Case 6:15-cv-00163-JDL Document 462 Filed 08/03/17 Page 1 of 9 PageID #: 18516
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`CHRIMAR SYSTEMS, INC., CHRIMAR
`HOLDING COMPANY, LLC,
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`Plaintiffs,
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`v.
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`ALCATEL-LUCENT ENTERPRISE USA
`INC.,
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`§
`§
`§
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`§
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`CIVIL ACTION NO. 6:15-CV-00163-JDL
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`Defendant.
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` MEMORANDUM OPINION AND ORDER
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`Before the Court is Defendant ALE USA Inc.’s (“ALE”) Motion to Modify Final
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`Judgment (Doc. No. 451). Plaintiffs Chrimar Systems, Inc. and Chrimar Holding Company, LLC
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`(“Chrimar”) filed a response (Doc. No. 452), to which ALE filed a reply (Doc. No. 454), and
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`Chrimar filed a sur-reply (Doc. No. 456). For the reasons stated herein, ALE’s Motion (Doc. No.
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`451) is DENIED.
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`BACKGROUND
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`On March 9, 2015, Plaintiffs Chrimar filed the instant action against ALE, alleging
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`infringement of U.S. Patent Nos. 8,115,012 (“the ’012 Patent”), 8,902,760 (“the ’760 Patent”),
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`8,942,107 (“the ’107 Patent”), and 9,019,838 (“the ’838 Patent”) (“patents-in-suit”)). (Doc. No.
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`3.) On October 7, 2016 the trial of this matter concluded and the jury returned a verdict as
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`follows: (1) Claims 31, 35, 43, and 60 of the ’012 Patent were not invalid; Claims 1, 5, 72, and
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`103 of the ’107 Patent were not invalid; Claims 1, 59, 69, 72, and 145 of the ’760 Patent were
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`not invalid, and Claims 1, 7, and 26 of the ’838 Patent were not invalid; (2) the sum of money
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`that would fairly and reasonably compensate Chrimar for ALE’s infringement was $324,558.34;
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`(3) ALE did not prove by a preponderance of the evidence that Chrimar committed fraud against
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`ALE; and (4) ALE did not prove by a preponderance of the evidence that Chrimar breached a
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`contract with the IEEE. (Doc. No. 349.) Both Chrimar and ALE moved to renew motions for
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`judgment as a matter of law pursuant to Rule 50(b). The Court denied the motions for judgment
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`as a matter of law on January 24, 2017. (Doc. No. 414.) Thereafter, on February 27, 2017, the
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`Court entered the parties’ agreed final judgment submitted in accordance with the Court’s post
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`trial rulings. (Doc. No. 423.) ALE filed a notice of appeal on March 28, 2017. (Doc. No. 438.)
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`Relatedly, during this time, Chrimar was involved in active litigation with one of ALE’s
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`suppliers of the accused products, Accton Technology Corporation (“Accton”). (Case No. 6:15-
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`cv-616.) On January 15, 2017, Chrimar filed a joint motion to stay deadlines, indicating it had
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`reached a settlement with Accton. (6:15-cv-616, Doc. No. 40.) On January 24, 2017, ALE wrote
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`its first email to Chrimar requesting that Chrimar produce the Accton settlement agreement.
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`(Doc. No. 454-4m at 6–7.) Chrimar produced the term sheet for the settlement with Accton on
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`January 26, 2017, but did not produce the settlement agreement. (Doc. No. 452-1.) The
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`settlement agreement was signed on March 2, 2017. (Doc. No. 451-1.) On June 7, 2017, ALE
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`emailed Chrimar asking that Chrimar produce the settlement agreement. (Doc. No. 454-4, at 3.)
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`Chrimar then produced the Accton settlement agreement on June 8, 2017. (Doc. No. 545-4, at 2.)
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`Thereafter, on June 30, 2017, ALE filed the instant motion to modify the final judgment
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`contending that Chrimar exhausted certain rights when it licensed Accton.
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`DISCUSSION
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`ALE moves to modify the final judgment in this matter to exclude damages and ongoing
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`royalties that are based upon Accton-supplied Power over Ethernet (“PoE”) devices to ALE
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`pursuant to Federal Rule of Civil Procedure 60(b). (Doc. No. 451, at 4.) Specifically, ALE
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`contends that the doctrine of patent exhaustion warrants the modification because Chrimar
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`licensed Accton and its customers (including ALE) to the patents-in-suit. Id. Chrimar argues that
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`ALE agreed to the final judgment after it knew about the Accton license and now brings this
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`motion just to gain leverage for mediation. (Doc. No. 452, at 3.) Moreover, Chrimar argues that
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`the doctrine of patent exhaustion does not apply because under the license agreement, products
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`sold to ALE are “Unlicensed Products.” Id.
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`A. Rule 60(b) and Waiver
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`As an initial matter, ALE brings this motion pursuant to Fed.R.Civ.P. 60(b), but does not
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`indicate the specific provision of 60(b) upon which it is relying to obtain relief from the Court.
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`Indeed, several of the provisions of Rule 60(b) are inapplicable. Federal Rule of Civil Procedure
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`60(b) provides:
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`On motion and just terms, the court may relieve a party or its legal representative from a
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`final judgment, order, or proceeding for the following reasons:
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`(1) mistake, inadvertence, surprise, or excusable neglect;
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`(2) newly discovered evidence that, with reasonable diligence, could not have
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`been discovered in time to move for a new trial under Rule 59(b);
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`(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or
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`misconduct by an opposing party;
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`(4) the judgment is void;
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`(5) the judgment has been satisfied, released, or discharged; it is based on an
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`earlier judgment that has been reversed or vacated; or applying it prospectively is
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`no longer equitable; or
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`(6) any other reason that justifies relief.
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`While ALE does not specify, presumably it moves under 60(b)(6) as the remainder of the
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`subsections in (1)–(5) do not apply to the current situation. Indeed, final judgment in this matter
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`was entered on February 27, 2017 (Doc. No. 424), and the Accton license agreement was
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`finalized just a few days later on March 2, 2017 (Doc. No. 451-1). While ALE did not have the
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`finalized agreement before the time for a Rule 59 motion, ALE was indisputably aware of the
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`license during that time as it had the material term sheet since January 26, 2017 (Doc. No. 452-
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`1).1 Thus, the prudent course of action would have been to notify the Court of the issue as soon
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`as practicable—certainly prior to the Court entering a purported agreed final judgment that did
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`not raise this issue. Therefore, the Court will apply the standards of Rule 60(b)(6) to the instant
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`motion.
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` Rule 60(b)(6) empowers federal courts with broad authority to relieve a party from a
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`final judgment. Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 863 (1988). A party
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`seeking 60(b)(6) relief “must file the motion within a ‘reasonable time,’ which depends upon the
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`particular facts and circumstances of the case. Travelers Ins. Co. v. Liljeberg Enterprises, Inc.,
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`38 F.3d 1404, 1410 (5th Cir. 1994) (citing Liljeberg, 486 U.S. at 863; First RepublicBank Fort
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`Worth v. Norglass, Inc., 958 F.2d 117, 119 (5th Cir.1992); Ashford v. Steuart, 657 F.2d 1053,
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`1055 (9th Cir.1981) (“What constitutes ‘reasonable time’ depends on the facts of each case,
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`taking into consideration the interest in finality, the reason for delay, the practical ability of the
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`litigant to learn earlier of the grounds relied upon, and prejudice to other parties”).) Only
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`1 Further, Chrimar filed a joint motion to dismiss Accton in the Accton case on March 3, 2017—the day after the
`license agreement was finalized. (6:15-cv-616, Doc. No. 42.) This was within the period when ALE could have
`brought a Rule 59 motion and was a public filing. At that time, ALE could have pressed Chrimar to produce the
`finalized agreement (which it did not do until June 7, 2017), or filed a motion to compel with the Court.
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`“extraordinary circumstances” justify 60(b)(6) relief. Gonzalez v. Crosby, 545 U.S. 524, 535
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`(2005).
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`While ALE should have provided earlier notice to the Court of this issue, ALE did timely
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`and persistently seek out the settlement agreement. Similarly, while ALE would have been
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`prudent in moving to compel Chrimar to produce the settlement agreement during the 3 months
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`from the time of its execution to ALE’s receipt of the agreement, ALE’s position was certainly
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`impacted by the Supreme Court’s issuance of Impression Products on May 30, 2017. It was
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`promptly thereafter that ALE procured the production of the finalized settlement agreement. For
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`these reasons, it would be unduly harsh to find waiver or that the instant motion is untimely.
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`Therefore, the Court will address the motion on the merits.
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`B. Patent Exhaustion
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`As discussed above, ALE seeks to modify the final judgment because ALE contends that
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`Chrimar exhausted its rights when it licensed ALE’s supplier of PoE products, Accton. “The
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`longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented
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`item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S.
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`617, 625 (2008). Recently, in Impression Products, the Supreme Court revisited the doctrine of
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`patent exhaustion. 137 S. Ct. 1523 (2017).
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`In Impression Products, Lexmark brought a patent infringement suit against Impression
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`Products, a remanufacturer, for refilling and reselling Lexmark toner cartridges. Id. at 1529.
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`Toner cartridges were obtained either through: (1) the full price program, where the cartridges
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`were sold brand new; or (2) through the “Return Program” where returned cartridges were
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`returned and resold. Id. Both options came with a contingency that the cartridges may not be
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`refilled and resold. Id. Additionally, Lexmark brought suit based on Lexmark cartridges
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`imported into the United States. Id. The Court found that Lexmark’s patent rights were
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`exhausted when the cartridges were originally sold and therefore Lexmark could not impose any
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`post sale restrictions. Id. Indeed, the Court’s holding was clear—“patent exhaustion is uniform
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`and automatic… [o]nce a patentee decides to sell—whether on its own or through a licensee—
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`that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to
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`impose, either directly or through a license.” Id. at 1535. Further, the Court held that a sale
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`abroad can indeed exhaust a patent right. Id. at 1536–38.
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`With respect to license agreements, the Supreme Court was clear in that, for exhaustion
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`purposes, it does not matter whether the patentee chooses to license or chooses to make the sale
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`itself because the licensee’s sale is treated as if the patentee made the sale itself. Impression
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`Prods., 137 S. Ct. at 1535 (a licensee’s authorized “sale is treated, for purposes of patent
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`exhaustion, as if the patentee made the sale itself.”). Thus, while Chrimar is correct in that the
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`facts of Impression Products are different because Lexmark itself made the sales, that distinction
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`is without a difference. Further, the Supreme Court made it clear that a license may impose
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`restrictions on a licensee, but any post-sale restrictions are not enforceable through patent law.
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`Id. at 1535–36.
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`Here, the parties dispute whether Chrimar exhausted certain rights in the patents-in-suit
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`when it licensed those patents to Accton, a PoE supplier of ALE. The bulk of the parties’
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`disputes revolve around specific provisions of the license agreement to Accton. Specifically, the
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`two provisions that the parties dispute are: (1) §1.10, the provision that grants Accton the right to
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`“make[], use[], offer[] to sell, or sell[], within the United States or import[] into the United
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`States” (emphasis added); and (2) §1.11 that defines Accton sales to a company currently
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`involved in litigation with Chrimar as “Unlicensed Products”. (Doc. No. 451-1.)
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`Looking to § 1.11 of the license agreement, Chrimar and Accton clearly agreed to except
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`certain products from the license agreement, specifically those products that Accton would sell to
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`companies currently in litigation with Chrimar. Section 1.11 states as follows:
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`“Unlicensed Products” shall mean any and all apparatuses, processes, products,
`computer programs, methods, services, activities, devices, and combinations of the
`foregoing that are not Licensed Accton Products, whether or not combined with one
`or more Licensed Accton Products. Subcomponent parts (such as by way of non-
`limiting example, Ethernet connectors, energy storage devices, circuit components,
`surface mount or plug-in modules (e.g., DIMM), chipsets or controllers and/or IC’s)
`are Unlicensed Products. In addition, PoE Devices that Accton sells to a Licensee of
`Chrimar or a company currently in litigation with Chrimar are Unlicensed Products
`under this Agreement, even if such PoE Devices otherwise meet the definition above
`for Licensed Accton Products. An approximate list of Chrimar’s licensees and
`companies currently in litigation with Chirmar is attached hereto as Exhibit D.
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`(Doc. No. 451-1, at 4) (emphasis added).
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`Indeed, in Exhibit D of the license agreement, ALE is set forth as one of those companies
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`currently in litigation with Chrimar. Id. at 19. ALE asks that the Court find that Chrimar
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`exhausted its rights when Accton sold PoE products to ALE; therefore, ALE asks the Court to
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`remit damages and preclude the ongoing royalties as to ALE for Accton-supplied products. But
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`Accton’s sales to ALE are not authorized sales because the license agreement with Accton
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`specifically defines any sales of PoE devices by Accton to a customer in active litigation with
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`Chrimar (such as ALE) as unlicensed. In other words, this is not a post-sale restriction, as was
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`the case in Impression Products, but rather a sale that exceeded the scope of the license
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`agreement and was therefore not authorized. In fact, this very concept was confirmed in
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`Impression Products when distinguishing and reaffirming the Court’s decision in General
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`Talking. See Impression Prods., 137 S. Ct. at 1535 (“General Talking Pictures, then, stands for
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`the modest principle that, if a patentee has not given authority for a licensee to make a sale, that
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`sale cannot exhaust the patentee’s rights.”).
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`This principle makes sense because in negotiating the license agreement, Accton agreed
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`to pay a sum to Chrimar for the sale of licensed products, which it knew did not include products
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`it sold to customers in active litigation with Chrimar. Thus, the amount of payment reflects an
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`agreed sum of money for Accton’s sale of PoE products covered by the patents-in-suit that it was
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`either directly selling in the United States (or importing), or that it was selling to customers not
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`involved in active litigation with Chrimar. Given this agreement, with respect to the Unlicensed
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`Products, Chrimar would have to seek recovery on those Accton-supplied products from the
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`customers in active litigation who sell or import products that are covered by the patents-in-suit.
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`Because Accton was not authorized to sell PoE devices to ALE pursuant to the express
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`terms of the license agreement, the Court finds that those sales did not exhaust Chrimar’s patent
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`rights. Quanta Computer, 128 S. Ct. at 2112 (“Exhaustion is triggered only by a sale authorized
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`by the patent holder.”).2 Therefore, because Chrimar did not exhaust its rights with respect to
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`PoE products sold by Accton to ALE, the Court finds no basis to modify the final judgment.
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`Accordingly, ALE’s Motion (Doc. No. 451) is DENIED.
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`CONCLUSION
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`For the reasons set forth herein, ALE’s Motion to Modify (Doc. No. 451) is DENIED.3
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`2 Because the Court finds Accton sales of PoE devices to ALE to be unauthorized sales, the Court need not further
`consider the territoriality clause of the license agreement.
`3 Chrimar has made a request for fees for the presentation of this motion. Although Chrimar has prevailed on the
`motion, the Court does not find such an award to be warranted under the circumstances.
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`Case 6:15-cv-00163-JDL Document 462 Filed 08/03/17 Page 9 of 9 PageID #: 18524
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`So ORDERED and SIGNED this 26th day of July, 2017.
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