Virginia IP Law : Virginia Intellectual Property Lawyer & Attorney : Troutman Sanders Law Firm : Technology & Patent Litigation

While the AIA bars the joinder of patent infringement claims against multiple defendants (discussed here), there are still a few pre-AIA suits alleging that multiple defendants independently infringed the same patents. Judge Smith recently became the latest Eastern District of Virginia judge to dismiss such a suit for improper joinder. Automated Tracking Solutions, LLC v. Awarepoint Corp., et al., Case No. 2:11CV424 (E.D.Va. Jan. 13, 2012), found here.

Automated Tracking accused five separate defendants of infringing four different patents. According to the defendants, the Complaint asserted different patent claims against each defendant’s product, and so there was no commonality at all between the claims. In response, Automated Tracking asserted only that joinder of all claims into one suit created significant efficiencies and that there was no evidence of prejudice from proceeding jointly.

Unfortunately for Automated Tracking, Rule 20 does not allow joinder based solely on efficiency and lack of prejudice. As Judge Smith pointed out, claims against separate defendants must also arise out of the same transaction, occurrence or series of transactions and occurrences. Judge Smith also rejected Automated Tracking’s claims of judicial economy, holding that the “type of joinder in the case at bar represents judicial ineconomy and serves no purpose but to thwart the rules of proper procedure for filing separate lawsuits.” 

Judge Smith dismissed all but Awarepoint, the first named defendant. As of this date, Automated Tracking has re-filed suit against three of the dismissed defendants, and those cases have been assigned to separate judges in Alexandria and Norfolk. It will be interesting to see whether and to what extent the district judges handling these cases attempt to coordinate claim construction, discovery and other pre-trial matters.

Automated Tracking also provides an interesting contrast to Judge Cacheris’ recent decision in Coach, Inc. v. 1941 coachoutletstores.com to allow joinder of claims under the ACPA against 356 unrelated alleged cybersquatters. It is difficult to articulate a distinction between the two decisions other than that practical considerations support allowing a plaintiff  to join claims against multiple accused cybersquatters, but those same considerations do not apply to other types of litigation, including patent litigation.

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In Coach, Inc., v. 1941 coachoutletstores.com, Civil Action No. 1:11cv309 (JCC/JFA), Coach, Inc., the well-known leather goods company, sought to enjoin 356 alleged cybersquatters – almost all of which registered domain names in Hong Kong or China – from using Coach’s registered trademarks as part of the alleged cybersquatters’ domain names.  The problem from Magistrate Judge Anderson’s perspective, however, was that many of these 356 alleged cybersquatters were unrelated to each other, and therefore Coach could not meet the “transaction or occurrence” test for joinder under Fed. R. Civ. P. 20. Thus, when Coach filed a motion for entry of default judgment, Magistrate Judge Anderson issued Report and Recommendation on Nov. 25, 2011, that found joinder improper as to 345 alleged cybersquatters, and recommended severing those defendants from the action. 

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The Virginia State Bar Intellectual Property Section is seeking papers written by law students who are attending law school in Virginia or are residents of Virginia attending law school outside of Virginia and relating to an intellectual property law issue or the practice of intellectual property law.  The winner receives a cash prize of $4,000.  The judge of the final round of the competitor is the Honorable Richard Linn, judge of the U.S. Court of Appeals for the Federal Circuit.  The deadline for submissions is Friday, May 25, 2012 at 4:00 EDT.

A flyer regarding the competition can be found here, and a complete set of rules for the competition is here.  Additional information is available at the section’s website.

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If you thought passage of the America Invents Act would end the flood of false patent marking claims, think again. In December, Judge Turk in the Western District of Virginia ruled that a false marking plaintiff could proceed under state consumer protection laws and that such claims were not preempted by the patent laws or the AIA. Sukumar v. Nautilus, Inc., Case No. 7:11CV218, 2011 U.S. Dist. LEXIS 145960 (W.D.Va. Dec. 19, 2011) found here. 

Sukumar alleged that Nautilus had falsely marked a number of products in violation of 35 U.S.C. 292. After enactment of the AIA, Sukumar amended its Complaint to allege that it had suffered a competitive injury and that Nautilus acted in bad faith. Sukumar also added state-law claims of false advertising and unfair competition under California law and unfair competition under Washington law.

Nautilus moved to dismiss the state law claims as preempted by federal patent law and the AIA. While acknowledging that “the patent grant is within the exclusive purview of federal law,” Judge Turk denied the motion holding:

• The AIA contains no express preemption provision.
   
• There is no field preemption of state unfair competition claims that rely on a substantial question of federal patent law, relying on Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318 (Fed. Cir. 1998), overruled on other grounds, Midwest Indus. Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed. Cir. 1999). 
   
• Neither the AIA nor its legislative history reveals any evidence that Congress intended to “impose upon the traditional authority of the states to regulate areas of consumer protection.”
   
• There was no direct conflict that made it physically impossible for Nautilus to comply with both federal and state law.
   
• Sukumar’s state-law unfair competition claims did not create an obstacle to Congress’ intent in passing the AIA

Judge Turk’s opinion contains two important limitations on state-law unfair competition claims for false marking. 

First, citing Hunter Douglas, Judge Turk held that federal law would preempt Sukumar’s claims if Nautilus did not act in bad faith. In effect, Judge Turk added an element of bad faith to Sukumar’s claims by judicial fiat and allowed this new “unfair competition plus bad faith” claim to go forward. Second, Judge Turk left open the possibility of preemption if a plaintiff did not allege competitive injury.

Two days after his ruling, Judge Turk heard argument on Sukumar’s motion for partial summary judgment on liability on both its false marking claims under Sec. 292 and its unfair competition claims. Judge Turk took the motions under advisement and has not ruled as of today.

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While no Virginia court has addressed the issue, a split has developed in orher federal district courts on whether the requirements of Bell Atlantic v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) apply to counterclaims for patent invalidity.  The Northern District of Illinois recently weighed in on the issue, holding that the Twombly/Iqbal standard applied and dismissing a counterclaim for invalidity. Cleversafe, Inc. v. Amplidata, Inc., 2011 U.S. Dist. LEXIS 145995 (N.D. Ill. Dec. 20, 2011) found here.

The Ruling

In Cleversafe, the defendant/counterclaim plaintiff, Amplidata, alleged only that the asserted patents were “invalid for failing to comply with provisions of the United States patent laws, including one or more of 35 U.S.C. §§ 101-103 and/or 112.” 

The Court dismissed the counterclaim under Twombly/Iqbal because Amplidata did not articulate why the patents were invalid, identify the statutory provisions that applied or provide any factual support for the counterclaim. The Court also dismissed Amplidata’s affirmative defense of invalidity on the grounds that “bare bones conclusory allegations” did not meet the Seventh Circuit’s standard for an affirmative defense under Fed. R. Civ. P. 8(c).

Split Among the District Courts

Some courts have reached the same conclusion as Cleversafe, while others have applied a more lenient standard to patent invalidity counterclaims. Compare Groupon, Inc. v. MobGob LLC, 2011 WL 2111986 (N.D. Ill. May 25, 2011) (dismissing counterclaim); and Tyco Fire Products LP v. Victaulic Co., 777 F.Supp.2d 893 (E.D. Pa. 2011) (dismissing counterclaim but not affirmative defense); with Pfizer v. Apotex, Inc., 726 F.Supp. 2d 921 (N.D. Ill. 2010) (notice of claim sufficient for invalidity counterclaim); and Elan Pharma Int’l. Ltd. v. Lupin Ltd., 2010 U.S. Dist. LEXIS 32306 (D.N.J. Mar. 31, 2010) (same). 

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Earlier this month, the Federal Circuit granted a petition for mandamus and directed the District Court of Delaware to transfer venue of a patent infringement suit filed against Link_A_Media Devices to the Northern District of California, even though Link_A is a Delaware corporation. In Re Link_A_Media Devices Corp., Misc. Docket No. 990 (Fed. Cir. Dec. 2, 2011) found here. 

In a nutshell, the Federal Circuit held that the district court’s “fundamental error” was holding that the patentee’s choice of Delaware as the forum for its suit and Link_A’s incorporation in Delaware were dispositive. Since Delaware was not the patentee’s home forum, the Court ruled, its choice of forum was entitled to much less deference, and aside from Link_A’s incorporation in Delaware, the forum had not ties to the dispute or either party. The plaintiff was a holding company located in Bermuda and both its operating affiliate and Link_A were located in Santa Clara, California. All of the identified witnesses, including the named inventors (who were employed by the plaintiff’s affiliate) and the relevant documents, were located in California.

The Impact of Link_A on Delaware, California and East Coast Plaintiff-Patentees

Link_A extends the series of Federal Circuit decisions granting mandamus and ordering transfer of venue from the Eastern District of Texas, discussed here and here, to the District of Delaware. If the judges in Delaware apply Link_A as the Federal Circuit has dictated, the decision could result in a sharp reduction in the number of patent cases filed in Delaware. While Delaware is the state of incorporation of many corporations, far fewer corporations operate there. As a result, the convenience factors in the venue analysis will seldom favor venue in Delaware, except perhaps in the case of companies located in nearby venues such as New Jersey, New York and Pennsylvania.

Link_A is also likely to increase the number of cases filed in California, where many high technology businesses are headquartered. Given the crowded dockets in the federal district courts and the distance and expense of litigating in California, though, many East Coast-based plaintiff-patentees may seek an alternative venue that is closer to home.

The EDVA as an Alternative

The Eastern District of Virginia is a good candidate to be an alternative venue for plaintiffs seeking an East Coast forum. As we have written here, the speed of the Rocket Docket and the numerous significant patent verdicts in the Eastern District make it a favorable venue for plaintiff-patentees. While judges in the Eastern District of Virginia will not hesitate to transfer venue of a patent case with little connection to Virginia, many high technology companies have operations in Virginia which will make them subject to venue. Further, many defendants may prefer the Eastern District of Virginia’s more efficient procedures and the experience of its judges in patent litigation. Time will tell whether the impact of Link_A will be to spread patent litigation which would otherwise be filed in Delaware to other Eastern venues, including Virginia.

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In a two-part decision in Heflin v. Coleman Music, Judge Doumar of the Eastern District of Virginia granted summary judgment of non-infringement to Coleman but dismissed Coleman's counterclaims of tortious interference and false advertising that were based on notices of potential infringement Heflin sent to Coleman's customers. Heflin v. Coleman Music and Entertainment, Case No. 2:10CV566, 2011 U.S. Dist. LEXIS 141579 (E.D.Va. Dec. 5, 2011), found here.

Summary Judgment

Judge Doumar's summary judgment ruling was straightforward. The patent-in-suit claimed a system for dispensing "collector cards." It was undisputed that Coleman's devices did not dispense cards which met the Court's construction of "collector cards," but Heflin argued that the devices still infringed because they were "capable of" dispensing collector cards. Judge Doumar held that the Federal Circuit has expressly disclaimed this logic in High Tech Medical Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551 (Fed. Cir. 1995). There, the Federal Circuit held that "a device does not infringe simply because it is possible to alter it in a way that would satisfy all limitations of a patent claim." Capability of infringement, Judge Doumar found, must be coupled with intent to use the accused devices to dispense collector cards. Moreover, the devices at issue were not capable of dispensing collector cards and even if they were, such an interpretation of the patent would make it invalid over the prior art.

Tortious Interference and False Advertising

Perhaps the more interesting aspect of Judge Doumar's decision is his dismissal of Coleman's claims of tortious interference and false advertising under the Lanham Act. Coleman's counterclaims were based on Heflin's statements in letters, emails and telephone calls to several of Coleman's customers that Coleman's devices potentially infringed its patent. Judge Doumar made clear that Heflin's communications did not rise to the level of intentional misconduct necessary for a claim of tortious interference as long as Heflin had a good faith belief that Coleman's devices infringed.

While the Court ultimately held that the infringement claims were meritless, it could not say that Heflin knew his claims were false when suit was filed or that Heflin's suit constituted an "outrageous act." "[T]he filing of a lawsuit to enforce a patent does not constitute an 'improper method' unless there is bad faith and an improper purpose in bringing the suit."

Likewise, the Court dismissed Coleman's Lanham Act false advertising claims. The Court held that Heflin's statements were not literally false because he only stated that he was investigating a claim of potential infringement, not of actual infringement. Moreover, Coleman failed to produce any evidence that Heflin's statements were intended to mislead or confuse customers.

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As we posted here, Judge Jackson granted Verizon a temporary stay of the permanent injunction he entered in favor of ActiveVideo in return for Verizon’s payment of royalties for a six-month “sunset” period. Verizon then moved for an automatic stay of the payment of “sunset” royalties under Fed. R. Civ. P. 62(d) upon its posting of a supersedeas bond. On December 12, Judge Jackson denied Verizon’s motion for a stay.  ActiveVideo Networks, Inc. v. Verizon Comm's., Inc., et al., Case No. 2:10CV248 (Dec. 12, 2011) (Jackson, J.).  Judge Jackson's opinion can be found here.

While Rule 62(d) entitles a party to a stay of a money judgment as a matter of right upon posting a supersedeas bond, Judge Jackson ruled that Rule 62(d) did not apply where the Court had not issued a money judgment. By pointing to decisions which involved a monetary award coupled with some nonmonetary relief, the judge stated, “Verizon is attempting to separate the royalty payments from the permanent injunction as if the royalty payments were not one with the grant of a permanent injunction.”

As Judge Jackson pointed out, the Court conditioned the stay of the permanent injunction on payment of the sunset royalties. Staying the royalties “would merely provide Verizon the freedom to continue to infringe without any recourse” to ActiveVideo. Moreover, if courts were required to stay sunset royalties upon payment of a bond, the judge noted, “it is likely that no court would ever grant sunset royalties.”

Judge Jackson’s logic is compelling, but there is little authority on the issue, and the Federal Circuit may see it differently and hold that the language of Rule 62(d) requires a stay once a supersedeas bond is posted. Indeed, Verizon filed an emergency motion to stay the payment of sunset royalties in the Federal Circuit the day of Judge Jackson’s ruling. In the meantime, Verizon’s first sunset royalty payment is due December 16, and Judge Jackson refused Verizon’s request to extend the time for that payment.

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As Judge Conrad notes in DE Techs., Inc. v. IShopUSA, No. 7:11CV183, 2011 U.S. Dist. LEXIS 137894 (W.D.Va. Dec. 1, 2011), found here, “there is an ongoing debate as to the preclusive effects of a Markman ruling.” IShopUSA was the second patent case brought by DE that was assigned to Judge Conrad. In the first case, DE Techs., Inc. v. Dell, Inc., No. 7:04CV00628 (W.D.Va.), the parties settled after Judge Conrad issued his claim construction ruling. Neither DE or Dell asked that to have the court’s rulings withdrawn as part of the settlement, but the dismissal order noted that the claim construction ruling was not final and was subject to further revision at any time prior to entry of final judgment.

IShopUSA argued that collateral estoppel barred DE from relitigating the Court’s claim construction ruling. Judge Conrad noted that the Federal Circuit had not provided any guidance on whether a prior Markman ruling should have preclusive effect and the District Courts were split on the issue, especially where the first litigation settled before final judgment. 

Judge Conrad declined to apply collateral estoppel to his earlier claim construction ruling, but held that the prior ruling would be given “deferential treatment unless clearly erroneous.” “Absent a showing by DE that the court’s original construction of a disputed term was incorrect as a matter of law, the court will apply its prior Markman rulings.” That result, the Court held, balanced “fairness to all litigants” with “consistency in the construction of patent claims.” On the one hand, it is only reasonable to expect the prior rulings would carry some precedential value, but the court “should not be so intransigent as to ignore persuasive arguments” showing clear error in the earlier ruling.

Judge Conrad’s approach is clearly correct. In the absence of final judgment, a finding of collateral estoppel is probably subject to reversal. By refusing to apply collateral estoppel but imposing the high burden of showing “clear error” on DE, Judge Conrad left himself the opportunity to reach a different ruling without sacrificing consistency.

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