Court Allows Summoned Attorneys to Be Represented by Counsel, and Grants Extension for Hearing on Order to Show Cause Why Sanctions Should Not Be Imposed
Qualcomm Inc. v. Broadcom Corp., No. 05-CV-1958-B (BLM), United States District Court for the Southern District of California
The lawyers who represented Qualcomm in this unsuccessful patent litigation, who on August 13, 2007 were ordered to appear today to show cause (“OSC”) why sanctions should not be imposed against them for failure to comply with the Court’s orders, will not be appearing in court today after all. Magistrate Judge Barbara Lynn Major has granted the lawyers’ applications to extend the August 22, 2007 filing date for declarations regarding the imposition of sanctions and the August 29, 2007 OSC hearing date. In their applications, the lawyers acknowledged that the “OSC raises complex and very serious issues that potentially impact the legal careers of the lawyers who are the subject of the OSC,” and explained that additional time was needed to get the lawyers’ newly-hired attorneys up to speed on the record and the issues, and adequately prepare for the OSC. Finding that good cause was shown, the Court granted the applications and extended the deadline for filing declarations to Friday, September 21, 2007, and moved the hearing date to Friday, October 12, 2007 at 9:30 a.m.
In related rulings, Magistrate Judge Major agreed to allow the lawyers to be represented by their own counsel for purposes of responding to the OSC. The HellerErhman lawyers will be represented by Kirby Noonan Lance & Hoge LLP of San Diego, and the lawyers from Day Casebeer Madrid & Batchelder will be represented by Shartsis Friese LLP of San Francisco.
As noted in our August 13, 2007 post, the Order to Show Cause was issued days after District Court Judge Rudi M. Brewster entered a 54-page Order on Remedy for Finding of Waiver. There, the District Judge found “by clear and convincing evidence that Qualcomm[’s] counsel participated in an organized program of litigation misconduct and concealment throughout discovery, trial, and post-trial before new counsel took over lead role in the case on April 27, 2007.” Among other things, the Court highlighted Qualcomm’s production of over 200,000 pages of highly relevant emails and electronic documents four months post-trial.
Background of the Underlying Litigation
Qualcomm filed this litigation in October 2005, and a jury trial was held in January 2007. The jury unanimously returned a verdict in favor of Broadcom and against Qualcomm of non-infringement of the ‘104 and ‘767 patents. The jury also unanimously returned an advisory verdict on the equitable issues: (1) finding by clear and convincing evidence in favor of Broadcom and against Qualcomm that the ‘104 patent is unenforceable due to inequitable conduct; and (2) finding by clear and convincing evidence in favor of Broadcom and against Qualcomm that the ‘104 and ‘767 patents are unenforceable due to waiver.
One of the major issues in the case was Qualcomm’s membership and participation in a standards-setting organization called the “Joint Video Team.” The JVT was created to enhance standard video coding performance in the face of limited bandwith or storage capacity. Standards organizations like the JVT pool resources to efficiently create universal technology standards for the benefit of (1) the world through the advancement of technology and (2) companies worldwide such as Qualcomm through greater cross-platform product compatibility and therefore revenue. The Court noted that Qualcomm paid hundreds of thousands of dollars to reap the benefits of JVT membership, including the entitlement to actively participate in the JVT and the creation of a particular standard known as the “H.264 standard.” (Order on Remedy, p. 7.)
Members of the JVT were expected to disclose any intellectual property rights associated with any standardization proposal, and form submissions were to be made on a “best effort, good faith basis,” with the intent being that the JVT experts should know in advance any patent issues with particular proposals or techniques, so that these may be addressed in advance of final approval. If the submitter had a patent “associated with the technical content” of the standard being created by the JVT, the submitter was required to indicate on a special disclosure form whether it will: (1) grant royalty-free licenses to practice the patent; (2) grant licenses “on a worldwide, non-discriminatory basis and on reasonable terms and conditions”; (3) grant royalty-free licenses on the condition that all other patent holders do the same; or (4) not grant any of the aforementioned licenses, in which case the standard will be designed so as not to cover the patent. (Order on Remedy, pp. 7-8.)
Here, the Court found that, instead of disclosing the ‘104 and ‘767 patents to the JVT and offering to license them royalty-free or under non-discriminatory, reasonable terms during the development phase of the JVT work on the H.264 standard, Qualcomm closely monitored and participated in the development of the H.264 standard, all the while concealing the existence of at least two patents it believed were likely to be essential to the practice of the standard, until after the development was completed and the standard was published internationally. “Then, without any prior letter, email, telephone call, or even a smoke signal, let alone attempt to license Broadcom, Qualcomm filed the instant lawsuit against Broadcom for infringement of the ‘104 and ‘767 patents, seeking damages and permanent injunction against Broadcom based on its development and manufacture of H.264 compliant products.” (Order on Remedy, p. 9.) The Court found that Qualcomm had sought to unfairly benefit from having subverted the standards-making process of the JVT, and waived its right to enforce the patents-in-suit.
In February 2007, the Court held an evidentiary hearing on the equitable issues of inequitable conduct and waiver. In March 2007, the Court entered an Order: (1) finding in favor of Qualcomm and against Broadcom on Broadcom’s counterclaim of inequitable conduct as to the ‘104 patent; (2) finding in favor of Broadcom and against Qualcomm on Broadcom’s affirmative defense that the ‘104 and ‘767 patents are unenforceable due to waiver based on Qualcomm’s conduct before the Joint Video Team (“JVT”), the standards-setting body that created the H.264 standard; and (3) setting a hearing to address what the appropriate remedy for Qualcomm’s waiver should be.
Post-Trial Production of Relevant ESI
After the verdict was entered, Broadcom again demanded discovery of Qualcomm’s records whose existence was only revealed during Broadcom’s cross-examination of a Qualcomm witness on one of the last days of trial. These 21 electronic documents were just “the tip of the iceberg.” (Order on Remedy, p. 47.) “Thereafter, after over three more months of denials, refusals, and opposition, Qualcomm reversed its position, allegedly to avoid further dispute over the matter, and produced on April 13, 2007, over 110,000 pages of emails, company correspondence, and memoranda, and on May 15, 2007, over 120,000 more pages . . .” (Order on Remedy, p. 3.) According to the Court, the documents unequivocally contradicted Qualcomm’s prior assertions at trial that Qualcomm had not participated in the JVT until after May 2003. Indeed, the belatedly produced electronic documents made it clear that Qualcomm had participated in the JVT as early as January 2002.
The Court noted that it had already found that Qualcomm waived its rights to enforce the ‘104 and ‘767 patents against Broadcom by its silence when it had a duty to speak before the JVT. It continued:
However, faced with the additional evidence produced post-trial by Qualcomm, the Court concludes that the conduct of Qualcomm’s employees before trial, and its employees and hired witnesses during pre-trial, trial, and post-trial outlines misconduct even more extensive than the Court previously found in its March 21 Order. Merely the reiteration of the chronology of events above and below tells the story of the gravity of the conduct. The facts speak for themselves. The totality of the circumstances leads the Court to conclude by clear and convincing evidence that Qualcomm intentionally organized a plan of action to shield the ‘104 and ‘767 patents from consideration by the JVT with the anticipation that (1) the resulting H.264 standard would infringe those patents and (2) Qualcomm would then have an opportunity to be an indispensable licensor to anyone in the world seeking to produce an H.264-compliant product.
The track of this conduct following the adoption of the H.264 standard exposes aggravated litigation abuse. This abuse commenced with Qualcomm’s abrupt commencement of suit, then continued (1) in discovery through Qualcomm’s constant stonewalling, concealment, and repeated misrepresentations concerning existing corporate documentary evidence that would have revealed the fullness of the corporate plan; and (2) in trial through Qualcomm’s presentation of numerous witnesses who steadfastly testified falsely denying even awareness, let alone participation in the JVT project and through the actions of Qualcomm’s lead and co-counsel up to the time Qualcomm substituted new lead counsel, who adamantly denied the obvious and then, when the truth was discovered and exposed by the document production, sequentially contended denial of relevance, justification, mistake, and finally non-awareness.
(Order on Remedy, pp. 21-22.)
“Gross Litigation Misconduct”
The Court stated that the finding of misconduct by Qualcomm was “further supported by evidence of widespread and undeniable misconduct of Qualcomm, its employees, and its witnesses throughout the present litigation, including during discovery, pre-trial motions practice, trial, and post-trial proceedings.” (Order on Remedy, 24-25.) It cited several examples of the conflicting deposition and trial testimony and the email evidence, and detailed the misconduct of Qualcomm’s counsel, finding by clear and convincing evidence that “Qualcomm counsel participated in an organized program of litigation misconduct and concealment throughout discovery, trial, and post-trial before new counsel took over lead role in the case on April 27, 2007.” (Order on Remedy, p. 32.) The Court found that supplemental discovery responses were “calculatedly misleading and totally false.” It continued:
Qualcomm counsel’s discovery responses demonstrate that they were able to locate with alacrity company records from December 2003 forward and find four or more Qualcomm employees participating in proceedings of the JVT. Yet inexplicably, they were unable to find over 200,000 pages of relevant emails, memoranda, and other company documents, hundreds of pages of which explicitly document massive participation in JVT proceedings since at least January 2002. These examples of Qualcomm counsel’s indefensible discovery conduct belie counsel’s later implied protestation of having been “kept in the dark” by their client.
(Order on Remedy, at 38.) The Court further described Qualcomm’s inadequate search for documents:
As stated above, these twenty-one emails [revealed at trial] were just a hint of the over two hundred thousand pages of emails and electronic documents that were finally produced four months after trial containing direct evidence that multiple representatives of Qualcomm participated in the JVT from the beginning, and that multiple Qualcomm witnesses knew of this participation even as they testified to the contrary at deposition and trial. However, before this production occurred and even after the discovery of the twenty-one emails in Ms. Raveendran’s email archive, Qualcomm counsel continued to insist that they had conducted a reasonable search for responsive documents during discovery and that the twenty-one emails were not responsive because they were irrelevant.
The Court noted that Broadcom had correctly rejected Qualcomm counsel’s continuing insistence that Qualcomm had already conducted a reasonable search for responsive documents with negative result, and requested that Qualcomm perform searches for nine key phrases in the email archives of 12 key Qualcomm employees. Only after Broadcom threatened to involve the court, did Qualcomm finally agree to search the emails of the nine witnesses for basic search terms, including “JVT,” “Joint Video Team,” “AVC,” “Advanced Video Coding,” “H.264,” “H264,” “MPEG-4 Part 10,” “MPEG4 Part 10,” and “Gary Sullivan.” About this, the Court stated: “The Court finds it incredible that Qualcomm never conducted such an obvious search for these key terms in the email archives of these key Qualcomm witnesses during the many months of discovery that occurred before trial, since Broadcom clearly had requested all of it and more.” (Order on Remedy, p. 51.)
Consequences
In addition to losing the patent litigation it brought, Qualcomm will suffer other negative consequences as a result of the “gross litigation misconduct” that occurred in this case. Judge Brewster granted Broadcom’s Motion for Exceptional Case Finding and for an Award of Attorneys’ Fees, and ordered Broadcom to complete “an itemized detailed list of all fees and costs, including such information as whether the bill was paid, work description, date, identification of person working, billing rate, and the number of hours spent on each work project, so that the bill may be fairly reviewed by Qualcomm, and if necessary, a hearing held to resolve any disagreements over the claimed bill.” Broadcom must file its requested statement of expenses on or before August 31, 2007; Qualcomm shall file objections, if any, on or before September 14, 2007. Any hearing on the fees would take place before Magistrate Judge Major. News reports estimate that Broadcom’s legal expenses could be as high as $10 million.
Broadcom has also filed a Bill of Costs seeking over $200,000 in litigation costs. Qualcomm’s opposition, if any, is due on August 31, and hearing is set for September 5, 2007.
Other potential repercussions await Qualcomm’s former lawyers. Magistrate Judge Major has indicated in her Order to Show Cause Why Sanctions Should Not Be Imposed that she is inclined to consider the imposition of any and all appropriate sanctions on Qualcomm’s former lawyers, including but not limited to, monetary sanctions, continuing legal education, referral to the California State Bar for appropriate investigation and possible sanctions, and counsel’s formal disclosure of this Court’s findings to all current clients and any courts in which counsel is admitted or has litigation currently pending. As noted above, hearing on the OSC is now scheduled to take place on October 12, 2007.