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Motion to Sever and Stay Denied Where Customer Defendants Could Not Satisfy Customer Suit Exception Factors

Cambrian Science (“Cambrian”) filed a second amended complaint that alleged patent infringement of U.S. Patent No. 6,777,312 (the “‘312 Patent”). The second amended complaint alleged infringement against several defendants, certain of which were labeled by the district court as “Customer Defendants.” As to the Customer Defendants, Cambrian asserted that they infringed the ‘312 Patent directly by making, using, selling or offering to sell certain systems. The second amended complaint also alleged claims for contributing and inducing infringement.

The Customer Defendants moved to severe and stay the claims against them based on the “customer suit exception,” which provides: “[A]n exception to the venue rule that when two or more patent infringement suits, involving the same or similar parties and issues, are filed, courts normally grant priority to the first-filed suit and enjoin or stay the other suits.” Privasys, Inc. v. Visa Int’l, No. C 07-03257 SI, 2007 WL 3461761 at *3 (N.D. Cal. Nov. 14, 2007) (citing Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1463 (Fed. Cir. 1990)). This exception applies “when the first-filed suit in one district is against customers of the infringing manufacturer, while a subsequent suit in another district court is against the manufacturer itself.” Id. “The rationale behind the customer suit exception is that the manufacturer is presumed to have a ‘greater interest in defending its actions against charges of infringement,’ and therefore ‘the manufacturer is the true defendant.'” Beck Sys., Inc. v. Marimba, Inc., No. 01 C 5207, 2001 WL 1502338, at *2 (N.D. Ill. Nov. 20, 2001) (quoting Kahn v. Gen. Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989)).”

The district court noted that in this case there was only one manufacturer defendant and seven Customer Defendants, all of whom were represented by the same counsel. The district court also noted that the Customer Defendants, although agreeing to be bound by the district court’s rulings on issues of infringement, validity and enforceability, did not agree to be bound to any injunction or damage ruling. The plaintiff also had put forward evidence questioning the manufacturer defendant’s solvency.

Accordingly, the district court found that the Customer Defendants had failed to satisfy the customer suit exception factors. “The Customer Defendants have failed to show that the customer suit exception applies to this case, or that case management or any other recognized factors weigh in favor of severing and staying. Accordingly, the Court concludes that severing and staying is not appropriate in this case.”

Cambrian Science Corp. v. Cox Communications, Inc., et al., Case No. SACV 11-1011-JST (ANx) (C.D. Cal. March 6, 2012)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or