Customer Suit Exception and Stays for Judicial Economy

In re Sprouts Farmers Market, Inc. (Fed. Cir. 2020)

Sprouts is a supermarket chain sued by Motion Offense, LLC in W.D.Tex. for infringing its patents, US10013158  & US10021052 (processing and sharing a “data object”).  The basic allegation in the case is that Sprouts’ is infringing the patents by using Dropbox.  After hearing that its customers were being sued, Dropbox itself brought a declaratory judgment action in D.Del. against Motion Offense seeking a non-infringement declaration.

Asserting a “customer-suit exception,” Sprouts motioned for a stay of the W.D.Tex case pending outcome of the D.Del. dispute.  Judge Albright refused to stay the case and Sprouts then petitioned for writ of mandamus.  Meanwhile, the Delaware court ordered the DJ lawsuit transferred to W.D.Tex so the cases could be decided together, but also stayed that action pending outcome of the mandamus.

The Federal Circuit has now denied mandamus without particularly discussing the “customer-suit exception,” the court found that Sprouts had not met the “very demanding standard” of mandamus.

Only exceptional circumstances, amounting to a clear abuse of discretion or judicial usurpation of power, will justify the extraordinary remedy of mandamus. In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985).

On remand, the court did not provide any order to the district court but did offer its expectation:

now that both related cases are in the Western District of Texas, we expect the district court to consider whether the most efficient resolution entails staying or consolidating at least some of the underlying proceedings.

Id.

More Background: The “customer suit exception” is an exception to the normal first-to-file approach to civil litigation stays.  The first-to-file approach works as follows:

• When there are multiple similar and overlapping lawsuits filed in parallel, the district court may want to stay some of the lawsuits for judicial economy.
• The first-to-file “rule” indicates that the court should let the first-filed lawsuit keep running and stay the later filed lawsuits.

I’ll note here that this first-to-file approach is not a RULE rule but rather a rule-of-thumb type of rule — a typical approach within the sound discretion of the district court judges involved in the litigation.

In patent cases, courts have recognized a customer suit exception to the first to file rule in a situation where there are parallel lawsuits involving (1) the prime manufacturer/originator of an infringing product/service and also (2) customers of the prime manufacturer. Even if the customers were sued first, courts have found it proper and appropriate to stay those cases pending outcome of the big one against the prime manufacturer. Other approaches abound — including synchronizing motion practice and partial joinder.  The guiding principles for all of these approaches is “efficiency and judicial economy” Tegic Commc’ns Corp. v. Bd. of Regents of Univ. of Texas Sys., 458 F.3d 1335 (Fed. Cir. 2006).  As stated by Rule 1 of the Federal Rules of Civil Procedure: The rules “should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.”