IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF WISCONSIN GREEN BAY DIVISION

Transcription

1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF WISCONSIN GREEN BAY DIVISION YANGAROO INC., Plaintiff, Case No. 09-C v- DESTINY MEDIA TECHNOLOGIES INC., DESTINY SOFTWARE PRODUCTIONS INC. and MPE DISTRIBUTION INC., Defendants. DEFENDANTS REPLY BRIEF IN FURTHER SUPPORT OF DEFENDANTS MOTION FOR AN AWARD OF ATTORNEYS FEES. INTRODUCTION Defendants Destiny Media Technologies Inc. ( Destiny Media ), Destiny Software Productions Inc. ( Destiny Software ) and MPE Distribution, Inc. ( MPE and collectively with Destiny Media and Destiny Software, Defendants ), by and through their undersigned attorneys, respectfully submit this Reply Brief in response to Plaintiff s Opposition to and in further support of Defendants Motion for an Award of Attorney s Fees. 1 Case 1:09-cv WCG Filed 07/21/10 Page 1 of 9 Document 83

2 PRELIMINARY STATEMENT Plaintiff opposes Defendants motion for attorney fees on the grounds that [n]either Yangaroo nor its counsel knew that Destiny had servers only in Canada. (Plaintiff s Brief in Opposition, Dkt. 80 at 6). Yet this is contradicted by the fact that Plaintiff has consistently asserted to the Canadian court that Defendants Canadian servers service all of Defendants U.S. customers. In furtherance of Plaintiff s Canadian litigation, Plaintiff filed a motion to compel seeking to require Defendants to disclose details regarding their U.S. customers. Sabety Decl., Exhibit 3. Plaintiff argued that Defendants U.S. customers were relevant to their litigation in Canada because those customers are serviced by Defendants Canadian based servers. Given that Plaintiff has consistently reiterated to the Canadian court that Defendants U.S. customers use Defendants Canadian servers, the conclusion is that the location of Defendants servers has been a critical a fact in Plaintiff s Canadian litigation. Sabety Decl. Exhibit. 2. In April of 2009 one month prior to filing its complaint in this case--plaintiff deposed Defendants CEO on the subject of Defendants servers. Sabety Decl. 1. Following the deposition, Plaintiff yet again asserted to the Canadian court that Defendants provide music and music video distribution services throughout North America through their servers located in Vancouver. Sabety Decl. Exhibit 2. Either Plaintiff withheld this fact from its U.S. counsel or Plaintiff s attorneys in this case did not conduct a reasonable inquiry into the factual basis for filing their complaint in this action. In either case, an award of attorney s fees is warranted. 2 Case 1:09-cv WCG Filed 07/21/10 Page 2 of 9 Document 83

3 ADDITIONAL STATEMENT OF FACTS IN REPLY 1. In the Canadian litigation, Plaintiff deposed Steven Vestergaard, Defendants CEO an additional time on April 8, 2009, approximately one month before the complaint in this case was filed, which included the subject of Defendants servers. Sabety Decl., Exhibit 1, Dkt After the April 2009 deposition Plaintiff filed in the Canadian court a Further Amended Statement of Defence and Counterclaim that repeated the assertion that Defendants provide music and music video distribution services throughout North America through their servers located in Vancouver. Sabety Decl., Exhibit 2, Plaintiff s attorneys filed in the Canadian court a Motion Record on March 7, 2008, which included the statement it is contended that use of the Promo Only MPE system by music labels based in the United States to send music content to radio stations based in the United States is an infringement of the Canadian 774 Patent as the information flows through and is processed by Destiny s servers in Vancouver.. Sabety Decl., Exhibit 3, 67 (emphasis added). 3 Case 1:09-cv WCG Filed 07/21/10 Page 3 of 9 Document 83

4 ARGUMENT I. Conduct in Violation of Rule 11 is Germane to Section 285. An award of attorney fees under 35 U.S.C. 285 is appropriate if there is unjustified litigation [or] conduct that violates Federal Rule of Civil Procedure 11. Serio-US Industries v. Plastic Recovery Tech. Corp. 459 F. 3d 1311, (Fed. Cir. 2006). The issue of service under Rule 11 in accordance with the safe harbor provision is irrelevant to the fact that conduct which would violate Rule 11 nevertheless supports an award of attorney s fees pursuant to 35 U.S.C Plaintiff s failure to make a reasonable investigation prior to bringing suit is therefore conduct that supports the award of attorney s fees under 285. View Engineering v. Robotic Vision Systems, 208 F 3d 981, 985 (Fed. Cir. 2000). The Federal Circuit has held that any one of three acts are violative of Rule 11: a lack of investigation, a frivolous theory or vexatious conduct of the litigation. Antonious v. Spalding & Evenflo Companies, Inc., 275 F. 3d 1066, 1072 (Fed. Cir. 2002). In this case, the Plaintiff failed to properly investigate and continued to litigate after admitting that the servers were in Canada by means of presenting a frivolous opposition to Defendants motion for summary judgment. And regardless whether Plaintiff s encryption argument is frivolous or not, [A] violation of Rule 11 [is] not cured by the fact that, after filing the complaint [Plaintiff] was able to make colorable arguments in response to a motion for summary judgment of noninfringement. Judin v. US, 110 F. 3d 780, 785 (Fed. Cir. 1997)(reversing a court s denial of an award of attorney fees.) Plaintiff s conduct, which violated Rule 11 in several ways, therefore supports an award of attorney s fees pursuant to 35 U.S.C. 285 in either case. 4 Case 1:09-cv WCG Filed 07/21/10 Page 4 of 9 Document 83

5 II. Plaintiff Has Continually Argued in their Canadian Litigation that Defendants U.S. Customers Use Defendants Canadian Servers. A. Plaintiff s Assertion was to Bring Defendants U.S. Customers into Plaintiff s Canadian Case. On March 7, 2008 Plaintiff s attorneys filed in the Canadian court a Motion Record to require disclosure about Defendants U.S. customers. In that document, Plaintiff argued that Defendants U.S. customers are subject to discovery because the information flows through and is processed by Destiny s servers in Vancouver.. Sabety Decl., Exhibit 3, 67. While Plaintiff s purpose was likely to include U.S. income as damages in the Canadian patent case, it is clear that the question of the location of Defendants servers that service their U.S. customers was and is a critical fact in Plaintiff s Canadian patent litigation just as it is in this one. Plaintiff may not now inconsistently claim that it did not know that Destiny s servers were located only in Canada given its repeated assertions to the contrary that it made to the Canadian Court in order to sweep Defendants U.S. business activities into their Canadian litigation. Dkt See Eltech Sys. Corp. v PPG Indus. 903 F. 2d 805, 810 (Fed. Cir. 1990) (noting that courts should consider evidence that renders the I didn t know excuse unacceptable ) B. Plaintiff Conducted Ongoing Technical Discovery After the March 2009 Press Release and a Month Before the Complaint in this Case was Filed. Plaintiff relies on statements made by Defendants in a press release of March 2009 that, according to Plaintiff s CEO, resulted in his thinking that these North American locations included sites in the United States. (Plaintiff s Brief, Pg. 6.) Yet a month 5 Case 1:09-cv WCG Filed 07/21/10 Page 5 of 9 Document 83

6 after this press release, Plaintiff s attorneys took the deposition of Steven Vestergaard, Defendants CEO and inquired in detail about the technical operation of the Defendants servers. Sabety Decl. Exhibit 1. The end result of this discovery which occurred prior to the date the complaint was filed in this case was the assertion made in the Canadian patent case in August 2009 that Defendants customers throughout North America continued to be serviced by servers located in Canada. Sabety Decl., Exhibit 2, 21. It is not credible given the importance to Plaintiff of the location of the servers servicing Defendants U.S. customers, that the facts concerning the location of the servers was not well known to Plaintiff prior to commencing this action. III. Plaintiff s Infringement Analysis Based on Website Advertising was an Insufficient Pre-Complaint Investigation Under These Circumstances. The argument that Plaintiff undertook a reasonable investigation into the facts because its patent counsel analyzed Destiny s website and compared the information about Destiny s product found on that website to Yangaroo s patent is simply wrong. (Plaintiff Opposition, Pg. 10,9.). Infringement analysis prior to filing a complaint is more than an empty formality. Judin v. US, 110 F. 3d 780 (Fed. Cir. 1997)(reversing a district court s denial of attorney fees where plaintiff relied on visual observations, not a close examination of the accused device); Centillon Data Systems v. Convergys Systems et.al U.S. Dist LEXIS 846 (S.D. Ind. 2006)(finding reliance on advertising literature about software functionality an objectively unreasonable investigation.) The claim analysis itself has to be reasonable under the circumstances. See View Engineering 208 F 3d at 986 (Fed. Cir. 2000). Given that Plaintiff knew and has continually argued in their 6 Case 1:09-cv WCG Filed 07/21/10 Page 6 of 9 Document 83

7 Canadian litigation the critical fact that Defendants U.S. customers are serviced by Defendants Canadian servers, an infringement analysis that did not address the foreign location of Defendants servers was not an investigation reasonable under the circumstances. IV. Plaintiff Had No Reasonable Basis to Continue this Case After Admitting that Defendants Servers Are in Canada and the U.K.. While Plaintiff asserts that it did not pursue its claims under other subsections of the patent statute, in fact it did not withdraw those claims until it filed its Opposition to Defendants Motion for Summary Judgment only days prior to closing its pending financing. (Plaintiff s Brief, pg. 3). This was two months after it admitted that the servers were not in the United States and four months after deposing Steve Vestergaard who testified to that fact. Defendants still had to prepare defenses to those claims that Plaintiff had privately abandoned. When the patentee is manifestly unreasonable in assessing infringement, while continuing to assert infringement in court, an inference is proper of bad faith, whether grounded in or denominated wrongful intent, recklessness or gross negligence. Eltech Sys. Corp. v PPG Indus. 903 F. 2d 805, 811 (Fed. Cir. 1990). In addition, Plaintiff continued to oppose Defendants motion for summary judgment by asserting the theory that their patent claim, which states on its face that it is a method of distributing content is a claim over a method of manufacture. But the patent claim itself acts as a form of estoppel. See Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 US 722, 731 (2002)( A patent holder should know what he owns, and the public should know what he does not. ) A lawsuit is objectively baseless when no reasonable 7 Case 1:09-cv WCG Filed 07/21/10 Page 7 of 9 Document 83

8 litigant could realistically expect success on the merits. Realtek Semiconductor v. Marvell 2005 U.S. LEXIS 39332, 15 (Fed. Cir. 2005). The prevailing party can prove that the case is exceptional by showing bad faith litigation; [or a] a frivolous suit. Phonometrics, Inc. v. ITT Sheraton Corp. 64 Fed. Appx. 219, 220 (Fed. Cir. 2003)(affirming attorney s fees under 285 where plaintiff took no affirmative steps to end this litigation and instead proceeded to oppose a motion for summary judgment of non-infringement. ). V. Plaintiff Had Every Opportunity to Present its Claim Construction But Chose Not To. The Federal Circuit has held that district courts may construe claim terms on summary judgment motions as necessary to dispose of the case. Vivid Techs v. Am. Science & Eng. 200 F 3d 795, 803 (Fed Cir 2003). Contrary to Plaintiff s assertion, Plaintiff could have presented an argument regarding claim construction to this Court. If claim construction was germane to the extraterritoriality issue, then it was a permissible area of discovery and argument under the Court s discovery order. It was Plaintiff s tactical decision to withhold any claim construction from their summary judgment papers. VI. Defendants Did Not Impede Access to Executable Code. Plaintiff s assertion that Defendants hindered access by Yangaroo s counsel to an executable form of the accused system is simply wrong. (Plaintiff s Brief, pg. 10.) Defendants resisted a sweeping discovery request that was contrary to the Stipulated 8 Case 1:09-cv WCG Filed 07/21/10 Page 8 of 9 Document 83

9 Protective Order, but agreed to provide the executable user modules once Plaintiff s counsel limited their request to that three weeks later. CONCLUSION Plaintiff s complaint was filed either without a reasonable investigation or in the absence critical information withheld by Plaintiff from Plaintiff s U.S. counsel. Plaintiff continued to litigate with a frivolous argument after learning that Defendants servers were outside the U.S.. For these reasons, and those stated in Defendants opening brief, Defendants motion for attorney s fees and costs should be granted. Dated: July 21, 2010 Respectfully submitted, By:_/s/_Ted Sabety SABETY + ASSOCIATES, PLLC 8 West 40 th St. 12 th Fl. New York, NY Telephone (212) Of Counsel Attorneys for Defendants Destiny Media Technologies Inc., Destiny Software Productions, Inc., and MPE Distribution Inc. Michael E. Norton NORTON & ASSOCIATES, LLC 8 West 40 th St., 12 th fl. New York, NY Telephone: (212) Case 1:09-cv WCG Filed 07/21/10 Page 9 of 9 Document 83