Netlist, Inc. v. Smart Storage Systems Inc, et al., (Case No. 13-cv-05889-YGR) (Magistrate Judge Jacqueline Corley)
When faced with speculative infringement contentions, what is the best course of action? Not unreasonably, or so it would appear at first blush, defendant Diablo turned to Patent Local Rule 3-1, which requires a patentee to disclose with specificity the claims asserted and where in the accused product those claims are found. Because plaintiff Netlist's infringement contentions not only compared the asserted claims to unrelated patent applications, and self-created diagrams, but in addition used the presumptive language of "discovery is likely to show' for over 50 claim elements, Diablo filed a discovery motion to strike the infringement contentions, arguing that it lacked proper notice under the rules. However, as defendant Diablo also pointed out (in trying to prevail in its motion) its accused product is only a prototype and not commercially available. Thus, Diablo contended, Netlist could not satisfy Rule 3-1 requirement of comparing the specific claims to the accused product. As it turned out, in the context of satisfying infringement contentions, Diablo's "non-existent" accused product argument was the undoing of its motion.
First, the Court noted that if Diablo believed that it had not infringed the asserted patent because the accused product does not exist and therefore has not been offered for sale, the proper vehicle is to file a motion to dismiss or summary judgment, not a discovery motion to strike the infringement contentions.
Second, the Court interpreted Diablo's arguments as requiring reverse engineering of the accused product in order to make an adequate comparison of the accused product with the asserted clams. But such a requirement goes too far; the Court concluded that Rule 3-1 does not require a plaintiff to reverse engineer every accused product, especially, as is the case here, the product is not reasonably available to the public.
Third, the Court rejected Diablo's arguments that it was improper for Netlist to compare the asserted claims with other patent applications and diagrams without establishing that those materials relate to the accused product. The Court explained that Netlist need not establish that the patent applications and diagrams are "representative" of the accused product under Rule 3-1, nor was Netlist required to establish the sufficiency of the evidence underlying the infringement contentions. It was sufficient that Netlist used public statements and photographs found in the public domain about the accused product, patent applications that Netlist alleged relate to the accused product, and other information Netlist believed to be true based on its familiarity with the technology and prior association with Diablo.
Fourth, Diablo's argument that phrases such as "discovery will likely show" violate Rule 3-1's specificity requirement, because they denote uncertainty and are merely speculation, failed to persuade. Instead, the Court noted that "the degree of specificity required under Rule 3-1 depends on the information reasonably available to the patentee." Since detailed product information and the accused product itself are not available to Netlist, it was reasonable for Netlist to speculate.
Fifth and finally, the Court dismissed as irrelevant Diablo's arguments pertaining to Netlist's alleged failure to comply with Rule 11 pre-filing investigation. The Court agreed with other courts that the merits of a Rule 11 argument should not be decided at the discovery stage of the proceeding and that a plaintiff may satisfy its obligations under Rule 3-1 whether or not it conducted a pre-filing investigation sufficient to comply with Rule 11.
Take home? As a defendant, if you keep your product hidden, don't complain when you have to deal with a plaintiff's guesswork on infringement contentions, and as a plaintiff, ignorance may or may not be bliss – motions to dismiss and Rule 11 sanctions may still be in your future.
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