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.