Valencell, Inc. v. Apple Inc.

Filing 206

ORDER denying without prejudice 79 Motion for Summary Judgment; granting 96 Motion to Stay; denying without prejudice 110 Motion to Supplement Invalidity Contentions; denying 149 Motion for Reconsideration ; granting 151 Motion to Seal Document ; denying without prejudice 202 Motion for Leave to File. Signed by Chief Judge James C. Dever III on 6/28/2017. (Briggeman, N.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DMSION
No. 5:16-CV-1-D
VALENCELL, INC.,
Plaintiff,
v.
APPLE INC.,
Defendant.

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ORDER

On November 23, 2016, Apple Inc. ("Apple") moved to stay the above-captioned action
pending resolution oflnter Partes Review ("IPR") ofU.S. Patent Nos. 8,886,269 (''the '269 Patent"),
8,923,941 (''the '941 Patent"), 8,929,965 (''the '965 Patent"), 8,989,830 (''the '830 Patent"), before
the Patent Trial and Appeal Board ("PTAB") [D.E. 96] and filed a memorandum in support [D.E.
97]. On December 14, 2016, Valencell, Inc., ("Valencell") responded in opposition [D.E. 103]. On
December 27, 2016, Apple replied [D.E. 109].
For the reasons set forth in Apple's memorandum in support and reply, as well as the PTAB 's
institution of IPR for the patents [D.E. 195], a stay this action is warranted. Thus, the court grants
Apple's motion to stay.
On February 6, 2017, the court denied Apple's motion to transfer [D.E. 127]. On March 31,
2017, Apple moved for reconsideration ofthe court's order denying Apple's motion to transfer [D.E.
149], filed a memorandum in support [D.E. 150], and moved to seal its memorandum in support
[D.E. 151]. On Apri121, 2017, Valencell responded in opposition [D.E. 169]. On May 4, 2017,
Apple replied [D.E. 174].

Apple moves for reconsideration under Federal Rule of Civil Procedure 54(b). See [D.E.
1SO] 8. Under Rule 54(b), "any order or other decision, however designated, that adjudicates fewer

than all the claims or the rights and liabilities of fewer than all the parties does not end the action as
to any of the claims or parties and may be revised at any time before the entry of a judgment."
Courts may grant such orders within their discretion, and the standard for reconsidering a non-final
order is less demanding than the standard for reconsidering a final judgment. See, e.g., Carlson v.
Boston Sci. Com., 856 F.3d 320, 325 (4th Cir. 2017). A court may revise an interlocutory order if
substantially new facts come to light, ifthe applicable law changes, or ifthe court determines it made
a clear error resulting in a manifest injustice. See id.
In this court's order denying Apple's motion to transfer, the court held that the forumselection clause in the second confidentiality agreement did not cover this case. See [D.E. 127] 3-4.
Apple argues that the court failed to apply California law to interpret the forum-selection clause in
its second confidentiality agreement with Valencell.
California law does not help Apple. The forum-selection clause in the second confidentiality
agreement covered "any litigation arising out of this Agreement." [D.E. 31-1] 12-13. Numerous
courts have held that "arising out of' forum-selection clauses are narrower than forum-selection
clauses that cover, for example, litigation "arising out of or related to" an agreement, or "arising out
of or in connection with" an agreement. See [D.E. 127] 3-4. The former apply to disputes that
involve the interpretation, performance, or non-performance of an underlying contract; the latter
apply more broadly to claims with substantial relationships to an underlying contract. See id.
Although neither Apple nor Valencell cites a case in which a California court analyzes an "arising
out of' forum-selection clause, this court predicts, based on the weight of precedent from other
courts, that California courts would interpret the clause the same way. See Cape Flattezy Ltd. v.

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Titan Mar.. LLC, 647 F.3d 914, 921-22 (9th Cir. 2011); Phillips v. Audio Active. Ltd., 494 F.3d
378, 389-90 (2d Cir. 2007); Am. Recovezy Com. v. Computerized Thermal Imaging. Inc., 96 F.3d
88, 92-93 (4th Cir. 1996); Omron Healthcare. Inc. v. Maclaren Exps. Ltd., 28 F .3d 600, 602 (7th Cir.
1994); Mediterranean Enters. v. Ssangyong Cor,p., 708 F.2d 1458, 1463-64 (9th Cir. 1983); Harley
v. Bank ofN.Y. Mello!l, No. 1:15-CV-1384, 2015 WL 6956564, at *3 (M.D. Pa. Nov. 10, 2015)
(unpublished).
The California precedent Apple cites does not compel the conclusion that the forum-selection
clause in the second confidentiality agreement applies in this case. In Nedlloyd Lines B.V. v.
Superior Court of San Mateo County, 3 Cal.4th 459, 462-63, 834 P .2d 1148, 1149-1150 (1992), the
Supreme Court of California considered a forum-selection clause stating that a contract would be
"governed by" the law of Hong Kong. The Supreme Court of California considered the application
ofthe forum-selection clause to a suit "alleging in essence that [the defendant] breached express and
implied obligations under" the contract. ld. at 463, 834 P.2d at 1150. The court used familiar
language to explain the broad scope of that provision, holding that it covered "all causes of action
. arising from or related to [the] agreement, regardless of how they are characterized, including
tortious breaches of duties emanating from the agreement or the legal relationship it creates." Id. at
470, 834 P.2d at 1155 (emphasis added); see Cal-State Bus. Prods. & Servs.• Inc. v. Ricob, 12
Cal.App.4th 1666, 1676 (Ct. App. 1993). 1 Like many other courts, the Supreme Court of California

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Apple also cites Rudgayzer v. Google. Inc., 986 F. Supp. 2d 151, 156-57 (E.D.N.Y. 2013),
which applied Nedlloyd and other California cases to a forum-selection clause that covered "any
legal matter arising from the Terms" to a "claim arising from the parties' contract-based
relationship." To the extent the Eastern District ofNew York's interpretation of California law in
Rudgayzer would require transfer in this case, this court disagrees with that conclusion. See, e.g.,
Audio Mktg. Servs.. S.A.S. v. Monster Cable Prods .. Inc., No. 12-04760 WHA, 2013 WL 633202,
at *2 (N.D. Cal. Feb. 20, 2013) (unpublished).

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in Nedlloyd apparently recognized that "arising from or related to," was the way to describe a forumselection clause's broad coverage. The Supreme Court of California did not hold that all forumselection clauses govern related claims as well as directly contractual claims, and it did not address
a forum-selection clause using the "arising under" language. Therefore, Apple has failed to .
demonstrate that this court's interpretation of the "arising .under" forum-selection clause was
incorrect, and reconsideration on this basis is denied.
On August 1, 2016, Valencell amended its complaint and added allegations that Apple
willfully infringed Valencell's patents. 2d Am. Compl. [D.E.

53]~~

16, 23, 30, 36. The court did

not address these amendments in its February 2017 order denying Apple's motion to transfer. Apple
argues that the amendment brings Valencell' s lawsuit within the scope of the second confidentiality
agreement's "arising under'' forum-selection clause because proof of willful infringement would
involve showing knowledge Apple gained while the parties' relationship was governed by the second
confidentiality agreement, which contained the forum-selection clause. [D.E. 150] 3-8. In support,
Apple cites Valencell's attempts to obtain through discovery records of communications between
the parties made while the second confidentiality agreement was in effect. See id.
Merely because the parties spoke with each other pursuant to a confidentiality agreement
does not bring within the scope of an "arising under" forum-selection clause any cause of action for
which the facts include the parties' communications. Rather, to fall within the scope of an "arising
under" clause, the cause of action must be based on the contract itself. See, e.g., Cape Flattery Ltd.,
647 F.3d at 921-22; Phillips, 494 F.3d at 389-90; Am. Recovery Cor,p., 96 F.3d at 92-93; Omron
Healthcare. Inc., 28 F.3d at 602; Mediterranean Enters., 708 F.2d at 1463-64; Harley, 2015 WL
6956564, at *3. Therefore, Apple has failed to demonstrate that Valencell's amendment of its
complaint to include claims that Apple willfully infringed Valencell's patents sweeps this action
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within the scope of the second confidentiality agreement's forum-selection clause, and
reconsideration on this basis is denied.

In sum, the court GRANTS Apple's motion to stay [D.E. 96]. The action is STAYED
pending completion of the IPR. Magistrate Judge Gates retains authority to resolve any pending
discovery matters. Apple's motions for summary judgment [D.E. 79], to supplement its invalidity
contentions [D.E. 110], and to file a supplemental memorandum in support of its motion for
summary judgment [D.E. 202] are DENIED without prejudice. Apple's motion for reconsideration
[D.E. 149] is DENIED. Apple's motion to seal [D.E. 151] is GRANTED.
SO ORDERED. This .2..8 day of June 2017.

Chief United States District Judge

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