In Imation Corp. v. Koninklijke Philips Electronics N.V., the Court of Appeals for the Federal Circuit (“CAFC”) reversed the District Court’s ruling that Imation’s subsidiaries were not licensed parties under a cross-license agreement (“Agreement”) with Koninklijke Philips Electronics N.V. (“Philips”). The CAFC held that the scope of Imation’s license extended to Imation’s subsidiaries, despite these subsidiaries being acquired after the Agreement expired.

At issue is whether Imation’s subsidiaries were granted patent licenses under the Agreement even though these subsidiaries were acquired after the Agreement’s expiration date. The Agreement stated that “[Philips] agrees to grant and does hereby grant to [Imation] and its subsidiaries a . . . royalty-free license under Philips licensed patents.” Relying on patent assignment cases using similar language, the CAFC ruled that the language, “agrees to grant and does hereby grant,” creates a grant of future rights in an invention by operation of law with no further act required. The CAFC ruled that this language constitutes a singular, present grant of rights to all future inventions. Because Imation and its subsidiaries were given a single, present grant of rights to Philips’ patents, these licenses vested immediately in Imation and its subsidiaries, regardless of when the subsidiary came into existence.

In 1995, Philips entered into a patent cross-license agreement with Minnesota Mining and Manufacturing Company (“3M”) for optical storage and retrieval technology. The Agreement stated that “[Philips] agrees to grant and does hereby grant to [3M] and its subsidiaries a . . . royalty-free license under Philips licensed patents.” The Agreement was set to expire in March 2000. In 1996 3M became Imation and in 2003 Imation acquired two subsidiaries, Global Data Media FZ-LLC (“GDM”) and Memorex International, Inc. (“Memorex”). In 2007, Imation brought a declaratory judgment action against Philips seeking a declaration that GDM and Memorex were “subsidiaries” and therefore, were granted licenses under the Agreement. Imation claimed that once GDM and Memorex became subsidiaries, they automatically received the licenses granted to all Imation “subsidiaries” under the Agreement.

The United States District Court for the District of Minnesota ruled that the language, “[Philips] agrees to grant and does hereby grant,” created both: (1) a grant of licenses at the time of execution and (2) a grant of future licenses that could occur until the Agreement expired. The District Court ruled that this language allowed for the granting of multiple licenses over a period of time, ending on the Agreement’s expiration date. Because GDM and Memorex became subsidiaries after the Agreement expired, these companies could not have been granted a license.

The District Court also ruled that GDM and Memorex did not fall under the Agreement’s definition of “subsidiary.” According to the Agreement, “subsidiary” is defined as “any . . . form of business organization as to which the party now or hereafter has . . . ownership interest.” The District Court ruled that the language “now or hereafter,” referred to the time frame between the Agreement’s execution-date up to the Agreement’s expiration date. The District Court reasoned that the Agreement’s expiration date applied to the entire Agreement and thus implicitly applied to the “subsidiary” definition.

The CAFC reversed the District Court”s ruling and held that GDM and Memorex were “subsidiaries” under the Agreement and therefore, were granted licenses prior to the Agreement’s expiration date. Relying on Filmtec Corp v. Allied-Signal Inc., the CAFC ruled that the language “agrees to grant and does hereby grant” creates an assignment of rights to all future inventions, a present grant that vests immediately. Applying this rule, the CAFC found that the language, “[Philips] agrees to grant and does hereby grant to [Imation] and its subsidiaries a . . . royalty-free license,” was a single grant that vested immediately to Imation and its subsidiaries, regardless of when the subsidiary is acquired. Thus, the licenses had already been granted to Imation and its subsidiaries prior to the Agreement’s expiration date.

The CAFC also ruled that the term “subsidiary”, as defined in the Agreement, included Imation subsidiaries acquired after the Agreement expired. Interpreting the phrase, “now or hereafter”, the CAFC relied on the dictionary definition of “hereafter”, meaning “in some future time.” The CAFC reasoned that the term “hereafter” implies that subsidiaries may come into existence at some future and unspecified time.

Moreover, unlike other sections in the Agreement, which explicitly refer to the Agreement’s expiration date, the CAFC found no explicit time limitation within the “subsidiary” definition. The CAFC reasoned that the parties could have omitted the term “hereafter,” used only the term “now,” or listed existing subsidiaries. The CAFC also found that the parties” use of “hereafter” was consistently used in other sections to indicate the lack of a time limitation.