More Bulls Facing Tough Times

Posted on | July 22, 2008 | No Comments

2008-1462 to 1465 Taurus IP v. DaimlerChrysler
WD/WI 07-cv-158
Judge Barbara Crabb

Plaintiffs Taurus IP and Erich Spangenberg appeal from the judgment of Judge Barbara Crabb finding the 6,141,658 patent not infringed and certain claims invalid–a jury also found that plaintiffs breached a warranty from a prior settlement agreement.  Various other orders are involved, including one finding that Spangenberg engaged in witness tampering.

The case has been covered nicely by Joe Mullin at The Prior Art.

To paraphrase Judge Crabb, this should have been a simple case…but
the parties were "[n]ot content with simplicity."  A pair or 60+ page
opinions attest to its complexities, both real and manufactured.  I’ll do my best to condense these 140 pages down to a (relatively) quick read.

Background.  Taurus is one of many entities owned by Acclaim Financial Group, all of which are operated by Erich Spangenberg.  The Group also includes Plutus, Orion and, now, Clear with Computers, Inc. (see The Prior Art).  In 2004 Orion sued Chrysler (and others) alleging that their respective web sites for configuring vehicles and comparing them to dealer inventory infringed various patents.  Although Orion owned the ‘658 at that time, it did not assert it.  Rather, it shortly thereafter transfered the ‘658 to another Spangenberg controlled entity.

The parties ultimately settled that lawsuit, with defendants paying off Spangenberg with the idea that "We don’t ever hear from you again."  A lengthy, written agreement was duly drafted.

However, with "ever" not being as long as it once was, Spangenberg then reappeared with Taurus, suing defendants and accusing some of the same web sites and pages of infringing the ‘658.  Bitter litigation ensued.

Breach of Contract.  Defendants counterclaimed and third-partied Orion, alleging breach of the settlement agreement.  The court ultimately found that the license and release did not cover the ‘658–it was not listed as one of the released patents and, at the time of the settlement agreement, it was not owned by Orion.

However, the settlement contained the following warranty:

8.1 Representations and Warranties. (a) Orion represents and warrants as of the Effective Date that . . . (iii) it has not assigned or otherwise transferred to any other Person any rights to any causes of action, damages or other remedies, or any Orion Patents, claims, counterclaims or defenses, relating to the Litigation.

The judge allowed the breach of contract with respect to this provision to go to the jury.  The argument was that the ‘658 "related to the Litigation" and had been assigned despite the warranty to the contrary.  The jury ultimately agreed, and defendants have been awarded about several million in damages (see below).

Non-Infringement.  The court granted defendants summary judgment, finding no evidence that the accused web sites met all the claim limitations (independent claim 16 and dependent claims 19 , 22, 23 and 27).  In general terms, the claims require that the web-site user define certain "rules" governing the relationship between data–however, the court found that users of defendants’ sites specified rules, but did not define the rules:

Plaintiff appears to argue that by telling the system to search with the variables presented, the web surfer tells the system to apply a rule. This is not specifying a rule that governs the relationship between data items in the data model as required by the ‘658 patent. To specify a rule is not to tell the system that a rule should be applied to variables provided. Instead, it requires a user to tell the system how a rule should relate to the data models. This the web surfer does not do.

Invalidity.  Slightly more than a year before the ‘658 patent application was filed, another application was filed, eventually issuing as 5,825,651 to Trilogy.  On summary judgment the court determined that Taurus failed to provide sufficient evidence for a jury to give the ‘658 an invention date earlier that the ‘651 filing date–thus, the court concluded that the ‘651 is prior art.  The court then found that the ‘651 anticipated claims 16 and 27.

The above summaries are mostly from the pre-trial summary judgment opinion.  The court also issued a lengthy post-trial order dealing with the following issues.

Permanent Injunction.  The court denied defendants motion for a permanent injunction to bar Orion, Taurus, Spangenberg and related persons from suing defendants again on the ‘658 or on 7 other patents Orion once held but transferred prior to the settlement.  The court essentially found the requested injunction too broad and unsupported by the trial and verdict (involving only the ‘658).

Spangenberg’s Alter Ego Liability.  The court navigates the celestial hierarchy of Acclaim and concludes that Spangenberg should not be liable for the judgment against Orion–yet:

There is no evidence that Spangenberg has ever before directed any of his entities to avoid paying debts or satisfying judgments. Even though Spangenberg directed Orion to circumvent what the jury has determined were its contractual duties related to the ‘658 patent, it is at least arguable that those duties were not clearly established: there was no explicit license of the ‘658 patent. It is one thing to conclude that Spangenberg has used his corporate entities to press the legal limits of his obligations; it is another to conclude that he would be willing to dry up Orion’s funds in the face of a judgment against it. Therefore, although Spangenberg’s use of his corporate entities is certainly cause for concern, personal liability is not yet warranted. Instead, to insure that defendants receive their judgment against Orion, Spangenberg and Orion will be enjoined from dissipating Orion’s assets. Unexplained transfers of Orion’s assets that result in Orion’s insolvency will not be tolerated.

Damages and Attorney’s Fees.  The court awarded defendants $3.8 million against Orion–$2.5 million as damages for defendants’ defense of the Taurus infringement case, and $1.3 million to prosecute the breach of contract (warranty) claim.

§ 285 Against Taurus.  The court held the case exceptional, finding that Taurus did not conduct a sufficient pre-suit investigation and carried out its "long-shot infringement suit . . . vexatiously."  Also:

It was a gross injustice for defendants to have to expend resources on this suit at all.  Taurus’s use of the court to bully settlement on baseless claims is an abuse of the judicial system.

The court awarded $1.6 million.

Witness Tampering by Spangenberg. The court also sanctioned Spangenberg for inducing one of his attorneys, Patrick Anderson, to intimidate a witness on the eve of trial.

Anderson was formerly an attorney at Chrysler during the original Orion lawsuit.  He departed Chrysler and ultimately was hired by Spangenberg–making "significantly more than at Dickenson Wright," uprooting his family to Texas to open a solo "firm" despite not be licensed to practice law in Texas.  [PATracer:  Can you do this in Texas?  If so, tell Michael Smith "we're on the way!"]  Spangenberg knew Anderson had worked at Chrysler during the first suit.

During the instant action, Spangenberg called Anderson one evening to say that he suspected one of Chrysler’s witnesses, Sean Butler, was going to commit perjury:

Spangenberg reminded Anderson that Butler and Anderson had worked together at Chrysler and had “in all likelihood” been friends. In addition, Spangenberg warned Anderson that he may want to consider whether it could “cause some kind of problems” for Anderson to not take steps to “deal with” the perjury, considering that Anderson had formerly worked with Butler.

Anderson duly (and apparently all night) delved into the issue, ultimately calling,  emailing, and then threatening to report Butler to the disciplinary authorities if he testified inconsistent with Anderson’s version of the facts from their days at Chrysler.  Anderson then filed a declaration (at 1:30 a.m.) with the court, apparently attempting to counter Butler’s future testimony.

The court found the events sanctionable.

Turning to this case, the evidence that Spangenberg engaged in sanctionable behavior is clear and convincing. The timing and nature of Anderson’s call and letter to Butler leave no doubt that Anderson’s call and letter were intended to intimidate Butler. In light of Spangenberg’s relationship with Anderson, his call to Anderson suggesting that Anderson act to prevent “perjury” was wholly inappropriate and warrants sanctions.

First, Anderson’s communication with Butler was designed to intimidate Butler and influence his testimony. Anderson provided a list of detailed facts to Butler and threatened to report him to the local bar if he did not testify accordingly. At no time did Anderson ever attempt to reconcile his recollection of the two-year-old facts with Butler’s or explain to Butler why he remembered the facts as he did. Moreover, Anderson lied about how he found out about the summary judgment and refused to tell Butler who he was working for. The letter included an explicit threat to report Butler to the state bar and gave a deadline for Butler to promise to testify accordingly, with no other options listed. No reasonable lawyer would ignore a threat to be reported to the state bar. Although I have my doubts about Anderson’s version of the “certain facts” he lists in his letter, I need not consider whether Anderson was correct about his memory of what had happened at Chrysler. His call was improper and made for the purpose of intimidation.

Next, Spangenberg’s relationship with Anderson and his involvement in Anderson’s witness tampering show that Spangenberg intended Anderson to improperly influence Butler’s testimony and that he put Anderson up to unethical behavior for Spangenberg’s (and Orion’s) benefit. Spangenberg knew Anderson had worked with Chrysler before, but called him nonetheless to “warn” him that Butler might “perjure” himself and to suggest that  Anderson might have an ethical duty to prevent Butler from testifying that way.

Two key problems are apparent in Spangenberg’s call. First, having worked for Chrysler previously, Anderson should have been behind a Chinese wall; under no circumstances should Spangenberg or Newton have informed Anderson about the case in light of his conflict. Second, Spangenberg’s suggestion that Anderson might have an ethical duty to act to stop Butler’s perjury was manipulative and improper. This call was nothing more than a veiled order from a powerful employer. Anderson was newly out of school and financially dependent on Spangenberg at the time. He responded to Spangenberg’s suggestion to act in a way that went well beyond even any imagined ethical duties to act, but was in accordance with Spangenberg’s immediate interests. After talking with Spangenberg and Newton, Anderson immediately directed all of his energies to taking the “steps" necessary to stop the “perjury.” Anderson worked that night researching ethics, preparing the letter and finding and contacting Butler and worked that weekend to prepare a declaration in time for Spangenberg to use it in his offer of proof. Oddly, Anderson did not even wait until the deadline for Butler to reconcile his story before submitting his declaration to this court implying that Butler’s testimony was false.

Spangenberg’s involvement in this drama suggests other problems. Why did Spangenberg wait so long to hire Anderson, and hire him when he did? Why would Spangenberg even have a real concern that Butler was about to commit perjury, unless Anderson had already violated the ethical rules governing confidentiality?

The sanction was to preclude Orion from presenting at trial the defense that Chrysler did not rely on the warranty because it knew of the ‘658 patent.

PATracer: I know the witness tampering section is long, but this sort of conduct from lawyers is fascinating.  Terrible, yes, but fascinating.  Did Spangenberg and Anderson really think this was OK or did they think they wouldn’t get caught?  Also, if this was the only sanction imposed (and I don’t know if it was), then the problem is that there is no real punishment or deterrence for this type of behavior.

More reading:

Summary Judgment

Post Trial Order

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