Wordtech Systems Inc v. Integrated Network, et al

Filing 448

ORDER signed by Judge Morrison C. England, Jr. on 8/6/2012 SETTING this case for a new trial on the issues of the individual Defendants' liability and damages; DIRECTING the parties to file a Joint Pretrial Statement within 30 days. A new Final Pretrial Order setting this matter for trial will issue thereafter. (Michel, G)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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WORDTECH SYSTEMS, INC.,

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Plaintiff,

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v.

No.

2:04-cv-01971-MCE-EFB

ORDER

INTEGRATED NETWORK SOLUTIONS,
INC., et al.,

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Defendants.
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Plaintiff Wordtech Systems, Inc. (“Wordtech”), filed this

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patent infringement action on September 22, 2004.

A jury in this

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Court found Defendants Integrated Network Solutions, Inc.

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(“INSC”), Nasser Khatemi and Hamid Assadian (collectively,

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“Defendants”) each liable to Wordtech for direct infringement,

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contributory infringement and inducement of infringement

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involving technology for automated duplication of compact discs.

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Defendants filed a post-trial motion for new trial, which was

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denied.

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the liability verdicts against them, and all Defendants appealed

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the jury’s verdict as to damages.
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As is relevant here, the individual Defendants appealed

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The Federal Circuit reversed the denial of Defendants’ new trial

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motion and remanded to this Court.

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supplemental briefing filed by both Wordtech and individual

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Defendants, who are now proceeding pro se, regarding those issues

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to be tried on remand.

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had on the issues of whether: 1) the individual Defendants are

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liable for contributory infringement; 2) the individual

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Defendants are liable for inducement of infringement; and

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3) damages.

Presently before the Court is

For the following reasons, trial will be

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BACKGROUND1

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In its operative First Amended Complaint (“FAC”), Wordtech

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alleges that Defendants infringed three of its patents, which

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cover “Programmable Self-Operating Compact Disk Duplication

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Systems,” by modifying and selling “Robocopiers.”

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are disc duplication devices that copy video files from computers

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to multiple discs.

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Assadian, among others, directly and contributorily infringed

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Wordtech’s patents and induced third parties to do the same.

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Robocopiers

According to Wordtech, INSC, Khatemi and

At trial, Wordtech attempted to elicit testimony going to

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the validity of INSC as a corporation and to the issue of

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piercing the corporate veil.

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evidence as irrelevant, and the evidence was eventually excluded

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on the basis that Wordtech’s arguments were not encompassed

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within the Court’s Final Pretrial Order (“FPTO”).

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Defendants objected to that

The following facts are taken primarily from Wordtech
Systems, Inc. v. INSC, 609 F.3d 1308 (Fed. Cir. 2010).
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In addition, prior to closing arguments, Plaintiff moved to

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amend its FAC to address “the identity of the corporation,” and

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that motion was denied.

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entity-related theories in their closing arguments, but the jury

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was not instructed on these issues.

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Finally, Defendants addressed Wordtech’s

At the close of the trial, the jury found Defendants liable

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on all infringement theories.

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of each patent was willful and awarded Wordtech a total of

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$250,000 in damages.

The jury determined infringement

This Court subsequently found the case

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“exceptional” under 35 U.S.C. § 285, trebled damages, and awarded

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Wordtech attorneys' fees, interest and costs.

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thereafter filed motions for judgment as a matter of law under

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Rule 50 of the Federal Rules of Civil Procedure2 and a motion for

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new trial under Rule 59(a), all of which were denied.

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Defendants

On appeal, the individual Defendants challenged the

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liability verdicts against them individually, and all Defendants

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challenged the jury’s damages award.

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this Court to determine whether a new trial is warranted, stating

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as follows:

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[W]e reverse the denial of [Defendants’] Rule 59(a)
motion..., and remand for consideration of whether a
new trial is warranted on their individual liability
for direct infringement, inducement, and contributory
infringement. On remand, the district court should
address the issues of piercing INSC’s corporate veil
and INSC’s corporate status, whether Wordtech preserved
these arguments for trial, the law governing these
issues and whatever jury instructions might be
necessary.

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That court remanded for

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All further references to “Rule” or “Rules” are to the
Federal Rules of Civil Procedure unless otherwise noted.
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Wordtech, 609 F.3d at 1317-18.

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concerns as to whether a new trial should properly encompass

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Wordtech’s inducement theory given that, though the verdict form

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made clear the parties intended the litigate the claim, the word

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“inducement” does not appear in the FPTO and the theory was not

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specifically argued by either side at trial nor was it included

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among the jury instructions.

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The circuit court also raised

On remand, this Court ordered supplemental briefing as to
which of the issues identified by the Federal Circuit should be

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re-litigated.

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reviewed the parties’ arguments, the record in this case, and the

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applicable law, the Court now holds that a new trial is required

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on the individual Defendants’ liability for contributory

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infringement and inducement and on damages.

That supplemental briefing is complete.

Having

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ANALYSIS

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A. Direct Infringement.

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Pursuant to 35 U.S.C. § 271(a), “whoever without authority

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makes, uses, offers to sell, or sells any patented invention,

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within the United States or imports into the United States any

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patented invention during the term of the patent therefor,

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infringes the patent.”

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officer of a corporation is personally liable for the

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corporation’s acts of infringement.”

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Intern., Inc., 174 F.3d 1308, 1331 (Fed. Cir. 1999).

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“Title 35 authorizes a finding that an

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Al-Site Corp. v. VSI

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“Personal liability under § 271(a), however, requires sufficient

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evidence to justify piercing the corporate veil.”

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to maintain a claim for direct infringement against corporate

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officers for a corporation’s infringement, Plaintiff must

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therefore plead and prove, for example, that the corporate entity

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is a sham or that the corporate veil should be pierced to impose

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liability on the individual Defendants.

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Inc. v. Proclarity Corp., 2006 WL 2038255, *3-4, n.1 (W.D. Wash.)

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(dismissing direct infringement claims for failure to plead

Id.

In order

See, e.g., Timeline,

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grounds to justify piercing the corporate veil) (citing P.N.A.

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Constr. Techs., Inc. v. McTech Group, Inc., 2006 WL 738721, *2

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n.2 (N.D. Ga.); St. Paul Furniture Mfg. Co. v. Bergman,

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935 F. Supp. 1180, 1186 n.6 (D. Kan. 1996)).

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The issue of whether the individual Defendants can be held

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liable under § 271(a) was not preserved for trial in this case

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because not only did Plaintiff not plead that INSC is a sham

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entity or that its corporate veil should be pierced for any

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reason, but that issue was also not included in the Court’s Final

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Pretrial Order (“FPTO”) as a disputed question.

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22); ECF No. 157 (FPTO), 3:5-4:7.

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that:

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See FAC (ECF No.

The Ninth Circuit has stated

Pretrial orders play a crucial role in implementing the
purposes of the Federal Rules of Civil Procedure “to
secure the just, speedy, and inexpensive determination
of every action.” Fed. R. Civ. P. 1. Unless pretrial
orders are honored and enforced, the objectives of the
pretrial conference to simplify issues and avoid
unnecessary proof by obtaining admissions of fact will
be jeopardized if not entirely nullified. Accordingly,
a party need offer no proof at trial as to matters
agreed to in the order, nor may a party offer evidence
or advance theories at the trial which are not included
in the order or which contradict its terms.
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United States v. First Nat. Bank of Circle, 652 F.2d 882,

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886 (9th Cir. 1981).

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the parties during the course of Plaintiff’s case-in-chief

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that issues not included within the FPTO would not be

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litigated.

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(November 10, 2008).

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FPTO can only be amended “to prevent manifest injustice.”

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Id. (referring to Fed. R. Civ. P. 16(e)).

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finding manifest injustice was presented during trial to

Indeed, the Court in this case advised

See Trial Transcript (ECF No. 260), 30:24-37:14
The Court further pointed out that the

No basis for

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justify modifying the FPTO to include issues pertaining to

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corporate validity, nor is any plausible argument presented

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now.

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its right to attempt to pierce the corporate veil or, as a

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consequence, to hold the individual Defendants’ liable for

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direct infringement.

Accordingly, the Court now finds that Plaintiff waived

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The Court is cognizant that Plaintiff in this case believes

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the FPTO was amended by consent of the parties to conform to the

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proof offered at trial.

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presentation of evidence going to corporate invalidity, Trial

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Transcript (ECF No. 258), 141:11-24 (November 4, 2008), and, as

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stated above, the Court clarified that issues not included in the

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FPTO would not be litigated, Trial Transcript (ECF No. 260),

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30:24-37:14 (November 10, 2008).

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ruling, the jury was not instructed on the corporate issues.

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Defendants, however, objected to the

In keeping with the Court’s

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In sum, then, Defendants did not litigate by consent the issues

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of whether INSC was a sham entity or whether the corporate veil

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should be pierced.3

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a consequence, will the issue of the individual Defendants’

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liability for direct infringement.

These issues will not be tried now, nor, as

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B. Contributory Infringement.

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According to the Federal Circuit, this Court’s “legal error

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in presenting the contributory infringement issue to the jury

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requires a new trial.”

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the Court now finds that the issue of the individual Defendants’

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personal liability for contributory infringement must be re-

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tried.

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Wordtech, 609 F.3d at 1317.

Accordingly,

The Court is also aware that Plaintiff takes issue with
the Court’s statement that the individual Defendants were still
“on the line” despite the failure to include corporate validity
issues as triable questions within the FPTO. Trial Transcript
(ECF No. 60), 35:23-36:2 (November 10, 2008). The Court’s
statement, however, is entirely consistent with its rejection of
Plaintiff’s attempt to bring in the corporate issues at trial
because the individual Defendants were still individually “on the
line” for contributory infringement and for inducement without
regard to the validity of the corporate structure. See, e.g.,
Wordtech, 609 F.3d at 1316-17.
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C. Inducement of Infringement.

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Primarily based on the Federal Circuit’s finding that

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“Wordtech’s counsel confirmed [that] inducement was not raised in

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the Final Pretrial Order, in the jury instructions, or in the

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closing arguments,” the appellate court remanded to this Court to

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determine whether a new trial should be had on the issue.

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1316.

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not entirely accurate.

Id. at

The appellate court’s assessment of the facts, however, is

First, Wordtech’s counsel did confirm that the word

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“inducement” did not appear in the FPTO.

Oral Arg. 27:42-28:16,

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available at http://oralarguments.cafc.uscourts.gov/mp3/2009–

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1454.mp3.

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the word “inducement,” this theory of liability was nonetheless

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included within that Order.

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liberally construed to permit any issues at trial that are

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embraced within its language.”

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758 F.2d 364 (9th Cir. 1985) (internal quotations and citations

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omitted).

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within the FPTO were taken verbatim from the parties’ Joint

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Pretrial Statement (ECF No. 154), which refers to all Defendants

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collectively as “INSC,” and states that the parties will litigate

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whether “INSC has directly and contributorily infringed on the

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Patents-In-Suit under 35 U.S.C. §271(a), (b), (c) and/or (f).”

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Section 271(b) is the statutory section addressing inducement.

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Accordingly, the individual Defendants’ liability for inducement

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was included within the FPTO.

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The Court finds, however, that, despite omission of

“A pretrial order…should be

Miller v. Safeco Title Ins. Co.,

In this case, the disputed factual issues incorporated

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Moreover, it was only through an apparent oversight that the

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jury did not receive a specific instruction on inducement.

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Wordtech Supplemental Brief (ECF No. 440), 8:2-3.

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the Court did instruct the jury that “Wordtech…argues that INSC,

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Nasser Khatemi, and Hamid Assadian have contributed to and/or

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actively induced the infringement of [the Patents],” and that

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theory was included on the verdict form provided to the jury.

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Trial Transcript (ECF No. 261), 97:8-11 (November 12, 2008).

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Accordingly, the Court finds that the issue of inducement should

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Regardless,

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be re-litigated and a new trial on that theory should thus be

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had.

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CONCLUSION

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For the reasons stated above, this case will be set for a

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new trial on the issues of the individual Defendants’ liability

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for contributory infringement and for inducement of infringement,

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as well as on damages.

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the date this Memorandum and Order is electronically filed, the

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parties are directed to file a Joint Pretrial Statement.

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FPTO setting this matter for trial will issue thereafter.

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Not later than thirty (30) days following

IT IS SO ORDERED.
Dated:

August 6, 2012
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MORRISON C. ENGLAND, JR
UNITED STATES DISTRICT JUDGE

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A new

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