Tsra Bond Issue

UNITED STATES INTERNATIONAL TRADE COMMISSION WASHINGTON, D.C. 20436 Before the Honorable Theodore R. Essex Administrative Law Judge

In the Matter of CERTAIN SEMICONDUCTOR CHIPS WITH MINIMIZED CHIP PACKAGE SIZE AND PRODUCTS CONTAINING SAME

Investigation No. 337-TA-605

COMPLAINANT TESSERA, INC.’S MOTION FOR LEAVE TO FILE A REPLY TO THE RESPONSES TO TESSERA’S MOTION FOR FORFEITURE OF RESPONDENTS’ BONDS, LIMITED DISCOVERY, AND EVIDENTIARY HEARING On October 16, 2009, Complainant Tessera, Inc. (“Tessera”) filed its Motion For Forfeiture Of Respondents’ Bonds, Limited Discovery, and Evidentiary Hearing (“Bond Forfeiture Motion”), pursuant to 19 C.F.R. § 210.50(d). The motion, filed one day before the deadline set by 19 C.F.R. § 210.50(d), sought: (1) an Initial Determination requiring forfeit of all bonds posted pursuant to the Commission’s remedial orders within 45 days; (2) limited discovery in order to determine whether the Respondents’ bonds posted, including those posted with Customs, accurately reflected the number of infringing packages imported by Respondents during the Presidential Review period; and (3) a brief evidentiary hearing to adjudicate the correct amounts due to Tessera. Tessera also requested prejudgment interest. On November 2, 2009, responses to Tessera’s Bond Forfeiture Motion were filed separately by Respondents Qualcomm, Inc. (“Qualcomm”); Freescale Semiconductor, Inc.

(“Freescale”); Spansion, Inc. and Spansion, LLC (“Spansion”); STMicroelectronics (“ST”) (collectively, “Respondents”); and the Commission Investigative Staff (“Staff”). Pursuant to 19 C.F.R. § 210.15(c) and Ground Rule 3.6, Tessera submits the attached Reply in order to respond to new arguments raised by the Respondents’ opposition briefs, which improperly: (1) seek to turn their pending Federal Circuit appeal into an excuse for denying bond forfeiture altogether; (2) attempt to exploit the fact that information on bond amounts posted with Customs is not available to Tessera as an excuse to prevent Tessera from ever knowing whether Respondents properly fulfilled their bonding obligations; and (3) accuses Tessera of making a premature filing, while disregarding the Commission’s rules that required Tessera to file when it did. Tessera’s Reply is attached hereto as Exhibit A. Pursuant to Ground Rule 3.2, counsel for Tessera contacted the Staff Investigative Attorney and counsel for all Respondents prior to filing this Motion. All of the Respondents and the Staff stated that they oppose the relief sought through this motion.

Dated: November 10, 2009

Respectfully submitted, /s/ Amanda Tessar Wayne M. Barsky GIBSON, DUNN & CRUTCHER LLP 2029 Century Park East Los Angeles, California 90067 Telephone: (310) 552-8500 Facsimile: (310) 551-8741 Amanda Tessar David Glandorf GIBSON, DUNN & CRUTCHER LLP 1801 California Street Suite 4200 Denver, CO 80202-2642 Telephone: (303) 298-5742 Facsimile: (303) 313-2826

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Jonathan H. Steinberg Benjamin W. Hattenbach Kenneth J. Weatherwax Mark A. Kressel IRELL & MANELLA LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, CA 90067-4276 Telephone: (310) 277-1010 Facsimile: (310) 203-7199 Barbara A. Murphy F. David Foster MILLER & CHEVALIER CHARTERED 655 Fifteenth Street, N.W., Suite 900 Washington, DC 20005 Telephone: (202) 626-5800 Facsimile: (202) 626-5801 COUNSEL FOR COMPLAINANT TESSERA, INC.

100759625_1.DOC

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EXHIBIT A

UNITED STATES INTERNATIONAL TRADE COMMISSION WASHINGTON, D.C. 20436 Before the Honorable Theodore R. Essex Administrative Law Judge

In the Matter of CERTAIN SEMICONDUCTOR CHIPS WITH MINIMIZED CHIP PACKAGE SIZE AND PRODUCTS CONTAINING SAME

Investigation No. 337-TA-605

COMPLAINANT TESSERA’S REPLY IN SUPPORT OF MOTION FOR FORFEITURE OF RESPONDENTS’ BOND, LIMITED DISCOVERY, AND EVIDENTIARY HEARING

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I.

INTRODUCTION On October 16, 2009, one day before the filing deadline, Tessera filed its Motion For

Forfeiture Of Respondents’ Bonds, Limited Discovery, And Evidentiary Hearing. Tessera explained that Respondents’ public statements, web activities, and representations to the Commission and Federal Circuit all consistently suggest that Respondents conducted a heavy volume of activities covered by the Commission’s Limited Exclusion Order and Cease And Desist Orders (“the Remedial Orders”) during the Presidential Review period, yet Respondents’ actual bond postings appeared far too low to accurately correspond to this volume of activity. In addition, Tessera explained that it was unable to determine the total amounts Respondents had posted because some of those amounts may have been posted with Customs, in which case the information is not available to Tessera. Accordingly, Tessera asked the ALJ to institute bond forfeiture proceedings, including discovery into: (1) the amount of Respondents infringing activities during the Presidential Review period, which is necessary in order to determine the amount forfeitable; and (2) the amount of bond that Respondents should have posted, which is necessary in order to be sure that Tessera receives the amount that would be due if Respondents properly fulfilled their bonding obligations under the Remedial Orders. On November 2, 2009, each of the Respondents and the Staff filed its own opposition (the “Opposition Briefs”). The four Respondents collectively tossed out a laundry list of excuses why the ALJ should deny Tessera’s motion outright, but not one of the Respondents refuted the central premises of Tessera’s motion, which more than adequately furnish a basis for the relief Tessera seeks. Not one Respondent denied the fact that the Respondents have refused to come forward voluntarily with the information necessary to determine the amount forfeitable under the bond; indeed Spansion boasted brazenly that it has no intention of doing so. See Spansion Opp. at 9. Not one Respondent refuted—or even attempted to explain the fact—that several

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Respondents had made public statements, including representations to the Federal Circuit, that indicate that Respondents conducted a heavy volume of business in activities covered by the Remedial Orders during the Presidential Review period. Not one Respondent denied that it has posted bonds with Customs—indeed, Freescale proudly defended its right to do so—although no Respondent came forward with information about how much it has actually posted. Not one Respondent denied that Tessera was unable to determine the amount of bond that Respondents should have posted. Instead, Respondents argue that Tessera’s motion is procedurally defective, premature, or, more surprisingly, that the ITC lacks authority to permit discovery under a bond forfeiture motion, even where evidence suggests that Respondents have flouted their obligations regarding bonding under the Remedial Orders. Tessera explains below why each of these arguments lacks both supporting authority and a basis in common sense. The ALJ should grant Tessera’s motion and begin bond forfeiture proceedings. If the ALJ has concerns about requiring the actual forfeiture of funds while Respondents’ Federal Circuit appeal is pending, Tessera asks, as it did in its motion, that the ALJ at least complete bond forfeiture proceedings through discovery and an initial determination as to the amount forfeitable, and only stay the forfeiture pending the outcome of the appeal. II.

AMPLE AUTHORITY SUPPORTS TESSERA’S MOTION FOR BOND FORFEITURE AND AUTHORIZES DISCOVERY THEREON Respondents’ arguments that Tessera’s motion is procedurally improper or otherwise

unsupported by authority ignore the regulations and case law that explicitly authorize both the motion and the relief Tessera seeks.

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A.

Immediate Commencement Of Forfeiture Proceedings, Including Ordering Forfeiture, Is Proper 1.

ITC Rules Require Prompt Filing And Resolution Of A Bond Forfeiture Motion Notwithstanding Any Appeal

Respondents and Staff suggest that this is an inappropriate time for bond forfeiture because an appeal is pending before the Federal Circuit. These parties ignore the express terms of the Commission’s rules governing bond forfeiture proceedings. ITC Rule 210.50(d) states: If one or more respondents posts a bond pursuant to 19 U.S.C. 1337(e)(1) or 1337(j)(3), proceedings to determine whether a respondent’s bond should be forfeited to a complainant in whole or part may be initiated upon the filing of a motion, addressed to the administrative law judge who last presided over the investigation, by a complainant within 90 days after the expiration of the period of Presidential review under 19 U.S.C. 1337(j). 19 C.F.R. § 210.50(d)(1)(i). The Presidential Review period in this Investigation expired on July 20, 2009. Accordingly, the 90 day window within which Tessera was required to move for bond forfeiture, calculated pursuant to Commission rules, expired on October 19, 2009. Therefore, not only is this not an inappropriate time to initiate bond forfeiture proceedings, but the Commission’s rules required Tessera to file its motion at this time, or else be barred from ever so filing.1 Notwithstanding any concerns about the possible risk that the Commission’s remedial orders will be vacated, the Commission’s rules expressly require a Complainant to file a motion for bond forfeiture while an appeal to the Federal Circuit is pending.2

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Tessera notes as well that the Respondents had the same 90 day window in which to file a motion for the return of their bonds in the event that the Federal Circuit were to vacate the Commission’s Remedial Orders, yet failed to file such a motion. See 19 C.F.R. § 210.50(d)(1)(ii) (“A respondent may file a motion addressed to the administrative law judge who last presided over the investigation for the return of its bond within 90 days after the expiration of the Presidential review period under 19 U.S.C. 1337(j).”).

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Indeed, the Commission’s commentary to its proposed revised rules state that the Commission specifically extended the deadline from 30 days to 90 days precisely in order to

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2.

The ALJ May Grant Bond Forfeiture While An Appeal Is Pending

Respondents and Staff argue that “[n]either the applicable statutory provisions nor the Commission’s rules require forfeiture of Respondents’ bonds before the resolution of their appeals.” Staff Opp. at 3-4; accord Spansion Opp. at 3-4; Freescale Opp. at 3. Yet nothing in the applicable statutory and regulatory provisions states that the Commission is prohibited from ordering bond forfeiture while the Investigation is on appeal. See, e.g., 19 U.S.C. § 1337(j)(3) (“If the determination becomes final, the bond may be forfeited to the Complainant.”). More importantly, nothing in these provisions states that Tessera was prohibited from filing its motion for bond forfeiture while the Investigation is on appeal, nor could they—as discussed above, the Commission’s regulations explicitly required Tessera to file its motion by October 19, 2009, a date before Respondents’ opening appellate brief was due. See 19 C.F.R. § 210.50(d)(1)(i).3

accommodate the 60 day window in which a party could file an appeal to the Federal Circuit. See Notice of Proposed Rulemaking, 72 Fed. Reg. 72280, 72291 (Dec. 20, 2007). Given the patent unlikelihood that an appeal to the Federal Circuit could be decided in its entirety in 30 days, the Commission’s decision to extend the time to file a bond forfeiture motion to only 90 days indicates a deliberate decision to require a complainant to file a bond forfeiture motion even if an appeal to the Federal Circuit is pending. 3

Freescale’s and Spansion’s reliance on Certain Lens-Fitted Film Packages (“LFFP”) for the proposition that the ALJ may not even begin forfeiture proceedings, much less order forfeiture, while an appeal is pending is misplaced. See Fr. Opp. at 3 (citing LFFP, Inv. No. 337-TA_406 (Remand), Bond Forfeiture Order at 1 (Sept. 15, 2004)); see also Spansion Opp. at 5. In LFFP, no party litigated whether bond forfeiture was proper while the appeal was pending; the Federal Circuit’s comments about the timing of bond forfeiture on remand that were quoted in the Initial Determination are mere dicta and at best suggest that the court assumed a stay of forfeiture was proper in that particular case. Similarly, Spansion’s reliance on Milan Express, Inc. v. Averitt Express, Inc., 208 F.3d 975 (11th Cir. 2000) is misplaced because the issue of whether the plaintiff could move for bond forfeiture while the appeal was pending was not litigated—the case merely demonstrates Milan’s individual litigation strategy. Moreover, federal courts, unlike the ITC, lack the rule requiring that the moving party file within 90 days of the expiration of the Presidential Review period; thus Milan, unlike Tessera, was not required to seek bond forfeiture while the appeal was pending.

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Respondents and Staff also argue that the language of the Commission’s CDO renders Tessera’s request for a bond forfeiture proceeding “premature unless and until the Federal Circuit decides the appeal in this case in favor of Tessera.” Qualcomm Opp. at 8 (emphasis in original); see also Fr. Opp. at 2; Staff Opp. at 4.4 This argument has several flaws. First, while the language of the CDO does not say the ALJ is required to grant a bond forfeiture motion while the appeal of the Remedial Orders is pending, the language does not say the ALJ is prohibited from ordering forfeiture. The CDO merely acknowledges the common-sense proposition that Respondents would be entitled to recover the bond amount should the Federal Circuit vacate the Remedial Orders. The CDO permits the ALJ to require forfeiture now and allow the Respondents to move for return of the bonds in the event they prevail on appeal. Second, Respondents’ argument that Tessera’s motion should be denied entirely under the language of the CDO is premised on collapsing together the various steps of filing the motion, conducting the bond forfeiture proceedings (including discovery and an evidentiary hearing when necessary), and ordering the actual forfeiture in the amount determined through the proceedings. Even if one concluded that the actual forfeiture is inappropriate while appeal of the Remedial Orders is pending, the CDO in no way suggests that the mere filing of the bond forfeiture motion, or the conducting of discovery and a hearing thereon, is prohibited while the

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Qualcomm incorrectly characterizes the Commission’s policy as “that bond forfeiture proceedings are inappropriate when an appeal is pending.” Qualcomm Opp. at 9 n. 36 (citing 72 Fed. Reg. 72291). In fact, the Commission’s policy as stated in the Notice of Proposed rule making is not that bond forfeiture proceedings are categorically inappropriate while an appeal is pending, but merely that such proceedings “may not be appropriate in cases where the Federal Circuit reverses a Commission finding of violation.” 72 Fed. Reg. 72291. In this case, the Federal Circuit has not reversed a Commission finding of violation. Indeed, the Federal Circuit has considered whether Respondents will be likely to succeed in their appeal and concluded that they are not.

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appeal is pending. The language of the CDO permits the ALJ to order the start of forfeiture proceedings while the appeal of the Remedial Orders is pending, even if the ALJ decides to defer ordering the actual forfeiture until the appeal is complete. In light of the fact that the Commission’s rules require a complainant to file a bond forfeiture motion while appeal is pending, see 19 C.F.R. § 210.50(d), this is the only possible interpretation of the CDO. Third, Respondents’ and the Staff’s reliance on the language of the CDO ignores the fact that much of the injury to Tessera due to Respondents’ activities during the Presidential Review period is due to violations of the LEO. Nothing in the LEO states that a bond forfeiture proceeding, from filing through forfeiture, is improper while appeal is pending. B.

Tessera’s Motion Sufficiently Alleges Injury

Respondents have created from whole cloth the unsupported and unsupportable proposition that Tessera’s motion should be denied outright because “[f]ailure to set forth essential factual allegations in a bond motion seeking recovery of damages under a bond, including specific damages proximately caused by the order, requires denial of the bond forfeiture motion.” Qualcomm Opp. at 16; accord Fr. Opp. at 7. Greenwood County v. Duke Power Co., 107 F.2d 484, 489 (4th Cir. 1939), upon which Respondents purport to rely, is inapposite. In that case, the court held that the party moving for bond forfeiture was not so entitled because it had failed to articulate any theory of damages directly traceable to the temporary injunction in and of itself, as opposed to general costs incurred due to the undertaking of the litigation entirely. Greenwood County, 107 F.2d at 489. The defendant’s alleged “loss” was the result of a delay (in constructing a power plant) of over three years’ duration while the litigation progressed, but the temporary injunction lasted for only four months. See id. at 487-89. In this Investigation, in contrast, Tessera seeks recovery for injuries directly traceable to Respondents’ infringing activities during the Presidential Review period. Moreover, the court’s

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primary reason in Greenwood County for denying forfeiture was that, at the time the case was decided, bond forfeiture for an erroneous injunction was not proper absent evidence that the plaintiff sought the injunction in bad faith—a standard not applicable in this Investigation. See 107 F.2d at 489-90. Greenwood County says nothing about what allegations must be pled in an initial motion that seeks the initiation of bond forfeiture proceedings. Moreover, as a matter of policy, it makes no sense—indeed would be wholly impractical—to require a complainant to set forth all the facts necessary to prove the amount forfeitable in the initial bond forfeiture motion. The purpose of the initial bond forfeiture motion is merely to request the relief of bond forfeiture; the motion initiates proceedings, it does not conclude them. See 19 C.F.R. § 210.50(d)(1)(i) (“proceedings to determine whether a respondent’s bond should be forfeited to a complainant in whole or in part may be initiated upon the filing of a motion”); 19 C.F.R. § 210.50(d)(3) (“A motion for forfeiture . . . will be adjudicated by an administrative law judge in an initial determination . . . which shall be subject to review . . . .”). In many cases, it will be necessary to have additional proceedings, including discovery and an evidentiary hearing, in order to determine what amount is due under the bond. See Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406 (Bond Forfeiture Proceeding) (“LFFP”), Comm’n Bond Forfeiture Order, at 2-7 (Sept. 15, 2004). While it is true that Tessera must eventually prove the amount of actual injury in order to prove the amount of bond to be forfeited, nothing in the Commission’s enabling statute, rules, or case law remotely suggests that a complainant must satisfy this burden of proof with the very filing of its bond forfeiture motion. Moreover, even if a proper bond motion were required to contain allegations of “actual injury” (which it is not), Tessera’s motion would be proper, as Tessera has made ample allegations. First, Tessera explicitly alleged its theory of actual injury caused by Respondents’

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activity during the Presidential Review period. As Tessera explained in its motion for forfeiture, the ALJ determined in this Investigation that 3.5% of the value of entered products, as the median royalty rate in the semiconductor industry, was an appropriate bond. See Tessera Mot. at 13. Second, Tessera’s motion alleged explicitly that Respondents imported infringing products during the Presidential Review period. Tessera supported its motion with quotes from Respondents’ own public statements indicating that Respondents had continued to import infringing products during the period—statements which Respondents made no attempt to address in their Opposition Briefs. See Tessera Mot. at 2 (detailing Spansion’s claims of significant sales prior to the end of the period), 8-9 (detailing Respondents’ representations to the Federal Circuit that it was imperative that they maintain the same volume of business they had conducted prior to and during the Presidential Review period during the appeal); 9 (detailing trade publications evidencing high levels of importation of infringing products during the Presidential Review period). Tessera further supported its motion with quotations from Respondents’ own compliance reports—reports which, in addition to evidencing that Respondents did, in fact, import infringing products during the period, raise serious questions about whether Respondents’ bond postings accurately reflect the number of infringing products imported and sold. See Tessera Mot. at 9. Finally, Tessera supported its motion with evidence of ongoing sales or offers for sale of infringing goods in the form of screenshots of Respondents’ websites. See Tessera Mot. at 2, 16. C.

Well-Settled Commission Precedent Establishes The Commission’s Authority To Authorize Discovery On A Bond Forfeiture Motion And The Commission’s Practice Of Doing So

Respondents are starkly incorrect when they state that Tessera cites no authority for its demand for discovery. See Qualcomm Br. at 16; ST Opp. at 7. In LFFP, cited in the oppositions

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of every Respondent and the Staff, the Commission expressly referred the complainant’s bond forfeiture motion to the ALJ for discovery and a hearing on the amount due. See LFFP, Comm’n Bond Forfeiture Order at 2-6; ALJ ID, 2003 ITC LEXIS 408, *8-*11 (May 29, 2003) (detailing how Commission referred the motion to the ALJ for an adjudication of the precise amount due, and how discovery, including a motion to compel and document subpoenas, and motion practice, including a motion in limine, followed). In fact, the Commission endorsed a multi-stage proceeding, in which the ALJ first issued an Initial Determination on the amount forfeitable, the complainant sought review of the ID by the Commission, the Commission granted review and remanded for further proceedings and factual determinations, and ultimately reviewed the [revised] determination by the ALJ. LFFP, Comm’n Bond Forfeiture Order at 2-6. Rather than acknowledge this authority, Respondents simply argue, without any support, that the Commission is not authorized to grant discovery as requested by Tessera. See Qualcomm Br. at 16-17; ST Opp. at 2 (“[T]here is no legal basis for the relief Tessera seeks.”); Fr. Opp. at 8 (“Neither the statute nor the Commission rules authorize such an inquiry.”). This argument is directly contradicted by the Commission’s own enabling statute, which states that “[t]he Commission shall prescribe the terms and conditions under which bonds may be forfeited under this paragraph.” 19 U.S.C. § 1337(j)(3). Those “terms and conditions” may include procedures sufficient to ensure that Respondents have posted the amount of bonds sufficient to cover the amount of infringing products imported, as required by the Commission’s Remedial Orders, and to determine the amount of actual injury to Tessera caused by Respondents’ activities. Indeed, the Staff implicitly agrees that the Commission has the authority to order discovery and, if it appears warranted, an evidentiary hearing to determine whether Respondents have posted the required amount of bond and how much should be forfeited. See Staff Opp. at 5-

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6 (arguing that, should the ALJ conclude that the bond forfeiture proceeding should proceed, the ALJ should order “limited discovery” on issues related to whether certain Respondents are in “compliance with their bonding obligations” and that “depositions or an evidentiary hearing” might be necessary). Similarly, the Commission’s rules state that “[a] motion for forfeiture will be adjudicated by the administrative law judge in an initial determination . . . . In determining whether to grant the motion, the administrative law judge and the Commission will be guided by practice under Rule 65 of the Federal Rules of Civil Procedure.” 19 C.F.R. § 210.50(d)(3). Respondents provide no authority stating that if a bond were set under Rule 65, and the defendant believed the plaintiff had not complied with the court’s order setting the bond by failing to post the full amount ordered, discovery into this factual issue would be improper or otherwise prohibited under Rule 65. To the contrary, it is well-settled that “practice under Rule 65” may include, and often does include, discovery and an evidentiary hearing. For example, in Virginia Plastics Co. v. Biostim, Inc., 820 F.2d 76 (3d Cir. 1987), the Third Circuit held that the district court erred when it failed to hold an evidentiary hearing on whether a plaintiff was liable on a bond under Rule 65, even though the district court apparently considered numerous affidavits that had been submitted earlier in the case and related hearing transcripts. See Virginia Plastics, 820 F.2d at 77-80. The Third Circuit “remanded for further proceedings to establish by competent evidence after a hearing what damages were incurred.” Id. at 81. The court went so far as to suggest that “[t]he absence of an evidentiary hearing raises the question of whether [the moving party’s] due process rights were ignored below.” Id. at 80 n.4; see also Nintendo of America, Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1034-35 (9th Cir. 1994) (describing how district court in a

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copyright case held two evidentiary hearings, including presentation of experts by both sides, to determine amount forfeitable after vacating a preliminary injunction); Sionix Corp. v. Moorhead, 299 F. Supp. 2d 1082, 1085 (S.D. Cal. 2003) (stating that discovery relevant to the bond forfeiture motion occurred). The absurdity of Respondents’ position is inherently obvious: without any authority to grant discovery into whether a respondent had posted the amount of bond required by the terms of its own order, the Commission would be powerless to know if its orders were being flouted. Respondents would have the Commission believe that it must simply take Respondents at their word. Nothing in the Commission’s statute or regulations prevents the Commission from using discovery in these proceedings to determine whether Respondents have, in fact, posted the appropriate amount of bond.5 D.

Tessera Has Not Requested An Enforcement Proceeding In Its Motion

Respondents attempt to undermine Tessera’s request for discovery by mischaracterizing Tessera’s request as something more akin to an enforcement proceeding than a bond forfeiture proceeding. See ST Opp. at 7. This attempt fails because LFFP demonstrates that bond

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Qualcomm’s claim that “there is no legal basis for Tessera’s claim that it is entitled to recover more than the bonds already posted” is similarly unfounded. See Qualcomm Opp. at 18. The authority Qualcomm cites for the proposition that under Rule 65, recovery for actual damages cannot exceed the amount of the bond are inapposite. These authorities assume that the amount of bond actually posted equaled the amount set by the court and do not consider what happens in a case such as this where Respondents may not have posted the amount required. See Qualcomm Opp. at 18 (citing, e.g., Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1056 (2d Cir. 1990) (reciting boilerplate instructions on remand in a case where the moving party did not allege that the opposing party failed to post the amounts required under the bonding order); Phillips Bus. Sys., Inc. v. Executive Communics. Sys., Inc., 744 F.2d 287, 290 (2d Cir. 1984) (denying movant’s attempt to obtain triple damages over a bond amount based on a claim that the violations independently triggered antitrust liability in a case where the moving party did not allege that the opposing party failed to post the amounts required under the bonding order).

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forfeiture proceedings may encompass discovery (including motions to compel), pre-hearing motion practice (including motions in limine), an evidentiary hearing (including a battle of the experts), Commission review and remand, and multiple rounds of ALJ factfinding. See LFFP, Comm’n Bond Forfeiture Order at 2-6; ALJ ID, 2003 ITC LEXIS 408, *8-*11. If anything, the relief Tessera seeks, a short discovery period and a hearing that falls within a 45-day period, is far less complex or involved than what occurred in LFFP. If the proceedings in LFFP were not deemed a de facto enforcement proceeding, then the proceedings Tessera requests certainly are not. Moreover, the nature of bond forfeiture and enforcement proceedings is entirely different. A bond forfeiture proceeding merely seeks to determine the amount recoverable by the complainant to compensate it for injury incurred by the respondents’ continuing violations during the Presidential Review period. See LFFP, ALJ ID, 2003 ITC LEXIS 408, *27-*28. An enforcement action, in contrast, seeks to determine whether there has been a “breach” or “violation” of the Commission’s remedial orders, in the period after the expiration of the Presidential Review period, when the respondents are no longer permitted to import infringing products, even under bond. See 19 C.F.R. § 210.75(b)(1) (the basis for an enforcement complaint is “alleged violations of any exclusion order”); § 210.75(b)(4)(ii) (the ITC may bring a civil action to recover for “breach of a cease and desist or a consent order”). Tessera’s bond forfeiture motion makes no allegations related to Respondents’ activities post-expiration of the Presidential Review period, nor does it seek discovery regarding such activities. III.

THE OPPOSITION BRIEFS REINFORCE THE PRESSING NEED FOR DISCOVERY Respondents’ Opposition Briefs claim that discovery is unnecessary in order for Tessera

and the Commission to determine whether Respondents have posted adequate amounts to

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compensate Tessera for the actual injury suffered due to Respondents’ infringing activities during the Presidential review period; yet the Respondents’ and Staff’s briefs make clear that discovery is the only way these facts will come to light. A.

Tessera Seeks Discovery Necessary To Resolve The Dispositive Issues

In their attempt to distract from the need for discovery, Respondents claim that Tessera seeks discovery on the amount of the bond, with the intention of relitigating the bond amount or attempting to “retroactively increase the amount of bond.” Qualcomm Opp. at 17. Not so. As the Staff accurately described, the “central issue” on which Tessera seeks discovery is Respondents’ “compliance with their bonding obligations and whether the amounts of any bonds they have posted, including any bonds posted with Customs, accurately reflect the number of packaged semiconductor chips imported and sold during the Presidential Review period.” Staff Opp. at 6. Indeed, recognizing the importance of this issue, the Staff conceded that if the bond forfeiture proceeding should proceed, discovery could investigate “the issues of (1) the amount of any bonds posted with Customs, and (2) the number of products sold during the Presidential Review period.” Id. These are indeed among the issues upon which Tessera seeks discovery, although Tessera submits that discovery as to the number of imports and into other activities covered by the Remedial Orders during the Presidential Review period is also appropriate. B.

Each Opposition Brief Demonstrates The Need For Discovery

Despite the claims to the contrary, the Opposition Briefs themselves make clear that discovery is absolutely necessary to determine whether the bonds posted accurately reflect the number of infringing products imported during the Presidential Review period.

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1.

Freescale

Freescale’s opposition takes issue with Tessera’s position that Freescale was required to post any import bonds with the Commission, but in doing essentially admits that Freescale has indeed posted bonds with Customs. See Fr. Opp. at 6 (defending its right to post bonds with Customs). Yet, while Freescale pointedly defends its right to post bonds with Customs, Freescale never states that it has done so, nor does it admit how much it has posted. Instead, Freescale coyly states that it “has made every effort to comply” with the Commission’s orders, “including” a bond submitted to the Commission. Fr. Opp. at 5. Freescale’s refusal to admit how much it has posted with Customs, all the while insisting that no discovery is necessary, is hardly the “full and transparent manner” of compliance of which Freescale boasts. Fr. Opp. at 5. Elsewhere in its Opposition, Freescale argues that the fact that it never adjusted its bond amount upward to accurately reflect the amount of products imported “is just as reasonably evidence that Freescale overestimated the amount of inventory bond required.” Fr. Opp. at 9 (emphasis in original). Freescale will not represent that this is indeed the explanation for its failure to adjust its bond amount; it merely represents that such an explanation “is just as reasonably” consistent with the evidence. Freescale’s inconsistencies and misleading statements further demonstrate that Tessera requires discovery in order to determine the amounts Freescale has posted and whether these adequately reflect the amount of infringing activities conducted during the Presidential Review period. 2.

Qualcomm

Qualcomm argues that Tessera’s motion is “moot” with respect to Qualcomm because Qualcomm offered to stipulate to “a forfeiture of the entire bond amount it had posted,” Qualcomm Opp. at 1, but this argument merely begs the critical question on which Tessera seeks discovery: is the entire bond amount that Qualcomm posted adequate in relation to the amount of

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Qualcomm’s infringing activities during the Presidential Review period? Thus, Qualcomm’s attempt to “moot” Tessera’s motion is a circular argument that only further demonstrates that Tessera needs discovery. 3.

ST

ST's opposition makes abundantly clear that Tessera needs discovery. ST claims that it “has not been required by CBP to post any bonds, a fact which Tessera does not dispute.” ST Opp. at 3. Tessera does indeed dispute whether ST was required to post bonds and Tessera seeks discovery to determine whether any of STs activities during the Presidential Review period were required to be conducted under bond, and, if so, what amount should have been posted and is now forfeitable to Tessera. See Tessera Mot. at 7-8. Tessera is unable to determine whether ST was “required by CBP” to post bonds without discovery, as it was not privy to communications between CBP and ST. Moreover, as ST admits, Tessera asserts that it may be possible ST should have posted bonds, and Tessera seeks discovery necessary to determine that fact. See ST Opp. at 4 (admitting Tessera asserts ST should have posted bonds and that Tessera provided evidence in the form of screenshots of web pages demonstrating that ST offered for sale infringing products). 4.

Spansion

Spansion is perhaps most brazen about its refusal to provide the evidence necessary to determine amounts forfeitable to Tessera, and thus most probative of how necessary discovery is. Spansion simply boasts, without citation to a single authority, that “Spansion does not intend to provide information on importation and bonding to Tessera, because they are not entitled to it.” Spansion Opp. at 9. Yet, throughout its brief, Spansion refuses to admit whether it has posted any bonds, either with the ITC or Customs. Spansion also refuses to state whether it should have posted such bonds because of its activities. Moreover, Spansion refuses to even address the

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representations Spansion made in its briefing to the Federal Circuit that it averages $35 million in sales of infringing products monthly, nor does it explain how, in light of an admitted $70 million of such sales during the first portion of the Presidential Review period alone, Spansion failed to post any bonds. See Tessera Opp. at 2. If Spansion does not “intend to provide information” on these discrepancies and others, discovery is the only way Tessera will learn the information it seeks—and to which it is entitled. Oddly, Spansion suggests that it is justified in taking its bold position because “even Tessera admits that there are other mechanisms for bonding than those cited in their motion.” Spansion Opp. at 9. Although somewhat incoherent, this appears to argue that Tessera is not entitled to discovery into the amounts Spansion posted under the Commission’s remedial orders because Spansion was not required to post those amounts with the Commission. Spansion provides no authority for this astonishing proposition. Spansion must not be permitted to flout the Commission’s remedial orders and prevent Tessera from obtaining amounts lawfully owed merely because Spansion may have posted its bonds with an agency that does not make its bond postings publicly available.6

6

In addition to the examples above, several Respondents argue that discovery is not necessary because the kind of evidence necessary to determine the amount forfeitable is likely to be business and import records that do not fade as do witness memories. See Qualcomm Opp. at 9-10; Fr. Opp. at 5; Spansion Opp. at 10. Once again, however, these statements merely admit that Tessera lacks the records necessary to determine the amounts owed. Without discovery, Tessera has no way of knowing whether depositions of live witnesses will provide the missing details necessary to the resolution of the questions surrounding bond forfeiture in this case. Furthermore, Respondents ignore the possibility that Tessera may require discovery related to whether certain of Respondents’ imported products have the technical features found by the Commission to infringe the claims of the asserted patents.

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5.

Staff

Even the Staff’s Opposition exposes the fact that key facts necessary to determine the amount forfeitable to Tessera remain unknown. The Staff stated that it “understands that Freescale and Qualcomm also have posted bonds with U.S. Customs and Border Control (“Customs”) for products subject to the LEO and CDOs, although the Staff has not confirmed the existence or amount of any such bonds.” Staff Opp. at 2. Thus, the Staff believes that Freescale and Qualcomm have posted bonds with Customs, which is more than Tessera was able to determine, but even the Staff does not know the amounts posted. More troublingly, the Staff concedes that “Spansion does not appear to have posted any bond with the Commission,” but the Staff believes Spansion may have posted bonds with Customs. Id. As Spansion has not posted any bonds with the Commission, absent discovery to determine the amount Spansion may have posted with Customs, Tessera has no way of knowing with certainty how much is forfeitable by Spansion. IV.

RESPONDENTS’ INDIVIDUALIZED CONCERNS ARE IRRELEVANT TO THE MERITS OF TESSERA’S BOND FORFEITURE MOTION Spansion, Qualcomm, and ST each raise individualized concerns. These arguments are

irrelevant make-weights that furnish no basis to deny Tessera’s bond forfeiture motion. Spansion claims that Tessera’s motion is merely harassment, and argues that Tessera’s “decision to file this motion now” is an effort to thin Respondents’ resources during the appeal. This argument is completely baseless: as discussed above, the Commission’s rules required that Tessera file its bond forfeiture motion by October 19, 2009. See Part II.A, supra. The fact that Tessera filed its motion while Respondents prepared their opening briefs was a coincidence expressly required by the Commission’s own rules.

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Spansion’s claims that Tessera is causing undue hardship to Spansion in multiple forums is particularly disingenuous because it is Spansion who has sought to use the fact of its bankruptcy to play a shell game, hiding the information about its infringing activities from Tessera by arguing in each forum that Tessera should look for evidence of Spansion’s unlawful actions in the other forum. See Ex. 1 (Debtor’s Objection To Motion Of Tessera, Inc. For Order Pursuant To Bankruptcy Rule 2004 Compelling Examination Of A Designee Of The Debtors Pursuant To Fed. R. Civ. P. 30(b)(6) And For The Production Of Documents, In re: Spansion, Inc., No. 09-10690 (KJC) (Bankr. D. Del.), filed Aug. 5, 2009, at 6-7 (arguing that the ITC investigation “and not this bankruptcy action” is the appropriate forum for discovery into Spansion’s ongoing patent infringement)). In any event, the information Tessera seeks through discovery on its bond forfeiture motion is directly related to this motion and not congruent in scope with any information Tessera may seek in connection with Spansion’s bankruptcy. The former relates to Spansion’s activities in violation of the Commission’s remedial orders that took place during the Presidential Review period; the latter relates to activities that may give rise to administrative claims related to post-petition patent infringement, which may still be ongoing today. Like Spansion, Qualcomm tries to hide information about its infringing activities by arguing Tessera must look under a different shell—in Qualcomm’s case, arbitration proceedings with Amkor. See Qualcomm Opp. 14-15. Like Spansion’s argument, this one fails because the information Tessera seeks to discover for purposes of its bond forfeiture motion is, again, not congruent with the information Tessera may seek in connection with its disputes with Amkor. As discussed above, Tessera seeks discovery to determine: (1) the amount of activities prohibited by the Commission’s Remedial Orders that Qualcomm conducted during the Presidential Review

- 19 -

period; and (2) whether the amounts of bonds posted accurately reflect those activities. The scope of the issues that may arise during the Amkor arbitration, and the discovery necessary to resolve those issues, will bear no relation to the narrow and discrete issues upon which Tessera seeks discovery and relief in this bond forfeiture motion. There is simply no reason to believe, much less a guarantee, that the Amkor arbitration will resolve the specific issues raised here.7 ST appears to argue that Tessera’s motion should be denied with respect to ST merely because, during the underlying investigation, Tessera noted that the products at issue in this Investigation are generally manufactured outside of the United States and imported in finished goods. See ST Opp. at 5. ST argues that there is “no evidence” that ST imports the semiconductor products at issue in this investigation. Id. Nonetheless, ST refuses to represent to this court that ST has not, in fact, imported any covered products into the United States during the Presidential Review period. Furthermore, as Tessera explained in its motion, ST’s participation in the Respondents’ motions asking the Federal Circuit to stay the Remedial Orders pending appeal means that ST, along with the other Respondents, represented to the Federal Circuit that it would suffer irreparable harm should the Remedial Orders not be stayed. See Tessera Opp. at 8-9. Such a representation suggests that ST engaged in covered activities during the Presidential Review period: otherwise, ST would not face irreparable harm immediately upon

7

Qualcomm’s arguments about patent exhaustion similarly have no relevance to the issues raised by Tessera’s bond forfeiture motion in this investigation, and furnish no basis to deny Tessera the proceedings necessary to determine the amounts forfeitable due to Qualcomm’s activities during the Presidential Review period. The Commission’s Remedial Orders operate against Qualcomm, not Amkor, and it is discovery into Qualcomm’s activities and Qualcomm’s liability, for amounts that were posted or should have been posted by Qualcomm, which Tessera seeks by its motion here.

- 20 -

the Presidential Review period’s expiration because there would be no change in its activities as the Remedial Orders went into effect. Accordingly, ST’s arguments do not furnish a basis to deny Tessera’s motion; instead, ST’s boast that it has not posted any bonds, coupled with its refusal to provide proof that it has not imported any products, merely furnishes further support for Tessera’s request for discovery. V.

CONCLUSION For the foregoing reasons, Tessera respectfully asks the ALJ to grant its motion for bond

forfeiture and immediately begin bond forfeiture proceedings. If the ALJ prefers to delay forfeiture pending appeal, however, Tessera asks that the ALJ at least permit the forfeiture discovery starting immediately, conduct an evidentiary hearing, and rule on the forfeiture motion immediately thereafter, and then delay only the actual requirement of forfeiture until the Federal Circuit appeal has concluded.

Dated: November 10, 2009

Respectfully submitted,

/s/ Amanda Tessar Wayne M. Barsky GIBSON, DUNN & CRUTCHER LLP 2029 Century Park East Los Angeles, California 90067 Telephone: (310) 552-8500 Facsimile: (310) 551-8741 Amanda Tessar David Glandorf GIBSON, DUNN & CRUTCHER LLP 1801 California Street Suite 4200 Denver, CO 80202-2642 Telephone: (303) 298-5742 Facsimile: (303) 313-2826

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Jonathan H. Steinberg Benjamin W. Hattenbach Kenneth J. Weatherwax Mark A. Kressel IRELL & MANELLA LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, CA 90067-4276 Telephone: (310) 277-1010 Facsimile: (310) 203-7199 Barbara A. Murphy F. David Foster MILLER & CHEVALIER CHARTERED 655 Fifteenth Street, N.W., Suite 900 Washington, DC 20005 Telephone: (202) 626-5800 Facsimile: (202) 626-5801 COUNSEL FOR COMPLAINANT TESSERA, INC.

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EXHIBIT 1

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re:.

Chapter 11

SPANSION INC., et al.,1

Case No.: 09-10690 (KJC) Jointly Administered Debtors. Hearing Date: August 11 at 3:30 p.m. Objection Deadline: August 4, 2009 at 4:00 p.m.2 Related to D.I. 908

DEBTORS' OBJECTION TO MOTION OF TESSERA, INC. FOR ORDER PURSUANT TO BANKRUPTCY RULE 2004 COMPELLING EXAMINATION OF A DESIGNEE OF THE DEBTORS PURSUANT TO FED. R. CIV. P. 30(B)(6) AND FOR THE PRODUCTION OF DOCUMENTS The above-captioned debtors and debtors in possession (the "Debtors"), by and through their undersigned counsel, hereby file this objection (the "Objection") to the Motion Of Tessera, Inc. For Order Pursuant To Bankruptcy Rule 2004 Compelling Examination Of A Designee Of The Debtors Pursuant To Fed. R. Civ. P. 30(b)(6) And For The Production Of Documents [Docket No. 908] (the "Rule 2004 Motion"). In support of this Objection, the Debtors submit the Declaration Of Raymond Fritz In Support Of Debtors' Objection To Motion Of Tessera, Inc. For Order Pursuant To Bankruptcy Rule 2004 Compelling Examination Of A Designee Of The Debtors Pursuant

1

2

The Debtors in these cases, along with the last four digits of each Debtor's federal tax identification number, are: Spansion Inc., a Delaware corporation (8239); Spansion Technology LLC, a Delaware limited liability company (3982); Spansion LLC, a Delaware limited liability company (0482); Cerium Laboratories LLC, a Delaware limited liability company (0482), and Spansion International, Inc., a Delaware corporation (7542). The mailing address for each Debtor is 915 DeGuigne Dr., Sunnyvale, CA 94085. Tessera, Inc. ("Tessera") granted the Debtors a one (I) day extension of time to respond to the Rule 2004 Motion. Accordingly, the objection deadline for the Debtors is August 5, 2009 at 12:00 p.m.

To Fed. R. Civ. P. 30(b)(6) And For The Production of Documents (the "Fritz Declaration"). 3 In further support of this Objection, the Debtors state as follows: PRELIMINARY STATEMENT The Court should deny the Rule 2004 Motion for at least three reasons. First, as Tessera concedes, it is seeking information from the Debtors regarding non-bankruptcy litigation (i.e., "ongoing infringement of Tessera's [patents} in violation of U.S. Patent Law and the ITC Orders"). Rule 204 Motion Tr 9-10. Second, Tessera and the Debtors have been negotiating a resolution of the pending Patent Litigations (defined below), and Tessera seeks information to gain an unfair advantage in those negotiations. Third, the extent of the requested discovery is unduly burdensome. While any one of these reasons alone is sufficient to support denial of the Rule 2004 Motion, collectively, they strongly weigh in favor of the Court's exercising its discretion to deny Tessera relief. BACKGROUND 1.

Spansion is a leading worldwide manufacturer of flash memory

technology. It is the largest company in the world dedicated exclusively to designing, developing, manufacturing, marketing and selling flash memory solutions. It is also one of the last major manufacturers of flash memory remaining in the United States. 2.

On January 31, 2006, Tessera filed an Amended Complaint in the United

States District Court for the Northern District of California ("District Court Action") against numerous defendants, including Spansion Inc., Spansion Technology, Inc. and Spansion LLC (together, "Spansion"), alleging infringement of the following five (5) patents: (i) U.S. Patent No. 5,679,977; (ii) U.S. Patent No. 5,852,326 (the "`326 patent");

A copy of the Fritz Declaration is being filed contemporaneously with the filing of this Objection.

(iii) U.S. Patent No. 6,433,419 (the '419 patent"); (iv) U.S. Patent No. 6,465,893; and (v) U.S. Patent No. 6,133,627. 4 Fritz Decl. ¶ 2. These are the same patents that Tessera defines in the Rule 2004 Motion as the "Patents-at-Issue." 3.

In April 2007, Tessera filed a complaint in the United States International

Trade Commission ("ITC) against numerous respondents including, Spansion, Inc. and Spansion LLC, alleging infringement of the 419 patent and the 326 patent, Investigation No. 337-TA-605 (the "ITC Action" and together with the District Court Action, the "Patent Litigations"). Fritz Decl. 4. 4.

Upon institution of the ITC Action, Tessera stipulated to a stay of the

District Court Action "until the determination of the ITC, including appeals, becomes final." Fritz Decl. ¶ 5. An appeal in the ITC Action is pending and the stay in the District Court Action remains in effect. 5.

On March 1, 2009, each of the Debtors, including Spansion Inc., Spansion

Technology, Inc. and Spansion. LLC, filed voluntary petitions for relief (collectively, the "Chapter 11 Cases") under Chapter 11 of title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Court"). The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 6.

On May 15, 2007, the ITC instituted an investigation pursuant to 19

U.S.C. § 1337, entitled In the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same, Inv. No. 337-TA-605 (the "ITC

4 Of these, all but Patent No. 6,133,627 were asserted against the Spansion defendants.

Investigation"), identifying Spansion Inc. and Spansion LLC, among others, as respondents. 7.

On July 14, 2008, the Administrative Law Judge presiding over the ITC

Action, Judge Essex, commenced an evidentiary hearing in the ITC Investigation, which concluded on July 18, 2008. On December 1, 2008, Judge Essex issued an Initial Determination (the "ITC Initial Determination"), ruling that Spansion Inc. and Spansion LLC, among others, did not infringe Tessera's patents and, therefore, were not in violation of section 337 of the Tariff Act of 1930. 8.

On December 15, 2008, Tessera filed with the ITC a petition to review the

ITC Initial Determination. On January 30, 2009, the ITC issued a notice to review in part Judge Essex's decision finding no violation of section 337. 9.

On May 20, 2009, the ITC issued (i) a Commission Opinion reversing

Judge Essex's Initial Determination (the "Commission Opinion"); (ii) a Limited Exclusive Order (the "Limited Exclusion Order"); and (iii). a Cease and Desist Order against, inter alia, Spansion Inc. and Spansion LLC (the "Cease and Desist Order" and together with the Limited Exclusion Order, the "ITC Order"). Fritz De,c1. 7. The ITC Order prohibits Spansion, Inc. and Spansion LLC from engaging in certain activities including the importation, sale, marketing, and advertising of semiconductor chips with minimized chip package size and products containing the same that infringe certain claims of the '326 patent and the '419 patent. True and correct copies of the Commission Opinion, Limited Exclusion Order and Cease and Desist Order are attached hereto as Exhibit A, Exhibit B and Exhibit C, respectively, and are incorporated herein by

reference.

10.

On July 20, 2009, Spansion, Inc. and Spansion LLC appealed the ITC's

determination to the United States Court of Appeals for the Federal Circuit, Appeal No. 2009 -1460, -1461, -1462, -1465. That appeal is currently pending. Fritz Dec1.1 8. 11.

As explained in further detail below, through its Rule 2004 Motion,

Tessera seeks authorization under Rule 2004 ("Rule 2004") of the Federal Rules of Bankruptcy Procedure to "discover" information that is directly related to the Patent Litigations. Specifically, the Rule 2004 Exam Topics (the "Exam Topics") and the Rule 2004 Document Requests (the "Document Requests") attached to the Rule 2004 Motion as Exhibits A and B respectively, seek information. relating to Tessera's claims in the Patent Litigations, which arise from the Debtors' alleged infringement of Tessera's patents. 12.

Prior to the Patent Litigations, and up to and after the ITC Order, Tessera

and the Debtors have engaged in negotiations to resolve the Patent Litigations. Fritz Decl. ¶ 10. In the Rule 2004 Motion, Tessera also seeks information that will give it an unfair advantage in these settlement negotiations. 13.

Indeed, during the course of these settlement negotiations, Tessera has

asked that Spansion provide some of the very same information as to sales that it now seeks to "discover" through the Rule 2004 Motion. Fritz Decl. ¶ 12. 14.

In addition, through the Rule 2004 Motion, Tessera requests information

regarding Spansion's communications with customers regarding the effects of the ITC Action. See Exam Topic 27, Document Request 12 Importantly, Tessera has sent letters to Spansion's sales agents and customers regarding the ITC decision, in what Spansion believes is an attempt to interfere with Spansion's business to force Spansion to settle

5

favorably to Tessera. Fritz Decl. III 14, 15. Tessera's Rule 2004 discovery requests are designed to enable Tessera to determine the effectiveness of its interference with Spansion's business. Fritz Decl. ¶ 15. 15.

Moreover, the discovery that Tessera seeks in the Rule 2004 Motion is

broad and extensive in scope. Contrary to Tessera's assertions, the requested discovery is not narrowly "tailored." Rule 2004 Motion 13. Indeed, Tessera seeks to depose Spansion and collect documents from Spansion on dozens of different topics covering a wide range of subjects that relate to the pending Patent Litigations, such as the technology of Spansion's products at issue in the Patent Litigations, the manufacture of Spansion's products, Spansion's marketing, advertisement and sale of products involved in the Patent Litigations, and Spansion's compliance with the ITC Order. Providing all of the requested information would require Spansion to expend significant time and resources without the benefit of the protections afforded by the ITC and the District Court's procedural rules. Therefore, the discovery is an undue burden on Spansion. OBJECTION TO TESSERA'S REQUESTED RELIEF 16.

For the reasons set forth herein, Spansion objects to the entry of an order

compelling the examination of a designee of the Debtors and the Debtors' production of documents as requested din the Rule 2004 Motion. BASIS FOR OBJECTION 17.

The Rule 2004 Motion should be denied. First, the discovery sought

through the Rule 2004 Motion is discovery related to the pending Patent Litigations. Those actions -- and not this bankruptcy action -- provide the proper procedures and opportunities for such discovery. Second, the discovery that Tessera seeks through the Rule 2004 Motion will provide Tessera with information that will give it an unfair

advantage in its negotiations with the Debtors to resolve the Patent Litigations. Third, the discovery sought through the Rule 2004 Motion is unduly burdensome given its broad scope. A.

Discovery Relating to Pending Patent Litigations should be Denied. 18.

Tessera seeks discovery through its Rule 2004 Motion on issues that will

lead to disclosure of evidence related to the Patent Litigations. Indeed, in its Motion, Tessera explains: Tessera has repeatedly sought information from Debtors regarding their apparent ongoing infringement of Tessera's products in violation of the U.S. Patent Law and the ITC Orders. Debtors have thus far refused to answer any of Tessera's questions informally. Accordingly, [the discovery sought] is necessary to fully determine the extent of Spansion's patent infringement of Tessera's patents, and the according amount that Debtor [sic] owes to Tessera relating to such infringement Rule 2004 Motion 19.

r 9, 10.

As a threshold matter, the Debtors deny that they have violated the ITC

Order. The Debtors are not liable to Tessera for any damages for alleged infringement of any patents. in fact, the relevant claims of the patents at issue have been finally declared unpatentable by a panel of three Examiners in the United States Patent and Trademark Office, subject to appeal. Fritz Decl. ¶ 9. 20.

Moreover, the proper forums for these determinations are the ITC and the

District Court, not this Court. As shown below, the ITC has specific provisions for enforcing its orders, including mechanisms for discovery as to whether an order has been violated. The District Court also has extensive discovery provisions under the Federal

7

Rules of Civil Procedure ("Federal Rules"). Those are the proper discovery vehicles for Tessera to obtain the requested discovery — not Rule 2004. 21.

As a matter of law, Rule 2004 discovery is not available — and cannot be

used to circumvent the applicable provisions of the Federal Rules — when discovery is available through related, pending litigation. See In re Bennett Funding Group, Inc., 203 B.R. 24, 28 (Bankr. N.D.N.Y. 1996); see also In re Washington Mutual, No. 08-12229 (MFW), 2009 WL 1851120 (Bonkr. D. Del. June 24, 2009). 22.

Admittedly, Rule 2004 is the "basic discovery device" available in a

bankruptcy case. See In re Bennett Funding Group, Inc., 203 B.R. at 28. However, its application is not without boundaries. Id. Rule 2004 discovery is particularly inappropriate when, as here, discovery is sought from "parties to" or those "affected by" the related litigation. Id at 29. Tessera and Spansion are such parties and are effected by the Patent Litigations. 23.

It is well recognized that once an adversary proceeding or contested matter

has been commenced, discovery is made pursuant to the Federal Rules, rather than by Rule 2004.5

See Washington Mutual, 2009 WL 1851120 at * 5; In re Bennett Funding

Group, Inc., 203 B.R. at 28. See also In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D.N.Y. 2002); In re 2435 Plainfield Ave., Inc., 223 B.R. 440, 455-56 (Bankr. D.N.J. 1998) (collecting cases); Intercontinental Enters., Inc. v. Keller (In re Blinder, Robinson 5

The limitations placed on Rule 2004 discovery are imposed, in part, because a party subject to a Rule 2004 examination—which is a "free and easy practice"—does not enjoy the same rights and privileges as a party subject to discovery under the Federal Rules. See, e.g., In re Enron Corp., 281 B.R. at 841 (citations omitted) (noting the restricted ability to object to relevance and the broad scope of inquiry under a Rule 2004 examination); In re Dinublio, 177 B.R. 932, 939-40 & n.12 (E.D. Cal. 1993) (explaining that, in certain circumstances, a Rule 2004 "witness has no right to be represented by counsel except at the [court's discretion] ; there is only a limited right to objectimarlpoequstin;hrogealitcrs-xmnew ; and no right to have issues defined beforehand.").

& Co., Inc.), 127 B.R. 267, 274 (D. Colo. 1991) (quoting In re Valley Forge Plaza Assoc., 109 B.R. 669, 674-75 (Bankr. E.D. Pa. 1990)). Rule 2004 discovery cannot be used in lieu of the "compulsory process procedures" of discovery available under the Federal Rules for use in related litigations. See In re Continental Airlines, Inc., 125 B.R. 415, 417 (Bankr. Del. 1991); see also In re Enron Corp., 281 B.R. at 844 (refusing effort to use Rule 2004 to overcome stay imposed by the Private Securities Litigation Reform Act). 6 24.

Indeed, courts have uniformly found that the use of Rule 2004 to seek

discovery is inappropriate and an "abuse" when—as here—the Rule 2004 discovery relates to and is available in the pending non-bankruptcy proceeding. Snyder v. Soc'y Bank 181 B.R. 40, 41 (S.D. Tex. 1994) (use of Rule 2004 is an "abuse" when a litigation was pending in state court); In re Petition of the Bd. of Dirs. of Hopewell Int'l Ins. Ltd., 258 B.R. 580, 587 (Bankr. S.D.N.Y. 2001) (denying Rule 2004 request because the discovery could be sought in "separate proceeding [that was] an arbitration pending in a foreign country"). 25.

Recently, Judge Walrath held that "[w}here a party requests a Rule 2004

examination and . . . litigation in another forum is pending between the parties, the relevant inquiry is whether the Rule 2004 examination will lead to discovery of evidence related to the pending proceeding or whether the requested examination seeks to discover evidence unrelated to the pending proceeding." Washington Mutual, 2009 WL, 1851120, at * 5. Thus, the question before the Court here is whether Tessera's Rule 2004 Exam

6

The fact that the District Court Action is stayed through Tessera's consent does not change the fact that discovery will be available to Tessera in the District Court at the appropriate time in and accordance with the protections of the Federal Rules of Civil Procedure.

Topics and Document Requests will lead to the discovery of evidence related to the Patent Litigations or whether they will lead to the discovery of evidence unrelated to the Patent Litigations. 26.

In Bennett, the court denied a Rule 2004 motion because the reqUested

examination would "involve issues and parties within the scope of a pending adversary proceeding." Bennett Funding Group, Inc., 203 B.R. at 30. The trustee alleged in an adversary proceeding that the defendants had diverted certain assets from the debtor for construction of a hotel and racetrack. Id. at 26. The Rule 2004 motion sought, among other things, information generally related to the same defendants' bank accounts, ownership of property, and transfers of funds from the debtor that were involved in the pending adversary litigation. Id. at 29. Despite the trustee's assertion that it sought examination only of matters necessary to fully ascertain the extent of the debtor's estate, the court denied the motion after noting the "likelihood" that the examination would "delv[e] into issues" covered by the adversary proceeding and held that it was likely that "information elicited will relate directly to issues and parties already named in the adversary proceeding." Id. at 29-30. 27.

Here, the Rule 2004 Exam Topics and Document Requests are designed to

elicit information that will relate specifically and directly to issues and parties already identified in the pending Patent Litigations. Therefore, the Rule 2004 Motion should be denied. 28.

Tessera's Exam Topics and Document Requests are focused on obtaining

technical information, marketing information, customer relations information and even litigation strategy related to Tessera's patent infringement claims in the pending Patent

10

Litigations. That discovery must be sought in the context of existing, non-bankruptcy litigation. 29.

The Exam Topics (Ex. A to Tessera's Motion) are clearly related to the

pending Patent Litigations. Some topics, such as Exam Topics 27-31, refer specifically to the pending Patent Litigations. For example, Exam Topic 3 relates to efforts to comply with the ITC Order; Exam Topic 29 relates to support for a declaration filed in the ITC Action; and Exam Topic 30 asks about "considerations of whether to post a bond in the ITC proceeding." 30.

Other topics do not mention the Patent Litigations by name, but do relate

specifically to the pending Patent Litigation. For example, some of the topics refer to "Accused Products," or "BGA" products or "LGA" products--which are defined as a mere subset of Accused Products. See Exam Topics Definitions and Instructions 3D. "Accused Products" are the products that are alleged to infringe Tessera's patents that are at issue in the pending Patent Litigations. Thus, these Exam Topics and Document Requests seek information related to the very same five (5) patents at issue in the pending District Court Action, two of which are also at issue in the pending ITC Action. 31.

In addition, Tessera seeks information related to Spansion's actions with

respect to an April 1, 1998 License Agreement between Advanced Micro Devices, Inc. and Tessera, see Exam Topic 2, which is also the subject of Tessera's claims against Spansion in the District Court Action. Fritz Dec1.116. 32.

Similarly, some of the Document Requests refer to the pending Patent

Litigations directly. See Document Requests (Exhibit B to Rule 2004 Motion). For example, Document Request 14 asks for documents concerning compliance with the

11

ITC's Order; Document Request 18 asks for documents regarding changes to advertising and marketing materials to comply with the ITC's Order; and Document Request 23 asks for all documents concerning the ITC investigation. 33.

Other Document Requests do not refer to the Patent Litigations by name,

but merely refer to "Covered Products," "Accused Products," 13GA" or "LGA," each of which relate to the pending Patent Litigations. For example, Document Request No. 3 seeks the production of "Documents sufficient to show the Geometric Dimensions and Material Properties of each of Your Covered Products or Accused Products." This Document Request seeks technical information concerning Spansion's products in order to determine whether certain products infringe so that Tessera can better pursue the pending Patent Litigations. 34.

A number of proper procedures exist to address Tessera's stated purpose

for its requested Rule 2004 Examination. The ITC has informal (19 C.F.R. 210.75(a)), formal (19 C.F.R. 210.75(b)), and District Court (19 C.F.R. 210.75(c)) procedures for discovery to address any alleged violation of an ITC exclusion order or an ITC cease and desist order. In the District Court Tessera may seek discovery in accordance with the Federal Rules. Those discovery methods should be used here, not Rule 2004. As stated by the court in Hapewells Int? Insurance, where there is "a separate proceeding pending, parties [seeking discovery] are remitted to the disclosure procedures that exist in those proceedings." 258 B.R. at 587. 35.

No doubt, in its reply, Tessera will be able to point to a sliver of

information here or there that it will argue does not relate directly to the Patent Litigations. However, the discovery should still be denied because, as found in Bennett

12

Funding, "it is difficult at this point, if not impossible, to determine whether and to what extent information gleaned from a Fed. R. Bankr. P. 2004 examination of [the examinee] will not be related to the parties and subject matter covered by the [other proceeding;] in fact, it appears highly unlikely that even a carefully crafted examination of [the examinee] could not avoid delving into issues regarding the other defendants and subject matter covered in the [other proceeding], and thus examination of the issues requested would not be 'in addition to or beyond the scope' of the [parties'] pending adversary proceeding." Bennett Funding, 203 B.R. at 29-30. 36.

In sum, Tessera seeks discovery that directly relates to the pending Patent

Litigations. Both the ITC and the District Court have discovery procedures that are available to Tessera. Rule 2004 should not be used to circumvent those discovery procedures. B.

Discovery to Aid Tessera in Negotiations with the Debtors Should be Denied. 37.

The Debtors have been in negotiations to resolve the pending Patent

Litigation with Tessera. There is significant information sought through the Rule 2004 request about the Debtors and their plans relating to the products at issue in the Patent Litigations that would give Tessera a significant unfair advantage in those negotiations. 38.

Since before the pending Patent Litigations began, the Debtors have been

discussing settlement of those litigations with Tessera. These negotiation are ongoing as recently as July 2009. As part of those negotiations, Tessera has asked for information from the Debtors relating to the Debtors' world-wide sales, and the Debtors have declined to supply that information. Fritz Dec1.1 12. Tessera seeks to obtain that

information through its Rule 2004 requests for the purposes of gaining an advantage in its negotiations with the Debtors. 39.

Another area of interest to Tessera in the negotiations is the effect of the

ITC's Order on the Debtors and their customers. Tessera has already sent letters to the Debtors' sales agents and customers about the ITC Order in what is believed to be an attempt to disrupt the Debtors' business and pressure the Debtors to settle. Fritz Dec1.11 14, 15. Tessera should not be able to use Rule 2004 to determine the extent to which Tessera has damaged the Debtors' business as part of an effort to negotiate a favorable resolution of the litigations. Obviously, the more Tessera can see into Debtors' plans, the better Tessera will be able to negotiate; who wouldn't want to see the other side's cards when playing poker? 40.

For example, Exam Topic 27 asks about how the Debtors are dealing with

"customers, prospective customers or vendors" in view of the ITC Order; Topic 31 relates to changes Debtors made or considered making to their website advertising or marketing materials in view of the ITC Order; Topic 20 asks for a deposition on "advertisement, marketing or solicitation of sales" after the ITC Order was issued; and Topic 31 relates to "considerations of whether to post a bond" in the ITC, a measure of how effective the ITC Order is in disrupting the Debtors' business. 41.

"Rule 2004 provides that the Court 'may' order disclosure thereunder,

giving the Court significant discretion" to grant or deny a request for a Rule 2004 examination. " Hopewell Int? Insurance Ltd., 258 B.R. at 587. Because Rule 2004 examination is broader in scope than discovery permitted under the Federal Rules, "the one seeking to conduct a 2004 examination has the burden of showing good cause for the

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examination in which it seeks." In re Eagle-Picher Industries, Inc. et al., 169 B.R. 130, 134 (Bankr. S.D. Ohio 1994). Tessera has failed to show "good cause" to conduct a 2004 examination of Spansion. 42.

Rule 2004 is not without its limits and may not be used to abuse or harass.

See Washington Mutual, Inc., 2009 WL 1851120, at *3 (there are "limits to the use of Rule 2004 examinations . . . it may not be used for 'purposes of abuse or harassment' and it 'cannot stray into matters which are not relevant to the basic inquiry') (citations omitted); see also Bennett Funding Group, 203 B.R. at 28 (the "application [of Rule 2004] is not without bounds"). 43.

"[C]ourts have also recognized that Rule 2004 examinations may be

inappropriate 'where the party requesting the Rule 2004 examination could benefit their pending litigation outside of the bankruptcy court against the proposed Rule 2004 examinee Washington Mutual, 2009 WL 1851120 at * 4 (citing In re Enron Corp., 281 B.R. at 842); see also Snyder, 181 B.R. at 42, aff'd sub nom., In re Snyder, 52 F.3d 1067 (5th Cir. 1995) (mem.) (characterizing the use of Rule 2004 to further a state court action as an "abuse" of Rule 2004.) 44.

This Court should not exercise its discretion under Rule 2004 to allow

Tessera to gain a competitive advantage over the Debtors. The "expansive nature of Rule 2004 should not be permitted to exact prejudice or injustice on the subpoenaed party." In re Summit Global Logistics, No. 08-11566 (DHS), 2008 WL 1446722, at *3 (Bankr. D. N.J. April 9, 2008) (one "consideration is the value of the information to the issuing party in comparison to the burden imposed on the subpoenaed party.").

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C.

The Requested Discovery is Unduly Burdensome and Should be Denied. 45.

As shown above, Rule 2004 cannot be used to harass or abuse. Yet, the 24

Document Requests and the 31 Exam Topics attached to Tessera's Motion are unduly burdensome, especially when taken in conjunction with the 35 "Definitions and Instructions" and the complicated 6 definitions in Appendix B to Tessera's requested 2004 Examination and Document Requests. 46.

Tessera's requested Rule 2004 examination is incredibly extensive in

scope and is in no way "tailored [to address] the specific nature of debts due from Debtor {sic]" as Tessera describes. See Rule 2004 Motion ¶ 13. Tessera seeks to depose Spansion designees on 31 different topics that cover varying subject matters such as the technology of Spansion's products at issue in the pending Patent Litigations, the manufacture of Spansion's products, as well as Spansion's marketing, advertisement, sale, and compliance with the ITC orders. 47.

In addition, Tessera requested 24 categories of documents based upon 30

separate Definitions and Instructions. These Document Requests cover communications regarding patents asserted by Tessera in the pending Patent Litigations, technical documents, sales, marketing, and advertising documents. 48.

Spansion will be unduly burdened if it is ordered to comply with Tessera's

requested Rule 2004 discovery. See Fritz Decl. 17. Tessera's requested Exam Topics and Document Requests seek information that is already the subject matter of two different actions initiated by Tessera outside of this bankruptcy case. Id. Significant time and money has already been expended by Spansion to comply with discovery requests seeking the same information in these other actions. Id.

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49.

Spansion would have to expend significant time and money to produce

multiple designees to be deposed on each of these various topics. Id. It would also be forced to conduct an extensive document review to collect documents from approximately 100 different employees in various departments related to the information that Tessera seeks. Id. 50.

The 31 different Exam Topics would require the deposition of numerous

Spansion employees, including technical, marketing, sales, manufacturing and research employees. It would require depositions of employees in Spansion's various facilities in the United States and of Spansion employees who work with various facilities around the world who do design work and manufacturing for Spansion. This is unduly burdensome. 51.

Tessera may argue that to the extent its requests are too broad, this Court

may impose reasonable limits. However, that would require this Court to understand the patents in issue in the pending Patent Litigations and to understand the claim construction ordered by the ITC (the ITC's explanation of what the patent claims mean). It would also require this Court to understand and interpret the scope of the ITC Orders. For these reasons, the ITC and the District Court are the more appropriate forums for this discovery. [Remainder of Page Intentionally Left Blank]

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CONCLUSION Based on the above reasons, the Debtors respectfully request that the Court deny in its entirety Tessera's Motion For Order Pursuant to Bankruptcy Rule 2004 Compelling Examination of a Designee of the Debtors.

Dated: August 5, 2009 Wilmington, Delaware

Respectfully Submitted, By: Michael R. Lastowski (No. 3892) Richard W. Riley (No. 4052) Sommer L. Ross (No. 4598) DUANE MORRIS, LIP 1100 North Market Street, Suite 1200 Wilmington, Delaware 19801 Telephone: (302) 657-4900 Facsimile. (302) 657-4901

ATTORNEYS FOR THE DEBTORS AND DEBTORS-IN-POSSESSION and Ethan Horwitz Jill Wasserman King & Spalding LLP 1185 Ave of the Americas New York, NY 10036

SPECIAL LITIGATION COUNSEL FOR THE DEBTORS AND DEBTORS-IN-POSSESSION

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