Carnegie Mellon University v. LSI Corporation

• Court: District Court, N.D. California
• Decided: September 18, 2020
• Docket: 3:18-cv-04571
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 CARNEGIE MELLON UNIVERSITY, Case No. 18-cv-04571-JD

8 Plaintiff, ORDER RE PARTIAL SUMMARY 9 v. JUDGMENT

10 LSI CORPORATION, et al., Re: Dkt. No. 146 Defendants. 11

12 Plaintiff Carnegie Mellon University (“CMU”) holds United States Patent No. 6,201,839 13 (’839 patent) and United States Patent No. 6,438,180 (’180 patent). As alleged in the complaint 14 for patent infringement against defendants LSI Corporation and Avago Technologies U.S. Inc. 15 (collectively, LSI), the patents “generally claim a method used in a ‘read channel’ for improving 16 the accuracy of detecting data written to a storage medium, such as a magnetic disk in a hard disk 17 drive (‘HDD’).” Dkt. No. 1 ¶ 2. CMU says that LSI designed and supplied HDD read channel 18 products that practiced the methods claimed in the patents. The accused products included devices 19 such as HDD controller systems-on-a-chip (SOCs), stand-alone read channel chips, and simulators 20 used to mimic and model the operation of the accused devices. See id. ¶¶ 15, 22; Dkt. No. 145-8 21 (amended infringement contentions). 22 With the Court’s consent, see Dkt. No. 89, LSI filed an early motion for partial summary 23 judgment on the grounds of a “have made rights” defense. Dkt. No. 146. LSI says that it supplied 24 the accused products to two licensees of CMU -- non-parties Seagate Technology PLC 25 (“Seagate”) and Hitachi Global Storage Technologies (“HGST”) -- which were contractually 26 27 1 authorized to outsource the development and manufacturing of licensed products. Dkt. No. 145-4 2 at 1.1 In LSI’s view, this defense bars “about 90% of the total damages sought by CMU.” Id. at 2. 3 The Court grants summary judgment to LSI on the existence of have made rights. The 4 plain language of the Seagate and HGST licenses expressly conferred have made rights, and the 5 record before the Court indicates, without meaningful dispute, that LSI made and supplied a 6 substantial portion of the accused products in conformance with those rights. The question of 7 which specific LSI products are covered by the have made rights requires further development, as 8 discussed in the Conclusion. 9 BACKGROUND 10 The salient facts are straightforward and undisputed. For many years, CMU has operated 11 an “interdisciplinary center for research and development of data storage solutions” known as the 12 Data Storage Systems Center (“DSSC”). Dkt. No. 149-4 at 3. Among other activities, the DSSC 13 solicits funding through corporate sponsorships. Id. Companies may join the DSSC as “associate 14 members” by paying an annual fee and signing an “associates agreement.” Id. The agreements 15 confer a license to DSSC technology, including in this case the read channel methods in the ’839 16 and ’180 patents. See, e.g., Dkt. No. 145-5 ¶ 2(b); Dkt. No. 151-3. 17 Seagate was an early associate member, and signed an associates agreement with the 18 DSSC in 1992. Dkt. No. 145-5. The Seagate agreement detailed a collaborative arrangement in 19 which the company and the DSSC would share research and information about data storage 20 technologies. Among other obligations, Seagate agreed to pay an annual fee of $250,000 for an 21 initial five-year period. Id. ¶ 3; see also id. ¶ 8 (renewal clause). In exchange, Seagate obtained 22 access to the DSSC’s technology, including a license. As the agreement provides: 23 The University shall grant to the Corporation [Seagate] and all other Associates a worldwide, irrevocable, royalty-free license, 24 with right to sub-license, to make, have made, use, sell or otherwise dispose of the Inventions. 25 26

27 1 This docket entry was provisionally filed under a motion to seal. The parties’ sealing requests 1 Id. ¶ 2(b) (emphasis added). “Inventions” was not a defined term in this agreement, but the parties 2 do not dispute that it included the read channel method described in the ’839 and ’180 patents. 3 See, e.g., Dkt. No. 145-4 at 2-3; Dkt. No. 149-4 at 3-4. 4 IBM was an even earlier associate member and signed an associates agreement in 1983. 5 See Dkt. No. 145-6 ¶ 1. After a series of events, including litigation between IBM and CMU, IBM 6 assigned its rights under the associates agreement to HGST in 2002. Dkt. No. 145-6 ¶ 3.1. This 7 was done in a settlement agreement between IBM and CMU, which provides that: 8 Hitachi Global Storage Technologies has rights, including a worldwide, irrevocable, royalty-free license under the Inventions, 9 and all patents, patent applications and all other intellectual property rights derived therefrom to make, have made, use, sell, 10 import, offer for sale, or otherwise transfer any apparatus or practice any method. 11 12 Id. ¶ 3.3 (emphasis added). “Inventions” was defined in this agreement to mean inventions 13 conceived or reduced to practice between July 18, 1983, and July 17, 2002. Id. ¶ 2.1. The parties 14 again do not dispute the ’839 and ’180 patents are covered by the license granted to HGST. See, 15 e.g., Dkt. No. 145-4 at 3; Dkt. No. 149-4 at 3-4. 16 CMU seeks damages for sales of allegedly infringing products by LSI between 2011 and 17 2018. See Dkt. No. 149-4 at 4. The parties agree that, for the entirety of this time period, LSI had 18 contracts with Seagate and HGST to develop and supply data storage products to them. The 19 Seagate agreement originated in 2000 between Seagate, Agere Systems Inc. (“Agere”), and 20 another company not relevant to this litigation. Dkt. No. 145-26; see also Dkt. Nos. 145-27, 145- 21 28 (2001 agreement and amendment). The agreement was applied to LSI when it merged with 22 Agere in 2007. See Dkt. No. 1 ¶ 14; Dkt. No. 145-28 at 2. Seagate also entered into other 23 development agreements with Agere and LSI in 2004 and 2007. Dkt. Nos. 145-29, 145-30. LSI 24 and HGST inked a development and supply agreement in January 2011. Dkt. No. 145-41. 25 Under these agreements, Seagate and HGST hired LSI to supply data storage deliverables 26 for use in their own products. For example, Seagate commissioned LSI to develop and supply 27 SOCs “for use in Seagate disc drive products.” Dkt. No. 145-26 ¶ 1. Seagate provided the 1 negotiated. See id. ¶¶ 2.1, 2.2. In similar fashion, HGST engaged LSI to provide data storage 2 solutions as part of a multinational procurement relationship, again under statements of work 3 HGST and LSI negotiated. Dkt. No. 145-41. CMU claims that the products LSI supplied under 4 the agreements with Seagate and HGST used the read channel method in the patents-in-suit. See, 5 e.g., Dkt. No. 149-4 at 5-9. 6 DISCUSSION 7 I. LEGAL STANDARDS 8 Parties “may move for summary judgment, identifying each claim or defense -- or the part 9 of each claim or defense -- on which summary judgment is sought. The court shall grant summary 10 judgment if the movant shows that there is no genuine dispute as to any material fact and the 11 movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The Court may dispose 12 of less than the entire case and even just portions of a claim or defense. Smith v. Cal. Dep’t of 13 Highway Patrol, 75 F. Supp. 3d 1173, 1179 (N.D. Cal. 2014). A dispute is genuine “if the 14 evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson 15 v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material if it could affect the outcome 16 of the suit under the governing law. Id. The Court views the evidence in the light most favorable 17 to the nonmoving party, and “all justifiable inferences are to be drawn” in that party's favor. Id. at 18 255. 19 The moving party may initially establish the absence of a genuine issue of material fact by 20 “pointing out to the district court that there is an absence of evidence to support the nonmoving 21 party's case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). It is then the nonmoving party's 22 burden to go beyond the pleadings and identify specific facts that show a genuine issue for trial. 23 Id. at 323-24. “A scintilla of evidence or evidence that is merely colorable or not significantly 24 probative does not present a genuine issue of material fact.” Addisu v. Fred Meyer, Inc., 198 F.3d 25 1130, 1134 (9th Cir. 2000). 26 It is not the Court's responsibility to root through the record to establish the absence of 27 factual disputes, Arvin Kam Constr. Co. v. Envtl. Chem. Corp., Case No. 16-cv-02643-JD, 2019 1 behalf, Winding Creek Solar LLC v. Peevey, 293 F. Supp. 3d 980, 989 (N.D. Cal. 2017), aff’d, 932 2 F.3d 861 (9th Cir. 2019). While a large volume of briefs, declarations, and exhibits is not 3 necessarily fatal to summary judgment, it is indicative of disputes of fact that will require a trial to 4 resolve. See FTC v. D-Link Sys., Inc., Case No. 17-cv-00039-JD, 2018 WL 6040192, at *1 (N.D. 5 Cal. Nov. 5, 2018). 6 Summary judgment here turns on questions of contract interpretation. “The appropriate 7 law for construing the terms of a contract is the law of the jurisdiction identified in the contract.” 8 CoreBrace LLC v. Star Seismic LLC, 566 F.3d 1069, 1072 (Fed. Cir. 2009). Neither LSI nor 9 CMU gave much attention to state law contract principles, and relied instead almost entirely on 10 federal patent cases. Since the contracts are quite plain, and their terms are not disputed, this was 11 not unreasonable. Even so, the Court notes that the Seagate and HGST associates agreements 12 have Pennsylvania choice of law provisions. Dkt. No. 145-5 at 7; Dkt. No. 145-6 ¶ 9.1. LSI’s 13 supply agreements with Seagate are governed by Delaware law, see Dkt. No. 145-27 ¶ 16; Dkt. 14 No. 149-29 ¶ 11.5, and its agreement with HGST is governed by California law, see Dkt. No. Dkt. 15 No. 145-41 ¶ 15.3. In all three jurisdictions, the interpretation of a contract is a question of law for 16 the Court to decide. See, e.g., Am. Alternative Ins. Corp. v. Superior Court, 135 Cal. App.4th 17 1239, 1245 (2006); Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232-33 18 (Del. 1997); Maloney v. Valley Med. Facilities, Inc., 946 A.2d 702, 706 (Pa. Super. Ct. 2008), 19 aff’d, 984 A.2d 478 (Pa. 2009). “The basic goal of contract interpretation is to give effect to the 20 parties’ mutual intent at the time of contracting.” Founding Members of the Newport Beach 21 Country Club v. Newport Beach Country Club, Inc., 109 Cal. App. 4th 944, 955 (2003); see also 22 Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014); Driscoll v. Arena, 213 A.3d 253, 259 (Pa. 23 Super. Ct. 2019). “That intent is found in the first instance in the words of the agreement as 24 understood in their ordinary meaning and in a manner that avoids absurd results.” Forto v. 25 Capital One Bank, N. A., No. 14-CV-05611-JD, 2017 WL 1064972, at *2 (N.D. Cal. Mar. 20, 26 2017); see also Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 96 (3d Cir. 2001) 27 (discussing Pennsylvania law); Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159-60 (Del. 1 The Federal Circuit has determined that have made rights function as an implied license to 2 a supplier of products to a licensee customer. See LaserDynamics, Inc., v. Quanta Computer, Inc., 3 694 F.3d 51, 73 (Fed. Cir. 2012). “The existence vel non of an implied license is a question of 4 law.” Id. (quoting Anton/Bauer, Inc. v. PAG, Ltd., 329 F.3d 1343, 1348 (Fed. Cir. 2003)). “An 5 implied license is a defense to patent infringement.” Anton/Bauer, 329 F.3d at 1350 (citing 6 Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 878 (Fed. Cir. 1995)). 7 The party claiming this defense has the burden of showing that an implied license exists. Intel 8 Corp. v. U.S. Int’l Trade Comm’n, 946 F.2d 821, 828 (Fed. Cir. 1991). 9 II. LSI HAS ESTABLISHED AN IMPLIED LICENSE 10 Although the parties submitted a considerable volume of deposition excerpts, declarations, 11 and other evidence extrinsic to the contracts, the proper starting point for the implied license 12 analysis is the language of the Seagate and HGST agreements. The Federal Circuit has concluded 13 that a licensee enjoys have made rights even without an express delegation from the patent holder. 14 The “right to ‘make, use, and sell’ a product inherently includes the right to have it made by a 15 third party, absent a clear indication of intent to the contrary.” CoreBrace, 566 F.3d at 1072-73. 16 A licensee “is not restricted to production by the licensee personally or use by him personally or 17 sales by him personally. It permits him to employ others to assist him in the production, and in the 18 use and in the sale of the invention.” Id. (quoting Carey v. United States, 326 F.2d 975, 979 (Ct. 19 Cl. 1964)); see also LaserDynamics, 694 F.3d at 72-73. Put more directly, the licensee is perfectly 20 free to engage a third-party supplier “to do all the work connected with the production of the 21 article for him.” CoreBrace, 566 F.3d at 1073 (same internal citation). 22 Whether a license is exclusive or non-exclusive is irrelevant to have made rights, and a 23 general reservation of rights clause in a contract is not enough to trump the inherent grant of the 24 right. Id. at 1074-75. To bar have made rights, and to “negate what would otherwise be inherent,” 25 a contract must manifest a “clear intent” to exclude them. Id. at 1075. 26 Neither CoreBrace nor LaserDynamics impose any special requirements on licensees to 27 exercise their have made rights. This makes sense because the rights are inherent unless plainly 1 industrial reality.” LaserDynamics, 694 F.3d at 72. There would be scant efficiency or utility in 2 imposing a layer of technical requirements on licensees before they could make use of their 3 inherent power to engage other companies for product development and supply. The main 4 constraint on the exercise of have made rights is that a supplier may not exceed or circumvent the 5 scope of the original license. See id. at 72-73. So long as the supplier is fulfilling “bona fide 6 orders” from the licensees, and not making products for its own needs, the arrangement is 7 “legitimate.” Id. at 73. 8 These principles make short work of LSI’s motion. CMU acknowledges, as it must in light 9 of the plain words in the associates agreements, that Seagate and HGST were expressly granted 10 have made rights. See, e.g., Dkt. No. 149-4 at 3-4. The undisputed evidence shows that LSI was 11 engaged by those companies to supply products for their own product needs. Consequently, the 12 grounds for an implied license to LSI are well established. 13 The arguments CMU makes against an implied license are not well taken. Its main 14 contention is that Seagate and HGST were obligated to “affirmatively state” in their contracts with 15 LSI that they were using their have made rights. See Dkt. No. 149-4 at 11. That proposition 16 makes little sense in light of the Federal Circuit’s determination that have made rights are inherent 17 in a license, and are not encumbered by a need to dot I’s and cross T’s before they can be 18 exercised. In effect, CMU presses for contractual formalities akin to the grant of a sublicense, but 19 “a right to have made is not a sublicense,” and “the contractor who makes for the licensee does not 20 receive a sublicense from the licensee.” CoreBrace, 566 F.3d at 1073 (citing Cyrix Corp. v. Intel 21 Corp., 77 F.3d 1381, 187-88 (Fed. Cir. 1996)). 22 CMU’s heavy reliance on Intel Corp. v. Broadcom Corp., 173 F. Supp. 2d 201, 233-34 (D. 23 Del. 2001), is misplaced. The decision predates CoreBrace and LaserDynamics by several years, 24 and the Court joins other district courts that have read it not to require a formal conveyance of 25 have made rights, or have declined to follow it in light of current circuit authority. See, e.g., 26 Asetek Holdings, Inc. v. CoolIT Sys., Inc., No. C-12-4498 EMC, 2013 WL 5640905, at *4 (N.D. 27 Cal. Oct. 11, 2013). 1 CMU also says that Seagate and HGST expressly disclaimed the exercise of have made 2 rights in their agreements with LSI. See Dkt. No. 149-4 at 2, 11. This too is an odd proposition. 3 It typically would not be commercially reasonable to renounce have made rights in an outsourcing 4 agreement to supply licensed products. The plain language of LSI’s supply agreements with 5 Seagate and HGST does not support such an unusual interpretation. CMU strains to read a 6 boilerplate reservation of intellectual property rights by Seagate and LSI to mean that Seagate 7 barred LSI from an implied license to CMU’s patents. See Dkt. No. 145-27 ¶ 7.3. But this 8 conventional IP reservation hardly indicates that Seagate was withholding or not using its have 9 made rights, at LSI’s peril of a patent infringement lawsuit by CMU. A rational supplier would 10 rarely, if ever, undertake to supply licensed products on those terms, and certainly would not 11 manifest such an intent purely through a standard IP ownership clause. CMU also overlooks the 12 fact that the reservation clause pertained to rights owned by each “party” to the agreement, namely 13 Seagate and LSI. See, e.g. Dkt. No. 145-27 ¶¶ 1, 6.1 (using “party” or “the parties” to mean 14 Seagate, LSI, or the other party to the agreement). In a similar fashion, another agreement with 15 Seagate cited by CMU merely declines to grant a license “to use Seagate Intellectual Property” for 16 sale to other customers, and has no language suggesting that Seagate intended to forego use of its 17 have made rights. Dkt. No. 145-30 ¶ 4.4; see also Dkt. No. 150-31 (2010 amendment). 18 So too for the HGST agreement with LSI. CMU says that HGST terminated any possible 19 claim by LSI to an implied license because HGST expressly licensed only its own technology, and 20 that no “other license is granted expressly or impliedly.” Dkt. No. 145-41 ¶ 9.0. This again 21 misreads the plain language of the agreement, which makes clear that HGST was not granting a 22 license to its own technology beyond the terms of the agreement. It in no way manifests an intent 23 to renounce HGST’s have made rights with respect to outsourcing the supply of licensed products 24 to LSI. 25 CMU’s suggestion that an implied license extends only to products that are “customized” 26 and not “off-the-shelf,” Dkt. No. 149-4 at 23, is equally unavailing. What CMU means by 27 customized is not entirely clear, and in any event this point replicates the same analytical error 1 precedent requires customization. To the contrary, CoreBrace and LaserDynamics found that the 2 || suppliers enjoyed an implied license simply by making products at the licensees’ requests to fulfill 3 the licensees’ needs. See LaserDynamics, 694 F.3d. at 73; CoreBrace, 566 F.3d at 1074-75. 4 || Neither case required, or even suggested, that the implied license was contingent upon a supplier 5 customizing a product with the equivalent of tricked out specs or racing stripes. 6 CMU’s “timing” point fares no better. CMU says that LSI may have engaged in infringing 7 practices before Seagate and HGST exercised their have made rights. Dkt. No. 149-4 at 22-23. 8 But it has not proffered evidence of such conduct during the relevant 2011-18 time frame. CMU 9 speculates about possibilities, but does not raise a genuine dispute of material fact based on 10 || evidence. 11 CONCLUSION 12 The salient facts with respect to an implied license for LSI under Seagate’s and HGST’s 5 13 have made rights are undisputed, and LSI is entitled to judgment on this issue as a matter of law. 14 On the record as it currently stands, the Court cannot tell which of the accused products (devices 3 15 and simulators) are covered by the implied license. Consequently, the parties are directed to meet 16 and confer on a joint list that identifies the accused products supplied under the implied license. If 3 17 for some good reason they cannot agree, LSI may bring a summary judgment motion directed 18 solely to this question. The joint stipulation or summary judgment motion should be filed by 19 December 7, 2020. 20 IT IS SO ORDERED. 21 Dated: September 18, 2020 22 JAMES JPPONATO 23 United States District Judge 24 25 26 27 28