Judge: Michael Schneider
Holding: Motion To Dismiss for Lack of Personal Jurisdiction Denied
Judge Schneider day here at EDTexweblog continues with a selection from the plethora of Blue Spike opinions that have been streaming out from the court since the status conference on Wednesday of this week.
The court addressed a number of motions to dismiss for lack of personal jurisdiction in this case. One in particular caught my attention – that by defendant Cognitec Systems Corporation. After reviewing the relevant facts, Judge Schneider denied the motion to dismiss, but noted that in its reply, Cognitec also "summarily argues" that the Court should transfer venue under 28 U.S.C. § 1404. "Cognitec seeks transfer to any one of four venues," he writes, "and Cognitec’s motion is more a request to leave the Eastern District, rather than a motion to transfer to any other district in particular." (Emphasis in original - that was kinda my favorite part). Concluding that this fell far short of the standard under 28 U.S.C. § 1404(a) to transfer for the convenience of the parties and witnesses - that the receiving forum be clearly more convenient - Judge Schneider denied the alternative motion as well, noting that its "vague and brief statement" was not an appropriate request for a convenience transfer.
EMG v. Vanguard Group, 6:12cv543 (3/6/14)
Judge: Michael Schneider
Holding: Motion To Transfer Venue Denied
Defendant AutoZone sought a transfer to the Western District of Tennessee. After reviewing the applicable factors, Judge Schneider concluded that only the local interests and access to sources of proof factors favored transfer, while the availability of compulsory process and judicial economy concerns weighed against transfer. The remaining factors were neutral. Thus, "[o]n balance" he determined that the defendant had not met its burden to show that the Western district of Tennessee was clearly more convenient, and denied the motion.
The legal media is paying attention to the Eastern District's new Track B order. Today's Texas Lawbook has a short article on the topic Eastern District Facilitates Patent Cases with New Case Management Order by reporter Natalie Posgate. Natalie and I talked yesterday about the new order and I wanted to note a couple of things she quotes me on in the article that I think are worth calling out:
Where Track B is used - either by agreement or by court order - I think it will have the practical effect of unchaining defendants in cases in which it applies from the costs of proceeding through discovery and claims construction - in fact all the way to expert reports - before they know what the amount at issue is. And as practitioners know - this isn't a theoretical problem. Ascertaining the damages that are being claimed in a patent case - to say nothing of what the law permits to be claimed or what the jury finds the case is actually worth - is a long and involved process under the existing structure. And not without reason in some cases, but still ...
If you're a close reader of the blog, this concept - damages discovery before liability - ought to sound familiar. I've previously called out Rachael Lamkin from California for her novel proposal for "reverse bifurcation" to avoid unnecessary costs in cases where damages are minimal. See Motion to Sever and “Reverse” Bifurcate . To briefly recap, once upon a time Rachael couldn't get a plaintiff to respond to her repeated attempts to contact them to let them know that her sales of the accused products were so low that the damages appeared to be $800-$2,500, even assuming infringement and validity. Unwilling to wait a year and a half or more for a damages expert report, she filed a motion to bifurcate the case asking that damages discovery preceded liability discovery. Very, very shortly after she filed the motion,. I noticed the plaintiff filed a motion to dismiss its claims against her client. This track is essentially built around that concept by front-loading crucial damages information ahead of claims construction or even invalidity disclosures, and specifically asking for such creative case-specific concepts at the status conference.
An important caveat here - Track B is not for everybody. The default, which is the heavily road-tested Track A, is going to be the right vehicle for many cases. But in the same way that sometimes you throw to Cole Beasley even when Dez Bryant is also running a route, sometimes Track B is going to be the right tool to get you across the goal line. And it doesn't even have funny-looking hair.
Man, I miss football already.
This morning Chief Judge Leonard Davis signed General Order 14 – 03 General Order Regarding Track B Initial Patent Case Management Order. The new order creates a second "track" for patent infringement cases in Eastern District of Texas. This appears to be the first such order by any U.S. district court nationally, but it follows in the local tradition of case management "tracks" that were a hallmark of the 1991 CJRA Plan, which brought expedited mandatory disclosure to the District. (For more on the Plan, see my article Man With the Plan -- Successful Eastern District Practice Requires Understanding History in the April 11, 2011 Texas Lawyer).
According to the order, the familiar patent case management scheme that Judge Davis refers to as "Track A" will continue as the default. However, due to the experience gained in administering cases using the traditional structure, the judges of the district believed that additional efficiencies and cost savings could be achieved through the use of alternative procedures in appropriate cases. This alternative, which the Court dubs "Track B" complements the default procedures of Track A by providing litigants and the Court with a choice for a faster, less expensive way of resolving patent cases.
Chief Judge Davis explained the purpose behind the new track earlier today. "It is designed to get more case specific information to the parties earlier and less expensively so that each side, and the Court, will be more knowledgeable about the case at the time of the Initial Case Management Conference," he says. "Hopefully this will lead to the entry of a more focused and cost effective Case Management Order, thus avoiding treating all patent cases the same and lead to earlier resolution at less cost to the parties and court." Does he see it as favoring one side or the other, and will there be modifications? "We tried to seek an equal balance between both sides of the docket," he explained. "We will see how it works and make modifications as needed."
So let's explore this new order.
You Can Volunteer But You Might Get Drafted Anyway
The procedures in the new Track B case management order go into effect in one of two ways. First, the parties can file a joint notice electing to proceed under Track B, or the court can order that the case will proceed under Track B. Notices of election are to be filed on or before the date by which all defendants have filed either an answer or a 12(b) motion. If additional parties are added or consolidated into the case after the filing of a Track B election, the new parties can object to the election prior to appearing in the case, and the court will then consider the objection.
Dramatically Different Structure and Timing
The order itself establishes a standard alternative structure for patent cases that, both in terms of timing and substance, represents a radical departure from the customary Track A procedures. Notably, it incorporates into local practice several provisions that are still only under consideration in the form of pending legislation in Washington, mostly taking the form of early mandatory disclosures of relevant licensing, sales and damages information, in addition to the information already required under the Patent Local Rules.
The Track B structure counting in days from the answer/12(b) motion, and with notable additions to existing practice in red, is:
Answer +14 – infringement contentions and licensing disclosures
Plaintiff serves its infringement contentions and accompanying production in compliance with patent rules 3-1 and 3-2. Importantly, the plaintiff "shall also produce all licenses or settlement agreements concerning the patents in suit and any related patent."
Answer +44 – initial disclosures and summary sales information for accused & "reasonably similar" products
All parties serve initial disclosures pursuant to FRCP 26(a)(1). Defendants also produce "summary sales information" reflecting the quantity of accused products sold in the United States and the revenue from those sales. Importantly, for purposes of this disclosure, the term "accused products" includes all products identified in the infringement contentions as well as all "reasonably similar" products. Of interest, the order defines this as "other products that a party should reasonably expect to be accused of infringement of the asserted claims after a full opportunity for discovery."
Answer +58 – good faith damages estimate, including method of calculation
Each party claiming infringement must file a good-faith estimate of its expected damages, "including a summary description of the method used to arrived at that estimate." The court notes that this estimate is nonbinding in that it will not serve to limit the damages that a party may recover.
Answer +72. Invalidity contentions
Answer +77. File notice of readiness for management conference
Answer +87. Patent rule 4-1 disclosures due (4-2 and 4-3 follow using default PR spacing)
So the Track B cases proceed up through claims construction disclosures without any further guidance by the court - and, during this initial phase of the case, discovery is limited to five (each) interrogatories, requests for production and requests for admission per side absent leave or stipulation. However, once the court sets a management conference, the following dates fall into place:
Conference minus 14 – meet and confer pursuant to Rule 26(f)
Conference minus 7 – parties jointly file discovery plan.
This plan is required to address a number of issues, including consolidation, discovery limitations, whether the court should enter its model orders focusing patent claims and prior art or on e- discovery, entry of the protective order, claim construction (scheduling and limits on claim terms), and trial scheduling.
The order must also address any "clearly dispositive issues that warrant special scheduling", as well as whether expedited trial, trial on limited issues, or any other issues are appropriate to be discussed.
In language that is also a nod to pending proposals before the Advisory Committee on the appropriate scope of discovery, the order states that "in particular, the court is interested in scheduling and discovery limits that are fair and adequate, but that also bear an appropriate relationship to the likely value of the case." (Emphasis added).
Finally, the order notes that while the court is aware that the order requires certain disclosures "that depend on the exercise of judgment at an early stage of the case," it cautions that appropriate sanctions will be imposed if case development reveals that a party's disclosures under the order (1) lacked a good-faith basis, (2) were unreasonably sparse, or (3) were intentionally misleading.
As noted above, several of the provisions in the Track B order reflect proposals currently under consideration in Congress, including early disclosure of certain information, such as licensing information, as well as very early disclosure of both the damages sought and the method of calculating those damages.
TQP v. Intuit, 2:12cv180 (2/19/14)
Judge: William C. Bryson
Holding: Motion for Summary Judgment of Invalidity Under 101 Denied
Defendants contended that all of the asserted claims were invalid because they were directed to patent-ineligible subject matter. Specifically, the algorithm at issue was alleged to be abstract or "naked" as opposed to a specific application. Citing to his Federal Circuit colleague Judge Lourie's plurality opinion in CLS v. Alice, Judge Bryson identified some "common themes" running through the caselaw, concluding with the observation that what matters here is "whether a claim threatens to subsume the full scope of a fundamental concept.” And of course the helpful admonitions that we shouldn't be overly formalistic about these things, but should rather be flexible, and yea, there is even a test to be applied here.
Anyway, near the middle of page six of the opinion Judge Bryson begins to steer towards the facts of the case, observations and test (such as it is, the cites being to a mere plurality opinion) in hand. There is undoubetdly a patent-eligible process here, he notes - but does the recited claim raise "abstractness" problems? Well, no - the Court was then able to identify several important limitations on the scope of the basic invention, and eventually came to the conclusion that what we're looking at here is an "inventive concept" as opposed to a "basic tool". Nor did the Court accept the argument that the invention was just a "mental process" performable without a specific machine, pointing out that finding so would require a formalistic, rigid, even line drawing sort of mojo, which would be bad, and not the flexible, pragmatic approach that Judge Lourie's plurality thought was the way to go. Plus, writing as a seasoned Eastern District of Texas trial judge, Judge Bryson noted that there are fact issues running around here that would preclude summary judgment anyway.
The last argument presented was whether the claim fails under the “machine or transformation” test of Bilski. While noting that there were some similarities between this case and several other recent cases in which either the Supreme Court or the Federal Circuit had found claims to be ineligible under section 101, Judge Bryson concluded that there were fundamental differences as well, and that in the end although the invention did not result in the physical transformation of matter, it did involve a specific system for modifying data that had "equally concrete and valuable effects" in the field of electronic communications.
SimpleAir v. Google, 2:11cv587 (2/10/14)
Judge: Rodney Gilstrap
Holding: Plaintiff's Motion for Entry of Partial Judgment on Infringement and Validity and for a New Trial on Damages Granted
As readers may recall, last month a Marshall jury in this case returned a unanimous verdict finding that defendant Google had infringed the five asserted claims, and that the asserted claims were not invalid, but left the damages question unanswered. The plaintiff then asked the court to enter a partial judgment as to infringement invalidity and order a new trial on damages. Google, on the other hand, opposed entry of such partial judgment and sought a new trial on infringement, invalidity and damages.
Judge Gilstrap began by noting that the controlling Federal Circuit law is clear the district courts may bifurcate damages issues from liability issues for trial in any given patent infringement case. (Bet you never thought it'd come up this way, did you?) Concluding that infringement, invalidity and damages were separate and distinct issues, the Court ordered a retrial limited to the unanswered issue of damages.
Google contended that a new trial was nonetheless appropriate because of the length of deliberation, the nine jury notes, and the court's Allen charge which it contended showed that the jury arrived at a compromise verdict. "While these events establish that the jury had great difficulty and, in fact could not arrive at a unanimous damages decision," Judge Gilstrap wrote, "nothing suggests that the verdict of infringement and patent validity were not the honest judgment of each individual juror." On the contrary, the Court interpreted the jury's failure to answer the damages question after the better part of two days of deliberation as indicating a "steadfast refusal" by the members of the jury to reach a compromise verdict.
"Based on the court's observations of the progression of events," the Court concluded that the jury appears to have resolved the questions of infringement and invalidity before they concluded the first day of deliberations. Supporting this was the fact that the first three jury notes plainly requested materials and information to address these first two questions. After that, the six subsequent notes indicated that the jury had moved on to the issue of damages, growing frustrated as deliberations went on.
Google focused on the terms "concessions" and "negotiations" which were used by the jury in certain of the later notes but concluded that that was in the context of discussing damages. The court found no signs that the jury was compromising between liability and the amount of damages other than Google's "self-serving" reading of the jury notes, a reading which the court concluded was not accurate.
Accordingly, Judge Gilstrap set the new trial for damages for a pretrial conference on March 10, with jury selection on March 17.
Judge: Rodney Gilstrap
Holding: Motion to Transfer Denied
Last month I posted on Judge Gilstrap's opinion in this case denying a pending a petition for Covered Business Method review. On Friday, Judge Gilstrap ruled on the defendants' motion to transfer venue, which asked the court to transfer this action against 13 defendants to the Northern District of California.
Just to help keep score here, the plaintiff was from Massachusetts, one defendant was located in the Eastern District of Texas, three were located elsewhere in Texas (with one of the three also operating a facility in the Eastern District of Texas), and eight other defendants were based in cities east of Texas. One defendant is based in the Northern District of California. After reviewing the relevant factors, Judge Gilstrap denied the motion.
What is significant about this venue opinion is its use of the 2013 revisions to Federal Rule of Civil Procedure 45, which substantially changed the rules for subpoena practice.
As readers of O'Connor's * Federal Rules (2014) (specifically ch. 1-H, p. 47) already know, there were significant amendments to Rule 45 which took effect on December 1, 2013. Among other things, they did the following:
The effect of the amended rule became clear when the court reached the second private interest factor "availability of compulsory process." Judge Gilstrap noted that in In re Volkswagen II under the then – effective Rule 45, the Fifth Circuit expressed concerns over situation where a nonparty witness, located outside the presiding court's subpoena power for attending deposition, had to travel more than 100 miles to attend trial thereby subjecting any trial subpoenas issued for the witness to motions to quash. Under the amended rule, however, the presiding court is empowered to issue nationwide deposition subpoenas, so long as the deposition is to take place within 100 miles of the witness' residence or regular place of business. Thus under the current Rule 45, regardless of the venue in which a case is originally filed, parties may now secure the attendance of any nonparty witnesses for deposition - something the Fifth Circuit said wasn't available under the former version of the rule.
"This recent amendment to Rule 45 has direct application to the Fifth Circuit's earlier concern expressed in In re Volkswagen II about a non-party witness being inconvenienced by having to travel more than 100 miles to attend trial," Judge Gilstrap wrote. "The proffering party now has the option to depose the non– party witness near that witness' residence or regular place of business, and later present the witness' deposition testimony at trial."
The only difference between the two venues, the Court reasoned, was that defendants could present live testimony of its three identified nonparty witnesses which were in the Northern District of California, while they must rely on the witnesses deposition testimony if the case remained in Texas. However in its briefing, the court noted that the defendants had failed to explain how they would be inconvenienced by presenting the nonparty witnesses by deposition testimony at trial - in fact the court indicated that the defendants failed to even recognize the possibility of presenting these witnesses testimony by deposition. The court therefore turned to the Fifth Circuit case law regarding videotape depositions in which that court held that a videotape deposition would serve as an acceptable substitute for live testimony, and concluded that it was not convinced that using the nonparty witnesses deposition as opposed to live testimony at trial would seriously inconvenience the defendants.
After reviewing the applicable factors, Judge Gilstrap concluded that one factor weighed slightly in favor of transfer, one slightly against, and all the remaining six factors were neutral. Thus the balance of the private and public factors did not show that the defendants had established that the Northern District of California was a "clearly more convenient forum."
The court concluded by noting that in a footnote one of the defendants had also asked for the plaintiff's litigation against its customers to be severed and stayed. Judge Gilstrap concluded that the four-line footnote did state a request for severance that the court must address, but gave it little reason to do so, and accordingly denied it
TQP v. Branch Banking and Trust Co., 2:12cv055 (1/14/14)
Judge: Roy Payne
Holding: Motion for Declaration of Exceptional Case and Attorneys Fees and Costs Denied
The issue of when attorneys fees and costs are recoverable from an unsuccessful plaintiff in a patent case under 35 USC section 285 is a hot topic right now. Like Garrison Keillor's Lake Wobegon where all of the children are above average, in virtually every case I have been involved in, both sides believe that the case is "exceptional" under section 285 – or at least we always plead that way in case the facts turn out to support such a claim.
As I've noted (repeatedly) in recent months there been a number of infringement verdict adverse to plaintiffs, from which we can presumably expect some judicial determinations as to whether those cases are "exceptional" so as to justify an award of fees, but, interestingly, there have also been a number of voluntary dismissals by plaintiffs shortly before trial which have been followed by motions for declaration of exceptional case status by the defendant(s) – the Adjustacam case I posted on a few months ago comes to mind.
As an aside, that is one of the beneficial things to having a substantial number of cases go to trial locally – issues such as the admissibility of damages testimony under the new Federal Circuit standards, summary judgment motions, space motions for declaration of exceptional case after plaintiff loses a trial, and motions for judgment as a matter of law on a variety of issues are decided on a regular basis, providing a substantial amount of case law on these important issues. If everyone settles early in a case, you never get to see which facts do and do not suffice for various rulings. Of course all this with respect to "exceptional" case status becomes moot if the Supreme Court changes the standards, or Congress revises the statute, but district courts are still going to have to apply the standards to a particular set of facts.
This case provides another data point in this area with respect to voluntary dismissals by plaintiff in lieu of a trial, at least under the existing case law. One of a large number of cases originally filed by plaintiff TQP, after originally being set by Judge Ward for trial in March 2014, the case was accelerated by Judge Gilstrap to a November 2013 jury setting. If you'll recall, TQP actually went to trial against another defendant – Newegg – that month and obtained one of the two plaintiffs verdicts in Marshall last year in patent cases. But this case did not get that far.
In early August, 2013, TQP asked defendant BB&T to consent to a dismissal with prejudice, claiming that after it finally received from BB&T the discovery responses needed to fully evaluate its claims it determined that the damages in the case would be less than $25,000. BB&T declined this offer, after which the plaintiff filed an emergency motion to compel a further mediation session, which was denied by the Court. TQP subsequently filed a motion to dismiss with prejudice. At the hearing on the motion the plaintiff stipulated that the effect of the motion was to make the defendant the prevailing party, and the defendant conceded that the court no longer had jurisdiction over its counterclaim for a declaratory judgment since the plaintiff had dismissed all current claims and the patent has expired, thus no future claims were possible. All the relevant ducks now being in the proverbial row, Defendant BB&T then filed a motion seeking a declaration of exceptional case under 35 USC section 285, as well as asserting arguments of general fee shifting principles and the inherent powers of the court.
With respect to section 285, defendant argued that (1) the plaintiff engaged in litigation misconduct by entering into a contingency – based consulting contract with the inventor in earlier case, and (2) that the plaintiff pursued this case without an evidentiary basis.
Judge Payne noted that the first issue was "thoroughly explored" by Judge Bryson in an order denying a motion to dismiss for unclean hands in a prior case in 2012. While Judge Bryson concluded that the arrangement violated the Texas Disciplinary Rules of Professional Conduct, as well as a line of court decisions disproving the practice of paying contingencies to witnesses in civil cases, the court didn't find sufficient evidence of bad faith to justify the requested relief – dismissal for unclean hands - noting that cross-examination was available, as well as instructions in the charge. Judge Payne similarly found the claim of prejudice to be speculative and that the issue was properly a matter for appropriate jury instructions.
With respect to the second claim – that the plaintiff had no factual basis for its lawsuit – Judge Payne found that the defendant had not carried its burden of showing this by clear and convincing evidence. After reviewing the record and hearing arguments, Judge Payne found that the plaintiff was not as diligent as it might have been in pursuing its discovery from the defendant but that the defendant also delayed in producing information necessary for the plaintiff properly to evaluate its claims, both as to infringement and damages. "Once it determined that the claim against [defendant] was too small to justify prosecution, plaintiff acted reasonably in seeking to this negotiated dismissal. . . . The Court cannot endorse either side's tactics as a model, but there is nothing exceptional about this aspect of the case."
The court found that relief was similarly not available under section 1927, "general fee shifting principles" or under the inherent powers of the court. The court also rejected the defendants claim for disgorgement of any profits of TQP.