Dali Wireless, Inc. v. AT&T Corp. et al

Filing 1

MEMORANDUM ORDER - The Clerk of Court is directed to (1) open a new case between Plaintiff Dali Wireless, Inc. and Defendants AT&T Corp., AT&T Communications LLC, AT&T Mobility, AT&T Mobility II LLC, AT&T Services Inc, EricssonInc. and Telefonaktiebolaget LM Ericsson, (2) terminate Defendants Ericsson Inc. and Telefonaktiebolaget LM Ericsson from the above-captioned case, and (3) consolidate the severed case with the above-captioned lead case for pretrial purposes. The parties shall continue filing in the above-captioned lead case. The remaining request to stay the severed cases as to AT&T is DENIED (CASE SEVERED FROM 2:22-CV-12). Signed by Magistrate Judge Roy S. Payne on 4/11/2023. (ch, )

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
DALI WIRELESS, INC.,

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§ CIVIL ACTION NO. 2:22-cv-0012-RWS-RSP
(Lead Case)
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Plaintiff,
v.
AT&T CORP., ET AL.,
Defendants.

MEMORANDUM ORDER
Before the Court is AT&T 1, CommScope 2, and Ericsson’s 3 (collectively, “Defendants”)
Motion to Sever and Stay Pending Resolution of Supplier Lawsuits. Dkt. No. 77. 4 After filing
the motion, the parties stipulated to sever the action into two actions: (1) AT&T and its supplier
CommScope, and (2) AT&T and its supplier Ericsson, and then consolidate the two cases for
pretrial purposes. Dkt. No. 79. Accordingly, the Court GRANTS-IN-PART the motion to sever
the action and reconsolidate the cases in accordance with the terms set forth in the stipulation.
The remaining request in the motion is to stay the severed cases as to AT&T, and the Court
DENIES that request for the following reasons.
I.

BACKGROUND
On January 1, 2022, Plaintiff Dali Wireless, Inc. filed this action alleging AT&T,

CommScope, and Ericsson infringe four of Dali’s patents: (1) United States Patent No.

1

“AT&T” includes Defendants AT&T Corp., AT&T Communications LLC, AT&T
Mobility, AT&T Mobility II LLC, and AT&T Services Inc.
2
“CommScope” includes Defendants CommScope Holding Company, Inc., CommScope
Inc., and CommScope Technologies LLC.
3
“Ericsson” includes Defendants Ericsson Inc. and Telefonaktiebolaget LM Ericsson.
4
Citations correspond to those assigned via ECF.
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8,682,338 (the “’338 Patent”), (2) United States Patent No. 9,197,358 (the “’358 Patent”), (3)
United States Patent No. 11,026,232 (the “’232 Patent”), and (4) United States Patent No.
10,334,499 (the “’499 Patent”) (collectively, the “Asserted Patents”). 5 In each cause of action,
Dali asserts that AT&T directly infringes and its component manufacturer—CommScope or
Ericsson—indirectly infringes. 6 In four of the six causes of action, Dali asserts method claims
that relate to AT&T’s use of Ericsson’s or CommScope’s products in its network. 7
II.

LAW
District courts have the power to stay proceedings as part of its inherent power to control

its own docket. Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). In the context of a patent case,
courts may decide to stay an action under the customer-suit exception or Rule 21. Alternatively,
courts may stay an action if the traditional stay factors support that result.
A. Customer Suit Exception and Rule 21
Generally, courts follow the “first-to-file” rule in deciding which of two overlapping
cases filed in different courts should proceed and which court should stay its hand. However, an
exception to this first-to-file rule, known as the customer-suit exception, generally applies to
cases in which a patentee filed an action against the retailers of an accused product (mere
“customers’ of the manufacturer), after which the manufacturer of the product filed a declaratory

5

Complaint, Dkt. No. 1 at ¶¶ 1–7.
Id. at ¶¶ 76, 79 (First Cause of Action – Infringement of the ’358 Patent by AT&T and
CommScope), ¶¶ 104, 107 (Second Cause of Action – Infringement of the ’338 Patent by AT&T
and Ericsson), ¶¶ 127, 130 (Third Cause of Action – Infringement of the ’232 Patent by AT&T
and CommScope), ¶¶ 150, 153 (Fourth Cause of Action – Infringement of the ’232 Patent by
AT&T and Ericsson), ¶¶ 182, 185 (Fifth Cause of Action – Infringement of the ’499 Patent by
AT&T and Ericsson), ¶¶ 214, 217 (Sixth Cause of Action – Infringement of the ’499 Patent by
AT&T and CommScope).
7
Id. at ¶¶ 56–57 (asserting Claim 7 of the ’358 patent—a method), ¶¶ 84–85 (asserting
Claim 1 of the ’338 patent—a method), ¶¶ 112–13, 135–136 (asserting Claim 12 of the ’232
patent—a method).
6

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judgment action against the patentee in a different forum. In that circumstance, courts sometimes
approve proceeding with the case against the manufacturer and staying the first-filed action
against the customer. See Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990); Kahn
v. Gen. Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989) (discussing the exception but
declining to apply it where there was no evidence that the later-filed action “would resolve all
charges against the customers in the stayed suit, including liability for damages”).
The customer-suit exception has also been applied in multi-defendant actions in which
the manufacturer and retailers are defendants in the same case. In those cases, the customer-suit
exception has been cited as the basis for severing the action against the retailers from the action
against the manufacturer and transferring the action against the manufacturer to a venue where
suit against the retailer defendants could not have been brought. The theory underlying that
course of action is that the manufacturer is the “true defendant” and the retailer is merely a
“peripheral defendant.” See Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d
1349 (Fed. Cir. 2011).
Courts have often declined to apply the customer-suit exception in cases in which the
manufacturer is charged as the indirect infringer of a method patent and the retailer is charged as
the direct infringer. SAS Inst. Inc. v. World Programming Ltd., No. 2:18-cv-0295, 2019 WL
8331447, at *2 (E.D. Tex. Apr. 4, 2019) (finding the customer-suit exception inapplicable to the
case because claims against the manufacturer and non-manufacturer defendants are not
identical); Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., 2016 U.S. Dist. LEXIS 55205,
*10 (E.D. Tex. Apr. 26, 2016) (collecting cases) (finding the customer-suit exception does not
apply to sever an action into separate cases against Eli Lilly (manufacturer) and Brookshire
(distributor) and then stay the case as to Brookshire because (1) Brookshire was accused of

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directly infringing a method of treatment and (2) a finding that Eli Lily is liable for induced
infringement would not necessarily mean that Brookshire is liable for direct infringement); but
see Opticurrent, LLC v. Power Integrations, Inc., No. 2:16-cv-325-JRG, 2016 WL 9275395, at
*5 (E.D. Tex. Oct. 19, 2016) (severing and staying direct infringement claims against Mouser
(mere distributor/reseller) pending resolution of direct and indirect infringement claims against
the “true defendant” Power Integrations (manufacturer) because a finding that Power
Integrations infringes is a prerequisite to recovery from Mouser).
Even when the customer-suit exception does not strictly apply, courts have analyzed
whether Rule 21 applies to sever and stay a case. Compare Saint Lawrence Commc'ns LLC v.
Apple Inc., No. 2:16-cv-82, 2017 WL 3712912, at *1–2 (E.D. Tex. July 12, 2017) (severing and
staying claims against resellers AT&T and Verizon pending resolution of infringement claims
against Apple regarding speech encoding and decoding technology in cellphones under Rule 21
because the claims against AT&T and Verizon were peripheral to those against Apple) with SAS
Inst. Inc. v. World Programming Ltd., No. 2:18-cv-0295, 2019 WL 8331447, at *2 (E.D. Tex.
Apr. 4, 2019) (declining to sever and stay claims as to reseller and customer defendants that were
not peripheral to the claims against the manufacturer). In such circumstances, courts consider
two factors: (1) whether the remaining claims are peripheral to the severed claims, and (2)
whether adjudication of the severed claims would potentially dispose of the remaining claims.
Saint Lawrence Commc'ns LLC, 2017 WL 3712912, at *2 (quotations and citations omitted);
SAS Inst. Inc., 2019 WL 8331447, at *2 (E.D. Tex. Apr. 4, 2019) (quotations and citations
omitted).
B. Traditional Stay Factors
Separate from the customer-suit exception and Rule 21, courts may also decide to stay an

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action based on the traditional stay factors, which include (1) whether a stay will unduly
prejudice or present a clear tactical disadvantage to the nonmoving party, (2) whether a stay will
simplify the issue in question and trial of the case, and (3) whether discovery is complete and
whether a trial date has been set. CyWee Grp. Ltd. v. Huawei Device Co., No. 2:17-cv-495WCB, 2018 WL 4002776, at *3 (E.D. Tex. Aug. 22, 2018) (quotations and citations omitted).
III.

ANALYSIS
Defendants seek to stay the cases as to AT&T on two separate grounds that are addressed

in the manner presented in the briefing: (A) the customer-suit exception and severance under
Rule 21, and (B) the traditional stay factors.
A. Customer-Suit Exception and Severance Under Rule 21
Defendants’ reliance on the customer-suit exception to stay the cases as to AT&T is
misplaced. First, unlike essentially all of the cited cases in the briefing applying the customersuit exception, Defendants do not seek to transfer the claims against Ericsson or CommScope to
another venue. Rather, as part of the stipulation regarding severance as to the two cases—the
first case with AT&T and Ericsson and the second case with AT&T and CommScope—the
parties have agreed not to challenge venue. 8
Second, this case involves two manufacturers, Ericsson and CommScope, each of which
supplies components to a customer, AT&T. In contrast to Opticurrent in which Mouser was a
mere reseller, 2016 WL 9275395, at *5, AT&T in this case is accused of direct infringement by
using the components in its telecommunications network. AT&T is more than a mere reseller.
Four of the six causes of action accuse the customer, AT&T, of directly infringing method
claims while accusing the manufacturer, Ericsson or CommScope, of indirectly infringing the
8

Stipulation, Dkt. No. 79 at 2 (“3. Following severance, no Defendant will move to
transfer venue to any other court.”)
5

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method claims. 9 Similarly, the two causes of action concerning system claims accuse AT&T of
direct infringement and either Ericsson or CommScope of indirect infringement. 10 AT&T’s
agreement to be bound by the Court’s findings as to infringement by CommScope and Ericsson
and invalidity arguments raised by the same does not eliminate the potential need to adjudicate
AT&T’s direct infringement of the asserted method claims. Thus, this case also does not fall
within the customer-suit exception because the core allegations of the complaint are directed to
the role of AT&T as the direct infringer and Ericsson or CommScope as the indirect infringer.
Eli Lilly & Co., 2016 U.S. Dist. LEXIS 55205, *12.
Third, the rationale to stay under Rule 21 does not apply to this circumstance. Since
AT&T is accused of directly infringing multiple method claims involving the use of the accused
products, the claims against AT&T are not peripheral to those against the manufacturers Ericsson
and CommScope. Accordingly, adjudication of the claims against Ericsson and CommScope
would not necessarily resolve those against AT&T.
In sum, neither the customer-suit exception nor severance under Rule 21 supports staying
the cases as to AT&T.
B. Traditional Stay Factors
The first factor—whether a stay will prejudice the nonmoving party—weighs against a
stay. In contrast to Defendants’ assertions that Dali will not be prejudiced by a stay as to AT&T,
the stay would limit Dali’s ability to pursue its direct infringement claims against AT&T.
9

Complaint, Dkt. No. 1 at ¶¶ 76, 79 (accusing CommScope of indirectly infringing
method claim 7 of the ’358 Patent), ¶¶ 104, 107 (accusing Ericsson of indirectly infringing
method claim 1 of the ’338 Patent by AT&T and Ericsson), ¶¶ 127, 130 (accusing CommScope
of indirectly infringing method claim 12 of the ’232 Patent), ¶¶ 150, 153 (accusing Ericsson of
indirectly infringing method claim 12 of the ’232 Patent).
10
Id. at ¶¶ 182, 185 (accusing Ericsson of indirectly infringing system claim 1 of the ’499
Patent), ¶¶ 214, 217 (Accusing CommScope of indirectly infringing system claim 1 of the ’499
Patent).
6

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Additionally, Defendants themselves acknowledge that discovery as to AT&T becomes more
convoluted upon granting the stay. 11 To overcome the added hurdle, Defendants propose that
Ericsson or CommScope would serve as intermediaries for any discovery Dali seeks to serve on
AT&T. 12 Regardless of a stay as to AT&T, Dali would seek to obtain discovery from AT&T to
establish a reasonable royalty based on AT&T’s use of the accused products. Dali would be
prejudiced by a stay that would mitigate affirmative obligations under the Court’s Discovery
Order. Thus, the first factor weighs against a stay.
The second factor—whether a stay will simplify the issue in question and trial of the
case—weighs slightly against a stay. Staying claims against customers generally increases
efficiency and judicial economy, but this is a circumstance with a common customer accused of
direct infringement and two manufacturer suppliers accused of indirect infringement. AT&T
agrees to be bound by infringement determinations affecting CommScope and Ericsson, and
invalidity determinations adjudicated on the merits. 13 In isolation, AT&T’s agreement to be
bound weighs in favor of a stay. Nevertheless, resolving the infringement and damages issues as
to Ericsson and CommScope will not necessarily resolve all the issues as to AT&T. Since issues
may still remain as to AT&T, the second factor weighs against a stay. Rembrandt Wireless
Techs., LP v. Apple Inc., 2019 U.S. Dist. LEXIS 205698, *11–*12 (E.D. Tex. Nov. 27, 2019)
(finding that staying the case as to Apple pending resolution of a suit against component
manufacturers Broadcom and Qualcom would not simplify issues for trial because Apple was
accused of direct infringement whereas Broadcom and Qualcomm were accused of indirect
infringement).
The third factor—whether discovery is complete and whether a trial date has been set—
11

See Motion to Sever and Stay, Dkt. No. 77 at 15.
Id.
13
Motion to Sever and Stay, Dkt. No. 77 at 15.
12

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also weighs against a stay. The deadline for fact discovery is June 1, 2023, and trial is set for
October 16, 2023. 14 Discovery is underway, but the parties had until March 30, 2023 to
substantially complete document production and exchange privilege logs. 15 Litigation having
advanced to some extent since the filing of the complaint does not mean it has progressed so far
as to preclude a stay. See NFC Tech., 2015 WL 1069111, at *3, *8 (granting a motion to stay
even though “the parties had engaged in significant discovery, and claim construction briefing
was complete”).
In the aggregate, the traditional stay factors reinforce the conclusion that a stay is not
warranted.

IV.

CONCLUSION

For the reasons above, the Motion to Sever and Stay (Dkt. No. 77) is GRANTED-INPART as to severing the action into one case against AT&T and CommScope and another case
against AT&T and Ericsson, and consolidating the cases for pre-trial purposes in accordance
with the terms set forth in the Stipulation (Dkt. No. 79). The Clerk of Court is directed to (1)
open a new case between Plaintiff Dali Wireless, Inc. and Defendants AT&T Corp., AT&T
Communications LLC, AT&T Mobility, AT&T Mobility II LLC, AT&T Services Inc, Ericsson
Inc. and Telefonaktiebolaget LM Ericsson, (2) terminate Defendants Ericsson Inc. and
Telefonaktiebolaget LM Ericsson from the above-captioned case, and (3) consolidate the severed
case with the above-captioned lead case for pretrial purposes. The parties shall continue filing in

14

Fourth Amended Docket Control Order, Dkt. No. 114 at 1, 3.
Motion to Sever and Stay, Dkt. No. 77 at 15; Fourth Amended Docket Control Order,
Dkt. No. 114 at 4.
15

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the above-captioned lead case. The remaining request to stay the severed cases as to AT&T is
DENIED.
SIGNED this 3rd day of January, 2012.
SIGNED this 8th day of April, 2023.

____________________________________
ROY S. PAYNE
UNITED STATES MAGISTRATE JUDGE

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