Cox Communications, Inc. v. T-Mobile US, Inc., (Del. Mar. 3, 2022) (Traynor, J.) (en banc)

In this 3-2 opinion, the Delaware Supreme Court reversed and remanded the Delaware Court of Chancery’s decision enjoining appellant Cox Communications, Inc. (“Cox”) from partnering with anyone other than appellee T-Mobile US, Inc. (“T-Mobile”) to offer wireless mobile service.  Finding the Court of Chancery erred in its interpretation of a settlement agreement between Cox and Sprint Corporation (“Sprint”), T-Mobile’s predecessor-in-interest, the Court vacated the injunction against Cox and remanded the case for determination of whether Cox negotiated a partnership with T-Mobile in good faith.

In December 2017, Cox and Sprint entered into a settlement agreement resolving two lawsuits between the parties in which each alleged the other of patent infringement (the “Settlement Agreement”).  As part of the Settlement Agreement, Cox agreed, among other things, to the following provision (the “MVNO Provision”):

Before Cox . . . begins providing Wireless Mobile Service . . . [it] will enter into a definitive [mobile virtual network operator (“MVNO”)] agreement with Sprint . . . on terms to be mutually agreed upon between the parties for an initial period of 36 months (the “Initial Term”).

In April 2020, Cox started searching for a mobile network operator (“MNO”), which would allow Cox to become a MVNO and enter the market as a reseller of mobile wireless services.  T-Mobile (which had just purchased Sprint) and Verizon both made offers pursuant to a Cox request for proposal.  T-Mobile’s offer was significantly more expensive than Verizon’s offer, and T-Mobile refused to meaningfully negotiate on price, reminding Cox of its obligations under the Settlement Agreement (including the MVNO Provision).  Cox ultimately chose the Verizon offer, which Cox estimated was $90 million cheaper than T-Mobile’s offer.  In response, T-Mobile threatened litigation, and Cox filed suit in the Court of Chancery seeking a declaration that the MVNO Provision (1) lacked material terms and thus was an unenforceable “agreement to agree,” or (2) only required the parties to negotiate the remaining open terms in good faith.  T-Mobile countersued for breach of the Settlement Agreement, arguing the MVNO Provision required Cox to enter into an exclusive provider agreement with T-Mobile as the successor-in-interest to Sprint if Cox chose to enter the mobile wireless market.

The Court of Chancery ruled in T-Mobile’s favor, finding the MVNO Provision was unambiguous and contained two distinct promises, the first requiring Cox to either refrain from entering the wireless mobile services market or negotiate exclusively with Sprint to offer wireless mobile services.  If Cox did opt to enter into the mobile services market with Sprint, then the MVNO provision required the parties to negotiate the remaining open terms in good faith.  In reaching this conclusion, the Court of Chancery noted that the MVNO Provision served as consideration for Sprint’s agreement to drop its patent infringement action against Cox and held that “simply an agreement to negotiate in good faith . . . would be nearly worthless to Sprint.”  The Court of Chancery also rejected Cox’s belated argument, made shortly before trial, that T-Mobile lacked standing to enforce the Settlement Agreement because Cox never consented to an assignment from Sprint to T-Mobile.  Concluding that the Settlement Agreement allowed T-Mobile to hold Cox to its original promise of providing wireless mobile services with T-Mobile or not at all, the Court of Chancery permanently enjoined Cox from violating the MVNO Provision as interpreted.

A majority of the Supreme Court sitting en banc rejected the Court of Chancery’s interpretation of the MVNO Provision, holding that it was unambiguous and contained only a single promise, which required the parties to negotiate open issues in good faith.  The Supreme Court held the MVNO Provision was “a paradigmatic Type II agreement” under SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013), explaining, “[p]arties to such agreements must negotiate the open terms in good faith, but they are not required to make a deal.”  In other words, Cox could provide wireless service with a partner other than T-Mobile so long as Cox first negotiated the open “terms to be mutually agreed upon” with T-Mobile in good faith.  Whether or not the parties satisfied their good-faith obligations is to be decided on remand.

Agreeing with the Court of Chancery, the Supreme Court also held that Cox was barred from arguing that T-Mobile lacked standing, explaining that “Cox’s concessions of T-Mobile’s standing over months of litigation preclude it from now arguing that T-Mobile is a stranger to [the Settlement Agreement].”

Justices Valihura and Montgomery-Reeves concurred in part and dissented in part.  The focus of their dissent was their disagreement with the majority’s conclusion that the MVNO Provision is unambiguous.  Finding both the majority’s interpretation and the Court of Chancery’s interpretation of the provision reasonable, they concluded that the MVNO Provision is ambiguous, and the Supreme Court should have remanded the case to request the Vice Chancellor make factual findings as to what the extrinsic evidence shows as to the parties’ intention regarding the provision.

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