As Customer-Suits Flood Waco, Judge Albright Provides Clarity Regarding Requesting Stays Under the Customer-Suit Exception

Judge Albright recently issued a series of orders related to the customer-suit exception corresponding to patent infringement actions filed by patent plaintiff Sonrai Memory Limited (Sonrai). Sonrai Memory Ltd. v. Samsung Elecs. Co., No. 6:21-CV-00169, 00991, 00167, 2022 WL 572301, at *3 (W.D. Tex. Feb. 24, 2022); Sonrai Memory Ltd. v. LG Elecs. Inc., Nos. 6:21-CV-00168, 00361, 00401, 001284, 2022 WL 545051, at *4 (W.D. Tex. Feb. 23, 2022); Sonrai Memory Ltd., v. Amazon.com, Inc., No. 6:21-CV-00991, 2022 WL 619943, at *2 (W.D. Tex. Mar. 1, 2022).

Sonrai sued a number of entities which the Court referred to as “the Manufacturers” including Kioxia Corporation, Kioxia America, Western Digital Technologies, and Samsung Electronics Co. (SEC). Sonrai also sued entities which the Court referred to as “the Customers” including SEC and Samsung Electronics America, Inc., Google LLC, LG Electronics, Dell Technologies, Apple, Kingston Technology, and Amazon.com. The accused technology is NAND flash memory chips manufactured by SEC or by Kioxia and Western Digital.

The Customer defendants filed an omnibus motion to stay pending final resolution of Sonrai’s Manufacturer lawsuits under the customer-suit exception. Under the customer-suit exception to the first-to-file rule, patent litigation against a manufacturer of infringing products takes precedence over an earlier filed suit against customers of the manufacturer. The Court explained that it considers the following factors in determining whether the customer-suit exception applies: “(1) whether the customer-defendant in the earlier-filed case is merely a reseller; (2) whether the customer-defendant agrees to be bound by any decision in the later-filed case that is in favor of the patent owner; and (3) whether the manufacturer is the only source of the infringing product.” As to a stay, the Court explained that it considers the following factors: “(1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party; (2) whether a stay will simplify the issues and trial of the case; (3) whether discovery is completed; and (4) whether a trial date has been set.”

In the Sonrai v. LG cases, with respect to defendants LG, Dell, Apple, and Kingston, the Court granted the defendants’ motion to sever and stay certain patent claims pending final resolution of the Manufacturer lawsuits. Specifically, the Court found that there was “significant overlap” in the Manufacturer and Customer infringement contentions. Furthermore, the Court found that the Customer defendants agreed to be bound by any infringement and validity determination in the Kioxia and Western Digital cases. As to whether the Kioxia and Western Digital are the only sources of the accused products, the Court recognized that Sonrai has asserted patents directed to other products but determined that it could sever and stay the claims corresponding to those patents to ensure that a stay would conserve party and judicial resources. As to the stay factors, the Court found that judicial economy gained from litigating the issues of infringement and validity and the avoidance of inconsistent judgments in these cases outweighed any prejudice to Sonrai from the stay. Likewise, the Court found that resolution of direct infringement and validity issues by severing and staying these cases would facilitate just, convenient, efficient, and less expensive determination of the issues at hand. Finally, the Court found that fact discovery had not been opened and trial had not been set and therefore “[t]his does not militate against a stay.” For these reasons the Court severed certain patent claims and stayed those claims pending resolution of the Kioxia and Western Digital actions. Because there were other patent claims at issue that would not be affected by the Kioxia and Western Digital actions, the Court held that the Dell, LG, and Kingston actions would otherwise proceed on the non-severed patent claims.

In the Sonrai v. Amazon case, with respect to defendant Amazon, the Court had previously denied Amazon’s motion to stay because Amazon had not agreed to be bound by any validity/invalidity determination in the Manufacturer actions. Amazon reversed its position on this issue, and therefore for the same reasons the Court applied in the Sonrai v. LG cases, the Court severed certain of Sonrai’s patent claims against Amazon and stayed those claims pending resolution of the Kioxia, Western Digital, and Samsung actions, but held that the Amazon case would otherwise proceed for the non-severed claims.

Finally, in the Sonrai v. Samsung cases, the Court denied the motion to stay as to defendants Kioxia and Western Digital because they are Manufacturers of the accused products. But, applying the same reasoning as to the other cases, the Court granted-in-part the motion to stay as to defendant Samsung with respect to patent claims related to the Kioxia and Western Digital products pending resolution of the Kioxia and Western Digital actions.