September 11, 2012

Judge Thynge Grants in Part Motion to Compel and Imposes Sanctions Against Plaintiffs for Spoliation of Documents

In Magnetar Technologies Corp., et al. v. Six Flags Theme Park Inc., et al., C.A. No. 07-127-LPS-MPT (D. Del.), Magistrate Judge Thynge recently issued a Memorandum Order granting in part defendants’ motion to compel production of documents, and imposing sanctions against plaintiffs for spoliation of evidence as a result of the destruction of certain other documents. Id. at 37. In the motion, defendants sought to compel the production of documents (that plaintiffs claimed were protected from discovery and inadvertently produced) on the grounds that by producing the documents to defendants, plaintiffs had waived any claims of attorney-client privilege or work product over the documents. Id. at 8. Defendants further argued that the documents were not shielded from discovery by any joint client privilege, and even if the documents were somehow protected, plaintiffs should nonetheless be ordered to produce them under the crime-fraud exception and as a sanction against the plaintiffs for the spoliation of other evidence and documents in this case. Id. at 8-9. Specifically, on the issue of spoliation, defendants alleged that during the course of discovery “more than seven hundred boxes of documents were destroyed” at the behest of two of the plaintiffs. Id. at 3. In opposition to the motion, along with arguing that the documents at issue were inadvertently and unintentionally produced, plaintiffs argued that the attorney-client privilege, work-product doctrine and the joint client privilege applied to protect the documents from discovery, and that none of these applicable privileges or immunities had been waived by any of the defendants. Id. at 10-11. Plaintiffs also disputed defendants' allegations of spoliation, arguing that to the extent any documents were destroyed, those documents were not destroyed intentionally and at the time were under the control of a third party (and not under the defendants’ control). Id. at 10. In granting the motion to compel in part, Judge Thynge concluded that although the attorney-client privilege may have arguably been waived with respect to perhaps one of the plaintiffs, both the work-product doctrine and the joint client privilege still applied to the contested documents and had not been waived. Id. at 23-25. Judge Thynge noted that the “work product protection is not automatically waived through a client’s (or former client’s) production of documents since that protection is invoked by the attorney.” Id. at 24. Judge Thynge also noted that the existence of an agreement between the plaintiffs to retain “common counsel” and the inclusion of each of the plaintiffs on certain privileged communications indicated that a joint client relationship existed among the plaintiffs, warranting protection under the joint client privilege. Id. at 26. Judge Thynge held that the crime-fraud exception did not apply because there was no evidence that plaintiffs had engaged in a crime or fraud or that defendants’ counsel’s services were utilized in order to plan or perpetrate any such crime or fraud. Id. at 31.

On the issue of spoliation, Judge Thynge found in favor of defendants, holding that plaintiffs had failed to satisfy their preservation obligations and that such failure was a "serious matter worthy of sanction." Id. at 32, 34. Specifically, the Court found that the “destruction of documents in the [third party] warehouse, which was under the control of [one of the plaintiffs], and occurred after the commencement of litigation" constitutes "spoliation.” Id. at 32. In addition, the Court noted that although the plaintiffs “may not have actively obstructed the discovery of evidence, they neglected their duty to preserve evidence, and should have been aware of [the third party’s] document retention policy for approximately six years before this action was filed.” Id. at 32. As a sanction for plaintiffs’ spoliation, the Court ordered the production of certain documents or portions of documents sought by defendants and the attorney-client privilege “lost” with respect to those documents or portions of documents. Id. at 35-36.

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September 10, 2012

Defendant’s Unclean Hands Defense, Pled in Response to Plaintiffs’ Amended Complaint, Untimely Under Rules 15 and 16

Chief Judge Gregory M. Sleet recently struck defendant’s unclean hands defense in its Answer as improper under FRCP Rule 15(d) and untimely under Rules 15(a) and 16(b). Sirona Dental Systems, Inc., et al. v. Dental Imaging Technologies Corp., C.A. No. 10-288-GMS (D. Del. Sept. 10, 2012).

The parties had agreed to permit plaintiffs to file a Fourth Amended Complaint nearly nine months after the deadline to amend pleadings. Id. at 1. This Amended Complaint contained no substantive changes; it only added the current defendant and removed others as a result of a series of mergers and an agreement between the parties, and substituted the reissues of two of the patents-in-suit for the original patents. Id. at 2. In response, defendant filed its Answer which raised an affirmative defense of unclean hands for the first time. Id. Plaintiffs moved to strike the defense arguing that it was not a proper response under FRCP Rule 15(a) and, even if “viewed instead as a stand-alone amended pleading” under Rule 16(b), would still fail to meet the requirements of this Rule. Id. at 3.

The Court held that defendant’s Answer was “best understood not as a required response to an amended pleading under Rule 15(a)(3) but as a discretionary response to a supplemental pleading, governed by Rule 15(d).” Id. at 4-5 (internal quotation marks omitted). While responses under Rule 15(a) are permitted as a matter of course, a court has the discretion to permit or disallow responses under 15(d). Id. at 5-6. Here, the Court disallowed the unclean hands defense because “[t]he filing of a supplemental complaint containing purely ministerial changes should not permit an opposing party to raise a novel affirmative defense more than nine months after a scheduling order deadline.” Id. at 7.

Because it concluded that Rule 15(a) was inapplicable, the Court did not apply or interpret Rule 15(a)(3), which governs the timing of a required responsive pleading. Judge Sleet did comment, however, that plaintiffs’ argument that the scope of 15(a)(3) pleadings “should be limited to reflect the breadth of the changes in the initial pleading” had merit because to view otherwise might “throw the door open to entirely new claims and defenses each time a ministerial amendment was made to a pleading.” Id. at 4 & n.3.

Judge Sleet also considered whether defendant’s Answer would satisfy Rule 16(b) which permits a party to amend its pleading after the court ordered deadline, only for good cause and with the Court’s consent. Id. at 8. Although defendant did not obtain leave of court to amend its Answer, defendant argued that it had good cause for delay because (i) plaintiffs provided “inconsistent information with regard to the facts relevant to the unclean hands issue” and (ii) defendant had no obligation to investigate this defense earlier because it assumed plaintiffs would adhere to a relevant license agreement. Id. at 9. Judge Sleet disagreed, noting that it was not until after the scheduling order deadline passed that plaintiffs provided “inconsistent information” and thus defendant could have raised the defense by the deadline. Id. In addition, defendant could not justify its delay when it was “presented with evidence of potential bad deeds” and did not perform a “diligent investigation upon receipt of such evidence.” Id. at 10. To hold otherwise “would open the door to untimely defenses and claims whenever they are based on some form of misbehavior.” Id.

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September 10, 2012

Judge Stark: Patentees should expect that stipulating to stay one action pending reexamination will be an important factor in the Court’s decision whether to grant a stay in a related action

In a recent memorandum order, Judge Stark granted a defendant’s motion to stay pending reexamination, finding that each relevant factor favored a stay. Smarter Agent, LLC v. MobileRealtyApps.com, LLC, C.A. No. 11-915-LPS (D. Del. Sept. 5, 2012). First, the Court noted that the potential for simplification of issues through the reexamination was substantial, because “[a]ll the claims involved in this lawsuit currently stand rejected in the reexaminations. If this remains the outcome, this litigation will be terminated.” Id. at 3. Next, although the case had been filed almost eleven months earlier, the Court noted that “essentially nothing has happened in this case beyond the briefing of the instant motion to stay.” On the other hand, “[t]he reexaminations have been pending for over two years and are significantly farther along than the litigation.” Id. at 4. Finally, the Court was not persuaded by the plaintiff’s claims of undue prejudice, “particularly in light of Plaintiff’s agreement to stay the two related actions[]” asserting the same patents against other defendants. Id. at 5. In a footnote, the Court explained that it “recognizes that a patentee has no obligation to agree to stay litigation against a particular defendant or all defendants just because it has previously agreed to stay litigation against other defendants. But such a patentee should expect that the stay of one related action will be an important consideration if the Court must later decide whether to stay another related action.” Id. at 7 n.2.

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September 10, 2012

Judge Stark: non-infringement finding in favor of one ANDA defendant has collateral estoppel effect in a separate action against another defendant.

In a recent memorandum order, Judge Stark granted Amneal Pharmaceuticals’ motion for partial judgment on the pleadings of non-infringement, finding that a non-infringement ruling against Galderma Laboratories in a separate action had collateral estoppel effect. Galderma Laboratories Inc. v. Amneal Pharmaceuticals, LLC, C.A. No. 11-1106-LPS (D. Del. Sept. 7, 2012). In the separate action, the Court found that Mylan Pharmaceuticals’ proposed generic product “containing 40 mg doxycycline administered once daily does not infringe [Galderma’s] patents, because such products do not contain the required ‘sub-antibacterial amounts’ of doxycycline but, rather, significantly inhibit the growth of microorganisms.” Id. at 1-2. Amneal, whose proposed product also contained 40 mg of doxycycline, to be administered once daily, argued that the Court’s non-infringement ruling against Galderma in that separate action had collateral estoppel in the instant case. The Court agreed, explaining “in order to prevail against Amneal on its claim for infringement …, Galderma would have to prevail on the ‘identical’ issue it previously litigated – and lost – in the Mylan action.” Id. at 4. That issue was “whether a product containing 40 mg of doxycycline, administered once daily, infringes [Galderma’s] patents.” Id. In rejecting several arguments by Galderma why collateral estoppel was not appropriate in this case, the Court explained that “the Court’s finding of non-infringement of [Galderma’s] patents in the Mylan Action was in no meaningful sense tied to anything unique about Mylan’s proposed product.” Id. at 7.

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September 10, 2012

Judge Robinson dismisses defendant's counterclaim for failure to adequate plead invalidity

Judge Sue L. Robinson recently granted plaintiff's motion to dismiss defendant's invalidity counterclaim but denied plaintiff's motion to strike the corresponding affirmative defense. Internet Media Corporation v. Hearst Newspapers, LLC, C.A. No. 10-690-SLR (D. Del. Sept. 6, 2012). Defendant pled that the patent-in-suit was invalid "for failing to comply with one or more of the requirements for patentability set forth in Title 35 of the U.S. Code, including, but not limited to, §§ 101, 102, 103 and 112." Id. at 2. Noting that, since Twombly and Iqbal, it is clear that a "counterclaim must set forth sufficient facts to give rise to a plausible claim for relief[,]" Judge Robinson held that defendant's counterclaim did not contain "such requisite facts" and granted plaintiff's motion to dismiss, with leave to amend. Id. at 3-4. However, because an affirmative defense "must merely provide fair notice of the issue involved[,]" Judge Robinson denied plaintiff's motion as to defendant's affirmative defense of invalidity. Id. at 5.

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September 7, 2012

Judge Thynge Recommends Denial of Stay Pending Reexamination

Magistrate Judge Thynge has issued a report and recommendation considering the defendant’s motion to stay pending inter partes reexamination in ImageVision.Net, Inc. v. Internet Payment Exchange, Inc., C.A. No. 12-054-GMS-MPT (D. Del. Sep. 4, 2012). Considering each of the three factors for issuing a stay, Judge Thynge concluded that the motion should be denied.

Judge Thynge first considered whether the timing and status of the litigation and the reexamination weighs against a stay. She noted the defendant’s argument that “the legally relevant inquiry considers not whether discovery has commenced, but rather whether discovery is complete and a trial date set.” She then found that the status of the litigation favored a stay because “[a]lthough initial discovery has begun and a scheduling order issued, ‘this case is still in its infancy, and the record is relatively sparse.’ No trial date has been set and discovery is not scheduled to be completed until July 19, 2013. [Plaintiff] does not demonstrate how the facts of this case weigh against a stay despite the obvious lack of significant discovery activity. As a result, the status of the litigation favors a stay.” Id. at 5-6.

Judge Thynge next considered whether a stay would simplify the issues in question and trial of the case. She pointed out that “[s]hould the PTO grant defendant’s reexamination request, many issues outside the purview of the reexamination would remain to be tried.” Finding that “the scope of the issues to be resolved during litigation substantially exceeds the scope of the issues that can be resolved during the reexamination proceedings,” Judge Thynge determined that this factor disfavored a stay. Id. at 6-8.

Finally, Judge Thynge considered whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party. In this regard, she first noted that “[a]lthough competition between two parties is not dispositive, ‘the relationship between the parties is ‘[o]f particular importance’ because ‘[c]ourts are generally reluctant to stay proceedings where the parties are direct competitors.’” Accordingly, “[t]he element of direct competition strongly favor[ed] denying [the] motion for a stay.” Id. at 8-10. Judge Thynge next found that a stay “would prejudice [the plaintiff] particularly” because the reexamination had only recently been filed and “this litigation would likely be completed far in advance of a decision on the last appeal in the reexamination proceeding.” Therefore, the “prejudice to plaintiff resulting from the status of the reexamination proceedings disfavors granting a stay.” Id. at 10. Because the parties in the case were direct competitors and the reexamination was in its earliest stages, Judge Thynge found that the prejudice factor favored a stay and concluded: “Weighing all considerations, the interests in proceeding with the litigation outweigh any basis for a stay in this action.” Id. at 12.

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September 7, 2012

Judge Robinson Grants Summary Judgment of Invalidity

Judge Robinson recently considered cross motions for summary judgment of invalidity, infringement, and non-infringement in ongoing litigation over patents covering methods for analyzing cellular, biological samples. Focusing on the lighting system required by the patents-in-suit, Judge Robinson first engaged in the claim construction necessary to decide the dispute. She then denied all of the pending motions except for the defendant’s motion for summary judgment of invalidity based on inadequate written description. See Helicos Biosciences Corp. v. Illumina, Inc., C.A. No. 10-735-SLR, at 27 (D. Del. Aug. 28, 2012).

The defendant, Illumina contended that the asserted claims were invalid for lack of an adequate written description, lack of enablement, and anticipated and/or rendered obvious in view of the prior art. The parties also disputed whether any accused product infringed any of the asserted claims. In order to resolve summary judgment motion on these issues, however, Judge Robinson needed to engage in claim construction. In the parties’ briefing, Illumina proffered constructions for two terms, while the plaintiff, Helicos, did not propose any constructions, arguing that the plain meaning should apply to both terms at issue. While Judge Robinson considered Illumina’s constructions unduly narrow, she also disagreed with Helicos that no construction was required, stating that “a lay jury requires context for such unfamiliar technical language.” Id. at 13. She therefore crafted her own constructions for the two disputed terms and proceeded to consider the summary judgment motions based on these constructions.

With respect to lack of written description and lack of enablement, Judge Robinson concluded that summary judgment of invalidity should be granted: “Illumina has demonstrated, by clear and convincing evidence, that the written description requirement has not been met. Although the parties seem to agree on the ordinary meaning of the word “focus” (to wit, “to make an image sharper”), the complete limitation is in dispute . . . . The court has been unable to reconcile the language chosen by the inventor to describe his invention and the science at issue. Given this hobson’s choice, the court finds the ‘109 patent invalid for lack of written description and enters judgment in favor of Illumina.” Id. at 22-23.

Judge Robinson did not rule on several remaining issues of invalidity because they “hinge[d] on a central issue” that had not been addressed in the parties’ briefing. Id. at 23-24. Similarly, Judge Robinson found that “the record does not sufficiently address infringement under the court’s nowadopted construction. . . . Because the court takes up claim construction and summary judgment simultaneously, and neither party advocated for the construction ultimately adopted by the court, the parties’ summary judgment arguments are not framed in [the proper terms].” Id. at 25-26. Accordingly, Judge Robinson ordered further briefing on infringement and claim construction and denied the balance of the pending motions.

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September 6, 2012

Chief Judge Sleet Rules on Correction of Inventorship Action

In a recently-decided case, two plaintiffs filed a correction of inventorship action seeking to add themselves as inventors of several patents assigned to defendant Zimmer, Inc. Chief Judge Sleet held a bench trial and concluded that the plaintiffs were not inventors of the patents-in-suit. See Scott v. Zimmer, Inc., C.A. No. 10-772-GMS (D. Del. Aug. 27, 2012).

Judge Sleet went through the patents-in-suit, claim by claim, and found that the plaintiffs had not contributed novel elements to any of the claims at issue. “To be an inventor, one must contribute to the conception of the invention. . . . Thus, plaintiffs must show that they each individually made a ‘contribution to the claimed invention that is not insignificant in quality, when that contribution is measured against the dimension of the full invention, and [did] more than merely explain to the real inventors well-known concepts and/or the current state of the art.’” Id. at 5-6 (citations omitted). In each instance, however, the plaintiffs’ testimony that they had been involved in the conception of novel elements was completely uncorroborated, and “plaintiffs’ testimony regarding their own inventorship claim ‘is regarded with skepticism’ and ‘cannot, standing alone, rise to the level of clear and convincing proof.’” Id. at 6 (citations omitted). Furthermore, the documentary evidence and testimony of other inventors largely contradicted any suggestion that the plaintiffs had helped conceive of the inventive elements. Therefore, the court concluded that “the plaintiffs [had] not met their burden of establishing, by a clear and convincing evidence, a specific contribution made by them to the conception of a novel element of a patent claim, and that they [had] not corroborated their testimony.” Id. at 16.

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September 6, 2012

Judge Robinson Denies Motion to Dismiss for Lack of Standing

Last month, Judge Robinson issued an opinion considering the standing required to file a patent infringement suit. In MobileMedia Ideas, LLC v. Apple Inc., C.A. No. 10-258-SLR (D. Del. Aug. 16, 2012), the plaintiff, MobileMedia Ideas (“MMI”), filed suit against Apple for infringement of sixteen patents. Apples filed a motion to dismiss on the ground that MMI lacked subject matter standing. Judge Robinson ultimately denied Apple’s motion to dismiss, finding that MMI had sufficient standing.

At issue was whether MMI could sue on its own or whether it needed to also joint its three licensees. The licensees were former owners of the patents-in-suit who had entered into an assignment and license-back agreement with MMI. Each licensee also partially owned MMI. “Typically,” Judge Robinson noted, “courts are presented with the situation where an exclusive licensee sues an alleged infringer, and it must be determined whether the licensee has standing. [Here] the court is presented with the rather unique, converse scenario ‘in which the patent owner seeks to bring suit, requiring [the court] to determine whether the patent owner transferred away sufficient rights to divest it of any right to sue.’” Id. at 12 (citations omitted).

“[T]o have constitutional standing, a party’s interests in the patents must ‘include sufficient exclusionary rights such that [it] suffers an injury in fact from infringing activities. If [it] holds all substantial rights, it can sue in its name alone. If [it] holds less than all substantial rights but sufficient exclusionary rights that it suffers injury in fact, it can sue as a co-party.’” Id. at 10. Proceeding to examine the transfer of patent rights between MMI and its licensees, Judge Robinson found that one licensee “was delegated the ‘responsibility’ to bring suit, [but] the ‘right’ to sue lies with MMI, [and] [t]he right to sue is of paramount importance in the ‘substantial rights’ analysis.” Id. at 13. She noted that the licensees had assigned MMI “‘the entire right, title and interest in the patents-in-suit,’ . . . [a] transfer of [which] is well known to mean a full assignment of the patent.” Id. at 14. MMI also had other rights “for which the associated enforcement ‘responsibilities’ have been delegated to [a licensee]. MMI has the right to receive patent royalties, for example . . . irrespective of the fact that MMI later allocates its profits to the owners.” Id. Furthermore, “‘the fact that a patent owner has retained a right to a portion of the proceeds of the commercial exploitation of [a] patent . . . does not necessarily defeat what would otherwise be a transfer of all substantial rights in the patent.’” Id. (citations omitted). Finally, “‘[t]he right to dispose of an asset is an important incident of ownership, and such a restriction on that right is a strong indicator’ that not all substantial rights under the patent have been transferred.” Because unanimous approval of all three licensees/owners was required for MMI to sell a patent, this indicated that MMI, not any individual licensee, owned the substantial rights of the patent. Id. (citations omitted).

“In conclusion,” Judge Robinson explained that while the licensees “have retained (or have been granted back) certain rights in the patents-in-suit, the court does not deem such rights ‘substantial’ vis a vis those held by MMI. There is no indication that . . . nonexclusive licensees of MMI holding no legal title to the patents-in-suit, have constitutional standing to sue.” Id. at 15. Accordingly, she found that MMI had standing to sue and denied the motion to dismiss.

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September 5, 2012

Judge Sleet transfers case to Texas where first-filed declaratory judgment action pending

Judge Gregory M. Sleet recently considered defendant's motion to dismiss, or alternatively to transfer, the pending patent infringement action to Texas where defendant had first-filed a declaratory judgment action involving the same parties and same five patents. Mitek Systems Inc. v. United Services Automobile Association, C.A. No. 12-462 (D. Del. Aug. 30, 2012). Both actions involved various state law claims, such as, breach of contract. Id. at 2. Judge Sleet first determined that the first-filed rule applied, finding that the same patents were at issue in both actions and that the cases involved the same parties. Id. at 3. Even though both cases involve separate state law claims, "it [wa]s clear that the focus of each case [wa]s the intellectual property rights" related to the agreement between the parties. Id. at 4 (internal quotations omitted). Judge Sleet next determined that no exception to the first-filed doctrine applied, such as the forum selection clause of the license agreement at issue in the later-filed action. Id. Judge Sleet held that enforcing the forum selection clause "would violate Delaware's public policies promoting judicial efficiency and comity served by the first-filed rule." Id. at 5 (internal quotations omitted). Last, Judge Sleet determined that transfer was appropriate, finding that all but one Jumara factor was either neutral or favored transfer. Id. at 8-15.

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