Technology Advancement Group, Inc v. Ivyskin, LLC

Filing 41

MEMORANDUM OPINION AND ORDER entered as to Defendant's 31 Motion to Set Aside or Amend Default Judgment. For the reasons stated in this Memorandum Opinion and Order, Defendant's motion is DENIED, as outlined. (See Order for Specifics) Entered 8/21/14 and filed 8/22/14. (Signed by District Judge Raymond A. Jackson on 8/21/14). (ecav, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

I

Norfolk Division

TECHNOLOGY ADVANCEMENT GROUP, INC.,
"

•

Plaintiff,
v,

CIVIL ACTION NO. 2:13cv89

IVYSKIN, LLC,
Defendant.

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant IvySkin. LLC's Motion to Set Aside or Amend Default
Judgment. ECF No. 31. For the reasons stated below, Defendant^ motion is DENIED.
I. FACTUAL AND PROCEDURAL HISTORY

On February 19, 2013. Plaintiff Technology Advancement Group ("TAG") filed its

Complaint against Defendant Ivyskin, alleging that Ivyskin infringed three of its patents through
its sale of protective cases for portable computing devices. ECF No. 1. 'FAG states that it is a

small business that provides information technology solutions for the defense industry, that it has

invested heavily in developing intellectual property in the area ofsystems for protecting portable
computing devices, and that it owns three patents relevant to the instant dispute. Id. fl 9-10. It
alleges that IvySkin sells protective cases for portable computing devices, and that these cases
infringe TAG's patents. Id. ffij 11-13.

The Complaint included three counts of direct infringement, one for each of TAG's

patents. As relief for the alleged infringement, it seeks: 1) a declaration that IvySkin's products
are infringing pursuant to 35 U.S.C. §271. 2) an injunction restraining IvySkin and its officers

from infringing all three patents, 3) an award ofcompensatory damages, prejudgment interest,
and costs for the infringement ofall three patents, 4) trebled compensatory damages under 35
U.S.C. §284, and 5) attorneys' fees under 35 U.S.C. §285. Id. at 5-7. On April 1, 2013, the

Complaint was served on Mike Panahi, the founder and registered agent ofIvyskin. ECF No. 7.
The Summons warned Defendant that "[i]f you fail to respond, judgment by default will be
entered against you for the relief demanded in the complaint." ECF No. 4.
On April 8, 2013, the clerk docketed a letter motion for an extension of time from Mr.

Panahi. ECF No. 5. Mr. Panahi asked for a 90 day extension to obtain legal representation. He
stated that he could not afford legal representation and could also not afford Plaintiffs settlement

offer. Id. Panahi also stated that he has not infringed TAG's patents because "products were
never manufactured." Id. On April 18,2013, the Court granted Defendant's motion for an
extension of time, directed Defendant to retain counsel, and directed than an Answer be filed no
later than July 1,2013. ECF No. 8.

On June 26, 2013, Mr. Panahi filed a second letter motion for extension of time. ECF

No. 12. He requested an additional six month extension to assemble a legal defense. Id. He
further noted that TAG is a"non-producing entity in plastic protective cases," and attached a
"Non-Infringement and Invalidity Report," written by a lawyer that analyzed the issues in the
case and concluded there was no infringement. Id. On July 5,2013, the clerk entered a Notice

to Counsel which directed TAG's counsel to file astatus report within 15 days and noting that it
could file arequest for entry ofdefault ifIvyskin were in default. On July 11, 2013, TAG filed a
Request for Entry ofDefault and a Status Report, ECF Nos. 9, 10, and on July 16, 2013, the
clerk entered default pursuant to Federal Rule ofCivil Procedure 55(a), ECF No. 11.

On August 1,2013, the Courtgranted IvySkin's second motion for an extension of time

and directed it to file an answer no later than September 15, 2013. ECF No. 13. It also vacated
the prior entry of default. Id. On October 9, 2013, the clerk entered anotherNotice to Counsel.
ECF No. 14. On October 15, 2013, the clerk docketed a third letter motion from Mr. Panahi
(still acting without legal representation) which asked to have the case transferred to the U.S.

District Court for the District ofNew Jersey on the grounds that Ivyskin never conducted
business in Virginia or sold products there. ECF No. 15. On October 17, 2013, the Court denied

the motion to transfer but granted Defendant athird extension oftime, directing IvySkin to file
its Answer no later than November 15, 2013. ECF No. 16.

On December 4,2013, the clerk again entered default as to IvySkin. ECF No. 17. On
January 17,2014, Plaintiff filed a Motion for Default Judgment, and certified that it had served

IvySkin atthe address on file which Panahi had used for all ofhis previous letter motions. ECF

No. 18. Receiving no response from Defendant, on April 8,2014, the Court scheduled ahearing
on the motion for June 26, 2014 and mailed notice of the hearing to Defendant at the address on
file. OnApril 16, 2014, the notice of hearing was returned as undeliverable. ECF No. 21.

In its Motion for Default Judgment, TAG moved for a default judgment of$174,039.35

as well as permanent injunctive relief. It asserted that IvySkin "sells or offers for sale, and/or has

sold or offered for sale" in the Eastern District ofVirginia certain protective cases for portable
computing devices which infringe TAG's patents. Further, it contended that those cases are still

being sold online through IvySkin's own website and through other online retailers. Using a
hypothetical negotiation method for calculating a reasonable royalty, TAG calculated actual

damages as $43,988.04. It stated that it based this conclusion on a recent license negotiation

with acompany similar to IvySkin. The figure represents damages for the time period beginning

February 25, 2013 and ending January 17, 2014. TAG claimed that the start date, February 25,
2013, is the date on which IvySkin had knowledge that it was infringing. The end date, January
17, 2014, is the day that TAG filed for default judgment. It supported its computations ofactual
damages with, inter alia, an affidavit from TAG's owner.

TAG requested that actual damages be trebled pursuant to 35 U.S.C. §284 on the
grounds that IvySkin's infringement after having knowledge of the lawsuit was willful. It also

added $3,482.33 for prejudgment interest as ofJanuary 17,2013, and further requested that the
Court declare this case exceptional due to willful infringement and award attorneys' fees
pursuant to 35 U.S.C. §285, in the amount of $37,122.10. Finally, TAG requested costs in the

amount of$1,110.90. In addition to the damages award, TAG requested entry ofapermanent
injunction against IvySkin enjoining it from infringing TAG's products through the sale of
certain protective covers.

The Court held ahearing on Plaintiffs Motion over five months after it was filed, on

June 26, 2014. Mr. Panahi was present for the Defendant, although he was not represented by
counsel. During the hearing, he acknowledged that he had changed his address without

informing the Court, and that he had seen an email with TAG's Motion for Default Judgment but
had deleted it without reading it. Tr. 18-19.

At the close of the hearing, the Court directed Plaintiffto submit asupplemental
calculation of damages to reflect the additional passage oftime since its initial submission.

Plaintiff complied with this instruction on July 7, 2014. ECF No. 24. Using the same method
that it used in its initial calculation, TAG calculated actual damages resulting from Defendant's

infringement as $134.52 per day, beginning February 25, 2013 (the date Plaintiffhad knowledge
of the lawsuit) and continuing through June 24,2014, for atotal of$65,242.20. It again

requested that damages be trebled for willfulness because Defendant refused to stop selling the
cases despite knowledge of Plaintiffslawsuit and ignored the lawsuit. For largely the same
reasons, TAG contended that it should be awarded attorneys' fees in the amount of $67,181.01.
Finally, it sought costs in the amount of $350, and prejudgment interest in the amount of

$2,817.48. It calculated interest using a3.25% rate applied to the non-trebled damages figure,
computed for the time period February 25,2013 to June 26,2014. TAG again requested a
permanent injunction.

On July 14, 2014, the Court signed and filed an Order granting the Motion for Default

Judgment. ECF No. 29. The Court entered the actual damages that TAG requested, along with
costs, attorneys' fees, and asomewhat narrower permanent injunction than TAG's request. The

Court declined, however, to award trebled damages or attorneys' fees, finding that TAG had

failed to make the requisite showing. That Order was entered on the docket the next day, on July
15,2014.

Also on July 14, 2014, Defendant, newly represented by counsel who noticed their

appearance the same day, filed aMotion to Set Aside Default or Limit Damages pursuant to
Federal Rule of Civil Procedure 55(c). ECF No. 27. In light of the Court's order filed the same
day, Defendant subsequently withdrew that motion and instead filed the instant Motion to Set

Aside or Amend Default Judgment pursuant to Rules 60(b) and 59(e). ECF Nos. 31, 32.
Plaintiff filed aMemorandum in Opposition on July 31, 2014, ECF No. 38, and Defendant filed

their Reply on August 7, 2014, ECF No. 39. The matter is accordingly fully briefed and ripe for
disposition.

II. LEGAL STANDARD

The Federal Rules ofCivil Procedure require the clerk to enter default against aparty
from whom affirmative relief is sought when that party has "failed to plead or otherwise defend"

its case. Fed. R. Civ. P. 55(a). When aplaintiffs claim is not for asum certain, as in this case,
the plaintiffmust apply to the Court for default judgment, and ifthe party against whom the
judgment is sought has appeared previously, that party must be served with written notice at least
seven days prior to any hearing. Fed. R. Civ. P. 55(b)(2). Further, Rule 55(b)(2) provides that:

The court may conduct hearings or make referrals—preserving any federal statutory right

to ajury trial—when, to enter or effectuate judgment, it needs to:
(A) conduct an accounting;
(B) determine the amount of damages;

(C) establish the truth ofany allegation by evidence; or
(D) investigate any other matter.

"Upon default, the well-pled allegations in acomplaint as to liability are taken as true,

although the allegations as to damages are not." SEC. v. Lawbaugh, 359 F. Supp. 2d 418,422

(D. Md. 2005). Default judgments are to be granted sparingly, with consideration to be given to,
among other factors, the question of whether aless severe sanction would suffice. See, e.g.,

Lolatchy v. Arthur Murray, Inc. ,816 F.2d 951, 953-54 (4th Cir. 1987); United States v. Moradi,
673 F.2d 725, 727-28 (4th Cir. 1982). Entry ofdefault judgment is committed to the sound

discretion ofthe Court and shall be reviewed only for abuse ofdiscretion. Lolatchy, 816 F.2d at
953-54.

Ivyskin's first (and now withdrawn) motion relied on Rule 55(c), which states that the

Court "may set aside an entry ofdefault for good cause, and it may set aside adefault judgment
under Rule 60(b)." The instant motion instead cites Rule 60(b) as aground for setting aside the
default judgment. This provision states:

Grounds for Relief from aFinal Judgment, Order, or Proceeding. On motion and
just terms, the court may relieve aparty or its legal representative from afinal judgment

order, or proceeding for the following reasons:
juugmem,
(1) mistake, inadvertence, surprise, or excusable neglect(2) newly discovered evidence that, with reasonable diligence, could not have been

discovered in time to move for a new trial under Rule 59(b);

(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation or

misconduct by an opposing party;

'

(4) thejudgment is void;

(5) the judgment has been satisfied, released or discharged; it is based on an earlier
judgment that has been reversed or vacated; or applying it prospectively is no longer
equitable; or

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(6) any other reason that justifies relief.

Fed. R. Civ. P. 60(b). Such amotion "must be made within areasonable time—and for reasons
(1), (2), and (3) no more than ayear after the entry of the judgment or order or the date ofthe
proceeding." Id. 60(c)(1).

The United States Court ofAppeals for the Fourth Circuit ("Fourth Circuit") has

established atwo-part framework that an applicant must satisfy to obtain relief under Rule 60(b).
First, "a moving party must show that his motion is timely, that he has ameritorious defense to

the action, and that the opposing party would not be unfairly prejudiced by having the judgment
set aside." Park Corp. v. Lexington Ins. Co., 812 F.2d 894, 896 (4th Cir. 1987). Second, "[i]f
the moving party makes such ashowing, he must then satisfy one or more ofthe six grounds for

relief in Rule 60(b)." Id. As grounds for setting aside the judgment, Ivyskin relies specifically
on subsection (b)(6) of Rule 60, "any other reason that justifies relief." ECF No. 32, at 1. This
"authorizes relief from judgments for any reason justifying relief other than those reasons set

forth in Rule 60(b)(1) through (5)." Park Corp., 812 F.2d at 897. It requires ashowing of
"extraordinary circumstances" to justify relief. Gonzalez v. Crosby, 545 U.S. 524, 536 (2005).
In the alternative to setting aside default judgment entirely and allowing the case to
proceed on the merits, Ivyskin requests that the amount of damages be reduced and that the

injunction be stricken pursuant to Rule 59(e). That provision states simply that "[a] motion to

alter or amend ajudgment must be filed no later than 28 days after the entry ofjudgment." The
Fourth Circuit notes that such motions will be granted in three circumstances: "(1) to
accommodate an intervening change in controlling law; (2) to account for new evidence not

available at trial; or (3) to correct aclear error of law or prevent manifest injustice." Ingle ex rel.
Estate ofIngle v. Yelton, 439 F.3d 191, 197 (4th Cir. 2006) (quoting Pac. Ins. Co. v. Am. Nat'l

Fire Ins. Co., 148 F.3d 396,403 (4th Cir.1998)). However, relief under Rule 59(e) is an
extraordinary remedy that should be granted sparingly. Pac. Ins. Co., 148 F.3d at403. Such

motions may not be used "to raise arguments which could have been raised prior to the issuance

ofjudgment, nor may they be used to argue acase under anovel legal theory that the party had
the ability to address in the first instance." Id.
III. DISCUSSION

A. Rule 60(b)—Motion to set aside

As described above, to set aside the default judgment Ivyskin must first show that 1) its

motion is timely, 2) it has ameritorious defense, and 3) TAG would not be unfairly prejudiced.
The Court concludes that Ivyskin's motion is timely, as it was filed the day after the Court

entered default judgment. The Fourth Circuit has applied the "meritorious defense" requirement
somewhat liberally, stating that "all that is necessary to establish the existence ofa 'meritorious

defense' is apresentation or proffer of evidence, which, ifbelieved, would permit either the

Court or the jury to find for the defaulting party." UnitedStates v. Moradi, 673 F.2d 725, 727
(4th Cir. 1982). This is a"minimal" burden. Lewitzke v. W. Motor Freight, No. 9:06-577, 2006
WL 2345986, at *5 (D.S.C. Aug. 11, 2006). Ivyskin has satisfied this low bar with its "Non-

Infringement and Invalidity Report." ECF No. 39-1; 12-1. This report was prepared by apatent

attorney, is relatively thorough, and concludes both that there is no infringement and that one or
more of the disputed patents may be invalid.

Finally, Ivyskin has also shown that TAG would not be unfairly prejudiced ifdefault

judgment were set aside. "In the context of amotion to set aside an entry ofdefault,... delay in
and ofitself does not constitute prejudice to the opposing party." Colleton Preparatory Acad,

Inc. v. Hoover Universal, Inc., 616 F.3d 413,418 (4th Cir. 2010). See also Augusta Fiberglass

Coatings, Inc. v. Fodor Contracting Corp., 843 F.2d 808, 812 (4th Cir. 1988) (non-moving party
would suffer no more than "any party which loses aquick victory"); Dassault Systemes, SA v.
Childress, 663 F.3d 832, 842 (6th Cir. 2011) ("Delay alone is not a sufficient basis for

establishing prejudice

Nor does increased litigation cost generally support entry ofdefault..

.. Instead, it must be shown that delay will result in the loss ofevidence, create increased

difficulties of discovery, or provide greater opportunity for fraud and collusion.... Additionally,
the relevant inquiry concerns the future prejudice that will result from reopening the judgment,
not prejudice that has already resulted from the defendant's conduct." (internal punctuation and
quotations omitted)). TAG argues only that itwill be forced to litigate the merits ofthis case
after a long delay and some litigation costs, which is insufficient under this case law.

Although Ivyskin has met the first part of the test for setting aside default judgment
pursuant to Rule 60(b), ithas not satisfied the second part ofthe test, which requires it to show

that relief is justified under one of the enumerated grounds ofRule 60(b). In this instance,

Ivyskin relies on Rule 60(b)(6), ECF No. 39, at 6, abroad, catch-all provision that requires a
showing of extraordinary circumstances. Ivyskin has not shown such extraordinary
circumstances. In fact, it has not put forth any valid reason at all why it is entitled to relief. The

Court was repeatedly lenient with Defendant, allowing three time extensions, setting aside a

previous entry of default, and allowing Mr. Panahi (Ivyskin's registered agent and founder) to
proceed without counsel even though Ivyskin is an LLC. Inexplicably, Mr. Panahi waited until

over two weeks after the hearing regarding the default judgment to retain counsel and make any
filing in accordance with the applicable rules.

Defendant now contends that he was unaware ofthe nature ofthe proceedings, and

thought that the June 26,2014 hearing on TAG's motion for default judgment was an
opportunity for him "to defend the case on the merits." ECF No. 39, at5. But Mr. Panahi

demonstrated sufficient knowledge ofgeneral legal proceedings and his obligations in this case

to file repeated letters with this Court requesting time extensions so that he could obtain legal
counsel to defend the suit, to ask for avenue transfer, and to obtain areport of non-infringement
from a patent attorney. Moreover, Mr. Panahi, a licensed dentist, is a well-educated individual.

Tr. 12. Therefore, his excessively belated claim of lack of knowledge and understanding is
unavailing. Defendant also states that it has now has retained counsel as areason for why default

judgment should be set aside. But Defendant provides no explanation for waiting so long to do
so. Because Ivyskin has not put forward any reason justifying revoking afinal judgment, let
alone shown extraordinary circumstances, it has failed to demonstrate it is entitled to relief under
Rule 60(b)(6).

B. Rule 59(e)—Motion to Amend

In the alternative, Defendant contends that damages, costs, and interest should be reduced

from $68,409.68 to $10,700.68 because the damages calculation method TAG used was flawed.

Further, Defendant asks the Court to set aside the permanent injunction because it is not justified
on the merits. ECF No. 32. Defendant argues that this qualifies for relief under Rule 59(e)
because it is necessary to "prevent manifest injustice."

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Defendant cannot obtain relief under Rule 59(e) for two reasons. First, it is settled in the
Fourth Circuit that Rule 59(e) motions may not be used "to raise arguments which could have

been raised prior to the issuance ofjudgment, nor may they be used to argue acase under anovel
legal theory that the party had the ability to address in the first instance." Pac. Ins. Co., 148 F.3d
at 403. Defendants' revenue figures supporting its lower damages figure as well as its arguments
regarding whether permanent injunctive relief is justified are material that easily could have been
provided in response to Plaintiffs Motion for Default Judgment. That motion included a

calculation ofproposed damages along with the justification for the injunctive relief, and was
filed about six months prior to the Court's entry ofjudgment. But Mr. Panahi chose not to
respond. Even though he is not an attorney, as the founder of Ivyskin and therefore one

knowledgeable about the company's finances, he could have at least easily provided arebuttal to
the revenue figures Plaintiffrelied upon in its damages calculations. But by Mr. Panahi's own
admission, he chose to change his address without notification and deleted the emailed version of

the motion. See also Robinson v. Wix Filtration Corp. LLC, 599 F.3d 403,409-10 (4th Cir.

2010) (no abuse ofdiscretion in denying aRule 59 motion where the movant "was willfully
blind to whether the opposing side had filed adispositive motion").

Second, an alternative basis for denying Defendant's motion to amend is that doing so
will not prevent amanifest injustice. Plaintiffdoes not specifically respond to Defendant's
allegations oferror. But the Court notes that it is not clear which party (if either) has the correct
revenue figure. Plaintiff based its calculations on aJanuary 2014 company profile of Ivyskin, as
it was unable to obtain any figures from Ivyskin itself. ECF No. 18-6, f 15. Defendant has

belatedly provided what it states are accurate figures for the allegedly infringing products, but it
uses simply an affidavit ofMr. Panahi. Moreover, although Defendant now claims Plaintiffs
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calculations were erroneous as a matter oflaw because it used gross revenues as a royalty base
rather than revenues for the infringing products only, that allegation is not clearly supported by

Plaintiffs affidavit. See ECF No. 24-1 ("The schedule ... represents] a reasonably royalty...

for licensing rights to the technology covered by the '412, '686, 783 Patents" (emphasis
added)). Finally, as to the permanent injunction, Defendant similarly attempts to rehash the fourfactor test without pointing to clear error.

Not only has Defendant failed to show that the relief accorded to Plaintiff in the original

judgment was clearly erroneous, but the Court notes that such relief was significantly less than
what Plaintiff had requested as an award. This is because the Court declined to award attorneys'

fees and treble damages, and also narrowed the scope ofthe permanent injunction by eliminating
the phrase "any products covered by those patents." Compare ECF No. 24, at 7 with ECF No.

29, at 12. Additionally, in light of Defendant's unexplained choice to retain counsel, the Court is

now skeptical about its past repeated complaints that it lacked the ability to afford legal
representation. Therefore, were the Court to reopen the matter ofdamages, it might be inclined
to reconsider its decision to not award attorneys' fees. See Wedgetail Ltd. v. Huddleston Deluxe,
Inc., 576 F.3d 1302, 1304-05 (Fed. Cir. 2009) ("[Ojnly a limited universe of circumstances

warrant a finding ofexceptionality in a patent case: inequitable conduct before the PTO;

litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or
willful infringement.").

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IV. CONCLUSION

For the reasons stated above, Defendant's Motion to Set Aside or Amend Default

Judgment, ECF No. 31, is DENIED.

The Clerk is DIRECTED to send a copy of this Memorandum Opinion and Orderto the
parties.
IT IS SO ORDERED.

Norfolk, Virginia

Raymond A. Jackson

August ^J ,2014

United States DistrictJudge

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