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Biscotti Inc. v. Microsoft Corp.

United States District Court, E.D. Texas, Marshall Division

May 24, 2017

BISCOTTI INC., Plaintiff,
v.
MICROSOFT CORP., Defendant.

          MEMORANDUM OPINION AND ORDER

          ROY S. PAYNE UNITED STATES MAGISTRATE JUDGE.

         Before the Court are Plaintiff Biscotti Inc.'s Motion to Strike Previously Undisclosed Invalidity Theories (Dkt. No. 167) (“Biscotti's Motion to Strike”), and Defendant Microsoft's Motion to Strike Portions of the Expert Report of Dr. Stephen B Wicker (Dkt. No. 172) (“Microsoft's Motion to Strike”). Both motions are GRANTED-IN-PART and DENIED-IN-PART as follows.

         BACKGROUND

         On November 26, 2013, Biscotti Inc. (“Biscotti”) filed this action against Microsoft Corporation (“Microsoft”), alleging that Microsoft's Xbox One and related services and applications, including Beam and Twitch video game broadcasting applications, are covered by U.S. Patent No. 8, 144, 182 (“the '182 patent”), which generally relates to video calling solutions. See Compl. ¶¶ 3, 5, Dkt. No. 1; Dkt. No. 172 at 3-5; '182 patent at 2:10. After inter partes review (IPR) proceedings, including three IPR trials, the 53 claims of the '182 patent emerged intact. The case has since returned to the Court, and trial is scheduled to begin on June 5, 2017.

         DISCUSSION

         Biscotti and Microsoft's motions raise the same general question-whether a party should be allowed to rely on late disclosures that allegedly violate the Local Patent Rules, rules that “exist to further the goal of full, timely discovery and provide all parties with adequate notice and information with which to litigate their cases.” Comput. Acceleration Corp. v. Microsoft Corp., 503 F.Supp.2d 819, 822 (E.D. Tex. 2007).

         A. Biscotti's Motion to Strike

         Local Patent Rule 3-3 requires a party opposing a claim for patent infringement to serve Invalidity Contentions on all parties to the action within 45 days after receiving Infringement Contentions. Microsoft's original and supplemental Invalidity Contentions include a number of disclosures, including disclosures of Microsoft's defenses under 35 U.S.C. §§ 102, 103, and 112. But Microsoft's Contentions do not include certain invalidity theories based on § 112 ¶ 1's written description and enablement requirements or § 101's subject matter eligibility requirement.

         Rather, on the last day of fact-discovery (January 17, 2017) Microsoft served a supplemental interrogatory response asserting two new theories of invalidity under §§ 112 and 101. First, Microsoft alleged for the first time that “[t]he '182 patent claims are invalid for failure to comply with the written description and enablement requirements of pre-AIA 35 USC sec. 112(1) because the ‘instructions for . . .' elements are not disclosed in the specification and there is no evidence that the named inventors were in possession of these elements.” Dkt. No. 167-2 at 18. Second, Microsoft alleged that “[t]he '182 patent is also patent-ineligible under 35 USC sec 101.” Id. at 20. Microsoft's expert, Dr. Michael Orchard, develops these two invalidity theories more fully in his expert report. See Dkt. No. 167-1 (citing Orchard Rep. ¶¶ 208-10 (describing § 112 ¶ 1 defense) and Orchard Rep. ¶¶ 213-16 (describing invalidity under § 101)).

         Biscotti argues that Microsoft's new invalidity theories should be struck from Dr. Orchard's report. The Court agrees as to Microsoft's § 112 ¶ 1 defense but not as to Microsoft's § 101 theory. With respect to Microsoft's § 112 ¶ 1 defense, a party's Invalidity Contentions must include, among other things, “[a]ny grounds of invalidity based on indefiniteness under 35 U.S.C. § 112(2) or enablement or written description under 35 U.S.C. § 112(1).” Local Patent R. 3-3(d). There is no dispute that Microsoft failed to include the new § 112 ¶ 1 defense in its Invalidity Contentions. Microsoft's supplemental interrogatory response or Dr. Orchard's expert report could, however, be considered a late amendment to Microsoft's Invalidity Contentions. See Finisar Corp. v. DirecTV Grp., Inc., 424 F.Supp.2d 896, 900 (E.D. Tex. 2006) (expert report “reasonably could be considered to constitute, in effect, new ‘Final Infringement Contentions'”).

         Whether assessed as a late amendment to a pleading or some other discovery violation, the factors relevant to permitting the amendment or excluding the evidence are substantively identical. See Allergan, Inc. v. Teva Pharm. USA, Inc., No. 2:15-CV-1455-WCB, 2017 WL 1512334, at *2 (E.D. Tex. Apr. 27, 2017) (Bryson, J., sitting by designation) (evaluating four factors relevant to late amendments to contentions); Cf. Tyco Healthcare Grp. LP v. Applied Med. Res. Corp., No. CIV.A. 9:06-CV-151, 2009 WL 5842062, at *1-2 (E.D. Tex. Mar. 30, 2009) (evaluating five factors relevant to exclusion of evidence). Namely, the Fifth Circuit directs courts to consider (1) the offending party's explanation for the untimeliness; (2) the importance of the amendment or evidence that might be excluded; (3) the potential prejudice to the movant; and (4) the availability of a continuance to cure any prejudice. See United States ex rel. Bias v. Tangipahoa Parish Sch. Bd., 816 F.3d 315, 328 (5th Cir. 2016) (quoting S&W Enters., L.L.C. v. SouthTrust Bank of Ala., N.A., 315 F.3d 533, 536 (5th Cir. 2003)); Filgueira v. U.S. Bank Nat'l Ass'n, 734 F.3d 420, 422 (5th Cir. 2013).

         The factors weigh in favor of striking the portions of Dr. Orchard's report related to Microsoft's new § 112 ¶ 1 theories. Microsoft does not adequately explain the untimeliness, and as Microsoft admits, the written description and enablement requirements turn solely on the '182 patent, not on any new fact revealed for the first time during discovery. See Microsoft Br., Dkt. No. 187 at 2. Although Microsoft may consider the new § 112 ¶ 1 theory important inasmuch as it could result in a finding that one or more claims are invalid, that possibility seems unlikely based on the Court's review of Microsoft's theory. See Allergan, 2017 WL 1512334, at *5 (“In determining the importance of the amendment, the Court must make a pragmatic judgment as to the likelihood that the newly asserted defense will succeed.”). The prejudice to Biscotti is substantial-Biscotti has litigated this case for almost four years without knowledge of Microsoft's § 112 ¶ 1 defense, and Biscotti developed its claim construction strategy without knowing that Microsoft would contend that certain claims fail to meet the written description requirement. Finally, any continuance would delay trial, which is only two weeks away. See S&W Enterprises, 315 F.3d at 537 (affirming district court's refusal to grant continuance when it would “unnecessarily delay the trial”). The Court therefore finds it appropriate to strike portions of Dr. Orchard's report related to Microsoft's new § 112 ¶ 1 defense, namely paragraphs 208-210.

         With respect to Microsoft's § 101 theory, unlike some other districts' Patent Rules, this district's Patent Rules do not require a party to disclose an invalidity ground related to subject matter ineligibility under § 101. Cf. Mortg. Grader, Inc. v. First Choice Loan Servs. Inc., 811 F.3d 1314, 1319 (Fed. Cir. 2016) (addressing good cause to amend contentions to include § 101 defense where Local Rules required such disclosure). And because Dr. Orchard's report does not identify any new factual basis for Microsoft's § 101 theory, no discovery violation has occurred. The lack of any new factual basis for Microsoft's § 101 theory distinguishes cases cited by Biscotti such as Bayer Healthcare Pharmaceuticals, Inc. v. River's Edge Pharmaceuticals, LLC, in which a court excluded a new theory asserting lack of utility under § 101 that was based on a previously undisclosed product. See No. 1:11-CV-1634-HLM, 2015 WL 11142427, at *7 (N.D.Ga. May 21, 2015), report and recommendation adopted, No. 1:11-CV-1634-LMM, 2015 WL 11142424 (N.D.Ga. June 16, 2015). The Court therefore finds no basis in the Local or Federal Rules for striking Microsoft's § 101 theory from Dr. Orchard's report.

         Having said that, it is not clear why Biscotti has moved to “strike” a portion of an expert report related to § 101 when both sides agree that invalidity under § 101 is not a jury issue. See Microsoft Br., Dkt. No. 187 at 3 (“the § 101 issue is not an issue for the jury”). The primary purpose of an expert report is to provide notice to the opposing side of the scope of an expert's potential trial testimony. Smith & Nephew, Inc. v. Arthrex, Inc., No. 2:07-CV-335-TJW-CE, 2010 WL 457142, at *8 (E.D. Tex. Feb. 5, 2010). Microsoft agrees that Dr. Orchard will not testify ...


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