Bedrock Computer Technologies, LLC v. Softlayer Technologies, Inc. et al

Filing 874

SUR-REPLY to Reply to Response to Motion re #842 Opposed MOTION for Attorney Fees Yahoo!'s Motion to Declare this an Exceptional Case and for Attorneys' Fees and Costs Pursuant to 35 USC Sec. 285 filed by Bedrock Computer Technologies, LLC. (Cawley, Douglas)

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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS TYLER DIVISION BEDROCK COMPUTER TECHNOLOGIES LLC, Plaintiff, v. SOFTLAYER TECHNOLOGIES, INC., et al. Defendants. § § § § § § § § § § § CASE NO. 6:09-cv-269-LED Jury Trial Demanded PLAINTIFF’S SURREPLY IN OPPOSITION TO YAHOO! INC.’S REPLY IN SUPPORT OF ITS MOTION TO DECLARE THIS AN EXCEPTIONAL CASE AND FOR ATTORNEYS’ FEES AND COSTS PURSUANT TO 35 U.S.C. § 285 Dallas 326383v1 I. ARGUMENT IN REPLY A. Yahoo Misapplies the Legal Framework Governing Section 285 Yahoo’s reply avoids the legal framework that governs an accused infringer’s ability to prove that a case is “exceptional” under Section 285, and effectively seeks to punish the continued litigation of claims that, although unsuccessful at trial, were neither “objectively baseless,” nor were litigated in a manner that constitutes an “egregious abuse of the judicial process.” See iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1376-77 (Fed. Cir. 2011). A patent plaintiff may only be sanctioned under Section 285 based on: (i) inequitable conduct before the USPTO; (ii) litigating claims that were “objectively baseless” and brought in “subjective bad faith”; and (iii) litigation misconduct that rises to the level of “vexatious” or “egregious.” Id. at 1380; Sulzer Textil A.G. v. Picanol N.V., 2002 U.S. Dist. LEXIS 27197, *4 (E. D. Tex. March 11, 2002); Arbrook, Inc. v. Am. Hospital Supply Corp., 645 F.2d 273 (5th Cir. 1981). Yahoo’s claims simply do not meet the threshold requirements necessary to establish that this case is “exceptional” under any of these grounds. To account for this deficiency, Yahoo uses the terms “litigation misconduct,” “bad faith,” and “vexatious behavior” as catch-all phrases that transcend the permissible grounds upon which a finding of exceptionality may be made. Yahoo’s initial motion was based on the grounds that Bedrock’s theories on willfulness and damages were frivolous. (See Dkt. No. 842, “Mot.” at 1.) Where an accused infringer’s motion is based on litigating frivolous claims, a plaintiff’s alleged misconduct is relevant to a finding of subjective bad faith; however, “[o]nly if challenged litigation is objectively meritless may a court examine the litigant’s subjective motive.” Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993) (holding that the right to bring litigation implicates First Amendment rights, and that bringing allegedly frivolous litigation may only be sanctioned if the lawsuit was “objectively baseless”). Because Yahoo cannot, by clear and 1 Dallas 326383v1 convincing evidence, prove that Bedrock’s theories on willfulness and damages were “objectively baseless” (see infra, Part II.C. and D), Bedrock’s alleged “vexatious behavior” in continuing the pursuit of these theories cannot otherwise cause this case to be exceptional.1 In a departure from its Motion, Yahoo’s reply now shifts the focus of its motion to Bedrock’s alleged “litigation misconduct” and “vexatious behavior” (see Dkt. No. 870, “Reply” at 3), presumably because Yahoo cannot prove that Bedrock’s theories were frivolous. Although a patent plaintiff’s litigation misconduct alone may provide adequate grounds for a finding that a case is “exceptional,” such misconduct must constitute an “egregious abuse of the judicial process.” Sun-Tek Indus., Inc. v. Kennedy Sky Lites, Inc., 929 F.2d 676, 678 (Fed Cir. 1991); Wedgetail, Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009). Bedrock’s alleged litigation misconduct—allegedly faulty legal theories of damages and willfulness—is not even the type of conduct that is considered to be eligible for sanction under Section 285. See, e.g., Arbrook, 645 F.2d at 279 (considering discovery litigation misconduct); see also Bartex Research, LLC v. FedEx Corp., 2011 U.S. Dist. LEXIS 62107, *17-18 (considering declarations from witnesses that were inconsistent with prior testimony); see also Stephens v. Spectrum Labs., Inc., 393 F.3d 1269, 1276 (Fed. Cir. 2004) (considering a plaintiff’s investigation and credit check). In this way, Yahoo inappropriately uses the terms “litigation misconduct” and “vexatious behavior” to attempt to ensnare a plaintiff’s choice to proceed with claims that a 1 But see Pharmacia & Upjohn Co. v. Mylan Pharmaceuticals, 182 F.3d 1356, 1361 (Fed. Cir. 1999) (finding that plaintiff’s infringement allegations were not “objectively unreasonable” despite prior verdict of invalidity due to inequitable conduct, yet remanding to district court for determination of whether plaintiff’s pursuit of willfulness claims and avoidance of the prior invalidity determination constituted vexatious behavior). The present case is distinguishable because Bedrock’s pursuit of its willfulness and damages theories did not follow a prior verdict of invalidity. Rather, Bedrock’s pursuit of its willfulness and damages claims followed the previous jury verdict against co-defendant Google, Inc., finding that the patent was valid and infringed. 2 Dallas 326383v1 Court has determined to be substantiated by adequate law and fact. Yahoo has provided no credible evidence—much less clear and convincing evidence—that Bedrock’s conduct during the litigation was egregious or improper. Accordingly, Yahoo’s motion should be denied. B. The Court’s Denial of Yahoo’s JMOL Motions Completely Disposes of Yahoo’s Claim that This Case is Exceptional Yahoo’s reply brief is conspicuously silent on the substantial weight of authority that precludes a case from being “exceptional” based on a patentee’s continued litigation of claims that were sufficient to overcome a motion for judgment as a matter of law (“JMOL”). Rather than squarely address this authority, or cite any authority to the contrary, Yahoo’s reply faults Bedrock’s response for not discussing the merits of its damages and willfulness theories. (See Reply at 3.) Yahoo misses the point. The Court’s denial of Yahoo’s JMOL motions are dispositive of its motion for attorneys’ fees. Again, denial of a JMOL motion requires a court to find—as the Court did—that there is “evidence of such quality and weight that reasonable and fair-minded individuals in the exercise of impartial judgment might reach different conclusions.” Sulzer, 2002 U.S. Dist. LEXIS 27197, at *6 (citing Rutherford v. Harris County, Texas, 197 F.3d 173, 179 (5th Cir. 1999)). The Court’s denial of Yahoo’s motions—and the implicit finding that sufficient evidence supported Bedrock’s theories—establishes that the theories could not have been “objectively baseless.” Id. It also establishes that Bedrock’s continued pursuit of those theories, alone, could not constitute subjective bad faith. Id. The Court’s prior denials thus dispose of Yahoo’s claim in its entirety.2 2 Yahoo’s assertion that Bedrock “misrepresented” its willfulness theory to overcome Yahoo’s various motions (see Reply at 3) is inaccurate and disingenuous. At the pretrial conference, Bedrock delineated the evidence that would support a finding of willful infringement, and it did so in a manner that was consistent throughout the litigation. Moreover, the evidence of willfulness that Bedrock cited in various pre-litigation motions and proceedings is the same evidence that Bedrock presented to the jury on that issue. (See 2/16/2011 Hearing Tr. at 13:3-16; 15:11-16:18.) 3 Dallas 326383v1 C. Yahoo’s Misconduct is Relevant to Section 285 Yahoo claims that its own litigation misconduct is irrelevant to a determination of whether a case is “exceptional” under Section 285, turning a blind eye to the Federal Circuit authority that has expressly held otherwise. See, e.g., Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1575 (Fed. Cir. 1996) (“Indeed, the court may consider the litigation actions of both sides in connection with § 285.”); see also Elk Corp. of Dallas v. GAF Building Materials Corp., 2000 U.S. Dist. LEXIS 2658, *9-11 (N.D. Tex. Mar. 7, 2000) (finding that case was not exceptional because “both parties engaged in behavior that exceeded the normal bounds of aggressive advocacy” and that “neither party can hold its head high”). Importantly, Yahoo has cited no authority to the contrary. The reason for this rule is self-evident. If Yahoo’s case truly were exceptional, then it would have had no reason to engage in the litigation misconduct that it did. While Bedrock does not wish to revisit the details of Yahoo’s misconduct—which was repeatedly sanctioned by the Court—Bedrock believes that this provides ample reason for the Court to find this case unexceptional. D. Bedrock’s Theories on Willfulness and Damages Were Far from “Vexatious.” Bedrock did not address the merits of its willfulness and damages theories in its response and instead focused on correcting Yahoo’s misapplication of the law and noting authority that Yahoo’s denied JMOLs entirely dispose of Yahoo’s motion. For the sake of completeness, Bedrock will briefly summarize the merits of its theories on willfulness and damages. Willfulness. Bedrock’s theory of willful infringement was grounded in law and fact. Courts have recognized that certain “extenuating circumstances” permit a plaintiff to sustain claims of post-filing willfulness, despite the plaintiff’s failure to first seek a preliminary injunction. See Webmap Technologies, LLC v. Google, Inc., 2010 U.S. Dist. LEXIS 104137, *9*10 (E.D. Tex. Sept. 10, 2010). Those circumstances include the patent’s emergence from 4 Dallas 326383v1 reexamination without narrowed claims, or the defendant’s receipt of opinions that the patent is valid and infringed by third-party prior art witnesses. When the USPTO issued a notice that the ’120 patent was coming out of re-exam, Bedrock accordingly amended its complaint to include an allegation of willfulness. Damages. Bedrock’s damages theory was also grounded in law and fact. Yahoo alleges that, pursuant to Uniloc, Bedrock should have known that its damages theory was unacceptable. (See Reply at 4 n.3.) This is a misreading of Uniloc. Bedrock’s damages theory did not use the “25 percent rule of thumb,” which was at issue and eschewed by Uniloc. See Uniloc USA, Inc. v. Microsoft Corp., 632 F,3d 1292, 1315 (Fed. Cir. 2011). Moreover, Uniloc does not stand for the proposition that any division of profits or cost-savings over 25 percent is, as a matter of law, impermissible. Such an interpretation of Uniloc is too simplistic and wrong. The Uniloc decision is further distinguishable because it held that the 25 percent rule was impermissible because there was no economic justification for its application in any particular case. Id. at 1315. Bedrock’s damages theory, however, had significant economic justification, as it was based on the peer-reviewed, Nobel Prize winning work of John Nash. (See 4/28/11 p.m. Trial Tr. at 96:23-98:8.) For these reasons, and the reasons Bedrock set forth at trial and in its pre-litigation motions and proceedings, Bedrock’s theories on damages and willfulness had merit. II. CONCLUSION For the foregoing reasons, Bedrock respectfully requests that the Court find that this case is not “exceptional” and deny Yahoo’s motion. 5 Dallas 326383v1 DATED: July 18, 2011 Respectfully submitted, McKOOL SMITH, P.C. /s/ Douglas A. Cawley Sam F. Baxter Texas Bar No. 01938000 McKOOL SMITH, P.C. 104 E. Houston Street, Suite 300 P.O. Box 0 Marshall, Texas 75670 Telephone: (903) 923-9000 Facsimile: (903) 923-9099 Douglas A. Cawley, Lead Attorney Texas Bar No. 04035500 Theodore Stevenson, III Texas Bar No. 19196650 Scott W. Hejny Texas Bar No. 24038952 Jason D. Cassady Texas Bar No. 24045625 J. Austin Curry Texas Bar No. 24059636 Phillip M. Aurentz Texas Bar No. 24059404 Stacie Greskowiak Texas State Bar No. 24074311 Ryan A. Hargrave Texas State Bar No. 24071516 McKOOL SMITH, P.C. 300 Crescent Court, Suite 1500 Dallas, Texas 75201 Telephone: 214-978-4000 Facsimile: 214-978-4044 Robert M. Parker Dallas 326383v1 Texas Bar No. 15498000 Robert Christopher Bunt Texas Bar No. 00787165 PARKER, BUNT & AINSWORTH, P.C. 100 E. Ferguson, Suite 1114 Tyler, Texas 75702 Telephone: 903-531-3535 Facsimile: 903-533-9687 ATTORNEYS FOR PLAINTIFF BEDROCK COMPUTER TECHNOLOGIES LLC Dallas 326383v1 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing document will be served on all counsel of record who have consented to electronic service on July 18, 2011. By: /s/ Stacie L. Greskowiak Stacie L. Greskowiak Dallas 326383v1

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