Friday, August 09, 2013

CAFC outcome in Taurus/Orion/Spangenberg v. DaimlerChrysler

The outcome in Taurus/Orion/Spangenberg v. DaimlerChrysler

For the reasons set forth below, we rule as follows on the issues presented: In the appeals from the DaimlerChrysler Patent Suit, (1) we affirm the district court’s constructions of all the disputed claim terms; (2) we affirm the judgment of invalidity of claims 16 and 27 of the ’658 patent; (3) we affirm the judgment of nonin- fringement; and (4) we affirm the finding of an exceptional case under 35 U.S.C. § 285 and the resulting award of damages. In the appeals from the Breach of Warran- ty Suit, (1) we affirm the denial of the motion to dismiss for lack of personal jurisdiction over Orion and Spangen- berg; (2) we affirm liability for breach of the Warranty Provision; (3) we affirm the award of damages consisting of attorney fees incurred by Chrysler and Mercedes in prosecuting the Breach of Warranty Suit, but reverse the award of damages consisting of attorney fees incurred by Chrysler and Mercedes in defending against the Daim- lerChrysler Patent Suit; and (4) we affirm the imposition of evidentiary sanctions based on witness tampering. Based on these rulings, we do not reach the conditional cross-appeal.

Of conception and reduction to practice:

In its analysis, the district court first rejected Taurus’s argument that the subject matter of the ’658 pa- tent—filed on September 10, 1997—was invented prior to September 3, 1996, the filing date of the Trilogy patent. See Summary Judgment Decision, 534 F. Supp. 2d at 877–78. In so doing, the district court found that a lengthy document filed with the ’658 patent and referred to as “Appendix A” therein, see ’658 patent col. 13 ll. 50– 52, did not provide evidence of conception and reduction to practice sufficient to predate the Trilogy patent. See Summary Judgment Decision, 534 F. Supp. 2d at 877–78. The district court relied on the fact that, although Appendix A has a date stamp showing it was created on June 10, 1996, almost every page has a stamp showing it was modified on December 11, 1996, more than three months after the filing date of the Trilogy patent, September 3, 1996. (...)

The issue of the conception date of an invention is a legal conclusion based on underlying factu- al findings. See Invitrogen Corp. v. Clontech Labs., Inc., 429 F.3d 1052, 1063 (Fed. Cir. 2005). (...)

“[P]riority of invention ‘goes to the first party to re- duce an invention to practice unless the other party can show that it was the first to conceive the invention and that it exercised reasonable diligence in later reducing that invention to practice.’” Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572, 1577 (Fed. Cir. 1996) (quoting Price, 988 F.2d at 1190). Thus, to remove the Trilogy patent as a prior art reference, Taurus needed to either prove (1) a conception and reduction to practice before the filing date of the Trilogy patent or (2) a conception before the filing date of the Trilogy patent combined with diligence and reduction to practice after that date. See Singh v. Brake, 317 F.3d 1334, 1340 (Fed. Cir. 2003); see also 37 C.F.R. § 1.131(b).9 In either scenario, Taurus had to prove a conception date earlier than September 3, 1996—the filing date of the Trilogy patent. The only such evidence presented by Taurus, however, was (1) the creation date of June 10, 1996, printed on Appendix A, and (2) Mr. Johnson’s testimony. Based on this evidence, a reasona- ble juror could not find that the ’658 patent predated the Trilogy patent. (...)

Further, even assuming Appendix A was in its pre- sent form prior to September 3, 1996, Taurus failed to demonstrate how Appendix A satisfies all the limitations recited in claims 16 and 27, as necessary to demonstrate conception. See Singh, 317 F.3d at 1340 (“A conception must encompass all limitations of the claimed invention . . . .”). Similarly, Taurus has not proven that Appendix A represents an actual reduction to practice of the entire process recited in claims 16 and 27. See Scott v. Koyama, 281 F.3d 1243, 1247 (Fed. Cir. 2002) (“‘A process is re- duced to practice when it is successfully performed.’”) (quoting Corona Cord Tire Co. v. Dovan Chem. Corp., 276 U.S. 358, 383 (1928)). Instead, Taurus merely states that a reasonable juror could find that Appendix A was either created using the invention or represents conception before a later reduction to practice. Taurus fails, howev- er, to set forth an evidentiary basis for that finding. (...)

Even if this testimony were sufficient to support an earlier invention date, it lacks corroboration, which is required by this court’s case law. See Singh v. Brake, 222 F.3d 1362, 1367 (Fed. Cir. 2000) (“It is well-established that when a party seeks to prove conception via the oral testimony of a putative inventor, that party must proffer evidence corroborating that testimony. This rule address- es the concern that a party claiming inventorship might be tempted to describe his actions in an unjustifiably self- serving manner in order to obtain a patent or to maintain an existing patent.”). Instead of corroborating Mr. John- son’s testimony, Appendix A serves as the sole basis for it. Indeed, independent of that document, neither inventor had any recollection of the date of invention. For the reasons set forth above, however, Appendix A does not independently support an earlier invention date; it there- fore cannot corroborate Mr. Johnson’s testimony.

Of "written description,"

The term “user” cannot be construed in a vacuum, as required by Taurus’s proposed construction. Instead, it must be construed in light of the written description in which it resides. See Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc) (“‘We cannot look at the ordinary meaning of the term . . . in a vacuum. Ra- ther, we must look at the ordinary meaning in the context of the written description and the prosecution history.’”) (quoting Medrad, Inc. v. MRI Devices Corp., 401 F.3d 1313, 1319 (Fed. Cir. 2005)). As admitted by Taurus, the invention is described from the viewpoint of the database manager, not from the viewpoint of a web surfer. Because Taurus’s proposed construction of “user” is improperly broad, we affirm the construction of the district court.

As to "exceptional case,"

We now turn to the last issue on appeal from the DaimlerChrysler Patent Suit, the finding of an exception- al case under 35 U.S.C. § 285 and the award of attorney fees to Chrysler and Mercedes for defending against the allegations of infringement in that suit. Taurus asserts that the district court erred in finding an exceptional case because Taurus argued infringement both in good faith and as supported by expert testimony, and because its counsel had a duty to represent it “zealously.” (...)

When assessing whether to award attorney fees under 35 U.S.C. § 285, a district court engages in a two-step inquiry. The court must first determine whether the prevailing party has proved, by clear and convincing evidence, that the case is exceptional. MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907, 915 (Fed. Cir. 2012), reh’g and reh’g en banc denied (2012). If the court finds the case exceptional, it must determine whether an award of attorney fees is appropriate, (...)

Having carefully considered the record before us, we conclude that the district court properly found the Daim- lerChrysler Patent Suit to be exceptional. In reaching this conclusion, we find sufficient basis in the district court’s findings that Taurus improperly asserted and maintained its positions in the litigation. See Post-Trial Decision, 559 F. Supp. 2d at 967–68. We need not rely on the findings related to vexatious litigation or witness tampering. See id. at 968. Rather, no reasonable litigant in Taurus’s position could have expected a finding that a web surfer accessing the accused external websites satis- fied the requirement for a “user,” as recited in claim 16. Although reasonable minds can differ on claim construc- tion positions, Taurus’s proposed constructions of “user,” and the related terms discussed above, fall below the threshold required to avoid a finding of objective base- lessness. See Raylon, LLC v. Complus Data Innovations, Inc., 700 F.3d 1361, 1368 (Fed. Cir. 2012) (citing iLOR, 631 F.3d at 1378). (...)

While an adverse claim construction generally cannot, alone, form the basis for an exceptional case finding, this court’s decisions in DePuy Spine and Medtronic Navigation do not undermine the rule that a party cannot assert baseless infringement claims and must continually assess the soundness of pending infringement claims, especially after an adverse claim construction. See Medtronic Navigation, 603 F.3d at 954 (“The salient inquiry is whether Medtronic’s claims were so lacking in merit that [the plaintiff] was legally obligated either to abandon its case altogether or to limit itself to challenging the district court’s claim construction order on appeal.”). In both cases, this court reversed because it determined that the arguments posited were not, in fact, baseless. See id. at 959; see also DePuy Spine, 567 F.3d at 1339 (reversing an exceptional case finding because “there is no indication, much less a finding, that [the sanctioned party’s] arguments were baseless, frivo- lous, or intended primarily to mislead the jury”). For the reasons set forth above, such is not the case here. Thus, the reversals in DePuy Spine and Medtronic Navigation do not carry the day for Taurus.

Of relevance to patent lawyers:

On March 11, 2008, three days before trial, the court held a hearing and determined that Spangenberg and an attorney named Patrick Anderson, who was working for one of Spangenberg’s companies, had recently engaged in witness tampering. Post-Trial Decision, 559 F. Supp. 2d at 957. At the March 11 hearing, the district court made various factual findings, which are set forth in the Post- Trial Decision, 559 F. Supp. 2d at 971–73, and, for suffi- cient background, are summarized here.
Before graduating from law school in 2005, Patrick Anderson was employed by a law firm in Detroit, which placed him in a temporary position with Chrysler as a patent agent working on patent prosecution. Id. at 971. Anderson left his contract position at Chrysler and re- turned to his firm in May of 2006, with the understanding that everything he learned during his time at Chrysler was confidential. Id. In the fall of 2006, Anderson sent his resume, which included his experience with Chrysler, to an attorney working at Intellectual Property Naviga- tion, another of Spangenberg’s business entities. Id. Anderson interviewed for an attorney position but did not receive a job offer at that time. Id. In the fall of 2007, after the district court denied the motion to dismiss for lack of personal jurisdiction filed by Orion and Spangen- berg, Anderson received a call from Spangenberg with a job offer. Id. (...)

By the following day, to familiarize himself with the relevant facts, Anderson had read the 73-page Summary Judgment Decision, researched the local ethics rules, contacted a state bar hotline and an ethics attorney, and drafted a letter to Butler. Id. Then, Anderson called Butler and asked whether he would be testifying for Chrysler. Id. Butler told Anderson that decision was not his to make. Id. Anderson then sent Butler the previous- ly drafted letter, in which Anderson stated that, based on his review of the Summary Judgment Decision, it ap- peared that Chrysler is representing “that it was not aware that the ’658 patent was transferred away from Orion IP prior to the settlement.” Id. In the letter, An- derson “reminded” Butler of “certain facts,” including Anderson’s obligation under the Michigan ethics rules to persuade a former client to testify truthfully, to take remedial measures if the client refuses, and to report conduct that “raises a substantial question to a lawyer’s fitness to practice law.” Id. Anderson continued: “Please contact me and assure me that you will testify truthfully on all matters asked during your testimony, no later than 9AM, Monday March 10, 2008.” Id. Anderson did not reveal his employer to Butler. Id. at 972–73. (...)

The district court found that, while Anderson was working at Chrysler, he “was asked to run a search for a particular outcome, and for a particular reason.” Id.16 The district court found that Anderson did not document that search, and that his work computer did not contain evidence of such a search. Id. With these findings, the district court seemed to draw into question the sufficiency of Anderson’s basis for con- tacting Butler.

Based on these factual findings, the district court found clear and convincing evidence of sanctionable behavior for two reasons See id. at 974. First, the district court concluded that “Anderson’s communication with Butler was designed to intimidate Butler and influence his testimony.” Id. Second, the court found that “Span- genberg’s relationship with Anderson and his involvement in Anderson’s witness tampering show that Spangenberg intended Anderson to improperly influence Butler’s testimony and that he put Anderson up to unethical behavior for Spangenberg’s (and Orion’s) benefit.” Id. The district court found two “problems” with Spangen- berg’s call to Anderson: (1) Anderson should have been behind a “Chinese Wall,” based on his prior employment with Chrysler, and (2) Spangenberg’s suggestion that Anderson call Butler was “manipulative and improper” because of Anderson’s employment with Spangenberg. Id. (...)

As to the merits, we conclude that the district court did not abuse its discretion, but, instead, imposed appro- priate and proportional evidentiary sanctions on Orion and Spangenberg. We agree with the reasoning of the district court, see Post-Trial Decision, 559 F. Supp. 2d at 974–75, that Spangenberg engaged in sanctionable con- duct. In particular, we are persuaded by the failure of Spangenberg, an experienced attorney, to erect the ap- propriate “Chinese wall” to preclude access to confidential information, known by Anderson only based on his time spent as an attorney with Chrysler.

Disciplinary rule 3.3 arises:

Contrary to the argument by Orion and Spangenberg, rule 3.3(b) of the Michigan Rules of Professional Conduct did not require Anderson to “dissuade Butler from what [Anderson] perceived could be perjury.” See Orion Opening Br. 57. As set forth in the first sentence of the cited comment, and inferable from the text of rule 3.3(b) itself, that rule only “governs the conduct of a lawyer who is representing a client in a tribunal.” Anderson was not, however, representing Orion or Spangenberg in the Breach of Warranty Suit, and thus, had no obligation under the cited rule.


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