WIAV Networks, LLC v. 3Com Corporation et al

Filing 624

ORDER GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED COMPLAINT AND GRANTING DEFENDANT'S MOTION FOR LEAVE TO FILE AMENDED ANSWER by Judge Alsup granting 600 Motion for Leave to File; granting 601 Motion for Leave to File (whalc1, COURT STAFF) (Filed on 12/17/2010)

WIAV Networks, LLC v. 3Com Corporation et al

Doc. 624

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 INTRODUCTION In this patent infringement action, plaintiff moves for leave to amend its first amended complaint, and defendant moves for leave to amend its answer. For the reasons stated below, plaintiff's motion is GRANTED and defendant's motion is also GRANTED. STATEMENT Plaintiff WiAV Networks, LLC owns two patents related to wireless technology. The name "WiAV" is a condensed form of "wireless audio-visual." Defendant HewlettPackard Co. is a maker and vendor of wireless devices. In its complaint, WiAV asserted that HP devices infringed its patents in suit. v. HEWLETT-PACKARD CO., Defendant. / WiAV NETWORKS, LLC, Plaintiff, No. C 10-03448 WHA ORDER GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED COMPLAINT AND GRANTING DEFENDANT'S MOTION FOR LEAVE TO FILE AMENDED ANSWER FOR THE NORTHERN DISTRICT OF CALIFORNIA IN THE UNITED STATES DISTRICT COURT

Dockets.Justia.com

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This action originally was filed in the United States District Court for the Eastern District of Texas and was eventually transferred here. The original complaint named sixty-eight defendants, running the gamut from Acer to ZTE (see Dkt. 1). Because these defendants were largely unrelated companies with unrelated products, and there was no allegation that the defendants had acted in concert, plaintiff was ordered to show cause why all but one defendant should not be dismissed for misjoinder under Rule 21 (see Dkt. 486). Perhaps as a Hail Mary pass, plaintiff offered to dismiss all but twelve companies that it deemed the "Laptop Defendants." HP was one such company. Though all the laptop defendants made accused devices compliant with the IEEE 802.11 wireless protocol, they were found not to be logically connected to one another (see Dkt. 583). Thus, all defendants were dismissed save HP. Against this backdrop, plaintiff now seeks to amend its complaint to (1) include specific allegations concerning induced and contributory infringement involving HP's end-users and distributors; (2) omit references to the dismissed defendants; and (3) "add a few additional exemplars" of accused HP products. The proposed amendment does not add additional patents. HP objects to the third aspect only, on the general ground that HP is supposed to be a laptop defendant, but the additional exemplars are not laptops. Specifically, HP opposes the proposed amendment because it would expand the scope of the suit to include printers, routers, handheld devices, and desktop computers. The proposed amendment features several changes. With respect to the '338 patent, "printer devices such as the Officejet Pro 8500 Wireless and Laserjet 9040 series, and handheld devices such as wireless IPAQ series" are added as exemplars. With respect to the '497 patent, "printer devices such as the Officejet Pro 8500 Wireless and Laserjet 9040 series, and wireless router devices such as the HP V110 wireless N router and the HP V-M200 802.11n Access Point" are added as exemplars. Defendant considers these exemplars just the tip of the iceberg, since WiAV's disclosure of patent infringement contentions accused 218 products, including a 2

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substantial number of desktop computers, printers, handhelds, and routers. HP contends that this expansion would be unduly prejudicial. HP also opposes on the ground that WiAV negotiated in bad faith and tried to trick HP into giving its assent to this amendment, the true nature of which was revealed only at the last minute. Defendant moves to amend its answer to include the defense of inequitable conduct. Plaintiff opposes this motion on the grounds that intent has been inadequately pled, and it is too late and too prejudicial to only now assert this defense. ANALYSIS At the outset, an observation about what plaintiff's motion for leave to amend its complaint is really about. Plaintiff could accuse these new products without seeking leave simply by filing a new lawsuit. Unspoken here is the effect of the statute of limitations. The proposed amendment relates back to allegations in the original complaint filed in Texas in July 2009. In contrast, a fresh lawsuit would deny plaintiff the possibility of collecting eighteen months of damages. With this in mind, we turn to the applicable legal standard. Rule 15(a) governs the instant motion. Leave to amend should be freely given "when justice so requires." This policy favoring amendment emphasizes the importance of giving a plaintiff his day in court; when a plaintiff relies on facts or circumstances that are a proper subject of relief, a plaintiff "ought to be afforded an opportunity to test his claim on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). In the Ninth Circuit, district judges commonly consider the following factors: (1) futility of amendment; (2) prejudice to the opposing party; (3) undue delay; and (4) bad faith. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). 1. FUTILITY

The first factor is whether the proposed amendment would be futile. Defendant contends that, with respect to HP, this case has always been about laptops and nothing but laptops. To defendant, this contention is a premise that helps establish prejudice and bad faith because it makes the expansion to desktops, routers, printers, and handhelds seem 3

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deliberately sudden and calculated to surprise. But this contention might also possibly render the amendment futile if plaintiff's prior representations now preclude it from litigating anything other than laptops. It is undisputed that the original complaint and the first amended complaint gave specific examples of only one accused category of devices -- laptops. But the parties disagree as to the specificity with which a complaint must identify the products accused of infringing the patents in suit. In defendant's view, the complaint and the first amended complaint accused only HP's portable computer devices, and it would be unfair to dramatically expand the scope of this action now. "[A] patentee need only plead facts sufficient to place the alleged infringer on notice as to what he must defend." McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1357 (Fed. Cir. 2007). As a general proposition, Twombly does not require such a list [a comprehensive list of all devices that are alleged to infringe patents]; it simply requires facts sufficient to "raise the right to relief beyond the speculative level." At this early stage of the proceedings [a motion to dismiss], it is not necessary for [plaintiff] to identify each and every infringing device. In re Papst Licensing GMBH & Co. KG Litigation, 631 F.Supp. 2d 42, 45 (D.D.C. 2009). In view of these guidelines, the instant action has not been strictly limited, with respect to HP, to laptops ever since the original complaint. That complaint asserted, generally: Each Defendant has used and continues to use the technology claimed by the '497 Patent and '338 Patent in systems and methods that the Defendants make, use, sell, and offer for sale, without Plaintiff's permission. (See Dkt. 1, Compl. ¶ 2). And, specifically: Without a license or permission from Plaintiff, the HP Defendants infringed the [named] Patent[s] by importing, making, using, offering to sell, and/or selling products and devices which embody the patented invention, including portable computer devices, such as the Pavillion, HDX, TouchSmart, EliteBook, ProBook, Compaq, Compaq Presario, and Mini series of laptops, notebook PCs, and tablet PCs (e.g. [various models]).

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(See Dkt. 1, Compl. ¶¶ 60, 98) (emphasis supplied). These allegations made clear that the examples given were non-exclusive examples of one category of accused device. This language persisted into the first amended complaint (see Dkt. 107, First Amd. Compl. ¶¶ 2, 58, 94). Defendant tries to distinguish Papst by noting that while the complaint there made vague allegations of infringement by "digital cameras," it listed specific models of such cameras elsewhere in the complaint. While this is true, the point was that a complaint, even if not artfully drafted, "must be read as a whole." Papst, 631 F.Supp. 2d at 46. Read as a whole, WiAV's complaint and first amended complaint provided notice to HP that products other than laptops fell within the scope of the claims of the patents in suit. For instance, WiAV accused printers made by Canon, routers made by Cisco, and handhelds made by Palm. Of course, this cuts both ways, as HP might have fairly assumed that because nonlaptop devices made by other companies were accused, and HP's nonlaptop devices were not, HP was off the hook. The first real hint that the claims might zero in on HP's laptops to the exclusion of all other devices came in plaintiff's response to the order to show cause why misjoinder should not be declared. In that response, perhaps recognizing the weakness in its position, plaintiff proposed to voluntarily dismiss all but what it deemed the laptop defendants. Plaintiff thus designated HP as a laptop defendant for the limited purpose of avoiding a total defeat on the improper joinder issue. This designation did not bind plaintiff to litigating nothing but laptops once HP became the sole defendant and WiAV's need to maintain a logical connection between multiple defendants vanished. Nothing in plaintiff's prior positions with regard to HP and laptops has precluded it from accusing nonlaptop devices now; thus, the proposed amendment is not futile. This factor favors the amendment. Nevertheless, plaintiff's prior positions provide necessary context for evaluating prejudice, delay, and bad faith.

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2.

PREJUDICE

The second factor in determining the propriety of granting leave to amend is whether granting leave to amend would prejudice the defendant. In general, "[t]he party opposing amendment bears the burden of showing prejudice." DCD Programs, 833 F.2d at 187. The Ninth Circuit has affirmed the denial of leave to amend when new allegations "would totally alter the basis of the action." M/V American Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1492 (9th Cir. 1983). Defendant contends that granting leave to amend will prejudice it by requiring the performance of more work. Specifically, HP maintains that the proposed addition of new products will require it to redo initial disclosures and add dozens of new witnesses and hundreds of thousands of new documents, develop additional legal theories with respect to claim construction and non-infringement, and deal with new invalidity issues. True, the proposed amendment, to the extent that it might open the door to 218 accused products, has the potential to transform this action into a Frankenstein's monster. But this is a problem that can be managed by the parties in the first instance, and by establishing a new schedule. Even assuming arguendo that the proposed amendment represents a marked departure from the original scope of the suit with respect to accused products, it does not "greatly alter[] the nature of the litigation," nor would it require defendant to undertake "an entirely new course of defense." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). The proposed amendment does not change the number of patents in suit. Defendant does not contend that the addition of allegations of induced and contributory infringement adds appreciably to its burdens. The fundamentals remain unchanged. The absence of new claims distinguishes the present case from the decisions defendant relies upon to show prejudice. In Morongo, 893 F.2d 1074, the amendment sought to add RICO, federal criminal depredation, and other federal claims to a complaint theretofore based on a violation of tribal ordinance. In M/V American Queen, 6

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708 F.2d 1483, the amendment sought to add fraud and negligent breach of duty to disclose claims to a complaint theretofore based on contract claims. Defendant also makes the closely related argument that the additional work will inevitably disrupt the schedule and thereby cause prejudice. Rest assured, the schedule will be altered. That said, it should be acknowledged that "[d]isruption to the schedule of the court . . . is not harmless." Wong v. Regents of the Univ. of California, 410 F.3d 1052, 1062 (9th Cir. 2005). Nevertheless, defendant has not demonstrated that the alteration of the schedule will create prejudice sufficient to deny leave to amend under Foman and DCD Programs. It is still early in this litigation. Though the original complaint was filed in Texas way back in July 2009, there was never a case management conference or initial disclosure until the transfer here (see Dkt. 588 at 18). Things began in earnest only after the transfer and after the dismissal of the improperly joined defendants. Defendant points out that under the current schedule, the deadline for serving invalidity contentions is December 22, just six days after the hearing on this motion was held. With respect to prejudice, even if the current schedule was not vacated, plaintiff's disclosure of asserted claims and infringement contentions erased all doubt as to the scope of the alleged infringements back on November 5. Peering further into the future, under the current schedule, the trial date is not until January 9, 2012. At the hearing when the date was set, it was specifically noted that the date was unusually far out (see Dkt. 588 at 17). Specifically with regard to discovery, it is typically "[a] need to reopen discovery and therefore delay the proceedings [that] supports a district court's finding of prejudice from a delayed motion to amend the complaint." Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999) (emphasis supplied). But even under the current schedule, the non-expert discovery cut-off date is not even until August 31, 2011. Defendant points to two decisions in which district court judges denied motions seeking leave to amend because of anticipated prejudicial schedule disruptions. These are 7

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distinguishable because they involved the proposed addition of new claims, and the rulings came, at most, six months before trial was scheduled to begin. With modifications to the schedule and to the scope of the suit, granting leave to amend will cause tolerable prejudice to defendant. Still, HP will not be able to avoid redoing its contentions and disclosures, at great expense. It is only because plaintiff was so tight-lipped that these were not done correctly the first time. Therefore, leave to amend will be granted only on the condition that plaintiff pay HP the sum of $20,000 to partially reimburse defendant for the extra work, waste, and expenses caused by plaintiff's delay. Provided that plaintiff meets this condition, this factor favors the amendment. 3. UNDUE DELAY

The third factor in determining the propriety of granting leave to amend is whether plaintiff unduly delayed in filing its motion. Although the multiparty case began in Texas in 2009, this action in its current form did not gel until all defendants but HP were dismissed on October 1, 2010. Plaintiff would not have been expected to propose this amendment before getting a ruling on its offer to limit its allegations so as to tape together the so-called laptop defendants. Moreover, the instant motion is timely under the case management deadline for amendments. True, plaintiff should not have wasted so much time before sharing with HP the sheer number of accused products. But that delay is not the same as a delay in seeking the instant motion. This factor favors the amendment. 4. BAD FAITH

The final factor in determining the propriety of granting leave to amend is whether leave is sought in bad faith. Defendant alleges that plaintiff resorted to "gamesmanship" by allowing HP to proceed under its laptop-only misapprehension until, on the eve of the filing deadline, WiAV unveiled the full scope of alleged infringements. Specifically, defendant contends that plaintiff was deliberately unforthcoming during negotiations to obtain HP's assent to this proposed amendment. Defendant supports this contention by noting that although the 8

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only devices specified in HP's initial disclosures on November 1 were laptops, plaintiff took no steps to disabuse HP of its laptop-only notion until November 5, when WiAV served its disclosure of patent infringement contentions. In the interim, tranquil emails exchanged between the parties' counsel gave no indication that far more than laptops would soon be at issue. WiAV's disclosure identified over 200 new products, suggesting forethought and planning. According to defendant, WiAV's goal was to gain HP's stipulation before tipping its hand -- November 5 was the last business day before the November 8 deadline to amend the pleadings (see Dkt. 590). Defendant contends that all of this amounts to proof of a pattern of deception and misrepresentation constituting bad faith under DCD Programs. Plaintiff denies that HP's initial disclosures gave any inkling of defendant's myopia; most of the disclosed witnesses pertained not to laptops but to the patents in suit or unspecified prior art. In any event, plaintiff's alleged silence after receiving HP's initial disclosures lasted only four days. Plaintiff avers that its primary purpose in seeking leave to amend was to remove dismissed defendants and clarify its allegations regarding indirect infringement; the proposal to add specific exemplars of accused products was little more than an afterthought that happened to coincide with the completion of its infringement contentions that same day. The record does not support a finding of bad faith. Defendant is correct that the emails exchanged during the negotiations over assent to the proposed amendment hardly trumpeted the proposed addition of new accused product exemplars. Plaintiff's emails mentioned the elimination of the dismissed defendants and the inclusion of contributory and induced infringement. They did not mention the addition of examples of new product categories. Plaintiff sent a draft of the proposed amended complaint on November 2 that referred to "products and devices . . . including but not limited to portable computer devices" (Thomases Decl. Exh. D) -- the "but not limited to" language was new, but apparently did not alarm defendant. Plaintiff then sent a revised draft on November 5 that for the first time named and gave examples of HP printers, handhelds, and routers 9

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(Thomases Decl. Exh. H). There are troubling aspects to these failed negotiations, but the clash of hopelessly mismatched and dueling assumptions is as likely an explanation as bad faith. Perhaps more important to the instant motion, defendant alleges bad faith in negotiating, not bad faith in offering the amendment. Wood v. Santa Barbara Chamber of Commerce, Inc., 705 F.2d 1515, 1520 (9th Cir. 1983), cited by defendant, does not support the view that pretrial "gamesmanship" suffices under DCD Programs as bad faith in the sense of a "wrongful motive" for proposing the amendment. Bad faith was a factor in affirming a district judge's decision to deny leave to amend in Wood, but there the proposed amendment would merely have duplicated other pending litigation, and was viewed as a dilatory tactic in keeping with the appellant's habit of making repetitious motions. Along the same lines, the properly rejected proposed amendment in Sorosky v. Burroughs Corp., 826 F.2d 794, 805 (9th Cir.1987), was offered with the "bad faith motive" of adding a defendant who would destroy diversity jurisdiction. There is the possibility that defendant is multiplying its accusations in hopes of badgering plaintiff into a settlement. Defendant was cautioned against this at the December 16 hearing. But this order takes the generous view that plaintiff proposed its amendment for no reason other than a good faith desire to seek relief for purported patent infringements. This factor favors the amendment. CONCLUSION Based on an evaluation of these four factors, plaintiff's motion for leave to amend is GRANTED, subject to the following understandings and conditions. These are aimed at alleviating what would be a bone-crushing exercise of wading through the extravagant number of 218 accused products. 1. 2. This action is to be limited to HP products only. WiAV wasted valuable time before it pulled back the curtain by

serving its infringement disclosures. Because of the resulting prejudice to HP, a condition of filing an amended complaint is that plaintiff must pay defendant 10

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$20,000 to partially reimburse HP for fees and expenses it will incur due to this wasted time. If plaintiff wishes to amend its complaint, payment must be made by NOON ON DECEMBER 31, 2010. No payment, no amendment. 3. Because of the large number of products, there is a serious risk that

the jury will become confused and the trial unduly protracted. To prevent this, the court is open to suggestions as to how best to pare down this action. One possibility is that the parties might agree that, at trial, only a certain reasonable number of patent claims will be asserted against no more than perhaps two products in, at most, each of the five product categories. The parties might further agree that the selected claims are representative of all claims, and that the selected products are representative of all accused products. The parties are free further to agree to any formula to measure damages based on the representative claims and models. Counsel for both parties should meet and confer and submit recommendations upon which the number of claims and models shall be based. 4. Consideration will be given to the possibility of bifurcating the

trial to separate the invalidity and inequitable conduct portions and try those first. 5. The old case management schedule will be replaced. This will be

done in a separate order. 6. Note well that the number of depositions allowed will not be

enlarged at this time. After the existing allotment is used up, any applications to do so must demonstrate reasonableness in the conduct of discovery by the applicant.

Due to the apparent confusion evidenced at the December 16 hearing, out of an abundance of caution, defendant's motion for leave to amend its answer is GRANTED.

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The second amended complaint shall be filed and served with summons within
FOURTEEN CALENDAR DAYS.

Defendant then has FOURTEEN CALENDAR DAYS to file an answer.

IT IS SO ORDERED.

Dated: December 17, 2010.

WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

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