Saturday, October 01, 2016

The CAFC discusses discovery issues in Drone v. Parrot


The argument of appellant Parrot


Parrot raises three issues on appeal. First, it contends
that Drone did not have standing to sue and that,
therefore, the district court should have dismissed Drone’s
suit for lack of jurisdiction. Second, Parrot argues that
the court abused its discretion in directing Parrot to turn
over its on-board source code and then sanctioning Parrot
by entering a default judgment against it when it failed to
do so. Finally, Parrot urges that, even if the default
judgment of liability is allowed to stand, the award of
damages should be vacated because the district court
misapplied the law on damages and abused its discretion
in allowing the jury to consider certain evidence on damages.





The CAFC observed as to the standing issue raised because of
an inventorship question:


Under § 281, “[a] patentee shall have remedy by
civil action for infringement of his patent.” 35 U.S.C.
§ 281 (2012) (emphasis added). A “patentee” is not limited
to the person to whom the patent issued, but also
includes “successors in title to the patentee.” 35 U.S.C.
§ 100(d) (2012) (emphasis added); see also H.R. Techs.,
Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1384 (Fed. Cir.
2002) (“In order to have standing, the plaintiff in an
action for patent infringement must be a ‘patentee’ pursuant
to 35 U.S.C. §§ 100(d) and 281 . . . .”). A party may
become the successor in title to the original patentee by
assignment, 35 U.S.C. § 261 at ¶ 2 (“[P]atents, or any
interest therein, shall be assignable in law by an instrument
in writing.”), and then may sue for infringement in
its own name, Propat Int’l Corp. v. RPost, Inc., 473 F.3d
1187, 1189 (Fed. Cir. 2007); Morrow, 499 F.3d at 1339–40
(explaining that a plaintiff that “hold[s] all legal rights to
the patent as the patentee or assignee of all patent rights
. . . is one entitled to sue for infringement in its own
name”).

When multiple inventors are listed on the face of a patent,
“each co-owner presumptively owns a pro rata
undivided interest in the entire patent, no matter what
their respective contributions.” Isr. Bio-Eng’g Project v.
Amgen, Inc., 475 F.3d 1256, 1263 (Fed. Cir. 2007) (internal
quotation marks and citation omitted). Consequently,
if a co-inventor assigns his or her ownership interest to a
third party, the assignee cannot sue infringers “[a]bsent
the voluntary joinder of all co-owners.” Id. at 1264–65.

(...)

Parrot does not cite any controlling authority suggesting
that we must undertake the review it seeks; namely, a
substantive examination of inventorship in order to resolve
an issue of standing in an infringement action
where the plaintiff’s claim to title is not otherwise in
dispute. Parrot’s reliance on Pandrol USA, LP v. Airboss
Railway Products, Inc., 320 F.3d 1354 (Fed. Cir. 2003), in
support of its position is misplaced. In Pandrol, we found
that “the defendants waived the right to contest the
plaintiffs’ title to the patent, insofar as lack of ownership
is viewed as a defense to the claim of infringement.” Id.
at 1367. We explained, however, that “the defendants’
waiver of the defense of lack of patent ownership did not
waive the defendants’ ability to challenge the plaintiffs’
standing to sue.” Id.



As to the discovery rulings of WD Pa (CA3):


Parrot’s main argument on appeal is that the district
court twice abused its discretion: first, when it directed
Parrot to turn over its on-board source code; and, second,
when it sanctioned Parrot by entering a default judgment
against it after it failed to produce the source code.
Discovery in patent cases in the Western District of
Pennsylvania is governed by the Federal Rules of Civil
Procedure and the district’s local patent rules. See W.D.
Pa. LPR (effective Dec. 1, 2009). Pertinent to the issue
before us is Local Patent Rule 3.1 (“LPR 3.1”). (...)

Discovery began on June 11, 2014, when Parrot
served on Drone its “Initial Disclosures,” which included
over two-thousand pages of documents. The parties
immediately began to dispute whether Parrot’s production
met the requirements of LPR 3.1, with Drone insisting
that Parrot was required to produce “source code, specifications,
schematics, [and] flow charts” relating to the
accused products and Parrot contending that its production
was “sufficient to show the operation of the accused
products as required by LPR 3.1.” J.A. 609–14. After a
series of email exchanges and a fruitless meet and confer,
Drone moved the district court to compel Parrot to produce
the requested information (the “Initial Motion”). In
the Initial Motion, Drone reiterated its belief that, under
LPR 3.1, Parrot was required to produce source code,
specifications, schematics, and flow charts. J.A. 578–83.
Noting that Parrot’s products use off-board and on-board
source code, Drone asserted that the former was critically
important to its case because that code permits users to

(...)

For its part,
Parrot did not dispute that it had not produced any source
code. It instead argued that LPR 3.1 did not include a
requirement to produce source code, or any other particular
kind of document. J.A. 604–05. According to Parrot,
Drone did not even dispute that Parrot had complied with
LPR 3.1 by producing documents “sufficient to show” the
operation of the accused products. J.A. 601. Parrot also
contended that Drone had failed to establish that any of
Parrot’s source code was necessary to show the operation
of the accused products or to prove infringement of any
claim. J.A. 602–04.
The district court sided with Drone, issuing a onepage
order on July 1, 2014 (the “July 1 Order”). In the
July 1 Order, the court compelled Parrot to “produce all
source code, specifications, schematics, [and] flow
charts . . . relating to the operation of the accused products
(Parrot’s AR.Drone, AR.Drone 2.0, MiniDrone[s], and
Bebop Drone) . . . on or before July 9, 2014.” J.A. 5. The
court provided no analysis or reasoning in the July 1
Order. See J.A. 5. Two days later, Parrot filed an emergency
motion for clarification and reconsideration of the
July 1 Order. In it, Parrot made three requests. J.A. 698.
First, Parrot asked the court to allow it to make available
for inspection its on-board source code, which it said is
“extremely sensitive technical information.” J.A. 703–04.
Second, it requested that it be able to produce documents
on a rolling basis beginning on July 9. J.A. 704–06. And
third, it sought permission to not produce documents
relating to the Bebop Drone and MiniDrones because, in
its view, those products were not accused of infringement.
J.A. 706–07. On July 8, 2014, the court denied Parrot’s
emergency motion in a text order (i.e., a text-only entry on
the court’s docket that does not include a written analysis).

(...)


Having determined that WD Pa abused its discretion in the discovery
orders, the CAFC had to determine whether or not the Poulis factors had
to be evaluated on appeal.


Before examining the district court’s sanctions ruling,
however, we address the preliminary question of whether,
in fact, a Poulis analysis is required in this case. Specifically,
it could be argued that, having ruled that the district
court abused its discretion in issuing the July 1 and
July 25 Orders, we should automatically vacate the
district court’s entry of a default judgment against Parrot
for its failure to comply with those orders. There is authority
supporting that approach. See, e.g., EEOC v. First
Nat’l Bank of Jackson, 614 F.2d 1004, 1007–08 (5th Cir.
1980) (reversing dismissal sanction for refusal to comply
with a discovery order because the sought-after information
was “not properly discoverable” and thus “the
district court should not have imposed a Rule 37 sanction
upon appellant for refusing to reveal the information”)
(citing Dunbar v. United States, 502 F.2d 506, 509 (5th
Cir. 1974)); Dole v. Local 1942, Int’l Bhd. of Elec. Workers,
870 F.2d 368, 376 (7th Cir. 1989) (reversing dismissal
sanction for refusal to comply with a discovery order
because “the district court abused its discretion by compelling
discovery” and “such an abuse of discretion will
not support a Rule 37(b) dismissal”). If followed, that
course would obviate the need for a Poulis analysis.



HOWEVER, in view of no on-point Third Circuit law, the CAFC decided
to conduct a Poulis analysis:



The Third Circuit, whose law controls here, does not
appear to have spoken on this question. Indeed, it did not
state in Poulis (nor has it stated in any case since as far
as we can tell) that a determination that a discovery order
was an abuse of discretion obviates the need for a Poulis
analysis when assessing a default or dismissal sanction
that is based at least in part on failure to comply with the
discovery order. We recognize that the Circuit has said
that the validity of a civil contempt order is predicated on
the merits of the underlying order that was violated. See,
e.g., In re Grand Jury Proceedings Harrisburg Grand
Jury 79-1, 658 F.2d 211, 217 n.13 (3d Cir. 1981) (“It is a
well established principle that an order of civil contempt
cannot stand if the underlying order on which it is based
is invalid.”) (quoting ITT Cmty. Dev. Corp. v. Barton, 569
F.2d 1351, 1356 (5th Cir. 1978)); John T. ex rel. Paul T. v.
Del. Cty. Intermediate Unit, 318 F.3d 545, 559 (3d Cir.
2003) (“[I]t is well settled that the viability of a civil
contempt order entered either to remedy past noncompliance
or to coerce future compliance with a preliminary
injunction hinges on the validity of the underlying
injunction.”). However, this case does not involve a civil
contempt order. See Drone Techs., 303 F.R.D. at 265
(explaining that “treating [Parrot’s] actions as contempt of
court pursuant to Rule 37 would not meet the goals of
sanctions”). Under these circumstances, and in view of
the fact that neither Drone nor Parrot has presented
argument on the question, we think the prudent approach
is to conduct a Poulis analysis.


Of the analysis by WD Pa:

In assessing the propriety of sanctions,
the court balanced the six “Poulis” factors. See
Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 867
(3d Cir. 1984) (enumerating factors for courts to consider
in sanctioning parties). Considering the Poulis factors,
the court found that they weighed in favor of imposing a
default sanction instead of holding Parrot in contempt.
303 F.R.D at 265–66. Concluding that “lesser sanctions”
would have been inadequate, the court entered a default
judgment against Parrot as to liability and struck its
answer and counterclaims. Id. at 266; J.A. 42.



The CAFC did not agree with WD Pa on the Poulis analysis:


As seen below, based upon
that analysis, we conclude that the district court abused
its discretion in imposing upon Parrot the sanction of a
default judgment.



As to --Meritoriousness of claims or defenses -- the CAFC
noted: -- The district court did not need to fully assess
the merits of the parties’ claims and defenses; it only
needed to look to the pleadings. See Poulis, 747 F.2d at
869–70 (“A claim, or defense, will be deemed meritorious
when the allegations of the pleadings, if established at
trial, would support recovery by plaintiff or would constitute
a complete defense.”). --

As to prejudice to Drone, the CAFC stated

As for prejudice to Drone, we think the district court
erred by concluding that this factor “weighs heavily
toward the imposition of severe sanctions.” Drone Techs.,
303 F.R.D. at 262. The court found that Parrot’s noncompliance
with the July 1 and July 25 Orders prejudiced
Drone by (1) preventing Drone from reviewing information
before the claim-construction hearing scheduled
for October 24, 2014, (2) inhibiting Drone’s ability to
prepare its case for trial, and (3) causing Drone to “expend
substantial funds, time, and energy” on motions practice.
Id. In our view, the record does not support the court’s
findings. Although the court did not specify what information
Drone needed but did not receive, it presumably
was referring to the on-board source code and documents
relating to the Bebop Drone and MiniDrones. However,
as discussed above, Drone has not shown that this information
is relevant or necessary to its case, so the record
does not support a finding that lacking this information
prejudiced Drone in any way, whether for claimconstruction
purposes or for trial.



The CAFC had discussed "relevant or necessary":



Federal Rule of Civil
Procedure 26(b)(1) allows a party to obtain discovery
“relevant to any party’s claim or defense.”12 Fed. R. Civ.
P. 26(b)(1); see also Micro Motion, Inc. v. Kane Steel Co.,
894 F.2d 1318, 1323 (Fed. Cir. 1990) (explaining that
discovery may not be had unless it is relevant to the
subject matter of the pending action). However, “[e]ven if
relevant, discovery is not permitted where no need is
shown.” Micro Motion, 894 F.2d at 1323; Am. Standard
Inc. v. Pfizer Inc., 828 F.2d 734, 743 (Fed. Cir. 1987)
(“Where proof of either relevance or need is not established,
discovery is properly denied.”). Drone’s Initial
Motion was virtually silent on the subject of the Bebop
Drone and MiniDrones, offering no explanation as to how
these non-accused products were relevant or necessary to
any of its infringement claims. See J.A. 578–83. The only
mention of these products, in fact, appears in the proposed
order attached to Drone’s Initial Motion. J.A. 597.
Notwithstanding that the Bebop Drone and MiniDrones
seemed to have slipped into the fold, the court’s July 1
and July 25 Orders failed to address the relevance of, or
need for discovery relating to, these products. J.A. 5, 9


Footnote 12 states:


The Federal Rules of Civil Procedure, particularly
the rules regarding discovery, were amended effective
December 1, 2015. Because the old rules governed the
proceedings below when the district court issued the
July 1 and July 25 Orders, we review the district court’s
actions based on the rules then in effect.



Of the new rules, SWLaw wrote:


Two changes to Rule 26 contained within these amendments will go far to rein in overly broad discovery requests that are expensive to address and distracting from the merits of the litigation. First, Rule 26(b)(1) will delete the longstanding provision that information “reasonably calculated to lead to the discovery of admissible evidence” may be discovered. Instead, the revised rule will define the scope of discovery based on matters specifically relevant to the claims and defenses asserted in the case. Amended Rule 26(b)(1) will link this more sharply focus scope of discovery with a requirement that discovery be “proportional to the needs of the case.”

While current Rule 26(b)(2)(C)(iii) contains several discovery-limiting considerations, federal courts have often overlooked these considerations and rarely invoked them to tighten the scope of discovery. By explicitly linking a proportionality mandate to a narrowed scope of discovery, the 2015 Rule 26(b)(1) amendments recognize that discovery necessarily involves a balancing of interests and need not stretch beyond the particular needs of the claims and defenses actually asserted.

The proportionality and scope considerations of Rule 26(b)(1) will be buttressed by an addition to Rule 26(c)(1)(B) that will authorize protective orders that include “allocation of expenses” arising from discovery. This new provision will provide a basis for recourse to those parties who face abusive discovery purposely served to drive up the cost of litigation to painful levels. Further, connecting the cost of discovery to the party who seeks to benefit from the discovery will cause parties to consider more closely whether those requests or interrogatories are truly necessary to support the propounding party’s case.



https://www.swlaw.com/blog/product-liability-update/2015/05/13/frcp-26b-amendment-will-change-the-culture-of-discovery/

****
Also, from Judge Mayer in IV v. Symantec:


See Dan L. Burk & Mark A. Lemley, Is Patent Law Technology-Specific?, 17 Berkeley Tech. L. J. 1155, 1164–65 (2002) (“Unfortunately, the Federal Circuit’s peculiar direction in the software enablement cases has effectively nullified the disclosure requirement for software patents. And since source code is normally kept secret, software patentees generally disclose little or no detail about their programs to the public.” (footnote omitted)). Here, for example, the ‘610 patent discusses the objective of “screen[ing] computer data for viruses … before communicating the computer data to an end user,” ‘610 patent, col. 1 ll. 59–61, but fails to disclose any specific, inventive guidance for achieving that goal. In effect, the ‘610 patent, like most software patents, describes a desirable destination but neglects to provide any intelligible roadmap for getting there.


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