CAFC in Parallel Networks: mistaken premise by district court "clearly erroneous" and constitutes abuse of discretion

The outcome:


This case returns to us from the United States District
Court for the Eastern District of Texas (district
court), where Parallel Networks, LLC (Parallel Networks)
asserted U.S. Patent No. 6,446,111 (ʼ111 Patent) against
more than 100 defendants for their use of certain applets
on their websites. Over Parallel Networks’ opposition, the
district court granted summary judgment of noninfringement
for Kayak Software Corp., d/b/a Kayak.com
(Kayak); Orbitz LLC, Orbitz Worldwide, Inc., Orbitz
Worldwide, LLC, Orbitz Away LLC (collectively, Orbitz);
and Wolverine World Wide, Inc. (Wolverine), because
their accused applets did not meet the “executable applet”
claim limitation in the ʼ111 Patent. Shoebuy.com LLC
(Shoebuy) also moved for summary judgment of noninfringement.
In response, Parallel Networks proposed
that it would dismiss its infringement claim against
Shoebuy with prejudice, if Shoebuy agreed to dismiss its
invalidity counterclaim with prejudice. After the parties
failed to reach an agreement, the district court dismissed
both the infringement claim and invalidity counterclaim
with prejudice. With the merits resolved, all defendants
moved for attorneys’ fees, pursuant to 35 U.S.C. § 285
(2012), but the district court denied that motion. We
agree with the district court in all respects, but for its
dismissal of Shoebuy’s invalidity counterclaim with
prejudice. We, therefore, affirm in part and reverse in
part.


Of the invalidity counterclaim


In deciding the propriety of a dismissal of a counterclaim
with or without prejudice, we apply the law of the
regional circuit, here the Fifth Circuit. See Univ. of
Pittsburgh v. Varian Med. Sys., Inc., 569 F.3d 1328, 1331
(Fed. Cir. 2009) (citing H.R. Techs., Inc. v. Astechnologies,
Inc., 275 F.3d 1378, 1384 (Fed. Cir. 2002)). The Fifth
Circuit reviews a district court’s dismissal of a counterclaim
with prejudice for an abuse of discretion. See, e.g.,
Hyde v. Hoffmann-La Roche, Inc., 511 F.3d 506, 509 (5th
Cir. 2007); Elbaor v. Tripath Imaging, Inc., 279 F.3d 314,
317–18 (5th Cir. 2002).
Shoebuy argues that the district court abused its discretion
because it dismissed the invalidity counterclaim
with prejudice on the mistaken premise that Parallel
Networks and Shoebuy had entered a covenant. We agree
with Shoebuy that the dismissal of the counterclaim
should be without prejudice. The district court’s finding
that these particular parties agreed to a covenant was
clearly erroneous, especially given that Parallel Networks
does not insist that such a covenant exists. We, therefore,
reverse the dismissal of Shoebuy’s invalidity counterclaim
with prejudice on this ground.




**Separately, from Blawgsearch on July 5, 2017: