XENON GAME PERIPHERAL LICENSING CERTIFICATION AGRE

EXHIBIT 10.26

 

XENON GAME PERIPHERAL LICENSING AGREEMENT

 

 

This Xenon Game Peripheral Licensing Certification Agreement (the “Agreement”) is made and entered into on                              , (the “Effective Date”) by and between Madcatz Inc. (“Company”), a California corporation with its principal place of business at 7480 Mission Valley Road, Suite 101, San Diego, California 92108 and Microsoft Corporation, a Washington, U.S.A. corporation with its principal place of business at One Microsoft Way, Redmond, Washington 98052 (“Microsoft”).

 

 

1.	Definitions . The following terms as used herein will have the following meanings:

 

1.1       “ Approved Vendor ” is a supplier for Xenon Chip(s) as set forth in Exhibit F that is approved by Microsoft in writing to sell such the Xenon Chip(s) to third parties.

 

1.2       “ Branding Specifications ” means the specifications in Exhibit B-2, and such other branding specifications as Microsoft may hereafter provide from time to time, for using the Xenon Logos as licensed herein.

 

1.3       “ Certification Specifications ” means the then-current Xenon peripheral and interface specifications that are used by Microsoft or the Certification Testing Center to verify the compatibility of the Proposed Product(s) with the Xenon console.

 

1.4      “Certification Testing Center” means the entity(ies) designated by Microsoft on Exhibit D and any update to Exhibit D, to verify Proposed Product(s) for Xenon compatibility in compliance with the Certification Specifications.

 

1.5       “ End-User ” means a retail customer or purchaser of the Licensed Product.

 

1.6      “Firmware” means that proprietary Microsoft firmware instantiated on a silicon chip and designed to allow the chip to operate within the Xenon console platform.

 

1.7      “Licensed Product(s) ” means those Proposed Product(s) which meet the Xenon Certification Specifications, have passed the Xenon certification process in Section 6 and meet the Quality Standards and Microsoft Standards in accordance with the terms of this Agreement. Licensed Product(s) must be of the type listed in Exhibit E and may not be products listed under the Excluded Product heading on Exhibit E as it is subsequently updated by mutual written agreement of the parties.

 

1.8      “Microsoft Materials” means the Technical Documentation, Firmware and Necessary Claims.

 

1.9      “Microsoft Standards” means Microsoft’s restricted substances specifications, Vendor Code of Conduct and Microsoft’s social and environmental compliance specification as released to Company prior to execution and delivery of this Agreement and as updated by Microsoft from time to time.

 

1.10    “Microsoft IP” means (a) any and all Necessary Claims held by Microsoft or any of its Affiliates during the Term of the Microsoft License; and (b) any and all copyright and trade secret rights that Microsoft or any of its Affiliates may have in the Microsoft Materials during the Term of the Microsoft License.

 

1.11     “ Necessary Claims ” means claims: (a) of a patent or patent application that Microsoft now or hereafter owns or otherwise has the right to license to Company, without the payment of any royalty or other amounts to any unaffiliated third party; and (b) that are necessarily infringed by implementation of the Security Feature. For purposes of the foregoing, a claim is a “Necessary Claim” only when it is not possible to avoid infringement, because there is no technically reasonable, non-infringing alternative. Further, notwithstanding the foregoing, “Necessary Claims” do not include any claims: (1) other than those set forth above, even if contained in the same patent or patent application as Necessary Claims; (2) to any enabling technologies that may be necessary to make or use any product (or a portion thereof) or combination that implements the Security Feature (such as hardware, semiconductor manufacturing, compiler, object-oriented, operating system, protocol, programming

 

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interface or networking technologies); (3) covering the implementation of other published specifications that may be referenced in the Microsoft Materials; or (4) to the extent such claim covers any product (or portion thereof) or combination, the purpose or function of which is not included in the Security Feature.

 

1.12     “ Product Package ” means the retail container package containing the Licensed Product and other materials that are included with the Licensed Product.

 

1.13    “Proposed Product” means a pre-release version of Company’s peripheral device which meets the Xenon Certification Specifications, and that is submitted to Microsoft or its Certification Testing Center for verifying its compatibility for use with the Xenon game system.

 

1.14     “ Quality Standards ” means the standards of workmanship, overall quality and performance generally accepted in the video game console peripheral industry.

 

1.15     “ Security Feature ” means Microsoft’s proprietary protocol used to validate authentic devices on the Xenon platform as implemented in a Xenon Chip or other implementation method designated by Microsoft in writing.

 

1.16    “Technical Documentation” means the specifications, reference code and other technical documentation listed as “Technical Documentation” in the attached Exhibit A or otherwise delivered by Microsoft for Company’s use under this Agreement.

 

1.17    “Term” means the term of the Agreement set forth in Section 15(a) unless earlier terminated in accordance with Section 15.

 

1.18    “Territory” means those countries set forth on Exhibit E.

 

1.19    “Xenon” means the second generation Microsoft Xbox video game and entertainment console.

 

1.20    “Xenon Certified Logo ” means the Xenon Certified Logo as provided by Microsoft to Company and set forth in Exhibit B-1 for use on the Product Package and related promotional materials, advertising and documentation for Licensed Product(s) in accordance with the terms of this Agreement.

 

1.21    “Xenon Product Jewel Logo” means the stylized Xenon (“X”) as provided by Microsoft to Company and set forth in Exhibit B-1 for use on Licensed Product(s) in accordance with the terms of this Agreement.

 

1.22    “Xenon Logos” means the Xenon Certified Logo and the Xenon Product Jewel Logo, collectively.

 

1.23    “Xenon Chip(s)” means that application specific integrated circuit or circuits made only by Approved Suppliers that instantiates the Firmware and/or the Security Feature.

 

All other initially capitalized terms will have the meanings hereinafter assigned to them.

 

2.	Xenon Development Kit License .

 

Company shall, as a pre-requisite to submission of any Proposed Product for verification under this Agreement, obtain from Microsoft one or more Xenon Development Kits (Peripherals) for third party peripheral manufacturers (“ PXDK ”) for the fee set forth in Section 5. Company’s use of the PXDK will be subject to the separate PXDK license agreement available separately from Microsoft.

 

3.	Licenses .

 

3.1      Xenon Security Feature. Microsoft, on behalf of itself and its affiliates, hereby grants to Company a personal, nonexclusive, nontransferable, royalty-bearing, nonsublicensable license, under the Microsoft IP, to do in the Territory the following: (a) make and use a reasonable number of copies of the Technical Documentation, but only as necessary for the development of an independent Licensed Product that conforms to the specifications included in the Technical Documentation; (b) make derivative works based on source code supplied in the Technical Documentation, if any, for incorporation into Licensed Product; (c) incorporate object code supplied in the Technical Documentation and object code derivatives of source code supplied in the Microsoft Materials into the Licensed Product; (d) use and distribute Firmware, if any, only as incorporated in Licensed Product by its implementation in Xenon Chip(s) made by and purchased from Authorized Vendors, (e) sell, offer for sale, import and distribute, directly or indirectly Licensed Product that implements the Security Feature. Except as specifically provided in (b), (c) and (d) of this Section 3.1, the license grant above does not include any right to disclose or incorporate into any Licensed Product or any other product any copy of, or derivative work based upon, any Technical Documentation or Firmware or portion thereof.

 

3.2      Xenon Chip(s). The license granted in Section 3.1 includes the right for Company to purchase the Xenon Chip(s) from an Approved Vendor for use with the Licensed Product(s), upon such pricing and other terms to be agreed upon between Company and the Approved Vendor. Microsoft reserves the right to require additional design or other specifications relating to the Xenon Chip(s) and/or to add or decrease security requirements, including, without limitation, implementation of the Security Feature without using the Xenon Chip(s).

 

3.3      Restricted Software . The license grants above does not include any right to, and Company shall not use any software subject to an Excluded License to make any derivative of any Microsoft Materials or offer, sublicense or distribute any code supplied in the Microsoft Materials or derivative of any such code in conjunction with any software subject to an Excluded License. “Excluded License” means the GNU General Public License (GPL), Lesser/Library GPL (LGPL), Community Public License (CPL) or any license for software where the license includes terms providing that: (a) a licensee of the software is granted access to the source code for the software concerned and authorized to modify or make derivative works of the source code for the software; and (b) the licensee is authorized to distribute the derivative works only if subsequent licensees are granted a license under substantially similar license terms with respect to distribution rights and the terms described in (a) above.

 

3.4      Reservation of Rights. All rights not expressly granted in this Agreement are reserved. No additional rights whatsoever (including, without limitation, any implied licenses) are granted by implication, estoppel or otherwise. Without limiting the generality of the foregoing, the license grant in 3.1 above does not include, and Microsoft does not grant, any right under any patent or intellectual property right other than the Microsoft IP. Microsoft owns all right title and interest in the Microsoft Materials. Microsoft may in its sole discretion (i) choose not to implement the Security Feature on the Xenon platform and/or (ii) choose not to implement Firmware in Xenon Chips. If either of the two occurs events, the license grant in Section 3.1 above will not include the license in subsection (d) and either party will have the right to terminate the agreement as set forth in Section 15.2.

 

3.5      Foundry Products. The license grants above do NOT include any rights to make, use, sell, offer for sale, import or distribute Licensed Product designed by or for a third party without substantial input from Company, and manufactured, reproduced, sold, leased, licensed or otherwise transferred from Company to that third party (or to customers of, or as directed by, that third party) on essentially an exclusive basis.

 

3.6      Reverse Engineering:

 

(a)       Company shall not reverse engineer, decompile, disassemble, or otherwise access the source code for any portion of the Security Feature or Firmware except (i) as permitted by applicable law which cannot be waived by this subsection, or (ii) as authorized by separate agreement by Microsoft or a Microsoft affiliate.

 

(b)       Company shall use commercially reasonable efforts in Company’s industry to design Licensed Products to prevent third parties from reverse engineering, decompiling or disassembling any portion of the Security

 

Feature and/or Firmware and to prevent end users from discovering the source code of any component of the underlying Security Feature and/or Firmware.

 

4.	License of Xenon Logos

 

4.1      Xenon Certified Logo. Microsoft will provide Company with the required Xenon Certified Logo artwork. Upon approval of the Licensed Product under Section 6.3 and subject to payment of the license fees and royalties set forth in Section 5, Microsoft grants to Company a non-exclusive, fully paid-up, non-transferable, revocable, personal license to use the Xenon Certified Logo during the Term in the Territory only on Company’s Product Package and related promotional materials, advertising and documentation in connection with the marketing, sales and distribution of the Licensed Product, according to the Branding Specifications and the other terms and conditions set forth herein. Company is not authorized or licensed, to include the Xenon Certified Logo on the Licensed Product itself or on any labels affixed to the Licensed Product or as part of any warranties made by the Company . All rights not expressly granted herein are reserved to Microsoft.

 

4.2      Xenon Product Jewel Logo. In addition to the license granted in 4.1, Microsoft grants to Company a non-exclusive, fully paid-up, non-transferable, revocable, personal license during the Term in the Territory only to place the Xenon Product Jewel Logo on Licensed Product(s), according to the Branding Specifications and the other terms and conditions set forth herein. Company is not authorized or licensed to include the Xenon Product Jewel Logo on any promotional materials or advertising in connection with the marketing, sales and distribution of the Licensed Product(s), or as part of any warranties made by the Company. The Xenon Product Jewel Logo is licensed to Company solely for placement on the Licensed Product(s) as set forth herein. All rights not expressly granted herein are reserved to Microsoft.

 

4.3       Company will deliver to Microsoft for Microsoft’s review and approval, the Product Package and any other materials that use or refer to the Xenon Logos or any other Microsoft name, in advance of any manufacture, distribution or publication of the same, for purposes of determining that the use of the Xenon Logos comply with the Branding Specifications and that the Licensed Product(s)’ Product Package complies with the Licensed Product Packaging Template. All requests for approval hereunder will be submitted to:

 

  Scott Loomis, Xenon Peripherals Program Manager

  Microsoft Corporation, One Microsoft Way, Redmond, WA 98052, USA

  e-mail: xbox3pp@xbox.com

 

4.4       Company agrees to incorporate Microsoft’s comments or edits, if any, prior to publication, manufacture or distribution of any of the foregoing. Company will at all times during the Term be responsible for manufacturing, assembling, publishing and/or distributing the Product Package and associated materials and will make no changes after receiving Microsoft’s final approval of the same without first obtaining Microsoft’s written approval of such change.

 

4.5       Microsoft will respond to Company’s request for approval within a commercially reasonable period of time. Microsoft’s approval or rejection of the request from Company will be delivered via U.S. Mail or e-mail to:

 

  Company Contact: Sean Parry

  Address: 7480 Mission Valley Road, Suite 101, San Diego, California 92108

  e-mail: sparry@madcatz.com

 

4.6       Company is granted no right to permit any third party to use the Xenon Logos in any manner without Microsoft’s prior written consent and any attempt to do so will be void. Company’s license to use the Xenon Logos in association with Licensed Product(s), will not extend to the merchandising or sale of related or promotional products under such Xenon Logos.

 

4.7       Company will not use Xenon Logos in connection with any activity that (i) disparages Microsoft or its products or services; (ii) violates or infringes any intellectual property of Microsoft; or (iii) violates any local, state, federal, country, or international regulation or law.

 

4.8       Company’s use of the Xenon Logos will comply with the Branding Specifications and will conform in all respects to the Product Package finally approved by Microsoft as required hereunder. Company will not use the Xenon Logos in association with any third party trademarks in a manner that might suggest co-branding or otherwise create potential confusion as to source or sponsorship of the Licensed Product(s) or ownership of the Xenon Logos without written consent (via e-mail is sufficient). Upon notice or other discovery of any non-conformance with the requirements or prohibitions of this section, Company will promptly remedy such non-conformance and notify Microsoft of the non-conformance and remedial steps taken.

 

4.9       Upon notice or other discovery of any non-conformance of the Licensed Product with the Quality Standards, Microsoft Standards or Certification Specifications (including receipt of any bona fide End-User claims or complaints pertaining to consumer product safety matters), Company will promptly notify Microsoft and remedy such non-conformance in all such units or Product Package regardless of where such are in the chain of distribution, and Company will notify Microsoft of the non-conformance and remedial steps taken.

 

4.10       Company will assist Microsoft in protecting and maintaining Microsoft’s rights in the Xenon Logos worldwide, including preparation and execution of documents necessary to register the Xenon Logos at Microsoft’s expense, and giving immediate notice to Microsoft of potential infringement of the Xenon Logos, in any country. Microsoft will have the sole right to and in its sole discretion may commence, prosecute or defend, and control any action concerning the Xenon Logos. Company will not during the Term contest the validity of, or by act or omission jeopardize, or take any action inconsistent with, Microsoft’s rights or goodwill in the Xenon Logos in any country, including attempted registration of the Xenon Logos, or use or attempt registration of any mark confusingly similar thereto.

 

4.11       Company acknowledges Microsoft’s sole ownership of the Xenon Logos worldwide and all associated goodwill. Nothing in this Agreement or in the performance thereof, or that might otherwise be implied by law, will operate to grant Company any right, title, or interest in or to the Xenon Logos other than as specified in the limited license granted herein. Company’s use of the Xenon Logos will inure solely to the benefit of Microsoft. Company hereby assigns and will assign in the future to Microsoft all rights it may acquire by operation of law or otherwise in the Xenon Logos, including all applications or registrations therefore, along with the goodwill associated therewith.

 

5.

Payments

 

5.1       License Fees/Advance Royalties .

 

(a)      PXDK License Fee. Company will pay Microsoft [***] within thirty (30) days of ordering PXDK as consideration for the license of the PXDK to Company.

 

(b)      Security Feature Fee. On an annual basis, Company will pay Microsoft the fees for each applicable Territory as set forth on Exhibit C for the license of the Security Feature and subject to the additional terms set forth on such Exhibit. The first fee payment will be due within thirty (30) days after the Effective Date and will cover the time period commencing on the Effective Date and ending December 31, 2006. Thereafter, the annual fee will be due on or before January 31 of each successive year of the Term. The Security Feature Fee is above and beyond the actual cost of the Security Chip that Licensee will purchase from the Approved Vendor. All such fees will be paid before manufacture of the units of Licensed Product for which the fee applies. The advance license fees payable under this Section 5.1 are not refundable except as set forth in Section 15.2.

 

(c)      Xenon Logo Guarantee. On an annual basis, Company will pay Microsoft the guaranteed royalty for each applicable Territory as set forth on Exhibit C for the license of the Xenon Logos and subject to the additional terms set forth on such Exhibit. The first fee payment will be due within thirty (30) days after the Effective Date and will cover the time period commencing on the Effective Date and ending December 31, 2006. Thereafter, the annual fee will be due on or before January 31 of each successive year of the Term. The guaranteed royalty payable under this Section 5.1 is not refundable except as set forth in Section 15.2 but shall be applied as a credit against the royalties payable under Section 5.2.

 

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5.2      Royalties.

 

(a)      Licensed Product Royalties. In consideration of the Xenon Logo license rights granted Company for the Licensed Products, Company will pay to Microsoft royalties in the amounts set forth on Exhibit C. The royalty amount will be calculated based on Company’s actual wholesale gross invoice amount billed to customers for the Licensed Products, less any Security Feature Fee, freight charges, bona fide returns, VAT, Price Reductions (defined below), or similar sales taxes (“Net Sales Price”), for each unit of Licensed Product manufactured by or for Company hereunder, including units for Company’s own use and whether or not Company receives payment for such units. The royalty obligation is triggered on the shipment of Licensed Product(s) to customers. A Price Reduction means a credit issued by Company to resellers and distributors for the difference between the price they originally paid to Company for product held in inventory and the reduced price due to a price promotion.

 

(b)      Royalty Reports and Payments. Company will make quarterly royalty reports to Microsoft within (i) forty-five (45) days after the end of each calendar quarter during the Term; (ii) fifteen (15) days after termination of this Agreement in the event there is no “Sell Off Period” as referenced in Section 15.4; or (iii) in the event there is a “Sell Off Period” as referenced in Section 15.4, within fifteen (15) days after the end of each calendar month during the Sell Off Period and a final report and payment within fifteen (15) days of the end of the Sell Off Period. The royalty report will include monthly sales information and be in a reasonable form as defined by Microsoft. For each calendar quarter, Company will remit payment(s) in accordance with the Sections below in United States Dollars at the same time as submission of the royalty report.

 

(c)      Place of Payment. Microsoft will address invoices for royalty payments owed by Company to:

 

  Company Contact: Mike Guerrero

  Address: 7480 Mission Valley Road, Suite 101, San Diego, California 921

  e-mail: mguerrero@madcatz.com

 

The statements and payments required pursuant to this Section will be delivered by Company to:

 

 

Payments will be sent via wire transfer in U. S. Dollars only, to:

Bank of America

1401 Elm Street

Dallas, TX 75202 U.S.A.

Beneficiary: Microsoft Licensing, GP

Account #: 3750891058

ABA #: 111000012

SWIFT #: BOFAUS3N

Or such other address of account as Microsoft may specify from time to time.

 

5.3        Audit . During the Term and for a period of at least three (3) years thereafter, Company shall keep and maintain, complete and accurate books and records relating to its performance (and any of its manufacturer’s performance) under this Agreement. Upon reasonable advance written notice from Microsoft, Company shall make such books and records available for audit by Microsoft’s internal audit team or an independent certified public accounting firm (together with independent technical personnel if and as reasonably required for such accountant to perform the audit) designated by Microsoft and approved by Company, which approval shall not be unreasonably withheld. Unless otherwise agreed by Microsoft and Company, any such audit shall be conducted during regular business hours, at Company’s principal place of business, not more frequently

 

than once in any period of twelve (12) consecutive months and in a manner that does not unreasonably interfere with Company’s normal course of business. If any audit reveals an overpayment, then Company will receive a credit, in the amount of such overpayment, that will be applied only against future royalties payable under this Section 5.3. If any audit reveals an underpayment, then Company will pay Microsoft the amount of the underpayment, together with interest as provided for in Section 5.4, within forty-five (45) days after the date of the auditor’s report. Further, if any audit reveals an underpayment of more than seven percent (7%) of the royalties owed for the Royalty Period(s) subject to the audit, then Company will promptly reimburse Microsoft, upon request, for all costs and expenses reasonably incurred by Microsoft to conduct the audit. Any such audit will be paid for by Microsoft unless material discrepancies are disclosed. “Material” will mean the lesser of $10,000 or five percent (5%) of the royalties due to Microsoft within the audit period. If material discrepancies re disclosed, Company agrees to pay Microsoft for the costs associated with the audit, as well as reimburse Microsoft for all under-reported amounts, plus interest at a rate of 12% per annum.

 

5.4        Delinquent Payment . Any license fee, royalty or other amount not paid when due and otherwise in accordance with this Section 3 shall bear interest at the rate of one percent (1%) per month or the highest rate permitted by applicable usury law, whichever is less, calculated on a daily basis and compounded on the first day of each calendar month, from the date due until the date received by Microsoft in accordance with Section 5.3. This Section 5.4 does not authorize late payments, and the payment of interest hereunder shall not be lieu of or prejudice any other right or remedy that Microsoft may have on account of Company’s failure to make any payment in accordance with this Section 5.

 

5.5       Taxes

 

(a)      Company shall be responsible for the billing, collecting and remitting of sales, use, value added, and other comparable taxes due with respect to the exercise of the License and any other activities of Company and its Subsidiaries under this Agreement (including, without limitation, the collection of revenues). Microsoft is not liable for any taxes (including, without limitation, any penalties or interest thereon) that Company or any of its Subsidiaries is legally obligated to pay in connection with this Agreement, the exercise of the License or any other activities of Company and its Subsidiaries under this Agreement. Company is not liable for any income taxes that Microsoft is legally obligated to pay with respect to any amounts paid to Microsoft by Company under this Agreement.

 

(b)      All royalties and fees exclude any taxes, duties, levies, fees, excises or tariffs imposed on any of Company’s activities in connection with this Agreement. Company shall pay to Microsoft any applicable taxes that are owed by Company solely as a result of entering into this Agreement and which are permitted to be collected from Company by Microsoft under applicable law, except to the extent that Company provides to Microsoft a valid exemption certificate for such taxes. Company agrees to indemnify, defend and hold Microsoft harmless from any taxes (including, without limitation, sales or use taxes paid by Company to Microsoft) or claims, causes of action, costs (including, without limitation, reasonable attorneys’ fees) and any other liabilities of any nature whatsoever related to such taxes.

 

(c)      If, after a determination by foreign tax authorities, any taxes are required to be withheld on payments made by Company to Microsoft, Company may deduct such taxes from the amount owed Microsoft and pay them to the appropriate taxing authority; provided, however, that Company shall promptly secure and deliver to Microsoft an official receipt for any such taxes withheld or other documents necessary to enable Microsoft to claim a U.S. Foreign Tax Credit. Company will make certain that any taxes withheld are minimized to the extent possible under applicable law.

 

(d)      This tax section shall govern the treatment of all taxes arising as a result of or in connection with this Agreement notwithstanding any other section of this Agreement.

 

6.	Product Review and Certification .

 

6.1      Review of Proposed Product. Company will identify a single contact person for all business development activity relating to Proposed Products. Company will submit its plans for Proposed Products to