Commencement of a U.S. Civil Lawsuit Pleadings, Jurisdiction and Venue

July 18, 2016

Andre K. Cizmarik, Counsel

IP Summer Academy 2016 Commencement of a U.S. Civil Lawsuit – Pleadings and Jurisdiction IP Summer Academy 2016 Boston, Massachusetts July 11 – 22, 2016

Overview of Litigating in the United States

• Types of Courts

• Pre-Complaint Investigation

• Complaint

– Filing of Complaint – with Court

– Service of Complaint – on Defendant

• Pre-Answer Motions

• Answer

– Responses

– Affirmative Defenses

– Counterclaims

– Cross-claims

• Discovery

• Pre-Trial Motions

• Trial

• Appeal

© 2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved. Commencement of a U.S. Civil Lawsuit – Pleadings and Jurisdiction IP Summer Academy 2016 Boston, Massachusetts July 11 – 22, 2016

Federal Courts in United States

• United States Supreme Court (Highest Appellate Court)

• United States Court of Appeals (Intermediate Appellate Court)

• 13 Circuits throughout the United States, typically consisting of several states and/or U.S. territories

– Law can be different in each Circuit until the Supreme Court speaks on the issue

• Federal Circuit – handles appeals of patent cases, both arising from the district courts and from the International Trade Commission (ITC), as well as appeals from the Patent Trial and Appeal Board (PTAB); appeals from the Federal Circuit are heard by the Supreme Court, at the latter's discretion.

• D.C. Circuit – handles appeals of some administrative agencies, e.g., Federal Communications Commission; does not handle patent appeals from the ITC.

• United States District Courts (Trial Court)

• One or more district courts in each of the 50 states, as well as the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam and the Northern Mariana Islands

Thirteen Federal Judicial Circuits

State Courts

• Typically have the same structure as the federal courts:

– State trial courts (lowest courts)

– State appellate courts (intermediate appellate courts)

– State courts of last resort (highest appellate courts)

State Courts (e.g., New York State Court)

• Court of Appeals (Highest Appellate Court)

• Appellate Divisions (Intermediate Appellate Court)

– 4 Departments

• Supreme Court

– One trial court in each county

Comparison of Federal Courts vs. Massachusetts State Court

Massachusetts Federal Courts Courts

Highest Appellate Supreme Judicial Supreme Court Court Court

Intermediate Court of Appeals Appeals Court Appellate Court

Trial Court District Court District Court

Comparison of Federal Courts vs. New York State Courts

New York State Federal Courts Courts

Highest Appellate Supreme Court Court of Appeals Court

Intermediate Court of Appeals Appellate Division Appellate Court

Trial Court District Court Supreme Court

Chronology of Typical Civil Lawsuit Filed in the United States

Service of Complaint Drafting of on Document Pre-Trial Complaint Defendants Discovery Motions Appeal

Pre-Suit Filing Answer or Deposition Trial Investigation Complaint Pre-Answer Discovery by Plaintiff with Court Motion

. Cases last 2-5 years or longer in district court . Cases can be settled at any point in the litigation . Cost of litigation may induce some defendants to consider settling even if there is a meritorious defense.

Pre-Complaint Investigation

Rule 11 of the Federal Rules of Civil Procedure

• Every submission shall be signed by at least one attorney of record…

• An attorney is certifying that:

– Lawsuit was not filed to harass the other side

– Claims are non-frivolous

– Allegations have factual support

• Sanctions. If the Rule has been violated, the Court may impose sanctions of a monetary or non-monetary nature.

• Rule 11 applies to all pleadings, motions or other papers filed throughout the course of the lawsuit.

What is “Frivolous”?

• Liebeck v. McDonald’s Restaurant (1993) – notorious state court case that American public views as frivolous

• Plaintiff sues McDonald’s because the hot coffee which she placed in her lap while in her car spilled and burned her

• Jury awards compensatory damages of $200,000, which are reduced by 20% to $160,000 because of contributory negligence

• old system of contributory negligence was harsh

• If plaintiff was 1% responsible, defendant pays nothing

• today – award is reduced by percentage of plaintiff’s negligence

What is "Frivolous"?

• Jury awards punitive damages of $2.7 million, which trial judge reduced to $480,000 for total award of $640,000 – the case settled for an undisclosed amount

• Remitter – take reduced amount or else there will be a new trial

• The $2.7 million was suggested by plaintiff’s attorney – it was the equivalent of 2 days of worldwide coffee sales for McDonald’s

• Is this a frivolous case under Rule 11?

What is "Frivolous"?

• Plaintiff was 79 years old

• The car was parked when spill occurred

• Plaintiff was a passenger, not the driver

• Plaintiff was wearing cotton sweatpants, which stuck to her skin when soaked with hot coffee

• Plaintiff suffered 3rd degree burns over 6-16% of her body

• Third degree burns are the most severe types of burns known as full thickness burns where the burn extends into deeper tissue

• Hospitalized for 8 days

• Had multiple skin grafts over 2 years

What is "Frivolous"?

• Plaintiff made a settlement demand of $20,000, but McDonald’s offered only $800

• During discovery, it was established that McDonald’s required franchises to serve coffee at 180-190 ºF (82.2 – 87.8 ºC)

• McDonald’s own documents showed that between 1982 and 1992, there were more than 700 complaints about the temperature of McDonald’s coffee – DOCUMENT PRESERVATION ISSUE

• As a result of the McDonald’s case, almost every major fast food establishment and coffee franchise now places warnings on their coffee cups that say – “WARNING: THIS BEVERAGE MAY BE VERY HOT” – or words to that effect

What is "Frivolous"?

Examples of Warning Labels

• Subway sandwich wrapper: “Caution: Toasted Subs May Be Extremely Hot.”

• Marvel Costume company’s warning on its superhero character costumes: “This costume does not enable flight or super strength.”

• For the toilet brush from Scrubbing Bubbles: “Do not use for personal hygiene.”

• For the Rowenta Iron: “Do not iron clothes on body.”

• For the Razor scooter: “This product moves when used.”

• For Bialetti Casa Italiana’s nonstick pans: “Keep pet birds out of kitchen when using this product.”

Complaint

• Parties

• Jurisdiction:

– Subject Matter Jurisdiction – is this the correct court to sue in given the cause of action?

– Personal Jurisdiction – is this the correct state in which to sue this person/corporation?

• Venue

• Allegations of Fact: who, what, when, where, how (for patent cases, may include allegations supporting claim of direct, indirect, and willful infringement)

• Causes of Action (e.g., infringement of US Patent XYZ)

• Prayer for Relief: damages, injunctive relief, enhanced damages, attorney's fees and costs

Parties

• Individual party is a citizen of the state where they reside permanently

– “Citizenship” of parties is important for purposes of subject matter jurisdiction in federal court if that jurisdiction is based on diversity

– Corporate Party – Citizen of both its state of incorporation (for many companies in the U.S., this is Delaware) and state where its principal place of business is located

Subject Matter Jurisdiction

• There are 2 main ways to gain access to the U.S. federal courts

– Federal Question Jurisdiction (28 U.S.C. § 1331)

– Diversity Jurisdiction (28 U.S.C. § 1332)

Federal Question Subject Matter Jurisdiction (28 U.S.C. § 1331)

• The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States

– Commence suit under a Constitutional provision

– Commence suit under a federal statute

• Federal courts have exclusive jurisdiction over several types of cases; this means that these cases cannot be heard in state courts

– Examples include patent, copyright, trademark, see 28 U.S. Code § 1338 ("The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks.").

– Other examples include bankruptcy, and admiralty/maritime cases.

• Relevant when you have only state law claims and do not have a federal cause of action (does not apply to patent or copyright litigation, but may apply to litigation related to licensing disputes and breach of contract).

• If state law claims brought in state court, may be possible to "remove" (transfer) case to federal court.

• Parties must be completely “diverse”

– “Citizens” of different States, e.g., New York and Massachusetts

– “Citizens” of a State and citizens of a foreign state, e.g., New York and Japan

• Complete diversity is destroyed if one of the plaintiffs and one of the defendants are from the same “state” or if one plaintiff and one defendant is a citizen of any “foreign state”

Diversity Jurisdiction

• Amount in controversy must exceed $75,000, exclusive of interests and costs

. “Don’t make a federal case out of this”

. Why does diversity jurisdiction exist? Civil War and Reconstruction

Diversity Jurisdiction

• Exceptions to Diversity Jurisdiction

Federal Courts will not entertain:

. Domestic Relations – matrimonial cases, child custody issues, etc.

. Probate proceedings – dealing with disposition of assets after death

Personal Jurisdiction

• While subject matter jurisdiction (federal question or diversity) refers to the kind of case a federal court can hear, personal jurisdiction refers to the court's authority to hear a case against (and exercise power over) a particular defendant (in personam jurisdiction) or item of property (in rem jurisdiction)

• Limitations on a court’s personal jurisdiction

– Must be “minimum contacts” between defendant / property and the forum state so that the exercise of jurisdiction is "fair and reasonable"

– For example, cannot sue defendant in Massachusetts if she is from New York, has never been to Massachusetts, if cause of action arose outside of Massachusetts, and if injury occurred outside of Massachusetts

– In patent cases, personal jurisdiction is a matter of Federal Circuit law.

Venue (28 U.S. Code § 1391 and 28 U.S. Code § 1400(b))

• In addition to the requirements of subject matter and personal jurisdiction, a complaint must also satisfy the requirements of venue.

• As the Federal Circuit has explained, "Venue, which connotes locality, serves the purpose of protecting a defendant from the inconvenience of having to defend an action in a trial court that is either remote from the defendant's residence or from the place where the acts underlying the controversy occurred." VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1576 (Fed. Cir. 1990)

Venue (28 U.S. Code § 1391 and 28 U.S. Code § 1400(b))

• Title 28 U.S.C. § 1391(b) governs venue requirements for all civil actions in federal district courts. It provides:

– A civil action may be brought in—

• (1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;

• (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or

• (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.

• Title 28 U.S.C. § 1400(b) governs venue in patent cases. It provides:

– "Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."

• The House and Senate are considering changes to the venue provision governing patent cases to make it harder to bring infringement suits in certain "patent-friendly" districts.

26 © 2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved. Commencement of a U.S. Civil Lawsuit – Pleadings and Jurisdiction IP Summer Academy 2016 Boston, Massachusetts July 11 – 22, 2016

The Complaint

• Rule 3 of the Federal Rules of Civil Procedure states that a civil case is commenced when the plaintiff files a complaint with the district court. Fed. R. Civ. P. 3 ("A civil action is commenced by filing a complaint with the court.").

• Date of filing is significant for statute of limitations purposes.

– What is the statute of limitations? Time within which particular causes of action can be brought.

– There is no statute of limitations for patent cases per se, but a patentee cannot collect damages going back more than 6 years from filing of complaint. See 35 U.S.C. § 286 ("Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.").

– Currently before the Federal Circuit en banc: whether doctrine of laches applies to reduce 6 year damages window if patentee delayed filing suit too long after becoming aware of infringement; recent Supreme Court case (Petrella v. Metro-Goldwyn-Mayer, 134 S. Ct. 1962 (2014)) held laches doctrine doesn't apply in copyright context, which statutorily provides a 3-year "lookback" window for each separate copyright violation. See 17 U.S.C. § 507(b) (“No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.”)

• Timeliness for purposes of statute of limitations is measured from filing, not service, of complaint.

Service of the Complaint – Rule 4

• Should be done within 120 days of filing of complaint, or case likely dismissed (without prejudice). Fed. R. Civ. P. 4(m) ("If a defendant is not served within 120 days after the complaint is filed, the court—on motion or on its own after notice to the plaintiff—must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period."). Service may take several forms:

– Personal service on the defendant

– Service at defendant’s usual place of residence with one of suitable age and discretion

– Service upon authorized agent of the defendant

– Service by mail and acknowledgement

– Service via the Hague Convention

– Service by nail and mail

• In patent cases, where the defendants are corporations, process servers are hired to serve agents authorized to accept service.

The Complaint – Allegations of Fact and Claims for Relief

• The contents of the complaint are governed by Rule 8(a), which requires:

– "A short and plain statement of the grounds for the court's jurisdiction"

– "A short and plain statement of the claim showing that the pleader [plaintiff] is entitled to relief" – known as "notice pleading"

• Allegations must be plausible. See Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009).

• A plausible claim does more than merely allege entitlement to relief; it must also contain “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555).

– "A demand for the relief sought, which may include relief in the alternative or different types of relief" (e.g., injunctive relief or damages or both).

• Plaintiff bears the burden of proof on the claims it alleges.

Example of Notice Pleadings

• If complaint alleges the following:

Plaintiff is ______.

Defendant is ______.

There was a contract . . .

Defendant breached contract

Plaintiff has been damaged

• Is this a well pleaded complaint under Rule 8(a)?

Example of $2.5 million breach of contract claim

Example of Notice Pleadings

Interesting case dealing with Issues of Notice Pleading, Frivolousness and Subject Matter Jurisdiction

• On December 13, 2005, Plaintiff Quinn sues Microsoft arguably under federal patent law

• Complaint is handwritten and only 2 pages long

• Is the lawsuit frivolous? — look at complaint

• Judge issues May 4, 2006 decision

Excerpts from decision

Response to the Complaint

• Two kinds of responses to the complaint:

– Pre-answer motion

– Answer

• Must normally be made within 21 days of service of complaint, though usually can negotiate longer time with plaintiff.

Pre-Answer Motions – Rule 12(b)

• Before answering the complaint, a defendant may move to dismiss the complaint on any of the following grounds:

– Lack of subject-matter jurisdiction (includes plaintiff's lack of standing to assert its claims, which is a jurisdictional limitation on the court's authority to hear the case).

– Lack of personal jurisdiction

– Improper venue

– Insufficient Process

– Insufficient Service of Process

– Failure to state a claim upon which relief can be granted (e.g., because not all elements of cause of action are alleged, or because limitations period has run).

– Failure to join a required party under Rule 19.

• These defenses may also be asserted as affirmative defenses in defendant's answer.

Answer – Rule 8(b)

• Must either admit or deny each individual factual allegation; if defendant lacks knowledge or information sufficient to form a belief as to the truth of a particular allegation, acceptable to note such lack of knowledge or information and to deny the allegation on that basis.

• Legal conclusions require no response but are usually denied as a precaution.

• Prayer for relief also requires no response but defendants usually deny plaintiff's entitlement to any relief.

• May also assert any known affirmative defenses that are not the subject of a pre-answer motion, such as:

– Statue of limitations

– Unclean hands/estoppel

– Laches

• Defendant bears the burden of proving affirmative defenses, and must have basis for asserting them, so exercise care.

♦36

Answer – Rule 8(b) (cont'd)

• There are two main affirmative defenses to a patent infringement claim:

– The patent is invalid and therefore unenforceable

• May be invalid because the invention was not novel, or was obvious , or because the invention does not comprise patentable subject matter, or because there is an error of inventorship.

– The patent holder engaged in inequitable conduct (failure to disclose during prosecution material prior art references of which inventor was aware) and therefore the patent is unenforceable

• It is common practice to assert non-infringement as an affirmative defense, but it is not, properly speaking, an affirmative defense because the plaintiff maintains burden of proving infringement at all times.

Burden of Proof in Civil Cases

• Plaintiff bears the burden of proof on its causes of action

– Preponderance of the evidence – civil cases, excluding fraud

• Patent infringement must be proved by a preponderance of the evidence (more likely than not)

– Clear and convincing evidence – fraud

• Patent invalidity must be proved by clear and convincing evidence because patents are presumed valid.

– Beyond a reasonable doubt – criminal cases

• Example: OJ Simpson case

– Criminal verdict – not guilty – jury concluded that prosecutor failed to prove beyond a reasonable doubt that OJ murdered Nicole Simpson and Ron Goldman

– Civil verdict for wrongful death – OJ was liable – jury concluded that plaintiff proved by a preponderance of the evidence that OJ caused the death of Ron Goldman and committed battery against Nicole Simpson

Counterclaims

• The defendant may want to assert its own claims, counterclaims, cross-claims, and third party claims. Rules 13(a), (b), (g), and 14

– A counterclaim is a claim filed by the defendant against the plaintiff

– A cross-claim is a claim filed by a defendant against another co-defendant

– A third party claim is a claim filed by a defendant against a party that is not yet a party to the action (e.g. for indemnification)

– Creates judicial efficiency to have all claims litigated in one case

• In the patent context, counterclaims may include claims for patent infringement (if plaintiff is competitor and defendant has patents) and/or for declaratory judgment of non-infringement and invalidity.

• Major component of litigation in US; can be very costly, especially in complex litigations, such as those involving high tech patents.

– Under the Federal Rules of Civil Procedure, parties are entitled to obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party. Relevant information need not be admissible at trial if the discovery is reasonably calculated to lead to the discovery of admissible evidence.

– Discoverable information includes not only paper documents but electronically stored information such as emails and their attachments, and documents found on personal and work computers, on shared drives and in central repositories.

– Confidential business information is protected from disclosure by way of protective orders that set the conditions under which such information may be shared or accessed.

• The typical means of obtaining discovery are by serving requests for production of documents, interrogatories, requests for admission, and deposition notices

• Parties conduct discovery in accordance with the Federal Rules, the local rules of the district, the court's own rules of practice, and any governing orders issued by the court.

• Disputes regarding discovery are typically resolved by motion practice.

• Failure to abide by discovery obligations can lead to severe, even case-dispositive, sanctions. 40

Pre-Trial Motions

• Motion for summary judgment – Rule 56

– No material, disputed issues of fact

– Saves time and expense associated with trial

– Motion may encourage one or both of the parties to settle once they see the relative strength or weakness of their case

– Narrows the issues for trial

Trial

• Bench trial

• Jury trial

– Criminal case

• 12 jurors

• Must be unanimous

– Civil trial

• Can be as few as 6 jurors

• Need not be unanimous

Appeal

• Issues to be appealed are generally more limited than issues for trial

• Appeal focuses on whether judge made an error of law or whether the fact-finder's decision was against the weight of the evidence

• Causes additional delay – some courts take a year or more to decide an appeal after briefing and oral argument is complete

• You cannot appeal without obtaining a bond or similar security

45903218v1