IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH

CENTRAL DIVISION

DIGECOR, INC. a Washington corporation,

Plaintiff, MEMORANDUM DECISION AND

ORDER ON MOTIONS

vs.

E.DIGITAL CORPORATION, a Delaware

corporation; DOES 1 to 20, individuals,

Case No. 2:06-CV-437 TS

Defendants.

This matter is before the Court on Defendants. Motion to Dismiss Certain Claims in the

Complaint, Plaintiff.s Motion for Partial Summary Judgment, and Defendants. Motion for 1 2

Judgment on the Pleadings as to the Scope of Exclusivity Under the DRM Agreement.3

2

I. FACTUAL BACKGROUND

The parties entered into a contractual relationship to manufacture and market in-flight

entertainment devices. In April 2002, the precursor company to Plaintiff entered into a

nondisclosure agreement (.2002 NDA.) with Defendants to explore the possibility of forming a

long-term business relationship. In October of 2002, pursuant to another contract (.2002

Agreement.) the parties entered into a business relationship to design and manufacture a video

device (.digEplayer.) and various other products, including the eVU, a portable entertainment

device derived from the design of the digEplayer. The 2002 Agreement expired, by its own

terms, on October 22, 2005.

In October of 2005, Plaintiff issued a Purchase Order (.PO.) placing an order for 1,250

digEplayers to be delivered in January of 2006. Very soon afterwards, the parties entered into a

Digital Rights Management Program Services Agreement (.DRM Agreement.). The DRM

Agreement provided for the DRM project, whereby Defendants would create and adapt digital

rights management technology (.DRM technology.) for Plaintiff.s digEplayers. The DRM

Agreement granted Plaintiff an unrestricted license, upon payment of $25,000, to use the DRM

technology for Plaintiff.s digEplayer in the aircraft industry. The DRM Agreement, as part of its

terms, required Plaintiff to issue a purchase order for 1,250 digEplayers. The Agreement states

that Maycom, a Korean company, would manufacture the players. Plaintiff made payments for

the players in the amount of $793,750, either at, or, per the request of Defendants, before the

contractually required intervals. In late 2005, the parties discussed the need for Plaintiff to

provide an airline name, logo, and color to be printed on the plastic cases of the digEplayers.

In early January of 2006, Plaintiff suggested that the Korean representative of its parent

company inspect the manufacturing process. The inspection took place as planned. By March 1,

3

2006, Plaintiff had specified the color and logo of the cases. On March 14, 2006, Defendants

informed Maycom that they were going to visit the Korean facility to assure the manufacture of

the digEplayers. At that time, Defendants were informed that the units were not ready. In the

interim, Defendants have allegedly produced and marketed their eVU player in the airline

industry. Plaintiff brings claims of breach of contract, unjust enrichment, breach of the covenant

of good faith and fair dealing, fraud, negligent misrepresentation, intentional interference with

prospective economic relations, punitive damages, and injunction against Defendants.

Defendants, after the filing of this action, delivered 1,250 units of the digEplayer during

the week of October 30, 2006. Plaintiff now asserts that twenty-six of these units were defective

and returned to Defendant. Plaintiff represents that the parties have reached a partial settlement,

and that the delivery satisfies its claims to recover the purchase price paid for the units. The

parties have stipulated that Plaintiff.s acceptance of delivery does not limit its remaining claims,

or Defendants. defenses. Plaintiff asserts that it now seeks to recover $94,846.the cost of

Defendants. failure to make perfect tender (for the twenty-six units), and the cost of batteries for

all of the 1,250 units.

II. DISCUSSION

A. Defendants. Motion to Dismiss Certain Claims in the Complaint

Defendants seek to dismiss all of Plaintiff.s claims, except those for breach of contract,

implied duty of good faith, and injunction, under contracts other than the 2002 NDA or 2002

Agreement, for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

In considering a motion to dismiss under Rule 12(b)(6), all well-pleaded factual

allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the

4Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002).

5Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

6GFF Corp. v. Assoc. Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997).

7Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998); Hall v.

Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).

8Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991). Also, under Fed. R. Civ. P.

10(c), documents, including contracts, attached to a complaint or other pleading may be

considered without converting the motion into one for summary judgment.

4

light most favorable to the nonmoving party. A Rule 12(b)(6) motion to dismiss may be 4

granted only if it appears beyond a doubt that the plaintiff is unable to prove any set of facts

entitling it to relief under its theory of recovery. All well-pleaded factual allegations in the 5

amended complaint are accepted as true and viewed in the light most favorable to the nonmoving

party. But, the court .need not accept conclusory allegations without supporting factual 6

averments.. .The court.s function on a Rule 12(b)(6) motion is not to weigh potential evidence 7

that the parties might present at trial, but to assess whether the plaintiff.s complaint alone is

legally sufficient to state a claim for which relief may be granted.. 8

Defendants make several arguments in support of their Motion, including: (1) Plaintiff.s

breach of contract, injunction, and other claims must be dismissed, as a matter of law, because

the agreements upon which they are based, by their operation, are superseded or expired, (2)

Plaintiff is only entitled to $25,000 of damages under the agreements, (3) Plaintiff.s unjust

enrichment claim must be dismissed because of the existence of express contracts between the

parties, (4) Plaintiff.s tort claims of fraud, negligent misrepresentation, tortious interference, and

punitive damages are precluded by the economic loss doctrine, (5) Plaintiff has not set forth facts

5

under certain elements of fraud and negligent misrepresentation, (6) Plaintiff has not stated a

claim for tortious interference based on an improper purpose or improper means, and (7) Plaintiff

has failed to state a claim for punitive damages. The Court addresses each argument in turn.

1. Operation of Agreements

Defendants argue that the 2002 NDA was superseded by the 2002 Agreement which has

now expired. Defendants first point to the merger clause of the 2002 Agreement which states

that: .This Agreement constitutes the entire understanding and agreement between the parties

with respect to the transactions contemplated herein and supercedes any and all prior oral or

written communications with respect to the subject matter herein.. Defendants assert that

Plaintiff.s claims relate to the broad subject matter contemplated by the 2002 Agreement,

namely, portable video devices for in-flight entertainment, and, more broadly, the entire business

relationship between the parties. Defendants then emphasize that, because, by its own terms, the

2002 Agreement expired on October 22, 2005, Plaintiff cannot seek damage or injunctive relief

under the 2002 Agreement for Defendant.s design or marketing of the eVU.

Plaintiff counters that the 2002 Agreement does not supersede the 2002 NDA, and that,

even if it did, its claims survive under the DRM Agreement.s exclusivity provision. Plaintiff

emphasizes that the 2002 NDA.s non-competition provision lasts .for a period of seven (7) years

after the termination of this agreement.. Plaintiff also argues that the 2002 Agreement.s merger

clause is limited to .the transactions contemplated [t]herein[,]. which, as defined by the 2002

Agreement, constituted the .develop[ment by e.Digital] of a portable video device for Alaska

Airlines.. Plaintiff further argues that the 2002 NDA related to the disclosure of its prototypes,

drawings, data, trade secrets, and intellectual property to Defendant, which represents a different

transaction, and differing subject matter.

92004 UT 70, 98 P.3d 15.

6

Plaintiff also argues, in the alternative, that the expiration of the 2002 Agreement did not

put an end to the Defendants. non-competition obligation. In so doing, Plaintiff emphasizes that

the 2002 Agreement states that

[n]otwithstanding the termination or expiration of this Agreement the obligations

of the parties under Article I (Non-Disclosure) as well as under any other

provision of this Agreement, which by their nature, are intended to survive

termination or expiration will survive and continue enforceable.

Plaintiff further argues that Paragraph J.2 of the 2002 Agreement precludes Defendant from

marketing a player similar to the digEplayer, and that the provision survived termination of the

2002 Agreement. Paragraph J.2 states that

[i]f for any reason [Plaintiff] decides not to proceed with the production of the

designed product and/or is default on its payment terms & conditions to

[Defendant], [Defendant] shall have free and unrestricted access to market the

design. If for any reason [Defendant] decides not to proceed with the project, it is

agreed that [Plaintiff] shall have free and unrestricted access to all designs and

intellectual property incorporated into the product design and/or developed up to

that point without payment of royalty to [Defendant] for its intellectual property

used in this product.

Finally, Plaintiff contends that whether the parties intended the 2002 Agreement to

supersede the 2002 NDA is at least ambiguous and even if it cannot proceed with its claims

under the 2002 NDA and 2002 Agreements, it can under the DRM Agreement.

The Court finds, as a matter of law, that the 2002 Agreement does not supersede the 2002

NDA. Specifically, the Court finds that the merger clause of the later agreement does not alone

allow it to supersede the obligations under the prior one. In Ford v. American Express Financial

Advisors, Inc., the Utah Supreme Court addressed the effect of a merger clause, very similar to 9

the one in this case, on a prior agreement. Citing the Sixth Circuit, the Ford court stated that

10Id. at ¶ 23-24 (internal citation omitted).

11See, e.g., Exhibitgroup/Giltspur, Inc., v. Spoon Exhibit Services, 273 A.D.2d 874, 874

(N.Y. App. Div. 2000) (.The prior agreements or understandings referred to in the merger clause

are only those prior agreements or understandings that a party would be precluded from proving

by operation of the parol evidence rule..).

7

[t]he integration provision simply means that the entire agreement between the

parties concerning the subject matter [t]hereof.that is, concerning [the

defendant.s] new association with [the plaintiff] after [the date of the later

agreement].consists of [the later written agreement and its various attachments].

[T]he statement that the [later agreement] supersedes all prior and contemporaneous

agreements . . . merely limits what we can evaluate when determining the parties.

intent for the [later agreement]. It says nothing about relieving [the defendant] of

the obligations it had already incurred under the [previous agreement]. 10

This is also supported by New York law, which, according to its choice of law provision,

governs the 2002 Agreement. For the purposes of the Motion at hand, the Court need not 11

address the expiration of the 2002 Agreement, or survival of the provisions in Paragraph J.2.

2. Limit on Damages

Defendants assert that Plaintiff.s recovery under the Purchase Order and the DRM is

limited to $25,000. The Court notes that Defendants. argument concerning the limitation of

damages under the DRM Agreement is not appropriately addressed in a motion to dismiss

because Defendants, in essence, ask the Court to affirmatively rule on a specific sub-issue within

Plaintiff.s causes of action, not to dismiss any of Plaintiff.s claims. Defendants. requested

remedy would be tantamount to this Court rendering a declaratory judgment on this issue, and

the Court will not do so.

3. Unjust Enrichment

Defendants argue that Plaintiff.s unjust enrichment claims must be dismissed because of

the existence of express contracts between the parties. Plaintiff responds that it has properly

12Smith v. Grand Canyon Expeditions Co., 2003 UT 57, ¶ 34, 84 P.3d 1154.

13Wood v. Utah Farm Bureau Ins. Co., 2001 UT App 35, ¶ 10, 19 P.3d 392.

14Mann v. Am. Western Life Ins. Co., 586 P.2d 461, 465 (Utah 1978).

8

alleged unjust enrichment as an alternative cause of action, and supported the elements with

facts.

.A proper claim for unjust enrichment requires that the party show (1) a benefit conferred

on one person by another, (2) an appreciation or knowledge by the conferee of the benefit, and

(3) the acceptance or retention by the conferee of the benefit under such circumstances as to

make it inequitable for the conferee to retain the benefit without payment of its value..12

.Recovery under an unjust enrichment theory is available only when no enforceable written or

oral contract exists.. More specifically, .[r]ecovery in quasi contract is not available where 13

there is an express contract covering the subject matter of the litigation.. 14

The Court dismisses Plaintiff.s unjust enrichment claim because of the existence of

express contracts between the parties. Here, while disagreeing about which contracts govern,

and how they do so, both parties argue that the subject matter of this action is covered by express

contracts.

4. The Economic Loss Doctrine

Defendants allege that Plaintiff.s claims for fraud, negligent misrepresentation, tortious

interference, and punitive damages arise from duties expressed in, or subsumed by, the express

agreements between the parties, and are barred by the economic loss doctrine.

Plaintiff contends only that its fraud claim may proceed in light of the economic loss

doctrine because Defendant violated a .common law duty. in order to induce Plaintiff to make

152003 UT 8, 70 P.3d 1.

16Hermansen v. Tasulis, 2002 UT 52, ¶ 13, 48 P.3d 235.

17Id. at ¶ 16.

18Id. at ¶ 17.

19Grynberg, 2003 UT 8, at ¶ 48 (applying Wyoming law).

9

payments that were not yet due under the parties. contract. Plaintiff cites Grynberg v. Questar

Pipeline Co. for the proposition that Utah law allows a party to a contract to bring a tort claim 15

against the other party as long as the tort involves the breach of a common law duty that exists

independently of the contractual duties. Plaintiff also indicates that the PO does not require

Defendants to make any disclosures regarding the status of the order.

The economic loss rule marks the boundary between contract law, arising out of

agreement, and tort law, imposed by society. In Utah, the .formulation of the economic loss 16

rule is that a party suffering only economic loss from the breach of an express or implied

contractual duty may not assert a tort claim for such a breach absent an independent duty of care

under tort law.. .Therefore the initial inquiry in cases where the line between contract and tort 17

blurs is whether a duty exists independent of any contractual obligations between the parties.. 18

If there is no independent duty, then .[a]ll contract duties, and all breaches of those duties.no

matter how intentional.must be enforced pursuant to contract law.. 19

The Court dismisses Plaintiff.s claims for fraud, negligent misrepresentation, tortious

interference, and punitive damages because it finds that they are barred by the economic loss

rule. Except for its fraud claim, Plaintiff makes no effort to argue that its tort claims should

proceed despite the rule. With respect to the fraud claim, Plaintiff does not make any argument to

20Id. at ¶ 53.

21While Defendants assert that they are entitled to discovery on the issues of liability and

general damages under Fed. R. Civ. P. 56(f), they have filed no motion under the rule, and have

not set forth an affidavit identifying the facts that are not available, and what steps they have

10

establish an independent tort duty of care. Rather, Plaintiff vaguely asserts a common law duty

related to fraud, and implies that Defendants. alleged fraudulent actions do not overlap with the

parties. bargained-for duties, and therefore, do not fall within the ambit of the rule. However, the

Court finds that Plaintiff.s fraud claim relates to the already bargained-for contractual duties of

the parties, specifically, for Plaintiff to make specific payments, and for Defendants to provide a

product. Regardless of the timing of the payments, the duty to pay arose from, and was not

independent of the contracts at issue. In making this finding, the Court is .influenced by the

nature of the parties and contracts at issue: here are two sophisticated business parties agreeing to

buy and sell goods in a commercial contract. Strict application of the economic loss doctrine is

even more appropriate in cases involving the Uniform Commercial Code..20

Because Plaintiff.s tort claims are dismissed under the economic loss rule, the Court need

not address the parties. arguments on whether Plaintiff has missing elements in its claims of

fraud and negligent misrepresentation, whether Plaintiff fails to state a claim for tortious

interference based on an improper purpose or improper means, and whether Plaintiff fails to state

a claim for punitive damages.

B. Plaintiff.s Motion for Partial Summary Judgment on Liability and Damages

Plaintiff moves for summary judgment on the issues of liability and general damages

caused by Defendants. alleged breach of the PO. Significantly, Defendants point out that, to

date, no discovery has been conducted in this action. 21

taken to obtain them. See Comm. for First Amendment v. Campbell, 962 F.2d 1517, 1522 (10th

Cir. 1992). However, under these circumstances a district court still has discretion to deny a

motion for summary judgment.

22Fed. R. Civ. P. 56(c).

23Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924 F.2d

182, 183 (10th Cir. 1991).

24Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Wright v.

Southwestern Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).

25Campbell, 962 F.2d at 1521 (quoting Anderson, 477 U.S. at 257).

26Mackey v. Cannon, 2000 UT App 36, ¶ 13, 996 P.2d 1081.

11

Summary judgment is proper if the moving party can demonstrate that there is no genuine

issue of material fact and it is entitled to judgment as a matter of law. In considering whether 22

genuine issues of material fact exist, the Court determines whether a reasonable jury could return

a verdict for the nonmoving party in the face of all the evidence presented. The Court is 23

required to construe all facts and reasonable inferences in the light most favorable to the

nonmoving party. Importantly, .[s]ummary judgment should not be granted .where the 24

nonmoving party has not had the opportunity to discover information that is essential to [its]

opposition...25

The elements of a breach of contract claim under the PO are: (1) the existence of a

contract, (2) performance by Plaintiff, (3) nonperformance by Defendant, and (4) damages. 26

Plaintiff asserts that the existence of the PO is undisputed. Plaintiff contends that it

performed under the PO by paying Defendants the full $793,750 purchase price. Plaintiff also

contends that Defendants admitted that they did not perform under the PO in a Form 8-K (.the

12

Form.) released to the public on March 23, 2006, wherein Defendants asserted that their

subcontractor, Maycom, had not provided the units to Defendants and, as a result of this,

Defendants were unable to deliver under the PO. Plaintiff emphasizes that the Form indicates

that Defendants could be obligated to Plaintiff in the amount of approximately $790,000.

Finally, Plaintiff asserts that it has suffered general damages in the amount of at least $793,750,

now reduced to $94,846 pursuant to the partial settlement agreement between the parties.

Defendants make the following arguments to counter Plaintiff.s Motion: (1) Maycom, not

Defendants, was contractually obligated to deliver the digEplayers; (2) Defendants did not breach

the PO because Maycom.s failure to deliver was beyond Defendants. reasonable control; (3)

Plaintiff did not perform its obligations under the contract, and contributed to the breach; (4)

Defendants. liability under the DRM Agreement is limited to $25,000; and (5) it would be

premature to determine whether, and to what extent, Plaintiff has mitigated its damages.

The Court will deny Plaintiff.s Motion for Partial Summary Judgment on the issue of

liability and general damages. The motion is premature as there has been no discovery in this

action. Moreover, Defendants have established by affidavit and other evidence that there are

genuine issues of material fact, including whether Plaintiff performed under the contracts and

whether Plaintiff contributed to any breach of the contracts.

27Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 n.2 (10th Cir. 2002).

28Park Univ. Enters. v. Am. Cas. Co., 442 F.3d 1239, 1244 (10th Cir. 2006).

29Id.

13

C. Defendants. Motion for Judgment on the Pleadings as to the Scope of Exclusivity

Under the DRM Agreement

Defendants move for judgment on the pleadings on the issue of the scope of Plaintiff.s

exclusive rights under the DRM Agreement.

A motion for judgment on the pleadings applies the same standard as a 12(b)(6) motion to

dismiss. Therefore, the court should accept all facts pleaded by the non-moving party as true 27

and grant all reasonable inferences from the pleadings in the favor of the same. .Judgment on 28

the pleadings should not be granted .unless the moving party has clearly established that no

material issue of fact remains to be resolved and the party is entitled to judgment as a matter of

law...29

The DRM Agreement states that

[Plaintiff] will pay [Defendants] a $25,000 one-time flat fee for an unrestricted,

unlimited, irrevocable right to use the DRM technology for use on the [Plaintiff]

digEplayer and other [Plaintiff] products . . . . With regard to the DRM

technology, the aircraft industry will be an exclusive license for [Plaintiff] and all

other markets will be non-exclusive.

Defendants argue, and Plaintiff concedes, that DRM technology is defined in the first paragraph

of Addendum One of the DRM Agreement (.Addendum Paragraph.), which states,

The details of the DRM project are set forth in Addendum One. The Addendum

One document was provided by [Defendant] and sets forth a text description and

schematic representation of the DRM technology. The Parties agree that

Addendum One will govern the DRM Project and that any changes or

modifications from what is specifically set forth in Addendum One must be

approved in writing by both Parties.

30A list of the additional components is set forth in more detail in Plaintiff.s Mem. in Opp,

Docket No. 43, at 2-3.

14

The Addendum Paragraph establishes that DRM technology is defined by .three categories as

follows: physical security[,] encoding[, and] digital security[:].

Physical security . . . is the means by which the physical media containing the

content is protected. Logs, procedures, and safes typically address this type of

protection. Encoding [is] [s]ecurity that is implemented during the encoding

process, . . . as proprietary file containers and bit stream format. Digital Security

. . . is applied in the form of encryption algorithms.

The remainder of Addendum One.more specifically, six of the nine pages of the agreement.

sets forth the various components of the defined technology, as they fall under each of the abovementioned

categories. 30

Defendants specifically argue that DRM technology requires, among other things, the use

of random block encoding (.RBE.). RBE is specifically described on pages five and six of

Addendum One. Defendants assert they are entitled to produce and sell any technology that does

not use RBE because such technology is not DRM technology, and thus, would not run afoul of

Plaintiff.s exclusive rights under the DRM Agreement.

Plaintiff argues that, by the plain language of the Addendum Paragraph, DRM technology

includes many components in addition to RBE, such that Defendants are not automatically

entitled to produce technology which differs from the DRM technology only in that it does not

utilize RBE. Without directly stating so, Plaintiff implies that the DRM Agreement is

ambiguous as to what constitutes DRM technology. Plaintiff further argues that, in entering the

DRM Agreement, the parties intended that Plaintiff should have exclusive rights in the airline

industry to all of the various components found in the Agreement. To support this argument,

Plaintiff references extrinsic evidence outside of the pleadings and requests that the Court

For example, Plaintiff argues th 31 at its presentation of all of the elements of DRM

technology to the studios as a package, supports a broad interpretation of DRM technology.

Plaintiff has attached an affidavit in support. Plaintiff also argues that Defendants. proposed

interpretation of the former.s exclusive rights is incorrect and/or that, to the extent that

Defendants assert they have changed the DRM technology for use in its eVU, any such change is

illusory. Plaintiff asserts that Defendants are marketing their eVU, which the latter allege uses

different technology as that used by the digEplayer, as studio-approved and Hollywood-certified.

Plaintiff has submitted Defendants. advertisements in support.

15

address Defendants. Motion as one for summary judgment. In short, Plaintiff appears to argue 31

that simply by changing one small part of DRM technology, Defendants do not create non-DRM

technology, thus evading Plaintiff.s exclusive rights to the technology.

Defendants reply that Plaintiff, in effect, incorrectly seeks an interpretation which would

grant Plaintiff exclusive rights to each component in the Addendum Paragraph. Defendants

assert that the proper construction would grant Plaintiff the right only to the combination of the

essential, proprietary components of the DRM technology. In connection with this argument,

Defendants contend that some of the individual components of the DRM technology to which

Plaintiff seeks an exclusive right are non-proprietary, and therefore, Defendants are in no

position to have granted an exclusive license of the scope Plaintiff asserts. Therefore,

Defendants contend, to the extent that Plaintiff has rights to individual components of the DRM

technology, at least the non-proprietary components are excluded from Plaintiff.s proffered

definition of the technology. Accordingly, Defendants propose that the Court rule, alternatively,

that exclusivity is no broader than the proprietary features in Addendum One, deferring the

determination of whether such exclusivity extends to the elements in combination or severally

until later in the case.

32Peterson v. Sunrider Corp., 2002 UT 43, ¶ 18, 48 P.3d 918. The DRM Agreement does

not contain any choice of law provisions, and the parties have not argued, or set forth any facts as

to whether any particular state.s law is applicable. In the absence of other facts or arguments, the

Court construes the DRM Agreement as being governed by Utah law under the .most significant

relationship. test. See Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882, 888 (10th Cir.

1991) (applying test).

33Saleh v. Farmers Ins. Exchange, 2006 UT 20, ¶21, 133 P.3d 428.

34Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274 (Utah 1993).

35Peterson, 2002 UT 43, at ¶¶ 18-19; see also Flying J Inc. v. Comdata Network, Inc., 405

F.3d 821, 832 (10th Cir. 2005).

36WebBank v. American Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 22, 54 P.3d 1139.

16

.In construing a contract, the intention of the contracting parties is controlling.. .If the 32

language within the four corners of the contract is unambiguous, the parties. intentions are

determined from the plain meaning of the contractual language, and the contract may be

interpreted as a matter of law.. However, a contract may be ambiguous because it is unclear, it 33

omits terms, or ..the terms used to express the intention of the parties may be understood to have

two or more plausible meanings... .In determining whether a contract is ambiguous the court 34

is not bound to consider only the language of the contract [but] any relevant evidence must [also]

be considered.. If the Court deems a contract to be ambiguous, .there is a factual issue as to 35

what the parties intended[,]. and the Court may not rule as a matter of law. 36

The Court finds, as a matter of law, that the DRM Agreement is unambiguous in setting

forth RBE as one necessary component of DRM technology, as that term is defined by the

Agreement, and that the parties here have chosen to define DRM technology as the sum of its

component parts. As discussed in further detail below, the DRM Agreement is not unclear, does

not omit terms, and does not contain terms with two or more plausible meanings on the issue in

The Court notes that it does not believe that th 37 e extrinsic evidence offered is relevant to

the issue of whether the DRM Agreement is ambiguous.

17

dispute. Therefore, the Court ascertains the parties. intentions from the plain meaning of the

contractual language. Furthermore, the Court makes this determination without considering

evidence outside the pleadings, and, accordingly, declines to convert Defendants. Motion into

one for summary judgment. 37

The Court finds that, by the plain language of the DRM Agreement, the parties here have

chosen to define DRM technology as the sum of its component parts. The DRM Agreement

specifically states that Addendum One constitutes the text description and schematic

representation of DRM technology, as that term appears in the Agreement. While the contract

grants to Plaintiff the right to modify and add to the DRM technology at its discretion, there is no

indication from the language of the Agreement that the parties intended that any lesser

combination of the components of the technology could still constitute DRM technology, as

defined by the Agreement, or that Plaintiff.s exclusivity rights would extend to such. To the

contrary, the parties specifically set forth .that any changes or modifications from what is

specifically set forth in Addendum One must be approved in writing by both parties..

Also, Plaintiff.s argument that removing RBE from DRM technology is not a sufficient

enough change to remove Defendants. technology from the scope of Plaintiff.s exclusive right

under the agreement is unconvincing. As is demonstrated by its relatively extensive mention in

Addendum One, RBE is a substantial component of DRM technology. Finally, while the

contracting parties, who are sophisticated business entities, could have chosen either to define

DRM technology, and hence, Plaintiff.s exclusivity rights, so as to allow for the severability of

18

various components of the technology, or to grant Plaintiff exclusive rights as to any technology

substantially similar to the described DRM technology, they did not do so.

Accordingly, the Court finds, as a matter of law, that Plaintiff.s exclusivity rights are

limited to technology which, among the other components listed in Addendum One, includes

RBE. The Court further finds that the DRM Agreement defines DRM technology as the sum of

its component parts, as set forth in Addendum One, and not severally as to each component.

III. CONCLUSION

For the above-mentioned reasons, it is hereby

ORDERED that Defendants. Motion to Dismiss (Docket No. 5) is GRANTED IN PART

and DENIED IN PART. Defendants. Motion is DENIED as to the dismissal of any breach of

contract or other claims upon the basis that the 2002 NDA is superseded by the 2002 Agreement.

Defendants. Motion is also DENIED as to the issue of limitation of damages under the DRM

Agreement. The Motion is GRANTED as to the dismissal of Plaintiff.s unjust enrichment and

other tort claims. It is further

ORDERED that Plaintiff.s Motion for Summary Judgment (Docket No. 15) is DENIED.

It is further

ORDERED that Defendants. Motion for Judgment on the Pleadings (Docket No. 34) is

GRANTED.

19

DATED January 19, 2007.