United States: A 2014 Recap

Last Updated: January 13 2015
Article by Jacob M. Heath

Most mark the beginning of a new year with a moment of reflection on the past year's follies and lessons learned. In 2014, there were a fair number of lessons learned regarding pleading, discovery, and how to survive a motion to dismiss. To start off 2015, we look back on some of the decisions from the Northern District that were most popular amongst our readership, and the lessons they provide.

Mind The Local Patent Rules!

In 2014, parties serving insufficient infringement contentions and invalidity contentions were repeatedly dinged for failing to follow the Northern District's Local Patent Rules. For example, in April 2014, Magistrate Judge Cousins in ASUS Computer Int'l v. Round Rock Research, LLC, 12-cv-02099, struck portions of the parties' experts' reports that contained infringement theories, accused products, and prior art references the parties did not disclose in their respective invalidity and infringement contentions. Magistrate Judge Cousins struck, among other things, portions of Round Rock's expert report regarding its doctrine of equivalents theory for failing to sufficiently identify the theory in its infringement contention; portions of Round Rock's indirect infringement theory for using broad, boilerplate assertions that ASUS "actively, knowingly, and intentionally" induced third parties by "selling or otherwise supplying" the accused products; and portions of Round Rock's expert report that addressed elements, infringement theories, and products not previously identified in its infringement contentions. Magistrate Judge Cousins also struck portions of ASUS's expert report that relied on prior art references not previously disclosed in its invalidity contentions.

Likewise, in October 2014, Judge Lloyd in Innovative Automation LLC v. Kaleidscape, Inc., Case No. C13-05651-JD, granted Kaleidescape's motion to compel amended infringement contentions from Innovative Automation, LLC ("Innovative"). Innovative's infringement contentions, among other things, identified just three of Kaleidescape's products by name, included open-ended language, asserting that other broad categories of Kaleidascape products also infringed under the same theories, and failed to tie claim language to a specific accused product. Judge Lloyd also found Innovative's claims charges insufficient as they failed to explain how each of the accused products performed the steps of the claimed methods and failed to tie any of Kaleidescape's accused products to the claim limitations.

How Do You Plead?

We reported on several decisions offering guidance on how and what parties should plead in patent complaints and answers. Such was the case for Judge Seeborg in Delphix Corp. v. Actifo, Inc., No. C13-4613 RS, where in March 2014, he found plaintiff Delphix's allegations for willful infringement and indirect infringement based on "information and belief" insufficient to survive a motion to dismiss. Delphix had alleged that Actifo had knowledge of the patents before the suit was filed because Actifo's founder was previously a Delphix board member and had continued to track the development Delphix's patent portfolio even after resigning. Judge Seeborg found Delphix's allegations insufficient, however, because Delphix "chose[] to cabin that particular allegation as being made 'on information and belief.'" In so doing, Judge Seeborg noted that "[d]espite the common appearance of that phrase in practice, it is not a recognized pleading device under the rules." Therefore, Judge Seeborg found that Delphix had engaged in speculation "to an undue degree."

Judge Illston's April 2014 decision in Skyworks Solutions, Inc. v. Kinetic Technologies Inc., Case No. C14-00010 demonstrated the importance of pleading the accused infringer's pre-suit knowledge of the Patents-in-Suit to support indirect infringement and willful infringement claims. Fortunately for plaintiff Skyworks Solutions, Inc. ("Skyworks"), Judge Illston concluded that Skyworks' allegations were adequate. Skyworks alleged that the named inventor of the Patents-in-Suit was a founder and employee of the accused infringer Kinetic after having filed the Patents-in-Suit at a previous company that Skyworks had later acquired. In addition, Judge Illston held that Skyworks' willful infringement allegation was also adequate based on the knowledge allegations and a formulaic recitation of the willfulness standard that identified the accused products.

In May, 2014, Judge Orrick held in Blackberry Limited v. Typo Products LLC, No. 3:14-cv-00023-WHO that the Iqbal and Twombly pleading standards apply to affirmative defenses, following several other districts courts in the Southern District and Eastern District of California. Judge Orrick reasoned that the heightened pleading standard permits courts to "weed out the boilerplate listing of affirmative defenses which is commonplace in most defendants' pleadings where many of the defenses alleged are irrelevant to the claims asserted." Judge Orrick then dismissed defendant Typo Products' affirmative defenses, which included prosecution history estoppel, equitable estoppel, patent misuse, abandonment, and comparative negligence.

Finish What You Start!

This maxim applies not only to New Year resolutions but patent infringement claims. In June 2014, Judge Whyte in Radware, Ltd. v. F5 Networks, Inc., Case No. C13-02024-RMW, granted summary judgment on non-infringement for defendant F5 Networks on some claims Radware, Ltd. and Radware, Inc. ("Radware") had "silently abandoned." The case involved three related patents for a device or system for the "management of networks that have multiple connections to the Internet through multiple Internet Services Providers." Radware had initially asserted infringement as to every claim of the three patents and defendants F5 Networks and A10 Networks had responded with declaration judgment counterclaims as to every claim. When Radware "silently abandoned" some of its claims by removing them from its infringement contentions, the defendants argued they were entitled to summary judgment on all claims Radware no longer asserted. Radware argued that since it had removed those claims from its infringement contentions, there was no longer a controversy as to these claims and therefore a judgment was inappropriate. Judge Whyte disagreed and granted summary judgment, holding that the claims remained justiciable in light of declaratory judgment counterclaims and that Radware had conceded a lack of evidence supporting the abandoned claims.

Alice Corp.—A Software Patent's Worst Nightmare?

Decisions after Alice Corp. v. CLS Bank, Int'l, 134 S. Ct. 2347 (2014) dismissing software patent claims suggest that software patents will face increased scrutiny. In Alice Corp., the U.S. Supreme Court laid out a two-part test for determining patent invalidity in the context of business method and software claims: (1) determining whether the claims at issue are directed to won or three-patent ineligible concepts: law of nature, natural phenomena, or abstract ideas; and (2) determining whether the elements of the claim contain an "inventive concept" sufficient to make that claim in practice describe more than one of the three ineligible concepts. In the Northern District, Judge Donato and Judge Whyte, dismissed complaints asserting software patent claims, holding those patents failed to claim patent-eligible subject matter.

Judge Donato, in September 2014, was the first ND Cal judge to apply Alice, granting defendants Alfresco Software Ltd., Alfresco Software, Inc., and Carahsoft Technology Corp.'s (collectively "defendants") motion to dismiss in Open Text S.A. v. Alfresco Software Ltd., Case No. 13-cv-04843-JD. The software patents at issue described a claimed method and system for interacting with customers and gaining marketing feedback through online communications, including emails. In ruling on the defendants' motion to dismiss, Judge Donato found he could address validity under Section 101 on a motion to dismiss—even before claim construction—because the parties had not sought construction of any terms in the course of the motion to dismiss briefing. Turning to the substance of the asserted claims, Judge Donato held they failed under Alice. As to the first inquiry under Alice, Judge Donato concluded the asserted claims merely amounted to abstract ideas that "recited a very simple computer-driven method to engage in the commonplace and time-honored practice of interacting with customers to promote marketing and sales." As for the second inquiry, Judge Donato found that the asserted claims merely "implemented the basic marketing scheme on a generic computer system without any meaningful limitations."

Just a week later in October 2014, Judge Whyte invalidated a software patent in Cogent Medicine, Inc. v. Elsevier, Inc., Case Nos. C13-4479, C13-4483, and C13-4486. The patent at issue described a database of medical resources that is searchable via a library interface. Although acknowledging it may be appropriate to resolve claim construction disputes prior determining invalidity as a general matter, Judge Whyte found it was not necessary in that case. As to the first inquiry, Judge Whyte found the alleged invention is just like "the longstanding practice of keeping an updated set of folders for supply doctors with the latest medical knowledge"—essentially obviating the need for an assistant to update the folders in favor of a computer. Turning to the second prong of deciding whether the claim contained an "inventive concept," Judge Whyte found that the alleged invention was "no more than a computer automation of what can be performed in the human mind, or by a human using a pen and paper." Judge Whyte further found that limiting an abstract idea to the medical field does not impart patent-eligibility because it would allow one to craft claims that preempt an entire abstract idea by limiting each to a specific field. Judge Whyte found the system and computer component claims at issue no different than method claims.

Other courts outside of the Northern District have also granted motions to dismiss on Section 101 grounds, including in the District of Delaware and the Eastern District of Texas. In the coming year, patent plaintiffs will have to pay careful attention to Alice's nuances prior to filing suit.

How Far Is Too Far On Claim Construction?

Judge Gonzalez Rogers answered this question in her March 2014 decision in MediaTek Inc. v. Freescale Semiconductor, Inc., Case No. 11-cv-5341 YGR. There Judge Gonzalez Rogers held that Freescale's expert—Dr. Vahid—crossed the line when he opined on the "ordinary meaning" of three claims terms in his expert report. Under the Northern District's patent local rules, a court will ordinarily not construe more than ten claim terms, leaving the remainder to "their ordinary and customary meaning to a person of ordinary skill in the art at the time of the invention." Explaining the "ordinary meaning" of an unconstrued term falls to each side's expert "so long as the evidence does not amount to 'argu[ing] claim construction to the jury.'" In this case, Judge Gonzalez Rogers found that Freescale's expert—Dr. Vahid—crossed this line by essentially using the prosecution history to construe three of the asserted claims in his expert report. In so holding, Judge Gonzalez Rogers reiterated the well-settled rule that claim construction is the exclusive province of the court, not the jury. Although there were other facts working against Freescale—e.g., Dr. Vahid's changing the meaning of one of the three terms at issue between his initial and rebuttal reports—the lesson here was clear. Develop infringement or non-infringement theories as thoroughly as possible before claim construction to determine what terms are important and how you want them construed. Following Alice, this lesson may be of more importance to plaintiffs asserting software patents, as knowing what terms need construction may be one way of fending off a motion to dismiss on Section 101 grounds.

Corporations Cannot Be Malicious, At Least Under California Law.

In August 2014, Judge Freeman in Taiwan Semiconductor Mfg. Co., LTD.,v. Tela Innovations, Inc., Case No. 14-cv-00362-BLF, held corporations under California law cannot be held liable for "willful and malicious conduct" for purposes of punitive damages. As such, a complaint seeking punitive damages must name individuals and not just merely a corporate entity. This was unfortunate for Taiwan Semiconductor Mfg. Co ("TSMC") who alleged Tela Innovations, Inc. ("Tela") had engaged in—among other conduct—fraud, deceit, and trade secret misappropriation. Tela filed a motion to dismiss the fraud and deceit claims to strike the "willful and malicious" conduct from the trade secret misappropriation claims. Judge Freeman agreed that under California law, corporations are incapable of willful and malicious conduct for purposes of punitive damages liability. TSMC's failure to identify anyone at Tela responsible for the conduct was a fatal defect. Judge Freeman, however, gave TSMC leave to amend. The lesson here is simple: if there is willful and malicious conduct involved, the complaint better name the individuals responsible for the alleged conduct.

Gamesmanship Will Get You Nowhere, Fast.

Parties sometimes straddle the line between preparing deponents to give concise, truthful answers without volunteering information and counseling them to be evasive and obstructive in a deposition. To be sure, when you cross that line with Judge Illston, you will pay. In September 2014 in Verinata Health, Inc. v. Ariosa Diagnostics Inc., Case No. C12-06602, counsel for Ariosa Diagnostics found themselves on the wrong side after two of Ariosa's employees were evasive and refused to answer questions during a deposition without any justifiable excuse. Responses included, for example, the inability to understand the words "founded," "started," "history," "document," and "legal" without additional context. Ariosa's counsel's objections that appeared to signal the witness to be more obstructive were equally problematic. Although the parties resolved their issues, Verinata asked the court for guidance. Judge Illston made it abundantly clear she would not tolerate discovery gamesmanship. To boot, transcripts from the depositions designated as "Confidential" were made public after Ariosa failed to file a declaration explaining why the documents should remain sealed.

There were several other decisions in 2014 that offered others insights into the Northern District, which we invite you to read here. We look forward to reporting on the new decisions and takeaways in the coming year. Happy New Year!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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