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Advanced Audio Devices, LLC v. Bay Consumer

December 2, 2011

ADVANCED AUDIO DEVICES, LLC, PLAINTIFF,
v.
BAY CONSUMER, INC., CENTON ELECTRONICS, INC., PROLYNKZ, LLC, ELEMENT ELECTRONICS, INC., MACH SPEED TECHNOLOGIES, INC., AND SLY ELECTRONICS, LLC, DEFENDANTS.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiff Advanced Audio Devices, LLC ("AAD") sued a number of Defendants for infringing three patents in technology related to a digital music player. Defendant Mach Speed Technologies, Inc. ("Mach Speed"), the only Defendant who has not settled or defaulted, moves to dismiss the case for lack of subject matter jurisdiction and failure to join a Rule 19 party. Mach Speed contends that AAD effectively assigned the rights to the patents to a third party, SP Technologies, LLC ("SPT"), and suggests that AAD did not effectively regain those rights when it agreed to terminate that license. (Mach Speed's Reply in Support of its Motion to Dismiss (hereinafter "Reply"), at 1.) For the reasons stated here, the motion is denied.

BACKGROUND

AAD is the original assignee of three patents: United States Patent No. 6,587,403 ("the '403 patent"), United States Patent No. 7,289,393 ("the '393 patent"), and United States Patent No. 7,817,502 ("the '502 patent") (collectively, "the patents-in-suit"). (Pl.'s Comp. ¶¶ 16-17, 45-46, 74-75.) The '393 and '502 patents are continuations of the '403 patent, and all relate to the same music player. (Mach Speed's Motion to Dismiss Under Rules 12(b)(1) and 12(b)(7) (hereinafter "Motion to Dismiss"), at 5.)

In September 2005, AAD granted to SPT the exclusive right and license to use the '403 patent and all continuations of it. (Exclusive License Agreement between AAD and SPT (hereinafter "Exclusive License"), ¶ 2.1.) AAD also granted SPT the right to sue for infringement. (Id.) In November 2005, AAD and SPT jointly sued iRiver America, Inc. and ReignCom Company, Ltd. for infringement of the '403 patent. (Ex. B to Motion to Dismiss.) In that litigation, AAD and SPT alleged that AAD owned the '403 patent but that SPT owned the exclusive license and the right to sue for infringement. (Id. ¶¶ 4-5.)

In September 2007, AAD and SPT terminated the Exclusive License. (Agreement for Termination of Exclusive License Agreement and Mutual Release (hereinafter "Termination Agreement"), ¶ 1.)*fn1 In the termination agreement, AAD agreed to be bound by SPT's obligations under prior litigation. (Termination Agreement ¶ 2.) In all other respects, the Termination Agreement provides that:

AAD and SPT . . . release . . . one another . . . from any and all claims . . . including specifically those arising out of: (i) the licensing and enforcement of the AAD patents, (ii) the legal representation of AAD and SPT in the licensing and enforcement of the AAD patents, (iii) the Exclusive License Agreement itself.

(Termination Agreement ¶ 5.) The Termination Agreement also contemplated the possibility that AAD might nevertheless bring a claim against SPT. If that were to occur, the parties agreed that the termination would be reversed and the Exclusive License would be "automatically reinstated":

If AAD shall subsequently bring any claim, suit or cause of action released in paragraph 5 above, this Agreement shall automatically be terminated, including the rights granted in paragraph 1, and the Exclusive License Agreement of September 12, 2005 will be automatically reinstated.

(Termination Agreement ¶ 8.)

AAD filed a complaint against Mach Speed for infringement of the patents-in-suit on December 3, 2010. Mach Speed now moves to dismiss AAD's complaint for lack of standing. In the alternative, Mach Speed argues that the suit should be dismissed because SPT is a necessary party under Federal Rule of Civil Procedure 19.

DISCUSSION

I. Standing

In its motion to dismiss, Mach Speed argues that AAD lacks standing because the Exclusive License effectively assigned the patents-in-suit to SPT, and the Termination Agreement did not effectively ...


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