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Intermec, Inc. v. International Business MacHines Corp.

United States District Court, W.D. Washington, Seattle

November 18, 2014

INTERMEC, INC., Plaintiff,



This contractual dispute is before the Court on remand from the Ninth Circuit Court of Appeals. The only remaining issues in this case are Defendant International Business Machines Corporation's ("IBM") breach of contract counterclaims and Plaintiff Intermec, Inc.'s ("Intermec") defense that many of these claims are time-barred by the contract's four-year limitations provision. IBM has moved for summary judgment on the grounds that the contract unambiguously required Intermec to pay IBM certain Minimum fees once the contract ended. (Doc. No. 219). Intermec does not dispute that it breached its contractual obligation by not paying these Minimum fees. However, Intermec moves for partial summary judgment on the grounds that a majority of these Minimum fees were due before the contract period ended and are now time-barred. (Doc. No. 216). After reviewing the briefs and all other relevant material properly before the Court, the Court will GRANT IBM's motion for summary judgment and will DENY Intermec's motion for partial summary judgment.


A. The Parties' Agreement

In 1997, IBM entered into an agreement (the "Agreement") with Intermec concerning IBM's radio frequency identification device ("RFID") patents.[1] (Doc. No. 219 at 5). Under the Agreement, IBM assigned Intermec the right to license its RFID patents to third parties. ( Id ). In return, Intermec agreed to pay IBM for each license in the following way:

For a period commencing on the Effective Date and continuing until April 15, 2008, for each bare Patent license granted by [Intermec] to a third party..., [Intermec] shall pay to IBM the greater of: (i) forty percent (40%) of any royalty paid in cash or cash equivalent(s) by such third party to [Intermec] pursuant to any license granted under the Patents, or (ii) $100, 000.00... per Patent up to a maximum of $500, 000.00.

(Agreement, "Fees for Licenses, " Section 10.3.1).

Both parties agree that the Agreement required Intermec to pay IBM at least $100, 000 per patent/up to $500, 000 per license (the "Minimum"). However, the parties disagree about when this Minimum amount became due.

According to IBM, the Minimum amount became due at end of the contract period. (Doc. No. 232). IBM asserts that Section 10.3.1 required Intermec to pay IBM 40% royalty fees each quarter and then account for the "shortfall, " if any, between the royalty fees paid and the Minimum amount owed on April 15, 2008. ( Id. ). Intermec counters that the Minimum amount was due immediately after the quarter in which the license was issued, i.e. Intermec must pay the Minimum amount immediately and then account for any surplus royalty profits at the end of each quarter. This disagreement is significant because Section 19.8 of the Agreement provides that "[n]either party may bring an action... arising out of performance of this Agreement more than four years after the cause of action has accrued." (Agreement, Section 19.8).

Two additional provisions of the Agreement are relevant for the purposes of this memorandum opinion. Section 10.4.1 provides that Intermec must prepare a report every quarter detailing the amount of royalties owed to IBM under Section 10.3.1. Section 10.4.2 states that "[a]ll payments due under [Section 10.3.1] shall be due... within 60 days after the conclusion of each Calendar Quarter."

B. Rapid Start Licenses

In 2005, Intermec began issuing licenses called "Rapid Starts" to third parties. (Doc. No. 216 at 7). Rapid Starts licenses contained RFID patents acquired from IBM under the Agreement. (Doc. No. 197). Therefore, Rapid Starts were subject to Section 10.3.1 of the Agreement. (Doc. No. 219 at 7). From 2005 to April 2008, Intermec paid IBM 40% of its Rapid Starts royalty income every quarter, as required under Section 10.3.1. ( Id. at 6). However, Intermec did not pay IBM the Minimum amount at the end of the quarter in which each license was issued, nor did it account for any "shortfalls" at the end of the contract period.

Instead, in April 2008, shortly before the contract period ended, Intermec announced a new interpretation of the contract: the Rapid Starts licenses were actually "products, " not licenses, and were governed by Section 10.2.1, which required only 5% royalty fees and no Minimum amounts. (Doc. No. 219 at 9). When the contract period ended, IBM demanded Intermec pay the difference between the royalty payments and the Minimum amounts required under Section 10.3.1. Intermec, in turn, sent IBM an invoice demanding a refund for the difference between the 40% Rapid Start royalty payments it made pursuant to Section 10.3.1 and the 5% payments it claimed were actually due under the Section 10.2.1 of the Agreement. (Doc. No. 197 at 2). IBM refused to provide a refund.

C. Procedural History

On January 31, 2011, Intermec filed a complaint in the Western District of Washington against IBM. (Doc. No. 1). Intermec asserted that IBM was only entitled to 5% in royalty fees, not 40%, and, therefore, Intermec had overpaid IBM by "at least $1, 699, 377.93." ( Id. at para. 20). On February 22, 2008, IBM filed a counterclaim against Intermec, arguing that ...

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