Preliminary Injunction Vs. Diablo and Its Controller Chips …

Netlist, Inc. announced that judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted Netlist’s Motion for Preliminary Injunction against Diablo Technologies, Inc., for controller chips used by SanDisk in its high-speed ULLtraDIMM SSD product line.

Under the court’s order, Diablo and SanDisk Corp. are prohibited from manufacturing and selling the controller chipset used by SanDisk in the ULLtraDIMM and as a result, from further sale or distribution of the ULLtraDIMM itself.

Judge Gonzalez Rogers found that “the evidence indicates that Netlist is likely to prevail by showing that the Netlist technology .. was used by Diablo to develop its controller chips. By misusing the technology that Diablo had been given in confidence under the Supply Agreement [with Netlist], Diablo gained an advantage it would not have otherwise had.”

In the court’s order, Gonzalez Rogers rejected Diablo’s arguments that it somehow had rights to use Netlist’s chipset and technology under the agreements.

The judge also rejected SanDisk’s motion for reconsideration, asking that it be allowed to sell existing inventory of the enjoined products. The court found that the injunction properly barred SanDisk from selling these products after a careful review of the long contractual partnership between Diablo and SanDisk with respect to the ULLtraDIMM module, finding that SanDisk and Smart Storage “are persons who are in active concert with Diablo.”

The court advanced the trial date by four months, to March 9, 2015, for Netlist’s claims upon which the motion was decided, including claims against Diablo for trade secret misappropriation, breach of contract, and other causes of action related to the components supplied by Diablo for the ULLtraDIMM.

The court’s order specifically identifies the ULLtraDIMM as well as the eXFlash modules from IBM, although the injunction affects all modules containing Diablo components. Other OEMs, including Huawei, Lenovo and Supermicro, have announced plans to offer ULLtraDIMMs in certain of their server platforms.

Netlist created and patented memory interface technology which increases the speed of servers. It contracted with Diablo to implement a proprietary memory-controller chipset based on this technology, only to find that Diablo stole its trade secrets and incorporated them into Diablo’s own products.

“We are very pleased with the court’s decision“, said C.K. Hong, Netlist’s CEO. “This extraordinary legal ruling confirms what we’ve said from the beginning about Diablo’s flagrant actions. We believe the ruling serves as a major step towards establishing the rightful ownership of the intellectual property contained in the ULLtraDIMM, and clears the path for Netlist products based on our proprietary memory interface technology. We look forward to the opportunity to present all of the evidence to a jury, particularly given the court’s assessment of our likelihood of prevailing.”

A preliminary injunction requires proof of likelihood of success on the merits of the claims, and that irreparable injury will result if the motion is not granted. The court found that the trade secret and breach of contract claims substantially overlap, and that Netlist’s “conclusive showing on the contract claim means that the court need not reach the question of likelihood of success on the trade secret claims” in order to grant the preliminary injunction.

The court observed that “the showing of a head-start advantage to Diablo, based upon an improper use of Netlist’s technology, is sufficient to establish” irreparable harm.

The court also considered how Diablo’s unlawful conduct has harmed Netlist’s efforts to develop and sell its own NVvault and HyperVault products. A permanent injunction may be issued after trial for the entire wrongful head-start period.

The decision follows another legal victory by Netlist in the dispute. Last month, the United States Patent and Trademark Office (USPTO) denied petitions filed by SanDisk requesting Inter Partes Review (IPR) of Netlist patents asserted against the ULLtraDIMM in a separate patent infringement suit brought by Netlist against SanDisk and Diablo, before the same court. SanDisk and Diablo are now barred from filing additional IPRs on the four Netlist patents with claims that the PTAB refused to review.