SOUTHERN DISTRICT ROLLS OUT NEW PATENT LOCAL RULES

By:
Fred Berretta and Joe Reisman
September 2006

            The District Court for the Southern District of California recently adopted a set of Patent Local Rules governing certain procedures unique to patent cases.  The new rules are similar to patent local rules previously adopted in other courts, for example, the Northern District of California and the Eastern District of Texas, and apply to all patent cases filed after April 3, 2006.  This article discusses these new rules and some of the procedural issues they raise in the context of prosecuting or defending a patent case in the Southern District of California.
            The new Patent Local Rules are divided into four main sections; (1) Scope of Rules, (2) General Provisions, (3) Patent Disclosures, and (4) Claim Construction Proceedings, and generally govern the required disclosures and exchanges leading up to the Claim Construction Hearing.  One express goal of the new rules is to conduct the Claim Construction Hearing, a critical and often case dispositive event, within about nine months of the defendant’s first appearance in the case.  The Patent Local Rules do not specifically address other case scheduling matters, for example expert report due dates, and discovery and motion cutoff dates.  Such matters will presumably be set using the Court’s normal case scheduling procedures.

Scope of Rules
            The Patent Local Rules apply to any case involving allegations of infringement, invalidity or unenforceability of a utility patent.  Thus, in addition to the normal patent infringement complaint brought by the patent owner or the declaratory judgment action brought by the alleged infringer, the new rules may also apply to actions alleging breach of a license agreement if infringement of the underlying patent is alleged.  The new rules are limited to utility patents, and thus would not apply to actions involving design patents (for which a claim construction hearing is generally not necessary).
            Rule 1.3 provides that any motion filed prior to the Claim Construction Hearing that raises claim construction issues may be deferred until after the claim construction ruling.  Virtually every substantive or case dispositive motion in a patent case depends in some way on the legal construction of the asserted claims.  Thus, parties (and particularly defendants considering an early summary judgment motion of non-infringement) may be well advised to “hold their fire” until after the claim construction ruling.  On the other hand, the Court may consider, prior to the claim construction hearing, a motion to establish a defense based on the existence of an express or implied license.  Presumably, the Court would make an exception for a motion for preliminary injunction where there appears to be a real danger of irreparable harm to the patent owner, and make a preliminary ruling on claim construction that may be revisited later.

General Provisions
            As most Southern District practitioners are aware, in a normal case the Early Neutral Evaluation (“ENE”) Conference is scheduled relatively soon after the defendant appears.  If the case does not settle at the ENE, the Court provides the dates for the Fed.R.Civ.P Rule 26 meeting of counsel and initial disclosures.  The Patent Local Rules modify this normal procedure by moving the ENE Conference back to within 60 days from the defendant’s appearance, but require that the Rule 26(f) meeting of counsel occur no later than 21 days before the ENE.  Thus, discovery will open before the ENE Conference and the Rule 26(a)(1) initial disclosures would also be due before the ENE (normally within 14 days after the Rule 26(f) conference).  Parties who believe there is a chance for settlement at the ENE may want to stipulate (with Court approval) to move the Rule 26(a)(1) initial disclosures until sometime after the ENE Conference, as such disclosures can be voluminous in a patent case.
            The Patent Local Rules contemplate that if the case does not settle at the ENE, the Magistrate Judge assigned to the case will proceed with an Initial Case Management Conference (“CMC”) to discuss normal case scheduling and cutoff dates.  The timeline provided with the Patent Local Rules indicates that the CMC would immediately follow the ENE, but it is conceivable that the CMC would be scheduled on a later date.  The parties’ Rule 26(f) report to the Court, due seven days before the ENE Conference, must address the normal scheduling matters, as well as four issues specific to patent cases: (1) any proposed modification of the deadlines provided in the Patent Local Rules, (2) whether the Court will hear live testimony at the Claim Construction Hearing, (3) discovery related specifically to claim construction, and (4) the order of presentation at the Claim Construction Hearing.
            Although discovery will open earlier than usual, the Patent Local Rules set specific dates for claim construction positions and related disclosures from both parties.  Thus a party may object to premature discovery requests seeking this same information.  Counsel should carefully consider the interplay of the Federal Rules of Civil Procedure and the Patent Local Rules and all the required disclosures, and discuss these matters with opposing counsel during the Rule 26(f) conference so that the parties can agree on a workable discovery plan, subject to Court approval.  Rule 2.3 requires counsel of record to sign all the required statements, disclosures and charts, thereby certifying that, to the best of counsel’s knowledge after reasonable inquiry, they are complete and correct as of the time they are made.  Thus, it would appear that Fed.R.Civ.P Rule 11 may be invoked to police compliance with the Patent Local Rules.

Patent Disclosures
            Rule 3.1 provides that, no later than 14 days after the Initial CMC, the party claiming patent infringement must serve a “Disclosure of Asserted Claims and Preliminary Infringement Contentions” that identifies the asserted claims and each “Accused Instrumentality” alleged to infringe.  The disclosure must include a chart that reads each asserted claim onto each Accused Instrumentality and does so on an element-by-element basis.  The disclosure must also state whether a particular claim element is in “means plus function” format, thus governed by 35 U.S.C. § 112(6), and whether each claim element is infringed literally and/or under the doctrine of equivalents.  The priority date for each asserted claim must also be provided.
            Because of the timing of this disclosure it will likely occur prior to production by the accused infringer of complete information about the Accused Instrumentality.  Thus, unless the Accused Instrumentality is readily available this disclosure may be “preliminary” and reflect little more than the pre-filing diligence required to bring the action.  On the other hand, if the Accused Instrumentality is readily available, this disclosure should be more complete.  In all cases, Patent Local Rule 2.3 requires as complete a disclosure as possible “formed after an inquiry that is reasonable under the circumstances.”  Needless to say, contentious patent litigants often don’t see eye to eye on the requisite level of disclosure under the particular circumstances and disputes no doubt will arise.  Patent plaintiffs anxious to keep their case moving forward are well advised to make extra efforts to serve a disclosure as “complete and correct” as possible under the circumstances.
            Rule 3.1 also provides that the party claiming patent infringement must identify any of its own products or processes that incorporate or use a particular asserted claim if that party “asserts” that such product or process “practices the claimed invention.”  This particular provision appears to be optional in the sense that the party claiming patent infringement may choose not to assert that any of its products or processes practice the claimed invention, and so numerous strategic considerations are raised that are beyond the scope of this article.  In certain cases, the patent owner may assert that it sells or uses the patented product or process for purposes of showing non-obviousness through commercial success, establishing the right to lost profits damages, or showing constructive notice of the patent through marking.
            Rule 3.2 provides that the party claiming patent infringement must provide, along with the Preliminary Infringement Contentions, certain categories of documents such as offers to sell the claimed invention before the application date for the patent in suit, documents evidencing conception, reduction to practice, design and development of the claimed invention created on or before the application date or priority date, and prosecution histories for each patent in suit or application to which a claim to priority is made.  This requirement would appear to mandate providing copies of provisional applications if relied upon to establish an early priority date for an asserted claim.
            One interesting aspect of Rule 3.2, not found in the Northern District’s Patent Local Rules, is the requirement that the producing party use “best efforts” to obtain all the required documents even if they are not in that party’s possession, custody or control.  This rule could come into play if, for example, the plaintiff acquired the patent by assignment, or there are third-party inventors.  While this production requirement may seem somewhat unusual, in most cases it would be prudent for the plaintiff to obtain and review these documents before filing the lawsuit anyway, as part of its pre-filing diligence.  This will help avoid any unpleasant surprises later when your opponent subpoenas these third parties.  Again, a plaintiff anxious to keep its case on track may be well advised to do a thorough “best efforts” job disclosing the required documents in a timely fashion so the accused infringer has no excuse to delay its disclosures.
            Rules 3.3 and 3.4 address the accused infringer’s “Preliminary Invalidity Contentions” which are due 60 days after service of the “Disclosure of Asserted Claims and Preliminary Infringement Contentions.”  Rule 3.3(a) requires the identification of all prior art that allegedly anticipates each asserted claim or renders it obvious.  The rule elaborates on the identification of prior art under 35 U.S.C. § 102(b), (f), and (g), but the first sentence is clearly not limited to these three subsections of § 102, so any “prior art” or evidence thereof under any of the subsections of § 102 should be disclosed.  Rule 3.3(b) requires that, for combinations of prior art alleged to render a claim obvious, the motivation to combine the prior art must also be identified.  This is consistent with Federal Circuit precedent, but note that the U.S. Supreme Court recently granted certiorari in Teleflex, Inc. v. KSR International Co., 119 Fed. Appx. 282 (Fed. Cir. 2005), on the question of whether obviousness under 35 U.S.C. § 103(a) should require proof of a teaching, suggestion, or motivation that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed.  Thus, showing a “motivation to combine” may not be necessary if the Supreme Court answers this question in the negative, but there may be no downside in doing so if there is evidence of such teaching or motivation in the record.
            Rule 3.3(c) requires the charting of the prior art against the asserted claims.  Presumably, this would have to be done for each item of anticipatory prior art and each combination of prior art used to show obviousness.  Depending on how many prior art references have been identified, this can amount to many hours of work putting together many charts because there is an understandable concern that the failure to chart a particular prior art reference may result in a waiver of the right to later use that reference.  There is also uncertainty at this stage about the claim construction that the Court will ultimately adopt and so one approach may be to assume a broader claim construction for your invalidity contentions (and rely on a non-infringement defense if the Court interprets the claims more narrowly).  Accused infringers can take some comfort, however, because revised invalidity contentions may be served after the Court’s Claim Construction Ruling.
            Rule 3.3(d) and (e) require disclosure of alleged defenses under the first and second paragraphs of 35 U.S.C. § 112.  Again, this must be done before the Court rules on claim construction and so it must be appreciated that the claim scope is still fluid and may later take an unexpected turn.  Accused infringers should therefore avoid becoming too wedded to any particular defense at this stage and remain as flexible as possible at least until the Court finally rules on claim construction.  Note also that certain defenses, such as “failure to disclose the best mode” under 35 U.S.C. § 112(1), generally rely heavily on discovery and disclosures from the party asserting infringement and the inventors.  For such defenses, it is important to insist on complete disclosures from the plaintiff under Rules 3.1 and 3.2, and depose at least the named inventors on the asserted patents in a timely fashion.
            The defense of inequitable conduct in procuring the patent is not specifically dealt with by the Patent Local Rules.  Inequitable conduct will result in unenforceability of the entire patent.  Such a defense is akin to a charge of “fraud” on the Patent Office and so the Federal Circuit has held that the more strict pleading requirements of Fed.R.Civ.P Rule 9 apply to allegations of inequitable conduct.  Typically such defenses do not come to light until after some discovery and depositions have been completed, and so the normal practice is to seek a stipulation from the opposing party or leave of Court to amend the pleadings as soon as there is a good faith belief that the defense has merit and can be pled with the requisite particularity.  Assuming such particularized allegations of inequitable conduct are already pled or prepared, there seems little downside to including them in the accused infringer’s Rule 3.3 Preliminary Invalidity Contentions.  However, it is unclear whether such a disclosure under the Patent Local Rules alone would suffice to bring the charge of inequitable conduct to trial.  Thus, the safer practice for the accused infringer is to amend the pleadings as soon as possible.
            Rule 3.4 covers the scope of the document production that must accompany the Preliminary Invalidity Contentions.  Rule 3.4(a) calls for the production of documentation “sufficient to show” the operation of any Accused Instrumentality identified by the patent claimant in its Rule 3.1 infringement chart.  By the time Rule 3.4 disclosures are required, documents regarding the products or devices accused of infringement may have already been produced as part of the accused infringer’s Rule 26 initial disclosures or in response to normal discovery requests from the patent claimant.  In addition to complying with Rule 3.4, the main concern for the accused infringer is not to withhold documents “sufficient to show” that there is no infringement.  Based on the application of similar rules by other courts, there may be a risk that any exculpatory evidence withheld at this point may be excluded if produced later.  Also, the lack of a Court issued Protective Order is no excuse to delay this document production.  As provided in Rule 2.2, any confidential documents must be marked and treated accordingly by the parties.
            Rule 3.4(b) calls for the production of each item of prior art identified and not listed in the patent, including translations of any foreign documents.  This would appear to require any type of “prior art” identified, not just patents or publications, and would include documentation relating to public use or on sale bars and the invention by another (derivation) or evidence of prior invention.  The production of all such evidence is also required as part of the accused infringer’s Rule 26 initial disclosures since it may be used to support an invalidity defense, so again the accused infringer should take great care to produce all such exculpatory evidence in its possession at least by this stage in the proceedings or risk exclusion later.  One approach may be to produce all prior art references known at the time, even those for which a chart was not prepared under Rule 3.3(c), so that if the claim construction takes an unexpected turn and the reference becomes more relevant an invalidity chart for that reference can be provided with the Final Invalidity Contentions.
            Rules 3.6 and 3.7 allow for the modification of the parties’ preliminary contentions under certain circumstances.  Under Rule 3.6(a) the patent claimant’s Preliminary Infringement Contentions may be amended only if the patent claimant believes in good faith that the amendments are required in view of the Court’s Claim Construction Ruling or the documents produced by the accused infringer regarding the Accused Instrumentality.  Thus, if the Court’s Claim Construction Ruling does not address a particular claim limitation, and no new information is produced about the corresponding element in the Accused Instrumentality, it seems that any amendment to the patent claimant’s Preliminary Infringement Contentions as to that claim limitation may precluded.  Any amended infringement contentions are due 30 days after the Court serves its Claim Construction Ruling, and become the patent claimant’s Final Infringement Contentions.  If no amendments are made, the patent claimant’s Preliminary Infringement Contentions are deemed its Final Infringement Contentions.
            Under Rule 3.6(b) the accused infringer’s Preliminary Invalidity Contentions may be amended only if the patent claimant serves Final Infringement Contentions or the accused infringer believes in good faith that the Court’s Claim Construction Ruling so requires.  Thus, if the Court’s Claim Construction Ruling does not address a particular claim limitation, and the patent claimant’s Preliminary Infringement Contentions are not changed as to that particular claim limitation, it seems that any amendment to the accused infringer’s Preliminary Invalidity Contentions as to that claim limitation would normally be precluded.  Although it is not entirely clear, presumably any permissible amendments to the Preliminary Invalidity Contentions based on a change in the patent claimant’s Preliminary Infringement Contentions would be limited to the particular claim limitations affected by the changes made by the patent claimant (as opposed to a wholesale amendment of the accused infringer’s Preliminary Invalidity Contentions).  Any amended invalidity contentions are due 50 days after the Court serves its Claim Construction Ruling, and become the patent claimant’s Final Infringement Contentions.  If no amendments are made, the accused infringer’s Preliminary Invalidity Contentions are deemed its Final Invalidity Contentions.
            Rule 3.7 provides that, except as set forth in Rule 3.6, no amendments or modifications to the parties’ preliminary or final contentions may be made except those allowed by the Court based upon a showing of good cause.  It remains to be seen how strictly the Court will interpret these rules and what circumstances may qualify as “good cause” to make an otherwise untimely amendment to a party’s contentions.  Presumably, newly discovered prior art would qualify if the party can demonstrate diligence in searching and the inability to reasonably discover the prior art sooner.  Amendments to the parties’ contentions based upon late production or disclosures by the opposing party, for example, late produced documents relating to the design or operation of the Accused Instrumentality, would also seem to be appropriate if the information could not otherwise be obtained with reasonable diligence.  There are many possible scenarios that might justify an otherwise untimely amendment to the parties’ contentions.  Thus, the rules give the Court substantial discretion to decide these matters on a case-by-case basis.  Published decisions from the Southern District interpreting the new Patent Local Rules should provide more guidance as new patent cases work their way through the Court.  In the meantime, practitioners should consult decisions from district courts with similar patent local rules.
            Rule 3.8 concerns the timing and scope of required disclosure in connection with any opinions of counsel to be relied upon as a defense to a charge of willful infringement.  Rule 3.8 provides that a privilege log must be served listing any documents relating to the subject matter of an opinion that are to be withheld on grounds of privilege, except those documents authored by counsel acting solely as trial counsel.  Failure to comply with the requirements of this rule will preclude reliance on an opinion of counsel as a defense to a charge of willful infringement.  The extent of the waiver when an opinion is produced is a complex area of the law beyond the scope of this article.  Additionally, soon after the Patent Local Rules were adopted by the Southern District, the Federal Circuit handed down In re Echostar Communications Corp., et al., 448 F.3d 1294 (Fed. Cir. 2006), on a petition for writ of mandamus from the Eastern District of Texas.  The Federal Circuit clarified the scope of the waiver and resolved several conflicts between the leading district court decisions.  In Echostar, the court made clear that the scope of the waiver in a patent case is a matter of Federal Circuit law, as opposed to regional circuit law.  Accordingly, defense counsel should carefully consider the Echostar decision on this issue in the context of the Patent Local Rules.

Claim Construction Proceedings
            This section of the Patent Local Rules governs the required exchanges and briefing leading up to the Claim Construction (or “Markman”) Hearing.  Rule 4.1 provides that the parties simultaneously exchange preliminary proposed constructions of each claim term, phrase, or clause that the party believes requires construction or interpretation by the Court.  At the same time, the parties must also provide each other preliminary identification of any extrinsic evidence (i.e., evidence outside the patent and file history) supporting its proposed claim constructions.  This includes identification of any percipient or expert testimony contemplated to support a party’s claim construction.  Fourteen days later, the parties must again simultaneously exchange papers, this time of their responsive claim constructions and supporting extrinsic evidence.  After these two exchanges, the parties must meet and confer for purposes of reaching agreement on claim constructions and narrowing the disputed claim construction issues to the greatest extent possible.
            Rule 4.1 focuses on the identification of extrinsic (as opposed to intrinsic) evidence.  This is curious and most likely a reflection of the fact that these Patent Local Rules have their genesis in similar rules from other district courts adopted well before the 2005 en banc decision in Phillips v. AWH Corp., et al., 415 F.3d 1303 (Fed. Cir. 2005), wherein the Federal Circuit reestablished that the intrinsic record is paramount in claim construction.  Thus, although not required as part of the Rule 4.1 exchanges, in this post-Phillips era a party attempting to convince the opposing party of the merits of its proposed claim constructions may be well advised to include supporting citations to the intrinsic record, as well as the extrinsic evidence.  This is required in the joint submissions to the Court under Rule 4.2 in any event so it would seem prudent for a party to have identified intrinsic support for its proposed claim constructions well before it starts this phase of the process.
            Rule 4.2 governs three required submissions to the Court after the parties have met and conferred:  the Joint Claim Construction Chart, Joint Claim Construction Worksheet, and Joint Hearing Statement.  The Joint Claim Construction Chart provides a summary of the disputed claim terms, each party’s proposed construction and each party’s supporting intrinsic and extrinsic evidence.  The Joint Claim Construction Worksheet is for the Court’s benefit and simply provides the competing proposals for each disputed claim term and a blank column for the Court to enter its construction after the hearing.  The Joint Hearing Statement provides the anticipated length of the Claim Construction Hearing and a listing of any proposed percipient or expert witnesses on claim construction.  For any proposed expert testimony a summary of the opinions to be offered must be provided for discovery purposes.  Needless to say, this entire process may be accomplished most easily and efficiently if counsel can maintain a cordial and professional working relationship.
            Rule 4.3 provides that the parties must complete all discovery related to claim construction within 28 days after filing the Rule 4.2 joint submissions discussed above.  Rule 4.3 also states that Fed.R.Civ.P Rule 30 will apply to any depositions except those of experts.  Thus, the deposition of any percipient witness (such as an inventor) would normally be limited to one day of seven hours absent prior agreement of the parties or relief from the Court.  Rule 4.2 apparently contemplates that expert witnesses used in the claim construction process may be deposed as part of the claim construction discovery and later deposed on any substantive factual issues such as infringement and validity after the service of Rule 26 expert reports.  Although not directly addressed by the Patent Local Rules, asking the Court to schedule the due dates for the Rule 26 exchange of expert reports to a reasonable time after the Court issues its Claim Construction Ruling may reduce expenses and improve efficiency.  By doing so, the expert witnesses can apply the claim constructions decided by the Court in their substantive factual opinions and avoid having to assume certain constructions beforehand and later amend their reports.
            Rule 4.4 governs the claim construction briefing, and provides for the simultaneous exchange of opening and responsive briefs and supporting evidence.  Given all the prior exchanges, there should be little surprise by the time the briefs are served.  To reduce expenses and improve efficiency, the parties may choose to agree on submission of a joint appendix containing at least the patent file histories and cited references, as these documents are often voluminous.  The Court may also prefer to receive these materials in electronic form for ease of handling and review.
            Finally, Rule 4.5 provides that the Court may conduct a Claim Construction Hearing if the Court believes a hearing is necessary on any particular issues.  Presumably the Court may also decide whether it wants to hear live testimony from any of the proposed witnesses, or just argument of counsel.  The Court may also request a tutorial on the underlying technology that may occur before, or on the date of, the hearing. 

Conclusion
            Although the Patent Local Rules add some procedural complexity to already complex patent cases, there is little doubt that having a speedy and efficient process leading to the critical Claim Construction Ruling should result in faster and better resolution of patent cases in the long run.