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California District Court Strikes at “Patent Trolling”

By Tyler Lacey – Edited by Amanda Rice
Diagnostic Systems Corp. v. Symantec Corp., June 5, 2009, No. SACV 06-1211 DOC (ANx) consolidated with No. SACV 07-960 DOC (ANx). Opinion

The United States District Court for the Central District of California granted in part defendant MicroStrategy’s motion requesting a more detailed statement of how its software products infringe on plaintiff Diagnostic Systems Corporation’s (“DSC”) patents, denying only MicroStrategy’s request for monetary sanctions.

The United States District Court for the Central District of California held that DSC must serve a supplemental answer to one of MicroStrategy’s interrogatories that includes more detailed Preliminary Infringement Contentions (“PICs”) within fifteen days. In so holding, the district court called DSC’s current PICs “vague” and “unacceptable,” especially given DSC’s status “as a company whose sole business is to enforce its patents.” MicroStrategy had given DSC’s software consultants copies of the allegedly infringing programs’ source code almost a year prior to the motion, but DSC had still failed “to provide PICs that explain how MicroStrategy’s source code infringes on the claims of DSC.” According to the court, the “bottom line” is that “after a plaintiff-patentee has had a reasonable opportunity to review the source code for the defendant’s accused software product, the patentee’s time for trolling the proverbial waters for a theory of infringement comes to an end.”

Peter Zurba provides an overview of the decision.

DSC originally served MicroStrategy with PICs identifying eight of MicroStrategy’s software products as infringing its patents in April, 2008, and has been reviewing the source code of those products since June, 2008. However, as early as June, 2007, before DSC had obtained the source code, DSC was ordered to provide “definitive” claims so that it could not open “Pandora’s box” and then afterwards decide precisely what infringements to file. Because DSC had not provided sufficiently definitive PICs, Mictrostrategy moved under Federal Rules of Civil Procedure Rules 26 and 37 for DSC to provide more detailed claims. The court describes MicroStrategy’s motion as a strategy designed to force DSC to immediately identify the exact manner in which its products infringe on DSC’s patents pursuant to Rule 26, or be prohibited by Rule 37 from later adding infringements that are not identified in the new PICs. Rule 37(c)(1) provides that “[i]f a party fails to provide information . . . required by Rule 26(a) or 26(e), the party is not allowed to use that information . . . to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.”

DSC is a wholly-owned subsidiary of Acacia Research Corporation (“Acacia”). Acacia’s website states that its subsidiaries “develop, acquire, and license patented technologies” and boasts that it “controls over 100 patent portfolios covering technologies used in a wide variety of industries.” Law.com’s Xenia P. Kobylarz reported in 2007 that Acacia has had trouble with its reputation and has been derided as a “patent troll,” but its success demonstrates that IP licensing has become a big business. According to Kobylarz, “Acacia’s licensing partners turn over all IP rights to Acacia and receive half of any licensing revenue generated from those patents,” giving it a unique business model that insulates its affiliates from countersuits. The Electronic Frontier Foundation has made Acacia part of its “Patent Busting Project,” listing a “laughably broad patent” and an “[i]nfringement campaign [that] threatens to chill freedom of expression” as two of Acacia’s several “[c]rimes against the public domain.”

This case is significant because it makes the practice of exploratory software patent litigation much more difficult. No longer will a company like DSC be able to easily obtain source code for potentially infringing products and then, after inspecting the otherwise-unavailable code for an extended time, identify specific infringements and bring them before the court. Now, a patent holder must develop a more concrete infringement theory before beginning litigation, or face successful motions like MicroStrategy’s that will force their hand.

Posted On Jun - 22 - 2009 Comments Off

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