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Patent cases take a long time to resolve, even when the defendant is able to show that the case should never have been filed in the first place. Unless and until we get to a point where at least certain patent claims can be disposed of using alternative dispute mechanisms before cases are filed in district court, that reality is unlikely to change anytime soon. In the meantime, the best we can do is to learn what we can from the abject loser cases, with at least the same attention to detail as we shower on cases where the patentee meets with a smashing success. I was pleased, therefore, to see a recent decision come out of a case that I first noticed back in 2020 that I believe is worthy of consideration in this column. In part, because the decision was penned by one of our leading jurists, the SDNY’s Judge Jed S. Rakoff, but also because it provides some interesting color on a patent-driven investment situation that seems to have gone very sideways.
Back in August 2020, I authored a Markman Advisors blog post about a privilege waiver involving a potential investor in a company that ended up pursuing patent litigation in the area of lab-grown diamond technology. That company M7D Corporation, d/b/a WD Lab Grown Diamonds, had taken on an equity investment from a private equity firm, Huron Capital, in 2019. A centerpiece of that investment was the fact that “WD holds an extensive portfolio of exclusive global licenses with the Carnegie Institution of Washington (‘Carnegie Institution’) centered on the patented Chemical Vapor Deposition (‘CVD’) process and other methods to grow diamonds.” As part of the diligence process for that investment, Huron had retained Perkins Coie to conduct due diligence into the IP that Carnegie had licensed to WD. At least some of Perkins Coie’s analysis was included on three slides in a PowerPoint presentation that was shared with other potential investors by Huron and WD. After WD and Carnegie filed SDNY patent infringement lawsuits in early 2020, defendants in those cases moved to compel unredacted copies of those slide decks, including the legal analysis performed by Perkins Coie. As is evident in the decision I blogged about that summer, Rakoff agreed that the privilege had been waived and ordered production of the full investor presentations. In a twist, Perkins Coie ended up representing WD and Carnegie in those lawsuits.
After losing on the motion to compel, things did not get better for our plaintiffs in the SDNY litigations. (Of the three cases filed, one settled almost immediately, with a second settling just a short time after the order on the motion to compel was issued.) In the case that proceeded on the merits, filed against an Indian company called Mahendra Brothers and its subsidiary Fenix Diamonds, the defendants moved for summary judgment on the question of infringement. The court found for defendants on both of the asserted patents, leaving only their counterclaim for invalidity of one of the patents open. After the plaintiffs granted a covenant not to sue to defendants on that patent, they moved to dismiss the counterclaim. The court agreed that there was no remaining subject matter jurisdiction and entered final judgment for defendants, pending appeal and resolution of the defendants’ request for attorneys fees.
Between 2021 and mid-2023, the Federal Circuit appeal between the parties was pending. Then, the appeal was dismissed based on a motion of the parties in early September 2023. Within weeks of the remand back to the SDNY, defendants pushed forward their motion for attorney fees, which was decided last week by Rakoff, who pulled no punches. Calling the plaintiffs’ case “substantively weak,” the court faulted them for pressing forward with one patent that they knew was not infringed, causing the defendants to “incur the expense of time and resources to commission its own expert reports of non-infringement and to move for summary judgment of non-infringement on the ‘189 Patent.” Moreover, on the asserted patent, the court found that the plaintiffs “continued to rely on a theory of infringement of the ‘078 Patent — advanced by their expert … that was flatly at odds with the Court’s claim construction.” The plaintiffs persisted with this approach despite being put on notice by the defendants of the lack of infringement — including visual evidence that showed that the accused manufacturing process was not being used by the defendants’ manufacturer.
In addition to their conduct during the litigation itself, Rakoff also took issue with the plaintiffs’ “misleading posture” in their federal circuit briefing, where plaintiffs failed to inform the appellate court that the defendants’ manufacturer had offered a facility inspection that plaintiffs’ counsel declined. And, tying back to the Huron Capital PowerPoint presentation that was the focus of the earlier motion to compel, the court noted that even before the case was filed, the presentation contained statements that called into question the validity of one of the asserted patents. Going further, the court rejected the argument that as the minority interest holder in the patent recoveries, Carnegie should be insulated from an award of attorney’s fees, even as M7D undergoes bankruptcy proceedings. This was true even though M7D had control of litigation decisions.
Ultimately, this case presents a cautionary tale on a number of fronts. First, that companies jointly pursuing patent litigation can expect to not only share in the upside, but also in the downside when things go poorly. Second, that statements made in the pursuit of investment can find themselves unveiled and relied upon in litigation to the detriment of the producing party. Third, that persisting as a litigant with legally infirm arguments on critical issues like infringement is a recipe for consequences down the line. Here, the diamonds were fake, but the fees awarded were real.
Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.
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