Infinite Data v. Amazon: Lawsuit Against Customer Defendants Stayed if Customers Agree to be Bound by Findings of Invalidity in Lawsuit Against Manufacturer

by Jeffer Mangels Butler & Mitchell LLP

Infinite Data filed twenty-one patent infringement actions against a number of companies, including Mellanox Technologies sued Infinite Data for a declaratory judgment that its technology does not infringe Infinite Data's patent and that the patent is invalid. Mellanox also alleged that it had received indemnification requests from "many" of the twenty-one defendants because many of them are users and/or customers of Mellanox's technology.

All twenty-one defendants filed motions to stay, arguing that each of them use Mellanox's technology, and that the Court should exercise its discretion to stay their cases while the Mellanox case proceeds. To begin its analysis, the district court noted the standard for a stay: "(1) whether granting the stay will simplify the issues for trial; (2) whether discovery is complete and a trial date is set; and (3) whether granting a stay would cause the non-moving party to suffer undue prejudice from any delay, or a clear tactical disadvantage. See, e.g., Vehicle IP LLC v. Wal--Mart Stores, Inc., 2010 WL 4823393, *1 (D.Del. 2010)."

The district court found that "the second one clearly favors a stay. The requests have been made at the beginning of the case. The Rule 16 conference scheduled in October 2013 was postponed on the Court's initiative, there is no trial date, and there has been no formal discovery."

The district court then considered that the first and third factors overlap to some extent. "In regard to the first factor, Mellanox knows its technology better than the defendants. It is in the best position, and probably has the most motivation, to litigate issues of infringement and invalidity. As a practical matter, if it settles the case, in view of its indemnification obligations, it will have to resolve at least some of the customer cases. If the case is litigated to the end, it might resolve either infringement or invalidity issues decisively, or, if the decisions are in favor of Infinite Data, in such a way that as a practical matter there are fewer issues remaining. Thus, there is significant potential for simplification of the issues if the Mellanox litigation goes first."

With respect to the third factor, the district court noted that "there is almost always prejudice in delay, and this case is no different." However, the district court also stated that "Infinite Data is not a competitor, so it can be recompensed by monetary damages. Thus, any prejudice is not particularly great, as a monetary judgment at a later time should still adequately compensate Infinite Data for its injury. I also consider tactical disadvantages. I would have to be willfully blind not to understand that it is a significant tactical advantage for Plaintiff to be herding twenty-one defendant cats, and that it would significantly alter the tactical landscape if the defendants are able to sit on the sidelines and let their champion, Mellanox, do battle."

Therefore, the district court concluded that "it makes sense to me to proceed with the Mellanox case and stay the others, since I think resolution of the Mellanox case will most likely significantly advance the ball towards resolution of, at least, many of the cases."

The district court also concluded that in fairness to Infinite Data it should also receive a benefit from the stay. "I am, however, concerned about fairness to Infinite Data, which, after all, did not sue Mellanox. Thus, it seems to me that if I am going to force Infinite Data to forego chasing its preferred targets, Infinite Data ought to get something concrete out of it, which would also offer a better chance of locking in the simplification that could result from Mellanox going first. In that regard, I think the defendants ought to get one shot at invalidity, and, if they are willing to have Mellanox take that shot, then I believe that the balance tips in favor of granting a stay. For the defendants who want to be able to litigate (or relitigate) invalidity, it seems best to have them do so on the same schedule as Mellanox, and, for them, I will deny a stay."

Infinite Data LLC v. Inc., Case No. 12-1616-RGA (D. Del. Jan. 24, 2014)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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