Philip Brooks' Patent Infringement Updates

Civil Procedure: Pre-Suit Filing Requirements

In a comment posted by Robert Matthews, Jr. of Latimer, Mayberry & Mathews IP Law, LP at LegalOnramp.com in response to a February 23, 2009 post by Eric Johnson at his Seattle Litigation Journal:

Via Rule 11 of the Federal Rules of Civil Procedure all actions brought in federal court have a pre-filing investigation requirement. Rule 11 demands that before any claim is asserted, the party asserting the claim must have performed an "inquiry reasonable under the circumstances" as to the legal and factual merits of the claim. Fed. R. Civ. P. 11(b). The Supreme Court has instructed that Rule 11 "imposes on any party who signs a pleading, motion, or other paper – whether the party's signature is required by the Rule or is provided voluntarily – an affirmative duty to conduct a reasonable inquiry into the facts and the law before filing, and that the applicable standard is one of reasonableness under the circumstances." Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533, 551 (1991) (interpreting Rule 11 pre-1993 amendments).

In patent litigation, the requirement is vigorously enforced (I don't know about other areas of the law). Thus, before filing a patent infringement lawsuit, counsel for the patent holder must conduct an investigation into the merits of the claim of infringement. Such an investigation should include an independent examination by counsel of the accused product, an analysis of the patent claims, including a claim construction analysis that accounts for the prosecution history, and a comparison of the construed claims to the accused product. The Federal Circuit has stated "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." View Engineering, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir. 2000) (affirming Rule 11 sanctions in the amount of attorney’s fees totally almost $100,000 imposed against patent counsel for filing infringement counterclaim on eight patents without having seen the accused product or conducting a independent formal or informal claim construction and infringement analysis for each asserted patent claim but basing the infringement claims on the accused infringer's advertising and the knowledge of an employee of the patentee as to the patents).

Read the original post and Mr. Matthews full comment here.

Judge Issues Rule 11 Sanctions on Camera Infringement Claim

Walter Olson wrote on December 9, 2008 at his Overlawyered blog:

“Frequent patent defendants say they’re hit by frivolous lawsuits all the time. But it’s very rare for a judge to find a patent lawsuit to be frivolous enough to grant sanctions and attorney’s fees.” Last week, however, a judge in Peoria issued Rule 11 sanctions against a company called Triune Star which held a patent on a certain type of GPS-using camera. The patent examiner had taken care to limit the patent to infrared cameras to overcome an obviousness objection, but the plaintiff’s lawyers — Keith Rockey and Kathleen Lyons of Chicago-based Rockey, Depke & Lyons — then proceeded to sue three big companies that had sold conventional cameras. A judge awarded the defendants reasonable costs and attorney’s fees, something defense lawyer Brian Rupp says has happened only a few times in the last decade.

See the post and links here.

District Court Denies Early Motion For Rule 11 Sanctions in Ritalin LA Case

Aaron F. Barkoff writes in an August 3, 2008 post at his Orange Book Blog:

Earlier this year, KV filed a motion for sanctions under Rule 11 on grounds that Celgene and Novartis "failed to make a reasonable inquiry into their infringement claims before filing suit."  KV sought dismissal of the suit, plus costs and attorney fees.  KV's motion relied on Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004), which states, "In the context of patent infringement actions, we have interpreted Rule 11 to require, at a minimum, that an attorney interpret the asserted patent claims and compare the accused device with those claims before filing a claim alleging infringement."

On July 22nd, the district court denied KV's motion with prejudice. 

Read the full post here.

Fee-Shifting Under Rule 11 and 35 USC § 285

I just received my print issue of the Summer 2008 edition of the IPL Newsletter, a publication of the ABA Section of Intellectual Property Law. This issue is not yet available online, but ultimately will be available here.

The above titled article by C. Erik Hawes and James L. Beebe of Morgan, Lewis & Bockius LLP states, in part:

Patent litigation can be an expensive proposition -- as any litigant or in-house IP lawyer can attest. Depending on the amount in dispute and the particular venue, the total cost for litigating a patent infringement suit can run as high as $10 million. With the median damage award in patent cases at nearly $4 million, an award of attorney fees can have a significant impact in the total amount a successful plaintiff is able to recover. Alternatively, an award of attorney fees to prevailing defendant can compensate for years of time and effort -- and money -- spent defending against unfounded infringement allegations.

...a Rule 11 violation also can serve to justify finding a case exceptional under § 285. Because of the burden-shifting mechanism pointed out by the Federal Circuit in Digeo v. Audible, situations where counsel would move for attorney fees under § 285 should, under the right circumstances, also include a request for sanctions under Rule 11 fees.

The authors provide two cases to illustrate this point.

Clearly, Rule 11 and § 285 are not coextensive. Several recent decisions demonstrate that when filing a motion for attorney fees, patent litigators would be well advised to consider filing the request under Rule 11 (and possibly other provisions such as 28 U.S.C § 1927), in addition to invoking § 285.

Rule 11 Issues in Patent Infringement Filings

Lawrence Ebert of IPBiz blog wrote on June 6, 2008:

GERALD N. PELLEGRINI, appearing pro se against Analog Devices (represented by Wilmer Cutler Pickering Hale and Dorr LLP) took a beating in a case decided by the CAFC on 5 June 08.  The case brings up the issue of Rule 11 in filing assertions of patent infringement.

Read the full post here.

Pre-Filing Investigation of Patent Infringement When Reviewing a Motion for Attorney Fees

An April 1, 2008 post by Lawrence M. Sung, Ph.D., Partner, Dewey & LeBoeuf LLP and Professor & Intellectual Property Law Program Director, University of Maryland School of Law titled, "How the Federal Circuit Looks at a Pre-Filing Investigation of Patent Infringement When Reviewing a Motion for Attorney Fees under 35 U.S.C. 285" appears at LexisNexis' Patent Law Center.

The adequacy of a patentee plaintiff’s pre-infringement suit investigation follows one path in the normal case, but quite a different path when a motion for attorney fees under 35 U.S.C. § 285 is in play. This commentary, written by Lawrence M. Sung, Ph.D., addresses the potential unintended consequences of seeking redress for an inadequate pre-filing investigation solely under the rubric of a motion for attorney fees under 35 U.S.C. § 285. Dr. Sung writes:

Federal Rule of Civil Procedure, Rule 11 … provides for sanctions for a failure to conduct a reasonable inquiry into the legal and factual bases of claims. … Another procedural path to seek redress for a [patent infringement] plaintiff’s deficient pre-filing investigation is through a motion under 35 U.S.C. § 285, which grants the district court discretion to award reasonable attorney fees to the prevailing party in exceptional cases. A case may be deemed exceptional when there has been some material inappropriate conduct related to the matter in litigation. This includes conduct that violates Fed. R. Civ. P. 11, but also includes willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, and vexatious or unjustified litigation. A key difference between motions under Fed. R. Civ. P. 11 and § 285 is that Fed. R. Civ. P. 11 motions must comply with the Rule’s safe harbor provision, but § 285 motions need not.

On appeal, the Federal Circuit reminded that the determination of whether a case is exceptional and, thus, eligible for and warranting an award of attorney fees under § 285 is a two-step process in which the district court must (1) determine whether there is clear and convincing evidence that a case is exceptional, a factual determination reviewed for clear error, and (2) if so, then determine in its discretion whether an award of attorney fees is justified, a determination that the Federal Circuit reviews for an abuse of discretion. If there is clear and convincing evidence that a plaintiff has brought a baseless or frivolous suit against an accused infringer, that is a sufficient basis to require a district court to deem the case exceptional under § 285.

Excerpts of the post are available here, but access to the full article requires a subscription.

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.