DRM Agreement, ¶ 10.

The DRM Agreement also contains a limitation provision—the one that is the subject of this briefing—which states:

11. Limitation of Liability:

. . . .

(c) DRM Damages. DIGECOR’s sole and exclusive remedy for any and all claims concerning the DRM project based in contract, tort or otherwise, in law or equity, including but not limited to claims based upon EDIGITAL’s failure to perform under this Agreement, EDIGITAL’s breach of this Agreement or EDIGITAL’s termination of this Agreement shall be limited to money damages, specifically, the lesser of the actual amount paid under this Agreement or $25,000 USD. In no event will either party be liable to the other for any lost profits, lost savings or any other incidental, special, or consequential damages, even if such party has been advised of the possibility of such damages, arising out of or in connection with the DRM project.

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4 See Declaration of Paul Hepworth, ¶¶ 3-24 (dkt. 247) (examining eVU software and concluding that “the DRM implementation used in the eVU player, while not identical in all details to the DRM implementation in the digEplayer 5500, does implement substantially the same DRM Technology as defined in Addendum 1. It incorporates each of the significant elements and capabilities either exactly as described in Addendum 1 or as a substantially equivalent variation.” Id., ¶ 24.)

5 See Expert Report and Declaration of Derk G. Rasmussen, ¶¶ 2, and 176-189 (dkt 220) (calculating monetary damages to be in the range between $7.3 million and $10.9 million).

DRM Agreement, ¶ 11(c).

ANALYSIS

With regard to the DRM Agreement and the exclusive license of DRM technology granted thereunder, digEcor asserts the following claims:

1. e.Digital is using the DRM technology as outlined in Addendum One in e.Digital’s eVU player, which e.Digital is actively marketing to the airline industry in violation of the exclusive license granted in the DRM Agreement.4

2. digEcor suffered damages and e.Digital has wrongfully obtained a substantial monetary windfall from its violation of the exclusive license of DRM technology granted to digEcor in the DRM Agreement.5

3. e.Digital is in breach of the DRM Agreement for refusing to deliver the source code for the DRM technology used in the digEplayer to digEcor. digEcor is entitled to have this code so that it may “use the DRM technology for use on the DIGECOR digEplayer and other DIGECOR products,” and so that it may exercise its contractual “right to modify and

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add to the DRM technology at DIGECOR’s discretion.” DRM Agreement, ¶ 2.

4. e.Digital is in breach of the DRM Agreement because it planted a “time bomb” in the DRM software delivered to digEcor. As digEcor has used the software, it has discovered that the software was programmed to automatically disable itself and render itself un-useable after a specific period of time. This time bomb is a violation of the license granted which is perpetual and unlimited in time. e.Digital has refused to remove this malicious feature, and has refused to allow digEcor to have access to the software code to fix it itself. digEcor is entitled to have access to the software so that it can remove this defect and upgrade the software.

Injunctive relief under these circumstances is straightforward. digEcor seeks an injunction and order from this Court requiring e.Digital to abide by and perform the terms of the DRM Agreement, including the Court’s assistance in (1) enjoining e.Digital from marketing its eVU or any a device in the airline industry that uses the DRM technology in violation of digEcor’s exclusive license, and (2) requiring e.Digital to deliver the software source code to digEcor so that digEcor can remove the time bomb and otherwise update and improve upon the DRM technology, as is its right under the contract. There is no prohibition in the DRM Agreement limiting digEcor’s right to obtain this relief. Indeed, the DRM Agreement explicitly provides for it in Paragraph 10.

With respect to digEcor’s ability to recover “DRM Damages,” digEcor will honor and abide by the limitation provision of Paragraph 11(c), just as digEcor expects e.Digital to honor

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6 See note 1, supra (regarding 30(b)(6) testimony of e.Digital).

7 See Expert Report and Declaration of Derk G. Rasmussen, ¶¶ 2, and 176-189 (dkt 220), where these damages are quantified.

all of its promises made in the parties’ contracts. digEcor acknowledges that paragraph 11(c) of the DRM Agreement limits digEcor’s right to recover monetary damages in excess of $25,000 when such are “claims concerning the DRM project” or are “arising out of or in connection with the DRM project.” DRM Agreement, ¶ 11(c) (emphasis added). What this means, in particular, is that digEcor will not seek to recover a larger monetary award for e.Digital’s misuse of the software and breach of the DRM Agreement by using the DRM technology in its own player (the eVU) in violation of the exclusivity provision of the license. However, by its own terms, this limitation does not extend any further than to claims for damages arising from or concerning the DRM project. As discussed above, the phrase “DRM project” as used in the DRM Agreement was carefully defined by the parties and is limited to e.Digital’s obligation for delivery of this software.6

This limitation in paragraph 11(c) does not apply to any of digEcor’s claims based on e.Digital’s breaches of other contracts. Specifically, digEcor seeks to recover the actual and consequential damages it has suffered by e.Digital’s breaches of the PO by failing to deliver batteries, failing to timely deliver 1,250 players, and failing to make available and deliver the follow-on order of 750 players and batteries.7 e.Digital previously argued that the DRM damages limitation should be construed broadly and applied to bar damages claimed relative to e.Digital’s failure to deliver the batteries and players under the PO. This argument stretched the language of the DRM Agreement beyond what it could reasonably be understood to mean. In its

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ruling of March 13, 2009, the Court rejected e.Digital’s argument on this issue, finding, after detailed analysis, “as a matter of law that the PO, not the DRM Agreement, governs the purchase of the 1250 digEplayer 5500s at issue here.” Memorandum Decision and Order dated March 13, 2009, page 22 (dkt 324). The court explained: “Simply put, the DRM Agreement is most naturally read to cover the terms of a technology project. The DRM Agreement’s reference to the order as a part of the DRM Agreement appears to be an acknowledgement of that order, not an export of its terms to that order.” Id.

Thus, digEcor does not contest the enforceability of the contractual limitation provision, but requests that it only be enforced consistent with its plain language and consistent with the Court’s ruling of March 13, 2009.

CONCLUSION

digEcor agrees that the limitation found in paragraph 11(c) of the DRM Agreement is enforceable, and digEcor will honor this provision. The limitation applies to claims arising from a commitment by e.Digital to develop and deliver digital rights management software, known as the “DRM project.” Paragraph 11(c) does not prevent digEcor from obtaining an injunction to enforce its rights under the contract and to enjoin e.Digital’s breaches of the DRM Agreement because injunctive relief is expressly authorized by paragraph 10 of the DRM Agreement.

DATED this 6th day of April, 2009.

DURHAM JONES &PINEGAR, PC

David W. Tufts

David W. Tufts

Erin T. Middleton

Attorneys for digEcor, Inc.

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