Opinion
CIVIL ACTION NO. 2:11-cv-272-JRG
04-12-2012
LODSYS GROUP LLC, Plaintiff, v. COMBAY, INC., et al., Defendants.
MEMORANDUM OPINION AND ORDER
I. Introduction
Before the Court is Apple Inc.'s ("Apple") Motion to Intervene. (Dkt. No. 4.) After carefully considering the parties' written submissions and the arguments of counsel, the Court GRANTS-IN-PART Apple's Motion. Apple is permitted to intervene in this suit, but such intervention is limited to the issues of patent exhaustion and licensing.
II. Background
Lodsys, LLC ("Lodsys") filed this patent infringement action against seven software application developers (collectively, "Developers") on May 31, 2011. Lodsys alleges that the Developers infringe U.S. Patent Nos. 7,222,078 (the "'078 patent") and 7,620,565 (the "'565 patent"). Apple, a non-party, filed the present motion to intervene in this suit on the basis that it is "expressly licensed to provide to the Developers products and services that embody the patents in suit, free from claims of infringement of those patents." (Dkt. No. 4.) Apple argues that it is entitled to intervention as a matter of right under Fed. R. Civ. P. 24(a), or in the alternative, that permissive intervention is appropriate under Fed. R. Civ. P. 24(b). The Developers support Apple's Motion to Intervene. (Dkt. No. 37.)
The parties to the license agreement at issue ("License Agreement"), which has been filed under seal, are Apple and an entity that is not a party to this suit ("IIF"). After the license agreement was executed, Lodsys purchased the '565 and '078 patents from IIF. One of the issues that will eventually be before the Court is the extent to which Apple and Lodsys are bound by the various terms of the license agreement. Nevertheless, the Court does not reach this question in the context of Apple's motion.
Lodsys opposes on the grounds that Apple expressly agreed, in the signed License Agreement, that it would not "be a party to or defend any action or suit brought by any third party which challenges or concerns the validity of any of the Patents." (Dkt. No. 30, at 1.) Lodsys argues that Apple is not entitled to intervention as a matter of right under Rule 24(a) and that the Court should exercise its discretion to deny Apple's Motion under Rule 24(b) "before any additional needless expense and judicial resources are wasted concerning a purported interest that Apple expressly agreed it did not acquire under the License." (Dkt. No. 30, at 2) (emphasis in original.)
III. Legal Standard
Rule 24(a) of the Federal Rules of Civil Procedure governs intervention as a matter of right, while Rule 24(b) governs permissive intervention. Fed. R. Civ. P. 24. Pursuant to Rule 24(a), a movant may intervene as a matter of right whenever four requirements are met: (1) the motion is timely; (2) the movant has an interest relating to the property or transaction that is the subject of the action; (3) the movant is situated such that the disposition of the action may, as a practical matter, impair or impede its ability to protect its interest; and (4) the movant's interests are inadequately represented by the existing parties to the suit. Fed. R. Civ. P. 24(a)(2); Reid v. GM Corp., 240 F.R.D. 257, 259 (E.D. Tex. 2006). Although all four requirements must be met, the inquiry is a "flexible one" that "focuses on the particular facts and circumstances surrounding each application." Edwards v. City of Houston, 78 F.3d 983, 999 (5th Cir. 1996); see, e.g., Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994) (encouraging courts to allow intervention "where no one would be hurt and the greater justice could be attained") (citations omitted).
Even where intervention as a right is not available, Rule 24(b) provides separately and independently for permissive intervention whenever an applicant "has a claim or defense that shares with the main action a common question of law or fact." Fed. R. Civ. P. 24(b)(1)(B); see, e.g., Stallworth v. Monsanto Co., 558 F.2d 257, 269 (5th Cir. 1977). Where the applicant's claim or defense is timely, shares a question of law or fact with the main action, and will not prejudice any party, courts freely grant permissive intervention. Id. (noting "liberal construction" of Rule 24(b)).
Finally, in evaluating a motion to intervene, the court must accept as true any well-pleaded, non-conclusory allegations presented in the motion papers and proposed pleading. Mendendhall v. M/V Toyota Maru No. 11 v. Panama Canal Co., 551 F.2d 55, 56 n.2 (5th Cir. 1977); see, e.g., State Farm Fire and Cas. Co. v. Black & Decker, Inc., Civ. A. 02-1154, 2003 WL 22966373, at *3 (E.D. La. Dec. 11, 2003) ("The pleading is construed liberally in favor of the pleader and the court will accept as true the well pleaded allegations in the pleading.'") (quoting Wright & Miller, FEDERAL PRACTICE AND PROCEDURE § 1914 at 418 (2d ed. 1986)).
IV. Analysis
A. Apple is Entitled to Intervene as a Matter of Right
The Court first turns to whether Apple satisfies each of the four requirements for intervention as a matter of right under Rule 24(a). First, Apple's motion is timely. Apple filed its motion only two weeks after this lawsuit was filed, and before the Defendants even answered Lodsys's Complaint. (Dkt. No. 4, at 9.) Second, Apple has an interest in its license and in the products and services accused of infringement in this action. Apple believes that it holds a license to the patents in suit, the value of which depends upon Apple's ability to offer its licensed products and services to the Developers. Third, Apple's interest in the license agreement may be diminished if it is not permitted to intervene. An adverse outcome with regard to the license agreement may impair Apple's ability to protect its license rights in this case and in future cases. Fourth, the current Defendants may not effectively represent Apple's interests in this case. It is certainly possible that the Developers may be interested in resolving this case as quickly and inexpensively as possible, while Apple's interest in protecting its broader license rights may result in a different litigation strategy. (Dkt. No. 4, at 13.) Therefore, Apple's interests cannot be as effectively represented in this case by the Developers as they could be by Apple itself. Accordingly, the Court finds that Apple is entitled to intervention as a matter of right under Rule 24(a).
Apple's burden in demonstrating that the existing defendants will not adequately represent its interests is "minimal," and requires no more than a showing that the representation by those parties "may be" insufficient. Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n.10 (1973); accord, e.g., John Doe No. 1 v. Glickman, 256 F.3d 371, 380 (5th Cir. 2001) ("The potential intervenor need only show that the representation may be inadequate.") (emphasis in original) (citations omitted).
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This Court has previously concluded that intervention as a matter of right is appropriate under nearly identical circumstances. See Negotiated Data Solutions, LLC v. Dell, Inc., No. 2:06-cv-538-CE (E.D. Tex. Oct. 23, 2008). In that case, Intel filed a motion to intervene based on its license to the patents in suit. The patents in suit had been assigned to plaintiff NDS, which had later filed an infringement action against Intel customer Dell based on Intel components incorporated into Dell Systems. Id. Intel sought to intervene and assert claims for a declaratory judgment that, among other things, the Plaintiff's allegations were barred by the doctrine of patent exhaustion and that, without declaratory relief, the Plaintiff would "continue to wrongfully assert the Patents-in-Suit against Dell and threaten Intel and its customers, thereby causing Intel irreparable injury and damage." Id. In light of these arguments, the Court ruled that Intel was entitled to intervene as a matter of right on "the issues of patent exhaustion and licensing." Id.
The Order granting intervention in Negotiated Data is particularly illustrative here. There are many factual similarities between that case and this case. The only appreciable difference the Court is aware of is that the License Agreement states that Apple may not "be party to or defend any action or suit brought by any third party which challenges or concerns the validity of the Patents." (Dkt. No. 30, at 1.) The parties disagree whether this provision actually precludes Apple from intervening as a matter of right in this action. For example, Apple argues that the "very language of the License" refutes Lodsys' principal argument that Apple may not intervene because this suit was not brought by a "third party." (Dkt. No. 36, at 1.) At this stage of the case - when the Court must accept all of Apple's well-pleaded arguments as true - the Court will not delve into the nuances of the License Agreement to resolve issues of potential contract ambiguity. Rather, as long-standing case law requires, the Court will give Apple the benefit of the doubt in the context of this Motion. Therefore, Apple is entitled to intervention as a matter of right under Rule 24(a), limited to the issues of patent exhaustion and licensing.
B. Permissive Intervention Under Rule 24(b) is Warranted
Assuming arguendo that Apple does not meet the standard for intervention as a matter of right, permissive intervention under Rule 24(b) is clearly warranted in this case. Apple's proposed defense and counterclaim present numerous questions of fact and law that are common to the existing lawsuit. For example, based on Lodsys' infringement allegations, it appears likely that both Apple and the Developers will raise issues of patent exhaustion and first sale, requiring the Court to analyze Apple's rights under its license. Further, additional common questions of fact exist with respect to the licensed Apple products and methods that Lodsys appears to be accusing of infringement. Precisely how the Developers use Apple's hardware and software will be fact questions with respect to Apple's exhaustion defense and counterclaim. Under similar circumstances, courts in this district have found that permissive intervention is appropriate. See, e.g., TiVo Inc. v. AT&T Inc., No. 2:09-cv-259 (E.D. Tex. March 31, 2010) (permissive intervention where infringement claims rested on software provided by Microsoft); Ethernet Innovations, LLC v. Acer, Inc. et al., No. 6:09-cv-448 (E.D. Tex. May 10, 2010) (permissive intervention where patents were asserted against Intel technology incorporated in customer devices.)
As discussed in open court during the hearing held on April 4, 2012, there is no dispute among the parties that the Court has the discretion to permit Apple's intervention in this case. Against the possibility that the Court's analysis of Rule 24(a) could be found to be misguided and to insure no continuing dispute lingers as to the propriety of Apple's intervention herein, the Court additionally opts to exercise its discretion by permitting Apple's intervention related to the issues of license and patent exhaustion.
V. Conclusion
This Court believes that Apple has satisfied each of the four requirements for intervention as a matter of right under Rule 24(a)(2). Further, this Court finds that permissive intervention is also appropriate under Rule 24(b). To avoid any potential prejudice to Lodsys' rights under the License Agreement such intervention shall be and is hereby limited to the issues of license and patent exhaustion. For the reasons set forth above, Apple's Motion to Intervene is GRANTED-IN-PART to the extent and as specified herein.
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RODNEY GILSTRAP
UNITED STATES DISTRICT JUDGE