Free Memorandum - District Court of Arizona - Arizona

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Charles F. Hauff, Jr. (AZ Bar No. 014465) Douglas W. Seitz (AZ Bar No. 004258) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Attorneys for Eberle Design, Inc. and Electronic Devices, Inc. UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

Eberle Design, Inc., and Electronic Devices, Inc., Plaintiff/Counterdefendants, v. Reno A&E, Defendant/Counterplaintiff.

CIV 02 2575 PHX DGC (Lead) CIV 03 883 PHX DGC (Consolidated) EBERLE'S MEMORANDUM IN SUPPORT OF MOTION FOR AWARD OF ATTORNEYS' FEES AND RELATED NON-TAXABLE EXPENSES

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Further to Eberle's Motion for Recovery of Attorneys' Fees and Related NonTaxable Expenses, filed November 15, 2005 (Docket Entry #237) and the Order granting the parties' Joint Motion to Bifurcate Consideration of Motion for Award of Attorneys' Fees and Non-Taxable Expenses (Docket Entry #243), Eberle Design, Inc. and Electronic Devices, Inc. (collectively "Eberle") hereby file their Memorandum in Support of Motion for Award of Attorneys' Fees and Related Non-Taxable Expenses. I. INTRODUCTION Eberle seeks to recover attorneys' fees and related non-taxable expenses in connection with the judgment entered on November 1, 2005. Eberle is the prevailing party, this case is "exceptional," and an award of attorneys' fees is appropriate. The jury has unanimously found by clear and convincing evidence that Reno A&E's ("Reno') patent infringement suit and defenses to Eberle's on-sale invalidity claim had no merit, and the jury reached those conclusions based upon documents and facts that were known
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to Reno all along. Further, even after the clear and convincing evidence of invalidity was highlighted in this case, Reno continued to assert its meritless infringement claim and deny invalidity. As a result of Reno's intransigence, Eberle was forced to incur well over a million dollars to defend its right to compete in the marketplace. II. EBERLE IS ELIGIBLE FOR A FEE AWARD Reasonable attorneys' fees may be awarded to the prevailing party in "exceptional" patent cases. 35 U.S.C. § 285 (2000). An award of attorneys' fees is within the informed discretion of the trial court. Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320, 1329 (Fed. Cir. 1987). The statutory purpose of such awards is to reach cases where the interest of justice warrants fee-shifting. Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1582 (Fed. Cir. 1992). The analysis proceeds in three steps. First, the Court determines which party prevailed. Second, the Court determines whether the case is "exceptional." See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc). And third, the Court determines whether a fee award is appropriate, and if so how much. Id. A. Eberle Is The Prevailing Party
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There is no doubt that Eberle is the prevailing party in this case. Who prevailed is determined based on a comparison of the results to the overall objective of the litigation, and not on a count of the number of claims and defenses. Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Plaintiffs and counterclaim defendants may be considered "prevailing parties" for attorney's fees purposes if they succeed on any significant issue in litigation that achieves some of the benefit they sought in bring suit. Texas State Teachers Ass'n v. Garland Independent School Dist., 489 U.S. 782, 789 (1989). In this case, the jury returned a verdict in favor of Eberle on its on-sale bar defense as to all asserted claims of U.S. Patent No. 6,087,964 (the '964 Patent), and judgment that the asserted claims were invalid was entered. The Court also declared that Claim 34 was
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not infringed as a matter of law1. Reno took nothing on its damage claim. Eberle is therefore the prevailing party. Indeed, the Court has already entered judgment that Eberle is entitled to its court costs as prevailing party. III. EBERLE IS ENTITLED TO A FEE AWARD A. This Case Is Exceptional

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The facts surrounding Eberle's successful on-sale bar defense have been thoroughly briefed. Those facts demonstrate two points: 1. Reno's arguments that there was no definite commercial offer for
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sale and that the alleged invention of the `964 Patent was not ready for patenting were contrary to Reno's own documents; and, 2. Reno's factual and legal excuses were baseless, and certainly not
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supported by corroborating documentary evidence. The Patent Act provides patentees with potent weapons to deter infringement. Apart from the ordinary remedies of damages and injunctions, the statute authorizes both increased damages (35 U.S.C. § 284) and attorneys' fees (35 U.S.C. § 285). These remedies act as strong deterrents to blatant, willful infringement of valid patents. On the other hand, the only statutory deterrent to an unwarranted suit on a clearly invalid patent is the attorneys' fees provision of 35 U.S.C. § 285. See Mathis v. Spears, 857 F.2d 749, 758-59 (Fed. Cir. 1988). In this case, the jury found that the asserted claims of the `964 patent were invalid because Reno violated the on-sale bar of 35 U.S.C. § 102(b). The jury thus found that Reno offered the claimed invention for sale more than a year before it applied for the patent, at a time when the invention was ready for patenting. Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67-68 (1998). The clear and convincing evidence supporting the jury's finding that the invention of the `964 Patent was on sale came from Reno's records and the testimony of the named inventors, not from public documentation. Mr. Potter and his
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The Judgment also found that Eberle had not proven that any of the claims of the '964 Patent were anticipated, obvious or that Reno had engaged in inequitable conduct, but also awarded Eberle costs.

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attorney (and business partner) never disclosed the critical information to the Patent & Trademark Office. Only by mounting an aggressive defense did Eberle discover the facts on which the jury's decision was based. Equally importantly, this case was unnecessarily prolonged by Reno's intransigence. Reno maintained its claims against Eberle despite overwhelming evidence that the invention claimed in the `964 Patent was on sale before the critical date. As shown below, Reno put forth baseless, false and inconsistent arguments in effort to set up a smoke screen and confuse the jury. Those deliberate non-truths and efforts failed, but this is precisely the type of litigation conduct that can and should be deterred through feeshifting under 35 U.S.C. § 285. See Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d 1022, 1034 (Fed. Cir. 2002) ("litigation misconduct and unprofessional behavior are relevant to the award of attorney fees, and may suffice, by themselves, to make a case exceptional") (citing Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1574 (Fed. Cir. 1996)). 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 particular, the Federal Circuit has not hesitated to affirm awards of attorneys' fees when patentees were aware of the facts supporting the on-sale bar long before trial. See Hughes v. Novi Am. Inc., 724 F.2d 122, 127 (Fed. Cir. 1984) ("There is no dispute that evidence of sales and advertising which barred the grant of a patent was brought to light seven months prior to trial. [The patentee] had no basis thereafter for asserting ignorance of the facts."). B. Reno's Bogus Arguments that There Was No Offer for Sale (i) The Argument That Electromega's "Very Serious" Order Was Merely "Ceremonial"
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Although Reno and Mr. Potter contended throughout that the purchase orders he received from Electromega were "ceremonial," all the documentary evidence confirmed
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that the initial inquiry by Mr. Lamoureux, and more importantly Mr. Potter's handling of that inquiry and subsequent offer, were not ceremonial but "very serious." On February 20, 1996 Mr. Lamoureux made his initial request for vehicle detectors. That request and attendant Purchase Order was not identified as ceremonial. Indeed, as set forth in Exhibit 40, it was "urgent" and "sincere": "the detector for PO 13569 is urgently required and we sincerely hope that you will be able to meet the delivery." (Emphasis added) Mr. Potter did not respond immediately to Mr. Lamoureux's fax and order of February 20, 1996. Instead, he checked with suppliers of custom parts for the new detector to see if he could meet the requested delivery schedule. The very next day, having heard no response, Mr. Lamoureux impatiently reminded Mr. Potter that Electromega's order was not ceremonial, but was "very serious":

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"the order for the 222's is very serious and we would greatly appreciate if someone could attest the reception and confirm if you can meet the delivery required." (Trial Exhibit 39 (emphasis added).) Mr. Potter finally responded, but nowhere did he suggest that either the order or Reno's counteroffer was ceremonial. Instead, he promised delivery of production
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quantities of the new custom designed vehicle detectors "by mid-July." (Trial Exhibit 38.) As even Mr. Potter admitted on the stand, he could not point to any document in which he said to Mr. Lamoureux that the discussions were ceremonial. (8/31/05 Tr. 99). (ii) The Argument That Reno And Electromega Did Not Discuss The Model C Until After The Critical Date
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Throughout the case, Reno also tried to argue that it and Electromega were not discussing what became the Model C, but instead a different 222C product that Mr. Potter's previous company (Detector Systems Inc.) had sold. Indeed, in closing argument Reno's counsel argued the 222C detectors were "the thumbwheel detectors". (9/9/05 Tr. 48, 54). That was both false and misleading. Whatever product Electromega originally had in mind, Mr. Potter made clear throughout that he was offering a 222-class vehicle detector containing an LCD display--
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i.e., a product that embodied the patented invention. His February 21, 1996 letter stated in black and white: "The new designs incorporate custom components such as liquid crystal displays, etc. Needless to say the new designs are very advanced from the earlier designs produced at DSI." (Trial Exhibit 38.) On the stand, Mr. Potter admitted that "the new design [they] were working on" "incorporated the liquid crystal display" and "later became known as the [M]odel C." (8/31/05 Tr. 85.) Thus, when the February 21, 1996 letter referred to "222 detectors," Mr. Potter admittedly meant what became the Model C--the admitted embodiment of the patent. (Id. at 86.) Indeed, despite Mr. Potter's
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continued attempts to obfuscate the truth, at trial, when faced with the clear, unambiguous documentary evidence, he ultimately agreed: 13 14 15 16 Q When you talk about production quantities available in mid July, the quantities you're referring to are quantities of the Model C detector, subject to your patent, right? A Yes.
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(8/31/05 Tr. 140) (iii) The Argument That Reno Could Not Fill The February 1996 Purchase Order Because It Had A TBA Price Listed

Reno argued that the Purchase Order couldn't be filled because the price was listed as TBA, notwithstanding the fact that Reno and Mr. Potter had a course of dealing under which Reno would sell to Electromega on purchase orders with TBA pricing. Initially, Mr. Potter represented to the court and jury that such pricing terms were not "normal": 8 9 10 11 12 13 14 Q Now, I notice that this Purchase Order in the pricing column says "TBA." Do you see that? A Yes. Q Is it normal in your experience in the sale of vehicle detectors, the commercial transactions that you've entered into, that a buyer commits to buy 200 units at a TBA price? A Absolutely not.

*** 23 When you saw this Purchase Order, Mr. Potter, did you
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24 believe that Mr. Lamoureux intended to commit to buy 200 Model 25 222-C detectors at a TBA price? UNITED STATES DISTRICT COURT 163 A No. Q Why not? A Well, we hadn't agreed on any price. He wasn't going to do -- if we took this order, there was no agreed-to price. He was not to be obligated to take anything under this.

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(8/31/05 Tr. 162-63) But in actuality, again, when confronted with the clear contradictory documentary evidence, Mr. Potter was forced to again admit that he was not truthful in his previous testimony: 8 Q BY MR. SEITZ: You were asked about pricing. And we had some discussion 9 about a TBA price. And I think you said, Geez, you would 10 never make a deal on a TBA price, right, to be announced, 11 true? 12 A Right. 13 Q Do you have Exhibit 258 up there still, sir? **** 16 ***** 23 Q BY MR. SEITZ: Just to refresh our memory, this was the 24 August 12th, 1996, letter are from Electromega to which was 25 attached some Purchase Orders? UNITED STATES DISTRICT COURT 228 1 2 3 4 5 6 7 8 9
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THE WITNESS: Yes, I have 258 here.

A Yes. Q All right. And these are Purchase Orders that you say you accepted and filled, true? A That's correct. Q Look at the last page, would you, sir. If I can blow it up a little bit here. What's the price per unit there? A We hadn't decided at that point. Q T-B-A. Right? A Uh-huh. To be agreed.
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24 Q Sir, my question was a little bit different. Isn't it 25 true that on occasion with Mr. Lamoureux, your good friend, UNITED STATES DISTRICT COURT 229 1 who you had done business with for a long time, you would do 2 deals on a TBA basis? 3 A Yes. (8/31/05 Tr. 227-229) (iv) The Argument That Electromega Cancelled The February 1996 Order That Reno Ultimately Fulfilled
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Relatedly, Reno made the equally frivolous argument that Electromega cancelled its purchase order for "222C" parts and did not order the Model C until August 1996, after
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the critical date. To begin with, that argument revealed how preposterous was Reno's
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first-line argument that the purchase order and counteroffer were "ceremonial": why
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would anyone cancel a ceremonial offer?
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In any event, Reno's argument that the purchase order was canceled was entirely
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contrived. There was absolutely no documentation to support any cancellation as Mr.
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Potter admitted. (8/31/05 Tr. 99.)
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Indeed, Reno's own shipping invoices for 100 Model C Detectors on October 17,
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1996 and another 100 Model C Detectors on October 25, 1996 stated on their faces that
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the product was being shipped pursuant to the February 20, 1996 purchase orders.
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(Exhibit 70.) Those shipping invoices conclusively demonstrated that Electromega's
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February purchase order was never canceled, but in fact was filled. Reno tried to argue
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that the October deliveries were made in response to August purchase orders. But that
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directly contradicted Mr. Potter's admission--when faced with overwhelming
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documentary evidence--that the August purchase orders arose out of the parties'
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agreement to substitute Model C Detectors for the "292" detectors separately mentioned
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in the February purchase order. (8/31/05 Tr. 107; Trial Exhibits 34, 61.)
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In short, the evidentiary trail conclusively showed that Reno's arguments were baseless and that Mr. Potter lied repeatedly to keep this case alive. C. Reno's Bogus Arguments That The Claimed Invention Was Not Ready For Patenting

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Reno's arguments that the claimed invention was not "ready for patenting" when Reno offered it for sale were even more frivolous. The overwhelming evidence (both testimonial and documentary) was that Reno had conceived of incorporating a visual display into a vehicle detector by late 1995, had ordered and received detailed engineering drawings of the visual display by January 1996, and had described the functionality of its forthcoming product in Model C Documentation dated February 1996. (See, e.g., 8/31/05 Tr. 113, 129, 238; Trial Exhibits 23, 51, 56, 178.) Reno knew that the display was "100% functional" before the critical date in April 1996 and that only "small minor design changes" were needed on the circuit board at that point. (Trial Exhibit 35.) In response, Reno threw up smoke by arguing that it did not reduce the invention to practice before the critical date and that it had no product ready to sell at that time. As Reno well knew, however, those excuses were not legally legitimate. The Supreme Court definitively settled the point in Pfaff, 525 U.S. at 67, when it held that for the on-sale bar to apply, an invention need only be "ready for patenting"--not "reduced to practice" or "ready for sale." Likewise, Federal Circuit case law had long made clear that further refinement of the commercial product embodying the invention is irrelevant to whether the claimed invention itself was on sale. See, e.g., Weatherchem Corp. v. J.L. Clark, Inc., 163 F.3d 1326, 1334 (Fed. Cir. 1998); STX, LLC v. Brine, Inc., 211 F.3d 588, 591 (Fed. Cir. 2000). Worse, in trying to sell those legally illegitimate excuses to the jury, Mr. Potter boldfacedly contradicted his April 1996 letter stating that the Model C needed only minor design changes before production started: 17 Q BY MR. SEITZ: My question, sir, is isn't it true that as 18 of April 22, 1996, you only had some small minor design
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19 changes on the circuit board to make before production 20 started? 21 A That's not true.

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Q So when you wrote in this letter, and I'm quoting, "We have some small, minor design changes on the circuit board to make before production starts," that was, in fact, a false statement, is that what you're saying?

1 A Well, we could build circuit boards, but we wouldn't have 2 a product. 3 Q Sir, is that statement in this letter true or is it false?

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4 A If you are including it to mean an operational product, 5 it's not true. 6 Q So that's a false statement, right? 7 A Yes, on that basis. 8 Q Okay. So you wrote on April 22, 1996, to your good friend 9 and business associate Alain Lamoureux a letter that included 10 a false statement, true? 11 A If you -- if this is to include an operational product 12 which is implied by saying "production starts," then it's not 13 true. 14 Q I'm sorry, Mr. Potter. You wrote this letter, didn't you? 15 A Yes. 16 Q Is that statement true or is it false? 17 18 19 20 21 22 A We could produce -- we had anticipated we could produce circuit boards sometime in the near future. However, we could never verify the design until we had software, which was not -- as it turns out, was not finished -- even the first demonstration version of the software was not available until August.

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23 Q I understand that, sir. False or true? One or the other?
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24 A False.
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(8/31/05 Tr. 133-134.)

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Of course the jury did not believe Mr. Potter. But the fact remains: Eberle was forced to defend against a frivolous claim belied by Reno's own documents. D. Eberle Has Been Severely Damaged And Is Entitled To A Fee Award
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Eberle has been seriously damaged by Reno's unfounded litigation. Reno never
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should have brought its infringement claim. But even if it somehow "forgot" the relevant
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evidence when bringing suit, it should have dismissed the suit voluntarily once the
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evidence surfaced in discovery. Instead, Reno concocted specious defenses and
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maintained them through dispositive motions and trial.
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Patent litigation is extremely costly. Fees and costs through trial typically exceed a
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million dollars. In that respect, this case is not exceptional. Eberle has spent well over a
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million dollars in legal fees and non-taxable expenses. Eberle is continuing to incur
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additional fees and cost in connection with post-trial motions, and an appeal is anticipated.
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Moreover, all of that excludes the literally thousands of hours of time that Eberle
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personnel have had to devote to the defense of Reno's claim. The only way to
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compensate Eberle, and to deter Reno and others like it, is to award Eberle its reasonable
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fees and expenses as 35 U.S.C. § 285 contemplates.
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By its Motion for Attorneys' Fees and Related Non-Taxable Expenses, Eberle
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seeks to recover all sums that Eberle has incurred in preparation for and performance of
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legal services related to this case, the Nevada case (which ultimately consolidated with
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this case), including those fees and expenses incurred in connection with post-trial
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activities. See Central Soya Co., Inc. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578
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(Fed. Cir. 1983).
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Eberle further seeks recovery of expert witness fees incurred in

connection
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with its defense of Reno's baseless claims. Mathis, 857 F.2d at 759. DATED this 5th day of December, 2005.
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SNELL & WILMER L.L.P. By: /s/ Charles F. Hauff, Jr. Charles F. Hauff, Jr. Douglas W. Seitz Attorneys for Plaintiff/Counterdefendants Eberle Design, Inc. and Electronic Devices, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on December 5, 2005, I electronically transmitted the foregoing Eberle's Memorandum in Support of Motion for Award of Attorneys' Fees and Related Non-Taxable Expenses to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF participants. Michael D. Rounds, Esq. WATSON & ROUNDS 5371 Kietzke Lane Reno, Nevada 89511 Henry C. Bunsow, Esq. HOWREY, SIMON, ARNOLD & WHITE 525 Market Street Suite 3600 San Francisco, CA 94105 George C. Chen, Esq. BRYAN CAVE Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406 DATED this 5th day of December, 2005. SNELL & WILMER L.L.P. By: /s/ Charles F. Hauff, Jr. Charles F. Hauff, Jr. Douglas W. Seitz Attorneys for Plaintiff/Counterdefendants Eberle Design, Inc. and Electronic Devices, Inc.

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