Philip Brooks' Patent Infringement Updates

Guidewire Launches "Accenture Behaving Badly"

In a follow-up to my December 20, 2007 post titled, "Accenture Files Patent Suit Against Guidewire," I was contacted this afternoon by a representative of Guidewire.  She said that Guidewire has launched a website titled, "Accenture Behaving Badly."

Some excerpts from this new site, which include the quote from John DelSanto, a partner at Accenture, cited in my original post:

Guidewire has never misappropriated Accenture's trade secrets and has not infringed Accenture's patent.

Guidewire believes both of these claims were filed in bad faith. Guidewire's February 6, 2008 filing makes clear that Accenture knew their claims were objectively meritless and asserted the claims anyway because of their inability to compete with Guidewire in the free market.

The trade secret claim does not specify what secrets were appropriated, how they were appropriated, how Guidewire used them, how Guidewire's product even resembles Accenture's product ... or any facts whatsoever, except Guidewire's "surprisingly quick development trajectory."

"Guidewire uses innovative software development techniques such as Agile and ‘test-first’ that enable complex solutions to be built faster and with higher quality than traditional development methods." - John Seybold, CTO and Co-founder, Guidewire

The Guidewire representative also indicated that there will be new activity on the legal case towards the end of this month.  See Accenture Behaving Badly.

Admissibility of Settlement Communications In Patent Infringement Rule 11 Proceedings

Michael D. Kurzer and Stacey J. Rappaport of Milbank, Tweed, Hadley & McCloy LLP wrote the above titled article in Law Journal Newsletters Patent Strategy & Management (Volume 7, Number 1 • June 2006).  The following is excerpted from their article:

Plaintiffs bringing patent infringement cases should ensure that they have made an adequate pre-filing inquiry as to the viability of their claims before initiating litigation. Without such an investigation, plaintiffs and their attorneys risk sanctions under Rule 11 of the Federal Rules of Civil Procedure. In the sanctions context, Rule 408 of the Federal Rules of Evidence does not protect settlement communications from admissibility. Statements made for settlement purposes may be admitted to determine whether a plaintiff conducted an adequate pre-litigation inquiry under Rule 11 into the viability of its claims.

Federal Rule of Civil Procedure 11

Rule 11(b) requires that when presenting to the court a pleading, written motion, or other paper, an attorney “is certifying that to the best of the person’s knowledge, information and belief, formed after an inquiry reasonable under the circumstances,” the pleading, written motion, or other paper is not being presented for any “improper purpose,” and the claims, defenses, and other legal contentions are “warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.”

Rule 11(c) gives the court discretion to impose sanctions against the “attorneys, law firms, or parties that have violated [Rule 11(b)] or are responsible for the violation.” The court has significant discretion in determining what sanctions, if any, should be imposed for a violation. Rule 11 sanctions for improperly filing patent infringement suits have included awards of costs and attorneys’ fees and outright dismissal of the infringement claims.

RESQNET V. LANSA: ADMISSIBILITY OF SETTLEMENT COMMUNICATIONS

In ResQNet.com Inc. v. Lansa, Inc., 382 F.Supp.2d 424, 457 (S.D.N.Y. 2005), the court sanctioned Res-QNet.com and its attorneys for filing an amended complaint asserting patent infringement after ResQNet’s attorney expressed in a settlement negotiation letter that two of the patents asserted in its complaint appeared not to be infringed.

In its initial complaint filed in April 2001, ResQNet alleged that Lansa was producing, offering for sale, and selling various products that infringed four patents held by ResQNet, including  U.S. Patent Nos. 5,812,127 and 5,831,608. Counsel for ResQNet sent a letter to Lansa’s counsel on Sept. 21, 2001, bearing the designation “for settlement only,” stating:

With respect to the ‘127 patent, it does not appear that the Lansa system would infringe any claim, either literally or under the doctrine of equivalents. Thus, presuming we discover no contrary evidence as the case moves forward [ResQNet] is prepared to remove this patent from the litigation ... With regard to the ‘608 patent, your detailed letter and the materials we have appear to show that the Lansa system does not infringe the claim in the ‘608 patent. Accordingly, unless we discover evidence to the contrary, ResQNet is also prepared at this point to remove the ‘608 patent from the litigation ...

Despite the statements in the Sept. 21 letter, ResQNet filed an amended complaint on Dec. 4, 2001, asserting infringement of the ‘127 and ‘608 patents, among others.

Prior to oral argument on Lansa’s partial summary judgment motion, Lansa filed a Rule 11(b) motion in September 2004 seeking sanctions on the ground that ResQNet had failed to conduct an adequate pre-filing investigation. Lansa argued that ResQNet violated Rule 11 by continuing to litigate certain of its claims, including its claims concerning the ‘608 and ‘127 patents, after it represented in the Sept. 21 letter that Lansa’s product did not appear to infringe either patent.

In response, ResQNet argued that the Sept. 21 letter was inadmissible under Rule 408. The court held, however, that Rule 408 permitted admission of the Sept. 21 letter for the purpose of determining compliance with the pre-filing requirements of Rule 11 because the letter was not being admitted to “prove liability for or invalidity of the claim or its amount.”

Read the full article here.

Rule 11 - Reasonable Prefiling Investigation

Esther Lim writes an article titled, "Reasonable prefiling investigation and the test for rule 11: the "I would have if I could have" test" in the July 1, 2006 issue of the IP Litigator.  The following is excerpted:

Armed with a patent and suspicion of infringement, a patentee must form a reasonable basis for bringing an infringement action. While appearing simple, Rule 11 of the Federal Rules of Civil Procedure imposes a threshold prefiling investigation that might not be so clear about what satisfies the requisite inquiry. Failure to make an adequate prefiling investigation can lead to a violation of Rule 11, and trial courts may grant sanctions, including expenses and attorney fees. A party facing sanctions risks suffering more harm than mere monetary penalties and losing the case; the hazards of angering judges and tarnishing reputation can persist well beyond the lawsuit. Therefore, a wise patent holder will be sure to meet or exceed the requirements for prefiling investigation.

Recent case law provides some guidance on how a patentee should conduct a proper prefiling investigation to satisfy Rule 11. While the Federal Circuit has not drawn bright-line rules for a reasonable prefiling inquiry, it has consistently required some infringement analysis by counsel, but it has explicitly not required claim charts, (1) chemical analyses, (2) or "perfect infringement evidence." (3) This article will discuss the applicable sections of Rule 11 and survey recent case law to clarify the requirements a patentee must meet before asserting patent rights in court.

Patentees can obtain some legal protection against a Rule 11 violation with a prelitigation opinion that analyzes the strengths and weaknesses of a patent before filing suit. A prelitigation opinion may fulfill the Rule 11 obligation to make a reasonable inquiry before filing a lawsuit alleging that the accused product falls within the claims of the patent. Even if the patentee ultimately loses the infringement case, reliance on a competent prelitigation opinion can be evidence that the patentee pursued or defended the suit in good faith based on reasonable factual and legal analyses.

Read a more complete summary of the article here as well as access a listing of local libraries in your area that have the full article available.

Accenture Files Patent Suit Against Guidewire

Anthony O'Donnell reporting yesterday, December 19, 2007, for Insurance & Technology writes:

Yesterday afternoon Accenture filed a lawsuit alleging that San Mateo-based Guidewire Software, a rival in the insurance claims software market, has infringed the U.S. patent protecting the Accenture Claim Components solution and has misappropriated trade secrets related to the design, coding and implementation of the Accenture software. In a preliminary response issued late last night, Guidewire denied the allegations and has followed up with further statements refuting the charges made by Accenture.

An Accenture statement referred to the company's belief that "Guidewire willfully and deliberately developed, manufactured, used and sold ... computer software and services used for insurance claims management that are covered by Accenture U.S. Patent 7,013, 284." Accenture also claims that Guidewire "willfully and maliciously obtained Accenture trade secrets without authorization" as part of an ongoing effort to compete against Accenture in the claims software market.

Accenture's allegations are based on what partner John Del Santo characterizes as good reason to believe that Guidewire had access to Accenture's confidential information. "We carefully compared our U.S. patent to the information available about the Guidewire system and concluded that they not only infringed the patent but that they must have gotten access to our trade secrets at a client somewhere," Del Santo says. "We believe that their product development trajectory was just too fast to result in the kind of product that they have, which looks fairly similar to ours. From our view that's too much of a coincidence, so there has to be a trade secret violation here, in our opinion."

Will this survive a Rule 11 challenge?

Intellectual property suits have been common in the software industry as a whole but not in the insurance software market, according to Light. "This lawsuit is a sign that there is a new front in the intellectual property wars: software that makes insurance companies better at executing their core functions," he comments.

From an industry perspective the Accenture/Guidewire suit is significant for several reasons, according to John MacPete, a patent litigator at Locke Lord Bissel & Liddell LLP (Atlanta). "First, I think it's a notice to the industry that they need to look at their software to determine whether they should have infringement concerns about the 284 patent or, frankly, any other patents that may be out there that are similar in nature to the 284," he comments. "Second, I think it's a notice to companies that either have licensed software or are in the process of licensing software in the insurance space to carefully examine or negotiate for broad non-infringement representations and indemnity language in their contract for third party infringement claims from their software providers."

Read the full article here.

Eon-Net CAFC Opinion

Eon-Net's President, Mitchell Medina, offered a comment yesterday on my October 11, 2006 post regarding Judge Marsah Pechman's Rule 11 sanctions motion in the Eon-Net, L.P. v. Flagstar Bancorp, Inc. case.  He indicated that the judge's ruling was overturned by the CAFC on appeal.  See also this related post.

Patent Hawk provides a post today, October 5, 2007, on the unanimous CAFC panel's ruling:

Judge Marsh Pechman in the Western District of Washington sanctioned Eon-Net for its swing at Flagstar and others for infringing 6,683,697. "The Court was shocked to learn" that Eon-Net had an enforcement campaign going, Pechman diddled. She then got hammered for her naiveté by the CAFC: Eon-Net deserves some respect.

Eon-Net v. Flagstar Bancorp (CAFC 07-1132)

District Court Judge Elaine Bucklo, writing for a unanimous CAFC panel, chided Pechman for ignoring facts in blithely slapping down Eon-Net.

In this circuit as in other circuits, a court may not sua sponte grant summary judgment on a particular ground without giving the non-moving party notice and an opportunity to present evidence and argument in opposition. Pandrol USA, LP v. Airboss Ry. Prods., Inc., 320 F.3d 1354, 1365 (Fed. Cir. 2003) (citing Fin. Control Sys. Pty, Ltd. v. OAM, Inc., 265 F.3d 1311, 1321 (Fed. Cir. 2001)); see also In re Rothery, 143 F.3d 546, 549 (9th Cir. 1998) (citing Fed. R. Civ. P. 56(c)).

Eon-Net also did not have an opportunity to raise evidence of infringement and claim construction in its motion to reconsider, as Flagstar argues it should have done; its motion to reconsider properly argued that the district court’s grant of summary judgment was without notice and appropriately requested an opportunity to present its arguments. The district court should have given Eon-Net an opportunity to fully present its arguments on these issues, even if the district court ultimately would have reached the same conclusion.

We agree that the district court erred in granting sanctions to Flagstar without allowing Eon-Net the opportunity to present arguments on claim construction.

See the post at The Patent Prospector for links.

Rule 11 Considerations in Filing Complaints and Counterclaims in Patent Cases

Gerald J. Flattmann, Jr. and Gregory A. Morris of Kirkland & Ellis LLP wrote in the March/April 2006 issue of the NYIPLA Bulletin:

A patent practitioner who ignores Rule 11 does so at his or her own peril. In one relatively recent case, the Federal Circuit affirmed sanctions of $97,000 against a patentee's counsel for violating Rule 11 by failing to conduct an adequate pre-filing investigation before asserting patent infringement counterclaims. The Court explained its decision in terms of its willingness to protect parties against the potentially monumental costs associated with having to respond to baseless claims:

A patent suit can be an expensive proposition. Defending against baseless claims of infringement subjects the alleged infringer to undue costs—precisely the scenario Rule 11 contemplates. Performing a pre-filing assessment of the basis of each infringement claim is, therefore, extremely important. In bringing a claim of infringement, the patent holder, if challenged, must be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim that it had a reasonable chance of proving infringement. Failure to do so should ordinarily result in the district court expressing its broad discretion in favor of Rule 11 sanctions, at least in the absence of a sound excuse or considerable mitigating circumstances.

In this paper, we discuss the most recent Federal Circuit cases addressing what constitutes an adequate pre-filing investigation under Rule 11. In addition, we discuss two decisions recently issued by the U.S. District Court for the Southern District of New York concerning Rule 11 sanctions in patent cases. We then distill from these cases the primary considerations that should be taken into account by reasonable practitioners who contemplate filing a claim or counterclaim in a patent matter. Finally, we discuss prefiling obligations under Rule 11 regarding potential invalidity defenses, and practical approaches to avoiding or minimizing the possibility of Rule 11 sanctions. 

Common principles emerge from a review of the Federal Circuit's decisions on Rule 11:

• An infringement analysis should be performed prior to asserting patent infringement claims or counterclaims.
• A pre-filing infringement analysis should be carried out independently by an attorney.
• As part of a pre-filing infringement analysis, an attorney should construe the asserted claims and then compare them with the accused product or process.
• When possible, an attempt should be made to obtain the accused product, so that it can be compared with the claims of the asserted patent prior to filing.
• In some instances, a valid excuse may exist for not comparing the claims of the asserted patent with the accused product prior to filing.
• In certain circumstances, an attorney may reasonably rely on the admissions of a defendant, in the form of product advertisements, labeling or brochures, as a part of his or her infringement analysis.

Read the full article here.

Rule 11 - Patent Troll Pixie Dust?

Matthew Buchanan writes at his Promote the Progress blog:

For those convinced that the so-called patent-trolls are here to stay and that an Act of Congress is required to make them go away, I encourage you to take a "hmmmm...that's interesting" look at Eon-Net v. Flagstar Bancorp.

In that case, the Federal Circuit recently refused to stay a sanctions judgment entered against a patentee and its counsel for various "troll-like" practices that occurred during the underlying patent litigation (which resulted in summary judgment of noninfringement). The district court entered a sanctions judgment against the attorney and his firm in the amount of $141,984.70 for failure to conduct an adequate prefiling investigation and for filing a baseless claim (F.R.C.P. 11).

While the Federal Circuit was only considering the stay and not the merits of the sanctions judgment (that will come later), the motions panel cleverly detailed various findings made by the district court regarding the troll-like practices of the patentee while it omitted any significant discussion of the movant's arguments in favor of the stay. The non-precedential order reads like an instruction booklet for patent troll litigation strategies.

One anonymous reader responded:

"The true trolls, if there are such beasts, might just find themselves without representation."

This might be the dumbest statement I've ever heard. Sorry to be so harsh, and I love your blog (as well as the FedCirc.us site!), but don't believe for a second that this decision will have a significant impact on the so-called patent troll problem (assuming one exists).

See the full post and all comments here.

Patent Trolls Put on Notice Over Generic Infringement Letters

Xenia Kobylarz provides an update at Law.com to my previous post on the Eon-Net patent infringement suit against Flagstar Bancorp.

This summer, Melissa Baily convinced a judge to toss a patent case filed against her client, Flagstar Bancorp. It was Baily's first victory as lead counsel in a patent case, but that's only part of the story. The summary judgment ruling obtained by Baily, a sixth-year associate at Quinn Emanuel Urquhart Oliver & Hedges in San Francisco, did more than just strike a severe blow to Eon-Net, a notorious patent-holding company. The ruling also puts so-called patent trolls on notice: Sending out generic infringement letters may be a tactic on its way out.

Based in the British Virgin Islands, Eon-Net is run by an evangelical minister-cum-inventor, who holds several patents (including one on a device for collecting "canine waste"). In March 2005 the company filed a patent suit in New Jersey against Flagstar, a $16 billion savings bank based in Michigan. The bank was one of 32 companies sued separately by Eon-Net for infringing a patent that, the company claims, covers technology that allows online shoppers to enter information into Web sites and have it transferred to the Web retailer's computer. Eon-Net, which also has pending litigation against JetBlue Airways and Liz Claiborne Inc., had successfully extracted settlement money from ING Bank and Sony Corp. over the same patent.

Eon-Net's enforcement method involved filing a complaint followed by a letter offering a settlement ranging from $25,000 to $75,000. But Flagstar, which has never been sued before for patent infringement, refused to settle. "We are a bank, and we face a lot of potential litigation, and we know we are not infallible. But when we are faced with a completely frivolous litigation, our philosophy is to fight," says Flagstar's chief legal officer, Matthew Roslin.

While investigating the case, she found that Eon-Net's attorney, Jean-Marc Zimmerman, a partner at Zimmerman, Levi & Korsinsky, had used nearly identical complaints and demand letters in all 32 suits. "It was obvious that the attorney didn't do a factual investigation before filing the complaint," Baily says. "He claimed the patent covers the processing of information, but he never bothered to find out what Flagstar actually does to process customer information and he failed to identify the infringing product."

Baily decided to ask Western District of Washington Judge Marsha Pechman to sanction Eon-Net under Federal Rule of Civil Procedure 11, which prohibits the filing of claims that are "frivolous." Such sanctions are rarely granted under 9th Circuit law, which does not consider a claim to be frivolous unless it is both baseless and made without a reasonable inquiry. Baily had to show that Eon-Net's complaints were frivolous and baseless. And to prove that prior to discovery was not easy.

In August, Pechman dismissed the case on summary judgment, saying that Eon-Net failed to present enough evidence of patent infringement against Flagstar. Then, in October, Pechman granted Flagstar's motion for Rule 11 and ordered Zimmerman and his firm to pay Flagstar's legal fees, which, according to Baily, were more than $100,000. Pechman also required Eon-Net to notify all the other defendants it has accused of infringing its patent of her ruling. So far, of the 32 patent cases Eon-Net has filed, 24 have settled and eight are still pending.

Read the full article here.

Eon-Net Fails to Jump Rule 11 Hurdle

Peter Zura posts at his two-seventy-one patent blog a detailed discussion of the Rule 11 sanctions motion in the Eon-Net, L.P. v. Flagstar Bancorp, Inc. case.  Flagstar was one of numerous defendants that Eon-Net accused of infringing U.S. Patent No. 6,683,697 (the "'697 Patent").  Mr. Zura provides a link to the Patent Hawk's equally detailed discussion of the motion.

The court considered a motion for sanctions pursuant to Fed. R. Civ. P. 11 by defendant Flagstar alleging that Eon-Net's litigation conduct violated the duty to (1) apply the claims of the asserted patent to the accused device, and (2) satisfactorily establish that a proper construction of the claims permits an argument that each element of the claims appears in the accused device(s).

Eon-Net sent out "fill-in-the-blank" demand letters to Flagstar and at least 24 other defendants alleging infringement, along with an offer for an "inexpensive settlement." Eon-Net's complaint and claim chart were virtually identical to its other complaints in other cases. Also, the claim charts were so broad that the court reasoned that they could be sent to any web-based business. And since no meaningful analysis was reflected in the claim charts, the court deemed them "essentially worthless." Nothing in the Eon-Net's complaint or claim charts identified infringement contentions or accused products.

After concluding that Eon-Net's allegations are "completely devoid of merit," the court awarded Flagstar attorney fees and costs. And to add insult to injury, the court also took the unusual step of ordering Eon-Net to forward a copy of the ruling to every defendant charged with infringing the '697 patent.

Take a look at both posts to learn more.

Before You File -- Obtain The Product

Darryl M. Woo of Fenwick & West LLP examines Rule 11 in the context of filing a patent infringement suit for Practising Law Institute's All-Star Briefing.  He writes:

Filing a patent infringement suit requires more than simply reviewing your patent portfolio and taking educated guesses about the accused product or service. Under Rule 11 in the context of patent infringement actions, an attorney must conclude that there is a reasonable basis for a finding of infringement of at least one claim of each patent asserted prior to filing the infringement claim. View Eng'g, Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 986 (Fed. Cir. 2000). At a minimum, this requires an attorney (a) to interpret the asserted patent claims; and (b) to compare the accused device(s) or method(s) with those claims before filing a claim alleging infringement. Q-Pharma, Inc. v. The Andrew Jergens Co., 360 F.3d 1295, 1300-01 (Fed. Cir. 2004). While the attorney may consult with the client, she must perform an independent claim analysis and not simply give blind deference to her client. Antonious v. Spalding & Evenflo Companies, Inc., 275 F.3d 1066, 1072 (Fed. Cir. 2002); see also Judin v. United States, 110 F.3d 780, 784 (Fed. Cir. 1997) ("Attorney acted unreasonably in giving blind deference to his client and assuming his client had knowledge not disclosed to the attorney.")

The Second part of the "reasonable inquiry" test focuses on whether the attorney conducted an adequate factual investigation of the accused products before filing the infringement claims. The View Engineering court imposed Rule 11 sanctions where a patentee relied solely on advertisements and statements made by the alleged infringer to its customers, but failed to directly review the product. See 280 F.3d at 986. In Network Caching, a district court held that looking at indirect sources of information (such as marketing materials, white papers, and other product documentation) fails to satisfy the pre-filing investigation requirements described by View Engineering. 2003 U.S. Dist. LEXIS 9881 at *19. The court acknowledged that such materials had some level of technical discussion, but read View Engineering and Judin as requiring a direct examination of the accused products before filing suit. Id. *20. (The court noted that the patentee's "failure to examine the accused products is both preposterous and unjustified.)

Nevertheless, patentees are well advised to obtain, or at least attempt to obtain, a sample of the accused device before filing an infringement suit. In the earlier Judin case, the court vacated the district court's denial of sanctions where the patentee and his attorney merely "observed from a distance the accused device in use," when they could have purchased the device for a minuscule price compared to the cost of litigation. Judin, 110 F.3d at 782; see also Q-Pharma, 360 F.3d at 1302 (court mentioned that Q-Pharma had acquired a sample of the lotion_; cf Hoffman La-Roche, Inc. v. Invamed, Inc., 213 F.3d 1359 (Fed. Cir. 2000)(pre-filing investigation reasonable where patentee inquired about an accused method of manufacturing a product, where the patentee had not other way of learning whether method infringed. (The [Judin] court noted, "Th[e] explanation for not obtaining, or attempting to obtain, a sample of the accused devices...was described by the [district] court as 'lame'." 110 F.3d at 783)

Read the full briefing here.