PDF uploaded...here's a copy.

-----------------------

Defendant e.Digital Corporation (“e.Digital”) submits this Supplemental Brief in Support of its Motion for Partial Summary Judgment Re: Limitation of DRM Damages, by leave of the Court granted at the hearing held on March 23, 2009.

BACKGROUND

In its Motion for Partial Summary Judgment, e.Digital moved the Court for a ruling that the damages limitation in the DRM Agreement between the parties applies to prohibit or limit digEcor’s recovery on its claim for breach of the DRM Agreement. (See Mem. Supp. e.Digital’s Mot. for Partial Summ. Judg., Doc. # 216, p. 19.) The provision in question reads as follows:

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. DRM Agreement, ¶ 11(c).

At the March 23, 2009 hearing on the parties’ cross-motions for summary judgment, e.Digital asked for a ruling on this motion, and digEcor responded by requesting opportunity for further briefing. The Court granted digEcor’s request, permitting digEcor to submit a supplemental brief on the issue of whether the DRM Agreement’s Limitation of Damages provision applies to its claim for breach of the DRM Agreement. digEcor submitted its supplemental brief on April 6, 2009. (See Doc. #330.)

ARGUMENT

Only one question is at issue in the supplemental briefing invited by the Court: Does the DRM Agreement’s Limitation of Liability provision operate as a prohibition or limitation on the damages digEcor may recover on its claim for breach of the DRM Agreement? On that question, the parties are in complete agreement. In its April 6 brief, digEcor frankly conceded that the damages limitation provision squarely applies to the claim for breach of the DRM Agreement. Accordingly, digEcor may only recover the lesser of the actual amount paid under the agreement, or $25,000.[see footnote 1]

[footnote 1]e.Digital alleges that digEcor never paid any money under the agreement, a claim which digEcor does not appear to dispute. Unless digEcor argues to the contrary at trial, the “lesser” amount is that which was paid under the Agreement, setting the damage cap at $0.

Further, if the Court determines that digEcor’s damages under the DRM Agreement constitute “lost profits, lost savings, or any other incidental, special, or consequential damages,” digEcor’s damages are prohibited under the liability limitation language. (See DRM Agreement, ¶ 11(c). Because there is no dispute between the parties on this issue, the Court may rule as a matter of law that the limitation of liability applies, and that digEcor’s recovery is either capped at $25,000 or is entirely prohibited.

After conceding the sole issue before the Court, digEcor raises other arguments that are not germane to the present discussion. Defendants offer only a brief statement of their positions on these issues to assist the Court.

digEcor first argues that it maintains its claim for injunctive relief in relation to the DRM Agreement. Yet digEcor’s understanding of its injunction claim goes far beyond the pleadings. In its Amended Complaint, digEcor pled a claim for an injunction “requiring e.Digital and the other defendants to refrain from selling or licensing the DRM technology to any other party besides digEcor and refrain from using its DRM technology in business . . .” (See Amended Cplt. ¶ 94.) Thus, digEcor’s injunction claim seeks only an order prohibiting e.Digital from using the DRM technology. Yet in its brief, digEcor now asserts that its injunction claim seeks an order “requiring e.Digital to deliver the software source code to digEcor . . .” This claim, seeking mandatory relief akin to specific performance, has never been pled in this case and is not appropriately before the Court. Regardless, the question of whether digEcor may obtain any injunction in connection with the DRM Agreement is one for trial, where digEcor will be required to prove all of the elements of a permanent injunction under Tenth Circuit law. e.Digital intends to introduce evidence supporting its several defenses at trial.

digEcor also volunteers that the DRM Agreement’s limitation of liability may only apply to the claim for breach of the DRM Agreement itself, and may not be used to limit liability in connection with digEcor’s other claims, such as the claim for breach of the Purchase Order (“P.O.”). (See digEcor’s Supplemental Brief, p. 7.) To support this argument, digEcor asserts that the Court’s March 12, 2009 Order and Memorandum Decision resolved this question in digEcor’s favor. This conclusion misconstrues the Court’s holding. In its decision, the Court found that the DRM Agreement’s terms do not govern the P.O. (See Order and Memorandum Decision, Doc. 324, pp. 21-22.) However, nothing in the decision suggests that the Court has decided the remaining issue of whether the purchase of players was a transaction “arising out of or in connection with the DRM project.” (See DRM Agreement ¶ 11(c) (emphasis added).) Because there is still a dispute as to the connection between the P.O. and the DRM Agreement, the question of whether the DRM Agreement’s damage limitation applies to the claim for breach of the P.O. remains open for trial.

CONCLUSION

For the reasons set forth above, the Court should rule as a matter of law that digEcor may recover only the lesser of the amount paid under the DRM Agreement, or $25,000, under its claim for breach of the DRM Agreement, and that no recovery for lost profits or other consequential damages is permitted.

DATED this 13th day of April, 2009.

RAY QUINNEY & NEBEKER P.C.

/s/ Ryan B. Bell

Samuel C. Straight

Ryan B. Bell

Attorneys for Defendants