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Video Streaming Solutions LLC v. Microsoft Corp.

United States District Court, N.D. Illinois, Eastern Division

May 27, 2014

VIDEO STREAMING SOLUTIONS LLC, Plaintiff,
v.
MICROSOFT CORP. Defendant.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, District Judge.

Plaintiff Video Streaming Solutions, LLC, holder of patents in certain video-streaming technology, has charged Defendant Microsoft Corporation with infringing four of Plaintiff's patents. The alleged infringement may have gone on for some time, but until September 30, 2013, Microsoft could act with impunity: in September 2010, Microsoft entered into a license agreement with Plaintiff's parent company, Acacia Research Corporation, that immunized Microsoft from infringement claims on any patent owned by Acacia and its subsidiaries in exchange for $22.5 million. That agreement lapsed on September 30, 2013, and Plaintiff filed this suit the next day. Microsoft has moved to dismiss for failure to join a necessary party (i.e., Acacia) pursuant to Rule 12(b)(7). In the alternative, Microsoft asks the court to transfer this action to the Southern District of New York (where Microsoft has filed a breach of contract suit against Acacia), based on the license agreement's forum-selection clause. For the reasons explained below, Microsoft's motion [22] is denied.

FACTUAL BACKGROUND

Plaintiff VSS is a wholly-owned, operating subsidiary of Acacia Research Group LLC ("ARG"). ARG, in turn, is wholly owned by Acacia Research Corporation ("Acacia"), a Texas-based LCC, which operates as a non-practicing patent-assertion entity. (Pl.'s Resp. [40] at 1-2.) In a multi-document transaction on September 30, 2010, Microsoft paid Acacia $22.5 million for a license to use Acacia's intellectual property. Under the language of the parties' agreement (referred to here as the "Contract"), Microsoft was free to use any patent that was owned or controlled by Acacia. Specifically, the Contract permanently immunizes Microsoft against any claim of infringement of any patent owned or controlled by Acacia or its subsidiaries (except for certain patents not relevant here) as of September 30, 2010 ("existing patents"), and immunizes Microsoft against any claim of infringement arising prior to October 1, 2013 regarding any patent acquired by Acacia or its subsidiaries after September 30, 2010 ("later-acquired patents"). ( See Contract, Ex. 1 to Def.'s S.D.N.Y. Compl., Ex. A to Robbins Decl. [31], ¶¶ 1.3, 1.4, A2.1, A2.4, A3.1, A3.6.)

In addition, the Contract expressly states that it "may be pleaded as a full and complete defense to, and may be used as a basis of an injunction against" any patent infringement suit against Microsoft based on the covered patents. (Contract ¶ A2.8.) The parties agreed that the Contract is to be governed and construed according to New York law. ( Id. ¶ 4.10.) The Contract also provides that in "all civil actions or other legal or equitable proceedings directly arising between the parties or any of their Affiliates... the Parties consent to exclusive jurisdiction and venue in the United States District Court for the Southern District of New York."[1] ( Id. )

The term of the Contract was three years, starting on September 30, 2010 and concluding on September 30, 2013; however, Microsoft had the option of extending the agreement for two additional one-year terms for a fee of $15 million per year. ( Id. ¶ A1.8.) Defendant did not exercise this option, and the Contract expired on September 30, 2013. The next day, VSS filed this suit against Microsoft, alleging infringement of four of its patents.[2] Each of the patents-in-suit is a "later-acquired patent, " meaning that VSS acquired it between September 30, 2010 and September 30, 2013. (Pl.'s Sur-Reply [49] at 6.) As a result, the Contract immunizes Defendant from infringement claims (and Plaintiff also covenanted not to sue) based on conduct during the life of the Contract.

On October 1, 2013, VSS and other Acacia affiliates filed seven lawsuits against Microsoft in three different districts, all claiming infringement of later-acquired patents.[3] The original complaint in this case was ambiguous regarding the timing of the alleged infringing behavior, as it alleged that "Microsoft has committed, and continues to commit, acts of infringement...." (Compl. [1] at ¶ 6.) VSS has since amended its complaint twice; consistent with representations that counsel made promptly in open court, VSS now explicitly limits its claims to infringement after the Contract expired, seeking damages for "Defendant's past, present, and future infringing activities since October 1, 2013." (Sec. Am. Compl. [38] at 17.) In response, Defendant has filed substantially similar motions to dismiss or transfer in each of the seven cases, including this one [22]. Two of these cases were dismissed voluntarily without prejudice, [4] but no other court has yet ruled on the pending motions to dismiss.

Microsoft has also filed a related suit against Acacia in the Southern District of New York. (S.D.N.Y. Compl., Microsoft Corp. v. Acacia Research Corp., No. 13 C 8275-PAC (S.D.N.Y. Nov. 20, 2013), Ex. A to Robbins Decl.) In that case, Microsoft raises breach of contract and abuse of process claims based on the seven infringement suits that Acacia's affiliates have filed across the country. Earlier this year, Acacia moved to dismiss that suit pursuant to Rule 12(b)(6), but that motion was denied on April 28, 2014 because, the court concluded that Microsoft's allegations were sufficient, taken as true, to state a claim of breach of contract. (Summary Order, Microsoft Corp. v. Acacia Research Corp., No. 13 C 8275-PAC, at 2 (S.D.N.Y. April 25, 2014), Ex. A. to Def.'s Supp. to Mot. to Dismiss [70].)

DISCUSSION

Microsoft has moved to dismiss for failure to join Acacia, which Microsoft claims is a necessary party to this litigation. (Def.'s Mem. at 6-7.) Alternatively, Microsoft seeks a transfer to the Southern District of New York. ( Id. at 7-12.) Both of these arguments rely, at least in part, on Defendant's belief that VSS's claims (as well as those brought by other Acacia affiliates across the country) are governed by the 2010 Contract between Acacia and Microsoft, which (1) granted Microsoft immunity from any infringement claims based on conduct during the pendency of the parties' agreement[5]; and (2) limited venue for any claims "arising under... the [Contract]" to the Southern District of New York. (Contract ¶ 4.10.) The parties agree that the Contract expressly binds all Acacia affiliates, including VSS. ( Id. ) VSS argues, however, that the Contract is irrelevant here, because its second amended complaint seeks only damages for infringement after the expiration of the Contract on September 30, 2013. (Sec. Am. Compl. ¶¶ 24, 42, 60, 78.)

I. Whether This Suit Arises Under the Contract

Microsoft presents three separate arguments to support its contention that, despite the language of VSS's second amended complaint, limiting its claims for damages to infringement after the conclusion of the Contract, this suit "aris[es]... under the [Contract]." None of these arguments satisfies the court that this dispute is governed by the Contract.

First, Defendant contends that Plaintiff improperly sought damages barred by the Contract's terms. Microsoft acknowledges the second amended complaint explicitly limits the claim for damages to infringement starting on October 1, 2013, but argues that clarification does not undo "the breach that has already occurred as a result of the initial complaint filed here." (Def.'s Reply at 3.) The original complaint, Microsoft urges, "unequivocally sought recovery in the form of damages for infringement occurring before October 1" by alleging that "Microsoft has committed, and continues to commit, acts of infringement...." ( Id. (citing Compl. at ¶ 6.) In doing so, Microsoft argues, VSS and Acacia breached the Contract's covenant not to sue, and, therefore, it arises under the Contract and is subject to its forum-selection clause.

Microsoft believes it has caught Plaintiff in a breach, but the court does not agree. Although the original complaint's use of both the past and present tense to describe the alleged infringement may have generated some ambiguity regarding the temporal scope of VSS's infringement claims, that complaint did not, as Defendant suggests, "unequivocally" seek damages for alleged infringement prior to October 1, 2013. Given the context and timing, one might reasonably interpret the allegation that Microsoft "has committed" infringement as claiming only damages arising on October 1, 2013 and after. Furthermore, the language of the original complaint ("has committed, and continues to commit, acts of infringement") is technically accurate even if VSS only sought damages for infringement starting on October 1, 2013, the date VSS filed its ...


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