Copytele, Inc. v. AU Optronics Corporation et al

Filing 91

ORDER by Judge Edward M. Chen Conditionally Granting 52 Defendant E Ink's Motion to Stay, and Deferring Ruling on 50 Defendant E Ink's Motion to Dismiss. (emcsec, COURT STAFF) (Filed on 7/9/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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COPYTELE, INC.,

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Plaintiff,

For the Northern District of California

United States District Court

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No. C-13-0380 EMC
ORDER CONDITIONALLY GRANTING
DEFENDANT E INK’S MOTION TO
STAY, AND DEFERRING RULING ON
DEFENDANT E INK’S MOTION TO
DISMISS

v.
AU OPTRONICS CORP., et al.,

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Defendants.
(Docket Nos. 50, 52)

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___________________________________/

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Currently pending before the Court are (1) E Ink’s motion to stay claims pending the

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arbitration between AUO and CopyTele and (2) E Ink’s motion to dismiss for failure to state a claim

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for relief. Having considered the parties’ briefs and accompanying submissions, the oral argument

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of counsel, and the parties’ joint letter of July 3, 2013, the Court hereby conditionally GRANTS the

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motion to stay. Because the Court is granting the motion to stay, it shall DEFER ruling on the

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motion to dismiss pending the results of the arbitration.

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I.
A.

DISCUSSION

Motion to Dismiss
As a preliminary matter, the Court acknowledges that E Ink has asked the Court to dismiss

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all claims asserted against it with prejudice and that it has asked for a stay pending the

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AUO/CopyTele arbitration only as alternative relief. This approach, however, does not make sense

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as it would have the Court opining on the merits of claims asserted against both E Ink and AUO

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even though the claims against AUO are subject to arbitration. Moreover, even if the claims against

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E Ink should be dismissed,1 that does not automatically mean that they should be dismissed with

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prejudice; futility would need to be established which is a fairly high threshold, particularly given

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that this is E Ink’s first motion to dismiss. The Court, therefore, concludes that the more reasonable

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approach is to address first the motion to stay. Only if the Court finds that a stay pending the

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AUO/CopyTele arbitration is not warranted shall it address E Ink’s motion to dismiss.

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B.

Motion to Stay

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In the motion to stay, E Ink argues that, because the claims against AUO are arbitrable, the

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claims against E Ink should be stayed pending the resolution of that arbitration. E Ink argues that

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the claims against it are inextricably intertwined with the claims against AUO, and thus, there should
be a stay either under the Federal Arbitration Act (“FAA”), see 9 U.S.C. § 3, or pursuant to the

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For the Northern District of California

United States District Court

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discretionary powers of this Court to control its own docket.

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The Court need not address the issue of whether § 3 allows a court to issue a stay when the

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party moving for the stay is not a signatory to the arbitration agreement.2 This is because, at the

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very least, a discretionary stay is warranted pursuant to Landis v. North American Co., 299 U.S. 248

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(1936). See Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 n.23, (1983)

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(recogniz[ing] that, “[i]n some cases, . . . it may be advisable to stay litigation among the

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nonarbitrating parties pending the outcome of the arbitration[;] [t]hat decision is one left to the

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district court (or to the state trial court under applicable state procedural rules) as a matter of its

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discretion to control its docket”).

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Under Landis and its progeny, a court must examine

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the competing interests which will be affected by the granting or
refusal to grant a stay . . . . Among those competing interests are the
possible damage which may result from the granting of a stay, the
hardship or inequity which a party may suffer in being required to go
forward, and the orderly course of justice measured in terms of the
simplifying or complicating of issues, proof, and questions of law
which could be expected to result from a stay.

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The Court expresses no opinion on the matter at this juncture.

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As the Court noted at the hearing, the Fifth Circuit has applied § 3 in certain circumstances
where the moving party is a nonsignatory to the arbitration agreement. See, e.g., Waste Mgmt. v.
Residuous Indus. Multiquim, S.A., 372 F.3d 339, 342-43 (5th Cir. 2004); 282 F.3d 343, 347-48 (5th
Cir. 2002). The Ninth Circuit, however, has not squarely addressed the issue.

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Lockyer v. State of Cal., 398 F.3d 1098, 1110 (9th Cir. 2005) (internal quotation marks omitted).

In its papers, CopyTele suggests that a stay of the claims against E Ink will cause hardship to

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CopyTele because it will be “forced to wait years to obtain redress for the wrongful conduct that has

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brought it to the brink of insolvency.” Opp’n at 6. There are several problems with this argument.

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First, CopyTele has not provided any evidence to support its claim that the arbitration will take

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years. Indeed, one of the alleged benefits of arbitration is that it is a speedier process. Second,

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CopyTele has never submitted any evidence that it is on the “brink of insolvency,” Opp’n at 16, as

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claimed. In its complaint, CopyTele does allege that “AUO’s fraud and breaches of the Agreements

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have caused significant hardship to CopyTele, resulting in the layoff of many employees, a decrease

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For the Northern District of California

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United States District Court

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in its stock price, and the near bankruptcy and liquidation of the company.” Compl. ¶ 51.

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Nevertheless, allegations are not evidence. Third, if CopyTele obtains relief in arbitration,

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presumably that will afford it financial benefit. Accordingly, there is little in the record before the

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Court to establish hardship on the part of CopyTele if it were forced to resolve the arbitration first

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before litigating its claims against E Ink.

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Hardship to Parties

To be sure, the hardship claimed by E Ink if a stay were to be denied is also problematic.

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The only hardship asserted by E Ink is the “significant expense, time, and effort” that litigation

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would entail when the arbitration might moot out or at least streamline all or a number of the claims.

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Reply at 4. The problem for E Ink is that “being required to defend a suit . . . does not constitute a

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clear case of hardship or inequity within the meaning of Landis.” Dependable Highway Express,

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Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 2007) (internal quotation marks omitted).

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Nonetheless, as this Court has noted in a prior case, a party seeking a stay must show

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hardship only if the party opposing the stay first demonstrates that it is a fair possibility that the stay

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will cause it injury. See ASIS Internet Servs. v. Member Source Media, LLC, No. C-08-1321 EMC,

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2008 U.S. Dist. LEXIS 109241, at *6 (N.D. Cal. Sept. 8, 2008); see also Dependable Highway, 498

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F.3d at 1066 (stating that, “‘if there is even a fair possibility that [a] stay . . . will work damage to

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some one else,’ the stay may be inappropriate absent a showing by the moving party of ‘hardship or

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inequity’”). CopyTele has failed to make that demonstration.

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Because the record before the Court says little about hardship to the parties, the Court is

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ultimately left with a decision about judicial economy – i.e., if the Court were to stay the claims

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against E Ink to await the results of the arbitration between AUO and CopyTele, would that simplify

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any issues, proof, and/or questions of law in the pending litigation?

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Judicial Economy

Given CopyTele’s allegations – i.e., concerted action on the part of AUO and E Ink – rulings

the claims against E Ink. If, for example, AUO never fraudulently induced CopyTele into entering

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the EPD and nFED Agreements, then CopyTele’s claim against E Ink for aiding and abetting

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fraudulent inducement could not be sustained. Similarly, if AUO did not fraudulently induce

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For the Northern District of California

made in the AUO arbitration clearly have the potential to simplify the rulings here with respect to

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United States District Court

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CopyTele to enter into the contracts, that would likely impact the antitrust claims (attempted

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monopolization and conspiracy to monopolize) against E Ink – as alleged in the complaint. See,

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e.g., Compl. ¶ 83 (in claim for conspiracy to monopolize, alleging that “E Ink and AUO committed

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overt acts in furtherance of the conspiracy to monopolize, including but not limited to AUO agreeing

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to sell SiPix, and E Ink agreeing to buy SiPix, AUO defrauding and inducing CopyTele to license

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CopyTele’s EPD Patents to AUO under the guise of a joint development arrangement, and AUO’s

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clandestine sublicense of CopyTele’s EPD Patents to E Ink”). CopyTele’s arguments to the contrary

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are not convincing.3

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In its papers, CopyTele argued that there is still a way that judicial economy can be served
by allowing both the arbitration and the litigation to take place at the same time. In other words,

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For example, CopyTele notes that only E Ink, and not AUO, has been sued for attempted
monopolization. See Opp’n at 4. But clearly AUO is being sued along with E Ink for conspiracy to
monopolize, and there is no real dispute that both monopolization claims are predicated on the same
facts. Compare, e.g., Compl. ¶ 75 (in claim for attempted monopolization, alleging that “E Ink and
AUO agreed, combined, and conspired to attempt to acquire and maintain monopoly power in the
market for [EPD] products” and that, “[p]ursuant to these agreements, accommodations, and
conspiracy, E Ink attempted to acquire monopoly power and maintain it by acquiring, sublicensing,
and cross-licensing CopyTele’s and others’ [i.e., SiPix] [EPD] patents”), with Compl. ¶ 83 (in claim
for conspiracy to monopolize, alleging that “E Ink and AUO committed overt acts in furtherance of
the conspiracy to monopolize, including but not limited to AUO agreeing to sell SiPix, and E Ink
agreeing to buy SiPix, AUO defrauding and inducing CopyTele to license CopyTele’s EPD Patents
to AUO under the guise of a joint development arrangement, and AUO’s clandestine sublicense of
CopyTele’s EPD Patents to E Ink”).

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according to CopyTele, there is a way to coordinate the litigation and the arbitration. While, in its

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papers, CopyTele did not give any specifics as to how this coordination could be effected, it did

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provide some details at the hearing on E Ink’s motion. More specifically, it argued that discovery in

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the litigation and arbitration could be coordinated so as to avoid duplication of discovery in the two

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fora. Because this argument had some merit, the Court asked the parties to meet and confer to

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determine whether they could reach an agreement as to coordination of discovery.

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As reflected by the parties’ joint letter of July 3, 2013, the parties were not able to reach

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agreement. Having reviewed the joint letter, the Court concludes that E Ink’s position has more

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merit. That is, E Ink has stated that it will participate in the AUO/CopyTele arbitration for purposes
of discovery and that the discovery developed in arbitration may be used in this litigation. This

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For the Northern District of California

United States District Court

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agreement will likely decrease the chance of discovery being duplicated in this litigation. The Court

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acknowledges that it will not foreclose the possibility of additional discovery taking place in this

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litigation post-arbitration, particularly because discovery rules in courts tend to be more liberal than

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discovery rules in arbitration.4 However, that is largely unavoidable. The Court is not inclined to

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open discovery in this case which would end run the arbitration to which CopyTele agreed.

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CopyTele argues that E Ink’s agreement still is not enough and contends that, at the very
least, this Court

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should maintain the power to resolve any disputes that arise regarding
E Ink’s failure to comply with the arbitrator’s discovery decisions. If,
for example, the arbitrator allows CopyTele to depose E Ink
employees, but E Ink refuses to allow the deposition on the grounds
that it is not subject to the arbitrator’s rulings because it is not a party
to the arbitration, or that the request is burdensome or unreasonable,
the Court should maintain the power to compel E Ink to engage in
such discovery in order to effectuate the Court’s goal of requiring
efficient and non-duplicative discovery.

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Docket No. 90 (Letter at 2). While the Court is not unsympathetic to CopyTele’s position, it does

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not agree that this is a role that the Court should adopt. CopyTele is essentially asking the Court to

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oversee the arbitration (even if only for discovery purposes), which is not proper. Moreover,

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CopyTele’s concern is at least for the moment speculative. Nothing in E Ink’s portion of the letter

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Thus, for example, a person deposed in the arbitration may be deposed a second time as a
part of this litigation.

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suggests that it would not comply with the arbitrator’s discovery decisions. Finally, there is an

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easier way to address CopyTele’s concern – i.e., a conditional stay, as discussed below.

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The Court therefore concludes that a stay of this litigation pending the AUO/CopyTele

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arbitration is justified, but it shall conditionally grant the stay in order to promote judicial economy.

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That is, the stay is granted upon the following conditions: (1) E Ink shall participate in the

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AUO/CopyTele arbitration (as a third party) for purposes of discovery; (2) the parties agree that the

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discovery developed in the arbitration may be used in this litigation; and (3) E Ink shall comply with

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the arbitrator’s discovery decisions. If E Ink disobeys an order of the arbitrator, this Court may then,

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and only then, entertain a motion to lift the stay and enforce such order. If these conditions are not
satisfied, then CopyTele may also move for relief from the stay.

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For the Northern District of California

United States District Court

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II.

CONCLUSION

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For the foregoing reasons, the Court conditionally grants E Ink’s motion to stay and defers

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ruling on the motion to dismiss until after the arbitration between AUO and CopyTele is resolved.

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This order disposes of Docket Nos. 50 and 52.

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IT IS SO ORDERED.

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Dated: July 9, 2013

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_________________________
EDWARD M. CHEN
United States District Judge

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