Princeton Digital Image Corp. v. Office Depot Inc., C.A. No. 13-239-LPS (D. Del. Mar. 28, 2016)

8/18/2019 Princeton Digital Image Corp. v. Office Depot Inc., C.A. No. 13-239-LPS (D. Del. Mar. 28, 2016)

1/43

IN

THE

U ITED STATES DISTRJCT COURT

FOR THE DISTRJCT OF DELAWARE

P

RINCET

O

DIGIT

l

IMAGE

CORPORAT IO ,

Plaintiff,

v.

OFFICE DEP

OT

INC. ,

Defendant.

PRINCETON DIGITAL IMAGE

CO

RP

ORAT I

ON

Plaintiff.

v.

J.C. PENNEY COMPANY INC.

Defendant.

P

RINCETON

DIGIT

AL

IMAGE

CORPORATIO .

Plaintiff,

QVC INC.

Defendant.

}

REDACTED PUBLIC VERSION

ISSUED 3/31/16

C.A. o.

13-239

C.A.

o.

13-287

C.A. No . 13-288

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 1 of 43 PageID #: 3031


2/43

PRINCETON DI

GITAL

IMAGE

CORPORA

Tl ON

,

Plaintiff.

v.

SEARS HOLDINGS

COMPANY

Defendan t

PRINCETON DIGIT L

IMAGE

CORPORATION.

Plaintiff,

v

LIMITED

BRAND , INC.

Defendant.

PRINCETON DIGIT

AL

IMAGE

CORPORATION,

Plaintiff.

v

GAP INC

Defendant.

C A

No . 13-289

C.A.

No

. 13-326

C.A.

No 13

-330



3/43

PRJNCETON DIG AL

IMAGE

CORPORATION

Plaintiff,

v.

WTLLlAMS SONOMA INC.

,

Defendant.

PRINCETON

DIGIT AL IMAGE

CORPORATION.

Plaintiff,

COSTCO WHOLESALE CORP.

Defendant.

PRINCETO DIGIT

AL

IMAGE

CORPORA

TIO ,

Plaintiff,

v.

NORDSTROM.COM LLC ,

ORDSTROM.COM INC. , and

NORDSTROM

INC. ,

Defendan

ts.

C.A

. o. 13-331

C

.A.

. 13-404

C.A . o. 1 -40



4/43

ean T. 0 Kelly

George

Pazuniak. Daniel P. Murray 0 KELLY. ERN

T.

BlliLLl

LLC.

Wilmington DE

Coun el for Plaintiff Princeton Digital Image Corporation.

Kenneth

L.

Dorsney MORRl JAMES LLP Wilmington. DE

Tara D. Elliott. Rachel Weiner Cohen WILMER C TLER PICKERING

HALE AND DORR

LLP . Washington DC

Counsel for lntervenor

dobe

Systems lncorporated.

March 28. 2016

Wilmington Delaware

MEMOR NDUM

OPJ ON



5/43

Several motions are pending b ore the

urt

in th e multiple related patent ca

es:

inti Pnnceton

DigHal

lmage orp

rati

n· r P

I ··

r

..rrin l

n· Counterclaim

.A .

No.

11-4l

D.J

_ r· dobe· 01ion to Dismi •· . _ d •. Renewed Motion for Sanction

( .I. 6 ) •

Motion for ancti ns ) . ~ t PDI ·. M ti n

t

Dism i Claim in

lot rveod

nof

dobe D.1.6) ··PDIC sMoti ntoDi

mi

' .

5

and

4)Ad

be· CrossMoti n

r Judgmenl n the Pleadings

(D.1. 75) ( d

e·

M

ti n

fi

r Judgment n the Pleadings

..

I. B

D

PDIC and Adobe entered into an a reement

r·

d

be

icense \ h reb.

P I · duly lie

n

ed i

. . Patent o. 4. ' 13.0 6 ( .,o- patenC t • d be and do e s

cu

t mer . r a l ~ \

D L t _

Ex. The d

icen in

luded a co enant

by

PDIC not

un previously granted Ado · mnihu Motion

t

Tnt

rvene as

a

matter

of

right

-captt ned case pur uant

to Rut

24(a

2)

and permissively pursuant to Rule

e. e

..

C. .

o.

13-404 D.l. 44

d c et

citations

hereinafter are

to C.A .

N . I -4 4 unle s therwi e p cified.

filed id ntical motions seeking to dismi P I c unterclaim, and th partie

u mitted identical briefing with re, pect to the e moti n . in all

f

the ab ~ c a p t i o n e d es

ex ept

C.A. . I -408.

4

ldentical moti n and briefing were bmitted b ·

th

partie in

aJI

the

ve-captioned

cases with r pect t thi motion .

5

ldenti I m tion and briefing were bmitte

cases with

re

p t

t Lhi

m tion.

partie in

all

I th ab ve-captioned

Idemic Im tion and briefing ere submitted b ,

th

partie in all f the

ve-capti ned

cases with r L O tbi m tion.

1



6/43

to sue Adob

s

customers for infiingement of the '056 patent b their use

of Adobe

' s products.

See id.)

n

2 I 3. PDJ

fi

Jed

the above-captioned lawsuits against Office

Depot

lnc

J. . Penney

Company, Inc

QV

Inc . Sears Holding

Company

. Limited Brands Inc., Gap Inc . Williams-

Sonom Inc . Co tco Wh le ale C

rp.,

N rd trom.c m LLC. rd trom.com

In .

and

Nordstrom Inc . (collccti ely. ··De eodants ') .

7

As each

of

hese De endants are Adobe customer ,

on ovember 26. 2014 Ad be moved to intervene in these lawsuits. (D .I. I0) Adobe argued that

it had a right to intervene due to it customers · requests for indemnity under the Adobe License

and becau e

of

POI s refusal to engage in further di cussion ··with Adobe, which would be

neces ary to clarify and resolve the lawsuits.

ee D 1 .

11

at 9. 11) The Cour1 granted Adobe·

m tion to intervene on May 5, 2015. See D.J. 44)

On May 2015, Adobe filed a c mplaint in intervention (D.I.

46)

alleging I}breach of

contract ba ed on POI ·s infringement suit again t Defendants, which Adobe argued violated

the covenant not to sue Adobe ' s customers contained in the

Adobe

License. and 2) patent

misuse by PDIC for its assertion of the '056 patent. which Adobe characterized a an attempt to

collect double ro alties · from Adobe' s cu tomers after already recei ing from Adobe

under the Adobe License. See

D 1

46 at 8-9 On May 29. 2015, PDJC filed an answer to

Adobe·s complaint in intervention and countercl im in all

of

the above-captioned actions, with

thee

ception of C.A. No. 13-40 . (D.1. 50)

PDICs

counterclaim alleged breach of the implied

7

The

nine ui ts which the Court is addres ing here are a ubset of the 51 related uit

PDIC filed in this District in 2012 and

201

. all assening infringement

of

the ' 056 patent.

PDlC

did not respond to Adobe s complaint in

C.A

. o. 13-40 . Consequently.

on

March 8, 2016. the Clerk

of

Court entered default against PDIC in that action. See C.A . N . 13-



7/43

covenant of good faith and fair dealing based on. among other things. Adobe' fajlure

to

cooperate with PDJC in re olving questions about whether Defendants were licensed under the

Adobe License.

See

id

at 9-12

Meanwhile. on January 14 . 2015. while Adobe·s motion to intervene

was

pending before

the Court Adobe filed a motion for anctions again t PDJC. (D.J. 25 The C urt held a bearing

on Ma 5. 2015. at which it heard argument on the sanctions motion (as well as on Adobe·s

motion to intervene). See 0.1. 51 ( '20 15 Tr.'')) At the conclusion of the hearing the Court

denied Adobe·s motion for sanctions but without prejudice to Adobe·s opportunity to renew its

request for anctions after filing its complaint

in

intervention .

See

DJ

. 44: see al o D.l. 51

at

81-86 Th focus

of

Adobe' original motion for anctions

was

hether

PDJC s

counsel bad

conducted an adequate pre-suit investigation in compliance with their obligations under Federal

Rule of Civil Procedure l I. On this issue, the ourt stated at the May 20 I bearing:

. . . . J

am

not imposing sanctions at this point, but that denial is

very much without prejudice.

What

i

clear to

me is

that the conduct of plaintiffand

plaintiffs counsel

is

at least close to the line that Rule

11

requires

the Court to draw. What I can ' t r today and what 1think under

the circumstances

I

do not need

to

spend the time trying to decide

[todayl is which sid of that line plaintiff and plaintiff' counsel

fall [on].

They may well ha e conducted a ju t barel_ adequate

investigation given all the facts and circumstances prior to suit.

They may ha e just enough to in good faith

have

continued with

these cases up to at lea t today But hey

ery

well

ma_

not have.

408

D 1

88) PDIC filed a mot ion to set aside default on March I I C.A . o. 13-40 D.l . 89

which remains pending.

3



8/43

2015Tr.at

4)

On May 8 2015 Adobe filed its complaint

in

intervention against PDIC.

See

D.I . 4

Thereafter

betweenMa

19,2015 se

,e.g

.

C.A.No.13-40

D.1.51

andJuly30,2015 see

,

e.g , D.f. 13-331

D.l

62) , PDIC dismissed its claims against each

of

the Defendants in the above

captioned suits. See, e

g

. D.l . 62) (JuJy 21. 2015 tipulati n of di mi al between PDIC and

Costco)

On August 21. _015. Adobe filed a renewed motion for sanctions . (D.I . 65) dobe·

renewed sanctions motion again contends that PDIC failed to conduct an adequate pre-suit

inve ligation before uing Defendants. See D. l 67 at I 0-13) It further allege that

PDIC

maintained baseless litigation positions '·after rccei ing uncontro ert

de

idence." particular

relating

to

the Adobe License, that should

have

compelled dismissal.

See id.

at I0 The

renewed motion also contends that PDJC engaged in

'p

er

i lent

fo

olou wanton, and ve:atious

litigation conduct:· Id. at 18) Adobe seeks relief under Rule

11

as well as attorney fee under

5 U C.

§ _

5 (for an '·exceptional · patent case . 2 U .C.

§

1927 for unreasonable

or

exatious rnultiplicati n of

pr

ccedings). and sancti n pursuant to the Court"s inherent

authority. (S e .)

A1

o n Augu

21

, 2015, PDJC filed a rnoti n di miss the patent misuse and breach

of

contract claim in Adobe s complaint in intervention . OJ. 66) With respect to patent mi suse.

PDIC argues that there is no case or ontroversy, and further that Adobe fail to state a claim on

which relief

may

be granted.

Se

D.I. 68 at , LO With respect to

Adobe·s

breach

of

contract

claim PDIC allege that the Court lacks juri diction. See

id

at 16-20

Jn r sponding to PDJC"s motions on cptembcr 9 2015 Adobe cross-mo ed for

4



9/43

judgment on the pleading on its breach

of

contract claim.

See

D.l. 75, 77) Abode contends that

PDIC breached its express co enant not

to

sue Adobe· s cust mers for using products licensed

under the Adobe License. adding that PDIC 'in bad

faith

filed. maintained and vexatiously

litigated these

ba

ele

s

case against Adobe s licensed customer for ears.'· Se D.l.

77

at

1-2)

Thepartie completed briefing on all pending motions on October 8 2015.

generall D.1

. 53 57 60, 67. 68. 74 77, 84. 85, 89. 90) The Court heard oral argument on

March 8, 2016.

See

Transcript { Tr. ))

II. LEGAL STANDARDS

A. Motion to Dismiss for Failure to State a Claim

Evaluating a motion to dismiss under Federal

Rule of

Civil Procedure 12 b)(6) requires

the ourt to accept as true all material al legations

of

a complaint.

See Spruill v. Gillis.

3 72 F 3d

218 223 (3d Cir. 2004 . ··The is ue is not

whether

plaintiffwill ultirnatel pre ail but whether

the

claimant i entitled to offer e idence to support the

claims:· Jn re Burlington Coat Factory

Sec. Lilig 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation marks omitted). Thus, the

Court may grant uch a motion to dismiss only if. after ··accepting all well-pleaded allegations n

the compJaint

as

true, and viewing

them

in the light mo t favorable to

plaintiff

plaintiff is not

entitJed to relief '.

Maio v. Aetna. Inc.,

221 F.3d 472, 481-82 (3d Cir. 2000 internal quotation

marks omittt:d).

However, (t]o survive a motion to dismis . a civil

plaintiff

must allege facts that ·raise a

right to relief above the speculative le

el

on the assumption that the allegation in the complaint

are true even

if

doubtful in

fact):·

·

Viccaulic Co. v Tieman.

499 F.3d 227, 234 (3d Cir. 2007

(quoting

Bell At/. Corp.

l

. Twomb v,

550 U.S. 544 555 2007)

internal

citations and quotation



10/43

marks min d ). A claim

i

faciall pla · le •. hen rhe plaintiff pleads factual conlent that

all

tbe un t draw the reason ble infi ren · that th efendant is lia le

for

th miscondu t

alleired. ·

A

hero.

'· Jqbal

5

·6

.S. ).

' TI1

c

mplaint

must

state enough

facts

rai ea

reas n

lee

·pectation Lhat di co CI) \

,·11 re

eal e iden

e f

[each] necessary element"

3

plaintiff claim. Wil erson , _

,.

i dw Ti h hart r h

Jn ..

522 F.3d 315

321

(3d

rr. _

8)

(internal

qu

tation mark mitted).

The urt i not obligated

to

accept

as

true· bald a. serti ns. Morse v Lower Merion

i r

J3_ F.3d

2.

906

{3d

ir. I 7) (internal

qu

tati n marks mined). unsupported

n

Ju ion

nd unwarranted inferences," Schuvlkill

E11er

1

R

·

.

n . 1·.

Penn lvama

Po

er

Lighr Co

113 F.3d

405, 417 3d

Cir. 19

7 .

r leg

ti

n that a

Fauv r, 2 .3d 63, 9

(3d

Cir. 1996).

·idcntl; false:·

ami ' ·

8 . lotion to

Di

miss for Lac att r J

uri

diction

"Federal Rule i Pro edure L b) l auth riz s

di

mi ra complaint

ii

r lack of

jurisdicti n

CT the

u ·ect matter. or

if

th plaintiff la k ·tanding t

rino

his claim."

1 un

El '

.

o .

led.

·

0

Semiconductor Corp 541 . upp. 2d 45, 4 (D. Del. 2008).

m

1i

n t

di

mis for lack

of

ubject maner juri dictj n may pr ent either a

f ial nack a fa tual tta k. See CNA v Unit d States 535 .3d 1 2. 1

Fed . R. i . P. 12 (l . A facial attack concerns

an

II gcd pleadinf d fi ien •• \

hi

le a factual

atta k ncem th ailure fa plaintiffs claim to omp

rt

t u a J I ~ ith th ·uri dicti nal

prerequi ite . ,

N

, 5 5 F.3d

at

139. Where

them

ti

n pre

en

a a

·iaJ

hallenge

to

the

urt'sjuri dicti n, or one ed urely n the allegati ns

in

the mplaint , the

urt

must

accept e l l p l ~ eel factu l allc ati ns as true and may c n ider nly the c m laint and an

6



11/43

documents upon which it is based. S Petrus ha

1·.

Gannon

Univ.,

462 F

3

d 294, 302 n.3 (3d

Cir. 2006). Where subject matter jurisdiction is challenged based upon the sufficienc of

jurisdictional

facts,

the Court is not required

to

attach

any

presumptive truthfuloe s

to

the

allegation

in the

complaint and may consider matters outside the pleadings

to

atisfy i tself that it

has juri dicti n. See Animal Sci. Produ ts

Inc

v. China Minmetals Corp

•

654 F.3d 462, 469 n.9

(3d Cir.

201

l ), as

amended

(Oct.

7, 2011

). ln either case, the plaintiff bear the burden of

persuasion. See Kehr Packages. inc. ' Fide/car. Inc., 926

f 2d

1406 1409

3

d Cir. 1991 .

Motion for Judgment on the Pleadings

Pursuant to Federal Rule of Ci Procedure 12(c), a part may move for judgment on the

pleadings [a]fter pleading are clo ed - but early enough not to dela trial. When evaluating a

motion for judgment on the pleadings, the Court must accept all factual allegations

in

a

complaint a true and view them in the light most favorable to the non-moving part .

Rosenau

v.

Uni.fund Corp.

539 F.3d 218. 22 I 3 d Cir. 2008). This the same standard as

applies to a Rule I 2(b

6)

motion to djsrniss. See Turbe v.

Gol

·, ofVirgin Island

,

93 F.2d 427,

428 (3d Cir. 1991 ; see also Maio, 221 F.3d at 4 2.

A Rule 12(c) motion will not e granted unless the movant clearly establishes that n

material issue of fact remains to be resol ed and that he is entitled to judgment a a matter of

Jaw:·

Rosenau,

539 F.3d at 22 I ·'The purpo e of udgment

on

the pleadings is to dispose of

claims where the material facts are undisputed and judgm nt can be entered on the competing

pleadings and exhibits thereto. and documents incorporated b reference

:·

Vene1ec Int '/.

in

c.

' '·

ex us

Med LLC,

541 F. Supp. 2d 612 617 D. Del. _008 :

se also Burlington Coat Factor

y

114 F.3d at l426 (explaining tbat any documents integral to pleadings may be considered in



12/43

but

heth r the

laimant

i entitled t

Fa rory

.

114

F.

3d

at

142

internal

qu

mitt

d).

rt

the claim

·

Burlington o

t

The Court ma public r rd well as

authenti

d cumenLS upon

hi

h

the complaint is

ba

eel if attach d l th

0 hiver r . Levin, Fi hb in Sedran B rmw1

an

exhibit to them ti n.

.3d

13

13 4

n.2 3d ir.

I

. The Un

m also take judicial notice

of

the fact

ual

re ord

of

a prior proceeding. S e On ida M t r

r ig/11

,

Inc v. nited Jersey Bank. 4 F d 414,

41

n.3 3d ir.

19

). Ultimately. a moti n

forjudgmeru on th pleading can h r nied ··onl if no reliefc

uld

be afforded under an et f

facts that could pr ed.'' Turbe. 9 F

_d at

42

D

Motion for

nction

1

Rul It

Federa l Rule

edure

..

pro

id

that

an an

me ·

wh fajJ l either

I

rea

the

pleading; 2) make

area

nahl

in

uiry int th

f;

ctual

and legal 1 gitima

1

th pleading;

or

3)

file the pleading

on

l r a proper purp e. shall

be

sanctioned:·

imm

nmm

rino. 27

F. d .

6

d ir

.

J

Additi na

il

. ' anctions are proper hen. inter a/iu. party 'in

i

t[ ]

upon a

iti

n ter

it

i n I nger

t

nabl . . .

·· Balthazar v. At/.

Cicy

M d.

tr..

137

. App· ·

48_ 490 d

d

i OT)

ommin e· Note t Rule I I) . A . en t cxc

pti

nal

cir um

tance ,

a

law

finn m l

eh

ld j omtl responsible for a 1 lati mmitt d by it

panner.

as

iate,

r empl

y

F d. R.

i .

P.

11

(c 1 .

2.

2

..Any an m

r

th

r per

on

admht.ed

to

conduc

t

cases in an.

urt

the

'

n t d tates



13/43

or

any Tenitory ther

of

who so multiplies the proceedings in any case unreasonably and

exatiously may be required by the court to ati fy personal the exce co t , expenses, and

attome s· fees reasonably incurred because

of

such conduct.'. 28 U.S

§

1927.

The

Third

Circuit has interpreted . 19_7 to permit fee awards where' an attorney has l multiplied

proceeding : (2) in an unreasonable and exatious manner; 3 thercb increasing the co to the

proceedings: and

4

doing o in bad faith or

b

intentjonal misconduct.'

re Prudential ins.

Co

Am. Sales Practi c lirig. Agent Actions 278 .3d

175,

I88 3d Cir. 200-). n cases where a

p rty i represented b coun el, § 927 i designed to discipline counsel only and does not

authorize imposition

of

sanctions on the an mey· s client.'.

Zuk

r. E

Penn

sy

lvania Ps

y

hiarric

lnsc oftlz Med.

Coll

ofPennsylvania. 103 F.3d 294. 297

(3d

Cir. I 99 ).

3.

Inherent

Authority

[A]n award of ees and costs pursuant to the court 's inherent authority to control

litigation

will

u uall require a finding

of

bad faith:

Prudential

278

F.3d

at 188. The upreme

Court has authorized lower couns to use their· inherent power to police'· them el es and ·a es

attorne. ·s fees when a party has acted in bad faith, vexatiously. wantonly

or

for oppre si e

reasons:·

hamber v. NASCO

in

.

501 .S. 32. 45-46 1991 interpal quotation marks

omined).

4.

35 u.s.c. §

285

ln e ceptional . patent ca es, a ourt ma .. award reasonable attorney fees to the

pre ailing party.,. 35 . . . .

85. The upreme ourt has held that an '·e. ceptionar case

i

'·one that tands out from others with respect

t th

ubstant ive strength

of

a parry·s litigating

position (considering both

the

governing law and th facts of the case) or the unreasonable

9



14/43

manner in which the case was litigated .'

Ocrane Fitness.

LLC

v. ICON Health Fitness, Inc.

134 S. Ct. I 749, 1756 (1014). ' (A] district court may award fees in the rare case in which a

party

s unreasonable conduct -

while

not necessarily independently sanctionable - is nonetheless

so 'e 'ceptionar as

to

justify

an

award

of

fees:· Id at 1757. A finding of bad

fa h

is not

required to

award

attorney fees under 285. See

id

The

burden is

on

the

movant

to pr ve by a

preponderance of the evidence that it should receive an award

of

attorney fees under 285. See

id

at

1 58.

Ultimately. a court must make a discretionary deci ion based on the totalit; of

circumstances. See

id

at 1756.

TII. DISCUSSlO

A. Adobe's Motion to Di miss

Adobe moves under Rule

12

(b 6 to dismiss PDlC s counterclaim for breach of the

implied covenant of good faith and fair dealing (' implied covenant )

in

the Adobe Licen e.

See D.£. 52

1. Choice

of Law

The

Adobe

License does

not

include a choice of law provision . Although the parties

agree that Delaware choice

oflaw

rules should apply, they disagree as to the ultimate issue o

which state· law governs interpretation of the Adobe License. See D.I. 53 at 9· 0.1. 57 at 6)

The Coun agrees that Delaware choice oflaw rules are applicable.

'The

conflict oflaws rule

to

be

applied by the federal court in Delaware must conform to those prevailing in Delaware·s

state courts.·-·

U11derhi//

fm

.

Corp.

v.

Fixed

Income Disc.

dvisory

Co.,

319

F.

App

'x 137, 140

9

PDIC asserted this counterclaim in all

of

the above-captioned actions except C.A. o.

13-408. as PDIC did not respond to Ad be's complaint in that action.

10



15/43

( d ir. 2 09) quoting Klaxon Co . ·

renror

El Mfg C .. I

. . 487 4 6 1 41 .

w Jc ey law should go em

the

Ad

b

Li

ense. whereas PDlC argue

ti

r D l:n

aJ1

1

w.

Se

DJ.

53

at -

IO·

D.l. 57 at

6-

7

Courts

in

laware

use

the ..most ignificam r tal i n hip te t to de1ermine which state's la

g

em a ntract that doe not include a

h ic

f law

pr i ion.

ohen v. Formula

Inc

.,

o F.

up .

_d

495

,

501

(D. Del. 2010 citing

Trav I rs Ind m. Co ' Lake,

594

A d

38,

41

Del.

i

99 J ). Tb Restatement (Second)

of

onflict f Law R statement . u ed for choice

la in

Del '

are, instructs that

a

ourt mu t

search

fi

r the orum

itb

the

mo

ignificant

lati n hip to

the transaction -

where ·transaction'' refer llecti cl

to

en taking pl ce

at th · pla of eg0Hation of the contract nd the pla o p r orma11ce und the contract

oh( n

7 F.

u p. d at 501

(quoting · l ' the

Re

statement {emphasis added .

rh

Ado e

Li

ens as negotfated d be in a

ti mia an

P01 in ew Jer e .

See D.I. 5 at ; at 6 Adobe· perfonnan e

i

t ·d

f p yrnent

to

PDI ia a bank

I atcd in . cw Jer c . Se D.l. -3

at

9-10: . 6 at n.l Thi payment was the most

significant

1rmat

i e t required

by

either party under th Ad b License , given that PDI s

perfi nnan

ru

i

ted primaril

of

not suing Adobe or Adob '. custom

rs

. Ad

be

alleges (and

Se

D.

l 53 at

9: ee al o

Cohen,

7 F.

Supp. _d at

501 (quoting Restatement's 1istine

f the

panies··

as relevant

fact

r r

ch

ice flaw The

on

potenuall rel ant ti

it id

ntifi

db

the

.

parties which

LO

k place

in

Delaware

was

Utigati n before

th

i C urt .

The Restatement

al

o list the ··domici

le

, residen • nation li

ty

, [nnd] place f

m rp

rati

n.. f the partie

r l v ~ t

factor .

Fa/kenber Capitol Corp . '

Dakota Cellular.

I I



16/43

Inc

• 925 F. Supp. _31. 235 0 . Del. 1996}. ' ·Adobe is incorporated

in

Dela\ are and bas its

principaJ place of business in California. Princeton is incorporated in ex as and though it

claims

its

principal place

of

bu

sines is also in Texas . . .

it

conducts business from

ew

Jersey. · (D.l. 53 at 9)

Con ideriog all of these factors , the Court detennines that ew Jer e law hould govern

in these circumstances primarily becau ea significant part

of the perfonnance

and negotiation of

the Adobe License took place in New Jersey.

[

W)hen the place

of

negotiation and

place

of

perfonnance are in the same state. a court should generally apply the law of that state: ·

Falkenberg

925 F. upp. at

2 r

(ci ting Restatement

1971 cmt.

f) .

e\ Jerse. has the

most significant relation hip t the transaction. Therefore the Court will interpret the Adobe

License under the law

of

New Jersey.

2 Implied oven n t of Good aith and Fair Dealing

··A covenant

of

good faith and fa ir dealing is implied in e ery contract in ew J r e .

Wil on

v. Amerada He.

C 1p

..

773 A.2d 1121. 1126 1

1

.J. 2 1 . ' ·Although the implied

covenant

of

good aith and fair dealing cannot override

an

express

tenn

in a contract, a party·s

performance under a c ntract may breach that implied covenant e en though that performance

does not iolate a peninent express tenn:· ·· ood faith p

rfonnance

or enforcement of a

contract emphasizes faithfulnes to an agreed ommon purpo e and con istenc wi

th

the

ju

stified

expectations of the other party: it exclude a variety of types of conduct characterized as

invol jng bad

faith

because they violate

communit

y stan

da

rds

of

decenc . faime s

or

reasonableness. (citing Restatement Second of

Contracts.

205 cmt. a 1981 . • [T]he

task .here i to identify

in

that conte. ·t the parties· reasonable

expectations:

· . at 1127.

12



17/43

PDJC

argues that Adobe breached the implied covenant by failing to •·cooperate over

interpretation•·

of

the Adobe License and ··suppl ing an unreasonable interpretation·· of the

Adobe License.

See

D.l. 57

at

8-

9)

Jt

is unclear what

PDJC

means

b.

'·coope.rate o

er

interpretation·· of the agreement. but the Court understand

PDIC

argument to be that Adobe i

advocating

an

unreas nable interpretation of the Adobe License. Contract interpretation is a

question

oflaw.

See S lectiv

Ins Co

.

o

. v. Hudson E Pain

Mf mc.

0

t

opathic Med.

Physical

Th

erap 46 A.3d 1272. 1276 ( .J . 2012). The Adobe License expressly grants to both

parties the right to enforce tenn of the agreement see D.l . l 2 Ex . 2 at 3-4), which necessarily

includes a right to rea onably interpret the Adobe Licen e.

(D.I.

12 Ex. 2 at 1 (emphasis added ) PD£ argue that Adobe' s interpretation of the agreement

'·would extend license to product that were not Licensed Products ' and beyond any

remuneration received b Princeton underthe Agreement:· D.l. 57 at l l

Howe

er . in the

Court·s view. the rele ant term are broad enough to render reasonable Adobe s interpretation of

the agreement as covering use of JP G images created u ing Adobe·s Photoshop produ

tin

combination with

other

produ ts.

10

n I ght

of

the above, the

Court

determines that there is no et

of facts. vie\ ing PDIC counterclaim in the light mo t favorable to PDIC. that would uppon a

claim for rel ief under POIC' s '·cooperation over interpretation'· theory of breach of the implied

covenant.

1

The Court is not caJled upon at this time to make a final decisi n a to whjch

interpretation is the


18/43

PDIC also argues that

Adobe

breached the implied

covenant

by failing to

..

cooperate and

sup ply corroborating evidence that

any

defendant was a customer . of

Adobe and

covered by the

Adobe License.

See

D.1.

57

at

8-9)

Thi

theory

of

breach

of

the

implied covenant fails to state a

claim for relief under

ew

Jer ey

law

becau e PDIC fai ls to plead bad faith . Bad faith or

ll

motive is an es ential element of a claim for brea h

of

the implied

cove

nan t of good faith and fair

dealing

..

Coldwell Banker R

al

E tat

e LL

v. Plummer Associates,

inc

., 2009 WL 3230840

at *4 (D. .J . Oct. 2, 2009) citing Seidenberg v. Summit Bank, 348 · .J . Super. 243 257 (App.

Div. 2002)). PDIC argues that it pleads bad faith merel by pleading breach of the covenant of

good faith

and

fair dealing. See D .

1.

57 at

11

Howe er. the

ourt

agree with Adobe that ucb

fo

nnu

laic recitation

of

bad faith is insufficient under

T o m b ~ v s o

U.S. at 555 .

11

For the foregoing reasons. the ourt will grant Adobe ' s Motion to Dismiss

PDlC s

claim

for breach of the implied covenant of good faith and fair dealing. (D.I . 52)

12

8.

PDIC' Motion to

Di mi

PDlC moves to di

miss

the patent mi u c and breach

of

c ntract claims a scrted

by

Adobe in Adobe

·s

comp]aint in intervention.

DJ.

66 ) PDJC moves under

Rules 12

b ( 1)

and

l2(b

6), for lack

of

subject

matter

jurisdiction

and

fai lure t state a claim on which

relief ma

y b

11

PDIC. failure to allege bad faith is an additional. independent r e a s o n ~ hy PDIC ' s

·cooperation over interpretation· theory, di cus ed abo e. al o fails a a matter of law.

12

PDl

requests lea e to amend its counterclaim. in lieu o the

ourt

dismi si

ng

it.

See

0.1. 57 at 12) Thi request will be denied. Amendment would be futi le. See Forman v. Davis,

71

.S. 1 8. 182 1 62} holding that generally leave to amend should

be

granted except where

there is showing of. among other things. 'futility

of

amendment' . one of the conduct PDI C

characterizes as breaching the implied ovenant was prohibited b the Adobe License.

14



19/43

granted.

13

1

Patent isuse

PDIC moves to dismiss

Adobe·

s patent misu e claim based

on

the lack

of

a case

or

contra ersy.

(Se 0.1. 6 at I

0-11) Patent

mi

u

e

i

··the patentee' act o impermissibl

broadening the physi

aJ

or temporal

cope of

the patent grant with anticompetiti e ffi

r ·

Princo Corp. 1• int I

Trade

Comm ·n,

616 F.3d

13

l 8. 1328 (Fed. Cir.

20

I0) (internal brackets and

quotation marks omitted).

(E]xistence

of

a case

or

controvers

must

be evaluated on a

c l i m ~ b

-claim basis

.. Jervi B. Webb

Co

. r .

S

Sy .. inc.

742 F.2d

13

8, 1399 (Fed. Cir. 1984 ;

ee also DaimlerChry

/er

Corp. v. Cuno 54 . . 332. 35_ 2 06) ( (O)ur standing cases

confinn that a plaintiff must demonstrate standing for each claim he eeks to press. ).

In its answerino brief to PDIC s motion, dobe does not address

PDlC

s

argument

regarding lack of a case or controvers with respect to patent mi use.

(See general(v

D.l. 77)

But Adobe, as the party opposing a Rule

l

2(b

)(I )

motion. bears

the

burden

of

pro

ing

that this

jurisdictional requirement is met.

Se Development

in

Corp. v. Alpha Hou ing Health Care,

54 F.3d 156 158 (3d Cir. 1995 (stating that part

assertingjurisdiction

bears the burden

of

howing that its claim are properly before the district court ') . nder the circumstances

Ad he's failure to addre whether there i an ca e or contro

ers 1

with respect to Adobe·s

patent misuse

claim

i reason enough for the Court to dismis

Adobe·s

claim.

13

Adobe argues

that PDJc·

s motion is untimel

y.

(See

D 1 .

77

at

1

However.

during

a

teleconference with the parties

on

August 6, 2015. the ourt authorized PDI C to file

a

motion to

dismiss.

(See

Transcript D.l. 72 at 20-21 • o I do further authorize and direct that the du

date

for

any renewed motion for sanctions is th same

time frame I

et out for

the plaintiff

to file

a motion to dismi s . ·)

Moreover ..

[uJnder

Rule L(b)(

l ,

a challenge to a federal

coun·s

subject matter jurisdiction may be brought at an time.' Singer _ Com r

of

.R.S., 2000 WL

14874. at *1 (E.D. Pa. Jan. l 0, 2000) .

15



20/43

Additionall . the ourt agrees with PDJC. 'Patent misuse is an affinnative defense to an

accusation of patent infringement . . . :·

Vi1

gi

nia anel Corp.

\

. MAC Panel Co.

133 F.3d 60,

868 (Fed. 1 97). iven that stipulations

of

dismissaJ

of

PDJ

' s patent infringement

complaint have been entered in each of

he

abo e-captioned cases, there i no longer any

assertion of patent infringement in any of these cases. Nori there any threat that PDIC will

attempt

to

assert the 056 patent against Adobe or against an entity in pri ity with Adobe.

14

Nor

does Adobe point to an other type of ongoing purported misuse of the ' 056 patent.

See Steiner

v. Lewmar. lnc . 2013

5755578, at *5 (D. onn. Oct. _2. 2013)

(

)inc

the

Plaintiff{] ha[s]

effecti ely waived any potential patent infringement claim

rt

would appear that the rationale for

a patent misuse defense does not apply in this case.').

Adobe implies that

pa

st damages resulting from misuse

of

the 056 patent constitute

ongoing harm from patent mi use. See D.I. 77 at 16 (''Unless and until Princeton cures its

patent misuse and the consequences have djssipated , including making Adobe whole from the

harm

it

ltas suffered

due to Princeton·s patent misuse, equity should bar Princeton from

recovering for any alleged infringement of the '056 Patent. } The ourt dfaagrees. First,

·monetary damages ma. not be awarded under a declaratory judgment counterclaim based oo

pacem misuse, because patent misuse simpl renders the patent unenforceable.'· B Braun Med

In c v. Abbott Labs

124 F .3d 1419, 1428 Fed. Cir. 1997)(internal quotation marks omitted .

14

Thi distinguishe the situation

here

from

chat

confronted in

Linzer Product Corp.

I

.

Sekar 499 F. Supp. 2d 540, 560-61 (S.D Y. 2007). a case on which Adobe reljes for the

proposition that in limited circumstances patent misuse

may

be brought as an independent action.

See

C.A. 13-404 D.l. 77 at 13) Again. Adobe cites no authority for the proposition that there is

a case or controversy o that it has standing with respect to patent misuse under the circumstances

pre ented here.

16



21/43

Second, to the extent

PDJc·s

assertion

of

the '056 patent ma have constituted pa tent misus

such misuse has

now

been purged by PDICs dismissal with prejudice

of

all claims against

Defendants in the above-captioned sui .

See

D 1 . 6

at

1O;

see also Qualcomm Inc. v.

roadcom Corp ., 548 F.3d 1004 1026 Fed. Cir. 200 ( [A)n unenforceabiliry remed · in the

patent misuse context i limited to rendering the patent unenforceable until the misuse is purged

,)

Accordingly. th Court will grant

PD1c·s

motion to dismiss with respect to

Adobe

' s

patent misuse claim.

2 reach o Contract

PD1C moves to dismiss Adobe's breach of contract claim for lack of subject matter

jurisdiction.

See

D

J.

68 at

16

-20 ··Jurisdiction normally attaches

at

the time

of

filing based on

pleadings.

il sen v.

Motorola Inc

.,

203 F.3d 7 2, 7 4 (Fed. Cir. 2000 .

At

the time Adobe

filed it complaint in intervention in each of the above-captioned case , there wa a pending case

or controversy, arising under the U.S. paten t laws between PDIC and each of the individual

Defendants - namel

y

PDIC's infringement claims related to the 056 patent. Therefore, at the

time Adobe filed its complaint. the Court had ubject matter jurisdiction

pur

uant to 2 U.S.C.

§

133 .

15

Jn

addition. the Court had supplemental

juri

diction

under

28 .S.C. § 1367 over

Adobe·s breach

of

contract claims.

which

arise

under

state law.

16

Adobe·s breach

of

contract

15

' 'The district courts shall have-original jurisdiction o

any

civil

action

arising under any

Act

of

Congress relating to patents : · 28 .S.C. 1338.

16

28 U.S.C. § l367(a) state • in pertinent part. '·in any civil action

of

which the district

courts have original jurisdiction, the di rrict court shall have supplemental juri diction over all

other claims that are o related to claims

in

the action within

such

original

jurisdiction

that they

form part

of

the

same

case

or

controversy under Article lII

of the

United States Constitution.

17



22/43

claim is part of the same case

or

contro ers and deriYes from the same'

common

nucleus

of

operative fact'.

as

the underlying patent disputes between PDJC

and

Defendants. See United

in

Workers

of

Am.

· Gibbs.

383 715. 725 1966) ( The state and federal claims [in

context

of

1367 juriscliction) must derive from a common nucleus of perative fact.'') .

Moreo er, to the extent the

Court has

di cretion to exercise supplemental j urisdiction o er

Adobc·s breach of contract claim, now that the underlyin° patent infringement disputes between

PDJC and Defendants have been dismissed, the Court finds that it is appropriate to do so .

13

The

Court has already expended significant resources on these matters. It would be wasteful of

judicial resources to require the partie to re-start their conflict in state court at this poinL

14

Accordingly, the Court will deny

PDIC·s

motion to dismiss with respect to Adobe s

claim for breach of contract.

C. Adobe' Motion for Judgment on the Pleadings


23/43

admits that the pleadings are not closed and cites no authorization from the Court to file its

motion at this time.

(See

e n e r l ~ D. l. 90) Accordingly. the Court will deny Ad

obe·s

motion

for judgment on the pleadings.

D. Adobe' Motion for anctions

Adobe renewed it motion for sanctions. In its motion

Adobe moves

under § 285 of the

patent laws, as well as Federal Rule of Civil Procedure 11. 28 U.S.C. 927

and

the Court' s

inherent authority.

The Court

addresses each

of

these potential bases

for sanc6on jn the

section

below.

1.

35

.c.

§ 285

a. Invocation

of

Patent Law

An award of

attome

ees under § 285 is available in cases arising under .S. patent laws

and in non-patent ca e where n o n ~ p t e n t issues are ·intertwined with the patent i ues· such that

·th

e riohts

at

is ue properl. in

oke

patent laws.··

lnlerspiro USA . In

c

v, Figgie 1111 I Inc.

18

F.3d 927, 933 (Fed. Cir.

9

4 ; see also

NO

A Chemicals C01p v Dow Chem. Co , 2015

WL

5766257, at S (D. Del. Sept. 30 2015).

However

. lwJhen an action embraces both patent

and non-patent claims no fees under 2 can be awarded for time incurred in litigation of the

non-patent issue . ·· Gjer/ov \'. Schuyler Labs

Jn

c . 131 f .

3d

1016, 1025 (Fed. Cir. I 997)

(quoting

Machinery Corp. ofAm. \ . Gul(fiber AB

774 F.2d 467. 475 (Fed. Cir. 1985) .

1

-PD

IC

has

not argued that · 285 does not apply on

the

basis

that the

aho e-captioned

cases are not patent cases or that the cases do not invol ve issues sufficien

tl

y intertwined' with

patent issues under

lm e

r piro. Therefore,

PDlC

has waived this argument. See LG Display Co.

' '· UOprronics Corp • 2010 WL 5463305. at *4 (D. Del. Dec . 29. 20 10). Nonetheless. the

ourt feels it is important to address this threshold issue of whether § 285 is even a proper basis

on which Adobe

may

seek attorney fees in this case.

9



24/43

PDlC iniliated these uits by suing Defendants for patent infringement. Adobe argues for

attorney fees under §

285

based, n part on PDlC s decision to file these suits without adequate

pre-suit investigation. he adequacy

of

PDIC

pre-suit inve tigation turn

on

the legitimacy

of

PDIC infringement theorie . an issue that nece sarily invokes patent law. Moreover. many

(probably most) of the issues that were put before the Court in connection with Adobe s motion

for sanctions - such as the plausibility or strength of PDlC ' s •·web server infringement theory

( ee 0.1. 76 30-36) the parties· competing interpretations of the Adobe License and what

otherwise infringing acts it covers . the reasonableness of PDJC s settlement offers

in

light

of

the

expiration of the patenl and the impact

of

the patent damages statule. aod the alidity

of

the '056

patent in light of its survival of reexamination b the nited States Patent and rademark Office

( PTO' ) - are sufficiently

..

intertwined . with patent issues to invoke patent laws · under

lnterspiro.

Therefore, the Court concludes that 285 i applicable to the above-captioned cases and

that Adobe

may be

able to obtain an award

of

attorney fees

based

on th is statute.

10

'bGoing forward, given the ruling announced in this Memorandum Opinion, the above

captioned cases will invol e onJy Ado e · breach of contract claims. f either part per eive a

good faith basis at the conclusion of the ca e to seek attorney fees under § 285, such fees will be

potentially available only to the prevaiJino party

(an

issue discussed immediately below)

and

only

for time spent litigating Adobe's breach of ontract claim to the extent that claim does

ot

invoke only state law. See Gjerlov

131

F.3d at 1025 (vacating award of attorney fees for breach

of contract claim that invoked only state law): see also Gerawan Farming. Inc. v. Rehrig Pac.

o

. 2013 WL 6491517, at *9 (E.D. Cal. Dec. 10, 2013) (limiting award of attorney fees under

285 to claims and conduct that sufficiently invoke patent laws); David Au tin Ro

es

Ltd. v.

Jackson Perkins Wholesal

e.

Inc.

2010

WL

555674. at *2

0 .

Or

. Feb. 16, 2010) (apportioning

fees related to patent issues and fees related to breach

of

contract issues and awarding fees under

s 285 for fonner but not for latter .

PDIC's server-level theory alleges infringement of the ' 056 patent by

Adobe's

customers

but only when those customers are using non-Adobe products in implementing on the fl · JPEG

20



25/43

b. Prevailing Party

PD JC argues that Adobe cannot reco er attorney fee und

er§

285 because

Adobe

is not

the

..

prevailing

party

. ·

See, e.g .

D.l.

74

at 16; Tr. at 61-62 Section

285

expressly limits an

award of attome fee to the prevailing party. tating: 'The coun in exceptional case may award

reasonable attorney fee to the

pr

evailing part) .

· 35 .S.C. § 285

emp

hasis added . ·'Federal

Circuit law governs the detennination of which part)' has prevailed. ·

SSL S rv

., LL

v. Citrix

.. Inc.

7 9 F.3d I073. l 086 (Fed. Cir. 2014).

To be a pre ailing party, the Federal Circuit requi res that

(I

the party receive at least

some relief on lhe merits and (

2)

such relief materiall alter the legal relati nship between the

parties by modifying one party s behavior in a way that '·directly benefits . th opposing party.

See id.

·

·A

p rty

does not need

to

prevail on all claims to qualify as

the

prevailing party.' Id.

Traditionally. 285 requests are determined by the court upon the reso lution

of

all substantive

issues in a patent

ca

e. Tech. J novatio

LLC Amazon.com.

Inc.. 2013 WL 44094 2. at *3

(D. Del.

Aug

. 15 , 2013) citingHighmark, inc. 1·. Ailcare Health

Mgmt

. S

vs.

,

Inc.

701 F.3d

1351

, 1353 (Fed. Cir. 2012 . [A l limitation exists within the statute with respect to timing

such

that attome fees are properly determined under 285 once

all

of the ubstantive issues in a case

reach re

olution:·

Jd. (emphasi added). There can only be

one ..

pre ailing party· under§ 285 .

Therefore. it follows that attorney fees pursued under § 285 can onl be

a'

arded after the

substaoti e issues in the case ha e been resol

ed

and the prevailing part. has been determined.'.

ld

.

resizing functionality. See D.l . 76 30-36) PDIC may be able

to

sho that it did not brea h

the Adobe License by showi na that use

of

non-Adobe products infringed

un

der

PD

IC' s server

level theory.

It

would appear that re oluti n

of

this issue would nece sarily invoke patent laws.

2



26/43

proceedings involvino PDI and d

e

-

pp ed l lb e that were initiall.

br ugbt b PDIC against Defendants, whi h

ha

n

w

n di mi d - are still in their earl

stag • a

lh

pleadings ar not e en clo

b

ntract claims remain pending

nd

1t 1s

p sible that either dobe or P I ma

respective pleadings before

the e ca e are finally d cided_ PD[ has prevailed again

t

d b ·s allegation of patent mi u e.

ha re ailed on PDlC claim fo r breach f th implied co cnant of good faith and fair

dealin . IL

uits against Defendants were dismis ed. vindicating d be s intervention in

the

abo e

capt1

ned law uit to de end it customers. P I may

ha

e recei ed compensation as part

o . enlements

with

some or all of the Defendants.

n

light o the tage of these proceedings. and th C urt agree with PDIC that

Judge R binson s well-reas ned

anal

si in Tech . 11110 mum applies to the 1r um tances

of

the

in tant

(. 0.1 . 74 at l n. 10 , the C urt cann d ermm time whether PDIC or

d

e i. the pr ailing party.

Howe

er, the C

u t will

ume

lcly

r purpo e of evaluating

b · r n wed m ti n for sanctions. that dobe is th pre

1ling

pany. i en that the Court

will den ing Ad b

·s

motion in an event. t here i no prejudice l P I rom the ourt

en1enaining

thi as umpti n.

17

c.

E

ceptional Ca e

Ad be argues that these cases are exceptional b

PDIC

failed

to conduct

an

adequ te pr - uit inve tigation, 2) PDIC filed and maint med b

cle lrum

fi r

th

improper

As explained bel

nduct

up

to thi

h ever tum outt be the prevaili g party at the n n f the e ca es

d faith basis to file

am

tion pur uant l 2

1den

una ailable toda_ e. .

litigation

• ttom e are not warranted under • _

pomt in th e cases.



27/43

purpose

of

extracting

nui

ance-value settlement .

3

PDIC maintaim::d ui and objecti

el

-

frivolous legal p itions long after becoming aware

of

infonnation compelling dismissal , and

4

)

PDIC engaged

in

frivolous, wanton, and vexatious litigation cooducL

See

D.J

.

67

at

I0-2

PDJC responds that the

e

are

not

exceptional cases. See. e .• D.I. 30 at 17-18: D.I. 74 at 17-1

Tr. at 72

nder the totality of the circumstances, the Court finds numerous factors that favor

finding these cases e ceptional , but also numerous factor pointing in

the

ther direction.

Still

other consideration are neutral.

The

Court addre es these i sues bel w.

i

Factors favoring finding

of

•exceptional case

Adobe allege that PDIC conducted an insufficient pre-suit investigation before suing

Defendants.

See

D.l . 67 at 10 - 13) o u n s e l for PDIC did not undertake any independent

investigation but relied entirely on the pre-suit investigation of their client,

Mr

. Thomas

Meagher. PDICs President. as the basis for filing suit. See 2015

Tr

. at _

J

_2 (The

Coun

: · [A]ll

I ha e i Mr. Meagher vel) short declaration ifl ant to understand what pre-suit inve ligation

your client did Isn 't that correct? Mr . Pazuniak : ·'

With

respect lo a pre-suit in estigation ,

that i correct. ;

see also

D.I. 31 at 1-3 (Mr. Meagher, describing his pre-suit inve tigation :

D.1

.

76

0-36 ame)) me aspect of the pre-suit in estigat ion were defici ent. which weigh in

favor

of

making an exceptional case finding.

For example, counsel

did

not learn of the Adobe License prior to filing

suit As

noted,

coun

el

did not undertake any independent

in

estigation, and so did not discover the Adobe

1

These a e

do

not require the Coun t consider the relati e role and responsibilitie of

Delaware counsel and non-Delaware referring counsel as, in each of these cases, POI

is

repre

nted

okl y by Delaware counsel.

23



28/43

License on their own. or did

PDIC

or Mr. Meagher infonn counsel

of the

existence

of

the

Adobe License. Therefore, counsel did not consider the Adobe License before

filing

suit.

(See

Tr

. at 42

POI · Mr . Meagher had ex1ensive experience with the 056 patent

prior

to PDIC filing

its series

of

suits here

in Delaware

.

In

hi earlier capacity

a

coun el at General Electric

Company (

GE')

. at a time when GE owned the

·os6

patenL

Mr

. Meagher

was

personally

involved in licensing the '056 patent to "no le s than ten (10} companies. '

19

(Dl. 76 8 Mr.

Meagher has declared (without dispute from Adobe that he wa "fully familiar with the ·os6

patent.·· including being familiar

with

licensing aegotiatjons in olving Adobe.

(Id.

at 4-11)

Given

Meagher'

knowledge. it is triking that he did

not make

counsel aware

of

the

existence

of

the

Adobe

License so counsel

could

evaluate its impact prior to signing

51

complaints asserting patent infringement against entities that included numer u Adobe

customers. whose right to practice the ·os6 patent may have been implicated by the Adobe

Li n

e. Recent cases

in

this District discuss the significant impact

meritorious

license defenses

can have

on patent litigation.

See e.g.. Summit Data Sys. , LLC · EMC Corp . 2014 WL

4955689

at 5

D.

De l.

Sept. 25,

.2014 , affd

sub nom.

Summit

Data s. LLC v.

NetApp Inc .

620 F.

App·

'

955

(Fed. Cir. 2015 (granting attorney fees under § 285 becau e,

imer alia.

plaintiffbr

ught law

uit und er theory

of

infringement that wa barred b_ license);

Bayer

Crop cience AG v. Daw Agrosciences LL ,

2015 WL 1J97436,

at

*8 D. Del. far. 13 , 20

15

)

( .

Ba

er

defends

itself

by claiming that it

was

·unaware· that

Dow

had a license until

Dow

' 056 Patent

bad

been developed at GE. was owned by GE. and GE licensed the

patent to ' · ariou companie who were practicing the patented tecbnolog .

•·

(OJ . 76 7)

24



29/43

opposed Bayer's motion to amend the Bayer

1

Complaint. If that were the case, b Bayer's own

admission. Bayer

had

a dut to investigate such license defense before filing another lawsuit. ').

ln

the circumstances here,

Mr.

Meagher's

failure to broach the subject

of

a potential license

defense with counsel prior to filing suit is a factor favoring finding this ca e to

be

exceptional.

Another e ample of deficiencies in the pre-suit investigation i that Mr.

Meagher

did not

attempt to identify any suppliers of ftware that may ha e executed the JPEG functionality now

accused under PDJC s

..

web erver'· theory of infringement. (See D.l. 76 m 30-3

20

Mr .

Meagher indicates that he ·ma ha e encountered a reference to Scene7 an

dobe

product

see

D.l. 74 at 20), during hi pre-suit in estigation. but claims that he was not aware that

Scene7 was an Ad be company ..

(DJ

. 76 48

Mr

. Meagher indicates that he reviewed

internetretailer.com·s ln

temet

Retailer _008 Top

500

Guide ' (''Guide .) when conducting his

pre-suit investigation into Defendant · website . (See id at 12) Jn that

ery

Guide there are

indications that cene7 was used n at least ome ofDefendants· websites - including Office

Depot

fo

r (c]ontent [m)anagemenC and

..

[r)icb [rn]edia· and ears Holdings

Company

for

·[r]ich [m]edia'

see

Guide

t 90. 1

0)- and the Guide's publisher·s website.

intemetretailer.com. includes an article from 2007 entitled ·Imaging technology

giant

dobe

acquires rich media provider Scenei (see Kurt Peters Ima

ging

technology giant Adohe

acquires rich media provider Scene . Internet Retailer (Ma 3. 2007, 12 :00 AM).

20

Under the theory

of

nfringement

PDlC

argued

al

the

May

5. 2015 hearing, images

created using Adobe Photosbop ·'

somewhere

along the line

would

not infringe due to the

Adobe License. (2015 Tr. at 29) Under PDIC's new web server theory of infringement,

PDIC

now implies that resized ersion of mage created using

Adobe

Photo hop would infringe

even under the Adobe License. (See 0.1. 76 t ~ ~ 30-36 (calling such re ized images separate

actfs] of infringement ' )

25



30/43

https://www.internetretailer.com/2007/05/03/imaging-technology-giant-adobe-acquires-ricb-med

ia-provider- cen (last visited March 28.

2016

. As

Adobe

has pointed out it acquired Scene7 in

May 2007, well before the instant law uit were filed and publicly announced its acquisition.

See

C . o. 13-325 D.I. 25 Ex. 17 (Adobe- cene7 merger agreement); .A. o. 13-325 D 1 .

22 Ex . E (press release announcing Adobe acquisition

of

cene7

The

Court

i

troubled that

Meagher, PDIC, and its counsel wholl failed to connect

any

of the dots between Scene? th

Defendants· websites. and the Adobe Licen e before suing Defendants .

Another factor weighing in favor fan exceptj nal case finding i PDJCs delay in

di clo ing its web server theory of infringement.

ln

particular, PDIC waited until September 9,

-015 to disclose its web erver theory

in

an detail.

See

D.I. 76) This

wa

2

in

ears after filing

the above-captioned cases, after Adobe had

move

d to intervene and had its motion granted and

after Adobe had filed

two

motion for sanctions - motions in which Adobe sought sanction for

reasons including an allegedly inadequate pre-suit inve tigation . otably.

Mr

. Meagher·s

articulation ofPDJC"s web erver theory of infrin ?ement \ as

not

included in his original

(January

30

, 2015) declaration describing

PDJC

s pre-suit investigation. See D J . 31) Counsel

for POIC admitted that he wa '"cmbarras cd · by the shon len ?th ofMr.

Meagher

' original

de cription

of

PDJC pre- uit investigation.

Se

e Tr . at 34} While the Court credit Mr.

Meagher·s declaration statements

2

that PDIC had posse sion of its web crver theory

of

infringement before it filed any of the above-captioned lawsuits

ee

D.I. 76 0-36)

it

would

have been far preferable for PDJC to have

di

do

ed this theory long before the e cases devolved

l t h o u g h Adobe rai es doubts about the veraci of cenain portion ofMr . Meagher'

second declaration

see e.g . D.l . 85 at 2) Adobe pre ented no witness to dispute Mr Meagher"s

statements and declined the opportunity to examine bim at the hearing · Tr. at 73).

26



31/43

into tbe protracted sanctions battle the became. Had PDIC disclosed

Mr.

Meagher s more

detailed version of

his

pre-suit in estigation and articulation of the web server theory of

infringement during, for example, the Rule safe harbor period before

Adobe

filed

its

first

motion for sanctions the parties and the Court

may ha

e been able to avoid the subsequent

motions. briefing, hearings, and now opinion addressing anction

2

PDIC delay in re ealing

the true extent

of

its pre-suit investigation and its detailed theory of non-Adobe infringement

at

the web setver complicated and delayed resolution of these cases.

PDIC s inconsistent representations before the ourt also weigh in fa or of an

exceptional ca e finding. At the hearing on May 5, 2015,

PDlC

suggested that oun el

conducted no pre.-suit investigation whatsoever referring only to coun el · reliance

on

Meagher as 'highly experienced patent counsel, knowledgeable patent counsel. and the referring

coun ei.·· See D.l. 51 at 24-25) Later. in PDlCs answering brief in oppo ition to Adobe'

renewed motion for sanction , PDIC implied that counsel did or actually rely sol ly rely on

Mr

Meagher, but in fa t counsel i depe de tly reviewed claim charts and discussed matters with

Mr. Meagher. See D.l . 74 at 5) The Court accepts as true the latter representation which

depicts a far more laudable approach to meeting

counsel s

obligations

than

what was previously

implied. But the lack of clarity - and arguable inconsistency- in what was explained to the

E en more preferable would have been or POI to have articulated its web

setver

theory of infringement well prior to when Adobe erved its Rule 11 motion. in connection with

one

or

more

of

the repeated

times

when coun

el

for

Adobe

asked PDIC about its non-Adobe

basis for maintaining the lawsuits. See

D. l

. 67 at 5-

7) Had

POI

done

o. Adobe would

tertainly have explained to PDIC that Scene7 is an

Adobe

produ t and tbe parties quite likeJy

couJd have resolved their then necessarily narrowed dispute about the application of tbe Adobe

License to Scene7 and to manipulations of image at a web server when performed with non

Adobe oftware.

27



32/43

Court contributed to the

Coun·

May _015 talements about the apparent inadequacy

of

the pre

uit investigation and likely encouraged Adobe to proceed to renew it reque l for anctions,

thereby extending these proceeding .

There are other inconsistencie in what PDI ha · rep re sented to the ourt. fn PDIC"s

oppo ition brief to Adobe fir

t

motion for anction . PDIC stated that it could not access five

of

th

nin

D fendants'

w

bsite because th y wer either ·corrupted'' or· blocked: (D.I. 30 al 5

6) ln other words. PDIC stated it could onl access at most four

of

the nine Defendants'

websites. Later. howe er. in his September 2 15 second declaration. Mr. Meagher stated that as

part

of

bis early 2013 pre-suit in estigation he

w

able

..

to eventualJy access at least ponion

of

most [i.e., five

or

more]

of

the web ite

of

the Defendant

s:· (D.l.

76 32, 34)

At the May 5. 2015 hearing, counsel for PDfC stated that PDIC would drop

its lawsuits

if

accused images were made with Adobe Photoshop . See 2015 Tr. at 9-40 Later, PDIC

uggested, under it new web server theory, that Defendants could still infringe even if they on

used Adobe Phot hop to reate all

f

th

accu ed images. s long as

Lhe

''Enlarged Product

iew

JPEG functionalicy a not implemented using Sccne7. See D.l. 74 at 6; D.I. 76 at

0-36} The latter positi n appears to e inconsistent with the representation PDIC had made

in Ma 2015. PDIC eemed to make imilar incon istent tatement regarding the scope

of

the

Adobe License. ompare 2015 Tr. at 29-3 ( tating use ofAdobe Photo hop to process

image made image non-infrmging under license) ·with D.l. 74 at 13 ( tating image processed with

Adobe PhotoShop could still infringe under license)) The Court recognizes that PDIC now

explains that the po ition it took at the May 2015 bearing were position it voluntarily and

strategically cho e to take after deciding that right it believed it retained under the Adobe

2



33/43

License were not worth fighting for in light of Adobe s intervention.

See, e. , Tr

. at 101 ) That

i PDIC was not in fac t agreeing with Adobe· s interpretation of the Adobe License, and still

does not agree with

that

interpretation.

Howe

er.

PDlC

was far from clear about it positjon on

these points leading Adobe and the Court to reasonabl believe that

PDTC

had no dispute

with

Adobe ' position. This lack of clarit_ ,

l made

the ub. equent proceedings more challenging

and more demanding on the parties· and the Court' s re ources.

Another factor weighing in favor of an exceptional case finding is PDIC s minimal effort

to develop facts (pre- or post-suit) refated to infringement. Even after learning about Scene7,

PDJC bas produced no evidence that it has put an effort into finding out which third-party non

Adobe) companies develop software that mig

ht

be implicated

by

PDIC s web server theory

of

infringement. PDIC relied almost exclusi ely on Adobe and Defendants to

prove

that

Defendants did not infringe, even though PDIC bear the ultimate burden of proving

infringement. It

i

problematic that PDIC c

ontra

cted

to li

cense Adobe and Adobe customers.

obtaining

in exchange and then decided to sue some of those

ery customers - insi ting vaguely that the suit extended only to those customers ' unli ensed

conduct, and requiring those cu tomer (

or

Adobe) to demonstrate what was licensed.

The oun is al o troubled by PDJC dela in clisrni ing the Nordstrom action . See

C.A. No. 13-408) Adobe alleges, and PDIC does not dispute. that PDI received a declaration

from the Nordstrom Defendants (Nordstrom.c m. ordstrom.com Inc., and Nordstrom Inc. ) on

October

4

, 20 I4, explaining that the Nordstrom Defendants did not infr inge under the Adobe

Licen e.

See

D.I. 67 at 6) On the basis

of

this declaration, PDIC eventually dismissed its case

against the Nordstrom Defendants, but only even months later, on May 29, 2015. See C.A.

9



34/43

. I -408 D.I. 1 PDlC offer no explanati n r h

it

t

r l

trom Defendant .

f

th

ab

e-d

cribed c ndu

t t nd d

litigtUi

n

in

the

e-

aptioned

cases and

mer ed

lh

res urces expended on

th1 liu

auon b

th

artie and the

Court

. All

of

the e

, there

ore

, fa r finding lhe e cases to

bee

epu nal within the meaning of§ 285.

Factor di favoring finding of exceptional case

ertain t ctors present here weigh against an ex eptionaJ c e finding.

For

example,

epting as true the facts alleged by Mr . Meagher with re pe l t hi pre- uit in estigation.

POI

and

its ttome

·a Mr. Meagher) performed at I · t om pre- uit inv

tigarj

n.

As

de cribed in

his

declaration

D.1 . 1, 76),

Mr. Meagher relied n

h1

Ii

en

mg

e.

cperience

th the · -6

patent. h1ch

led

Mr

. Me gher t

ten i e

litigatjon

and

lie e that ·an s tern for

creating and manipulating JP

G

images infringed the ·

patent c

im ... D.I . 76

tin tru hi repre entati n • Mr. M gher b d a g d aith, bj

cti el

reasonable

elief that the · patent was •al id and that system u ing JP t chnol gy infringed the ·05

patent in

th manner under t

od

b

Mr. Meagher.

ln

additi

n.

it

wa

r asonable under the circum ·tances

f

the un el to rel

n thee ten

i

e experti e

of

Mr. Meagher. Accepting a

tru

th · unr butt d rcprc entations in

the d clarati n ,

un

el reviewed claim chart and had di cu

i

n

it

Mr . M agher. S

e D. l

.

74 at M reo er, counsel w entitled to rel on pa t mmuni ati

n.

' ith

Mr

eagher

the ab e.capti ned uit and hj reputation as a ··consummat e

pen

¥ \ ith re e t t the 056

patent.

. D.I 7

unsel

\

as not

re

ufred

t

red th in e tigati steps

30



35/43

perfonned by

Mr.

Meagher before filing the lawsuits.

13

Counsel bviously had no control o er

the fact that Mr. Meagher did not disclose to them the existence of the

Adobe

License or its

potentiaJ relevance. Thi pre-suit investigation, although incomplete and far from ideal, was

adequate under the circumstances to meet counsel's Rule obligations (as further discu sed

below).

The Court accepts on this record that Mr. Meagher and

PDlC

possessed a plausible theory

of

infringement under a rea onable interpretation

of

the dobe License. As noted above the

statement by PDJC s counsel that created apparent inconsistencies with re pect to PDIC s

license and infringement theories do not demonstrate that PDIC ever actuaJl ' conceded the

incorrectness of PDIC s positions r ever actuall conceded the correctness

of

Adobe·s

alternative

po

itions. See. e.g.. Tr. at

16

-18 Relatedl

y,

although PDlC delayed in revealing the

details of its web server theory. nothing about the theory i inc n istent

with

Adobe and

ore·

joint letter sent to Adobe' s customers. (DJ. 69-1 Ex. 9)

In

addition, PDIC s original complaints

in these cases discus infringement at the level of websites (albeit n a very general fa hion).

See D.l. 1

Moreover, there are indicia in the record that PDIC

eb

server theory of infringement i

not merel plau ible but ma acruall be a trong basis for as erting unlicensed infringement

of

13

PDIC quotes

T

Imports Exports v. Nigerian Petroleum

C 1p

., 951 F2d 573 579

(3d Cir. 1991 ), for the proposition that PDJC was not required to conduct as full

of

a pre-suit

investigation in th se ca would ha e be n requir d

if

the t056 patent had

not

been expired

and bad

PDJCs

damages period not been shrinking by the day. See DJ . 74 at 15) The Court

disagree with PDJC that CTC supports this proposition. Meagher stated in his declaration

(0.1. 76 ) that PDJC acquired the 056 patent in January f 2010. Thus. it was PDIC own

delay that created the supposedly emergent situation pointed to by PDIC and PDlC cannot use a

situation of its own creation as an excu e for any deficiencies in its pre-suit investigation.

31



36/43

the 056 patent by one or more

of

the Defendants. The record demonstrates that at least some of

the Defendants do not rely exclusively on Scene7

in

the web servers.

See D.l

. 74 at 5 Adobe

is

silent

in

its briefing on the relative merits

of

PDJCs

web server theory. Adobe has not presented

any evidence - ex Pert or otherwise - to challenge the merits of this infringement theory.

4

t

is notable as wel l, that the presumption

of

patent validity which is always present at the

start ofa patent infringement suit is here.

\\;th

respect to the 056 patent,

a

quite strong

pre umption. This is because

of

the many lieenses third-party entities have taken to tbe 056

patent and the 056 patent s survival of ree ·amination in the PTO. See D.I. 76 m 8, 17) Adobe

has

not suggested that it has an untested. meritorious theory as to

wby

the 056 patent is invalid.

Regarding PDICs license position. PDIC has repeated] asserted that it is only seeking

recovery for infiingement r ot co ered by the licen e (i.e. infringement not involving Adobe

products) in light

of

the following language in the Adobe Licen e:

- (D.l.

76 23) (emphasis added) Again. the Court does not view POI

s

interpretation

of the Adobe License - a position PDJ chose not to fight for in the context of its patent

infringement allegations against D fendant . after Adobe intervened. but a position PDJC has

never abandoned as what it icw as

the

correct reading of the Adobe License - to be

unreasonable.

d o b e

essentially argues that PDIC formulated the web server infringement theory too

late (after filing

suit

and/or that PDIC waived its right to proceed on this theory b concessions it

had made earlier in the litigation. Adobe does not however, make any attempt to show that the

web server theory of infringement is erroneous, implausible or frivolous.



37/43

As indicated y

Mr

Meagher, when PDlC received tatement from Defendants that they

only used Adobe products with respect to the accused technology, PDJC dismissed its case

agamst these Defendants.

See

D.I. 76 52) Accepting

Mr

Meagher s representation as true.

PDIC did not advocate positions that were meritle s or

fri

olous. Nor hould

it e

overlooked

that when PDJC learned

of

Adobe· s po ition with respect to the Adobe License. PDlC worked

with Adobe

to

agree on the text i r a lener that Adobe sent to Adobe 's customers, advising those

customers that PDIC was oot uing based on d o b ~ r e l a t e d conduct. See

D 1

30 at

2

PDIC ' s

cooperation with Adobe in this undenaking di favors finding

PDIC

litigation conduct

exceptional .

What follow from all

of

this is the very significant fact that even a more thorough pre-

suit investigation may well not have led counsel to conclude that these case hould not have

been filed. lmportantly given the plausible and possibly strong) theory

of

unlicen ed

infringement

of

a valid patent that has been (belatedly aniculatt:d b PDIC,

it

is difficult for the

Court to conclude that these cases are

of

a type that the Court should seek

to

deter from being

filed . That conclu

ion

weighs heavily against a finding of exceptionality.

ln

light

of

the above the Court is not persuaded that these suits were brought for an

improper purpo e or that the suits were frivolous.

iii Neutral factor

Other circumstances present in these cases are relevant to the exceptional case analysis

but are neutral and do not weigh for

or

against a finding

of

e ·ceptionality.

Adobe emphasizes the total number

of 51

·'nearly identical' lawsuits brought against

Defendants and others alleging the arne theory

of

infringement under the '056 patent. As Adobe

33



38/43

b erve . the ederal ircuH has

xpla

ined

t at

··pattern

of i l i n ~

near identi al

c m laint gain

ta

ide variet

f

c m anie ·•

ind i ra la swt havine an

·'impr per purp e: ·

Eon-

t

P

·

Fla

r

r

Ba11

1p

.• 24

A.pp·

I 9, 197 (Fed. ir. 2 7 .

But in

th

relat1

el

br

ad. rr ng patent c

ering man

y u e

f

JP

G • an undisp uted popul

ar

t

hno

. (S 0.1. 6 7-1

Hence , the larg numb ·r

f

ca cs

fi

led b

PO

I

ma ju t

ikel y

re

1 id

pread infringement

fa al id

patent, r

th

er than

be

indi ati e

of

abuse

of

the

udi al • tern fi ran improper purpose.

Ad b

Documents

Princeton Digital Image Corp. v. Office Depot Inc., C.A. No. 13-239-LPS (D. Del. Mar. 28, 2016)