Last Week in Texas with Michael Smith | Episode 18

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Who’s afraid of a design patent?  An ex parte injunction demonstrates that we should all be paying attention. And how much is enough when it comes to claim charts? Judge Albright gives us meaningful guidance and a strong warning about second chances.

Episode Transcript

Wayne Stacy  00:06

Welcome, everyone to the Berkeley Center for Law and technologies last week in Texas podcast. I’m your host, Wayne Stacey. And we are here once again with Michael Smith. You’ve heard me say it before. If it happened in Texas, and he doesn’t know about it, it does does not matter. So with that in mind, Michael, why don’t you take us to the the Eastern District of Texas?


Michael Smith  00:30

Well, thank you, Wayne, good to be here. Today, I want to lead off with a what appeared first blush to be pretty simple case, defendants came in and the case got settled. And they wanted to have their defenses dismissed without prejudice. It’s kind of an unusual situation. You know how sometimes if you’re a defendant, and it’s a customer suit, the manufacturer, the customer will come in and say, hey, we’ll be bound by whatever happens to the manufacturers case? Well, the defendant did that here. And it didn’t work out so great. The parties went, they settled the case, they had an MOU, and they had an interesting provision there, they said, We’re going to take 50 days to negotiate a final settlement agreement. If we can’t do that, within 50 days, then the final settlement agreement will become a final and binding settlement agreement. And that provision said that all of the claims in the case will be dismissed with prejudice. So one of the defendants comes in who had kind of given control to the manufacturer to to resolve the claims and said, Oh, wait a minute. No, no, no, I want my affirmative defenses dismissed without prejudice. And the court said, No, you gave this other party when you were when you wanted your case stayed under under the customer suit exception. You said I’ll be bound by any final judgment. So the court said no, you’re stuck with how the Settlement Agreement got worked out here. Now, it’s not clear that there was actually legal prejudice to that defendant. But it’s I think it’s an important reminder to us to be careful what you agree you’ll be bound by and check the wording carefully on those mo use, because this could have been fixed at the MOU stage if someone had been paying attention to the exact language, probably at eight o’clock at night when they were trying to get a case settled the night before the pre trial conference.


Wayne Stacy  02:22

Well, and that’s this is, I guess, the second week that we’ve had this kind of post settlement disputes where we had an agreement, but not quite. And it’s it is a good lesson. But it goes back to one of my favorite provisions, letting the the mediator have baseball style arbitration for any disputed provisions. And it cleans things up a lot. Because you’re not been there eight 910 o’clock at night before an opening arguments a hard time to make sure you got all the little, little issues like this closed up.


Michael Smith  02:56

Well, in the baseball style is a great way to go. There’s there’s another one I can suggest I had a couple of mediations last year with a magistrate judge in the Sherman division Eastern District Judge Christine Novak. And in her court, she did baseball style. But the other thing she did is as soon as she walked in to start the mediation, she handed you or she or she told you, I want you to start writing the settlement agreement. What she said we can be trading numbers, we can do that. But while that’s happening, I want you both to be working on the language of the final settlement agreement. So when we get to the end of the day, if we reach agreement on the number, we’ve also got a completely finalized settlement agreement, so that we don’t have to argue over the terms later. And that worked out great, because everyone had time to work on it, you had everyone’s attention. The other people were just a couple of rooms away. And by the end of the day, you had a turnkey settlement, everything was done. That may not work in every case. But that was a really good tactic. I’ve only seen judge Novak use that. But it’s a great way to get disputes resolved while everybody’s in chairs. And you can get to everybody and you’re not trying to catch people with buyer’s remorse by email a week later.


Wayne Stacy  04:15

So that’s that’s a great reminder. There’s a mediator out here in California that asked you to bring a blank settlement agreement. In other words, a settlement agreement somebody used before, take out any of the the numbers, anything like that as a starting point, because they said well, you’ve got somebody who’s already vetted this, it’s already been negotiated. Let’s just start with that. It also can somebody Oh, go ahead.


Michael Smith  04:40

I think that’s a great idea. I think that’s a great idea. And we actually had in a mediation I was in a couple of weeks ago, we did exactly that. We prepared a proposed settlement agreement with all the bells and whistles. So we could go in and say okay, here’s the starting point. So the starting point is we’ll pay you 75 cents to settle this case or will by $2 to settle this case, it’s here are the terms and conditions under which we think this can be resolved. And even if we can’t get the numbers straight, maybe we can get the framework straight. And at least you don’t get into those fights where 30 days after a settlement, somebody is saying, wait a minute, I never agreed that I would do that. If they had raised that today at the mediation, I would have said, No, I’m not doing that.


Wayne Stacy  05:25

Well, Michael, the next case, is one that think about how frequently I’ve seen this in my practice, but rule 41 dismissals, they don’t pop up a lot. And guidance on them is rare, and the opportunity to make mistakes is non trivial. So I think Judge Jordan had one of these that he had to smooth out.


Michael Smith  05:48

Right. And this is interesting, because judge Jordan is the other judge in the Sherman division of the Eastern District. He’s in Plano, he’s still relatively new to the bench. So we’re all interested in what are what are his attitudes towards different types of motions? In this case, the plaintiff had filed a partial voluntary dismissal of some of its claims under Rule 41. A. And the court said, No, you can’t do that. Under that rule. That’s not the right tool. So I’m denying that. So then the defendant sees daylight, and they’re like, oh, okay, Judge will now we want a dismissal of all claims with prejudice under 41. B. And the judge is like, no, no, that’s not here’s the standard for that. And you’re not there. They pick the wrong tool for dropping a claim. That’s not a basis for dismissed, dismissing the whole case. But it’s an important reminder that rule 41 really needs to be read, you need to understand what it can be used for what it can’t be used for. And if you can’t do what you want to do, under the rule, pick up the phone, call the other side and say, look, here’s what I want to do. I want to drop this. How do you want to do this you want to letter agreement, you want to a new pleading? There are different ways of doing it, but going in and asking for a dismissal with prejudice, because the other side made a mistake and emotion is probably not. Whoever did that is probably someone judge Jordan is going to remember and that’s not the way I would want to be remembered.


Wayne Stacy  07:16

Goes back to I think that the most important rule coming out of the series so far, is don’t be a jerk.


Michael Smith  07:24

Good advice. Very good.


Wayne Stacy  07:26

This would just squarely falls in that category. And I’m positive somebody was rolling eyes and chamber if not more.


Michael Smith  07:33

Yeah, I mean, I mean, don’t pigs and hogs, pigs get fat Hogs get slaughtered, you want to stay on the pig side of things. And I usually do. Another case that came out in the last couple of weeks that’s of interest is Judge Gill strap had another motion to stay, in this case, the Varta case. Last week, we were talking about one based on the stay due to IPR. As soon as that got decided, the next day up motion was well, hey, we want to stay for customer suit exception. What judge Gill strap denied the motion in this case and pointed out that the allegations were not the same between the manufacturer and the customer defendants. So this is a useful opinion to look at. If you think you’ve got a customer suit argument. Well, have I got the right facts? Well, this is the latest from Judge Gill strap on, here’s what the requirements are and you need to meet these requirements, or you’re not going to get a stay.


Wayne Stacy  08:33

Well, then we also get this ongoing fight about auto dealers popping up again in the Eastern District for improper venue.


Michael Smith  08:43

Absolutely. This this is another there was a case several years ago where Judge Gill strap held that the the local locally owned BMW dealerships in the district constituted Well, first of all, before TC heartland, he said, Okay, that’s that’s enough for that’s enough for venue, then TC Heartland comes out, he has to go back and look at it and say, okay, are these regular and established places of business of the BMW, parent defendants, and he concluded that they were. Now the issue comes back in another case, and BMW asked for dismissal again on improper venue grounds and says the local BMW dealerships are not their agents. The plane, his first response is to judge Payne is up judge, this is collateral estoppel. This courts already decided that they are and judge Payne says no, there have been a couple of Federal Circuit cases since then, that have talked about this issue. And they’ve talked about agency and principles of agency in determining whether something is irregular and established place of business. So I’m not going to hold your collaterally estopped. I’ll look at the the claims on the merits. And the court went through the contract went through the the The actual control that the BMW parent had over the dealerships, and eventually concluded that they did serve as a sufficient basis for venue as a regular established place of business of the parent companies. So he says you’ve got a prima facia showing here, that they’re agents of the defendant for purposes of venue very high profile issue. And I would expect to see more cases on this, both at the district court level and at the Federal Circuit.


Wayne Stacy  10:30

Well, the point on all of this is highly, highly fact specific and briefing matters in these kinds of cases.


Michael Smith  10:38

Well, and that was the thing I noticed here when this issue was first briefed a few years ago, it was not briefed. Well, and a lot of what was in judge Gill straps opinion was information that that had come up after the briefing that he had to get from sources outside the briefing. Because the briefing didn’t get the facts there. What I noticed here is the court went in painstaking detail through the franchise agreement and said, Okay, here’s what BMW can can do. Here’s what it can require you to do. One of my former partners used to do work for a auto dealership here in Marshall. So I have a little familiarity with what a otter auto dealership franchise agreement looks like. And this opinion centered on that, on the issues of argue their agent. Is this really the place of business of BMW North America, as opposed to Michael Smith’s BMW dealership of Marshall? So it’s, it’s it’s a much better supported opinion. And also, it’s got the benefit of the Federal Circuit opinions talking about agency so that the parties and the court could see oh, here are the facts that are that are relevant to the consideration here.


Wayne Stacy  11:54

Well, the Northern District and Southern District seemed quiet last week, but the Western District, as you would expect, was pretty active, starting with some big summary judgment rulings?


Michael Smith  12:05

Well, it was one of the things we’ve talked about in recent weeks is case assignment in the Western District. We’re seeing a number of cases being transferred from Waco to Austin, but now they’re being reassigned to the Austin division judges. So we’ll see judge Yankel and judge Pittman getting those cases? Well, this is an opinion from Judge Yankel, who’s who’s not unknown to patent litigants, because he’s he’s had a number of patent cases. He accepted a report and recommendation here denying most of the parties summary judgment motions. Magistrate Judge Susan Hightower did a report recommending denying all of the defendants motion and all of the plaintiffs motion, except for one part where it said, determined this this term is not this claim is not indefinite, and that she found should be granted. So we need to be paying attention to the other judges in the Western District in the coming weeks and months, especially judge Yankel, especially Magistrate Judge high tower and this gives you an insight into how they’re deciding cases. There’s actually another report and recommendation by Judge high tower in one of the plaintiffs cases against a different defendant. That’s that’s up on on review with Judge vehicle now. So we need to be reading those opinions and see what those tell us about how cases are going to be handled when they end up in Austin.


Wayne Stacy  13:33

Well, then, we had a trial out of out of Waco and first verdict to this year and surprisingly low damages numbers, or maybe surprisingly, a low damages ask.


Michael Smith  13:46

Well, yeah, it’s it’s kind of the the verdict was that the the jury found the claims and fringe that they weren’t shown to be invalid, invalid, and they awarded $496,000 in damages. Well, the thing you want to know is, well, what did the plaintiff ask for? What did the defendant side damages were if there was infringement, and what I learned was, the plaintiff had only asked for 640,000. That was their damages model. And the defendant had said, if we’re if we’ve infringed the damages should only be 300,000. So you’re just a hair over the midpoint between the two numbers. So what’s probably behind this is some pre trial rulings that narrowed, what the discoverable what the damage damages recovery should be, but as you and I know if somebody is going to trial seeking $640,000, you’ve already lost both sides have lost so it’s it’s not unusual that the damages are that low. It they may not have been that low earlier in the case. But again, that’s that’s not a exactly a rare damages number, but it does Tell us something when what goes to trial? That’s all that’s left.


Wayne Stacy  15:06

Well, then we also get maybe the first one, I’ve seen kind of a real set of guidance on serving foreign defendants that you’re having difficulty reaching. Could it give us a view on what what’s coming out of the Western District?


Michael Smith  15:20

We see we’re seeing a lot of cases coming out of the Western District on this. There was a there there was a one decision by Judge Akel. I think this past week, this decision was by Judge Albright and he permitted alternative service by email to the party’s counsel, in a pending case what you see plaintiffs asking for, and if they give the court enough facts, because I’ve seen these denied as well, if they give the court enough facts, and this is a repeat defendant, then you might be able to get look judge here their counsel and pending cases, let us serve their US subsidiary and let us serve their counsel in a pending case. In this situation, unlike other opinions I’ve seen of Judge Albright there’s no reasoning in here, which leads me to believe that this may have been even though it doesn’t say it this may have been an agreed order. This may have been negotiated, where the defendant said, Okay, this, this manner of service will be fine. We need you to get an order authorizing this, but we’re not going to oppose this. Other orders I’ve seen were clearly opposed. So I think here, it may be that parties agreed, okay, this form of service will do. So if you’re representing or if you’re dealing with an issue where you’re trying to serve a foreign defendant, see what their activities are in the US see if they’re involved in pending litigation, talk to who their lawyers already are, because it may be that you can get this worked out by agreement, as I suspect this might have been.


Wayne Stacy  16:51

Well, one of my favorite cases the the week, you know, another slightly unusual case in terms of what what happens day to day, but it was an ex parte preliminary injunction and a design patent case. And I think this is this is worth talking about and sharing the strategy here.


Michael Smith  17:09

Well, it is this is another situation where you say Judge Albright granted a preliminary injunction? Well, yes, but this is a design patent. It’s a situation where it’s a foreign individual or an entity who doesn’t have any presence in the United States, the court said, there’s not going to be any ability to collect a monetary judgment. So you go pretty much right to injunctive relief, and the court granted a TR O and later a judgment that stopped the sale of unlicensed products that the plaintiff asserted infringed a design patent. So it’s a different situation. But it’s an error that you want to have in your quiver, if that’s the situation you’re dealing with, you may not be able to get money damages, but you may be able to get an injunction and at least get the product off the market. This is one of several different avenues that you can go to accomplish that.


Wayne Stacy  18:01

Well, in if you read a lot of different articles, people attacked design patents as not being very powerful. In this instance, that’s as powerful as it gets. Yeah,


Michael Smith  18:11

yeah. It did what it looked like the plaintiff needed to do. But again, if I’m thinking about injunctive relief in judge all brides court, I’m reading that order and seeing Okay, is this consistent with what he’s been saying recently, so that I can tell kind of where, where’s the where’s the how far away is the goalpost on this one? How far do I have to go in order to get this? And does it depend on what type of claim I bring here? It clearly did.


Wayne Stacy  18:40

So Michael, judge all Brian also had a partial summary judgment denial that in a lot of times summary judgment denials aren’t that that interesting or useful, but this one was actually on support from a prior application? And really should be a model for what people are thinking about going forward. You want to tell us about this?


Michael Smith  19:01

Well, it absolutely is. And for the reasons that you said a little while ago, it’s it the facts matter and what you put in a case and what proof you put in matters. And, of course, my favorite thing about this is that the plaintiff’s experts name was Michael Smith, but But I guess the more even more important than that, was that Judge Albright in denying the motion said the plaintiffs presented sufficient expert testimony from the expert to create a fact issue. They he put on testimony of A and B and C and D. So he goes down and shows that the claims are sufficiently supported in the earlier patent application. So the defendants attempt to knock that out was unsuccessful. But you can tell that if you didn’t have that proof, you couldn’t just come in and say, Oh, well, it’s a factual dispute. It’s a fact issue judge denying the motion. In this case, the judge pointed to the proof that had been put in the record. So again, if I’m looking at responses to a summary judgment, let me back up. Before a year ago, we had very few summary judgment rulings from Judge Albright because his docket had not matured to the point that cases were up at pre trial and they were getting rulings on dispositive motions. We’re now getting dispositive motion rulings out on a weekly basis in cases that are now ripe. For summary, judgment or trial. So you’ve got cases like this where before, I would tell people, I don’t really know how the judge is going to address summary judgment. Well, now I can send him orders and say, Okay, here’s a party that avoided summary judgment. And here’s how they did it.


Wayne Stacy  20:43

Well, Michael, this case, we don’t often see a lot of this priority data analysis come out. And it’s the way it’s written, the way the facts are lined up. Really, really something I think patent prosecutors should take a look at is their claiming priority and looking at how they would arm the patent litigators with the proper evidence that an expert can rely on really ties together the two practices of litigation and prosecution.


Michael Smith  21:09

And that’s exactly the right phrase, how do you arm your side to be able to prevail when the when the when the issue gets disputed? And especially as you said, I mean, I’m a litigator, I don’t know much about prosecution. So it’s it’s important to have someone who does who can stitch the two together so that I recognize what’s important. And so the prosecutor recognizes what I am going to need.


Wayne Stacy  21:37

Well, Michael, and we also get really interesting and detailed analysis on striking infringement contentions. I know this is a pain for everybody, Representative products and seems to be across the country, in all jurisdictions that require such contentions. Sometimes a Giants giants Money Pit, but a little bit more guidance coming out, it seems from from Judge Albright.


Michael Smith  22:08

Well, it’s not just a money pit for the parties. It’s a time suck for the court and for the parties. The pathway on this order was kind of convoluted what what happened was they had a dispute where the plaintiff has, say one product and they said this covers everything else is representative everything else and the defendant says no, it’s not. They have a hearing the judge Albright judge Albright says go back meet and confer again, that wasn’t enough. The defendant says we’re at an impasse we come back in the court says okay, but it looks like you’re gonna make some changes. So let’s wait, let’s see what happens on that. Okay, then we had to have a motion filed after that. This is one of the few instances I’ve seen, where Judge Albright has said, Okay, go ahead follow written motion on this discovery dispute. And then he reviews that here. He goes over when a party’s infringement contentions should be stricken. What are the standards for that? And then it goes through and makes factual determinations on what whether the plaintiff needs to do more in here, he says, yes, the plaintiff does need to do more, they need to provide more notice, even if some of these responses are going to be repetitive, you need to provide the defendant with with a chart, or you need to provide analysis indicating why the information is indeed representative. And also there was an issue of whether the patents are continued to be standard essential. So the court kind of reaches amid ground and requires the plaintiff to go back and provide more information. But it when I have these fights, I’m never exactly sure where the court is going to come out. And they’re always the variables of will how much more work? Is it for me to do this? Or if I’m the defendant, do I really need more than what they’ve given me? It’s it’s very, very fact intensive and very complicated. And I assume it’s it’s at least as frustrating for the court as it is for the parties.


Wayne Stacy  24:07

Well, the the piece that I found interesting here is the judge was incredibly tolerant. Going through with this these multiple hearings, the briefing but issued a strong if not frightening warning. At the end, talking about no further leave will be given


Michael Smith  24:28

that that’s a very good point. At the end. He says okay, you get to amend but this dispute had dragged on so long that the plaintiffs contentions were about to magically transform from preliminary into final once that deadline hit. So I said, Okay, you get to amend one more time. If they’re deficient, then defendant, you follow another motion to strike and absent extraordinary circumstances. I’m not going to give leave for you to amend your final infringement contentions. So the plaintiff needs to be aware I’m kind At the end of the rope with a chord, he’s not going to let me amend again. So I mean, at that point is the plaintiff, I probably want to go back and double check whether I really want to make this argument or what I prefer to sidestep the argument, and go ahead and do some more charts. Because what I was taught a number of years ago, Judge Ron Clark explained in an order, he said, If you want to have one chart that covers multiple products, that’s fine. But your proof is going to have to be exactly the same. You can’t come in and say, Okay, this product infringes and here’s the source code that shows that. Now, product number two infringes? Well, Mr. Smith, where’s your source code for product? Number two? Oh, well, it’s the same as number one. No, it isn’t. It’s different source code. And you haven’t cited the source code for that product. So your claims against that product are out? Well, ever since he explained that. I think of it in terms of that, am I going to be comfortable simply photocopying my proof, and saying it’s identical for every other product? If it’s not, then I’m going to be a little nervous about relying on that claim chart. I don’t know that every judge is going to see it the same way. But when the judge Warren’s he’s not going to let you amend again, you really want to risk your damages base, fighting for a matter of principle and whether you ought to have one chart or six.


Wayne Stacy  26:24

Well, and, you know, shortcuts come at a cost. And some plaintiffs will be willing to, to risk that costs, because they need a little extra time, more discovery, things that come in. And I think we’ll continue to see this. But it appears that Judge Albright understands the game and is tolerant to a point.


Michael Smith  26:45

He understands the game and he is certainly tolerant. But what I read from these facts is that what you may be seeing is not so much tolerance, as the Court has a hard time figuring out where the where the where to draw the line. And if there’s that much difficulty in figuring out where to draw the line that tells me as a litigant, that there’s a lot of uncertainty, and I want to make sure that I don’t have something irreplaceable at risk, if it’s that. I mean, if I’m not sure where the courts gonna come down, then I want to make sure that I’ve got a position that will cover the likely areas that he might come down.


Wayne Stacy  27:26

Well, the final case of significant interest coming out of that the Western District was a nick ball Trombley motion, which I rarely put of interest in a ball Trombley together in the same sentence. But again, it’s it’s becoming more and more common to see these you know, I thought they were dead for a decade. But they’re back and the judge doesn’t seem amused. Well,


Michael Smith  27:52

they’re back. And we’ve seen judge Albright grant a number of 12 B six motions in recent weeks, including granting 12 B six motions on one on one issues. So we know that the court is now looking closely at 12 B six motions, and there are situations where you might look at a one on one. And that’s what makes this order interesting in the Kajeet case is two things. First of all, the defendant says tweek ball you didn’t plead it’s not plausible. So strike it. And the judge says no, they the plaintiff only needs to plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct allege. Now that’s not a low bar, because a couple of weeks ago, I saw judge Albright grant these in a couple of cases saying I’ve looked at what you alleged and it’s not plausible. Your infringement is not plausible from the complaint here. In this case, he said he did they did. Now, he goes on to the second argument, which is there’s evidence here that contradicts what you’re saying and therefore there’s no infringement. And he says, Well, that’s really kind of more of a summary judgment argument. But I’m not buying that as far as the grounds for dismissal. Now, for those of us that deal with 101 issues, the second part of the opinion is helpful here, because the judge says, Okay, I understand you’re arguing 101. This is really a summary judgment argument that fits later in the case. And I can’t really effectively decide a one on one motion early. Well, we know that Judge Albright doesn’t like to look at one on one issues early in most cases, that he explains in this order, why it is that he doesn’t like looking at them. He says I need to have claim construction. I need to know more about the subject matter of the patent. And early on. I don’t really have a full record. So whether you’re trying to get get judge Albright to grant a 12 B six on 101 or whether you’re trying to argue to him, that it’s premature and it should be denied, without prejudice. This is a good opinion in the Kajeet case to look at to know what do I need to have in there for whichever way it is that I want to argue the court should go


Wayne Stacy  30:10

Michael once again, thank you for walking us through another eventful week.


Michael Smith  30:17

They’re all eventful down here. Just not so much in football anymore. Sadly.


Wayne Stacy  30:24

I guess it wouldn’t be the right time to remind you where I live, but anyway, I’ll be watching a football game of great interest this weekend.


Michael Smith  30:31

Yeah, you will. I probably won’t be I’m done for the year. I’m gonna go home and mope.


Wayne Stacy  30:36

So good luck. Take care. Take care.