Eastern District of Texas Rejects Apple’s Request for a Stay Under the Customer-Suit Exception to the First-to-File Rule Based in Part on Apple’s Decision to File IPR Petitions

Jan 13, 2020

Reading Time : 4 min

Factual Background and Relevant Legal Standards

On January 24, 2019, Rembrandt Wireless Technologies, LP sued Apple Inc. for infringing two patents related to systems and methods of wireless data communication. The Accused Products that Rembrandt has targeted with its infringement claims are Apple devices that incorporate certain Bluetooth chipsets to deliver the accused communication functionality. Although Apple purchases many of the chipsets from third-party manufacturers—specifically, Broadcom and Qualcomm—Apple itself also manufactures some of the chipsets. Apple additionally developed the software that is necessary for integrating and using the chipsets in the Accused Products.

Apple filed a motion to stay the lawsuit because on April 15, 2019, Rembrandt sued Broadcom and Qualcomm in the Central District of California for infringing on the same two patents. Apple argued in its motion that the court should grant a stay pursuant to the customer-suit exception, on the ground that Apple is merely a reseller of the chipsets, rather than the manufacturer.

The customer-suit rule is an exception to the normal first-to-file rule, under which a court will generally choose to stay, transfer, or dismiss a duplicative later-filed action. The exception allows a court to stay an earlier-filed case against a customer, so that a later-filed case against the manufacturer may proceed first. In determining whether the exception applies, courts consider three factors, including: (1) whether the customer in the first-filed action is a mere reseller of products manufactured by the defendant in the second-filed action; (2) whether the customer has agreed to be bound by any decision in the second-filed action; and (3) whether the defendant in the second-filed action is the only source of the allegedly infringing product. But as Judge Gilstrap stressed in his Order, “the guiding principles in the customer suit exception cases are efficiency and judicial economy.”

As Judge Gilstrap further explained, there are also three factors that courts generally consider in deciding motions to stay. Those factors 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 issues in question and the trial of the case; and (3) whether discovery is complete and a trial date has been set.

Judge Gilstrap’s Analysis

In deciding not to grant Apple’s stay motion, Judge Gilstrap conducted a three-part analysis. First, he held that, because Apple had filed three IPR petitions against the Asserted Patents after filing the motion, a stay would have been inconsistent with the customer-suit exception’s “guiding principles” and therefore was not warranted, regardless of whether Apple could satisfy the three factors of the customer-suit test. Judge Gilstrap reasoned that if he stayed the action, he would not be relieving Apple of the burdens of litigation (and thereby promoting judicial economy) since Apple had actively embraced those burdens by bringing additional litigation in another setting. Instead, a stay would merely deprive Rembrandt of the ability to seek redress in the forum, and under the procedural rules, of its choosing. Judge Gilstrap therefore concluded that granting a stay under the guise of efficiency and judicial economy would be inequitable where Apple continued to pursue litigation elsewhere.

Second, Judge Gilstrap explained that, even setting aside Apple’s inequitable conduct, the customer-suit factors still did not warrant a stay. For the Accused Products containing Apple-manufactured chipsets, the customer-suit exception did not apply because Apple was the manufacturer rather than the customer. Therefore, these products did not satisfy the first and third customer-suit factors, as Apple was the manufacturer and served as an additional source for the allegedly infringing products.

The outcome was the same for Accused Products containing Broadcom and Qualcomm chipsets. The patents-in-suit recited communication devices “configured to” or “capable of” performing certain functions. So, the question of whether Apple’s source code that integrates the chipsets enabled the accused functionality was directly relevant to infringement. As such, Apple’s role in integrating the chipsets prevented it from being a “mere reseller,” and its contribution to the development of the Accused Products showed that Broadcom and Qualcomm were not the sole source of those products.

Judge Gilstrap also found that the second factor did not support a stay, even though Apple agreed to be bound by the decision in the California litigation. With respect to the Apple-made chipsets, Judge Gilstrap explained that Apple’s agreement to be bound was both impractical and unreasonable, since Apple’s chipsets were not identical to the ones at issue in the later-filed action, and Rembrandt had not agreed to be bound by a decision in the California litigation. As for the Broadcom and Qualcomm chipsets, Judge Gilstrap found Apple’s stipulation sufficient, but that the overall balance of the factors still weighed against a stay.

Finally, Judge Gilstrap concluded that none of the three general stay factors supported a grant of Apple’s motion either. Regarding the first factor, he observed that granting a stay “would present a tactical disadvantage to Rembrandt in view of the recently filed IPR proceedings initiated by Apple.” On the second factor, he explained that a stay of a customer-suit generally will not simplify the issues where the customer is sued for direct infringement, while the manufacturer is sued for indirect infringement—especially where, as here, the allegedly infringing devices in the two cases are not identical. Turning to the third factor, Judge Gilstrap stressed that discovery was almost complete, the claim construction hearing was only a week away, and trial was scheduled to begin in only six months. Judge Gilstrap thus concluded that the general stay factors also weighed against granting Apple’s motion.

Rembrandt Wireless Technologies, LP v. Apple Inc., 19-CV-00025 (E.D. Tex. November 27, 2019) (Gilstrap, C.J.)

Practice Tip: Defendants looking to stay an earlier-filed patent infringement case under the customer-suit exception should be aware of its grounding in equity, and in the principles of efficiency and judicial economy, such that a court may shut down attempts to use the exception merely to gain a tactical advantage. More specific to the facts of this case, “customer” defendants should carefully weigh the value of filing an IPR petition against the value of obtaining a stay. Although there were multiple bases for the Court’s decision, Judge Gilstrap’s rationale suggests that merely filing an IPR Petition may be sufficient grounds to deny a stay under the customer-suit exception.

Share This Insight

Previous Entries

IP Newsflash

March 24, 2025

The Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) final written decision holding that the prior art exception of AIA Section 102(b)(2)(B) does not apply to a prior sale by an inventor when the sale is conducted in private. According to the Federal Circuit, a sale must disclose the relevant aspects of the invention to the public to qualify for the prior art exception of Section 102(b)(2)(B).

...

Read More

IP Newsflash

March 21, 2025

Under the Lanham Act, a plaintiff who prevails on a trademark infringement claim may be entitled to recover the “defendant’s profits” as damages. The Supreme Court in Dewberry Group, Inc. v. Dewberry Engineers Inc. unanimously construed “defendant’s profits” in 35 USC § 1117(a) to mean that only the named defendant’s profits can be awarded, not the profits of other related corporate entities. The Court, however, left open the possibility that other language in § 1117(a) may allow for damages linked to the profits of related entities, if properly raised and supported.

...

Read More

IP Newsflash

March 13, 2025

In a series of rulings on a motion in limine, the District of Delaware recently distinguished between what qualifies as being incorporated by reference and what does not for the purposes of an anticipation defense. In short, a parenthetical citation was held to be insufficient, while three passages discussing a cited reference met the test.

...

Read More

IP Newsflash

March 4, 2025

On February 28, 2025, the USPTO announced that it was rescinding former Director Vidal’s 2022 memorandum on discretionary denials by the Patent Trial and Appeal Board. The 2022 memorandum effectively narrowed the application of discretionary denials in cases with parallel district court litigation by specifying instances where discretionary denial could not be issued. With the withdrawal of the memorandum, individual PTAB panels will regain flexibility in weighing discretionary denials. While the long-term effect of that increased flexibility is not yet known, the immediate effect is likely to be a shift towards the discretionary analysis applied by PTAB panels before the issuance of the memorandum.

...

Read More

IP Newsflash

March 3, 2025

A District of Delaware judge recently granted a defendant’s motion to include a patent prosecution bar in its proposed protective order after determining that litigation counsel’s ability to practice before the Patent Office—without ever having represented the plaintiffs at the Patent Office in the past—weighed heavily in favor of the bar.

...

Read More

IP Newsflash

February 12, 2025

The Federal Circuit recently reversed a district court decision that found a patent that did not describe after-arising technology failed to satisfy the written description requirement. In so doing, the Federal Circuit explained that written description and enablement are evaluated based on the subject matter that is claimed, not the products that practice those claims. As a result, the patentee was not required to describe unclaimed, later-discovered features of the accused products despite the broad language in the claims that undisputedly covered the products.

...

Read More

IP Newsflash

January 24, 2025

The District of Delaware recently rejected a patentee’s argument that non-production of an opinion letter from counsel, combined with knowledge of the patent, warranted a finding that defendant induced infringement.

...

Read More

IP Newsflash

January 17, 2025

The District of Delaware recently denied a motion to dismiss a patent infringement complaint involving gene editing technology that sought relief under the Safe Harbor Provision of the Hatch-Waxman Act. Specifically, the court found the patentee’s complaint sufficiently alleged at least some uses of the claimed technology that, when taken as true, were not solely uses of a “patented invention” that were “reasonably related” to an FDA submission.

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.