Cameron International Corporation v. Vetco Gray Inc., No. 14-07-00656-CV (Tex. App. 3/31/2009)

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CAMERON INTERNATIONAL CORPORATION F/K/A COOPER CAMERON CORPORATION, Appellant, v. VETCO GRAY INC., Appellee.

No. 14-07-00656-CV.

Court of Appeals of Texas, Fourteenth District, Houston.

Memorandum Opinion filed March 31, 2009.

On Appeal from the 129th District Court, Harris County, Texas, Trial Court Cause No. 2003-61873.

Affirmed.

Panel consists of Justices ANDERSON, SEYMORE, and HUDSON.⁶

MEMORANDUM OPINION

JOHN S. ANDERSON, Justice.

This is a contract interpretation case. Appellant, Cameron International Corporation f/k/a Cooper Cameron Corporation, appeals the trial court's confirmation of an arbitrator's award and the granting of summary judgments construing the language of an unambiguous contract. Finding no error, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A Christmas tree is a device, made up of a series of valves and pipes, which regulates the flow of oil and gas produced by subsea wells. There are four primary manufacturers of subsea Christmas trees worldwide: appellant, appellee, Vetco Gray Inc., Kvaerner Oilfield Products, Inc. ("Kvaerner"), and FMC Technologies, Inc. ("FMC"). Originally, Christmas trees were vertical. Maintenance on subsea wells was an expensive and time-consuming process because the entire vertical Christmas tree had to be removed first. In 1996, appellant patented a new design of Christmas tree, a horizontal tree, which appellant called the SpoolTree. The SpoolTree design was superior to the old vertical tree design because it allowed maintenance to be performed while the tree remained in place and provided better protection against leakage that could endanger workers and harm the environment.

After it patented the SpoolTree, appellant sent notice of its patent to its three competitors: appellee, Kvaerner, and FMC. In addition, appellant invited each of the three competitors to negotiate a license to use the SpoolTree design. Of the three competitors, only appellee entered into negotiations with appellant for a license. Kvaerner and FMC entered into litigation with appellant over the design. In 1997 appellee's negotiations with appellant were successful and they entered into a contract, the Cross-License Agreement. Pursuant to the Cross-License Agreement, appellee agreed to pay appellant a royalty rate of 6.5 percent of all revenue obtained from selling products covered by appellant's patents retroactive to August 1996. In addition, appellee gave appellant a cross-license for several of appellee's products and received a $3 million credit to be applied to its royalty payments to appellant. In addition, to protect appellee's status as the first to obtain a SpoolTree license, the Cross-License Agreement includes a "most-favored licensee" clause that requires appellant to promptly notify appellee of any SpoolTree licenses appellant might grant to a third party. In addition, paragraph 5.2 of the Cross-License Agreement provides:

In the event the ROYALTY TERMS of such third-party license are, as a whole, more favorable to the other PARTY than are provided in this CROSS LICENSE AGREEMENT, then for so long as the third-party license is in effect, the other PARTY shall be entitled to elect the more favorable ROYALTY TERMS from the date of notice to the third party or the date of marking, whichever is earlier.

To address the possibility that future SpoolTree licenses might not have an explicit royalty percentage such as appellee's 6.5 percent, the parties included paragraph 5.6 in the Cross-License Agreement, which provides:

In the event the PARTIES cannot agree on the ROYALTY TERMS of a third party license, the PARTIES shall select within fifteen (15) days after written request by a PARTY one economic evaluator by mutual agreement, which agreement shall not be unreasonably withheld. The PARTIES shall submit in writing to the economic evaluator the issue of the ROYALTY TERMS for the third party license. Each PARTY shall be allowed one written submission and neither party shall be allowed a responsive or other written submission unless specifically requested in writing by the economic evaluator. There shall be no ex parte contact with the economic evaluator concerning the subject matter. The economic evaluator's decision, which must be made within one month of the final submission, shall be binding upon the PARTIES. The PARTIES shall share the cost of the economic evaluator.

Eventually, appellant resolved its litigation and negotiated license agreements with both Kvaerner and FMC. The Kvaerner license involved a fixed sum royalty for each Christmas tree sold using appellant's patents as well as two supply agreements. On August 22, 2003, appellee sent appellant notice of its election of the Kvaerner royalty rate. In response, appellant refused to acknowledge appellee's election, threatened to terminate appellee's license by declaring appellee in default, and refused appellee's requests to take the matter to an economic evaluator. Appellant then initiated the current litigation asking the trial court to declare, among other things, (1) that any election by appellee of the Kvaerner royalty rate must be based upon the economic value exchanged as a whole, and (2) the determination of the effective percentage rate of the Kvaerner royalty rate must take the economic value appellant received from the two Kvaerner supply agreements into account.¹

While the current litigation was in progress, appellant, on March 7, 2004, entered into a license agreement with FMC (the "2004 FMC License"). The 2004 FMC License required FMC to make a lump sum payment of $6 million to appellant. In addition, the 2004 FMC License included a cross-license granting appellant a license to certain FMC patents and a supply agreement. Under the 2004 FMC License, once it had paid the $6 million lump sum, FMC had no royalty obligations going forward. After reviewing the 2004 FMC License, appellee notified appellant of its election of the 2004 FMC License's royalty terms and appellant "acknowledg[ed] and accept[ed] [appellee's] election." Despite that acknowledgment and acceptance, the litigation between appellant and appellee continued as the dispute widened to include the 2004 FMC License.

In March 2005, appellant moved to abate the litigation and send the dispute over the royalty rates to arbitration. The trial court granted appellant's motion and ordered the parties to arbitration. The parties selected Professor Paul M. Janicke, a law professor at the University of Houston Law Center, as the neutral arbitrator. Based on the terms of the Cross-License Agreement and the trial court's arbitration order, Professor Janicke was to determine the "royalty terms" of the 2004 FMC License and the Kvaerner license.

In October 2005, Professor Janicke issued his report. In his report, Professor Janicke found the 2004 FMC License had an effective royalty rate of .76 percent and the Kvaerner license had an effective royalty rate of 6.46 percent, making both more favorable than appellee's 6.5 percent royalty rate. Appellant moved to vacate the arbitration award while appellee asked the trial court to confirm it. On November 18, 2005, the trial court granted appellee's motion and confirmed the arbitration award.

Following the arbitration, appellant and FMC entered into an amended and restated cross-license agreement (the "2005 FMC License"). Appellant then notified appellee that since the 2004 FMC License had been replaced, appellee had lost the .76 percent royalty rate and its royalty rate had reverted back to the original 6.5 percent. This issue was then added to the ongoing litigation.

All remaining issues related to the construction of the Cross-License Agreement were resolved through a series of motions for partial summary judgment filed by appellee and which were granted by the trial court. On July 20, 2006 the trial court granted appellee's motion for partial summary judgment contending it had not breached the Cross-License Agreement when it applied the $14 million credit resulting from the arbitrator's award to any amounts due to appellant for the use of appellant's SpoolTree patents. On September 8, 2006 the trial court granted appellee's motion for partial summary judgment asserting any credit generated by appellee's election of the 2004 FMC royalty rate remained in place regardless of the continuing validity or existence of the 2004 FMC License. Finally, on November 22, 2006 the trial court granted appellee's motion for partial summary judgment asserting (1) the Cross-License Agreement was not ambiguous, and (2) that once appellee had elected the 2004 FMC royalty terms, nothing in the language of the Cross-License Agreement allowed appellee's royalty terms to revert back to the original 6.5 percent rate. After the parties dismissed their remaining claims, the trial court entered a final judgment incorporating its prior orders. This appeal followed.

DISCUSSION

Appellant raises two issues in this appeal. In its first issue, appellant contends the trial court erred in its construction of the Cross-License Agreement when it determined that once appellee had elected the 2004 FMC royalty terms, nothing in the language of the Cross-License Agreement allowed appellee's royalty terms to revert back to the original 6.5 percent rate. Within that first issue, appellant also argues the Cross-License Agreement is ambiguous. In the second issue, appellant asserts the trial court erred when it confirmed Professor Janicke's arbitration award. We address each in turn.

I. Did the trial court err in its construction of the Cross-License Agreement?

A. The standard of review.

The movant for summary judgment has the burden to show there is no genuine issue of material fact and is entitled to judgment as a matter of law. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). In determining whether there is a genuine fact issue precluding summary judgment, evidence favorable to the non-movant is taken as true and...