Koninklijke Philips NV v Asustek Computer Incorporation & Ors

Under Californian law, contractual interpretation seeks the parties’ mutual intention objectively manifested in the contract and admissible extrinsic evidence. A two-stage inquiry asks whether the language is reasonably susceptible to each proposed meaning and, if so, what meaning the parties intended. Subsequent conduct may be particularly probative. Where uncertainty remains, contra proferentem applies even to negotiated contracts.

A covenant concerning CDMA standards was construed as confined to pure CDMA standards. Hybrid TDMA/CDMA systems, including HSPA, were excluded. A separate proviso also excluded hybrid systems containing TDMA.

Philips alleged infringement of patents said to be essential to HSPA, a hybrid TDMA/CDMA technology used in later releases of the UMTS standard. HTC, as a Qualcomm licensee, relied on a covenant in a 1998 agreement under which Philips would not assert certain patents against designated Qualcomm licensees.

The court tried a preliminary issue concerning whether the covenant extended to HTC’s alleged acts. The issues included the meaning of CDMA Wireless Industry Standard, the scope of a TDMA proviso, whether the patents were technically necessary, and whether the covenant covered products using chipsets purchased from third parties.

1. Construction under Californian law. The court applied a two-stage approach. It first asked whether the contractual language was reasonably susceptible to each proposed interpretation. It then considered the parties’ intended meaning using the contract, its commercial purpose and admissible extrinsic evidence. The whole agreement had to be read together, and subsequent conduct was admissible and potentially highly probative.
2. Meaning of CDMA Wireless Industry Standard. The definition was reasonably susceptible of both parties’ interpretations. The words referring to the proposed ETSI UMTS standard and subsequent releases did not resolve the ambiguity. The closing exclusion of standards using a TDMA over-the-air interface, the commercial purpose of the agreement and Qualcomm’s subsequent conduct supported Philips’ narrower construction. The definition was therefore confined to pure CDMA standards. HSPA was a hybrid TDMA/CDMA system and was outside clause 4.3.
3. TDMA proviso. Assuming that HSPA fell within the main definition, the proviso excluding infringement relating to TDMA equipment or systems nevertheless covered hybrid TDMA systems. Its examples were themselves hybrid TDMA/FDMA systems, and the proviso was not confined to GSM. HSPA was consequently excluded on this alternative basis.
4. Remaining issues. The court held, alternatively, that “standard” in the definition of CDMA Technically Necessary Patents included optional parts of a standard, and Philips’ pleaded assertion that the patents were essential was sufficient to bring them within the definition. If the covenant applied at all, it applied only to acts relating to Qualcomm-based products, not products using chipsets bought from competitors.
5. Disposition. Clause 4.3 did not extend to HTC’s alleged acts of infringement.

First-instance decision. The judgment itself records no appeal or earlier merits decision.