Rule 403 Prejudice Comes with the Combo.

As one Delaware jurist used to ask, ‘how many times do you patent lawyers want me to try your case?’  It was a rhetorical inquiry, since the judge had the power to keep it to one, even though the lawyers might prefer 3 trials: claim construction, liability and damages (plus maybe a TRO mini-trial on the front end).

The new school of patentee’s counsel tend to prefer one trial, hit hard and quick on the big issues, then shift the burden to infringer’s counsel to bore the jurors with proving all of the details.

That approach went under reconsideration after reading St. Clair IPC v. Fuji Photo, 1:03-CV-231 (D. Del. 11/19/09).  The jury upheld the patent and awarded damages based on .5% royalty rate.  St. Clair moved for a new trial on damages because evidence of other licenses, obtained under litigation duress, were excluded from evidence.  The judge ruled that the risk of prejudice outweighed the probative value, “particularly in light of the fact that damages and liability were being tried together.”  The obverse of that ‘particular’ may be that had damages be tried separately, then the litigation-induced licenses would have been admitted for the jury to consider.
The ‘whoops’ factor (scarred litigator-speak) was that someone in the courtroom must have thought having two trials was the better option, and it wasn’t St. Clair.  “In this regard, the Court notes that St. Clair opposed the bifurcation of liability and damages.”

There are plenty of cases, pro and con, on admitting evidence of royalty rates in licenses obtained after litigation was threatened or underway.  It can be held out, especially where those are the only licenses.  It can come in with a cautionary instruction to the jury, or it can just come in after cross-exam and closing argument explain the differences between arms-length and arm-twisting.

In that perfect world of the engineering mind, each issue would get full treatment, and if that takes separate trials, then OK.  But, the litigator’s mindset is to get to verdict as soon as possible, without being unduly rushed. For that, one trial plainly is preferable.  If a choice between bifurcation, trifurcation or singularity carries a risk of my evidence being excluded from the single trial, but admitted in one of separate trials, then tell me that – before any trial, and before I decide on bifurcation.

Local Patent Rules Might Have Unintended Impact.

LegalMetric sends out routine emails referring to its statistical analysis of patent litigation. Recently, it reported the most pro-patentee and [allegedly] pro-infringer districts among the federal courts.

In order, the top 10 districts favoring parties accused of infringement are:

1. Northern District of California  *
2. Southern District of California * 
3. Eastern District of Pennsylvania
4. Central District of California * 
5. Southern District of New York 
6. Southern District of Ohio * 
7. Eastern District of Michigan
8. Western District of Washington *
9. Southern District of Florida
10. District of Arizona

The ten districts most favorable to patentees were, in order:

1. District of Delaware
2. Eastern District of Texas *
3. Middle District of Florida
4. District of New Jersey
5. Western District of Wisconsin
6. Eastern District of Virginia
7. District of Massachusetts*
8. Eastern District of Missouri
9. District of Minnesota*
10. Northern District of Ohio

My curiosity was what neutral factor might bear upon whether a district favored infringers over patentees. As listed above, the asterisks indicate those districts that have local rules for patent litigation.

IMO, the rules that allocate to patentees the burden of going forward with a proposed claim construction, identification of alleged infringing subject matter with claim chart details, etc., tend to be more favorable to infringers. The local patent rules, with links to those district’s webpages, are collected nicely on matthewspatentlaw.com/documents/LR-NJ.pdf

Those districts that still practice using the ‘sporting’ rules of litigation tend to favor a patentee.

It is fair to conclude that my appraisal is unscientific and/or based on too small a sample to draw conclusions. On the other hand, the rating and report of LegalMetric has indicia of scientific reliability.

Spring IP

As 2009 winds down, I begin preparing to teach in the Spring semester. The greatest number of IP law courses yet are offered in the coming semester. My class on IP Transactions L936 is one among the classes offered in Copyright Law L929, Patent Law L934, and also, the seminars in Advanced Patent Law L 950 and IP Litigation L950. It shows the increased level of student interest in IP law.

Brand Assassins.

Businesses divide large blocks of time between building their brands, and managing risks. Crunch time comes when unforeseen actions give the brand a black-eye. The case is point is the F1 Grand Prix team of Renault, which like most motorsports teams, runs a car that resembles a rocket-shaped billboard. If you had to choose between the engineers and the sponsors, as to which group ‘keeps the wheels turning,’ it’d be hard not to choose the sponsors.

Consider that due to the massive audience for F1 racing, that the new-entrant Brawn team provided its sponsor with the equivalent of over $90M in TV exposure, because Brawn GP ran at the front of most of the early races. But, the sponsors can suffer when bad actors wearing the logos harm the team, and so too, its sponsors. The Renault team was managed by Flavio Briatore and Pat Symonds, and only a few years ago, won back to back championships. This past year, the team was not getting results. Some of the blame was shouldered by a young driver, Nelson Piquet, Jr. Mid-season he was let go, and unpleasantness ensued. Piquet reported to racing authorities that in an earlier race, he had been told to crash on purpose, so as to advantage his teammate. When the charges came out, Briatore went on the offensive with denials and threats of retributive litigation, and even criminal charges against Piquet.Then the FIA found probable cause, scheduled an emergency hearing to show cause why sanctions should not be imposed. Briatore and Symonds promptly resigned, and bans from the sport were imposed.Three brands took hits, Renault certainly, but also its key sponsors, ING, the Dutch banking concern and Mutua Madrilena, a Spanish insurer. As a result, both pulled their sponsorship, and their logos were pasted over on the racing car and equipment.

The difficult thing about brand management is that many risks are not foreseeable. Renault employees [allegedly] caused the debacle, but even if they are fired, the brand still is degraded by the bad publicity. On a more basic level, employees can put up a youtube video, e.g., the pizza workers cheese-up-the-nose video, or might post to Facebook some story that may be untrue but still gets into the news.

Brand assassination can result from negligence, from devious acts, or can be the work of competitors or the displeased public. All the goodwill that is carried by a strong brand can be undercut, quickly. Even after the Renault incident was resolved by the racing authorities, Briatore continues action in court, which extends the negative press against the brands.

Without an risk management plan in place, a company’s trademarks and brands can get lots of unwanted public exposure, and can sustain damage that is hard to repair.

Ariad v. Lilly – amicus diverge.

My initial reading of the amicus briefs to the Federal Circuit, on the two en banc questions about the written description requirement, indicated two clusters of argument.  There are contentions that the requirements “as applied” impact the life sciences harshly.  Others contend that there is, or is not, a description requirement in 112,1 separate from having to enable.

The “as applied” contentions may have merit, or may be anecdotally accurate.  Either way, anecdotes are not a sound basis for precedential rulings.  The statute says what it says.  No one would desire a result that allows a patent to issue, before the invention is to the point of invention.  So sure, there are applications and issued patents that get treated harshly, especially if the final claim set is more a product of negotiation with the examiner than based on a restatement of the specification.

As part of my adjunct professor work, an amicus brief was filed with the assistance of law students in the IP Law Society at the University of Kentucky College of Law.  It now is published on scribd.com, and accessible at:   http://www.scribd.com/doc/22480653/Brief-UKIPLS-11-11-2009

Was this award of counsel fees “exceptional” or less.

The premise of prosecution history estoppel has strength in claim interpretation, but is a weak reason for assessing “exceptional case” attorneys fees.  The Judge awarded attorney’s fees to the accused infringer in iLor v. Google, 5:07CV109 (E.D. Ky. 10/15/2009), based on a remark in the prosecution history and promotional comments on the patentee’s commercial webpage.  The Court did not consider litigation misconduct, or continuation of the case past certain rulings.  The award of attorneys fees, to an accused infringer, is exceptional for being based almost solely on file wrapper estoppel.

The ruling gives passing mention of the “clear and convincing” standard for exceptional case determinations.  The actual analysis, however, suggests that the court disagreed with the plaintiff’s claims construction, and on that same basis, found the case exceptional.  Imposing a disclaimer as an aspect of claim construction is one matter, but since the CAFC reverses nearly half of the Markman rulings, it is quite a different matter to equate disagreement over disclaimer and its scope with clear and convincing evidence of “exceptional,” bad faith pleading.  “If this court had reversed the district court’s construction of the portable computer limitation, CDSC might have been able to prevail …[and so], the district court did not clearly err in refusing to find the case exceptional.” Computer Docking, 519 F.3d 1366, 1380.

In the file wrapper, the plaintiff/patentee iLor has argued that a reference had five differences from the claimed combination.  One of those argued distinctions was ruled contrary to iLor’s infringement theory, and caselaw does support disclaimer as to the one.  The “applicants distinguished their invention from the prior art in multiple ways. Nonetheless a disavowal, if clear and unambiguous, can lie in a single distinction among many.”  Computer Docking, 519 F.3d at 1377.   In the latter part of the prosecution, other claims were added, including the claim allegedly infringed.  The disclaimer was extended to the later-added claim, because of (what sounded like a boilerplate) remark that the newly added claims ‘were allowable for the same reasons’ as earlier-examined claims.

The element of "subjective" bad faith was said to be proven by the patentee promoting its product on its website, specifically noting the point of novelty, which was the crux of the non-infringement ruling.  But quare: commercial speech about one's product is irrelevant to claims construction - you can't ask Mr. Markman what his patent covered.  Also, iLor's patent claimed various embodiments, some or none of which may have been what its website was promoting.

Exceptional is supposed to connote something substantially greater than failing to prevail on an aggressive or expansive reading of one's claims. You can’t fault Google for seeking recovery of fees, but that doesn’t mean the Judge is correct in awarding them.

Headless Calvaryman Unseated by Iqbal.

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.”

Twombly’s Alternatives Make Pleading Personal Jurisdiction Particularized.

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.

Implementing A Method of Suing for Theft of Patented or Publicly Known Secrets.

The Ad world tends to self-publicize events involving itself, such as the suit against WPP and JWT arising from an ad campaign for Microsoft’s Bing search service (they’re so cool, everyone in the club knows them by their initials). News reports suggested a patented method to produce a “program-intergrated advertisement” was allegedly infringed. Actually the suit began as a breach of an NDA against Mindshare, a subsidiary of WPP (Del. Ch. dkt. #4659-VCL), seeking injunctive relief. That now has expanded to a damages suit under the UTSA, in the Delaware Superior Court (dkt. #09C-08-138), against WPP, which owns JWT and Mindshare. The origin of both cases was a meeting between plaintiff Denizen’s principals and Mindshare’s reps.

There’s a wide path to travel when suing for misappropriation of trade secrets under the UTSA, or based on a NDA, where the technology is patented or was published in a patent application, but it leads to a narrow gate. “It is well established that disclosure of a trade secret in a patent places the information comprising the secret into the public domain.” Stutz Motor Car of America, Inc. v. Reebok Intern., Ltd., 909 F.Supp. 1353, 1359 (C.D.Cal. 1995), aff’d, 113 F.3d 1258 (table) (case involving “The Pump” hi-tops from Reebok – which you really wanted!). The method of producing a “program-intergrated advertisement” was patented “in 2005” according to plaintiff Denizen’s pleadings. Separate research disclosed that the BPAI (Appeal no. 2008-0732) upheld rejection of all claims in a CIP of Denizen’s USP 6,859,936.

The case recalls those NDA forms that define “Confidential Information” to include “patents,” followed by the anti-definition that excludes information in the public domain. I know what thou art, but what art thou not?  It too recalls words like foreclosed, preempted and barred.

What Denizen pleads is its confidential disclosure, and Mindshare’s misappropriation of, how “to implement program integrated advertisements, such as …ways to shoot the ad[]s, strategies for obtaining [SAGuild] contracts, methods to gain access or rights to [TV] program content, and how an ad[] agency could work with a production house or network.” Curiosity suggests that persons at JWT/WPP with skill in the art, may have known much about those elements of the secrets.  Denizen’s method is patented, some further methods in its CIP were rejected as anticipated, but Denizen’s suit alleges that how “to implement” what it had disclosed (presumably in an enabling manner) in its patent and patent applications, are trade secrets.

It’s no secret that in all litigation, and so too, in IP litigation, to win – you’ll need some luck.

SOX Whistleblower Liability Claim Raised by Firing IP Lawyers Who Reported Possible Inequitable Conduct by a Merger Party.

Husband & wife IP lawyers, working in-house, raised with their superiors the possibility of a material, pre-merger non-disclosure by a merger partner about its key patent, which could impact the post-merger revenue that the patent may generate. Within weeks, both lawyers were fired by execs who came over from the merger partner.

The Ninth Circuit reviewed the summary judgment dismissing the lawyers’ whistleblower claims under the Sarbanes-Oxley Act, as an issue of first impression in that Circuit. Van Asdale v. Int’l Game Technol., 2009 WL 2461906 (9th Cir. Aug. 13, 2009). With a bit of recasting of the facts, the decision could be the basis to turn inequitable conduct into grist for SOX whistleblower suits. While the panel emphasizes that no fraud may be proven later, they did reverse the summary judgment and remand for further proceedings.

Section 1514A of the SOX Act proscribes discriminatory action against employees for providing information about “conduct which the employee reasonably believes constitutes a violation of” federal statutes against fraud. The employee must have a subjective belief that the reported conduct violates those laws, and the belief must be objectively reasonable. To make the claim, the employee must establish a nexus between the “protected activity” of reporting possible fraud and the adverse employment action, here, getting fired right after the report. On that point, the decision holds that “causation can be inferred from timing alone.” The Van Asdales were fired days after the meeting where the fraud issues were discussed.

The facts, taken in the light most favorable to the plaintiffs, were that the merger partner had a patent that generated much of its revenue, which was described as “the Crown Jewel” that the merger partner brought to the deal. That patent was being asserted against a competitor, but the due diligence did not disclose a “flyer” that, as described, appears to have been Section 102(a) prior art. After the merger, one of the plaintiffs obtained the “flyer” from outside counsel, and that provoked his concern that its non-disclosure was material to the valuation of the merger partner, as well as to the revenue stream generated by the patent.

In a broad sense, awareness by counsel for publicly-traded companies that acquired IP may be challenged as invalid or unenforceable must be considered seriously. In the Van Asdale case, the employed lawyers had “allegedly accused high-level IGT executives who had previously worked at Anchor of intentionally withholding material information prior to the merger.” However, the SOX wrong only occurs if management takes adverse employment actions that ostensibly were done to retaliate against or to silence employees who reported the conduct.