Case 1:12-cv-00956-GMS Document 25 Filed 01/14/13 Page 1 of 2 PageID #: 301

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

) ) ) ) ) ) ) ) ) ) )

EMC CORPORATION and EMC ISRAEL DEVELOPMENT CENTER, LTD., Plaintiffs, v. ZERTO, INC, Defendant.

Civil Action No. 12-956-GMS

ORDER

WHEREAS presently before the court are the plaintiffs' Motion to Dismiss Defendant's Invalidity Counterclaims and Strike its Invalidity Defense (D.I. 11) and the defendant's Motion for Leave to File a Sur-Reply (D.I. 21); and WHEREAS the court has considered the parties' submissions relating to each motion as well as the applicable law; IT IS HEREBY ORDERED THAT:
1.

The plaintiffs' Motion to Dismiss Defendant's Invalidity Counterclaims and

Strike its Invalidity Defense (D.I. 11) is DENIED; 1 and

The plaintiffs seek to preclude the defendant's invalidity arguments under the doctrine of assignor estoppel. (D.I. 11.) The Federal Circuit has described the assignor estoppel rule as "an equitable doctrine that prevents one who has assigned the rights to a patent (or patent application) from later contending that what was assigned is a nullity. The estoppel also operates to bar other parties in privity with the assignor, such as a corporation founded by the assignor. The estoppel historically has applied to invalidity challenges .... " Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988) (internal citation omitted). The plaintiffs point out that the named inventors of the patents-in-suit, Ziv Kedem and Oded Kedem (together, the "Kedem brothers"), assigned their rights to these patents for valuable consideration and now hold controlling positions in the defendant corporation or its parent company, Zerto Ltd. (D.I. 12 at 2-3.) The plaintiffs contend that it would be inequitable for the Kedem brothers-or one in privity with them, such as the defendant-to now claim, via an invalidity argument, that the very patent rights they assigned are worthless. (!d. at 11.) The

Case 1:12-cv-00956-GMS Document 25 Filed 01/14/13 Page 2 of 2 PageID #: 302

2.

The defendant's Motion for Leave to File a Sur-Reply (D.I. 21) is DENIED AS

MOOT.

Dated: January

l!:f_, 2013

defendant responds that the plaintiffs' motion is premature and requires further factual development. (D.I. 15 at 10.) The court agrees with the defendant. In determining whether to apply the doctrine of assignor estoppel, the court's "primary consideration ... is the measure of unfairness and injustice that would be suffered by the assignee if the assignor were allowed to raise defenses of patent invalidity." Diamond Scientific, 848 F.2d at 1225. The Federal Circuit has noted that the "analysis must be concerned mainly with the balance of equities between the parties." Id In performing this balancing, the court may consider a variety of factors, including whether the assignor received consideration for the transfer of rights, whether the assignor made representations relating to validity of the patent, and the degree to which the assignor participated in the patent application process. See id at 1225-26. Likewise, when the assignor is not the named defendant, the court must conduct an open-ended balancing to determine whether the relationship between the assignor and defendant is close enough that they can be said to be in privity for the purposes of assignor estoppel. Shamrock Techs., Inc. v. Med. Sterilization, Inc., 903 F.2d 789, 793 (Fed. Cir. 1990). The parties thus devote much of their briefing to a discussion of various fact issues that might affect either the court's privity analysis or its larger estoppel inquiry. While the plaintiffs make convincing arguments with regard to several of the potential fact issues raised by the defendant, at least two possible factual disputes render this motion premature. First, it is unclear, at this time, what role the Kedem brothers played in the patent application process. Though the plaintiffs contend that the Kedem brothers' participation in the process can only weigh in favor of applying the doctrine, the court does not believe Diamond Scientific establishes such a one-way ratchet. (D.I. 19 at 2.) The Diamond Scientific court observed that, on the facts before it, "[t]he inventor's active participation in the prosecution and preparation of the patent applications, as is alleged here, would tilt the equities even more heavily in favor of the assignee, but consideration of this factor is not necessary to the result." 848 F.2d at 1226. The Diamond Scientific court seems only to have been noting that the balance of the equities was already leaning so clearly in the assignee's favor that consideration of this additional factor would be unproductive. See id The balance of the equities here is not so obviously one-sided. The court is also unable to perform its privity analysis at this point. While the plaintiffs direct the court to several uncontested facts about the relationship between the Kedem brothers and the defendant, additional information is required to adequately assess their connection. (D.I. 19 at 4-5.) For example, it is undisputed that the brothers founded Zerto Ltd., an Israeli company that owns the defendant corporation. (D.I. 16 at~~ 7-8; D.l. 19 at 4.) It is unclear, however, how much corporate control they presently exercise over either entity. Likewise, the level and structure of their compensation is unknown at this time. Both of these facts might be highly relevant to the court's privity determination. For these reasons, the court must deny the plaintiffs' motion at this stage in the litigation. Construing the limited facts presently before the court in the light most favorable to the defendant, the court is unable to find that the defendant's invalidity counterclaims are plainly insufficient. See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Likewise, it is not "clearly apparent" that the defendant's invalidity defenses will fail. Cipollone v. Liggett Grp., 789 F.2d 181, 188 (3d Cir. 1986); see also Symbol Techs., Inc. v. Aruba Networks, Inc., 609 F. Supp. 2d 353, 356 (D. Del. 2009). Upon further factual development, the plaintiffs' assignor estoppel argument may become more appropriate.