Digital Reg of Texas, LLC v. Adobe Systems Incorporated et al

Filing 815

ORDER on 794 Motion for Attorneys' Fees. Signed by Judge Claudia Wilken on 3/9/2015. (mklS, COURT STAFF) (Filed on 3/9/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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DIGITAL REG OF TEXAS, LLC
No. C 12-1971 CW
Plaintiff,

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ORDER ON MOTIONS
FOR ATTORNEYS'
FEES

v.
ADOBE SYSTEMS, INC., et al.,

(Docket No. 794)
Defendants.
________________________________/

United States District Court
For the Northern District of California

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On December 22, 2014, the Court entered judgment in favor of

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Defendant Adobe Systems, Inc. against Plaintiff Digital Reg of

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Texas, LLC.

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attorneys' fees under 35 U.S.C. § 285.

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Reg opposes the motion and argues in the alternative that the

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issue of attorneys’ fees should be deferred until the Federal

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Circuit decides the appeal of the Court’s order.

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papers, the Court GRANTS the motion in part.

Docket No. 777.

Adobe moves for an award of
Docket No. 794.

Digital

Based on the

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BACKGROUND

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In this patent infringement case, Digital Reg sued Adobe

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alleging infringement of U.S. Patent No. 6,389,541 (the '541

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patent), U.S. Patent No. 6,751,670 (the '670 patent) and U.S.

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Patent No. 7,421,741 (the '741 patent).

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different aspects of digital rights management (DRM).

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generic term of art describing the control technologies that allow

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copyright holders, publishers and hardware manufacturers to

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restrict access to digital content.

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These patents cover
DRM is a

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Adobe denied infringement of all three patents and argued

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that the asserted patent claims were invalid.

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the Court issued a claim construction order and entered summary

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judgment in favor of Adobe on the '741 patent, but denied summary

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judgment with respect to the other two patents.

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The parties went to trial on the '541 and '670 patents.

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found each of the disputed patent claims to be obvious, and

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therefore invalid, the jury awarded Digital Reg no damages.

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December 22, 2014 the Court entered judgment in favor of Adobe

United States District Court
For the Northern District of California

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against Digital Reg.

Docket No. 574.
Having

On

Docket No. 777.

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On June 10, 2014,

LEGAL STANDARDS
Under 35 U.S.C. § 285, the court “in exceptional cases may

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award reasonable attorney fees to the prevailing party.”

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Supreme Court, in construing this section, has held that

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The

an "exceptional" case is simply one that stands out from
others with respect to the substantive strength of a party's
litigating position (considering both the governing law and
the facts of the case) or the unreasonable manner in which
the case was litigated. District courts may determine
whether a case is "exceptional" in the case-by-case exercise
of their discretion, considering the totality of the
circumstances.

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Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct.

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1749, 1756 (2014).

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be informed by the district court’s unique insight into the manner

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in which the case was litigated, it is within the sound discretion

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of the district court.

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Sys., Inc., 134 S. Ct. 1744, 1748 (2014).

Because the exceptional case determination may

Highmark Inc. v. Allcare Health Mgmt.

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DISCUSSION
As a preliminary matter, Digital Reg’s request that the Court

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defer consideration of the fees issue is denied.

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decides the fees issue now, the Federal Circuit may consider all

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appellate issues together, thereby saving judicial resources.

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Nystrom v. TREX Co., 339 F.3d 1347, 1350 (Fed. Cir. 2003)

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(disapproving piecemeal appeals).

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If this Court

Adobe contends that this case is exceptional because Digital
Reg (1) proposed objectively unreasonable claim constructions;

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United States District Court
For the Northern District of California

See

(2) offered unreliable and unreasonable expert opinion;

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(3) engaged in litigation misconduct with respect to two fact

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witnesses; and (4) was only seeking nuisance value settlements.

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Adobe only seeks fees resulting from the exceptional conduct.

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A. Claim Construction

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Adobe first argues that Digital Reg pursued objectively

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unreasonable and frivolous claims by proposing claim constructions

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that were baseless or had been previously disavowed.

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contends that the unreasonable nature of Digital Reg’s claims is

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demonstrated by three instances in which the Court found that

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Digital Reg's proposed claim constructions were inconsistent with

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the specification and prosecution history.

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argues that Digital Reg's proposed construction of the term

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"header" in the '741 patent was "egregiously flawed."

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had proposed that the term "header" be construed as “control

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information including at least a key associated with a data

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block.”

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construction, the Court adopted the plain meaning of the term.

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Docket No. 574.

Adobe

In addition, Adobe

Digital Reg

Finding no intrinsic evidence supporting this proposed

Based on the construction of the term, the Court
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granted summary judgment of non-infringement of the '741 patent.

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Id.

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A case presenting exceptionally meritless claims may be

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sufficiently exceptional to warrant a fee award.

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134 S. Ct. at 1756.

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sufficient grounds to find the case exceptional.

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Hewlett Packard, 2014 WL 4616847 (N.D. Cal.).

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enough that invalidity was determined on the pleadings.

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LLC v. Zynga, 2014 WL 4351414 at *3 (N.D. Cal.).

United States District Court
For the Northern District of California

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Octane Fitness,

Repeated disregard for the file history is
Linex Techs v.

However, it is not
Gametek

Digital Reg’s claim construction arguments do not descend to

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the level of frivolousness or objective unreasonableness to

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warrant a determination that they were exceptional.

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claim construction was not completely baseless.

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did not speak to the use of “control information” in its proposed

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claim construction, it contended that the relevant issue was the

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necessity of multiple containers, not the physical location of the

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header.

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construction, it cited the patent specification, which uses the

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"associated with" language, as intrinsic evidence supporting its

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proposal.

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previously analyzed by this Court or any other fora.

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Techs, 2014 WL 4616847 at *5 (finding a case exceptional where the

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plaintiff continued to assert baseless infringement claims

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following case-dispositive claim constructions by two other fora).

The proposed

While Digital Reg

With respect to this portion of the proposed

Moreover, the proposed construction had not been
Cf. Linex

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B. Unreliable and Unreasonable Expert Opinion

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Adobe also contends that an exceptional determination is

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warranted by the unreliable and unreasonable expert opinions

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offered by Digital Reg.

Adobe’s argument is primarily based on
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the testimony of Mr. Parr, Digital Reg’s damages expert.

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trial, the Court granted Adobe’s Daubert1 motion to exclude Mr.

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Parr’s testimony because he: (1) used unreliable industry-wide

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data to impute piracy savings, (2) used an improper fifty-fifty

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profit split to determine the royalty rate, and (3) did not

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apportion the royalty base.

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aspects of the report was found to be inconsistent with Federal

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Circuit case law.

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report, which was found to cure the threshold problems identified

United States District Court
For the Northern District of California

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Id.

in the Court’s order.

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Docket No. 632.

At

Each of these

Mr. Parr was permitted to submit a revised

Docket No. 663.

An exclusion of expert testimony under Daubert does not in

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most cases trigger a finding of litigation misconduct; however, it

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may if the circumstances are "sufficiently egregious."

MarcTec v.

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Johnson & Johnson, 664 F.3d 907, 920 (Fed. Cir. 2012).

Although

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Mr. Parr's inputs and analysis originally included multiple flaws,

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he was able to cure the deficiencies through adjustments to his

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methodology.

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egregious or exceptional conduct.

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circumstances "sufficiently egregious" where plaintiff's expert

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testimony was "untested and untestable" and unnecessarily extended

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litigation in an attempt to support unfounded arguments).

The problems with his testimony do not amount to
Cf. id. at 920-21 (finding

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C. Litigation Misconduct

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Adobe also alleges that an award of attorneys’ fees is

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justified based on Digital Reg’s litigation misconduct with

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respect to its fact witnesses at trial.

A case may be exceptional

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Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993).
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based on the unreasonable manner in which it was litigated.

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Octane Fitness, 134 S. Ct. at 1756.

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shown through "unethical or unprofessional conduct by a party or

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his attorneys during the course of adjudicative proceedings."

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Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 549 (Fed.

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Cir. 2011).

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Litigation misconduct is

Old

First, Adobe contends that Digital Reg engaged in litigation

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misconduct with respect to its witness Chip Venters, a principal

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of Digital Reg.

Mr. Venters testified to demonstrate Adobe’s

United States District Court
For the Northern District of California

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knowledge of the '541 and '670 patent.

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contention, Mr. Venters relied on a document called the Adobe

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Value Proposition (AVP), which he alleged was presented to Adobe

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in a telephone meeting in the summer of 2004.

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Digital Reg had produced several drafts of the AVP with various

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edits and comments in tracked changes.

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Venters was shown multiple versions of the AVP.

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a specific version was the one presented to Adobe in 2004.

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version identified both the '541 and '670 patents by name and

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number.

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To support this

In discovery,

In his deposition, Mr.
He testified that
This

At trial, Adobe objected to admission of the AVP under the

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best evidence rule.

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were a number of versions because Mr. Venters had drafted the AVP

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for the 2004 meeting and then later edited the document in

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preparation for a meeting in 2008.

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Venters would be able to confirm that Trial Exhibit 125c was the

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copy sent to Adobe.

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it had produced all versions of the document and that there was no

Counsel for Digital Reg explained that there

She further stated that Mr.

Counsel for Digital Reg also contended that

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prejudicial difference between the versions because none of the

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tracked comments pertained to the '541 or '670 patents.

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In Mr. Venters' direct testimony, he stated that Trial

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Exhibit 125c was the version sent to Adobe and that he discussed

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the document with Adobe in detail in their phone meeting.

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Venters then conceded that Exhibit 125c contained a tracked

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changes comments bubble that would not have been included when he

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sent the document.

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the documents produced was the version sent to Adobe and stated

Mr.

On cross-examination, he admitted that none of

United States District Court
For the Northern District of California

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that he had the final version without a comment bubble in his

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possession.

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Following this admission, Adobe raised with the Court its

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concern that Mr. Venters had testified to possessing a document

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that was never produced.

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stated that the version he was referring to was Exhibit 125c with

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tracking turned off.

The Court ordered Digital Reg to produce all

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versions of the AVP.

The following day, Digital Reg produced two

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previously unproduced versions of the AVP, neither of which was

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the document Mr. Venters had claimed to possess.

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produced documents did not refer to the '670 patent by number,

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although it did describe the technology and refer to it as a

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"Patent by the U.S. Patent Office."

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this version was drafted before the '670 patent issued in June

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2004.

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regarding the newly produced documents.

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During further questioning, Mr. Venters

One of the newly

Digital Reg explained that

The Court allowed Adobe to depose Mr. Venters a second time

After briefing from both sides on the issue, the Court

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removed Exhibit 125c from the record and replaced it with the

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newly produced version that did not refer to the '670 patent by
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number.

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instruction to the jury clarifying that Mr. Venters had stated

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that a version of the AVP was sent to Adobe, but that he could not

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identify the particular version.

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Trial Exhibit 696.

The Court also provided a curative

Adobe contends that it should not have to bear the costs

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incurred as a result of Digital Reg's failure to produce relevant

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documents in discovery.

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was important to Digital Reg's claim of willful infringement, it

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was incumbent upon it to conduct a thorough investigation to

According to Adobe, because the document

United States District Court
For the Northern District of California

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ensure that the correct document was relied upon at trial.

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Furthermore, Adobe points out that the difference between the

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documents was material because one of the later produced versions

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did not identify the '670 patent by number.

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Digital Reg maintains that its failure to produce the actual

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version that was attached to the email sent to Adobe at the time

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of the telephone meeting was due to the parties' agreement to

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limit the costs of discovery by not producing emails.

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also explained that he and Digital Reg's former counsel had

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collected drafts of the AVP previously when involved in litigation

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with Microsoft.

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were produced to Adobe on the assumption that the prior production

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had been complete.

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Mr. Venters

In the present litigation, those same documents

In addition, Digital Reg argues that it had no incentive to

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produce the wrong version of the AVP because every version

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specifically described and identified the '541 and '670 patents.

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This is incorrect.

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was not referred to by number in one of the versions because the

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patent had not yet issued.

Digital Reg has admitted that the '670 patent

Consequently, the variations among the
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drafts could have been material.

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of the comment bubble in Trial Exhibit 125c and Adobe's

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evidentiary objection; therefore, it was on notice that it had not

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produced and was not proffering the final draft.

Moreover, Digital Reg was aware

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Digital Reg failed to produce material documents and now

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attempts to excuse its indiscretion by minimizing the relevance of

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the belatedly produced drafts.

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excuse Digitial Reg from conducting a thorough investigation of

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the evidence to support its claim.

A discovery agreement does not

Digital Reg must reimburse

United States District Court
For the Northern District of California

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Adobe for the considerable costs it expended due to Digital Reg's

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behavior, regardless of whether it resulted from carelessness or

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bad faith.

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Adobe contends that Digital Reg also engaged in litigation

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misconduct with respect to the testimony of Patrick Patterson, the

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named inventor on the patents-in-suit.

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describe and attest to the date of conception of the patented

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inventions.

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he did not recognize or have any knowledge of a document and

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stated that he would not change his testimony at trial.

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at trial he identified the document as his conception document and

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stated that he was the author.

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had requested a copy of the document to look over after the

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deposition, at which point he recalled what it was.

Mr. Patterson testified to

During his deposition, Mr. Patterson testified that

However,

Mr. Patterson explained that he

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While a change of testimony is not itself necessarily

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unethical or unprofessional, the failure of Digital Reg to alert

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Adobe to the change in testimony at any point in the year prior to

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trial is.

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violated a witness's sworn commitment not to change his testimony

Digital Reg knowingly introduced testimony that

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at trial, understanding that Adobe would have prepared based on

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misleading information.

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situation despite ample time to do so.

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of Patrick Patterson warrants a determination of exceptional

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conduct.

Digital Reg took no steps to rectify the
Accordingly, the testimony

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D. Nuisance Value Settlements

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Finally, Digital Reg argues an exceptional case determination

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is warranted because the litigation was initiated in bad faith.

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case presenting subjective bad faith may warrant a fee award.

A

United States District Court
For the Northern District of California

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Octane Fitness, 134 S. Ct. at 1757.

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a party exploits "the high cost to defend complex litigation to

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extract a nuisance value settlement from [an] alleged infringer."

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Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1327 (Fed. Cir.

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2011).

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from other Defendants originally party to this suit as evidence of

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its improper motivation for litigation.

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figures alone are insufficient to demonstrate bad faith.

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Components, Inc. v. Micron Tech., Inc., 2012 WL 1981698, at *6

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(E.D. Va.)(noting that "otherwise valid actions accompanied by

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'open speculation' as to their purpose cannot rise to the level of

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litigation misconduct").

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Bad faith is exhibited where

Adobe points to the low settlements Digital Reg accepted

However, the settlement
See Gen.

The settlements arising out of this suit and payments for

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granting licenses of patents-in-suit are not "miniscule."

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fails to point to any other “indicia of extortion” that would make

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this case exceptional.

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evidence is insufficient to support a finding that Digital Reg

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initiated litigation in bad faith.

See id. at 1326.

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Adobe

Consequently, the

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E. Reasonableness of Fee Amounts

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A fee petition must provide sufficient detail to allow for a

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fair evaluation of the time expended and the nature and need for

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the service.

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F.3d 555, 565 (9th Cir. 2008).

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Adobe submitted a declaration with tables summarizing the time

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spent by each person in relation to each aspect of litigation for

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which it asserts the case is exceptional; however, Adobe does not

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provide any detail as to the nature of each biller's work.

United Steel Workers of Am. v. Ret. Income Plan, 512
In moving for attorneys’ fees,

United States District Court
For the Northern District of California

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Without any information on the tasks conducted during those hours,

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there is insufficient detail to allow for an evaluation of the

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nature and need for the time expended.

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CONCLUSION

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Accordingly, Adobe’s motion for attorneys' fees (Docket No.

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794) is GRANTED to the extent that it is entitled to fees, in an

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amount to be determined, incurred in relation to Mr. Patterson's

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and Mr. Venters' deposition and testimony.

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with respect to all other fees.

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The motion is DENIED

Adobe's itemization of its fees is insufficient.

Within two

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weeks of this order, Adobe must file a supplemental declaration

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providing further information about the fees incurred in relation

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to the changed testimony and resulting additional discovery and

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motion practice associated with Mr. Patterson and Mr. Venters.

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Digital Reg may file an opposition of not more than eight pages no

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later than one week thereafter.

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respect to the reasonableness of the amount of fees sought.

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may file a response to Digital Reg's opposition of up to five

Digital Reg may oppose only with

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Adobe

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pages no later than one week thereafter.

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decided on the papers.

The matter will be

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IT IS SO ORDERED.

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Dated: March 9, 2015
CLAUDIA WILKEN
United States District Judge

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United States District Court
For the Northern District of California

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