Source Vagabond is one of a number of companies making personal portable water supplies that are known in Israel as Shlookers – a shlook being slang Hebrew for a sip.
On August 2, 2011, Source Vagabond sued Hydrapak for, inter alia, infringing “at least claim of the US 7,648,276 patent, either literally, or under the doctrine of equivalents.” On September 16, 2011, Hydrapak served a sanctions motion under Rule 11 which provides that, before a motion for sanctions is filed, the party against whom the sanctions will be sought must be notified of the potential Rule 11 violation and given a twenty-one-day period to withdraw the offending claim. Fed. R. Civ. P. 11(c)(2). Source declined to withdraw. On October 6, 2011, Source filed an Amended Complaint, and on October 12, 2011, Hydrapak served an amended Rule 11 motion.
The court of first instance ruled that granted Hydrapak’s motions for summary judgment and Rule 11 sanctions on April 11, 2012.
Regarding claim construction, the court said there was “nothing complicated or technical” about the claim limitation “slot being narrower than the diameter of the rod,” and that none of the words of this limitation “requires definition or interpretation beyond its plain and ordinary meaning.” Accordingly, the court gave “slot being narrower than the diameter of the rod” its“plain and ordinary meaning.”
The district court stated that Source’s proposed claim interpretation “violates all the relevant canons of claim construction” and that even under Source’s own construction, Hydrapak did not infringe. It also found the literal infringement claim “lacked evidentiary support no matter how the claim was construed” and “the difference is apparent to the naked eye, and the tape measure leaves no room for doubt.”
Specifically, the district court determined that in Hydrapak’s products the slot is larger than the diameter of the rod, even under Source’s proposed construction. The original decision ruling that the case was frivolous and fining attorneys PCZL is reported here.
Source Vagabond and Pearl Cohen Zedek Latzer appealed the ruling.
On appeal, judge Cott determined that the sanctions were bases on two grounds:
“Source made frivolous legal claims in its submissions to the Court, in violation of Rule 11(b)(2); and Source failed to conduct an adequate investigation before filing this lawsuit, in violation of Rule 11(b)(3).”. He recommended Source’s counsel (i.e. Pearl Cohen Zedek Latzer pay $187,308.65 in partial attorney’s fees, but that Source not be sanctioned.
The logic, explained by the district court was “Given counsel’s sole responsibility, as a matter of law, for the violations of Rule 11(b)(2), and counsel’s additional responsibility for the failure to investigate under Rule 11(b)(3), I recommend that Yonay and Shuman be held responsible for any monetary sanction. I further recommend Yonay and Shuman’s law firm, Pearl Cohen Zedek Latzer LLP be held jointly and severally liable in accordance with Fed. R. Civ. P. 11(c)(1).
Hydropak successfully argued that it should receive legal fees for defending against te reconsideration motion, and the court concurred, raising the damages to $200,054.
The decision was appealed to the Court of Appeals of the Federal Circuit.
Court of Appeals of the Federal Circuit Ruling
In patent lawsuits, defending against baseless claims of infringement subjects the alleged infringer to undue costs, and this is precisely the scenario that Rule 11 contemplates.
The District Court found that Source had an obligation to demonstrate why they believed they had a reasonable chance of proving infringement, and that Source failed to show either literal infringement or infringement under the doctrine of equivalents. The issue revolved around the meaning of “slot being narrower than the diameter of the rod”. The district court dismissed Source’s construction stating, “an ‘analysis’ that adds words to the claim language [without support in the intrinsic evidence] in order to support a claim of infringement” does not follow “standard canons of claim construction.” Additionally, the surrounding claim language demonstrates that the “the slot,” “the rod, and “the portion of the container . . . folded over the rod” are distinct from each other. The claim language does not compare the size of the slot to the size of the rod together with the folded over container. Source had the ability to draft the claim that way but did not. It cannot correct that failure by adding words to otherwise unambiguous claim language. In other words, there is a limit to what one can argue a claim means.
Finally, Source argues that Hydrapak’s proposed construction “would render the entirety of claim 1 nonsensical.” This is a fascinating admission that not only does the scope of the claim as prosecuted by PCZL not include the product fabricated by Hydrapak, but that the claim is actually meaningless.
On Appeal, the Federal Circuit stated that “The district court properly determined that “claim construction is a function of the words of the claim not the ‘purpose’ of the invention,” and that Source’s construction “violates nearly every tenet of claim construction and amounts to a wholesale judicial rewriting of the claim.” Source was required to “perform an objective evaluation of the claim terms” to satisfy its obligation to conduct a reasonable pre-suit evaluation. Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1329 (Fed. Cir. 2011). By proposing a definition that ignores the canons of claim construction, Source did not meet that standard. The district court did not abuse its discretion in imposing Rule 11(b)(2) sanctions based upon Source’s frivolous claim construction arguments.
Regarding the doctrine of equivalents:
(“[N]either the attorney’s affidavit nor plaintiff’s ‘pre-suit analysis’ . . .[ever] mentioned, let alone analyzed, how Hydrapak’s product infringed Source’s patent under the doctrine of equivalents.”). Counsel was obligated to come forward with a showing of exactly why, prior to filing suit, they believed their claim of infringement under the doctrine of equivalents was reasonable. See View Eng’g, 208 F.3d at 986. Source did not comply with this requirement below. Under these circumstances, the district court did not abuse its discretion in finding a Rule 11 violation. The cost of $200,054 against Guy Yonay and against Pearl Cohen Zedek Latzer was affirmed.
Court of Appeals Federal Circuit, SOURCE VAGABOND SYSTEMS and Pearl Cohen Zedek Latzer LLP v. HYDRAPAK, INC., decided June 5, 2014
I apologize to readers for being tardy in reporting this decision from June 2014. It has only recently come to my attention. Guy Yonay accused me of unfair reporting of the original decision and argued that the judge was clearly wrong, and Zev Pearl accused me of publishing lies. I think this decision, which may be found in full here appeal PCZL vindicates my reporting.
The court is correct that the attorneys are responsible for filing the frivolous law-suit. Why did this happen?
Well, the decision states that “Guy Yonay and Clyde Shuman are partners in the law firm Pearl Cohen Zedek Latzer LLP. Prior to the present action, Mr. Yonay prosecuted the ’276 patent application. In the underlying district court litigation, Mr. Yonay signed the original Complaint on behalf of Source, and Mr. Shuman signed the Amended Complaint.”
I would suggest that the first problem is that Yonay apparently prosecuted the claim before the patent office (and may have drafted the application) and then went on to litigate it. This is never good practice. Before litigating one should seek an independent opinion of the chances of prevailing. Yonay could not objectively review the claims he’d prosecuted. He appears to be confused between the purpose of the product and the claimed structure. With mechanical patents one cannot, by obtaining a patent for a specific device, prevent third parties from competing with devices having different structures that are well beyond the ambit of the claims, by arguing that they achieve the desired aim and are thus functional equivalents.
In general, it is ill-advised for the prosecutor of the patent to litigate it in court. Indeed, it is ill-advised for the prosecutor and litigator to belong to the same firm. At least on Appeal, Pearl Cohen took an external counsel, Jenks.
The managing partner of PCZL, Zev Pearl is not licensed to practice in the US. There is, however, a senior partner, Mark Cohen, who is US licensed. Both these gentlemen could and should have prevented the frivolous case being filed. Their failure to do so explains why the courts find the firm responsible and not just Yonay and Shuman.
In a newspaper article on trolls that originated in PCZL was published in the Jerusalem Post and also appears on the Pearl Cohen website, it is implied that only under new Obama legislation, can non-practicing entities be sued for costs in unsuccessful law suits. The implication is that prior to the proposed legislation trolls had nothing to lose by filing frivolous lawsuits and that practicing entities have nothing to lose as they are not trolls. This decision shows the error in this approach. Any entity, whether practicing or otherwise, must have reasonable grounds of validity and infringement to bring a case against a third-party to court. The courts have the authority to sanction the plaintiff and their legal counsel for filing frivolous cases. Pearl Cohen should have known that the interpretation they were giving to the claim was untenable. It was not infringed. The courts were therefore correct in fining PCZL.