Rockstar Consortium US LP et al v. Google Inc

Filing 211

BRIEF filed Plaintiffs' Supplemental Brief Regarding Privilege [dkt 206] by NetStar Technologies LLC, Rockstar Consortium US LP. (Attachments: # 1 Declaration of Meng Xi, # 2 Exhibit A - Excerpts from 10-9-2014 Hearing)(Xi, Meng)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
ROCKSTAR CONSORTIUM US LP
AND NETSTAR TECHNOLOGIES
LLC,
Plaintiffs,

Case No. 2:13-cv-00893-JRG-RSP

v.
GOOGLE INC.,

JURY TRIAL DEMANDED

Defendant.

PLAINTIFFS’ SUPPLEMENTAL BRIEF REGARDING PRIVILEGE

At the October 9, 2014 hearing, Defendant Google Inc. (“Google”) suggested, without any
support, that Plaintiffs Rockstar Consortium US LP and NetStar Technologies LLC (“Rockstar”)
does not possess the right to assert privilege claims over certain documents it obtained from thirdparty entities Nortel Networks Inc., Nortel Networks Corporation, and Nortel Networks Limited
(collectively “Nortel”) following Nortel’s bankruptcy and sale of its patent portfolio to a Rockstar
affiliate (Rockstar Bidco, LP, which in turn assigned the patents-in-suit, among thousands of other
Nortel patents, to Rockstar). In addition, Google suggested that Nortel’s very act of providing the
documents to Rockstar constitutes a waiver of any privilege that may have attended these
documents. Google’s suggestions are incorrect. Rockstar hereby submits its supplemental brief
addressing these issues per the Court’s October 16, 2014 Order. (Dkt. No. 206.)
I.

Nortel’s Privilege With Respect To The “Transferred Data” Survived Transfer And Is
Now Properly Vested In Rockstar
The Court defined “transferred data” to mean any “data relevant to the assigned patents,”

including the patents-in-suit. (Id. at 3; see Declaration of Meng Xi in Support of Plaintiffs’
Supplemental Brief Regarding Privilege (“Xi Decl.”), submitted herewith, at Ex. A (10/9/2014
Hr’g Tr.) at 30:22-25.) Uncontroverted facts establish that (1) Nortel sold its patent portfolio to
Rockstar and thus control of this portion of Nortel’s business passed to Rockstar; (2) Rockstar
continues to operate the portion of Nortel’s business as it relates to the acquired patents; and (3)
Rockstar inherits the continuity in corporate knowledge, management, experience, and interest in
preserving the privilege claims from the twenty-six former Nortel employees who transitioned to
Rockstar in connection with Rockstar’s acquisition of the Nortel patent portfolio. Thus, any
privilege or immunity associated with the patents and with any related “transferred data”
previously held by Nortel now belongs to Rockstar.

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A. Privilege Is Preserved If, Under The Totality Of Circumstances, Control Has
Been Transferred And Business Continues To Operate
Whether the authority to assert or waive a predecessor entity’s privileges and immunities
transfers to a successor entity depends on whether the latter obtained control of the former. See
Commodity Futures Trade Comm’n v. Weintraub, 471 U.S. 343, 349 (1985) (“[W]here control of a
corporation passes to new management, authority to assert and waive the corporation’s attorneyclient privilege passes as well.”). As a general matter, courts have found that a mere transfer of
some assets, without more, does not transfer the attorney-client relationship or any corresponding
privilege held by the predecessor entity. See, e.g., Zenith Elecs. Corp. v. WH-TV Broadcasting
Corp., 2003 U.S. Dist. LEXIS 13816, at *6 (N.D. Ill. 2003); In re Yarn Processing Patent Validity
Litig., 530 F.2d 83, 90 (5th Cir. 1976). However, this Court has rejected adoption of a bright-line
rule in evaluating the issue of privilege waiver because of its failure to capture “the myriad ways
control of a corporation or a portion of corporation can change hands.” Soverain Software LLC v.
Gap, Inc., 340 F. Supp. 2d 760, 763 (E.D. Tex. 2004) (Gilstrap, J.); see SimpleAir, Inc. v. Microsoft
Corp., No. 2:11-cv-416-JRG 2013 U.S. LEXIS 121545, at *6-7 (E.D. Tex. Aug. 27, 2013)
(Gilstrap, J.).
Instead, when determining whether privileges are transferred to a successor entity, this and
other courts examine whether “the practical consequences of the transaction result in the transfer of
control of the business and the continuation of the business under new management,” and if they do,
“the attorney-client privilege will follow as well.” Soverain, 340 F. Supp. 2d at 763; see also Parus
Holdings, Inc. v. Banner & Witcoff, Ltd., 585 F. Supp. 2d 995, 1002 (N.D. Ill. 2008) (observing that
Soverain applies “the better reasoned rule, and the one that appears to be followed by the majority
of recent cases”); Am. Int’l Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401, 407 (N.D. Ill.
2007) (“[B]ecause the practical consequences of the Asset Purchase Agreement resulted in the

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transfer of control of [the predecessor’s] business and the continuation of that business under new
management, the authority to assert or waive the attorney-client privilege transferred to [the
successor].”). Accordingly, “whether a transfer of assets preserves a claim of privilege is a question
of fact that should be answered based upon the totality of the circumstances and examined on a
case-by-case basis.” SimpleAir, 2013 U.S. LEXIS 121545, at *6-7.
B. Rockstar May Assert Any Privilege Held By Nortel Because Of Its Acquisition
Of Assets, Continuation Of The Business, And Continuity In Management
The privilege transfer inquiry depends on two factors: transfer of control of the business and
continuation of the business. Transfer of control of a business is frequently tied to the ownership of
its assets, such as a patent portfolio. See, e.g., id. at *12. The facts in SimpleAir are remarkably
similar to this case. In SimpleAir, the liquidation of bankrupt AirMedia’s assets was divided into
two parcels: the first included the two asserted patents in SimpleAir and twenty-five pending patent
applications; the second included one pending patent application and a set of trademarks and
domain names. Id. at *9. Instead of a cash purchase, plaintiff SimpleAir acquired the first parcel by
giving up a “percentage of future monies recovered by SimpleAir through patent enforcement,”
which came to be valued at “several tens of millions of dollars” over the next decade. Id. The
second parcel was sold for $15,000 in cash. Id. The court held that SimpleAir’s acquisition of
“substantially all of AirMedia’s original patent portfolio” as well as the “now established value of
SimpleAir’s portion of AirMedia’s assets [which] dwarfs the [other] portion” sufficiently render
SimpleAir the “present successor-in-interest” of AirMedia, thereby entitling it to assert the same
privileges AirMedia enjoyed. Id. at *9-10.
It is beyond dispute that a Rockstar affiliate, Rockstar Bidco, LP, made the winning $4.5
billion bid for Nortel’s patent portfolio in June 2011 and that this transaction was an acquisition of

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substantially all of bankrupt Nortel’s patent assets.1 According to public sources, the value of
Nortel’s other assets dwarfs in comparison to the value of the 6,000-plus patents acquired by
Rockstar. (See Dkt No. 152 at 2.) Per the reasoning of the SimpleAir court, Rockstar is thus
properly considered the successor-in-interest of Nortel where Nortel’s patent portfolio comprised
the majority of the assets it owned, because “[c]ontrol follows ownership.” See SimpleAir, 2013
U.S. LEXIS 121545, at *12.
Courts tend to place more weight on the second part of the inquiry, continuation of the
predecessor’s business. In Soverain, the court held that a pre-existing privilege transfers along with
the sale of even a small portion of the predecessor’s assets if the purchaser of the assets continues to
operate an ongoing business related to those assets. 340 F. Supp. 2d at 762-63. Specifically, the
court found plaintiff Soverain to be a successor to the “Transact” business previously owned by
dissolved corporate entities, Divine and Open Market, even though the Transact business (and three
related patents asserted in Soverain’s suit) was only a small part of the predecessors’ business
enterprise, constituting “merely . . . a small portion of [their] assets.” Id.
The SimpleAir court further relaxed the “continuation of the business” requirement, holding
that maintaining a “patent enforcement practice” as opposed to continuing the original business of a
predecessor is sufficient. 2013 U.S. Dist. LEXIS 121545, at *11-12. In SimpleAir, predecessor
AirMedia was in the business of software and communications systems development before it filed
for bankruptcy. Id. at *11. In other words, patent enforcement was not part—or at most, a small
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The fact that Rockstar was assigned the patents-in-suit by Rockstar Bidco, LP does not disturb
the transfer of privilege from Nortel to Rockstar. See SimpleAir, 2013 U.S. LEXIS 121545, at *56 (holding that, despite a complicated chain of title involving two intervening patent assignees
preceding SimpleAir, the ultimate assignee of the patents inherited the privileges from the original
assignee); Soverain, 340 F. Supp. 2d at 764 (disagreeing that any privilege had been “waived”
because assets of predecessor entity’s Transact business had been first transferred to a third party
prior to being transferred to Soverain, the successor entity).
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part—of the predecessor company’s business. Like in this case, successor SimpleAir was engaged
in asserting the patents it acquired from AirMedia against potential infringers in litigation. Id. In
finding that “the disparate business models between the ‘then’ and ‘now’ owners of the Asserted
Patents” did not constitute a “forfeiture of the privilege,” the Court cautioned that buyers of valuable
intellectual property assets of a failed business should not be “forced to choose between continuing
the failed model of the bankrupt business or forfeiting claims of vital privileges [.]” Id. Indeed, the
Court noted that “the pool of interested purchasers at a bankruptcy liquidation sale ordinarily do not
want to continue practicing a failed business model,” emphasizing that the “value is in the assets
sold, particularly when those assets can be used in a new way that is not tainted by past business
failures.” Id.
Here, although Rockstar has not sought to continue Nortel’s original telecommunications
and data networking equipment manufacturing business—the “failed model of [a] bankrupt
business”—Rockstar continues to try to license the patents formerly owned by Nortel. Under these
circumstances, this Court should find, as the court did in SimpleAir, that such a continuation of the
business by Rockstar, albeit based on a “disparate business model,” does not destroy conveyance of
the original privilege held by Nortel attendant to the patents-in-suit (i.e., any privilege attached to
“transferred data”).
A further fact supporting the transfer of privilege to Rockstar is that approximately twentysix former Nortel employees and numerous Nortel computing equipment transitioned to Rockstar in
connection with Rockstar’s acquisition and assertion of Nortel’s patent assets. (Dkt. No. 177-3 at
9.)

This type of continuity—achieved when, e.g., the successor-in-interest employs former

employees of the predecessor-in-interest and utilizes its equipment—has been significant to the
privilege transfer inquiry. SimpleAir, 2013 U.S. Dist. LEXIS 121545, at *10 (noting that “a

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significant degree of continuity in the areas of corporate knowledge, management, and experience
between AirMedia and SimpleAir” plainly exists because two former AirMedia employees are now
employed by SimpleAir and thus their “interest in preserving their privilege claims on behalf of
SimpleAir is unchanged from their former interest in such privilege as representatives of
AirMedia”); M-I LLC v. Stelly, No. 4:09-cv-1552, 2010 U.S. Dist. LEXIS 52736, at *9-12 (S.D.
Tex. May 26, 2010) (noting that the successor entity “retained many of the employees” of the
predecessor entity in finding a transfer of privilege); see Soverain, 340 F. Supp. 2d at 763-64
(noting that two of the inventors of the Transact patents are now consultants to Soverain and are
assisting Soverain with the Transact business in finding no waiver of privilege).
Consistent with precedent, all the privileges and immunities attendant to any documents
related to the Nortel patent portfolio acquired by Rockstar, including the entirety of the “transferred
data,” must flow to Rockstar upon the assignment of that portfolio and Rockstar’s continuation of
business related to those assets. Such a conclusion also comports with common sense. A rule
necessitating the waiver of privilege merely because an asset changes hands would turn privilege on
its head. A successor-in-interest who acquires an asset and continues the predecessor’s business
relating to that asset should also inherit the authority to assert the privileges held by the predecessor,
now standing in its shoes.
II.

“Non-Transferred Data” Is By Definition Not Relevant To This Case
The Court defined “non-transferred data” as data that would not “be of any relevance to

Google in this litigation.” (See Xi Decl., Ex. A (10/9/2014 Hr’g Tr.) at 19:7-8.) Rockstar
submits that this Court need not reach the issue of whether privilege has been waived with

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respect to the “non-transferred data.” By the Court’s definition,2 such data is not relevant or
“responsive” to Google’s discovery requests, and therefore would not be withheld or logged for
privilege. (See Xi Decl., Ex. A (10/9/2014 Hr’g Tr.) at 19:5-9 (“I’m a lot less concerned about
the non-transferred items, because if that definition is properly applied, I don’t think nontransferred items would be of any relevance to Google in this litigation. And so we should not
have a problem with privilege on those . . . .”).) Indeed, none of Google’s discovery requests call
for non-transferred data and the list of search terms devised by the parties further demonstrates
its lack of relevance to this action. (See Dkt. No. 210-1.) Thus, even assuming that a waiver has
occurred with respect to the non-transferred data—which it has not—because non-transferred
data is not relevant to this case, any such waiver would not affect the materials being sought in
discovery or this case.
Court suggested at the hearing that it would be premature to make a privilege waiver
determination with respect to non-transferred data at this juncture.

(See Xi Decl., Ex. A

(10/9/2014 Hr’g Tr.) at 33:14-21 (“I’m more concerned at this point with the transferred
materials because those are the [only] ones that will be on the privilege log.”); 34:8-11 (“I am
hoping to somewhat avoid [the] issue [of non-transferred documents] by defining “transferred”
as relevant.”).) Rockstar agrees that this issue need not be decided.

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Further, the TSA uses the term “non-transferred items” to refer to materials “not included in the
Assets purchased under the ASA or licensed to the Purchaser.” (Dkt. No. 178, Ex. N at 9.) The
Asset Sale Agreement (ASA) between Nortel and Rockstar defines “Assets purchased under the
ASA” to include a comprehensive collection of “Patent Related Documentation,” including, but
not limited to, patent prosecution files, litigation files, license agreements, infringement claim
charts, the contents of an electronic “data room” made available to bidders during the auction of
the Nortel patent portfolio, and assignment agreements. (Dkt. No. 186-1 at 4-7; see Dkt. No. 186
at 3.)
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DATED: October 20, 2014

Respectfully submitted,
By:

/s/ Meng Xi
Max L. Tribble, Jr. – Lead Counsel
State Bar No. 20213950
Alexander L. Kaplan, State Bar No. 24046185
John P. Lahad, State Bar No. 24068095
Shawn D. Blackburn, State Bar No. 24089989
SUSMAN GODFREY L.L.P.
1000 Louisiana Street, Suite 5100
Houston, Texas 77002
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
Justin A. Nelson, State Bar No. 24034766
Parker C. Folse, III, WA State Bar No. 24895
SUSMAN GODFREY L.L.P.
1201 Third Ave, Suite 3800
Seattle, Washington 98101
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
Amanda K. Bonn, CA State Bar No. 270891
Meng Xi, CA State Bar No. 280099
SUSMAN GODFREY L.L.P.
1901 Avenue of the Stars, Suite 950
Los Angeles, CA 90067-6029
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
T. John Ward, Jr., State Bar No. 00794818
Claire Abernathy Henry, State Bar No. 24053063
WARD & SMITH LAW FIRM
P.O. Box 1231
Longview, TX 75606-1231
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]

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S. Calvin Capshaw, State Bar No. 03783900
Elizabeth L. DeRieux, State Bar No. 05770585
D. Jeffrey Rambin, State Bar No. 00791478
CAPSHAW DERIEUX, LLP
114 E. Commerce Ave.
Gladewater, TX 75647
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
[e-mail]
Attorneys for Rockstar Consortium US LP and
NetStar Technologies LLC

CERTIFICATE OF SERVICE
I hereby certify that all counsel of record, who are deemed to have consented to electronic
service are being served this 20th day of October, 2014 with a copy of this document via the Court’s
CM/ECF system per Local Rule CD-5(a)(3).
/s/ Meng Xi
Meng Xi

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