Free Reply to Opposition - District Court of California - California

Case 3:07-cv-05568-JSW

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PILLSBURY WINTHROP SHAW PITTMAN LLP DAVID A. JAKOPIN #209950 david.j akopinpillsburylaw. corn THEODORE K. BELL #184289 [email protected] DANIEL J. RICHERT #232208 [email protected] 2475 Hanover Street Palo Alto, CA 94304-1114 Telephone: (650) 233-4500 Facsirnile: (650) 233-4545
MCDONNELL BOEHNIEN HULBERT & BERGHOFF LLP BRADLEY J. HULBERT [email protected] RICHARD A. MACHONKIN rnachonkin@rnbhb .corn KURT W. ROHIDE [email protected] 300 South Wacker Drive Chicago, IL 60606-6709 Telephone: (312) 913-0001 Facsirnile: (312) 913-0002

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Attorneys for Defendant DIGITAL NETWORKS NORTH AMERICA, INC.

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
JEN ER[K SORENSEN, as Trustee of SORENSEN RESEARCH AND DEVELOPMENT TRUST,
Plaintiff,
v.
) ) ) ) ) ) ) ) ) ) ) ) ) )

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No. 07 CV 5568 JSW

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DEFENDANT DIGITAL NETWORKS NORTH AMERICA'S REPLY TO PLAINTIFF'S OPPOSING BRIEF TO DEFENDANT'S MOTION FOR STAY
Date: January 18, 2008 Tirne: 9:00 A.M.

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DIGITAL NETWORKS NORTH AMERICA, INC., a Delaware corporation; LEGACY SUPPORT SERVICES, LTD. d!b/a 52G; and DOES 1-100,
Defendants.

Ctrm: 2, 17th Floor
Judge:

Hon. Jeffrey S. White

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Reply To Opposition To Motion For Stay
Case No. 07 CV 5568 J5W

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TABLE OF CONTENTS
I.

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ISSUE

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II.

SUPPLEMENTAL STATEMENT OF FACTS
ARGUMENT
A.
B.
C.

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III.

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Plaintiff Will Not Be Unduly Prejudiced By This Stay
The Plaintiff Delayed In Bringing This Case

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Plaintiff's Proposed "Partial" Stay Is No Stay At All

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IV.

CONCLUSION

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TABLE OF AUTHORITIES
Cases

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Broadcast Innovation, LLC v. Charter Communs., Inc., 2006 U.S. Dist. LEXIS 46623 (D.Colo. Jul. 11, 2006) EEOC v. Gear Petroleum, Inc.,

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948F.2d1542(l0thCir. 1991)
Hewlett-Packard Co. v. Acuson Corp., 1993 U.S. Dist. LEXIS 6449 (N.D.Cal. 1993)
Ingro v. Tyco Indus., Inc., 227 U.S.P.Q. 69 (N.D.Ill. 1985) Photoflex Prods., 2006 U.S. Dist. LEXIS 37743 (N.D. Cal. May 24, 2006) (White, J.)

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St. Paul Fire and Marine Ins. Co. v. Brother Intern. Corp., 2007 WL2571960 (D.N.J. 2007) Target Therapeutics, Inc. v. SciMed Life Systems, Inc., 33 U.S.P.Q.2d 2022 (N.D. Cal. Jan. 13, 1995) Telemac Corp. v. Teledigital, Inc. et al., 450 F.Supp.2d 1107 (N.D.Cal. 2006)
Rules and Regulations

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Federal Rules of Civil Procedure Rule 10 Federal Rules of Civil Procedure Rule 12 Federal Rules of Civil Procedure Rule 8
Other Authorities

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David W. Louisell & Christopher B. Mueller, Federal Evidence § 170, at 443 (rev. vol. 2 1985) McCormick on Evidence at 186 (5th ed. 1999)

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I.

ISSUE
Defendant Digital Networks North America, Inc. ("DNNA") respectfully moves for

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a complete stay of the above-captioned proceeding pending the ongoing United States Patent & Trademark Office ("PTO") reexamination of the patent-in-suit, U.S. Patent No.
4,935,184 ("the '184 patent").

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II.

SUPPLEMENTAL STATEMENT OF FACTS
Defendant DNNA offers the following additional facts to supplement those

described in its Memorandum of Points and Authorities in Support of Defendant's Motion
to Stay the Litigation Pending the Outcome of Reexamination Proceedings.

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DNNA is still in operation as an on-going business and has no present intention of

disbanding operations. (Golio Decl. ¶2).
DNNA has custody and control of archived sales figures for DNNA's sales of the known accused products for the time period from DNNA's acquisition of the product line

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until the present. DNNA has taken affirmative steps to preserve those archived sales figure
documents, as well as all other documents relevant to this litigation. (Golio Decl. ¶3). In case Plaintiff has not already identified the manufacturer of the accused products during its own investigations, Liteon Technology Corporation, located at 4F, No. 90, Chien I Rd, Chungho, Taipei Hsien 235, Taiwan, manufactured for DNNA the products accused

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of infringement. (Golio Decl. ¶4).

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III.

ARGUMENT
A.

Plaintiff Will Not Be Unduly Prejudiced By This Stay

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The Plaintiff has presented no valid evidence of prejudice. In an attempt to portray
irmuendo as evidence, Sorensen: (1) incorrectly casts doubt on the viability of DNNA as an on-going business through the use of non-current information from Dun and Bradstreet

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("D&B"); and, (2) improperly uses statements made by DNNA counsel during the course of
compromise negotiations with respect to the first point. Sorensen asserts that "Dun and Bradstreet reported an inability to confirm [DNNA]

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operations as recently as March 2007." (Plaintiff's Opposing Brief, Docket #34, page 3,
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lines 5-7.) As Mark Twain famously remarked upon learning of the false publication of his

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own obituary, "The reports of my demise were greatly exaggerated." Had Sorensen's
counsel provided this Court with a current D&B report, it would show that DNNA is indeed

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in operation. A current D&B report, obtained the same day Plaintiff filed its Opposing Brief, is included with the attached Declaration. (Second Rohde Decl. ¶2, Exhibit A.)
Additionally, the Declaration of Dominick J. Golio, Treasurer and Senior Vice President of DNNA, confirms that DNNA is an on-going business and has no intention of disbanding

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operations. (Golio Decl. ¶2). Next, defendant DNNA objects to the use in Plaintiffs Opposing Brief of certain
alleged statements made by DNNA counsel during the course of on-going compromise

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negotiations. Federal Rule of Evidence 408 states, in relevant part, that "[e]vidence of the
following is not admissible on behalf of any party, when offered ... to impeach through a prior inconsistent statement or contradiction: ... conduct or statements made in compromise negotiations regarding the claim ..
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Sorensen and DNNA have engaged in compromise negotiations since contact was

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first established between the parties in 2004. Sorensen admits that Plaintiffs counsel and
DNNA's counsel have engaged in compromise negotiations over at least the last year.

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(Plaintiffs Opposing Brief, Docket #34, page 4, lines 1-2, "...

at

least the last year of

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communication could be categorized as negotiations over an appropriate licensing/release fee.") Sorensen has alleged that DNNA counsel made certain statements to Sorensen
during the course of these compromise negotiations. Id. at page 2, line 25 -- page 3, 20;
page 7, line 2 -- page 8, line 15; page 8, lines 23-25. Such statements are inadmissible

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under Federal Rule of Evidence 408 ("FRE4O8") in that they portray DNNA as having made prior inconsistent statements, where the prior statements were made during the course

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of compromise negotiations. See also St. Paul Fire and Marine Ins. Co. v. Brother Intern. Corp. 2007 WL 2571960, *17.48 (D.N.J. 2007) (striking background information
concerning settlement negotiations which was included in a motion opposing summary judgment, a statement of fact, and a certification).
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Specifically, DNNA has previously asserted, and continues to assert, that Sorensen

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will not be prejudiced by granting the stay pending reexamination of the patent. Plaintiff is
using the alleged statements made by DNNA's counsel during compromise negotiations as evidence of prejudice to the Plaintiff, thus casting the alleged DNNA statements to the

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contrary as inconsistent. Such use goes against the public policy of allowing the frank
interchange of information during negotiations, as indicted in the Advisory Committee Notes relating to the 2006 Amendment, which prohibited the use of such statements.

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The amendment prohibits the use of statements made in settlement negotiations when offered to impeach by prior inconsistent statement or
through contradiction. Such broad impeachment would tend to swallow the

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exclusionary rule and would impair the public policy of promoting
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settlements. See McCormick on Evidence at 186 (5th ed. 1999)("Use of statements made in compromise negotiations to impeach the testimony of a party, which is not specifically treated in Rule 408, is fraught with danger of misuse of the statements to prove liability, threatens frank interchange of information during negotiations, and generally should not be permitted.").

Federal Rule of Evidence 408, Advisory Committee Notes to 2006 Amendment. Further "the risks of prejudice and confusion entailed in receiving settlement
evidence are such that often ... the underlying policy of Rule 408 require[s] exclusion even

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when a permissible purpose can be discerned." EEOC v. Gear Petroleum, Inc., 948 F.2d
1542 (10th Cir. 1991) (quoting David W. Louisell & Christopher B. Mueller, Federal
Evidence § 170, at 443 (rev. vol. 2 1985)) (letter sent as part of settlement negotiation

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cannot be used to impeach defense witnesses by way of contradiction or prior inconsistent
statement; such broad impeachment would undermine the policy of encouraging

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uninhibited settlement negotiations). Consequently, DNNA submits that the alleged
statements are not valid evidence of prejudice to Plaintiff and DNNA strongly objects to the disclosure of, and attempted reliance on, the alleged statements by Plaintiff. In asserting alleged prejudice to Plaintiff, Sorensen relies heavily on Telemac Corp.

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v. Teledigital, Inc. et al., 450 F.Supp.2d 1107, 1111 (N.D.Cal. 2006) for the proposition that

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Plaintiff will suffer "substantial prejudice" if a stay is granted. (Plaintiff's Opposing Brief,
Docket #34, page 5, line 13 -- page 6, line 3.) According to Sorensen, in Telemac, multiple

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"motions to stay pending reexamination were denied where the likely length of
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reexamination served to exacerbate the risk of lost evidence." (Id. at page 5, lines 19-2 1).
In Telemac, one of the defendants had failed to preserve phone records and the Telemac

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Court determined that further delay to could lead to further loss of information. Telemac, 450 F.Supp.2d. at 1109, 1111. Sorensen attempts to drawn parallels to the instant case,
(Plaintiffs Opposing Brief, Docket #34, page 6, line 4-- page 9, line 8), but does not offer

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evidence that DNNA has lost evidence or is likely to lose evidence. In fact, DNNA has made affirmative efforts to preserve evidence, (Golio Decl. ¶3), including preserving archived sales records for the accused products going back to the time of the product line acquisition, (Id.), and has provided this Court and Sorensen with the identity of the foreign manufacturer of the accused products. (Golio Decl. ¶4).
Although the Court in Telemac found that the defendants may have "lack[ed] the resources to compensate Telemac in the event of a finding of infringement," Id. at 1111,

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that is not the case with DNNA. As evidenced by the current D&B report and Mr. Golio's Declaration, DNNA is an on-going business and Plaintifrs attempts to characterize it as
otherwise are, at best, unsubstantiated allegations. Additionally, a more thorough review of Telemac shows the instant case to be very

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different. To start, in Telemac, the reexamination request was faulty and the PTO had not

yet granted the request for reexamination. Id. at 1109, 1110. Further, the movant
requested the reexamination well after the case had been filed. Id. at 1109, 1110.
Additionally, the two stays were requested eighteen and twenty-seven months after the

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claims were filed against the defendants. Id. at 1111. Interrogatories, responses, and
supplemental responses had been exchanged, documents had been produced, and at least

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one deposition had been taken. Id. at 1109-1110. Finally, the close of fact discovery was
very near and a trial date had been set. Id. at 1111.
In the instant case, the reexamination has already been granted by the PTO along

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with a finding of 13 new substantial questions of patentability. (Rohde Decl., Exhibit C.)
Once Sorensen filed an infringement case against DNNA, DNNA immediately moved for

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the stay pending the PTO's decision following reexamination. Finally, fact discovery has
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not yet begun in the instant case and no trial date has been set. Telemac is a very different case with a significant number of distinguishing characteristics that weighed on the Court's

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decision to deny a stay. If DNNA had delayed in requesting a stay, was at risk of going out
of business, had lost or failed to maintain records during litigation, or if the PTO was not currently reexamining the patent-in-suit, this would be a very different situation. However,
that is not the case arid defendant DNNA respectfully asserts that Plaintiff Sorensen will not be unduly prejudiced by a stay in this litigation.
B.

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The Plaintiff Delayed In Bringing This Case

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Sorensen alleges that he may be prejudiced if the instant litigation is now stayed

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pending reexamination. However, Sorensen cannot claim delay prejudice where he himself
delayed in initiating the present litigation by bringing this lawsuit in November of 2007 after first placing DNNA on notice of alleged infringement of the '184 patent in October of

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2004. Other courts have found that delay by the patent holder in initiating litigation
weighed against denying a stay. In Ingro v. Tyco Indus., Inc., the court granted a motion to stay litigation pending the completion of a reexamination proceeding. 227 U.S.P.Q. 69 (N.D.Il1. 1985). The court's reasoning was based in part on the fact that "especially in light of plaintiffs own delay in initiating litigation, a stay pending completion of reexamination proceedings, which on average involve 15.9 months from filing date to termination in the

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PTO, will constitute neither undue delay nor unreasonable delay." Id. at 71. See also
Hewlett-Packard Co. v. Acuson Corp., 1993 U.S. Dist. LEXIS 6449, *5 (N.D.Cal. 1993) (granting motion for stay arid noting that Plaintiffs delay in seeking to protect its patented interests weighed heavily against denying motion for stay). Given his own delay, Sorensen
can hardly suggest that he would now be prejudiced by a stay in the present litigation pending resolution of the PTO's ongoing reexamination of the '184 patent.

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Further, as previously discussed, Sorenson now argues that he would be prejudiced by a stay due to the potential for lost evidence. If Plaintiff were truly concerned about lost
evidence due to turnover of personnel and ownership, Plaintiff could have filed suit in 2005

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when the sale of DNNA's Rio technology was announced. (Kramer Decl. ¶14.) Instead,
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Plaintiff delayed two more years and now asserts that the passage of time is prejudicial to
him.
C.

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Plaintiff's Proposed "Partial" Stay Is No Stay At All

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The "partial" stay proposed by Plaintiff is no stay at all because it would allow Plaintiff to conduct wide-ranging fact discovery, thereby eliminating the benefits previously

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recognized for staying litigation pending reexamination of a patent. First, discovery problems relating to prior art can be alleviated by the PTO reexamination. Broadcast Innovation, LLCv. Charter Communs., Inc., 2006 U.S. Dist. LEXIS 46623, at *9..lo
(D.Colo. Jul. 11, 2006). It makes sense to ascertain the ultimate scope of the claims before

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trying to figure out whether DNNA's accused products infringe the '184 patent. Absent a
stay, the parties may end up conducting a significantly wider scope of discovery than

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necessary in regards to claims which are eliminated during reexamination. See Target
Therapeutics, Inc. v. SciMedLfe Systems, Inc., 33 U.S.P.Q.2d 2022, 2023, 1995 WL 20470
at *1 (N.D. Cal. Jan. 13, 1995). Second, in those cases resulting in effective invalidity of the patent, the suit will

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likely be dismissed. Broadcast Innovation, 2006 U.S. Dist. LEXIS 46623, at *9..lo. As
DNNA has previously stated, the claims of the '184 patent (as well as Sorensen's ability to
assert infringement thereof) will live or die with the pending reexamination proceeding

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without change. If the present litigation is not stayed, there is a substantial risk of
expending enormous resources by the parties and by the Court through discovery and motion practice regarding claims that may ultimately be cancelled by the PTO. Third, the outcome of the reexamination may encourage a settlement without the

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further use of the court. And finally, the cost will likely be reduced both for the parties and

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the court. Id. As previously discussed, there is a significant chance that the PTO will
invalidate the '184 patent. This creates a very real possibility that the parties will expend
resources performing international discovery and possibly litigating over issues that will

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ultimately be rendered moot by the PTO's findings. Because granting a complete stay will
simplif\j the issues and streamline the trial, should there still be a need for a trial, the Court
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can reduce the burdens on the parties and conserve its resources. See, e.g., Photoflex Prods., 2006 U.S. Dist. LEXIS 37743, at *6. Fourth, under DNNA's proposed, complete stay, Plaintiff would still be free to pursue the manufacturer of the accused products, Liteon Technology Corp., to the extent
Plaintiff wishes to do so.

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As a final matter, in Plaintiffs Opposing Brief, Sorensen requests that Defendants
"file a responsive pleading pursuant to Fed.R.Civ.P. Rules 8 and 12 within 10 days, to allow the Court and Plaintiff to know what Defendants [sic] assertions and defenses are in

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this case." Plaintiffs Opposing Brief, Docket #34, page 12. In an Order dated December
18, 2007 and in response to DNNA's previous motion to enlarge the time to respond, Docket #28, this Court ordered that "Defendants need not answer or otherwise respond to

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plaintiffs amended complaint unless and until ten (10) days after this Court enters an Order denying the Motion to Stay." Docket #33. Thus, the Court has already decided the issue
regarding responsive pleadings.

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IV.

CONCLUSION
A complete stay is appropriate under these circumstances. For
the reasons detailed

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in DNNA's

opening Brief and

for the additional reasons detailed in this reply Brief, DNNA

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respectfully requests that the Court order this case completely stayed pending completion of
the PTO's ongoing reexamination of the '184 patent.

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Dated: January 4, 2008
PILLSBURY WINTHROP SHAW PITTMAN LLP DAVID A. JAKOPIN THEODORE K. BELL DANIEL J. RICHERT 2475 Hanover Street Palo Alto, CA 94304-1114

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By_____
Of Counsel:

Theodore K. Bell Attorneys for Defendant DIGITAL NETWORKS NORTH AMERICA, INC.

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Bradley J. Hulbert (admitted pro hac vice) Richard A. Machonkin (admitted pro hac vice) Kurt W. Rohde (admittedpro hac vice)
MCDONNELL BOEHNEN HULBERT & BERGHOFF
300 South Wacker Drive

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Chicago, Illinois 60606
312-913-0001 Telephone 312-913-0002 Facsimile

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[email protected] [email protected] [email protected]

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