IBM headquarters in Armonk, New York. Photo: Louis Lanzano/AP

A $10 million licensing breach of contract dispute by IBM against Taiwan-based semiconductor company United Microelectronics Corp. will return to the district court for additional review, after the U.S. Court of Appeals for the Second Circuit partially reversed a trial court ruling in IBM's favor.

In September 2017, U.S. District Judge William Pauley III of the Southern District of New York granted IBM's motion for summary judgment over what the American tech giant claimed was UMC's breach of contract for failure to pay a $10 million intellectual property licensing fee.

The dispute arose out of UMC's agreement to identify and secure a majority ownership in a microchip manufacturing facility during the 2015 calendar year. Not only did UMC fail to make good on the facility part of the deal, the firm likewise did not pay an associated $10 million fee.

On appeal, the panel of Circuit Judges José Cabranes, Rosemary Pooler and Christopher Droney sided with the district court on the issue of breach of contract. Pointing to New York state law on contract language, the panel found there was no condition precedent agreed to between the two companies that supported UMC's claim that the $10 million was due only after the facility was secured.

“UMC took on the risk that it would be unable (or unwilling) to establish a subsidiary and named facility by December 31, 2015,” the panel wrote. “To infer a condition that shifts that risk, absent explicit language would be to impermissibly rewrite the parties' bargain.”

The panel parted ways, however, with the district court on the issue of just how much liability this agreement placed UMC under.

UMC contended on appeal that an amendment to the original agreement between the parties caps its liability at $2 million. IBM argued that because the amended contract language failed to directly and specifically refer to the $10 million obligation found in the original agreement, it should be presumed to be excluded from the lower liability cap.

The panel disagreed with the district court's reading in favor of IBM, finding it “reasonable” that the $2 million figure was agreed to by both parties as a protection against a breach. But since the language is ambiguous in its lack of specificity, the panel remanded the suit back to the district court to take up a review of extrinsic evidence to resolve the issue.

IBM was represented on appeal by Chaffetz Lindsey name attorney Peter Chaffetz. Blank Rome partner Salvatore Tamburo represented UMC. Neither responded to a request for comment.

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