Defendants appeal from the orders of Judge Patel finding their patent, 6,831,287 unenforceable due to inequitable conduct before the PTO and then sanctioning them under § 285 and inherent powers.  The ’287 patent relates to a dual sensor design for vapor deposition processing of silicon wafers.

Applied develops machines and systems for manufacturing semiconductor wafers and, in 2001, worked with Multimetrixs on an improved sensor and position system for the shutter disks used in its physical vapor deposition process.

Three engineers from Multimetrixs ultimately filed the patent application that became the ’287 patent.  Applied recently filed suit to correct inventorship under 35 U.S.C. § 256, and Multimetrixs counterclaimed for infringement.

During the bench trial on inventorship, Applied elicited testimony from one of the Multimetrixs’ inventors that a signature of the third named inventor had twice been forged in documents submitted to the PTO.  Indeed, this third inventor had died in 2002, yet “signed” submissions to the PTO in 2003 and 2004.

Based on this testimony the court sua sponte raised the issue of inequitable conduct.  After briefing and additional argument, the court found the patent unenforceable.  In its order, the court first found that an inventor’s signature is material, rejecting defendants’ argument that the forgery of a deceased co-inventor is immaterial because they could have proceeded anyway (see, e.g., MPEP Appendix R, § 1.42 ):

Likewise, in this case, the issue is not whether the surviving inventors could have successfully prosecuted the patent without resort to forging the deceased inventor’s signature. The availability of valid alternatives is not the issue. The issue is whether what the surviving inventors in fact chose to do was inequitable conduct. David Margulis died in 2002 and his signatures on both the 2003 and 2004 documents were forgeries. The court concludes that there is clear and convincing evidence of the submission of materially false information that a reasonable examiner would substantially likely consider relevant and important.

Inequitable Conduct Order, p. 9.

The court also found clear and convincing evidence of deceptive intent, based mostly on the remaining inventors’ testimony and litigation tactics.  The each tried to testify that the third inventor died in 2004 and, according to court, repeatedly tried to hide the forgeries.  Once confronted with the truth, they offered no explanation for the forgeries:

Other than ex post rationalization based on that fact that the surviving inventors could have pursued other valid alternatives, the defendant has offered no explanation for why David Margulis’ signature appeared on documents submitted to the PTO in 2003 and again in 2004, when in fact he died in 2002. Even after the forgeries were revealed at trial, Multimetrixs and its witnesses offered no explanation or excuse for their conduct. Nor has Multimetrixs explained how its witnesses provided the same parallel but false testimony about the (incorrect) date of Margulis’ death. Based on the evidence presented at trial, the court finds clear and convincing evidence that the surviving inventors intentionally submitted documents to the PTO knowing that David Margulis was dead and knowing that his signature was forged. The court concludes that the forged documents were submitted with intent to deceive the PTO.

Inequitable Conduct Order, p. 12-13.

After finding the patent unenforceable and some more maneuvering (including Multimetrixs filing for bankruptcy), the court also found the case exceptional and award fees and costs against Multimetrixs.

Sanctions: Up to this point, the co-inventors were not named defendants to the case, but Applied sought and obtained leave under Fed. R. Civ. P. 15 to amend its complaint and add them.  It then asked for an exceptional case finding and award of fees against the individuals, which the court granted to the tune of about $1.4 million.

Most of the individual defendants’ arguments at this point are based on being sanctioned for litigation conduct that occurred when they were not actually parties to the case.  The court was unpersuaded, finding that they were afforded notice and opportunity to defend against the § 285 claim.  Also, the court found that these individuals controlled Multimetrixs and were therefor responsible for its litigation conduct.

PATracer Note: Multimetrixs’ counsel sought to withdraw (an a sealed motion) after the bench trial, which the court ultimately allowed:

Pursuant to California Rule of Professional Conduct 3-700(C)(1)(c) and (d), an attorney may request permission to withdraw if the client insists that the attorney pursue a course of conduct that is illegal or that is prohibited under the rules of professional conduct, or if the client by his conduct renders it unreasonably difficult for the member to carry out the employment effectively.

California law imposes a duty of candor on all attorneys. Bus. & Prof. Code § 6068; Rule of Professional Conduct 5-200(B). “Counsel should not forget that they are officers of the court, and while it is their duty to protect and defend the interests of their clients, the obligation is equally imperative to aid the court in avoiding error and in determining the cause in accordance with justice and the established rules of practice.” Datig v. Dove Books, Inc., 73 Cal. App .4th 964, 980 (1999). Given the conduct of defendants during the course of trial, the court recognizes the existence of conflicts which may make it impossible or unreasonably difficult for defense counsel to continue representation. Accordingly, the request of defense counsel to withdraw is GRANTED.

Inequitable Conduct Order, p. 14.

2010-1149 Inequitable Conduct Order

2010-1149 Exception Order

2010-1117 iLOR v Google

iLOR appeals from the finding of Judge Joseph Hood that its suit against Google was baseless and "exceptional" under 35 U.S.C. § 285 and that it should pay over $650,000 for Google's legal fees, costs and expenses.

iLOR sued Google claiming that the Google Notebook infringed 7,206,839, directed generally to  ’839 patent, which is directed to a “method for adding a user selectable function to a hyperlink.”  This user selectable function is commonly a toolbar that is associated with the hyperlink. 

iLOR sought a preliminary injunction, which the court denied because, as construed, it was undisputed that the Google Notebook did not infringe the '839 patent.  The Federal Circuit affirmed the claim construction and denial of the preliminary injunction, and the trial court further granted Google summary judgment of non-infringement.  The Federal Circuit decision is here. 

The main issue centered around whether the claim covered a toolbar that appeared only if the user "right clicked."  The courts all found that iLOR had clearly distinguished "right clicks" during prosecution–and it was undisputed that the Google Notebook displayed the hyperlink toolbar only following a right-click.

On the motion to delcare the case exception and for fees, Judge Hood found that iLOR knew or should have known that its suit against Google was baseless from the start.  There was evidence that iLOR knew before filing the lawsuit that the Google Notebook required a "right-click," and also that it knew that the patent claims did not cover a right-click.  The court wrote:

All of this is to say that, prior to instituting the present lawsuit, iLOR took the position in both its patent prosecution and its portrayal of its product to the public that it had created something unique and that the uniqueness depended upon a link enhancement toolbar that displayed automatically instead of in response to a user’s right click, as one would find in Google Notebook. It follows that iLOR was aware or should have been aware of the fatal flaws in its theory of the case in this instance, even if it failed to recognize them for what they were.

The Court concludes that this case was brought in objective bad faith and was frivolous based on iLOR’s awareness of or, at best, willful blindness to, these flaws.

Order, p. 9.

The court, after reviewing the actual hours spent and the rates charged by Google's main and local counsel, followed a lodestar approach and awarded fees for over 1500 hours and at an average hourly rate of approximately $400.  In doing so the court recognizes that patent litigators are specialists, practicing "nationally," and therefore higher rates are jusitifed:

The attorneys were clearly specialists in the field of intellectual property – which is, by its very nature, national and not necessarily regional in scope – and, specifically, infringement suits, the art of litigating such a suit, and the background issues of patent prosecution…it makes sense to proceed with such counsel, even at a higher rate than one might pay for local counsel, in a suit such as this.

Order, p. 13.

Note: Google apparently sought fees only against iLOR and not against iLOR's counsel.  Also, the court noted that Google's belated attempt to seek fees against iLOR under 28 U.S.C. § 1927 (vexatious litigation) was inapplicable because § 1927 relief is available only against attorneys and not parties.  Order, fn 1, pp. 3-4.2010-1117 Order Re Exceptional

2009-1015 Broadcom v. Qualcomm

Qualcomm appeals from the Order of Judge James Selna finding it in contempt of Court for failing to make certain Sunset Royalty Payments to Broadcom under the terms of the Permanent Injunction.  The royalties related to the Q-Chat technology and Broadcom's 6,389,010 patent.

In September, the Federal Circuit upheld the findings of infringement on the '010 and another Broadcom patent, but reversed the infringement verdict on the 5,657,317 patent and found it invalid.  The oral argument was covered by us here.

The court required Broadcom to prove contempt by clear and convincing evidence.  The court noted that a party should not be held in contempt if it took reasonable steps to comply or achieved substantial compliance.

However, the court found that Qualcomm was in contempt of the '010 Sunset Royalty–having paid nothing on the Q-Chat version 3.0 despite having received more than $93 million in payments from Sprint since the verdict.  The court readily rejected Qualcomm's arguments:

and

The court did find that Qualcomm was not in contempt with respect to Q-Chat versions 3.1 and 3.2, finding that Qualcomm was entitled to attempt design arounds and that Qualcomm did not have the burden to prove non-infringement of those versions.

For sanctions, however, the court awarded Broadcom its reasonable attorney's fees and expenses plus gross profits on the revenues from the infringing Q-Chat.

More reading:

2009-1005 US Philips v. Int'l Norcent

Defendant Jennifer Long appeals from the order of Judge Manuel Real sanctioning her for refusing to comply with subpoena, court orders, and making false statements under oath.  This case is related to 2008-1385 (covered by us here) in which she appealed the jury's verdict finding her joint and severally liable for over $12 million (plus trebling, attorney fees, and interest).  The current sanctions relate to a debtor's exam and discovery efforts by US Philips towards collecting on the judgment.

After having been found personally liable, Long decided to stonewall discovery into her finances, refusing to produce documents responsive to a subpoena and, according to the court, trying to hide assets.  Long's family apparently owns numerous companies, including several in China, and made various transfers and sales of assets to thwart collection—despite a court asset freeze order.  The court found these efforts included:

• Ms. Long, her brother, Kevin Long, and her mother, Shu Zhi Ju, co-own or co-control many companies including without limitation Shanghai Hongsheng Technology Co., Ltd. (“Hongsheng”), Hongpu Industry, Shanghai Lijie Investment Co. Ltd. (“Shanghai Lijie”), NHI, INT and IRC. (D.I. 610, p. 6, ¶ 40)

• Ms. Long directed a $13.7 million transfer to her family-owned Chinese company to avoid the Judgment. (D.I. 610, p. 5, ¶¶ 32-35)

• Ms. Long and her family manipulated assets through companies they own or control, including a $255 million transfer. (D.I. 610, p.6, ¶¶ 41-42)

• Ms. Long demonstrated she will conceal her assets and has the ability to move her assets through her businesses out of Philips’ reach. (D.I. 610, p. 7, ¶ 48)

• Ms. Long has a track record of failure to fully disclose her assets, failure to pay the Judgment, and liquidate and conceal assets despite bankruptcy asset freeze. (D.I. 610, p. 11, ¶ 71)

• Ms. Long’s reported annual salary is insufficient to support her lavish lifestyle. She must have other sources of income, which other sources she failed to disclose and continues to withhold from Philips. (D.I. 610 p. 4, ¶¶ 23-26)

• Ms. Long sold a Maserati in direct violation of a bankruptcy asset freeze order, and that is a fraudulent transfer in contempt of the Judgment. (D.I. 610, p. 2 ¶ 6)

The court was not pleased and ordered a bevy of sanctions including:

• requiring production of her financial records to the Court;

• $1,000/day sanction if the records are not produced;

• possible incarceration if each daily sanction is not paid within 1 day of it becoming due; and

• turning her passport in to the Court and instructing the State Department to deny her any new, replacement, or duplicate passport.

More reading:

Counsel:

US Philips: Keats McFarland & Wilson (Beverly Hills); Finnigan Henderson Farabow Garrett & Dunner (DC).
Long: Seyforth Shaw (Los Angeles)

2008-1462 to 1465 Taurus IP v. DaimlerChrysler

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

2007-1545, 2008-1162 Qualcomm v. Broadcom

This is the appeal from case relating to the H.264 video compression standard resulting from the Joint Video Team, aka the case in which Qualcomm and its counsel were sanctioned.  We previously posted the Summary of the Arguments here, but now can provide copies of Qualcomm’s opening and reply briefs, and Broadcom’s response.

Oral argument has now been scheduled for Tuesday, 05 August 2008 at 10:00 A.M., Courtroom 402.

For those following all versions of the Qualcomm/Broadcom fight, a reminder that oral argument in the case where Qualcomm’s (3G) WCDMA and EV-DO cellular
chips and its QChat software were found to infringe and were permanently enjoined  (see our In Brief post) is next Wednesday, 09 July 2008, 10:00 A.M., Courtroom 203.

2008-1401 Depuy Spinal v. Medtronic Sofamor

Medtronic appeals Judge Edward Harrington’s order awarding Depuy attorney’s fees under § 285 and sanctioning Medtronic $10 million under the court’s inherent powers.

This case is related to appeal numbers 2008-1240 and 2008-1253 which cover the merits of the case.  The fee order was entered on 25 February 2008 and Medtronic filed the notice of appeal on 24 March–it is not clear from the record why it is only now being received and docketed.

The court’s awards are based on Medtronic’s abuse of advocacy during trial–repeatedly arguing and urging the jury to apply a claim construction that was inconsistent with that already decided by the Federal Circuit:

the Court does have concerns about the manner in which the defendants litigated their defense to infringement under the doctrine of equivalents. Throughout trial, the defendants demonstrated a failure to accept the claim construction governing this case. In fact, with the exception of their ensnarement argument, their defense to infringement appears to have been wholly based on an attempt to obscure, evade, or minimize the Federal Circuit’s construction of the patent-in-suit (the ‘678 patent). Even as early as the defendants’ opening statements, they essentially urged the jury to adopt an interpretation of the patent claims developed by their experts instead of the construction mandated by the Federal Circuit. This strategy continued with the testimony of defense witnesses Dr. Foley and Prof. Oxland, both of whom suggested that the ‘678 patent requires mating surfaces between the screw head and the receiver member, which, they argued, renders it substantially different from the accused products (which have non-mating surfaces that lock the screw by means of an interference fit).

Contrary to the defendants’ repeated suggestions at trial, however, the ‘678 patent does not require mating or matching surfaces. The Federal Circuit held that the ‘678 patent encompasses both surface contact between the screw head and the receiver member (in essence, mating surfaces), as well as mere edge contact between the two (which would be consistent with an interference fit). DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 469 F.3d 1005, 1014-15 (Fed. Cir. 2006), cert. denied 128 S. Ct. 58 (2007).

In response, Medtronic argued that such advocacy was "authorized" by the Federal Circuit when it remanded for a trial under the doctrine of equivalents.  The court rejected this position:

The defendants appear to be contending that if the edge contact between the screw head and the receiver member in the Vertex screws could suffice to meet the “pressed against the hollow spherically-shaped portion” limitation of the ‘678 patent, the Federal Circuit would not have remanded the case and would have resolved the issue of infringement against them as a matter of law. Indeed, the defendants almost appear to be blaming the Federal Circuit for their decision to present their ill-advised “matching surfaces” argument to the jury. The defendants’ contentions are unavailing. The Federal Circuit could not have been expected to canvass and assess all of the evidence that the defendants might adduce in their defense to infringement under the doctrine of equivalents. The Federal Circuit’s decision certainly entitled the defendants to present a defense to infringement and challenge the plaintiffs’ case, but this entitlement to put on a defense should not be interpreted as a green-light to dispense with the controlling claim construction. The only legitimate options available to the defendants were to proceed with a theory of the case that was consistent with the Federal Circuit’s claim construction or abandon a doctrine of equivalents defense and focus on ensnarement and damages. Instead, the defendants elected to proceed with a defense that threatened to mislead and confuse the jury.

The court concluded by citing another recent case in which Medtronic and its lawyers were sanctioned for similar conduct:

As Judge Richard Matsch of the District of Colorado has recently observed, “Patent law is complex and not intuitive to the average juror. Parties and counsel have an obligation to refrain from seeking to take advantage of those complexities by employing misleading strategies.” Medtronic Navigation, Inc. v. Brainlab Medizinische ComputerSystems GMBH, 98-cv-01072-RPM, 2008 WL 410413 at *9 (D. Colo. Feb. 12, 2008) (Order for Award of Attorney Fees and Costs). The defendants here clearly sought to take advantage of the technical and legal complexities inherent in this case.

The court then awarded Depuy 15% of its attorney’s fees from the date of the Federal Circuit’s mandate through the date of the verdict.  [PATracer: there is nothing in the record yet to suggest how much this is.] 

The court also used its inherent powers to sanction Medtronic:

The defendants prolonged the proceedings unnecessarily (thus unduly imposing upon the jury’s time), they sought to mislead both the jury and the Court, and they flouted the governing claim construction as set forth by the Federal Circuit. Under these circumstances, the Court concludes that it is proper to impose a penalty of ten million dollars.

More reading:

Order on Sanction and Fees

Counsel:

Depuy: Jones Day (Calvin P. Griffith, Isaac A. Molnar, Patrick J. Norton, Robert L. Canala, Robert C. Kahrl, Thomas R. Goots)
Medtronic: Robins, Kaplan, Miller & Ciresi (David E. Marder, Dirk D. Thomas, Jason R. Buratti, Lisa A. Furnald); Dewey LeBoeuf (Robert A. Auchter, Andre J. Bahou); Wilmer Hale (Lauren B. Fletcher, Mark C. Fleming, Timothy R. Shannon)

Disclaimer: Josh and I and our current firm, Renner Otto, and my prior firm, Baker & Hostetler, represent BrainLAB in the other Medtronic case cited above by Judge Harrington.

Counsel for Orenshteyn have appealed Judge Adalberto Jordan’s Order granting Citrix’s motion for attorney fees. 

Yes, you read that correctly–counsel.  In yet another joint and several attorneys fees sanction, Judge Jordan held that  Mr. Orenshteyn and his counsel are on the hook for over $750,000.  Considering that Mr. Orenshteyn filed for bankruptcy protection in 2005, counsel, quite literally, have a lot riding on this appeal. 

The lawsuit, filed in 2002, centers on technology near and dear to many of our readers–remote access computing.  Orenshteyn claimed that Citrix’s remote access systems infringed his 5,889,942 and 6,393,569 patents, but Judge Jordan held otherwise.  While many of the details surrounding the sanctions were apparently the subject of a 2005 hearing, Judge Jordan’s summary judgment opinion reveals a good deal about what likely sparked the fee award. 

In 2003, Judge Jordan granted Citrix’s motion for summary judgment
and laid the foundation for his sanctions. Citrix’s summary judgment
motion hinged on the construction of the term "controller." With the
support of an expert opinion, Citrix argued that the claimed
"controller" was not the general purpose CPU required by each of its
accused devices.  Citrix’s expert opined that the claimed "controller"
was a "replacement" for a general purpose CPU. 

Judge Jordan agreed, holding that "controller" means "something
other than a general purpose CPU."  In addition to citing the expert
reports, however, Judge Jordan’s opinion references several portions of
the specification that distinguish the claimed "controller" from a CPU,
including: 

[E]xpensive general purpose processing
CPUs are preferably replaced with inexpensive but powerful controllers,
such as DSP chips. 

***

General purpose computing on the desktop, i.e., desktops having a standard OS (such as Windows 95®
) and a microprocessor (such as

the Pentium® chip), has to be replaced by as system which is
less expensive to own and maintain but at the same time does not
short-change the user by taking away features we all have come to
expect from our PCs.

***

Instead of a conventional general purpose CPU, inexpensive but
powerful controller circuits will be utilized for controlling storage
devices and other I/O hardware.

As all of Citrix’s
accused systems require a general purpose CPU, Judge Jordan held that
they could not infringe the Orenshteyn patents.  While the Court’s
noninfringement analysis is straightforward, peppered throughout the
opinion are the clues to the Court’s sanction award. And in this case,
it’s not what Mr. Orenshteyn and his counsel did, it’s what they didn’t
do.

Judge Jordan took care (and several pages) to detail Orenshteyn’s discovery strategy, including his choice not
to depose Citrix’s expert and his refusal to disclose the claims he
intended to assert, his claim construction, or his infringement
theory.  While Orenshteyn finally disclosed the latter items under
Court Order, Judge Jordan noted that he failed to offer any basis for
his claim construction or any citations supporting his claim chart. 

And then there’s Mr. Orenshteyn’s deposition.  Despite representing
in his initial disclosures that he was the only person known to have
discoverable information supporting his claims, Mr. Orenshteyn
testified that:

• he did not know anything about Citrix’s products–in fact, he could not name one of them,
• his counsel did not explicitly consult him about filing the lawsuit,
• he did not consult with his attorneys prior to filing the lawsuit,
• he did not know if his counsel conducted any pre-suit investigation, and
• that he relied on his counsel "100 percent" in filing the suit. 

Update:  Mr. Orenshteyn has also filed an appeal In Forma Pauperis.  It will be worth watching the briefing to see how–or if–counsel and client cooperate before the Federal Circuit.   

So the next time you log in from home, the beach, or someplace less hospitable, remember your password and
your ethical obligations.  While it’s not even half over, 2008 might as
well be dubbed "The Year of the Cautionary Tale."  Coupled with other recent fee award cases like Qualcomm, Medtronic, and ClearValue,
Judge Jordan’s opinion makes clear that attorney sanctions are a trend worth watching.*

More reading: 

Judge Jordan’s Summary Judgment Opinion and Order

Report and Recommendation re Attorney Fees (Magistrate Judge Edwin Torres)

*Disclosure:  Our firm, Renner Otto, represents BrainLAB in the pending Medtronic v. BrainLAB matter. 

2007-1545, 2008-1162 Qualcomm v. Broadcom

Qualcomm sued Broadcom for infringing 5,576,767 and 5,452,104 related to products compliant with the H.264 video compression standard, the result of a standard setting organization ("SSO"), the Joint Video Team (“JVT”).  Broadcom claimed that Qualcomm had waived its rights to enforce the patents by participating in the JVT but failing to disclose the patents.  However, throughout discovery, trial, and post-trial proceedings, Qualcomm claimed that it never participated in the H.264 standard-setting process.

After the jury found that Broadcom did not infringe, Qualcomm produced more than 46,000 documents demonstrating its extensive participation in the JVT.  The district court found that Qualcomm (1) wrongfully concealed the patents-in-suit while participating in the JVT and then (2) actively hid this concealment from the Court, the jury, and opposing counsel during the present litigation.  As a result, the district court held that Qualcomm had waived its right to enforce the asserted patents, and awarded Broadcom its attorney’s fees under 35 U.S.C. § 285.

The Summary of Argument on appeal from both parties is available after the jump.

Summary of Argument from the brief of plaintiff/appellant Qualcomm.
DLA Piper US LLP, San Diego CA (William S. Boggs, Brian A. Foster,
Timothy Blackford, Stanley J. Panikowski); Cravath, Swaine & Moore
LLP, New York, NY (Evan R. Chesler, Peter T. Barbur); Sidley Austin
LLP, Washington, D.C. (Carter G. Phillips, Stephen B. Kinnaird, Eric A.
Shumsky, Peter S. Choi, Ryan C. Morris); Bingham McCutchen LLP,
Washington, D.C. (Richard S. Taffet, David B. Salmons) on brief.

The district court’s rulings on the existence and breach of a
disclosure duty, waiver, remedy, and the exceptionality of this case
are infected with substantial errors of law and fact.

SSO disclosure duties arise by contract. QUALCOMM contractually
assumed no disclosure duty beyond that set forth in the written ToR,
which require patent disclosures only when a party makes a technical
contribution. By the express policy terms, other disclosures of known
patents are only “encouraged” on a “best-efforts” basis. Extrinsic
evidence may not be used to vary the terms of a written contract, and
the district court was not free to impose additional, unwritten
disclosure duties based on how some JVT participants purportedly
treated the written policy.

Regardless, no evidence shows that JVT participants recognized any
mandatory duty, commencing upon monitoring of JVT proceedings, to
search for and disclose patents. Broadcom offered no evidence from JVT
participants regarding any such duty. The evidence the district court
relied upon – scattered patent disclosures made without relation to any
technical contribution – is fully consistent with the written policy
that merely “encouraged” such disclosures.

Further, the jury found that the accused products, which practiced
the JVT standard, do not infringe the patents-in-suit. Necessarily,
therefore, it found that the patents-in-suit were not essential to
practicing the JVT standard. In conflict with the verdict, the court
nonetheless found that QUALCOMM failed to disclose patents that
“reasonably might be essential” or that QUALCOMM believed might be
essential. Even if the JVT policy encouraging disclosures of IPR could
be converted into a mandatory duty, a patent is not “associated with” a
standardization proposal within the meaning of that policy unless its
use is necessary to practice the proposed standard. This Court so held
in Rambus, and the SSO policy language at issue here points even more
strongly to that result. The Court, moreover, specifically rejected the
argument that a patentee’s “mistaken belief” that its claims read on
the standard could trump the fact that they did not, because the
standard is objective and not subjective. Rambus makes clear that a
finding that the patent claims do not read on the standard precludes
any finding that disclosure obligations were breached. The jury’s
finding compels the same result here.

Equally groundless is the district court’s finding that the
purported disclosure breach by QUALCOMM was intentional. There is no
evidence of intentional breach; not only were QUALCOMM employees
unaware of the nonexistent duty the district court fashioned, but prior
to the adoption of the H.264 standard, QUALCOMM engineers deemed the
patents inessential to practicing the H.264 standard adopted in 2003.
Nor is there any evidence of a corporate plan to conceal IPR from JVT
so that QUALCOMM would become an indispensable licensor. To the
contrary, QUALCOMM had previously disclosed the technology to a JVT
parent group in 2001 with assurances that it was licensable on RAND
terms and made the same disclosures in 2006 to JVT when it made
technical contributions.

Furthermore, the district court’s findings do not establish waiver
as a matter of law. The court defined the legal standard of waiver as
voluntary relinquishment of patent rights, or “conduct … so
inconsistent with an intent to enforce its rights as to induce a
reasonable belief that such right has been relinquished.” JA00050. On
the first prong, the court did not find that QUALCOMM voluntarily
relinquished any rights; to the contrary, the court found that QUALCOMM
specifically intended to enforce its patents.

The second prong of the district court’s test is not a standalone
waiver defense. This Court has repeatedly held that conduct inducing a
reasonable belief of relinquishment of patent rights is instead the
first element of an equitable estoppel defense, which requires
additional proof of detrimental reliance. Broadcom never pled equitable
estoppel, and the district court excluded it and did not consider
detrimental reliance. Moreover, an earlier JVT disclosure by QUALCOMM
would have had no effect on Broadcom’s ability to license the
patents-in-suit on RAND terms.

Likewise, the district court’s judgment declaring the patents wholly
unenforceable against the world is contrary to law. Waiver is only
defensive and cannot result in affirmative remedies, and indeed here
Broadcom only pled waiver as a defense (not a counterclaim). Finally,
only misconduct that taints the property right ab initio (such as
inequitable conduct before the PTO) renders a patent unenforceable.

The exceptional-case finding and fee award likewise must be vacated.
They depend on the erroneous findings of JVT misconduct, which cannot
sustain an exceptional-case finding. The fee award must, at a minimum,
be recalibrated to cover only independent litigation misconduct.

However vexed the district court was by QUALCOMM’s discovery
failures, its rulings must comport with the law and evidence. They do
not, by a wide margin, and should be vacated.

Summary of Argument from the brief of defendant/appellee Broadcom.  Wilmer
Cutler Pickering, Hale and Dorr LLP, Boston, MA (William F. Lee, John
J. Regan, Vinita Ferrera, Kate Saxton, Carrie Holmes Seares) on brief.

Qualcomm wrongfully concealed two patents from the JVT
while participating in the development of the H.264 standard, sued
Broadcom for infringing those patents, then engaged in an “organized
program of litigation misconduct and concealment” to prevent Broadcom,
the court, and the jury from learning about Qualcomm’s misconduct
before the JVT. (A89, A99.) When Broadcom uncovered Qualcomm’s
misconduct, the district court ruled that the patents were
unenforceable and ordered Qualcomm to pay Broadcom’s attorneys’ fees
and costs.

After two years of litigation, Qualcomm now reverses course and
admits that its patents do not cover the H.264 standard. (QBr 11;
35-36.) It has not appealed the verdict of non-infringement. (QBr 11.)
Likewise, Qualcomm has not challenged the magistrate judge’s finding
that it engaged in litigation misconduct by concealing documents
demonstrating its JVT participation and has paid the principal amount
of Broadcom’s attorney’s fees. (A27512.) Qualcomm also now admits the
very fact that it tried to conceal by withholding the documents: that
it actively participated in the JVT’s development of the H.264
standard. (QBr 10- 11.)

In this appeal, Qualcomm instead argues that it never had an
obligation under the JVT’s patent disclosure policy to disclose its
patents – even though it participated in the development of H.264.
Qualcomm is wrong.

The district court correctly found that the JVT’s patent disclosure
policies were mandatory and required all JVT participants – not just
parties submitting technical proposals – to disclose any patent that
reasonably might be necessary to practice H.264. (See infra §VII.B); see Rambus Inc. v. Infineon Techs. AG,
318 F.3d 1081, 1098 (Fed. Cir. 2003). The language of the patent
policies of both the JVT and its parent organization required as much,
and it is what the district court found the policies to mean. (See infra
§VII.B.1.) But to the extent that there is any ambiguity in the meaning
of the written JVT rules, it is the understanding of the participants
about what the policies required that controls, as this Court
established in Rambus. Here, the district court found by clear
and convincing evidence that the participants – including Qualcomm
itself – understood the disclosure obligation to be mandatory. (See infra §VII.B.3.) There is no basis to disturb this finding.

Qualcomm also misstates the JVT disclosure obligation when it claims
that it had no obligation to disclose the ‘104 and ‘767 patents because
H.264 products do not infringe the asserted claims of the patents (as
the jury found). (QBr 34-38.) The JVT required disclosure of all
patents that reasonably might be necessary to the practice of H.264,
not just patents that are later found to be infringed. (See infra
§VII.C.l.) Qualcomm cannot credibly claim that the ‘104 and ‘767
patents do not fall into the category of patents that “reasonably might
be necessary” – Qualcomm brought this infringement action claiming that
H.264-compliant products necessarily infringe multiple claims of the
patents. (A241; A15821-27.) Moreover, as the concealed documents make
clear, Qualcomm’s own JVT participants understood the disclosure
obligation, understood that Qualcomm’s patents reasonably might be
essential to H.264, and nevertheless failed to disclose them to the
JVT. (See infra §VII.C.2.) Qualcomm’s misconduct before the JVT amply supported Broadcom’s equitable defense of waiver. (See infra §VII.E.)

Finally, contrary to Qualcomm’s arguments, both of the remedies
entered by the district court were proper. The district court’s
declaration of unenforceability was fully within the court’s equitable
authority, was a permissible response to an affirmative defense, and
was a proportionate equitable response to Qualcomm’s severe litigation
misconduct. (See infra §VII.F.) Likewise, the court’s fee award
under § 285 – the principal amount of which Qualcomm has already paid -
could have been sustained on the basis of Qualcomm’s litigation
misconduct alone (like the unappealed sanctions award), but was further
properly based on Qualcomm’s misconduct before the JVT. (See infra §VII.G.)

2008-1365, 1366 ResQNet.com v. Lasna, Inc.

Both parties appeal part of Judge Robert Sweet’s judgment following a bench trial on ResQNet’s two remaining patents.  The parties split infringement findings, with ResQNet being awarded approximately $400k (net after a $100k sanction against it and counsel under Rule 11).

ResQNet sued Lasna on 5 patents related to configurable remote terminals for computer systems.  Two patents were voluntarily withdrawn, and the court construed claim terms for the others.  ResQNet stipulated to non-infringement and appealed.  In ResQNet II, the Federal Circuit affirmed as to one patent but reversed on the other two.

On remand here, the court conducted a bench trial on the 2 remaining issues: infringement of claim 1 of 5,831,608 and claim 1 of 6,295,075. 

’608 Patent:  Claim 1 states:

1. Apparatus for implementing a computer terminal to be connected to a remote computer, said apparatus comprising:

means for identifying a particular user logged on to said remote computer through said computer terminal;

means
for identifying, based upon a position. length and type of each of a
plurality of fields, a particular screen to be displayed to said user;
and

a plurality of special function
keys, each key performing a specified function, the specified function
performed by each key being determined by the particular user logged on
and the particular screen identified to be displayed.

The court easily found that Lasna’s NewLook product did not infringe.  First, NewLook did not "identify a particular user" but instead identifies computer terminals regardless of the individual using it.  The court found this PC-as-user concept very different from  "identifying a particular user."  The court also found that NewLook did not meet the claim’s third limitation because customizable function keys were not tied to particular screens–thus, even though NewLook users could program function keys, it would apply to all screens and not just at a "particular screen."

’075 Patent:  The court just as easily found that NewLook did infringe claim 1 of the ’075 patent, both directly and indirectly.  Claim 1 states: 

1. The method of communicating between a host computer and a remote terminal over a data network comprising steps of:

establishing a first communication session between said terminal and a communications server via a first communications channel;

downloading,
from said server to said terminal, communications software for
communicating between said terminal and said host and a plurality of
specific screen identifying information;

utilizing
said communications software to implement a second communications
session between said terminal and said host via a second communications
channel independent of said server;

receiving a screen from said host to said terminal;

if
said received screen matches one of the plurality of specific screen
identifying information, displaying a customized GUI screen; and

if
said received screen does not match one of the plurality of specific
screen identifying information, displaying a default GUI screen.

On Sale Bar:  Lansa argued that this claim was invalid because NewLook v. 1.0 was for sale prior to the ’075 critical date.  The issue turned on "coomunication software," which the court construed to mean the software for
the subsequent communication between the terminal and host.  However, the court found the evidence to show that v. 1.0 had "communication software" fell short of clear and convincing.  Apparently the only evidence was a help manual, marketing brochure, and "thin" testimony from several witnesses. 

Obviousness:  Lasna introduced a manual for "Flashpoint" software that disclosed all elements of claim 1.  However, the court found no evidence that the manual was in "possession of the public" more than a year before the application was filed.  Further, although the manual itself was dated early enough, it was also marked as "an unpublished work . . . considered a trade secret belonging to the copyright holder."

Permanent Injunction:  The court declined to enter a permanent injunction, finding the ResQNet failed to establish any of the four eBay factors.

Sanctions:  The court declined to award sanctions against Lasna, but did impose Rule 11 sanctions against ResQNet and its counsel.  This sanction was based on the 2001 filing of an amended complaint, alleging infringement of patents that ResQNet had already determined were not infringed.  The court, applying circuit law, settled on a $100,000 fine.

Documents: Court’s Opinion (55 pages, scanned).