TexasLDPC Inc. (d/b/a Symbyon Systems), a plaintiff linked to a former university researcher, has hit a potentially fatal snag in its Delaware suit against Broadcom. Late last month, Third Circuit Judge Stephanos Bibas, sitting in Delaware by designation, ruled that the plaintiff—which held an exclusive license to assert the patents, owned by Texas A&M University—lacked sufficient rights in the patents because its license agreement with the university had been terminated. A key provision established that their agreement would automatically end if TexasLDPC “cease[d] its business operations”, which Judge Bibas found had occurred in 2019 when it ran out of money and pivoted to patent enforcement. In any event, a post-complaint scramble by the plaintiff and university to amend the contract, and retroactively make enforcement part of the former’s “business operations”, confirmed for Judge Bibas that Texas A&M was also a necessary party—making the failure to join the university an additional basis for dismissal.

The asserted patents (8,359,522; 8,418,023; 8,555,140; 8,656,250; 9,112,530; 10,141,950) derived from research performed by Dr. Kiran Gunnam, their named coinventor, while a doctoral candidate at Texas A&M. Gunnam subsequently took a position at LSI. After purportedly unsuccessful attempts to convince LSI to license his inventions, he left to cofound TexasLDPC in 2014 with his wife Annapurna Yarlagadda; named coinventor Gwan Choi (for whom Gunnam served as a doctoral assistant); and Paul Budnik, a software consultant. In 2015, TexasLDPC entered into an agreement with Texas A&M to further develop and sublicense the technology. The company then sued Broadcom for infringement in December 2018 (1:18-cv-01966), later adding subsidiary LSI, Gunnam’s former employer, as a codefendant after its acquisition by Broadcom, also naming Broadcom’s parent company Avago. As later noted by Judge Bibas, the 2015 license agreement was the “sole legal basis for TexasLDPC’s interest in this case”.

Broadcom moved to dismiss for lack of standing and failure to join a necessary party at multiple points throughout the litigation, beginning in March 2019—arguing then that TexasLDPC had failed to show that it held substantial rights in the asserted patents through its failure to provide a copy of its license agreement, leading Broadcom to request additional discovery. The defendant renewed its motion after discovery concluded, by which point it had learned that “TexasLDPC had conducted no business since almost the beginning of the case”; that “[b]y summer 2019, the company ran out of money to develop and license the product . . . [and] had just been suing Broadcom”; and that “it even hired its lawyers on a contingency fee” (as memorialized in docket entries filed under seal but summarized by Judge Bibas). Since by its terms the agreement automatically terminates when TexasLDPC “ceases its business operations”, as noted above, Broadcom argued that this deprived the plaintiff of standing. After the hearing on Broadcom’s renewed motion to dismiss, TexasLDPC produced a supplemental agreement signed by a Texas A&M representative that, as noted by the court, attempted to memorialize the plaintiff’s preferred reading, that enforcement had always been a part of its “business operations”, which would mean that it had not triggered the termination clause—also making that attempted cure retroactive to the date of the original agreement.

Unfortunately for TexasLDPC, Judge Bibas found that under Texas contract law, the agreement had clearly been automatically terminated. In particular, he found that the contract “unambiguously excludes litigation from business operations” because its “clear language . . . shows that TexasLDPC’s business operations did not include enforcement”. This was the case, Judge Bibas further found, because the rest of the contract only references licensing and development as part of the plaintiff’s business purpose, with no mention of enforcement; and because the list of activities that must be terminated, under the above clause, includes only commercial activities. Moreover, the court found that in looking to outside sources to confirm its understanding, an “internal Texas A&M memo explains only two purposes for TexasLDPC: licensing and development”. In contrast, Judge Bibas found that the strongest evidence in favor of the plaintiff’s position—an email from nine months before the agreement was executed, which “listed litigation as the third possible revenue stream in a list of three”—did not have much weight: “[A] single email so early in negotiations has limited probative value. And a possible income stream is not the same as a business operation”. That the company’s business operations had ended is additionally supported by testimony from cofounder Yarlagadda, who the court noted had “admitted that all development and licensing ceased around the same time” that the company changed its business model to add enforcement. “That change is fatal to the contract”, Judge Bibas held.

Moreover, the court found that the parties’ supplemental agreement, made in an attempt to retroactively cure this issue, “raises as many issues as it solves”. Other cited precedent treating issues of mootness, justiciability, and standing as less than fatal, Judge Bibas explained, were not to the contrary—as each described distinct circumstances that justified keeping cases alive, whereas in this case the facts were quite cut-and-dried:

Here, once the contract ended, TexasLDPC had no legal interest in the intellectual property at all. This jurisdictional defect existed for years and persisted for months even after TexasLDPC was confronted about it. Only at the eleventh hour did TexasLDPC think to slap a bandage on the gaping wound in its case. . . . Plus, for a court to retain Article III jurisdiction, the plaintiff must maintain some legal interest for the duration of the case. Given these recent clarifications, mootness caused by completely losing legal interests is likely uncurable.

(Citations omitted.) Nor would the court allow the retroactivity of the attempted amendment to serve as the contract’s saving grace: An amendment cannot reach back to save a contract that has already been terminated, Judge Bibas held. “[F]or an amendment to take effect, there must be a contract to amend. Here, the contract ended automatically four years ago”.

Additionally, the plaintiff’s attempt, in concert with the university, to implement that retroactive cure dealt another self-inflicted blow: Judge Bibas remarked that “as TexasLDPC tacked away from the Scylla of subject-matter jurisdiction, it ran headlong into the Charybdis of joinder”. In particular, he observed that the university was now “taking part in this case selectively” to protect the contract in a matter that shows that it is “interested in this case and is required for complete relief” under Federal Rule of Civil Procedure 19(a):

But Texas A&M has shown that its absence limits its capacity to defend its interests. Texas A&M has parachuted into this suit to resurrect a dead contract in a novel way. It insists on its sovereign immunity, but then sticks its neck out to try to salvage a defunct document. This attempt to control the Court’s reading of the contract suggests that its interest in the case is strong enough that it should be part of the case. Without being joined, Texas A&M cannot protect its interest as effectively. See Fed. R. Civ. P. 19(a)(1)(B)(i). Why else would it break its self-imposed silence to execute a new agreement? Plus, by involving itself so intimately in this suit, Texas A&M has strengthened the argument that TexasLDPC never had all the substantial rights needed to sue on its own.

With respect to patent-specific principles—namely, whether the plaintiff had “all substantial rights” in the asserted patents—the court found that while none of the rights retained by Texas A&M under the agreement (barring suit against a former licensee, giving the university the right to enforce license, and giving the university development rights) were individually “fatal to the conveyance of all substantial rights on its own, the three together suggest that Texas A&M conveyed more limited exclusionary rights”. Further supporting the need to join the university was the fact that as “the licensing body at the time of the breach”, the court would need “extensive information” from it to award damages.

The court also found that not joining Texas A&M would prejudice the defendants, based largely on the fact that it had at first asserted sovereign immunity to avoid responding to their discovery requests only to “turn[] around to help TexasLDPC interpret its contract against its plain language”.

As a result, Judge Bibas concluded that “for all claims, Texas A&M must be a party to the suit. So even if this Court had subject-matter jurisdiction, I would still dismiss all of TexasLDPC’s claims without prejudice for failure to join a necessary party”. The only claims that survived the court’s ruling were Broadcom’s state court counterclaims of inducement of breach of contract and intentional interference with contract.

As a parting matter, the court noted that these state law counterclaims must be supported by diversity jurisdiction (i.e., where the defendants are domiciled in different states, and where the amount in controversy exceeds $75K), which it found raises potential discovery issues. While observing such jurisdiction appears to exist because the “[d]efendants are incorporated in Delaware, and their principal place of business is California”; while “TexasLDPC is a Texas corporation, and it claims that its principal place of business is in Texas”, the fact that Yarlagadda, the plaintiff’s sole employee at the time the counterclaims were filed, now lives in India and “sold a house in California to move there” raises questions about the company’s true “nerve center”. For that reason, Judge Bibas concluded by ordering “letter briefing on whether the parties were in fact diverse at the time of Broadcom’s counterclaims”.