Pragmatus Telecom LLC v Advance Store Company Incorporated, et al.

Filing 41

MEMORANDUM OPINION re 17 MOTION to Stay in Favor of Co-Pending Supplier Declaratory Judgment Action. Signed by Judge Richard G. Andrews on 7/10/2012. (nms)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PRAGMATUS TELECOM, LLC,
Plaintiff,
Civil Action No. 12-088-RGA

v.
ADVANCED STORE COMPANY, INC.
and
E-ADVANCED, LLC,
Defendants.

MEMORANDUM OPINION

Brian E. Farnan, Esq., FARNAN, LLP, Wilmington, Delaware; Andrew G. DiNovo, Esq.
(argued), Adam G. Price, Esq., DINOVO PRICE ELLWANGER & HARDY, LLP, Austin,
Texas.
Attorneys for the PlaintiffPragmatus Telecom, LLC.

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Monte T. Squire, Esq., YOUNG, CONAWAY, STARGATT & TAYLOR, LLP, Wilmington,
Delaware; Kimberly A. Mottley, Esq. (argued), PROSKAUER ROSE, LLP, Boston,
Massachusetts.
Attorneys for the Defendants Advanced Store Company, Inc. and E-Advanced, LLC.

July

j_Q_, 2012

Wilmington, Delaware

Defendants move this Court to stay the patent infringement actions against them pending
the resolution of LivePerson, Inc. v. Pragmatus Telecom, LLC, No. 12-147-RGA (D. Del.),
which is a Declaratory Judgment Action filed against Plaintiffby the Defendants' "supplier."
(D.I. 17). Both cases involve the same three patents. Defendants base their Motion to Stay on
the interests of judicial economy and efficiency, and, separately, on the "customer suit exception"
to the "first filed rule." (D.I. 18, pp. 5-7 & 7-9). Finding that LivePerson's Declaratory
Judgment Action will likely simplify the issues for trial, and finding that no undue prejudice to
Pragmatus will likely result, the Defendants' Motion to Stay is granted.

PROCEDURAL HISTORY
On January 27, 2012, PlaintiffPragmatus Telecom, LLC simultaneously filed ten
individual complaints in the United States District Court for the District of Delaware. (D.I. 18 at
5). All of the complaints alleged direct and indirect infringement of the same three patents: U.S.
Patent Nos. 6,311,231; 6,668,286; and 7,159,043 (collectively "patents-in-suit"). These
patents-and infringement claims-generally relate to the use of certain "live chat and related
customer service communication channels." (D.I. 1, ~ 11).
On February 7, 2012, LivePerson, Inc. filed a Declaratory Judgment Action in this
District against Pragmatus seeking judgments of(1) non-infringement and (2) invalidity ofthe
patents-in-suit. LivePerson, Inc. v. Pragmatus Telecom, LLC, C.A. No. 12-147-RGA (D. Del.)
(the "LivePerson Action"). (D.I. 18 at 8).
Defendants Advance Stores Co., Inc. and E-Advanced, LLC (collectively "Customers")
move this Court to stay the infringement actions against them pending the resolution of the

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LivePerson Action. 1 LivePerson supplied the alleged infringing "LivePerson software" to the
Customers, and the Customers believe a resolution in the LivePerson Action, at the very least,
would simplify their pending suits.
DISCUSSION
A.

Stay Factors

Before this Court is Customers' Motion to Stay. The three factors courts consider for
determining the propriety of a stay are ( 1) whether granting the stay will simplify the issues for
trial; (2) whether discovery is complete and a trial date is set; and (3) whether granting a stay
would cause the non-moving party to suffer undue prejudice from any delay, or a clear tactical
disadvantage. See, e.g., Round Rock Research LLC v. Dole Food Co., 2012 WL 1185022, *1 (D.
Del. April6, 2012); Vehicle IP LLC v. Wal-Mart Stores, Inc., 2010 WL 4823393, *1 (D. Del.
2010). The "court has the discretion to stay a case if the interests of justice so require."

Teleconference Sys. v. Proctor & Gamble Pharm., Inc., 676 F. Supp. 2d 321,326 (D. Del. 2009).
The power to stay proceedings '"is incidental to the power inherent in every court to control the
disposition of the cases on its docket with economy of time and effort for itself, for counsel, and
for litigants."' Cheyney State Col/. Faculty v. Hufstedler, 703 F.2d 732, 737 (3d Cir. 1983)
(quoting Landis v. NorthAm. Co., 299 U.S. 248,254-55 (1936)).
Here, the three factors weigh in favor of granting the stay. First, any ruling in the
LivePerson Action would simplify the issues in the Customers' cases. I expect the determination

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1n addition to Advance Stores Co., Inc. and £-Advanced, LLC, Pragmatus has also
named Ford Motor Co. (C.A. No. 12-092), Overstock.com, Inc. (C.A. No. 12-093), and The
Estee Lauder Cos., Inc. (C.A. No. 12-096) as Defendants in infringement actions, and those
Defendants have filed similar Motions to Stay with this Court as well. An Order will be entered
in their respective cases consistent with this Memorandum Opinion.

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of that case will most likely be dispositive of this case. Pragmatus argues that a stay will not
simplify issues for trial because software other than LivePerson technology is involved, and thus
not every issue would be resolved by the LivePerson Action. (D.I. 20 at 7). I do not accord that
argument, which is speculatively made, 2 much weight. It does not seem to me that it is very
likely that LivePerson's customers independently take LivePerson's technology and incorporate
it into their own technology in some way that minimizes LivePerson's role as the provider of the
allegedly infringing technology. The Customers argue that regardless of the outcome, the
LivePerson Action will, at the very least, streamline the Customers' cases. (D.I. 18 at 10). If the
LivePerson Action results in a finding that the patents-in-suit are invalid, that will resolve all the
cases. See Blonder-Tongue Laboratories, Inc. v. Univ. ofIllinois Found., 402 U.S. 313,347
(1971). If the LivePerson Action results in a finding that LivePerson does not infringe the
patents, that may resolve the issue of the Customers' infringement; at the least, it will simplify
the issue.
Similarly, ifPragmatus prevails and LivePerson fully compensates Pragmatus for its
Customers' use of the LivePerson technology, Pragmatus would be barred from seeking further
compensation from the Customers based on the same harm. See Glenayre Electronics, Inc. v.

Jackson, 443 F.3d 851, 858 (Fed. Cir. 2006) (holding patentee is barred from collecting damages
from customer after supplier/manufacturer already compensated patentee for customer's use of
infringed product). I think it is beyond argument that a resolution in the LivePerson Action
would simplify the issues in the Customers' infringement actions. The only question is, "How

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"Advance presumably adopts products from multiple vendors for its infringing
functionality, along with proprietary systems and personnel." (D.I. 20 at 7) (emphasis added).
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much?" The first factor favors granting the stay.
Second, the proceedings are in their infancy. The motion was filed before any trial date
had been set and any discovery had been scheduled. The Court did hold a Rule 16 conference a
month ago. (D.I. 29). This motion was promptly argued thereafter. The trial date that has been
set is September 8, 2014. No discovery of significance has occurred. Accordingly, this factor
favors granting the stay as well.
Finally, no clear tactical disadvantage or undue prejudice against Pragmatus would exist
by granting the stay. Pragmatus is solely in the business of monetizing patents, and since
Customers are not "direct competitors," injunctive relief is not available. Any purported harm
that Pragmatus suffers from a stay can be fully compensated by monetary damages. 3 Indeed,
while Pragmatus is of course entitled to make its own litigation decisions, I cannot help but think
it would be more efficient for Pragmatus to have one case against a supplier than four cases
against customers.
Pragmatus argues that it would be prejudiced by a stay because the LivePerson software is
only a component of the Customers' infringing systems, and Pragmatus is entitled to
compensation for the use of the entire invention, not just a component. (D.I. 20 at 6-7). A stay,
however, would not bar Pragmatus from receiving full compensation, where compensation is
due. By granting a stay, I believe I am sensibly managing the multitude of cases Pragmatus has

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The relationship between the various parties is often an important factor when
determining whether any party would suffer undue prejudice from a stay. "Of particular
importance is the fact that plaintiff does not develop or sell any products of its own and is not a
competitor of defendants. Courts are generally reluctant to stay proceedings where the parties are
direct competitors. Since the parties do not compete, this factor favors a stay." Vehicle IP, LLC
v. Wal-Mart Stores, Inc., 2010 WL 4823393, *2 (D. Del. Nov. 22, 2010).
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brought without unduly prejudicing it. The stay will be granted.
B.

Customer Suit Exception

The Customers argue that the Customer Suit Exception to the First-Filed Rule applies to
their cases and favors a stay. Generally, the First Filed Rule provides that "when two federal

district courts are handling cases involving the same parties and issues, the court where the
litigation was first filed should preside over the litigation." Enzo Biochem, Inc. v. Calgene, Inc.,
1993 WL 266518, *2 (D. Del. May 18, 1993) (emphasis added). The Customer Suit Exception
to the First Filed Rule provides that when "litigation [is] against or brought by the manufacturer
of infringing goods[, it] takes precedence over a suit by the patent owner against customers of
the manufacturer." Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990).
The First Filed Rule and the Customer Suit Exception do not strictly apply to this
litigation, although they are usefully considered in relation to the issue before me. The First
Filed Rule is a forum favoring rule, i.e., one that applies when multiple claims exist in multiple
jurisdictions. Here, both the LivePerson Action and Pragmatus' s suit against the Customers are
before this Court, and no "forum favoring" is needed. Thus, the Customer Suit Exception also
does not directly apply to these cases. The reasoning behind it, however, supports granting a stay
in Pragmatus's suit against the Customers.
The three factors used to determine applicability of the Customer Suit Exception are (1)
whether the Customers are merely resellers; (2) whether the Customers agree to be bound by any
decision in the Manufacturer's case; and (3) whether the Manufacturer is the sole source of
infringing products. See Tegic Commc'n Corp. v. Bd. ofRegents ofUniv. ofTex. Sys., 458 F.3d
1335, 1343 (Fed. Cir. 2006). The "guiding principles for [the Customer Suit Exception] are
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efficiency and judicial economy." !d. at 1343. The manufacturer's case is preferred because the
manufacturer is the "true defendant." Katz, 909 F.2d at 1464.
First, the Customers claim that the infringement actions are for their "ordinary use" of
LivePerson technology, nothing more. (D.I. 24 at 3-4). Second, "[The Customers] agree[] to be
bound by any decision in the LivePerson DJ Action with respect to infringement or
non-infringement of the [patents-in-suit] based on [the Customers'] use ofLivePerson
technology." (D.I. 18 at 12). Third, the Customers argue that LivePerson's technology is the
only source of accused infringement, or, in the alternative, is at the center ofPragmatus's
infringement allegations and is a "major issue." (D.I. 18 at 13).
Pragmatus argues that the Customers use other, non-LivePerson technology for their
infringing systems and therefore the action against the Customers will not be resolved by the
LivePerson action. (D.I. 20 at 8-9) (arguing that the Customers have integrated LivePerson
technology with "other vendors and proprietary infrastructure" to create the infringing system).
However, "[a]s the Federal Circuit noted in Katz ... the manufacturer's case need only promise
to resolve the 'major issues' concerning the claims against the customer, and not every
conceivable issue." Ultra Products, Inc. v. Best Buy Co., Inc., 2009 WL 2843888, *5 (D.N.J.
Sept. 1, 2009) (citing Katz, 909 F.2d at 1464).
Based on the pleadings, the Customers' use of the LivePerson technology is central and a
"major issue" not only to the LivePerson Action, but also to the action against the Customers.
(D.I. 13 at 4). Granting a stay in the Customers' suits while the LivePerson Action proceeds will
simplify the issues for trial and will not cause undue prejudice for either party.
An appropriate order will issue.

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