Lodsys, LLC v. Combay, Inc. et al

Filing 96

MOTION to Substitute Party by Lodsys, LLC. (Attachments: # 1 Exhibit, # 2 Text of Proposed Order)(Huck, Christopher)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
LODSYS, LLC,

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Plaintiff,
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v.
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ATARI INTERACTIVE, INC.;
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COMBAY, INC.;
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ELECTRONIC ARTS, INC.;
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ICONFACTORY, INC.;
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ILLUSION LABS AB;
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MICHAEL G. KARR D/B/A SHOVELMATE; §
QUICKOFFICE, INC.;
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ROVIO MOBILE LTD.
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RICHARD SHINDERMAN;
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SQUARE ENIX LTD.;
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TAKE-TWO INTERACTIVE SOFTWARE, §
INC.,
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Defendants.
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CIVIL ACTION NO. 2:11-cv-272 (JRG)

UNOPPOSED MOTION TO SUBSTITUTE
OR, IN THE ALTERNATIVE, JOIN LODSYS GROUP, LLC
Pursuant to Federal Rules of Civil Procedure 17(a), 21, and 25(c), plaintiff Lodsys, LLC
(“Lodsys”) respectfully moves to substitute Lodsys Group, LLC (“Lodsys Group”) for all
purposes in this action, including as plaintiff and counterclaim defendant. In the alternative,
Lodsys respectfully requests that Lodsys Group be joined in this action.

The remaining

defendants in this action do not oppose this motion.
I.

INTRODUCTION

Lodsys has sold and therefore assigned to Lodsys Group all rights, title, and interest to
U.S. Patent Nos. 7,222,078 and 7,620,565 (collectively, the “patents-in-suit”), effective as of
February 1, 2012. The assignment includes the right to enforce the patents-in-suit and to recover
damages and any other remedies of any kind for past and future infringement, including all
causes of action asserted by Lodsys in this action. Lodsys has also transferred to Lodsys Group
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the documents and information in Lodsys’s possession, custody, and control relevant to this
action and the patents-in-suit, including the invention and patent prosecution files. Lodsys
Group has assumed all obligations and liabilities concerning the patents-in-suit to the extent
Lodsys would have been liable absent the assignment of the patents-in-suit to Lodsys Group,
including with respect to the counterclaims and other requests for relief asserted against Lodsys
in this action. And Lodsys hereby agrees to make itself available for discovery in this action as
if it continued to be a party, so the requested substitution will not prejudice any defendant nor
have any effect on discovery or any future deadlines in this action. Accordingly, pursuant to
Rules 17(a), 21, and 25(c), Lodsys Group should be substituted for Lodsys for all purposes in
this action, including as plaintiff and counterclaim defendant. In the alternative, Lodsys Group
should be joined in this action.
II.
A.

RELEVANT BACKGROUND

Lodsys and Lodsys Group.
Lodsys is a Texas limited liability company with its principal place of business in

Marshall, Texas. See Complaint for Patent Infringement [dkt no. 1] (the “Complaint”) at ¶ 1.
Lodsys maintains an office located at 505 East Travis Street, Suite 207, Marshall, Texas. See
Declaration of Mark Small (the “Small Decl.”) at ¶ 2, attached as Exhibit 1.
Lodsys Group is also a Texas limited liability company with its principal place of
business in Marshall, Texas. See id. at ¶ 3. Lodsys Group maintains an office at its headquarters
located at 505 East Travis Street, Suite 207, Marshall, Texas. See id.
B.

The Patents-in-Suit and This Action.
On May 22, 2007, U.S. Patent No. 7,222,078 (the “‘078 patent”) was duly and legally

issued for “Methods and Systems for Gathering Information from Units of a Commodity Across
a Network.” See id. at Ex. B. On November 17, 2009, U.S. Patent No. 7,620,565 (the “‘565
patent”) was duly and legally issued for a “Customer-Based Product Design Module.” See id. at
Ex. A.

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Daniel Abelow is the inventor of the ‘078 patent and ‘565 patent. See id. at Exs. A-B.
And Lodsys is the owner by assignment of all of the patents-in-suit (i.e., the ‘‘078 patent and
‘565 patent). See id. at ¶¶ 14, 25, 37.
On May 31, 2011, Lodsys filed this action against the above-captioned defendants. The
Complaint alleges that defendants have infringed the ‘078 patent and/or the ‘565 patent. See id.
at ¶¶ 14-40.
C.

The Sale and Assignment.
On January 31, 2012, Lodsys entered into a patent sale agreement with Lodsys Group,

whereby all rights, title, and interest to the patents-in-suit were assigned to Lodsys Group as of
February 1, 2012. See Small Decl. at ¶ 4 and Ex. A. Prior to the assignment, Lodsys owned all
rights, title, and interest to the patents-in-suit. See Complaint at ¶¶ 14, 25, 37. Pursuant to the
assignment, Lodsys Group obtained the right to enforce the patents-in-suit and to recover
damages and any other remedies of any kind for past and future infringement, including all
causes of action asserted by Lodsys in this action. See id. at Ex. A. Lodsys Group assumed all
obligations and liabilities concerning the patents-in-suit to the extent Lodsys would have been
liable absent the assignment of the patents-in-suit to Lodsys Group, including with respect to the
counterclaims and other requests for relief asserted against Lodsys in this action. See id. at ¶ 5.
Lodsys Group also acquired possession, custody, and control of Lodsys’s documents and
information relevant to this action and the patents-in-suit, including the invention and patent
prosecution files. See id.
III.

ARGUMENT

Rule 17(a) provides that “[a]n action must be prosecuted in the name of the real party in
interest.” Fed. R. Civ. P. 17(a)(1). Rule 17(a) also provides, however, that “[t]he court may not
dismiss an action for failure to prosecute in the name of the real party in interest until, after an
objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be
substituted into the action.” Fed. R. Civ. P. 17(a)(3) (emphasis added). In addition, “[a]fter

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ratification, joinder, or substitution, the action proceeds as if it had been originally commenced
by the real party in interest.” Id. (emphasis added).
Similarly, Rule 21 provides that “[o]n motion or on its own, the court may at any time, on
just terms, add or drop a party.” Fed. R. Civ. P. 21 (emphasis added).
Rule 25(c) also provides that “[i]f an interest is transferred, the action may be continued
by or against the original party unless the court, on motion, orders the transferee to be substituted
in the action or joined with the original party.” Fed. R. Civ. P. 25(c). “Rule 25(c) permits the
court to continue to hear a case where the action survives but the original party has transferred
interest in the litigation to another. Rather than require the assignee to initiate a new action, the
rule enables the court to continue the action with the assignee joined with or in the place of the
original party.” Gen. Battery Corp. v. Globe-Union, Inc., 100 F.R.D. 258, 262-63 (D. Del.
1982). Accordingly, “[i]n patent cases, joinder or substitution of an assignee of all rights, title,
and interest in the patents-in-suit is permissible under Federal Rule of Civil Procedure 25(c) to
cure a lack of standing.” Affinion Loyalty Group, Inc. v. Maritz, Inc., 2006 WL 1431065, *1 (D.
Del. May 22, 2006).
“There is no time limitation on when a party may move for substitution following a
transfer of interest.” Levin v. Raynor, 2010 WL 2106037, *2 (S.D.N.Y. May 25, 2010); see also
CrossLand Fed. Sav. Bank by F.D.I.C. v. A. Suna & Co., Inc., 935 F. Supp. 184, 190 (E.D.N.Y.
1996) (same). “Indeed, the substitution can occur at any time, including years after judgment is
entered.” United States v. NL Indus., Inc., 2006 WL 219577, *2 (S.D. Ill. Jan. 27, 2006).
“When a transfer of interest has occurred and a motion for substitution or joinder is made,
the district court may in its discretion grant the motion or deny it and allow the action to continue
in the names of the original parties.” Koehler v. Bank of Bermuda Ltd., 2002 WL 1766444, *2
(S.D.N.Y. July 31, 2002); see also Mars, Inc. v. JCM Am. Corp., 2007 WL 776786, *1 (D.N.J.
Mar. 9, 2007) (“Since joinder or substitution under Rule 25(c) is a procedural device that does
not typically alter the substantive rights of a party, a Rule 25(c) decision is generally left to the
court’s discretion.”). But although a court may choose to either allow substitution or continue
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the action in the name of the original party, Rule 25(c) forbids dismissal for lack of standing if
the transfer of interest was permissible under the substantive law. See ELCA Enterprises, Inc. v.
Sisco Equip. Rental & Sales, Inc., 53 F.3d 186, 191 (8th Cir. 1995) (trial court abused its
discretion by dismissing for lack of standing, rather than granting Rule 25(c) substitution, where
as “a matter of substantive law, the right to sue the defendants for remediation costs clearly
survived [the] transfer of interest”).
Here, Lodsys Group is now the owner by assignment of the patents-in-suit. See Small
Decl. at ¶ 4 and Ex. A.1 The assignment includes the right to enforce all causes of action
asserted by Lodsys in this action. See id. at ¶ 5. Lodsys Group has also assumed all liabilities
for the counterclaims and other requests for relief asserted against Lodsys in this action to the
extent Lodsys would have been liable absent the assignment of the patents-in-suit to Lodsys
Group. See id. at ¶ 5. Accordingly, Lodsys Group is now the proper plaintiff and counterclaim
defendant in this action. See Abraxis BioScience, Inc. v. Navinta LLC, 2009 WL 904043, *5
(D.N.J. Mar. 30, 2009) (“it is appropriate for the Court to join [assignee] as the real party in
interest in this litigation”).
Moreover, Lodsys Group has possession, custody, and control of Lodsys’s documents
and information relevant to this action. See Small Decl. at ¶ 5. Although no defendant has yet
attempted to take any discovery from Lodsys, Lodsys has agreed to make itself available for
discovery in this action as if it continued to be a party. See id. at ¶ 6. And Lodsys’s attorneys of
record will continue as counsel for Lodsys Group in this action.

See id. The requested

substitution or, in the alternative, joinder of Lodsys Group, therefore, will not affect discovery in
any way nor have any impact on future deadlines. In short, Lodsys Group’s appearance in this
action will not prejudice any defendant. See Abraxis BioScience, 2009 WL 904043 at *6 (“the
Court finds no basis for [defendant]’s claim of potential delay”).
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Prior to the assignment, Lodsys was the owner of all rights, title, and interest to the patents-insuit and, therefore, was the real party in interest and the proper plaintiff and counterclaim
defendant in this action. See Complaint at ¶¶ 14, 25, 37.
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IV.

CONCLUSION

For all of the above reasons, Lodsys Group should be substituted for Lodsys for all
purposes in this action, including as plaintiff and counterclaim defendant. In the alternative,
Lodsys Group should be joined in this action.
Dated: February 7, 2012.

Respectfully Submitted,
By:

/s/ Christopher M. Huck
Michael A. Goldfarb
(admitted pro hac vice)
Christopher M. Huck
(admitted pro hac vice)
KELLEY, DONION, GILL,
HUCK & GOLDFARB, PLLC
701 Fifth Avenue, Suite 6800
Seattle, Washington 98104
Phone: [phone]
Fax: [phone]
Email: [e-mail]
[e-mail]
William E. “Bo” Davis, III
Texas State Bar No. 24047416
THE DAVIS FIRM, PC
111 West Tyler Street
Longview, Texas 75601
Phone: [phone]
Fax: [phone]
Email: [e-mail]
Attorneys for Plaintiff Lodsys, LLC and
Proposed Substitution Plaintiff Lodsys
Group, LLC

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CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was filed electronically in
compliance with Local Rule CV-5(a). As such, this response was served on all counsel who are
deemed to have consented to electronic service. Local Rule CV-5(a)(3)(V). Pursuant to Fed. R.
Civ. P. 5(d) and Local Rule CV-5(d) and (e), all other counsel of record not deemed to have
consented to electronic service were served with a true and correct copy of the foregoing by
email, on this the 7th day of February, 2012.
By:

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/s/ Christopher M. Huck
Christopher M. Huck