Asetek Holdings, Inc et al v. Coolit Systems Inc

Filing 135

ORDER by Judge Edward M. Chen Denying in Part and Deferring in Part 93 Defendant's Motion for Partial Summary Judgment. (emcsec, COURT STAFF) (Filed on 10/11/2013)

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1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 ASETEK HOLDINGS, INC., et al., 9 Plaintiffs, 10 ORDER DENYING IN PART AND DEFERRING IN PART DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT v. 11 For the Northern District of California United States District Court No. C-12-4498 EMC COOLIT SYSTEMS, INC., 12 Defendant. ___________________________________/ (Docket No. 93) 13 14 15 Plaintiffs Asetek Holdings, Inc. and Asetek A/S (collectively “Asetek”) have filed suit 16 against Defendant CoolIT Systems, Inc., asserting that it has infringed and continues to infringe two 17 of Asetek’s patents, more specifically, the ‘362 and ‘764 patents. Currently pending before the 18 Court is CoolIT’s motion for partial summary judgment. 19 Having considered the parties’ briefs and accompanying submissions, as well as the oral 20 argument of counsel, the Court hereby DENIES in part and DEFERS in part CoolIT’s motion. 21 22 23 I. A. DISCUSSION Legal Standard Federal Rule of Civil Procedure 56 provides that a “court shall grant summary judgment if 24 the movant shows that there is no genuine dispute as to any material fact and the movant is entitled 25 to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A factual dispute is genuine only if a 26 reasonable trier of fact could find in favor of the nonmoving party. A mere scintilla of evidence 27 supporting a nonmovant’s position is insufficient to withstand summary judgment.” McDonald v. 28 Sun Oil Co., 548 F.3d 774, 779 (9th Cir. 2008) (internal quotation marks omitted). At the summary 1 judgment stage, however, evidence must be viewed in the light most favorable to the nonmoving 2 party and all justifiable inferences are to be drawn in the nonmovant’s favor. See Anderson v. 3 Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). 4 Here, CoolIT has presented three arguments as to why it is entitled to summary judgment – 5 namely, (1) that the double recovery rule bars Asetek from seeking compensatory damages; (2) that 6 the patent exhaustion doctrine immunizes CoolIT from liability; and (3) that CoolIT effectively had 7 an implied license to practice the patents based on a license and covenant not to sue given by Asetek 8 to a third party, i.e., Corsair. CoolIT has the burden of proof as to each of these arguments. See 9 Boston Scientific Corp. v. Johnson & Johnson, 534 F. Supp. 2d 1062, 1076 (N.D. Cal. 2007) (finding the double recovery rule, or “‘full compensation’ doctrine[,] is an affirmative defense, 11 For the Northern District of California United States District Court 10 which [the party asserting the defense] has the burden of proving”); Jazz Photo Corp. v. United 12 States, 439 F.3d 1344, 1350 (Fed. Cir. 2006) (finding that since patent exhaustion is an affirmative 13 defense, the burden of proof is on defendant); Intel Corp. v. U.S. Int’l Trade Comm’n, 946 F.2d 821, 14 828 (Fed. Cir. 1991) (placing burden of proof on party who raises defense to infringement based 15 upon “have made” license rights). “Where the moving party [as here] will have the burden of proof 16 on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could 17 find other than for the moving party.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th 18 Cir. 2007). 19 B. 20 Double Recovery Rule “Generally, the double recovery of damages is impermissible.” Aero Prods. Int’l, Inc. v. 21 Intex Rec. Corp., 466 F.3d 1000, 1017 (Fed. Cir. 2006). Here, CoolIT argues that Asetek is 22 improperly trying to get a double recovery because its claim that CoolIT has infringed is largely 23 based on CoolIT’s sales to Corsair and Corsair has already paid a royalty to Asetek for all Corsair 24 products that use the patented technology, including those that incorporate CoolIT’s products. 25 To the extent CoolIT argues that it is entitled to partial summary judgment based on the 26 double recovery rule, the motion is denied. The double recovery rule is applicable only where the 27 patent holder has been fully compensated for infringement by another party. See Transclean Corp. 28 v. Jiffy Lube Int’l, Inc., 474 F.3d 1298, 1303 (Fed. Cir. 2007) (stating that “a patentee may not sue 2 1 users of an infringing product for damages if he has collected actual damages from a manufacturer 2 or seller, and those damages fully compensate the patentee for infringement by users”). Here, there 3 is a genuine dispute of material fact as to whether Asetek has been fully compensated for CoolIT’s 4 infringement by Corsair. In particular, the Eriksen declaration and e-mail provided by Asetek is 5 sufficient to give rise to a genuine dispute of material fact regarding full compensation. See 6 generally Eriksen Decl. & Ex. 2 (e-mail). 7 C. 8 Patent Exhaustion CoolIT argues next that the patent exhaustion doctrine protects it from liability. More products without being sued for infringement, then CoolIT itself should be immunized from a suit 11 For the Northern District of California specifically, CoolIT contends that, because Asetek allowed Corsair to purchase and resell CoolIT’s 10 United States District Court 9 for infringement as well. 12 In its papers, CoolIT acknowledges that the patent exhaustion doctrine has, to date, been 13 applied to “downstream” use only – e.g., where a patent holder authorizes a person or entity to sell 14 its patented technology, then it cannot thereafter pursue the person/entity’s customers for 15 infringement for subsequent use of the patented technology. See, e.g., Quanta Computer, Inc. v. LG 16 Electronics, Inc., 553 U.S. 617, 637 (2008) (stating that, “[b]ecause [the licensee] was authorized to 17 sell its products to [a purchaser], the doctrine of patent exhaustion prevents [the patentee] from 18 further asserting its patent rights with respect to the patents substantially embodied by those 19 products”); TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1273–74 (Fed. 20 Cir. 2009) (finding patent exhausted by covenant not to sue manufacturer; barring suit against 21 company who purchased technology covered by the covenant from manufacturer); Jazz Photo Corp. 22 v. Int’l Trade Comm’n, 264 F.3d 1094, 1105 (Fed. Cir. 2001) (stating that, “when a patented device 23 has been lawfully sold in the United States, subsequent purchasers inherit the same immunity under 24 the doctrine of patent exhaustion”). No court that this Court is aware of has ever applied the patent 25 exhaustion doctrine to protect anyone “upstream” – e.g., the person/entity’s suppliers – nor has 26 CoolIT identified any such authorities. 27 28 While CoolIT invites this Court to be the first to extend the patent exhaustion doctrine upstream, the Court declines that invitation. In Quanta, the Supreme Court analyzed the policy and 3 1 history behind the doctrine, and this analysis strongly suggests that the doctrine is intended to 2 protect downstream use only. See, e.g., Quanta, 553 U.S. at 626 (noting that it was the practice of 3 restraining competition downstream from an authorized sale that motivated the rule of patent 4 exhaustion). Furthermore, the Supreme Court specifically stated in Quanta that an authorized sale 5 “exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to 6 control postsale use of the article.” Id. at 638 (emphasis added). It said nothing about pre-sale use. 7 Federal Circuit authority is consistent with Quanta. See, e.g., Transcore, 563 F.3d at 1275. 8 9 11 For the Northern District of California United States District Court 10 Accordingly, to the extent CoolIT seeks partial summary judgment based on the patent exhaustion doctrine, the motion is also denied. D. “Have Made” Rights Finally, CoolIT moves for partial summary judgment on the ground that it effectively had an 12 implied license to practice the patents at issue based on a license and covenant not to sue given by 13 Asetek to Corsair. Between August 24, 2012, and January 1, 2013, Asetek had a licensing 14 agreement with Corsair, which allowed Corsair to practice the patents at issue in exchange for 15 royalty payments and other consideration. The rights given to Corsair included the right “to make 16 [and] and have made” products covered by the license. Lyons Decl., Ex. A (licensing agreement). 17 Starting on January 1, 2013, the licensing agreement was replaced with a covenant not to sue. 18 Under the covenant, Asetek agreed not to sue Corsair for “the use, sale, offer for sale, or 19 importation” of certain products sold by Corsair and supplied by CoolIT. Lyons Decl., Ex. B 20 (covenant not to sue). Asetek, however, expressly disclaimed that any license or right was being 21 granted to Corsair or to any Corsair supplier, including CoolIT. 22 CoolIT argues that, through the license and covenant, Asetek gave Corsair not only the right 23 to make for itself products that practice the patented technology but also the right to have another 24 person or entity make products that practice the patented technology for Corsair’s use. According to 25 26 27 28 4 1 CoolIT, because it was providing the allegedly infringing products to Corsair pursuant to Corsair’s 2 “have made” rights, it is immunized from liability.1 3 Asetek does not dispute the legal principle that “have made” rights can immunize a person or 4 entity from liability – i.e., a licensee possessing “have made” rights can confer an implied license to 5 another by designating that person or entity to produce the item for which the licensee has a license. 6 See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 73 (Fed. Cir. 2012); Cyrix Corp. v. 7 Intel Corp., 77 F.3d 1381, 1387-88 (Fed. Cir. 1996); Intel Corp. v. Broadcom Corp., 173 F. Supp. 2d 8 201, 231-33 (D. Del. 2001). Asetek argues, however, that the “have made” rights legal principle is 9 not applicable to the instant case. The Court agrees with Asetek in part. For the covenant not to sue, Asetek did agree not to 11 For the Northern District of California United States District Court 10 sue Corsair for, e.g., the use of its patented technology – and even where Corsair’s use of the 12 patented technology arose from Corsair’s use of CoolIT’s products. However, a covenant not to sue 13 does not mean that any rights, including but not limited to a license, are being conveyed. Indeed, in 14 the covenant, Asetek explicitly stated that it was not conferring any license or right to Corsair or to 15 any Corsair supplier, which included CoolIT. See CoreBrace LLC v. Star Seismic LLC, 566 F.3d 16 1069, 1074-75 (Fed. Cir. 2009) (stating that, even where there is an inherent or implicit “have made” 17 right, “[a] clear intent shown in a contract to exclude ‘have made’ rights can negate what would 18 otherwise be inherent”). 19 The licensing agreement, however, is different. The licensing agreement specifically stated 20 that Corsair was being granted “have made” rights.2 And CoolIT provided, in conjunction with its 21 1 22 23 24 The Court acknowledges Asetek’s argument that the issue of “have made” rights was not raised in CoolIT’s opening brief and therefore should not be considered by the Court. While the Court is not unsympathetic to this argument, the Court still considers the issue, particularly because Asetek will not be prejudiced as a result. Asetek had an opportunity to address the issue in its opposition brief. 2 25 26 27 28 To the extent Asetek suggests that the plain language of the licensing agreement should not be given effect based on extrinsic evidence (i.e., a letter from Asetek to Corsair, dated June 2012, stating that it was not Asetek’s intent to grant Corsair “have made” rights), see Eriksen Decl., Ex. 1 (letter), the Court rejects that argument. The licensing agreement clearly grants Corsair the right to “have made” licensed products, and it includes an integration clause. The agreement also provides that it shall be governed by California law. Under California law, “[t]he parol evidence doctrine prohibits the introduction of extrinsic evidence to vary or contradict the terms of an integrated written instrument.” Wagner v. Glendale Adventist Med. Ctr., 216 Cal. App. 3d 1379, 1385 (1989). 5 1 reply brief, a declaration from its CEO in which he states, inter alia, that CoolIT sold products to 2 Corsair to meet “Corsair’s unique requirements and custom specifications.” Lyons Reply Decl. ¶ 8. 3 In response, Asetek makes three arguments: (1) for CoolIT to be immunized pursuant to 4 Corsair’s “have made” rights in the license agreement, there must have been a contractual 5 conveyance of rights from Corsair to CoolIT; (2) a valid exercise of “have made” rights requires that 6 the manufacturing be done specifically at the request of the licensee and to its specifications, rather 7 than a simple off-the-shelf purchase; and (3) if there is no clear conveyance requirement, then 8 Asetek should be given the opportunity to take discovery (consistent with Federal Rule of Civil 9 Procedure 56(d)) in order to, e.g., test the claims made in the Lyons reply declaration regarding the 11 For the Northern District of California United States District Court 10 extent to which CoolIT was making products pursuant to Corsair’s specifications. As to the first argument, the Court is not persuaded. While Asetek cites Intel, a Delaware 12 district court opinion, for its argument that “have made” rights must be contractually conveyed, the 13 controlling authority is the Federal Circuit; the Circuit has not required any such formal conveyance. 14 In LaserDynamics, the Federal Circuit found that manufacturing by a third party was impliedly 15 licensed pursuant to “have made” rights possessed by licensees, not because of the terms of any 16 agreement between licensee and manufacturer, but simply because the manufacturer was making 17 products at the request of the licensee. In that case, LaserDynamics, Inc. sued Quanta Computer, 18 Inc. (“QCI”) for assembling laptops that included an allegedly infringing optical disc drive. The 19 drives at issue were originally manufactured by Quanta Storage, Inc. (“QSI”) and sold to brand- 20 name drive makers Philips and Sony/NEC/Optiarc, both of which had licenses with LaserDynamics 21 to make, have made, and sell the disk drives. See LaserDynamics, 694 F.3d at 58-59. Phillips and 22 Sony/NEC/Optiarc, in turn, sold the disk drives to QCI, which used the drives in assembling laptop 23 computers for brand-name computer companies. See id. The lower court held that this arrangement 24 was not a valid exercise of its licensees’ “have made” rights because QSI was not making the drives 25 for the licensees, but was simply using the licensees as a pass-through to sell infringing drives 26 directly to nonlicensee QCI – effectively exercising an invalid sublicense. See id. at 71-72. The 27 Federal Circuit reversed, finding that the arrangement wherein QSI sold the disk drives to the 28 licensees amounted to a valid exercise of the licensees’ “have made” rights because the production 6 1 of the allegedly infringing products “was limited to the needs and requests of [the licensees].” Id. at 2 72. The court noted, “The [disk drives] provided to QCI via Philips and Sony/NEC/Optiarc were 3 undoubtedly assembled by QSI for Philips and Sony/NEC/Optiarc, not for QSI or QCI.” Id. 4 Because the production was undertaken pursuant to “have made” rights, it was impliedly licensed. 5 Id. at 73. The court made no reference to and did not require any formal agreement or conveyance 6 of “have made” rights by the licensees to QSI. The fact that the licensees made the request of the 7 manufacturer “to fulfill bona fide orders from licensees” was sufficient to confer the implied license 8 to the manufacturer. Id. Broadcom Corp. brought a motion for summary judgment arguing that it made and sold allegedly 11 For the Northern District of California Intel is not inconsistent with LaserDynamics as to this issue. In Intel, the defendant 10 United States District Court 9 infringing semiconductor products to various businesses pursuant to their “have made” rights under 12 their respective licenses with Intel Corp. See Intel, 173 F. Supp. 2d at 227-28. The court denied 13 Broadcom’s “have made” defense. Asetek cites language from the decision as supporting its 14 position. See, e.g., id. at 233 (“An unlicensed party in the position of Broadcom only is afforded the 15 protections of a license if those protections are conveyed by the licensee to the third party as an 16 exercise of the licensed party’s ‘have made rights.’ Broadcom cannot lay claim to those protections 17 if they were never conveyed to Broadcom.”). But this language is taken out of context. The legal 18 theory analyzed by the court was one based on implied license. The court explained: “The ‘have 19 made’ cases stand for the . . . proposition that by exercising their rights to ‘have [licensed products] 20 made,’ licensees can shield the unlicensed manufacturer who makes the products for them and 21 subsequently sells the products to the them [sic] from infringement liability by impliedly licensing 22 the otherwise infringing actions.” Id. at 232 (emphasis added). Consistent with the implied license 23 analysis, the court did not describe the transaction between licensee and manufacturer as a formal 24 conveyance of licensing rights, but rather described it as “designat[ing],” “commissioning a third 25 party,” and “ask[ing] Broadcom to make a licensed product for them.” Id. at 233-34. The issue was 26 not whether there was a formal conveyance of licensing rights, but whether Broadcom, the third- 27 party manufacturer, acted pursuant to licensees’ “have made” rights. See id. at 234. 28 7 1 Essentially, Asetek’s argument would conflate the legal theory of an implied patent license – 2 which is what the exercise of “have made” right amounts to – with one based on an express 3 licensing right (via formal transfer by contract). This conflation is supported by neither the Federal 4 Circuit authority nor the Intel case. 5 Asetek also argues that, in order to take advantage of an implied license through “have 6 made” rights, CoolIT must have been fulfilling manufacturing requests and specifications supplied 7 by the licensee Corsair, rather than simply selling its products off the shelf. The Court is skeptical 8 of Asetek’s argument here as well. 9 In LaserDynamics, the court held that it was sufficient for the “have made” defense that the third-party manufacturer QSI produced the disk drives for the licensees and not for itself or some 11 For the Northern District of California United States District Court 10 other entity. See LaserDynamics, 694 F.3d at 72. “QSI made the [disk drives] at issue here to fulfill 12 bona fide orders from licensees Philips and Sony/NEC/Optiarc.” Id. at 73. Likewise, in CoreBrace, 13 the Federal Circuit held that a licensee exercised its “have made” rights when it “contract[ed] with 14 third parties to have the licensed products made for its own use.” CoreBrace, 566 F.3d 1069, 1075 15 (Fed. Cir. 2009). Both of these cases cite to the Federal Circuit’s earlier precedent in Cyrix, in 16 which the court ruled that an arrangement in which a licensee subcontracted with a third-party 17 manufacturer to fulfill its own manufacturing requirements qualified for “have made” protections 18 under the license simply because “[t]he products manufactured by [the third party] were made for 19 [the licensee].” Cyrix, 77 F.3d at 1388. In none of these cases does the Federal Circuit require that 20 the licensee provide specifications to the third party in addition to its request. While the product 21 must be produced or made “for” the licensee, the Federal Circuit has not expressly stated the product 22 must be custom made for the licensee. 23 To be sure, the district court in Intel did articulate a limitation on products protected under 24 the “have made” defense. It stated, “The legal effect of licensees exercising their ‘have made’ rights 25 by commissioning a third party to make licensed products is very different from the legal effect of 26 licensees purchasing allegedly infringing products from a third party.” Intel, 173 F. Supp. 2d at 233. 27 The Intel court pronounced that, in order for a licensee’s rights to flow from licensee to 28 manufacturer under a “have made” arrangement, the production must be “pursuant to a request from 8 1 the licensee.” Intel, 173 F. Supp. 2d at 233 (citing Cyrix, 77 F.3d at 1388). Intel took the language a 2 step further as requiring that the product sold to the licensee not be an off-the-shelf product. 3 “Subsequent sales of such off-the-shelf products to licensees do not convert that act of infringement 4 into noninfringement.” Intel, 173 F. Supp. 2d 201, 233 (D. Del. 2001). In such situations, the 5 licensees are “not taking protections that they have under the license and conveying them to [the 6 manufacturer].” Id. Arguably, this limitation is consistent with the logical interpretation of a right 7 to have something made, as opposed to the right to “buy” or “purchase.” 8 9 On the other hand, it is difficult to discern a policy basis to distinguish under the implied license theory a customized product from a standardized product purchased by the licensee. In either case, the licensee chooses to outsource the production in order to practice the patent rather 11 For the Northern District of California United States District Court 10 than manufacture the product itself. And even if the product is off-the-shelf, the immunity extends 12 only to sales of the product to the licensee, not to sales by the manufacturer or by any other 13 unlicensed party. It is therefore difficult to discern how the licensor’s expectations and rights are 14 impaired as a result of the licensee buying off-the-shelf versus customized products; the licensor’s 15 rights as to sales of infringing off-the-shelf products to unlicensed users is still protected. 16 Furthermore, the line between customized and non-customized products can be unclear: for 17 instance, how should the court treat an off-the-shelf product that is slightly modified for the license? 18 19 20 In any event, the Court is not required at this juncture to decide whether to adopt Intel’s limitation on the “have made” defense. CoolIT has provided a declaration from its CEO stating that the products it sold to Corsair 21 were pursuant to a specific request and were not off-the-shelf. However, Asetek has not had an 22 opportunity to test the claims made in the Lyons reply declaration regarding the nature of the 23 CoolIT-Corsair arrangement, as it was not provided until CoolIT filed its reply brief. Therefore, the 24 Court agrees with Asetek that, under Rule 56(d), it is appropriate to defer the motion for partial 25 summary judgment to allow Asetek to take discovery on this factual assertion.3 26 3 27 28 It is important to note, before additional discovery or briefing takes place, that in the Court’s view, it is of no consequence whether CoolIT’s agreement with Corsair to supply the products at issue predates Asetek’s conferral of “have made” rights to Corsair through the licensing agreement. The Lyons reply declaration indicates that this might have been the case. But even if a 9 1 Accordingly, the Court hereby defers CoolIT’s motion for partial summary judgment on its 2 “have made” rights defense under the licensing agreement. Asetek shall have until November 1, 3 2013, to take narrowly focused discovery on the “have made” rights issue. By November 6, 2013, 4 Asetek shall file a supplemental brief as to why CoolIT is not entitled to partial summary judgment 5 based on the “have made” rights conveyed in the licensing agreement. The supplemental brief shall 6 be no longer than ten (10) pages. CoolIT shall then have until November 13, 2013, to file a 7 responsive supplemental brief, which shall be no longer than seven (7) pages. 8 9 11 For the Northern District of California United States District Court 10 II. CONCLUSION For the foregoing reasons, the Court DENIES in part and DEFERS in part CoolIT’s motion for partial summary judgment. This order disposes of Docket No. 93. 12 13 IT IS SO ORDERED. 14 15 Dated: October 11, 2013 16 _________________________ EDWARD M. CHEN United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 request was originally made before an entity obtained “have made” rights, once that entity possesses “have made” rights, the production may still be undertaken “pursuant to a request from the licensee.” Intel, 173 F. Supp. 2d at 233. A licensee is not required to formally renew its request by, e.g., redrafting an operative contract or somehow noticing the manufacturer that, as of a certain date, its requests are pursuant to “have made” rights. To require otherwise would be overly formalistic and would not accomplish the purpose of possessing “have made” rights. That does not mean, however, that a third party’s production and sales that occurred prior to the conferral of “have made” rights are somehow immunized, even if there is a preexisting agreement between the nowlicensee and manufacturer that continued into the period of the license agreement. 10

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