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2014 U.S. App. LEXIS 19596

October 9, 2014, Decided

Before O'MALLEY, WALLACH, and HUGHES, Circuit Judges.

ORDER

These petitions arise out of five complaints filed by Rockstar Consortium US LP and Mobilestar Technologies, LLC ("Respondents"), in the Eastern District of Texas naming as defendants Samsung Electronics Co., Ltd. et al. ("Samsung"), ASUS Computer International, Inc. et al. ("ASUS"), ZTE Corporation et al., HTC Corporation et al., and LG Electronics, Inc. et al. (along with Google, Inc. ("Google") referred to collectively as "Petitioners").

With the exception of ASUS, which was not accused of infringing U.S. Patent No. 6,333,973 (the '973 patent), the complaints assert infringement of seven patents: U.S. Patent Nos. 5,838,551 (the '551 patent); the '973 patent; 6,128,298; 6,037,937 (the '937 patent); 6,463,131 (the '131 patent); 6,765,591 (the '591 patent); and 6,937,572. Except for the '551 patent, the patents are largely directed to software functionalities implemented on a general-purpose computing device.

Though Google was not initially named as a party in any of these actions, it supplied each defendant with operating system software ("Android") used in the accused devices and all six complaints alleged infringement based on certain "mobile communication devices having a version (or an adaption thereof) of Android operating system."

On December 23, 2013 [just short of two months after the ED Tex cases were filed], Google filed a complaint in the Northern District of California, stating that "Rockstar's litigation campaign has placed a cloud on Google's Android platform" and "threatened Google's business and relationships with its customers and partners, as well as its sales of Nexus-branded Android devices[.]"

Google's complaint sought a declaration that "any version of Google's Android platform" and its own devices, the Nexus 5, Nexus 7, and Nexus 10, "do not infringe" the seven patents. Id. at 6, 13. In response to the complaint, Respondents counterclaimed, seeking a judgment that Google's Nexus line of products infringed all seven of the patents at issue in the Texas actions. Google answered those charges by alleging that all seven patents were invalid and unenforceable.

Shortly thereafter, Respondents amended their complaint against Samsung in the Eastern District of Texas to include Google as a defendant. As amended, Respondents' complaint alleged that Samsung infringed all seven patents and that Google infringed the '937, '131, and '591 patents.

Respondents also moved to transfer or dismiss the California action. On April 17, 2014, the Northern District of California denied that motion, finding that "[t]he vast majority of the claims brought in the [Texas] actions appear to be targeted specifically at Android features," "the determination of the infringement issues here would likely be dispositive of the other cases," and the Northern District of California would be more convenient to try the matter.

Citing the Northern District of California's decision, Petitioners asked the Eastern District of Texas to stay proceedings or transfer the actions to California, arguing that proceeding with Respondents' infringement actions would result in wasteful and duplicative litigation. The Eastern District of Texas disagreed with Petitioners and denied their motions.¹ These petitions followed.

1 On the same day the Eastern District of Texas denied Google and Samsung's motion, it allowed Respondents to amend their complaint to allege infringement of all seven patents against Google.

The Supreme Court has repeatedly observed that under the doctrine of comity, when cases involving substantially overlapping issues are pending before two federal district courts, there is a strong preference to avoid duplicative litigation. That rule reflects an elementary principle of "wise judicial administration."

Those principles apply with full force here. Respondents themselves have asserted that the proceedings involve substantially the same controversy.

Given these facts, it is clear that there was no need to proceed with the five Texas actions because the one California action may suffice. Such circumstances present a classic case for a stay: The only potential results of adjudicating these cases in parallel fashion would be the Texas and California courts agree on the major issues of the litigation, thus producing wasteful and unnecessary litigation, or the courts disagree, thus producing conflicting decisions. Cf. Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1299 (Fed. Cir. 2012) (The purpose of the rule is to "avoid conflicting decisions and promote judicial efficiency.").

In concluding otherwise, the Eastern District of Texas relied heavily on each defendant mobile phone manufacturer's ability to modify and customize the Android platform to its own particular purpose. In fact, however, Respondents provided nearly identical infringement contentions to all defendants that rely almost exclusively on the underlying functionalities provided in the base Android source code provided by Google. Thus, the record strongly suggests there will be substantial similarity involving the infringement and invalidity issues in all the suits.

This significant overlap undermines the district court's main premise in rejecting a stay--that each defendant mobile phone manufacturer's ability to modify and customize the Android platform to its own particular purposes "place[d] these suits far outside the usual 'customer-suit exception.'" See, e.g., Rockstar Consortium US LP v. ASUSTeK Computer, Inc., No. 2:13-cv-894, slip op. at 9 (E.D. Tex. Jul. 28, 2014); see also Respondents' Opposition to Google and Samsung's Petition at 16-17 (arguing that a stay was not warranted because the manufacturers should not be considered "mere resellers" of Google).²

2 We are also unpersuaded by Respondents' argument that, despite not initially naming Google as a defendant, their actions are entitled to precedence under a first-filed designation since their complaints in Texas were filed before the California action, because, as the Supreme Court noted in rejecting a similar argument in Kerotest Manufacturing, "the equities of the situation do not depend on this argument." 342 U.S. at 186 n.6.

The way to avoid wasted resources is not through such a "mechanical solution" or "precise rule." Colo. River, 424 U.S. at 817; Kerotest Mfg., 342 U.S. at 183. It is instead through a flexible approach, including staying proceedings if the other suit is so closely related that substantial savings of litigation resources can be expected. Here, it is clear that staying proceedings in Texas will likely further these objectives by mooting or at least advancing the "major premises" being litigated in the Texas actions.

Wise judicial administration must also take into consideration the comparative convenience of both venues for resolving the matter. See Futurewei Techs., Inc. v. Acacia Research Corp., 737 F.3d 704, 708 (Fed. Cir. 2013) ("Justification for an exception may be found in 'the convenience and availability of witnesses, [the] absence of jurisdiction over all necessary or desirable parties . . . ." (quoting Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931, 938 (Fed. Cir. 1993))).

Here, those considerations point firmly in the direction of the Northern District of California. As that court explained, "Google's Android products, the target of this infringement action, were designed and created here," "[m]any of the witnesses who can testify to the design and development of the accused Android platform's features reside near Google's headquarters in Mountain View, California," and "Defendants do not name any witnesses in Texas essential to the suit."

Google further filed a declaration that its records regarding the Android platform are predominantly based in its headquarters in the Northern District of California. As we noted in In re Genentech, Inc., "[i]n patent infringement cases, the bulk of the relevant evidence usually comes from the accused infringer. . .[and thus] . . . the place where the defendants' documents are kept weighs in favor of transfer to that location." 566 F.3d 1338, 1345 (Fed. Cir. 2009) (citation omitted). Here the record does not suggest otherwise.

Respondents point out that they maintain an office in Plano, Texas. But they do not dispute that their primary operations are run out of Canada. Moreover, the only prospective employee witnesses that Respondents name from Plano work as counsel for Respondents, and are thus entitled to little consideration in a convenience calculus.

Given the convenience of the Northern District of California and benefits of staying the Texas proceedings, it makes no difference whether it would have been easier to consolidate all of the actions in Texas, as suggested by the Eastern District of Texas in its practical problems analysis. That reasoning simply ignores the justifications for a stay and cannot, in our view, sustain the obvious waste of resources inherent in allowing both actions to proceed in parallel fashion.

Because the Eastern District of Texas' orders frustrate the comity doctrine, requiring two federal district courts and the parties to expend resources to resolve substantially similar claims and issues, the district court's decisions to deny the petitioners' motions for a stay of proceedings was a clear abuse of discretion under applicable governing standards, and, in our view, worthy of correction by way of mandamus relief. See Cheney v. U.S. Dist. Court, 542 U.S. 367, 380-81 (2004) (when a petitioner has no alternative way of seeking the relief requested a court may grant mandamus in its discretion when it concludes that the district court "clearly abuses its discretion.").

Accordingly,

It Is Ordered That:

The petitions for a writ of mandamus are granted to the extent that the orders denying the motions to stay are vacated, and the Eastern District of Texas is ordered to stay proceedings pending the outcome of the declaratory judgment action in the Northern District of California.

United States Court of Appeals, Federal Circuit.

Jack L. FROLOW

v.

WILSON SPORTING GOODS CO.

Before NEWMAN, CLEVENGER, and MOORE, Circuit Judges.

This case involves Wilson's alleged breach of a License Agreement. Under the Agreement, Wilson agreed to pay Mr. Frolow royalties for “Licensed Article(s),” defined as “tennis rackets which are covered by one or more unexpired or otherwise valid claims” of Mr. Frolow's U.S. Patent RE33,372 ('372 patent). Claim 20 is representative of the claims at issue, claiming a tennis racket with specific properties:

DISCUSSION

For the foregoing reasons, the decision of the district court is

AT p. 446, INSERT:

United States Court of Appeals,Federal Circuit.
KEURIG, INCORPORATED

v.

STURM FOODS, INC.

Oct. 17, 2013.

Before LOURIE, MAYER, and O'MALLEY, Circuit Judges. LOURIE, Circuit Judge.

Keurig, Inc. (“Keurig”) appeals from the decision of the United States District Court for the District of Delaware granting summary judgment that Sturm Foods, Inc. (“Sturm”) does not infringe claim 29 of Keurig's U.S. Patent 7, 165, 488 (the “/C488 patent”) and claims 6–8 of Keurig's U.S. Patent 6,606,938 (the “'938 patent”). Because the district court did not err in concluding that Keurig's patent rights were exhausted and hence were not infringed by Sturm, we affirm.

BACKGROUND

Keurig manufactures and sells single-serve coffee brewers and beverage cartridges for use in those brewers. Consumers insert a cartridge into the brewer, hot water is forced through the cartridge, and a beverage is dispensed. Keurig owns the '488 and '938 patents directed to brewers and methods of using them to make beverages. Claim 6 of the '938 patent is representative of the method claims, which are the only claims at issue:

6. A method of brewing a beverage from a beverage medium contained in a disposable cartridge, comprising the following steps, in sequence:

(a) piercing the cartridge with a tubular outlet probe to vent the cartridge interior;

(b) piercing the cartridge with a tubular inlet probe;

(c) admitting heated liquid into the cartridge interior via the inlet probe for combination with the beverage medium to produce a beverage; and

(d) extracting the beverage from the cartridge interior via the outlet probe.

'938 patent col. 4 ll. 40–50. Claims 1–21 of the '488 patent and claims 1–5 of the '938 patent, which were not asserted in the instant case, recite apparatus claims directed to brewers. Keurig also holds at least one design patent directed to its own brand of cartridges, but that patent was not asserted here.

Sturm manufactures and sells cartridges for use in Keurig's brewers under the brand name “Grove Square.” Sturm does not make or sell brewers. Keurig filed suit against Sturm, alleging, inter alia, that the use of Sturm's Grove Square cartridges in certain Keurig brewer models directly infringed method claim 29 of the '488 patent and method claims 6–8 of the '938 patent, and that Sturm induced and contributed to that infringement. Sturm asserted the affirmative defense of patent exhaustion and moved for summary judgment of noninfringement, which the district court granted.

The district court held that the Supreme Court's substantial embodiment test— providing that method claims are exhausted by sale of an unpatented component article if that article includes all the inventive aspects of the patented method and has no reasonable noninfringing use—did not apply to the facts of this case. Id. at *5–6. Instead, the court concluded that the exhaustion of Keurig's patent rights had been triggered by Keurig's initial authorized sale of a patented item that completely practiced the claimed invention, viz., the brewer. Id. The court also noted that Keurig's method claims were not saved from exhaustion merely because a consumer could potentially use non-Keurig cartridge.

The district court then severed the remaining nonpatent issues and entered final judgment on its patent exhaustion-related decision pursuant to Federal Rule of Civil Procedure 54(b). Keurig timely appealed. We accept the district court's Rule 54(b) certification of this partial judgment and exercise jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

Summary judgment is appropriate if the movant “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). ***

Keurig argues that the district court erred by declining to apply the substantial embodiment test articulated by the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), which Keurig insists is the only relevant analysis for exhaustion of its asserted method claims. Keurig maintains that, under the Quanta test, its rights were not exhausted because its brewers are capable of many uses that do not infringe the asserted method claims, specifically when used with reusable cartridges that have premade holes and therefore are not pierced during brewing. Keurig further contends that exhaustion must be adjudicated on a claim-by-claim basis.

Sturm responds that the Quanta test was formulated to address an exhaustion issue based on the sale of unpatented items and therefore is not applicable here. Sturm argues that use of Keurig's brewers with a non-Keurig cartridge cannot constitute infringement because Keurig's authorized sale of those brewers, which are covered by the asserted patents, exhausted Keurig's rights. We agree with Sturm that Keurig's method claims were exhausted.

Patent exhaustion is an affirmative defense to a claim of patent infringement, and like other issues in which there are no disputed factual questions, may be properly decided by summary judgment. “The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta, 553 U.S. at 625. The rationale underlying the doctrine rests upon the theory that an unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of that item thereafter because the patentee has bargained for and received full value for the goods.

The leading cases in which the patent exhaustion doctrine has been applied to method claims are Quanta and United States v. Univis Lens Co., 316 U.S. 241 (1942). In Univis, the Supreme Court determined that claims to methods for manufacturing eyeglass lenses, and to the finished lenses themselves, were exhausted when the patent holder sold unpatented lens blanks (unpolished blocks of glass) to a manufacturer and distributor that polished and shaped the blanks into finished lenses by practicing the patented methods. The Court held that the method claims were exhausted because the patent holder sold an unpatented, “uncompleted article” that embodied essential features of the patented method. Id.

In Quanta, the Court held that method claims for managing and synchronizing data transfers between computer components were exhausted when the patent holder licensed a manufacturer to produce and sell unpatented microprocessors and chipsets that performed the patented methods when incorporated with memory and buses in a computer system. The Court compared the subject items to the lens blanks in Univis. As in Univis, the Court concluded that exhaustion was triggered by sale of the components because their only reasonable and intended use was to practice the patent and because they embodied essential features of the patented invention.

The Court thus established that method claims are exhausted by an authorized sale of an item that substantially embodies the method if the item (1) has no reasonable noninfringing use and (2) includes all inventive aspects of the claimed method. Both of the Univis and Quanta opinions emphasized the unpatented nature of the products sold. Thus, the substantial embodiment test provided a framework for determining whether the sale of an unpatented component (e.g., lens blanks that are further ground and polished or microprocessors and chipsets that are further attached to memory and buses in a computer system), which by itself does not practice the patented method, is still sufficient for exhaustion. The Court held that it is.

But that is not the case before us, which presents an a fortiori fact situation in which the product sold by Keurig was patented. Keurig acknowledges that its brewers are commercial embodiments of the apparatus claims of the '488 and '938 patents. Keurig did not assert its cartridge patent against Sturm and does not dispute that its rights in its brewers were exhausted with respect to the apparatus claims of the asserted patents. Instead, Keurig alleges that purchasers of its brewers infringe its brewer patents by using Sturm cartridges to practice the claimed methods and therefore that Sturm is liable for induced infringement. However, as the Supreme Court long ago held, “[W]here a person ha [s] purchased a patented machine of the patentee or his assignee, this purchase carrie[s] with it the right to the use of the machine so long as it [is] capable of use.” Quanta, 553 U.S. at 625. The Court's decision in Quanta did not alter this principle. Keurig sold its patented brewers without conditions and its purchasers therefore obtained the unfettered right to use them in any way they chose, at least as against a challenge from Keurig. We conclude, therefore, that Keurig's rights to assert infringement of the method claims of the '488 and '938 patents were exhausted by its initial authorized sale of Keurig's patented brewers.

To rule otherwise would allow Keurig what the Supreme Court has aptly described as an “end-run around exhaustion” by claiming methods as well as the apparatus that practices them and attempting to shield the patented apparatus from exhaustion by holding downstream purchasers of its device liable for infringement of its method claims -a tactic that the Supreme Court has explicitly admonished. Id. at 630. “Such a result would violate the longstanding principle that, when a patented item is ‘once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee.’ ” Id. (quoting Adams, 84 U.S. at 457). Here, Keurig is attempting to impermissibly restrict purchasers of Keurig brewers from using non-Keurig cartridges by invoking patent law to enforce restrictions on the post-sale use of its patented product. Id. at 638.

We agree with the district court that a consumer's potential use of different types of cartridges, viz., cartridges that would not infringe the claimed methods, cannot save Keurig's method claims from exhaustion. Such an outcome would also be counter to the spirit of the doctrine of patent exhaustion because Keurig could control use of the brewers after it sold them. The claims of both the '488 patent and the '938 patent are directed to the brewers and the use of the brewers; therefore, Keurig cannot preclude an individual who purchased one of its brewers from using a non-Keurig cartridge with that brewer.

Moreover, Keurig's argument that patent exhaustion must be adjudicated on a claimby-claim basis is unavailing. The Court's patent exhaustion jurisprudence has focused on the exhaustion of the patents at issue in their entirety, rather than the exhaustion of the claims at issue on an individual basis. Keurig's decision to have sought protection for both apparatus and method claims thus means that those claims are judged together for purposes of patent exhaustion.

To permit a patentee to reserve specific claims from exhaustion would frustrate the purposes of the doctrine, one of which is to provide an efficient framework for determining when a patent right has been exhausted. If Keurig were allowed to assert its claims to methods of brewing a beverage using the subject brewers of its apparatus claims of the same patent, the effect would be to vitiate the doctrine of patent exhaustion. The confusion that would be created by Keurig's approach would produce uncertainty regarding the rights of both third parties and end users.

The doctrine of patent exhaustion has the effect of providing an efficient means for ensuring the termination of the patent right. See Univis, 316 U.S. at 251, 62 S.Ct. 1088 (“[T]he purpose of the patent law is fulfilled ... when the patentee has received his reward....”); United States v. Masonite Corp., 316 U.S. 265, 278, 62 S.Ct. 1070, 86 L.Ed. 1461 (1942) (“The test has been whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article.”). Permitting Keurig to recover multiple times on its patented brewers by holding Sturm or any other cartridge manufacturer liable for direct, induced, or contributory infringement based on the independent manufacture and sale of cartridges for use in those brewers would be contradictory to these policies and the law.

CONCLUSION

For the foregoing reasons, we conclude that the district court did not err in holding that Keurig's asserted rights under its '488 and '938 patents were exhausted by the sale of its brewer. The noninfringement judgment of the district court is therefore affirmed.