Who’s Winning with Willfulness and Waiver

Computer Associates Int. v. Simple.com E.D. New York, decided Oct. 20, 2006 Judge Hurley Computer Associates sought a declaratory judgment that three patents owned by Simple.com are invalid, unenforceable, and ââ?¬Å?not infringedââ?¬Â? by their products. Simple.com counterclaimed for willful infringement. Computer Associates invoked ââ?¬Å?advice of counselââ?¬Â? as a defense to the counterclaim and produced two opinion letters. However, they did not produce any communications with litigation counsel citing attorney-client privilege. On motion the Special Master ordered that Computer Associates were compelled to produce documents concerning advice of counsel on infringement, from both non-litigation counsel and litigation counsel. In the present case the court upheld the order after reviewing the holding in EchoStar. Specifically the court found that although EchoStar had not involved trial counsel, the court had cited favorably to Akeva v. Mizuno, 243 F. Supp. 2d 418 (2003), which stated that ââ?¬Å?all opinions received by the client relating to infringement must be revealed, even if they come from the defendantââ?¬â?¢s trial attorney.ââ?¬Â? Judge Hurley held:

The scope of [Computer Associateââ?¬â?¢s] waiver of the attorney-client privilege and work-product doctrine lies within the sound discretion of the trial court and EchoStar provides ample support for the Special Master’s recommendations.

Thus, because Computer Associates had chosen to raise the advice of counsel defense they had waived the privilege as to all opinions and could not ââ?¬Å?use the privilege as both a sword and a shield by waiving its privilege for favorable advice while asserting it for unfavorable advice.ââ?¬Â? The patent community needs to seriously rethink how willfulness and waiver are working together. The Federal Circuit took a step in the right direction in the Knorr-Bremse opinion, but did not go far enough. Intuitively, there is something wrong with requiring a defendant to reveal all documentation concerning discussions about infringement, when they almost have to in order to properly defend themselves. I would like to see some drastic legislation pass in Congress concerning this issue.

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Potential Lost Revenue Alone Does Not Qualify as “Irreparable Harm”

Parker-Hannifin Corp. v. Wix Filtration Corp. 2006 WL 3028706 (E.D. Cal.) Judge Levi In denying a preliminary injunction, Judge Levi stated ââ?¬Å?[p]otential lost revenue alone does not qualify as ââ?¬Ë?irreparable harmââ?¬â?¢ because, otherwise, there would be ââ?¬Ë?irreparable harmââ?¬â?¢ in every patent case.ââ?¬Â? To be awarded a preliminary injunction, a patent owner plaintiff must show:

(1) a reasonable likelihood that it would succeed on the merits; (2) a threat of irreparable harm; (3) the balance of hardships tips in its favor; and (4) the public interest favors granting the injunction.

Parker designs and sells oil filtration systems and replacement filters for the Ford F-150. Wix also sells replacement filter elements, which compete with the products sold by Parker. Parker claims Wix infringes its patent covering the filter design (the ââ?¬Ë?426 patent), and additionally that the Wix products are defective and cause failed fuel injectors in the F-150 which Parker fears Ford may blame on the Parker oil filtration system. There is no actual evidence that any of the Wix products are faulty, and Wix claims that these warranty claims predate the sale of its products by several years. The only physical difference in the filters is that the Wix filter includes an additional plastic tube inside the filter apparatus, so the question is whether this tube acts to distinguish the Wix filter from the Parker filter. After concluding Parker has not proven likelihood of success on the merits, Judge Levi discusses irreparable harm:

Mere loss in revenue from competition is not “irreparable harm” in a patent infringement suit when the plaintiff has failed to demonstrate that it will likely succeed on the merits.

Does this imply if likelihood of success on the merits is shown, loss of revenue would be sufficient? A strong arguement can be made that lost revenue is not irreparable because that is exactly what the award of damages is intended compensate. Preliminary injunctions, especially after eBay, should be much more difficult to obtain. Plaintiff�s loss of revenue, alone, should rarely be sufficient to allow a preliminary injunction.

Sanctions Granted

Eon-Net, L.P. v. Flagstar Bancorp, Inc. W.D. Washington, Decided October 4, 2006 Judge Marsha J. Pechman Plaintiff is a patent assignee of an invention that permits quick and automatic extraction of information from hard copy documents, such as invoices or receipts. Plaintiff retained an attorney to file an infringement lawsuit against Flagstar. The Defendant is a bank that uses an application over the Internet to collect the bank’s customer information and to process the information on the bank’s server. Apparently, Plaintiff Eon-Net and the attorney were also busy filing over a dozen other lawsuits of a similar nature against companies with similar business practices as that of the Flagstar. Eon-Net followed the service of the complaint with cheap offers of settlement ranging from $25,000 and up. The finger prints of a troll are all over this case. What Eon-Net didnââ?¬â?¢t count on is the cost of not doing the preliminary investigation of patent infringement as mandated by Federal Circuit in View Engineering v. Robotic Vision Systems, 208 F.3d 981 (2000). In the context of patent litigation: ââ?¬Å?Rule 11 requires an attorney to (1) apply the claims of each asserted patent to the accused device, and (2) satisfy himself that a proper construction of the claims permits an argument that each element of the claims appears in the accused devices.ââ?¬Â? The court reasons further that “reasonable inquiry” would be sufficient to avoid the sanction against an attorney. Since the attorney for Eon-Net took the words of the assignee and went no further than simply opening up a browser to see the application process implemented by Flagstar, the court held that the attorney failed to fulfill the duty to the court. Although the attorney claims that he has met the “reasonable inquiry” standard by checking the website, the court found it to be even lower than the effort put in by the attorney in View Engineering (where the Federal Circuit upheld the sanction against the attorney for View Engineering). Any Plaintiffââ?¬â?¢s attorney in a patent infringement suit, whether for a troll or not, should be warned to pay particular attention to the preliminary investigation requirements.

Amgen: You are not alone

Amgen, Inc. v. F. Hoffman-LaRoche Ltd. 2006 WL 2987949 D.Mass., Decided Oct 20, 2006 Judge William G. Young In this case, Amgen sought declaratory judgment regarding infringement of several Amgen patents by Hoffman. However, of interest was a procedural issue that has bearing on patent licensees being able to join in lawsuits. Here, Ortho is a licensee of the patents in question, and wished to join in the suit. Judge Young allowed for Ortho to intervene despite the fact that Ortho did not hold all of the substantive rights to the patent. For those in need of a quick refresher on Federal Civil Procedure, Rule 19 provides for joinder of necessary parties. Rule 24 (a) allows for an intervention of right to protect an interest in the lawsuit if it isn’t adequately represented otherwise. It is accepted that an assignee or an exclusive licensee of a patent is a required party under FRCP 19. Judge Young found Ortho to be an exclusive licensee because the language of the license gave Ortho an

“exclusive license to make in one location, have made and use LICENSED KNOW-HOW, LICENSED PATENTS and LICENSED PRODUCTS in the LICENSED TERRITORY in the LICENSED FIELD and to sell LICENSED PRODUCTS in LICENSED TERRITORY” to be exactly what it says it is: an exclusive license. This is quite sufficient for joint standing purposes.

Having found Ortho to be an exclusive licensee despite lacking the right to sue for infringement on its own, Judge Young deemed Ortho to be a necessary party to the action.

Judge Wilken Denies a Stay for Reexamination

Telemac Corp. v. Teledigital Inc. and Phonetec N.D. Cal., decided Sept. 13, 2006 Judge Wilken Defendants can ask the court for a stay in the proceeding for the reason of a reexamination by the USPTO. This may lengthen the trial significantly: ââ?¬Å?[T]he average pendency of reexamination before the PTO is 19.2 months, not including appeals.ââ?¬Â? Telemac, 2006 WL 2632560 (citing Xerox Corp. v. 3Com Corp., 69 F.Supp.2d 404, 406 n. 1 (W.D.N.Y.1999)). Judge Wilken reviewed and denied Defendantââ?¬â?¢s request for reexamination. It is important to know how Judges are ruling on this issue because it is a discretionary ruling.

In determining whether to stay this case pending re-examination, the Court considers the following factors: (1) whether discovery is complete and whether a trial date has been set [stage of the proceedings]; (2) whether a stay will simplify the issues in question and trial of the case [simplification]; and (3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party [undue prejudice or clear tactical advantage].

Telemac, 2006 WL 2632560 (citing In re Cygnus, 385 F.Supp.2d, 1022, 1023 (N.D. Cal 2005). Judge Wilken conducted a formulistic analysis of each of the three factors. The stage of the proceedings did not weigh heavily in either direction because the case had been ââ?¬Ë?aliveââ?¬â?¢ for 18 and 27 months (respectively for the 2 defendants, Teledigital and Phonetec), but no substantial discovery had taken place. The simplification that would occur by the reexam likewise did not weigh heavily in favor of either party. Chances were just as good that some claims would be removed as some claims would remain. Judge Wilken felt familiar with the patents at issue so the simplification was not as high as it usually would be. The clear tactical advantage that would be gained by the Defendants was the factor which convinced Judge Wilken to deny the request for reexam. Evidence had shown the Defendants may not have the resources to fully compensate the Plaintiff if infringement was found. Further, the Defendants seemed to be drawing the reexam out as long as they could by not providing all necessary information in their requests to the PTO for reexamination. The Judge also noted a possibility that information could be lost, as Phonetec had already failed to preserve some records. Essentially the stay was denied because Judge Wilken sensed the Defendants were requesting the reexamination in order to delay litigation and resolution of the matter and no clear advantage was offered by having the PTO reexamine the patents.

eBay: District Courts Play Follow the Leader

The eBay, Inc. v. MercExchange, L.L.C. case has received much attention recently because the Supreme Court unanimously rejected the notion that an injunction should issue automatically based on a finding of patent infringement. In the eBay decision, the court stated:

A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion.

In analyzing the District Courts’ treatment of this decision, it has seems that they are using eBay to deny permanent injunctions. In z4 Techs., Inc. v. Microsoft Corp., 434 F. Supp. 2d 437 (E.D. Tex. June 14, 2006), Judge Leonard E. Davis declined injunctive relief on the grounds that monetary damages were an adequate remedy. The court also placed great weight upon the fact that no irreparable harm would follow in the absence of a permanent injunction. Similarly, in Paice L.L.C. v. Toyota Motor Corp., 2006 U.S. Dist. LEXIS 61600 (E.D. Tex. Aug. 16, 2006) Judge David Folsom decided that the patentee was not entitled to a permanent injunction because irreparable harm lies only where injury could not be undone by monetary damages after balancing the equities with eBay‘s four part test. Again, the court made note of the fact that the patentee did not establish that it would be irreparably harmed. However, while the District Courts are seemingly often balancing the equities in favor of monetary damages, injunctions are still being issued. Rosco, Inc. v. Mirror Lite Co., 2006 U.S. Dist. LEXIS 73366 (E.D.N.Y Sept. 29, 2006) saw Judge Charles P. Sifton focus on narrowly tailoring the scope of injunction to the asserted patent claims only. In that decision, Judge Sifton stated that ââ?¬Å?this is not a case where a mandatory licensing scheme could adequately compensate the patent owner.ââ?¬Â? Additionally, the court reasoned that equity allowed an injunction because there would be no great inconvenience to the public. So, it seems that District Courts are not hesitantating to balance the equities in favor of monetary damages and are limiting the number of permanent injunctions being granted.

Change of Venue in E.D. of Texas Granted

O2 Micro International v. Monolithic Power Systems, Inc., et al. E.D. Texas Judge Ward Most practicing patent litigation attorneys who represent defendants have come to realize, when youââ?¬â?¢re sued in the Eastern District of Texas, youââ?¬â?¢re staying there for the long haul. However, getting a change of venue is not impossible. O2 Micro International (O2 Micro) had 3 related patents at issue, the ââ?¬Ë?615, ââ?¬Ë?722, and ââ?¬Ë?129. The ââ?¬Ë?615 and ââ?¬Ë?722 are related and the ââ?¬Ë?129 is a continuation of the ââ?¬Ë?615 and ââ?¬Ë?722. O2 Micro sued Monolithic Power Systems (MPS) in the Northern District of California in October of 2001 for infringement of O2 Microââ?¬â?¢s ââ?¬Ë?615 patent. Judge Wilken of the N.D. of Cal., decided the case on summary judgment for MPS. In January of 2003 O2 Micro then sued a customer of MPSââ?¬â?¢s (Taiwan Sumida) in the E.D. of Texas and asserted both the ââ?¬Ë?615 and ââ?¬Ë?722 patents. The court held the ââ?¬Ë?615 claims collaterally estoppel and granted Taiwan Sumidaââ?¬â?¢s summary judgment motion on those claims. MPS filed a declaratory judgment suit in the N.D. of Cal. in May of 2004 in order to get a judgment that it did not infringe the ââ?¬Ë?722 patent. O2 Micro counterclaimed for infringement and later motioned for a transfer of venue to the E.D. of Texas. A transfer of venue motion was denied by Judge Wilken in December of 2004. Back in October of 2004, O2 Micro filed an infringement suit in the E.D. of Texas for the ââ?¬Ë?129 patent. This suit is MPSââ?¬â?¢s motion to transfer venue to the N.D. of Cal. for the ââ?¬Ë?129 claim. Judge Ward was convinced by MPSââ?¬â?¢s first-filed arguments and stated:

The Northern District of California was the court first vested with jurisdiction over the dispute between these parties concerning these related patents. That court should therefore determine where this dispute should ultimately be resolved.

It seems after all there is a way out of the Eastern District of Texas; look for a strong first-filed argument.

Another Note on ‘Waiver of Privilege’

In the wake of In re EchoStar, there have been multiple other cases in the District Courts interpreting and applying the ââ?¬Ë?waiver of privilegeââ?¬â?¢ standard articulated in that decision. The discussion of Genentech in a prior post goes into a more in depth analysis of the treatment EchoStar is getting, but a couple of other cases help illuminate another important issue. Informatica Corp. v. Business Objects Data Integration (BODI), Inc., decided July 14, 2006, affirmed August 9, 2006 United States District Court, N.D. California James Lawson, Chief Magistrate Judge, Affirmed by Jeffrey S. White, U.S. District Court Judge. The court discussed work product waiver and determined that the privilege was not waived in the mental impressions of counsel. The court went on to support this determination by stating that the issue was the state of the mind of the infringer (the client), not the state of mind of the attorney. Essentially, the court remained in lock-step with the decision in EchoStar. However, of great interest was the fact that the court declared that the waiver may apply to both pre and post filing work product and privileged communications of trial counsel, so there is little temporal limitation on the waiver under such circumstances. The court suggested in the dicta of EchoStar that the waiver should extend through the litigation and trial when there is alleged ongoing infringement. Now, while most of the D.C. cases have been ruling similar to Informatica (i.e. agreeing with EchoStar), there has been some reluctance to agree with the Circuitââ?¬â?¢s suggestion regarding the temporal scope of the waiver. Intex Recreation Corp. v. Team Worldwide Corp., decided Jul 14, 2006 United States District Court, D.D.C. Deborah A. Robinson, Magistrate Judge Here, Judge Robinson differentiated Intex from EchoStar on the grounds that the defendantââ?¬â?¢s advisory and trial attorneys were the same, and the opinion regarding possible infringement was given after the initial complaint was filed. She went on to say that as such:

Waiver extends only to those trial counsel work product materials that have been communicated to the client and ‘contained conclusions or advice that contradict or cast doubt on the earlier opinions. Intex, 439 F.Supp.2d 46 at 52

So in essence, the court found a middle ground in allowing the waiver to extend into the litigation on a limited basis as opposed to the larger temporal scope suggested by EchoStar.

Clarifying EchoStar and Waiver of Privilege

Genentech Inc. v. Insmed Incorporation, decided August 10, 2006 United States District Court, N.D. California Magistrate Judge Edward M. Chen Plaintiffs’ motion on the scope and procedure of willfulness discovery and Defendants’ cross-motion to quash or limit the scope of subpoenas. Motions of each party granted in part and denied in part. A recent Northern District of California case, Genentech v. Insmed Inc., gave an in depth evaluation of the policy considerations concerning the waiver of privilege issue that was articulated in In re EchoStar. At issue is whether advice letters from opinion counsel regarding possible infringement may constitute a waiver of privilege of trial counsel’s communications with the client. The court borrowed language from EchoStar, and set up the countervailing interests as such:

[t]he overarching goal of waiver … is to prevent a party from using the advice he received as both a sword, by waiving privilege to favorable advice, and a shield, by asserting privilege to unfavorable advice.” EchoStar, 448 F.3d at 1303.

On the other hand, the policies to uphold the attorney-client privilege and the work product privilege must also be considered. EchoStar maintains the privilege regarding uncommunicated work product, but says that in instances where the client was made aware of information, the privilege is waived. The court found no issue with the EchoStar reasoning, but also felt that it did not offer trial counsel enough protection. With that in mind, the court applied a middle ground approach of partial waiver and stated:

Waiver of trial counsel communication with the client should apply to documents and communications that are most akin to that which opinion counsel normally renders–i.e., documents and communications that contain opinions (formal or informal) and advice central and highly material to the ultimate questions of infringement and invalidity. 2006 WL 2336484 at 7

This ââ?¬Ë?degree of materialityââ?¬â?¢ test is further augmented by the courtââ?¬â?¢s language indicating that any negative opinions or advice are presumed to be more likely to be considered material. The court also stated that the waiver ââ?¬Å?would exclude lower level documents and communications that are more akin to discussions of trial strategy.ââ?¬Â? Thus, according to the court, communication will be privileged if it is trial strategy. However, communications containing information pertinent to the infringement will not be so protected.

Avago Gets Court to Chop Away at Elan Expert Report

Avago Tech. Gen. IP PTE LTD. v. Elan Microelectronics Corp. (PDF) 2007 U.S. Dist. LEXIS 55113 Decided July 20, 2007 Magistrate Judge Lloyd Elan submitted an expert report by Berthold Horn opining on invalidity of two of Avagoââ?¬â?¢s patents (ââ?¬Ë?780 and ââ?¬Ë?804). The ND Cal Local Rules were not strictly followed so portions of the report were stricken. Elanââ?¬â?¢s Final Invalidity Contentions (ââ?¬Å?FICââ?¬Â?) did not exactly match up with Hornââ?¬â?¢s expert report. For example, Horn mentioned that the ââ?¬Ë?804 patent is invalid because it lacks a proper written description and the invention is not enabled. However, when Elan asked for leave to amend its FIC to add the written description and enablement theories, it only indicated that the theories applied to the ââ?¬Ë?780 patent. As such, Magistrate Judge Lloyd ordered that all references to the written description or enablement theories in relation to the ââ?¬Ë?804 patent be stricken from Hornââ?¬â?¢s expert report. The court went on to strike another paragraph and an exhibit due to a pinpoint citation problem. Elan disclosed the prior art reference that Horn relied on in the expert report, but the pinpoint citation in the FIC did not match up with the pinpoint cite in Hornââ?¬â?¢s report. Local Rule 3-3(c) requires:

a chart identifying where specifically in each alleged item of prior art each element of each asserted claim is found.

Horn was not allowed to rely on any portion of the prior art that was not referenced by pinpoint citation. Who says pinpoint cites are only important for law reviews? Lastly Magistrate Judge Lloyd struck two more paragraphs because Horn relied upon a prior art reference not previously disclosed. Elan attempted to argue that Avago was put on notice of the prior art because it was cited in a previously disclosed reference and that Horn was not relying on the reference, but was merely ââ?¬Å?working backwards fromââ?¬Â? it. Hornââ?¬â?¢s elaboration on the reference in question convinced the court that Horn was relying on the reference. Thus, two paragraphs in the expert report which discussed the undisclosed prior art were struck.