Judge: Leonard Davis
Holding: Motion to Sever GRANTED;
Earlier this week Chief Judge Leonard Davis entered two key orders in the Wi-Lan litigation dealing with how pre-AIA cases are handled as far as severance and consolidation for trial which may be of interest to practitioners.
Wi-Lan initially brought suit against eleven defendants prior to enactment of the AIA. An initial motion to sever was denied. Four defendant groups now remain in the case, and one of these remaining defendants HTC file a renewed motion to sever, noting In re EMC I, which was decided after the Court denied the initial motion to transfer.
Severance - FRCP 20
Judge Davis quoted In re EMC's holdings that "joinder is not appropriate where different products and processes are involved", "independently developed products using differently sourced parts are not part of the same transaction [requirement of FRCP 20], even if they are coincidentally identical", and the "mere fact that infringement of the same claims of the same patent is alleged does not support joinder, even though the claims would raise common questions of claim construction and patent invalidity." However, he noted, "the Federal Circuit also made clear In re EMC is not an absolute bar to joinder. Rather, "the fact that the defendants are independent actors does not preclude joinder as long as their actions are part of the 'same transaction, occurrence, or series of transactions or occurrences.'" In re EMC, 677 F.3d at 1356. The "transaction or occurrence" test is applied on a case-by-case basis "based on a flexib[le] . . . standard [that] enables the federal courts to promote judicial economy by permitting all reasonably related claims for relief by or against different parties to be tried in a single proceeding under the provisions of Rule 20." Id.
Judge Davis then noted that In re EMC requires both: (1) products or processes that are the same in respects relevant to the patent; and (2) an “actual link between the facts underlying each claim of infringement" citing In re EMC and Judge Gilstrap’s recent opinion in Negotiated Data Solutions v. Apple, Inc., 2012 U.S. Dist. LEXIS 174839, *6 (E.D. Tex. Dec. 2012). (How helpful - now we have cases to cite to from both Marshall and Tyler).
Here, HTC argued that the parties’ accused products — base stations and cell phones — are different. “Though there are two different categories of products,” Judge Davis observed, and they do have “general differences”, both categories are involved in wireless data transmission and “their accused properties—specific communication methods—are tightly interrelated … [and] “[i]t is the method of communication that is the domain of the patents in suit.”
But commonality of accused products or processes is not enough, the Court continued - in fact the presence of even identical products is not enough under In re EMC. There must also be an “actual link” between the facts underlying each claim of infringement. Relevant factors in considering whether joinder is proper include:
- the temporal proximity of alleged infringement;
- the relationship among defendants;
- the use of common components in the accused products;
- licensing or technology agreements between defendants;
- shared development and manufacturing; and
- whether the damages sought are based on lost profits.
Id. at 1359–60. After considering these factors, Judge Davis concluded that the “actual links” in this case were insufficient to satisfy this prong of the analysis.
First, though infringement is ongoing as to all defendants and is thus occurring during the same time period, the hypothetical negotiation dates are significantly different. Second, some licenses exist between HTC and other defendants, but HTC asserts—and Wi-LAN does not dispute—that the licenses are unrelated to the technology at issue. The only factor that favors joinder is the fact that there is a common component in the accused products. Non-party Qualcomm supplies chips used by both HTC and Sony in most of their accused handsets. These chips include software that provides some of the functionality that is pertinent in establishing infringement. These identically sourced components are a link, but not a sufficient link to require joinder in light of In re EMC.
Consolidation - - FRCP 42
Okay, so the plaintiff's claims against HTC are severed into a separate cause of action. What's next? Amazingly, another order - this time a ruling on the parties' proposed trial plan for this case. Responding to the Court’s order to submit proposed a proposed trial plan, plaintiff Wi-Lan proposed (1) one trial with all four defendants or (2) an invalidity trial first followed by a liability and damages trial against Sony and HTC, and then a liability and damages trial against Alcatel and Ericsson. Alcatel, Ericsson and Sony agreed to a single trial, but requested more time for that trial than Wi-Lan proposed. HTC pointed to its Motion to Sever (see above) and requested a separate trial from the remaining defendants. After hearing argument from the parties, the Court offered HTC the option of a separate trial on infringement and damages if it would agree to try the issue of invalidity along with the other defendants in the first trial. HTC did not accept the Court’s proposal, contending that under EMC and its progeny, it is entitled to a separate trial on all issues.
In his trial plan order, Judge Davis reviewed the rules dealing with consolidation and bifurcation, quoting the Federal Circuit’s statement in EMC that “[i]n exercising its discretion, the district court should keep in mind that even if joinder is not permitted under Rule 20, the district court has considerable discretion to consolidate cases for discovery and for trial under Rule 42 where venue is proper and there is only a ‘common question of law or fact.’” The Court concluded that “[t]hus, even if joinder is improper under Rule 20, the Court has discretion to consolidate cases for trial where—as here—it is an appropriate use of judicial resources and would not unduly prejudice a party.”
The Court then addressed the issues raised in trials in multidefendant cases. "The Court has handled numerous multi-defendant patent cases over the years and always strives to balance the interests of all parties involved when fashioning a trial plan," he began, providing brief summaries of the individual trial plans in the CEATS, CSIRO, Fractus, Bedrock, and Eolas multiparty trial plans. (In case you had not guessed, this is not Judge Davis' first day at this particular circus. Or as one wag put it, "same circus, different clowns.") "If separate trials are the best way to handle a case, the Court will set multiple trials. The Court has previously articulated a number of factors it considers when deciding whether multiple trials are, and the relevant factors to be considered in crafting each case’s trial plan appropriate. CEATS, Inc. v. Continental Airlines, Inc., et al, 6:10cv120, Docket No. 888. (“the CEATS factors”). While no single factor is dispositive, the following factors are considered in balancing the equities to all parties involved:
- number of defendants;
- number of patents;
- number of asserted claims;
- complexity of the technology involved;
- similarity of functionality of accused instrumentalities;
- 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.;
- 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.;
- collaboration by defendants, e.g. joint defense groups, one firm representing multiple defendants, etc.;
- risk of inconsistent results on common issues of fact or law;
- risk of jury confusion;
- cost of multiple trials to the parties;
- the Court’s schedule and resources; and
- other individualized issues specific to a particular case.
Id. As always, the Court noted, "the overall consideration is finding an equitable and fair trial plan for all parties—which inevitably requires compromise." Here, Judge Davis concluded that the balance of the CEATS factors favored a single trial.
"The case involves two related groups of defendants with similar and interrelated products, common asserted patents, and overlapping experts with similar theories as to infringement, invalidity, and damages. If the Court adopts HTC’s proposal, the jury in trial one will hear from all of Wi-LAN’s witnesses, Mr. Lanning, two damages experts, and three separate infringement experts who will all give similar opinions. Then the jury in trial two will hear from all of Wi-LAN’s witnesses (who would have to be presented a second time), Mr. Lanning again, Mr. Bakewell again, and another infringement expert who echoes the opinions offered in trial one. Tr. at 54:19–20.
At the hearing, the Court asked HTC to articulate the prejudice it would suffer from a combined trial. Essentially, HTC’s argument was that much of the trial would be inapplicable to HTC. After reviewing the common issues and witnesses, this argument is not compelling. Additionally though, HTC did not articulate one of the real prejudices the Court sometimes sees in a multiple defendant trial. For example, HTC is not in a position where it is lumped into a trial with other defendants who are accused of willful infringement when it is not. Willfulness is not an issue in the case. Nor does HTC point to significantly different damage amounts, where one defendant is accused of a dramatically larger damages number, which might prejudice the other smaller defendants.
Despite the Court’s belief that a single trial is justified, the Court offered HTC the following option:
THE COURT: Well, then in which case let me make this proposal to you: What if I were to give HTC the option of you can either go in the first trial with the other three defendants as to both infringement and invalidity, or you can go in a second trial as to infringement; but you will agree to be bound by the invalidity finding in the first trial?
HTC refused to be bound by the first invalidity finding, even if it were allowed to participate in the first trial as to invalidity. It seems then, that HTC wants Defendants to have multiple bites at the invalidity apple. That is a waste of judicial resources and risks inconsistent verdicts."
“For these reasons,” the Court concluded, “the Court exercises its considerable discretion in consolidating cases for trial under Rule 42 and ORDERS that HTC is consolidated with the remaining defendants for trial. These cases will proceed to the jury as a single trial on all issues and as to all parties.