United States: Northern District Of California: Leading New Paths In Patent And Trade Secret Case Management

The judges of the U.S. District Court for the Northern District of California courts continue to retain their leadership role in being innovators in case management rules and techniques to handle complex litigation matters involving the latest developments in science and technology. In just the first few months of 2017, the court again made strides to allow parties to drill down to the merits of these cases that are near and dear to the hearts of the high technology, biotech, and pharmaceutical companies within its jurisdiction.

On Jan. 17, 2017, the district promulgated new Patent Local Rules, becoming the first district court to mandate that damages theories and the facts supporting them be disclosed in detail early in the case. Not to limit itself to patent cases, in March 2017, the district also became the first court to order in a Defend Trade Secrets Act (DTSA) case an early partial summary judgment procedure meant to test the strengths and weakness of 10 "bellwether" trade secrets with significant impact on the case. AllCells LLC v. Zhai, No. 3:16-cv-07323, Dkt. 112 (N.D. Cal. March 31, 2017).

Further, not to let up with its headline-grabbing cases, the district is still grappling with managing the DTSA case asserted by Google's Waymo against Uber relating to self-driving car technology, in which Waymo asserted 121 alleged trade secrets many of which were highly suspect because they purport to "claim ownership of general principles and approaches in the field." Waymo LLC v. Uber Techs., Inc., No. 3:17-cv-00939, Dkt. 433 at 16 (N.D. Cal. May 15, 2017).

New Patent Local Rule on Damages Issues

On Jan. 17, 2017, the Northern District of California updated its Patent Local Rules to include two additional disclosure requirements in patent cases. See http://www.cand.uscourts.gov/localrules/patent. In addition to two Patent Local Rules that have already vastly improved the management of patent cases—Rule 3-1, which requires a patentee to disclose its infringement contentions at the beginning of the case, and Rule 3-3, which requires the accused infringer to disclose its invalidity contentions shortly after receiving the patentee's infringement contentions—the newly amended rules now also require that the patentee disclose its damages contentions 50 days after receiving the invalidity contentions. Patent L.R. 3-8. New Rule 3-8 requires the patentee to specifically identify each theory of recovery, factual support for its theories, and computations of damages within those theories. Id. This new rule prevents a patentee from withholding until expert reports are exchanged or even until trial what the true nature of its damages theories are.

The impetus for requiring early disclosure of damages theories is at its root meant to benefit all parties and the court, too. As the U.S. Court of Appeals for the Federal Circuit has been active in criticizing damages theories, like the 25 percent "rule of thumb" and the entire market value rule, Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 98 U.S.P.Q.2d 1203 (Fed. Cir. 2011), a plaintiff would benefit from knowing early in the case if the district court would be inclined to disallow that theory, rather than to learn a few days before trial that its expert report has been stricken. Likewise, the accused infringer would benefit from knowing early what damages theories it should attack or what discovery it needs in order to defend against a damages theory. After receiving the patentee's damages contentions, the accused infringer has 30 days to provide its responsive damages contentions, identifying specifically how and why it disagrees with the patentee's contentions. Patent L.R. 3-9. In addition, the district court would benefit from this new process because it has more time to examine damages issues, in hopes that that it will not be reversed on appeal.

New Techniques in Managing Trade Secret Cases

With the enactment of the Defend Trade Secrets Acts in May 2016, trade secret cases made their way into federal court dockets. The Northern District of California does not have any local rules specifically directed to trade secret cases. Nonetheless, recognizing that trade secret cases have similar complexities as patent cases, given that they both concern subject matter on the forefront of science and technology, the Northern District of California has led the way in becoming the first court to take aspects of patent local rules relating to claim construction and adopt them for application to trade secret cases.

In the AllCells case, which concerned supplying blood-derived cells, the court was dealing with a plaintiff that asserted over a hundred different and ever changing alleged trade secrets, a litigation tactic that has been common in trade secret cases in state court. AllCells, No. 3:16-cv-07323, 3/23/2017 Hearing Transcript at 15. Rather than let the case meander through over a hundred different alleged trade secrets, many of which the defendants asserted did not meet the requirement for being a trade secret, the court applied a process similar to its claim-construction process in patent cases to streamline the trade secret case. Id. at 57, 62.

In patent cases, the construction of patent claim language has a significant impact on the outcome of the case, including often being decisive on whether an accused product infringes the patent claims as construed. To streamline the process for finding the most critical terms in a patent for construction out of hundreds of terms that could be in dispute, the Northern District of California adopted Patent Local Rules 4-1 and 4-3 which require that the parties jointly identify up to 10 disputed claim terms for claim-construction that are most significant to resolving the parties' dispute.

In the AllCells case, the court applied a similar case management methodology to hone in on which of the hundreds of alleged trade secrets had a significant impact on the case. The court ordered that 10 "bellwether" alleged trade secrets would be subject to an early summary judgment process to take place after an expedited discovery period. AllCells, No. 3:16-cv-07323, Dkt. 112 (N.D. Cal. March 31, 2017). The court ordered that each party select five of the trade secrets with the intent of the process being to streamline the case, encourage settlement, and to provide a representative sampling of common or typical issues or scenarios. Id. The early summary judgment process, including all necessary discovery, was ordered to be completed quickly, on a timeline that turned out to be within three months of the initial case management conference.

Similar to the situation in AllCells, in the Waymo v. Uber case, the plaintiff asserted over a hundred alleged trade secrets, many of which the defendant challenged as not qualifying for trade secret protection. Waymo, No. 3:17-cv-00939, Dkt. 433 at 16 (N.D. Cal. May 15, 2017). The Northern District of California court again was grappling with how best to manage a highly complex case, now between two technology behemoths. In the Waymo case, the court directly addressed the question of whether all of the asserted trade secrets were subject to trade secret protection during the preliminary injunction phase. The alleged trade secrets involved 14,000 files a former Waymo employee had downloaded prior to joining Uber as the lead for their self-driving unit. The court was highly doubtful that Waymo accurately described what its trade secrets actually were:

Waymo's descriptions of its asserted trade secrets follow a pattern of claiming broad swaths of solutions to general competing considerations and engineering trade-offs rather than the single, specific solution adopted by Waymo. The problem, of course, is that such considerations and tradeoffs are known outside of Waymo. . . . But it would be wrong to allow any company to leverage a single solution into a monopoly over broad swaths of other solutions . . . . To do so would be to allow monopolization of broad scientific or engineering concepts and principles. Waymo's gamesmanship on this score undermines its credibility on this motion.

Id. at 12-13. The court analyzed some of the alleged trade secrets and found that since they consist essentially of general engineering principles that are simply part of the intellectual equipment of technical employees[,] [t]hey are therefore not protectable as trade secrets. Id. at 17. Noting that something in the 14,000 files that were taken could be a trade secret, but then weighing that against Waymo's "overreaching" in its assertion of supposed trade secrets and making the trade secrets a moving target, the court declined to give Waymo broad relief. Instead, the court only issued a narrow injunction prohibiting the former Waymo engineer from continuing to work on Uber's self-driving automobile initiative. Id. at 22.

Whether the Northern District of California will eventually adopt a specific set of rules for trade secret cases remains to be seen, but what is clear is that it has a deep understanding of the management needed for complex cases, including early assessment of the strengths and weaknesses of the asserted trade secrets.

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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Finnegan is a sponsor of the Silicon Valley Intellectual Property Law Association’s Inventor of the Year presentation and program “Subject Matter Eligibility—Alice, Berkheimer, Iancu—Where are we now?

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As part of Strafford Publications’ webinar series, Finnegan attorneys Virginia Carron and Jessica Marks will consider patent eligibility issues with engineered natural products.

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