United States District Court, E.D. Virginia, Norfolk Division
OPINION AND ORDER
S. DAVIS UNITED STATES DISTRICT JUDGE
matter is before the Court on a Motion to Dismiss Dell's
Counterclaims I-X and Strike Dell's Seventh Affirmative
Defense, ECF No. 248, and, in the alternative, a Motion for a
Separate Trial and Stay of Dell's Counterclaims I-X and
Patent Misuse Affirmative Defense,  ECF No. 253, both of which
were jointly filed by Audio MPEG, Inc. ("Audio
MPEG"), U.S. Philips Corporation ("Philips"),
TDF SAS ("TDF"), Institute fur Rundfunktechnik GmbH
("IRT") (collectively, "Plaintiffs"), and
Counterclaim Defendant Society Italiana per lo Sviluppo
dell'Elettronica S.p.A. ("SISVEL")
(collectively with Plaintiffs,
"Counter-Defendants"). For the reasons set forth
below, the Court GRANTS the Motion for a Separate Trial,
DISMISSES as MOOT the Motion to Stay the counterclaims and
patent misuse defense, and TAKES UNDER ADVISEMENT the Motion
FACTUAL AND PROCEDURAL BACKGROUND
patent infringement action arises out of alleged infringement
by Defendant Dell Inc. ("Defendant" or
"Dell"), of the following audio technology patents:
United States Patent No. 5, 323, 396 ("the '396
patent"), United States Patent No. 5, 777, 992
("the *992 patent"), and United States Patent No.
5, 539, 829 ("the '829 patent") (collectively,
the "asserted patents"). Compl. ¶¶ 19-46.
Through compression of audio files using MPEG
Standards to encode and decode digital audio
signals, the patented technologies facilitate the playing of
music and other audio on electronic devices. Id.
¶¶ 2, 22.
to the complaint, plaintiffs Philips, TDF, and IRT
("Patent Owners")/ own the asserted patents,
id. ¶ 24, and plaintiff Audio MPEG has the
exclusive right in the United States to license, sue, and
collect fees, costs, and damages relating to infringement of
the asserted patents on behalf of all Plaintiffs,
id. ¶ 41. Since 1996, the Patent Owners have
offered a "joint license" on all of the Patent
Owners' MPEG audio patents, including the asserted
patents, prior to their expiration. Id. ¶ 42.
The '396 patent and thex 992 patent expired on
June 21, 2011, id. ¶¶ 6, 30, and the
'829 patent expired on July 23, 2013, id. ¶
February 20, 2015, Plaintiffs filed a three-count complaint
in the Norfolk Division of this Court alleging that
Hewlett-Packard Company ("HP") infringed the
asserted patents. See generally HP Compl., ECF No.
1. On December 21, 2015, Plaintiffs filed a three-count
complaint against Dell in the Alexandria Division of this
Court alleging that Dell infringed the asserted patents.
Compl., Audio MPEG, Inc., v. Dell, Inc., No.
I:15cvl674 (E.D. Va. 2015). On February 22, 2016, the
Alexandria Division transferred the Dell case to the Norfolk
Division to be consolidated with the HP case. No. 2:15cv73,
ECF No. 73. On May 16, 2016, Plaintiffs and HP settled,
leaving Dell as the sole remaining defendant in the case.
Hr'g Tr. 3:22-4:16, ECF No. 136.
allege that Dell directly infringed claims in the asserted
patents by "manufacturing, using, selling, importing,
and/or offering for sale products that include capabilities
required by the MPEG standards, including, but not limited
to[, ] Dell computers and electronic devices containing
Cyberlink PowerDVD (such as Latitude D530, Latitude D630,
Latitude D830, and Dell Precision M6300) or Roxio Creator
(such as Latitude D630)." Compl. ¶¶ 51, 60,
69. Plaintiffs also allege that Dell indirectly infringed
claims in the asserted patents by inducing and contributing
to infringement by others. Id. ¶¶ 52-53,
61-62, 70-71. Plaintiffs further allege that Dell continued
its infringing activities even after Audio MPEG informed
Dell, no later than July 1, 2004, that "all
Defendant's products incorporating the MPEG Audio
encoding and decoding capabilities required by at least one
of the MPEG standards are covered by [the asserted
patents]." Id. ¶¶ 52, 61, 70.
denies that the patents were "duly and legally issued,
" Answer ¶¶ 47, 56, 65, ECF No. 184, arguing
that the patents are invalid because the inventors failed to
satisfy the conditions of patentability specified in 35
U.S.C. § 100, et seq., Aff. Defenses ¶ 1,
ECF No. 184. Further, Dell denies that it has directly or
indirectly infringed on the patents. Answer ¶¶
51-53, 60-62, 69-71. Dell asserts defenses of prosecution
history estoppel; exhaustion; license; waiver, laches,
and/or estoppel; patent misuse; prosecution laches; and
argues for a limit on any damages. Aff. Defenses ¶¶
Counterclaim against Counter-Defendants, Dell asserts
violations of the Sherman Act, civil conspiracy under
Virginia state law, common law conspiracy, breach of
contract, promissory estoppel, waiver, and prosecution laches
(collectively, the "antitrust claims"). Countercl.
¶¶ 152-224. Arguing both federal antitrust law and
Virginia state law, Dell alleges that Counter-Defendants are
direct competitors with each other but have illegally pooled
their patents together (the "SISVEL patent pool"),
which improperly restrains trade and creates a monopoly.
Id. ¶¶ 152-187, 196-203. According to
Dell, Counter-Defendants illegally pooled their patents
together by including expired and unrelated patents in the
SISVEL patent pool and not varying or reducing the licensing
fee as patents within the pool expired, and by not competing
against each other in the marketplace due to their patent
pool arrangement. Id. ¶¶ 131-147, 169-172.
Dell argues that Counter-Defendants specifically conspired to
injure Dell through license agreements with
"Co-Conspirator A" and "Co-Conspirator B,
" respectively, which required "Counter-Defendants
to license the SISVEL patent pool to Dell or sue Dell for
infringement." Id. ¶¶ 159, 189-195.
addition to improperly pooling their patents, Dell argues
that, because MPEG was adopted as an international standard,
Counter-Defendants were obligated to offer patent licenses on
fair, reasonable, and nondiscriminatory terms ("FFAND
terms"), but failed to do so. Id., ¶¶ 204-209.
According to Dell, Counter-Defendants are charging a
"supra-competitive" license fee for the patent
pool, in violation of federal and state law. Id.
¶¶ 145-149. Dell asserts that it has "suffered
substantial injury to its business and property as a result
of the Counter-Defendants' unlawful conduct, "
id. ¶ 144, and asserts that
Counter-Defendants' conduct "has caused, and will
continue to cause, substantial anticompetitive effects to
competition generally, and specifically to competition in the
United States, " Id. ¶ 179.
August 26, 2016, Counter-Defendants filed a Motion to Dismiss
Dell's Counterclaims I-X and Strike Dell's Seventh
Affirmative Defense (patent misuse defense), ECF No. 248, and
filed an alternative Motion for a Separate Trial and Stay of
Defendant's Counterclaims I-X and Patent Misuse
Affirmative Defense, ECF No. 253. On October 24, 2016, Dell
filed a response to Counter-Defendants' Motion to
Dismiss, ECF No. 308, and a response to the Motion for
Separate Trial, ECF No. 206. On November 4, 2016,
Counter-Defendants filed a reply brief in support of their
Motion to Dismiss, ECF No. 334, and a reply-brief in support
of the Motion for a Separate Trial, ECF No. 329. The case was
then reassigned to this Judge on March 20, 2017. In a
telephonic status conference with the parties on April 24,
2017, the Court reviewed the case status with the parties and
explained that it would rule on the motion to bifurcate and
would consult with the co-assigned Magistrate Judge regarding
the motions in limine. Status Conf. Tr. 65-66, ECF No. 616.
The Court recommended that, after receiving its bifurcation
ruling, the parties may wish to consider returning to
settlement discussions. Id. Having been fully
briefed and considered by this Court, Counter-Defendants'
Motion to Dismiss and Motion for a Separate Trial are now
ripe for review.
Federal Rule of Civil Procedure 42(b), "the court may
order a separate trial" of counterclaims "[f]or
convenience, to avoid prejudice, or to expedite and
economize. ..." Fed.R.Civ.P. 42(b). As an initial
matter, the Court must determine which circuit law controls
application of Rule 42 (b) to the combined patent
infringement and antitrust claims in this case. While there
is little discussion of this question in the case law, it
appears that the Court should look to precedent from the
United States Court of Appeals for the Federal Circuit to
determine "[w]hether and under what sets of facts patent
issues should be separated for trial, " because, while a
procedural matter, it "implicat[es] the jurisprudential
responsibilities of [the Federal Circuit] in the field of
patent law." In re Innotron Diagnostics, 800
F.2d 1077, 1084 (Fed. Cir. 1986). Therefore, the Court
primarily will look to Federal Circuit precedent in deciding
whether to bifurcate trial of the patent infringement claims
from the antitrust claims.
a trial court "has broad discretion with regard to trial
management, " a decision to bifurcate a trial is
reviewed for an abuse of discretion. Shum v. Intel
Corp., 499 F.3d 1272, 1276 (Fed. Cir. 2007) (citing
Danjag v. Sony, 263 F.3d 942, 961-62 (9th Cir.
2001)). "In the context of patent cases,
'[e]xperienced judges use bifurcation and trifurcation
both to simplify the issues in patent cases and to maintain
manageability of the volume and complexity of the evidence
presented to a jury.'" Enzo Life Scis., Inc. v.
Digene Corp., No. CIV.A. 02-212-JJF, 2003 WL 21402512,
at *5 (D. Del. 2003) (quoting Thomas L. Creel & Robert P.
Taylor, Bifurcation, Trifurcation, Opinions of Counsel,
Privilege and Prejudice, 424 PLI/PAT 823, 826 (1995)).
However, the Court's discretion is not without limits.
For example, "[w]hen deciding whether issues should be
separately tried, trial courts must ensure that a
litigant's constitutional right to a jury is
preserved." Shum, 499 F.3d at 1276. In
examining the factors of convenience, prejudice, and judicial
economy under Rule 42(b), the United States Court of Appeals
for the Federal Circuit has stated that "the major
consideration is directed toward the choice most likely to
result in a just final disposition of the litigation."
In re Innotron Diagnostics, 800 F.2d at 1084 (citing
9 Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedure § 2388 (1971)).
Bifurcation of ...