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

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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As we posted here and here, ActiveVideo Networks won a jury verdict that the Verizon FiOS Video on Demand (“VOD”) Service infringes two of its patents. On November 23, Judge Raymond Jackson granted ActiveVideo’s motion for a permanent injunction of the FiOS VOD service but instituted a six-month sunset provision so that Verizon could implement a non-infringing alternative. ActiveVideo Networks, Inc. v. Verizon Comm’s., Inc., 2011 U.S. Dist. LEXIS 135673 (E.D.Va. Nov. 23, 2011) (Jackson, J.) (opinion found here).

Applying the four-factor test for a permanent injunction from eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), Judge Jackson ruled:

• ActiveVideo was suffering irreparable harm from Verizon’s continuing infringement even though it was not a direct competitor of Verizon.
   
• ActiveVideo’s willingness to license its patents to Verizon prior to the jury’s verdict did not preclude injunctive relief.
   
• “With every customer Verizon has unlawfully acquired, they have taken away ActiveVideo’s ability to spread its brand name, to obtain references from potential customers and to expand its goodwill …”
   
• ActiveVideo’s diversion of millions of dollars to its litigation against Verizon qualifies as lost opportunities which can support a finding of irreparable harm.
  
• ActiveVideo’s failure to request a preliminary injunction did not bar it from obtaining a permanent injunction.
   
• In the absence of some other key interest, the value of consumer entertainment will not outweigh the public interest in protecting patents.

Judge Jackson awarded ActiveVideo a royalty of 40% of Verizon's profits from the FiOS VOD service, equaling $2.74 per customer per month.

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