Jury Awards Dupont $920 Million for Misappropriation of Trade Secrets

Posted on September 15, 2011 by Dabney Carr

Yesterday, in what we believe is the largest verdict in an intellectual property case in Virginia, a jury in the Richmond Division of the Eastern District of Virginia awarded Dupont $920 million for misappropriation of trade secrets against the Korean company, Kolon Industries.  E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 3:09CV58 (E.D. Va. Aug. 14, 2011) (Payne, J.).   The jury's 51 page verdict, in which they found for Dupont on all 155 claims of trade secret misappropriation, can be found here.  The clerk entered judgment on the verdict the same day.

For more on the Dupont v. Kolon case, see our earlier posts which summarize the background and Judge Payne's prior rulings in the case here, and here. 

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Kevlar® Trade Secret Theft Trial to Begin July 21

Posted on July 20, 2011 by Dabney Carr

Jury selection for the trial of DuPont’s claims against a Korean competitor, Kolon Industries, for the alleged theft of trade secrets relating to DuPont’s Kevlar® fiber is set to begin July 21 before District Judge Robert E. Payne, culminating years of criminal and civil litigation and two Fourth Circuit appeals (so far). E.I. du Pont de Nemours and Co. v. Kolon Industries, Case No. 3:09CV58- REP (E.D.Va.). The trial is set for a very un-Rocket Docket length of 27 trial days spread over eight weeks, but the public is not likely to see much of it, as the Court has issued a Notice that it will close the trial proceedings when confidential trade secret evidence is presented.

The case involves a former DuPont engineer and sales rep, Michael Mitchell, who worked for more than 25 years at DuPont, including two years in the sales and marketing of Kevlar®. As stated in a Department of Justice press release in 2010, Mitchell began to work as a consultant for Kolon after he was terminated by DuPont in 2006. Mitchell provided proprietary information regarding Kevlar® to Kolon, and a search warrant executed in 2008 revealed that Mitchell had hundreds of pages of DuPont proprietary documents stored on his home computer. Mitchell agreed to cooperate with the government and even set up a meeting in a Richmond hotel between three Kolon employees and another cooperator posing as a “disgruntled” senior scientist at DuPont. Mitchell eventually pled guilty to theft of trade secrets and obstruction of justice in March, 2010 and was sentenced to 18 months in prison. He’s due to be released this fall, but he’ll get some time off, as Judge Payne has ordered him to be present at trial.

In early 2009, DuPont brought suit against Kolon for theft of its trade secrets. Kolon counterclaimed for antitrust violations, alleging that DuPont had attempted to monopolize the market for para-aramid fibers by illegally using multi-year supply agreements which required high-volume customers to purchase between 80% and 100% of their requirements from DuPont. Judge Payne dismissed the counterclaim for failure to plead a relevant geographic market. Kolon filed an interlocutory appeal.  In March, the Fourth Circuit reversed the dismissal (opinion here) and remanded the counterclaim back to the District Court. 

DuPont continued to actively communicate and cooperate with federal criminal investigators, and the government served two grand jury subpoenaes on DuPont for the documents produced by Kolon in the civil litigation. Kolon moved to quash the subpoenaes, alleging that the government was unfairly “piggy-backing” on the DuPont’s civil suit. Judge Payne denied the motion to quash, ruling that DuPont’s cooperation with the government was not improper. As Legal Times reported here, on June 15, the Fourth Circuit unanimously affirmed, allowing the federal government to obtain all of the documents produced by Kolon in discovery for its grand jury investigation.

The DuPont/Kolon fight has been massive and hotly disputed, generating more than 1200 pleadings and orders, including a recent Order instructing Kolon’s lead counsel to study the provisions of 28 U.S.C. 1927 regarding taxable costs because of Kolon’s persistent filing of repetitive motions (sometimes after the Court had decided a like motion) and for filing 6,000 trial exhibits and refusing to materially reduce the number of those exhibits.

As we’ve blogged before here, property rights in trade secrets can override the public’s First Amendment right of access to judicial proceedings and documents. In his Notice and Order issued yesterday, Judge Payne ruled that there was no alternative to the protection of DuPont’s alleged trade secrets than to permit the use of documents under seal and to close the Court upon notice that such evidence is to be presented. Since the public’s right of access extends to all evidence and trial proceedings that do not include trade secrets, however, Judge Payne may face practical difficulties in determining when and how often to limit public participation in the trial.
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Rambus and Spoliation: Six Years Later, the Federal Circuit Decides Judge Payne was Right

Posted on May 23, 2011 by Dabney Carr

In early 2005, Judge Robert E. Payne of the EDVA dismissed Rambus’ long-running patent infringement litigation against Infineon on the grounds that Rambus had destroyed documents after litigation became reasonably foreseeable. The Infineon case settled before Judge Payne could issue a written opinion and Rambus mooted a similar case before Judge Payne, Samsung Electronics Co. v. Rambus Inc., 439 F.Supp.2d 524 (E.D. Va. 2006), by granting Samsung covenants not to sue on the patents at issue.

It took six years and two other Rambus suits, but the Federal Circuit has finally agreed with Judge Payne, essentially adopting his spoliation reasoning in its twin opinions in Micron Technology, Inc. v. Rambus, Inc., No. 2009-1263, 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011) (found here) and Hynix Semiconductor, Inc. v. Rambus, Inc., No. 2009-1299, 2011 U.S. App. LEXIS 9728 (Fed. Cir. May 13, 2011) (found here).

Rambus sued Infineon in the EDVA way back in 2000. Rambus, Inc. v. Infineon Tech’s. AG, 3:00CV524 (E.D.Va.). After a trial which went in Infineon’s favor and a Federal Circuit appeal which resulted in a partial remand, post-remand discovery revealed that Rambus had destroyed documents as part of several “shred-days” in 1998 and 1999. Judge Payne ruled that the spoliation warranted piercing the attorney-client privilege and held a bench trial on Infineon’s defense of unclean hands. In February, 2005, Judge Payne ruled from the bench that Infineon had proven that Rambus had spoliated evidence, for which dismissal was the appropriate sanction. Before the Court could issue a written opinion, however, Rambus and Infineon settled.

Soon after, Samsung filed a declaratory judgment action against Rambus in the EDVA based on the same theories of spoliation and unclean hands asserted by Infineon. Samsung Elec’s. Co. v. Rambus, Inc., Case No. 3:05CV406 (E.D.Va.). In an apparent attempt to avoid any ruling on spoliation by Judge Payne, Rambus granted Samsung covenants not to sue on the four patents at issue, made an offer of judgment to pay Samsung’s attorney’s fees incurred in the EDVA action and then moved to dismiss for lack of subject matter jurisdiction. Judge Payne, however, held that he retained jurisdiction to determine whether the case was exceptional, and, in a lengthy opinion relying primarily on Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001), he held that Rambus had destroyed relevant documents at a point in time when it anticipated or reasonably should have anticipated litigation and that such destruction rendered the case exceptional. On appeal, the Federal Circuit vacated Judge Payne’s opinion on the grounds that the covenants not to sue and the offer to pay attorney’s fees rendered the case moot. Samsung Elec’s. Co. v. Rambus, Inc., 523 F.3d 1374 (Fed. Cir. 2008).

In the meantime, Hynix and Micron filed declaratory judgment actions against Rambus (Hynix in the Northern District of California and Micron in Delaware) and both asserted that Rambus’ document destruction barred any infringement claims. In Hynix, Judge Ronald Whyte ruled that Rambus did not actively contemplate litigation at the time of the document shredding, and so the document destruction did not constitute spoliation. In Micron, Judge Sue Robinson reached the opposite conclusion, holding that litigation was reasonably foreseeable at the time of the document destruction and held that the patents were unenforceable as a sanction.

The Federal Circuit sided with Judge Robinson, holding that the duty to preserve documents attaches when a reasonable party in the same factual circumstances would have reasonably foreseen litigation. Litigation need not be “imminent or probable without significant contingencies” as Rambus contended. Like Judge Payne six years earlier, the Federal Circuit relied on the Silvestri decision to conclude that the duty to preserve evidence begins when litigation is “pending or reasonably foreseeable.” Likewise, in language very similar to Judge Payne’s decision in Samsung, the Federal Circuit rejected Judge Whyte’s conclusion that litigation was not reasonably foreseeable because multiple contingencies had not yet occurred. While certain contingencies had to occur before litigation would begin, “contingencies whose resolution are reasonably foreseeable do not foreclose a conclusion that litigation is reasonably foreseeable.”

The Federal Circuit cited several considerations which “compel a finding that litigation was reasonably foreseeable” prior to the second shred day in August, 1999:

  • It was not clear error for Judge Robinson to conclude that Rambus adopted its document retention policy to further its litigation strategy;
  • Rambus was on notice of infringing activities . “While it might not be enough to have a target in sight, the knowledge of likely infringing activity by particular parties makes litigation more objectively likely to occur.”
  • Rambus took several steps in furtherance of litigation prior to the second shred day.
  • That the Rambus had not received Board approval for licensing negotiations or litigation showed only that litigation was not imminent, not that litigation was not reasonably foreseeable.
  • As the plaintiff-patentee, the decision whether litigation would ensue was within Rambus’ control;
  • Rambus’ business relationship with the manufacturers did not make litigation significantly less likely, nor was there a longstanding and mutually beneficial relationship that made litigation less foreseeable;

Digging a little deeper, findings of spoliation such as in Rambus may be rare in the future. In Rambus, a great deal of the evidence about Rambus’ “shred days” and its litigation strategy was available to Hynix and Micron because all three district judges pierced the attorney-client privilege based on the basis of the crime-fraud exception. Without that evidence, it would have been difficult to satisfy the “reasonably foreseeable litigation” standard. Such evidence may not be available in other cases, though the Federal Circuit’s Micron decision provides litigants with a roadmap for establishing a prima facie case of the crime-fraud exception to the attorney-client privilege. 

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The Federal Bar Association Presents Seminar on Eastern District of Virginia Procedure

Posted on October 5, 2010 by Dabney Carr

Twombly, Iqubal, Winter, eBay and Real Truth About Obama. To many, these names make little sense, but to intellectual property litigators, they are well-known examples of the constantly changing nature of federal procedure. On September 29, a seminar sponsored by the Richmond Chapter of the Federal Bar Association offered some guidance through these cases and the procedural thicket in the Eastern District of Virginia.

The seminar, titled “Procedural Issues in Civil Litigation in the Richmond Division of the Rocket Docket,” included excellent written materials (found here) and featured a panel of speakers that included Senior U.S. District Judge Robert E. Payne, David Anthony of Troutman Sanders LLP and Maya M. Eckstein of Hunton & Williams LLP.

For a recap of the panel's comments, see below. For more on litigating intellectual property cases in the Rocket Docket of the  Eastern District of Virginia, see our article found here.

  • Litigators spend a tremendous amount of effort to prove liability, but too little on damages. Plaintiffs need to make sure they have solid evidence of damages, and defendants should not leave the jury with only the plaintiff’s evidence to consider. 
  • Lawyers should hesitate to combine a motion to dismiss under FRCP 12 with an alternative motion for summary judgment under FRCP 56. The two rules apply very different standards and it is rare that summary judgment is appropriate at the Rule 12 stage.
     
  • Quibbling over small discovery disputes adversely affects the credibility of lawyers before the Court and ultimately impact whom the Court believes is reliable.
     
  • More intellectual property cases are being filed in the EDVA because the speed of the “Rocket Docket” is attractive to plaintiffs. As the Eastern District of Texas slows down, the EDVA can expect to continue to receive a high volume of IP cases.
     
  • While there is little litigation about e-discovery in the EDVA, spoliation claims are becoming more common. The panel recommended the protocol for e-discovery from the District of Maryland that is posted here.
     
  • The primary shortcoming in motions to transfer venue under 28 U.S.C. 1404(a) is the failure to provide specific information as to the identity, relevance and location of out-of-state witnesses. Conclusory allegations about inconvenience to witnesses are insufficient.
     
  • After eBay, the traditional four-factor test for an injunction applies in patent cases like every other case, but the impact of eBay is still working itself out at the District Court level.
     
  • The Court is seeing a success rate of 70%-80% with settlement conferences, but lawyers and parties can still be “mule-headed” about talking. In patent cases, settlement either occurs early in the case or not at all.
     
  • The EDVA judges are scrutinizing requests to seal documents more closely because of the broad scope of documents that lawyers are filing under seal.
     
  • Local Rule 37’s requirement that parties meet and confer before filing motions to compel does not apply to other motions, but parties should meet and confer on other issues as well and memorialize their agreements. As the panel said, “it’s always a good idea to talk to your adversary.”
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Defendants Win Summary Judgment on Doctrine of Equivalents Claim

Posted on August 23, 2010 by Dabney Carr

As we noted here, Judge Robert E. Payne recently ruled on two summary judgment motions in WiAV Solutions LLC's patent suit against numerous mobile telephone companies. Our earlier post addressed the Court’s ruling on marking. In his second opinion, Judge Payne granted defendants summary judgment on WiAV’s claim of infringement under the doctrine of equivalents. The decision can be found here.

WiAV’s patent provides a method for monitoring the quality of a traffic channel for mobile phones by measuring the quality of a separate control channel. WiAV claimed that a "training sequence" and a "common pilot channel" used by the accused products were equivalent to a control channel. The defendants pointed out, however, that

  • the control channel described in the patent carries data, while the training sequence and common pilot channel are fixed sequences that do not carry data. 
  • the control channel uses error protection while the training sequence and common pilot channel do not
  • the control channel described in the patent determines channel quality in a different manner from the training sequence and common pilot channel.

WiAV, Judge Payne ruled, “offers a function, way and result divorced from the language of the claims.” For example, WiAV’s argument that the function of the patented process did not include a control channel was “belied by the claim terms themselves” which made clear that a control channel was required.

 

In the same opinion, Judge Payne denied summary judgment on literal infringement, and so WiAV's claims remain alive for trial, which is set for October.

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Patentee wins on marking statute interpretation but evidence shortcomings kill pre-suit damages anyway

Posted on August 12, 2010 by Joshua Heslinga

In the ongoing patent battle between WiAV Solutions, LLC and a number of mobile technology companies (Motorola, Nokia, et al.), Judge Robert E. Payne has ruled in the last two days on two of defendants’ motions for summary judgment.  One opinion’s interpretation of the patent marking statute has implications beyond this suit, and that opinion also offers both positive and negative procedural lessons of which practitioners should take note.

The case is Eastern District of Virginia case no. 3:09-CV-447 (although it may also be designated as the “full employment for lawyers” case, with, by my count, 59 lawyers listed on the docket on PACER).  We have previously blogged about the dismissal of a number of WiAV’s other claims and their subsequent certification for appeal.  (That appeal can be followed on PACER as Federal Circuit case no. 2010-1266, with oral argument set for September 10.)

The ruling on marking

On June 10, Defendants moved for summary judgment of no willful infringement and of no-pre-suit damages.  The Court’s August 10 memorandum opinion granted summary judgment as to no pre-suit damages and accordingly denied the willful infringement aspect of the motion as moot.

The patent marking statute, 35 U.S.C. 287(a), “encourages” patentees and those making, selling, offering to sell, or importing a patented article to give notice of the patent by putting the patent number on the patented article.  The encouragement comes in the provision that “In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.”

As part of its claim of infringement of U.S. Patent No. 6,539,205 (“Traffic channel quality estimation from a digital control channel”), WiAV sought pre-suit damages from July 14, 2003, through December 31, 2007.  WiAV did not seek pre-suit damages from December 31, 2007, to July 14, 2009 (when the suit was filed, thereby giving actual notice of infringement) because it was undisputed that several major companies (LG, RIM, Apple, and HTC) acquired licenses and sold unmarked articles on various dates beginning on December 31, 2007.

WiAV argued that sales by two other companies (Mindspeed and Skyworks) prior to December 31, 2007, did not trigger the statutory requirement to mark and therefore that the failure to mark did not bar pre-suit damages for the 2003-07 period.

Defendants asserted that, under the plain language of the statute, no damages can be recovered until actual notice is given, even damages that accrue before a requirement to mark is triggered.  They argued that WiAV wanted to revise the statute through construction to read that “no damages shall be recovered by the patentee in any action for infringement during the period in which there is a failure to mark, except on proof...”

The Court held that Defendants "ignore[d] the statutory context in which the provision precluding damages appears" and that "the statute gives rise to some ambiguity" on the period for which damages are precluded.  (Mem. Op. at 11.)  The parties then disagreed as to how the ambiguity should be resolved in light of the purposes of the statute.

The Federal Circuit described three purposes of the statute in Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1443 (Fed. Cir. 1998): (1) helping to avoid innocent infringement, (2) encouraging patentees to give notice to the public that the article is patented, and (3) aiding the public to identify whether an article is patented. 

In 2003, the District of Delaware ruled favorable to WiAV’s argument, holding that a patentee can recover damages for infringement during a period of time when § 287 is not triggered, even if § 287 is later triggered and the patentee fails to comply.  The Court reached that result after concluding that “it is only when the patentee is himself contributing to the problem of innocent infringement by producing unmarked product that 287(a) punishes that patentee by precluding damage recovery.”  (Mem. Op. at 12.)

The defendants argued here, however, that allowing division of damages periods as WiAV sought would render the statute ineffective at achieving its "principal purpose" of providing notice. 

The Court concluded that Defendants' interpretation "penalizes the patentee for failing to comply with a statute that the patentee was not required to comply with in the first place.  And it is simply unreasonable to read the statute in this manner."  Therefore, the Court held "that a patentee is not precluded from collecting damages for a period in which marking was not required even if the requirements of the marking statute were later triggered and the patentee failed to comply."  (Mem. Op. at 13.)

Procedure dooms WiAV's pre-suit damages anyway

WiAV’s statutory interpretation victory was short-lived, however.  The Court rejected WiAV’s attempt to shift the burden to the defendants to prove that the marking statute was applicable.  Rather, citing an 1894 Supreme Court opinion, the Court held that it was "clear that the patentee bears the burden of showing compliance with the marking statute."  (Mem. Op. at 14.)  WiAV failed to survive summary judgment because it failed to offer evidence that could lead a jury to find in its favor on that point, on which it bore the burden of proof.

WiAV relied on 30(b)(6) testimony to show that one pre-Dec. 31, 2007 company (Mindspeed) was not practicing the patent (and thus that the marking statute was not triggered).  Unfortunately for WiAV, however, the deponent contradicted that statement twice later in the deposition. 

Expert testimony was needed, said the Court, to draw any conclusion about whether pre-Dec. 31, 2007 sales practiced the patent, and WiAV failed to offer such evidence.  WiAV did offer a declaration of its expert, but the Court held that, even if allowed, that declaration was “entirely speculative and conclusory” and thus wholly failed to explain the technical details necessary to accept WiAV’s arguments that pre-Dec. 31, 2007 sales did not practice the patent.

The Court also ruled against WiAV with respect to the other company (Skyworks) that was involved prior to Dec. 31, 2007, holding that offers to sale counted as practicing the patent and also that WiAV failed to offer evidence to prove that Skyworks made no sales or offers for sale in the United States.  Again, WiAV relied on a 30(b)(6) deponent who contradicted himself twice later, and again that was insufficient because WiAV bore the burden.

The summary judgment procedural lessons are clear:  A party must understand all of the issues on which it bears the burden of proof and support those issues with evidence.  A litigant cannot count on 30(b)(6) testimony if that testimony is not clear, and experts must go beyond mere conclusions to provide grounds for a fact finder to adopt their conclusions.  Furthermore, as my colleagues have recently emphasized and as this blog regularly observes, the Eastern District’s “Rocket Docket” places special constraints on presentation of evidence, including requiring litigants to be organized from the very beginning and often greatly constraining the time available to search for and prepare to present such evidence.

Defendants skillfully navigate the Local Rules

Eastern District practitioners may have wondered if there was a misprint in the first paragraph of this blog entry, which refers to defendants’ motions for summary judgment, plural. 

Local Civil Rule 56(C) prohibits separate motions for summary judgment on separate grounds without leave of court.  As I’ve noted in a past blog entry, in conjunction with the Local Rules’ page limits on briefs, that limits what can be raised at summary judgment and is a significant part of how the Eastern District’s “Rocket Docket” avoids flurries of motions and forces litigants to move things along toward trial.

In this case, however, defendants successfully moved the Court to allow them to file three motions for summary judgment, divided by issue.  They were, no doubt, aided in that effort by the ability to argue that doing so was actually more efficient than having multiple defendants raise several issues in overlapping presentations, such that they were not seeking an increase in the number of possible motions or the number of pages overall.

This example shows that Eastern District judges will listen to reason with respect to the Local Rules, but litigants need to conceptualize how their case should be presented and must ask the Court for appropriate procedural relief where necessary.

 
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EDVA Court Disqualifies Plaintiff's Counsel in Patent Case

Posted on July 26, 2010 by Dabney Carr

In a July 22 opinion, Judge Payne disqualified Steptoe & Johnson as counsel for Sunbeam Products because a Steptoe associate had performed work involving one of the defendants’ accused products while employed at a prior firm. Sunbeam Products v. Hamilton Beach Brands, Inc., et al., Case No. 3:09CV791, 2010 U.S. Dist. LEXIS 74001 (E.D. Va. July 22, 2010). The opinion can be found here.

While at his prior firm, the associate had done extensive patent-related work with the accused products, including working on patent litigation involving the products, preparing utility and design patents, preparing a patentability opinion relating to the accused products and analyzing the prior art, some of which was being asserted by the defendant in the Sunbeam case. Steptoe had identified the potential conflict during its conflict check but determined that the Sunbeam litigation was not “substantially related” to the associate’s prior work because the associate had not done any work relating to the patents Sunbeam was asserting, and Sunbeam did not challenge the defendant’s patents on which the associate had worked.

The opinion is a straightforward application of Rule 1.9(a) of Virginia’s Rules of Professional Conduct, which bars a lawyer who has formerly represented a client in a matter from representing another client in the same or a substantially related matter, and Rule 1.10(a), which imputes a conflict involving one attorney to all other attorneys in the firm.

More importantly for practicioners in the EDVA, the opinion highlights the high level of scrutiny of potential conflicts in the Fourth Circuit. Judge Payne cited a long line of Fourth Circuit and Eastern District of Virginia authority holding that “ethical rules are not to be applied ‘with hair-splitting nicety,’” and that all doubts should be resolved in favor of disqualification. Judge Payne rejected Steptoe’s reliance on a number of cases from other circuits which “have parsed the issues in the prior and current representations finely so as to distinguish the two representations and declare them not to be substantially related.” Such authorities, Judge Payne held firmly, “neither control nor persuade the Court to engage in the sort of ‘hair-splitting’ which the Fourth Circuit expressly has said cannot be done.”

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EDVA Court Certifies Appeal of Dismissal for Lack of Standing

Posted on March 11, 2010 by Dabney Carr

As we blogged here, Judge Payne recently dismissed claims relating to seven of the nine patents asserted by WiAV Solutions against multiple defendants (including Nokia, Motorola and Palm) because the plaintiff did not have the exclusive right to license the patents. The Court  has now certified WiAV’s appeal of that decision to the Federal Circuit.  WiAV Solutions LLC v. Motorola, Inc. et al., 2010 U.S. Dist. LEXIS 21508 (E.D. Va. March 9, 2010).

In his opinion, Judge Payne rejected the defendants’ argument that the appeal should not be certified because most of the accused products are alleged to infringe both the dismissed patents and the two remaining patents.  The judge also rejected the argument that certification of the appeal could result in a “two-trial scenario” that may subject the defendants to “double jeopardy on damages.” Judge Payne noted that the appeal would only involve the discrete issue of standing and that delaying certification could also result in two trials if the Federal Circuit overturns the standing decision after trial on the remaining patents.

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