## Facts

- Pico owned patent rights and licensed them to Arcom under a 1984 written agreement containing a remedies clause referring to Pico’s “right to terminate” upon royalty default.
- Arcom stopped paying royalties in 1987; Eagle claimed this nonpayment automatically terminated Arcom’s 1984 license.
- In June 1988, Pico granted Eagle a patent license containing a most-favored-licensee clause allowing Eagle to elect more favorable terms later granted to a licensee who was not then holding a written license.
- In October 1988, Pico and Arcom executed a revised license agreement on more favorable terms than Eagle’s.
- Eagle sued, asserting breach of contract (and fraud) on the theory that Arcom was not “presently holding a written license” in June 1988, so the October 1988 Arcom terms triggered Eagle’s most-favored-licensee rights.
- The trial court granted Eagle partial summary judgment on liability, rejected Pico’s defenses, ordered an inquest on damages, and denied Pico’s cross-motion for summary judgment.

## Issues

1. Whether Arcom’s 1984 license automatically terminated upon its royalty default, or instead required Pico to exercise a contractual right to terminate.
2. Whether Arcom was “presently holding a written license” in June 1988 for purposes of the most-favored-licensee clause in the Pico–Eagle agreement.
3. Whether summary judgment should have been granted to Eagle on liability, or to Pico dismissing the complaint, based on the proper interpretation of the license agreements.

## Decision

- The appellate court reversed the trial court’s order.
- The court held that the 1984 Pico–Arcom agreement did not provide for automatic termination upon Arcom’s royalty default; it gave Pico a right to terminate that required affirmative exercise.
- Because there was no showing that Pico exercised termination before June 1988, Arcom was still “presently holding a written license” at that time.
- The most-favored-licensee clause in the Pico–Eagle agreement therefore was not triggered by the October 1988 revised Pico–Arcom agreement.
- The court granted Pico’s cross-motion for summary judgment dismissing the complaint.

## Legal Principles

- Contract provisions referring to a party’s “right to terminate” and the “exercise” of that right are ordinarily construed as making termination optional, not automatic upon default.
- A most-favored-licensee clause is enforced according to its express conditions; a licensee cannot claim improved terms unless the contractual trigger is satisfied.
- Where contract language is unambiguous, its interpretation is a question of law suitable for summary judgment.

## Conclusion

The appellate court held that Arcom’s royalty default did not automatically terminate its earlier license and, because Arcom still held a written license when Eagle’s agreement was executed, Eagle could not invoke the most-favored-licensee clause to obtain Arcom’s later, more favorable terms; summary judgment was granted to Pico dismissing the action.


Eagle Comtronics, Inc. v. Pico Prods., Inc., 270 A.D.2d 830, 705 N.Y.S.2d 758 (App. Div. 4th Dep't 2000)