiffs' assent was contingent on the agreement being executed before the PTO ruled in plaintiffs' favor. Likewise, because there is no signed writing, the Arizona statute of frauds bars any purported settlement agreement as "an agreement not to be performed within one year" with a license and covenant not to sue lasting at least four years. Plaintiffs respectfully request that the Court grant plaintiffs' Motion for

Summary Judgment that any purported settlement agreement is unenforceable. Dated: March 31, 2006. By s/Elizabeth A. Tedesco PETER E. HEUSER ELIZABETH A. TEDESCO Kolisch Hartwell, P.C. 520 SW Yamhill Street, Suite 200 Portland, Oregon 97204 Phone: 503-224-6655 Facsimile: 503-295-6679 DANIEL R. MALINSKI Burch & Cracchiolo, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Telephone: (602) 274-7611

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