In Imation Corp. v. Koninklijke Philips Elec. N.V., No. 09-1208 (Fed. Cir. No. 2099-1208, 11/3/09), Koninklijke Philips Electronics N.V. (“Philips”) had initially entered into a cross-licensing agreement (the “Agreement”) with a company now known as 3M to cross-license patents. In the Agreement, the term “subsidiary” was defined to include entities in which a party held majority ownership “now or hereafter.” After the execution of the Agreement, 3M created a subsidiary, Imation Corp. (“Imation”), to handle data storage and media production and then spun off the company. The Agreement continued between Imation and Philips with it eventually expiring. Imation then entered into a joint venture with Moser Baer India Ltd establishing Global Data Media FZ-LLC, all leading to Imation buying a controlling interest in an entity called Memorex International Inc. In 2007, Imation initiated a declaratory judgment action seeking a declaration that Global Data Media and Memorex qualified as subsidiaries covered by the licenses in the Agreement.

Initially, the U.S. District Court ruled that the subsidiaries could not benefit from the licenses because they were not subsidiaries at the time of expiration. The Federal Circuit reversed the District Court’s ruling and found that these new subsidiaries were eligible to take advantage of the licenses granted therein because there was no language in the Agreement setting a “temporal limitation” after which new subsidiaries would not benefit from the contract, and that in fact the language of the contact referenced subsidiaries created “now or hereafter.”

This decision, although addressing a patent license, is a valuable guideline for drafting similar clauses in all contracts.