Court: District Court, D. Delaware; July 27, 2016; Federal District Court
Defendants C.R. Bard, Inc. and Bard Peripheral Vascular, Inc. filed a motion for summary judgment regarding the absence of lost profits and standing, while Plaintiff W.L. Gore & Associates, Inc. sought sanctions against Bard. The Court, led by Judge Stark, partially granted Bard's motion and denied Gore's motion.
The case originated when Gore and Gore Enterprise Holdings, Inc. sued Bard for infringement of U.S. Patent No. 5,735,892 on June 10, 2011, later amending the complaint to include additional patents and defendants. The Court referred pretrial matters to Magistrate Judge Burke, who recommended granting Bard summary judgment for non-infringement concerning another patent, leaving the '892 patent as the sole focus of Gore's claims. Bard subsequently filed a motion to dismiss for lack of subject matter jurisdiction, arguing that Gore lacked evidence of a valid assignment for the '892 patent and standing to claim lost profits damages prior to the assignment. Gore countered that the assignment from GEH to Gore was valid and that it was entitled to recover pre-assignment damages, asserting that Bard's motion was untimely. The Court held oral arguments on this motion shortly before a scheduled jury trial.
The Court inquired about when Mr. Blumenfeld obtained information relevant to a motion and the timeline for its disclosure to the plaintiff, with Blumenfeld recalling discussions starting on October 11, 2015, and subsequent investigations. He refuted any claims that this argument had been delayed for a year or two, asserting that the work began on the stated date. Due to the issues raised, the Court bifurcated the damages issue for a later trial, with the non-damages trial commencing on December 7, 2015. During this trial, Gore objected to Bard's use of two slides from its opening statement that referenced an expert report by Dr. David Teece, citing hearsay and relevance. Bard countered that the slides included excerpts from knowledgeable Gore personnel, classifying them as party admissions rather than hearsay, and argued their relevance in rebutting Gore's claims regarding the '892 patent. Gore intended to argue the patent’s significance and its long-felt need. Bard sought a trial continuance for further discovery related to the tax proceedings, highlighting that the Teece Report had not been produced during discovery despite requests. Gore acknowledged it had not searched for additional documents since Bard referenced the tax proceedings. After a recess, Gore joined Bard's request for a continuance, which the Court granted, albeit reluctantly, on January 4, 2016. Subsequently, Gore filed a motion for sanctions against Bard, alleging that Bard misrepresented the timing of their discovery of the Teece Report, claiming Bard was aware of it since 2009. Bard opposed the motion, labeling it as a conspiracy theory based on false accusations.
On March 17, 2016, the Court heard arguments regarding Gore's Motion. Subsequently, on May 16, 2016, the Court requested submissions on whether Bard's motion to dismiss for lack of standing involved non-jurisdictional issues that required conversion to a motion for summary judgment. The Court emphasized that it must not address the merits of a case when evaluating a Rule 12(b)(1) motion. On May 23, 2016, the Court denied Bard's motion to dismiss but allowed a motion for summary judgment on the same issues. Bard's original motion questioned Gore's right to recover pre-assignment lost profits, which did not affect Bard’s standing regarding the '892 patent and therefore should not have been considered under Rule 12(b)(1). Bard subsequently filed a new motion on June 6, 2016, with further briefing completed by June 13, 2016. Bard’s new motion challenged (1) the validity of the GEH-Gore assignment affecting Gore's standing under Rule 12(b)(1) and (2) Gore's claim for pre-assignment lost profits, which is analyzed under Rule 56’s summary judgment standard.
Standing is a constitutional requirement and a jurisdictional threshold; the plaintiff must demonstrate standing. Rule 12(b)(1) allows for dismissal based on lack of subject matter jurisdiction or standing. Challenges to jurisdiction can be either facial, not disputing facts, or factual, where the court can weigh evidence. In factual challenges, the court may evaluate the merits of jurisdictional claims without presumptive truthfulness given to the plaintiff's allegations.
Standing comprises both constitutional and prudential components. Constitutional standing, as outlined in Article III, requires a plaintiff to demonstrate: (1) an injury in fact, (2) that the injury is fairly traceable to the defendant's actions, and (3) that the injury can likely be redressed by a favorable ruling. In patent infringement cases, the core of constitutional standing lies in establishing an exclusionary right to a patent, where infringement would cause legal injury to the holder. Prudential standing necessitates that a litigant assert their own legal rights rather than those of third parties, with patent infringement rights deriving from 35 U.S.C. § 281, which affirms that a patentee has the right to seek civil remedies for infringement. The term "patentee" includes successors in title, and a patent represents a bundle of rights that can be assigned or retained. Generally, rights belong to the inventor, but inventors can assign these rights according to 35 U.S.C. § 261, with recorded assignments presumed valid unless challenged. The holder of a substantial portion of rights is deemed the patent owner and can sue for infringement. Full transfer of substantial rights equates to an assignment of title. Jurisdiction is determined by the amended complaint in federal court, and standing must be maintained throughout litigation.
Summary judgment under Rule 56(a) requires the moving party to show there is no genuine dispute of material fact, and the burden of proof lies with them to demonstrate this absence of dispute, supported by appropriate evidence from the record.
The moving party in a summary judgment must establish its case, after which the nonmoving party has the responsibility to present specific facts indicating a genuine issue for trial. The court must favor the nonmoving party with all reasonable inferences and cannot assess credibility or weigh evidence. To contest a summary judgment effectively, the nonmoving party must go beyond vague doubts or mere allegations, demonstrating that a reasonable jury could find in their favor. A factual dispute is only considered genuine if the evidence could support a verdict for the nonmoving party. Minimal or colorable evidence is insufficient; substantial evidence is required.
Regarding lost profits damages from patent infringement, a patentee may recover if they can show a reasonable likelihood of having made the sales lost due to the infringement. The authority to recover damages hinges on the patentee holding the legal title to the patent during the infringement period, although an exception permits recovery of pre-assignment damages if the patent assignment includes rights for past infringements. However, a patentee cannot claim lost profits from a related company.
Related companies cannot benefit from their separate corporate structures while also avoiding the limitations imposed by those structures, specifically regarding the inability of a patent holder to claim lost profits from a non-exclusive licensee. An assignment of a right of action for past infringements does not generate lost profits unless they existed prior to the assignment; an assignee is limited to recovering what the assignor could have recovered. Courts possess inherent authority to impose sanctions, including attorney's fees for bad faith conduct, which requires a finding of such bad faith. Federal Rule of Civil Procedure 37(c)(1) prohibits a party from using information or witnesses not disclosed as required, unless the omission is justified or harmless. The Third Circuit outlines four factors to consider when determining the appropriateness of evidence exclusion due to discovery non-compliance: prejudice to the other party, ability to cure this prejudice, potential disruption to trial proceedings, and any bad faith involved. In the context of Gore's motion, the assignment of the '892 patent from GEH to Gore on January 30, 2012, is presented as the basis for Gore’s standing to sue as the patent owner. Prior to this assignment, Gore was a non-exclusive licensee and GEH, now a non-party, held ownership of the '892 patent. The determination of patent ownership is governed by state law.
The Assignment lacks a choice of law provision, necessitating the application of the 'most significant relationship' test to determine the governing state law, per Cohen v. Formula, Inc. Under this test, the rights and duties are dictated by the law of the state with the most significant connection to the transaction and parties. Since both GEH and Gore are Delaware companies and the Assignment was executed in Delaware, Delaware law will be applied.
Bard contests Gore's standing by challenging the Assignment's validity, arguing that all patent assignments must be in writing. Bard claims that Gore's only written document, dated January 30, 2012, fails to constitute a valid assignment. The Court agrees that patent assignments must be written but finds Gore's Assignment valid, as it explicitly states GEH assigns and transfers rights to Gore, using present-tense language that indicates an actual assignment rather than mere notification.
Bard further argues the Assignment is invalid because a Gore representative did not sign it. The Court disagrees, noting that Gore recorded the Assignment with the PTO on the execution day, evidencing acceptance. A signature from Gore was not necessary since only GEH, the assignor, is bound to obligations through the Assignment.
Additionally, Bard asserts that the Assignment lacks legal consideration from Gore, rendering it invalid under Delaware law. However, Bard's claim that all patent assignments must involve mutual consideration is unsupported by the legal precedents cited.
Bard's cited cases establish that a patent conveyed through contract requires consideration from both parties, but the Assignment in question does not meet this criterion as it lacks evidence of a 'meeting of the minds' or consideration from Gore. Gratitude assignments, permissible under Delaware law, do not require consideration if there is intent to gift and sufficient delivery. A written and signed assignment, such as the one from GEH to Gore, is irrevocable. Bard has not successfully rebutted the Assignment's presumption of validity, allowing Gore to maintain standing to sue for infringement of the '892 patent.
Additionally, the Court recognizes that GEH merged into Gore in May 2015, but does not need to determine if this merger would have independently transferred rights to sue for past damages since the Assignment is already deemed valid. Regarding Bard's challenge to Gore's right to recover pre-Assignment lost profits damages, the Court finds that Bard's waiver argument fails as it was not raised in earlier motions. Although Gore was not the owner of the '892 patent before January 30, 2012, it can sue for past infringement due to the Assignment. However, Gore cannot claim lost profits damages from pre-Assignment infringement since it assumes GEH's position, and if GEH had no such claim, Gore lacks one as well.
Gore, as a nonexclusive licensee before the Assignment, is limited to seeking only those damages that GEH could have claimed prior to January 30, 2012, according to Bard. Bard asserts that GEH did not sell any products during this time, indicating that lost profits cannot arise if the patentee is not practicing the patent. The Court concurs with Bard, concluding that GEH, being a non-practicing entity, cannot recover lost profits damages for that period, a position that extends to Gore as well. Despite acknowledging GEH's non-practicing status, Gore contends that it is entitled to its own lost profits for infringement prior to January 30, 2012, citing various cases as support. However, the Court finds that these cases do not substantiate Gore's claim for pre-Assignment lost profits damages. While the cited cases indicate that assignees may generally recover pre-assignment damages when accompanied by an assignment of the right to sue for past infringements, they do not apply to Gore’s specific situation regarding its own claimed pre-Assignment damages. Gore references Mineo to argue for recovery based on economic harm, but the Court maintains that the relevance of such cases does not extend to Gore’s claim for its own lost profits separate from what was assigned by GEH.
In Mineo, 95 F.3d at 1119, the Federal Circuit upheld a district court's ruling awarding lost profits damages to Mineo, Inc. for infringement that occurred before the company was assigned rights to the relevant patent. Prior to the assignment, the patent was owned and practiced by Minco's co-founders, who directly profited from sales of products using the patented technology, resulting in quantifiable economic losses due to competitor infringement. The court concluded that the right to recover past damages included lost profits, contrasting this with the situation involving Gore Enter. Holdings, Inc. (GEH). GEH, described as an independent subsidiary of Gore, engaged in transactions at fair market value and claimed its arrangements were arm's-length. GEH's expert testified that the royalty rate in its license agreement with Gore was consistent with market rates, and GEH reported significant income unrelated to Gore's product sales, asserting that Gore's sales did not constitute "use" of the patents. Consequently, GEH lacked the legal standing to claim lost profits due to Gore's sales and could not assign such rights to Gore upon transferring its patent rights. Therefore, Gore could not recover pre-assignment lost profits damages because it could only claim what GEH could have legitimately claimed. Additionally, the Federal Circuit's criteria for awarding lost profits damages, based on "proximate cause" and "foreseeability," indicated that Gore's pre-assignment lost profits were not recoverable, as they could not have been reasonably foreseen by Bard, given GEH's public statements about its relationship with Gore.
The Northern District of California analyzed the Federal Circuit’s ruling in Mineo, emphasizing that the critical factor was not the formal assignment of the patent but the foreseeability of injury to a competitor caused by infringement. Given that the patent was practiced by the company's founders and shareholders, the Federal Circuit rightly considered the substantive relationship and upheld damage awards for infringement that occurred before the patent's formal assignment. In contrast, in this case, Bard could not have reasonably foreseen that its infringement would cause Gore’s lost profits prior to the assignment. The court noted that Gore and GEH had an arms-length relationship, unlike Mineo’s founders, which further supported Bard's position. Consequently, Gore was barred from recovering pre-assignment lost profits damages, leading the court to grant Bard’s motion for summary judgment on this claim.
Additionally, Gore accused Bard and its attorneys of unethical conduct aimed at disrupting a scheduled jury trial, claiming Bard was aware of the Teece Report and related litigation since 2009 but concealed this information until the trial began. Gore sought sanctions for the alleged violation of a protective order by Bard’s attorneys.
Gore alleges that Bard's attorneys improperly accessed sealed documents from the Cecil County Circuit Court in Maryland, instructing a third-party vendor to copy documents marked as "confidential" and "subject to protective order," including the Teece Report. Gore claims Bard has not notified the Cecil County Court about this breach of Maryland protective orders. He identifies three categories of misconduct: 1) breach of attorneys’ duty of candor, 2) violations of the protective order, and 3) engaging in conduct intended to disrupt judicial proceedings. The court plans to address the first and third categories together, as they involve Bard's alleged strategy of concealing the Teece Report and related tax proceedings until trial.
Gore cites Model Rules 3.3(a) and 8.4(c) to assert that Bard's attorney, Mr. Cherny, failed in his duty of candor by making uncorrected false statements to the court. However, Bard contends that Mr. Cherny simply did not recall the Teece Report or tax litigation due to the complexity of the previous Arizona District Court case involving Bard and Gore. The court finds Mr. Cherny's lack of recollection credible, as he stated he had no memory of the Teece Report prior to its discovery in October 2015 and that his co-counsel was mainly responsible for referencing it in a brief during the Arizona litigation. The context of the Teece Report's use differed significantly between the Arizona case and the current litigation, with Bard using it to argue the perceived value of the '892 patent in the present case.
Dr. Teece is not acting as an expert in the current litigation, unlike his role in the Arizona case. Gore has not provided evidence that the Teece Report or related tax litigation were significant to previous cases involving Bard or its counsel. Gore claims Mr. Cherny lacked “reasonable diligence” in locating the Teece Report before October 2015, but Bard asserts its attorneys searched Gore's documents without finding it. The Teece Report, along with a related brief from the Arizona litigation, was filed under seal and thus not publicly accessible. Bard argues it is unreasonable for Gore to expect Bard to locate a document that Gore failed to produce despite being requested in Bard's discovery efforts regarding the ’892 patent. The Court finds Mr. Cherny acted with reasonable diligence.
Gore also questions the credibility of Jack Blumenfeld, Bard's representative, alleging he misled the Court regarding Bard’s awareness of state tax proceedings during discovery. The Court supports Blumenfeld’s declaration, which states Bard's counsel began investigating the exclusive license issue in 2015, eventually uncovering documents related to the state tax litigation. The Court considers Gore's assertion that Bard's attorneys knowingly withheld a major defense to be implausible, instead accepting that they may have simply overlooked the Teece Report until preparing for trial. Consequently, the Court denies Gore's motion alleging intentional misrepresentation by Bard.
Regarding alleged violations of a Maryland state court protective order, Gore contends that Bard improperly obtained the Teece Report and other confidential documents from the Cecil County clerk’s office, failing to notify the Maryland court of this violation. Bard counters that its attorney, Mr. Charles Wineland III, did not access any sealed documents.
Mr. Wineland provided a declaration regarding his actions at the Cecil County courthouse, highlighting that he did not review or identify documents in sealed binders for copying. He tagged other non-sealed documents for copying, having received assistance from court personnel who directed him to the available records. The court emphasized the importance of bringing evidence of any alleged misconduct to the court that issued the original order, suggesting that Gore should present its arguments to the Maryland state court. The evidence presented by Gore did not demonstrate wrongdoing by Mr. Wineland, who acted in accordance with the guidance from court staff and avoided reviewing sealed materials. Gore's assertion that the Teece Report was marked as "confidential" and "subject to protective order" was not sufficient to prove misconduct, particularly given that such markings can change over time. The court found no violation of the protective order and thus denied Gore's motion. Bard requested attorneys' fees in response to Gore's allegations, which the court deemed potentially valid and requested further briefing on the matter. The court concluded that Bard's motion would be partially granted and Gore's motion denied, noting that Gore had previously abandoned its exclusive licensee claim related to standing for damages. Bard's motion under Rule 56 was acknowledged as providing greater procedural protections for Gore compared to Rule 12(b)(1).
The primary exclusionary right of a patent allows a patentee to exclude others from making, using, selling, or importing the invention in the U.S. (35 U.S.C. 154). Gore seeks sanctions under various rules, including Federal Rules of Civil Procedure 16 and 26, but fails to provide specific arguments related to these rules or Delaware Local Rule 1.3; thus, the court will interpret Gore's request as seeking sanctions under the court's inherent authority. Gore contends Bard's motion to dismiss was untimely due to alleged unjustified delays, while Bard argues it acted diligently after discovering relevant documents. The court agrees with Bard, ruling that the motion was timely. Bard's motion to supplement the record with evidence from a related case (W.L. Gore Associates, Inc. v. Medtronic, Inc.) is unopposed by Gore and granted by the court. This evidence indicates Gore was a non-exclusive licensee before January 30, 2012. Bard and Gore concur that state law applies, and the court agrees, referencing applicable case law. The court also notes that the interpretation of patent assignment clauses relates to standing and is generally treated under federal law, although the Massachusetts UCC foreclosure provisions can transfer patent ownership without federal preemption. Gore's expressed desire to acquire patents does not create a legal obligation. The court reviews arguments under Rule 56's summary judgment standard and acknowledges that Bard does not contest Gore's right to claim pre-Assignment damages as a reasonable royalty. Gore does not specifically accuse Mr. Strand of misconduct, and the Model Rules of Professional Conduct apply to all attorneys practicing before the court.
