In VLIW Technology, LLC v. Hewlett-Packard Company, the Chancery Court was recently called upon to address claims involving an agreement by a software company for the sale of a perpetual license to certain technology. The agreement required the purchaser to maintain the confidentiality of the trade secret information for a period of five years. The software company that sold the perpetual license went out of business shortly after the date of the agreement in 1990. The case involves the subsequent disclosure of that licensed technology after the five year period expired. The 36-page decision contains many factual details that were addressed in the first decision of the trial court, which was later appealed to the Delaware Supreme Court, and is now being decided again on a Motion to Dismiss based on statute of limitations arguments. The bottom line of the decision is that the court found that the three year statute of limitations had expired prior to suit being brought and therefore, was time barred. If nothing else, the case highlights the need to make clear the duration of any confidentiality provisions in an agreement where confidentiality is considered to be of long term importance.
In NBC Universal, Inc. v. Paxson Communications Corporation, on April 29, 2004, Vice Chancellor Lamb decided the issue of rights under the Certificate of Incorporation of Paxson in the context of a declaratory judgment action. The Certificate of Incorporation provided that upon liquidation of Paxson, the holders of certain preferred stock would receive a “liquidation preference” and the amount of that preference is the primary issue in the case. The complaint raised issues about the selection of a nationally recognized independent investment banking firm which, according to the Certificate of Designation in the Certificate of Incorporation, would be chosen by Paxson in its sole discretion as the means of determining the dividend rate to apply in connection with the liquidation preference. Paxson filed a motion for judgment on the pleadings and NBC filed a cross-motion for judgment on the pleadings or, in the alternative, summary judgment. The court noted that before a motion for summary judgment is ripe for decision, the non-movant normally should have an opportunity for some discovery (citations at footnote 9 omitted). The court also noted that interpretation of a corporate Certificate of Designation, is based on the standard rules of contract interpretation, and that the enforcement of unambiguous contracts is appropriate for the court to resolve as a matter of law in a summary judgment posture (citation omitted). A contract is not rendered ambiguous simply because the parties in litigation differ concerning its meaning. Rather, a contract is ambiguous only when the provisions and controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings. Delaware adheres to the “objective theory of contracts,” namely that a contract’s construction should be that which would be understood by an objective, reasonable third party. Unless the intent of the parties clearly shows otherwise, words in a contract are interpreted using their common and ordinary meaning.
The 28-page opinion has useful analysis for contract interpretation in general, such as referring to the “last antecedent rule” requiring that a modifying phrase be construed as referring to its nearest antecedent, but noting that that is but one of numerous rules designed to assist in the discovery of intent of the parties to an agreement and is not to be inflexibly or uniformly applied. The court noted the general rule of contract interpretation that the document should be read as a whole, and if possible, interpreted to reconcile all provisions of the document. The court concluded that the term “liquidation preference” was intended to mean that the original purchase price of the preferred stock would be $10,000 per share. However, the court ruled that the redemption provisions at issue were highly idiosyncratic and that before reaching any conclusions about the meaning of the unusual provisions the court believed that it was prudent to allow for the development and presentation of a factual record of the parties’ negotiations and dealings and declined to rule on that particular issue.
Both opinions can be found here at the Court’s website.