Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 1 of 7 PageID #: 10122
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`CELLULAR COMMUNICATIONS
`EQUIPMENT, LLC.
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`Plaintiff,
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`v.
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`APPLE INC. et al.,
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`Defendants.
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`§ CIVIL ACTION NO. 6:14-cv-251
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`ORDER
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`Before the Court is Carrier Defendants’ Renewed Motion to Sever and Stay and Motion
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`for Expedited Consideration (“the Motion”). Doc. No. 108. For the reasons set forth below, the
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`Court GRANTS the Motion to Sever.
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`BACKGROUND
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`CCE alleges that Apple, Inc. (“Apple”), and several mobile carriers1 infringe U.S. Patent
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`No. 8,055,820 (“the ʼ820 Patent”). Doc. No. 12. The Carriers request that the claims against
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`them be severed and stayed until CCE’s claims against Apple, the manufacturer, are fully
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`resolved. Doc. No. 108. The Carriers previously filed a Motion to Sever and Stay (“Original
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`Motion”), requesting the same relief, in late 2014 when the case was assigned to Judge Davis.
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`Case No. 6:13-cv-507, Doc. No. 233. Judge Davis denied the Original Motion because there
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`were several factual determinations that could not be made at that stage in the proceedings. See
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`1 The carriers are AT&T Mobility LLC (“AT&T”), Cellco Partnership d/b/a Verizon Wireless, Sprint Solutions,
`Inc., Sprint Spectrum L.P., Boost Mobile, LLC, T-Mobile USA, Inc., and T-Mobile US, Inc. (collectively,
`“Carriers”).
`2 Initially, CCE alleged infringement of multiple patents. The ʼ820 Patent is the only one remaining.
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`1
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 2 of 7 PageID #: 10123
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`Case No. 6:13-cv-507, Doc. No. 373. The Carriers have now renewed their Original Motion.
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`Doc. No. 108.
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`APPLICABLE LAW
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`Under Federal Rule of Civil Procedure 21, a court may “sever any claim against a party.”
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`FED. R. CIV. P. 21. Under Federal Circuit law, “litigation against or brought by the manufacturer
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`of infringing goods takes precedence over a suit by the patent owner against customers of the
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`manufacturer.” Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990); In re Nintendo
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`of America, Inc., 756 F.3d 1363, 1365 (Fed. Cir. 2014). If the two suits [against the
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`manufacturer and against the retailer] are so closely related that “substantial savings of litigation
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`resources can be expected,” then the court will stay the proceedings until resolution of at least
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`the “major premises.” In re Google Inc., 588 F. App'x 988, 991 (Fed. Cir. 2014).
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`Courts exercise their discretion to sever only when three factors are met: (1) the remaining
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`claims are peripheral to the severed claims; (2) adjudication of the severed claims would
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`potentially dispose of the remaining claims; and (3) the § 1404(a) factors warrant transfer of the
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`severed claims3.” Shifferaw v. Emson USA, No. 2:09-CV-54, 2010 WL 1064380, at *1 (E.D.
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`Tex. Mar. 18, 2010).
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`ANALYSIS
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`The Court denied the Carriers’ Original Motion in early 2015, in part, because several
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`factual determinations remained and discovery was not complete at that time. Case No. 6:13-cv-
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`507, Doc. No. 373 at 16, 17. The Carriers re-urge the arguments from their Original Motion and
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`argue that since the case has progressed through claim construction, discovery, and expert
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`reports, the issue of severance is ripe for decision. Defendants argue that the Court should try
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`CCE’s claims against Apple first because under Shifferaw, the remaining claims against the
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`3 The third factor is not applicable in this case because the Carriers are not arguing for a transfer.
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`2
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 3 of 7 PageID #: 10124
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`Carriers are peripheral to the claims against Apple, and because adjudication of the severed
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`claims would most likely dispose of the remaining claims.
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`Under the first factor of Shifferaw, the remaining claims against the Carriers are
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`peripheral to the severed claims against Apple. In Shifferaw v. Emson, Plaintiff sued the
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`Manufacturer Mishan as well as Retailers Academy Sports & Outdoor and Amazon.Com. The
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`court noted that “[w]here a single manufacturer is the only entity in the U.S. who makes and sells
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`the only accused product to retailers, a patent infringement claim against a retailer is peripheral
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`to the claims against the manufacturer.” Shifferaw , 2010 WL 1064380, at *3 (citing Toshiba
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`Corp. v. Hynix Semiconductor, Inc., 2005 WL 2415960, at *4-6 (N.D. Tex. Sept. 30, 2005); LG
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`Elecs, Inc. v. Asustek Computers, 126 F. Supp. 2d 414, 422 (E.D. Va. 2000)). Similarly, in In re
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`Nintendo, a case in which Plaintiff Secure Axcess sued Distributor Nintendo and Retailer Best
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`Buy, the Federal Circuit stated that “[w]hen a patent owner files an infringement suit against a
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`manufacturer’s customer and the manufacturer then files an action of noninfringement or patent
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`invalidity, the suit by the manufacturer generally takes precedence.” Nintendo, 756 F.3d at 1365
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`(citing Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir.
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`2011); Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990)).
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`CCE contends that the carriers do more than merely resell the accused products provided
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`by the manufacturers. Here, the Carriers must configure the device in a way that is compatible
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`with their network. CCE further contends that this case is not like Nintendo because the Carriers
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`take the extra step of bundling the Apple iPhones and iPads (“accused devices”) with service
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`plans and imposing standards which must be maintained in order to use the device. However,
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`CCE’s infringement allegations are limited to the source code on a baseband chip, which is
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`manufactured and supplied by Qualcomm Technologies, Inc. (“Qualcomm”). Apple then sells
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`3
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 4 of 7 PageID #: 10125
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`packaged iPhones and iPads (the accused devices, which each contain the baseband chip) to the
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`Carriers, who then resell the devices to retail customers. That the Carriers impose standards and
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`bundle the accused devices with service plans is irrelevant because it does not change the fact
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`that they do not modify or alter the patented technology at issue, which is the source code on the
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`baseband chip.
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`Indeed, Defendants have produced evidence that they do not have access to the highly
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`proprietary source code. CCE’s own expert, Dr. Caloyannides testified that “Qualcomm is the
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`only entity that has access to the point where they can disable or enable select functionality
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`within a chip and not the individual carriers . . . .” Doc. No. 122-4 (Ex. 3 at 394:5-24).
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`Additionally, the Supplemental Protective Order prohibits Defendants from accessing the
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`Qualcomm source code. Case No. 6:13-cv-507, Doc. No. 447 ¶¶ 24, 26. To date, “Qualcomm
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`[has] only agreed to produce the source code for its baseband chipsets on an ‘outside attorneys’
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`eyes only’ basis under a supplemental protective order with strict requirements that prohibit any
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`of Defendants’ employees or in-house counsel from accessing the code.” Doc. No. 122 at 10.
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`Thus, although this is a closer call than Nintendo, it is not enough to deviate from it. The heart
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`of the Federal Circuit’s analysis in Nintendo is that where issues of infringement and validity are
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`common to both the Manufacturer and Retailer Defendants, severance is appropriate. Nintendo,
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`756 F.3d at 1366. And since the source code on the Qualcomm chips is the same in every single
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`iPhone or iPad device, regardless of whether it is sold by Apple, AT&T, Sprint, or any other
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`Carrier in this case, Nintendo is applicable. See Hearing Recording at 1:45 p.m.
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`Further, while CCE contended at the hearing that there are unique induced infringement
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`claims against the Carriers in its Amended Complaint, CCE drafted a single set of identical
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`infringement contentions for Apple and for all Carriers. Doc. No. 73 ¶¶ 40-56. Similarly, CCE
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`4
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 5 of 7 PageID #: 10126
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`only produced a single infringement expert report for Apple and for all the Carriers to support
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`these identical infringement contentions. Doc. No. 122-3 (Ex. 2). Just as in Shifferaw, CCE has
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`proffered no evidence suggesting that the Carrier Defendants had any meaningful role in the
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`design or manufacture of the component that implements the patented BSR functionality,
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`namely, the Qualcomm baseband chip. See Shifferaw, 2010 WL 1064380, at *3 (relying on the
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`fact that “Shifferaw ha[d] presented no evidence, nor [did] he even argue that the Retailer
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`Defendants [Amazon and Academy] had any role in the design or manufacture of the accused
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`products.”). Because the infringement claims against the Carriers are substantively identical to
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`the infringement claims against Apple, the remaining claims against the Carriers are peripheral to
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`the severed claims against Apple.
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`Under the second factor of Shifferaw, adjudication of the severed claims in this case
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`against Apple would very likely dispose of the remaining claims against the Carriers. First, the
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`Carriers can only be liable if the patent infringement claims against Apple are resolved in favor
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`of the plaintiff. Nintendo, 756 F.3d at 1366 (“Since Nintendo’s liability is predicate to recovery
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`from any of the Defendants, the case against Nintendo must proceed first, in any forum.”). Thus
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`if Apple is not found liable, then CCE of course has no claim against the Carriers for patent
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`infringement. It is well established law that “where there has been no direct infringement, there
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`can be no inducement of infringement under § 271(b).” Limelight Networks, Inc. v. Akamai
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`Techs., Inc., 134 S. Ct. 2111, 2117 (2014). Second, if Apple is found liable and CCE does
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`collect damages from Apple, CCE cannot then in turn collect damages from the Carriers, because
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`CCE cannot receive a double recovery for the same sales. See Nintendo, 756 F.3d at 1366
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`(recognizing the district court’s ruling that “‘the issues of infringement and invalidity are
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`common to Nintendo and the Retailer Defendants’ and that if Secure Axcess were to collect
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`5
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 6 of 7 PageID #: 10127
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`royalties from Nintendo, this would preclude suit against the Retailers.”). Further, CCE’s own
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`expert, Mr. Green, confirmed that recovery from Apple would bar recovery from the Carriers.
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`Ex. 9 at 228:19-229:21.
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`Additionally, Plaintiff’s contention that resolution of the claims against Apple will not
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`dispose of the willful infringement allegations against the Carriers does not justify keeping the
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`case together. In Shifferaw, Plaintiff made the same argument CCE raises—that facts giving rise
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`to the Retailers’ potential defenses to willful infringement were personal to the Retailers,
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`necessarily rendering the infringement claims against the Retailers non-peripheral to the claims
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`against the manufacturer. Shifferaw, 2010 WL 1064380, at *3. The Court nonetheless held,
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`“[a]lthough the plaintiff may have to present evidence of willful infringement against the two
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`retailers, this is not a case where severance will create multiple lawsuits that have to be
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`developed in their entirety.”4 Id. Further, the Federal Circuit has clarified that “the
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`manufacturer’s case need only have the potential to resolve the ‘major issues’ concerning the
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`claims against the customer—not every issue—in order to justify a stay of the customer suits.”
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`Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1358 (Fed. Cir. 2011)
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`(citing Katz, 909 F.2d at 1464).
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`Finally, the Carriers have agreed to be bound by the invalidity and infringement rulings
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`in this case as to Apple. This strongly suggests that adjudication of the severed claims against
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`Apple will dispose of the remaining claims against the Carriers. See Shifferaw, 2010 WL
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`1064380, at *3 (“Further, the fact that Retailer Defendants will stipulate that they will be bound
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`by the rulings by the Southern District of New York in the case against [Manufacturer] Mishan
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`4 It also bears emphasis that CCE has already stipulated to no pre-filing of willful infringement claims against
`carriers.
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`6
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`Case 6:14-cv-00251-KNM Document 245 Filed 08/26/16 Page 7 of 7 PageID #: 10128
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`weighs heavily towards a finding that adjudication of the claims against [Manufacturer] Mishan
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`would likely dispose of the rest of the case.”).
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`CONCLUSION
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`On balance, severance of this case would “facilitate convenient, efficient, and less
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`expensive determination” of this action. In re Nintendo, 756 F.3d at 1365. The Carriers have
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`adequately shown that CCE’s claims against the Carriers are peripheral to the claims against
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`Apple, and that adjuciation of claims against Apple would very likely dispose of the remaining claims
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`against the Carriers. Thus, the Court GRANTS Carrier Defendants’ Renewed Motion to Sever
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`and Stay. The case against the Carriers is hereby STAYED until completion of the trial against Apple.
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`7
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`So ORDERED and SIGNED this 26th day of August, 2016.
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