November 2014
Finding District Court Abused Its Discretion by Attaching Fee-Shifting Condition to Authorization to Supplement Preliminary Infringement Contentions
| Judges: Newman (author), Reyna, Taranto |
| [Appealed from S.D. Cal., Judge Sammartino] |
In AntiCancer, Inc. v. Pfizer, Inc., No. 13-1056 (Fed. Cir. Oct. 20, 2014), the Federal Circuit vacated the district court’s fee-shifting condition for supplementing Preliminary Infringement Contentions (“PICs”), the SJ of noninfringement based on it, and remanded for further proceedings.
AntiCancer, Inc. (“AntiCancer”) filed a complaint against Pfizer, Inc. (“Pfizer”) for breach of license agreement, breach of the duty of good faith and fair dealing, and unjust enrichment. AntiCancer sought to amend the complaint to add counts of patent infringement and to add Crown Bioscience, Inc. (“Crown Bioscience”) as a defendant, based upon several publications it contended showed the use of AntiCancer’s technology and infringement of its patents, which the district court granted.
Complying with Patent Local Rule 3.1 (“PLR 3.1”), AntiCancer filed PICs. Pfizer moved for SJ of noninfringement, stating that AntiCancer’s PICs were defective, which Crown Bioscience joined.
AntiCancer opposed the motion and filed a supporting declaration. Finding claim charts in AntiCancer’s PICs deficient as to three claim elements—“promoter monitoring,” “delivering cells,” and “metastasis to a second site”—the district court authorized AntiCancer to supplement its PICs. As a condition for amending, the district court required AntiCancer to concurrently pay the defendants’ attorneys’ fees and costs related to the SJ motion, and stated that if AntiCancer objected to the conditions, it would grant SJ in defendants’ favor. AntiCancer objected to the fee-shifting condition, and the district court entered SJ of noninfringement. After the parties settled the contract claims and filed a voluntary dismissal, the district court dismissed the amended complaint. AntiCancer then appealed the district court’s entry of SJ of noninfringement.
The question on appeal was whether the district court appropriately attached the fee-shifting sanction to its authorization to supplement the PICs. The Federal Circuit noted that AntiCancer filed its PICs five days after it amended the complaint, which was nearly ten months prior to the close of fact discovery. Because the Southern District of California adopted patent local rules similar to those of the Northern District of California and referred to the Northern District’s decisions to interpret them, the Court cited Northern District and Federal Circuit decisions regarding PLR 3.1. Applying this guidance, the Court observed that PICs precede discovery and are intended to facilitate it, and though they must outline theories, they need not provide evidence of or prove infringement. The Court also remarked on the importance of discovery in complex patent cases and felt that the limiting language of PLR 3.1 (i.e., to identify “as specific as possible,” and “of which the party is aware,” and “if known”), harmonizing the local rule with the discovery provided by the Federal Rules, warranted consideration. Slip op. at 18.
After considering the language and purpose of PLR 3.1, the record of what AntiCancer disclosed in its PICs, and the specific criticisms of the PICs’ sufficiency, the Federal Circuit concluded that there was no reasonable basis for a finding of bad faith. The Court explained that under Ninth Circuit precedent, the district court must make an explicit finding of bad faith before imposing a fees sanction. Further, the Court explained that it did “not see how revised [PICs] could be insufficient if AntiCancer added to them the brief explanations it provided in its opposition to [SJ].” Id.
“When a complaint meets the standards of the Federal Rules, and there has been no reasonable opportunity for discovery and evidentiary development of the issues, it is rarely appropriate to summarily decide the merits against the complainant.” Slip op. at 27.
For the “promoter monitoring” element, the Federal Circuit explained that the district court apparently gave weight to additional information in AntiCancer’s SJ opposition papers, even remarking that AntiCancer was “capable” of making the “connection” between the cited paper and the claim elements. Id. at 20 (citation omitted). The Court found this observation weighed against any inference of bad faith. Particularly, although the district court described the PICs as “woefully insufficient” and “vague,” and AntiCancer’s actions as “unreasonabl[e]” and “disingenuous,” the Court found no explicit finding of bad faith. Id. at 22 (citation omitted).
For the “delivering cells” element, the district court observed that AntiCancer elaborated on the element in its SJ opposition papers, but wanted the “connections between the claim language and the evidence of the accused instrumentality” in the PICs, even if they were basic scientific concepts. Id. at 24 (citation and internal quotation marks omitted). In view of the district court faulting the PICs for failing to provide sufficient “evidence” and AntiCancer’s presentation “at this stage” of the litigation, the Court concluded that imposing the sanction as a condition for the litigation to proceed exceeded the district court’s discretionary authority. Id.
For the “metastasis to a second site” element, the Court noted AntiCancer’s argument that the district court’s question of “how” the cited passage provided “direct evidence” relating to the claimed element “transcends the requirement of [PLR] 3.1.” Id. at 26. The Court explained, based on various decisions analyzing the Patent Local Rules, that PICs need not include proof or direct evidence of infringement.
Thus, the Court concluded that the fee-shifting condition was unwarranted since there was an absence of bad faith.
