Source Vagabond and Hydrapak are both companies that make hydration packs. These are what are known in Israel as ‘shlukers’ – flexible water bladders with shoulder straps that may be carried on the back by hikers.
Source Vagabond is an Israeli company that has several patents in the United States. One of these patents is US 7,648,276 is titled “Sealing device for flexible liquid container”.
In August 2011, Source Vagabond, represented by Pearl Cohen-Zedek Latzer (PCZL) sued Hydrapak for patent infringement, contending that the top closure system used in Hydrapak’s Reversible Reservoir II infringed upon Source Vagabond’s patent.
Even before the suit was dismissed last April, Hydrapak was awarded its own patents: US 8,043,005 and US 8,186,881 both titled “Reservoir Closure System And Method” for their novel closure method – which is a fair indication that their system is patently distinct from Source Vagabond’s and inventive thereover.
In April 2012, Hydrapak, represented by Morrison & Foerster’s patent litigation team, won a summary judgment of non-infringement for in the New York Federal Court. Not only was the case was thrown out, but the defendants won Rule 11 sanctions against the prosecuting counsel. Later that year, Source Vagabond appealed the ruling of non-infringement to the Court of Appeals for the Federal Circuit (the CAFC), where, following oral arguments, the court affirmed the District Court’s decision of non-infringement.
Following the appeal, Source Vagabond then filed for a motion for reconsideration:
Judge Colleen McMahon wrote in her decision:
“Plaintiff’s proposed construction violates nearly every tenet of claim construction and amounts to a wholesale judicial rewriting of the claim.” In granting the award of sanctions, Judge McMahon noted that while “I and so many of my colleagues bridle at the flood of Rule 11 motions that arrive on our doorsteps,” in this case sanctions were warranted because “this case is simply not close on the merits.”
On February 21, 2013, Judge Colleen McMahon ruled that the law suit brought by Pearl Cohen Zedek Latzer on behalf of Vagabond was wholly without merit and ordered PCZL to pay $200,054 in costs to Hydrapak and their lawyers.
The decision was given following a motion for reconsideration, and that motion was itself considered frivolous. The court concluded that this case was not close on the merits and lacked any arguable basis in fact. That is the standard for imposing sanctions. Nothing in the papers filed in support of plaintiff’s motion for reconsideration cast the slightest doubt on that conclusion.
A particularly strong paragraph was the following:
In particular, nothing said by Judge Bryson (the Court of Appeal, Federal Circuit CAFC judge that heard the appeal MF), during oral argument on appeal even remotely suggests that he disagreed with this court’s conclusion that Source’s claim construction violated every relevant rule of claim construction. Hydrapak’s counsel’s statement during oral argument that it violated “every precedent” of both the Federal Circuit and the United States Supreme Court was obvious hyperbole, but the fact is that Judge Bryson, like every other judge who looked at this case on the merits, rejected Source’s claim construction and endorsed this court’s conclusions. Source is grasping at non-existent straws here. (parenthesis added)
What this means is that the arguments proposed by PCZL as being the meaning and scope of the claims being asserted were rejected completely. Hydrapak simply was not infringing Source Vagabond’s claims.
Accordingly, for the reasons set forth in Magistrate Judge Cott’s Report, the court awards sanctions of $187,308.65, plus an additional $12,745.35 in sanctions incurred in connection with the motion for reconsideration, for a total award of $200,054. The sanctions are imposed jointly and severally against Pearl Cohen Zedek Latzer LLP and the prosecuting attorneys Guy Yonay and Clyde Shuman.
The Case: Source Vagabond Systems v. Hydrapak, 11 Civ. 5379 (SDNY, Decided February 21, 2013) ruling by Judge Colleen McMahon, Decided: February 21, 2013
This case raises a significant number of legal and ethical issues – enough for a series of articles. In this first article we will look at the decision of sanctions on the complainant’s counsel. Does PCZL and its lawyers have to pay the fine themselves, or can they roll these costs onto their client?
It would appear that under New York State law, all arguments and counter-arguments must be made at the submission of initial trial briefs. Failure to timely object to a magistrate’s report and recommendation operates as a waiver of further judicial review of that decision. Consequently, Since PCZL did not challenge the contention that PCZL, Guy and Clyde are (jointly and separately) the only liable parties, and since they failed to argue that some of the culpability lies with their client Source Vagabond, the district court did not address the issue. Accordingly, should PCZL try to further appeal the court’s decision, we presume that it can only do so on the issue of the sum and the culpability and not on the issue of whether the “blame” and therefore the sanction should have been assessed against the client as well.
We can’t tell whether Source Vagabond pressed Pearl Cohen Zedek Latzer to file the case. We can’t tell if Source Vagabond asked PCZL for a legal opinion as to whether to file the initial complaint or the later filed motion for reconsideration. Indeed, we can’t tell if PCZL encouraged their client to sue, or even originated the idea. Such information is privileged between the attorney and client. It wouldn’t even have come out in discovery were this case to have been considered meritorious enough to continue to trial. Because of this, we can only hypothesize regarding the background to PCZL’s decision in file a case considered by the judge as one that lacked any arguable basis in fact. However, since PCZL did not contest the culpability issue, the issue appears to be moot. Effectively they have assumed, if not admitted, sole responsibility. This could have ramifications if the client files a malpractice suit.
That as may be, it would appear that Source Vagabond got off lightly here, as the costs involved in fighting a case through the US courts can run into millions of dollars. Morrison & Foerster is a leading US law firm and their services no doubt don’t come cheap. Discovery laws make suing in the US a very expensive business, and one that is extremely time-consuming. Thus if the case had dragged on and been lost at a later stage – which seems likely as ‘every judge who has looked at the case on the merits, rejected Source’s claim construction’, it would presumably have resulted in Source Vagabond having to pay very much larger expenses.