Sorensen v. Digital Networks North America, Inc.

Reply to Opposition re MOTION to Set Aside Any Appearance of Default and to Grant Legacy the Same Enlargement of Time to Answer as DNNA

N.D. Cal.May 30, 2008

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 701094861v1 PILLSBURY WINTHROP SHAW PITTMAN LLP DAVID A. JAKOPIN #209950 david.jakopin@pillsburylaw.com DANIEL J. RICHERT #232208 daniel.richert@pillsburylaw.com 2475 Hanover Street Palo Alto, CA 94304-1114 Telephone: (650) 233-4500 Facsimile: (650) 233-4545 MCDONNELL BOEHNEN HULBERT & BERGHOFF LLP BRADLEY J. HULBERT (admitted pro hac vice) hulbert@mbhb.com RICHARD A. MACHONKIN (admitted pro hac vice) machonkin@mbhb.com KURT W. ROHDE (admitted pro hac vice) rohdek@mbhb.com 300 South Wacker Drive Chicago, IL 60606-6709 Telephone: (312) 913-0001 Facsimile: (312) 913-0002 Attorneys for Defendants DIGITAL NETWORKS NORTH AMERICA, INC. LEGACY SUPPORT SERVICES, LTD. d/b/a S2G UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA JENS ERIK SORENSEN, as Trustee of SORENSEN RESEARCH AND DEVELOPMENT TRUST, Plaintiff, v. DIGITAL NETWORKS NORTH AMERICA, INC., a Delaware corporation; LEGACY SUPPORT SERVICES, LTD. d/b/a S2G; and DOES 1-100, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 07 CV 5568 JSW DEFENDANT LEGACY’S REPLY TO PLAINTIFF’S OPPOSING BRIEF TO LEGACY’S MOTION TO SET ASIDE ANY APPEARANCE OF DEFAULT AND TO GRANT LEGACY THE SAME ENLARGEMENT OF TIME TO ANSWER AS DNNA Date: June 13, 2008 Time: 9:00 A.M. Ctrm: 2, 17th Floor Judge: Hon. Jeffrey S. White Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 1 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – i – 701094861v1 TABLE OF CONTENTS I. INTRODUCTION...............................................................................................................1 II. ARGUMENT ......................................................................................................................2 A. Any Alleged Appearance of Default by Legacy Should Be Set Aside..................................................................................................................2 (1) Legacy Has A Meritorious Defense ............................................................3 (2) Legacy Has Not Engaged In Culpable Conduct..........................................4 (3) There is No Prejudice to Sorensen ..............................................................6 B. The Court Should Grant Legacy the Same Enlargement of Time to Respond As DNNA....................................................................................7 C. Sorensen’s Evidentiary Objections to the Declaration of Kurt W. Rohde are Wholly Without Merit ......................................................................7 III. CONCLUSION ...................................................................................................................8 Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 2 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – ii – 701094861v1 TABLE OF AUTHORITIES Cases Franchise Holding II, LLC v. Huntington Rests. Group, Inc. 375 F.3d 922 (9th Cir. 2004) ............................................................................................................2 Hawaii Carpenters’ Trust Funds v. Stone 794 F.2d 508 (9th Cir. 1986) ............................................................................................................3 In re Stone 588 F.2d 1316 (10th Cir. 1978) ........................................................................................................3 Mendoza v. Wight Vineyard Management 783 F.2d 941 (9th Cir. 1986) ............................................................................................................2 Pioneer Investment 507 U.S. 380, 113 S.Ct. 1489 (1993) ..............................................................................................5 TCI Group Life Ins. Plan v. Knoebber 224 F.3d 691 (9th Cir. 2001) ....................................................................................................3, 5, 6 Rules and Regulations Fed. R. Civ. P. 55(c) ....................................................................................................................1, 2 Fed. R. Civ. P. 60(a) ........................................................................................................................6 35 U.S.C. § 154(a)(2) ......................................................................................................................4 37 C.F.R. § 1.530(j).........................................................................................................................4 Case Docket Documents Docket #12 (Exhibit C) (Amended Complaint For Patent Infringement, Claim Chart) ...............................................................................................................4 Docket #33 (Order Granting Defendant’s Motion Pursuant to Civil L.R. 6-3 To Enlarge Time To Respond To The Amended Complaint Pending Motion To Stay) ...........................................................................1, 2, 5, 7, 8 Docket #34 (Plaintiff’s Opposition To Defendant Digital Networks North America, Inc.’s Motion For Stay)...............................................................................5 Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 3 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – iii – 701094861v1 Docket #39 (Order Granting Defendant’s Motion To Stay Litigation Pending Reexamination of Patent-In-Suit)...............................................................................1 Docket #45 (Notice Of Motion And Motion For Partial Lift Of Stay As To Defendant Legacy Support Services For Purposes of Entering Default).......................................................................................................................1 Docket #52 (Memorandum of Points and Authorities In Support Of Defendant Legacy Support Services’ Motion To Set Aside Any Appearance Of Default And To Grant Legacy The Same Enlargement Of Time To Answer As DNNA)...................................................2, 3, 5 Docket #55-2 (Evidentiary Objection To Declaration Of Kurt W. Rohde (Docket #49)...............................................................................................................7 Docket #53 (Declaration Of Kurt W. Rohde In Support Of (1) Defendants’ Memorandum In Opposition To Plaintiff’s Motion For Partial Lift Of Stay As To Legacy Support Services For Purposes Of Entering Default; And (2) Legacy Support Services’ Motion To Set Aside Any Appearance Of Default And To Grant Legacy The Same Enlargement Of Time To Answer As DNNA)..........................................8 Docket #60 (Defendant’s Response To Plaintiff’s Evidentiary Objection to Declaration of Kurt W. Rohde) ..............................................................................7, 8 Docket #61 (Plaintiff’s Opposition to Defendant Legacy Support Services’ Motion To Set Aside Any Appearance of Default And To Grant Legacy The Same Enlargement Of Time To Answer As DNNA) .......................................................................................................3, 4, 5, 6, 8 Docket #61-2 (Exhibit B) (USPTO’s “Ex Parte Reexamination Filing Data – March 31, 2008”)................................................................................................2, 3, 4 Docket #61-4 (Evidentiary Objection to Declaration of Kurt W. Rohde) ..................................7, 8 Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 4 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 1 – 701094861v1 I. INTRODUCTION Defendant Legacy Support Services (“Legacy”), by its Motion, has requested the Court to grant an Order setting aside any appearance of default by Legacy in the current litigation and giving Legacy the same enlargement of time to Answer as Digital Networks North America, Inc. (“DNNA”). In opposing Legacy’s Motion, Plaintiff Jens Erik Sorensen (“Sorensen”) has suggested that Legacy’s Motion was filed in violation of the stay entered in this case (Docket #39). Sorensen’s argument could hardly be more disingenuous. It was Sorensen who “fired the first shot” by filing a motion for a partial lift of the Court’s stay order (Docket #45). Legacy’s Motion was filed in response to Sorensen’s motion simply to provide alternative grounds for maintaining the status quo in this case. In particular, Legacy’s Motion demonstrates that, even if the Court were to lift the stay, there is good cause for setting aside any default under Federal Rule of Civil Procedure 55(c). Thus, regardless how the Court’s Time Extension Order (Docket #33) is interpreted, there is no rational basis for placing Legacy on a different procedural footing than DNNA. Good cause exists for setting aside any default because: (i) Legacy has a meritorious defense of the patent’s invalidity, as evidenced by the statistically small chance that Sorensen’s now-expired patent will be able to survive both on-going reexaminations with all claims confirmed; (ii) Legacy did not engage in “culpable” conduct because Legacy reasonably relied on the plain language of the Court’s Time Extension Order, the reasonableness of which is supported by Sorensen’s own conduct; and (iii) Sorensen will not be prejudiced; indeed, Sorensen has not even attempted to show that he will suffer any legally cognizable prejudice. Sorensen’s attempt to obtain a default against Legacy is a misguided effort to circumvent the Court’s stay order and avoid litigating its case against Legacy on the merits. This matter has been stayed since January pending reexamination of the patent-in-suit. Legacy is not an absentee defendant, but is represented by counsel in this matter. If and Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 5 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 2 – 701094861v1 when the stay is lifted and this litigation proceeds, Legacy intends to vigorously defend itself. Legacy’s co-defendant, DNNA, is not required to file an answer in this case until after the stay has been lifted. Sorensen’s request to lift the stay and enter a default serves no proper purpose and should be denied. II. ARGUMENT A. Any Alleged Appearance of Default by Legacy Should Be Set Aside Legacy is clearly not in default because the Court’s Time Extension Order stated that “Defendants need not answer or otherwise respond to plaintiff’s amended complaint unless and until ten (10) days after this Court enters an Order denying the Motion to Stay.” See Docket #33 at 2 (emphasis added). Sorensen disputes the plain language of the Court’s Time Extension Order. However, even under Sorensen’s interpretation of the Time Extension Order, Legacy has established that good cause exists under Federal Rule of Civil Procedure 55(c) for setting aside any default. See Docket #52. The “good cause” analysis considers three factors: (i) whether the party has engaged in culpable conduct that led to default; (ii) whether the party has a meritorious defense; or (iii) whether reopening default would prejudice opponent. Franchise Holding II, LLC v. Huntington Rests. Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004). These factors are disjunctive. Id. at 926. However, Legacy has established that each of these factors weighs heavily in favor of setting aside any default. Moreover, the law is clear that, where timely relief is sought and the movant has a meritorious defense, any doubt should be resolved in favor of the motion to set aside the default so that the case may be decided on its merits. Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945-46 (9th Cir. 1986). The Court’s discretion is especially broad when entry of default, rather than a default judgment, is being set aside. Id. at 945. Sorensen’s opposition argues that Legacy has not established the existence of a meritorious defense. However, Sorensen’s own reexamination statistics show otherwise. See Docket #61-2 Ex. B. With two reexamination proceedings pending against Sorensen’s Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 6 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 3 – 701094861v1 patent, reexamination statistics indicate less than a 7% chance that the patent will survive both reexaminations with all claims confirmed. Thus, the invalidity of Sorensen’s patent is not only a meritorious defense, but also the likely result of at least one of the now-pending reexaminations. Sorensen’s arguments with respect to the other two factors are also meritless. With respect to the “culpable conduct” factor, Sorensen cannot avoid the fact that Legacy reasonably relied on the Court’s Time Extension Order that facially applied to all Defendants. With respect to the final factor, Sorensen has not even attempted to argue any legally cognizable prejudice. (1) Legacy Has A Meritorious Defense Legacy has asserted the invalidity of Sorensen’s patent as a meritorious defense. See Docket #52 at 4-5. In addition, Legacy has presented the two on-going reexaminations of the patent—in which the United States Patent and Trademark Office (“USPTO”) found more than 20 substantial new questions of validity—as evidence to back up Legacy’s invalidity defense. Id. Amazingly, despite this evidence, Sorensen argues that Legacy’s invalidity defense is “unsupported.” See Docket #61 at 7. However, Legacy is not required to prove its invalidity defense at this stage of the litigation. Instead, Legacy needs only to demonstrate facts or law showing that “a sufficient defense is assertible.” TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 700 (9th Cir. 2001) (quoting In re Stone, 588 F.2d 1316, 1319 n.2 (10th Cir. 1978)). Put another way, the relevant determination is “whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by the default.” Hawaii Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986). The evidence of invalidity provided by the two on-going reexaminations of Sorensen’s patent easily meets that standard. To try to downplay the significance of these reexaminations, Sorensen presents reexamination statistics from the USPTO. See Docket #61-2 Ex. B. In particular, Sorensen Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 7 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 4 – 701094861v1 seizes on the statistic that only 10% of reexaminations result in cancellations of all claims. See Docket #61 at 8. However, those same statistics also show that: 64% of the patents survived reexamination with claim changes; and only 26% of all reexamination certificates were issued with all claims confirmed. See Docket #61-2 Ex. B, ¶ 9. In this case, Sorensen cannot hope to survive reexamination by amending the claims because Sorensen’s patent expired on February 5, 2008.1 The USPTO’s rules do not allow the claims of an expired patent to be amended in reexamination: No enlargement of claim scope. No amendment may enlarge the scope of the claims of the patent or introduce new matter. No amendment may be proposed for entry in an expired patent. Moreover, no amendment, other than the cancellation of claims, will be incorporated into the patent by a certificate issued after the expiration of the patent. 37 C.F.R. § 1.530(j) (emphasis added). Thus, Sorensen’s only hope of prevailing requires that its patent will be one of the 26% of patents that survive reexamination with all claims confirmed.2 However, there are now two on-going reexaminations of Sorensen’s patent. Assuming that each reexamination has a 26% chance of an outcome in which Sorensen’s patent has all of its claims confirmed, then the probability that Sorensen’s patent will survive both reexaminations with all claims confirmed would be less than 7%.3 When one takes into account the facts that Sorensen’s patent has expired and two reexaminations are on-going, Sorensen’s own reexamination statistics indicate that Legacy’s invalidity defense is not only meritorious—it is a defense with a substantial likelihood of prevailing. // // // 1 See 35 U.S.C. § 154(a)(2). 2 It is theoretically possible that Sorensen’s patent could survive reexamination by cancelling some claims but not others. However, Sorensen’s claim chart purports to show infringement of only claim 1, the broadest claim. See Docket #12 Ex. C. If any claim were to be cancelled during reexamination it would be claim 1 (as the broadest claim), and such cancellation could well bring Sorensen’s infringement allegations to an end. 3 As a matter of simple arithmetic, 26% of 26% is 6.76%. Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 8 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 5 – 701094861v1 (2) Legacy Has Not Engaged In Culpable Conduct Sorensen’s opposition suggests that the mere fact that Legacy received the Amended Complaint and did not answer shows that Legacy engaged in “culpable conduct.” See Docket #61 at 8-9. That, however, is not the law: [O]ne might think, reading this standard out of context, that a litigant who receives a pleading, reads and understands it, and takes no steps to meet the deadline for filing a responsive pleading acted intentionally in failing to answer, without more, and therefore cannot meet the culpability standard. If that were our standard under Rule 60(b)(1), it would have to be revised after Pioneer Investment [507 U.S. 380 (1993)]. TCI Group, 244 F.3d at 697. A failure to answer is not necessarily “culpable” when there is a credible, good faith explanation that negates any intention to take advantage of the opposing party, interfere with judicial decision-making, or otherwise manipulate the legal process. Id. at 697-98. Instead, conduct is “culpable” when there is no explanation for a default inconsistent with a devious, deliberate, willful, or bad faith failure to respond. Id. at 698. In this case, Legacy has a good faith explanation for why Legacy did not answer Sorensen’s Amended Complaint. Legacy reasonably relied on the Court’s Time Extension Order, which stated “Defendants need not answer or otherwise respond to plaintiff’s amended complaint unless and until ten (10) days after this Court enters an Order denying the Motion to Stay.” See Docket #33 (emphasis added); Docket #52 at 3-4. Although Sorensen tries to attack the credibility of this explanation, Sorensen’s own actions suggest that Sorensen similarly understood that the Court’s Time Extension Order applied to Legacy. In its Opposition to DNNA’s Motion for Stay, which was filed nine days after the Court’s Time Extension Order, Sorensen specifically requested that the Court “require Defendants to respond to the Amended Complaint.” Docket #34 at 11 (emphasis added). If Sorensen had believed that the Court’s Time Extension Order applied only to DNNA, Sorensen would not have made this request because a Court order would not have Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 9 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 6 – 701094861v1 been required for Legacy to respond to the Amended Complaint. Thus, Sorensen’s own actions support Legacy’s good faith explanation. In addition, though Sorensen now contends that the reference to “Defendants” in the Court’s Time Extension Order is a typographical error, Sorensen made no attempt to correct this purported error. In this regard, the Federal Rules of Civil Procedure provide for the correction of typographical errors: The court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record. The court may do so on motion or on its own, with or without notice. Fed. R. Civ. P. 60(a). However, Sorensen has not made any attempt to invoke Rule 60(a). Sorensen’s failure to do so is further evidence that Sorensen did not consider the “Defendants” language in the Court’s Time Extension Order to be a typographical error, which further supports the credibility of Legacy’s good faith explanation. Legacy’s reliance on the plain language of the Court’s Time Extension Order can in no way be deemed “culpable.” To hold otherwise would be contrary to the integrity of the legal process that the “culpable conduct” standard is intended to uphold. (3) There is No Prejudice to Sorensen Sorensen argues that he will be prejudiced if he is “not allowed to receive the benefit of a default.” See Docket #61 at 12. However, merely being forced to litigate on the merits cannot be considered prejudicial for purposes of lifting a default. TCI Group, 244 F.3d at 701. Instead, the standard of prejudice is whether the plaintiff’s ability to pursue his claim will be hindered. Id. Sorensen has made no attempt to show any such prejudice. Accordingly, this factor clearly weighs in favor of Legacy. B. The Court Should Grant Legacy the Same Enlargement of Time to Respond As DNNA The parties have presented differing views regarding the Court’s Time Extension Order. However, there can be no dispute that the Court considered it to be in the interest of Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 10 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 7 – 701094861v1 judicial economy to stay at least DNNA’s requirement to respond to the Amended Complaint until the Court rules upon the Motion to Stay. See Docket #33 at 2. Sorensen has offered no valid reason why the interests of judicial economy would be served by a different outcome for Legacy. To the contrary, Sorensen has presented no evidence that he will be prejudiced by maintaining the status quo in this case. Because Sorensen will not be prejudiced in any legally cognizable way by placing Legacy and DNNA on the same procedural footing, Legacy respectfully requests the Court to issue an Order that makes clear that Legacy has the same time to respond to the Amended Complaint as DNNA. C. Sorensen’s Evidentiary Objections to the Declaration of Kurt W. Rohde are Wholly Without Merit Sorensen filed an Evidentiary Objection to Mr. Rohde’s Declaration (Docket #55-2) to which Defendants have previously responded (Docket #60). Sorensen has now filed a second Evidentiary Objection to Mr. Rohde’s Declaration (Docket #61-4). For the most part, the Second Evidentiary Objection repeats the objections in the First Evidentiary Objection (to which Defendants have already responded). However, there is some new material. Having been shown that his objections have neither factual nor legal support, Sorensen has resorted to “pounding on the table.” Specifically, Sorensen now suggests that Mr. Rohde should be questioned about the contents of his declaration. See Docket #61-4 at 2. Sorensen’s personal attack on Mr. Rohde’s credibility is shameful. Moreover, it appears to be based on a mistaken assumption that Mr. Rohde drafted the Time Extension Order that the Court signed and entered: “Reasonable reliance” on an out-of-context “s” that you personally put in a document relating to something else entirely should not be accepted on mere self-serving statement. See Docket #61-4 at 2.4 However, Mr. Rohde’s Declaration (Docket #53) does not state that Mr. Rohde drafted the document. Sorensen has simply invented this “fact” (and 4 Sorensen’s opposition brief also refers to “a declaration of Legacy’s counsel who drafted the Order with the inconsistent language and context.” See Docket #61 at 12. Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 11 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 8 – 701094861v1 invented it incorrectly). As such, Sorensen’s extraordinary request must be rejected out of hand. Sorensen has no basis for excluding the evidence of Legacy’s reasonable reliance on the plain language of the Court’s Time Extension Order (Docket #33), the credibility of which is buttressed by Sorensen’s own actions. For the reasons set forth herein, and in Docket #60, Sorensen’s evidentiary objections should be overruled in their entirety. III. CONCLUSION The time has come for Sorensen to accept that this litigation has been stayed pending reexamination of Sorensen’s patent and to accept that the interests of judicial economy are best served by waiting for the reexamination of Sorensen’s patent to be concluded before requiring any Defendant to respond to Sorensen’s Amended Complaint. Under the plain language of the Court’s Time Extension Order, Legacy is not in default. Even if Legacy were to be deemed in default, any appearance of default should be set aside because: (i) Legacy has a meritorious defense of the patent’s invalidity, as evidenced by the statistically small chance that Sorensen’s now-expired patent will be able to survive both on-going reexaminations with all claims confirmed; (ii) Legacy did not engage in “culpable” conduct because Legacy reasonably relied on the plain language of the Court’s Time Extension Order, the reasonableness of which is supported by Sorensen’s // // // // // // // // Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 12 of 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 9 – 701094861v1 own conduct indicating that Sorensen also considered the Court’s Time Extension Order to apply to Legacy; and (iii) Sorensen will not be prejudiced. Dated: May 30, 2008 PILLSBURY WINTHROP SHAW PITTMAN LLP DAVID A. JAKOPIN DANIEL J. RICHERT 2475 Hanover Street Palo Alto, CA 94304-1114 By /s/_Daniel J. Richert Daniel J. Richert Attorneys for Defendants DIGITAL NETWORKS NORTH AMERICA, INC. LEGACY SUPPORT SERVICES, LTD. d/b/a S2G Of Counsel: Bradley J. Hulbert (admitted pro hac vice) Richard A. Machonkin (admitted pro hac vice) Kurt W. Rohde (admitted pro hac vice) MCDONNELL BOEHNEN HULBERT & BERGHOFF 300 South Wacker Drive Chicago, Illinois 60606 312-913-0001 Telephone 312-913-0002 Facsimile hulbert@mbhb.com machonkin@mbhb.com rohdek@mbhb.com Case 3:07-cv-05568-JSW Document 62 Filed 05/30/2008 Page 13 of 13