Eastern District of Texas Federal Court Practice

Early Patentee Damages Disclosure - ND Cal case

EON Corp. IP Holding LLC v. Sensus USA, Inc., et al., Civ. Case No. 12-01011) (N.D. Cal. 3/8/13)

Judge: Magistrate Judge Elizabeth Laporte

Holding: Order Regarding Early Disclosure of Damages in Patent Infringement Action

I enjoyed an article by Gaston Kroub of Locke Lord a few days ago about a Northern District of California patent case that I thought readers might appreciate.  In "An Important Approach To Early Patentee Damages Disclosure”, Gaston discussed a recent order by Magistrate Judge Elizabeth Laporte of the Northern District of California in a case recently transferred from the Eastern District of Texas.  The order memorialized an agreement among the parties after a hearing before Judge Laporte where the "scope and flexibility" (to borrow Gaston's phrase) of early damages disclosures were set.  The order is a useful one in that it identifies the competing interests and provides a framework for such disclosures.  It may also provide useful fodder for the discussion at the upcoming FCBA/ED Tex bar event on complex litigation - registration is here.

In issuing her March 8, 2013, Order, Judge Laporte recognized that “the question of early damages disclosure in patent cases is a recurring and important one…” and issued the order to explain her “reasoning and guidance” to the parties. She identified the competing interests immediately, quoting Chief Judge Rader’s address at the Eastern District’s bench/bar in 2011 that “[t]he parties . . . benefit from early damages discussions and disclosures because it can provide a realistic evaluation of both Defendant’s exposure and Plaintiff’s damages calculation and further promote early and effective mediation.” Docket No. 586 Ex. F at 15 (“The State of Patent Litigation,” Address of Chief Judge Randall R. Rader of the United States Court of Appeals for the Federal Circuit, E.D. Tex. Judicial Conf., Sept. 27, 2011).  “In addition,” she noted, “an early estimate of the order of magnitude of damages at issue (e.g., less than $10 million; $25 million; more than $100 million) is important to the application of the principle of proportionality set forth in Federal Rule of Civil Procedure 26(b)(2)(C)(iii) to ascertain the burden and expense of discovery that is warranted.”

On the other hand, of course, she noticed that Defendants generally have a desire “to pin down Plaintiff to detailed early damages contentions before any significant discovery and allow amendment only on a showing of good cause,” which she noted “goes well beyond the initial damages disclosures contemplated by Rule 26(a), which can be readily amended without leave of court, and requires Plaintiff to do so without access to information in the sole possession of Defendants or third parties. See Fed R. Civ. P. 26(a)(1)(A)(iii); 26(d)(1).” Judge Laporte also noticed that the relevant Advisory Committee notes to the 1993 amendment to Rule 26(a)(1)(C) “specifically relaxed the initial disclosure requirement for damages in cases like this one, where precise calculations depend on information not initially available to the patent holder” quoting it as saying that “a party would not be expected to provide a calculation of damages which, as in many patent infringement actions, depends on information in the possession of another party or person.” Fed. R. Civ. P. 26(a)(1)(C) advisory committee’s note." (Emphasis added by court).”  There, as in ED Texas, the patent local rules did not require such disclosures, although Judge Laporte noted the Committee on these rules (of which she is a member) has discussed doing so.  

After reviewing both sides’ positions, the Court determined that some early discovery into Plaintiff’s damages case was appropriate, but that she would not require good cause and an order of the Court for Plaintiff to amend its early disclosures.  “Such a requirement would pin Plaintiff down before it had an opportunity to sufficiently develop its theories based on relevant information exclusively in the hands of others," she concluded.  At the same time, the Court noted that Plaintiff had sued several different categories of defendants in this case, including cellular network providers, handset manufacturers, and other software and hardware providers, and that Plaintiff would need to provide its damages theory as to each category. Further, the Court cautioned that “broad discovery requests propounded indiscriminately to all Defendants, without careful crafting of requests to the particular Defendant and its role in the case, could result in cost shifting. “ 

In order for Plaintiff to make reliable early disclosures, the Court required Defendants to disclose some of the information Plaintiff sought, specifically general revenue for the accused products as well as relevant license information, but did not include the requested "analyses of the value of infringing systems".  The Court similarly did not require disclosure of the detailed categories of information the Defendants sought, but instead focused on the specifics of the information Defendants claimed was currently within Plaintiff’s possession,:

• whether Plaintiff is seeking a royalty based upon handset sales, and, if so, which handsets are part of the royalty base;
• whether Plaintiff is seeking a royalty based upon sales of network components and, if so, which products are part of the royalty base;
• whether Plaintiff believes that the entire sale of the handsets or network components is subject to inclusion in the royalty base (based upon an entire-market value rule analysis) or, if not, what portion of the sales of the accused products can be attributed to the patented functionality;
• whether Plaintiff has a licensing policy and, if so, whether that licensing policy is applicable to the current action; and
• whether Plaintiff is seeking a lump-sum royalty or a running royalty.

"Plaintiff acknowledged that Defendants’ desire to know its theory of damages was reasonable," Judge Laporte noted, and encouraged the parties to look at Defendants’ questions as "standard discovery requests that could be answered promptly, to the extent Plaintiff possessed the information, rather than as comprehensive contention disclosures."  The Court again noted that it would not require a showing of good cause to amend those disclosures at a later point, “although Plaintiff should make all reasonable efforts in good faith to provide the information to avoid adverse consequences.”

After meeting and conferring in light of the above guidance from the Court, the parties stipulated that Plaintiff would amend its initial disclosures and include information as to the questions that are set forth above. The parties and the Court agreed that requiring a specific computation of the royalty rate would be premature but that otherwise Plaintiff would comply with Rule 26. In addition, Plaintiff agreed that, to the extent it believed that its claims against products subject to a license were not exhausted, it would provide to Defendants an explanation as to why those claims remain at issue.

Thanks again to Gaston for picking up on this one, especially right before our April 25 confab with the Federal Circuit Bar Association about managing complex litigation in Plano. If you have not registered yet, you need to go here - it's $25 for FCBA or ED Texas bar association members and $125 for the heathen.

 

 

ND Cal court awards preclusive sanctions to remedy late source code production

Apple v. Samsung, C 11-1846 LHK (PSG) (5/4/12)

Judge: Paul S. Grewal

Holding: Motion for 37(b)(2) Sanctions GRANTED

As readers know, I occasionally post on cases from other jurisdictions that might be of interest, and the Northern District of California is a good source since it uses patent rules similar to those in the Eastern District - in fact it was the source for the Eastern District's rules back in 2001.  It also addresses similar issues (although seeing Apple as a plaintiff is a little weird).

Eastern District practitioners are also likely to be familiar with the judge in this case, U.S. Magistrate Judge Paul S. Grewal, who worked on several cases in the Eastern District before taking the bench, and who spoke on a panel on e-discovery at the Eastern District's bench/bar last fall.  This opinion by Judge Grewal I thought might be of interest because it deals with a common issue - source code production - and the consequences of belated production. 

In this case, the plaintiff moved for sanctions against the defendant for late production of source code.  Judge Grewal's opinion described the world of source code production in patent cases in a memorable way. 

In a typical patent infringement case involving computer software, few tasks excite a defendant less than a requirement that it produce source code. Engineers and management howl at the notion of providing strangers, and especially a fierce competitor, access to the crown jewels. Counsel struggle to understand even exactly what code exists and exactly how it can be made available for reasonable inspection. All sorts of questions are immediately posed. Exactly who representing the plaintiff gets access—and does this list include patent prosecution counsel, undisclosed experts, and so-called “competitive decision makers”? Must requirements and specification documents that explain the functionality implemented by the code be included? What compilation, debugging and analysis tools are required? What about the test database and user manuals? Make files? Build files? Does the code have to produce in a native repository such as CVS or Perforce? Must daily builds in development be produced (and if so, in real-time or batch?) or is production limited only to copies in commercial release? Put simply, source code production is disruptive, expensive, and fraught with monumental opportunities to screw up.

Truer words were never spoken. 

In this case, Judge Grewal granted the plaintiff Apple's motion to compel the defendant Samsung to produce source code, and Apple later filed a motion for sanctions claiming that Samsung did not comply with that order.  Interestingly, the issue was whether Samsung had complied with the order not with respect to the code plaintiff Apple wanted to use, but with respect to the code that Samsung intended to rely on - specifically the code for Samsung's "design-around" products.  "Like many accused infringers," Judge Grewal wrote, "Samsung developed these products with the specific intent of avoiding the plaintiff's asserted patents, in this case the ‘381, ‘891, and ‘163 utility patents. This is of course Samsung’s right, and in many ways exactly what the disclosure requirements of the patent system are designed to achieve. The court focuses on design-arounds because by their very nature design-arounds impact key questions of liability, damages, and injunctive relief.  They are inevitably designed with substantial input from counsel for the specific purpose of distinguishing other products at issue. In short, they matter. A lot. Because Samsung had these products in hand in some cases months before the court's December 31 deadline, and in other cases did not produce them until months after, the court finds that Samsung clearly violated the court's order and that sanctions are warranted, as set out below."  (Emphasis mine). 

Judge Grewal looked at (i) what he ordered Samsung to produce in the December 22 Order and by when; (ii) whether Samsung complied; and (iii) if Samsung did not comply, whether Apple’s requested sanctions were appropriate.  (Apple was seeking an order precluding Samsung or any of its experts from presenting, using, or relying on any source code that was not timely produced under the December 22 Order; and an order deeming that, for purposes of assessing infringement by any version of a Samsung accused product, the product version for which Samsung timely produced source code is representative of all versions of that product). 

Judge Grewal determined that Samsung was not permitted to exclude from the ordered production the design-around code Apple had requested, and that it had "plainly violated" the court’s December 31 deadline.  "More troubling still is Samsung’s design-around code production for the ‘891 and ‘163 patents. Fact discovery closed on March 8, 2012.  Samsung did not produce source code for its ‘891 and ‘163 design-arounds until March 10 and 12, 2012—after the close of fact discovery—knowing full well that the court would not grant the parties any exceptions."  So Samsung violated the order, and its conduct was "well within its own control" so sanctions were warranted, the Court concluded.  But which ones?

The Ninth Circuit had set forth five factors to consider whether a given sanction is just, the Court explained:

1. the public's interest in expeditious resolution of litigation;
2. the court's need to manage its dockets;
3. the risk of prejudice to the party seeking sanctions;
4. the public policy favoring disposition of cases on their merits; and
5. the availability of less drastic sanctions.

"Where a court order is violated," the Court wrote, "the crux of the analysis is the risk of prejudice to the party seeking sanctions, and the availability of less dramatic sanctions."  Even if prejudice were not presumed, the Court noted, the prejudice here was particularly onerous in light of the significance of design-around code.

Fact discovery closed on March 8, 2012, and expert discovery closed on April 27, 2012. Samsung's delay until after the close of fact discovery undoubtedly prevented Apple from conducting any follow-up discovery on code that lies at the center of critical issues in this case. This was not code akin to that otherwise produced save for immaterial differences. This code was specifically written to design around Apple’s claims in this case. In other words, it was code specifically written to be materially different from that otherwise produced. And source code is not something that can be reviewed casually. It often takes even highly trained, highly paid experts extraordinary time and effort to understand, let alone fit into the framework of this case. Apple’s experts were left with no meaningful opportunity to comprehend this code, even as they face criticism from Samsung in deposition (and assuredly at trial) that their code analysis was deficient.  Nothing Samsung offers justifies a conclusion other than that Apple suffered substantial prejudice from Samsung’s violations.

In light of the specific facts of the case, Judge Grewal concluded that preclusive sanctions were appropriate, and ordered that "Samsung shall be precluded from offering any evidence of its design-around efforts for the ‘381, ‘891, and ‘163 patents, and shall not argue that the design-arounds are in any way distinct from those versions of code produced in accordance with the court’s order. Samsung must instead rely solely on the versions of code that were produced on or before December 31, 2011."

From Docket Navigator.

 

 

Patent Rule 3-1 does not require plaintiff to supplement its initial disclosure of asserted claims when it learned of additional, potentially infringing products.

Integrated Circuit Systems, Inc. v. Realtek Semiconductor Co., Ltd., 308 F.Supp.2d 1106
Judge: Magistrate Judge Zimmerman
Division: Northern District of California
Date: March 11, 2004
Holding: Defendants' Motion to Compel Supplemental Disclosures DENIED
COMMENTS:
This is a patent infringement case in which the plaintiff, in its initial disclosures under Patent Local Rule 3-1 (which is used by several Eastern District judges) accused two of the defendant's product families of infringement. The plaintiff later learned that the defendant made additional product families which it plaintiff contends also infringe its patent, but it did not supplement its initial disclosures to accuse these new products. On the eve of the claim construction hearing, the defendant moved to compel the plaintiff to supplement its initial disclosures with respect to these new products.
After viewing the patent rules as a whole, Magistrate Judge Zimmerman held that their purpose was "to place the parties on an orderly pretrial track which will produce a ruling on claim construction approximately a year after the complaint is filed," and "to require parties to crystallize their theories of the case early in the litigation and to adhere to those theories once they have been disclosed."
In light of the purposes of the patent rules, Judge Zimmerman declined to impose a duty of supplementation, at least for new products. He held that a plaintiff who later desires to accuse additional products must do so by obtaining leave of court to amend its disclosures pursuant to P.R. 3-7 unless under the circumstances of the case the party can do so by serving Final Contentions pursuant to P.R. 3-6. To allow, much less require, a plaintiff to amend or supplement its disclosures as it discovers new products would remove the claim construction process from the control of the court, which would contradict the underlying purposes of the patent rules.