BAE Systems Information and Electronic Systems Integration Inc. v. Aeroflex Incorporated et al

Filing 458

MEMORANDUM ORDER re Denying 245 Motion for Sanctions Under Federal Rules of Civil Procedure 11 filed by Aeroflex Plainview Inc., Aeroflex Incorporated; Granting 291 SEALED MOTION for Leave to File Sur-Reply filed by BAE Systems Information and Electronic Systems Integration Inc. Signed by Judge Leonard P. Stark on 7/23/12. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
BAE SYSTEMS INFORMATION AND
ELECTRONIC SYSTEMS INTEGRATION INC.,
Plaintiff,
Civ. No. 09-769-LPS

v.
AEROFLEX INCORPORATED and
AEROFLEX PLAINVIEW, INC.,
Defendants.

MEMORANDUM ORDER
At Wilmington this 23rd day of July, 2012:
Pending before the Court is the Motion for Sanctions under Federal Rule of Civil
Procedure 11 ("Sanctions Motion") (D.I. 245) filed by Defendants Aeroflex Incorporated and
Aeroflex Plainview, Inc. (collectively, "Aeroflex"). Having reviewed the papers filed in
connection with the Sanctions Motion, and for the reasons explained below, the Court will
DENY Aeroflex's motion. 1
I.

RELEVANTBACKGROUND
The Court provides only the limited background necessary to explain its ruling.

Additional background can be found in: (i) the Court's August 2011 order (D.I. 247)
("Noninfringement Order") and opinion (D.I. 248) ("Noninfringement Opinion"), granting
Aeroflex's motion for summary judgment on BAE's patent infringement claim pursuant to 28

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In relation to the Sanctions Motion, PlaintiffBAE Systems Information and Electronic
Systems Integration, Inc. ("BAE") filed a Motion for Leave to File a Surreply (the "Leave
Motion") (D.I. 291), which Aeroflex does not oppose (see D.l. 299 at 2-3). Plaintiffs Leave
Motion (D.I. 291) is therefore GRANTED. The proposed brief attached as Exhibit A to
Plaintiffs Leave Motion is hereby deemed filed.

U.S.C. § 1498; and (ii) the Court's May 2012 order (D.I. 449) ("Limitations Order"), granting
Aero flex's summary judgment motion on BAE' s remaining state law claims based on statute of
limitations grounds.
In its Noninfringement Opinion, the Court provided the following relevant pre-suit
background:
BAE operates in the global defense, security, and aerospace
industry and develops and supports infrared countermeasure
("IRCM") defense technologies for use on military and commercial
vehicles on both land and air. BAE owns the rights in [U.S. Patent
No. 5,742,384 (the '"384 patent")]. Aeroflex ... manufactures
certain components of defense systems and subcontracts with
defense contractors, including BAE.
Both BAE and Aeroflex are involved in the production of
IRCM systems for U.S. military aircraft. Low-flying military
aircraft are susceptible to certain kinds of missiles, known as
heat-seeking missiles. In response to these heat-seeking missiles,
aircraft are equipped with defensive mechanisms that can defend
the aircraft from missile attack. IRCM systems detect energy from
incoming missiles and, using infrared technology, are able to throw
the missiles off course.

Non-party ITT Corporation ("ITT") ... is a direct
competitor of BAE and, like BAE, serves as a defense contractor
for the U.S. government. In 2003, ITT began working toward
developing its own IRCM system; and, in 2005, ITT subcontracted
with Aeroflex to develop a gimbal specification to meet ITT's
requirements.
Subsequently, Aeroflex provided to ITT a gimbal
assembly in April2006, in April2009, [and] in May 2009 ....
Aeroflex contends it provided these gimbals to ITT with the
understanding that they were being used for ITT's IRCM program
for U.S. military aircraft.

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"A gimbal assembly is a device having one or more axes of rotation that allow an object
mounted on the gimbal assembly to move freely in various directions." Noninfringement
Opinion at 3.
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(Noninfringement Op. at 1-3) (internal citations omitted)
On October 14, 2009, BAE filed a six-count complaint against Aeroflex, alleging, inter
alia, that, as a result of Aeroflex's work with a third party, Aeroflex induced and contributed to

infringement ofthe '384 patent. (See D.I. 1) After exchange ofthe parties' infringement
contentions and BAE's revelation that ITT was the third-party that formed the basis of Aeroflex's
alleged indirect infringing activities, Aeroflex asserted an affirmative defense pursuant to 28
U.S.C. § 1498 in its March 30,2010 amended answer. (See D.I. 33) Section 1498 operates as an
affirmative defense to a claim of patent infringement when the government authorizes and
consents to one of its contractors infringing a third party's patent rights. When there has been a
proper authorization and consent under§ 1498, the patentee's sole recourse is a patent
infringement suit against the federal government in the U.S. Court of Federal Claims.
Aeroflex ultimately filed a motion for summary judgment of non-infringement ofthe '384
patent ("Noninfringement Motion") on February 4, 2011. (D.I. 98) The sole argument advanced
by Aero flex in its motion was that all of its allegedly infringing activities were protected under
§ 1498, and there were no genuine disputes of material fact that "all of its (and by implication
ITT's) conduct involving the accused gimbal assembly was undertaken under the aegis of
government sponsorship." (D.I. 248 at 14)
On May 25,2011, the Court held a Markman hearing in conjunction with oral argument
on Aeroflex's Noninfringement Motion, as well as oral argument on BAE's motion for a
preliminary injunction. See Transcript of May 25, 2011 Hr'g (D.I. 256) (hereinafter "Tr.").
At the May 2011 hearing, the Court denied BAE's preliminary injunction motion. (See
Tr. at 175; see also D.I. 193) While the Court found that BAE had met its burden on the first
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three factors (substantial likelihood of success on the merits, irreparable harm, and balance of
harms), the Court also concluded that BAE had wholly failed to prove that the public interest
favored granting the injunction sought. (See Tr. at 175-79) The Court remarked:
To enjoin Aeroflex from supplying the gimbals to ITT would make
it difficult, if not impossible, for ITT to continue to participate in
the CIRCM bidding process.
ITT and Aeroflex have worked together for six years to
develop and improve this gimbal and its operational capacity
within ITT's product. ... ITT and Aeroflex just may have
developed the best or the most affordable version of the antimissile
technology the government is seeking to purchase.
The government has initiated a competitive bidding process
to select this technology. It follows in the Court's view that absent
evidence to the contrary, and here none has been offered by BAE,
it follows that the more bids there are, the more likely the
government will get the best technology at the best price.
This Court is unwilling to deprive the government of the
opportunity to consider the ITT technology which incorporates the
Aeroflex gimbal. In this regard, it's important not to lose sight of
what is at stake. This is a competition for crucial technology
intended to make our Armed Forces as safe and effective as they
can possibly be and, in the Court's view, there are few, if any,
public interests that are greater than this.
In reaching this conclusion, the Court does not intend to
minimize the importance of patent property rights or trade secret
rights or contractual rights. However, in that regard, the Court
notes that this case will go forward. The Court has found it's likely
the plaintiff will succeed on the merits of its breach of contract
claim, and, if so, it's quite likely that there will be costs to pay by
the defendant as a result.
(Tr. at 177-79)
Subsequently, in its August 2011 Noninfringement Opinion, the Court granted Aeroflex's
request for summary judgment on BAE's patent infringement claim, finding that Aeroflex's

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conduct satisfied the two operative criteria under§ 1498; that is, Aeroflex's gimbal use was:
(1) "for the Government," and (2) "with the authorization and consent of the Government." (See,

e.g., D.I. 248 at 15, 23, 27-28) Consequently, the Court did not construe the claim terms in
dispute.
Subsequently, in addressing BAE's remaining state law claims against Aeroflex, the
Court found that "the undisputed facts establish that BAE did not file the instant law suit within
three years of the later of either discovering its causes of action or after BAE should have
discovered, by the exercise of reasonable diligence, its causes of action. BAE' s discovery of its
causes of action either did or should have occurred no later than September 2006, making its
filing of the instant lawsuit in October 2009 untimely." (D.I. 449 at 8) The Court granted
summary judgment in favor of Aeroflex on each ofBAE's remaining claims. (See id. at 15)

II.

PARTIES' CONTENTIONS
A.

Aeroflex

Aeroflex filed its Sanctions Motion against BAE and its counsel on account of their
"knowingly frivolous" and "baseless assertion of patent infringement against Aero flex" in
October 2009. (D.I. 246 at 1; see also generally D.I. 245; D.I. 246; D.I. 282; D.I. 335) Aeroflex
seeks its attorneys fees and costs (i) in bringing its Sanctions Motion pursuant to Fed. R. Civ. P.
11(c)(2), and (ii) in defending the patent infringement claim, including fees and costs related to
summary judgment, claim construction, and discovery related to the patent infringement claim,
pursuant to Fed. R. Civ. P. 11(c)(4). 3 (See D.I. 246 at 18)

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Aero flex also requests dismissal with prejudice of the patent infringement count (see D.I.
246 at 19), but that request is moot in light of the Court's entry of summary judgment for
Aeroflex (D.I. 247).

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In an exchange of letters in December 2007 and March 2008, respectively, BAE accused
Aeroflex of infringing the '384 patent and Aeroflex explained why, in its view, the Aeroflex
gimbal did not infringe. (D.I. 176 Ex. 23; D.I. 246 Ex. D) After the Department of Defense
("DOD") announced its Common Infrared Countermeasure System ("CIRCM") procurement
program in September 2009 (D.I. 100-7 at ITT 0218), BAE filed this lawsuit in October 2009
(D.I. 1). Aeroflex insists that, in the course of discovery, ITT provided documents "confirming
that BAE's infringement claims were untenable," as these documents showed substantive
differences between the accused ITT system and the '384 patent. Thereafter, Aeroflex's
interrogatory responses and correspondence "warn[ ed] BAE that its patent infringement claim
lacked merit," yet BAE did not withdraw its infringement claim. (D.I. 246 at 2; see also id. at 710, 12-18; D.I. 282 at 8)
In particular, Aeroflex asserts patent infringement should never been alleged because "the
accused system does not have a laser within a rotating housing" (D.I. 282 at 1), although "BAE's
patent claims unquestionably require that a laser be in a housing that rotates" (D.I. 335

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also D.I. 282 at 1 (stressing "plain language of the claims unequivocally requires: 1) a housing

that rotates; and 2) a laser located within the rotating housing"); id. at 4 ("[T]he Rule 11 issue is
not that the patent requires that the laser rotate, but rather that the housing enclosing that laser
must rotate.")) Moreover, BAE's doctrine of equivalents assertion improperly and "entirely
vitiates elements in the claims, including the elements defined by the 'within the housing' and
'enclosing' claim language." (!d. at 7)
Aeroflex denounces BAE's patent infringement claim as "objectively baseless" and
"support[ive] [ofJ a finding of bath faith." (D.I. 335
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4) Aeroflex further alleges that BAE's

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insistence on proceeding with claim construction and patent litigation, as well as its refusal to
withdraw its infringement contentions, not only increased defense costs, but harassed Aeroflex
and improperly secured BAE a strategic advantage against ITT in bidding on a major contract
with the federal government. (See D.I. 246 at 3, 10, 12, 17-18; D.I. 282 at 2, 8-10) "That BAE's
actions come at a time when it is in competition with ITT for a major award only reinforces the
conclusion that sanctions are appropriate to prevent 'improper purpose."' (D.I. 246 at 17)

B.

BAE

BAE responds that Aeroflex's request for sanctions is "premised on Aeroflex's erroneous
belief that not only is its narrow construction of the word 'housing' in the asserted patent claims
correct (thereby precluding infringement under any theory according to Aeroflex), but that this is
one of the very rare instances where Aero flex's construction is the only construction that can
possibly be argued in good faith." (D.I. 270 at 1) BAE observes that Aeroflex contends that "in
terms of the meaning of the 'housing' limitation, it 'has been established [that] BAE's patent
claims unquestionably require that a laser be in a housing that rotates[;]"' when, in reality, "this
has not been 'established.' This Court has made no claim construction rulings at all. Instead,
this is only Aeroflex's argument as to the meaning of the limitation." (D.I. 336 at 3-4) BAE
further provides evidence that it undertook a thorough pre-suit investigation, which began well
before DOD's CIRCM announcement, and based its proposed claim construction on its review of
the intrinsic evidence. (D.I. 272, Skenyon Decl.

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As for why BAE initiated this lawsuit, and specifically the patent infringement claims,
BAE asserts it was not "for the 'improper purpose' of harassing Aeroflex and interfering with"
ITT's business, but instead "to hold Aero flex accountable for breaching multiple contracts with

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BAE by making and selling BAE's proprietary gimbal assembly containing its valuable trade

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secrets and the inventions covered by the '384 patent to BAE's competitor." (D.I. 270 at 1; see
id. at 7-9, 18-20)

III.

LEGALSTANDARDS
Pursuant to Federal Rule of Civil Procedure 11(b), an attorney or party "presenting to the

court a pleading, written motion, or other paper - whether by signing, filing, submitting, or later
advocating it" - certifies that "it is not being presented for any improper purpose, such as to
harass ... or to needlessly increase the cost of litigation," that the claims "are warranted by
existing law" or an objectively reasonable argument for a change in existing law, and "the factual
contentions have evidentiary support."
In a patent case, the law of the regional circuit applies to the imposition of Rule 11
sanctions. See Power Mosfet Techs., L.L.C. v. Siemens AG, 378 F.3d 1396, 1406-07 (Fed. Cir.
2004). In the Third Circuit, conduct violates Rule 11 if it is not "objectively reasonable under the
circumstances." Aria v. Underwriting Members of Syndicate 53 at Lloydsfor 1998 Year of
Account, 618 F.3d 277,297 (3d Cir. 2010) (internal quotation marks omitted). Frivolous
assertions of patent infringement warrant sanctions. See ICU Med., Inc. v. Alaris Med. Sys., Inc.,
2007 WL 6137003, at *3 (C.D. Cal. Apr. 16, 2007), aff'd, 558 F.3d 1368 (Fed. Cir. 2009).

IV.

DISCUSSION
The primary grounds on which Aeroflex moves for sanctions is that BAE's infringement

position was "frivolous" from the start and never should have been brought to court. Aeroflex
contends that the only way BAE could assert infringement was based on a frivolous construction
of a disputed claim term ("housing") and a theory of infringement under the doctrine of

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equivalents that would improperly "vitiate" claim elements. Specifically, while the claims of the

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'384 patent require a laser in a rotating housing, BAE has known since at least Aeroflex's
December 2007 letter that ITT's gimbal assembly does not include a laser in the rotating part of
its housing, but instead has a gimbal and laser connected by a fiber optic cable.
Aero flex has failed to prove that BAE' s proposed construction of "housing" - "a
structure, which need not be unitary, that encloses the laser and at least one lens"- was not
reasonable. While Aeroflex proposed an alternative construction- one which would have
required that the housing be unitary4 - that proves only that there was a dispute, not that BAE
was frivolous in its advocacy. See generally Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d
1295, 1301 (Fed. Cir. 2004) ("Claim interpretation is not always an exact science, and
it is not unusual for parties to offer competing definitions of even the simplest claim language.").
The Court is persuaded that BAE had a good faith basis for believing there was literal
infringement under its proposed construction. Additionally, even had the Court adopted
Aero flex's construction of "housing," it is far from clear that a finding of infringement under the
doctrine of equivalents would be precluded by vitiation. Hence, initiation of this patent
infringement lawsuit was not sanctionable.
To the extent Aeroflex is additionally arguing that BAE should be sanctioned for
continuing to press its patent infringement claims until the Court granted summary judgment
based on the § 1498 defense, the Court disagrees. Because the Court had not construed the
claims, nor made any findings regarding infringement or defenses thereto, BAE was within its

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Aeroflex proposed "a rigid casing that encloses both the laser and the lens means to form
a unit rotatable about an axis." (D.I. 122 at 10)
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rights to continue to press its non-frivolous infringement theories. The Court is not persuaded
that any evidence was produced during discovery, prior to the Court's Noninfringement Order,
that should have been recognized by BAE as rendering its infringement case frivolous. 5
Finally, to the extent Aeroflex contends that BAE's motivation for filing patent
infringement claims was so improper as to be sanctionable, the Court is not convinced.
Regardless of why BAE brought this case, and notwithstanding Aeroflex's suspicions about
timing (suspicions that are arguably corroborated, to some degree, by the Court's ruling with
respect to statute oflimitations), the fact remains that BAE brought non-frivolous claims
following what appears to have been a reasonable investigation. In context, this is not conduct
warranting sanction.
In sum, BAE has not pursued objectively unreasonable positions. Accordingly,
Aeroflex's Motion for Sanctions will be denied.

V.

CONCLUSION
For the reasons stated above, IT IS HEREBY ORDERED that:
1.

Aeroflex's Sanctions Motion (D.I. 245) is DENIED.

2.

BAE's Leave Motion (D.I. 291) is GRANTED.

UNITED STATES DISTRICT JUDGE

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As the Court stated in its Noninfringement Opinion, "[t]he inquiry under§ 1498 relates
to the extent and nature of government involvement, not technical issues of infringement." (D .I.
248 at 13) Likewise, the Limitations Order did not address BAE's remaining state law claims on
the merits. (See D.I. 449)
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