I’ve written before about how generous juries in the federal courts in the Eastern District of Texas (EdTX) are to patent plaintiffs. (link). After I wrote about this a year ago there was a feeling that this trend might be reversing itself. However, Johnson & Johnson’s $1.6 billion judgment against Abbott and i4i’s $200 million verdict against Microsoft last summer put an end to those thoughts.
So, when Apple, Sirius XM and others were recently sued for patent infringement in EdTX they quite naturally looked for a way out. Massachusetts, they told the Texas district court, was a far better choice, particularly when you considered the fact that that the patent owner, a non-practicing entity, had set up a Texas company shortly before filing suit, and located its business in the offices of its Texas lawyers.
But, it’s not that easy.
After the EdTX trial court refused to transfer the case to Massachusetts, Apple and its co-defendants filed a “mandamus” with the Federal Circuit. Mandamus is a rare procedural tool. Its a way to ask a court (typically an appellate court) to take an action that isn’t really an appeal (because the there is no final judgment), and no specific statute authority authorizing interlocutory appeal. I think it fair to say that fewer than one in a hundred lawyers has ever filed a “writ of mandamus,” (more likely fewer than one in five hundred). (more…)
Attached below is Judge Judith Fabricant’s lengthy decision in Hilb Rogal & Hobbs v. Sheppard, decided by Judge Fabricant in the Suffolk Business Litigation Session early this year. To my knowledge, this decision and order became publicly available only recently.
This restrictive covenant case is interesting in one unusual respect: it involves what some lawyers like to call “employee raiding” – a perjorative term that one sometimes hears when a large group of employees leaves to join a new firm. Here, the group was unusually large, consisting of 24 employees who resigned en masse, leaving Hilb Rogal & Hobbs (HRH) identical resignation letters and advising HRH to contact the same lawyer in the event any legal communications were necessary.
HRH filed suit and moved for a preliminary injunction, presenting Judge Fabricant with a complex set of facts (the employees did not all have the identical agreements), and factual variations in their circumstances.
The decision breaks no new ground in Massachusetts noncompete law, but it’s worth making a few observations about how the Judge approached the case:
Employees whose agreements were entered into in connection with a business that had been sold to HRH earlier were treated much more strictly than the “rank and file” employees, as one would expect given Massachusetts law.
The Judge viewed HRH’s claim of interference with contractual relations favorably, given that the new employer offered it’s prospective employees defense and indemnification for anticipated litigation arising from a breach of their agreements. Since employers are often asked to provide this sort of protection for new employees who fear litigation of this sort, this decision emphasizes that a decision to hold the employee harmless can backfire.
While the Judge was unwilling to say that agreements signed by employees as a condition of ongoing employment lacked consideration, she did treat this as an equitable factor that weighed against issuance of a preliminary injunction.
There is no discussion of “raiding” in the decision and order. In the past I’ve seen lawyers argue that the fact that the new employer hired a large number of employees should, of itself, give rise to some presumption of liability. However, to my knowledge no Massachusetts judge has ever recognized a cause of action for “raiding”. I don’t know if HRH made that argument in this case, but if it did Judge Fabricant did not address it.
Today, the Supreme Court agreed to decide this issue:
Whether an individual who used a false means of identification but did not know it belonged to another person can be convicted of “aggravated identity theft” under 18 U.S.C. 1028A(a)(1).
The case involves an illegal alien who was prosecuted for use of false identity papers. It must be hard enough to be arrested as an illegal alien, but much worse to discovery that your punishment will not be deportation, but rather indictment and trial for aggravated identity theft, a felony punishable with two years imprisonment with no probation allowed. Your defense: you may have purchased false identification in order to work, but you didn’t know that you were using another person’s social security number, as opposed to a purely fictitious SSN.
This is the situation that Ignacio Carlos Flores-Figueroa faced when the U.S. Court of Appeals for the Eighth Circuit held that the government was not required to prove that Mr. Flores-Figueroa knew that he was using another person’s ID, and upheld his two year sentence under 18 U.S.C. 1028A(a)(1). This was the second time that the Eighth Circuit had ruled this way on this issue.
Surprisingly, another federal appellate court saw it differently, and held that knowledge is an element of the crime. Thus, the Supreme Court was presented with a split of authority between the federal circuits which it has agreed to resolve.
Here’s the question, legal beagles and lovers of grammar and clear writing. The law reads:
[w]hoever, during and in relation to any felony violation enumerated in [§ 1028A(c)], knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.
The Eighth Circuit held that this law is unambiguous, and therefore it need not look beyond the language of the law to examine the legislative history and congressional intent. If held that “knowingly” only modifies “transfers, possesses, or uses”, and therefore the government is not required to prove that a defendant knew the means of identification belonged to another person (as opposed to a fictitious person).
In U.S. v. Villanueva-Sotelo the U.S. Court of Appeals for the District of Columbia saw the issue differently, holding that the law was ambiguous, thereby permitting it to review the legislative history and the congressional purpose of the law. Based on this review the D.C. Circuit Court concluded that the mens rea (knowledge) requirement extends to the phrase “of another person,” meaning that the government must prove the defendant actually knew the identification in question belonged to someone else.
One of the great benefits of the Suffolk Business Litigation Session (the BLS) is that the judges tend to write detailed opinions explaining their decisions. This tends to be less true elsewhere in the Superior Court. Recently-retired Superior Court Judge Allen van Gestel created a tradition of written jurisprudence while he headed the BLS, and his successors are keeping up the tradition. While these decisions are not published in an official reporter, and they are not binding precedent in the strict legal sense, they are often made available on the Internet, on legal search engines such as Westlaw and in the unofficial Mass. Law Reporter. In this way attorneys and the public are informed on how the BLS judges tend to see issues that come before them. And of course, any given judge is likely to be greatly influenced by a decision he or she has authored on a particular issue; there’s nothing better than citing a judge back to herself.
The extensive and detailed opinion in The National Economic Research Associates, Inc. v. Evans, decided by Judge Ralph Gants in early September 2008, shows that the new BLS judges are continuing Judge van Gestel’s tradition of written decisions.
In NERA v. Evans Judge Gants was asked to decide (on summary judgment) a claim that David Evans had violated a covenant not to compete with NERA, his former employer. The noncompete issues were decided under New York law (the choice of law specified in the contract), but a number of other non-contractual claims made by NERA were decided under Massachusetts law.
While Judge Gants’ detailed application of New York state law to the issue of the enforceability of a noncompete provision is of limited relevance (except in future cases where the BLS is required to apply New York law in this context), it is interesting to note that Judge Gants (who ruled that the case should proceed to a damages trial on NERA’s claim that Evans violated his noncompete contract) warned the parties that at trial, NERA would have to prove that the clients that followed Evans to his new job would have continued to have been clients of NERA had Evans stayed at NERA.
This is a potentially difficult burden on NERA, since it requires NERA to prove a hypothetical. Former NERA clients may be willing or able to testify at trial to what they would have done had Evans stayed at NERA. Judge Gants’ ruling on this issue illustrates why noncompete cases (regardless of which state law applies) are usually won or lost at the outset of the case, when the former employer seeks a preliminary injunction prohibiting the former employee from working for the new employer. Once that stage of the case is over the plaintiff/former employer will rarely pursue damages (as NERA did here) given the difficulty of proving damages.
Apart from his ruling on the noncompete contract under New York law, Judge Gants entered some interesting rulings “off the contract” under Massachusetts tort law.
Ruling on NERA’s claim of tortious interference with contractual relations against the new employer, Judge Gants held that the alleged interference must be “improper in motive or means.” The injured party must prove “spiteful, malignant purpose unrelated to the corporate interest.” Since the former employer was unable to provide any evidence of this sort against NERA, this claim was dismissed. While it seems that companies that hire an employee subject to a non-compete agreement are sued as a matter of course under this theory, Judge Gants’ decision shows how difficult it may be to establish liability. One way in which this can be accomplished is to show that the new employer induced or encouraged the former employee to steal trade secrets or confidential information from the former employer, but conduct of that sort is somewhat rare.
NERA also claimed breach of fiduciary duty against the former employee, who had been an officer of NERA, and therefore owed a fiduciary duty to NERA. However, Evans had gone no farther than to “prepare” for competition before leaving NERA, and under the SJC’s Augat v. Aegis decision this claim also was dismissed. Interestingly, Judge Gants held that the fact that the de minimus use of NERA funds by Evans, and his occasional use of NERA’s phones and computer to negotiate his departure from NERA, “fell far short of a breach of fiduciary duty.”
Judge Gants dismissed the former employer’s rather bizarre claim (Judge Gants politely called it “clever”) that Evans had usurped a corporate opportunity belonging to NERA by negotiating his own departure from NERA. As Judge Gants stated, “If ones own employment were to be considered a corporate opportunity, then no officer of a corporation would be free to leave his employment unless he first offered ‘the opportunity’ of his services to his current employer and his employer rejected the opportunity.”
Lastly, Judge Gants dismissed NERA’s M.G.L. c. 93A claim against Evans’ new employer, holding that the inducement of a breach of an employment agreement alone, without improper motive or means, fell short of the type of “immoral, unethical, opppressive or unscrupulous” conduct necessary for a violation of Chapter 93A.
(Note: An earlier decision by Judge Gants in this case is discussed here. In that decision Judge Gants ruled that Evans had not waived attorney-client privilege where, while he was using a NERA-owned computer and using an Internet-based email service to communicate with his attorneys, unbeknownst to him, temporary files containing those communications were stored on the computer.)
In the Medtronic v. BrainLab patent litigation in U.S. District Court in Colorado, Senior U.S. District Judge Richard P. Matsch has sanctioned Medtronic Navigation, Inc. and its lawyers $4.3 million, an amount which represents part of the attorney’s fees and costs incurred by BrainLab in defending this case. This order is a follow-up to his decision last February ordering that Medtronic be sanctioned, but not deciding (at that time) the precise amount of the sanction.
Unusual circumstances led to this disaster for Medtronic and its counsel. As many readers of this blog know, the judge, not the jury, determines the scope of the patent claims in patent litigation. This is done by the judge before trial, in what is often referred to as a “Markman hearing.” The name of the hearing is based on the 1996 U.S. Supreme Court decision in Markman v. Westview, which held that patent “claim interpretation” is the province of the judge, not the jury. After the judge determines the scope of the patent and the meaning of the claims, he or she instructs the jury accordingly, and the lawyers are expected to honor the judge’s rulings and tailor their case to the judge’s pre-trial claim interpretation.
So, what went wrong in the Medtronics case? Apparently, during the jury trial on infringement the lawyers for Medtronic (the plaintiff), argued outside of the scope of claim interpretation determined by the judge.
Making a federal judge angry is almost always a bad idea. This is especially true when the judge is 78 year old U.S. District Court Judge Maitch, who has been on the federal bench since Richard Nixon appointed him 34 years ago and seen it all. (Judge Maitch presided over the Timothy McVeigh Oklahoma city bombing case. ) After Medtronic lost its patent case, the judge wrote (earlier this year):
Upon reflection, this Court finds and concludes that the rulings on the claims construction issues adjudicated the fairly debatable issues in this case and that the manner in which plaintiffs’ counsel continued the prosecution of the claims through trial was in disregard of their obligations as officers of the court. The fairness of the adversary system of adjudication depends upon the assumption that trial lawyers will temper zealous advocacy of their client’s cause with an objective assessment of its merit and be candid in presenting it to the court and to opposing counsel. When that assumption has been contradicted by a trial record of conduct reflecting a winning is all that is important approach to the trial process, the court has a duty to redress this resulting harm to the opposing party.
The court continued:
Rather than accept that the claims construction rulings stripped the merits from this case, counsel chose to pursue a strategy of distorting those rulings, misdirecting the jury to a different reading of the claim language, and blatantly presenting the jury with a product to product comparison contrary to established law and the Court’s cautionary instructions. . . . Capping all of this was a closing argument that misdirected the jury’s attention from the focus of the case, carefully crafted to avoid the Court’s instructions. That argument distorted both the evidence and the law, misleading the jury . . . .
Concluding, he stated:
Throughout these proceedings Medtronic and [its] lawyers have demonstrated that when they are faced with adverse court rulings, they proceed undeterred, with only superficial observance of the court’s determinations. Such conduct supports the conclusion that after the Markman rulings, Medtronic’s primary objective in pursuing this litigation was to put economic pressure on its competitor in the market.
Medtronic is likely to appeal the sanction. However, its predicament is complicated by the fact that in addition to “advocacy abuse” during trial the judge found Medtronic’s case to be frivolous, and he awarded sanctions on independent statutory grounds.
What is puzzling about this case is how Medtronic was able to get away with its in-court behavior. One would expect defense counsel to object strenuously to plaintiff’s attempt to ignore the Markman ruling during trial. If Medronic’s counsel persisted, the trial judge should have taken them into his chambers (the place that everyone else calls an office) and read them the riot act, even going so far as to threaten to hold them in contempt if they violated his order. Why that didn’t happen here, and why this problem was allowed to progress as far as it did, is something of a mystery to those who weren’t present in the courtroom during trial.
The judge’s choice of the phrase “advocacy abuse” is also interesting. If you asked around you’d find that very few lawyers are familiar with this phrase. In fact, a Westlaw search shows that the phrase has been used on only a handful of occasions in U.S. case law.
While the court did find this to have been an “exceptional case” justifying an award of fees against Medtronic under 35 U.S.C. Section 285, and against its attorneys under 28 U.S.C. Section 1927 for “unreasonably and vexatiously” multiplying the proceedings, in the alternative it awarded fees against both Medtronic and its attorneys under the court’s “inherent authority,” a judge-made concept that provides that the courts may sanction litigations and attorneys for conduct tantamount to “bad faith.” One may be left wondering whether abuse of advocacy rises to the level of bad faith. Undoubtedly, an answer to this question will be provided on appeal.
. . . the Supreme Court can only decide a couple of patent cases even in a banner year. And, many important patent issues may be so obscure as to discourage its generalist judges from addressing them. The rest, necessarily, are left to us. We have the expertise and the will to resolve doctrinal problems. What we lack is mainly the opportunity. Why for example did it take a full decade to revisit State Street? Because no one asked us to until recently. The same can be said of the central issue decided in KSR. It was never simply presented to us in a petition for en banc treatment. Oddly, we receive over a hundred a year. Yet few raise such fundamental issues as eligible subject matter under §101, or the Teaching-Suggestion-Motivation test, or the proper methodology for assessing requests for the permanent injunction, or barring them, future damages.
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