No Stay of District Court Proceedings Pending Appeal of Preliminary Injunction

Fairchild Semiconductor v. Third Dimension (3D) Semiconductor (Fed. Cir. 2009) (nonprecedential order)

Fairchild originally licensed 3D's US and Chinese patents - agreeing to a royalty for all Fairchild products "covered by" a 3D patent. However, after analyzing the patents, Fairchild decided that it need not pay any royalties and then sued for a declaratory judgment that it owed no royalties and that none of its products are covered by 3D's patents.

Restraining License Termination: In a preliminary ruling, the district court granted Fairchild's request for a preliminary injunction prohibiting 3D from terminating the license agreement. The ongoing license serves as a defense to charges of patent infringement by 3D. As the district court held, "termination of the agreement does create irreparable harm in depriving Fairchild of its primary defense to 3D patent infringement litigation.

The threat of such litigation is not speculative: 3D has already filed a complaint in the United States District Court for the Eastern District of Texas and has promised to file an infringement case in China based on the Chinese patents otherwise licensed by the Agreement. Without the Agreement as an affirmative defense to those suits, Fairchild could be forced to endure years of litigation in those other forums despite this Court eventually ruling that Fairchild did not breach the Agreement.

The preliminary injunction is now on appeal to the Federal Circuit. In a recent order, the appellate panel rejected 3D's motion to stay the district court proceedings pending outcome of the appeal. 3D argued that the appeal divested the district court with jurisdiction over the matter. That argument was regarded "without merit."

A preliminary injunction, i.e., an injunction pendente lite, is an injunction issued pending the ongoing litigation. Although a district court may not proceed with matters involved with the injunction itself, e.g., it may not amend the injunction, or make findings to support its injunction while the injunction is on appeal, the district court may proceed with the litigation and permit discovery, enter rulings on summary judgment, or hold a trial on the merits. (internal citations omitted)

Briefing in the appeal will begin in April.

Notes & Docs:

• Federal Circuit Order
• Dennis Crouch, Enforcing Foreign Patents in the US: Distinguishing Voda, Patently-O (Dec. 12, 2008) at http://www.patentlyo.com/patent/2008/12/enforcing-forei.html.

Comments

[greasey]

So stopping payment of royalties = no breach?

[Roger Karp]

I always thought that a "pendente lite" was an action that had all the force and authority of a regular pendente, but only half the calories. But civil procedure was never my strong area of law.

[Leopold Bloom]

"So stopping payment of royalties = no breach?"

Not if the royalties only apply to products "covered" by the patents and there are in fact no products covered by the patents. That's why it's foolish to write a license agreement that way, unless you're just itching for future litigation. Figure out an objectively identifiable royalty base, agree on the numbers, and move on. If you make contract obligation dependent on claim scope and/or claim validity, you're begging for a challenge to one or both.

[Paul F. Morgan]

Since Fairchild filed its DJ action first, in a D.C., should not the ED TX D.C. normally be required to transfer its later-filed infringement case on the same patents between the same parties to that first D.C. [much less to not stay the first-filed case for the second (as apparently attempted here)] ?

[Bob Matthews]

The first-to-file rule, while often followed, is not an absolute rule. Its a general rule subject to exceptions where not following the rule will achieve judicial economy.

Electronics for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1347-48, 73 USPQ2d 1528, 1532 (Fed. Cir. 2005) (“We apply the general rule favoring the forum of the first-filed case, unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, requires otherwise. Exceptions are not rare, but we have explained that there must be sound reason that would make it unjust or inefficient to continue the first-filed action. While it is true that a district court may consider whether a party intended to preempt another’s infringement suit when ruling on the dismissal of a declaratory action, we have endorsed that as merely one factor in the analysis. Other factors include the convenience and availability of witnesses, or absence of jurisdiction over all necessary or desirable parties, or the possibility of consolidation with related litigation, or considerations relating to the real party in interest. The considerations affecting transfer to or dismissal in favor of another forum do not change simply because the first-filed action is a declaratory action.” - reversing dismissal of first-filed DJ action)

See also

Micron Technology, Inc. v. Mosaid Technologies, Inc., 518 F.3d 897, 902-03, 86 USPQ2d 1038, 1042 (Fed. Cir. 2008) (instructing that in situations where a competing infringement and declaratory judgment action are filed close in time, courts should look at the § 1404(a) convenience factors in deciding whether to give effect to the first-to-file rule – “[T]he ease of obtaining a declaratory judgment could occasion a forum-seeking race to the courthouse between accused infringers and patent holders. Thus, in cases such as this with competing forum interests, the trial court needs to consider the ‘convenience factors’ found in a transfer analysis under 28 U.S.C. § 1404(a).” – reversing dismissal of plaintiff’s declaratory judgment complaint for lack of subject matter jurisdiction and ruling that patentee’s four-year history of suing other chip manufacturers and sending of warning letters created a sufficient case or controversy even though the patentee never made any specific threats to the plaintiff).

In the specific case discussed in this post, however, its is my understanding that the ED Texas court ruled that its was the second-filed venue and followed the first-to-file rule to transfer the Texas action to Maine; with an interesting ruling on how to account for different time zones.

Third Dimension Semiconductor, Inc. v. Fairchild Semiconductor Intern., Inc., No. 6:08-CV-200, 2008 WL 4179234, *2 (E.D. Tex. Sept. 4, 2008) (ruling that first-to-file rule applies absolute time in determining who filed first, and therefore suit filed at 12:01 am Eastern Time was first-filed to a suit filed at 12:00 am Central time, and applying first-to-file rule to transfer patentee’s second-filed infringement action to the forum of the first-filed declaratory judgment action, where the forum of the first-filed suit had already issued a temporary restraining order and set a trial date which would be well before any date the Texas court could set, and rejecting patentee’s argument that it should keep the case because the patentee had an earlier filed infringement action pending on the same patent but against different accused infringers – “Judicial economy and the Maine court’s interest in hearing this case also favor transfer. The Maine court has already issued a temporary restraining order; an answer has been filed; the case has reached the discovery stage; and the court has set the case for trial on June 1, 2009. If this Court proceeds without transfer to the District of Maine, the same issues addressed by the Maine court will be needlessly reconsidered. Also, Maine has an interest in preserving consistent judgments for its citizens. If the Maine court does not decide this case and the Maine case together, then Fairchild may be subject to differing decisions in different venues. Third Dimension argues that the Maine case should be denied first-filed status because it filed an earlier case against Infineon involving the same patent as this case. Judicial efficiency favors transfer to the District of Maine over maintaining and consolidating the case in this Court. While this case and the Infineon case involve the same patent, that is the extent of the similarity. The parallels between this case and the Maine case are more substantial. Furthermore, the Infineon case is in its early stages. The defendant has not filed an answer, and the parties have not met for a status conference. Transferring this case to the District of Maine would preserve judicial resources to a greater extent than would be preserved if this Court retained and consolidated this case with the Infineon case.”)

If you have a further interest in the firt-to-file rule, cases addressing various aspects of the rule can be found in sections 37:93 through 37:101.50 of the Annotated Patent Digest (available on Westlaw).

[Dennis Peterson]

Hi there,

I found your blog at(http://www.patentlyo.com/patent/2009/03/no-stay-of-district-court-proceedings-pending-appeal-of-preliminary-injunction.html#comment-captcha) very interesting and thought to become a follower of this blog.My name is Dennis Peterson,a community member at Patents dot Com(a comprehensive free patent search engine).Will like to talk(through email) to you,is this the right time to talk about or should we talk during weekends ?

Regards,
Dennis Peterson

E-dennisptrson@gmail.com

[Babel Boy]

Be careful about that "patents dot com" comment. It smells like a trojan or other fukware. Here's the exact same message sent to The Patent Librarian's Notebook blog:

"I found your blog post very interesting.i am Nick Robinson,a community member at Patents dot Com(a comprehensive free patent search engine).Will like to talk(through email) to you,is this the right time to talk about or should we talk during weekends?

Regards,
Nick Robinson

E-nickrbson@gmail.com"

[Careful reader]

The comment contains an unfortunate error that should be corrected: Fairchild never paid any royalties under the license. The dispute arose when Third Dimension demanded royalties and Fairchild refused on the ground that none of its products are "covered by" the licensed patents.