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ZENITH ELECS. CORP. v. EXZEC INC.

February 3, 1995

ZENITH ELECTRONICS CORPORATION, Plaintiff,
v.
EXZEC INC., TERENCE J. KNOWLES, and CARROLL TOUCH, INC., Defendants. EXZEC INC. and CARROLL TOUCH, INC., Counter-Plaintiffs, v. ZENITH ELECTRONICS CORPORATION, Counter-Defendant.



The opinion of the court was delivered by: BLANCHE M. MANNING

 On March 7, 1994 Carroll Touch purchased the business of ExZec related to the "SureTouch" products with intent to manufacture, use and sell products of substantially the same construction. Zenith alleges that the trademark "SureTouch" infringes the patents in suit. Carroll Touch intervened as a party defendant.

 Both ExZec and Carroll Touch have denied all allegations of infringement and counterclaimed for an order of non-infringement and a finding of invalidity of the Zenith patents in suit.

 BACKGROUND

 On June 29, 1987, Zenith and Elo Touch (then Elographics, Inc.) entered into a formal written agreement granting Elo Touch an exclusive, worldwide license under the patents to make, have made, use, and sell and otherwise dispose of SAW Touch Products during the term of the agreement (hereafter "Zenith/Elo Touch Agreement"). Zenith reserved a non-exclusive, paid-up license, without the right to grant sublicenses, under the licensed patents to make, have made, use, sell and otherwise dispose of any product which includes a SAW Touch panel. Zenith granted Elo Touch, subject to the terms and conditions of the agreement, the right to grant non-exclusive sublicenses to third parties to make, have made, use, sell and otherwise dispose of licensed products within the scope of the exclusive license granted to Elo Touch. The agreement provided that in the event a third party infringes a claim or claims of one or more licensed patents, Elo Touch may request Zenith to initiate and maintain legal action against such third party. If Zenith fails or refuses to initiate such a legal action, Elo Touch may initiate legal action in its own name. In 1994, the license agreement was expanded to include as much of the automotive field as Zenith is able to grant, subject to the prior exclusive license Zenith has with an automobile manufacturer.

 According to defendants, the Zenith/Elo Touch agreement transferred all substantial ownership rights in the Zenith SAW Patents to Elo Touch. Defendants assert that Zenith has never sold any product or device incorporating any of the patents in question. On the other hand, Elo Touch has developed commercial products incorporating the patents. Defendants assert that: (1) Elo Touch controls the key witnesses and documents at the heart of this dispute, i.e., two Elo Touch employees are the persons with knowledge of the facts relating to the alleged infringement; (2) Elo Touch's testing and analysis of the ExZec panel was the basis for this action; and (3) Zenith's attorneys have stated that they are not sure whether Zenith can settle this action without Elo Touch's agreement; and therefore, Elo Touch must be joined as a necessary party because (a) the Zenith/Elo Touch Agreement transfers all substantial ownership rights in the Zenith SAW Patents to Elo Touch and is tantamount to an assignment; (b) defendants cannot be accorded complete relief, including the ability to defend against the infringement claims and pursue their defense of patent misuse, unless Elo Touch is joined as a party; and (c) defendants are subject to a substantial risk of future litigation and inconsistent obligations if Elo Touch is not joined.

 Defendant Knowles was an employee of Zenith between April 18, 1966 and January 29, 1988. During his employment with Zenith, Knowles held a variety of engineering and managerial positions, including working on touch screen technology that is the subject matter of the patents in suit. In January 1988 Knowles left Zenith and formed ExZec which marketed SureTouch.

 Zenith does not dispute ExZec's contention that in late 1991, Elo Touch contacted ExZec and representatives of Elo Touch met with representatives of ExZec in order to learn first-hand about the ExZec Shear Wave Technology. Following the meeting, Elo Touch requested a sample touch panel from ExZec which ExZec supplied in late 1991. Elo Touch formed an ExZec Team to study the ExZec Shear Wave Technology and ExZec's patents.

 According to ExZec, Elo Touch acknowledged that the ExZec Shear Wave Technology was substantially different from the SAW Technology covered by the Zenith SAW patents and that these differences stem from the fundamental differences between shear waves and SAW. Approximately one month later, in April 1993, Elo Touch pursuant to the provisions of the license agreement, put Zenith on notice of the alleged infringement of the Zenith SAW patents by ExZec. Reacting to the notice, Zenith, in a letter sent to ExZec in May 1993 by John Coult, Zenith's in-house attorney, accused ExZec of infringement. ExZec alleges that, in August 1993, prior to the filing of this lawsuit, Elo Touch contacted ExZec and offered to buy the ExZec Shear Wave Technology embodied in the ExZec patents, at a price substantially below offers ExZec had received from other parties.

 Defendant Carrol Touch moves for joinder for reasons similar to defendant ExZec and Knowles, i.e., because: (1) Elo Touch is the exclusive licensee under the patents in suit; (2) Elo Touch initiated this lawsuit, possesses critical information on which defendants require full discovery, and controls key aspects of this case, including Zenith's ability to settle the case; and (3) the defendants would be subjected to multiple and inconsistent obligations if Elo Touch is not joined because Elo Touch may bring suit itself on the patents in Suit.

 Plaintiff contends that the court should not join Elo Touch because (1) the license at issue is not exclusive; (2) defendants can be accorded complete relief without joinder of Elo Touch; and (3) defendants do not face a substantial risk of double, multiple or inconsistent obligations. Plaintiff maintains that Zenith retains the exclusive right to practice the patents in suit in touch screen products intended for use in automotive applications. Moreover, while the April 21, 1994 amendment modifies the non-exclusive field of use grant to Elo Touch, Zenith retains the right to cancel the transfer of a particular right connected to automotive applications under certain circumstances. Plaintiff asserts that it also retains the right to make, have made, use or sell and otherwise dispose of products incorporating the patents in suit within a subsystem, therefore, the license is not exclusive to Elo Touch because Zenith had retained significant rights to its patents in suit. Although not a party to this suit, Elo Touch, according to plaintiff, as a result of this litigation has retained outside counsel in both Emeryville, California, and local counsel in Chicago, and ...


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