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Sarl v. Sprint Nextel Corp.

United States District Court, D. Kansas

December 11, 2014

HIGH POINT SARL, Plaintiff and Counterclaim-Defendant,
v.
SPRINT NEXTEL CORPORATION, et al., Defendants and Counterclaimants

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For Karl Bayer, Special Master: Karl Bayer, LEAD ATTORNEY, PRO HAC VICE, Dispute Resolution Expert, Austin, TX.

For High Point Sarl, Plaintiff, Counter Defendant: James D. Oliver, Scott C. Nehrbass, Toby Crouse, LEAD ATTORNEYS, Foulston Siefkin LLP - OP, Overland Park, KS; Jeffrey S. Edwards, Martin J. Black, Michael A. Fisher, LEAD ATTORNEYS, PRO HAC VICE, Dechert, LLP - PA, Philadelphia, PA; Jong P. Hong, Sarah Wager, LEAD ATTORNEYS, Jonathan D. Loeb, PRO HAC VICE, Dechert, LLP - CA, Mountain View, CA; James D. Ragon, PRO HAC VICE, Dechert LLP, Mountain View, CA; Robert D. Rhoad, PRO HAC VICE, Dechert, LLP - NJ, Princeton, NJ; Samuel P. Logan.

For Sprint Nextel Corporation, Sprint Spectrum, LP, SprintCom, Inc., Sprint Communications Company, LP, Sprint Solutions, Inc., APC PCS, LLC, APC Realty and Equipment Company, LLC, STC TWO LLC, Defendants, Counter Claimant: Bart G. Van de Weghe, Eric J. Lobenfeld, Ira J. Schaefer, Nicole A. Nussbaum, Theodore J. Mlynar, LEAD ATTORNEYS, Aleksandra King, PRO HAC VICE, Hogan Lovells U.S. LLP, New York, NY; Brent N. Coverdale, LEAD ATTORNEY, Scharnhorst Ast Kennard Griffin PC, Kansas City, MO.

For Alcatel-Lucent USA Inc., Defendant, Counter Claimant, Intervenor: Amit Makker, LEAD ATTORNEY, PRO HAC VICE, Kirkland & Ellis - San Francisco, San Francisco, CA; Don R. Lolli, Matthew W. Geary, LEAD ATTORNEYS, Dysart, Taylor, Lay, Cotter & McMonigle, P.C., Kansas City, MO; Jeanne M. Heffernan, Jeremy D. Wilson, LEAD ATTORNEYS, Ryan Micallef, Gregory Arovas, James E. Marina, PRO HAC VICE, Kirkland & Ellis - NY, New York, NY; Josh M. Reed, PRO HAC VICE, Kirkland & Ellis - Chicago, Chicago, IL.

For Nokia Siemens Networks U.S. LLC, Miscellaneous: Aleksandra King, Eric J. Lobenfeld, Ira J. Schaefer, Theodore J. Mlynar, LEAD ATTORNEYS, PRO HAC VICE, Hogan Lovells U.S. LLP, New York, NY; Brent N. Coverdale, LEAD ATTORNEY, Scharnhorst Ast Kennard Griffin PC, Kansas City, MO.

For Avaya, Inc., Interested Party: Clifford R. Michel, LEAD ATTORNEY, PRO HAC VICE, Orrick, Herrington & Sutcliffe LLP - NY, New York, NY; Jeffrey D. Morris, Berkowitz Oliver Williams Shaw & Eisenbrandt, LLP - PV, Prairie Village, KS; Nick Joseph Kurt, Berkowitz Oliver Williams Shaw & Eisenbrandt, LLP - KCMO, Kansas City, MO.

For Ericsson Inc, Objector: Brett C. Randol, Polsinelli PC, LEAD ATTORNEY, Kansas City, MO; Gregory L. Musil, LEAD ATTORNEY, Douthit, Frets, Rouse, Gentile & Rhodes, LLC - Leawood, Leawood, KS; James M. McCown, PRO HAC VICE, Nesbitt, Vassar, McCown & Roden, LLP, Addison, TX.

For Motorola, Inc., Intervenor: Brent N. Coverdale, LEAD ATTORNEY, Scharnhorst Ast Kennard Griffin PC, Kansas City, MO.

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MEMORANDUM AND ORDER

CARLOS MURGUIA, United States District Judge.

Plaintiff High Point Sarl (" High Point" ) alleges that defendants Sprint Nextel Corporation; Sprint Spectrum L.P.; Sprintcom, Inc.; Sprint Communications Company L.P.; Sprint Solutions, Inc.; APA.C PCS, LLC; APC Realty and Equipment Company, LLC; and STC Two LLC (collectively " Sprint" ) infringe four United States Patents[1] (the " patents" or " Patents-in-Suit" ). The patents disclose methods for designing and implementing cellular telephone network infrastructure equipment used in receiving and transmitting voice call traffic. Sprint purchased the network equipment at issue from Lucent Technologies Inc. (" Lucent" ). Through a series of corporate mergers in 2006 and 2008, Lucent became Alcatel-Lucent USA, Inc. (" ALU-USA" ). ALU-USA has intervened in this lawsuit.

Sprint filed a Motion for Summary Judgment of Invalidity of All Asserted Patent Claims Due to Nonjoinder of True Inventor (Doc. 900) (" Inventorship Motion" )[2] and a Motion for Summary Judgment on Estoppel and Laches (Doc. 1063) (" Estoppel and Laches Motion" ).[3] ALU-USA filed a Motion for Summary Judgment on License and Exhaustion (Doc. 1048) (" License and Exhaustion Motion" ).[4] On March 20, 2014, Special Master Karl Bayer issued a Report and Recommendation, wherein he recommended that Sprint's Inventorship Motion be denied; ALU-USA's License and Exhaustion Motion be granted in part and denied in part; and Sprint's Estoppel and Laches Motion be granted. (Doc. 1087 at 1-2.) The parties filed numerous briefs related to their objections to the Special Master's Report and Recommendation.[5] The court has considered all the parties' papers, including the summary judgment briefing and objections to Special Master Bayer's Report and Recommendation. The court will review de novo all objections to the findings of fact and conclusions of law made or

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recommended by the Special Master. Fed.R.Civ.P. 53(f)(3); Evolution, Inc. v. Suntrust Bank, No. 01-2409-CM-DJW, 2004 WL 2278559, at *4 (D. Kan. Sept. 29, 2004). For the reasons stated below, the court agrees with Special Master Bayer that Sprint is entitled to summary judgment on its defenses of equitable estoppel and laches.

I. Background

Approximately two decades ago, Sprint began building a nationwide wireless telephone network based on a new technology called Code Division Multiple Access (" CDMA" ). Nearly every major network infrastructure equipment vendor bid to supply Sprint with the equipment necessary to build this new " all-digital" nationwide wireless network, including, AT& T Corporation (" AT& T" ), the then-owner of the Patents-in-Suit. In 1996, AT& T assigned the patents to Lucent, who owned them until 2000. Beginning in 1996, Sprint purchased billions of dollars of CDMA infrastructure equipment from Lucent. Sprint also purchased infrastructure equipment from three other vendors to build out its network: Northern Telecom, Ltd. (" Nortel" ), Motorola, Inc. (now known as Motorola Solutions, Inc. and referred to herein as " Motorola" ), and Samsung Telecommunications America, Inc. (" Samsung" ).

It was no secret that Sprint was purchasing equipment from multiple suppliers of CDMA infrastructure equipment. Each of the vendors, including Lucent, knew that it had been awarded only a fraction of the nationwide network and that Sprint necessarily was using other vendors' equipment to build out the remainder of its network. Moreover, Sprint told every vendor, including Lucent, about one another, insisting that they all work together to make their CDMA equipment interchangeable or " interoperable."

High Point, a non-practicing patent-assertion entity, bought the patents on March 13, 2008. Several days later, High Point sent Sprint a letter accusing Sprint of infringing on the Patents-in-Suit. Specifically, High Point alleges that the equipment Lucent sold Sprint since 1996 infringes to the extent that Sprint combined that Lucent equipment with Nortel, Motorola, and Samsung equipment. High Point also alleges that Sprint's use of equipment Lucent sold Sprint since 1996, but which Sprint did not combine with other vendors' equipment, began infringing in 2006 when, High Point claims, Lucent lost its license due to a corporate merger.

II. Facts

A. Ownership of the Patents-in-Suit

The Patents-in-Suit were granted in 1993 and 1994 to AT& T Bell Laboratories. In 1996, AT& T spun off Bell Laboratories to form Lucent, a new public company. AT& T transferred ownership of the Patents-in-Suit to Lucent on March 29, 1996. In 2000, Lucent spun off portions of its business into another new company, Avaya, Inc. On September 29, 2000, in connection with that spin-off, Lucent transferred ownership of the Patents-in-Suit to an Avaya subsidiary, Avaya Technology Corporation (Avaya, Inc. and Avaya Technology Corporation will be referred to collectively as " Avaya" ). In 2008, the Patents-in-Suit were bought by High Point. At times in this opinion, the court will refer to the owners of the Patents-in-Suit collectively as the " Patentees."

B. Lucent Sells CDMA Equipment to Sprint

1. First Three Procurement Contracts (1996, 1996, and 1999)

Beginning in 1996, Lucent began selling CDMA infrastructure to Sprint by way of

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five procurement contracts.[6] The first three contracts were dated 1996, 1996, and 1999--before the patents were transferred to Avaya. Under those procurement contracts, Lucent sold Sprint products covered by the Patents-in-Suit and granted Sprint a license to use those products, with the following limitations:

[P]rovided, however, that no rights are conveyed to the Owner and its Affiliates with respect to any invention which is directed to (i) a combination of a Product or Products furnished with any other Item which the Vendor does not furnish to the Owner under this Contract wholly or in part for such use or (ii) a method or process which is other than an inherent use of the Products furnished.

(Doc. 1050-17 at 76; Doc. 1050-18 at 100; Doc. 1050-19 at 110-11.) High Point argues that this provision prohibits Sprint's use of Lucent equipment in combination with other equipment.

2. PTLA (2000)

On October 1, 2000, after the Patents-in-Suit were transferred to Avaya, Lucent's subsidiary Lucent Technologies GRL Corp. (" Lucent GRL" ) and Avaya entered into an agreement entitled " Patent and Technology License Agreement" (" PTLA" ) (Doc. 1050-2), which states:

Avaya IPCO grants to [Lucent] GRL, under Avaya IPCO's Patents, worldwide, personal nonexclusive, royalty-free and non-transferable licenses to make, have made (subject to 3.2(b)), use, lease, sell, offer for sale and import any and all products and services of the businesses in which [Lucent] GRL or any of its Related Companies is now or hereafter engaged.

( Id. at 12, § 3.2(a).) The Avaya IPCO Patents included the Patents-in-Suit because they were issued and owned by Avaya as of October 1, 2000. Thus, the PTLA granted Lucent[7] a license to sell products covered by the Patents-in-Suit. The PTLA further provided:

The licenses granted herein include licenses to convey to any customer of the grantee, with respect to any licensed product which is sold or leased by such grantee to such customer, rights to use and resell such licensed product as sold or leased by such grantee (whether or not as part of a larger combination); provided, however, that no rights may be conveyed to customers with respect to any invention which is directed to [] a combination of such licensed products(s) (as sold or leased) with any other product that is not a licensed product, except to the extent that the licensed product(s) embodies a substantial and significant portion of the invention . . . .

( Id. § 3.4.) Thus, the PTLA gave Lucent the right to grant licenses to its customers to use or resell the products, but not in

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combination with any other product that is not a licensed product, unless the licensed product embodies a substantial or significant portion of the invention.

3. Fourth Procurement Contract (2001)

In 2001, Sprint purchased more CDMA network equipment from Lucent pursuant to a fourth procurement contract. This procurement contract contained the identical limitation on combinations as the first three procurement contracts as set forth above. (Doc. 1050-20 at 84.)

C. Lucent Mergers (2006 and 2008)

On November 30, 2006, Lucent merged with Aura Merger Sub, Inc. (" Aura" ), a wholly-owned subsidiary of Alcatel (" 2006 Merger" ). This was a reverse triangular merger, whereby Aura merged into Lucent under Delaware law, with Lucent surviving and becoming a wholly owned subsidiary of Alcatel.

In 2008, two Alcatel subsidiaries, Alcatel USA Marketing, Inc. and Alcatel USA Sourcing, Inc. merged into Lucent (" 2008 Merger" ). Lucent survived and changed its name to Alcatel-Lucent USA Inc. (previously and hereafter referred to as " ALU-USA" ).

D. Fifth Procurement Contract (2010)

In 2010, ALU-USA and Sprint executed a fifth procurement contract, under which ALU-USA sold Sprint CDMA equipment and granted Sprint " to the extent of its ability to do so . . . all necessary rights and licenses to use the Products in the form furnished by [ALU-USA] to provide telecommunication and related services." (Doc. 1050-21 at 33.)

III. Analysis

Sprint began purchasing equipment from Lucent in 1996. High Point alleges infringement in two ways: First, High Point claims infringement based upon Sprint's use of equipment Lucent sold to Sprint that Sprint combined with other vendors' equipment (" Lucent-Combined Equipment" ). The Lucent-Combined Equipment is used in Sprint's IP backhaul network.

High Point also claims infringement after 2006 based upon Sprint's use of equipment it bought from Lucent that Sprint did not combine with any third-party equipment (" Lucent-Only Equipment" ). The Lucent-Only Equipment is used in Sprint's frame relay backhaul network. High Point alleges Sprint's use of the Lucent-Only Equipment began infringing when the 2006 and/or 2008 Mergers occurred. The court will first address the Lucent-Only Equipment and then turn to the Lucent-Combined Equipment.

A. Lucent-Only Equipment

High Point concedes that Sprint's use of Lucent-Only Equipment did not infringe before 2006. In other words, equipment Sprint purchased from Lucent, and which Sprint did not combine with other vendors' equipment, undisputedly did not infringe until 2006. High Point alleges that Sprint's use of Lucent-Only Equipment began infringing when Lucent merged with Aura and became a wholly-owned subsidiary of Alcatel. Alcatel later changed its name to Alcatel Lucent.

High Point disputes that the surviving Lucent corporation was the same Lucent that participated in the 2006 Merger. According to High Point, the 2006 Merger terminated Lucent's license to the Patents-in-Suit because (1) Lucent's rights under the PTLA could not transfer in the 2006 Merger without the express consent of Avaya and (2) under the terms of the PTLA itself, the 2006 Merger caused the license to terminate. For the same reasons, High Point also alleges that, even if

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Lucent's license survived the 2006 Merger, it did not survive the 2008 Merger.

1. Was there a transfer or assignment in the first place?

High Point's arguments are based on the federal presumption that a patent license may not be assigned by the licensee without the consent of the licensor. See Cincom Sys., Inc. v. Novelis Corp., 581 F.3d 431, 437 (6th Cir. 1979). However, this presumption does not apply if there was no assignment of the patent license as a result of a merger. As the Sixth Circuit held in Cincom, " what matters, for the purpose of determining whether the license actually transferred is if the same legal entity held the license" before and after the merger. 581 F.3d at 439 (discussing PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090, 1096-97 (6th Cir. 1979)). " As there is no general federal corporate law, state law will [] determine whether a merger results in the transfer of an intellectual property license." Cincom, 581 F.3d at 437; see also Evolution, Inc. v. Prime Rate Premium Fin. Corp., No. 03-2315-KHV, 2004 WL 1824389, at *5 (D. Kan. Aug. 13, 2004) (holding that state merger statutes determine the effect of mergers with respect to assignment or transfer of licenses).

Pursuant to the 2006 Merger, Aura, a Delaware corporation, merged into Lucent, a Delaware corporation, under Delaware General Corporation Law. Similarly, pursuant to the 2008 Merger, two Alcatel Lucent subsidiaries (Alcatel USA Marketing, Inc. and Alcatel USA Sourcing, Inc.), both Delaware corporations, merged into Lucent under Delaware General Corporation Law. Accordingly, the court looks to Delaware merger law to determine whether the 2006 and 2008 Mergers resulted in a transfer of Lucent's patent license.[8]

The court agrees with the Special Master that Meso Scale Diagnostics LLC v. Roche Diagnostics GMBH (Meso Scale II), 62 A.3d 62 (Del. Ch. Ct. 2013) is squarely on point and persuasive. (Doc. 1087 at 16.) Interpreting Section 259(a) of the Delaware General Corporation Law, the court in Meso Scale II held that " a reverse triangular merger generally is not an assignment by operation of law." 62 A.3d at 86.[9]

In Meso Scale II, Roche purchased BioVeris, together with its patent licenses and rights that were at issue. 62 A.3d at 72-73. The transaction was ...


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