Motorola Mobility, Inc. v. Apple, Inc.
Filing
109
MOTION to Stay by Apple, Inc.. Responses due by 9/26/2011 (Attachments: # 1 Exhibit Proposed Order)(Pace, Christopher)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
Case No. 1:10cv023580-Civ-UU-EGT
MOTOROLA MOBILITY, INC.,
Plaintiff,
v.
JURY TRIAL DEMANDED
APPLE INC.,
Defendant.
APPLE INC.,
Counterclaim Plaintiff,
v.
MOTOROLA, INC. and
MOTOROLA MOBILITY, INC.,
Counterclaim Defendants.
DEFENDANT AND COUNTERCLAIM PLAINTIFF APPLE INC.’S
MOTION FOR STAY PURSUANT TO FED. R. CIV. P. 19
MOTION TO STAY
No. 1:10cv023580-Civ-UU-EGT
TABLE OF CONTENTS
I.
INTRODUCTION ...............................................................................................................1
II.
FACTUAL BACKGROUND ..............................................................................................3
III.
ARGUMENT .......................................................................................................................6
A.
Constitutional and Prudential Standing Are Required to Maintain a
Lawsuit for Patent Infringement ..............................................................................6
B.
Motorola Lacks Prudential Standing Because it Has Given Up Critical
Rights in the Patents-in-Suit ....................................................................................7
C.
Motorola lacks prudential standing to sue despite the fact that it
remains the patent owner .......................................................................................12
D.
Google Must Be Joined Under Rule 19(a) to Cure Motorola’s Lack of
Standing, but Cannot Be Joined Because It Lacks Constitutional
Standing .................................................................................................................14
E.
The Court Should Stay This Matter Until Such Time as Either Google
or Motorola, or Both, Have Standing Sufficient to Maintain This
Action.....................................................................................................................17
1.
Under Rule 19(b) This Case Should Not Proceed At This Time ...............17
a.
b.
2.
IV.
Apple is severely prejudiced by Google’s control over Motorola’s
patent rights ....................................................................................17
There is no assurance that the standing defect will be cured before
a judgment is entered in this case ..................................................18
A Stay of the Case During the Pendency of the
Google/Motorola Acquisition Represents The Most Appropriate
Result. ........................................................................................................19
CONCLUSION ..................................................................................................................20
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TABLE OF AUTHORITIES
Cases
Abbott Labs. v. Diamedix Corp.,
47 F.3d 1128 (Fed. Cir. 1995)........................................................................................... 15
Abraxis Bioscience, Inc. v. Navinta LLC,
625 F.3d 1359 (Fed. Cir. 2010)......................................................................................... 15
Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp.,
604 F.3d 1354 (Fed. Cir. 2010)................................................................................... 12, 14
Christian v. Monaco Coach Corp.,
No. SA CV 08-00141-CJC, 2009 WL 1574553 (C.D. Cal. May 14, 2009) ..................... 19
Enhanced Security Research v. Juniper Networks, Inc.,
No. Civ.A. 09-871-JJF, 2010 WL 2898298 (D. Del. July 20, 2010) ................................ 13
Enhanced Security Research, LLC v. Cisco Systems, Inc.,
No. C.A. 09-390-JJF, 2010 WL 2573953 (D. Del. June 25, 2010) .................................. 13
Gould v. Control Laser Corp.,
705 F.2d 1340 (Fed. Cir. 1983)......................................................................................... 20
Grantham v. McGrew-Edison Co.,
444 F.2d 210 (7th Cir. 1971) .............................................................................................. 6
Henri’s Food Products Co., Inc. v. Home Ins. Co.,
474 F. Supp. 889 (E.D. Wis. 1979) ................................................................................... 19
Int’l Gamco, Inc. v. Multimedia Games, Inc.,
504 F.3d 1273 (Fed. Cir. 2007)........................................................................................... 7
Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc.,
248 F.3d 1333 (Fed. Cir. 2001)............................................................................. 6, 7, 9, 15
Landis v. N. Am. Co.,
299 U.S. 248 (1936) .......................................................................................................... 20
Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992) .......................................................................................................... 15
Morrow v. Microsoft Corp.,
499 F.3d 1332 (Fed. Cir. 2007)..................................................................................... 7, 16
Nations Bank of Maryland v. Harris Bank Glencoe-Northbrook, N.A.,
No. 93 C 615, 1993 WL 179522 (N.D. Ill. May 25, 1993) .............................................. 19
Procter & Gamble Co. v. Kraft Foods Global, Inc.,
549 F.3d 842 (Fed. Cir. 2008)........................................................................................... 20
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Propat Int’l Corp. v. Rpost,
473 F.3d 1187 (Fed. Cir. 2007)................................................................................... 12, 16
Schreiber Foods, Inc. v. Beatrice Cheese, Inc.,
402 F.3d 1198 (Fed. Cir. 2005)......................................................................................... 19
Sicom Systems, Ltd. v. Agilent Techs., Inc.,
427 F.3d 971 (Fed. Cir. 2005).................................................................................... passim
Silicon Graphics, Inc. v. ATI Techs., Inc.,
No. 06-C-611-C, 2007 WL 5595952 (W.D. Wis. June 14, 2007) ................................... 19
Speedplay, Inc. v. Bebop, Inc.,
211 F.3d 1245 (Fed. Cir. 2000)................................................................................... 10, 11
Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA,
944 F.2d 870 (Fed. Cir. 1991)................................................................................. 9, 10, 11
WiAV Solutions LLC v. Motorola, Inc.,
631 F.3d 1257 (Fed. Cir. 2010)..................................................................................... 6, 15
Zenith Elecs. Corp. v. Exzec Inc.,
876 F. Supp. 175 (N.D. Ill. 1995) ............................................................................... 12, 15
Treatises
7 Wright & Miller, Federal Practice and Procedure 1359 ............................................................ 17
8 Chisum § 21.03 .......................................................................................................................... 15
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I.
INTRODUCTION
Defendant and Counterclaim Plaintiff Apple Inc. (“Apple”) moves for a stay of the
present litigation — both of Apple’s claims and also of Motorola Mobility, Inc.’s (“Motorola”)
counterclaims. This request is based on a fundamental loss of Motorola’s patent rights arising
out of one of the most significant transactions in the technology industry: the pending
acquisition of Motorola by Google, Inc. (“Google”), announced on August 15, 2011.
According to the Agreement and Plan of Merger (“the Merger Agreement”),1 Google has
agreed to pay $12.5 billion, representing a 60% premium on Motorola’s market valuation. Ernst
Decl., Ex. 3 at 3. A driving force behind Google’s extraordinary bid is its drive to acquire
Motorola’s patents. Ernst Decl., Ex. 2. Google stated that it was acquiring the Motorola patents
to “protect” the Android ecosystem. Ernst Decl., Ex. 3.
To further its pending acquisition by Google, Motorola has surrendered critical rights in
the patents-in-suit, such that Motorola no longer has prudential standing to pursue this action.
According to the publicly-filed Merger Agreement, Motorola has ceded control of the most basic
rights regarding the patents-in-suit. Absent Google’s consent, Motorola cannot: (1) sue for
infringement of its patents in any new action; (2) settle pending litigation (including this case)
that would require a license to any of its patents; (3) license or sublicense its patents except in
limited circumstances relating to the sale of Motorola’s products; (4) assign its rights in its
patents; and/or (5) grant a covenant not to sue for infringement of its patents. Ernst Decl., Ex. 1
at 34-38. Each of these rights is a significant interest affecting Motorola’s right to exclude others
from practicing its patents. Under well-established Federal Circuit case law, a party lacking the
1
The Merger Agreement was made public by disclosure to the United States Securities and
Exchange Commission on August 18, 2011; this disclosure is attached to the Declaration of
Samuel F. Ernst (“Ernst Decl.”) as Exhibit 1.
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unilateral power to exercise these rights lacks prudential standing to maintain a suit on its patents
without joining the holder of the residual rights. Google must therefore be joined as a party.
This defect in Motorola’s prudential standing, however, cannot be cured by the joinder of
Google as a party. Google itself lacks standing under Article III of the Constitution to enforce
the patents-in-suit. Google has no ownership interest in the patents. Google has no right to
license, assign, or encumber the patents, and no right even to practice the patents, much less an
exclusive right. Accordingly, Google is not injured if another party infringes the patents.
Google only has the right to veto actions taken by Motorola with respect to the patents. On these
facts, Google lacks constitutional standing to enforce the patents-in-suit and cannot be joined as
a party to this action due to a lack of subject matter jurisdiction.
Google and Motorola have created an extraordinary situation. Motorola lacks prudential
standing to sue by itself, and Google lacks constitutional standing to be joined as a party to the
lawsuit in order to cure Motorola’s defect in prudential standing. Under Rule 19, where a
required party such as Google cannot be joined, the Court may either dismiss the matter or
fashion appropriate relief taking into account the circumstances.
While the law is straightforward, here it must be applied to an unusual set of facts. The
Court is faced with an extremely aggressive division of rights — a division of rights that was
intentionally crafted by Motorola and Google to advance an enormous transaction. The
wholesale surrender of Motorola’s patent rights was plainly designed to protect the patent
portfolio purchase that was so central to Google’s $12.5 billion acquisition of Motorola.
Such a momentous business decision necessarily has consequences, particularly where it
prejudices other parties. Here the prejudice to Apple is clear-cut. Apple should not have to face
the threat of an injunction based on the claims of a party that now has no standing to bring those
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claims. Apple should not be required to litigate this case only to reach a result that may well be
overturned on appeal due to the absence of prudential standing.
It may be that these defects will be cured after the Google/Motorola merger has been
consummated. But it may be that no cure is effected — and in particular that there is no cure in
time to matter: before a judgment is entered in this action. At present there is no way of
knowing how the patent rights will be distributed. It is for this reason that Apple respectfully
requests that this litigation be stayed until the acquisition has closed and the ownership of the
various rights attending the patents in suit has been resolved.
A stay, which is recognized as an appropriate remedy under Rule 19(b), will avoid the
prejudice to Apple of proceeding in the face of uncertainty as to the ownership of the patents-insuit until that issue is settled between Google and Motorola after the consummation of the
Merger Agreement. A stay will not indefinitely delay this action because presumably Google’s
and Motorola’s respective rights in the patents will be clarified after the consummation of the
merger. If not, questions of joinder and/or dismissal can be considered at that time. A stay,
however, will make sure that a judgment is not entered in this action before the proper parties are
before this Court.
A stay would not prejudice Motorola, which has already requested several extensions of
deadlines in this matter. Accordingly, this Court should stay the present action until the
consummation of the Google/Motorola merger and clarification of who ultimately will own the
rights to the patents-in-suit.
II.
FACTUAL BACKGROUND
On October 6, 2010, Motorola filed a Complaint in the International Trade Commission
accusing Apple of infringement of six of its patents. Motorola subsequently sued Apple for
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infringement of six of its patents in the instant litigation, and Apple asserted counterclaims for
infringement of six of its patents. The parties have also asserted claims of patent infringement
against each other in Case No. 10-cv-662, in the Western District of Wisconsin. Apple is
seeking a stay of that lawsuit concurrent with its motion to stay this lawsuit.
On August 15, 2011, Google announced its intention to acquire Motorola for $12.5
billion, a 60% premium over Motorola’s market valuation. Ernst Decl., Ex. 3 at 3. According
to Google’s CEO, Larry Page, Motorola’s patent portfolio, including the patents at issue in this
litigation, was a central feature of the acquisition. He noted that the portfolio “will enable
[Google] to better protect Android from anti-competitive threats from Microsoft, Apple and
other companies.” Ernst Decl., Ex. 2 . On the call announcing the acquisition, Motorola CEO
Sanjay Jha underlined this point, pointing to Motorola’s “tremendous strength … in wireless
standard” patents—including, of course, the patents at issue in this matter—which will “support
the Android ecosystem” through the Google/Motorola combination. Ernst Decl., Ex. 3.
Tying up Motorola’s patent rights during the pendency of the acquisition was therefore a
critical objective of the Merger Agreement that governs the parties’ conduct between the time of
their agreement to merge and the consummation of the merger. The agreement restricts
Motorola’s right unilaterally to exercise its patent rights during this period. Pursuant to the
Merger Agreement Motorola may not take the following actions without Google’s consent
(which cannot be reasonably withheld) (Ernst Decl., Ex. 1 at 34):
Section 5.01(j) prevents Motorola from licensing, assigning, granting a covenant not to sue,
or newly asserting any of its patents without Google’s permission. Id. at 36.
Section 5.01(v) prevents Motorola from settling any existing litigation that would involve the
licensing of intellectual property without Google’s permission. Id. at 38.
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Section 3.14(c) also restricts Motorola’s ability to assign rights in its patents, requiring that
Motorola have the same rights in its patents “immediately following the Merger,” as it had
“prior to the Merger.” Id. at 24.
There are certain immaterial limitations on Google’s rights that are inapplicable here.
Under Section 3.14, Google’s rights do not apply to transfer of intellectual property rights that
would not be viewed as material to the transaction—something that is plainly not true of any
disposition of Motorola’s patent assets. Id. at 24. Google’s consent to actions under Section
5.01 may not be “unreasonably withheld”—but it is not clear what “unreasonable” means. Id. at
35. Similarly, Motorola can continue to provide patent rights to third parties for the purpose of
those parties selling, using, or manufacturing Motorola products, an issue that bears no relation
to its dispute with Apple. Id. at 36. But in every way that matters to this case, Motorola ceded
control of its patent rights to Google.2 Each of these Covenants is effective until the merger is
consummated. Id. at 34.
Although the Merger Agreement provides that each party will retain the same rights in its
intellectual property “immediately following the Merger” as they had prior to the merger (id. at
§ 3.14(c) at 24), it is unclear who will own the patents after the merger. Google has told the
press it is entering into the merger to protect its products. Ernst Decl., Ex. 3. Motorola has not
2
Certain of Google’s rights are limited by a non-public Disclosure Letter. Ernst Decl., Ex. 1 at
34. On August 22, 2011, Apple demanded that Motorola immediately produce a copy of that
letter. On September 1, 2011, Apple met and conferred with Motorola and again demanded a
copy of the Disclosure Letter. On September 2, 2011, Apple again demanded the letter. On
September 8, 2011, Apple met and conferred telephonically regarding this motion and again
asked for the Disclosure Letter. Motorola has thus far refused to produce the document in
response to these requests. Id. ¶¶ 6-15.
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come forward with any collateral agreements between Google and Motorola regarding the
disposition of the patents after the merger is consummated.
III.
ARGUMENT
A.
Constitutional and Prudential Standing Are Required to Maintain a Lawsuit
for Patent Infringement
To maintain a suit for patent infringement, the plaintiff bears the burden of showing its
standing. Sicom Systems, Ltd. v. Agilent Techs., Inc., 427 F.3d 971 (Fed. Cir. 2005). The patentinfringement plaintiff must show two forms of standing: constitutional standing, which is
required by Article III of the Constitution, and prudential standing, which is judicially imposed
(also called “statutory standing”). See, e.g., Intellectual Prop. Dev., Inc. v. TCI Cablevision of
Cal., Inc., 248 F.3d 1333, 1348 (Fed. Cir. 2001).
Constitutional standing requires three elements: (1) injury in fact; (2) a causal connection
between the injury and the action of the defendant; and (3) redressability. Id. at 1346. In
particular, the Federal Circuit has held that constitutional standing requires that a party hold one
or more exclusionary rights in the patent. Id. at 1345. This means that, as a threshold matter, a
party must be injured in some way by an act of infringement. In order to have cognizable injury,
a party must have what is called an “exclusionary right.” WiAV Solutions LLC v. Motorola, Inc.,
631 F.3d 1257, 1264-65 (Fed. Cir. 2010) (“Because the legally protected interests in a patent are
the exclusionary rights created by the Patent Act, a party holding one or more of those
exclusionary rights--such as an exclusive licensee--suffers a legally cognizable injury when an
unauthorized party encroaches upon those rights and therefore has standing to sue.”). A patent
owner, for example, has constitutional standing because it is injured by uncompensated
infringement. See, e.g., Grantham v. McGrew-Edison Co., 444 F.2d 210, 215-16 (7th Cir. 1971).
Similarly, an exclusive licensee (who has paid for the right to be the only party to practice a
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patent) is injured if a third party then trespasses those rights and practices the patent without
authorization. Morrow v. Microsoft Corp., 499 F.3d 1332, 1340 (Fed. Cir. 2007) (“Parties that
hold the exclusionary rights [under a patent] are often identified as exclusive licensees, because
the grant of an exclusive license to make, use, or sell the patented invention carries with it the
right to prevent others from practicing the invention.”).
Prudential standing, on the other hand, requires that the parties holding all substantial
rights in a patent be joined in a single action, such that where a plaintiff possesses fewer than all
substantial rights in a patent, the holder of the remainder of the rights must be joined in the suit
under Rule 19. Id. at 1347; Int’l Gamco, Inc. v. Multimedia Games, Inc., 504 F.3d 1273, 1279
(Fed. Cir. 2007). Where, as here, a party lacks the right unilaterally to sue for infringement, to
license its patents, to settle infringement suits, and the right to assign the patents-in-suit, it lacks
prudential standing to sue by itself. Sicom, 427 F.3d at 979.
Motorola bears the burden of showing that it alone possesses both forms of standing.
Sicom, 427 F.3d 971.
B.
Motorola Lacks Prudential Standing Because it Has Given Up Critical
Rights in the Patents-in-Suit
Motorola cannot demonstrate that it possesses prudential standing. To determine whether
a party has prudential standing to sue by itself, courts analyze whether the plaintiff has retained
all substantial rights in the patent. “To determine whether [a party holds] all substantial rights
under a patent [in turn,]… a court must assess the substance of the rights transferred and the
intention of the parties involved.” TCI, 248 F.3d at 1342. Where, as here, a patent-infringement
plaintiff lacks the right unilaterally to sue for infringement, to license the patent-in-suit, and the
right to settle litigation on the patents-in-suit, it does not have prudential standing to sue without
joining the residual holder of those rights. That is Motorola’s situation.
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In Sicom, 427 F.3d 971, the Federal Circuit held that the party alleging infringement,
Sicom, lacked prudential standing to sue without joining the owner of the patent, the nation of
Canada, because it lacked the right unilaterally to exercise three of the same rights that Motorola
has given up here: (1) the right to license the patents; (2) the right unilaterally to sue for
infringement; and (3) the right to assign the patents. The court held “[i]n light of Canada’s right
to permit infringement in certain cases, the requirement that Sicom [sic Canada] consent to
certain actions and be consulted in others, and the limits on Sicom’s right to assign its interest in
the patent, we hold that the Agreement transfers fewer than all substantial rights in the patent.”
Id. at 980.
These are three of the same rights Motorola has given up here. Under Section 5.01(j) of
the Merger Agreement, Motorola may not, without Google’s consent, license the patents (and
thereby permit infringement), initiate litigation on the patents, or assign the patents. Ernst Decl.,
Exhibit 1 at 36 (Motorola may not, inter alia, without Google’s consent, “assert any Intellectual
Property Right in any new Action or in any counterclaim, or amend, renew, terminate,
sublicense, assign, or otherwise modify any license or other agreement by the [Motorola]”).3
Indeed, Motorola has ceded more control over its ability to enforce its patents than did
the plaintiff in Sicom. In Sicom, Canada had only the right to “consent to certain actions and be
consulted in others.” Id. at 980. Here, Motorola has ceded the right to “assert any Intellectual
3
The only exception, where Motorola may license its patents without Google’s consent, does not
apply here, but rather with respect to “(i) non-transferable, non-sublicensable, non-exclusive
standard licenses entered into in the ordinary course of business, consistent with past practices, to
any person for sale or distribution of, or use, solely for a [Motorola] Product (including to
customers, contract manufacturers, developers and resellers) and (ii) declarations of patents to
standard setting bodies under pre-existing commitments to declare such patents.” Ernst Decl.,
Ex. 1 at 36.
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Property Right in any new Action or in any counter claim,” without Google’s consent. Ernst
Decl., Ex. 1 at 36 (emphases added).
Motorola’s surrender of the right unilaterally to sue for infringement of its patents is the
most critical factor resulting in its loss of statutory standing. Courts, including the Federal
Circuit, have repeatedly stated that retaining the unilateral right to sue is vital to maintaining
prudential standing. See, e.g., Sicom, 427 F.3d at 978 (“However, in Vaupel, this court found
‘particularly dispositive’ the agreement provision that transferred the right to sue for
infringement of the patent at issue subject only to the obligation to inform Marowsky.”) (citing
Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991));
see also TCI, 248 F.3d at 1344-45 (finding the plaintiff lacked standing based on the
“particularly dispositive” factor that it lacked the unilateral right to sue in some circumstances).
For example, in TCI, the Federal Circuit held that the plaintiff failed to demonstrate
prudential standing where another entity had the right to control certain litigation decisions. 248
F.3d at 1345. Specifically, in that case, the court found that, “[i]n light of [the non-party’s] right
to permit infringement in certain cases, the requirement that [the non-party] consent to certain
actions and be consulted in others, and the limits on [plaintiff]’s right to assign its interests in the
[patent], we find that the [plaintiff holds] fewer than all substantial rights.” TCI, 248 F.3d 1345.
These are among the same rights that Motorola cannot exercise unilaterally by virtue of its
Merger Agreement with Google.
Also critical to Motorola’s lack of prudential standing is its current inability to settle
litigation that would involve the licensing or assignment of intellectual property without
Google’s consent. Ernst Decl., Ex. 1 at 38. The Sicom court found the inability unilaterally to
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settle litigation (and the attendant rights to license or assign patents) particularly important in
concluding that Sicom lacked prudential standing:
Additionally, we find that Sicom, in other respects as well, has
failed to show that it has all substantial rights under the patent. For
instance, Sicom does not have the right to settle litigation without
the prior written consent from Canada, nor does Sicom have the
right to sublicense without Canada’s prior approval or to assign its
rights.
427 F.3d at 979.
Here, too, Motorola’s inability to settle pending litigations that would involve a license to
its patents is fatal to Motorola’s prudential standing. This is also a restriction that severely
prejudices Apple, as it must incur the expense of litigating this case against a party that is unable
to resolve the litigation without the consent of a third party who is absent from the lawsuit.
Apple may spend millions of dollars in litigating this dispute only to discover, after the
consummation of the Merger Agreement, that Motorola would have preferred to settle the
litigation but had its hands tied.
The Federal Circuit’s decisions in Vaupel Textilmaschinen, 944 F.2d at 873, and
Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245 (Fed. Cir. 2000), are not to the contrary. In both
cases the plaintiffs were found to possess prudential standing, but based on the fact that they had
retained significant rights that Motorola has given up.
In Vaupel, the non-party retained only the right to veto sublicenses, to be informed of
litigation, a reversionary right in the event of a bankruptcy, the right to receive infringement
damages, and the right to obtain patents on the invention in other countries. 944 F.2d at 876.
The court found that the sublicensing veto, standing alone, “did not substantially interfere with
the full use by Vaupel of the exclusive rights under the patent.” Vaupel, 944 F.3d at 875.
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The basis of Vaupel court’s decision, however, was that the plaintiff held critical
exclusive rights that Motorola lacks here, including the right to sue on the patents, the right to
settle litigation, and the right to assign the patents. The court found “particularly dispositive” the
fact that the plaintiff held the entire right to sue for infringement “because the ultimate question
confronting us is whether Vaupel can bring suit on its own or whether Marowsky must be joined
as a party.” Id. at 875.4 Unlike the plaintiff in Vaupel, Motorola must obtain consent in order to
sue for infringement of its patents. It thus does not hold the entire right to sue for infringement
of its patents.
Speedplay also is distinguishable. In that case, the non-party could veto the plaintiff’s
assignment of interests in plaintiff’s license, so long as the veto was not unreasonable. Standing
alone, the Speedplay court found this right insufficient to deprive the licensee of prudential
standing, based in part on the fact that consent could not be unreasonably withheld. 211 F.3d at
1251-52. The court nonetheless found that Speedplay had prudential standing based principally
on the fact that Speedplay had the unilateral right to sue for infringement of the patents. “[T]he
CLA does not grant Bryne and Zoumaras the right to participate in an infringement action
brought by Speedplay, nor does it limit Speedplay’s management of any such action. . . .
Speedplay thus controls enforcement of the ‘778 patent for all practical purposes.” Id. By
contrast, Motorola lacks the ability to sue without Google’s permission, lacks the ability to settle
existing litigation without Google’s permission, cannot unilaterally enforce its patents, and
therefore lacks prudential standing.
4
See also Sicom, 427 F.3d at 978 (“However, in Vaupel, this court found ‘particularly
dispositive’ the agreement provision that transferred the right to sue for infringement of the
patent at issue subject only to the obligation to inform Marowsky.”).
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Nor does it make a difference that Google may not “unreasonably withhold” its consent
to litigation and settlement of litigation. In Propat Int’l Corp. v. Rpost, 473 F.3d 1187 (Fed. Cir.
2007), the plaintiff was required “to consult with and obtain prior approval from Authentix for
the selection of any potential targets for licensing or suit, although the agreement provides that
Authentix may not unreasonably withhold or delay such approval.” Id. at 1190 (emphasis
added). The Federal Circuit held that the patent owner’s “right to veto licensing and litigation
decisions also constitutes a significant restriction on Propat’s interest in the patent,” despite the
fact that, as here, the veto could not be exercised unreasonably. Id. at 1191. Similarly, here,
pursuant to Section 5.01(j) of the Merger Agreement, Motorola lacks the ability to initiate
lawsuits on its patents or license its patents absent permission from Google, which permission
may not be unreasonably withheld.
C.
Motorola lacks prudential standing to sue despite the fact that it remains the
patent owner
Nor does it make a difference that Motorola is the titular owner of the patents. The
Federal Circuit has recognized that owners may forfeit sufficient exclusive rights to deprive them
of standing. “When there is an exclusive license agreement, as opposed to a nonexclusive
license agreement, but the exclusive license does not transfer enough rights to make the licensee
the patent owner, either the licensee or the licensor may sue, but both of them generally must be
joined as parties to the litigation.” Alfred E. Mann Foundation for Scientific Research v.
Cochlear Corp., 604 F.3d 1354, 1360 (Fed. Cir. 2010) (emphasis added).
Courts have held that a patent owner can, as here, cede substantial rights in a patent just
as though they had never possessed them. For example, in Zenith Elecs. Corp. v. Exzec Inc., 876
F. Supp. 175 (N.D. Ill. 1995), the court held that the owner of the patent, Zenith, lacked
prudential standing to sue in the absence of its exclusive licensee, Elo Touch. Id. at 177. The
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court held that Elo Touch had to be joined because it held critical rights in the patent,
including—as here—control over “[the patent owner’s] ability to settle the case” and the right to
sue on the patents. Id. at 177. The court held that the Elo Touch obtained sufficient rights in the
patent to make it tantamount to a “joint owner,” and, accordingly, a required party to the
litigation pursuant to Fed. R. Civ. P. 19. Id. at 177-78.
Indeed, even where the patent holder still holds title, courts have emphasized the critical
importance of the right to sue in determining whether a patent holder has forfeited enough rights
in the patent to sacrifice its standing to sue. One example of such a situation was presented in
Enhanced Security Research, LLC v. Cisco Systems, Inc., No. C.A. 09-390-JJF, 2010 WL
2573953 (D. Del. June 25, 2010). In that case, plaintiff Enhanced Security Research (“ESR”)
held title to the patents in suit and the right to use, exploit and enforce the patents. While
retaining title to the patents, however, ESR had surrendered to Security Research Holdings
(“SRH”) the rights to initiate, maintain, manage, resolve, conclude and settle all arrangements
and activities in connection with any and all licensing or litigation. SRH was not joined.
The court concluded that, based on the transfer of rights to SRH, “[a]lthough [ESR]
appears to have retained legal title to the patents-in-suit, as well as the ability to exploit the
patents-in-suit … the Purchase Agreement nevertheless transferred ‘all substantial rights’” to
SRH, id. at *5, such that ESR lacked standing. Importantly, the court stressed that, “[o]ne of the
most important rights in the standing analysis is the exclusive right to sue for patent
infringement,” and ESR had given up that right. Id. at *4. See also Enhanced Security Research
v. Juniper Networks, Inc., No. Civ.A. 09-871-JJF, 2010 WL 2898298 (D. Del. July 20, 2010)
(same plaintiff and conclusion).
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Google has, itself, referred to the decisions in the ESR matters as “a straightforward
application of Federal Circuit precedent.” Ernst Decl., Ex. 4 at 13 (Defs’ Mot. to Dismiss for
Lack of Standing, Software Rights Archive, LLC v. Google Inc., No. CV 08-3172 (N.D. Cal. Oct.
29, 2010)). Google emphasized in Software Rights that “[i]t is no answer for Plaintiff to say that
it holds the ‘title’ to the patents or that it has not formally assigned the patents. … [T]he
conveyance of rights—not mere title—is what matters.” Id., Ex. 4 at 10 (emphasis in original).
Alfred E. Mann, does not stand for a contrary principle and is distinguishable. In that
case, the Federal Circuit considered the question of whether a patent owner may cede sufficient
rights in its patent that it may not sue without joining the transferee of those rights. The court
held that the patent owner had retained sufficient rights in its patent to sue alone where it
retained: (1) the secondary right to sue for infringement where the licensee declined; (2) the
obligation to pay maintenance fees on the patent; (3) the right to grant licenses to settle litigation;
(4) the right to prevent the licensee from sublicensing the patent; and (5) the right to terminate
the license and any sublicense if the licensee failed to make royalty payments. Id. at 1358.5
Here, however, Motorola has ceded many of these rights, including the right to initiate suits for
infringement and the right to grant licenses to settle litigation. Accordingly, Mann does not
control here.
D.
Google Must Be Joined Under Rule 19(a) to Cure Motorola’s Lack of
Standing, but Cannot Be Joined Because It Lacks Constitutional Standing
Where, as here, a patent plaintiff lacks prudential standing and cannot sue in its own
name alone, Rule 19(a) identifies “required parties” who should be joined to litigation, provided
5
The rights the patent holder ceded to the licensee in Mann were the right to practice the patents,
the first right of refusal to sue on the patents, and the right to settle any litigation it initiated. Id.
at 1356.
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that the requirements of that rule are met. See, e.g., Abbott Labs. v. Diamedix Corp., 47 F.3d
1128, 1133 (Fed. Cir. 1995) (Rule 19 requires joinder where feasible under these
circumstances.). As the court held in TCI, 248 F.3d 1348, where the plaintiff has constitutional,
but not prudential standing, the situation can be cured and standing requirements met where the
holder of the additional rights is joined: “the presence of the [holder of the additional rights] as a
party is indispensible to give jurisdiction under the patent laws.” See also Zenith, 876 F. Supp. at
177-78 (licensee must be joined under Rule 19 in order to cure standing defect); 8 Chisum §
21.03. (“[w]hen an exclusive licensee or assignee files suit against an infringer without joining
the patent owner/licensor/assignor, the patent owner should be viewed as a required party within
the meaning of Rule 19(a) if he/she retains any interest in the patent.”). In order to cure
Motorola’s lack of prudential standing, Google must be joined under Rule 19(a).
Google, however, lacks sufficient interest in the patents to have constitutional standing
and cannot be joined. Constitutional standing requires as “a threshold jurisdictional issue,”
Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010), that a patentinfringement plaintiff establish the factors set forth in Lujan v. Defenders of Wildlife, 504 U.S.
555 (1992). As explained above, the Federal Circuit has interpreted the first element of this test,
the requirement that the patent-infringement plaintiff demonstrate some injury, to mean that a
party must hold one or more “exclusionary rights in the patent.” See TCI, 248 F.3d at 1345.
“[T]he touchstone of constitutional standing in a patent infringement suit is whether a party can
establish that it has an exclusionary right in a patent that, if violated by another, would cause the
party holding the exclusionary right to suffer legal injury.” WiAV, 631 F.3d at 1265.
Here, Google holds no exclusionary rights in the patent. There is no evidence that
Google may practice the patents, much less to the exclusion of anyone else. Nor is there
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evidence that Google may grant licenses to the patents, such that it would suffer economic injury
by uncompensated infringement.
The Federal Circuit has held that greater patent interests than Google holds here are
insufficient to constitute constitutional standing. For example, in Propat, 473 F.3d at 1194, the
Federal Circuit considered the situation of a licensee who had the contractual right to license and
sue on the patents. Propat lacked the right to make, use, and sell the patented invention and the
patent owner retained the right to seek new patents on the underlying inventions. Id. at 1190.
Moreover, Propat lacked the right further to license the patent, assign its interests in the patent,
or initiate litigation without the patent owner’s consent. Under these circumstances, the Federal
Circuit held that Propat lacked constitutional standing. Here, Google has even less than Propat.
There is no evidence that Google has the contractual right to sue on the patents or license the
patents. And like Propat, Google has no right to make, use, or sell the patented inventions, much
less an exclusive right to do so. Accordingly, Google is not injured if another party infringes the
patents and lacks constitutional standing to sue.
Similarly, in Morrow, 499 F.3d 1332, patent ownership was divided among bankruptcy
trusts, one of which was the plaintiff. The plaintiff, GUCLT, had the contractual right to sue for
infringement, but another bankruptcy trust, AHLT, retained the right to license the patent to third
parties. The Federal Circuit stated that “[t]he problem for GUCLT and AHLT is that the
exclusionary rights have been separated from the right to sue for infringement.” Id. at 1342.
Although GUCLT had the contractual right to sue, it did not suffer injury in fact from
infringement because it did not possess an exclusive right to make, use, and sell the invention
and did not possess the right to license third parties. Id. at 1341. Accordingly, GUCLT was not
injured by infringement—either by losing an exclusive right to practice the patent or by losing a
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right to licensing revenue. Because GUCLT “d[id] not have the right to license or sublicense or
otherwise forgive activities that would normally be prohibited under the patent statutes,” it
lacked constitutional standing to sue for infringement. Id. at 1342.
Here, Google, like GUCLT, lacks both the right to exclusively practice the patents and
the right to license the patents. Accordingly, Google lacks constitutional standing and cannot be
joined to this lawsuit.
E.
The Court Should Stay This Matter Until Such Time as Either Google or
Motorola, or Both, Have Standing Sufficient to Maintain This Action
1.
Under Rule 19(b) This Case Should Not Proceed At This Time
a.
Apple is severely prejudiced by Google’s control over
Motorola’s patent rights
Google’s lack of constitutional standing prevents it from being joined under Rule 19.
Therefore, Rule 19(b), which addresses the Court’s options where joinder is not feasible,
governs. Fed. R. Civ. P. 19(b) (“If a person who is required to be joined if feasible cannot be
joined, the court must determine whether, in equity and good conscience, the action should
proceed among the existing parties or should be dismissed.”). In such circumstances, “the action
typically will be dismissed.” 7 Wright & Miller, Federal Practice and Procedure 1359.
Under Rule 19(b), where a required party cannot be joined, the court undertakes a
flexible, four-factor analysis to determine whether the action should proceed. Those factors are:
(1) the extent to which a judgment rendered in [the non-party’s] absence might prejudice
that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by: (A) protective
provisions in the judgment; (B) shaping of relief; or (C) other measures;
(3) whether judgment rendered in the person’s absence would be adequate; and
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(4) whether the plaintiff would have an adequate remedy if the action were dismissed for
non-joinder. Fed. R. Civ. P. 19(b).
Here it is clear that the inability to join Google prejudices Apple in at least two ways.
First, Apple is now litigating against a cross-plaintiff who is threatening it with an
injunction even though it does not have standing to bring its claims. Nor is there any assurance
that this situation will be clarified prior to the April 30, 2012 trial of this case, the entry of a
judgment, or the issuance of an injunction. Throughout this entire period Apple will be
expending enormous resources litigating claims against a party that does not have standing.
Second, were Apple to prevail in this case, it risks an attack on its victory on appeal by a
third party, whether Google or another Android smartphone manufacturer, contending that the
judgment should be overturned due to a lack of prudential standing. Motorola and Google
should not be able to hide behind their extraordinary division of patent rights as a mechanism for
forcing the re-litigation of this case.
b.
There is no assurance that the standing defect will be cured
before a judgment is entered in this case
Nor is it clear whether or how these concerns will be resolved after the consummation of
the Merger Agreement. The publicly available Merger Agreement states that each party to the
agreement will have the same rights to intellectual property “immediately following the Merger”
as they had prior to the merger. Ernst Decl., Ex. 1 at ¶ 3.14(c) at 24 (emphasis added).
However, Google has told the press that it entered into the merger agreement in order to acquire
Motorola’s patents to protect its “Android ecosystem”, thus contemplating some redistribution of
patent rights. Ernst Decl., Ex. 3.
Thus, it may be that Google will own the patents after the merger, in which case
Motorola will lack constitutional standing and only Google can proceed as a plaintiff. It may be
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that the rights will be divided such that the case can proceed, but only if both parties are joined.
Alternatively, Google may provide rights to various members of its “Android ecosystem.” For
present purposes, what matters is that whether or how the standing defect that presently afflicts
this case will be cured is a matter of sheer speculation.
Moreover, it bear emphasis that any cure of prudential standing must take place before a
judgment is entered. See Silicon Graphics, Inc. v. ATI Techs., Inc., No. 06-C-611-C, 2007 WL
5595952, *9 (W.D. Wis. June 14, 2007) (citing Schreiber Foods, Inc. v. Beatrice Cheese, Inc.,
402 F.3d 1198, 1203 n.4 (Fed. Cir. 2005)). Given the uncertainty of the merger time line, it
cannot be stated with assurance that the patent rights will be resolved before a judgment is
entered in this case.
2.
A Stay of the Case During the Pendency of the Google/Motorola
Acquisition Represents The Most Appropriate Result.
Notwithstanding the option of dismissing the case pursuant to Rule 19(b), Apple submits
that the more appropriate course is for the Court to stay the case until after the close of the
Google/Motorola acquisition. This approach will permit the Court to determine whether, given
the post-acquisition facts, the jurisdictional cloud that presently hangs over this case has cleared.
It is well established that the Court has the authority to impose a stay rather than order a
dismissal when faced with the inability to join a required party under Rule 19(b). Henri’s Food
Products Co., Inc. v. Home Ins. Co., 474 F. Supp. 889, 893-94 (E.D. Wis. 1979). See also
Christian v. Monaco Coach Corp., No. SA CV 08-00141-CJC, 2009 WL 1574553 (C.D. Cal.
May 14, 2009) (because non-party was indispensible under Rule 19(a), but could not presently
be joined due to a lack of personal jurisdiction, a stay was appropriate); Nations Bank of
Maryland v. Harris Bank Glencoe-Northbrook, N.A., No. 93 C 615, 1993 WL 179522 (N.D. Ill.
May 25, 1993) (citing Rule 19(b) discretion to fashion measures alternative to dismissal, the
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court held that, because a bankruptcy court had yet to determine whether the assets were indeed a
part of the estate, the better course of action was to stay the case pending resolution of that issue
in bankruptcy court).
Apple respectfully submits that the Court should follow that course here given that the
jurisdictional defect in this case, while quite serious, may be time bound. It may be cured
following the close of the acquisition, at which point the litigation can resume. If not, the
question of dismissal can be appropriately considered at that time.
Even putting aside the Rule 19(b) analysis, however, the court can and should stay the
proceedings until the merger is consummated. Because the district courts have the inherent
power to manage their dockets and stay proceedings, Procter & Gamble Co. v. Kraft Foods
Global, Inc., 549 F.3d 842, 848-49 (Fed. Cir. 2008), this Court has the authority to stay these
proceedings until the jurisdictional standing issues are resolved. “The Supreme Court has long
recognized that district courts have broad discretion to manage their dockets, including the power
to grant a stay of proceedings.” Id. (citing Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936)).
A stay will not be vacated “unless [it is] immoderate or of an indefinite duration.” Gould v.
Control Laser Corp., 705 F.2d 1340, 1341 (Fed. Cir. 1983) (internal quotation marks omitted).
The stay is moreover of limited duration. After the Google/Motorola merger is completed, the
Court may revisit the standing issue and determine how (or if) Motorola’s claims may proceed.
Accordingly, the Court should exercise its discretion to stay this lawsuit until such a time
as the Google/Motorola merger is consummated.
IV.
CONCLUSION
For the foregoing reasons, this matter should be stayed until the consummation of the
Google/Motorola merger or until further order of the Court.
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No. 1:10cv023580-Civ-UU-EGT
Dated: September 9, 2011
Respectfully submitted,
_/s/ Christopher R. J. Pace ____________
Christopher R. J. Pace
christopher.pace@weil.com
Edward Soto
WEIL, GOTSHAL & MANGES LLP
1395 Brickell Avenue, Suite 1200
Miami, FL 33131
Telephone: (305) 577-3100
Facsimile: (305) 374-7159
Attorneys for Apple Inc.
Of Counsel:
Matthew D. Powers
Matthew.Powers@tensegritylawgroup.com
Steven Cherensky
Steven.Cherensky@tensegritylawgroup.com
Tensegrity Law Group LLP
201 Redwood Shores Parkway
Redwood Shores, CA 94065
Telephone: 650-802-6000
Facsimile: 650-802-6001
Jill J. Ho
jill.ho@weil.com
WEIL, GOTSHAL & MANGES LLP
201 Redwood Shores Parkway
Redwood Shores, CA 94065
Telephone: (650) 802-3000
Facsimile: (650) 802-3100
Mark G. Davis
mark.davis@weil.com
WEIL, GOTSHAL & MANGES LLP
1300 Eye Street, N.W., Suite 900
Washington, DC 20005
Telephone: (202) 682-7000
Facsimile: (202) 857-0940
Robert T. Haslam
rhaslam@cov.com
COVINGTON & BURLING LLP
333 Twin Dolphin Drive, Suite 700
Redwood Shores, CA 94065
Telephone: (650) 632-4700
Facsimile: (650) 632-4800
Robert D. Fram
rfram@cov.com
Christine Saunders Haskett
chaskett@cov.com
Samuel F. Ernst
sernst@cov.com
COVINGTON & BURLING LLP
One Front Street
San Francisco, CA 94111
Telephone: (415) 591-6000
Facsimile: (415) 591-6091
- 21 MOTION TO STAY
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CERTIFICATE OF GOOD FAITH CONFERENCE
I hereby certify that counsel for the movant has conferred with all parties or non-parties
who may be affected by the relief sought in this motion in a good faith effort to resolve the issues
but has been unable to do so or has made reasonable efforts to confer with all parties or nonparties who may be affected by the relief sought in the motion, but has been unable to do so.
__/s/ Samuel F. Ernst_______
Samuel F. Ernst
- 22 MOTION TO STAY
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CERTIFICATE OF SERVICE
I hereby certify that on September 9, 2011, I filed the foregoing document with the Clerk
of the Court. I also certify that the foregoing document is being served this day on all counsel of
record identified on the attached Service via CM/ECF.
/s/ Christopher R. J. Pace
Christopher R.J. Pace (Fla. Bar No. 0721166)
- 23 MOTION TO STAY
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SERVICE LIST
Case No. 1:10cv023580-Civ-UU
Edward M. Mullins
Fla. Bar No. 863920
emullins@astidavis.com
ASTIGARRAGA DAVIS MULLINS & GROSSMAN, P.A.
701 Brickell Avenue, 16th Floor
Miami, FL 33131
Telephone: (305) 372-8282
Facsimile: (305) 372-8202
Attorneys for Motorola Mobility, Inc.
Electronically served via CM/ECF and via email
Of Counsel:
Charles K. Verhoeven
QUINN EMANUEL URQUHART & SULLIVAN, LLP
50 California Street, 22nd Floor
San Francisco, CA 93111
(415) 875-6600
Edward J. DeFranco
QUINN EMANUEL URQUHART & SULLIVAN, LLP
51 Madison Avenue, 22nd Floor
New York, NY 10010
(212) 849-7000
David A. Nelson
QUINN EMANUEL URQUHART & SULLIVAN, LLP
500 West Madison Street, Suite 2450
Chicago, IL 60661
(312) 705-7400
Moto-Apple-SDFL@quinnemanuel.com
Attorneys for Motorola Mobility, Inc.
Electronically served via email
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