American Patents LLC v. Mediatek, Inc. et al

Western District of Texas, txwd-6:2018-cv-00339

Response in Opposition to Motion, filed by American Patents LLC, re 82 Opposed MOTION to Sever AND STAY PURSUANT TO THE CUSTOMER-SUIT EXCEPTION DOCTRINE filed by Defendant Lenovo (Shanghai) Electronics Technology Co. Ltd., Defendant Lenovo Group Ltd.

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8 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS WACO DIVISION AMERICAN PATENTS LLC, Plaintiff, CIVIL ACTION NO. 6:18-CV-339-ADA v. PATENT CASE MEDIATEK INC., MEDIATEK USA INC., BROADCOM PTE. LTD., BROADCOM JURY TRIAL DEMANDED CORPORATION, LENOVO (SHANGHAI) ELECTRONICS TECHNOLOGY CO. LTD., LENOVO GROUP, LTD., NXP SEMICONDUCTORS N.V., NXP B.V., NXP USA, INC., QUALCOMM INCORPORATED and QUALCOMM TECHNOLOGIES, INC., Defendants. AMERICAN PATENTS' OPPOSITION TO LENOVO'S MOTION TO SEVER AND STAY PURSUANT TO THE CUSTOMER-SUIT EXCEPTION DOCTRINE 8 TABLE OF CONTENTS I. INTRODUCTION ...............................................................................................................1 II. LEGAL STANDARD..........................................................................................................2 A. Rule 21 of the Federal Rules of Civil Procedure .....................................................2 B. The "Customer Suit" Exception Doctrine................................................................2 III. LENOVO IS NOT ENTITLED TO A CUSTOMER STAY...............................................3 A. Staying Lenovo Would Impair Judicial Economy, Not Improve It .........................4 1. Because claims against Lenovo and the chip makers are pending in the same court as part of the same case, staying Lenovo harms judicial economy .......................................................................................................5 2. Lenovo has not agreed to be bound by any decisions against the chip makers, leaving it free to relitigate any rulings that the chip makers lose...................................................................................................6 3. Lenovo has not even established that the chip makers are indemnifying it, making it unlikely they are the "true defendants" for Lenovo's liability ....7 B. Lenovo Is Not A "Mere Reseller"—And It Cites No Cases That Grant A Customer Stay to a Product Manufacturer Like It ...................................................7 C. At Best, Lenovo's Arguments For A Stay Are Premature.....................................10 1. Discovery may reveal that the chip makers are insulated from liability for some chips used in Lenovo products, leaving American Patents to recover from Lenovo...............................................................................................10 2. Discovery may reveal that Lenovo incorporated infringing chips from other manufacturers in its accused products ..............................................12 3. Discovery may reveal Lenovo's involvement in the design, manufacture, or testing of the accused chips and the Lenovo products incorporating them............................................................................................................12 4. The chip makers may seek claim constructions that require a larger product to infringe......................................................................................13 IV. LENOVO DOES NOT QUALIFY FOR SEVERANCE UNDER FED. R. CIV. P. 21 ...14 V. CONCLUSION ..................................................................................................................15 i 8 I. INTRODUCTION Lenovo calls its motion a "textbook example" for granting a stay under the customer-suit exception doctrine (often called a customer stay motion). It is nothing of the sort. A "textbook" customer stay would involve a mere reseller of products made by a defendant manufacturer, like a Best Buy or GameStop. But Lenovo is itself a manufacturer of accused products—indeed, it is one of the world's largest computer makers. As a product manufacturer, Lenovo is an unlikely candidate for a customer stay. Lenovo tellingly fails to cite a single case granting a customer stay to a product manufacturer like it. A "textbook" customer stay would involve a customer who has agreed to be bound by rulings against its chip manufacturing co-defendants. Such an agreement, if present, would be evidence that resolving one case may resolve key issues in the other. But Lenovo has not done so. Instead, Lenovo reserves the right to relitigate invalidity, take its own claim construction positions, and argue its own noninfringment defenses—regardless of whatever decisions the Court issues against the chip makers. A "textbook" customer stay would involve cases against a manufacturer and its customer that are pending in different courts, where staying the customer case could avoid wasting judicial resources and potentially conflicting outcomes. But Lenovo and its suppliers are not only before the same court—they are in the same case. Staying Lenovo here will cause more judicial work, not less. And a "textbook" customer stay would involve several customer-defendants that seek to stay their cases in favor of a case against a single manufacturer-defendant who supplies them all. But Lenovo wants the reverse—it is the only "customer" asking the Court to sever and stay the claims against it, while the case against multiple chip makers on the same patents continues. And even if these issues were not present, Lenovo's request would still be premature. Lenovo's entire motion hinges on the argument that the claims against chip makers Qualcomm and MediaTek will resolve the claims against it. But several foreseeable circumstances prove 1 8 this false. Discovery may reveal that Qualcomm and MediaTek are insulated from at least some of their liability because their activities occurred abroad, leaving American Patents able to recover from only Lenovo. That is why courts have declined to grant a customer stay where a chip maker supplying the moving defendants makes at least some of the accused chips outside the United States. Discovery may also reveal Lenovo used infringing chips from other manufacturers; indeed, American Patents has found evidence that is the case. Lenovo's co- defendant chip makers may take claim construction positions that require an interaction with something beyond their chips, potentially pushing their liability onto companies like Lenovo. At this early stage—before discovery has opened or a Markman hearing has been set—neither the parties nor the Court can properly evaluate these issues. Staying the case against Lenovo—with no guarantee that any issue resolved against Qualcomm and MediaTek would resolve any issue as to Lenovo—is a recipe for duplicative litigation. Lenovo's customer stay motion should be denied. II. LEGAL STANDARD A. Rule 21 of the Federal Rules of Civil Procedure Under Fed. R. Civ. P. 21, district courts have broad discretion to sever claims against a party, and generally look to whether severance would promote judicial economy. See Innovative Automation, LLC v. Audio Video & Video Labs, Inc., No. 6:11-CV-234, 2012 WL 10816848, at *4 (E.D. Tex. May 30, 2012). Severance is appropriate only if: (1) the claim to be severed is peripheral to the remaining claims; and (2) adjudication of the remaining claims is potentially dispositive of the severed claim. See Shifferaw v. Emson USA, No. 2:09-CV-54, 2010 WL 1064380, at *1 (E.D. Tex. Mar. 18, 2010). B. The "Customer Suit" Exception Doctrine "The customer suit exception is an exception to the general rule that favors the forum of the first-filed action." Tegic Commc'ns Corp. v. Bd. of Regents of Univ. of Tex. Sys., 458 F.3d 1335, 1343 (Fed.Cir. 2006) (citing Kerotest Mfg. Co. v. C–O–Two Fire Equip. Co., 342 U.S. 2 8 180, 185 (1952)). The "primary question" under this exception "is whether the issues and parties are such that the disposition of one case would be dispositive of the other." Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1463 (Fed.Cir. 1990). Although in certain circumstances the customer-suit exception may still apply if "additional issues" are left unresolved by the second-filed action, the key is whether "resolution of the major issues before [the] court, including patent infringement [and] patent validity. . . will resolve these issues as to [the] customers." Id. at 1464. In the circumstances where the exception applies, the manufacturer is the "true defendant" in the dispute. In re Nintendo of Am., Inc., 756 F.3d 1363, 1365 (Fed. Cir. 2014). The exception was born in part to stop a patentee from suing customers for improper reasons, such as intimidating smaller businesses or establishing proper venue against other parties. See, e.g., Lonestar Inventions, L.P. v. Sony Elecs. Inc., No. 6:10-CV-588, 2011 WL 3880550, at *5 (E.D. Tex. Aug. 29, 2011) ("[T]his is not a situation where plaintiff is attempting to intimidate a smaller business."); Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1353 (Fed. Cir. 2011) ("The district court found that the Kodak Customers were "merely peripheral" to the action against Kodak, […] and were named as defendants solely to establish venue in the Northern District of Illinois."). In evaluating whether to grant a customer stay, courts have highlighted three factors as being particularly "probative of whether or not it would be more efficient to proceed with the second-filed action before the first-filed action": (1) whether the consumers in the first-filed action are mere resellers of products manufactured by the party in the second-filed action; (2) whether the consumers in the first-filed action have agreed to be bound by any decision in the second- filed action, and; (3) whether the manufacturers in the second-filed action are the only source of the allegedly infringing activity or product. See DSS Technology Management, Inc. v. Intel Corp., No. 6:15-cv-130, 2015 WL 12806514, at *3 (E.D. Tex. 2015) (citing Tegic Commc'ns Corp., 458 F.3d at 1333). A threshold issue, however, is whether the claims against the customer are actually pending in the same court as the claims against the manufacturer. The cases that originated the 3 8 customer stay doctrine did so to prevent two federal courts from concurrently deciding overlapping issues on the same patent. See, e.g., Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011). But where claims against a customer and a manufacturer are pending in the same court, severing and staying the customer claims does not serve the "goals the consumer-suit exception seeks to advance: judicial efficiency." DSS Technology, 2015 WL 12806514, at *3. Indeed, the Federal Circuit has observed that no appellate caselaw requires a district court to "stay proceedings against a customer in the very same litigation that will, regardless of the requested stay, go forward against the supplier." In re Dell Inc., 600 Fed. App'x 728, 730 (Fed. Cir. 2015) (denying mandamus petition seeking to overturn district court's denial of a stay as premature and prejudicial to the plaintiff). III. LENOVO IS NOT ENTITLED TO A CUSTOMER STAY Lenovo does not and cannot contend that it is a "mere reseller" in the context of the customer-suit exception. Lenovo instead argues that it "merely incorporates" the accused integrated circuits into the accused tablets it manufactures. Mot. at 1. Given Lenovo's unusual posture as a manufacturer requesting a stay under the customer suit exception, there are several independent reasons discussed below why the doctrine does not apply. Lenovo's only argument that a stay would be more efficient is that American Patents' claims against MediaTek and Qualcomm will "necessarily resolve" the claims against Lenovo, see Mot. at 10. But as explained below, this is false. A. Staying Lenovo Would Impair Judicial Economy, Not Improve It Granting Lenovo a customer stay would harm rather than help judicial economy—the opposite of what customer stays are meant to do. Putting Lenovo in its own case while the case continues against the chip makers only increases the Court's workload, especially since Lenovo maintains its right to re-litigate every decision made against the chip makers. 4 8 1. Because claims against Lenovo and the chip makers are pending in the same court as part of the same case, staying Lenovo harms judicial economy In the cases that originated the customer suit exception, a stay prevented two federal courts from concurrently deciding issues on the same patent—an earlier-filed litigation against a customer was stayed while a later-filed case involving the manufacturer proceeded in another forum. See, e.g., Spread Spectrum, 657 F.3d at 1357. Courts therefore also consider whether, absent the stay, the case against the manufacturer and the case against the customer would go forward separately before two district courts. See, e.g., Katz, 909 F.2d at 1463. If both sets of claims are before the same court, then the potential judicial economy gains of a stay are limited because that court must familiarize itself with the dispute whether or not a stay is granted, and the additional burden of disposing of the additional, related claims is minimal. See Info. Prot. & Authentication of Texas LLC v. Symantec Corp., No. 2:08-CV-484, 2009 WL 6553976, at *2 (E.D. Tex. Oct. 5, 2009) (denying a stay, observing that a stay of some cases in the same court where one set of defendants argued that their claims succeeded or failed based on a second set of defendants did not conserve judicial resources); In re Dell Inc., 600 Fed. App'x 728, 730 (Fed. Cir. 2015) (denying mandamus petition of decision to deny stay when customer and manufacturer claims were pending in the same suit). Here, American Patents' claims against Lenovo and against MediaTek/Qualcomm are pending in this same action. So this is not the traditional customer suit case in which a stay is necessary to avoid burdening two courts with the same dispute. See Spread Spectrum, 657 F.3d at 1358 (rejecting application of the customer-suit exception "[b]ecause [the manufacturer] did not file a separate declaratory judgment action against [the Plaintiff]" in a different forum). Indeed, customer stay motions have been denied where the cases against customers and chip manufacturers were consolidated for pre-trial purposes. See Vantage Point Tech., Inc. v. Amazon.com, Inc., No. 2:13-CV-909, 2015 WL 123593, at *3 (E.D. Tex. Jan. 6, 2015) (denying a motion to stay where the manufacturer and its customer were defendants in actions before the same court, and those actions were consolidated, noting that the consolidation "advances the 5 8 very same goals that the consumer-suit exception seeks to advance: judicial efficiency"). That principle applies even moreso here given that claims against Lenovo and certain chip makers are not just consolidated for pretrial purposes—they are joined for trial. This is also not a case where several "customer" defendants are requesting a stay against a single manufacturer. See id. (staying 11 customer suits in the Eastern District of Texas in favor of the manufacturer's suit in the Western District of Washington); Collaborative Agreements, 2015 WL 10818739, at *2 (staying 6 customer suits in the Eastern District of Texas and transferring the manufacturer's suit to the Northern District of California). The situation here is the reverse—only Lenovo requests a stay, which would leave claims against multiple distinct chip makers remaining for the Court to manage. 2. Lenovo has not agreed to be bound by any decisions against the chip makers, leaving it free to relitigate any rulings that the chip makers lose If Lenovo's requested stay is granted, any decision for American Patents in the remaining case against the chip makers would still need to be redone for American Patents' severed and stayed case against Lenovo. Lenovo has not agreed to be bound by any decision adverse to the chip manufacturers, whether involving claim construction, infringement, invalidity, or otherwise. A determination against the other defendants thus would not dispose of any issues in the Lenovo case, and trying the Lenovo case separately would counter the goal of judicial economy. Lenovo's failure to agree to be bound by the other defendants' case weighs heavily against a stay. See Tegic Commc'ns Corp., 458 F.3d at 1343. That's why several of Lenovo's cited customer-suit exception cases are inapposite: those customers agreed to be bound by rulings against the manufacturer. See Saint Lawrence, 2017 WL 3712912, at *2 ("What is more, the Carrier Defendants have 'agree[d] to be bound by the invalidity and infringement rulings in this case as to Apple.' [. . .] The Court, in granting the relief herein, relies upon and intends to enforce such agreement."); CCE, 2016 WL 6884648, at *3 ("Finally, the Carriers have agreed to be bound by the invalidity and infringement rulings in 6 8 this case as to Apple. This strongly suggests that adjudication of the severed claims against Apple will dispose of the remaining claims against the Carriers."); Shifferaw, 2010 WL 1064380, at *1; Collaborative Agreements, 2015 WL 10818739, at *2 (W.D. Tex. Aug. 21, 2015); Nintendo, 756 F.3d at 1365. Importantly, where cases are pending in the same court and the customer has not agreed to be bound, a stay can be denied without even considering other factors. See Vantage Point Tech., Inc. v. Amazon.com, Inc., No. 2:13-CV-909, 2015 WL 123593, at *3 (E.D. Tex. Jan. 6, 2015) (denying a customer stay where claims against chip makers and their customers were consolidated in the same court and the customers had not agreed to be bound, without considering whether the customers were "mere resellers" or addressing other stay factors). So the Court should deny Lenovo's customer stay motion for these two reasons alone. 3. Lenovo has not even established that the chip makers are indemnifying it, making it unlikely they are the "true defendants" for Lenovo's liability Along similar lines, Lenovo has not stated that either MediaTek or Qualcomm has agreed to indemnify it. This further indicates that those chip makers are not the "true defendants" in American Patents' case against Lenovo, as Lenovo baldly claims, Mot. at 1. See CCE v. HTC, 2015 WL 11118110, at *8 (declining to find that Manufacturers alone were the "true defendants," in part because "the record is unclear whether Manufacturers agree to indemnify [customers] in this action"); see also Shifferaw, 2010 WL 1064380, at *1. B. Lenovo Is Not A "Mere Reseller"—And It Cites No Cases That Grant A Customer Stay to a Product Manufacturer Like It Another key factor in determining whether a customer stay is warranted is whether the "customer" is a "mere reseller," especially if it simply resells products of a manufacturer that makes and sells the product in the United States. See, e.g., Mirror Worlds Technologies, LLC v. Dell Inc., No. 6:13-CV-941, 2014 WL 11268268, *2-3 (E.D. Tex. 2014). The reason that the customer suit exception rarely applies unless the customer is a mere reseller is that every accused infringement in a case against a reseller of accused products is at issue in a case against the 7 8 manufacturer who sells the reseller those same, unaltered products. So disposing of infringement and damages in the manufacturer suit will likely dispose of these issues in the "mere reseller" suit. Lenovo, of course, is far from a "mere reseller." Its annual report explains that it is a "US$45 billion Fortune 500 company" that "manufactures one of the world's widest portfolio of connected products, including smartphones (Motorola), tablets, PCs (Thinkpad, Yoga, Lenovo Legion) and workstations as well as AR/VR devices and smart home/office solutions." Dkt. 68 at 1-2 (quoting Ex. B to Dkt. 68 at iii). See, e.g., Mirror Worlds Technologies, LLC v. Dell Inc., No. 6:13-CV-941, 2014 WL 11268268, *2-3 (E.D. Tex. 2014) (holding that PC manufacturers who installed "ready-for-use" versions of Windows from Microsoft on their products were not "mere resellers" of Windows). And none of the cases that Lenovo cites support applying the customer-suit exception to a manufacturer who incorporates infringing components into its products. Lenovo cites eight cases where the court applied the customer suit exception, but not a single one stays a case against a product manufacturer like it. For example, Lenovo argues that the claims against it are peripheral because it allegedly did not participate in the design or manufacture of the Qualcomm and MediaTek chips that Lenovo installs in its accused tablets, citing CCE. (Mot. at 6.) Similar to this case, CCE involves Qualcomm chips that contain the allegedly infringing source code. CCE, 2016 WL 6884648, at *2. Also similar to this case, Apple (a manufacturer installing a Qualcomm chip into its products, like Lenovo) did not know of the allegedly infringing source code on the Qualcomm chip. See id. ("Qualcomm is the only entity that has access to the point where they can disable or enable select functionality within a chip" … "Qualcomm [has] only agreed to produce the source code for its baseband chipsets on an 'outside attorneys' eyes only' basis under a supplemental protective order with strict requirements that prohibit any of Defendants' employees or in-house counsel from accessing the code.") (citations omitted). The court in CCE did not stay Apple, who stands in Lenovo's shoes, but the cell phone carriers who 8 8 resell Apple's iPhones. So CCE does not support Lenovo's argument that the claims against it are peripheral simply because it allegedly did not participate in the design or manufacture of the Qualcomm and MediaTek integrated circuits (the same was true for Apple, and the case against it proceeded). Notably, American Patents has not sued the retailers who resell Lenovo computers—entities who might actually qualify for a customer stay under CCE's reasoning. Lenovo's reliance on Saint Lawrence Commc'ns is similarly flawed. As in CCE, the allegedly infringing source code was on a Qualcomm chip installed in Apple's iPhones, and it was Apple's customers (the cell phone carriers) asking for a stay under the customer suit exception. Saint Lawrence, 2017 WL 3712912 at *2. Therefore, Saint Lawrence does not support Lenovo's argument that it, a manufacturer like Apple, should be stayed under the customer suit exception. Lenovo cites another three cases where the parties requesting a stay are "mere resellers" and thus fit squarely into the traditional application of the customer suit exception. See Shifferaw, 2010 WL 1064380, at *3 ("Amazon and Academy are only peripherally involved, with their only relevant conduct being the resale of products purchased from Mishan."); Katz, 909 F.2d at 1464 (staying a case against Batavia Marine & Sporting Supplies and Gun Centers, a retailer of the accused products); Nintendo, 756 F.3d at 1364 (staying cases against several retailers of the accused Nintendo systems). But because Lenovo does not and cannot make the argument that it is a "mere reseller" of the accused Qualcomm and MediaTek chips, these cases are inapposite. The remaining cases Lenovo cites are even further afield. These decisions apply the customer suit exception to customers who are end users of the patented technology. See Spread Spectrum, 657 F.3d at 1351–52 ("Kodak manufactures, uses, and licenses the allegedly infringing products under the brand name Staccato. The Kodak Customers [printing businesses] are licensed to use the Staccato software products."); Rothschild Mobile Imaging Innovations, LLC v. Mitek Sys., Inc., No. CV 14-1142, 2015 WL 4624164, at *1 (D. Del. July 31, 2015) (The 9 8 accused products are Mitek's mobile imaging products and services and Mitek's customers' (major banks') mobile banking application, which include features licensed from Mitek.); Collaborative Agreements, LLC v. Adobe Sys. Inc., No. 1-14-CV-356, 2015 WL 10818739, at *1 (W.D. Tex. Aug. 21, 2015) ("It is undisputed that Adobe alone hosts and provides the EchoSign software to users, including the Customer Defendants, and that the Customer Defendants incorporate EchoSign into their business operations."). These cases would apply to those persons and entities who buy Lenovo products intending to use them—not Lenovo itself. C. At Best, Lenovo's Arguments For A Stay Are Premature Even if the chip maker claims were pending in a different court and Lenovo had agreed to be bound by their outcome, a customer stay would still be inappropriate. That is because the information needed to analyze other important stay factors will only be availble after claim construction and discovery. This information includes where in the foreign supply chain an act of infringement in the U.S. occurs, Lenovo's participation in the design and manufacture of the accused chips, Lenovo's use of other manufacturers' chips that also infringe, and the ultimate outcome of claim construction. 1. Discovery may reveal that the chip makers are insulated from liability for some chips used in Lenovo products, leaving American Patents to recover from Lenovo A key rationale justifying a customer stay when it does apply is that a prevailing plaintiff can fully collect damages from a manufacturer's infringing products in the manufacturer suit, and is therefore precluded from collecting additional damages on the same products from a customer. See Nintendo, 756 F.3d at 1366 ("Indeed, the district court recognized ... if Secure Axcess were to collect royalties from Nintendo, this would preclude the suit against the Retailers"); CCE, 2016 WL 6884648, at *3 ("if Apple is found liable and CCE does collect damages from Apple, CCE cannot then in turn collect damages from the Carriers, because CCE cannot receive a double recovery for the same sales."). When this rationale is not present, the customer suit exception should not apply. For 10 8 example, this Court has denied a motion to sever and stay under the customer suit exception where a manufacturer-defendant may not be liable for activities that occurred outside the U.S. See DSS Technology Management, Inc. v. Intel Corp., No. 6:15-cv-130, 2015 WL 12806514, at *3 (E.D. Tex. 2015). In this circumstance, at least some of the alleged damages are recoverable from only the customer-defendant that committed infringing acts in the U.S. See id. In DSS Technology, for example, a chip manufacturer sold chips made abroad to a foreign device manufacturer, who incorporated the chips into its devices and sold to domestic customers. Id. at *2-3. The court declined to apply the customer suit exception because of the foreign supply chain, reasoning that the intermediate foreign sale may insulate the chip maker from liability—a situation that forces the plaintiff "into subsequent and highly duplicative litigation to recover a large portion of the damages." Id. at *3. This case also involves complicated foreign supply chains. Both Qualcomm and Mediatek reqularly rely on foreign contract manufacturers to make their chips. Ex. 1 [Qualcomm 10-K excerpt] at 12; Ex. 2 ["TSMC loses orders to UMC, Chinese manufacturers"] at 1. So American Patents might be unable to recover damages from MediaTek or Qualcomm to the extent that their infringing activity occurred abroad, even if Lenovo ultimately includes those companies' chips in its accused products sold in the United States. American Patents would have to pursue those damages in a separate, subsequent and highly duplicative case against Lenovo.1 Notably, none of the cases Lenovo cites address a foreign supply chain issue. This consideration alone justifies denial of Lenovo's motion. See DSS Technology, at *3 & n.3 (denying customer stay motion in part because at least some of chip maker's products were made overseas). 1 Lenovo's motion completely ignores the fact that a finding of infringement requires an act of infringement to be committed in the U.S. See 35 U.S.C. § 271. 11 8 2. Discovery may reveal that Lenovo incorporated infringing chips from other manufacturers in its accused products A traditional assumption of a customer stay motion is that the customer's accused products only come from manufacturers for which other cases are pending. Here, however, it is entirely possible that Lenovo uses infringing chips from manufacturers who are not a party to this case. If true, the damages awarded against the co-defendant manufacturers would not cover all infringements by Lenovo, and American Patents would be forced to pursue separate, subsequent, and duplicative litigation to recover the remainder of damages owed by Lenovo. And Lenovo does have accused products using chips from non-defendant manufacturers. While not one of the exemplary accused products identified in the complaint, American Patents' infringement allegations cover the Lenovo ThinkVision 28. That product uses the NVIDIA Tegra K1, a chip using the ARM Cortex-A15 architecture. Ex. 3 [ThinkVision 28 Overview] at 1-2; Ex. 4 [CES Article] at 1-2; Ex. 5 [NVIDIA Website Excerpt] at 5. American Patents may identify other Lenovo products that use chips from non-defendant manufacturers, either as part of preparing its infringement contentions or after initial discovery from Lenovo.2 This is yet another reason why a stay is premature. See Innovative Automation, 2012 WL 10816848, at *11 ("While Rimage is obviously the only manufacturer and the source of the Rimage devices, it is not the only source of components from which U.S. Digital could provide its allegedly infringing disc duplication services."). 3. Discovery may reveal Lenovo's involvement in the design, manufacture, or testing of the accused chips and the Lenovo products incorporating them Lenovo objects to the fact that American Patents "has not alleged or even suggested that the Lenovo Defendants participate in the design or manufacture of the Manufacturers' integrated 2 See, e.g., Atwater Partners of Tex. LLC v. AT&T, Inc., No. 2:10–cv–175–TJW, 2011 WL 1004880, *3 (E.D. Tex. 2011) (rejecting defendant's contention that patentee had to identify in the complaint every accused product and each asserted claim); Orion Energy Sys. Inc. v. Energy Bank Inc., No. 16-C-1250, 2017 WL 4773301, *1-*3 (E.D. Wis. Oct. 23, 2017) (rejecting contention patentee should be limited to only asserting exemplary claims pled in complaint, and collecting cases). 12 8 circuits." Mot. at 6. Lenovo argues that American Patents's failure to include such an allegation in its complaint, combined with American Patents's allegation "that the Lenovo Defendants incorporate the Manufacturers' integrated circuits into the accused tablets, […] demonstrate that the Lenovo Defendants are peripheral." Id. Lenovo cites CCE for support. But nothing in CCE suggests that a court may properly sever a party from a case based on allegations in a complaint.3 And the history of that case suggests just the opposite. In CCE, the court had denied the customers' original motion to sever and stay "in part, because several factual determinations remained and discovery was not complete at that time." Id. at *1. The customers refiled their motion to stay after "the case ha[d] progressed through claim construction, discovery, and expert reports," and "the issue of severance is ripe for decision." Id. At this early stage, American Patents has no way of knowing whether and to what extent Lenovo participated in the design, manufacture, or testing of the Qualcomm and MediaTek chips that it incorporates in its products. Lenovo failed to prove that it does not do so. And Lenovo did design, make, and test its accused products incorporating Qualcomm and MediaTek chips—it is not simply a reseller of those chips. This at least justifies denying this motion as premature. See Cellular Commc'ns Equip. LLC v. HTC Corp., No. 6:13-CV-507, 2015 WL 11118110, at *8 (E.D. Tex. Mar. 27, 2015) ("Especially at this stage of the proceedings, the Court declines to resolve the factual issues surrounding which entities are responsible for which aspects of the design, development, and testing of the accused products. . ."). 4. The chip makers may seek claim constructions that require a larger product to infringe Courts have held that customers were not peripheral where manufacturer's products were "mere components" of a customer's products when claim constructions required more than the component to infringe. See Microsoft Corp. v. Commonwealth Scientific Indus. Research Org., 2007 WL 4376104, at *2-3 ("The court found that the manufacturer's chip could not 3 CCE is wholly inapposite for other reasons, discussed below. 13 8 directly infringe the patent because it required additional components such as an antenna and a power supply."); Innovative Automation, 2012 WL 10816848, at *10 ("[W]hile U.S. Digital may not have played a role in the design or manufacture of the Rimage devices, it is accused of directly infringing the '362 patent not by reselling the Rimage devices, but by integrating those devices into its allegedly infringing disc duplication services"). Notably, in this case the chip makers would benefit from claim constructions that require other components of a larger product incorporating them. If the Court's claim constructions require more than the independent Qualcomm or MediaTek chips to infringe, the claims against Lenovo are not peripheral. See id. Again citing the Complaint, Lenovo notes that American Patents asserts "one set of infringement allegations against all Defendants" Mot. at 7. Although Lenovo cites CCE to argue this renders the claims against it peripheral, its reliance on CCE is yet again misplaced. CCE did not rely on the complaint for the infringement allegations, but rather the infringement contentions and "a single infringement expert report for Apple and for all the Carriers to support these identical infringement contentions." CCE, 2016 WL 6884648 at *2; see also Mirror Worlds Techs., LLC, 2014 WL 11268268, at *3 ("It would be improper at this stage in the litigation to dismiss Mirror Worlds' allegations against the PC Manufacturers as baseless. The Court is not in a position, nor could it be prior to discovery, to determine the merit of each allegation in Mirror Worlds' infringement contentions.") Here, American Patents has not yet served infringement contentions, much less expert reports. Nor has the Court set a date for the Markman hearing. This is another reason why Lenovo's motion is premature. IV. LENOVO DOES NOT QUALIFY FOR SEVERANCE UNDER FED. R. CIV. P. 21 Lenovo also does not qualify for severance under Fed. R. Civ. P. 21, for many of the same reasons already discussed. Lenovo's claims are not peripheral to its suppliers' claims because it is not sourcing the accused chips from a single manufacturer, the chip makers that supply it do not exclusively make chips in the U.S., and it is not a mere retailer. That makes its 14 8 situation wholly different from a true "textbook case" for a customer stay that involves a sole manufacturer who makes and sells the only accused product in the United States. See Shifferaw, 2010 WL 1064380, at *3 (the first factor is satisfied "[w]here a single manufacturer is the only entity in the U.S. who makes and sells the only accused product to retailers, a patent infringement claim against a retailer is peripheral to the claims against the manufacturer."); Cellular Commc'ns Equip., LLC. v. Apple Inc., No. 6:14-CV-251, 2016 WL 6884648, at *2 (E.D. Tex. Aug. 26, 2016) (same); Saint Lawrence Commc'ns LLC v. Apple Inc., No. 2:16-CV- 82, 2017 WL 3712912, at *2 (E.D. Tex. July 12, 2017) (same).4 Nor will adjudication of the claims against the chip makers be dispositive of the claims against Lenovo, for the reasons described above. Severance in this case would only frustrate the purposes of Fed. R. Civ. P. 21, which facilitates just, convenient, efficient, and less expensive determinations. See Nintendo, 756 F.3d at 1365. If the Court severed the claims against Lenovo, Lenovo would then be a third party with relevant evidence, and severance would frustrate American Patents' discovery of that evidence. Lenovo will be a source for discovery about customer demand for, among other things: the accused products, apportionment information regarding non-patented aspects of end- user products, and marketing literature touting the benefits of the accused products over the previous generation and competitors' products—all information highly relevant to damages. Management of these efforts as third-party discovery would cause more work for both American Patents and the Court. V. CONCLUSION For the foregoing reasons, Lenovo's motion to stay should be denied. 4 Lenovo cites these three cases to argue that American Patents's claims against it are peripheral, see Mot. at 6, but Lenovo does not mention or apply this basic test they all set forth. 15 8 Dated: March 27, 2019 Respectfully submitted, /s/ Michael D. Ellis Matthew J. Antonelli (admission pending) Texas Bar No. 24068432 matt@ahtlawfirm.com Zachariah S. Harrington (admission pending) Texas Bar No. 24057886 zac@ahtlawfirm.com Larry D. Thompson, Jr. (admission pending) Texas Bar No. 24051428 larry@ahtlawfirm.com Christopher Ryan Pinckney (admission pending) Texas Bar No. 24067819 ryan@ahtlawfirm.com Michael D. Ellis Texas Bar No. 24081586 michael@ahtlawfirm.com ANTONELLI, HARRINGTON & THOMPSON LLP 4306 Yoakum Blvd., Ste. 450 Houston, TX 77006 (713) 581-3000 Stafford Davis State Bar No. 24054605 sdavis@stafforddavisfirm.com Catherine Bartles Texas Bar No. 24104849 cbartles@stafforddavisfirm.com THE STAFFORD DAVIS FIRM The People's Petroleum Building 102 North College Avenue, 13th Floor Tyler, Texas 75702 (903) 593-7000 (903) 705-7369 fax Attorneys for American Patents LLC 16