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

At the risk of focusing too much on Judge Ellis, whose opinions we recently addressed here and here, we’d like to comment on two lengthy opinions Judge Ellis issued in Netscape Comm’s Corp. v. ValueClick, Inc. on April 2 (found here and at 2010 U.S. Dist. LEXIS 32817) and April 15 (found here and at 2010 U.S. Dist. LEXIS 50234). We posted on Judge Ellis’ January 29 decision in the same case here. That opinion is also reported and can be found at 684 F.Supp.2d 699.

Netscape involved U.S. Patent No. 5,774,670, commonly called “the cookie patent.”

In his January 29 decision, Judge Ellis granted summary judgment that claim 1 of the patent was invalid under the on-sale bar of 35 U.S.C. § 102(b) as applied in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998). On April 2, Judge Ellis denied Netscape’s motion for reconsideration and his ruling addressed a number of interesting issues for patent litigators in the EDVA, including:

• A motion to reconsider entry of partial summary judgment is interlocutory, and so is governed by FRCP 54(d) which allows revision of a ruling “at any time,” rather than Rule 59(e) and Rule 60(b)(6), which require a showing of “extraordinary circumstances.”
• The doctrine of inherent anticipation applies in the on-sale bar context “if the natural result flowing from the operation of the process offered for sale would necessarily result in achievement of each of the claim limitations.” (emphasis in original).
• Resolving a conflict in Federal Circuit panel decisions, Judge Ellis ruled that “corroboration is required of any witness whose testimony alone is asserted to invalidate a patent, regardless of his or her level of interest.”
• The sufficiency of corroborating evidence is judged by a “rule of reason” analysis under Woodland Trust v. Flowertree Nursery, Inc., 148 F. 3d 1368 (Fed. Cir. 1998).
• The aim of the “rule of reason” analysis is to determine whether the testimony and documentary evidence provide a “coherent and convincing story.” Corroboration of every point of reduction to practice by evidence totally independent of the inventor is not required.
• Proof that an invention is “ready for patenting” based on an enabling disclosure to one “skilled in the art” does not require testimony that either the inventor or the person to whom the disclosure was made subjectively believed that an enabling disclosure had been made.

On April 15, in another summary judgment ruling, the judge addressed some common sufficiency and hearsay issues relating to prior art references. Specifically, Judge Ellis ruled:

• A scholarly paper qualifies as a prior art reference under Section 102(b) based on (1) the testimony of the paper’s author that he routinely posted his papers on one of two websites and presented the paper at a conference that occurred before the priority date; (2) a statement in the paper itself that it was presented at the conference; and (3) a web page printout from the conference that lists the paper. The judge overruled the plaintiff’s hearsay objections to the documentary evidence but required that the defendant establish that the documents met the business records hearsay exception at trial.
• The “date of invention” for purposes of determining whether a patent application qualifies as prior art under Section 102(e)(2) is the date the invention was “ready for patenting” as defined by Pfaff.
• Source code can qualify as a prior art reference under Section 102(g)(2) based on a time stamp on the source code documents, but the defendant must qualify the documents as business records under the hearsay rules at trial.
• References that do not qualify as prior art under Section 102 are inadmissible to prove the scope and content of the prior art, but they may still be admissible to show the knowledge of one of ordinary skill in the art under Section 103 if they are “contemporaneous” with the claimed invention.

Netscape was set for trial to begin on April 26, but shortly after Judge Ellis’ rulings, the parties began settlement discussions, and the case was settled and dismissed on May 6.

• Email This
• Print
• Comments
• Trackbacks

In a recent trade secret case, Judge Ellis addressed an issue that often comes up in intellectual property litigation but is rarely litigated: Do out of state defendants have to come to Virginia for a deposition?

The last case that addressed this issue in Virginia was Armsey v. Medshares Mgmt., 184 F.R.D. 569 (W.D. Va. 1998), which is not only more than twelve years old, it is a magistrate’s decision, and so its precedential value was uncertain.

In Judge Ellis’ decision, In re: Outsidewall Tire Litigation, 2010 U.S. Dist. LEXIS 44019 (E.D. Va. May 4, 2010) (found here), the defendants, which were based in Dubai, allegedly conspired with a former employee of the plaintiff to steal plaintiff’s tire designs. The plaintiff sought to take the depositions of the defendants in Virginia by noticing Rule 30(a)(1) depositions of the defendants’ managing agents and a Rule 30(b)(6) deposition of three related corporate defendants. Notably, while the corporate defendants had been served, they had not filed counterclaims. If they had, they likely would have been subject to deposition in Virginia under E.D. Va. Local Rule 30(A).

Applying Armsey, Magistrate Judge Davis held that the witnesses had to travel to Virginia for a deposition because the witnesses frequently traveled for business (though not to Virginia) and because of the time difference between Virginia and Dubai.

Judge Ellis reversed, holding that courts have generally recognized that there is a presumption that depositions of a corporate defendant, whether under Rule 30(a)(1) or Rule 30(b)(6), should be taken at the corporation’s principal place of business. The presumption can be overcome only under special circumstances, such as:

• When the deponent regularly conducts business in the place where the deposition is sought.
• When the governing law of the defendant’s principal place of business would prevent the deposition or frustrate the deposing party’s legitimate discovery-related objectives.
• Where the foreign deponents had previously disregarded deposition orders.

Judge Ellis found that Armsey properly applied the presumption, but he overruled the magistrate judge’s order because:

• While the witnesses traveled frequently, they did not frequently come to the forum district.
• There was no showing that Dubai law would hinder the deposition, and the defendants agreed to conduct the deposition under the Federal Rules
• There was no evidence that disputes requiring judicial intervention were likely

Interestingly, Judge Ellis went on to state that it was appropriate for the defendants to pay the travel costs and attorneys’ fees for travel time for two of the plaintiff’s attorneys to travel to Dubai. Conversely, if the deposition had taken place in Virginia, the judge stated, the deponents travel costs would be borne by plaintiffs. While not stating a hard a fast rule, Judge Ellis’ comments about the shifting of costs could well be relevant to future cases.

Finally, the plaintiff claimed that holding the depositions in Virginia would facilitate service of process on one of the witnesses, who was named as a defendant individually. Judge Ellis rejected this argument, emphatically stating that “[f]acilitating service of process on managing agents of foreign corporations is not a legitimate reason to compel deponents to appear in Virginia.”

• Email This
• Print
• Comments
• Trackbacks

Earlier this week, Judge Ellis transferred a case from the EDVA to the Northern District of California under 28 U.S.C. 1404(a). Convergence Techs. (USA) LLC v. Microloops Corp., et al., 2010 U.S. Dist. LEXIS 46155 (May 11, 2010) (opinion found here). Venue transfer decisions are common in the EDVA and probably wouldn’t justify a blog post, but Judge Ellis’ decision included a discussion of the “stream of commerce” theory of personal jurisdiction in patent cases. Federal Circuit, not regional circuit, law applies to the issue of personal jurisdiction, and so Judge Ellis’ ruling should be of interest to Virginia litigators more familiar with the Fourth Circuit’s precedent.

The “stream of commerce” refers to a defendant’s placing a product in the “stream of commerce” that takes the product to the forum state. In Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102 (1987), the Supreme Court split over whether a foreign manufacturer of bicycle components which sold its products to another foreign manufacturer was subject to personal jurisdiction in California. In short, Justice O’Connor, writing for four justices, said no, and Justice Brennan, writing for four other justices, said yes. Justice Stevens couldn’t decide who to agree with, and so no theory commanded a majority and uncertainty remains as to what is necessary to establish personal jurisdiction under a stream of commerce theory.

The stream of commerce theory is important to any component part manufacturer or to any manufacturer which sells its products to only a limited number of customers or only through third-party retailers, especially internet retailers. If personal jurisdiction requires more than selling a product which ultimately is sold to a consumer in a forum state, such manufacturers can conceivably limit the number of states in which they can be sued.

As Judge Ellis points out, the Federal Circuit held several years ago that the stream of commerce theory applies in patent infringement suits, Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F. 3d 1558, 1565-68 (Fed. Cir. 1994). The difficulty is that the Federal Circuit has refused at least three times to endorse either Justice O’Connor’s or Justice Brennan’s view of the stream of commerce theory. In that sense, the Federal Circuit shares a kinship with Justice Stevens. Thus, it isn’t entirely clear what the Federal Circuit meant when it said the stream of commerce theory applies in patent cases.

Judge Ellis’ decision, however, clarified a few points:

• The stream of commerce theory requires, at a minimum, knowledge of the product’s likely destination through an established distribution channel. Thus, a component part manufacturer who doesn’t know that its products would end up in the forum state is not subject to personal jurisdiction.
• Ordering an accused product online from a third-party, without more, does not satisfy the stream of commerce theory, where the website is passive and the purchaser initiates the sale. Thus, manufacturers whose products are sold only online may be able to avoid jurisdiction in forums in which they do not sell directly.
• A manufacturer which delivers its products to a forum or knows that its products will be sold in a forum through established distribution channels is subject to personal jurisdiction.

A few other “stream of commerce” jurisdiction points:

• As the Courts have often stated, jurisdiction cannot be created by the actions of others. Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403 (Fed. Cir. 2009). Thus, sales by third-party retailers should not establish jurisdiction over a product manufacturer.
• Sales by a patent licensee do not establish jurisdiction over a patent holder. Red Wing Shoe Company, Inc. v Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1361 (Fed. Cir. 1998). “In simple terms, doing business with a company that does business in Minnesota is not the same as doing business in Minnesota. . . . [The plaintiff’s] flawed theory would subject a defendant to nationwide personal jurisdiction if it decides to do business with a company that does business nationwide.” Id.
• Beverly Hills Fan required an “established distribution channel into the forum,” and the case involved delivery of accused products to a retail store in the forum state. Thus, internet sales alone, where the seller has no physical location in the forum state, may not be sufficient for jurisdiction.
• The Federal Circuit has specifically held in one case that the availability of a defendant’s products for sale on a third-party’s website supports jurisdiction “only if [the defendant] had some responsibility for the third party’s advertising of [the defendant’s] products on [the third-party’s] sites.” Trintec Industries, Inc. v. Pedre Promotional Products, Inc., 395 F.3d 1275, 1281 (Fed. Cir. 2005).

• Email This
• Print
• Comments
• Trackbacks