Commonwealth Scientific v. Buffalo Technology

• Decision Date: 15 June 2007
• Docket Number: No. 6:06-CV-324.,6:06-CV-324.
• Citation: 492 F.Supp.2d 600
• Parties: COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION, Plaintiff v. BUFFALO TECHNOLOGY INC., and Buffalo, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Texas

492 F.Supp.2d 600

COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION, Plaintiff v. BUFFALO TECHNOLOGY INC., and Buffalo, Inc., Defendants.

No. 6:06-CV-324.

United States District Court, E.D. Texas, Tyler Division.

June 15, 2007.

Sidney C. Capshaw, III, Andrew W. Spangler and Elizabeth L. DeRieux of

Brown McCarroll, Longview, TX, D. Stuart Bartow, Daniel J. Furniss, Gary H. Ritchey, and Robert D. Tadlock of Townsend & Townsend & Crew, Palo Alto, CA, Deborah J. Race and Otis W. Carroll, Jr. of Ireland Carroll & Kelly, Tyler, TX, Franklin Jones, Jr. of Jones & Jones, Marshall, TX, for Plaintiff.

Richard J. Codding, Joanna H. Kim, and Justin A. Radell of Akin Gump Strauss Hauer & Feld LLP, Los Angeles, CA, Allen F. Gardner and Michael E. Jones of Potter, Minton' PC, Tyler, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

DAVIS, District Judge.

Before the Court is Plaintiff Commonwealth Scientific and Industrial Research Organisation's ("CSIRO") Motion for Entry of Permanent Injunction (Docket No. 234). Having considered the relevant briefing, oral arguments, and the applicable law, the Court GRANTS CSIRO's Motion for Entry of Permanent Injunction.

BACKGROUND

CSIRO is the principal scientific research organization of the Australian Federal Government. Established in 1926, CSIRO conducts scientific research and applies the efforts of that research to benefit the public at large. CSIRO is similar to the United States' National Science Foundation and National Institute of Health. CSIRO has a broad charter to advance health, prosperity, and welfare by conducting strategic scientific research and applying the results of that research to benefit Australia and people everywhere. CSIRO operates its own laboratories and is active in the areas of health, agriculture, energy, information technology, minerals, manufacturing, marine and terrestrial environments, and natural resources. One of CSIRO's broad goals is to develop technology that can be used to create start-up companies and/or be licensed to firms to earn commercial royalties to fund other research.

In the very late 1980's and early 1990's groups throughout the world were trying to design an indoor wireless network. However, the indoor radio environment presented problems with signal interference because radio waves can be reflected by some materials such as walls, furniture, and other indoor items causing them to arrive at the receiver from different paths and at different times. This is known as the "multipath" problem. Studies revealed that minor changes in a room re sulted in major changes in the propagation characteristics. Companies all over the world made efforts to solve the multipath problem.

In February 1992, CSIRO engineers identified the key elements to the solution of the multipath problem. Avoiding the multipath problem requires a lengthening of signal duration, which negatively impacts data rate. To overcome the loss of data rate, the use of orthogonal frequency division multiplexing, which permits data to be sent on multiple channels simultaneously, was incorporated. The data is broken into subparts and each subpart is simultaneously transmitted on a different carrier frequency. Because there is simultaneous transmission of all the signal parts, the data transmission rate is higher than with other approaches. Techniques such as error correction and interleaving were used to deliver high reliability in the data transmission.

On November 22, 1992, CSIRO filed a patent application with the Australian Patent Office. On November 23, 1993, CSRO filed an application for a United States patent based on the same disclosure. U.S Patent No. 5,487,069 ("the '069 patent") issued on January 23, 1996. CEIRO has also obtained patents in Japan and Europe for its Wireless Local Area Network ("MILAN") invention.

CSIRO's intent from the beginning was to derive revenue from its invention through licensing the '069 patent. In 1997, CSIRO and Macquarie University formed Radiata Communications Pty Ltd., an Australian company, to commercialize the '069 patent. CSIRO licensed the '069 patent to Radiata, and in 2001 Cisco Systems, Inc. acquired Radiata for $295 million in stock and began paying royalties to CSIRO.

In 1998, the Institute of Electrical and Electronics Engineers ("IEEE") contacted CSIRO to request assurance that CSIRO would license its '069 patent to companies wanting to implement the IEEE's 802.11a standard on reasonable and non-discriminatory ("RAND") terms once the IEEE approved the 802.11 standard, which pertains to WLANs. CSIRO agreed. In 1999, the IEEE ratified the 802.11a standard, which embodies the core technology invention by CSIRO. The IEEE also ratified the 802.11b standard, which differs from CSIRO's invention, and was initially adopted by more companies. In 2003, the IEEE ratified the 802.11g standard, which also embodies CSIRO's invention. In 2003, CSIRO contacted companies who practiced the '069 patent and began license agreement discussions. None of the potential licensees accepted CSIRO's license agreement offer.

On February 2, 2005, CSIRO brought suit against Buffalo Technology, Inc., an American corporation, and Buffalo, Inc., a Japanese corporation, (collectively "Buffalo") alleging infringement of the '069 patent. Buffalo competes in the production and sale of WLAN products that are compliant with the IEEE 802.11a and 802.11g standards. The sale of WLAN products comprise approximately eleven percent of Buffalo Technology's business. In addition to its wireless products, Buffalo sells memory products and network accessories. Buffalo's family of products is sold to distributors and retail outlet stores. Since Buffalo utilizes the IEEE 802.11a and g standards, this suit would serve as a test case to determine whether WLANs compliant with IEEE 802.11a and g standards infringe the '069 patent and to determine the validity of the '069 patent in light of the prior art.

The Court held a Markman hearing on February 22, 2006 and issued an opinion construing the claims of the '069 patent on May 8, 2006. At the pretrial hearing on July 20, 2006, CSIRO and Buffalo agreed to submit the case on cross motions for summary judgment on infringement, invalidity over prior art, and invalidity for lack of sufficient written description in lieu of a jury trial. After hearing oral arguments on August 15 and considering all of the summary judgment evidence that was submitted, the Court granted CSIRO's motions for summary judgment of validity and infringement and denied Buffalo's cross motions on November 13, 2006 (Docket No. 228). Although the issue of CSIRO's damages has not been determined, the parties asked the Court to rule on CSIRO's motion for permanent injunction. Accordingly, CSIRO's motion for permanent injunction is now before the Court.

APPLICABLE LAW

When considering whether to award permanent injunctive relief to a prevailing plaintiff in a patent infringement dispute, courts should apply the traditional four-factor test used by courts of equity. eBay, Inc. v. MercExchange, LLC, ___ U.S. ___, ___, 126 S.Ct. 1837, 1839, 164 L.Ed.2d 641 (2006). The prevailing plaintiff must demonstrate: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." Id. The Supreme Court held "the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards." Id. at 1841.

ANALYSIS

Irreparable Ham Suffered by CSIRO

CSIRO argues its licensing and research and development programs will be irreparably harmed if a permanent injunction is not granted. CSIRO further argues if it cannot obtain injunctive relief against Buffalo, others will be encouraged to infringe the '069 patent and risk litigation rather than enter into a license agreement. CSRO argues a patent holder who does not practice its invention may establish irreparable harm "by showing that an existing infringement precludes his ability to license his patent...." See Roper Corp. v. Litton Sys., Inc., 757 F.2d 1266, 1273 (Fed. Cir.1985); Amazon.com Inc. v. Barnesandnoble.com Inc., 73 F.Supp.2d 1228, 1246 (W.D.Wa.1999); see also Hybritech Inc. v. Abbott Labs., 849 F.2d 1446, 1456 (Fed.Cir.1985) ("in the absence of the. injunction, other potential infringers will be encouraged to infringe"). CSIRO contends a significant factor for its inability to license the '069 patent arises from potential licensees refusing to take a license if their competitors do not also take a license. A licensee's own licensing payments would put itself at a competitive disadvantage against infringers who are willing to risk detection and enforcement. Once the litigation against Buffalo commenced, there was little chance any company would take a license until Buffalo's defenses had been shown to be without merit. CSIRO further contends there remains little chance that others will take a license after this Court's summary judgment ruling since Buffalo announced its plan to appeal this Court's ruling.

Buffalo argues that since CSIRO and Buffalo are not competitors Buffalo does not irreparably harm CSIRO by depriving it of any profits from the sale of products, nor does Buffalo irreparably harm CSIRO by depriving it of any market share or brand name recognition. Buffalo contends that since eBay district courts have typically granted injunctive relief in favor of competitors but denied injunctive relief to non-competing licensors. See TiVo, Inc. v. EchoStar Commc'ns Corp., 446 F.Supp.2d 664, 669 (E.D.Tex.2006)...