07/29/14

Source v Hydrapack: Unsupported Claim Construction and Infringement Allegation Results in Rule 11 Sanctions


Category: Civil Procedure   
 
 
 
 By: Abby Lin, Contributor 
 
CaseSource Vagabond Sys. Ltd. v. Hydrapak, Inc., No. 2013-1270, -1387 (Fed. Cir. June 5, 2014).
IssuesSource Vagabond Systems, Ltd., Pearl Cohen Zedek Latzer LLP, Guy Yonay, and Clyde Shuman (collectively, “Source” or “Appellants”) appeal the decision of the district court sanctioning Source under Federal Rule of Civil Procedure 11 (“Rule 11”) for bringing a frivolous patent infringement suit against Hydrapak, Inc. (“Hydrapak”) [based on [1] an unsupported proposed claim construction and [2] a literal infringement allegation lacking any evidentiary support.]
Source Vagabond Sys. Ltd. at *2 (text added).
Holdings
[1] Source was required to “perform an objective evaluation of the claim terms” to satisfy its obligation to conduct a reasonable pre-suit evaluation. [...] By proposing a definition that ignores the canons of claim construction, Source did not meet that standard. The district court did not abuse its discretion in imposing Rule 11(b)(2) sanctions based upon Source’s frivolous claim construction arguments.
Id. at *15-16 (internal citations omitted).
[2] Since Source’s claim construction is […] inadequate, and, indeed, the literal infringement claim “lacked evidentiary support no matter how the claim was construed,” […], the district court did not abuse its discretion in imposing Rule 11 sanctions.
Id. at *17.
 

Procedural History
Contributor Note: For brevity and clarity, the procedural history and relevant decisions are presented in time line format without using direct quotes from the decision. The Court describes the procedural history in pages 6-9.
1. District Court: Source sues Hydrapak for infringement of ‘276 patent in Southern District of NY based on Hydrapak’s product named Reversible Reservoir II. Hydrapack serves Rule 11 motion on Source. Source does not withdraw claims. Both sides file motion for summary judgment for infringement. SDNY granted Hydrapak’s motions for summary judgment and Rule 11 based on claim interpretation using plain and ordinary meaning, holding that Source’s claim interpretations were not consistent with any of “the relevant canons of construction” and that Source’s claim construction still did not show literal infringement on Hydrapak.
2. Appeal to Federal Circuit – Source appealed district court’s denial of reconsideration of Rule 11 Order and the District Court’s decision, but then terminated the motion for reconsideration. The Federal Circuit affirmed district court’s summary judgment and denied Hydrapak’s motion for sanctions for frivolous appeal.
3. Sanction by Magistrate –Magistrate Judge Cott determined the amount of sanctions based on violations of Rule 11(b)(3), where Source failed to conduct an adequate investigation, and Rule 11(b)(2), where Source made frivolous legal claims. Judge Cott recommended Source pay partial attorney’s fees, but not be sanctioned. No objections to his recommendation were filed.
4. District Court’s Application of Sanctions: District Court used Judge Cott’s sanctions and additionally added fees for Hydrapak defending against the terminated reconsideration motion.
5. Appeal to Federal Circuit: Source appealed the sanctions.

 

 

Legal Reasoning (Wallach, Moore, Reyna)
Background
US Patent 7,648,276 (‘276)The ’276 patent, in which Yoram Gill is the named inventor, relates to flexible hydration reservoirs and focuses specifically on the sealing mechanisms for reservoirs. The reservoir includes a hermetic seal to prevent leakage and a large opening to facilitate the filling and cleaning of the container. ’276 patent col. 6 ll. 17–24.
Source Vagabond Sys. Ltd. at *2-3.
Claim at IssueClaim 1. A sealable flexible liquid container system comprising:

a flexible liquid container having a cavity for receiving liquids, said cavity formed of two films having the majority of their perimeter fused, and a portion of the perimeter unfused so as to present a lateral opening for filling the container with liquids, and a liquid dispensing outlet;

a rod having a first end and a second end, fixedly attached to the container laterally across the lateral opening of the flexible container so that a portion of the container adjacent the lateral opening can be folded over the rod and substantially overlap an adjacent portion of the container; and

a sealer comprising an elongated rigid member having two opposite sides along which a hollow cavity is extended with a longitudinal slot wherein said slot is adapted to accommodate said two films, wherein the sealer is provided with an opening on at least one of the opposite sides with a broadening for inserting an end of the rod into the cavity when the portion of the container is folded over the rod into the hollow passage, the slot being narrower than the diameter of the rod, so that the sealer is only to be slidingly mounted sideways over the rod.

Id. at * 2-3.
Legal Standard: Standard of Review and Rule 11
In determining whether Rule 11 sanctions are warranted, the Federal Circuit applies the law of the regional circuit. Antonious v. Spalding & Evenflo Cos. Inc., 275 F.3d 1066, 1072 (Fed. Cir. 2002). In the Second Circuit, “liability for Rule 11 violations ‘requires only a showing of objective unreasonableness on the part of the attorney or client signing the papers.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 579 F.3d 143, 150 (2d Cir. 2009).
Id. at * 9.
All aspects of a district court’s imposition of Rule 11 sanctions are reviewed under an abuse of discretion standard. Caisse Nationale De Credit Agricole-CNCA v. Valcorp, Inc., 28 F.3d 259, 264 (2d Cir. 1994). An “abuse of discretion occurs when a district court base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence, or render[s] a decision that cannot be located within the range of permissible decisions.” Kiobel v. Millson, 592 F.3d 78, 81 (2d Cir. 2010).
Id. at *9.
In patent lawsuits, “[d]defending against baseless claims of infringement subjects the alleged infringer to undue costs—precisely the scenario Rule 11 contemplates.” View Eng’g, Inc. v. Robotic Vision Sys., 208 F.3d 981, 986 (Fed. Cir. 2000). Rule 11(b)(2) mandates that, in any filing, counsel certifies he or she has made a reasonable inquiry that “the claims, defenses, and other legal contentions are warranted by existing law.” Fed. R. Civ. P. 11. Rule 11(b)(3) also requires that counsel certify they have made a reasonable inquiry into whether their “factual contentions have evidentiary support.” Id. [...]
Id. at *10 (some internal citations omitted).
Analysis
Claim Construction Must Be Supported in the Specification, Drawings, Prosecution History and Carries Plain Meaning Unless the Application Defines special wording
The district court found claim construction of the slot/rod limitation “lies at the heart of this lawsuit.” It determined that the claim limitation stating the “slot being narrower than the diameter of the rod” required that the slot is narrower than the rod without including the portion of the container folded over the rod. That construction was not disturbed by this court.
Source Vagabond Sys. Ltd. at *10 (internal citations omitted).
A basic principle of claim construction is that “the words of a claim are generally given their ordinary and customary meaning.” Phillips v. AWH Corp., 415 F.3d1303, 1312 (Fed. Cir. 2005). Thus, “a claim construction analysis must begin and remain centered on the claim language itself, for that is the language the patentee has chosen to particularly point[ ] out and distinctly claim[ ] the subject matter which the patentee regards as his invention.” [...]. “The claims, of course, do not stand alone.” Phillips, 415 F.3d at 1315. “Rather, they are part of a fully integrated written instrument, consisting principally of a specification that concludes with the claims.” Id. “For that reason, claims must be read in view of the specification, of which they are a part.” Id. (internal quotations marks and citation omitted).
Id. at *11 (some internal citations omitted).
Source added words to the actual claim language, thus changing the relevant comparison from the slot to the diameter of the rod to the slot to the diameter of the rod added to the thickness of the container folded over it. Instead of looking to the words themselves, Source added language without support from the specification or prosecution history, altering otherwise unambiguous claim language, a practice this court has repeatedly rejected. [...] As the district court said, “an ‘analysis’ that adds words to the claim language [without support in the intrinsic evidence] in order to support a claim of infringement” does not follow “‘standard canons of claim construction.’” [...] Additionally, the surrounding claim language demonstrates that the “the slot,” “the rod, and “the portion of the container . . . folded over the rod” are distinct from each other. The claim language does not compare the size of the slot to the size of the rod together with the folded over container. Source had the ability to draft the claim that way but did not. It cannot correct that failure by adding words to otherwise unambiguous claim language.
Id. at *12 (internal citations omitted).
Source further contends the section quoted by the district court refers to Figure 3A and the “relative sizes shown in the drawings rebut the Court’s finding that Source’s claim construction was objectively unreasonable.” [...] However, “patent drawings do not define the precise proportions of the elements depicted and may not be relied on to show particular sizes if the specification is completely silent on the issue.” [...] The district court considered the drawings in the specification and correctly determined that Source’s proposed construction was contradicted by the patent’s specification. “In addition to consulting the specification, . . . a court should also consider the patent’s prosecution history, if it is in evidence.” [...] “[T]he prosecution history can often inform the meaning of the claim language by demonstrating how the inventor understood the invention and whether the inventor limited the invention in the course of prosecution, making the claim scope narrower than it would otherwise be.” [...] Here, the prosecution of the ’276 patent supports the plain meaning of the claim language. Before claim 1 was amended, the referenced slot did not have an upper size limit. In response to an invalidity rejection, the patentee amended claim 1 to require a “slot being narrower than the diameter of the rod.” [...] The prosecution history is thus consistent with the claim language and the specification, and further demonstrates that Source’s claim construction is unreasonable and that the claims do not cover products with a slot wider than the diameter of the rod.
Id. at *13-14(internal citations omitted).
"The district court properly determined that “claim construction is a function of the words of the claim not the ‘purpose’ of the invention,” and that Source’s construction “violates nearly every tenet of claim construction and amounts to a wholesale judicial rewriting of the claim.” J.A. 4; see also Cohesive Techs. Inc. v. Waters Corp., 543 F.3d 1351, 1368 (Fed. Cir. 2008) (“To be clear, it is the purpose of the limitation in the claimed invention—not the purpose of the invention itself—that is relevant.”). Source was required to “perform an objective evaluation of the claim terms” to satisfy its obligation to conduct a reasonable pre-suit evaluation. Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1329 (Fed. Cir. 2011). By proposing a definition that ignores the canons of claim construction, Source did not meet that standard. The district court did not abuse its discretion in imposing Rule 11(b)(2) sanctions based upon Source’s frivolous claim construction arguments.
Id. at *15-16.
Without evidence of literal infringement presented, no literal infringement is present
A “patent holder, if challenged, must be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim that it had a reasonable chance of proving infringement.” View Eng’g, 208 F.3d at 986.
Source Vagabond Sys. Ltd. at *16.
The district court found that Source’s opposition to the Rule 11 motion did “not even contain any product measurement that would tend to show whether Hydrapak’s products infringe under any version of claim construction!” [...] The district court explicitly recognized Hydrapak’s product could not literally infringe, stating: “In both of defendant’s products, the slot is still several millimeters larger than the diameter of the “rod,” (i.e., the rod with the portion of the container that is folded over it). So a finding of literal infringement is impossible.” J.A. 6. In opposing Hydrapak’s Rule 11 motion, Source did not explain why it believed, prior to filing suit, that the Reversible Reservoir II literally infringed. Source also failed to submit any evidence demonstrating pre-suit analysis that reasonably concluded there was literal infringement because the thickness of the lips and catches should be considered part of the thickness of “the folded over container.” Since Source’s claim construction is clearly inadequate, and, indeed, the literal infringement claim “lacked evidentiary support no matter how the claim was construed,” J.A. 8, the district court did not abuse its discretion in imposing Rule 11 sanctions.
Id. at *16-17.
Infringement under Doctrine of Equivalents not present without reasonable presentationCounsel was obligated to come forward with a showing of exactly why, prior to filing suit, they believed their claim of infringement under the doctrine of equivalents was reasonable. See View Eng’g, 208 F.3d at 986. Source did not comply with this requirement below. Under these circumstances, the district court did not abuse its discretion in finding a Rule 11 violation.
Source Vagabond Sys. Ltd. at *18.
Conclusion
Because of the specific circumstances of this case, this court affirms the district court’s Orders imposing $200,054.00 in Rule 11 sanctions against Source.
Source Vagabond Sys. Ltd. at *18.

 

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