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Sonos Inc. v. D&M Holdings Inc.

United States District Court, D. Delaware

November 1, 2017

SONOS, INC., Plaintiff,
v.
D&M HOLDINGS INC. d/b/a THE D GROUP, D&M HOLDINGS U.S. INC., and DENON ELECTRONICS USA, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          WILLIAM C. BRYSON, UNITED STATES CIRCUIT JUDGE.

         Before the Court are two motions brought by plaintiff Sonos, Inc., that seek summary judgment on five of the affirmative defenses asserted by defendants D&M Holdings Inc. d/b/a The D Group, D&M Holdings U.S. Inc., and Denon Electronics (USA), LLC (collectively, "D&M"). Specifically, Sonos moves for summary judgment on D&M's affirmative defenses of patent exhaustion, patent misuse, prosecution laches, intervening rights, and two of D&M's theories of invalidity. Dkt. Nos. 289, 295. On October 30, 2017, the Court held a hearing on the motions, at which the Court ruled on some of the issues and took some under submission. This order addresses all of the issues raised by the parties in the two motions. Sonos's motions are GRANTED as to patent exhaustion, patent misuse, prosecution laches, and invalidity; and GRANTED in part and DENIED in part as to intervening rights.

         BACKGROUND

         Sonos is a manufacturer of wireless audio devices. On October 21, 2014, Sonos brought suit against D&M, a direct competitor that had launched its own wireless audio system called "HEOS by Denon." Sonos initially alleged that D&M had infringed 12 of Sonos's patents. Dkt. No. 263 ¶¶ 12, 15-16, 25-167. At present, Sonos is asserting eight of those patents against D&M: U.S. Patent Nos. 7, 571, 014 ("the '014 patent"), 8, 588, 949 ("the '949 patent"), 8, 938, 312 ("the '312 patent"), 9, 042, 556 ("the '556 patent"), 9, 195, 258 ("the '258 patent"), 9, 202, 509 ("the '509 patent"), 9, 213, 357 ("the '357 patent"), and 9, 219, 959 ("the '959 patent"). See Dkt. No. 350, at 1 n.l. Those patents cover five features offered in both Sonos's and D&M's products. First, the synchronization patents (the '258 and '357 patents) allow for synchronized audio playback between two or more speakers. Second, the group volume control patents (the '014 and '949 patents) allow for the volume of two or more speakers or speaker groups to be adjusted simultaneously. Third, the pairing patents (the '959 and '509 patents) allow for two or more separate speakers to be paired to provide multi-channel sound. Fourth, the orientation patent (the '556 patent) shapes the audio output based on the orientation-e.g., horizontal or vertical-of the speaker. Finally, the autoplay patent (the '312 patent) allows a speaker to monitor for audio signals from an external audio source, such as the speaker's line-in input connector, and select that source for playback when that external source begins outputting audio signals. The two group volume control patents and one of the synchronization patents (the '258 patent) are scheduled to be tried in a bellwether trial beginning December 11, 2017.

         DISCUSSION

         I. Patent Exhaustion

         Sonos moved for summary judgment on D&M's affirmative defense of patent exhaustion. In its responsive brief, D&M stated that it has abandoned the affirmative defense of patent exhaustion. Dkt. No. 343, at 1 n. l. The Court therefore grants summary judgment to Sonos on D&M's pleaded defense of patent exhaustion.

         II. Patent Misuse

         Sonos moved for summary judgment on D&M's affirmative defense of patent misuse. At the October 30, 2017, hearing, D&M announced that it was not pursuing the defense of patent misuse. The Court therefore grants summary judgment to Sonos on D&M's pleaded defense of patent misuse.

         III. Prosecution Laches

         Sonos moved for summary judgment on D&M affirmative defense of prosecution laches. At the October 30, 2017, hearing, D&M announced that it was not pursuing the defense of prosecution laches. The Court therefore grants summary judgment to Sonos on D&M's pleaded defense of prosecution laches.

         IV. Intervening Rights

         D&M asserts the affirmative defense of absolute intervening rights as to the '949 and '959 patents, both of which underwent reexamination. The defense of absolute intervening rights allows a party whose products infringe a reissued or reexamined patent to continue to use or sell specific products that were made, purchased, or used before the reissuance or reexamination, if the asserted claim was not in the original patent, so long as the accused infringer began its infringing activity before the patent was reissued or reexamined. 35 U.S.C. § 252 (second paragraph, first sentence); Id. § 307(b) (section 252 applicable to reexamined claims); see also Marine Polymer Techs., Inc. v. HemCon, Inc., 672 F.3d 1350, 1361-62 (Fed. Cir. 2012) (en banc).[1]

         The owner of a patent that survives reexamination "is only entitled to infringement damages for the time period between the date of issuance of the original claims and the date of the reexamined claims if the original and the reexamined claims are substantially identical." Convolve. Inc. v. Compaq Comput. Corp.. 812 F.3d 1313, 1322-23 (Fed. Cir. 2016) (quoting R & L Carriers. Inc. v. Qualcomm, Inc.. 801 F.3d 1346, 1351 (Fed. Cir. 2015)). "[I]t is the scope of the claim that must be identical, not that identical words must be used." Id. (alteration in original) (quoting Slimfold Mfg. Co. v. Kinkead Indus., Inc., 810 F.2d 1113, 1116 (Fed. Cir. 1987)). Amendments made during reexamination, even those made after a rejection based on prior art, "do not necessarily compel a conclusion that the scope of the claims has been substantively changed." Id. Rather, "[t]o determine whether a claim change is substantive it is necessary to analyze the claims of the original and the reexamined patents in light of the particular facts, including the prior art, the prosecution history, other claims, and any other pertinent information." Id. (alteration in original) (quoting Laitram Corp. v. NEC Corp., 952 F.2d 1357, 1362-63 (Fed. Cir. 1991)). The court applies traditional claim construction principles and pays "particular attention to the 'examiner's focus in allowing the claims' after amendment." Id. at 1322-23 (quoting R & L Carriers, Inc., 801 F.3d at 1351).

         Sonos argues that D&M should not be allowed to rely on the rebuttal report of its expert, Dr. Harry Bims, to support its position on intervening rights, because D&M did not address the issue of intervening rights prior to the filing of that report, and thus Dr. Bims's opinions on intervening rights were not timely disclosed. Sonos points to the Court's scheduling order, which provided that the party with the burden of proof on an issue was required to file an opening expert report by February 20, 2017, long before Dr. Bims's rebuttal expert report was filed. See, e.g., Dkt. No. 231. The burden of proof on the issue of intervening rights, an affirmative defense, rests on the defendant. BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214, 1221 (Fed. Cir. 1993); Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1388 (Fed. Cir. 1983). Therefore, according to Sonos, D&M has forfeited its right to present a defense of intervening rights.

         The Court disagrees. D&M pleaded the defense of intervening rights and raised the issue of the improper broadening of the claims of the '949 and '959 patents in the February 20, 2017, report of its expert, Dr. Jay P. Kesan, although Dr. Kesan did not specifically tie his discussion of improper broadening to the legal issue of intervening rights. Dkt. No. 307, Ex. A, at 42-54 (¶¶ 133-151). Sonos's expert, Dr. Kevin C. Almeroth, stated in his expert report that the changes made to the claims of the '949 patent following reexamination did not substantively change the scope of the claims of that patent. See Dkt. No. 311, Ex. E-3, at 75 (¶ 205). D&M was entitled to rebut that evidence, which it did through Dr. Bims's expert rebuttal report. Dkt. No. 309, Ex. C, at 76-80 (¶¶ 243-54). Dr. Bims's rebuttal report also contended that the '959 patent had been substantively changed during reexamination in light of prior art. Id. at 82-86 (¶¶ 261-265). At the same time, another Sonos expert, Dr. Andrew Wolfe, submitted a report stating that neither the '949 patent nor the '959 patent was broadened during reexamination. Dkt. No. 315, Ex. E-15, at 477-83 (¶¶ 1365-84). And Dr. Almeroth followed with a reply report on behalf of Sonos responding to Dr. Bims's report with respect to both patents. Dkt. No. 314, Ex. E-12, at 22-24(¶¶ 70-76).

         Although Dr. Kesan's report did not identify the intervening rights defense by name, his report set forth the factual basis for that claim, on which the parties engaged in the subsequent expert witness reports. The issue of the change in the scope of the claims of the '949 and '959 patents was thus timely raised through the presentations of the various expert witnesses, including Dr. Bims. Moreover, Sonos was able to respond to Dr. Bims's report in Dr. Almeroth's subsequently filed reply report. Both parties thus had a full opportunity to address the intervening rights issue prior to Sonos's filing its summary judgment motion. Under these circumstances, the Court will not exclude the evidence in Dr. Bims's rebuttal report with respect to that issue.

         a. The'949 Patent

         Sonos is asserting claims 1 and 16 of the '949 patent. Claim 16 is a method claim that depends from claim 15. Method claims have been held not to be subject to the defense of absolute intervening rights. See NetAirus Techs., LLC v. Apple, Inc., No. LA CV10-03257, 2013 WL 3089061, at *4 (CD. Cal. May 23, 2013) ("The language in 35 U.S.C. § 252 that gives rise to absolute intervening rights 'appears not to relate to a patented process, ' because processes are only addressed in the statute's discussion of equitable intervening rights."); Rohm & Haas Co. v. Chem. Insecticide Corp., 171 F.Supp. 426, 432 (D. Del. 1959) (same).

         Although it appears that the Federal Circuit has not squarely addressed this issue, the plain language of section 252 supports drawing a distinction between process claims and product claims with regard to absolute intervening rights. The portion of section 252 that addresses absolute intervening rights refers to right to use, sell, offer to sell, etc., "the specific thing so made, purchased, offered for sale, or used or imported unless the making using, offering for sale or selling of such thing infringes a valid claim of the reissued patent which was in the original patent." By contrast, the portion of section 252 that addresses equitable intervening rights provides that the court may provide for "the continued manufacture, use, offer for sale, or sale of the thing made, " purchased, offered for sale, etc., before the grant of the reissue, "and the court may also provide for the continued practice of any process patented by the reissue" to the extent the court deems equitable for the protection of investments made or business commenced before the grant of the reissue. See generally BIC Leisure Prods., Inc., 1 F.3d at 1220-21 (noting the narrow statutory language applicable to absolute intervening rights as compared to the broader language applicable to equitable intervening rights).[2]

         As counsel for D&M points out, however, drawing a sharp line between product claims and method claims in determining eligibility for absolute intervening rights could result in defeating the purpose of the statute to provide intervening rights for particular goods made prior to the reissue or reexamination. Thus, if particular goods were made by a process that is separately covered by a process claim that was also changed upon reissuance or reexamination, absolute intervening rights would be no benefit to the accused infringer if the patentee could assert a parallel process claim against the process that was used to make the very same products that were intended to be protected by absolute intervening rights. Accordingly, in order to avoid undermining the statutory protection for particular products made prior to a reissuance or reexamination that entails a change in the scope of both product and process claims, the Court holds that ...


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