Asetek Danmark A/S v CMI USA, Inc., Case No. 13-cv-00457 (JST) (Tigar, J)

Patent litigation can be an expensive process for a defendant. That is why it is tempting for a defendant to try to exit a case as early as possible. Doing so, however, may not insulate a company from risk despite its absence in the case. Asetek Danmark v. CMI is a case in point.

Asetek sued Cooler Master, Ltd. and its United States distributor CMI USA for infringing Asetek’s patents through the sale of Cooler Master’s CPU cooling products. Given that CMI handled U.S. distribution of the accused products, Cooler Master and Asetek stipulated to Cooler Master’s dismissal from the case. The case proceeded to trial and Asetek obtained both a jury verdict and a permanent injunction against the accused products. Judge Jon Tigar further concluded that the injunction properly included both CMI as well as Cooler Master, due to the Judge’s determination that Cooler Master acted in “active concert or participation in CMI.” The permanent injunction included, amongst other provisions (emphasis in original):

(5) CMI and Cooler Master shall include a copy of this Order and the written notice in paragraph (6) below along with every bill of sale for the Infringing Products and in the boxes in which the Infringing Products are shipped or sold, regardless of where they are sold, indicating that they infringe the patents-in-suit, are subject to an injunction in the United States, and thus cannot be sold, offered for sale, imported, or used in the United States.

(6) The written notice to be provided along with every bill of sale and in the boxes in which the Infringing Products are shipped to or sold in the United States shall state:

This product is affected by a Permanent Injunction entered by the United States District Court for the Northern District of California in Civil Action No. 3:13-CV-00457-JST (copy enclosed). This product or its use infringes U.S. Patent Nos. 8,240,362 and 8,245,764, which are assigned to Asetek Danmark A/S. Accordingly, certain acts associated with this product are prohibited.

This product may not be sold, offered for sale, or used in the United States. Nor can this product be imported into the United States.

Accordingly, Cooler Master found itself subject to an injunction requiring it to include notices with all of its infringing products – wherever sold – containing language noting that the product had been found to infringe and could not be distributed in the United States.

Not surprisingly, Cooler Master elected to intervene shortly after CMI noticed an appeal from the jury verdict and injunction. Judge Tigar first found that Cooler Master met the standard for intervention as of right. Though there was an argument that Cooler Master’s motion to intervene was not timely since it was filed after the time to notice an appeal, Asetek did not oppose the timeliness of the request. In addition, Judge Tigar concluded that the intervention as of right was appropriate because Cooler Master had an interest in the injunction, due to the company being named in it. Further Judge Tigar concluded that CMI may not adequately represent Cooler Master’s interests due to the fact that it had no interest in Cooler Master’s foreign sales.

Though Judge Tigar permitted Cooler Master to intervene in the proceedings, he denied Cooler Master’s request to stay the injunction against it during the pendency of the appeal. Cooler Master argued that it did not have the chance to litigate its defense due to Asetek stipulating to its dismissal, and that it faced great prejudice in being forced to provide a notice to its international customers that its products were subject to an infringement ruling.

Judge Tigar rejected these arguments, analyzing the four factors for staying an injunction (which are the same factors as for issuing an injunction). Cooler Master’s main argument was that it had a high likelihood of success in overturning the injunction due to the fact that Cooler Master was not involved in the underlying litigation, and the potential extraterritorial application of the notice requirement was unreasonable. Cooler Master cited the Federal Circuit case ofAdditive Controls & Measurement Sys., Inc. v. Flowdata, Inc., 96 F.3d 1390 (Fed Cir. 1996), in which the Federal Circuit vacated an injunction against four related entities to a company found to infringe a patent where the four entities were not defendants in the underlying litigation. Judge Tigar disagreed that Additive Controls governed this case due to the fact that there was substantial evidence – including an exclusivity agreement and a history of joint development between CMI and Cooler Master – showing that the entities worked in active concert with respect to the accused products. Judge Tigar found that there was no analogous evidence in Additive Controls, and therefore the case was inapplicable.

Judge Tigar also found that the notice requirement did not restrict Cooler Master’s foreign activities, but simply was required to effectuate a U.S. injunction, and was therefore reasonably related to providing domestic relief. Judge Tigar rejected as purely speculative Cooler Master’s argument that it would be irreparably injured through confusion and reputational harm caused by the notice requirement. He therefore upheld the injunction during the pendency of appeal.

While Cooler Master is now in the case to fight on appeal going forward, the Asetek case illustrates the need to stay vigilant about patent litigation, even in cases where a defendant may think it has achieved its goal of avoiding a finding of liability.