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Long Fish v. Nanotronics Corp.6/9/2003
agreement and unfair competition.
II.
Both in the trial court and on appeal, the Fish trust asserted that under the express and implied provisions of the Technology Transfer Agreement, Nanotronics was required to pay it royalties on products sold by Patriot. We find no such liability.
A. Liability Under the Express Terms of Technology Transfer Agreement
The Technology Transfer Agreement defines the Fish trust as the "Trust" and Nanotronics as the "Company." Section 3.1 of the Technology Transfer Agreement states in pertinent part: " he Company shall pay the Trust a royalty on each Basic Sh-Boom Microprocessor sold by it . . . in accordance with the following schedule." The schedule of royalty payments then sets forth specific dollar amounts Nanotronics would pay the trust during the term of the agreement and guaranteed minimum royalty payments once production began. Under each provision of the royalty schedule, Nanotronics's royalty obligation is limited to each microprocessor "sold by it."
Section 3.2 states in pertinent part: "The Company shall pay the trust royalties on each unit of each type of Enhanced Product sold by it during the Royalty Years." The schedule of royalties for enhanced products was also in fixed dollar amounts over the term of the agreement, but without any guaranteed minimum royalty following commencement of production.
Section 3.3 of the agreement states: "The Company shall pay the Trust royalties on income from licensing (as opposed to sales) of the Basic Sh-Boom Microprocessor or Enhanced Products as set forth in this Section 3.3." Section 3.3.1 in turn provides: "The Company shall pay the Trust 25% of each one-time, 'upfront' license fee it receives from any licensee of the Sh-Boom Microprocessor or any Enhanced Product." Section 3.3.2 provides: "The Company shall pay the Trust royalties on ongoing royalty payments (i.e., royalty licenses) it receives from licensees ('Royalty Income') in accordance with this Section 3.3.2." Subdivisions of section 3.3.2 then provide the Trust with 50 percent of any license fees the Company receives for licensing the basic technology and lesser percentages for licenses of enhanced products.
As the defendants point out, under a literal reading of these provisions, only Nanotronics's royalty obligation is expressly and repeatedly limited to microprocessors "it sold." (Italics added.) Such a literal interpretation is supported by the separate treatment of third party license fees. In treating such license fees separately, the face of the agreement makes it clear that the parties understood there were two ways in which Nanotronics might attempt to exploit the value of the Sh-Boom technology: by developing and selling its own products and by permitting the technology to be used by third parties. In recognizing each method of realizing value and treating them separately, the face of the Technology Transfer Agreement makes it plain the parties agreed products sold by Nanotronics and products sold by third parties would give rise to entirely distinct obligations. This in turn lends considerable support to the defendants' contention that the royalty obligations set forth in such detail in sections 3.1 and 3.2 of the agreement were limited to products sold by Nanotronics.
Because the defendants' interpretation of the royalty provisions is faithful to the literal language of the agreement and consistent with the closely related licensing provisions, the defendants' interpretation is supported by rules of construction which require consideration of both the language of an instrument and the larger context in which the language appears in the instrument. (Civ. Code,
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