Oyster Optics, LLC v. Infinera Corporation CAFC

As RPX has previously reported (see, e.g., here), setting the terms in agreements preceding patent litigation can prove difficult—and as the campaign of Oyster Optics, LLC has shown, setting the terms in agreements ending patent litigation can also be tricky. The NPE’s litigation has been rocked by two such agreements: a settlement with Fujitsu, which Alcatel-Lucent and Cisco have successfully argued (to the Federal Circuit) covers certain of their accused products; and another with Coriant, which Infinera (the owner of Coriant since October 2018) has successfully argued (to the Eastern District of Texas) justifies the dismissal of a case against it. Despite these setbacks, Oyster Optics has forged ahead.

In November of last year, the plaintiff amended its July 2019 complaint against Infinera and Coriant to allege that fraud and concealment plagued its settlement with Coriant, and, just last week, Oyster Optics filed a new suit against Cisco (2:20-cv-00211), pleading infringement of three optical networking patents that “Oyster and its damages experts believe . . . is pervasive—totaling over $500M in infringing and unlicensed revenue” (emphasis in the new complaint).

The Fujitsu Settlement

Last month, the Federal Circuit unsealed a nonprecedential opinion affirming a decision by Eastern District of Texas Judge Rodney Gilstrap that granted partial summary judgment to Nokia subsidiary Alcatel-Lucent and Cisco, after finding that an early 2018 settlement agreement between Oyster Optics and Fujitsu “had the effect of releasing [those defendants] from liability” for any alleged infringement of a single asserted fiber-optic telecommunications patent (7,620,327). The parties agreed that the Fujitsu settlement covered devices sold to customers of Fujitsu or its affiliates but contested whether a “[f]or further clarity” provision changed the definition of “Licensed Products” in the agreement. (The Fujitsu settlement ended two cases filed against the defendant, one in November 2016 and another in April 2018.)

The Federal Circuit sidestepped that dispute, “express[ing] no view with respect to the court’s primary ruling”. Instead, the appeals court held that, based on Oyster Optics infringement contentions (and other representations) in the Fujitsu litigation itself, the Fujitsu modulators and receivers sold to ALU and Cisco “substantially embod[y] the patented invention by embodying its essential features”. The court also addressed a follow-on disagreement between Oyster Optics and the defendants. The NPE had argued that Judge Gilstrap’s grant of partial summary judgment should extend only to products with model numbers listed in the infringement contentions, while the defendants had pushed for a wider scope covering categories of accused products, not just model numbers. Judge Gilstrap agreed with the defendants, and the Federal Circuit found no error in his having done so.

The Federal Circuit ruling will not end the prior litigation against ALU and Cisco. In November 2018, Judge Gilstrap ordered the clerk to sever the unresolved claims against ALU and the unresolved claims against Cisco from the consolidated action before him, staying and administratively closing those new actions to await the outcome of the appeal on the scope of the Fujitsu settlement agreement. This past Thursday, the court “acknowledged” and “accepted” the dismissal with prejudice of the claims considered on appeal, closing that case against Cisco (2:16-cv-01301). No such statement has been entered on the docket for the case between Oyster Optics and ALU. The case number for the severed claims against Cisco appears to be 2:18-cv-00479; and for those against ALU, 2:18-cv-00478, although neither appears attached to a standalone docket yet.

It is against this backdrop that Oyster Optics has filed its newest suit against Cisco, asserting three other patents (6,665,500; 8,913,898; 10,205,516) also generally related to fiber optic telecommunications. The NPE again accuses Cisco of infringement over the provision or use of optical networking systems and devices, including devices that use an optical line data transmitter. As noted, Oyster Optics pleads that “[b]ased on publicly available information, Oyster and its damages experts believe the infringement detailed below is pervasive—totaling over $500M in infringing and unlicensed revenue”.

The Coriant Settlement

ALU and Cisco became defendants in this campaign in November 2016 when Oyster Optics filed nine suits, one each against Nokia (ALU), BT Group (British Telecommunications) and Cisco, Ciena and Ericsson (initially sued together with a later order severing the cases into two), Coriant (Tellabs), Fujitsu, Huawei, Infinera, NEC, and ZTE. Oyster Optics asserted eight fiber optic telecommunications patents (6,469,816; 6,476,952; 6,594,055; 7,099,592; 8,374,511; 8,913,898; 9,363,012, as well as the ‘327 patent) in various combinations across those complaints. A settlement ended the NPE’s case against Coriant at a time when Coriant was in acquisition talks with Infinera, breeding more complications.

Ciena was granted transfer to the Northern District of California on convenience grounds in late September 2017. In March of that year, the Oyster Optics case against ZTE was dismissed without prejudice, followed by British Telecommunications in May, and Ericsson and NEC in late August, with prior filings in the NEC case suggesting settlement. The Huawei case persisted into September 2018, when it was dismissed with prejudice in light of a settlement (as indicated by documents filed earlier in support of a stay). In June 2018, the NPE’s claims against Infinera were severed and consolidated with a separate action filed against that defendant in May of that year (2:18-cv-00206). Meanwhile, the ALU and Cisco suits, consolidated under the lead action against Coriant, were dismissed in July 2018 pursuant to that settlement.

Infinera, a November 2016 defendant as well as in a defendant in a second suit, filed in May 2018, moved in the consolidated action against it for summary judgment after it acquired Coriant on October 1, 2018. Infinera argued that through the acquisition it became “an ‘Affiliate’ of Coriant” such that “Oyster’s infringement claims are barred by the release and license provisions” in the agreement that ended the litigation against Coriant. Judge Gilstrap agreed. In a June 2019 order, he dismissed the Infinera cases under that theory, over Oyster Optics’s opposition.

The NPE has appealed that judgment to the Federal Circuit (19-2179) after having promptly filed a new case against Infinera and Coriant (2:19-cv-00257) in the Eastern District of Texas last July, targeting Infinera’s optical equipment with the ‘500 patent. The plaintiff has pleaded that during the course of settling the prior Coriant case, “[w]hile Oyster was willing to license its entire portfolio to Coriant for an appropriate price, Coriant opted to license only the patents that had been asserted against it by Oyster and other patents related to those asserted patents in certain ways and thereby to pay a lower price to settle with Oyster. Accordingly, the list of patents licensed by Oyster to Coriant in the settlement agreement excludes the ‘500 patent”.

In October 2019, Oyster Optics filed an amended complaint in that new case against Infinera and Coriant, adding fraud and concealment claims based on the conduct of the prior settlement negotiations. In support of those claims, the NPE pleads, among other things, that Coriant argued for a lower price to settle based on representations of its relative market share (8-10%), its relative small size compared to Infinera (“half the size”), its status as a “first mover” toward settlement of claims with respect to certain patents at issue across the campaign, and its alleged “willingness to assist Oyster in obtaining higher licensing value from the other named defendants”. All the while, according to Oyster Optics, Coriant was engaged in parallel discussions to be acquired by Infinera. The plaintiff argues that these “secret negotiations” perpetrated a fraud on Oyster by concealing from the plaintiff and from retired District Judge David Folsom, who conducted mediations between the parties, the planned acquisition, which would transfer the benefit of an alleged “significant one-time discount” in the agreement with Coriant to codefendant Infinera.

Infinera and Coriant have responded to the amended complaint in several ways. They have filed a motion to dismiss the fraud and concealment claims, arguing that they each fail to state a claim for relief because Oyster, “a sophisticated patent licensing entity represented by experienced counsel” could not have justifiably relied on Coriant’s representations during settlement negotiations “given the parties’ adversarial posture” and that its “failure to read and understand the agreement is Oyster’s own negligence, not Coriant’s fraud”. Infinera also added two more petitions for inter partes review (IPR), filed in December 2019, to the 20 previously filed by various defendants, this time challenging claims from the ‘500 patent newly asserted against it. Institution decisions remain pending. The defendants then asked Judge Gilstrap to stay the new case to await the outcome of those IPRs. The court denied the motion to stay, without prejudice, and moved the litigation into claim construction. It has yet to rule on the defendants’ motion to dismiss Oyster’s fraud and concealment claims, the defendants filing a notice of supplemental authority in support of its motion on June 4 (characterizing those claims as collateral attacks on the court’s prior judgment ending the litigation against Infinera, attacks barred by claim preclusion).

The parties have moved to hold the Markman hearing, scheduled for June 16, by video in light of the global COVID-19 pandemic. Magistrate Judge Roy S. Payne indicated a willingness to proceed on the papers, given that only one claim term is in dispute (“phase modulat[e]”). The last docket entry provides the court notice by Coriant of a hearing waiver.

California Ripples

As noted, the case against Ciena was transferred for convenience to the Northern District of California in September 2017, where District Judge Jeffrey S. White granted a motion to stay proceedings given several of those 20 previously filed petitions for IPR. In September 2019, however, Judge White lifted the stay, reviewing the state of the IPRs of the three patents-in-suit: the ‘511 patent (most claims found unpatentable but claims 8 and 16 surviving); the ‘327 patent (no trials instituted); and the ‘898 patent (all claims unpatentable with the result on appeal before the Federal Circuit). The court was not persuaded to leave a stay in place to await the appeal of the unpatentability of the ‘898 patent claims because, although the PTAB must “complete an IPR by a statutorily-imposed deadline”, the Federal Circuit “has no such deadline”, providing “no clearly endpoint to a continued stay”.

In urging Judge White to rule the other way, Ciena pointed to the effect of the Fujitsu settlement on the ALU and Cisco cases, arguing that resolution of that appeal would also simplify issues raised against Ciena, because the settlement might cover some of its accused products as well. The court was likewise not convinced that that Federal Circuit appeal (now resolved) justified a stay. Since then, the parties have entered claim construction, with a hearing initially set for early May now moved to July 23 (with a technology tutorial scheduled for July 9).

Meanwhile, in April 2020, Oyster Optics filed a second case against Ciena (4:20-cv-02354), this time with AT&T, asserting two additional patents (the ‘500 patent and 10,554,297). Earlier this month, the claims against AT&T were voluntarily dismissed, Ciena filed an answer to the complaint, and Judge White consolidated the new case with the prior action before him. The Northern District of California requires parties to file a disclose any nonparties having an interest in the outcome of the litigation; Oyster Optics filed no disclosure with the Northern District upon transfer in the first case, and in the second case, the NPE filed a document merely indicating that it has no parent and that no publicly traded company owns ten percent or more of its stock.

Oyster Optics Background

The patents in the Oyster Optics portfolio were developed by Oyster Optics, Inc. (OOI), a Florida-based engineering firm formed by sole named inventor Peter (“Rocky”) Snawerdt in Delaware in January 2001 to which the patents’ earliest members issued. (Snawerdt appears to have formed several investment companies, unrelated to patent assertion, in Florida; he identifies his current position as “principal owner” of one of them, Melbourne Partners LLC.) OOI and its patent portfolio were acquired by Techquity, L.P., a patent advisory and monetization firm (of which Techquity Capital Management, LLC is the management arm). An assignment to Techquity affiliate TQ Gamma LLC was recorded with the USPTO on November 18, 2011.

Prior to Techquity’s acquisition, OOI filed two uneventful Southern District of New York cases asserting patents from its portfolio, the first in early 2008 against Discovery Semiconductor and the second in late 2008 against Fujitsu. OOI accused Discovery Semiconductor of infringing the ‘500 patent; litigation ended in a dismissal within three weeks. Fujitsu was accused of infringing the ‘816, ‘952, and ‘055 patents in litigation that ended in a dismissal with prejudice within nine months.

Oyster Optics acquired rights in the asserted patent portfolio in a July 2016 assignment from TQ Gamma. The plaintiff was formed roughly in Texas one month earlier, listing two managers: Bruce K. Lagerman and Jeffrey Ronaldi. Lagerman is a patent attorney based in the Washington, DC area. He holds himself out as the principal of Lagerman IP Technology Ventures Inc. (for the past twelve years) and Lagerman & Associates, PLLC (for the past 25 years), each of uncertain operations. Washington, DC’s Kile Park Reed Houtteman PLLC lists Lagerman as of counsel at the law firm. Ronaldi identifies his most recent position—from July 2013 through April 2019—as the CEO of Document Security Systems, Inc. (DSS), a publicly traded company with a rocky patent litigation history.