Case 3:17-cv-03980-WHA Document 111 Filed 01/20/18 Page 1 of 11
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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`IN RE LONE STAR SILICON
`INNOVATIONS LLC
`
`No. C 17-03980 WHA
`No. C 17-03981 WHA
`No. C 17-04032 WHA
`No. C 17-04033 WHA
`No. C 17-04034 WHA
`No. C 17-05458 WHA
`
`ORDER GRANTING
`MOTIONS TO DISMISS
`
` /
`
`INTRODUCTION
`Defendants in six related patent infringement actions move to dismiss on the basis that
`plaintiff in all six lacks standing. To the extent stated below, the motions are GRANTED.
`STATEMENT
`The essence of this problem is that the patent owner tried to find a way to shield itself
`from counterclaims while retaining a way to reap the monetary benefits of suing competitors
`and others for infringement of its patents. Its mechanism for that neat trick was a “patent
`transfer agreement” that seemed to include the magic wording required to authorize a non-
`practicing entity to sue. But other wording in the same agreement subtracted from those
`provisions and thus rendered the agreement insufficient to sustain standing for the non-
`practicing entity under Federal Circuit law.
`* * *
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`Case 3:17-cv-03980-WHA Document 111 Filed 01/20/18 Page 2 of 11
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`In the six above-captioned actions, plaintiff Lone Star Silicon Innovations LLC, a non-
`practicing entity with its principal place of business in Plano, Texas, asserts claims for patent
`infringement against Semiconductor Manufacturing International Corporation, Semiconductor
`Manufacturing International (Shanghai) Corporation, Semiconductor Manufacturing
`International (Beijing) Corporation, and SMIC, Americas (collectively, “SMIC”); Renesas
`Electronics Corporation and Renesas Electronics America Inc. (collectively, “Renesas”); Nanya
`Technology Corporation, Nanya Technology Corporation, U.S.A., and Nanya Technology
`Corporation Delaware (collectively, “Nanya”); United Microelectronics Corporation and UMC
`Group (USA) (collectively, “UMC”); Toshiba Corporation, Toshiba America, Inc., and Toshiba
`America Electronic Components, Inc. (collectively, “Toshiba”); and Micron Technology, Inc.,
`Micron Semiconductor Products, Inc., Micron Consumer Products Group, Inc., and Micron
`Memory Japan, Inc. (collectively, “Micron”). These actions originated in the Eastern District of
`Texas and transferred to our district in mid-2017.
`Lone Star currently asserts the following patents against each group of defendants:
`•
`SMIC — 5,973,372 (“the ’372 patent”) and 6,388,330 (“the ’330
`patent”)
`Renesas — 6,153,933 and the ’330 patent
`Nanya — 6,097,061 (“the ’061 patent”) and the ’330 patent
`UMC — the ’372 patent and the ’330 patent
`Toshiba — 5,912,188 (“the ’188 patent”), 6,023,085 (“the ’085
`patent”), the ’330 patent, and RE39,518
`Micron — the ’188 patent, the ’085 patent, the ’061 patent, and the
`’330 patent
`Each of the patents-in-suit originally issued to Advanced Micro Devices, Inc., a multinational
`semiconductor company based in Sunnyvale, California. On August 4, 2016, AMD and Lone
`Star entered into a patent transfer agreement that encompassed various patents, including the
`patents-in-suit, and executed an assignment for those patents. The complaint in each of the six
`above-captioned actions alleges that Lone Star is the “assignee” and “sole owner” of the
`patents-in-suit. Lone Star, however, did not produce the patent transfer agreement until October
`2017 — months after the actions commenced.
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`Section 2.1 of the patent transfer agreement gave Lone Star “all right, title and interest
`in, to and under the Assigned Patents . . . including any and all inventions and discoveries
`claimed therein, any and all legal rights entitled by the original owner of the Assigned Patents
`and all rights of AMD to sue for past, present and future infringement of any and all of the
`Assigned Patents.” In exchange, Section 5.1 gave AMD 35 to 50 percent of the proceeds from
`Lone Star’s “monetization efforts.” No provision in the patent transfer agreement addressed
`Lone Star’s right (or lack thereof) to practice the patents-in-suit.
`Despite the broad language of Section 2.1, other provisions in the same agreement
`substantially curtailed Lone Star’s rights. For example, Section 4.1 gave AMD “a fully paid up,
`irrevocable, worldwide, transferable, non-exclusive, license under the Assigned Patents to use,
`develop, copy, modify, import, make and have made, offer for sale, sell, lease, import, export,
`distribute, demonstrate, display, transfer and/or otherwise exploit or dispose of [its] Licensed
`Products,” which includes “all of its software, hardware, products, designs, services, and
`activities.” Section 2.3 further required Lone Star to comply with “Existing Encumbrances”
`and “to make any and every future sale, transfer, assignment, lien, mortgage or other
`encumbrance of the Assigned Patents subject to the Existing Encumbrances and the license and
`other rights granted under Section 4,” with “Existing Encumbrances” broadly defined as:
`(a) pre-existing patent licenses, covenants not to assert, promises
`or agreements to license, and/or similar patent immunities; (b)
`rights to renew or extend pre-existing patent licenses exercised
`unilaterally by third parties (such as legally binding options); (c)
`releases for past infringement; and/or (d) pre-existing
`commitments related to AMD’s or its Affiliates’ standardization
`activities or patent pool activities, and other pre-existing
`specification-related or standards-related licenses, covenants and
`promises of AMD or any of its Affiliates, which, in each of (a),
`(b), (c) and (d), shall transfer in connection with the transfer of the
`Assigned Patent(s) and/or which AMD or any of its Affiliates has
`committed to maintain in connection with the transfer of such
`Assigned Patent(s).
`Section 2.6 further restricted Lone Star’s ability to transfer the patents-in-suit:
`Any assignment of an Assigned Patent in violation of this Section
`2.6 shall be void ab initio. Lone Star will not transfer ownership
`of any of the Assigned Patents unless: (a) all Assigned Patents are
`transferred collectively; (b) the proposed successor-in-interest
`agrees to be bound by this Agreement (with the successor-in-
`interest taking the place of Lone Star for all purposes of this
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`Case 3:17-cv-03980-WHA Document 111 Filed 01/20/18 Page 4 of 11
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`Agreement) including, but not limited to, obtaining ownership of
`any of the Assigned Patents subject to any and all Existing
`Encumbrances, in writing enforceable by AMD and with a copy
`provided to AMD; and (c) AMD provides its written consent to the
`transfer, which shall not be unreasonably withheld.
`Finally, Section 6.2(f) explicitly limited Lone Star’s enforcement rights to specific
`“Unlicensed Third Party Entities” listed in Exhibit E to the patent transfer agreement:
`Lone Star acknowledges that the Assigned Patents are subject to
`Existing Encumbrances to other Persons and that Lone Star
`represents and warrants that it shall not commence, direct or
`control any legal action seeking to enforce and/or licensing activity
`asserting any of the Assigned Patents against a Person that is (1)
`not an Unlicensed Third Party Entity or Affiliate thereof, or (2) is a
`distributor, reseller, or direct or indirect customer with respect to
`materials, devices, software or firmware, services or products that
`are used, made or supplied directly or indirectly by or for a Person
`that is not an Unlicensed Third Party Entity.
`Section 3.3(c) added that “[t]he Parties shall cooperate in good faith in attempting to identify
`additional third-parties that the Parties may agree, at each’s sole discretion, to add to the
`Exhibit E list of Unlicensed Third Party Entities” (emphasis added).
`After receiving the patent transfer agreement, all defendants moved to dismiss on the
`basis that Lone Star had no standing to sue thereunder. This order follows full briefing in each
`of the above-captioned actions (i.e., eighteen briefs in total) and oral argument.1
`ANALYSIS
`The question of standing is jurisdictional. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d
`1538, 1551 (Fed. Cir. 1995). The party bringing the action bears the burden of establishing it
`has standing. Sicom Sys., Ltd. v. Agilent Techs., Inc., 427 F.3d 971, 975–96 (Fed. Cir. 2005)
`(citation omitted). The Federal Circuit has recognized three general categories of plaintiffs in
`analyzing the standing issue in patent infringement actions. First, a patentee or assignee of “all
`rights or all substantial rights” under the patent can sue in its own name alone. Second, an
`exclusive licensee or other party with exclusionary rights — but not “all substantial rights” —
`can sue, but must usually join the patentee to avoid “the potential for multiple litigations and
`multiple liabilities and recoveries against the same alleged infringer.” Joinder also “protects the
`
`1 In Case No. 17-5458, Micron styled its motion as one for judgment on the pleadings. That motion, however,
`seeks the same relief as the other defendants’ motions to dismiss and thus receives no separate treatment herein.
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`Case 3:17-cv-03980-WHA Document 111 Filed 01/20/18 Page 5 of 11
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`patentee from losing substantial rights if its patent claims are invalidated or the patent rendered
`unenforceable in an action in which it did not participate.” Luminara Worldwide, LLC v. Liown
`Elecs. Co. Ltd., 814 F.3d 1343, 1350 (Fed. Cir. 2016). Third, a party that holds “less than all
`substantial rights to the patent” and lacks exclusionary rights thereunder cannot sue or even
`participate alongside the patent owner as a party to an infringement action. Morrow v.
`Microsoft Corp., 499 F.3d 1332, 1339–41 (Fed. Cir. 2007) (citations omitted).
`The instant motions concern only the first category since Lone Star claims to be an
`“assignee” and “sole owner” of the patents-in-suit under its patent transfer agreement with
`AMD. To create an assignment, a contract must transfer (1) the entire exclusive patent right,
`including “all substantial rights in the patent”; (2) an undivided interest in the patent right; or
`(3) the entire exclusive patent right within any geographical region of the United States. An
`agreement that does not transfer one of these three interests is merely a license. Diamond
`Coating Techs., LLC v. Hyundai Motor Am., 823 F.3d 615, 618 (Fed. Cir. 2016). Whether an
`agreement constitutes an assignment or license depends not on the “labels” or “bare formalities”
`of title transfer but on the “substance of what was granted.” Ibid.
`The Federal Circuit has observed that the exclusive right to make, use, and sell products
`or services under the patent is “vitally important” to assignment, and that the nature and scope
`of the right to sue accused infringers and license the patent is the “most important factor” to
`consider. Id. at 619 (quoting Alfred E. Mann Found. for Scientific Research v. Cochlear Corp.,
`604 F.3d 1354, 1360–61 (Fed. Cir. 2010)).
`Other rights that should be examined include the scope of the licensee’s right to
`sublicense, the licensor’s reversionary rights following breach or termination of the license
`agreement, the licensor’s right to proceeds from litigation or licensing activities, the duration of
`the licensee’s rights, the licensor’s ability to supervise and control the licensee’s activities, the
`licensor’s obligation to continue paying patent maintenance fees, and the nature of any limits on
`the licensee’s right to assign its interests in the patent. See Mann, 604 F.3d at 1360–61.
`Both sides cite selective snippets of various favorable-sounding authorities in their
`briefs. Considering the Mann factors as a whole, however, the controlling decision with
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`underlying facts closest to ours is Diamond Coating. There, as here, the plaintiff claimed
`standing to sue on the basis that it had received “all substantial rights” in the patents-in-suit
`through a patent assignment and transfer agreement. See 823 F.3d at 618. The district court
`disagreed, holding that the actual terms of the agreement weighed against finding a transfer of
`substantial rights because (1) the plaintiff could not assign the agreement to another party
`without the transferor’s consent; (2) the transferor retained an economic interest in future
`proceeds, including from infringement litigation; (3) the transferor retained a license to practice
`the patents-in-suit; and (4) the transferor retained significant control over enforcement decisions
`because the agreement conditioned enforcement on consideration of both the transferor and the
`plaintiff’s “best interests.” On appeal, the plaintiff argued, as Lone Star does here, that it had
`the sole right to exclude others, had the sole right to sue, could assign or sell the patents-in-suit,
`and could enforce the patents-in-suit free from the transferor’s control. Id. at 619.
`The Federal Circuit affirmed based on two aspects of the agreement. First, a “licensor’s
`retention of a limited right to develop and market the patented invention indicates that the
`licensee failed to acquire all substantial rights,” and the agreement allowed the transferor to
`keep “‘a world-wide, royalty-free, non-exclusive, non-sublicensable, non-transferable right and
`license to practice the methods and to make, have made, use, distribute, lease, sell, offer for
`sale, import, export, develop and otherwise dispose of and exploit any’ products covered by the
`patents-in-suit.” Indeed, the agreement did not even grant the plaintiff practicing rights but
`limited it to the “prosecution, maintenance, licensing, litigation, enforcement and exploitation”
`of the patents-in-suit and explained that it would “engage in no other business or activity.” The
`Federal Circuit specifically rejected the argument that the plaintiff’s right to “exploitation”
`implied the right to make, use, and sell the patented invention. The Federal Circuit noted that
`the agreement explicitly provided such rights to the transferor, so if the parties to the agreement
`had intended to also provide such rights to the plaintiff, “they knew how to say so.” Thus, with
`respect to the “vitally important” exclusive right to make, use, and sell products or services
`under the patent, the plaintiff “unquestionably failed to acquire all substantial rights in the
`patents-in-suit.” Id. at 619–20 (citation and internal modifications omitted).
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`Second, the transferor in Diamond Coating “retained significant control over [the
`plaintiff’s] enforcement and litigation activities” because the agreement (1) conditioned such
`activities on consideration of the transferor’s “best interests,” (2) prohibited the plaintiff from
`licensing the patents-in-suit jointly with patents owned by other parties absent the transferor’s
`written consent, and (3) included a list of companies that the plaintiff reserved the right to not
`assert the patents-in-suit against, and another list of companies that the transferor reasonably
`believed represented “licensing opportunities,” thereby indicating that the plaintiff did not enjoy
`“unfettered discretion on enforcement.” Id. at 620–21. Although Diamond Coating styled its
`analysis of these terms as bearing on “the nature and scope of the patentee’s retained right to
`sue accused infringers and license the patent,” see id. at 619, it seemed to also implicate other
`Mann factors, including the scope of the plaintiff’s right to sublicense, the transferor’s ability to
`supervise and control the plaintiff’s activities, and limits on the plaintiff’s right to assign its
`interests in the patents-in-suit. See Mann, 604 F.3d at 1360–61.
`After analyzing the two foregoing issues, Diamond Coating concluded the agreement
`therein “did not convey all of the substantial rights in the patents-in-suit” to the plaintiff. The
`same result obtains here given our similar facts.
`First, as stated, the patent transfer agreement did not grant Lone Star any practicing
`rights. Lone Star insists it had such rights by implication through Section 2.1, which provided it
`with “all right, title and interest in, to and under the Assigned Patents . . . including any and all
`inventions and discoveries claimed therein, any and all legal rights entitled by the original
`owner of the Assigned Patents and all rights of AMD to sue for past, present and future
`infringement of any and all of the Assigned Patents.” Lone Star’s reliance on this provision is
`misplaced given that other provisions in the same agreement plainly curtailed Lone Star’s
`rights thereunder notwithstanding the superficially-broad language of Section 2.1.2
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`2 Defendants also point out that the purported “assignment” in Diamond Coating also contained superficially-
`broad language granting the plaintiff “all right, title, and interest” in the patents-in-suit, but that language did not suffice
`to establish standing by assignment. This argument enjoys some force but is not relied upon in this order because the
`Diamond Coating decision did not specifically examine the language cited by defendants in its analysis.
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`Lone Star also argues that, as a practical matter, it “obviously” acquired the unfettered
`right to practice the patents-in-suit because only it can enforce them. This argument is just
`another attempt to conjure up practicing rights by implication and remains unpersuasive for the
`reasons already stated. The suggestion that, as a practical matter, no one can stop Lone Star
`from practicing the patents-in-suit also rings particularly hollow given that Lone Star is a non-
`practicing entity. Moreover, the plaintiff in Diamond Coating similarly attempted to rely on its
`“sole right to sue” to no effect. The same argument fails to distinguish Diamond Coating here.
`Even assuming for the sake of argument that Lone Star indeed has some right to practice
`the patents-in-suit, any such right is certainly not exclusive. As stated, Section 4.1 preserved
`AMD’s practicing rights and Section 2.3 preserved the “Existing Encumbrances,” including
`practicing rights, of other entities. Lone Star cites Azure Networks, LLC v. CSR PLC, 771 F.3d
`1336 (Fed. Cir. 2014), vacated on other grounds, 135 S. Ct. 1846 (2015), and Luminara, 814
`F.3d 1343, for the proposition that AMD’s retention of a non-exclusive license to practice the
`patented inventions does not prevent assignment of the patents-in-suit. Both decisions are
`readily distinguishable.
`In Azure Networks, the principle relied upon in Diamond Coating — that a “licensor’s
`retention of a limited right to develop and market the patented invention indicates that the
`licensee failed to acquire all substantial rights” — enjoyed “little force” because the licensor did
`not make or sell any products, nor would it make or sell any products in the future. See 771
`F.3d at 1344. Here, in contrast, AMD actually practices the patents-in-suit and has expressly
`preserved the “Existing Encumbrances” of other entities ostensibly practicing the patents-in-
`suit. Under our circumstances, Diamond Coating remains the better authority.
`Luminara considered a limited set of rights retained by the licensor — the right to
`practice the patents at issue, the title to those patents, the responsibility to pay maintenance fees,
`a financial interest in litigation and licensing, and a right to notice of litigation and licensing
`activities — and concluded they were not substantial enough to preclude assignment. See 814
`F.3d at 1351. Luminara did not have occasion to weigh other factors present in our case,
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`including the patent transfer agreement’s preservation of “Existing Encumbrances” and other
`constraints on Lone Star’s litigation and licensing activities, discussed further below.
`Second, like the transferor in Diamond Coating, AMD retained significant control over
`Lone Star’s activities. In addition to the “Existing Encumbrances” preserved by Section 2.3 of
`the patent transfer agreement, Section 2.6 conditioned any transfer of the “Assigned Patents” on
`bundling of said patents, the successor-in-interest’s agreement to be bound by the patent
`transfer agreement, and AMD’s written consent. Section 2.6 did specify that AMD could not
`“unreasonably” withhold its consent but did not further explain what “unreasonable” meant.
`Sections 6.2(f) and 3.3(c) also limited all of Lone Star’s enforcement capabilities to specific
`targets listed in Exhibit E and conditioned any expansion of that list on AMD’s agreement, with
`AMD could grant or deny in its “sole discretion.” These terms are not identical to but, taken as
`a whole, are at least as restrictive as those examined in Diamond Coating.
`Lone Star cites three decisions for the proposition that Section 2.6 does not defeat the
`purported “assignment” here. None of those decisions, however, examined restrictions like
`those set by Section 2.6, let alone a whole body of terms comparable to the patent transfer
`agreement here. See Rude v. Westcott, 130 U.S. 152, 163 (1889) (“absolute transfer of title”
`reserved “no control over the patents or their use or disposal, or any power to interfere with the
`management of the business growing out of their ownership”); Speedplay, Inc. v. Bebop, Inc.,
`211 F.3d 1245, 1251–52 (Fed. Cir. 2000) (consent requirement to transfer did not significantly
`curtail rights of licensee free from existing encumbrances, prior practice rights, and restrictions
`on enforcement); Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870,
`874–75 (Fed. Cir. 1991) (grant of exclusive practice and enforcement rights constituted
`assignment despite retention of a veto right on sublicensing, the right to obtain foreign patents
`on the invention, termination provisions “consistent with an assignment,” and a right to receive
`infringement damages). Again, Diamond Coating remains the better authority on our facts.3
`
`3 The issues examined in Diamond Coating suffice to decide the standing issue here, but it merits mention that
`AMD’s right to 35–50 percent of Lone Star’s “monetization efforts” — a factor not discussed in Diamond Coating —
`further belies the notion that Lone Star received “all substantial rights” in the patents. See Mann, 604 F.3d at 1360–61.
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`Lone Star further contends Section 6.2(f) is immaterial here because, even if Lone Star
`lacks standing to sue on the patents-in-suit in general, it still has standing to sue the specific
`defendants herein since they are all listed as targets on Exhibit E to the patent transfer
`agreement. This argument ignores that, even as to the specific targets listed on Exhibit E, Lone
`Star’s enforcement and licensing capabilities remain subject to the “Existing Encumbrances”
`and restrictions on alienation set forth in Sections 2.3 and 2.6, respectively. Even assuming for
`the sake of argument that, as Lone Star urges, standing should be determined on a defendant-by-
`defendant basis, that general proposition would not suffice to create standing for Lone Star here.
`In support of its position, Lone Star also cites WiAV Solutions LLC v. Motorola, Inc.,
`631 F.3d 1257, 1266–67 (Fed. Cir. 2010), for the proposition that, “[d]epending on the scope of
`its exclusionary rights, an exclusive licensee may have standing to sue some parties and not
`others. . . . [I]f an exclusive licensee has the right to exclude others from practicing a patent,
`and a party accused of infringement does not possess, and is incapable of obtaining, a license of
`those rights from any other party, the exclusive licensee’s exclusionary right is violated.” But
`WiAV examined the standing of exclusive licensees to sue based on their exclusionary rights,
`not the standing of assignees to sue based on receipt of all substantial rights in the patents-in-
`suit. The question here is not merely whether or not Lone Star received exclusionary rights but
`whether or not Lone Star received all substantial rights in the patents-in-suit. To repeat, Lone
`Star’s complaints alleged only that it is an “assignee” and “sole owner” of the patents-in-suit. It
`cannot simply retreat to the position of an “exclusive licensee” to evade arguments that it did
`not actually receive “all substantial rights” in the patents-in-suit.
`In a similar vein, Lone Star requests in the alternative that, if it is not an “assignee” and
`“sole owner” of the patents-in-suit, it be granted leave to join AMD as a party. Defendants
`counter-propose that these actions be dismissed without prejudice so that Lone Star can re-file if
`it can allege sufficient facts to state a claim as an exclusive licensee and secure AMD as a co-
`plaintiff. Defendants point out that Lone Star’s delay in producing the crucial patent transfer
`agreement already prejudiced defendants’ ability to litigate effectively because, without AMD,
`defendants had to move to transfer these actions to our district from the Eastern District of
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`Texas. Additionally, defendants have not been able to leverage their own patent portfolios to
`resolve this dispute because Lone Star, unlike AMD, is a non-practicing entity immune from the
`threat of counterclaims. Moreover, if AMD simply joins at this stage, Lone Star and AMD
`would enjoy earlier filing dates for their claims than defendants would for any counterclaims for
`purposes of recovering damages. See 35 U.S.C. § 286 (“Except as otherwise provided by law,
`no recovery shall be had for any infringement committed more than six years prior to the filing
`of the complaint or counterclaim for infringement in the action.”). This would be a manifestly
`unfair outcome given that Lone Star itself prevented defendants from asserting counterclaims
`earlier by failing to timely produce the patent transfer agreement.
`This order agrees with defendants that allowing Lone Star to simply add AMD in at this
`stage would reward Lone Star for its litigation gimmick and unfairly prejudice defendants.
`Accordingly, these actions are hereby dismissed. Lone Star will have the option to re-file its
`claims as an “exclusive licensee” with AMD as a co-plaintiff, though this order in no way
`decides the separate question of whether or not Lone Star could sustain such claims under the
`applicable law. To be clear, if Lone Star re-files, it will not be allowed to take advantage of the
`earlier filing dates in the instant actions for purposes of recovering damages.
`CONCLUSION
`To the foregoing extent, defendants’ motions to dismiss are GRANTED. The above-
`captioned actions are DISMISSED. The Clerk shall please CLOSE THE FILES.
`
`IT IS SO ORDERED.
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`Dated: January 20, 2018.
`
`
`WILLIAM ALSUP
`UNITED STATES DISTRICT JUDGE
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`For the Northern District of California
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`United States District Court
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