September 17, 2009 by thomason.

In the old days - what, like five years ago -  an infringement defendant sued by a competitor was likely to counterclaim based on patents possibly applicable to both parties’ product lines.  Such counterclaims served a zero-sum strategy, and often was a gambit toward settlement by cross-licensing.  The practice persists, but is of no use when defending against patent holding companies that have no product lines.

Saddling a competitor’s suit with a routine counterclaim for infringement now may require a change of riders.  Like the rider encountered by Ichabod Crane, an infringement counterclaim may be deemed a ‘headless’ soldier when it chases down Iqbal.  A “formulaic” counterclaim for infringement, devoid of factual underpinning, can cause heads to roll.

In Elan Micro. v. Apple, 5:09-CV-1531 (N.D. Cal. 9/14/09), some counterclaims were dismissed, with leave to amend, because there was “nothing more than a bare assertion” of patent infringement.  The counterclaims identified the patents, and alleged “upon information and belief,” infringement by Elan’s “touch sensitive input devices or touchpads, including but not limited to the Smart-Pad.”  This pruning exercise, especially is surprising in the N.D. Calif., because of its rules requiring initial disclosure of infringement contentions.  The counterclaims might have pleaded with more detail, but Apple would soon have had to present a claim chart.  Just having another round of pleading amendments was what the Iqbal justices would want, but getting on with the case is too a worthwhile judicial act.

The recency and frequency of decisions dismissing claims based on Twombly and Iqbal may be all the rage, but those perhaps are false efficiencies.  My procedure professor explained that in a perfect justice system, a dispute ensues, full disclosure is made, and a judicial officer decides promptly a just result – all at once.  But not so in a reality-TV universe.  A a formbook pleading is followed by incomplete disclosures, which provokes supplemental discovery and extended deadlines, then late-made amended pleadings plus revisions to initial contentions, and when the case gets its semiannual one-hour perusal by a judicial officer, the result is a partial Rule 12 dismissal with leave to amend, and maybe an extension to the CMO dates.  Does that help move the case to just and efficient conclusion, or is that about as effective as throwing a pumpkin across a bridge?
Note too that the Elan decision departs from the belief that use of the FRCP Form 18 complaint to plead infringement will suffice.  Further, it rejects the argument that Rule 11(b)(3) enables a party to obtain discovery about matters pleaded in good faith “upon information and belief.”

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September 1, 2009 by thomason.

The seeds of legal change often are found in unpublished, Circuit opinions. Among that mix are decisions interpreting, expansively, the Supremes’ remarks about adequate pleading in the Twombly and Iqbal cases. Serious parsing and explanations emerge when a panel decision extends the “plausible” requirement, without at the same time, implicitly amending federal civil procedure rules 8 and 9. Newly-defined pleading rules for personal jurisdiction over national distributors of infringing works are the seeds sown by a Sixth Circuit in Palnik v. Westlake Enter., 2009 WL 2707368 (6th Cir. August 31, 2009), a case over distribution of films that had an infringing soundtrack.

Without repeating here the elemental facts needed to sustain personal jurisdiction, it needs to be recalled that those pleaded facts are ‘taken as true’ when challenged by a Rule 12(b) motion. Then though, the plausibility inquiry kicks in. If the pleader opts for jurisdictional discovery, then that forfeits the advantage of the pleaded jurisdictional facts being favorably construed in the pleader’s favor. The Circuit panel ruled that Palnik didn’t plead enough facts, that what he did plead didn’t pass its plausibility test, and that Palnik never asked for jurisdictional discovery.

What was new in this case was the combined hurdles of pleading jurisdictional facts, with plausibility and with “reasonable particularity.” As best as research indicates, only the 6th and 3rd Circuits require jurisdictional facts to be pleaded with “reasonable particularity.” It’s not in Civ. Pro. Rule 9. But, those Circuits differ in the approach. The 6th makes it essential to the pleading, while the 3rd views particularity as a indicia of the need for jurisdictional discovery - even if that wasn’t requested. Consider C.J. Stapelton’s recent remark in dissent “I read ‘with reasonable particularity’ to mean that if a plaintiff suggests a realistic basis for believing that personal jurisdiction exists, he or she should be allowed to pursue discovery before having to prove that such jurisdiction does exist.” Metcalfe v. Renaissance Marine, Inc., 566 F.3d 324, 340 (3rd Cir. 2009), and Toys “R” Us, Inc. v. Step Two, 318 F.3d 446, 456, 65 U.S.P.Q.2d 1628 (3rd Cir. 2003). The 5th Circuit follows the 3rd Circuit on that approach. Cable Electronics, Inc. v. N. Amer. Cable Equip., Inc., 2009 WL 2382561 (N.D.Tex. Aug. 10, 2009).

The twist added in Palnik’s case derives from Twombly defining a “plausible” allegation as that which does not admits of two possible “alternative explanation[s]”. 550 U.S. at 567. When the well-pleaded facts support a persuasive, and perhaps likely, ”obvious alternative explanation” to the pleaded facts, then that can defeat an assertion of personal jurisdiction as not “plausible.” That obvious-but-unfavorable notion seems hostile to construing facts in favor of the pleader, viz., if the allegations admit of two explanations, then doesn’t the pleader get the most favorable one? “Palnik’s complaint fails not because he lacked sufficient information to state the facts supporting jurisdiction or because the defendants leveraged their possession of information to hide the true facts, but because the allegations contained in his complaint were capable of multiple interpretations regarding the defendants’ involvement in the distribution of the film”.

A slap added to the twist was the panel’s suggestion that Palnik could have satisfied the “reasonable particularity” requirement by alleging the mots’ magique upon “information and belief,” and as enabled to do so  to the extent possible under Rule 11(b). “Palnik had his chance …and did not take advantage of it.” This suggestion seems to urge overstatement, in place of notice pleading - all in pursuit of singular interpretation and reasonable particularity (which aren’t in the rules).

The decision, albeit unpublished, comes from a distinguished panel, which suggests where the requirements to plead personal jurisdiction may be heading. It too raises concern because the Palnik case involved whether distributors of a film containing infringing music “caused it to be distributed to Ohio through a national or regional distribution contract,” and the reasonable particularity requirement came in a case involving internet commerce. These modes of distribution are likely to arise in most all cases, which today infrequently involve locally-based authorized distributors of products. These new layers of requirements come out, just when you’d been practicing long enough to think you were starting to understand that personal jurisdiction material presented in your first year of law school.

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