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District Court Stays Patent Litigation Pending State Court Proceedings That Will Determine Licensing Issue

In this patent infringement action, MMEI, owns U.S. patent 6,234,099 (“the ‘099 patent”). Fineline Industries, Inc. (“Fineline Inc.”) entered into a license agreement with MMEI that permitted Fineline Inc. to use the ‘099 patent for its products for the payment of royalties The agreement also provided that any change of majority control in Fineline Inc. had to be agreed to by MMEI in writing. Fineline Inc. converted into a Florida LLC–Defendant Fineline LLC. Fineline LLC continued to use the 2010 license agreement as a successor to Fineline Inc when . MMEI terminated the 2010 license agreement, arguing that Fineline Inc. had breached the license agreement.

On the same day that MMEI filed the patent infringement action, MMEI filed a lawsuit in state court against Fineline Inc. and Fineline LLC for, among other things, breach of contract and breach of the covenant of good faith and fair dealing, including that Fineline LLC was an “unauthorized successor” to the license agreement.

Fineline LLC then moved to stay the patent infringement action, contending that the state court case would resolve the issue of whether Fineline LLC properly assumed and used the license agreement from Fineline Inc. Fineline LLC asserted that if the state court rules in its favor, then it could not have infringed the ‘099 patent at any time.

After reviewing the legal factors for a stay, the district court stated that “MMEI does not and cannot dispute that a threshold issue the court will have to decide in MMEI’s state court case is whether Fineline LLC assumed Fineline Inc.’s licensure rights to the ‘099 patent under the 2010 licensing agreement after its corporate restructuring. Although MMEI contends in this case that Fineline LLC “DOES NOT and NEVER HAS HAD a license with MMEI to its patented technology,” Doc. 20 at 3 (emphasis in original), MMEI’s breach of contract claim is premised entirely on its assertion that Fineline LLC is bound by 2010 licensing agreement.”

The district court also concluded that the claim for breach of the covenant of good faith and fair dealing raised similar issues “Defendants unfairly interfered with [MMEI’s] right to receive the benefits of the [2010 license agreement] by their breaches of [it].” The district court also noted that “[t]hose contentions, though contradicting MMEI’s position in this case, necessarily imply that Fineline LLC assumed Fineline Inc.’s licensing rights to the ‘099 patent. If the state court finds that Fineline LLC did assume those rights–and was therefore licensed to sell its products that use the ‘099 patent at all relevant times–then MMEI’s patent infringement claims in this case fail.”

The district court determined that those allegations alone justified staying the case under Ninth Circuit law, which has held: “A trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case . . . . In such cases the court may order a stay of the action pursuant to its power to control its docket and calendar and to provide for a just determination of the cases pending before it.” Leyva v. Certified Grocers of Calif., Inc., 593 F.2d 857, 863-64 (9th Cir. 1979).

Therefore, the district court stayed the case pending the resolution of the licensing issue in state court.

Mike Murphy’s Enterprises, Inc. v. Fineline Industries, LLC,
Case No. 1:16-cv-784-LJO-SAB (E.D. Cal. Oct. 31, 2016)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or