Dynamic Applet Technologies, LLC v. MATTRESS FIRM, INC. et al

RESPONSE in Opposition re SEALED MOTION Plaintiff's Motion for Leave to Serve Amended Infringement Contentions

E.D. Tex.February 19, 2019

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS SHERMAN DIVISION DYNAMIC APPLET TECHNOLOGIES, LLC, Plaintiff, v. MATTRESS FIRM, INC. and SLEEPY’S, LLC, Defendants. Civil Action No. 4:17-cv-860-ALM-KPJ JURY TRIAL DEMANDED DYNAMIC APPLET TECHNOLOGIES, LLC, Plaintiff, v. URBAN OUTFITTERS, INC., Defendant. Civil Action No. 4:17-cv-862-ALM-KPJ JURY TRIAL DEMANDED DYNAMIC APPLET TECHNOLOGIES, LLC, Plaintiff, v. HOLLISTER CO., Defendant. Civil Action No. 4:17-cv-878-ALM-KPJ JURY TRIAL DEMANDED Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 1 of 12 PageID #: 20893 1 DEFENDANTS’ RESPONSE TO PLAINTIFF’S MOTION FOR LEAVE TO SERVE AMENDED INFRINGEMENT CONTENTIONS PURSUANT TO P.R. 3-6(b)1 Following a Claim Construction Order that was neither unexpected nor unforeseeable, Plaintiff seeks to improperly shift its infringement theories in an attempt to try a different case on a different theory, and avoid the Rule 11 motion just filed against it. This is not the first time Plaintiff has tried to change its infringement theories after claim construction. In prior litigation by Plaintiff’s predecessor (and parent company) Parallel Networks, it tried to rely upon P.R. 3-6(a), which requires a “good faith” belief that the claim construction order surprised the parties. Judge Davis, however, remarked that “Parallel’s feigned surprise is, at best, disingenuous” and “a transparent attempt to shift to a new infringement theory.” Parallel Networks, LLC v. Abercrombie & Fitch, No. 6:10-cv-111, 2011 WL 13098299, at *2 (E.D. Tex. Dec. 5, 2011), aff'd, 704 F.3d 958, 971 (Fed. Cir. 2013) (Ex. A.). This time, Plaintiff purportedly relies on a different rule, P.R. 3-6(b), because it admits no surprise: “the Court adopted essentially all of the claim constructions proposed by Plaintiffs.” (Plaintiff’s Mot. for Leave at 4.) Local Rule P.R. 3-6(b) requires “good cause” rather than “good faith.” Plaintiffs reliance on “good cause” is merely an attempt to avoid the standard of P.R. 3- 6(a), because it argues that its “supplemental contentions are mandated by the Markman proceeding.” (Id.). Courts in this district have rejected attempts to run-around the “good faith” requirement of P.R. 3-6(a). Nevertheless, Plaintiff has not met the good cause standard because its amended contentions introduce a new theory and new asserted claim very late in the case—days from opening expert reports—even though the theory is based upon evidence it had at the time of the Complaint. Defendants request that the Court deny Plaintiff’s Motion. 1 As of the filing date of this Response, Plaintiff Dynamic Applet Technologies, LLC and Defendant PetSmart, Inc. have reached a settlement in principle. Accordingly, PetSmart does not join this Response. Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 2 of 12 PageID #: 20894 2 I. FACTUAL BACKGROUND On December 27, 2018, the Court entered its Claim Construction Memorandum Opinion and Order (Dkt. No. 79) (“Claim Construction Order”). The Court construed the contested terms by (1) adopting one of the parties’ proposed constructions, (2) making minor modifications to the parties’ proposed constructions, or (3) relying upon constructions from the Federal Circuit’s opinion in Parallel Networks, LLC v. Abercrombie & Fitch Co., 704 F.3d 958 (Fed. Cir. 2013). Shortly following the Claim Construction Order on January 8, 2019, counsel for Defendants held a meet-and-confer with Plaintiff’s counsel on the basis that the Claim Construction Order was dispositive on issues of non-infringement. (See Ex. B.) During the meet- and-confer, counsel for Defendants, explaining that Defendants did not have the ultimate burden of proving non-infringement, identified certain elements that were dispositive on non-infringement as a result of the Claim Construction Order. Contrary to Plaintiff’s assertion that counsel for Defendants “could not identify which disputed construction lead to this alleged outcome” (Mot. for Leave at 4), on January 11, 2019, counsel for Defendants memorialized in an email the discussion of the meet-and-confer, identifying three elements in claim 17 that were dispositive on non-infringement following the Claim Construction Order. (See Ex. B.) Less than 30 days after the Claim Construction Order issued, on January 25, 2019, Plaintiff served its Amended Infringement Contentions. (See Exs. 1–4 to Plaintiff’s Mot. for Leave.) Despite Plaintiff’s assertions to the contrary, the Amended Infringement Contentions both (1) materially change the infringement theories of the existing asserted claims (claims 17, 22, 23, and 26) and (2) add an entirely new claim (claim 19) that is a significant departure from the others. For example, Exhibit 3 to Plaintiff’s Amended Infringement Contentions to Defendant Mattress Firm, Inc., served on May 21, 2018, identifies the same source code as contained in Ex. 3 to Plaintiff’s Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 3 of 12 PageID #: 20895 3 Complaint against Mattress Firm. (Compare Ex. 1 to Plaintiff’s Mot. for Leave at 179–774 with Ex. 3 to Plaintiff’s Complaint, Dkt. No. 1.) However, Plaintiff’s original Infringement Contentions to Mattress Firm, served on May 21, 2019, only identified the alleged “applet” as lines 2894-2912, 3177-3195, and 3455-3473. (See Ex. 2.) Now, in Plaintiff’s Amended Infringement Contentions, Plaintiff identifies additional lines 2893-2913, 3176-3196, 3454-3474, 4146 and 11813-11819 from this source code. (See Ex. 1 to Plaintiff’s Mot. for Leave.) Plaintiff also identifies lines 4314- 4343 from new sets of source code. (Id.) These newly identified lines of source code are materially different than the lines originally identified and outside the lines Plaintiff alleged is the “applet.” Yet, these lines of source code were known to Plaintiff at the time the Complaint was filed. Finally, the timing is suspicious in light of Defendants’ currently pending Motion for Sanctions Pursuant to Rule 11. Plaintiff’s Response to Defendants’ Rule 11 Motion seems to imply that Plaintiff’s Amended Infringement Contentions were not filed in response to the Court’s Claim Construction, but rather, to circumvent the arguments raised in Defendants’ Rule 11 Motion. (See Dkt. No. 96 at 3, 6, 15.) Thus, Plaintiff’s attempt to change its infringement theories at this time is gamesmanship: an attempt to avoid the non-infringement issues raised by Defendants, the invalidity arguments raised in Defendants’ Rule 11 Motion, or both. II. LEGAL STANDARD Local Patent Rule 3-6(a)(1) provides that amended infringement contentions may be served within 30 days after the Court’s Claim Construction Ruling “[i]f a party claiming patent infringement believes in good faith that the Court’s Claim Construction Ruling so requires.” Courts in the Eastern District of Texas “have uniformly required the movant to show that the claim construction adopted by the court was ‘unexpected or unforeseeable.’” Sycamore IP Holdings LLC v. AT&T Corp., 2:16-cv-588-WCB, 2018 WL 1695231, at *4 (E.D. Tex. Apr. 6, 2018) (quoting Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 4 of 12 PageID #: 20896 4 Azure Networks, LLC v. CSR PLC, No. 6:11-cv-139, 2012 WL 12919538, at *2 (E.D. Tex. Dec. 4, 2012)); see also Cell & Network Selection LLC v. AT&T, No. 6:13-cv-403, 2014 WL 10727108, at *2 (E.D. Tex. Nov. 10, 2014); VirnetX Inc. v. Cisco Sys., Inc., No. 6:10-cv-417, 2012 WL 12546881, at *3 (E.D. Tex. Oct. 22, 2012); CoreLogic Info. Sols., Inc. v. Fiserv, Inc., No. 2:10- cv-132, 2012 WL 4051823, at *1 (E.D. Tex. Sept. 13, 2012); SSL Servs., LLC v. Citrix Sys., Inc., No. 2:08-cv-158, 2012 WL 12904284, at *2 (E.D. Tex. Mar. 16, 2012); Acqis LLC v. Appro Int’l, Inc., No. 6:09-cv-148, 2011 WL 13137344, at *2 (E.D. Tex. Jan. 20, 2011); Iovate Heath Scis., Inc. v. Bio-Engineered Supplements & Nutrition, Inc., No. 9:07-cv-46, 2008 WL 11344914, at *1 (E.D. Tex. Aug. 7, 2008); Nike, Inc. v. Adidas Am. Inc., 479 F. Supp. 2d 664, 667 (E.D. Tex. 2007); Finisar Corp. v. DirecTV Grp., Inc., 424 F. Supp. 2d 896, 901 (E.D. Tex. 2006). Whether a claim construction order is unexpected or unforeseeable is assessed at the time of the parties’ claim construction briefing, and the “adoption of an opposing party’s claim construction is not sufficient to support the movant’s claim that it was surprised by the court’s ruling.” Sycamore IP Holdings, 2018 WL 1695231 at *5–6. Local Patent Rule 3-6(b) states that “[a]mendment or supplementation any Infringement Contentions or Invalidity Contentions, other than as expressly permitted in P. R. 3-6(a), may be made only by order of the Court, which shall be entered only upon a showing of good cause.” P.R. 3-6(b) (emphasis added). When 3-6(b) applies, courts in this District consider “(1) the explanation for the party’s failure to meet the deadline, (2) the importance of what the court is excluding, (3) the potential prejudice if the court allows that thing that would be excluded, and (4) the availability of a continuance to cure such prejudice.” Keranos, LLC v. Silicon Storage Tech., Inc., 797 F.3d 1025, 1035 (Fed. Cir. 2015) (quoting Alexsam Inc. v. IDT Corp., No. 2:07-cv-420-CE, 2011 WL 108725, at *1 (E.D. Tex. Jan. 12, 2011)). However, as courts in this District have noted, the “good Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 5 of 12 PageID #: 20897 5 cause” standard of Rule 3-6(b) should not be interpreted more leniently than the “good faith” standard of Rule 3-6(a)(1). IDB Ventures, LLC v. Charlotte Russe Holdings, Inc., No. 2:17-cv- 660-WCB-RSP, --- F. Supp. 3d ---, 2018 WL 6830058, at *8 (E.D. Tex. Dec. 28, 2018); see also Finistar Corp, 424 F. Supp. 2d at 901 (applying the same standard to the “good cause” determination under Rule 3-6(b) as is applicable to the “good faith” determination under Rule 3- 6(a), and not allowing amendment of invalidity contentions where defendant “did not adequately explain how the court's definition of any of the terms in dispute was so surprising, or differed so greatly from the proposals made by the parties, that it justifies admission of new prior art references”). As the IDB Ventures court explained: Rule 3-6(a)(1) is intended to be an exception to the requirement under Rule 3-6(b) to obtain court approval to serve amended infringement contentions; the exception applies to amended infringement contentions that are filed within 30 days of a claim construction order in the good faith belief that unexpected claim constructions require the amendment of the original infringement contentions. If the “good cause” requirement of Rule 3-6(b) were applied more leniently than the “good faith” requirement of Rule 3- 6(a), there would seldom be any reason to invoke the exception of Rule 3-6(a) instead of the more general rule set forth in Rule 3-6(b). 2018 WL 6830058 at *8. III. ARGUMENT Plaintiff served its Amended Infringement Contentions on January 25, 2019, 29 days after the Court’s Claim Construction Order, which issued on December 27, 2018. It argues that the “supplemental contentions are mandated by the Markman proceeding.” (Mot. for Leave at 4.) Accordingly, the “good faith” standard of P.R. 3-6(a)(1) applies. Plaintiff has made no attempt to demonstrate how the Court’s Claim Construction Order was unforeseeable or unexpected, such that it required the amendment of Plaintiff’s infringement contentions. To the contrary, Plaintiff believes that “the Court adopted essentially all of the claim Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 6 of 12 PageID #: 20898 6 constructions proposed by Plaintiffs.” (Id. at 4.) Instead, Plaintiff’s reason for amending its infringement contentions was either to circumvent Defendants’ non-infringement theories or the arguments raised in Defendants’ Rule 11 Motion. In other words, Plaintiff is taking a shifting sands approach in recognition of the weakness of its infringement claims. This does not provide a basis for amendment. “The Local Patent Rules are ‘designed to require parties to crystalize their theories of the case and to prevent a ‘shifting sands’ approach to patent litigation.’” Sycamore, 2018 WL 1695231, at *10 (quoting Motorola, Inc. v. Analog Devices, Inc., No. 1:03-cv-131, 2004 WL 5633735, at *10 (E.D. Tex. Apr. 8, 2004)). To the extent the Court finds that the “good cause” standard of P.R. 3-6(b) governs, Plaintiff has not offered good cause for its amendment. As explained above, this “good cause” standard is not intended to be more lenient than the “good faith” standard of P.R. 3-6(a)(1). See IDB Ventures, 2018 WL 6830058, at *8; Finistar Corp., 424 F. Supp. 2d at 901. Plaintiff has not met the “good faith” standard of P.R. 3-6(a)(1), and the factors considered under the “good cause” standard of P.R. 3-6(b) also weigh in favor of the Court’s denial of Plaintiff’s instant motion. First, Plaintiff has not offered any reasonable excuse for its delay. As explained above, the new lines of source code identified in Plaintiff’s Amended Infringement Contentions were known to Plaintiff at the time it filed its complaints. In other words, Plaintiff has not discovered any new information that was not known or publically available at the time the complaints were filed.2 Second, because Plaintiff believes that “the Court adopted essentially all of the claim constructions proposed by Plaintiffs” (Mot. for Leave at 4), Plaintiff’s amendments are not 2 Plaintiff also cites Defendants’ interrogatory responses as a basis for its amendments. (See Mot. for Leave at 2–3.) This is a red herring. Defendants’ responses to non-infringement contention interrogatories do not provide a basis for amendment. Prior to its Motion for Leave, Plaintiff never complained that the responses were insufficient. Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 7 of 12 PageID #: 20899 7 important because it could have asserted all of its amendments (including the assertion of claim 19) when it filed its complaints. Third, Defendants would be extremely prejudiced if Plaintiff was allowed to amend its infringement contentions because the amendments implicate new claim construction issues and new infringement theories—so much so that they essentially are a new case. With respect to the previously asserted claims, Defendants have been litigating on the understanding that Plaintiff alleged that specific portions of code represented the claimed “applet.” This Court adopted Dynamic’s own proposal that certain limitations must constitute certain “portions” of the applet. (See Court’s Claim Construction Order, Dkt. No.79, at 15–17, 20–23.) Now, Plaintiff alleges the involvement of different or additional portions of code. Because it changed what it contends those portions are, Plaintiff has altered its theory of what the “applet” is. Defendants relied upon the original infringement contentions to develop specific non- infringement theories and, critically, to develop a specific invalidity defense. In particular, Defendants have been in a dispute with Plaintiff since Defendants’ original counterclaims were filed that the original infringement theory is prior art and is frivolous. (See, e.g., Def. Mattress Firm’s Counterclaims, Dkt. No. 16, at ¶¶ 8–15; see also Defs.’ Mot. for Sanctions, Dkt. No. 90.) Just days away from the deadline for Defendants to disclose their expert report on invalidity, Plaintiffs are trying change the theory of the case upon which Defendants built their invalidity defense. Defendants would also be extremely prejudiced by the proposed addition of claim 19 for the same reasons. Claim 19 does not merely change the alleged portion of the applet, but introduces entirely new functionality. The original asserted claims did not require “updatable” elements, but Claim 19 does. This poses a material claim construction dispute because, as seen in previous Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 8 of 12 PageID #: 20900 8 litigation, the parties will disagree on the meaning of “updateable.” Compare Ex. 1 to Plaintiff’s Mot. for Leave at (“values that fluctuate based on user action rather than being determined entirely before applet generation, and can be updated via communication with the server”) with Ex. C at 4 (July 31, 2014 Defendants’ P.R. 4-2 Disclosure (“a portion of the [applet] that can be updated [via the communications link] without the server transmitting other portions of the applet.”)). Moreover, the introduction of “updateable” elements into this case is an entirely new theory upon which Defendants would need to prepare an invalidity defense. Plaintiff is not entitled to endless bites at the apple to cobble together a viable theory of infringement whenever Defendants identify any weakness in Plaintiff’s infringement theories. This is the very “shifting sands” approach to patent litigation that the Local Patent Rules seek to prevent. See Sycamore, 2018 WL 1695231, at *10. Dynamic’s predecessor, Parallel Networks, likewise attempted to improperly shift its infringement theories to no avail. For example, Parallel Networks sought to amend its infringement contentions following the court’s construction of the claim term “[applet] dynamically generated by the server in response to the request,” arguing that the court’s construction was unexpected Parallel Networks, LLC v. Abercrombie & Fitch, 2011 WL 13098299, at *1 (E.D. Tex. Dec. 5, 2011). The court rejected Parallel’s request, stating that “Parallel’s feigned surprise is, at best, disingenuous. . . . While Parallel has every right to disagree with the Court’s construction on appeal, it should not be allowed to twist the Court’s construction in a transparent attempt to shift to a new infringement theory because of that disagreement.” Id. at *2. The Federal Circuit affirmed the district court on appeal: “Parallel has no good explanation for its failure to bring its new infringement contentions earlier and thus has brought any perceived prejudice on itself.” Parallel Networks, LLC, 704 F.3d at 971. Here, Plaintiff has not even made an attempt at showing “feigned surprise.” Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 9 of 12 PageID #: 20901 9 Fourth, Defendants’ prejudice cannot be cured simply by a change to the procedural schedule. Throughout this time, Plaintiff has asserted only one theory of infringement. What Plaintiff proposes is essentially a new case—a redo—and the parties would need to start over. Both the Court and Defendants have devoted substantial resources to significant events and deadlines in this matter that have occurred or elapsed, and this case is now nearing the close of discovery, with opening expert reports days away. Accordingly, the “good cause” factors weigh against amendment. IV. CONCLUSION Plaintiff has not satisfied either the “good faith” standard of P.R. 3-6(a)(1) or the “good cause” standard of P.R. 3-6(b). “The [local] rules have teeth. Their design is not punitive, but they put structure to litigation that otherwise would be unmanageable.” Intergraph Corp. v. Intel Corp., No. 2:01-cv-160, 2002 WL 34534505, at *2 (E.D. Tex. June 18, 2002). Accordingly, Defendants request that this Court deny Plaintiff’s Motion for Leave to Serve Amended Infringement Contentions for failure to comply with the Local Patent Rules. Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 10 of 12 PageID #: 20902 10 Dated: February 19, 2019 Respectfully submitted, By: /s/ David B. Conrad Neil J. McNabnay mcnabnay@fr.com Texas Bar No. 24002583 David B. Conrad conrad@fr.com Texas Bar No. 24049042 Lance Wyatt wyatt@fr.com Texas Bar No. 24093397 Theresa M. Dawson tdawson@fr.com Texas Bar No. 24065128 FISH & RICHARDSON P.C. 1717 Main Street, Suite 5000 Dallas, TX 75201 (214) 747-5070 (Telephone) (214) 747-2091 (Facsimile) ATTORNEYS FOR DEFENDANTS MATTRESS FIRM, INC., SLEEPY’S, LLC, HOLLISTER CO., AND URBAN OUTFITTERS, INC. Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 11 of 12 PageID #: 20903 11 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served on February 19, 2019, to all counsel of record who are deemed to have consented to electronic service via the Court’s CM/ECF system per Local Rule CV-5(a)(3). /s/ David B. Conrad David B. Conrad Case 4:17-cv-00860-ALM-KPJ Document 101 Filed 02/19/19 Page 12 of 12 PageID #: 20904