Eastern District of Texas Federal Court Practice

Future Royalty Awarded in Creative v. Yahoo!

Creative Internet Advertising Corp. v. Yahoo! Inc., 2009 WL 4730622(E.D.Tex. Dec 09, 2009) (NO. CIV.A. 6:07CV354-JDL)

Judge: John Love

Holding: Motion for Entry of Judgment on the Verdict GRANTED

I am currently way, way behind on a paper updating attendees at the State Bar of Texas' Litigation Update seminar next week on recent developments in patent litigation.  One of the benefits of being terribly, terribly late, however, is that I can include significant recent cases, like this one, which discusses the effect of eBay on Yahoo!.  (Stop and think how little sense that would have made only a few years ago - what a world we live in).

One of the more significant recent developments in patent litigation at the district court level, in the wake of eBay's elimination of the previous default rule that injunctions issue once infringement and non-invalidity are shown, is future damages.  Judge Clark addressed this in some detail in the recent Cummins-Allison case dealing with postverdict and pre-injunction damages, and here Judge Love takes up the torch with following an evidentiary hearing on a reasonable ongoing royalty rate.  (Judge Love reserved for a later order the pending issues of enhanced damages, attorney's fees and pre and postjudgment interest, as well as the exceptional case determination, so willful infringement damages groupies stay tuned - fresh meat is coming down the pike).

On May 15, 2009, a Tyler jury in Judge Love's court found that the asserted claim of the patent in suit was infringed by Yahoo's Messenger program and assessed $6,625,584 in damages, which was based on a 20% royalty rate.  CIAC sought a royalty rate of 23% postverdict, and Yahoo! cried "TIVO!" (meaning that its service had been modified so that it no longer infringed, which essentially adds to the routine "dog doesn't bite, not my dog" argument that the dog has now had its lower jaw sawn off).

Judge Love's lengthy opinion discusses eBay, the Federal Circuit's opinion in Paice (and Judge Folsom's opinion on remand), and the courts' extension of the supplemental damages courts had traditionally awarded for the gap between verdict and judgment and injunction now that in many cases injunctions are not available to halt future infringement.  Judge Love notes - politely - that the law is less than settled with respect to how district courts are to go about setting a royalty rate for future damages, including the elephant in the room, which is what effect a jury's verdict of infringement should have on the parties' hypothetical negotiations.  (Which sort of reminds me of objections from Star Trek fans that a particular episode's description of the way dilithium chambers operate isn't correct.  If something is fictional to start with, at what point can a description of its workings be wrong or right?  Interesting intellectual question - but this is the sort of thing I'm used to with a ten year old and seven year old twins that were playing Star Trek last night and arguing over what was and wasn't "right" about how phasers and warp engines worked.  Tip: the answer is to hand them your dog-eared copy of the 1974 Starfleet Technical Manual.  Worked like a charm).  But I digress.

Judge Love determined first of all, applying eBay that an injunction should not issue.  Having firmly located himself in the swamp, he began to drain said swamp by noting who had the burden of proof of showing the appropriate royalty rate (noting that this appeared to be a question of first impression, he decided the plaintiff) as well as showing that the new version of Yahoo Messenger was no more than a "colorable variation" of the adjudicated prior version.  (Ed. note: the phraseology here is not completely consistent - it seems to me that thr showing is that the product is not colorably different in order to keep it under the infringement finding, but I'm not going to argue with however the cases have put it, since the concept is a pretty simple one to follow, despite the wording courts are using.  Basically, have you changed the thing enough that the prior infringement finding shouldn't apply?).  The Court then concluded that CIAV had met its burden to show that Yahoo had not disabled the infringing version, so royalties were still due on that.  As for the new version which Yahoo claimed did not infringe, the Court found that the plaintiff met its burden to show that the new version infringed as well, i.e. it was not sufficiently different to get out from under the prior finding of infringement, i.e. the "colorable-something" analysis noted above.

With liability established, Judge Love turned to the issue of the royalty rate.  Here's where, for lack of a more appropriate word, it gets fun.  Judge Love selected the analysis, consisting of Paice plus a helping of modified Georgia-Pacific, and agreed with the plaintiff's expert that the 20% rate that the jury found should be adjusted upward to 23% for an ongoing royalty in light of the parties' changed relationship, and Yahoo!'s decision not to design around or otherwise stop infringing.

So how much money are we talking here?  The Court ordered a $185,694 payment for the five and a half months described in a report (20%  of Yahoo's revenues from the relevant product) and quarterly payments of 23% of revenues going forward.

False Start on Motion for Summary Judgment of Indefiniteness

Konami Digital Entertainment Co, Ltd. et al v. Harmonix Music Systems, Inc. et al, No. 6:08cv00286 (E.D. Tex. Dec. 14, 2009)TXED

Judge: John Love

Holding: Motion to Strike Motion for Partial Summary Judgment of Indefiniteness DENIED

Well, it's really offsetting penalties, not just a false start, and Flozell Adams isn't even to blame.

Judge Love denied the plaintiff's motion to strike defendant's motion for summary judgment of indefiniteness on the basis defendant failed to adequately disclose its invalidity positions in its P.R. 3-3 contentions.  He found that the plaintiff faced prejudice because of the defendant's delay in providing complete invalidity contentions, since it appeared that there had previously been an agreement of some sort that indefiniteness would not be asserted, and the plaintiff seemed to have been caught short when that situation changed.  Accordingly, the Court directed the parties to go back, provide complete proposed definitions (including amending infringement contentions narrowly if necessary), and determine whether there was still an indefiniteness issue.  If there was, let the Court know and he'd address the summary judgment motion at that time, using an expedited schedule set forth in the order, which required briefing to be completed by January 22.

Replay the down..

from Docket Navigator.

Summary Judgment of Noninfringement Granted in MHL TEK

MHL Tek, LLC v. Nissan, et al., 2:07cv289 (E.D.Tex. Dec. 15, 2009)
Judge: T. John Ward
Holding: Motion for summary judgment of noninfringement GRANTED.

Okay, it may not be the right logo, but I thought the post needed some visual bling.  This is a patent case dealing with tire monitoring system on cars.  If the name look familiar it's because this litigation gave rise to the two Federal Circuit In re Volkswagen mandamus opinions in the last year - one in 2008 affirming a Michigan judge's decision to transfer a related case to Marshall, where prior litigation was pending, and one this year in this case affirming Judge Ward's decision to keep the related litigation in his court (relying in part on the prior mandamus ruling in the same litigation).  (Incidentally, I highly recommend reading Judge Ward's venue opinion in this case, reported at 2009 WL 440627.  It was his first venue opinion in a patent case following In re VW II and In re TS Tech and I think still remains the most thorough treatment of the various factors that a defendant uses in trying to show whether a proposed transferee forum is "clearly more convenient" as set forth in those opinions).

This case was set to go to trial next month and yesterday Judge Ward notified the parties that he had determined that summary judgment of noninfringement would be granted as to certain of the accused products.  Since it was not clear what this meant for certain other products in the case the Court set a phone conference for later this week.  A written order detailing the court's analysis is to follow, and I'll post on it when it comes out.

Motion to Sever and Transfer Claims Against Single Defendant Denied

IP Co., LLC v. Intus IQ, 2:09cv37 (E.D. Tex. 8/3/09)

Judge: David Folsom

Holding: Motion to Transfer Venue DENIED

Judge Folsom denied a motion by one defendant for a severance and transfer of the plaintiff's claims against it.  Noting that a severance would create an additional case and that the Federal Circuit recently counseled in In re VW (the second In re VW by the FC - keep your eyes on the ball here, folks)  that the existence of multiple suits involving the same issues is a "paramount consideration" when determining whether a transfer is in the interest of justice, Judge Folsom denied the motion.

Motion to Transfer Denied at to DC, Granted as to ED of Virginia

Digital-Vending v. Univ. of Phoenix, 2:08cv91

Judge: Chad Everingham

Holding: Motion to Transfer Venue GRANTED

Judge Everingham denied the defendants' motion to transfer to the District of Columbia as moot because he granted the alternative motion to transfer to a different location.  Although Plaintiff opposed Defendants’ motion to transfer to DC and argued that a transfer was not appropriate, Plaintiff argued that if the Court determines that transfer is appropriate, that a transfer to the Eastern District of Virginia is more convenient and appropriate.than a transfer to the District of Columbia.  Judge Everingham agreed and sent the case to Virginia, where he found numerous witnesses were located.

Motion to Transfer to Austin Denied

Versata v. Internet Brands, et al., 2:08cv313 (E.D. Tex. Sept. 30, 2009)

Judge: Chad Everingham

Holding:  Motion to Transfer Venue DENIED

Judge Everingham denied a motion to dismiss for lack of personal jurisdiction, improper venue and to transfer for inconvenient venue.   Plaintiffs were Austin, Texas-based companies.  Defendants were located in California, Canada and Michigan. 

Judge Everingham held that the defendants' interactive websites satisfied the test for personal jurisdiction, which in turn made venue proper, citing Trintec v. Pedre.  With respect to the convenience motion, after balancing the various factors, the Court concluded that the defendants had not met their burden to show that the Western District of Texas was "clearly more convenient".

Patent Case Transferred to California, citing In re Hoffman-La Roche

SMDK Corp. v. Creative Labs, 2:08cv26 (Dec. 14, 2009)

Judge: David Folsom

Holding: Motion to Transfer Venue GRANTED

It didn't take long for In re Hoffman-La Roche to have an effect on motions to transfer already in the pipeline.  In this case, the defendants asked Judge Folsom to transfer the case to California, and at the scheduling conference the Court set the motion for hearing on January 7.  Today, Judge Folsom cancelled the hearing and transferred the case, citing the new Federal Circuit opinion, noting that there were both defendants and  some prior art activity in the transferee forum.  According, Judge Folsom found that California was a "more convenient" forum, and thus transferred the case.

Postverdict ruling in Opti v. Apple - willfulness finding set aside; rest of verdict affirmed

Opti v. Apple, 2:07cv21

Judge: Chad Everingham

Holding: Motions for judgment as a matter of law granted as to willfulness; denied on other issues

This spring plaintiff OPTi obtained a jury verdict of infringement and willful infringement from a Marshall jury in Judge Everingham's court, with damages set at $19,009,728.  Today Judge Everingham ruled on the various postverdict motions. 

Apple’s motion for judgment as a matter of law on willfulness was granted, its motions on damages and its enablement and prior art invalidity defenses were denied, and OPTi's motion for entry of judgment was granted in part.  (Its motion for enhanced damages was denied as moot).

On the willfulness motion, Judge Everingham echoed (quoted, actually) Judge Ward's detailed ruling two months ago setting aside the willful infringement finding in Centocor v. Abbott, writing that "because 'the issues of infringement and validity were hotly contested, close, and required an intensely factual inquiry,' the court finds that there was no objectively high likelihood of infringement. See Centocor, Inc. v. Abbott Labs., No. 2:07-CV-139, Dkt. No. 326 at 6 (E.D. Tex. Oct. 1, 2009) (Ward, J.)." (Note: to all the lawyers I'm local counsel for, do you see something here that I frequently suggest you include in your briefing?)  

The judgment issued today for a reasonable royalty of $19,009,728 and $2,696,974 in prejudgment interest for a total award of $21,706,702, plus court costs and future interest.  The court concluded that the case was not exceptional under 35 U.S.C. § 285 and denied any attorneys’ fees request.

Incidentally, this is same song, fourth verse on claims on willful infringement in recent months - willful infringement verdict set aside in Centocor, willful infringement not found by jury in Retractable Technologies, summary judgment granted on willful infringement claim in Crane... I don't mean to imply that the decisions either declining to submit willful, juries not finding it, or courts setting it aside are unanimous, even recently (see Abstrax), but there are a lot of them recently for those with an interest to review.  Why might that be of interest?  Because it provides a set of court decisions by the same (or substantially similar) judges with prior experience in this aspect of the law applying the relevant law at the same point in time (i.e. before Congress, the Federal Circuit, or the Supreme Court change it) to different factual and procedural situations.  It's sort of an exploded reverse version of the Socratic method where parties repeatedly ask the Court to rule these claims in or out under different fact patterns.  That's one reason I keep posting the links to these recent opinions - because it's helpful (to me at least) to reread Judge Everingham and Judge Ward's holdings in the different cases.  To borrow a scientific term, we've controlled for the judge and the law - so the different results must be due to the facts, highlighting which facts may be significant. 

And now, I am off to get what I semi-affectionately refer to as the Godzilla Tree up at home.  I am already in trouble for talking to you people so long, so I'll sign off for the evening.

ED patent filings update/another Federal Circuit venue opinion

Couple of interesting developments in the Eastern District of relevance to the patent docket today. 

First, current court statistics indicate 256 patent cases have been filed in the district in the last twelve months (last December and 2009 through November).  That's down from 308 in 2008 and 371 in 2007, and includes the generally slow filings at the end of last year and the first two or three months of this year).  But it's more than a little bit higher than I thought it would be, based in large part on how slow things were the first part of the year.

Second, the Federal Circuit issued another venue opinion in Novartis v. LaRoche today, reversing Judge Folsom's denial of a motion to transfer after re-weighing the relevant factors.  No, the California plaintiff doesn't have to go to California - they have to go to North Carolina, where one of several defendants and several of the relevant witnesses are located, as well as where some of the development of the product at issue occurred (the latter of which seems to have been a major factor for the court).

Of interest, in light of the Fifth Circuit's holding in In re Volkswagen that the court cannot disregard the location of documents simply because they are easier to transport in this age of electronic discovery, was the appellate court's decision to do exactly that with respect to the plaintiff's 75,000 documents relating to conception and reduction to practice because the documents in question had been converted to electronic format and transported by the plaintiff from California to their counsel's office in Texas.  In his two opinions Judge Folsom had actually declined to assign weight to the carpetbagger documents as the plaintiff asked, other than observing in a footnote in the reconsideration that "some" of the documents in the case were located in Texas, as opposed to In re Genentech, where none were.  (Interestingly, the documents sent to Marshall were previously paper and in California - the page of the opinion where the appellate court considered the additional cost of shipping these 75,000 documents across the country to North Carolina as a factor weighing against transfer was missing from my copy.  But I'm sure it was in there somewhere, since the Fifth Circuit was emphatic that the court could not disregard the location of the original documents). 

The timing of Novartis is interesting, since the December issue of Robert Matthews' Patent Happenings has an excellent summary of recent venue rulings from the district, entitled Eastern District now applying a more main-stream view on transferring patent infringement actions.  Judge Folsom's February 3 decision to deny transfer in the Novartis case is noted in a footnote - I am assuming the mandamus was predicated on the August 3 order denying the motion for reconsideration.

Summary Judgment of Invalidity (Obviousness) Granted; Motion for Leave to Amend to Assert Walker Process Claims Denied

The Ohio Willow Wood Company v. Thermo-Ply, Inc., (9-07-cv-00274) (Nov. 20, 2009)
Judge: Ron Clark
Holding: Defendant's Motion for Summary Judgment GRANTED; Defendant's Motion to Amend PICs DENIED
On Friday Judge Clark granted summary judgment ending this case.  It has an interesting procedural history.  After plaintiff OWW filed suit against TP, another company intervened, claiming ownership rights in the patent.  Judge Clark held a hearing on the inventorship and invalidity issues raised to the defendant and stayed the case pending resolution of these issues.  The defendant then filed a motion seeking to assert Walker Process claims (Sherman Act violations which allege fraud before the PTO).  Judge Clark denied the motion, concluding that TP could have met the deadline in the scheduling order for asserting such a claim.
More interesting (not that anyone could ask for more from the first order, of course) is another order, also from Friday, in which Judge Clark granted TP's motion for summary judgment that all asserted claims were invalid as obvious (SJ on anticipation was sought, but not granted).