Blue Spike, LLC v. Audible Magic Corporation

Filing 105

ORDER ADOPTING REPORT AND RECOMMENDATIONS. The Court hereby adopts the Report of the United States Magistrate Judge as the findings and conclusions of this Court. Audible Magic Corporation's Motion for Voluntary Dismissal Without Prejudice 12 is GRANTED. Audible Magic's counterclaim 12 is DISMISSED WITHOUT PREJUDICE. Signed by Judge Robert W. Schroeder, III on 05/16/16. (mll, )

IN THE UNITED STATES DISTRICT COURT
OF THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
BLUE SPIKE, LLC,
Plaintiff,
v.
AUDIBLE MAGIC CORPORATION
Defendant.

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Case No. 6:15-cv-584

AUDIBLE MAGIC CORPORATION
Counterclaim Plaintiff,

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v.
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BLUE SPIKE LLC, BLUE SPIKE, INC. §
and SCOTT A. MOSKOWITZ
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Counterclaim Defendants.
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ORDER ADOPTING REPORT AND RECOMMENDATION
OF THE UNITED STATE MAGISTRATE JUDGE
The above-entitled and numbered civil action was referred to United States Magistrate Judge
Caroline M. Craven pursuant to 28 U.S.C. § 636. On February 26, 2016, the Report of the
Magistrate Judge was entered, containing proposed findings of fact and recommendations that
Audible Magic Corporation’s Motion for Voluntary Dismissal Without Prejudice (Dkt. No. 12) be
granted and that Audible Magic’s patent infringement counterclaim be dismissed without prejudice
instead of with prejudice as requested by Blue Spike, LLC.
Blue Spike, LLC filed objections to the Magistrate Judge’s Report and Recommendation.
Audible Magic filed a response to Blue Spike’s objections. The Court conducts a de novo review
of the Magistrate Judge’s findings and conclusions.

BACKGROUND
On August 27, 2012, Plaintiff Blue Spike, LLC (“Blue Spike”) filed suit against Defendant
Audible Magic Corporation (“Audible Magic”), alleging infringement of four patents (the “Asserted
Patents”). The Asserted Patents describe a method and device for monitoring and analyzing signals.
Audible Magic eventually brought thirteen counterclaims, including a patent infringement
counterclaim (no. 12) at issue here. Specifically, Audible Magic alleges Blue Spike’s offer for sale
of its Giovanni Abstraction Machine® (“GAM”) infringes Audible Magic’s U.S. Patent No.
6,834,308 (“the ‘308 patent”).
THE REPORT AND RECOMMENDATION
After extensive briefing and a hearing, the Magistrate Judge was not convinced Blue Spike
had expended significant effort in preparing for trial on Audible Magic’s patent infringement
counterclaim. She concluded Audible Magic’s explanation of its need for a dismissal without
prejudice outweighed Blue Spike’s concern of its possibly having to face trial later. The Magistrate
Judge did not find excessive delay or lack of diligence on the part on Audible Magic in moving to
dismiss. The Magistrate Judge recommended Audible Magic’s patent infringement counterclaim
be dismissed without prejudice.
BLUE SPIKE’S OBJECTIONS
In its objections, Blue Spike asserts Audible Magic’s counterclaim of infringement of the 308
patent was brought in bad faith. According to Blue Spike, the limitations of the ‘308 patent clearly
are not present in Blue Spike’s GAM as advertised. Blue Spike asserts Audible Magic asserted the
‘308 patent only to exert leverage on Blue Spike and to “increase Blue Spike’s costs via motion
practice, depositions, expert review, and claim construction.” (Dkt. No. 83 at 1).
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Blue Spike further asserts Audible Machine was “long aware that the GAM was not a
product,” and the Report and Recommendation gives too much credence to Audible Magic’s
purported confusion. According to Blue Spike, it clearly communicated it did not have source code
to produce.
Finally, Blue Spike contends it has been prejudiced by Audible Magic’s improper assertion
of the ‘308 patent and untimely request to voluntarily dismiss it. Specifically, Blue Spike engaged
experts to review the ‘308 patent and spent considerable time and expense on depositions, claim
construction, and trial preparation related to the ‘308 patent. Because of this prejudice, Blue Spike
argues dismissal without prejudice is not appropriate. Rather, dismissal with prejudice is an
acceptable remedy.
AUDIBLE MAGIC’S RESPONSE
In response, Audible Magic asserts Blue Spike’s offer for sale of the GAM included all of
the elements of Audible Magic’s ‘308 patent (most of which Blue Spike concedes are present), and
Audible Magic’s patent infringement counterclaim has been in good faith. Audible Magic asserts
Blue Spike discontinued its offer for sale “in the middle of the litigation,” confirming in December
2014 it was no longer offering GAM. Audible Magic states it sought dismissal as soon as it had
“binding evidence that the GAM product does not exist.” (Dkt. No. 85 at 5). Specifically, in his
January 2015 deposition, Scott Moskowitz testified there was not, and never had been, a GAM
product. On February 10, 2015, Michael Berry testified there was no GAM product and that he had
not provided such a product to Blue Spike. Audible Magic filed its motion for voluntary dismissal
on February 19.
Audible Magic argues “Blue Spike sent conflicting messages to keep alive the possibility of
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telling the jury that it had a product,” and to the extent this required discovery and other substantive
briefing, “Blue Spike brought it upon itself.” Id. at 8. Audible Magic further asserts Blue Spike only
asked minimal questions regarding the ‘308 patent during depositions. Audible Magic contends
those questions, as well as expert review of the ‘308 patent, would have been necessary anyway
because the ‘308 patent is asserted prior art to Blue Spike’s patents. Audible Magic argues there is
no “plain legal prejudice” to Blue Spike under the facts of this case.
Finally, according to Audible Magic, Blue Spike has never submitted any expert opinion to
establish non-infringement or to challenge the ‘308 patent’s validity, thus demonstrating the claim’s
merit. However, considering that Blue Spike had removed the offer for sale from its website and
further considering the early 2015 deposition testimony establishing there was no GAM, Audible
Magic “elected to streamline the proceedings” by moving to dismiss without prejudice. Id. at 6.
This would allow Audible Magic to pursue its rights in the future if warranted.
DE NOVO REVIEW
Pursuant to FED. R. CIV. P. 41, a court may grant the voluntary dismissal of counterclaims
“upon such terms and conditions as the court deems proper.” FED. R. CIV. P. 41(a)(2). The decision
whether to grant a voluntary dismissal rests soundly within the district court’s discretion. See Elbaor
v. Tripath Imaging, Inc., 279 F.3d 314, 317-18 (5th Cir. 2002). “[A]s a general rule, motions for
voluntary dismissal should be freely granted unless the nonmoving party will suffer some plain legal
prejudice other than the mere prospect of a second lawsuit.” Id. (citing Manshack v. Southwestern
Elec. Power Co., 915 F.2d 172, 174 (5th Cir.1990)).
The Magistrate Judge thoroughly analyzed the issues and in her discretion recommended
Audible Magic’s patent infringement counterclaim be dismissed without prejudice, finding Blue
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Spike has not suffered legal prejudice. “Plain legal prejudice often occurs where the grant of a
motion for voluntary dismissal causes the non-movant to be stripped of an otherwise available
defense” or where “the movant suffered an adverse legal decision prior to moving for voluntary
dismissal.” Robles v. Atl. Sounding Co., 77 Fed. Appx. 274, 275-76 (5th Cir. 2003). As noted by the
Magistrate Judge, the costs expended in preparation for trial and the “mere prospect of a second
lawsuit” do not constitute plain legal prejudice barring dismissal without prejudice. Id. at 276; see
also Manshack v. Southwestern Elec. Power Co., 915 F.2d 172, 174 (5th Cir. 1990). “If the court
finds that legal prejudice does not exist, then the motion should be granted. . . . If, however, the court
finds that the motion will cause legal prejudice, then the court can deny the motion or impose
conditions that will cure the prejudice.” Espinoza v. Nacher Corp., 2007 WL 1557107, at *2 (E.D.
Tex. May 24, 2007)(unpublished).
Here, Blue Spike has not made the required showing that it will suffer plain legal prejudice
as a result of the dismissal without prejudice. Although “plain legal prejudice can also exist
regarding the timing of a motion for voluntary dismissal,” Audible Magic’s timing did not inflict
legal prejudice on Blue Spike. Id. Blue Spike made some statements calling into question GAM’s
existence, but it also made other inconsistent statements (both on its website and in discovery
responses) indicating the GAM product did exist. Given these conflicting assertions, it was proper
for Audible Magic to pursue the depositions of Mr. Moskowitz and Mr. Berry to establish the facts.
Audible Magic sought dismissal as soon as it had binding testimony that the GAM product does not
exist.
The time and money expended by Blue Spike in defending against the counterclaim do not
mandate the denial of Audible Magic’s motion. Additionally, Blue Spike’s assertions of prejudice
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are overstated. Blue Spike did not contest infringement or validity and failed to offer an expert report
regarding the ‘308 patent. Because the ‘308 patent is asserted prior art to Blue Spike’s patents, Blue
Spike’s expert would have had to review it anyway.
Blue Spike’s objections are without merit The Court is of the opinion that the findings and
conclusions of the Magistrate Judge are correct. Therefore, the Court hereby adopts the Report of
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the United States Magistrate Judge as the findings and conclusions of this Court. Accordingly, it is
hereby
ORDERED that Audible Magic Corporation’s Motion for Voluntary Dismissal Without
Prejudice (Dkt. No. 12) is GRANTED. It is further
ORDERED that Audible Magic’s counterclaim 12 is DISMISSED WITHOUT
PREJUDICE.
SIGNED this 16th day of May, 2016.

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ROBERT W. SCHROEDER III
UNITED STATES DISTRICT JUDGE

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