Smartmatic Int’l Corp. v. Dominion Voting Sys. Int’l Corp., C.A. No. 7844-VCP (Del. Ch. May 1, 2013) (Parsons, V.C.)

more+
less-

In this memorandum opinion, the Court of Chancery denied the parties’ cross-motions for partial summary judgment in a breach of contract case, reasoning that the contract language “in the United States” was ambiguous as to whether it included Puerto Rico.

In 2009, Defendant Dominion Voting Systems granted Plaintiff Smartmatic a worldwide (except for the United States and Canada) nonexclusive license to certain voting system technology and patent rights that Dominion owned or controlled.  The license agreement contained a noncompetition provision, which, among other things, prohibited Smartmatic from “develop[ing], market[ing] or sell[ing] any Licensed Product in the United States.” 

In 2012, Smartmatic submitted a bid to sell the licensed voting systems to the government of Puerto Rico for its upcoming elections.  Dominion also submitted a bid.  Upon learning of Smartmatic’s bid, Dominion notified Smartmatic by letter that Smartmatic was in breach of the license agreement’s noncompetition provision, asserting that Puerto Rico is “in the United States.”  Dominion also purported to terminate the agreement as a result of the alleged breach.  Smartmatic rejected Dominion’s termination as invalid, contending that Puerto Rico is not “in the United States.” 

Following its purported termination of the license agreement, Dominion ceased performing its contractual obligations, leading Smartmatic to file suit in the Court of Chancery.  In response, Dominion asserted counterclaims. 

The parties then cross-moved for partial summary judgment on the issue whether Puerto Rico is “in the United States” for purposes of the noncompetition provision in the license agreement.  Smartmatic asserted, inter alia, that “in the United States” does not include Puerto Rico, pointing to dictionary definitions, case law, and statues that explicitly distinguish between Puerto Rico and the United States.  Dominion countered that Puerto Rico is “in the United States,” as it is considered to be a part of the United States under most federal laws, including federal voting, patent and trademark laws.  Dominion also argued that, under a subsection of the noncompetition provision, Puerto Rico was not a “country other than the United States,” and, therefore, it must be included in the contract language “in the United States.”

The Court began by surveying the various dictionary definitions of the term “United States,” finding that, “although not unanimous, [they] overwhelmingly suggest that the ordinary meaning of the United States includes only the forty-eight contiguous states, the District of Columbia, Alaska, and Hawaii.”  The Court then considered case law that addressed the definition of “United States,” determining that there was “no consensus on whether the term ‘in the United States’ has only one reasonable meaning.”  Next, the Court reviewed the definition of “United States” in statutes, but declined to reach a conclusion as to which interpretation the statutes favored.  The Court then analyzed the noncompetition provision, as well as the use of the term “United States” elsewhere in the license agreement, concluding that the phrase “in the United States” was subject to more than one reasonable interpretation. 

Because both Smartmatic’s and Dominion’s interpretations of “in the United States” were reasonable, the Court concluded that the term was ambiguous and that it “must consider extrinsic evidence to determine what meaning the parties intended to give the noncompetition provision.”  Summary judgment, therefore, “would be inappropriate.”  Consequently, the Court denied the parties’ cross-motions for summary judgment.

The full opinion is available here.