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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

MARSHALL DIVISION

DALI WIRELESS, INC.,

Plaintiff,

v.

AT&T CORP., ET AL.,

Defendants.

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CIVIL ACTION NO. 2:22-cv-0012-RWS-RSP

(Lead Case)

MEMORANDUM ORDER

Before the Court is AT&T1, CommScope2, and Ericsson’s3 (collectively, “Defendants”) 

Motion to Sever and Stay Pending Resolution of Supplier Lawsuits. Dkt. No. 77.

4 After filing 

the motion, the parties stipulated to sever the action into two actions: (1) AT&T and its supplier 

CommScope, and (2) AT&T and its supplier Ericsson, and then consolidate the two cases for 

pretrial purposes. Dkt. No. 79. Accordingly, the Court GRANTS-IN-PART the motion to sever 

the action and reconsolidate the cases in accordance with the terms set forth in the stipulation. 

The remaining request in the motion is to stay the severed cases as to AT&T, and the Court 

DENIES that request for the following reasons.

I. BACKGROUND

On January 1, 2022, Plaintiff Dali Wireless, Inc. filed this action alleging AT&T, 

CommScope, and Ericsson infringe four of Dali’s patents: (1) United States Patent No. 

1 “AT&T” includes Defendants AT&T Corp., AT&T Communications LLC, AT&T 

Mobility, AT&T Mobility II LLC, and AT&T Services Inc.

2 “CommScope” includes Defendants CommScope Holding Company, Inc., CommScope 

Inc., and CommScope Technologies LLC. 3 “Ericsson” includes Defendants Ericsson Inc. and Telefonaktiebolaget LM Ericsson. 4 Citations correspond to those assigned via ECF.

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8,682,338 (the “’338 Patent”), (2) United States Patent No. 9,197,358 (the “’358 Patent”), (3) 

United States Patent No. 11,026,232 (the “’232 Patent”), and (4) United States Patent No. 

10,334,499 (the “’499 Patent”) (collectively, the “Asserted Patents”).

5 In each cause of action, 

Dali asserts that AT&T directly infringes and its component manufacturer—CommScope or 

Ericsson—indirectly infringes.6 In four of the six causes of action, Dali asserts method claims 

that relate to AT&T’s use of Ericsson’s or CommScope’s products in its network.7

II. LAW

District courts have the power to stay proceedings as part of its inherent power to control 

its own docket. Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). In the context of a patent case, 

courts may decide to stay an action under the customer-suit exception or Rule 21. Alternatively, 

courts may stay an action if the traditional stay factors support that result.

A. Customer Suit Exception and Rule 21

Generally, courts follow the “first-to-file” rule in deciding which of two overlapping 

cases filed in different courts should proceed and which court should stay its hand. However, an 

exception to this first-to-file rule, known as the customer-suit exception, generally applies to

cases in which a patentee filed an action against the retailers of an accused product (mere 

“customers’ of the manufacturer), after which the manufacturer of the product filed a declaratory 

5 Complaint, Dkt. No. 1 at ¶¶ 1–7.

6 Id. at ¶¶ 76, 79 (First Cause of Action – Infringement of the ’358 Patent by AT&T and 

CommScope), ¶¶ 104, 107 (Second Cause of Action – Infringement of the ’338 Patent by AT&T 

and Ericsson), ¶¶ 127, 130 (Third Cause of Action – Infringement of the ’232 Patent by AT&T 

and CommScope), ¶¶ 150, 153 (Fourth Cause of Action – Infringement of the ’232 Patent by 

AT&T and Ericsson), ¶¶ 182, 185 (Fifth Cause of Action – Infringement of the ’499 Patent by 

AT&T and Ericsson), ¶¶ 214, 217 (Sixth Cause of Action – Infringement of the ’499 Patent by 

AT&T and CommScope). 7 Id. at ¶¶ 56–57 (asserting Claim 7 of the ’358 patent—a method), ¶¶ 84–85 (asserting 

Claim 1 of the ’338 patent—a method), ¶¶ 112–13, 135–136 (asserting Claim 12 of the ’232 

patent—a method).

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judgment action against the patentee in a different forum. In that circumstance, courts sometimes 

approve proceeding with the case against the manufacturer and staying the first-filed action 

against the customer. See Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990); Kahn 

v. Gen. Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989) (discussing the exception but 

declining to apply it where there was no evidence that the later-filed action “would resolve all 

charges against the customers in the stayed suit, including liability for damages”).

The customer-suit exception has also been applied in multi-defendant actions in which 

the manufacturer and retailers are defendants in the same case. In those cases, the customer-suit 

exception has been cited as the basis for severing the action against the retailers from the action 

against the manufacturer and transferring the action against the manufacturer to a venue where 

suit against the retailer defendants could not have been brought. The theory underlying that 

course of action is that the manufacturer is the “true defendant” and the retailer is merely a 

“peripheral defendant.” See Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 

1349 (Fed. Cir. 2011). 

Courts have often declined to apply the customer-suit exception in cases in which the 

manufacturer is charged as the indirect infringer of a method patent and the retailer is charged as 

the direct infringer. SAS Inst. Inc. v. World Programming Ltd., No. 2:18-cv-0295, 2019 WL 

8331447, at *2 (E.D. Tex. Apr. 4, 2019) (finding the customer-suit exception inapplicable to the 

case because claims against the manufacturer and non-manufacturer defendants are not 

identical); Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., 2016 U.S. Dist. LEXIS 55205, 

*10 (E.D. Tex. Apr. 26, 2016) (collecting cases) (finding the customer-suit exception does not 

apply to sever an action into separate cases against Eli Lilly (manufacturer) and Brookshire 

(distributor) and then stay the case as to Brookshire because (1) Brookshire was accused of 

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directly infringing a method of treatment and (2) a finding that Eli Lily is liable for induced

infringement would not necessarily mean that Brookshire is liable for direct infringement); but 

see Opticurrent, LLC v. Power Integrations, Inc., No. 2:16-cv-325-JRG, 2016 WL 9275395, at 

*5 (E.D. Tex. Oct. 19, 2016) (severing and staying direct infringement claims against Mouser

(mere distributor/reseller) pending resolution of direct and indirect infringement claims against 

the “true defendant” Power Integrations (manufacturer) because a finding that Power 

Integrations infringes is a prerequisite to recovery from Mouser).

Even when the customer-suit exception does not strictly apply, courts have analyzed 

whether Rule 21 applies to sever and stay a case. Compare Saint Lawrence Commc'ns LLC v. 

Apple Inc., No. 2:16-cv-82, 2017 WL 3712912, at *1–2 (E.D. Tex. July 12, 2017) (severing and 

staying claims against resellers AT&T and Verizon pending resolution of infringement claims 

against Apple regarding speech encoding and decoding technology in cellphones under Rule 21 

because the claims against AT&T and Verizon were peripheral to those against Apple) with SAS 

Inst. Inc. v. World Programming Ltd., No. 2:18-cv-0295, 2019 WL 8331447, at *2 (E.D. Tex. 

Apr. 4, 2019) (declining to sever and stay claims as to reseller and customer defendants that were 

not peripheral to the claims against the manufacturer). In such circumstances, courts consider

two factors: (1) whether the remaining claims are peripheral to the severed claims, and (2) 

whether adjudication of the severed claims would potentially dispose of the remaining claims.

Saint Lawrence Commc'ns LLC, 2017 WL 3712912, at *2 (quotations and citations omitted); 

SAS Inst. Inc., 2019 WL 8331447, at *2 (E.D. Tex. Apr. 4, 2019) (quotations and citations 

omitted).

B. Traditional Stay Factors

Separate from the customer-suit exception and Rule 21, courts may also decide to stay an 

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action based on the traditional stay factors, which include (1) whether a stay will unduly 

prejudice or present a clear tactical disadvantage to the nonmoving party, (2) whether a stay will 

simplify the issue in question and trial of the case, and (3) whether discovery is complete and 

whether a trial date has been set. CyWee Grp. Ltd. v. Huawei Device Co., No. 2:17-cv-495-

WCB, 2018 WL 4002776, at *3 (E.D. Tex. Aug. 22, 2018) (quotations and citations omitted).

III. ANALYSIS

Defendants seek to stay the cases as to AT&T on two separate grounds that are addressed 

in the manner presented in the briefing: (A) the customer-suit exception and severance under 

Rule 21, and (B) the traditional stay factors.

A. Customer-Suit Exception and Severance Under Rule 21

Defendants’ reliance on the customer-suit exception to stay the cases as to AT&T is 

misplaced. First, unlike essentially all of the cited cases in the briefing applying the customersuit exception, Defendants do not seek to transfer the claims against Ericsson or CommScope to 

another venue. Rather, as part of the stipulation regarding severance as to the two cases—the

first case with AT&T and Ericsson and the second case with AT&T and CommScope—the 

parties have agreed not to challenge venue.8

Second, this case involves two manufacturers, Ericsson and CommScope, each of which 

supplies components to a customer, AT&T. In contrast to Opticurrent in which Mouser was a 

mere reseller, 2016 WL 9275395, at *5, AT&T in this case is accused of direct infringement by 

using the components in its telecommunications network. AT&T is more than a mere reseller. 

Four of the six causes of action accuse the customer, AT&T, of directly infringing method 

claims while accusing the manufacturer, Ericsson or CommScope, of indirectly infringing the 

8 Stipulation, Dkt. No. 79 at 2 (“3. Following severance, no Defendant will move to 

transfer venue to any other court.”)

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method claims.9 Similarly, the two causes of action concerning system claims accuse AT&T of 

direct infringement and either Ericsson or CommScope of indirect infringement. 10 AT&T’s 

agreement to be bound by the Court’s findings as to infringement by CommScope and Ericsson 

and invalidity arguments raised by the same does not eliminate the potential need to adjudicate 

AT&T’s direct infringement of the asserted method claims. Thus, this case also does not fall 

within the customer-suit exception because the core allegations of the complaint are directed to 

the role of AT&T as the direct infringer and Ericsson or CommScope as the indirect infringer. 

Eli Lilly & Co., 2016 U.S. Dist. LEXIS 55205, *12.

Third, the rationale to stay under Rule 21 does not apply to this circumstance. Since 

AT&T is accused of directly infringing multiple method claims involving the use of the accused 

products, the claims against AT&T are not peripheral to those against the manufacturers Ericsson 

and CommScope. Accordingly, adjudication of the claims against Ericsson and CommScope 

would not necessarily resolve those against AT&T.

In sum, neither the customer-suit exception nor severance under Rule 21 supports staying 

the cases as to AT&T.

B. Traditional Stay Factors

The first factor—whether a stay will prejudice the nonmoving party—weighs against a 

stay. In contrast to Defendants’ assertions that Dali will not be prejudiced by a stay as to AT&T, 

the stay would limit Dali’s ability to pursue its direct infringement claims against AT&T. 

9 Complaint, Dkt. No. 1 at ¶¶ 76, 79 (accusing CommScope of indirectly infringing 

method claim 7 of the ’358 Patent), ¶¶ 104, 107 (accusing Ericsson of indirectly infringing 

method claim 1 of the ’338 Patent by AT&T and Ericsson), ¶¶ 127, 130 (accusing CommScope 

of indirectly infringing method claim 12 of the ’232 Patent), ¶¶ 150, 153 (accusing Ericsson of 

indirectly infringing method claim 12 of the ’232 Patent).

10 Id. at ¶¶ 182, 185 (accusing Ericsson of indirectly infringing system claim 1 of the ’499 

Patent), ¶¶ 214, 217 (Accusing CommScope of indirectly infringing system claim 1 of the ’499 

Patent).

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Additionally, Defendants themselves acknowledge that discovery as to AT&T becomes more 

convoluted upon granting the stay.11 To overcome the added hurdle, Defendants propose that 

Ericsson or CommScope would serve as intermediaries for any discovery Dali seeks to serve on 

AT&T.12 Regardless of a stay as to AT&T, Dali would seek to obtain discovery from AT&T to 

establish a reasonable royalty based on AT&T’s use of the accused products. Dali would be 

prejudiced by a stay that would mitigate affirmative obligations under the Court’s Discovery 

Order. Thus, the first factor weighs against a stay.

The second factor—whether a stay will simplify the issue in question and trial of the 

case—weighs slightly against a stay. Staying claims against customers generally increases

efficiency and judicial economy, but this is a circumstance with a common customer accused of 

direct infringement and two manufacturer suppliers accused of indirect infringement. AT&T 

agrees to be bound by infringement determinations affecting CommScope and Ericsson, and 

invalidity determinations adjudicated on the merits.

13 In isolation, AT&T’s agreement to be 

bound weighs in favor of a stay. Nevertheless, resolving the infringement and damages issues as 

to Ericsson and CommScope will not necessarily resolve all the issues as to AT&T. Since issues 

may still remain as to AT&T, the second factor weighs against a stay. Rembrandt Wireless 

Techs., LP v. Apple Inc., 2019 U.S. Dist. LEXIS 205698, *11–*12 (E.D. Tex. Nov. 27, 2019)

(finding that staying the case as to Apple pending resolution of a suit against component 

manufacturers Broadcom and Qualcom would not simplify issues for trial because Apple was 

accused of direct infringement whereas Broadcom and Qualcomm were accused of indirect 

infringement).

The third factor—whether discovery is complete and whether a trial date has been set—

11 See Motion to Sever and Stay, Dkt. No. 77 at 15.

12 Id. 13 Motion to Sever and Stay, Dkt. No. 77 at 15.

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also weighs against a stay. The deadline for fact discovery is June 1, 2023, and trial is set for 

October 16, 2023. 14 Discovery is underway, but the parties had until March 30, 2023 to 

substantially complete document production and exchange privilege logs. 15 Litigation having

advanced to some extent since the filing of the complaint does not mean it has progressed so far 

as to preclude a stay. See NFC Tech., 2015 WL 1069111, at *3, *8 (granting a motion to stay 

even though “the parties had engaged in significant discovery, and claim construction briefing 

was complete”).

In the aggregate, the traditional stay factors reinforce the conclusion that a stay is not 

warranted.

IV. CONCLUSION

For the reasons above, the Motion to Sever and Stay (Dkt. No. 77) is GRANTED-INPART as to severing the action into one case against AT&T and CommScope and another case 

against AT&T and Ericsson, and consolidating the cases for pre-trial purposes in accordance 

with the terms set forth in the Stipulation (Dkt. No. 79). The Clerk of Court is directed to (1) 

open a new case between Plaintiff Dali Wireless, Inc. and Defendants AT&T Corp., AT&T 

Communications LLC, AT&T Mobility, AT&T Mobility II LLC, AT&T Services Inc, Ericsson 

Inc. and Telefonaktiebolaget LM Ericsson, (2) terminate Defendants Ericsson Inc. and 

Telefonaktiebolaget LM Ericsson from the above-captioned case, and (3) consolidate the severed 

case with the above-captioned lead case for pretrial purposes. The parties shall continue filing in 

14 Fourth Amended Docket Control Order, Dkt. No. 114 at 1, 3.

15 Motion to Sever and Stay, Dkt. No. 77 at 15; Fourth Amended Docket Control Order, 

Dkt. No. 114 at 4.

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the above-captioned lead case. The remaining request to stay the severed cases as to AT&T is 

DENIED.

____________________________________

ROY S. PAYNE

UNITED STATES MAGISTRATE JUDGE SIGNED this 3rd day of January, 2012. SIGNED this 8th day of April, 2023.

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