IP Firm’s Appeal of $9M Malpractice Verdict is Denied, Part II of III

Editor’s note: this post was originally published on 10/26/2015. It has been updated to reflect recent developments, and divided into three parts for easier reading. This is part II. Part I  Part III

Trial

After almost three more years of litigation, a jury trial was held in July and August, 2014.

Two days before the trial ended, ATS&K dropped its third-party claims against Kathy Worthington, and D&S and John Ginley.

On August 14, the jury awarded Protostorm $6,975,000 in compensatory damages, apportioning the fault among ATS&K (75%), Brundidge (15%), Bailey (6%), and Protostorm (4%). It also awarded Protostorm $900,000 in punitive damages against ATS&K, and $100,000 against Brundidge. 

Post-Trial Activity
2014

October: ATS&K, Bailey, and Brundidge notified the Court that they intended to file a motion to set aside the jury verdict, pursuant to Federal Rule of Civil Procedure 50(b).

Oct. 8: Following motions on whether or not the damages apportioned to ATS&K attorneys Brundidge (15%) and Bailey (6%) should be assigned to ATS&K, the Court ruled that they should be.

Oct. 29: with Protostorm concerned about its ability to collect its jury award, the Court issued an order prohibiting ATS&K from paying expenses beyond “operating expenses incurred in the ordinary course of business…as well as a draw for each equity partner in the amount of $12,000.00 per month.”

2015

February 5th: the Court entered an amended judgment for Protostorm against ATS&K, for $6,696,000 in compensatory damages, $900,000 in punitive damages, $1,050,720.60 in pre-judgment interest, and post-judgment interest as applicable, and against Brundidge for $100,000 in punitive damages. The compensatory damages award was 4% less than the amount awarded at trial, because the jury had found Protostorm 4% at fault.

The Court stayed enforcement of the judgment, pending its ruling on defendants’ 50(b) motion.

June 1st: ATS&K informed Protostorm that it had “ceased performing legal services as of April 30, 2015”, although it maintained limited operations.

 Post-Trial Motion to Set Aside the Verdict

Defendants 50(b) motion argued that Protostorm couldn’t show patentability under 35 U.S.C. §§ 101 and 103, which it had to do to establish proximate cause, and it failed to prove its damages.

Under Section 101 “[w]hoever invents or discovers any new and useful process, machine”, etc., “may obtain a patent therefore…” However, defendants claimed that Protostorm’s invention – selecting advertising based on a customer’s interaction with an advertiser’s content – was an abstract concept that was unpatentable, because the U.S. Supreme Court had ruled in Alice Corp. Pty, Ltd. v. CLS Bank International, 134 S.Ct. 2347 (2014), that “an abstract idea…that merely (requires) generic computer implementation” wasn’t a patent-eligible invention.

Defendants also contended that Protostorm failed to establish that its invention wasn’t “obvious”, as required under § 103.

Ruling on Motion

The Court ruled on defendants’ 50(b) motion on June 5, 2015.

Judge Chen ruled that ATS&K was “procedurally barred” from arguing that Protostorm couldn’t show patentability under 35 U.S.C. §§ 101 and 103, and that it failed to prove its damages, because the firm didn’t raise those arguments in its Rule 50(a) motion.

“Although Defendants’ oral Rule 50(a) motions at trial challenged the patentability of   the Protostorm invention, the grounds stated by their trial counsel were altogether dif-  ferent from the Section 101 and 103 arguments raised in the Rule 50(b) motion…Accordingly, the Court holds that Defendants’ Rule 50(a) motions…did not supply a   sufficient predicate for (their) Rule 50(b) motions”.

She also ruled that “Defendants (forfeited) the arguments” that they failed to raise in their Rule 50(a) motions:

Their Section 101 Non−Patentability Argument

Defendants claim that Protostorm’s invention “is directed at an ‘unpatentable market-ing concept’ under post-Alice case law”, but fail to explain why they didn’t raise the Alice argument before or during trial.

“Furthermore, Alice did not, as ATS&K (claims), announce a previously unknown   framework for analyzing patent eligibility under Section 101. The Supreme Court’s   analysis in Alice builds on prior (cases), including Bilski… in which the Court held that  a method for hedging the risk of changing energy prices was too abstract a concept to   be patentable, and Mayo… in which the Court decided that a patent claim to a method   of medical diagnosis was directed at ‘natural law’ and that a step that merely said   ‘apply it’ was, without ‘significantly more’, ineligible for a patent…Bilski and Mayo were decided in 2010 and 2012, respectively, and Alice was decided a month before trial, (so) there was no reason that Defendants could not have raised its Section 101 argument before the case was submitted to the jury.”

ATS&K also argued that “because patent eligibility is a pure question of law”, i.e., it can be decided by referring to the language of the hypothetical claims alone, “there were no additional facts that Protostorm could have presented at trial to remedy deficiencies in its proof on causation and patent eligibility, and therefore Protostorm is not prejudiced” by ATS&K raising it for the first time in its Rule 50(b) motion.

The judge rejected that argument, ruling that:

“While the question of whether a claim is directed at patent−eligible subject matter is   one of law, that determination will often entail the resolution of underlying factual questions…Here, the parties disputed (via experts) how Protostorm’s claims should have been formulated in its patent application and how (they) might have evolved during the patent examination process…(Further), because the jury returned a verdict in Protostorm’s favor, the Court assumes that at least one valid and enforceable patent would have been issued based on the hypothetical claims drafted by Protostorm’s expert…Thus, the question (now) is whether the Court can decide, as a matter of law based on the evidence adduced at trial, that none of Protostorm’s hypothetical claims would survive the Mayo/Alice patentability test…”

She stated that the trial record was insufficient for the Court to decide the issue, and expert testimony was needed to determine if “the computer interactions described in the Protostorm claims were considered ‘well−understood, routine, conventional activity’” from 2001 – 2006, when the PTO would’ve examined them. “Protostorm would be prejudiced by not having had the opportunity to adduce additional evidence in response to Defendants’ belated patent eligibility argument.” Since patent eligibility isn’t “a purely legal matter, Defendants’ failure to raise it in a pre−trial motion prevents them from raising it in this Rule 50(b) motion.”

In a footnote, she added that even if the Court ruled that Defendants didn’t forfeit their patent-eligibility argument, applying Alice “to the time of the patent examination, i.e., 2001-2006, is problematic”. ATS&K cited cases noting that judicial interpretations of federal law must be applied retroactively, and thus contended that Alice would have applied during that time period, but:

“…the Court reiterates…that patentability is assessed with the criteria applied during    examination…Indeed, the Federal Circuit has recognized that prior to Mayo and Alice,  ‘a computer−implemented invention was considered patent−eligible (if) it produced a   useful, concrete and tangible result.’…Unlike a patent infringement case, in which an   alleged infringer may challenge the patent as now ineligible under Alice… Protostorm   claimed that but for Defendants’ malpractice, (its) invention would have been examined by a PTO patent examiner between 2001 and 2006, and that one patent would have issued by June 2006well before Bilski, Mayo, Alice… were decided… Even if the patent (was) invalidated in a later infringement action under Alice…Protostorm would still be entitled to any royalty income (it) earned until then…”

Their Section 103 Non−Patentability Argument

“Defendants’ oral Rule 50(a) motions failed to specifically raise, and therefore preserve, (their) Rule 50(b) argument” that Protostorm failed to establish patentability, because its expert’s testimony concerning non-obviousness under Section 103 was “conclusory and without detail”, i.e., insufficient.

“Although ATS&K contends that its Rule 50(a) motion raised the issue, (it) only argued  that prior art anticipated the hypothetical claims… (However) anticipation and obviousness are distinct issues that require separate analyses, and raising one issue in a pre−verdict Rule 50 motion is insufficient to preserve the other for a post−trial motion.”

If ATS&K had presented the “obviousness” argument at trial, Protostorm would’ve had a chance to rebut it. “ATS&K’s failure to do so thus prejudiced Protostorm. Accordingly, the Court cannot consider” the argument.

These aspects of ATS&K’s 50(b) motion weren’t procedurally barred:

  • Protostorm failed to meet its burden to show patentability under Section 102, because its expert’s testimony failed to rebut the testimony of Defendants’ expert that Protostorm’s invention was anticipated by prior art.
  • The evidence didn’t prove that ATS&K was responsible for drafting the final patent application, i.e., it had no duty to draft the hypothetical claims put forth by plaintiff’s expert, the firm filed the patent application, but wasn’t responsible for prosecuting it, and its attorney-client relationship with Protostorm ended in late 2001.
  • It was entitled to judgment as a matter of law on the statute of limitations defense, because there was no evidence that Protostorm had a reasonable expectation of representation after 2001, i.e., there was no continuous representation.
  • The award of punitive damages was improper, because there was no showing of malicious or willful intent.

Judge Chen ruled:

“…the Court is compelled to deny the motions unless, when viewing all of the evidence in the light most favorable to the plaintiff, there is ‘such a complete absence of evidence   supporting the verdict,…or the evidence in favor of the movant is so overwhelming that reasonable and fair−minded persons could not arrive at a verdict against it.’ This stringent standard has not been met here.”

She thus denied ATS&K’s request to set aside the verdict, and refused to hear any mo-tion to reconsider her order.

Shortly thereafter, the Court also vacated its stay on enforcing the judgment.

Further Activity
2015

July: ATS&K filed a Notice of Appeal.

Continued in Part III.

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About Curtis Cooper

Curtis Cooper is principal of Lawyers Insurance Group – Broker For Great Law Firms, which helps attorneys optimize their malpractice coverage. Contact him by phone: (202) 802-6415, or email: ccooper “at” lawyersinsurer.com.