Lodsys, LLC v. Combay, Inc. et al

Filing 35

REPLY to Response to Motion re 4 MOTION to Intervene - Apple Inc.'s Redacted Reply In Support of Motion to Intervene - filed by Apple, Inc.. (Smith, Melissa)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

CIVIL ACTION NO. 2:11-cv-272-TJW

LODSYS, LLC,
Plaintiff,

HEARING REQUESTED

v.
ATARI INTERACTIVE, INC.;
COMBAY, INC.;
ELECTRONIC ARTS, INC.;
ICONFACTORY, INC.;
ILLUSION LABS AB;
MICHAEL G. KARR D/B/A SHOVELMATE;
QUICKOFFICE, INC.;
ROVIO MOBILE LTD.;
SQUARE ENIX LTD.;
TAKE-TWO INTERACTIVE SOFTWARE,
INC.,
Defendants.

APPLE INC.’S REDACTED REPLY IN SUPPORT OF MOTION TO INTERVENE

Lodsys’s opposition fails to rebut the appropriateness of Apple’s intervention.
Lodsys does not contest that Apple’s technology and Apple’s interest in protecting the value of
its License lie at the heart of this case, that the present defendants lack the technical information
and expertise regarding that technology and the License to fully and fairly develop the
exhaustion defense, and that Apple’s proposed defense and counterclaim share numerous
common issues of law and fact with the existing suit. Thus, Apple’s motion to intervene should
be granted.1
ARGUMENT
I.

1

Lodsys’s License Argument Is Both Baseless and Irrelevant at This Stage

All defined terms in Apple’s opening brief will have the same meaning when used herein.
1

.2
Third,

, disputed issues of contractual

interpretation or intent cannot be resolved on a motion to intervene. See, e.g., Mendenhall v.
M/V Toyota Maru No. 11 v. Panama Canal Co., 551 F.2d 55, 56 n.2 (5th Cir. 1977) (all nonconclusory allegations must be accepted as true when considering intervention). The motion
cannot be stayed pending discovery, as Lodsys argues, Opp. at 4-5, because “the factual
allegations of the complaint are assumed to be true,” and as a result, “discovery on [the] claims
before ruling on the motion to intervene is as irrelevant as it would be if made in the context of a
motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).” Pin v. Texaco, Inc., 793 F.2d 1448,
1450 (5th Cir. 1986).3 Factual issues concerning the construction of this provision must be
resolved on the merits, not at the pleading stage on a motion to intervene.
II.

Apple Has Met the Requirements for Intervention of Right
A.

Lodsys Concedes That Apple’s Motion Was Not Filed Too Late
Lodsys’s argument that the Motion is premature is similarly flawed. First,

Apple’s interest in the litigation is far from speculative. Indeed, Lodsys does not even dispute
Apple’s statements that its technology lies at the heart of this case. See Opp. at 5-7. The
circumstances here are, therefore, far different from those described in the cases cited by Lodsys,

2

Lodsys’s reliance on case law regarding non-exclusive licensees’ standing to assert the
patents is irrelevant. Cf., e.g., Frazier v. Map Oil Tools, 2010 WL 2352056, at *4 (S.D.
Tex. June 10, 2010) (finding movant seeking to intervene as plaintiff in infringement
action lacked standing due to non-exclusive licensee status). Apple seeks to intervene to
protect its rights under the License, not to assert the patents against any third party.

3

Lodsys also contends that Apple has “repeatedly refused to provide information relevant
to its request for intervention.” Opp. at 5. But Apple provided a complete copy of the
License as Exhibit A to its supporting declaration. See generally Sanders Decl., Ex. A.
2

where the intervenor did not even know whether its interests would ultimately be implicated;4
there is no dispute here that Apple’s license and exhaustion defense will be central to this case.
Second, no authority cited by Lodsys holds that a motion to intervene can be
“untimely” because it is too early. On the contrary, Lodsys fails to distinguish or rebut Sierra
Club v. Glickman, 82 F.3d 106, 109 n.1 (5th Cir. 1996), cited in Apple’s opening brief at page 9,
where the court held, “[t]he timeliness requirement only bars intervention applications made too
late.” Finally, even if a motion to intervene could ever be filed too early, Lodsys’s argument
would still fail because it has not articulated any prejudice resulting from Apple’s Motion.
B.

Apple’s Interest Is More Than Economic
Lodsys’s argument that Apple has identified nothing more than an “economic”

interest in the case, Opp. at 8-10, simply ignores the authorities cited by Apple in its opening
brief, which hold unambiguously that a license is itself a sufficient property interest as a matter
of law. See Motion at 10-11 and cases cited therein. Instead, Lodsys relies on cases that are
unrelated to license rights and thus irrelevant here. See, e.g., Saldano v. Roach, 363 F.3d 545,
551 (5th Cir. 2004) (prosecutor had insufficient interest in habeas case). Moreover, even if
Apple were not licensed, courts have held expressly that intervention to protect a supplier’s
customers from infringement claims is itself “necessary for the protection of its interest.”
Chandler & Price Co. v. Brandtjen & Kluge, Inc., 296 U.S. 53, 55 (1935).
Lodsys also argues that Apple’s interest is insufficient because there is no
indemnification obligation here, and because Apple is formally referred to as the “agent” of the
4

E.g., U.S. v. Microsoft Corp., 2002 WL 319784, at *2 (D.D.C. Jan. 28, 2002) (motion to
intervene related to potential motions in the main action that had not yet even been filed).
Lodsys also attempts to rely on cases that do not even relate to intervention and thus have
no bearing here. See, e.g., Ramirez v. Tex. Low-Level Radioactive Waste Disposal Auth.,
28 F. Supp. 2d 1019, 1020-21 (W.D. Tex. 1998) (on standing generally, not motions to
intervene).
3

developers in the context of a separate Developer Agreement. Opp. at 9. But Lodsys cites not a
single authority for the proposition that an indemnification clause is required for a sufficient
property interest, and, as set out in Apple’s opening brief and uncontested here, none of the cases
in this area have found any such requirement. See Motion at 10-11. Similarly, the fact that
Apple refers to itself as an “agent” of developer “principals” in other contexts is irrelevant to this
motion; Apple provides products and services to the App Makers in exchange for payment,
precisely the type of supplier-customer relationship courts have found sufficient to permit
intervention. See id. Finally, even if Lodsys’s argument had any merit, the Court cannot at this
stage make a factual determination regarding disputed terms of a different contract outside the
pleadings. Mendenhall, 551 F.2d at 56 n.2. Those issues must be resolved through discovery.
C.

Apple’s Interest Will Inevitably Be Impaired Absent Intervention
Lodsys’ contention that Apple’s interest is too speculative to justify intervention

at this stage ignores the pleadings. Opp. at 11. Apple has sufficiently alleged impairment of its
interests: Apple’s License lies at the heart of this case, Lodsys has already sued numerous
significant Apple customers and threatened dozens of others, and a boycott of some of Apple’s
core products by App developers has been proposed. See Supp. Sanders Decl. ¶ 3, Ex. A, ¶ 9;
Mendenhall, 551 F.2d at 56 n.2 (allegations must be accepted as true).
D.

None of the Defendants Possess Sufficient Knowledge, Expertise, or Incentive
To Adequately Protect Apple’s Interests
Lodsys also argues that the present defendants can now adequately represent

Apple’s interests, because Lodsys added several larger defendants—after Apple filed its
motion—who will argue exhaustion. Opp. at 11-14. On any motion to intervene, the parties will
assert common defenses; it is the difference in expertise, objectives, and resources, all of which
are present here, that renders intervention proper. Although some of the new defendants may
4

have greater resources than the original defendants, Lodsys does not contest the fact that none of
the defendants have the technical information, expertise, and knowledge regarding how Apple’s
technology works or the negotiation and intent of the License itself to fully articulate and
develop Apple’s exhaustion defense. Motion at 12-14 and cases cited therein. This distinction
alone is sufficient. Honeywell Int’l v. Audiovox Commc’ns Corp., 2005 WL 2465898, at *4 (D.
Del. May 18, 2005) (“[B]ecause [intervenor] is uniquely situated to understand and defend its
own product, its interests are not adequately represented by existing parties to the litigation.”).
III.

Apple Has Met The Requirements For Permissive Intervention
Finally, the Court should allow permissive intervention because Lodsys disputes

none of the facts or law set out in Apple’s opening brief establishing that permissive intervention
is appropriate. To the contrary, Lodsys concedes that Apple’s Motion raises many common
issues of law and fact to those likely to be raised by the parties to this action. Opp. at. 14-15.
Lodsys does not distinguish any of the cases in this district that have allowed intervention under
these precise circumstances, and does not offer a single authority to the contrary. See id.5
In addition, Lodsys offers no legal, factual, or logical explanation for why it
would be more efficient to resolve the complex issues surrounding Apple’s License without
Apple in this case. The Court should follow the case law of this district and circuit and exercise
its discretion to allow intervention under Rule 24(b).
5

Lodsys quibbles with Apple’s citations to TiVo Inc. v. AT&T Inc., Negotiated Data
Solutions, LLC v. Dell, Inc., and U.S. Ethernet Innovations, LLC v. Acer, Inc. et al. on the
grounds that certain aspects of the motions were unopposed, one of the orders was not
long enough for Lodsys’s liking, and in one case some—but not all or even most—of the
defendants had potential indemnification claims. Opp. at 10, 15. But not one of those
cases depended on an indemnification obligation, and Lodsys distinguishes none of them
on the merits. Lodsys also misleadingly suggests that the underlying briefing in
Negotiated Data was unopposed and under seal, when Intel’s reply is publicly available
and clearly sets out the disputed issues. See Negotiated Data Solutions v. Dell, Inc., Civ.
A. No. 2:06-CV-528 (CE) (Docket No. 124) (Sept. 17, 2008).
5

Dated: August 8, 2011

Respectfully submitted,
By /s/Melissa Richards Smith
Melissa Richards Smith
Texas State Bar No. 24001351
GILLAM & SMITH, L.L.P
303 South Washington Avenue
Marshall, Texas 75670
Telephone: [phone]
Facsimile: [phone]
E-mail: [e-mail]
George M. Newcombe (admitted pro hac vice)
Jonathan C. Sanders (admitted pro hac vice)
SIMPSON THACHER & BARTLETT, LLP
2550 Hanover Street
Palo Alto, CA 94304
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
Counsel for Intervenor Defendant and
Counterclaim Plaintiff Apple Inc.
CERTIFICATE OF SERVICE

I hereby certify that all counsel of record who have consented to electronic
service are being served with a copy of this document via the Court’s CM/ECF system per Local
Rule CV-5(a)(3) on this the 8th of August, 2011.
/s/ Melissa Richards Smith
Melissa Richards Smith