Eastern District of Texas Federal Court Practice

There Are Two Ways to Lose a Case in the Eastern District of Texas...

Alexsam v. IDT, 2012-1063-1064 (Fed. Cir. 5/20/13)

Holding: Judgment of Infringement Reversed ... Except for the Part That Was a Discovery Sanction

Long time practitioners in the Eastern District of Texas will have heard it from former judge T. John Ward, as well as Chief Judge Leonard Davis, if not others.  It's in reported opinions that I'm not even going to to bother looking up.

There are two ways to lose a case in the Eastern District of Texas.  One is on the merits, and one is as a result of not playing by the rules in discovery.  The Federal Circuit put a giant stamp of approval on that rule today in this case when it set aside the jury's verdict of infringement in this case (concluding that the plaintiff had failed to present substantial evidence that terminals had not been altered and thus JMOL of noninfringement should have been granted) but let stand the judgment of infringement with regard to one of the defendant's systems that Judge Everingham had imposed as a sanction for discovery misconduct.  After reviewing the applicable Fifth Circuit standards with respect to discovery sanctions, the Federal Circuit found that all five factors supported the court's sanction, and that it was "just and fair" and "clearly bore a 'substantial relationship' to the attempted discovery." 

First post-bench/bar order on e-mail discovery limits - by Judge Everingham

Stambler v. Atmos Energy Corp., et al., 2:10-cv-594 (E.D. Tex. 9/29/11)

Judge: Chad Everingham

Holding: Order on Production of E-mails

This order sat (and in fact still sits) buried in the blizzard of e-mailed orders from Judge Ward and Judge Everingham in their last two days on the bench, and I just located and reviewed it today (when the court extended the deadline for e-mail production at the parties' request and this provision was separated from the rest of the order and exposed to the light of day, or at least my in-box), but this appears to be the first post-bench/bar order on e-mail discovery.  And while it was briefed long before Judge Rader's e-discovery model order was promulgated at the bench/bar, the order came out two days after the bench/bar, and the judge who issued it was on that committee.  Thus it may provide a uniquely useful perspective on how the courts are viewing this issue.

Let me back up.  As readers are aware, a prominent topic at the recent bench/bar following Judge Rader's speech was limits on e-mail discovery in general, and specifically his proposed model order on e-mail discovery, which I posted on previously.  As local practitioners know, most cases result in negotiated agreements regarding e-mail discovery, including search terms, custodians, etc., and as a result these are not often included in discovery orders.  (In this case, for example, the parties worked out extensive agreements regarding the format and protocols for e-discovery and document production - the only thing they didn't agree on was e-mail discovery).  There might be a provision that reflects an agreement to defer or eliminate e-mail discovery in a discovery order in a particular case, but in terms of judicial rulings resolving disputes as to what discovery is appropriate, there just aren't many - and none previously that reflect consideration of the model order.

But as it turns out, there was a pending dispute in this case over the appropriate scope of e-mail discovery - it was briefed for Judge Everingham in early August, and at the scheduling conference held a few days later the judge told the parties he'd get them an order on the issue.

The first step in analyzing any order - to me at least - is to see what the parties proposed, so you know what the parties agreed on and what was actually presented to the Court for decision.  In this case, Plaintiff proposed the following provisions be included in the discovery order with respect to custodians and search terms:

(b) Custodians: The provisions of 2(b) shall apply only to the production of e-mails and other electronic messages (e.g., instant messages).
(i) By September 12, 2011, each Defendant shall provide Plaintiff with a list of at least 15 of their own custodians who they, in good faith, believe to be the most relevant custodians of e-mails and other electronic messages in the case. As part of this list, the parties must provide a brief description of each custodian, including current title, tenure with Defendant (or related companies), the job titles (including dates) they have held with Defendant (or related companies), and a brief description of the potential relevance of the custodian to the case.
(ii) Within 30 days of receiving a Defendant’s initial list of custodians pursuant to Paragraph 2(b)(i) above, Plaintiff may modify Defendants’ list by deleting proposed custodians of their choice (without prejudice to add them again later, as discussed below) and/or by adding additional custodians who they would like emails and other electronic messages collected from, so long as the initial list does not exceed 20 people. Moreover, in lieu of identifying a custodian by name, Plaintiff may identify a custodian by title (e.g., “the project director in 2004 for project XYZ”) or description (e.g., “the person most involved in the development of project XYZ”). Thereafter during discovery, from time to time, Plaintiff may identify, in writing, additional custodians he would like e-mails and other electronic messages collected from, provided that, absent a showing of exigent circumstances not under Plaintiff’s control, the sum total of custodians (initial plus additional) shall not exceed 25 people.
(iii) With respect to the initial list of custodians, Defendants shall produce responsive e-mails and other electronic messages by December 12, 2011. With respect to additional custodians, Defendants shall use reasonable efforts to produce responsive e-mails and other electronic messages within 90 days (or within 100 days if the number of additional custodians at any one time exceeds 5 people).  All requests for additional custodian e-mails and other electronic messages shall be made sufficiently early such that the 90 to 100 day period will expire prior to the close of discovery.
 

(c) Search Terms: The provisions of 4(c) shall only apply to the production of e-mails and other electronic messages.
(i) By September 12, 2011, each Defendant shall provide Plaintiff with a list of no more than 15 search terms they, in good faith, believe to be the most relevant to facilitate a search for e-mails and other electronic messages in the case. As part of this list, Defendant must provide a brief description of each term and a brief explanation as to the relevance to the case.
(ii) Within 30 days of receiving a Defendant’s initial list of search terms pursuant to Paragraph 2(c)(i) above, Plaintiff may make good faith modifications to Defendants list by deleting proposed terms of their choice and/or by adding additional search terms they would like, so long as the list does not exceed 20 terms.

Defendants' position was this:

Defendants disagree with Plaintiff’s premature and one-size-fits-all proposed protocol for email production. No other Joint Report filed in this District by Plaintiff includes such a protocol and there is no compelling justification to include one in this case. 

The Federal Rules recognize the burden inherent in producing electronically stored information such as email. Yet, Plaintiff seeks to require Defendants to undertake substantial efforts to collect, review, and produce email, without first identifying what relevant information might be contained in email or that the benefit of producing email outweighs the significant burden its production would impose on Defendants.

Additionally, Plaintiff’s proposed email protocol seeks to make Plaintiff the arbiter of how Defendants collect and produce documents in this case. Plaintiff’s proposed protocol grants Plaintiff the right to identify which of Defendants’ employees email accounts should be searched, how many employees’ email accounts should be searched (up to a maximum of 20 employees), and which search terms Defendants should use in their search regardless of breadth.

Defendants propose that the issue of email production be addressed by Plaintiff with each Defendant individually after topics for discovery are articulated and the benefit of an email search can be weighed against the burden imposed.

On September 29, Judge Everingham entered a discovery order that reflected the parties' agreements and included the following provision resolving the discovery dispute:

"By September 12, 2011, the parties shall meet and confer and agree to a list of 5 custodians and 10 search terms to be used in the collection of e-mails and other electronic messages, i.e. instant messages. After the production of e-mails and other instant messages based on these custodians and search terms has been completed, either party may move to expand the number of search terms or custodians upon a showing of good cause."

A few observations can be made about the order:

• It adopted a date certain for e-mail production, rejecting the position that e-mail discovery should not be required at this time.  The date adopted was that proposed by plaintiff, which was about a month after FRCP 26(a)(1) disclosures (this wasn't a mandatory disclosures case, so the date wasn't related to mandatory document disclosures).  But - importantly - the date adopted was two weeks before the order even issued, so the parties immediately sought and the court today granted an almost three month extension of this date.
• It rejected the detailed protocol proposed by plaintiff in favor of a a brief two-sentence directive to meet and confer on the custodians and terms to be used for an initial e-mail search.
• It cut the requested custodians and terms from 20/20 to 5/10.
• It permitted additional searching on a showing of good cause.
• It did not include detailed language regarding how searches should be crafted, when cost-shifting would occur, or limit the Court's discretion to consider additional requests.  In this, it reflected the defendants' request that these details be worked out by the parties later, in contrast to the model order's establishment - and the plaintiff's request in some respects - to establish a prospective framework for resolution of these issues.

Another Eastern District judge made a ruling on a similar e-mail discovery today, but I'll wait till it is reduced to writing before I post on it - the parties are working on an order reflecting the Court's rulings.

 

Postjudgment rulings in Commil v. Cisco

Commil v. Cisco, 2:07cv341 (E.D. Tex. 9/28/11)

Judge: Chad Everingham

Holding: Postjudgment motions.

My fellow Marshall lawyer Melissa Smith and I had the pleasure of appearing at our fellow Baylor Law School alumnus Judge Everingham's last hearing this morning, but he apparently wasn't quite ready to ride off into the sunset, as this order resolving the various postjudgment motions in the Commil v. Cisco retrial came out this afternoon.

Interest & future damages.  The Court awarded $10.2 million in interest, and explained why, then explained how the future damages procedure worked, i.e. separate file, reports, stay pending appeal, yada, yada.  Seriously, you need this one for your research file if you have to worry about interest or how to handle future royalties.

Bill of costs.  Apparently this is the wrong way to handle bills of costs.  Local Rule 54(b)(2) requires that if there is a contested bill of costs containing areas of legitimate disputes, the “party seeking costs must file a bill of costs indicating areas of agreement and disagreement.”  Judge Everingham noted that Commil’s bill of costs failed to comply with this rule, but rather than strike the bill of costs in its entirety, he just sustained all of Cisco’s objections to the amended bill of costs, and taxed costs in the amount of $17,737.98.  (That's pretty low for a patent case, as I recall...)

JMOLS.  Everything denied.  "The court is persuaded that sufficient evidence supports the jury’s verdict in this case."

Motion for New Trial.  Denied.

 

 

Gellyfish goes belly-up

Yesterday the plaintiff in the Gellyfish v. Alltel litigation (43 or so defendants) filed earlier this year in Marshall in Judge Folsom's court (assigned to Judge Everingham for pretrial proceedings) announced it was no longer going to pursue the case due to certain issues raised by certain of the defendants, and began dismissing defendants with prejudice. 

Motion to Sever & Transfer Denied - no evidence that accused systems were "dramatically different" from codefendants' systems

Ameranth v. Par Technology corp., et al., 2:10cv294 (E.D. Tex. 8/16/11)

Judge: Chad Everingham

Holding: Motions to Sever & Transfer DENIED

Defendant Kudzu requested severance under Rule 21 based on alleged improper joinder. Kudzu contended that Plaintiff Ameranth had not shown that the defendants’ infringing systems were sufficiently similar and, therefore that Ameranth’s right to relief against each defendant did not arise from “the same transaction, occurrence, or series of transactions or occurrences” as required by FRCP 20(a)(2)(A). Kudzu then asked the Court to transfer venue to the Northern District of Georgia for the convenience of the parties and in the interests of justice.

Judge Everingham noted that "[t]his court has made clear that, in the context of patent infringement litigation, '[i]t is possible that severance could be appropriate if the defendants’ methods or products were dramatically different.'” (Citing MyMail, Ltd. v. Am. Online, Inc., 223 F.R.D. 455, 457 (E.D. Tex. Sept. 2, 2004) (emphasis added))."  In response to Kudzu's argument that it was improperly joined in this action because the making, use, sale, or offer for sale of the accused infringing systems by unrelated companies did not satisfy the “same transaction or occurrence” requirement of FRCP 20, Ameranth contended that its infringement claims against each defendant arose out of the same series of transactions or occurrences, were logically related, and shared a nucleus of operative facts and law. "Despite the fact that this case was in the early stages of discovery at the time Ameranth responded to Kudzu’s motion," Judge Everingham noted, "Ameranth presented substantial evidence demonstrating the similarity between Kudzu’s products, systems, and/or services and those of other defendants. Having reviewed Ameranth’s evidence, and in light of the fact that Kudzu presents no evidence from which this court could determine that its systems are dramatically different from those of the other defendants, the court is persuaded that Kudzu’s and the other defendants’ alleged acts of infringement do arise out of the same transaction or occurrence." Accordingly, the court denied Kudzu’s motion to sever under Rule 20(a)(2).

But even though he found that there was no misjoinder of Kudzu under Rule 20(a)(2), Judge Everingham noted that he still had discretion under Rule 21 to sever a properly joined party.  Kudzu urged the court to grant the motion to sever so that the claim against it could be transferred to the Northern District of Georgia.  "The Federal Circuit has, however, held that the creation of multiple lawsuits is a “paramount consideration” weighing against transfer," Judge Everingham wrote.  "Here, just as in Centre One, severing Kudzu’s claims and creating multiple lawsuits would create problems that outweigh any alleged inconvenience Kudzu would experience in defending a lawsuit in this forum. The division of this case into multiple suits may be more convenient for Kudzu, but it would impose a significant burden on the plaintiff, witnesses, and the federal court system.  In addition to the burden on the courts, the existence of multiple lawsuits interpreting the same patent creates an unnecessary risk of inconsistent claim construction and adjudication."

 

 

Marshall Jury Renders Verdict in Patent Case

A Marshall jury stayed late last Tuesday night to finish its work and render a verdict in Convolve v. Hitachi, et al. in Judge Everingham's court.  The trial took six days and was argued the morning of the seventh.  The jury found all asserted claims infringed, answered yes on willful infringement, and found that the patent was not proven invalid by clear and convincing evidence.  Following the jury trial, Judge Everingham conducted a bench trial on the defendants' laches defense, and will issue findings and conclusions at a later date.   The jury assessed damages of $5.4 million against defendants Dell, Hitachi and Western Digital ($1.5 as to Dell, $2.5 as to Western Digital, and $1.4 as to Hitachi).  Plaintiff had asked the jury for $196 million, representing a one dollar royalty on sales of 196 million hard drives, so the jury award was approximately three percent of what the plaintiff argued for in closing.

Summary judgment of noninfringement granted in part

Intel Corporation v. Negotiated Data Solutions Inc., 2:11cv247 (E.D. Tex. 6/13/11)

Judge: Chad Everingham

Holding: Plaintiff's Motion for Summary Judgment of Noninfringement GRANTED in part; Defendant's Motion for Summary Judgment DENIED

This is a declaratory judgment case in which Intel contends that it is licensed to use all four of the patents-in-suit, and thus it does not infringe any of those patents. N-Data asserts that Intel is not licensed to use three out of the four patents in suit, and alternatively that the license does not protect Intel against all claims of indirect infringement. Judge Everingham concluded that the license covers all four patents-in-suit, and thuis it covers Intel against claims for indirect infringement on based on combinations of Intel products; however, the license may not protect Intel against all acts of indirect infringement.

From Docket Navigator.

Motion to Transfer Venue Denied

SimpleAir, Inc. v. AWS Convergence Technologies, Inc., et. al., 2:09cv00289 (E.D. Tex. 6/15/11)

Judge: Chad Everingham

Holding: Motion to Transfer Venue DENIED

Judge Everingham denied this motion to transfer venue, holding that the defendants had not shown that the Northern Distriuct of California was a "clearly more convenient" forum.  The Court assigned the plaintiff's location in the district "minimal weight" in light of the Federal Circuit's opinions in In re Zimmer and In re Microsoft, and disregarded the location of the plaintiff's documents in the district, but still noted that there were parties and documents in Texas, and that other evidence was scattered throughout the country.  The opinion noted the distance that parties and documents would have to travel, and concluded that a transfer would result in a  net inconvenience - in short, two defendants would be better off and four worse off.

Motion to Strike Expert's Use of Entire Market Value Rule Denied; Weight of Evidence as to Uncertainty for the Jury

Mondis Technology Ltd. v. LG Electronics, Inc., et. al., 2:07cv565 (E.D. Tex. 6/14/11)

Judge: Chad Everingham

Holding: Motion To Strike Expert GRANTED IN PART

Across the square, the Mondis v. LG case is getting underway this morning in Judge Ward's court following jury selection Monday.  In between trying chicken processing plant lawsuits this week (seriously - chicken farmers sat outside the federal courthouse in Marshall protesting their treatment by Pilgrim's Pride - here's a link to a TV new story on the case) Judge Everingham had hearings on more of the pending motions in this case, and on Monday issued an opinion on the challenges to the plaintiff's damages expert.

"[T]he essential arguments by each defendant," Judge Everingham wrote, "can be broken down into three parts: (1) Dr. Magee cannot use the “entire market value rule”; (2) Dr. Magee cannot triple the “standard” royalty to account for uncertainty; and (3) various licenses are neither comparable nor reliable."

First, the Court held that "under the facts of this case," (it says that more than once) Dr. Magee may use the entire market value of the accused products in calculating the reasonable royalty because it is economically justified.  The defendants argued that Dr. Magee cannot apply the “entire market value rule” in this case because the patented feature of the accused product has not been shown to provide the basis for the customer demand. "Indeed," Judge Everingham observed, "the fact that the patented feature does not provide the basis for the customer demand is largely undisputed."  But he believed that Dr. Magee should be permitted to offer opinion regarding the reasonable royalty based on the entire market value of the accused products because Plaintiff contended that is the industry standard and that nearly every comparable license in this case is based on a percentage of the total accused product (or licensed product) sales price.  "This is a case where it is “economically justified” to base the reasonable royalty on the market value of the entire accused product," he concluded, noting that the defendants' royalty analysis was based on licenses that used the entire value of the accused products.  Defendants' position was that the defendants can use the entire market value of the accused products for their damages analysis, but that the Plaintiff could not.. he noted.  "If this rule were absolute, then it would put Plaintiff in a tough position because on one hand, the patented feature does not provide the basis for the customer demand, but on the other hand, the most reliable licenses are based on the entire value of the licensed products."

The Court concluded that "[u]nder the facts in this case, Plaintiff may base its reasonable royalty analysis on the entire value of the accused products, despite not showing the accused features provide the basis of the customer demand. In this Court's view, Federal Circuit jurisprudence regarding the “entire market value rule” allows for this result, and further, Federal Circuit damages jurisprudence encourages this result by placing a large emphasis on comparable licenses of the patents-in-suit."

Second, "[b]ecause Federal Circuit law allows for the fact that real world licenses might be greatly reduced for uncertainty, the Court will allow Dr. Magee to opine that the “standard royalty rates” would be tripled if infringement and validity were established." 

[A]lthough the jury may find that there should be no tripling of the standard rates, there is nothing inherently wrong with Dr. Magee giving an opinion that the rates should be increased for the lack of “uncertainty.” The licenses at issue all appear to be executed before litigation (or at least before there was an adjudication regarding validity and infringement). At that time, the parties executed the license in the “real-world” with uncertainty regarding the validity of the patents and infringement of the licensed products. In the hypothetical negotiation, however, the patent is assumed to be valid and the accused products are assumed to infringe. Therefore, as compared to the “real-world” in which the licenses to the patents-in-suit were negotiated, the patentee in the “hypothetical-world” is in a better bargaining position. How much better is debatable, but that decision is for the fact-finder. Accordingly, it is rational and economically sensible, due to this fact alone, that the patentee in the “hypothetical-world” may receive a more favorable royalty rate than in the “real-world.”

(Emphasis mine).  Not only was it rational and economically sensible, but there was also a recent Federal Circuit opinion on the point.  Judge Everingham noted this week's opinion from the Federal Circuit in Spectralytics, Inc. v. Cordis Corp., Case No. 2009-1564 & 2010-1004, slip op. at 18 (Fed. Cir. June 13, 2011), in which that court recognized that a patent may be less valuable at an earlier time (i.e., when it reflects a “deep discount”) when there is uncertainty as to its validity or infringement. "Further, the court in Spectralytics stated that the weight to be given to this type of evidence is a task for the jury."  (Emphasis mine).

Finally, the defendants challenged various licenses and other evidence relied on by Dr. Magee for his opinions.  Judge Everingham granted this motion as to several licenses, but denied it as to positions taken during licensing negotiations when used as evidence of the expert's “tripling” theory.  Defendants argued that these are merely “puffing” statements made during negotiation, but the Court concluded that was more properly a matter for cross-examination. "This evidence is supportive of Dr. Magee's view that the real-world standard rates were deeply discounted. The evidence also supports Dr. Magee's view concerning the extent to which the license rates were discounted for uncertainty."

First Case Applying Therasense from Eastern District of Texas - Motion for Finding of Inequitable Conduct Denied

Ameranth v. Menusoft, 2:07cv271 (E.D. Tex. May 26, 2011)

Judge: Chad Everingham

Holding: Motion for Finding of Inequitable Conduct DENIED

It was almost a full day after the Federal Circuit's landmark holding regarding inequitable conduct in Therasense, Inc. v. Becton, No. 2008-1511, at 18 (Fed. Cir. May 25, 2011) before an Eastern District judge cited the case.

I'll post more on the postverdict orders in the Ameranth case soon, but I wanted to note that Judge Everingham's opinion denying the defendants' motion for a finding of inequitable conduct came out yesterday, a day after Therasense, and used the new case's standard. Although finding that based on the jury's finding that the claims were invalid as anticipated and for obviousness that the withheld references met the "but for" materiality standard, Judge Everingham found that the "specific intent to deceive" element was not met.

Defendants have failed to prove by clear and convincing evidence that Mr. McNally withheld the references with a specific intent to deceive the PTO. Mr. McNally consistently testified in deposition and at trial that he believed there was nothing like his invention prior to September 1998 and that he also believed that no one had even recognized the problem that his invention was designed to solve.

* * *

Mr. McNally was at no time inconsistent regarding the sincerity of his belief that there was no material prior art – i.e., that he had uncovered a breakthrough invention.  Considering Mr. McNally’s testimony in light of the evidence as a whole, the court concludes that specific intent to deceive is not the single most reasonable inference that must be drawn from the evidence.

(Internal citations to record omitted).  As a result the Court denied the motion for a finding of inequitable conduct.