Cygnus Can’t Show Privity To Bind Non-Parties To Consent Judgment

Posted on | May 16, 2008 | No Comments

2008-1351 Cygnus Telecom. v. WorldPort Comm.
ND/CA 02-cv-00144 and 02-cv-00142

Plaintiff Cygnus appeals from Judge Ronald Whyte’s Order denying Plaintiff’s Motion for Permanent Injunction.  Cygnus sought a permanent injunction against Chris Canfield, Telenational Communication, and Rapid Link, Inc. from infringing Cygnus’s patents, including 6,035,027, which are generally directed at an interactive telephone callback system designed to exploit different tariff rates applicable to originating calls.

Unfortunately for Cygnus, there were two problems with the request:

• Judge Whyte (in the 02-00142 case) already had found the patents to be invalid under the on-sale bar of § 102(b);

• Canfield and Telenational were not parties to any of the actions, and Rapid Link was a party to the 02-00142 case where the patents were held invalid.

Without needing much analysis, the court found that Cygnus could not establish "irreparable injury" and therefore denied the motion.

Background.  Cygnus filed several lawsuits in 2001 and 2002 on these patents, including the 2 related to this matter.  A simple chart/time-line might help:

Essentially, Cygnus argued that (i) Canfield is bound by the Consent Judgment because he was once a part owner/officer of ICX; (ii) that Telenational is bound by its July 2002 license and to the Consent Judgment through Canfield; and (iii) Rapid Link is likewise bound to the Consent Judgment and license because it purchased Telenational.

Privity.  Judge Whyte was unimpressed.  While the parties to the Consent Judgment agreed to certain terms and to not contest validity, neither Telenational nor Canfield were parties to that judgment (or the litigation).  The court further found no evidence that they were "alter egos" of the named parties nor evidence that they were or are in privity with them, citing Int’l Nutrition Co. v Horphag Research.

As to the 2002 Cygnus-Apex license, the court noted that Cygnus had terminated that license on 02 March 2007.  However, it was undisputed that Apex and Telenational had paid all of the royalties they owed under the license until terminated–thus the licensees were not in breach.  The court then concluded that Rapid Link (and Canfield) were not bound by the license because they were not parties to it and, in any event, the license had been terminated.

Notes: Most of the background and discussion regarding privity are
covered by the court in a related Order denying Cygnus’s efforts to
collect royalties under either the Consent Judgment or the license.

The 02-00142 case is on appeal to the CAFC as 2007-1328.

Documents:

2008-1351_Order_on_Injunction.pdf

2008-1351_Order_on_Royalties.pdf

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