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Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 1 of 43 PageID #: 3031

IN THE U ITED STATES DISTRJCT COURT


FOR THE DISTRJCT OF DELAWARE

PRINCETO DIGIT Al IMAGE


CORPORATIO ,
Plaintiff,
v.

REDACTED PUBLIC VERSION


ISSUED 3/31/16

)
)
)
)
)
)

C.A. o. 13-239

OFFICE DEPOT INC. ,


)
Defendant.

PRINCETON DIGIT AL IMAGE


CORPORATION
Plaintiff.

)
)

)
)
)

C.A.

v.

o. 13-287

J.C. PENNEY COMPANY INC.

)
)

Defendant.

PRINCETON DIGIT AL IMAGE


CORPORATIO .

)
}

)
Plaintiff,

QVC INC.,
Defendant.

)
)
)
)
)
)

C.A. No. 13-288

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 2 of 43 PageID #: 3032

PRINCETON DIGIT AL IMAGE


CORPORATl ON,
Plaintiff.
v.

)
)
)
)

C.A. No. 13-289

SEARS HOLDINGS COMPANY

)
)

Defendan t

PRINCETON DIGITAL IMAGE


CORPORATION.
Plaintiff,

)
)

)
)

v.

LIMITED BRAND , INC.


Defendant.

PRINCETON DIGITAL IMAGE


CORPORATION,
Plaintiff.

C.A. No. 13-326

)
)
)

)
)
)
)
)

C.A. No. 13-330

v
)
)

GAP INC.

Defendant.

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 3 of 43 PageID #: 3033

PRJNCETON DIG TTAL IMAGE


CORPORATION

)
)
)

Plaintiff,

v.

WTLLlAMS-SONOMA INC. ,

C.A. o. 13-331

)
)
)

Defendant.

PRINCETON DIGIT AL IMAGE


CORPORATION.
Plaintiff,

)
)

)
)
)

C.A. No. 13-404

COSTCO WHOLESALE CORP .


Defendant.

PRINCETO DIGITAL IMAGE


CORPORA TIO ,

)
)
)

)
)
)

Plaintiff,
v.

NORDSTROM.COM LLC,
ORDSTROM.COM INC., and
NORDSTROM INC.,
Defendants.

)
)
)
)
)
)
)
)

C.A .

o. 1 -40

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 4 of 43 PageID #: 3034

ean T. 0 Kelly, George Pazuniak. Daniel P. Murray, 0 KELLY. ERN T. & BlliLLl, LLC.
Wilmington DE

Coun el for Plaintiff Princeton Digital Image Corporation.

Kenneth L. Dorsney, MORRl JAMES LLP Wilmington. DE

Tara D. Elliott. Rachel Weiner Cohen, WILMER C TLER PICKERING HALE AND DORR
LLP. Washington DC
Counsel for lntervenor Adobe Systems lncorporated.

MEMORANDUM OPJ ION

March 28. 2016


Wilmington, Delaware

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 5 of 43 PageID #: 3035

Several motions are pending b ore the

urt in th e multiple related patent ca es:

11 inti Pnnceton DigHal lmage orp rati n r'P I r .. rrin

11-4l D.J
( .I. 6 ) .

_ 1 r dobe

01ion to Dismi . ' _

Motion for ancti ns ').~

I.

n Counterclaim

.A . No.

. Renewed Motion for Sanction

PDI . M ti n t Dism i

lot rveod nof dobe D.1.6) PDIC"sMoti ntoDi mi


r Judgmenl n the Pleadings (D.1. 75) ('' d

Claim in

'). 5 and 4)Ad be CrossMoti n

e M ti n fi r Judgment n the Pleadings...

PDIC and Adobe entered into an a reement r d be icense" \ h reb.

P I duly lie n ed i
cu t mer .

. . Patent

~ general~\

o. 4. ' 13.0 6 (.. ,o- patenC t d be and

D L t _ Ex. ) The d

icen

do e's

in luded a co enant by PDIC not

un previously granted Ado mnihu Motion t Tnt rvene as a matter of right


-captt ned case pur uant to Rut 24(a (2) and permissively pursuant to Rule
e. e. .. C. . o. 13-404 D.l. 44
II d c et citations hereinafter are to C.A . N . I -4 4 unle s therwi e p cified.
c unterclaim, and th partie
filed id ntical motions seeking to dismi P I
es
u mitted identical briefing with re, pect to the e moti n . in all f the ab ~-captioned
except C.A. . I -408.
4

bmitted b th partie in aJI

bmitte

ldentical moti n and briefing were


cases with r pect t thi motion .
ldenti I m tion and briefing were
cases with re p t t Lhi m tion.

the

partie in all I th ab ve-captioned

"Idemic Im tion and briefing ere submitted b , th partie in all f the


L lO tbi m tion.
cases with r
1

ve-captioned

ve-capti ned

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 6 of 43 PageID #: 3036

to sue Adob 's customers for infiingement of the ' 056 patent b their use of Adobe ' s products.
(See id.)
[n

2 I 3. PDJ

Company, Inc .. QV

fi Jed the above-captioned lawsuits against Office Depot lnc .. J. . Penney


Inc .. Sears Holding Company. Limited Brands Inc., Gap Inc .. Williams-

Sonom Inc.. Co tco Wh le ale C rp., N rd trom.c m LLC.

rd trom.com In ., and

Nordstrom Inc . (collccti ely. De eodants '). As each of these De endants are Adobe customer ,
on

ovember 26. 2014 Ad be moved to intervene in these lawsuits. (D .I. I 0) Adobe argued that

it had a right to intervene due to it customers requests for indemnity under the Adobe License
and becau e of POI Cs refusal to .. engage in further di cussion with Adobe, which would be
neces ary to clarify and resolve" the lawsuits . See D.1 . 11 at 9. 11) The Cour1 granted Adobe
m tion to intervene on May 5, 2015 . See D.J . 44)
On May

2015, Adobe filed a c mplaint in intervention (D.I. 46) alleging I} breach of

contract ba ed on POI s infringement suit again t Defendants, which Adobe argued violated
the covenant not to sue Adobe ' s customers contained in the Adobe License. and 2) patent
misuse by PDIC for its assertion of the ' 056 patent. which Adobe characterized a an attempt to
"collect double ro alties' from Adobe' s cu tomers after already recei ing -

from Adobe

under the Adobe License. (See D.1. 46 at 8-9 On May 29. 2015 , PDJC filed an answer to
Adobes complaint in intervention and countercl im in all of the above-captioned actions, with
thee ception of C.A. No. 13-40 . (D.1. 50) PDICs counterclaim alleged breach of the implied

The nine ui ts which the Court is addres ing here are a ubset of the 51 related uit
PDIC filed in this District in 2012 and 201 . all assening infringement of the ' 056 patent.

PDlC did not respond to Adobe's complaint in C.A . o. 13-40 . Consequently. on


March 8, 2016. the Clerk of Court entered default against PDIC in that action. (See C.A . N . 13-

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 7 of 43 PageID #: 3037

covenant of good faith and fair dealing based on. among other things. Adobe' fajlure to
cooperate with PDJC in re olving questions about whether Defendants were licensed under the
Adobe License. See id. at 9-12)
Meanwhile. on January 14. 2015. while Adobes motion to intervene was pending before
the Court Adobe filed a motion for anctions again t PDJC. (D.J. 25 The C urt held a bearing
on Ma 5. 2015. at which it heard argument on the sanctions motion (as well as on Adobes
motion to intervene). (See 0.1. 51 (''20 15 Tr.'')) At the conclusion of the hearing the Court
denied Adobes motion for sanctions but without prejudice to Adobes opportunity to renew its
request for anctions after filing its complaint in intervention. (See DJ. 44: see al o D.l. 51 at
81-86 Th focus of Adobe' original motion for anctions was' hether PDJC's counsel bad
conducted an adequate pre-suit investigation in compliance with their obligations under Federal
Rule of Civil Procedure l I . On this issue, the ourt stated at the May 20 I 5 bearing:

. . . . J am not imposing sanctions at this point, but that denial is


very much without prejudice.

What i clear to me is that the conduct of plaintiff and


plaintiffs counsel is at least close to the line that Rule 11 requires
the Court to draw. What I can ' t r 11 today and what 1 think under
the circumstances I do not need to spend the time trying to decide
[todayl is which sid of that line plaintiff and plaintiff' counsel
fall [on] .
They may well ha e conducted a ju t barel_ adequate
investigation given all the facts and circumstances prior to suit.
They may ha e just enough to in good faith have continued with
these cases up to at lea t today. But !hey ery well ma_ not have.

408 D.1. 88) PDIC filed a motion to set aside default on March I I C.A .
which remains pending.
3

o. 13-40 D.l. 89

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 8 of 43 PageID #: 3038

(2015Tr.at 4)

On May 8 2015 Adobe filed its complaint in intervention against PDIC . (See D.I. 4
Thereafter betweenMa 19,2015(se ,e.g.. C.A.No.13-40 D.1.51 andJuly30,2015(see,

e.g. , D.f. 13-331 D.l 62), PDIC dismissed its claims against each of the Defendants in the abovecaptioned suits. (See , e.g.. D.l. 62) (JuJy 21. 2015 tipulati n of di mi al between PDIC and
Costco)
On August 21. _015. Adobe filed a renewed motion for sanctions. (D.I . 65)

dobe

renewed sanctions motion again contends that PDIC failed to conduct an adequate pre-suit
inve ligation before uing Defendants. (See D. l. 67 at I 0-13) It further allege that PDIC
maintained baseless litigation positions 'after rccei ing uncontro ert de idence." particular!
relating to the Adobe License, that should have compelled dismissal. (See id. at I 0 The
renewed motion also contends that PDJC engaged in "'per i lent fo olou

wanton, and ve:atious

litigation conduct: (Id. at 18) Adobe seeks relief under Rule 11 as well as attorney fee under
5 U..C. _ 5 (for an 'exceptional patent case . 2 U . .C. 1927 for unreasonable or
exatious rnultiplicati n of pr ccedings). and sancti n pursuant to the Court"s inherent
authority. (S e id.)
A1 o n Augu t 21 , 2015, PDJC filed a rnoti n t di miss the patent misuse and breach of
contract claim in Adobe s complaint in intervention . OJ. 66) With respect to patent mi suse.
PDIC argues that there is no case or ontroversy, and further that Adobe fail to state a claim on
which relief may be granted . (Se D.I. 68 at , LO) With respect to Adobes breach of contract
claim PDIC allege that the Court lacks juri diction. (See id. at 16-20

Jn r sponding to PDJC"s motions on cptembcr 9 2015 Adobe cross-mo ed for

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 9 of 43 PageID #: 3039

judgment on the pleading on its breach of contract claim. (See D.l. 75, 77) Abode contends that
PDIC breached its express co enant not to sue Adobe s cust mers for using products licensed
under the Adobe License. adding that PDIC 'in bad faith filed. maintained and vexatiously
litigated these ba ele s case against Adobe 's licensed customer for ears.' Se D.l. 77 at 1-2)
Thepartie completed briefi ng on all pending motions on October 8 2015. (See

generall D.1. 53 57 60, 67. 68. 74 77, 84. 85, 89. 90) The Court heard oral argument on
March 8, 2016. (See Transcript {"Tr."))

II.

LEGAL ST AND ARDS


A.

Motion to Dismiss for Failure to State a Claim

Evaluating a motion to dismiss under Federal Rule of Civil Procedure 12 b)(6) requires
the ourt to accept as true all material al legations of a complaint. See Spruill v. Gillis. 3 72 F .3d
218 223 (3d Cir. 2004 . The is ue is not whether a plaintiff will ultirnatel pre ail but whether
the claimant i entitled to offer e idence to support the claims: Jn re Burlington Coat Factory

Sec. Lilig. 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation marks omitted). Thus, the
Court may grant uch a motion to dismiss only if. after accepting all well-pleaded allegations in
the compJaint as true, and viewing them in the light mo t favorable to plaintiff plaintiff is not

entitJed to relief'. Maio v. Aetna. Inc., 221 F.3d 472, 481-82 (3d Cir. 2000 internal quotation
marks omittt:d).
However, "(t]o survive a motion to dismis . a civil plaintiff must allege facts that raise a
right to relief above the speculative le el on the assumption that the allegation in the complaint
are true even if doubtful in fact): Viccaulic Co. v. Tieman. 499 F.3d 227, 234 (3d Cir. 2007
(quoting Bell At/. Corp.

l '.

Twomb(v, 550 U.S. 544 555 2007) internal citations and quotation

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 10 of 43 PageID #: 3040

marks min d ). A claim i faciall pla le ., hen rhe plaintiff pleads factual conlent that
w~

all

tbe

un t draw the reason ble infi ren that th

alleired. A hero. I'' Jqbal. 5 6

The

n Ju ion

,11 re eal e iden e f [each] necessary element"


hart r

h. Jn .. 522 F.3d 315 321 (3d

mitted).

urt i not obligated to accept as true bald a. serti ns. Morse v. Lower Merion

i r.. J3_ F.3d

Sh.

CI) \

,. Mi dw Ti h.

plaintiff claim. Wil erson ,._

rr. _ 8) (internal qu tation mark

). '"TI1 c mplaint must state enough facts

.S.

rai ea reas n lee pectation Lhat di co


3

efendant is lia le for th miscondu

2. 906 {3d

ir. I

7) (internal qu tati n marks mined). unsupported

nd unwarranted inferences," Schuvlkill E11er

R .. Jn '.

Lighr Co.. 113 F.3d 405, 417 (3d Cir. 19 7 . r !leg ti n that a

1.

Penn . lvama Po' er &

idcntl; false: ami ' '

Fauv r, 2 .3d 63, 9 (3d Cir. 1996).

lotion to Di miss for Lac

8.

"Federal Rule

jurisdicti n
1

CT

att r J uri diction

r a complaint ii r lack of

i ii Pro edure L b) l auth riz s di mi

the u ect matter. or if th plaintiff la k tanding

un El ' . o .. led. ' ' 0

Semiconductor Corp .. 541

rino his claim."

. 'upp. 2d 45, 4 (D. Del. 2008).

m 1i n t di mis for lack of ubject maner juri dictj n may pr ent either a

f: ial nack

a fa tual tta k. See CNA v. Unit d States. 535 .3d 1 2. 1

Fed. R. i . P. 12

( l . A facial attack concerns an II gcd pleadinf! d fi ien \ hi le a factual

atta k

ailure fa plaintiffs claim to omp

ncem th

prerequi ite . ,

ell-pl~

tuaJI~

N , 5 5 F.3d at 139. Where them ti n pre en

urt'sjuri dicti n, or one


accept

rt

ed urely n the allegati ns in the

ith th uri dicti nal


a a iaJ hallenge to the
mplaint , the

urt must

eel factu l allc ati ns as true and may c n ider nly the c m laint and an
6

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 11 of 43 PageID #: 3041

documents upon which it is based. S

Petrus ha 1. Gannon Univ., 462 F .3d 294, 302 n.3 (3d

Cir. 2006). Where subject matter jurisdiction is challenged based upon the sufficienc of
jurisdictional facts, the Court is not required to attach any presumptive truthfuloe s to the
allegation in the complaint and may consider matters outside the pleadings to atisfy itself that it
has juri dicti n. See Animal Sci. Produ ts. Inc. v. China Minmetals Corp. 654 F.3d 462, 469 n.9
(3d Cir. 201 l ), as amended (Oct. 7, 2011 ). ln either case, the plaintiff bear the burden of
persuasion. See Kehr Packages. inc. '" Fide/car. Inc., 926 f.2d 1406 1409 (3d Cir. 1991 .

Motion for Judgment on the Pleadings


Pursuant to Federal Rule of Ci ii Procedure 12(c), a part may move for judgment on the
pleadings [a]fter pleading are clo ed - but early enough not to dela trial." When evaluating a
motion for judgment on the pleadings, the Court must accept all factual allegations in a
complaint a true and view them in the light most favorable to the non-moving part . See
Rosenau v. Uni.fund Corp. 539 F.3d 218. 22 I (3 d Cir. 2008). This i the same standard as
applies to a Rule I 2(b 6) motion to djsrniss. See Turbe v. Gol , of Virgin Island , 93 F.2d 427,
428 (3d Cir. 1991 ; see also Maio, 221 F.3d at 4 2.
A Rule 12(c) motion will not be granted "unless the movant clearly establishes that n
material issue of fact remains to be resol ed and that he is entitled to judgment a a matter of
Jaw: Rosenau, 539 F.3d at 22 I. 'The purpo e ofjudgment on the pleadings is to dispose of
claims where the material facts are undisputed and judgm nt can be entered on the competing
pleadings and exhibits thereto. and documents incorporated b reference: Vene1ec Int '/. inc. ' '

ex.us Med.. LLC, 541 F. Supp. 2d 612 617 D. Del. _008 : se also Burlington Coat Factory,
114 F.3d at l426 (explaining tbat any documents integral to pleadings may be considered in

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 12 of 43 PageID #: 3042

but heth r the laimant i entitled

Fa rory. 114 F.3d at 142

rt

mitt d).

internal qu

The Court ma
~

public r

rd

well as authenti d cumenLS upon

B 'rmw1

~e

an exhibit to them ti n.

hi h the complaint is ba eel if attach d l th

0 hiver r . Levin, Fi hb in. Sedran

the claim : Burlington o t

.3d 13

13 4 n.2 (3d

ir. I

>Un

. The

also take judicial notice of the fact ual re ord of a prior proceeding. S e On ida M t r

r ig/11, Inc. v. nited Jersey Bank. 4 F.-d 414, 41 n.3 3d ir. 19

r nied onl if no reliefc uld be afforded under an

forjudgmeru on th pleading can h


facts that could

D.

pr

ed.'' Turbe. 9

Motion for

). Ultimately. a moti n

F._d at 42

nctio n

Rul It

1.

an me wh fajJ

the pleading; (2) make area nahl in uiry int th f; ctual and legal 1 gitima

edure 11 .. pro id

Federa l Rule

or 3) file the pleading on l


F. d

. 62

upon a

iti n

48 _ 490

ir. J

that an

Additi nail. ' anctions are proper

either I rea

th pleading;

imm nmm "

r a proper purp e. shall be sanctioned:

rino. 27

hen. inter a/iu. party 'in i t[ ]

ter it i n I nger t nabl . . . : Balthazar v. At/. Cicy M d. tr .. 137 . App


d i

cir um tance , a law finn m


panner. as

et f

iate, r empl y

2.
.. Any an m

OT)

ommin e Note t Rule I I) . "A . ent cxc pti nal

eh ld j omtl responsible for a


" F d. R.

lati

11

mmitt d by it

i . P. 11 (c 1 .

1 2

r th r per on admht.ed to conduct. cases in an.

urt

the ' nit d tates

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 13 of 43 PageID #: 3043

or any Tenitory ther of who so multiplies the proceedings in any case unreasonably and
exatiously may be required by the court to ati fy personal I the exce

co t , expenses, and

attome s fees reasonably incurred because of such conduct.'. 28 U.S . . 1927. The Third
Circuit has interpreted . 19_ 7 to permit fee awards where' an attorney has l multiplied
proceeding : (2) in an unreasonable and exatious manner; 3 thercb increasing the co to the
proceedings: and 4) doing o in bad faith or b intentjonal misconduct.'" 111 re Prudential ins.

Co. Am. Sales Practi c lirig. Agent Actions, 278 .3d 175, I 88 3d Cir. 200-). In cases where a
party i represented b coun el, I 927 "i designed to discipline counsel only and does not

authorize imposition of sanctions on the an mey s client.'. Zuk r. E. Pennsylvania Psychiarric

lnsc. oftlz Med. Coll. of Pennsylvania. 103 F.3d 294. 297 (3d Cir. I 99 ).

3.

Inherent Authority

"[A]n award of ees and costs pursuant to the court 's inherent authority to control
litigation will u uall require a finding of bad faith: Prudential 278 F.3d at 188. The upreme
Court has authorized lower couns to use their inherent power to police' them el es and a es
attorne. s fees when a party has acted in bad faith, vexatiously. wantonly or for oppre si e
reasons:

hamber v. NASCO, inc. 501

.S. 32. 45-46 1991

interpal quotation marks

omined).

4.

35 u.s.c. 285

ln "e ceptional .. patent ca es, a ourt ma ..award reasonable attorney fees to the
. . . . ... 85. The upreme

ourt has held that an 'e. ceptionar case i

'one that tands out from others with respect t th

ubstant ive strength of a parrys litigating

pre ailing party.,. 35

position (considering both the governing law and th facts of the case) or the unreasonable

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 14 of 43 PageID #: 3044

manner in which the case was litigated .'" Ocrane Fitness. LLC v. ICON Health & Fitness, Inc.
134 S. Ct. I 749, 1756 (1014 ). '(A] district court may award fees in the rare case in which a
party" s unreasonable conduct - while not necessarily independently sanctionable - is nonetheless

so 'e 'ceptionar as to justify an award of fees: Id. at 1757. A finding of bad faHh is not
required to award attorney fees under

285. See id. The burden is on the movant to pr ve by a

preponderance of the evidence that it should receive an award of attorney fees under

285. See

id. at 1 58. Ultimately. a court must make a discretionary deci ion based on the totalit; of
circumstances. See id. at 1756.
TII.

DISCUSSlO

A.

Adobe's Motion to Di miss

Adobe moves under Rule 12(b 6) to dismiss PDlC"s counterclaim for breach of the
implied covenant of good faith and

fair dealing ('"implied covenant ) in the Adobe Licen e.

(See D.. 52)

1.

Choice of Law

The Adobe License does not include a choice of law provision . Although the parties
agree that Delaware choice oflaw rules should apply, they disagree as to the ultimate issue o
which state law governs interpretation of the Adobe License. (See D.I. 53 at 9 0.1. 57 at 6)
The Coun agrees that Delaware choice oflaw rules are applicable. "'The conflict oflaws rule
to be applied by the federal court in Delaware must conform to those prevailing in Delawares
state courts.- U11derhi// fm '. Corp. v. Fixed Income Disc. Advisory Co., 319 F. App'x 137, 140

PDIC asserted this counterclaim in all of the above-captioned actions except C.A.
13-408. as PDIC did not respond to Ad be's complaint in that action.
10

o.

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 15 of 43 PageID #: 3045

( d ir. 2 09) quoting Klaxon Co. " renror El

. . 487 4 6 1 41 .

Mfg C .. I

the Ad b Li ense. whereas PDlC argue ti r D l:n

aJ1

Jc ey law should go em

1 w. Se DJ. 53 at - IO D.l. 57 at 6-7

Courts in

laware use the ..most ignificam r tali n hip te t" to de1ermine which state's la

g em a

ntract that doe not include a h ic

-o F.

f law pr

f Law

"R statement" . u ed for choice

in Del ' are, instructs that a ourt mu t search fi r the orum itb the mo

lati n hip to the transaction" - where transaction'' refer

at th pla
oh(!n

ohen v. Formula. Inc.,

up . _d 495, 501 (D. Del. 2010 citing Trav I rs Ind m. Co. '" Lake, 594 A2d 38, 41

Del. i 99 J ). Tb Restatement (Second) of onflict

la

i ion.

of 11eg0Hation of the contract and the pla


F. u p. -d at 501 (quoting l '
as negotfated b~

rh Ado e Li ens
(See D.I. 5 at ;

DJ . ~

1rmati e

d be in a Li ti mia an

at 6 Adobe perfonnan e

perfi nnan

o p r orma11ce und

en

taking pl ce

the contract

the Restatement {emphasis added .

I atcd in . cw Jer c . Se D.l. -3 at 9-10: DJ. 6 at

significant

llecti cl to

ignificant

P01

in

i t d f p yrnent to PDI

ew Jer e .

ia a bank

n. l Thi payment was the most

required by either party under th Ad b License , given that PDI

ru i ted primaril of not suing Adobe or Adob '. custom rs. Ad be alleges (and

Se D.l. 53 at 9: ee al o
Cohen, 7

f the panies

F. Supp. _d at 501 (quoting Restatement's 1istine

as relevant fact r
parties which

LO

r ch ice flaw

The on! potenuall rel

ant

ti it., id ntifi db - the

k place in Delaware was Utigati n before thi C urt.

The Restatement al o list the domicile, residen nation lity, [nnd] place f

m rp rati n.. f the partie

relev~t

factor . Fa/kenber Capitol Corp. '' Dakota Cellular.


II

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 16 of 43 PageID #: 3046

Inc . 925 F. Supp. _31. 235 (0. Del. 1996}. 'Adobe is incorporated in Dela\ are and bas its
principaJ place of business in California. Princeton is incorporated

in Tex as and though it

claims its principal place of bu sines is also in Texas . . . it conducts business from

ew

Jersey. (D.l. 53 at 9)
Con ideriog all of these factors , the Court detennines that

ew Jer e law hould govern

in these circumstances primarily becau ea significant part of the perfonnance and negotiation of
the Adobe License took place in New Jersey. "[ W)hen the place of negotiation and place of
perfonnance are in the same state. a court should generally apply the law of that state:

Falkenberg, 925 F. upp. at 2r (citing Restatement

1971 cmt. f) .

e\ Jerse. has the

most significant relation hip t the transaction. Therefore the Court will interpret the Adobe
License under the law of New Jersey.

2.

Implied

oven ant of Good aith and Fair Dealing

A covenant of good faith and fa ir dealing is implied in e ery contract in

Wil on v. Amerada He. C01p .. 773 A.2d 1121. 1126

1 1.J.

ew J r e .

2001 . 'Although the implied

covenant of good aith and fair dealing cannot override an express tenn in a contract, a party s
performance under a c ntract may breach that implied covenant e en though that performance
does not iolate a peninent express tenn: Id. ood faith p rfonnance or enforcement of a
contract emphasizes faithfulnes to an agreed ommon purpo e and con istenc wi th the justified
expectations of the other party: it exclude a variety of types of conduct characterized as
invol jng bad faith " because they violate community standards of decenc . faime s or
reasonableness." Id. (citing Restatement Second of Contracts. 205 cmt. a 1981 . [T]he
task .here i to identify in that conte. t the parties reasonable expectations: Id. at 1127.

12

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 17 of 43 PageID #: 3047

PDJC argues that Adobe breached the implied covenant by failing to cooperate over
interpretation of the Adobe License and suppl ing an unreasonable interpretation of the
Adobe License. (See D.l. 57 at 8-9) Jt is unclear what PDJC means b. 'coope.rate o er
interpretation of the agreement. but the Court understand PDIC" argument to be that Adobe i
advocating an unreas nable interpretation of the Adobe License. Contract interpretation is a
question oflaw. See S lectiv Ins. Co. ofAm. v. Hudson E. Pain Mf!mc. 0 t opathic Med. &

Physical Th erap

46 A.3d 1272. 1276 ( .J . 2012 ). The Adobe License expressl y grants to both

parties the right to enforce tenn of the agreement (see D.l . l 2 Ex. 2 at 3-4), which necessaril y
includes a right to rea onably interpret the Adobe Licen e.

(D.I.
12 Ex. 2 at 1 (emphasis added ) PD

argue that Adobe' s interpretation of the agreement

'would extend license to product that were not Licensed Products' and beyond any
remuneration received b Princeton underthe Agreement: D.l. 57 at l l) Howe er. in the
Courts view. the rele ant term are broad enough to render reasonable Adobe"s interpretation of
the agreement as covering use of JPEG images created u ing Adobes Photoshop

produ tin

combination with other produ ts. 10 Tn I ight of the above, the Court determines that there is no et
of facts. vie\ ing PDIC

counterclaim in the light mo t favorable to PDIC . that would uppon a

claim for relief under POI C' s 'cooperation over interpretation' theory of breach of the implied

covenant.

The Court is not caJled upon at this time to make a final decisi n a to whjch
interpretation is the<.: rrect or most reasonable interpretation of the Adobe Licen e.

13

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 18 of 43 PageID #: 3048

PDIC also argues that Adobe breached the implied covenant by failing to .. cooperate and
supply corroborating evidence that any defendant was a c ustomer,. of Adobe and covered by the
Adobe License. See D.1. 57 at 8-9) Thi theory of breach of the implied covenant fails to state a
claim for relief under

ew Jer ey law becau e PDIC fai ls to plead bad faith . " Bad faith or ill

motive is an es ential element of a claim for brea h of the implied covenant of good faith and fair
dealing ... Coldwell Banker R al E tate, LLC v. Plummer & Associates, inc., 2009 WL 3230840
at *4 (D . .J . Oct. 2, 2009) citi ng Seidenberg v. Summit Bank, 348 .J . Super. 243 257 (App.
Div. 2002)). PDIC argues that it pleads bad faith merel by pleading breach of the covenant of

good faith and fair dealing. (See D .1. 57 at 11

Howe er. the

fonnu laic recitation of bad faith is insufficient under T1 omb~v,


For the foregoing reasons. the

ourt agree with Adobe that ucb

s-o U.S. at 555 . 11

ourt will grant Adobe ' s Motion to Dismiss PDlC's claim

for breach of the implied covenant of good faith and fair dealing. (D.I . 52) 12

8.

PDIC' Motion to Di mi

PDlC moves to di miss the patent mi u c and breach of c ntract claims a scrted by
Adobe in Adobes comp]aint in intervention . (DJ. 66) PDJC moves under Rules 12 b ( 1) and
l2(b 6), for lack of subject matter jurisdiction and fai lure t state a claim on which relief may b

PDIC. failure to allege bad faith is an additional. independent reason~ hy PDIC' s


cooperation over interpre tation theory, di cus ed abo e. al o fails a a matter of law.
11

12

PDl requests lea e to amend its counterclaim. in lieu o the ourt dismi sing it. See
0.1. 57 at 12) Thi request will be denied. Amendment would be futi le. See Forman v. Davis,
71 .S. 1 8. 182 1 62} holding that generally leave to amend should be granted except where
there is showing of. among other things. 'futility of amendment'" . one of the conduct PDIC
characterizes as breachi ng the implied ovenant was prohibited b the Adobe License.
14

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 19 of 43 PageID #: 3049

granted. 13

1.

Patent Misuse

PDIC moves to dismiss Adobe s patent misu e claim based on the lack of a case or
contra ersy. (Se 0.1 . 6 at I 0-11) Patent mi u e i the patentee' act of impermissibl
broadening the physi aJ or temporal cope of the patent grant with anticompetiti e ffi

r:

Princo Corp. 1. int 'I Trade Comm n, 616 F.3d 13 l 8. 1328 (Fed. Cir. 20 I0) (internal brackets and
quotation marks omitted). "(E]xistence of a case or controvers must be evaluated on a
claim~b

-claim basis ... Jervi B. Webb Co. r . S. Sy .. inc., 742 F.2d 13 8, 1399 (Fed . Cir. 1984 ;

ee also DaimlerChry /er Corp. v. Cuno, 54

. . 332. 35_ (2 06) ("(O)ur standing cases

confinn that a plaintiff must demonstrate standing for each claim he eeks to press." ).
In its answerino brief to PDIC s motion,

dobe does not address PDlC" s argument

regarding lack of a case or controvers with respect to patent mi use. (See general(v D.l. 77)
But Adobe, as the party opposing a Rule l 2(b )(I ) motion. bears the burden of pro ing that this
jurisdictional requirement is met. Se Development Fin Corp. v. Alpha Hou ing & Health Care,
54 F.3d 156 158 (3d Cir. 1995 (stating that part assertingjurisdiction "bears the burden of
howing that its claim are properly before the district court"') .
Ad he's failure to addre

nder the circumstances

whether there i an ca e or contro ers 1 with respect to Adobes

patent misuse claim i reason enough for the Court to dismis Adobes claim.

13

Adobe argues that PDJc s motion is untimel y. (See D.1. 77 at 1) However. during a
teleconference with the parties on August 6, 2015. the ourt authorized PDIC to file a motion to
dismiss. (See Transcript D.l. 72 at 20-21 ( o I do further authorize and direct that the du
date for any renewed motion for sanctions is th same time frame I et out for the plaintiff to file
a motion to dismi s ... . ) Moreover. .. [uJnder Rule L(b)( l ), a challenge to a federal couns
subject matter jurisdiction may be brought at an time.' Singer, ._ Com 'r of l.R.S., 2000 WL
14874. at * 1 (E.D. Pa. Jan. l 0, 2000).
15

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 20 of 43 PageID #: 3050

Additionall . the

ourt agrees with PDJC. 'Patent misuse is an affinnative defense to an

accusation of patent infringement . . . : Vi1ginia Panel Corp. \'. MAC Panel Co., 133 F.3d 60,
868 (Fed.

ir. 1 97).

iven that stipulations of dismissaJ of PDJ ' s patent infringement

complaint have been entered in each of the abo e-captioned cases, there i no longer any
assertion of patent infringement in any of these cases. Nori there any threat that PDIC will
attempt to assert the 056 patent against Adobe or against an entity in pri ity with Adobe. 14 Nor
does Adobe point to an other type of ongoing purported misuse of the ' 056 patent. See Steiner

v. Lewmar. lnc.. 2013

5755578, at *5 (D.

onn . Oct. _2. 2013) "( )inc the Plaintiff{] ha[s]

effecti ely waived any potential patent infringement claim

rt would appear that the rationale for

a patent misuse defense does not apply in this case.').


Adobe implies that past damages resulting from misuse of the 056 patent constitute
ongoing harm from patent mi use. See D.I . 77 at 16 (''Unless and until Princeton cures its
patent misuse and the consequences have djssipated, including making Adobe whole from the

harm it ltas suffered due to Princetons patent misuse, equity should bar Princeton from
recovering for any alleged infringement of the ' 056 Patent."} The

ourt dfaagrees. First,

monetary damages ma. not be awarded under a declaratory judgment counterclaim based oo

pacem misuse, because patent misuse simpl renders the patent unenforceable.' B. Braun Med. ,
Inc. v. Abbott Labs,, 124 F.3d 1419, 1428 Fed. Cir. 1997)(internal quotation marks omitted .

14

Thi distinguishe the situation here from chat confronted in Linzer Product Corp. I'.
Sekar 499 F. Supp. 2d 540, 560-61 (S.D . . Y. 2007). a case on which Adobe reljes for the
proposition that in limited circumstances patent misuse may be brought as an independent action.
(See C.A. 13-404 D.l. 77 at 13) Again. Adobe cites no authority for the proposition that there is
a case or controversy o that it has standing with respect to patent misuse under the circumstances
pre ented here.
16

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 21 of 43 PageID #: 3051

Second, to the extent PDJcs assertion of the '056 patent ma have constituted patent misus
such misuse has now been purged by PDICs dismissal with prejudice of all claims against
Defendants in the above-captioned sui . (See D.1. 6 at 1O; see also Qualcomm Inc. v.

Broadcom Corp., 548 F .3d 1004 1026 Fed. C ir. 200

("[A)n unenforceabiliry remed in the

patent misuse context i limited to rendering the patent unenforceable until the misuse is purged

... ..,)
Accordingly. th Court will grant PD1cs motion to dismiss with respect to Adobe' s
patent misuse claim.

2.

Breach of Contract

PD1C moves to dismiss Adobe's breach of contract claim for lack of subject matter
jurisdiction. (See DJ. 68 at 16-20 Jurisdiction normally attaches at the time of filing based on
pleadings." Nil sen v. Motorola, Inc., 203 F.3d 7 2, 7 4 (Fed. Cir. 2000 . At the time Adobe
filed it complaint in intervention in each of the above-captioned case , there wa a pending case
or controversy, arising under the U.S. patent laws between PDIC and each of the individual
Defendants - namel y. PDIC's infringement claims related to the 056 patent. Therefore, at the
time Adobe filed its complaint. the Court had ubject matter jurisdiction pur uant to 2 U.S.C.

133 .15 Jn addition. the Court had supplemental juri diction under 28

.S.C. 1367 over

Adobes breach of contract claims. which arise under state law. 16 Adobes breach of contract

15

''The district courts shall have-original jurisdiction o any civil action arising under any
Act of Congress relating to patents ... : 28 .S.C. 1338.
16

28 U.S.C. l367(a) state in pertinent part. 'in any civil action of which the district
courts have original jurisdiction, the di rrict court shall have supplemental juri diction over all
other claims that are o related to claims in the action within such original jurisdiction that they
form part of the same case or controversy under Article lII of the United States Constitution.

17

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 22 of 43 PageID #: 3052

claim is part of the same case or contro ers and deriYes from the same' common nucleus of
operative fact'. as the underlying patent disputes between PDJC and Defendants. See United

Min Workers ofAm.'' Gibbs. 383


context of

. . 715. 725 1966) ( The state and federal claims [in

1367 juriscliction) must derive from a common nucleus of perative fact.'') .

Moreo er, to the extent the Court has di cretion to exercise supplemental j urisdiction o er
Adobcs breach of contract claim, now that the underlyin patent infringement disputes between
PDJC and Defendants have been dismissed, the Court finds that it is appropriate to do so. 13 The
Court has already expended significant resources on these matters. It would be wasteful of
judicial resources to require the partie to re-start their conflict in state court at this poinL 14
Accordingly, the Court will deny PDICs motion to dismiss with respect to Adobe"s
claim for breach of contract.

C.

Adobe' Motion for Judgment on the Pleadings

<lobe move for judgment on the pleading on its breach of contract claim . PDIC
responds that this motion is untimel y for rea ons including that the pleadings are not yet closed.

(S e D.I. 89 at 1-4 Fed. R. Civ . P. 12(c) "After the pleading are closed - but early enough not
to dela trial - a pa.rty ma move for judgment on the pleadings.") (empha is added)) Adobe

uch supplemental jurisdiction shall include claims that involve .. . mterventio.n of additional
parties .'
11

2 8 .S.C. 1367 c (3) srates: .. The disrrict courts ma decline to e ercise upplemenraJ
jurisdiction over a claim under subsection (a if the district court bas dismissed all claims over
which it bas original j urisdiction:
14

Because the Court has jurisdiction over Adobe breach of contract claim under
1338
and 1367, the Court need not address the parties arguments regarding the possible presence also
of di ersity j uri diction under 2 U.S.C. 1332.

18

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 23 of 43 PageID #: 3053

admits that the pleadings are not closed and cites no authori zation from the Court to file its
motion at this time. (See general~ D.l. 90) Accordingly. the Court will deny Adobes motion
for judgment on the pleadings.

D.

Adobe' Motion for anctions

Adobe renewed it motion for sanctions. In its motion Adobe moves under 285 of the
patent laws, as well as Federal Rule of Civil Procedure 11. 28 U. S.C.

*1927 and the Court' s

inherent authority. The Court addresses each of these potential bases for sanc6on jn the section
below.

1.

35

.c. 285

a.

Invocation of Patent Law

An award of attome

ees under 285 is available in cases arising under

.S. patent laws

and in non-patent ca e where non~patent issues are intertwined with the patent i ues such that
the riohts at is ue ... properl. in oke patent laws. lnlerspiro USA . Inc. v, Figgie 1111 'I Inc. 18
F.3d 927, 933 (Fed. Cir. 19 4 ; see also NO A Chemicals C01p. v. Dow Chem. Co. , 2015 WL
5766257, at *S (D. Del. Sept. 30 2015).' However. " lwJhen an action embraces both patent
and non-patent claims no fees under

can be awarded for time incurred in litigation of the

non-patent issue . Gjer/ov \'. Schuyler Labs.. Jnc.. 131 f .3d 1016, 1025 (Fed. Cir. I 997)
(quoting Machinery Corp. ofAm. \'. Gul(fiber AB, 774 F.2d 467. 475 (Fed. Cir. 1985) .

-PD IC has not argued that 285 does not apply on the basis that the aho e-captioned
cases are not patent cases or that the cases do not invol ve issues sufficien tl y "intertwined'" wi th
patent issues under lmer. piro. Therefore, PDlC has waived this argument. See LG Display Co.
' ' AU Oprronics Corp . 2010 WL 5463305. at *4 (D. Del. Dec. 29. 20 10). Nonetheless. the
ourt feels it is important to address this threshold issue of whether 285 is even a proper basis
on which Adobe may seek attorney fees in this case.

19

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 24 of 43 PageID #: 3054

PDlC iniliated these uits by suing Defendants for patent infringement. Adobe argues for
attorney fees under 285 based, in part on PDlC" s decision to file these suits without adequate
pre-suit investigation.

he adequacy of PDIC pre-suit inve tigation turn on the legitimacy of

PDIC" infringement theorie . an issue that nece sarily invokes patent law. Moreover. many
(probably most) of the issues that were put before the Court in connection with Adobe s motion
for sanctions - such as the plausibility or strength of PDlC ' s web server infringement theory"

( ee 0.1. 76

30-36) the parties competing interpretations of the Adobe License and what

otherwise infringing acts it covers. the reasonableness of PDJC s settlement offers in light of the
expiration of the patenl and the impact of the patent damages statule. aod the alidity of the ' 056
patent in light of its survival of reexamination b the

nited States Patent and

rademark Office

("PTO' ) - are sufficiently ..intertwined.. with patent issues to " invoke patent laws under

lnterspiro.
Therefore, the Court concludes that

285 i applicable to the above-captioned cases and

that Adobe may be able to obtain an award of attorney fees based on this statute. 10

'bGoing forward, given the ruling announced in this Memorandum Opinion , the abovecaptioned cases will invol e onJy Ado e breach of contract claims. If either part per eive a
good faith basis at the conclusion of the ca e to seek attorney fees under 285, such fees will be
potentially available only to the prevaiJino party (an issue discussed immediately below) and only
for time spent litigating Adobe' s breach of ontract claim to the extent that claim does not
invoke only state law. See Gjerlov, 131 F.3d at 1025 (vacating award of attorney fees for breach
of contract claim that invoked only state law): see also Gerawan Farming. Inc. v. Rehrig Pac.
o., 2013 WL 6491517, at *9 (E.D. Cal. Dec. 10, 2013) (limiting award of attorney fees under
285 to claims and conduct that sufficiently invoke patent laws); David Au tin Ro es, Ltd. v.
Jackson & Perkins Wholesale. Inc., 2010 WL 555674. at *2 (0 . Or. Feb. 16, 2010) (apportioning
fees related to patent issues and fees related to breach of contract issues and awarding fees under
s 285 for fonner but not for latter .
PDIC's server-level theory alleges infringement of the ' 056 patent by Adobe's customers
but only when those customers are using non-Adobe products in implementing "on the fl JPEG
20

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 25 of 43 PageID #: 3055

b.

Prevailing Party

PDJC argues that Adobe cannot reco er attorney fee under 285 because Adobe is not
the .. prevailing party. See, e.g .. D.l. 74 at 16; Tr. at 61-62 Section 285 expressly limits an
award of attome fee to the prevailing party. tating: 'The coun in exceptional case may award
reasonable attorney fee to the prevailing part) . 35

.S.C. 285 emphasis added . 'Federal

Circuit law governs the detennination of which part)' has prevailed. SSL S rv ., LLC v. Citrix
~vs .. Inc.

7 9 F.3d I 073. l 086 (Fed. Cir. 2014).

To be a pre ailing party, the Federal Circuit requi res that (I the party receive at least
some relief on lhe merits and (2) such relief materiall alter the legal relati nship between the
parties by modifying one party"s behavior in a way that 'directly benefits .. th opposing party.

See id. A party does not need to prevail on all claims to qualify as the prevailing party.'" Id.
Traditionally.

285 requests are determined by the court upon the resolution of all substantive

issues in a patent ca e." Tech. J11novatio11 , LLC ,._ Amazon.com. Inc .. 2013 WL 44094 2. at *3
(D. Del. Aug. 15, 2013)(citingHighmark, inc. 1. Ailcare Health Mgmt . .S:vs. , Inc., 701 F.3d

1351 , 1353 (Fed. Cir. 2012 . "[Al limitation exists with in the statute with respect to timing such
that attome fees are properly determined under

285 once all of the ubstantive issues in a case

reach re olution: Jd. (emphasi added). There can only be one .. pre ailing party under 285 .
"Therefore. it follows that attorney fees pursued under 285 can onl be a' arded after the
substaoti e issues in the case ha e been resol ed and the prevailing part. has been determined.'.

ld.

resizing functionality. See D.l. 76


30-36) PDIC may be able to sho that it did not brea h
the Adobe License by showi na that use of non-Adobe products infringed under PDIC' s serverlevel theory. It would appear that re oluti n of this issue would nece sarily invoke patent laws.
21

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 26 of 43 PageID #: 3056

proceedings involvino PDI

pp ed

d be -

and

n w

br ugbt b PDIC against Defendants, whi h ha

n di mi

stag a lh pleadings ar not e en clo

nd

1t 1s p

dealin .

lb e that were initiall.


d - are still in their earl

ntract claims remain pending

sible that either Adobe or P I ma

the e ca e are finally d cided_ PD[


ha

respective pleadings before

has prevailed again

d b s allegation of patent mi u e.

re ailed on PDlC' claim for breach f th implied co cnant of good faith and fair
IL uits against Defendants were dismis ed. vindicating

d be ' s intervention in the

abo e-capt1 ned law uit to de end it customers. P I may ha e recei ed compensation as part
o . enlements with some or all of the Defendants.

1n light o the tage of these proceedings. and


Judge R binson 's well-reas ned anal si in Tech.
in tant

(.

th C urt agree with PDIC that

/11110

0.1. 74 at l n. 10 , the C urt cann

d ermm

d e i. the pr ailing party. Howe er, the C urt will


b r n wed m ti n for sanctions. that
will

mum,i: applies to the

ume

dobe is th pre

1r

um tances of the

time whether PDIC or

lcly

r purpo e of evaluating

1ling pany.

den ing Ad b s motion in an event. t here i no prejudice l P I

i en that the Court


rom the

ourt

en1enaining thi as umpti n. 17

c.

E ceptional Ca e

Ad be argues that these cases are exceptional b

PDIC failed to conduct an

lrum fi r th improper

adequ te pr - uit inve tigation, 2) PDIC filed and maint med b cle

h ever tum outt be the prevaili g party at the


d faith basis to file am tion pur uant l , 2
1den una ailable toda_ e. . litigation
e are not warranted under _
As explained bel ttom
nduct up to thi pomt in th e cases.

-'-

lu~ i

n f the e ca es

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 27 of 43 PageID #: 3057

purpose of extracting nui ance-value settlement . (3 PDIC maintaim::d ui


frivolous legal p

and objecti el_ -

itions long after becoming aware of infonnation compelling dismissal, and

(4) PDIC engaged in frivolous, wanton, and vexatious litigation cooducL See D.J . 67 at I 0-2
PDJC responds that the e are not exceptional cases. (See. e. . D.I . 30 at 17-18: D.I . 74 at 17-1
Tr. at 72)
nder the totality of the circumstances, the Court finds numerous factors that favor
finding these cases e ceptional , but also numerous factor pointing in the ther direction. Still
other consideration are neutral. The Court addre es these i sues bel w.
i.

Factors favoring finding of exceptional" case

Adobe allege that PDIC conducted an insufficient pre-suit investigation before suing
Defendants. (See D.l. 67 at 10- 13) Counsel' ~ for PDIC did not undertake any independent
investigation but relied entirely on the pre-suit investigation of their client, Mr. Thomas
Meagher. PDICs President. as the basis for filing suit. (See 2015 Tr. at _ J._2 (The Coun: [A]ll
I ha e i Mr. Meagher" vel) short declaration ifl

ant to understand what pre-suit inve ligation

your client did .... Isn't that correct?"" Mr. Pazuniak : 'With respect lo a pre-suit in estigation,
that i correct." ; see also D.I. 31 at 1-3 (Mr. Meagher, describing his pre-suit inve tigation : D.1 .

76

0-36

ame))

me aspect of the pre-suit in estigation were defici ent. which weigh in

favor of making an exceptional case finding.


For example, counsel did not learn of the Adobe License prior to filing suit As noted,
coun el did not undertake any independent in estigation, and so did not discover the Adobe

These a e do not require the Coun t consider the relati e role and responsibilitie of
Delaware counsel and non-Delaware referring counsel as, in each of these cases, POI is
repre nted okly by Delaware counsel.
23

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 28 of 43 PageID #: 3058

License on their own.

or did PDIC or Mr. Meagher infonn counsel of the existence of the

Adobe License. Therefore, counsel did not consider the Adobe License before filing suit. (See
Tr. at 42
POI Mr. Meagher had ex1ensive experience with the 056 patent prior to PDIC filing
its series of suits here in Delaware. In hi earlier capacity a coun el at General Electric
Company ( GE'). at a time when GE owned the os6 patenL Mr. Meagher was personally
involved in licensing the '056 patent to "no le s than ten (10} companies. ' 19 (Dl. 76 ~ 8 Mr.
Meagher has declared (without dispute from Adobe that he wa " fully familiar with the

os6

patent. including being familiar with licensing aegotiatjons in olving Adobe. (Id. at 4-11)
Given Mr. Meagher' knowledge. it is triking that he did not make counsel aware of the
existence of the Adobe License so counsel could evaluate its impact prior to signing 51
complaints asserting patent infringement against entities that included numer u Adobe
customers. whose right to practice the os6 patent may have been implicated by the Adobe

Li en e. Recent cases in this District discuss the significant impact meritorious license defenses
can have on patent litigation. See, e.g.. Summit Data Sys. , LLC '' EMC Corp .. 2014 WL
4955689 at *5 D. Del. Sept. 25 , .2014 , affd sub nom. Summit Data

s. LLC v. NetApp Inc ..

620 F. App ' 955 (Fed. Cir. 2015 (granting attorney fees under 2 85 becau e, imer alia.
plaintiffbr ught law uit under theory of infringement that wa barred b_ license); Bayer

Crop cience AG v. Daw Agrosciences LLC, 2015 WL 1J97436, at *8 D. Del. !far. 13, 20 15)
(..Ba er defends itself by claiming that it was unaware that Dow had a license until Dow

~''The ' 056 Patent bad been developed at GE. was owned by GE." and GE licensed the
patent to ' ariou companie who were practicing the patented tecbnolog . (OJ. 76 7)

24

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 29 of 43 PageID #: 3059

opposed Bayer's motion to amend the Bayer 1 Complaint. If that were the case, b Bayer's own
admission. Bayer had a dut to investigate such license defense before filing another lawsuit. ').
ln the circumstances here, Mr. Meagher's failure to broach the subject of a potential license
defense with counsel prior to filing suit is a factor favoring finding this ca e to be exceptional.
Another e ample of deficiencies in the pre-suit investigation i that Mr. Meagher did not
attempt to identify any suppliers of

ftware that may ha e executed the JPEG functionality now

accused under PDJC"s ..web erver' theory of infringement. (See D.l. 76 ml 30-3

20

Mr.

Meagher indicates that he ma ha e encountered" a reference to Scene7 " an Adobe product


(see D.l. 74 at 20), during hi pre-suit in estigation. but claims that he was "not aware that

Scene7 was an Ad be company ... (DJ . 76 ~ 48 Mr. Meagher indicates that he reviewed
internetretailer.coms "lntemet Retailer _008 Top 500 Guide ' (''Guide ..) when conducting his
pre-suit investigation into Defendant website . (See id at 12) Jn that ery Guide there are
indications that cene7 was used in at least ome of Defendants websites - including Office
Depot (for "(c]ontent [m)anagemenC and .. [r)icb [rn]edia and ears Holdings Company for
[r]ich [m]edia'

see Guide at 90. 1 0)- and the Guide's publishers website.

intemetretailer.com. includes an article from 2007 entitled 'Imaging technology giant Adobe

acquires rich media provider Scenei' (see Kurt Peters Imaging technology giant Adohe
acquires rich media provider Scene . Internet Retailer (Ma 3. 2007, 12:00 AM).

20

Under the theory of infringement PDlC argued al the May 5. 2015 hearing, images
created using Adobe Photosbop 'somewhere along the line" would not infringe due to the
Adobe License. (2015 Tr. at 29) Under PDIC's new web server theory of infringement, PDIC
now implies that resized ersion of image created using Adobe Photo hop would infringe
even under the Adobe License. (See 0.1. 76 at~~ 30-36 (calling such re ized images "separate
actfs] of infringement ' )
25

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 30 of 43 PageID #: 3060

https://www.internetretailer.com/2007/05/03/imaging-technology-giant-adobe-acquires-ricb-med
ia-provider- cen (last visited March 28. 2016 . As Adobe has pointed out it acquired Scene7 in
May 2007, well before the instant law uit were filed and publicly announced its acquisition.
(See C. .

o. 13-325 D.I . 25 Ex. 17 (Adobe- cene7 merger agreement);

.A.

o. 13-325 D.1.

22 Ex. E (press release announcing Adobe' acquisition of cene7 The Court i troubled that

Mr. Meagher, PDIC, and its counsel wholl failed to connect any of the dots between Scene? th
Defendants websites. and the Adobe Licen e before suing Defendants .
Another factor weighing in favor fan exceptj nal case finding i PDJCs delay in
di clo ing its web server theory of infringement. ln particular, PDIC waited until September 9,
-015 to disclose its web erver theory in an detail. (See D.I. 76) This wa 2 in ears after filing
the above-captioned cases, after Adobe had moved to intervene and had its motion granted and
after Adobe had filed two motion for sanctions - motions in which Adobe sought sanction for
reasons including an allegedly inadequate pre-suit inve tigation .

otably. Mr. Meaghers

articulation of PDJC"s web erver theory of infrin!?ement \: as not included in his original
(January 30, 2015) declaration describing PDJC' s pre-suit investigation. (See D.J . 31) Counsel
for POIC admitted that he wa '"cmbarras cd by the shon len!?th of Mr. Meagher' original
de cription of PDJC

pre- uit investigation. (See Tr. at 34} While the Court credit Mr.

Meaghers declaration statements21 that PDIC had posse sion of its web crver theory of
infringement before it filed any of the above-captioned lawsuits

ee D.I. 76 ~

0-36)! it would

have been far preferable for PDJC to have di do ed this theory long before the e cases devolved

~ 1 Although Adobe rai es doubts about the veraci

of cenain portion of Mr. Meagher'


second declaration see, e.g .. D.l. 85 at 2) Adobe pre ented no witness to dispute Mr. Meagher" s
statements and declined the opportunity to examine bim at the hearing ee Tr. at 73).

26

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 31 of 43 PageID #: 3061

into tbe protracted sanctions battle the became. Had PDIC disclosed Mr. Meagher's more
detailed version of his pre-suit in estigation and articulation of the web server theory of
infringement during, for example, the Rule 11 safe harbor period before Adobe filed its first
motion for sanctions the parties and the Court may ha e been able to avoid the subsequent
motions. briefing, hearings, and now opinion addressing anction .21 PDIC delay in re ealing
the true extent of its pre-suit investigation and its detailed theory of non-Adobe infringement at
the web setver complicated and delayed resolution of these cases.
PDIC's inconsistent representations before the

ourt also weigh in fa or of an

exceptional ca e finding. At the hearing on May 5, 2015, PDlC suggested that oun el
conducted no pre.-suit investigation whatsoever. referring only to coun el" reliance on Mr.
Meagher as "'highly experienced patent counsel, knowledgeable patent counsel. and the referring
coun ei. See D.l. 51 at 24-25) Later. in PDlCs answering brief in oppo ition to Adobe'
renewed motion for sanction , PDIC implied that counsel did nor actually rely sol ly rely on Mr.
Meagher, but in fa t counsel i11depe11de11tly reviewed claim charts and discussed matters with
Mr. Meagher. (See D.l. 74 at 5) The Court accepts as true the latter representation

which

depicts a far more laudable approach to meeting counsel's obligations than what was previously
implied. But the lack of clarity - and arguable inconsistency- in what was explained to the

22

E en more preferable would have been or POI to have articulated its web setver
theory of infringement well prior to when Adobe erved its Rule 11 motion. in connection with
one or more of the repeated times when coun el for Adobe asked PDIC about its non-Adobe
basis for maintaining the lawsuits. (See D.l . 67 at 5- 7) Had POI done o., Adobe would
tertainly have explained to PDIC that Scene7 is an Adobe produ t and tbe parties quite likeJy
couJd have resolved their then necessarily narrowed dispute about the application of tbe Adobe
License to Scene7 and to manipulations of image at a web server when performed with nonAdobe oftware.
27

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 32 of 43 PageID #: 3062

Court contributed to the Coun May _015 talements about the apparent inadequacy of the preuit investigation and likely encouraged Adobe to proceed to renew it reque l for anctions,
thereby extending these proceeding .
There are other inconsistencie in what PDI

ha represented to the

ourt. fn PDIC"s

fir t motion for anction . PDIC stated that it could not access five of

oppo ition brief to Adobe

th nin D fendants' w bsite because they wer either corrupted'' or blocked: (D.I. 30 al 56) ln other words. PDIC stated it could onl access at most four of the nine Defendants'

websites. Later. howe er. in his September 2 15 second declaration. Mr. Meagher stated that as
part of bis early 2013 pre-suit in estigation he wa able ..to eventualJy access at least ponion of
most [i.e., five or more] of the web ite of the Defendants: (D.l. 76

32, 34)

At the May 5. 2015 hearing, counsel for PDfC stated that PDIC would drop its lawsuits if
accused images were made with Adobe Photoshop . See 2015 Tr. at 9-40 Later, PDIC
uggested, under it new web server theory, that Defendants could still infringe even if they on!
used Adobe Phot hop

to reate all f th accu ed images. s long as Lhe ''Enlarged Product

iew'' JPEG functionalicy

a not implemented using Sccne7. See D.l. 74 at 6; D.I. 76 at

0-36} The latter positi n appears to e inconsistent with the representation PDIC had made
in Ma 2015 . PDIC eemed to make imilar incon istent tatement regarding the scope of the
Adobe License. Compare 2015 Tr. at 29-30 ( tating use of Adobe Photo hop

to process

image made image non-infrmging under license) with D.l. 74 at 13 ( tating image processed with
Adobe PhotoShop

could still infringe under license)) The Court recognizes that PDIC now

explains that the po ition it took at the May 2015 bearing were position it voluntarily and
strategically cho e to take after deciding that right it believed it retained under the Adobe

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 33 of 43 PageID #: 3063

License were not worth fighting for in light of Adobe"s intervention. (See, e.g. , Tr. at 101 ) That
i PDIC was not in fac t agreeing with Adobe s interpretation of the Adobe License, and still
does not agree with that interpretation. Howe er. PDlC was far from clear about it positjon on
these points leading Adobe and the Court to reasonabl believe that PDTC had no dispute with
Adobe ' position. This lack of clarit_ , l

, made the ub. equent proceedings more challenging

and more demanding on the parties and the Court' s re ources.


Another factor weighing in favor of an exceptional case finding is PDIC" s minimal effort
to develop facts (pre- or post-suit) refated to infringement. Even after learning about Scene7,
PDJC bas produced no evidence that it has put an effort into finding out which third-party nonAdobe) companies develop software that might be implicated by PDIC"s web server theory of
infringement. PDIC relied almost exclusi ely on Adobe and Defendants to prove that
Defendants did not infringe, even though PDIC bear the ultimate burden of proving
infringement. It i problematic that PDIC contracted to license Adobe and Adobe" customers.
obtaining

in exchange and then decided to sue some of those

ery customers - insi ting vaguely that the s uit extended only to those customers ' unli ensed
conduct, and requiring those cu tomer (or Adobe) to demonstrate what was licensed.
The

oun is al o troubled by PDJC dela in clisrni ing the Nordstrom action . See

C.A. No. 13-408) Adobe alleges, and PDIC does not dispute. that PDIC received a declaration

from the Nordstrom Defendants (Nordstrom .c m.

ordstrom.com Inc., and Nordstrom Inc. ) on

October 24, 20 I 4, explaining that the Nordstrom Defendants did not infringe under the Adobe
Licen e. (See D.I. 67 at 6) On the basis of this declaration, PDIC eventually dismissed its case
against the Nordstrom Defendants, but only even months later, on May 29, 2015. (See C.A.

29

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 34 of 43 PageID #: 3064

. I -408 D.I. 1 PDlC offer no explanati n

h it t

rel trom Defendant .


11 f th ab
mer

ed

t nd d litigtUi n in the

e-d cribed c ndu t

lh res urces expended on th1 liu auon b th

, there ore, fa

r finding lhe e cases to bee

ii.

e- aptioned cases and

artie and the Court. All of the e

epu nal within the meaning of 285.

Factor di favoring finding of' exceptional" case

ertain t ctors present here weigh against an ex eptionaJ c e finding. For example,
epting as true the facts alleged by Mr. Meagher with re pe l t hi pre- uit in estigation.

POI and its ttome

ome pre- uit inv tigarj n. As

a Mr. Meagher) performed at I t

de cribed in his declaration (D.1 . 1, 76), Mr. Meagher relied n h1

ten i e litigatjon and

Ii en mg e.cperience

lie e that an s

th the -6 patent.' h1ch led Mr. Me gher t

patent c im ... D.I. 76

creating and manipulating JP G images infringed the


tin

tru hi repre entati n Mr. M

elief that the

tern for

11

d aith, bj cti el reasonable

gher b d a g

patent was alid and that system u ing JP

chnol gy infringed the 05

patent in th manner under t od b Mr. Meagher.

ln additi n. it wa r asonable under the circum tances f the

un el to rel

n thee ten i e experti e of Mr. Meagher. Accepting a tru th unr butt d rcprc entations in

the d clarati n ,

un el reviewed claim chart and had di cu i n

74 at 5 M reo er, counsel w

the ab

e.capti ned uit

patent.

. D.I 7

entitled to rel on pa

ith Mr. M agher. S e D.l.

mmuni ati n. ' ith Mr

and hj reputation as a consummat e pen \ ith re


unsel

\!

as not re ufred

30

eagher

e t t the '056

red th in e tigati

steps

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 35 of 43 PageID #: 3065

perfonned by Mr. Meagher before filing the lawsuits.13 Counsel bviously had no control o er
the fact that Mr. Meagher did not disclose to them the existence of the Adobe License or its
potentiaJ relevance. Thi pre-suit investigation, although incomplete and far from ideal, was
adequate under the circumstances to meet counsel's Rule 11 obligations (as further discu sed
below) .
The Court accepts on this record that Mr. Meagher and PDlC possessed a plausible theory
of infringement under a rea onable interpretation of the

dobe License. As noted above the

statement by PDJC"s counsel that created apparent inconsistencies with re pect to PDIC's
license and infringement theories do not demonstrate that PDIC ever actuaJl ' conceded the
incorrectness of PDIC"s positions r ever actuall conceded the correctness of Adobes
alternative po itions. (See. e.g .. Tr. at 16-18

Relatedl y, although PDlC delayed in revealing the

details of its web server theory. nothing about the theory i inc n istent with Adobe and

Pore

joint letter sent to Adobe' s customers. (DJ. 69-1 Ex. 9) In addition , PDIC's original complaints
in these cases discus infringement at the level of websites (albeit in a very general fa hion).
(See D.l. 1)

Moreover, there are indicia in the record that PDIC

eb server theory of infringement i

not merel plau ible but ma acruall be a trong basis for as erting unlicensed infringement of

13

PDIC quotes CTC Imports & Exports v. Nigerian Petroleum C01p., 951 F 2d 573 579
(3d Cir. 1991 ), for the proposition that PDJC was not required to conduct as full of a pre-suit
investigation in th se ca
would ha e be n requir d if the t056 patent had not been expired
and bad PDJCs damages period not been shrinking by the day. (See DJ. 74 at 15) The Court
disagree with PDJC that CTC supports this proposition. Mr. Meagher stated in his declaration
) that PDJC acquired the '056 patent in January f 2010. Thus. it was PDIC own
(0.1. 76
delay that created the supposedly emergent situation pointed to by PDIC and PDlC cannot use a
situation of its own creation as an excu e for any deficiencies in its pre-suit investigation.

31

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 36 of 43 PageID #: 3066

the 056 patent by one or more of the Defendants. The record demonstrates that at least some of
the Defendants do not rely exclusively on Scene7 in the web servers. (See D.l. 74 at 5) Adobe is
silent in its briefing on the relative merits of PDJCs web server theory. Adobe has not presented
any evidence - ex'Pert or otherwise - to challenge the merits of this infringement theory.24
It is notable as well, that the presumption of patent validity which is always present at the
start of a patent infringement suit is here. \\;th respect to the '056 patent, a quite strong
pre umption. This is because of the many lieenses third-party entities have taken to tbe '056
patent and the ' 056 patent' s survival of ree amination in the PTO. (See D.I. 76 ml 8, 17) Adobe
has not suggested that it has an untested. meritorious theory as to wby the 056 patent is invalid.

Regarding PDICs license position. PDIC has repeated] asserted that it is only seeking
recovery for infiingement riot co ered by the licen e (i.e. infringement not involving Adobe
products) in light of the following language in the Adobe Licen e:

(D.l. 76 ~ 23) (emphasis added) Again. the Court does not view POI 's interpretation

of the Adobe License - a position PDJ

chose not to fight for in the context of its patent

infringement allegations against D fendant . after Adobe intervened. but a position PDJC has
never abandoned as what it icw as the correct reading of the Adobe License - to be
unreasonable.

z~Adobe essentially argues that PDIC formulated the web server infringement theory too

late (after filing suit) and/or that PDIC waived its right to proceed on this theory b concessions it
had made earlier in the litigation. Adobe does not, however, make any attempt to show that the
web server theory of infringement is erroneous, implausible or frivolous.

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 37 of 43 PageID #: 3067

As indicated by Mr. Meagher, when PDlC received tatement from Defendants that they
only used Adobe products with respect to the accused technology, PDJC dismissed its case
agamst these Defendants. See D.I. 76

52) Accepting Mr. Meagher"s representation as true.

PDIC did not advocate positions that were meritle s or fri olous. Nor hould it be overlooked
that when PDJC learned of Adobe s po ition with respect to the Adobe License. PDlC worked
with Adobe to agree on the text fi r a lener that Adobe sent to Adobe ' s customers, advising those
customers that PDIC was oot uing based on

Adob~related

conduct. (See D.1. 30 at 2) PDIC ' s

cooperation with Adobe in this undenaking di favors finding PDIC litigation conduct
exceptional .
What follow from all of this is the very significant fact that even a more thorough presuit investigation may well not have led counsel to conclude that these case

hould not have

been filed. lmportantly given the plausible and possibly strong) theory of unlicen ed
infringement of a valid patent that has been (belatedly aniculatt:d b PDIC, it is difficult for the
Court to conclude that these cases are of a type that the Court should seek to deter from being
filed . That conclu ion weighs heavily against a finding of exceptionality.

ln light of the above the Court is not persuaded that these suits were brought for an
improper purpo e or that the suits were frivolous.
iii.

Neutral factor

Other circumstances present in these cases are relevant to the exceptional case analysis
but are neutral and do not weigh for or against a finding of e ceptionality.
Adobe emphasizes the total number of 51 'nearly identical'" lawsuits brought against
Defendants and others alleging the arne theory of infringement under the '056 patent. As Adobe

33

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 38 of 43 PageID #: 3068

b erve . the ederal

c m laint

gain ta

ide variet

'impr per purp e: Eon-

pattern of filin~ near! identi al

ircuH has xplained t at

t LP'' Fla

rar Ba11

r a la

ind! i ..

f c m anie
1p . 24

..A.pp

swt havine an

I 9, 197 (Fed.

ir. 2

7 .

But in th
relat1 el br ad. rr ng patent c
. (S

hno

ikel y re

0.1. 6

7-1

ering many u e

f JP G an undisputed! popular

Hence, the larg numb r f ca cs fi led b POI

ma ju t

id pread infringement fa al id patent, r th er than be indi ati e of abuse of the

udi 1al . tern fi ran improper purpose.

p int t the nui ance i.e .. I

Ad b al

Defend nt in attempting to settle th


sertlement ffer . t
the high c t t
1 27 Fed.

. ha

een ound b th

n-nu an

ers.

0 11-

ttl mcnt fer POIC made

tag . (Se D.l.


ir u1t

ederal

neth le . Ad b h

that sum s ught in senlement must ex


"'11!

case at an earl

e end omple litigation:

ir. 2 11 ).

luc

met1m

at 14-15 L w alue

be part f ..exploiting

r LP " Flag. rar Ban orp. 6

F. d 1314

uth rit fi r its implicit position

p intoo t u

ed a certrun minimum d liar figure in order to qualify a

ore importantl . here it appear equall , pl au ible that POI - and Mr.

M agh r panicularl - kne\ that any non-nui ance rea 011able ettlement ffer h d to be fi r a
liar figure . The ' 056 patent expir don December,

l:OU)d

7~

gi en the i.-year

ery f patent infringement damage , a 35

st tut ry limit n re
POI

nly eek to rec ver damages accrued up to De m

earlie t-iiled f the ab

e- aptioned

es was filed n f ebru

r1

I S, 2

DJ. I. POI . b
dama e . ln thi

. 286. th1 meant that


n that the
. 1 -2"'9

nths of
nt xt. the r

rd i not de eloped

34

int

here th

urt c uld fi nd that

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 39 of 43 PageID #: 3069

the I w value settlement offer

ffer

r in tead that the \ ere reas na I

ffer

tailored t the facts here.


inall . dobe argue that the fact th

P J

nJ ment ffers were "exploding' - that

i -, the were .. on the tab e.. for only a limited peri d ft r which the were withdrawn - fu rther
e den

POI impr p r purpo e. ederal

ircwt preccd nt has not d 'demand for a qui k

ttJemcnt can support a finding of e cepti nali . . Eon-

'f

53 F. d at 1327. Bw in the

LP

- apti ned ases. because the patent-in- uit wa long-expired, tbe damages available t

PDJ

the e

r pany. m

nee. Funhcrmor

de ired to ettle s me r all f th

ha

PDI . as a small

uits ui kl duet th high c sts o

maintaining litigation in 51 patent swts.


In ~h rt, th num er of cases and terms
a

-capti n d a

In the

urt

enlement o ered b PDJ

b ing found excepti nal. ut the. equal! may not favor such a finding.

iew. under the ircumstanc


h.

fa

r are neutral.

Conclu ion with re pect to 'c ccptional" ca e


, whether the above- aptioned ca e

und 'e cpti nar wilhin the meaning of

r a finding o

fa

pre ent here. the

m the length_ di cussi n

.bould be

may fa or the

_gs pre ent a difft ult. close call. Man '

ceptionaliry. while man d n

nd till tbers - in luding factors

relied 011 hea ii b Ad be - ar neutral in the b Ian e. But the Jaw re ui s the ourt to make

fi ndi ng ne wa

r th

nd r a t talit

ther.
th circumstance anal. si . the

un mds that the e cases do stand

out from the rest: in ompari n t the full panopl: of patent a


has been in ol ed Ind ed the ab

e-captioned cas

are .. un

with which the un er igned

mm n: rare: and ..n

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 40 of 43 PageID #: 3070

ordimuy.'' Detune Fitnes , 134 . t. at J - . Thi.:n:fi

:w --e ceptional" within

the meanin of 2 5.

Th

urt

makes this .finding not due t th la

fi 'th litigation c ndu t. In tead. lh e a.

merit L PDJ case. nor due to bad

- . tand ut from the re due to a com bination of: an

ad uat but far fr m ideal pre- uit m e tigati n.

n u tcd with h te due to decreasing

damag

a ailability b ed on an expired, buts emingl str ng and broad. patent somewhat

car I

di lat ry litigation conduct by the patentee; an attempt by the patentee to shift some

ub t ntial porti n f tbe co ts of identifying th e line h tween lie n ed and non-licen ed conduct
to D fendant and Ad be; intervention. permitted b th

urt.

d pitc PDI ' s r peated (though at time hard-to- lie

) pr le tati

t a cu

an a gressiv mtervenor

that POI had no intent

an Ii ensed c nduct of infringement POI s une plain

ne f the a

ned cases: and PDlC fail ure t

there re. leads th

nablc inquiries as \ ell the

re

re pond t

are ully.

in djsrn ing at least

The vcrall balance

ourt Di crelioo as to Wheth r t<1

ward . ee

Th fuld ' g that these ca es are "exceptional'' make an aw rd


t

c mpcl s uch an award.

moy award re

Inc:. \'. Cra


case d

CO,

tentl)' . and thorougW_

ourt L find that the e cases are "e, epu nal ."
d.

but il does n

ection 285 pro ide : The

na I att me fees to the pre ailing party' empb

Inc.. 2010

r4-88 . at *3

att me fees available.

urt in e ceptional cases

en an e:ceptiooal

s n t require in all circum ta.nee the award o a

Son. Jn .

1.

th t the app

S. C. John on

rt r i alluc: . Jn ..
ri

als Cimline,

dd d ).

urt

e erci e of its d ' cretion under rhe t rali1

36

circums tanc

ha decided

i not [, award

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 41 of 43 PageID #: 3071

attorney fees.
As the Supreme C urt stated in Octane Fitness. 134 . Ct. 1756 n.6. "considerations of
compensation and deterrence .. may infonn the . 285 analysi . Regarding con iderations of
compen ation. the Coun notes that Adobe has cho en to litigate these ca e aggres ively
including b intervening. b persisting with litigation even after PDIC dismi sed all of its patent
infringement allegations against Defendants, and by filing a motion for judgment on the
pleadings before the pleadings were even clo ed . In view of Adobe ' litigation choices. a
ignificant portion of Adobe attorney fee are attributable t Adobe' action

and not PDIC

Wbik certain of POI litigation conduct >..'tended litigation in these cases and increa ed tb
amount ofresources expended b. the parties and the Court. this is not one of the rare cases "in
which a party unreasonable, though not independentl sanctionable. conduct i so exceptional'
as to justify an award : Oc1ane Firness. 134 S. Ct. at 1751 (emphasis added ).
With respect to considerations of deterrence, although PDIC could have done more to
advance the litigation much more efficiently, there is no singular category of conduct that rises to
a level that would warrant deterrence by way of an award of anorney fees. There is no e idence
of bad faith or otherwise sanctionable conduct. ln many ways. PD1cs omewhat careless and
dilatory conduct wa a re ult of the unique circumstance of these cases, in ol ing an aggressi e
third-party intervenor. two motions for sanctions before the case even got to the discovery

phase~

and a flurry of motion practice based on wholl -undeveloped theories oflicense interpretation
and patent infringement.
or the abo e reason . Adobe' s reque t for attome fee under . 285' ill be denied .

37

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 42 of 43 PageID #: 3072

2.

Rule 11

Prnc

Based on

mo t recent su mi i

pre- uit in esti ation was inadequate r that an


ith ut a rea nable fa tual or legal inquiry

th . uit were n

under Rule 11

ill be d nied.

mg plac pnor to the filing. The substanti e

brought for an improper purp

28

. . .

. Thus.

urt h

1927
~e

'lndi ation of this bad faith ar findings that the )aim ad an


known tbi and that the moti

purp e su h as ban

uit wa for an improper

ultimate) dismi ed. the C un


r an improper purpose. for the

pur uing th

rea ns alread di u ed a
4.

Prud ntial. _7g .""d at 18 .


v ere meritless. that c un

r filing th

men Id. V hiJe P

ind that PDIC was n

already determined that

r th reas ns stated above. sanctions

n under 1927 require a finding of b d aith .

knew

under

1927 will b denied.

ourt Inherent Autbori

aith js usuall required fi r

A finding

urt inherent

auth ri ty. S e Prudential. 27 F.3d at I 88. For the reasons discu ed a


und bad faj th and d es n
auth riry."
c ndu

nerall , a

deem the accused conduct

urt ' inherent power should be re

e, the Court has no

na I under the C urt s inherent


cd fi r Lh

I!

~ in

ruch th

of a party r an attome i egregiou

Bro" n. 3 .3d 1r_, 11 5 (3d Cir. 199- .


egregi u . P I h

1 acted

ma e for an impr per purpose or

uffi ient Wlder Ruic 11 . and th

merit f PDIC- law uit i

wt cannot sa that PDT

wt. th

hair

in ad aith. e atiousl '. want nl r


3

as

r oppre. sive reasons.

Case 1:13-cv-00239-LPS Document 96 Filed 03/31/16 Page 43 of 43 PageID #: 3073

Therefore. sanctions under the Court's inherent authority will be denied.

JV.

CONCLUSION

For the foregoing reasons the Court will (1) grant Adobe Motion to Dismiss (D.l. 52),

(2 grant in pan and den in part PDIC s Motion to Dismis (DJ. 66) 3) den Adobe' Motion
for Judgment on the Pleadings (D.I. 75). and (4 deny Adobcs Renewed Motion for Sanctions
(D.I. 65). An appropriate Order follows.

39