Are Graphical Signatures Permitted on Electronically Filed Documents?

Posted on August 15, 2012 by Steven Callahan

Yes. See L.R. 11.1(b) (“An attorney who submits a document for filing by electronic means must place on the document an “s/” and the typed name of the attorney, or a graphical signature, in the space where the attorney’s signature would have appeared had the document been submitted on paper.”).

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How Do I File a Pleading, Motion, or Other Paper?

Posted on August 15, 2012 by Steven Callahan

Follow the steps found here.

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How Do I File a Civil Case?

Posted on August 15, 2012 by Steven Callahan

Follow the steps found here.

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What Format Must Electronically Filed Documents Be In?

Posted on August 15, 2012 by Steven Callahan

Except for proposed orders, documents must be filed in Portable Document Format (PDF). See ECF Administrative Procedures Manual, § I(D).

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Judge Lindsay Denies Dropbox’s Motion to Stay Trademark Lawsuit

Posted on August 13, 2012 by Steven Callahan

On August 10, 2012, Judge Lindsay issued an Order (available here) denying Dropbox’s motion to stay a lawsuit filed by Officeware Corp. In the lawsuit, Officeware accuses Dropbox of wrongdoing based on Dropbox’s use of the DROPBOX mark.

In 2009, Dropbox filed a trademark application for the DROPBOX mark and, in 2011, the USPTO published the application for opposition. Officeware and two other companies initiated proceedings before the Trademark Trial and Appeal Board (“TTAB”) opposing registration of the mark. Officeware then filed this lawsuit.

Dropbox moved to stay the case pending resolution of the trademark opposition proceedings. Judge Lindsay found that the doctrine of primary jurisdiction did not justify a stay:

The doctrine of primary jurisdiction is a “judge-made doctrine” that “comes into play when a court and an administrative agency have concurrent jurisdiction over the same matter, and no statutory provision coordinates the work of the court and of the agency.” Mercury Motor Express, Inc. v. Brinke, 475 F.2d 1086, 1091-92 (5th Cir.1973). “The doctrine operates, when applicable, to postpone judicial consideration of a case to administrative determination of important questions involved by an agency with special competence in the area. It does not defeat the court’s jurisdiction over the case, but coordinates the work of the court and the agency by permitting the agency to rule first and giving the court the benefit of the agency’s views.” Id. (citation omitted).

Several circuits have held that the rule of primary jurisdiction does not justify a federal court’s deferral to a proceeding before the TTAB. See, e.g., Goya Foods, Inc. v. Tropicana Products, Inc., 846 F.2d 848 (2d Cir. 1988); PHC, Inc. v. Pioneer Healthcare, Inc., 75 F.3d 75 (1st Cir. 1996); Rhoades v. Avon Products, Inc., 504 F.3d 1151 (9th Cir. 2007). . . . In the case sub judice, Officeware’s action against Dropbox involves the following claims: infringement of Officeware’s common law rights in the Design; unfair competition based on Dropbox’s use of a confusingly similar image to Officeware’s Design; infringement of Officeware’s common law rights in the Mark; unfair competition based upon Dropbox’s unauthorized used of the Mark; dilution under the Texas Business and Commerce Code; injunctive relief; unjust enrichment; and damages and attorney’s fees. The only claim before the TTAB is the registrability of the Mark. . . . The instant case involves issues far beyond the issue of registrability. Regardless of the TTAB’s decision, this court would still have to determine the infringement issue independently. As the board cannot afford complete relief for Officeware’s claims, the court determines that a stay is not warranted under the facts and circumstances of this case.

Additionally, Judge Lindsay ruled that Officeware would suffer prejudice by a stay, given that the median length of proceedings before the TTAB is 184 weeks. And, although Dropbox “express[ed] concern over the multi-party nature of the TTAB proceedings[,]” Judge Lindsay “remind[ed] the parties of Federal Rules of Civil Procedure 19, 20, and 24, and . . . direct[ed] the parties to proceed as required under these rules.”

Officeware is represented by Robert Ward, Andrew Howard, Craig Florence, and Terrell Miller, all of Gardere Wynne Sewell LLP.

Dropbox is represented by Steve Schortgen, Jennifer Ayers, and John Patton, all of K&L Gates LLP; and David Kramer, Evan Stern, John Slafsky, all of Wilson Sonsini Goodrich & Rosati.

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Judge Lindsay Tosses Purported Class Action Claims Against Match.Com

Posted on August 12, 2012 by Steven Callahan

On August 10, 2012, Judge Lindsay granted Match.com’s motion to dismiss a number of purported class actions filed against it in the Northern District of Texas (opinion available here). Plaintiffs were subscribers to Match.com’s online dating services, and filed suit against Match.com claiming that Match.com acted wrongfully by, among other things, failing to remove inactive profiles, falsely labeling inactive profiles as active, failing to police its site from the proliferation of false and fraudulent profiles, failing to remove and block scammers, failing to block IP addresses from certain countries where scamming activity flourishes (e.g., Nigeria), and “falsely representing itself as a legitimate service for single adults and accepting subscription fees from subscribers and then failing to provide the service offered.” Plaintiffs asserted that “as many as 60% (and by some accounts more) of the profiles on the website belong to inactive and/or fake/fraudulent users whose profiles could be viewed by paying subscribers, appear to be active, but who could not be contacted” and “[t]he reason Match does not take any serious measures to rid its site of inactive, fake, or fraudulent profiles and, in fact, takes steps to ensure such profiles remain on the site, is because Match expressly and publicly relies on the artificially inflated number of profiles to demonstrate that it is a growth company, gain prospective subscribers and their payment for joining the site, and retain paying subscribers.”

With respect to plaintiffs’ breach of contract claim, Judge Lindsay found that there is nothing in Match.com’s agreement with its subscribers that requires Match.com to perform the obligations that the plaintiffs alleged that Match.com was required to perform. Nor would a reasonable consumer, according to Judge Lindsay, believe that Match.com would actively police and remove any false or misleading information. Furthermore, “[t]here is nothing in the Agreement that obligates Match.com to conduct its services using only current or ‘active’ profiles.” The agreement “does not state that Match.com is obligated to deactivate or remove profiles visible on its website after subscriptions are cancelled or expire.” “Plaintiffs’ contention that the Agreement obligates Match.com to ensure that member or subscriber profiles are accurate and active runs counter to the specific terms of the Agreement to which they agreed upon subscribing to the service and renewing their subscriptions.” Simply because plaintiffs were disappointed with Match.com’s services does not mean that Match.com breached the terms of its agreement, according to Judge Lindsay.

Judge Lindsay then took up plaintiffs’ DTPA claim, finding that since plaintiffs stated in a conclusory fashion that there was a gross disparity between the value they received and the consideration they paid for Match.com’s services (but did not allege what they paid for their subscriptions), it was impossible for the court to analyze the sufficiency of their claim under Rule 12(b)(6). Accordingly, plaintiffs failed to state a DTPA claim on this ground.

Regarding the parties’ arguments as to whether the conduct alleged by plaintiffs constitutes “unconscionable” conduct that is actionable under the DTPA, Judge Lindsay “move[d] sua sponte for dismissal of Plaintiffs’ DTPA claim based on the Texas Supreme Court’s holding in Crawford v. Ace Sign, Incorporated, 917 S.W.2d 12 (Tex. 1996).” In Crawford, the Texas Supreme Court held that an allegation of a mere breach of contract, without more, does not constitute a “false, misleading, or deceptive act” in violation of the DTPA.” Judge Lindsay stated:

Here, Plaintiffs contracted with Match.com for dating services. Like the plaintiff in Crawford, Plaintiffs contend that Match.com was required to but failed to perform certain obligations under the Agreement, and that Match.com made certain misrepresentations regarding its dating services to get Plaintiffs to subscribe or renew their subscriptions. Boiled down to its essence, Plaintiffs’ DTPA claim is virtually identical to their contract claim that Match.com breached the Agreement. The court further notes that other than alleging their entitlement to treble damages under the DTPA, Plaintiffs’ sole basis for damages is based on the recovery of “compensatory damages in the amount of fees paid for subscriptions to the Match site.” Pls.’ Compl. 3, ¶ 6. Thus, while Plaintiffs pleaded a cause of action under the DTPA, in reality they seek to recover the benefit of their bargain with Match.com. See Crawford, 917 S.W.2d at 13-14. Accordingly, any duty that Match.com had to Plaintiffs arose solely from the Agreement. Id. at 14. The court therefore concludes, based on the reasoning in Crawford, that even if it accepts as true Plaintiffs’ allegations, it appears that their Complaint sounds only in contract, and they have failed to state a claim under the DTPA. Because the court believes that dismissal of Plaintiffs’ DTPA claim is mandated by Crawford, the court does not address the parties’ arguments regarding causation, res judicata, or the applicability of Rule 9(b).

Regarding plaintiffs’ breach of implied covenant of good faith and fair dealing claim, Judge Lindsay found that the agreement itself did not contain any covenant of good faith and fair dealing, and noted that the Texas Supreme Court had declined to read an implied duty of good faith and fair dealing into every contract, instead holding that such a duty arises only as a result of a “special relationship” between parties governed by a contract. This “special relationship” cause of action for breach of the duty of good faith and fair dealing “does not extend to ordinary commercial contractual relationships.” No special relationship existed here, according to Judge Lindsay, because if a subscriber to an online dating service is unhappy with a particular service, he or she can “easily seek out alternative dating services.” Absent a “special relationship,” the duty to act in good faith “is contractual in nature and its breach does not amount to an independent tort.” (citation and quotations omitted). No duty of good faith and fair dealing therefore existed between plaintiffs and Match.com.

Judge Lindsay denied plaintiffs’ request to amend their complaint with respect to their breach of contract claim and breach of the covenant of good faith and fair dealing claim, and dismissed these claims with prejudice. After plaintiffs respond to Judge Lindsay’s sua sponte motion for dismissal of their DTPA claim, Judge Lindsay will determine whether the plaintiffs may amend their complaint with respect to the DTPA claim. Plaintiffs have until August 27 to respond to the Court’s sua sponte motion for the dismissal of plaintiffs’ DTPA claim.

Plaintiffs are represented by Roger Claxton, of The Claxton Law Firm; David Lever and Howard Stolzenberg, both of Lever & Stolzenberg LLP; Evan Spencer, Jeffrey Norton and Randolph McLaughlin, all of Newman Ferrara LLP; Robert Harwood, of Wechsler & Harwood; Norah Hart, of Treuhaft & Zakarin LLP; Peter Malouf, of the Law Office of Peter G. Malouf; Mitchell Toups, of Weller Green Toups & Terrell; Richard Coffman, of the Coffman Law Firm; Vahn Alexander, of Faruqi & Faruqi LLP; and Joseph Marchese, Timothy Fisher, Sarah Westcot, Scott Burser, all of Bursor & Fisher PA.

Match.com is represented by James Maloney, Bryant Boren, Joy Dowdle, and Shira Yoshor, all of Baker Botts LLP.

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Chief Judge Davis Issues Groundbreaking Patent Infringement Post-AIA Opinion Dealing with Joinder, Severance, and Transfer Issues

Posted on August 11, 2012 by Steven Callahan

On August 10, 2012, Chief Judge Davis of the Eastern District of Texas, as first reported by Michael Smith, issued a groundbreaking opinion in the patent case Norman IP Holdings v. Lexmark International (available here) that should be read by all patent litigation practitioners. Michael Smith’s Eastern District of Texas blog has an extensive summary of the opinion.

Notable aspects of the decision include the following:

  • Joinder of defendants in patent infringement cases (under both Rule 20 and the AIA joinder provision) is improper where there was only “broad allegations regarding common processor or processor family designs” with respect to each defendant. Claims against each defendant would be severed into separate causes of action.
  • The newly severed cases would be consolidated with the original filed case as to all issues, except venue, through pretrial only.
  • Transfer motions will only be considered as to the defendant in the severed case, not as to all defendants in the pretrial consolidated case (i.e., defendants will have their transfer motions considered on a one-off basis, irrespective of the fact that there will be many defendants in the pretrial consolidated case).
  • If transfer is appropriate, the Court will retain the case through the Markman phase of the proceedings.  Once the Markman decision issues, any pending orders to transfer will become effective. (Chief Judge Davis noted that, “[o]nce a case is transferred, the transferee court is of course not bound by the claim construction of this court, and may modify it if it believes it is appropriate. But, much like a magistrate judge’s recommendation, it is hoped that this court’s claim construction analysis will be of help to the transferee court, whether modified or not.”)
  • After the Court issues its Markman decision and transferred those cases that will be transferred,

[T]he Court will solicit the advice of the remaining parties on how to best structure the trial of these cases. Will there be a separate trial as to each severed defendant as to all issues? Do some defendants wish to join together in a consolidated trial? Are there some issues that should be tried first as to some or all parties, such as invalidity or inequitable conduct? The Court looks to a number of factors in determining the proper trial plan for complex multiple party and multiple issue patent cases. While no single factor is dispositive, this court has developed following the list of factors to be considered in balancing the equities to all parties involved: (1) number of defendants; (2) number of patents; (3) number of asserted claims; (4) complexity of the technology involved; (5) similarity of functionality of accused instrumentalities; (6) consistency of plaintiff’s damages model against distinct defendants, e.g., single expert report as to all defendants, how distinct is the theory of infringement and damages in the expert report as to individual defendants, etc.; (7) consistency of defendants’ non-infringement, validity, and damages positions, as exemplified by, among other things, expert reports, e.g., single or multiple experts on non-infringement, single or multiple experts on validity, single or multiple experts on damages, etc.; (8) collaboration by defendants, e.g. joint defense groups, one firm representing multiple defendants, etc.; (9) risk of inconsistent results on common issues of fact or law; (10) risk of jury confusion; (11) cost of multiple trials to the parties; (12) the Court’s schedule and resources; (13) other individualized issues specific to a particular case.

Only after careful consideration of these factors, and the particular circumstances of the case, does the Court fashion a trial plan. As always, the overall consideration is finding an equitable and fair trial plan for all parties—which inevitably requires compromise. Seldom does one side or the other get their ideal trial plan. Nevertheless, the Court attempts to be fair to all parties. Accordingly, all of these issues will be addressed at a later stage of case management when discovery is complete, the number of patents, claim terms and invalidity references has been narrowed, expert reports have been filed, and perhaps experts deposed.

It will be interesting to see what the Federal Circuit has to say about Chief Judge Davis’ determination that cases (at least where there are a great number of defendants) will not be transferred pre-Markman decision. The focus of post-Volkswagen transfer decisions has been, of course, on convenience of the parties at trial. Will the Federal Circuit hold that requiring litigants to litigate through the Markman decision in an “inconvenient” venue constitutes a mandamus-able offense? Presumably, one of the reasons defendants seek severance and transfer is so that they will be able to put forth their own unique Markman arguments, and have their own shot to convince the district court that their arguments are correct. We are nearly certain that this issue will ultimately make its way to the Federal Circuit.

Additionally, one of the many notable aspects of Chief Judge Davis’ opinion is his remarks on transfer motions:

[T]his case management approach should not be perceived as an invitation to file motions to transfer venue. In recent years, this Court has expended considerable time addressing venue. [1] This Court has many, many issues before it—both criminal and civil—and it carries one of the heaviest patent dockets in the country; yet, venue in patent cases has increasingly become an extremely expensive and time-consuming matter, not only for the Court but for the parties as well. For instance, in a recent set of serially filed cases involving only seven defendant groups, the parties had already expended over $700,000 on venue-related discovery and briefing before the cases were even ready for status conference (i.e., before all defendants had answered the complaint). This Court currently has approximately forty pending motions to transfer venue. If the average cost of discovery and briefing for each of these transfer motions is only $300,000, then approximately $12 million is being spent by the parties on an issue that does not move the ball down the field, but only seeks a new field upon which to play. Finally, some parties have even called courts in this district to essentially “threaten” mandamus if a venue ruling is not issued within the timeframe desired by the parties. This Court manages a very busy docket—as do all courts in this district—with pending motions of varying levels of priority. Criminal cases take first priority because individuals’ freedom is at stake. In the patent context, trials and Markman hearings are a high priority. Venue motions are important, but not any more important than everything else this court has to do. The court rules on these motions as soon as it can. The Civil Justice Reform Act of 1990 was instituted to provide checks on long-pending motions and cases. Courts in this district take their cases seriously and strive to timely address pending motions in an effort to resolve cases promptly. See DIR. OF THE ADMIN. OFFICE OF THE U.S. COURTS, CJRA REPORT 27 (Sept. 30, 2011) (showing only sixteen motions pending for more than six months within the Eastern District of Texas) (available at http://www.uscourts.gov/uscourts/statistics/cjra/2011-09/CJRASep2011.pdf). This Court will address motions to transfer venue as timely as possible, while balancing the many other issues unrelated to venue requiring the court’s attention.

[1] Chief Judge Davis cited in two footnotes over 70 transfer decisions issued by Chief Judge Davis and Magistrate Judge Love in the years since In re Volkswagen, decisions that “reveal[] the enormous amount of time and resources the Court and the parties invest in § 1404 convenience issues that have nothing to do with the merits of the cases.”

Two things to note regarding Chief Judge Davis’ remarks on transfer. First, many defendants in patent infringement lawsuits view transfer motions as nearly case dispositive. Very few defendants want to be in the Eastern District of Texas for a number of reasons, including the perceptions that (1) E.D. Tex. juries are pro-plaintiff, (2) E.D. Tex. juries award high damages amounts, (3) E.D. Tex. juries are unsophisticated, (4) E.D. Tex. courts typically have relatively quick time to trial, (5) E.D. Tex. courts typically don’t bifurcate trials, and (6) E.D. Tex. courts have traditionally allowed broad discovery. Accordingly, it is perhaps not surprising that so much time, effort, and money (e.g., literally millions of dollars in some cases) are expended briefing transfer issues. Defendants will often file objections to magistrate judges’ orders denying transfer motions, then file mandamus petitions with the Federal Circuit after the district court overrules Defendants’ objections to the magistrate judges’ decisions.

Second, with respect to the fact that “some parties have even called courts in this district to essentially ‘threaten’ mandamus if a venue ruling is not issued within the timeframe desired by the parties,” we believe that this is a direct result of the Federal Circuit’s decision in In re VTech Communications, Inc., 2010 WL 46332 (Fed. Cir. Jan. 6, 2010). There, the Federal Circuit denied a mandamus petition filed by a patent defendant based, in part, on the fact that the district court had become familiar with the case. The defendant argued that this familiarity should be discounted because it occurred during the time period in which it took the district court to decide the transfer motion. The Federal Circuit stated, “[defendant’s] contention that the district court’s familiarity with the case is of its own doing is to no avail. It was incumbent upon [defendant] to actively and promptly pursue its motion to transfer venue before the district court invested considerable time and attention on discovery and completing claim construction.” The Federal Circuit did not explain how a defendant could “actively and promptly pursue” a motion to transfer venue (i.e., the defendant already filed the transfer motion, what else is it supposed to do?). Many (we’d guess, the vast majority of) litigators would tell you that the last thing they’d ever think to do would be to call the Court and ask the Court to rule on a motion, much less threaten the court with a mandamus petition. We believe that the only explanation for what Chief Judge Davis has experienced is the Federal Circuit’s opinion in In re VTech.

Chief Judge Davis’ opinion is of substantial importance to patent practitioners in the Northern District of Texas, because Chief Judge Davis is an extremely well-respected judge whose opinions carry great persuasive weight, Judge Davis’ opinion is the first (to our knowledge) post-AIA opinion dealing with these issues, and Northern District of Texas judges are currently grappling with similar issues in their patent infringement cases.

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Reinforced Earth’s Patent Infringement Case Against T&B Structural Systems Transferred to Northern District of Texas

Posted on August 10, 2012 by Steven Callahan

On August 7, 2012, the district court in the Eastern District of North Carolina granted Reinforced Earth’s and T&B Structural Systems’ joint motion and stipulation for transfer to the Northern District of Texas (decision available here). The case will now proceed in the Northern District of Texas before Judge Godbey.

In its complaint (available here), Reinforced Earth claims that T&B Structural Systems infringes U.S. Patent No. 6,050,748, which claims technology relating to earth stabilizing products.

Reinforced Earth is represented by Robert Mason, Jr., of Womble Carlyle Sandridge & Rice, PLLC; and Jon Nelson and Stephanie Roberts, both of Banner & Witkoff, Ltd.

T&B Structural Systems is represented by James Adams, II, of Brooks Pierce McLendon Humphrey & Leonard, L.L.P.; Robb Edmonds, of Edmonds & Nolte, P.C.; and Finley Edmonds, of The Law Office of Finley L. Edmonds.

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Federal Circuit Upholds (In Part) Attorney’s Fees Award in Highmark v. Allcare Patent Infringement Case

Posted on August 9, 2012 by Steven Callahan

On August 7, 2012, the Federal Circuit issued a decision (available here) in Highmark, Inc. v. Allcare Health Management Systems, Inc.  Allcare (the patent owner) had appealed Judge Means’ exceptional case order (under 35 U.S.C. § 285) and award of attorney’s fees and costs. “The district court found the case exceptional because it concluded that Allcare had pursued frivolous infringement claims, asserted meritless legal positions during the course of the litigation, shifted its claim construction positions, and made misrepresentations in connection with a motion to transfer venue.” The Federal Circuit affirmed in part, reversed in part, and remanded the case.

Allcare had claimed that Highmark infringed claims 52, 53, and 102 of U.S. Patent No. 5,301,105, which “is directed to managed health care systems used to interconnect and integrate physicians, medical care facilities, patients, insurance companies, and financial institutions, particularly with respect to utilization review.” (citations and quotations omitted).  (Highmark had filed a declaratory judgment lawsuit against Allcare in the Western District of Pennsylvania. After the case was transferred to the Northern District of Texas, Allcare counterclaimed for infringement of claims 52, 53, and 102.)

After claim construction, Highmark moved for summary judgment of non-infringement. Allcare did not oppose the motion with respect to claim 102 (and formally withdrew this claim), but opposed the motion with respect to claims 52 and 53. The district court granted summary judgment in Highmark’s favor regarding claims 52 and 53, and the Federal Circuit, on Allcare’s appeal, affirmed the district court’s judgment under Federal Circuit Rule 36 without a written opinion.

While that appeal was pending, Highmark “moved for an exceptional case finding with respect to Allcare and an award of attorneys’ fees and expenses under section 285[.]” Judge Means found the case exceptional, ruling that Allcare’s claims for infringement of claims 52 and 102 were frivolous. Additionally:

The court also found that Allcare engaged in litigation misconduct by asserting a frivolous position based on res judicata and collateral estoppel, shifting its claim construction position throughout the course of the proceedings before the district court, and making misrepresentations to the Western District of Pennsylvania in connection with a motion to transfer venue. After finding the case exceptional under section 285, the district court entered judgment awarding Highmark $4,694,727.40 in attorneys’ fees and $209,626.56 in expenses, and it also invoked its inherent power to impose sanctions and awarded $375,400.05 in expert fees and expenses. The district court did not determine how much of the monetary awards were attributable to each issue.

Allcare appealed the exceptional case finding. The Federal Circuit summarized the law on exceptional cases as follows:

Under 35 U.S.C. § 285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” Once it is determined that the party seeking fees is a prevailing party, determining whether to award attorneys’ fees under 35 U.S.C. § 285 is a two-step process. First, a prevailing party must establish by clear and convincing evidence that the case is “exceptional.” An award of fees against a patentee can be made for a frivolous claim, inequitable conduct before the Patent and Trademark Office, or misconduct during litigation. Second, if the case is deemed exceptional, a court must determine whether an award of attorneys’ fees is appropriate and, if so, the amount of the award. [T]he amount of the attorney fees [awarded] depends on the extent to which the case is exceptional. (citations and quotations omitted).

There was no dispute that Highmark was the prevailing party. The Federal Circuit then considered the grounds relied on by the district in finding that the case was exceptional.

Frivolous Claims. The district court had found that Allcare’s claims against Highmark were frivolous. The Federal Circuit stated, with respect to frivolous claims:

It is established law under section 285 that absent misconduct in the course of the litigation or in securing the patent, sanctions may be imposed against the patentee only if two separate criteria are satisfied: (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. The requirement that the litigation be objectively baseless does not depend on the state of mind of the [party] at the time the action was commenced, but rather requires an objective assessment of the merits. To be objectively baseless, the infringement allegations must be such that no reasonable litigant could reasonably expect success on the merits.

Furthermore, even if the claim is objectively baseless, it must be shown that lack of objective foundation for the claim was either known or so obvious that it should have been known by the party asserting the claim. This is known as the subjective prong of the inquiry. This same objective/subjective standard applies for both patentees asserting claims of infringement and alleged infringers defending against claims of infringement.

We have recently clarified that the threshold objective prong * * * is a question of law based on underlying mixed questions of law and fact and is subject to de novo review. That determination must be made by the court as a matter of law rather than by the jury. We review the court’s determination of objective reasonableness without deference since it is a question of law. With respect to the subjective prong, there is a presumption that an assertion of infringement of a duly granted patent is made in good faith. Thus, the subjective prong * * * must be established with clear and convincing evidence. We review factual findings as to subjective bad faith for clear error. . . . the objective prong requires a retrospective assessment of the merits of the entire litigation determined based on the record ultimately made in the infringement proceedings. The question is whether, in light of that record, no reasonable litigant could realistically expect success on the merits. The objective prong is a single backwards-looking inquiry into the reasonableness of the claims in light of the full record.

Similarly, in considering a party’s subjective state of mind, we are to take into account the totality of circumstances. Unlike the objective prong, which is a single retrospective look at the entire litigation, the subjective prong may suggest that a case initially brought in good faith may be continued in bad faith depending on developments during discovery and otherwise. . . .

[W]e apply the objective/subjective standard on a claim by claim basis. Because the rationale for awarding fees against a patentee for the filing of frivolous claims is to reimburse the alleged infringer for defending an action improperly brought, in these situations attorneys’ fees can only be shifted insofar as each claim is found frivolous.”  (citations and quotations omitted).

Accordingly, the Federal Circuit analyzed whether Allcare’s “infringement claim based on claim 102 rendered the case exceptional and the finding that the infringement claim based on claim 52 rendered the case exceptional.”  The Federal Circuit agreed with the district court that Allcare’s claim with respect to claim 102 warranted an exceptional case finding, holding that Allcare’s infringement claims with respect to claim 102 were “objectively unreasonable.”

Allcare argued on appeal that its infringement allegations regarding claim 102 did not warrant an exceptional case finding because they were not brought in “subjective bad faith.” The Federal Circuit disagreed.  “A claim is brought in subjective bad faith if the objective unreasonableness of the claim was either known or so obvious that it should have been known by the patentee. That is clearly so here. Allcare knew or should have known that its allegation of infringement of claim 102 was unreasonable, and this is not a situation in which Allcare acted in good faith at the inception of the litigation, but because of later developments acted in bad faith in continuing the litigation.” (citations and quotations omitted).  The Federal Circuit noted that, even where infringement allegations are objectively unreasonable, “a patentee may have reason to believe that its allegations are supportable so as to negate a finding of bad faith.” That was not the case here, however, as “Allcare has made no such showing at any point in the litigation.”

With respect to claim 52, the Federal Circuit held that Allcare’s position was not objectively unreasonable. Allcare’s claim construction position, while not correct, was not foreclosed by certain language in claim 52, and there was support in the patent’s specification for Allcare’s position. “[S]imply being wrong about claim construction should not subject a party to sanctions where the construction is not objectively baseless. This is not a case where the claim language was not subject to an alternate construction or where the specification and prosecution history clearly refute [the patentee’s] proposed claim construction.  Allcare’s argument with respect to this element was not so unreasonable that no reasonable litigant could believe it would succeed.” (citations and quotations omitted). Because the burden was on Highmark to establish that, under Allcare’s alternative claim construction, the allegations of infringement were objectively unreasonable, and Highmark had not made this showing, Allcare’s infringement claim with respect to claim 52 was not objectively baseless. Accordingly, the Federal Circuit did not need to address whether Allcare acted in subjective bad faith. The Federal Circuit reversed the district court’s conclusion that Allcare’s claim 52 contentions supported an exceptional case finding.

Litigation Misconduct. Regarding litigation misconduct, the Federal Circuit stated:

[A]n exceptional case finding can also be supported by litigation misconduct. Litigation misconduct generally involves unethical or unprofessional conduct by a party or his attorneys during the course of adjudicative proceedings, and includes advancing frivolous arguments during the course of the litigation or otherwise prolonging litigation in bad faith. A finding of exceptionality based on litigation misconduct, however, usually does not support a full award of attorneys’ fees. Instead, the fee award must bear some relation to the extent of the misconduct, and compensate a party for the extra legal effort to counteract the[] misconduct[.]” (citations and quotations omitted).

The district court found litigation misconduct on account of three alleged instances of litigation misconduct:  “(1) asserting a frivolous position based on res judicata and collateral estoppel; (2) shifting the claim construction position throughout the course of the proceedings before the district court; and (3) making misrepresentations to the Western District of Pennsylvania in connection with a motion to transfer venue.”

The Federal Circuit held that none of these actions was sufficient to subject Allcare to an exceptional case finding. Regarding the allegedly frivolous res judicata and collateral estoppel arguments, the Federal Circuit held that the arguments were not “objectively unreasonable at the time they were made” in light of the fact that the Supreme Court had not then disapproved of the “doctrine of preclusion by virtual representation.” (citations and quotations omitted). Therefore, at the time Allcare lodged the argument, it was not “wholly without merit.”

Regarding the alleged “shifting claim construction position,” the Federal Circuit found that Allcare’s “linguistic shifts in the proposed claim construction are insufficient to constitute litigation misconduct and an exceptional case finding. The constructions proffered by Allcare do not differ in substance.”

Regarding the alleged misrepresentations made by Allcare before the Western District of Pennsylvania relating to a motion to transfer venue, the Federal Circuit held that the district court (in the Northern District of Texas) erred by sanctioning conduct occurring before a different tribunal.

* * * * *

In summary, the Federal Circuit affirmed Judge Means’ finding that Allcare’s infringement allegations of claim 102 rendered the case exceptional, but reversed with respect to Judge Means’ finding that Allcare’s other claims and actions rendered the case exceptional. The Federal Circuit remanded the case, “[b]ecause the district court did not determine the amount of attorneys’ fees apportionable to each of the above issues[.]”  On remand, the district court must “calculat[e] . . . attorneys’ fees based on the frivolity of the claim 102 allegations only.”

(Judge Mayer authored an interesting dissent that would have upheld the district court’s determination in its entirety, and also asserts that Allcare’s patent was invalid under Bilski  because, according to Judge Mayer, it simply claims an abstract idea.)

Highmark is represented by Cynthia Kernick, James Martin, Kevin Katona, and Thomas Pohl, all of Reed Smith, LLP.

Allcare is represented by Donald Dunner and Erik Puknys, both of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP; and Dan Boyd, of The Boyd Law Firm.

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Judge Boyle’s Statute of Limitations Ruling Against SEC Upheld By Fifth Circuit

Posted on August 9, 2012 by Steven Callahan

On August 7, 2012, the Fifth Circuit issued its decision (available here) in SEC v. Bartek. The SEC had filed a lawsuit against Douglas Bartek and Nancy Richardson (“defendants”), who were the CEO and CFO of Microtune, respectively, for alleged securities laws violations relating to backdating stock options.  Specifically, the SEC

alleges that from 2000 to 2003, the Defendants improperly backdated stock options that the company granted to newly hired and existing employees and executives. Allegedly, Microtune failed to properly expense those options and Bartek allegedly selected grant dates using a two- week look-back procedure to find and use dates of the lowest stock price as the supposed option grant date. Bartek and Richardson backdated grants to newly hired executives and employees; backdated large “block” grants to officers and rank-and-file employees; and granted backdated options, cancelling those options when the company’s stock price dropped, and subsequently regranted the same options at a lower exercise price. . . . According to the SEC, the alleged backdating scheme resulted in Microtune’s failure to record and report over $22.5 million of gross compensation expenses, thus understating expenses and overstating income in various filings made with the Commission.

The SEC filed suit on June 30, 2008. On summary judgment, Judge Boyle of the Northern District of Texas, granted summary judgment on Defendants’ statute of limitations defense in Defendants’ favor and denied remedies sought by the SEC for the alleged violations (permanent injunctions, civil penalties, and officer/director bars), finding that these forms of relief were penalties under 28 U.S.C. § 2462 (and thus subject to its time limitation).

The SEC appealed, and the Fifth Circuit found in favor of the Defendants. The key issue before the Fifth Circuit was whether the SEC’s claims were subject to the discovery rule under 28 U.S.C. § 2462, which reads:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.

The district court held that the SEC’s claims first accrued when the alleged violation occurred, not when the SEC alleges that it discovered the violation—i.e., the district court rejected the SEC’s argument that the discovery rule applies. (The SEC alleged that it did not have notice of the violations until its August 2003 investigation of revenue recognition practices at Microtune, and that the statute of limitations should have accordingly began to run in 2003).

The Fifth Circuit found that § 2462 does not contain a discovery rule exception. “[I]t is abundantly clear that both the courts and Congress have construed the ‘first accrual’ language of § 2462 to mean the date of the violation. . . . Th[e] discovery rule, which might be applicable to statutes of limitations in state tort actions, has no place in a proceeding to enforce a civil penalty under a federal statute. The statute of limitations begins with the violation itself—it is upon violation, and not upon discovery of harm, that the claim is complete and the clock is ticking.” (citations and quotations omitted).

Next, the Fifth Circuit rejected the SEC’s claim that permanent injunctions and officer/director bars were equitable remedies and not penalties under § 2462. (Equitable remedies are not subject to § 2462’s time limitations.)  “Based on the severity and permanent nature of the sought-after remedies, the district court did not error in denying the SEC’s request on grounds that the remedies are punitive, and are thus subject to § 2462’s time limitations.”

Bartek was represented by Lawrence Gaydos, Jeremy Kernodle, Ronald Breaux, and Nina Cortell, all of Haynes & Boones, L.L.P.

Richardson was represented by Susan Resley, of Morgan, Lewis & Bockius, L.L.P.; and Zeno Baucus, Edward Davis Jr., Justin Lichterman, Rachel McKenzie, Rebecca Mroz, and Joshua Rosenkranz, all of Orrick, Herrington & Sutcliffe, L.L.P.

The SEC was represented by SEC attorneys Toby Galloway and Hope Augustini.

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