Jurors Award $500 Million In Damages in Zenimax v. Oculus Case

Today, jurors in the Northern District of Texas rendered their verdict in Zenimax Media Inc. v. Oculus et al. (verdict available here). The case has been in the news recently, mainly because Facebook’s founder, Mark Zuckerberg, took the witness stand for the defense. (Another interesting article was recently published concerning the case and the Northern District of Texas’ rules concerning electronics and recording devices in courtrooms.)

The jurors found, among other things, that

  • none of the defendants (including Facebook) misappropriated plaintiffs’ trade secrets;
  • defendant Oculus infringed plaintiffs’ copyrights ($50 million in damages);
  • defendant Oculus committed breach of contract ($200 million in damages);
  • defendant Facebook did not tortiously interfere with plaintiffs’ contract with Palmer Luckey and/or Oculus;
  • defendants Facebook and Oculus did not engage in unfair competition against plaintiffs;
  • Oculus infringed ZeniMax’s trademarks (but Zenimax suffered no damages); and
  • defendants Oculus, Palmer Luckey and Brendan Iribe committed false designation (the jurors awarded $50 million against Oculus, $50 million against Luckey, and $150 million against Iribe).

Accordingly, the jurors awarded a total of $500 million in damages ($300 million against Oculus, a company recently acquired by Facebook; $50 million against Luckey; and $150 million against Iribe).

Judge Kinkeade is presiding over the case.

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Chief Judge Lynn Orders Patent Plaintiff to Pay $440,000 in Defendants’ Attorney Fees

On December 13, 2016, Chief Judge Lynn entered an Order (available here) in Rainere v. Microsoft & AT&T. The Court had previously decided the case in defendants’ favor, and found that the case was exceptional, justifying an award of attorney’s fees against the plaintiff. In this Order, Judge Lynn found that the plaintiff should pay defendants approximately $440,000 in attorney’s fees. Of note, the Court found that:

  • AT&T’s lead counsel’s hourly rates ranging from $375 to $1,030/hour were reasonable;
  • AT&T’s local counsel’s hourly rates ranging from $500 to $600/hour were reasonable; and
  • Microsoft’s lead counsel’s hourly rates ranging from $525 to $1,100/hour were reasonable.
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Amarillo Magistrate Judge Vacancy

The Northern District of Texas has announced that it intends to seek applications for a June 2017 magistrate judge vacancy in Amarillo, as soon as approval is granted to refill the position. Additional details, as well as a copy of the application form, are available here.

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Goodbye, Federal Rules’ Extra 3 Days Due To E-Mail/Electronic Service

On December 1, 2016, the Federal Rules of Civil Procedure were amended (amendments available here). Of most importance to civil federal-court practitioners is that the amendments eliminated the extra 3 days previously added onto a deadline for responding to discovery or pleadings when service had been made by e-mail or other electronic means (e.g., the court’s electronic-filing system).

According to the Committee Notes:

Rule 6(d) is amended to remove service by electronic means under Rule 5(b)(2)(E) from the modes of service that allow 3 added days to act after being served.

Rule 5(b)(2) was amended in 2001 to provide for service by electronic means. Although electronic transmission seemed virtually instantaneous even then, electronic service was included in the modes of service that allow 3 added days to act after being served. There were concerns that the transmission might be delayed for some time, and particular concerns that incompatible systems might make it difficult or impossible to open attachments. Those concerns have been substantially alleviated by advances in technology and in widespread skill in using electronic transmission.

A parallel reason for allowing the 3 added days was that electronic service was authorized only with the consent of the person to be served. Concerns about the reliability of electronic transmission might have led to refusals of consent; the 3 added days were calculated to alleviate these concerns.

Diminution of the concerns that prompted the decision to allow the 3 added days for electronic transmission is not the only reason for discarding this indulgence. Many rules have been changed to ease the task of computing time by adopting 7-, 14-, 21-, and 28-day periods that allow “day-of-the-week” counting. Adding 3 days at the end complicated the counting, and increased the occasions for further complication by invoking the provisions that apply when the last day is a Saturday, Sunday, or legal holiday.

Electronic service after business hours, or just before or during a weekend or holiday, may result in a practical reduction in the time available to respond. Extensions of time may be warranted to prevent prejudice.

Eliminating Rule 5(b) subparagraph (2)(E) from the modes of service that allow 3 added days means that the 3 added days cannot be retained by consenting to service by electronic means. Consent to electronic service in registering for electronic case filing, for example, does not count as consent to service “by any other means” of delivery under subparagraph (F).

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Supreme Court Unanimously Reverses Federal Circuit’s $399 Million Decision in Samsung v. Apple

On December 6, 2016, the Supreme Court issued its (unanimous) opinion in Samsung v. Apple (decision available here). The opinion involved the proper amount of damages for infringement of a design patent. Under 35 U.S.C. § 289, a person who manufactures or sells “any article of manufacture to which [a patented] design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit[.]” (emphasis added). Certain Samsung smartphones were found to infringe three Apple design patents, and the Federal Circuit upheld a damages award of $399 million (which represented the entire profit Samsung made from its sales of the smartphones-at-issue). According to the Federal Circuit, the “entire smartphone” was the only permissible “article of manufacture” for the purpose of calculating damages because “consumers could not separately purchase components of the smartphones.” The Federal Circuit rejected Samsung’s argument that “the profits awarded should have been limited to the infringing ‘article of manufacture’—for example, the screen or case of the smartphone—not the entire infringing product—the smartphone.” (certain quotations omitted).

The Supreme Court reversed the Federal Circuit, holding: “The term ‘article of manufacture,’ as used in §289, encompasses both a product sold to a consumer and a component of that product.” It is “simply a thing made by hand or machine.” The Supreme Court thus reversed the Federal Circuit’s decision, and remanded for the Federal Circuit to address any remaining issues on remand.

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Lesson From The Fifth Circuit – Don’t Wait To Spring Your Best Evidence On Your Opponent At A Deposition

On December 12, 2016, the Fifth Circuit Court of Appeals upheld a district-court decision sanctioning two attorneys ($1,000 each) for “certifying that their clients’ initial disclosures under Federal Rule of Civil Procedure 26(a)(1) were complete and correct even though the disclosures failed to mention evidence that [the attorneys] later used during a deposition.” The decision (in Olivarez v. GEO Group) is available here. It contains an interesting discussion on whether evidence is “substantive” versus “impeachment” (as evidence used “solely for impeachment” is not subject to Rule 26’s mandatory-disclosure requirement). But the main lesson coming from the decision is that it’s best not to take your chances on whether Rule 26 requires you to disclose the evidence to your opponent without awaiting a discovery request—just produce it, instead of waiting until later in the case to spring it on your opponent.

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File Unjustified Motion for Protective Order Based on Motion to Dismiss, Pay Other Party’s Attorney’s Fees

On September 27, 2016, Judge Godbey issued an Order (available here) in Nu-You Technologies v. Eltoweissy. The plaintiff filed a motion for attorney’s fees, seeking about $4,500 to compensate it for the fees incurred in responding to defendants’ motion for a protective order. Under Federal Rule 37, the Court can award attorney’s fees to the party who prevailed on a motion for a protective order, unless the motion was substantially justified. Judge Gobey wrote:

In this case, the Defendants’ motion for a protective order sought to stay the case until the Court ruled on the Defendants’ pending motion to dismiss. Courts have repeatedly rejected this argument. See, e.g., Glazer’s Wholesale Drug Co. v. Klein Foods, Inc., 2008 WL 2930482, at *1 (N.D. Tex. 2008) (“The court declines to stay discovery merely because defendant believes it will prevail on its motion to dismiss.”); Ford Motor Co. v. U.S. Auto Club, Motoring Div., Inc., 2008 WL 2038887, at *1 (N.D. 2008) (“such a stay is the exception rather than the rule”). Nor do the Defendants offer a compelling argument to the contrary. Thus, the Court finds that the Defendants’ motion for a protective order was not substantially justified.

The Court provided that Defendants had 30 days to pay the $4,500.

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Johnson Investiture, Wichita Falls Docket Update

Johnson Investiture. The Honorable Kimberly C. Priest Johnson was sworn in today as a magistrate judge in the Eastern District of Texas. The ceremony was well attended by area judges and luminaries, including Chief Judge Ron Clark (E.D. Tex.) and Chief Judge Barbara M.G. Lynn (N.D. Tex.). Judge Johnson has a long history with the Northern District. She served as an Assistant U.S. Attorney in Dallas and also served as a law clerk to Chief Judge Lynn. Congratulations to Judge Johnson!

Wichita Falls Update. At the investiture, Chief Judge Lynn announced that she will begin receiving a portion of her cases from the Wichita Falls Division, rather than receiving cases exclusively from the Dallas Division. This will not be the Chief Judge’s first experience with the Wichita Falls docket. In 2005, she presided over Johnson v. Wathen (No. 07:02-CV-87), a five-week civil-rights trial brought by the ACLU.

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Chief Judge Lynn Awards Attorney’s Fees to Microsoft and AT&T in Case Where Plaintiff Did Not Own Asserted Patents

On September 2, 2016, Chief Judge Lynn issued a decision in Raniere v. Microsoft (available here) finding that AT&T and Microsoft were entitled to recover their attorney’s fees from the plaintiff under 35 U.S.C. § 285. Section 285 provides that, in patent cases, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” The fee award was based on plaintiff not owning the asserted patents and, according to the Court, engaging in deliberately misleading conduct:

Defendants challenged Plaintiff’s ownership of the asserted patents and pleaded lack of standing as an affirmative defense in their respective answers. The Court also questioned Plaintiff’s standing early in the litigation and gave Plaintiff multiple opportunities to establish his ownership interest in the asserted patents. Despite these opportunities, Plaintiff failed to establish that he owns the patents in suit. Further, the Court found that Plaintiff engaged in deliberately misleading conduct to obscure and complicate the standing issue.

Defendants estimated that they incurred over $1 million in fees and non-taxable costs. Chief Judge Lynn ordered Defendants to submit to the Court evidence of their reasonable attorney’s fees and non-taxable costs, and provided that the plaintiff could object to the specific amount of the requested fees.

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Dallas Court of Appeals Rules That Texas Does Not Recognize Patent Agent Privilege

On August 17, 2016, the Dallas Court of Appeals, in In re Silver, 05-16-00774-CV, 2016 WL 4386004 (Tex. App.—Dallas Aug. 17, 2016, no. pet. h.), found that the State of Texas does not recognize a patent-agent privilege, because “[n]o Texas statute or rule recognizes or adopts a patent-agent privilege.” The Silver decision is contrary to the Federal Circuit’s recent decision in In re Queen’s University at Kingston, 820 F.3d 1287, 1301 (Fed. Cir. 2016), recognizing a patent-agent privilege. The net result of these two decisions is that the patent-agent privilege exists and applies in federal court in patent-infringement cases, while it does not apply in Texas state court cases.

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